As filed with the Securities and Exchange Commission on September 7, 2022.

 

Registration Statement No. 333-264629 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2 to

 

FORM F-4

 

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

XP Inc.

(Exact Name of Registrant as Specified in its Charter)

 
The Cayman Islands 6211 N/A
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
  Av. Chedid Jafet, 75, Torre Sul, 30th floor,
Vila Olímpia – São Paulo
Brazil 04551-065
+55 (11) 3075-0429
 
     
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
  XP Investments US, LLC
55 West 46th Street, 30th floor
New York, NY 10036
(646) 664-0501
 
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
  Copies to:  
  Manuel Garciadiaz
Byron B. Rooney
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
 
         
 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction: 

Exchange Act Rule 13e-4(i) (Cross Border Issuer Tender Offer)

Exchange Act Rule 14d-1(d) (Cross Border Third-Party Tender Offer)  

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities offered in this prospectus, passed on the merits or fairness of the transaction or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

 

Information contained in this prospectus is subject to completion and may be changed. A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

SUBJECT TO AMENDMENT AND COMPLETION, DATED             , 2022.

 

PRELIMINARY PROSPECTUS

 

Merger of Banco Modal S.A. with Banco XP S.A.

 

 

XP Inc.
(incorporated in the Cayman Islands)

 

WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A PROXY

 

This prospectus relates to the Class A common shares, or “XP Shares,” of XP Inc., or “XP,” including Class A common shares in the form of Brazilian Depositary Receipts of XP (each representing one XP Share), or the “XP BDRs.” XP Shares (in the form of XP BDRs) are to be delivered to holders of common shares, or “Modal Shares,” of Banco Modal S.A., a Brazilian corporation (sociedade anônima), or “Modal,” subject to the satisfaction of certain conditions in connection with the (i) merger of Modal with Banco XP S.A., or “Banco XP,” and (ii) the subsequent delivery of preferred and mandatorily redeemable Banco XP shares to Modal Shareholders, or the “Redeemable Shares,” which will be redeemed on the same date of their delivery for XP Shares (in the form of XP BDRs), the “Merger.”

 

The Merger is being proposed by XP with the aim to continue to grow its open investment platform presence. XP believes that the synergies that will result from the Merger will accelerate the process of disrupting the Brazilian financial markets, promoting an increase in, and continuing to facilitate consumer access to, investment products. The Merger will result in the delivery to Modal Shareholders of XP Shares (in the form of XP BDRs listed on the B3 S.A. – Brasil, Bolsa, Balcão, or “B3,” under the symbol “XPBR31”), as consideration from Banco XP in exchange for the Redeemable Shares. The business carried out by XP will not be impacted by the Merger, and it will remain the same as the business currently carried out by XP prior to the Merger. The business carried out by Modal will not be impacted by the Merger, and it will remain the same as the business currently carried out by Modal prior to the Merger. In order to receive XP Shares (in the form of XP BDRs) subject to the conditions described in this prospectus, you must be a Modal Shareholder on the Cut-off Date. In this prospectus, “Modal Controlling Shareholder” refers to the controlling shareholder of Modal, Modal Controle Participações S.A. Following the completion of the Merger, Modal Shareholders will become direct shareholders of XP by holding XP Shares (in the form of XP BDRs). The Exchange Ratio is expected to be of one XP Share (in the form of XP BDRs), for            Modal Shares. This exchange ratio corresponds to up to 19,500,000 XP Shares divided by            Modal Shares outstanding immediately prior to the completion of the Merger (which excludes Modal treasury shares), subject to certain adjustments. Modal Shareholders who receive XP Shares (in the form of XP BDRs) and who wish to cancel their XP BDRs and receive the XP Shares represented thereby may inform their broker of such intention at any time after the completion of the Merger.

 

Unless the Alternative Structure is implemented (as defined herein), upon effectiveness of the Merger, Modal will become a wholly-owned subsidiary of Banco XP and Modal Shareholders will hold XP Shares (in the form of XP BDRs), pursuant to the Exchange Ratio, as further described herein. After the Merger is completed, Modal will be deregistered from the Brazilian Securities Commission (Comissão de Valores Mobiliários), or “CVM,” and the Modal Shares will be delisted from the B3. As a result, Modal will no longer file or make submissions with the CVM or B3. For more information on the Alternative Structure, see “The Merger—Alternative Structure.”

 

Modal Shareholders are to vote on the Merger at an extraordinary general meeting of Modal expected to be held virtually, through an electronic platform, on                 , 2022, at      :00 am (Brasília time – BRT), or the “Modal Shareholders’ Meeting.” The Merger must be approved at the Modal Shareholders’ Meeting by a majority vote of Modal Shares. In addition to the approval by the Modal Shareholders, the Merger is subject to the satisfaction and/or waiver of certain conditions, including among others all of the required regulatory approvals and other customary closing conditions. There can be no assurance that the requisite regulatory approvals will be obtained or that all other conditions precedent to the completion of the Merger will be met.

 

Upon effectiveness of the Merger, Modal Shareholders that would have the right to receive Modal Shares in the same number, type and proportion of the shares held by such shareholders in Modal itself, will receive XP Shares (in the form of XP BDRs). The Merger is expected to become fully effective once the Modal Shareholders approve the Merger and the required regulatory approvals and consents are obtained. The XP Shares are listed on the Nasdaq Global Select Market, or “Nasdaq,” under the symbol “XP” and the XP BDRs are registered with the CVM and listed on the B3 under the symbol “XPBR31.”

 

WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND A PROXY.

 

Neither the Securities and Exchange Commission, or the “SEC,” the CVM, nor any state securities commission has approved or disapproved of the securities offered in this prospectus, passed on the merits or fairness of the transaction or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

We encourage you to read this prospectus carefully in its entirety, including the “Risk Factors” section starting on page 8.

 

Dated                , 2022

 

 

 

ABOUT THIS PROSPECTUS

 

This document, which forms part of a registration statement on Form F-4 filed with the U.S. Securities and Exchange Commission, or the “SEC,” by XP Inc., an exempted company incorporated under the laws of the Cayman Islands, or “XP,” (File No. 333-264629), and constitutes a prospectus of XP under Section 5 of the U.S. Securities Act of 1933, as amended, or the “Securities Act,” with respect to the Class A common shares of XP, or the “XP Shares,” in the form of Brazilian Depositary Receipts of XP (each representing one XP Share), or the “XP BDRs,” to be delivered to the shareholders of Banco Modal S.A., a Brazilian corporation (sociedade anônima), or “Modal,” pursuant to the transactions contemplated by the Merger and Justification Protocol (Protocolo e Justificação) to be entered into by and among Modal and Banco XP, or the “Merger Protocol.”

 

Information contained in or incorporated by reference into this prospectus relating to XP has been supplied by XP and information contained in this prospectus relating to Modal has been provided by Modal. Except as specifically incorporated by reference into this prospectus, any reference to a website address does not constitute incorporation by reference of the information contained at or available through such website, and you should not consider it to be a part of this prospectus.

 

You should rely only on the information contained in or incorporated by reference into this prospectus. No person has been authorized to provide you with information that is different from what is contained in, or incorporated by reference into, this prospectus, and, if given or made by any person, such information must not be relied upon as having been authorized. You should not assume that the information contained in this prospectus is accurate as of any date other than its date as specified on the cover unless otherwise specifically provided herein. Further, you should not assume that the information contained in or incorporated by reference into this prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this prospectus to Modal Shareholders or XP Shareholders nor the delivery by XP of XP Shares (including Class A common shares in the form of XP BDRs) pursuant to the Merger Protocol will create any implication to the contrary.

 

None of the SEC, the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the “CVM,” nor any securities commission of any jurisdiction has approved or disapproved the securities to be delivered under this document or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense. This prospectus does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities, or a solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. For the avoidance of doubt, this prospectus does not constitute an offer to buy or sell securities or a solicitation of an offer to buy or sell any securities in Brazil or a solicitation of a proxy under the laws of Brazil, and it is not intended to be, and is not, a prospectus or an offer document within the meaning of Brazilian law and the rules of the CVM. You should inform yourself about and observe any such restrictions, and none of Modal or XP accepts any liability in relation to any such restrictions.

 

 

 

table of contents

 

Page

 

Cautionary Statement Concerning Forward-Looking Statements ii
Certain Defined Terms and Conventions Used in This Prospectus iv
Presentation of Financial and Certain Other Information vii
Incorporation of Certain Documents by Reference ix
Where You Can Find More Information x
Exchange Rates xi
Questions and Answers About the Merger xii
Summary 1
Risk Factors 11
Comparative Selected Unaudited Per Share Data 41
The Modal Shareholders’ Meeting 42
The Merger 45
The Merger Protocol 57
Material Tax Considerations 60
Information About XP 68
Information About Modal 69
Management’s Discussion and Analysis of Financial Condition and Results of Operations of XP 70
Management and Compensation of XP 71
Description of XP Share Capital 72
Major Shareholders And Related Party Transactions 89
Comparison of the Rights of XP Shareholders and Modal Shareholders 90
Regulatory Matters 108
Experts 109
Legal Matters 110
Enforceability of Civil Liabilities 111
Part II – Information Not Required In The Prospectus II-1

 

 

i 

 

 

Cautionary Statement Concerning Forward-Looking Statements

 

This prospectus contains statements that constitute forward-looking statements concerning XP, Modal, the Merger (as defined herein) and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial conditions, or other matters, based on current beliefs of the management of Modal, XP as well as assumptions made by, and information currently available to the management of both companies. Many of the forward-looking statements contained in this prospectus can be identified by the fact that they do not relate only to historical or current facts and may be accompanied by words such as “aim,” “anticipate,” “believe,” “plan,” “could,” “would,” “should,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “will,” “possible,” “potential,” “predict,” “project,” among others.

 

Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk Factors,” and XP’s periodic public filings with the SEC, including those discussed in the section of this prospectus entitled “Risk Factors” and under “Item 3. Key Information—D. Risk Factors” in the XP 2021 Form 20-F, factors contained or incorporated by reference into such documents and in subsequent filings by XP with the SEC. These risks and uncertainties include factors relating to:

 

·general economic, financial, political, demographic and business conditions in Brazil, as well as any other countries we may serve in the future and their impact on our business;

 

·fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future;

 

·the economic, financial, political and health effects of the ongoing coronavirus pandemic, or COVID-19, or other pandemics, epidemics and similar crises, and governmental responses thereto, particularly as such factors impact Brazil and consumer behavior and continue to cause severe, ongoing, negative macroeconomic effects, which could intensify the impacts of other risks described under “Risk Factors;”

 

·competition in the financial services industry;

 

·our ability to implement our business strategy;

 

·our ability to adapt to the rapid pace of technological changes in the financial services industry;

 

·the reliability, performance, functionality and quality of our products and services, the investment performance of investment funds managed by third parties or by our asset managers and the quality, reliability and performance of our suitability, risk management and business continuity policies and processes;

 

·the availability of government authorizations on terms and conditions and within periods acceptable to us;

 

·our ability to continue attracting and retaining new appropriately skilled employees;

 

·our capitalization and level of indebtedness;

 

·the interests of our controlling shareholders;

 

·changes in government regulations applicable to the financial services industry in Brazil and elsewhere;

 

·our ability to compete and conduct our business in the future;

 

·the success of our operating initiatives, including advertising and promotional efforts and new product, service and concept development by us and our competitors;

 

ii 

 

·changes in consumer demands regarding financial products, customer experiences related to investments and technological advances, and our ability to innovate to respond to such changes;

 

·changes in labor, distribution and other operating costs;

 

·our compliance with, and changes to, government laws, regulations and tax matters that currently apply to us;

 

·other factors that may affect our financial condition, liquidity and results of operations; and

 

·other risk factors discussed under “Risk Factors” in this prospectus.

 

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the parties’ businesses, including those described in this prospectus, and information contained in or incorporated by reference into this prospectus. See the section of this prospectus entitled “Where You Can Find More Information.”

 

Nothing in this prospectus is intended, or is to be construed, as a profit projection or to be interpreted to mean that earnings per XP Share or Modal Share for the current or any future financial years, will necessarily match or exceed the historical published earnings per XP Share.

 

Modal and XP are under no obligation, and each expressly disclaims any obligation, to update, alter or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. Persons reading this document are cautioned not to place undue reliance on these forward-looking statements, which only speak as of the date hereof.

 

iii 

 

Certain Defined Terms and Conventions Used in This Prospectus

 

In this prospectus, the “Company,” “we,” “us” and “our” refer to XP and its subsidiaries, unless the context otherwise requires. All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “US$” are to United States dollars, the official currency of the United States.

 

In addition, as used in this prospectus, the following defined terms have the following respective meanings:

 

“Alternative Structure” means XP shall (i) acquire all Modal Shares held by Modal Controlling Shareholder in exchange for XP Shares, and (ii) carry out a public tender offer for the acquisition of the remaining Modal Shares held by Modal Shareholders in accordance with Brazilian law. See “The Merger—Alternative Structure.”

 

“B3” means the B3 S.A. – Brasil, Bolsa, Balcão, or the São Paulo Stock Exchange.

 

“Banco XP” means Banco XP S.A.

 

“BDRs” means Brazilian Depositary Receipts.

 

“BDR Custodian” means The Bank of New York Mellon.

 

“BDR Depositary” means Itaú Unibanco S.A.

 

“BDR Settlement Date” means the date in which Modal Shareholders will receive XP Shares in the form of XP BDRs, which is expected to be              Brazilian business days after the Modal Shareholders’ Meeting.

 

“Brazil” means the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil.

 

“Brazilian Central Bank” means the Central Bank of Brazil (Banco Central do Brasil).

 

“Brazilian Corporation Law” means the Brazilian Law No. 6,404/76, as amended.

 

“Brazilian Holder” means a holder who resides in Brazil for Brazilian tax purposes.

 

“Cayman Islands Court” means the Grand Court of the Cayman Islands.

 

“Closing Date” means the date the Merger is expected to become effective on                 , 2022, i.e., when the Merger is expected to be consummated. However, such date is subject to change and all Modal Shareholders and XP Shareholders should consult all notices to the shareholders that such companies may issue from time to time.

 

“Companies Act” means the Companies Act (as amended) of the Cayman Islands.

 

“Cut-off Date” means the closing of the last trading session on the B3 of the Modal Shares.

 

“CVM” means the Comissão de Valores Mobiliários, or the Brazilian Securities Commission.

 

“DTC” means The Depository Trust Company.

 

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

 

“Exchange Ratio” means one XP Share (in the form of XP BDRs) for            Modal Shares. This exchange ratio corresponds to up to 19,500,000 XP Shares divided by            Modal Shares outstanding immediately prior to the completion of the Merger (which excludes Modal treasury shares). The Exchange Ratio will be subject to certain adjustments, in order to reflect any share split, reverse split, share grants, changes in treasury shares, dividends, interest on equity and other distribution declared by Modal or by XP up to the Closing Date. XP at its sole discretion may use a combination of newly issued and treasury XP Shares for the settlement of the Exchange Ratio. As an alternative for the

 

iv 

 

settlement of the Exchange Ratio in the form of XP Shares, XP at its sole discretion may offer Modal Shareholders a cash payment in an amount equivalent to the XP Shares that would be delivered pursuant to the Exchange Ratio.

 

“FGV” means the Fundação Getulio Vargas.

 

“IASB” means the International Accounting Standards Board.

 

“IBGE” means the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística).

 

“IFRS” means International Financial Reporting Standards as issued by the IASB.

 

“Merger” means the merger of Modal with Banco XP, including the Merger of Shares and the mandatory redemption of all Banco XP preferred shares issued to shareholders of Modal.

 

“Merger of Shares” means the merger of Modal Shares into Banco XP through a merger of shares (incorporação de ações) under Brazilian Corporation Law, pursuant to which Modal is expected to become a wholly-owned subsidiary of Banco XP.

 

“Merger Proposal” means the proposed approval of the Merger Protocol and the transactions contemplated therein, including the Merger.

 

“Merger Protocol” means the Merger and Justification Protocol (Protocolo e Justificação) to be entered into by and among Modal and Banco XP.

 

“Modal” means Banco Modal S.A.

 

“Modal common shares” means the common shares of Modal.

 

“Modal Controlling Shareholder” refers to the controlling shareholder of Modal, Modal Controle Participações S.A.

 

“Modal preferred shares” means the preferred shares of Modal.

 

“Modal Record Date” means the date set by Modal, as will be set out in the call notice for the Modal Shareholders’ Meeting, for the purpose of determining shareholders entitled to vote at the Modal Shareholders’ Meeting.

 

“Modal Shares” means the Modal common shares and the Modal preferred shares, collectively.

 

“Modal Shareholders” means the shareholders of Modal.

 

“Modal Shareholders’ Meeting” means the special meeting of Modal Shareholders expected to be held virtually on                 , 2022, at      :00 am (Brasília time – BRT).

 

“Nasdaq” means the Nasdaq Global Select Market.

 

“Non-Brazilian Holder” means a holder deemed to not be domiciled in Brazil for Brazilian tax purposes.

 

“Securities Act” means the U.S. Securities Act of 1933, as amended.

 

“Shareholders’ Agreement” means the shareholders’ agreement entered into on November 29, 2019, among XP Controle Participações S.A., or XP Controle, General Atlantic (XP) Bermuda, L.P., or GA Bermuda, Itaú Unibanco S.A., XP Inc., XP Brazil and the companies that we control that are incorporated in Brazil, as amended from time to time.

 

“United States” or “U.S.” means the United States of America.

 

“XP” means XP Inc.

 

v 

 

“XP BDRs” means the Brazilian Depositary Receipts, each representing one XP Share.

 

“XP Shares” means the Class A common shares of XP.

 

“XP Shareholder” or “XP Shareholders” means the shareholders of XP.

 

vi 

 

Presentation of Financial and Certain Other Information

 

Financial Statements

 

XP Financial Statements

 

The consolidated financial information of XP presented in this prospectus has been derived from the unaudited interim condensed consolidated financial statements of XP as of June 30, 2022 and for the six months ended June 30, 2022 and 2021, included in our 2Q22 MD&A 6-K (as defined herein) and our 2Q22 Financial Statements 6-K (as defined herein), both incorporated by reference in this prospectus, and the audited consolidated financial statements of XP as of December 31, 2021 and 2020, and statements of income for the years ended December 31, 2021, 2020 and 2019, and the related notes thereto, included in the XP 2021 Form 20-F (as defined herein), incorporated by reference in this prospectus. See “Incorporation of Certain Documents by Reference.”

 

We maintain our books and records in Brazilian reais, the presentation currency for our financial statements and also the functional currency of our operations in the Federative Republic of Brazil, or “Brazil.” Our unaudited interim condensed consolidated financial statements were prepared in accordance with IAS 34 and annual consolidated financial statements were prepared in accordance with International Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or the “IASB.”

 

Modal financial statements and data have not been included in this prospectus because the significance test was not met at the 20% level in accordance with Rule 1-02(w) of Regulation S-X.

 

Currency Conversions

 

See “Exchange Rates” for information regarding exchange rates for the Brazilian currency since January 1, 2016. Solely for the convenience of the reader, we have translated certain amounts included elsewhere in this prospectus from reais into U.S. dollars using the selling rate as reported by the Brazilian Central Bank as of December 31, 2021 of R$5.581 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate.

 

Rounding

 

We have made rounding adjustments to reach some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

 

Market Data

 

This prospectus contains data related to economic conditions in the market in which we operate. The information contained in this prospectus concerning economic conditions is based on publicly available information from third-party sources that we believe to be reasonable. Market data and certain industry forecast data used in this prospectus were obtained from internal reports and studies, where appropriate, as well as estimates, market research, publicly available information (including information available from the SEC website) and industry publications. We obtained the information included or incorporated by reference in this prospectus relating to the industry in which we operate, as well as the estimates concerning market shares, through internal research, public information and publications on the industry prepared by official public sources, such as the Brazilian Central Bank, the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the “IBGE,” the Institute of Applied Economic Research (Instituto de Pesquisa Econômica Aplicada), or the “IPEA,” as well as private sources, such as B3, ANBIMA, Nielsen, consulting and research companies in the Brazilian financial services industry, the Brazilian Economic Institute of FGV (Instituto Brasileiro de Economia da Fundação Getulio Vargas), or “FGV/IBRE,” among others.

 

Industry publications generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect and believe and act as if they are reliable, we have not independently verified it. Governmental publications and other market sources, including

 

vii 

 

those referred to above, generally state that their information was obtained from recognized and reliable sources, but the accuracy and completeness of that information is not guaranteed. In addition, the data that we compile internally and our estimates have not been verified by an independent source. Except as disclosed in this prospectus, none of the publications, reports or other published industry sources referred to in this prospectus were commissioned by us or prepared at our request. Except as disclosed in this prospectus, we have not sought or obtained the consent of any of these sources to include such market data in this prospectus.

 

viii 

 

Incorporation of Certain Documents by Reference

 

This prospectus incorporates important business and financial information about us that is not included in or delivered with the prospectus. The SEC allows us to “incorporate by reference” information filed with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and certain later information that XP files with the SEC will automatically update and supersede this information. We incorporate by reference the following documents and any future filings that XP makes with the SEC under Sections 13(a), 13(c) and 15(d) of the U.S. Securities Exchange Act of 1934, as amended, or the “Exchange Act,” until we complete the offering using this prospectus:

 

· our report on Form 6-K furnished to the SEC on January 7, 2022, relating to our memorandum of understanding to merge up to 100% of Modal shares;

 

· our annual report of XP on Form 20-F for the fiscal year ended December 31, 2021 filed on April 13, 2022, or the “XP 2021 Form 20-F;”

 

· our current report on Form 6-K furnished to the SEC on August 10, 2022 relating to our unaudited interim condensed consolidated financial statements as of June 30, 2022 and for the six months ended June 30, 2022 and 2021, and the notes thereto, or the “2Q22 Financial Statements 6-K, except for the report on review of interim condensed consolidated financial statements of June 30, 2022 and for the six months ended June 30, 2022 and 2021, which is not incorporated by reference herein; and

  

· our report on Form 6-K furnished to the SEC on September 7, 2022 relating to the Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company as of June 30, 2022 and for the six months ended June 30, 2022 and 2021, or the “2Q22 MD&A 6-K.”

 

We may also incorporate by reference any Form 6-K that XP furnishes to the SEC after the date of this prospectus and prior to the termination of this transaction by identifying in such Form 6-K that it is being incorporated by reference into this prospectus. Unless expressly incorporated by reference, nothing in this prospectus shall be deemed to incorporate by reference information furnished to, but not filed with, the SEC.

 

All subsequent reports that XP files on Form 20-F under the Exchange Act after the date of this prospectus and prior to the termination of the transaction shall also be deemed to be incorporated by reference into this prospectus and to be a part hereof from the date of filing such documents.

 

Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

 

These documents are available on the SEC’s website at www.sec.gov and from other sources. You may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).

 

Neither XP nor Modal has authorized anyone to give any information or make any representation about the Merger Protocol and the transactions contemplated thereby or regarding either XP or Modal that is different from, or in addition to, that contained in this prospectus or in any of the materials that have been incorporated by reference into this prospectus. If you are in a jurisdiction where offers to exchange, or solicitations of offers to exchange, the securities offered by this prospectus is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this prospectus does not extend to you. The information contained in this prospectus is accurate only as of the date of this prospectus unless the information specifically indicates that another date applies.

 

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Where You Can Find More Information

 

XP Inc. has filed a registration statement on Form F-4, including the Exhibits thereto, with the SEC under the Securities Act to register the XP Shares that will be delivered to Modal Shareholders in connection with the Merger. XP may also file amendments to the registration statement. This prospectus does not contain all of the information set forth in the registration statement, and some parts have been omitted in accordance with the rules and regulations of the SEC. You should read the registration statement on Form F-4 and the Exhibits filed with the registration statement as they contain important information about XP and Modal as well as the XP Shares. Statements made in this prospectus, or in any document incorporated by reference into this prospectus, regarding the contents of any contract, agreement or other document are not necessarily complete and each such statement is qualified in its entirety by reference to that contract, agreement or other document filed as an exhibit with the SEC.

 

XP files annual reports on Form 20-F and furnishes reports to the SEC on Form 6-K under the rules and regulations that apply to foreign private issuers. As a foreign private issuer, XP and its shareholders are exempt from some of the reporting requirements of the Exchange Act, including the proxy solicitation rules, the rules regarding the furnishing of annual reports to shareholders and Section 16 short-swing profit reporting for officers, directors and holders of more than 10% of a company’s shares. The SEC maintains a website at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC. The reports and other information filed by XP with the SEC are also available at XP’s website at http://xpinc.com. We have included the web address of the SEC and XP as inactive textual references only. Except as specifically incorporated by reference into this prospectus, information on those websites is not part of this document.

 

Information that we file with or furnish to the SEC after the date of this prospectus, and that is incorporated by reference herein, will automatically update and supersede the information in this prospectus. You should review the SEC filings and reports that we incorporate by reference to determine if any of the statements in this prospectus, or in any documents previously incorporated by reference, have been modified or superseded.

 

You may also request copies of this prospectus and other information concerning XP, without charge, from XP’s investor relations by telephone at +55 11 3075-0429 or by email at ir@xpi.com.br.

 

The information included on the websites of the SEC, XP or any other entity or that might be accessed through such websites is not included in this prospectus or the registration statement and is not incorporated into this prospectus or the registration statement by reference unless otherwise specifically noted herein. We are providing the information about how you can obtain certain documents that are incorporated by reference into this prospectus at these websites only for your convenience.

 

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Exchange Rates

 

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

 

The real depreciated against the U.S. dollar from mid-2011 to early 2016. In particular, during 2015, due to the poor economic conditions in Brazil, including as a result of political instability, the real depreciated at a rate that was much higher than in previous years. Overall in 2015, the real depreciated 47.0%, reaching R$3.905 per US$1.00 on December 31, 2015. In 2016, the real fluctuated significantly, primarily as a result of Brazil’s political instability, appreciating 16.5% to R$3.259 per US$1.00 on December 31, 2016. In 2017, the real depreciated 1.5% against the U.S. dollar, ending the year at an exchange rate of R$3.307 per US$1.00. In 2018, the real depreciated 17.1% against the U.S. dollar, ending the year at an exchange rate of R$3.874 per US$1.00 mainly due to the result of lower interest rates in Brazil as well as uncertainty regarding the results of the Brazilian presidential elections, which were held in October 2018. In 2019, the real depreciated an additional 4% to R$4.031 per $1.00 on December 31, 2019. In 2020, the real depreciated an additional 29% to R$5.197 per $1.00 on December 31, 2020. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.581 per $1.00 on December 31, 2021, which reflected a 7% depreciation of the real against the U.S. dollar during 2021, due primarily to the impact of the COVID-19 pandemic on the Brazilian economy. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar. The Brazilian Central Bank has previously intervened in the foreign exchange market to attempt to control instability in foreign exchange rates. We cannot predict whether the Brazilian Central Bank or the federal government of Brazil, or the “Brazilian government” will continue to allow the real to float freely or will intervene in the exchange rate market by re-implementing a currency band system or otherwise. The real may depreciate or appreciate substantially against the U.S. dollar in the future. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that the Brazilian government will not place restrictions on remittances of foreign capital abroad in the future.

 

The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed in Brazilian reais per U.S. dollar. The average rate is calculated by using the average of reported exchange rates by the Brazilian Central Bank on each business day during a monthly period and on the last day of each month during an annual period, as applicable. As of September 6, 2022, the exchange rate for the purchase of U.S. dollars as reported by the Brazilian Central Bank was R$5.223 per US$1.00.

 

Year  Period-end  Average(1)  Low  High
2017    3.307    3.193    3.051    3.381 
2018    3.874    3.656    3.139    4.188 
2019    4.031    3.946    3.652    4.260 
2020    5.197    5.158    4.021    5.937 
2021    5.581    5.396    4.921    5.840 

 

Month   Period-end   Average(2)   Low   High
March 2022     4.738       5.055       4.921       5.135  
April 2022     4.919       4.758       4.618       5.017  
May 2022     4.729       5.018       5.009       5.027  
June 2022     5.238       5.049       4.777       5.238  
July 2022     5.188       5.368       5.188       5.475  
August 2022     5.179       5.143       5.043       5.285  
September 2022 (through September 6, 2022)     5.223       5.195       5.169       5.223  

 

 

 

Source: Brazilian Central Bank.

 

(1)Represents the average of the exchange rates on the closing of each business day during the year.

 

(2)Represents the average of the exchange rates on the closing of each business day during the month.

 

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Questions and Answers About the Merger

 

The following questions and answers are intended to briefly address some commonly asked questions regarding the Merger Protocol, the transactions contemplated thereby and the Modal Shareholders’ Meeting called to vote on the Merger. These questions and answers only highlight some of the information contained in this prospectus and may not contain all of the information that is important to you. Please further refer to the section of this prospectus entitled “Summary” and the more detailed information contained elsewhere in this prospectus, the Exhibits to this prospectus and the documents referred to in this prospectus, which you should read carefully and in their entirety. You may obtain the information incorporated by reference into this prospectus without charge by following the instructions under the section of this prospectus entitled “Where You Can Find More Information.”

 

Questions and Answers About the Merger

 

Q:What is the proposed Merger, why is XP proposing it and what will happen to Modal as a result of the Merger?

 

A:On January 6, 2022, we entered into a memorandum of understanding to merge Modal with Banco XP through certain corporate acts pursuant to which Banco XP will deliver newly issued XP Inc. Class A shares (in the form of XP BDRs) to shareholders of Modal, pursuant to the Exchange Ratio.

 

The Merger will be implemented through the merger of Modal Shares into Banco XP through a merger of shares (incorporação de ações) under Brazilian Corporation Law, pursuant to which Modal is expected to become a wholly-owned subsidiary of Banco XP.

 

The Merger of Shares is subject to certain conditions precedent, as further described below, including the approval of the Merger by Modal’s and Banco XP’s shareholders and approval by the Brazilian Central Bank. The Merger was also subject to approval by CADE, which was obtained on July 26, 2022. The Merger of Shares will consist of (i) the contribution of Modal Shares to Banco XP in exchange for preferred and mandatorily redeemable Banco XP shares to Modal Shareholders, or the “Redeemable Shares,” and, subsequently and on the same act, (ii) the redemption of the Redeemable Shares for XP Shares (in the form of XP BDRs) to Modal Shareholders. A merger of shares under Brazilian Corporation Law is a corporate reorganization whereby a company merges all the shares of another company, which becomes a wholly-owned subsidiary of the merging company. As opposed to a customary merger, the merger of shares does not cause the termination or extinction of the company whose shares are merged, and it continues to hold the same rights, obligations (including contractual and non-contractual obligations) and liabilities held by it prior to the merger of its shares.

 

Unless the Alternative Structure is implemented (as defined herein), following the completion of the Merger, Modal Shareholders will hold XP Shares (in the form of XP BDRs), pursuant to the Exchange Ratio, all Modal Shares will be merged by Banco XP and Modal will become a wholly-owned subsidiary of Banco XP. Modal will be deregistered from the CVM and the Modal Shares will be delisted from the B3. As a result, Modal will no longer file or make submissions with the CVM or B3. XP will continue to be registered under the Exchange Act and will continue to file Annual Reports on Form 20-F with the SEC and make submissions to the SEC on Form 6-K. In addition, XP Shares will continue to be listed on the Nasdaq and the XP BDRs will continue to be registered with the CVM and listed on the B3. Based on the number of Modal Shares as of the date of this prospectus, it is anticipated that, upon effectiveness of the Merger, the Modal Shareholders are expected to own approximately           % of XP’s total issued share capital (excluding treasury shares) and approximately           % of XP’s total voting rights, both on a fully diluted basis. For more information on the Alternative Structure, see “The Merger—Alternative Structure.”

 

In the course of reaching their decisions to approve the Merger Protocol, the Merger and all of the other transactions and documents contemplated by the Merger, the board of directors of each Modal and XP considered a number of important factors in their separate deliberations. For more details on these factors, see the sections of this prospectus entitled “Summary—Reasons for the Merger” and “The Merger—Modal’s Reasons for the Merger.”

 

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Q:What is this document?

 

A:This document, which we refer to as the prospectus:

 

·serves as a prospectus of XP in connection with the exchange of Modal Shares for XP Shares (in the form of XP BDRs), pursuant to the terms of the Merger Protocol;

 

·informs Modal Shareholders of the terms and conditions of the Merger; and

 

·provides Modal Shareholders with important details about XP and their rights as potential XP Shareholders (including as holders of XP BDRs).

 

Q:Why did I receive this prospectus?

 

A:You are receiving this prospectus because as a shareholder of Modal, (i) you may be entitled to vote at the Modal Shareholders’ Meeting to approve the Merger, and (ii) due to the Merger, you may receive XP Shares (in the form of XP BDRs). This document serves as a prospectus of XP in connection with the exchange of Modal Shares for XP Shares (in the form of XP BDRs), pursuant to the terms of the Merger Protocol. In order to complete the Merger, among other things, a majority of Modal Shareholders must approve the Merger. This document contains important information about the Merger, and you should read it carefully and in its entirety.

 

Q:What is the Exchange Ratio?

 

A:The Exchange Ratio is expected to be of one XP Share (in the form of XP BDRs) for            Modal Shares. This exchange ratio corresponds to up to 19,500,000 XP Shares divided by            Modal Shares outstanding immediately prior to the completion of the Merger (which excludes Modal treasury shares), subject to certain adjustments.

 

Q:What will Modal Shareholders receive from the Merger?

 

A:Pursuant to the terms and subject to the conditions set forth in the Merger Protocol, upon the completion of the Merger, the Modal Controlling Shareholder and the remaining Modal Shareholders, which may be Brazilian or non-Brazilian residents, will receive XP Shares (in the form of XP BDRs) in the Merger, as consideration from Banco XP in exchange for the Redeemable Shares. In order to receive XP Shares (in the form of XP BDRs) subject to the conditions described in this prospectus, you must be a Modal Shareholder on the Cut-off Date. Modal Shareholders who receive BDRs and who wish to cancel their BDRs and receive the XP Shares represented thereby may inform their broker of such intention at any time after the completion of the Merger. Modal Shareholders must consult their respective brokers in order to assess the required documents and relevant fees in connection with the cancellation of the XP BDRs to receive the XP Shares represented thereby. Each XP Share (in the form of XP BDRs) to be delivered and outstanding upon the completion of the Merger will be a validly issued, allotted and fully paid-up XP Share (in the form of XP BDRs), subject to approval of the Merger at the Modal Shareholders’ Meeting. See “Summary—Receipt of XP Shares (in the form of XP BDRs)” and “The Merger—Receipt of XP Shares (in the form of XP BDRs).”

 

Modal Shareholders that have not voted at the Modal Shareholders’ Meeting or voted against the Merger will be entitled to withdrawal rights, in accordance with Article 137 of the Brazilian Corporation Law. In order to be entitled to such withdrawal rights, Modal Shareholders shall satisfy certain requirements under the Brazilian Corporation Law, including the continuous holding of their Modal Shares since January 6, 2022. For more information, see “The Modal Shareholders’ Meeting—Withdrawal Rights” and “The Merger—Withdrawal Rights for Modal Shareholders.”

 

Q:Can I sell my Modal Shares during the period for the exercise of withdrawal rights?

 

A:Unless the Alternative Structure is implemented (as defined herein), and during the withdrawal rights exercise period, the Modal Shares will continue to be listed on B3 and will be eligible for trading over the B3 under its existing ticker symbol. However, if you exercise your withdrawal rights, you will not be allowed to trade your

 

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Modal Shares as they will be redeemed and cancelled by Modal upon payment of the corresponding withdrawal consideration.

 

Q:What percentage ownership will former Modal Shareholders hold in XP upon effectiveness of the Merger?

 

A: Unless the Alternative Structure is implemented (as defined herein), upon effectiveness of the Merger, all Modal Shares will be merged by Banco XP and Modal will become a wholly-owned subsidiary of Banco XP. Based on the number of Modal Shares, it is anticipated that, upon effectiveness of the Merger, former Modal Shareholders are expected to own approximately           % of XP’s total issued share capital (excluding treasury shares) and approximately           % of XP’s total voting rights, both on a fully diluted basis. For more information on the Alternative Structure, see “The Merger—Alternative Structure.”

 

Q:When do you expect the Merger to be completed?

 

A:The Merger will be submitted for approval at the Modal Shareholders’ Meeting, or the “Modal Merger Approval.” Since the Merger is subject to certain closing conditions, including regulatory approvals, we are unable to accurately estimate when it will be completed, but we expect it to be completed by           , 2022. The Merger is expected to become effective on the Closing Date, as defined herein.

 

Q:Are there risks associated with the Merger?

 

A:Yes. There are a number of risks related to the Merger that are discussed in this prospectus and in the other documents incorporated by reference into this prospectus. In evaluating the Merger, before making any decision on whether and how to vote, you are urged to read carefully and in its entirety this prospectus, in particular the section entitled “Risk Factors.”

 

Q:What happens if the Merger is not completed?

 

A.If the Merger is not completed, then the parties shall implement the “Alternative Structure,” pursuant to which, XP shall (i) acquire all Modal Shares held by Modal Controlling Shareholder in exchange for XP Shares, in a stock for stock transaction, and (ii) carry out a public tender offer for the acquisition of the remaining Modal Shares held by Modal Shareholders in accordance with Brazilian law. For more information on the terms and conditions of the Alternative Structure, see “The Merger—Alternative Structure.”

 

Q:What conditions must be satisfied to complete the Merger?

 

A:The completion of the Merger is subject to certain conditions precedent, including:

 

·the approval of the Merger Proposal at the Modal Shareholders’ Meeting and at Banco XP’s shareholders meeting;

 

· the approval of the Merger by Brazil’s Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica), or “CADE,” which was obtained on July 26, 2022;

 

·the approval of the Merger by the Brazilian Central Bank;

 

·the absence of any law or order prohibiting or enjoining the consummation of the Merger;

 

·the registration statement of which this prospectus forms a part shall have been declared effective by the SEC;

 

·Modal shall (i) have obtained the respective third-party consents of its agreements currently in force and there will not be material obligations that may have declared their early termination (or other incident penalties) due to the Merger, or the Obligations Subject to Early Termination; or (ii) have liquidated all its

 

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Obligations Subject to Early Termination; or (iii) have cash representing 100% of the necessary amount to liquidate all the Obligations Subject to Early Termination (including any incident penalties); and

 

·other customary conditions precedent for transactions of this type.

 

For more information on the conditions precedent of the Merger, see “The Merger—Conditions Precedent.”

 

Q:Are the Modal Shares, the XP Shares and the XP BDRs traded on any stock exchange?

 

A:The Modal Shares are listed on the B3 in the form of units comprised of one Modal common share and two Modal preferred shares under the symbol “MODL11.” The XP Shares are listed on the Nasdaq under the symbol “XP” and the XP BDRs are listed on the B3 under the symbol “XPBR31.”

 

Q:Will the XP Shares (in the form of XP BDRs) to be issued to me at the completion of the Merger be traded on an exchange?

 

A:If the Merger is consummated, the Modal Controlling Shareholder and the remaining Modal Shareholders shall receive the applicable number of XP Shares (in the form of XP BDRs), in accordance with the Merger Protocol.

 

The XP Shares are listed on the Nasdaq under the symbol “XP” and the XP BDRs are listed on the B3 under the symbol “XPBR31.” XP Shares (in the form of XP BDRs) received by the Modal Controlling Shareholder will also be registered under the Securities Act and be freely transferable under the Securities Act after the lock-up period (which is subject to certain exceptions) pursuant to which: (i) 15% of the XP Shares received by the Modal Controlling Shareholders will be released each year during the period starting on the date that is two years following the Closing Date and ending on the date that is four years following the Closing Date; and (ii) the remaining XP Shares received by the Modal Controlling Shareholders will be released on the date that is five years following the Closing Date. The XP BDRs will not be registered under the Securities Act.

 

Q:How do I elect to receive XP Shares instead of XP BDRs?

 

A:At any time after the Closing Date, a holder of XP BDR that wants to receive XP Shares may request the cancellation of all or a portion of its XP BDRs by (a) instructing its broker or custodian operating in Brazil to cancel its XP BDRs with the BDR Depositary and (b) delivering evidence that all fees and potential taxes due in connection with this service were duly paid, as set forth in the deposit agreement. The cancellation instruction to the broker or custodian must include an appropriate brokerage account outside of Brazil to receive the underlying XP Shares.

 

Q:Will I have voting rights as a holder of XP Shares (in the form of XP BDRs)?

 

A:Yes, each XP Share (including XP Shares held in the form of XP BDRs) is entitled to one vote. The procedure for voting if you hold XP BDRs may be different. For more information, see “Comparison of the Rights of XP Shareholders and Modal ShareholdersCertain Rights of XP BDRs.”

 

Q:Will I have the right to receive dividends as a holder of XP Shares (in the form of XP BDRs)?

 

A:Yes. Each XP Share (including XP Shares in the form of XP BDRs) is entitled to receive dividends, if and when approved by XP. A holder of an XP Share (including XP Shares in the form of XP BDRs) is entitled to receive the same amount of dividends per share as a holder of XP Shares. For further information on dividends, see “Comparison of the Rights of XP Shareholders and Modal Shareholders— Dividends, Repurchases and Redemptions.”

 

Q:What are the U.S. federal income tax consequences of the Merger?

 

A:For more information on U.S. federal income tax considerations, see “Material Tax Considerations—Material U.S. Federal Income Tax Considerations.”

 

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Q:What are the Brazilian income tax consequences of the Merger?

 

A:For more information on Brazilian taxation considerations, see “Material Tax Considerations—Material Brazilian Tax Considerations.”

 

Q:What will be the accounting treatment of the Merger?

 

A: In accordance with IFRS, XP Inc will account for the Merger as a business combination applying the acquisition method of accounting with XP Inc as the acquirer. For a more detailed discussion of the accounting treatment of the Merger, see the section entitled “The Merger—Accounting Treatment of the Merger.”

 

Q: What will happen to Modal following the Closing Date?

 

A:Following the completion of the Merger, Modal will be a wholly-owned subsidiary of Banco XP. Modal will be deregistered from the CVM and the Modal Shares will be delisted from the B3. As a result, Modal will no longer file or make submissions with the CVM or B3.

 

At the time of deregistration and delisting following the completion of the Merger, former Modal Shareholders will have received XP Shares (in the form of XP BDRs) and Banco XP will be the sole shareholder of Modal. XP will continue to be registered under the Exchange Act and will continue to file Annual Reports on Form 20-F with the SEC and make submissions to the SEC on Form 6- K. In addition, XP Shares will continue to be listed on the Nasdaq and the XP BDRs will be registered with the CVM and listed on the B3. Based on the number of Modal Shares as of the date of this prospectus, it is anticipated that, upon effectiveness of the Merger, the Modal Shareholders are expected to own approximately           % of XP’s total issued share capital (excluding treasury shares) and approximately           % of XP’s total voting rights, both on a fully diluted basis.

 

If the parties fail to complete the Merger of Shares, then Banco XP shall implement the Alternative Structure. For more information on the terms and conditions of the Alternative Structure, see “The Merger—Alternative Structure.”

 

Questions and Answers about the Modal Shareholders’ Meeting

 

Q:When and where will the Modal Shareholders’ Meeting be held?

 

A: The Modal Shareholders’ Meeting is expected to be held virtually, through an electronic platform, on                 , 2022.

 

Q:What matters will be voted on at the Modal Shareholders’ Meeting?

 

A:The Modal Shareholders will be asked to consider and vote, among other things, on the following resolutions at the Modal Shareholders’ Meeting:

 

·to approve the Merger, which involves (i) the Merger of Shares, so that Banco XP becomes the sole shareholder of Modal by virtue of such Merger of Shares; and (ii) the subsequent delivery of the Redeemable Shares to Modal Shareholders, which will be redeemed on the same date of their delivery in exchange for XP Shares (in the form of XP BDRs);

 

·to approve the execution of the Merger Protocol;

 

·to waive the obligation that Banco XP be listed on B3’s Novo Mercado listing segment after the implementation of the Merger;

 

·to authorize Modal’s management to conduct all necessary acts and to execute the necessary documents in connection with the Merger; and

 

·related resolutions.

 

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See “The Modal Shareholders’ Meeting” for more information.

 

The Modal Shareholders’ Meeting is expected to be held as specified in the call notice dated                 , 2022.

 

Q:Who is entitled to vote the Modal Shares at the Modal Shareholders’ Meeting?

 

A:Modal Shareholders as of the Modal Record Date may (i) attend the virtual meeting and vote in person; or (ii) appoint a proxy holder to vote on their behalf.

 

Q:Are any Modal Shareholders already committed to vote in favor of the proposal to approve the Merger?

 

A:Yes. In accordance with the Merger Protocol, the Modal Controlling Shareholder undertook to vote in favor of the corporate resolutions required to approve the Merger, subject to applicable Brazilian law and B3 regulation.

 

Q:When will the Modal Shareholders’ Meeting be considered convened and the resolutions at such meeting validly adopted?

 

A:The quorum required to hold the Modal Shareholders’ Meeting is 66.66% of the voting capital stock on first call, provided that, if the required quorum is not reached, the Modal Shareholders’ Meeting may be held on second call with any number of shareholders present.

 

After the Modal Shareholders’ Meeting is convened, pursuant to Modal’s bylaws, approval of the Merger at such extraordinary general meeting requires the affirmative vote of Modal Shareholders attending a shareholders’ meeting and representing (i) a majority of the capital stock of Modal, and (ii) a majority of the Modal Shares in the free float attending the meeting (excluding abstentions). For more information, see “The Modal Shareholders’ Meeting—Required Vote.”

 

Q:How do I vote my Modal Shares?

 

A:If you are a Modal Shareholder entitled to attend and vote at the Modal Shareholders’ Meeting, you must either (i) attend the virtual meeting and vote in person; or (ii) appoint a proxy to vote on your behalf. Neither XP nor Modal is asking you for a proxy, and you are requested not to send XP or Modal a proxy.

 

Voting procedures will be available on the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto.

 

Q:When will I receive my XP Shares (in the form of XP BDRs)?

 

A:The XP Shares (in the form of XP BDRs) will be delivered to Modal Shareholders in connection with the Merger as promptly as practicable on or after the Closing Date of the Merger. The dates on which you will receive your XP Shares (in the form of XP BDRs) are expected to be set forth in the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto.

 

Q:How can I attend the Modal Shareholders’ Meeting in person?

 

A: The Modal Shareholders’ Meeting is expected to be held virtually, through an electronic platform, on                 , 2022. If you are a Modal Shareholder and you wish to attend the Modal Shareholders’ Meeting in person, you must follow the instructions contained in section of this prospectus entitled “The Modal Shareholders’ Meeting—Manner of Voting.”

 

Q:What happens if I do not vote or if I vote against the Merger?

 

A:You will be entitled to exercise withdrawal rights as provided under Article 137 of the Brazilian Corporation Law. Under Brazilian law, withdrawal rights are akin to appraisal or dissenters’ rights in that they permit shareholders to receive a fixed amount of cash in exchange for each Modal Share calculated on the basis of the book value per share of Modal’s shareholders’ equity, subject to the conditions set forth below and described

 

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in further detail herein. Other than the withdrawal rights described herein, you do not have appraisal or dissenters’ rights under Brazilian law.

 

In order to exercise such withdrawal rights, Modal Shareholders must give notice thereof within 30 days following the publication of the Modal Merger Approval in the “Monitor Mercantil” newspaper.

 

The amount payable as reimbursement for the value of the Modal Shares will correspond to the book value of shareholders’ equity per share of Modal on           , 2022 according to Modal’s financial statements approved at the annual general shareholders meeting held on            , 2022 without prejudice to the right of such holders to request the preparation of a special balance sheet. Modal Shareholders that exercise their withdrawal rights will receive the cash amount within             days from the end of the withdrawal rights exercise period.

 

If you do not exercise your withdrawal rights as a shareholder of Modal within 30 days of the publication of the Modal Merger Approval and following the consummation of the Merger, you will automatically receive XP Shares (in the form of XP BDRs) according to the Exchange Ratio, provided that you hold such Modal Shares through the Cut-off Date.

 

See “The Modal Shareholders’ Meeting—Withdrawal Rights” and “The Merger—Withdrawal Rights for Modal Shareholders.”

 

Q:Do any of Modal’s directors or executive officers have interests in the Merger that may differ from those of other shareholders?

 

A: No, Modal has informed us that Modal’s directors or executive officers do not have any interests in the Merger that may differ from those of other Modal Shareholders.

 

Q:What should I do now as a Modal Shareholder?

 

A:You are urged to carefully read this prospectus, including its appendices. You may also want to review the documents referenced under “Where You Can Find More Information” and consult with your accounting, legal and tax advisors. You are also urged to read the information that will be made available in the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto. Once you have considered all relevant information, you are encouraged to vote in person or by proxy.

 

Q:Who can help answer my questions?

 

A:The information provided above in the question-and-answer format is for your convenience only and is merely a summary of some of the information contained in this prospectus. You should read carefully the entire prospectus, including the information in the exhibits to the registration statement of which this prospectus is a part. See the section of prospectus entitled “Where You Can Find More Information.”

 

If you have any further questions about the Merger or if you need additional copies of this prospectus, please contact XP’s investor relations by telephone at +55 11 3075-0429 or by email at ir@xpi.com.br.

 

Q:Where can I find more information about XP and Modal?

 

A:You can find more information about XP and Modal in the documents described under “Where You Can Find More Information.”

 

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Summary

 

The following is a summary that highlights information contained in this prospectus. This summary may not contain all the information that is important to you. For a more complete description of the Merger and the Merger Protocol, we encourage you to read carefully this entire prospectus, including the Exhibits to the registration statement of which this prospectus is a part. In addition, we encourage you to read the information incorporated by reference into this prospectus, which includes important business and financial information about XP that has been filed with the SEC. You may obtain the information incorporated by reference into this prospectus without charge by following the instructions in the section of this prospectus entitled “Where You Can Find More Information.”

 

The Parties

 

XP

 

XP is a leading, technology-driven platform and a trusted provider of low-fee financial products and services in Brazil. We have developed a mission-driven culture and a revolutionary business model that we believe provide us with strong competitive advantages in our market. We use these to disintermediate the legacy models of traditional financial institutions by educating new classes of investors, democratizing access to a wider range of financial services, developing new financial products and technology applications to empower our clients, and providing what we believe is the highest-quality customer service experience in the industry in Brazil. We believe we have established ourselves as the leading alternative to the traditional banks, with a large ecosystem of retail investors, institutions and corporate issuers in local and international markets, with offices in Brazil, New York, Miami, London, Lisbon and Geneva.

 

Our revolutionary XP Model has been developed over the course of our evolution and enables us to go to market in a very different way from the legacy models of the large traditional financial institutions. We believe our model provides us with a unique value proposition for our clients and partners and has enabled us to instill trust in the XP brands and begin to change the way investment services are sold in Brazil. This proprietary approach incorporates a unique combination of capabilities, services and technologies to deliver a highly differentiated and integrated client experience, with significant operating efficiency advantages that have enabled us to scale and grow profitably.

 

Our technology-driven business model is asset-light and highly scalable. This enables us to generate scale efficiencies from increases in total AUC. We conduct most of our business online and through mobile applications and emphasize operational efficiency and profitability throughout our operations. These operating efficiencies enable us to generate strong cash flow in various market conditions, allowing us to continue investing in the growth of our business. Our business requires minimal capital expenditures to facilitate growth, with expenditures amounting to 2.9% for the year ended December 31, 2021, a decrease from 3.6% of net revenues in 2020.

 

The business carried out by XP will not be impacted by the Merger, and it will remain the same as the business currently carried out by XP prior to the Merger. The business carried out by Modal will not be impacted by the Merger, and it will remain the same as the business currently carried out by Modal prior to the Merger. Unless the Alternative Structure is implemented (as defined herein), following the effectiveness of the Merger, Modal will become a wholly-owned subsidiary of Banco XP. The XP 2021 Form 20-F includes consolidated information on the XP group. See “Where You Can Find More Information” for additional information on Modal.

 

We are an exempted company incorporated under the laws of the Cayman Islands on August 29, 2019. Our legal name is XP Inc. and our commercial name is “XP.” Our principal executive offices are located at Av. Chedid Jafet, 75, Torre Sul, 30th floor, Vila Olímpia – São Paulo, Brazil 04551-065. Our telephone number at this address is +55 (11) 3075-0429, and our investors relation e-mail is ir@xpi.com.br. Our website is www.xpinc.com. In addition, the SEC maintains a website that contains information which XP has filed electronically with the SEC, including its annual reports, periodic reports and other filings, which can be accessed at http://www.sec.gov.

 

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Modal

 

Modal was incorporated on July 29, 1980, as a corporation (sociedade anônima) organized under the laws of Brazil. We believe Modal is one of the leading investment platforms in Brazil, being one of the first to combine a complete variety of investment products with digital banking, all integrated in the same place with the support of our purpose-built technological architecture.

 

Modal’s business model incorporates traditional banking and investments products into a digital platform that includes financial educational content and qualified financial advice to individual customers based on their risk profile and their level of knowledge with respect to banking, financial investments, and capital markets. This business model is in line with Modal’s purpose of not only democratizing access to investment products, offering more than an open platform of products, with improved usability and content, but also providing customized financial advice. Through this approach, Modal seeks to understand the needs and demands of its customers to better help them in their investment decisions. Modal offers diversified educational tools, investment, and financial planning solutions for a comprehensive range of customers, including retail investors with different levels of sophistication, independent financial advisors, investment consultants and family offices.

 

Modal offers complementary services and exclusive products in its digital platform, such as: (i) a wide range of products (such as structured notes, investment funds, credit operations, among others) originated and/or distributed by Credit Suisse Brazil, an entity forming part of one of the largest wealth management banking groups in the world; (ii) banking as a service through Modal as a Service (i.e., the provision of the infrastructure required to non-banks to operationalize financial services and solutions to their clients); (iii) financial and education content through Eleven, an important independent research company in Brazil; (iv) a complete educational platform to attract, engage and educate customers on a game-focused educational journey (through Investir Juntos); and (v) tailored support to train and develop the independent financial advisors’ sales forces (through Proseek, its vertical specialized in the training of professionals for the financial market).

 

Modal’s legal name is Banco Modal S.A. and its commercial name is “Modal.” Modal’s registered office and principal executive office is located at Praia de Botafogo, 501, 5th floor, Bldg. 01, Botafogo, city of Rio de Janeiro, state of Rio de Janeiro, 22250-040, Brazil. The Modal investor relations department is located at its São Paulo office, at Av. Pres. Juscelino Kubitschek, 1455, 3rd floor, city of São Paulo, state of São Paulo, 04543-011, Brazil. The phone number of Modal’s investor relations department is +55 (11) 3525-6600, the e-mail is ri@modal.com.br and the website is http://ri.modal.com.br.

 

Risk Factors

 

The Merger contemplated by the Merger Protocol involves risks, some of which are related to such transactions themselves and others of which are related to the businesses of XP and Modal and ownership of XP Shares following the completion of the Merger, assuming it is completed. In considering the Merger contemplated by the Merger Protocol, you should carefully consider the information about these risks set forth under the section of this prospectus entitled “Risk Factors” together with the other information included in or incorporated by reference into this prospectus.

 

The Merger and the Merger Protocol

 

XP is a “foreign private issuer” in accordance with Rule 405 of the Securities Act. XP Shares are registered with the SEC and listed on the Nasdaq under the ticker symbol “XP.”

 

The Merger will consist of a merger of Modal with Banco XP, through a merger of shares (incorporação de ações) under Brazilian law, pursuant to which the Modal Controlling Shareholder and the remaining Modal Shareholders will receive XP Shares (in the form of XP BDRs) in exchange for their Modal Shares, as consideration from Banco XP in exchange for the Redeemable Shares. Unless the Alternative Structure is implemented (as defined herein), following the completion of the Merger, Modal will become a wholly-owned subsidiary of Banco XP and Modal Shareholders will hold XP Shares (in the form of XP BDRs), pursuant to the Exchange Ratio, as further described in this prospectus. Based on the number of Modal Shares as of the date of this prospectus, it is anticipated

 

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that, upon effectiveness of the Merger, the Modal Shareholders are expected to own approximately           % of XP’s total issued share capital (excluding treasury shares) and approximately           % of XP’s total voting rights, both on a fully diluted basis. For more information on the Alternative Structure, see “The Merger—Alternative Structure.”

 

Modal Shareholders who receive XP Shares (in the form of XP BDRs) and who wish to cancel their XP BDRs and receive the XP Shares represented thereby may inform their broker of such intention at any time after the completion of the Merger.

 

Subject to the terms and conditions of the Merger Protocol between Modal and XP, the Merger is expected to become effective on the Closing Date. The Merger is being proposed by XP with the aim to continue to grow its open investment platform presence. XP believes that the synergies that will result from the Merger will accelerate the process of disrupting the Brazilian financial markets, promoting an increase in, and continuing to facilitate consumer access to, investment products.

 

The terms and conditions of the contemplated Merger are contained in the Merger Protocol, and the Merger Protocol is described in this prospectus and included as an Exhibit to the registration statement of which this prospectus forms a part. You are encouraged to read the Merger Protocol carefully, as it is the legal document that governs the Merger. All descriptions in this summary and in this prospectus of the terms and conditions of the Merger are qualified in their entirety by reference to the Merger Protocol.

 

The Modal Shareholders’ Meeting

 

Date, Time and Place of the Modal Shareholders’ Meeting

 

The Modal Shareholders’ Meeting is expected to be held virtually, through an electronic platform, on                 , 2022. The time and place of the Modal Shareholders’ Meeting will be informed in the call notice of the Modal Shareholders’ Meeting.

 

Record Date; Shares Entitled to Vote

 

Only Modal Shareholders at the Modal Record Date are entitled to vote at the Modal Shareholders’ Meeting.

 

Quorum

 

The quorum required to hold the Modal Shareholders’ Meeting is 66.66% of the voting capital stock on first call, provided that, if the required quorum is not reached, the Modal Shareholders’ Meeting may be held on second call with any number of shareholders present.

 

Required Vote

 

Approval of the Merger Protocol and the transactions contemplated therein, including the Merger, or the “Merger Proposal,” requires the affirmative vote of Modal Shareholders attending a shareholders’ meeting and representing (i) a majority of the capital stock of Modal, and (ii) a majority of the Modal Shares in the free float attending the meeting (excluding abstentions). Votes to abstain will have the same effect as votes “AGAINST” the approval of the Merger Proposal for purposes of assessing the quorum set out in item (i) of the preceding sentence, but will be disregarded for purposes of assessing the quorum set out in item (ii) of the preceding sentence. “Votes cast” means the votes actually cast “FOR” or “AGAINST” a particular proposal, whether virtually or by proxy. An abstention will not constitute a vote cast.

 

As of the close of business of                , 2022, Modal Controlling Shareholder held Modal Shares representing approximately           % of the total capital stock of Modal. In accordance with the Merger Protocol, the Modal Controlling Shareholder undertook, as limited by the Brazilian law and B3 regulations, obligations to vote in favor of the corporate resolutions required to approve the Merger.

 

Virtual Meeting

 

The Modal Shareholders’ Meeting will be a completely virtual meeting of shareholders, conducted solely online. You will be able to attend and participate in the Modal Shareholders’ Meeting online. There is no physical location for the Modal Shareholders’ Meeting. If you plan to attend the Modal Shareholders’ Meeting virtually on

 

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the Internet, you must register in advance by following the instructions contained in sections of this prospectus entitled “The Modal Shareholders’ Meeting—Manner of Voting.”

 

Additional Information

 

For additional information, see the section of this prospectus entitled “The Modal Shareholders’ Meeting.”

 

Receipt of XP Shares (in the form of XP BDRs)

 

Pursuant to the terms and subject to the conditions set forth in the Merger Protocol, upon the completion of the Merger, Modal Shareholders on the Cut-off Date will have the right to receive one XP Share (in the form of XP BDRs) for            Modal Shares as consideration from Banco XP in exchange for the Redeemable Shares. This exchange ratio corresponds to up to 19,500,000 XP Shares divided by            Modal Shares outstanding immediately prior to the completion of the Merger (which excludes Modal treasury shares). Subject to satisfaction of the conditions precedent to the Merger, the Modal Controlling Shareholder and the remaining Modal Shareholders, which may be Brazilian or non-Brazilian residents, will receive in the Merger XP Shares (in the form of XP BDRs). The Modal Shareholders who receive BDRs and who wish to cancel their BDRs and receive the XP Shares represented thereby may inform their broker, and such broker in turn informs the BDR Depositary, of such intention at any time after the completion of the Merger. Modal Shareholders must consult their respective brokers in order to assess the required documents and relevant fees in connection with the cancellation of the XP BDRs to receive the XP Shares represented thereby.

 

The procedures for the receipt of the XP Shares (in the form of XP BDRs) (and further cancellation of such XP BDRs after the completion of the Merger, if Modal Shareholders so intend to do so) are expected to be set forth in the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto.

 

No fractions of XP Shares or XP BDRs will be distributed. Following the Merger, XP Shares underlying fractional entitlements to XP BDRs will be grouped into whole numbers for issuance of XP BDRs to be sold on the open market managed by B3. The proceeds from the sale of the XP BDRs will be distributed on a pro rata basis to the former Modal Shareholders who held the right to receive fractional XP BDRs net of taxes and fees, pursuant to a notice to former Modal Shareholders (aviso aos acionistas) to be disclosed by Modal. No additional consideration in cash or in kind will be paid by XP or Banco XP to Modal Shareholders in connection with the Merger. See also “The Merger—Overview.”

 

Exchange Ratio for Modal Shareholders

 

The Exchange Ratio is expected to be of one XP Share (in the form of XP BDRs) for            Modal Shares. This exchange ratio corresponds to up to 19,500,000 XP Shares divided by            Modal Shares outstanding immediately prior to the completion of the Merger (which excludes Modal treasury shares). See the section of this prospectus entitled “The Merger—Overview.”

 

Reasons for the Merger

 

The board of directors of XP considered a number of factors in making its determination that the terms and conditions of the Merger Protocol are fair and the Merger is in the best interests of XP and its shareholders.

 

After careful consideration of the business, assets and strategic direction of Modal, the XP board of directors approved the execution of the Merger Protocol.

 

At its meeting held on May 20, 2022, the Modal board of directors considered the business, strategic direction, financial performance and prospects of Modal and XP and consulted with Modal’s management, who presented the proposed transaction after carefully evaluating the Merger in several dimensions, such as strategic complementarity, value creation potential and synergy opportunities, among others. After due consideration and discussion of such factors, the Modal board of directors approved (i) the Merger Proposal, and (ii) the authorization for its executive officers to implement the Merger.

 

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For more information on the reasons underlying the decision by the board of directors of XP and Modal, respectively, to approve the Merger, see the sections of this prospectus entitled “The Merger—XP’s Reasons for the Merger” and “The Merger—Modal’s Reasons for the Merger.”

 

Withdrawal Rights for Modal Shareholders

 

Assuming that the Merger is approved, individuals and legal entities who are Modal Shareholders from                 , 2022 and who still own Modal Shares until the exercise of their withdrawal rights and did not vote in favor of the Merger (including those that were absent from the relevant shareholders’ meeting) at the Modal Shareholders’ Meeting are entitled to withdrawal rights in connection with the Merger. The exercise of withdrawal rights by Modal Shareholders will be carried out against the delivery of their Modal Shares to Modal, which will be cancelled by Modal upon payment of the corresponding withdrawal consideration.

 

The amount payable as reimbursement for the value of the Modal Shares will correspond to the book value of shareholders’ equity per share of Modal on               , 2022 according to Modal’s financial statements approved at the annual general shareholders meeting held on                    , 2022 without prejudice to the right of such holders to request the preparation of a special balance sheet. Modal Shareholders that exercise their withdrawal rights will receive the cash amount on within days from the end of the withdrawal rights exercise period.

 

If you do not exercise your withdrawal rights as a shareholder of Modal within 30 days of the publication of the Modal Merger Approval, and following the consummation of the Merger, you will automatically receive the XP Shares (in the form of XP BDRs) according to the Exchange Ratio, provided that you hold such Modal Shares through the Cut-off Date. See “The Modal Shareholders’ Meeting—Withdrawal Rights” and “The Merger—Withdrawal Rights for Modal Shareholders.”

 

Conditions Precedent That Must Be Satisfied or Waived for the Merger to Occur

 

The completion of the Merger is subject to, among others, the approval of the Merger Proposal at the Modal Shareholders’ Meeting, the approval of the transaction by the Brazilian Central Bank. The Merger was also subject to approval by CADE, which was obtained on July 26, 2022. For more information on the conditions precedent of the Merger, see “The Merger—Conditions Precedent.”

 

Material U.S. Tax Considerations

 

The receipt of XP Shares (in the form of XP BDRs) and/or cash in exchange for Modal Shares pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. Accordingly, a Modal shareholder that is a U.S. holder (as defined in “Material U.S. Federal Income Tax Considerations” below) will recognize taxable gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the sum of the value of the XP Shares (in the form of XP BDRs) and cash received in the Merger and (ii) such U.S. holder’s adjusted tax basis in the Modal Shares exchanged therefor. Subject to application of the “PFIC” rules discussed below, any gain or loss so recognized would generally be long-term capital gain or loss if the U.S. holder held its Modal Shares for more than one year (and short-term capital gain or loss otherwise). The deductibility of capital losses is subject to limitations.

 

U.S. holders of Modal Shares are urged to read the discussion below under “Material U.S. Federal Income Tax Considerations” and to consult their own tax advisors as to the particular U.S. federal income tax considerations of the Merger to them, as well as any tax consequences arising under any state, local and non-U.S. tax laws or any other U.S. federal tax laws.

 

TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO EACH HOLDER OF MODAL SHARES MAY DEPEND ON SUCH HOLDER’S PARTICULAR FACTS AND CIRCUMSTANCES. MODAL SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS IN ADVANCE TO UNDERSTAND FULLY THE TAX CONSEQUENCES TO THEM OF THE MERGER.

 

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Brazilian Taxation

 

Brazilian holders of Modal Shares are urged to read the discussion below under “Material Tax Considerations—Material Brazilian Tax Considerations” and to consult their own tax advisors as to the particular Brazilian income tax considerations of the Merger to them.

 

Accounting Treatment of the Merger

 

In accordance with IFRS, XP Inc will account for the Merger as a business combination applying the acquisition method of accounting with XP Inc as the acquirer. For a more detailed discussion of the accounting treatment of the Merger, see the section entitled “The Merger—Accounting Treatment of the Merger.”

 

Treatment of Equity and Equity-Based Awards

 

Our current equity compensation plans, which we make available to our directors, executive officers and members of our management, will not vest as a result of the Merger. Modal does not have an equity compensation plan currently in place. See also the section of this prospectus entitled “The Merger—Treatment of Equity and Equity-based Awards.”

 

Board of Directors and Management of XP Upon Effectiveness of the Merger

 

Upon effectiveness of the Merger contemplated by the Merger Protocol, XP’s board of directors and executive officers is expected to remain the same as prior to the Merger.

 

Listing of XP Shares and Delisting and Deregistration of Modal Shares

 

Unless the Alternative Structure is implemented (as defined herein), following the completion of the Merger, Modal will be a wholly-owned subsidiary of Banco XP. After the Merger, Modal will be deregistered from the CVM and the Modal Shares will be delisted from the B3. As a result, Modal will no longer file or make submissions with the CVM or B3.

 

At the time of deregistration and delisting following the completion of the Merger, former Modal Shareholders will have received XP Shares (in the form of XP BDRs) and Banco XP will be the sole shareholder of Modal. If the parties fail to complete the Merger of Shares, then Banco XP shall implement the Alternative Structure. In that case, Banco XP will be the controlling shareholder of Modal. For more information on the terms and conditions of the Alternative Structure, see “The Merger—Alternative Structure.”

 

Comparison of the Rights of XP Shareholders and Modal Shareholders

 

As a result of the Merger, Modal Shareholders will receive XP Shares (in the form of XP BRs) and may become XP Shareholders if they cancel their XP BDRs and receive the XP Shares represented thereby. For further information, see “—Receipt of XP Shares (in the form of XP BDRs).” XP Shares (in the form of XP BDRs) and related rights will be governed by the laws of the Cayman Islands and the XP’s Amended and Restated Articles of Association. Following the closing of the Merger, Modal Shareholders will have different rights as XP Shareholders than they did as Modal Shareholders. For a summary of the material differences between the rights of Modal Shareholders and XP Shareholders, see the section of this prospectus entitled “Comparison of the Rights of XP Shareholders and Modal Shares.”

 

Modal Financial Data

 

Modal financial statements and data have not been included in this prospectus because the significance test was not met at the 20% level in accordance with Rule 1-02(w) of Regulation S-X.

 

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Per Share Market Price

 

On January 6, 2022, the last full trading day prior to the first public announcement of the Merger on January 7, 2022, the closing sale price of XP Class A common shares (as reported by Nasdaq) was US$27.09, the XP BDRs (as reported by B3) was R$153.98 (US$26.99), and the closing sale price of Modal units (as reported by B3) was R$8.35 (US$1.46).

 

XTAGE

 

On May 12, 2022, XP announced the creation of XTAGE, a new platform for trading digital assets, in collaboration with Nasdaq, a global leading technology company serving the capital markets and other industries. For additional details on our arrangement with Nasdaq, see “—Nasdaq Services Agreements” below.

 

XP intends for the creation of XTAGE to be a key milestone in democratizing access to the digital assets market in Brazil. Built on Nasdaq’s leading trading technology, the platform started rolling out to select individual customers in July 2022, all of whom are domiciled in Brazil (and who can only access the platform subject to the satisfaction of certain KYC requirements, in accordance with industry practices and applicable Brazilian legislation, including a self-certification that they are non-U.S. persons). We expect to continue to roll out the trading platform to other select individual customers in the second half of 2022. Upon completion of the rollout, we expect our 1.9 million current selected individual Brazilian customers to have access to the trading platform directly in the existing XP technology applications, giving customers direct access to their digital assets portfolio and providing a frictionless process for them to invest through the XP app. We expect that the revenues we will generate from XTAGE will represent less than 1.0% of our total revenue and income for 2022.

 

The new platform currently offers only trading in bitcoin and ether. Our customers are required to fund their accounts in Brazilian reais so they can then use those funds on our XTAGE platform to purchase digital assets. Similarly, when customers wish to withdraw funds from XTAGE, they are required to sell their digital assets and transfer out the available balance in Brazilian reais. XP plans to expand XTAGE’s offering to include additional types of digital assets and services, such as access to third party trading platforms and the transfer of crypto assets, as market trends and investor appetite continue to evolve, pursuant to our existing policies and procedures on the legal and regulatory permissibility of making any particular digital asset available on the new platform. These policies and procedures include whether a particular digital asset that we intend to make available on the new platform is a “security” (valor mobiliário) under Law No. 6,385/1976 and therefore subject to the jurisdiction and regulation of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários), or “CVM.” For further information on the implications of listing, trading, custodying or engaging in other activities in a digital asset that is a “security” (valor mobiliário) under Brazilian law, see “Risk Factors—Certain Risks Relating to XTAGE—Risk Factors—Brazilian Regulation—A determination that a digital asset is a “security” for purposes of the Brazilian securities laws could limit or prohibit listing, trading, custodying or engaging in other activities with that digital asset in Brazil and with or for Brazilian parties, which could adversely affect the value of that digital asset and potentially digital assets generally, and could therefore adversely impact our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs).” and “Risk Factors—Certain Risks Relating to XTAGE—Risk Factors – Brazilian Regulation—A determination that a digital asset is a “security” for purposes of the Brazilian securities laws could have adverse regulatory consequences for XTAGE and our partners, and could therefore adversely impact our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs).”

 

We have in place policies and procedures that we use to analyze whether a particular digital asset should be treated as a security (valor mobiliário) for purposes of Brazilian law. Under these policies and procedures, the Company also evaluates public information about the particular digital asset and the CVM’s interpretation of the Howey test that the CVM uses to determine whether a “collective investment contract” is as a security, pursuant to Law No. 6,385/1976. The Company’s legal department classifies each digital asset under consideration as “low,” “medium” or “high” risk of being considered a security in Brazil. Even if the Company determines that there is a “low” risk of a particular digital asset being considered a security, the Company may still engage outside counsel for their legal analysis in support of such a determination. If any digital asset is classified as “medium” or “high” risk, the Company will always obtain the advice of outside counsel as to whether the Company would have good arguments to support a conclusion that the particular digital asset should not be considered a security. The Company

 

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has assessed that all digital assets currently listed on XTAGE are at “low” risk of being considered a security under Brazilian law. XP’s analysis is not binding on regulators or court in Brazil.

 

The Company conducts this analysis with respect to whether a particular digital asset should be treated as a security under Brazilian laws, not whether a digital asset should be treated as a security under the Securities Act or other U.S. law. XTAGE is operated by Xtage Intermediação S.A. (formerly known as Xchange Intermediação S.A.), or “XTAGE,” which is a corporation organized under the laws of Brazil. The Company, which owns XTAGE, is an exempted company incorporated under the laws of the Cayman Islands. XTAGE has its principal executive offices and headquarters in Brazil. Because both XTAGE’s customers and XTAGE’s operators are domiciled in Brazil, the Company believes that the transactions and digital assets traded through the XTAGE platform are subject to and should be analyzed under Brazilian law, not U.S securities laws. For risk factors associated with U.S. securities laws, see “Risk Factors—Certain Risks Relating to XTAGE—Risk Factors – United States Regulation—Our measures to ensure that persons located in the United States do not access XTAGE may not be completely successful, which could open us up to enforcement actions by U.S. regulators or subject us to regulatory regimes inconsistent with the operations of XTAGE.” below.

 

We believe that our process reflects a thoughtful analysis that is reasonably designed to facilitate consistent application of available legal guidance to digital assets to determine whether a particular digital asset should be treated as a security in Brazil. However, we recognize that the application of Brazilian securities law to the specific facts and circumstances of digital asset transactions is complex and subject to change, and therefore legal and regulatory risk will be an inherent feature of our digital asset business services until greater legal and regulatory certainty becomes possible. We continue to monitor the changing regulatory environment, and we expect our process to continuously evolve to take into account case law, facts and developments in technology, as regulatory guidance evolves. For risk factors associated with such digital assets, see “Risk Factors—Certain Risks Relating to XTAGE—Risk Factors – Brazilian Regulation” below.

 

Nasdaq Services Agreements

 

On September 16, 2021, we entered into a master services agreement with Nasdaq Technology AB, or “Nasdaq AB,” for (i) our trading services, or the “Trading Platform Agreement;” and (ii) our market surveillance services, or the “Market Surveillance Agreement” (and together with the Trading Platform Agreement, the “Nasdaq Agreements”). We don’t expect to incur capital expenditures in connection with the Nasdaq Agreements other than standard onboarding fees.  

 

Pursuant to the Trading Platform Agreement, Nasdaq AB has undertaken to develop a digital environment to allow us to connect our application programming interfaces with Nasdaq’s system, enabling the trading of digital assets on our platform. Pursuant to the Trading Platform Agreement, we have agreed to pay to Nasdaq AB an onboarding fee, a monthly service fee payable annually as from the date the platform goes live, and a variable fee based on the daily trading volume of all digital assets, as from the beginning of the third year of the Trading Platform Agreement. The monthly fee contemplates a minimum number of transactions per second and the parties can agree to increase capacity for an additional variable monthly fee based on transaction volume.  

 

Furthermore, pursuant to the Market Surveillance Agreement, Nasdaq AB has agreed to monitor our marketplace through its proprietary applications, including to provide support services for platform testing and alert analysis and provide reporting services to facilitate the continuous cloud monitoring of the sale and purchase of digital assets on the XTAGE platform. Nasdaq AB also provides cloud operation tools and related technical support. Pursuant to the Market Surveillance Agreement, we have agreed to pay to Nasdaq Market Surveillance an onboarding fee, an annual service fee and a variable monthly fee based on the average daily trading volume on the XTAGE platform during the period. The annual service fee is subject to an annual increase.

 

Moreover, pursuant to the Nasdaq Agreements, Nasdaq AB has agreed to certain information security obligations and service level requirements as provided for in the Nasdaq Agreements. The parties have also agreed to indemnify each other upon the occurrence of certain events, subject to certain limitations on liability. The Nasdaq Agreements have an initial term of five years: (i) the Market Surveillance Agreement is renewable for one additional

 

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year; and (ii) the Trading Platform Agreement is automatically renewed for successive three-year terms unless either party provides at least six months prior written notice of non-renewal. The Nasdaq Agreements may be terminated by either party upon the occurrence of certain customary termination events and/or material breaches, including a failure to pay amounts due and bankruptcy proceedings.

 

BitGo Custodial Services

 

On March 1, 2022, XTAGE entered into a qualified custodial services agreement with BitGo Trust Company, Inc., or “BitGo,” the third-party digital asset custodian for XTAGE, or the “BitGo Agreement.” BitGo provides qualified custodial services, including holding XTAGE’s customers’ digital assets in cold storage which is controlled and operated by BitGo. BitGo performs security checks before approving any withdrawals from cold storage. BitGo, not XTAGE, holds the private keys for digital assets held by BitGo as qualified custodian.

 

BitGo holds our customers’ digital assets deposited with BitGo by XTAGE pursuant to the BitGo Agreement in omnibus wallets/storage, which are segregated from XTAGE’s digital assets. Under the BitGo Agreement, BitGo must (i) segregate all digital assets received pursuant to the BitGo Agreement from both the property of BitGo and its other customers (ii) maintain a plan for continuity of business that will support its ability to conduct business in the event of a significant business disruption, (iii) maintain specified information security and service level requirements, (iv) maintain full and accurate books and records relating to our accounts and its services to us, (v) if we or any regulatory or governmental authority requires access to such books and records, grant access during normal business hours, and (vi) use reasonable best efforts to keep in safe custody all digital assets and keys in BitGo’s custody pursuant to the BitGo Agreement, including preventing unauthorized access to, or use of, keys in BitGo’s custody. The service fees charged by BitGo are calculated monthly based on the average U.S. dollar value of all assets under custody pursuant to a fees agreement between BitGo and XTAGE, and BitGo has agreed to provide statements of accounts at least once per quarter. Furthermore, BitGo has agreed to obtain and maintain insurance coverage from a reputable and substantial insurance company in such types and amounts as are commercially reasonable for BitGo’s services, including insurance against loss or theft of any of our or our customers’ digital assets to a maximum level of US$250 million.

 

For further information on the BitGo Agreement, see exhibit 10.4 to the registration statement of which this prospectus is a part.

 

Parfin Custodial Services

 

On April 25, 2022, XTAGE entered into a master services agreement with Parfin Pagamentos Ltda., or “Parfin,” which is also a third-party digital assets custodian for XTAGE, or the “Parfin Agreement.”

 

Pursuant to the Parfin Agreement, assets that customers require easier access to for liquidity purposes are held in warm wallets (online) and in hot wallets. Parfin is a SOC 2 Type II certified company, and adheres to SOC 2 Type II security and governance standards and procedures for storing the private keys of  customers’ digital assets. In addition, Parfin has a partnership with a third-party to store a back-up private access key, which could be used to retrieve access to our customers’ assets in case of any breach of Parfin systems. Under the Parfin Agreement, Parfin must (i) segregate all digital assets received and held by it pursuant to the Parfin Agreement from both the property of Parfin and its other customers, (ii) refrain from lending, pledging or hypothecating any digital assets received pursuant to the Parfin Agreement under its custody, (iii) maintain a plan for continuity of business to support the services rendered, including appropriate risk controls and disaster recovery plans and (iv) maintain information security and ensure the fulfillment of requirements of service levels specified under the Parfin Agreement. Parfin charges a monthly service fee based on the monthly volume of U.S. dollar transactions and an annual services fee based on the average U.S. dollar value of all assets under custody. Parfin is not required to maintain an insurance policy, but is required to indemnify us for breaches caused by its negligence, subject to the limitations of liability provided therein.

 

For further information on the Parfin Agreement, see exhibit 10.5 to the registration statement of which this prospectus is a part.

 

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Risk Factors

 

By voting in favor of the Merger, Modal Shareholders will be choosing to invest in XP Shares (in the form of XP BDRs). Investing in XP Shares involves risks, some of which are related to the Merger. In considering whether to vote for the Merger, you should carefully consider the risks described below, as well as the other information included in or incorporated by reference into this prospectus, including the matters addressed in the section of this prospectus entitled “Cautionary Statement Concerning Forward-Looking Statements” and the risk factors described under “Item 3. Key Information—D. Risk Factors” of the XP 2021 Form 20-F, as such risks may be updated or supplemented in XP’s subsequently furnished reports on Form 6-K.

 

For information on where you can find the documents XP has filed with the SEC and that are incorporated into this prospectus by reference, please see the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

Certain Risks Relating to the Merger

 

The timing and completion of the Merger is subject to the approval of the Modal Shareholders, as well as other conditions. As a result, there is no assurance as to whether and when the Merger will be completed.

 

Closing of the Merger is subject to certain conditions, including regulatory approvals and the approval of the Merger by the Modal Shareholders, among others.

 

There can be no assurance that the Merger will be approved or that the Merger will be completed. The Merger may be completed on terms that differ, perhaps substantially, from those described herein and in the Merger Protocol. For more information, see the section of this prospectus entitled “The Merger Protocol—Merger Protocol (Protocolo e Justificação) under Brazilian Law.”

 

Failure to complete the Merger could negatively impact the share price and the future business and financial results of Modal and XP.

 

If the Merger is not completed for any reason, including as a result of Modal Shareholders failing to adopt the Merger Protocol, the ongoing businesses of each of XP and Modal may be adversely affected and, without realizing any of the benefits of having completed the Merger, XP and Modal would be subject to a number of risks, including the following:

 

·XP and Modal may experience negative reactions from the financial markets, including negative impacts on prices of their respective shares and other securities; and

 

·XP and Modal may experience negative reactions from its customers, regulators and employees.

 

In addition, XP and Modal could be subject to litigation related to any failure to complete the Merger. If the Merger is not completed, these risks may materialize and may adversely affect XP’s and Modal’s businesses, financial condition, financial results and/or share price. For more information about the Merger Protocol, see the section of this prospectus entitled “The Merger Protocol—Merger Protocol (Protocolo e Justificação) under Brazilian Law.”

 

The volatility and illiquidity of the Brazilian securities markets and of XP BDRs may substantially limit your ability to sell XP BDRs at the price and time you desire.

 

Investing in securities that are traded in emerging markets, such as Brazil, often involves greater risk than investing in securities traded in the securities markets of more developed countries, and these investments are generally considered to be more speculative in nature. These investments are subject to certain economic and political risks, including (i) changes in the regulatory, tax, economic and political environment that may affect the ability of the investors to obtain a total or partial return on their investments, (ii) restrictions on foreign investment and return of capital invested, and (iii) foreign exchange fluctuations.

 

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The Brazilian securities market is substantially smaller, less liquid and more concentrated than the main securities markets, and may even be more volatile than some international markets, such as those in the United States and Europe. These characteristics of the Brazilian capital market may substantially limit investors’ ability to sell XP Shares (in the form of XP BDRs) at the desired price and time. Factors outside our control, such as analyst recommendations and changes in financial market conditions, may have a significant impact on the market price of XP Shares (in the form of XP BDRs). Additionally, B3 regulations may differ from what foreign investors are used to, which may limit the respective investor’s ability to sell XP Shares (in the form of XP BDRs) at the desired price and time.

 

XP cannot predict whether a liquid market for the XP Shares (including in the form of XP BDRs) will be developed or maintained or if a liquid market for the XP Shares (including in the form of XP BDRs) will continue to exist. If the XP Shares (including in the form of XP BDRs) are not liquid or are less liquid than they were before the Merger, the trading price of XP Shares (including in the form of XP BDRs) may be adversely affected and you may experience a decrease in your ability to sell your XP Shares XP BDRs. In addition, you may not be able to cancel your XP BDRs and receive the XP Shares represented thereby. We cannot assure you that you will be able to make such cancellation of XP BDRs and receive XP Shares in the expected manner and time.

 

We may not realize the benefits anticipated from the Merger, which could adversely affect our stock price.

 

The anticipated benefits from the Merger are, necessarily, based on projections and assumptions about the combined businesses of Banco XP and Modal, which may not materialize as expected or which may prove to be inaccurate. Our ability to achieve the anticipated benefits will depend on our ability to successfully and efficiently integrate the business and operations of Modal with our business and achieve the expected synergies. We may encounter significant challenges with successfully integrating and recognizing the anticipated benefits of the Merger, including the following:

 

·potential disruption of, or reduced growth in, our historical core businesses, due to diversion of management attention and uncertainty with our current client relationships;

 

·challenges arising from the expansion of our product offerings into adjacencies with which we may have limited experience;

 

·challenges arising from the expansion into Modal lines of business where we do not currently operate or have significant operations;

 

·coordinating and integrating research and development teams across technologies and products to enhance product development while reducing costs;

 

·consolidating and integrating corporate, information technology, finance and administrative infrastructures, and integrating and harmonizing business systems;

 

·coordinating sales and marketing efforts to effectively position our capabilities and the direction of product development;

 

·difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining Modal’s business with our business;

 

·limitations prior to the completion of the Merger on the ability of management of our company and of Modal to conduct planning regarding the integration of the two companies;

 

·the increased scale and complexity of our operations resulting from the Merger;

 

·retaining key employees, suppliers and other partners of our company and Modal;

 

·retaining and efficiently managing Modal’s customer base;

 

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·obligations that we will have to counterparties of Modal that arise as a result of the change in control of Modal;

 

·difficulties in anticipating and responding to actions that may be taken by competitors in response to the Merger; and

 

·the assumption of and exposure to unknown or contingent liabilities of Modal.

 

In addition, our anticipated benefits of the Merger with Modal contemplate certain synergies. Consequently, even if we are able to successfully integrate the operations of Modal with ours, we may not realize the full benefits of the Merger if we are unable to identify and implement the anticipated synergies or if the actions taken to implement such synergies have unintended consequences on our other business operations.

 

If the Merger is consummated, the inclusion of Modal’s business as one of our subsidiaries will result in certain incremental risks to us, which risks are expected to be material and could have a material adverse effect on our future results of operations and financial condition. The addition of Modal’s business may also exacerbate existing risks to our business.

 

If the Merger is consummated, Modal will operate its business as one of our subsidiaries. Modal’s business and structure will pose incremental risks to us, many of which may be material. These risks include, but are not limited to:

 

·business operational risks, including macroeconomic changes, and the impact of such changes on the market for financial, banking and investment services and products;

 

·Modal’s dependence on revenue generated from financial, banking and investment services;

 

·risks related to the competitive nature of the banking and finance industry, which is characterized by changing technology, changing client and end-consumer needs, evolving industry standards and frequent introductions of new products and services;

 

·risks related to Modal’s historical growth strategy, which has included acquisitions, and in particular, Modal’s inability to integrate an acquired business or technology as successfully as expected or to accurately identify and assess the magnitude of the liabilities assumed by Modal;

 

·risks related to system failures, the non-authorized or incorrect use of third-party data used by and/or made available to Modal’s systems; and

 

·risks associated with Modal’s failure to adequately protect personal data.

 

If the Merger is consummated, each of these risks could have an adverse effect on our results of operations and financial condition. In addition, the consummation of the Merger may heighten the potential adverse effects on our business, operating results, cash flows or financial condition described in the risk factors contained in the XP 2021 Form 20-F and incorporated by reference herein.

 

Your ownership percentage in XP will be less than the ownership percentage you currently hold in Modal.

 

Your ownership percentage in XP following the Merger will be less than your existing ownership percentage in Modal. Based on the number of Modal Shares as of January 6, 2022, the last full trading day prior to the first public announcement of the Merger on January 7, 2022, it is anticipated that, upon effectiveness of the Merger, the Modal Shareholders are expected to own approximately          % of XP’s total issued share capital (excluding treasury shares) and approximately           % of XP’s total voting rights, both on a fully diluted basis.

 

XP and Modal will incur significant transaction and merger-related costs in connection with the Merger.

 

XP and Modal have incurred and expect to incur a number of non-recurring direct and indirect costs associated with the Merger. These costs and expenses include fees paid to financial, legal, accounting and other advisors, severance and other potential employment-related costs, including payments that may be made to certain XP and

 

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Modal executives, filing fees, printing expenses and other related charges. Some of these costs are payable by XP and Modal regardless of whether the Merger is completed.

 

There may also be additional unanticipated significant costs in connection with the Merger that XP and Modal may not recover. These costs and expenses could reduce the strategic benefits XP and Modal expect XP to achieve from the Merger.

 

XP Shares eligible for sale after the closing of the Merger may cause the market price of our XP Shares and our XP BDRs to drop significantly.

 

The market price of our XP Shares and our XP BDRs may decline as a result of sales of a large number of our XP Shares (including in the form of XP BDRs) in the market after this Merger or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Furthermore, Brazilian regulation provides certain limitations for mutual funds, pension funds and financial institutions, among others, to hold investments abroad, which include our XP Shares and may also include XP BDRs. As a result, certain Modal Shareholders, upon receipt of their XP Shares (in the form of XP BDRs), may be required to sell their XP Shares or XP BDRs, which will be freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates within the meaning of Rule 144 of the Securities Act.

 

Sales of a substantial number of our XP Shares (including in the form of XP BDRs) or the perception that such sales may occur, could cause the trading price of our XP Shares or the XP BDRs to decline or make it more difficult for you to sell your XP Shares or XP BDRs at a time and price that you deem appropriate.

 

The closing of the Alternative Structure is subject to completion of a public tender offer. We cannot assure you that a public tender offer will be successfully completed.

 

If the Merger is not completed, the parties shall implement the “Alternative Structure” pursuant to which, XP shall (i) acquire all Modal Shares held by Modal Controlling Shareholder in exchange for XP Shares, in a stock for stock transaction, and (ii) carry out a public tender offer for the acquisition of the remaining Modal Shares held by Modal Shareholders in accordance with Brazilian law, whereby XP shall offer to all the minority shareholders the option to sell their Modal shares for the same consideration offered to Modal Controlling Shareholder. We cannot assure you that a public tender offer will be successfully completed. For more information on the Alternative Structure, see “The Merger—Alternative Structure.”

 

Certain Risks Relating to Our Business and Industry

 

You should read and consider the risk factors specific to our business that will also affect us after the Merger. These risks are described in “Item 3. Key Information—D. Risk Factors—Certain Risks Relating to Our Business and Industry” in the XP 2021 Form 20-F, as such risks may be updated or supplemented in our subsequently furnished current reports on Form 6-K, which are incorporated by reference into this prospectus. See the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

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Certain Risks Relating to XTAGE

 

Risk Factors – Brazilian Regulation

 

The regulatory regime governing blockchain technologies and digital assets in Brazil is uncertain, and new regulations or policies may adversely impact demand for our services and therefore our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs).

 

We currently offer trading and custody digital asset services to our customers and pass through to our customers the benefits of our partners’ custody services. Parfin is a limited liability company organized and chartered in the state of São Paulo. Parfin currently engages in digital asset activities in Brazil.

 

The treatment of digital assets continues to evolve under Brazilian law. The CVM, the Brazilian Central Bank, or the “Central Bank,” and the Brazilian Internal Revenue Service (Receita Federal Brasileira) have also made official pronouncements or issued guidance regarding the early treatment of digital assets in Brazil, such as the CVM Circular Letter No. 1/2018/CVM/SIN which states that digital-assets should not be qualified as financial assets under Brazilian law and, consequently, cannot be acquired directly by investment funds in Brazil. However, the Central Bank and the CVM have not yet issued any official regulation that would cover the issuance, listing, offer, sale, trading, clearing and holding of digital assets or the activities of digital asset market participants.

 

No Brazilian federal law is in effect to regulate digital assets, digital asset market participants, blockchain technology or that explicitly gives specific jurisdiction to a government agency over digital assets or the digital asset market, although multiple bills have been proposed and debated. The most relevant proposed bill is at present Federal Bill (Projeto de Lei Federal) No. 4,401/2021 or “Bill,” which has been approved by the Brazilian Senate but is still to be debated and approved by the Brazilian Deputies Chamber, where it can still be altered. There is no projected timeline for if and when the Bill will become law.

 

The Bill, if passed into law, would provide that a specific government agency (that is currently yet to be selected or created, if required), will be responsible for the regulation of digital assets services and activities and for authorizing companies to provide such services. The Bill provides that any company already authorized by the Brazilian Central Bank to engage in certain services will not require new authorization to implement these services for digital assets, such an authorized company will still be required to comply with any new regulation within six months of its passage. Although no government agency has been appointed or created pursuant to the Bill or otherwise to regulate digital assets or digital asset service providers, the Bill sets forth general principles that shall guide the actions of the responsible government agency as to its regulation over digital asset service providers. Some of these guiding principles include good corporate governance and the prevention of money laundering and the financing of terrorism. More specifically, the Bill provides that digital asset service providers must segregate their own financial resources and digital assets from those held on behalf of third parties and that a digital asset service provider cannot use digital assets owned by third parties to guarantee their own obligations, meaning that third-party owned digital assets under the control of a digital asset service provider would be returned to their owners and not comprise part of the digital asset service provider’s bankruptcy estate.

 

These provisions, nevertheless, can still be altered if and until the Bill becomes law and comes to effect, and the Brazilian regulatory framework for digital assets and digital asset service providers remains uncertain. Should the Bill pass into law unchanged, XTAGE may be considered a digital asset service provider and as such it would have to comply with the Bill and the regulation of a potentially new government agency. It is not possible to predict how or if the Bill may change and how any change may impact XTAGE or XP or the digital asset markets in Brazil more generally.

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As blockchain technologies and digital assets business activities grow in popularity and market size, and as new digital assets businesses and technologies emerge and proliferate, Brazilian legislators and regulators are likely to revisit and update their laws and policies, and can be expected to continue to do so in the future. In addition, it is possible that Brazilian legislators will enact laws that grant authorities to existing or new regulators in ways not currently anticipated under the Bill. It is not possible to know how such laws and rules might impact the ability of digital asset markets to function or how any new regulations that may flow from such laws or rules might impact the value of digital assets generally and those offered by us and our Brazilian partners such as Parfin to our customers specifically. Changes in the legislative or regulatory environment, including changing interpretations and the implementation of new or varying regulatory requirements by the Brazilian government, may significantly affect or change the manner in which we currently conduct some aspects of our business and, as a result, our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs).

 

A determination that a digital asset is a “security” for purposes of the Brazilian securities laws could limit or prohibit listing, trading, custodying or engaging in other activities with that digital asset in Brazil and with or for Brazilian parties, which could adversely affect the value of that digital asset and potentially digital assets generally, and could therefore adversely impact our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs).

 

Depending on its characteristics, a digital asset may be considered a “security” (valor mobiliário) under Brazilian securities laws and the CVM regulation. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict.

 

Whether a digital asset is a security (valor mobiliário) under Brazilian securities laws and CVM regulation depends on whether it is included in the lists of instruments making up the definition of “security” in Law No. 6,385/1976, as amended. Digital assets as such do not appear in Article 2 of Law No. 6,385/1976, although it includes the term “collective investment contract” (contrato de investiment coletivo), that is defined as “when publicly offered, any other collective investment instrument or contract that creates the right of participation, on profits or remuneration, including as a result of the rendering of services, and whose profits derive from the efforts of the entrepreneur or from the efforts of third parties.” This concept is inspired by the test developed by the U.S. Supreme Court to analyze whether a particular asset is a security under U.S. federal securities laws, known as the Howey test. Although the application of the Howey test to determine whether or not a contract is a “collective investment contract” in Brazil does not derive from an explicit law or CVM regulation and the CVM is not obliged to follow the U.S. Supreme Court interpretation of this test, the CVM applies its own interpretation in Brazil of the Howey test to decide whether a particular digital asset is a “collective investment contract,” as the Howey test was used as an inspiration for the “collective investment contract” concept created by Law No. 6,385/1976. For many digital assets, whether or not a contract is a “collective investment contract” under the CVM's interpretation in Brazil of the Howey test is subjective, and legal arguments can often be made both in favor of and against a particular digital asset constituting a “collective investment contract” under the CVM’s interpretation. In this sense, there are recent cases in which the CVM has acknowledged that a digital asset may, depending on its characteristics, be qualified as a “collective investment contract” and, consequently, its issuer may be subject to a company registration on CVM under CVM Resolution No. 80/2022 and its public offering may be subject to registration on CVM under CVM Resolution No. 160/2022.

 

Any enforcement action by the CVM, Central Bank or any state regulator, or a court decision or CVM announcement, asserting or finding that a particular digital asset is a security for purposes of the Brazilian securities laws and CVM regulation would be expected to have an immediate and material adverse impact on the trading value of that digital asset if it is then generally used or traded in Brazil, and depending on the specific characteristics of the digital asset, could have adverse spillover effects on the trading values of other digital assets perceived to share similar characteristics that are also generally used or traded in Brazil. This is because the business models behind most digital assets are incompatible with Brazilian regulations applying to transactions in securities. If a digital asset is asserted or found to be a security, it is likely to become difficult or impossible for the digital asset to be traded, cleared or custodied in Brazil through the same channels used by non-security digital assets. The digital asset securities markets are at an infancy stage and may not support a particular digital asset if it is categorized as a security by the CVM or provide the liquidity necessary to support active trading in a particular digital asset that is a security. Moreover, the network on which such digital asset is utilized may be subject to regulation as a securities intermediary, which could effectively render the network impracticable for its existing purposes. In addition to materially and adversely affecting the trading value of the digital asset, any such consequences are likely to significantly impact the digital asset’s liquidity and market participants’ ability to convert the digital asset into Brazilian reais, which are also likely to reduce the trading volume of that digital asset on XTAGE and could therefore adversely impact our business. As such, the CVM position on the Brazilian securities legal status of particular digital assets are closely monitored and can have dramatic effects.

 

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Neither XTAGE nor Parfin is registered with the CVM in any capacity, including as a “broker” (corretora de títulos e valores mobiliários), “distributor” (distribuidora de títulos e valores mobiliários) or “Brazilian securities exchange” (entidade administradora de mercado organizado). If the CVM, other regulatory authority or a court were to determine that a digital asset that we facilitate trading of through XTAGE is a security, we would not be able to offer access to such digital asset for trading through XTAGE or rely on Parfin services until we are able to do so in a compliant manner. A determination by the CVM, or another Brazilian regulatory authority or court that a digital asset that a platform currently supports for custodial or trading services constitutes a security may also result in us determining that it is advisable to remove other digital assets from XTAGE that have similar characteristics to the digital asset that was determined to be a security.

 

As described under “—A determination that a digital asset is a “security” for purposes of the Brazilian securities laws could have adverse regulatory consequences for XTAGE and our partners, and could therefore adversely impact our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs),” the determination that a digital asset is a security under the Brazilian securities laws could also have adverse Brazilian regulatory consequences for us and our partners. It is possible that a determination that a digital asset is a “security” for purposes of the Brazilian securities laws could have adverse regulatory consequences for Parfin such that it is no longer able to provide the services to us contemplated by the custodial services agreement, which may cause us to terminate our services relating to that digital asset and could adversely impact our business in the event that we cannot find a suitable replacement custodian. But even if there were no such adverse Brazilian regulatory consequences, we may nevertheless decide to terminate our services relating to that digital asset.

 

A determination that a digital asset is a “security” for purposes of the Brazilian securities laws could have adverse regulatory consequences for XTAGE and our partners, and could therefore adversely impact our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs).

 

In addition to the potential adverse consequences for our partners, which may in turn cause adverse consequences to our business, financial condition and results of operations described under “—A determination that a digital asset is a “security” for purposes of the Brazilian securities laws could limit or prohibit listing, trading, custodying or engaging in other activities with that digital asset in Brazil and with or for Brazilian parties, which could adversely affect the value of that digital asset and potentially digital assets generally, and could therefore adversely impact our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs),” the classification of a digital asset as a security (valor mobiliário) under the Brazilian securities laws and CVM regulation has wide-ranging implications for the regulatory obligations that flow from the listing, offer, sale, trading, clearing and holding of such assets. These implications could include but are not limited to the following, any of which could have adverse consequences to our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs):

 

· Liability for participating in unregistered securities offerings. In Brazil, securities generally may not be offered or sold unless its issuer and its offering are registered with the CVM or an exemption from registration is available. If a digital asset is determined to be a security in Brazil and XTAGE offered or sold that digital asset to our Brazilian customers or into Brazil without a valid exemption from CVM registration requirements, we could incur liability to purchasers as well as CVM monetary fines and other penalties, including restrictions on our ability to conduct our business.

 

· Liability for acting as an unregistered broker, distributor or Brazilian securities exchange. A person in the business of effecting transactions in securities in Brazil is generally subject to registration with the CVM as a “broker” (corretora de títulos e valores mobiliários) or as a “distributor” (distribuidora de títulos e valores mobiliários). A platform that brings together purchasers and sellers to trade securities in Brazil is generally subject to registration as a Brazilian securities exchange (entidade administradora de mercado organizado). The CVM has previously pursued enforcement actions against market participants for failure to comply with these rules. Any regulatory actions alleging that XTAGE acted as an unregistered broker, distributor, Brazilian securities exchange or any other market participant subject to CVM registration could result in liability, including civil monetary penalties and disgorgement, injunctive relief and cease and desist orders requiring XTAGE to cease from engaging in certain activities, and/or undertakings requiring the retention of compliance consultants or monitors. Such regulatory actions could also damage our reputation or otherwise result in a material adverse impact on our business, including restrictions on our ability to conduct our business.

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· Liability for acting as an unregistered investment adviser. A person in the business of advising others, for compensation, with respect to securities in Brazil is subject to registration and regulation as an investment adviser (consultor de valores mobiliários) under the CVM regulation. If a digital asset is determined to be a security and we advised clients as to that digital asset in a manner implicating the CVM regulation registration requirements without being so registered, we could incur CVM monetary fines and other penalties, including restrictions on our ability to conduct business.

 

We may be able to take steps in order to bring our operations into compliance with the Brazilian securities laws and CVM regulation following determinations that XTAGE has offered certain services for, or conducted sales into, Brazil concerning one or more digital asset securities, but there is no guarantee that we would be able to take such actions as may be necessary to ensure that our future activities related to XTAGE comply with applicable law, which could force us to discontinue some or all of our business activities related to XTAGE, or make costly alterations to our screening and other processes. In general, any steps we are able to take in order to ensure future compliance with applicable laws would not insulate us from liability for past violations.

 

Our process for analyzing whether or not a particular digital asset is a security for purposes of the Brazilian securities laws and CVM regulation may yield results that are not consistent with subsequent determinations by Brazilian regulators or courts.

 

For each digital asset that we consider for inclusion on the XTAGE platform, we perform a legal analysis under the Brazilian securities laws and CVM regulation to determine whether it constitutes a “security” under the Brazilian securities laws and CVM regulation. This process, which takes into account (i) Brazilian securities laws, CVM regulation, CVM administrative case law and other guidance, (ii) publicly available information and facts relating to the digital asset and (iii) our technical understanding of digital asset technologies, as described further below, is a “risk-based” assessment, not a legally binding determination on any regulatory body or court, and does not preclude legal or regulatory action. This analysis is performed in close consultation with our department experts, including legal.

 

As part of our analysis, the Company’s legal department classifies each digital asset under consideration as “low,” “medium” or “high” risk of being considered a security in Brazil. Even if the Company determines that there is a “low” risk of a particular digital asset being considered a security, the Company may still engage outside counsel for their legal analysis in support of such a determination. If any digital asset is classified as “medium” or “high” risk, the Company will always obtain the advice of outside counsel as to whether the Company would have good arguments to support a conclusion that the particular digital asset should not be considered a security. The Company has assessed that all digital assets currently listed on XTAGE are at “low” risk of being considered a security under Brazilian law.

 

Our determination that each digital asset available on the XTAGE platform is not a security for purposes of the Brazilian securities laws and CVM regulation requires judgment, given the lack of a bright-line test, and is not legally binding on any regulatory body or court. In addition, the internal policies and procedures we utilize in our analysis have not been endorsed by the CVM, its staff or other regulatory authorities. There can be no assurances that we will properly characterize any given digital asset as a security or not or that the CVM, other regulatory authorities or a court, if the question was presented to it, would come to the same conclusion.

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Because of the lack of clarity or bright-line tests in applying the Brazilian securities laws and CVM regulation to digital assets, and because different companies doing business in the digital asset industry take varying approaches to digital asset analyses, our competitors may reach different conclusions from us on the securities law status of a particular digital asset. Although we anticipate that these differences will narrow over time as the CVM and courts address the securities law status of larger numbers of individual digital assets, until that occurs, where competitors conclude that they have the ability to transact in digital assets in ways that we do not permit because of these different conclusions, some competitors may have business and revenue opportunities that are not available to us.

 

The highly regulated environment in which our third-party financial institution partners operate may subject us to regulation and could have an adverse effect on our business, results of operations, financial condition and future prospects.

 

Our third-party partners may be subject to federal supervision and regulation. Federal regulation of the banking and investment industries, along with tax and accounting laws, regulations, rules and standards, may limit their operations significantly and control the methods by which they conduct business. In addition, compliance with laws and regulations can be difficult and costly, and changes to laws and regulations can impose additional compliance requirements. Regulatory requirements may affect our third-party partners’ banking and investment asset practices, among other aspects of their business, and restrict transactions between us and our third-party partners. These requirements may constrain the operations of our third-party partners, and the adoption of new laws and changes to, or repeal of, existing laws may have a further impact on our business and the businesses of our third-party partners.

 

In choosing whether and how to conduct business with us, current and prospective third-party partners can be expected to take into account the legal, regulatory and supervisory regime that applies to them, including potential changes in the application or interpretation of regulatory standards, licensing requirements or supervisory expectations. Regulators may elect to alter standards or the interpretation of the standards used to measure regulatory compliance or to determine the adequacy of liquidity, certain risk management or other operational practices for financial services companies in a manner that impacts our current and prospective third-party partners.

 

Furthermore, regulatory agencies have extremely broad discretion in their interpretation of the regulations and laws and their interpretation of the quality of our third-party partners’ assets. If any regulatory agency’s assessment of the quality of our third-party partners’ assets, operations, lending practices, investment practices or other aspects of their business changes, it may reduce our third-party partners’ earnings, capital ratios and share price in such a way that affects our business.

 

Bank holding companies and financial institutions are extensively regulated and currently face an uncertain regulatory environment. Applicable state and federal laws, regulations and interpretations, including enforcement policies and accounting principles, have been subject to significant changes in recent years, and may be subject to significant future changes. We cannot predict with any degree of certainty the substance or effect of pending or future legislation or regulation or the application of laws and regulations to our current and prospective third-party partners. Future changes may have an adverse effect on our current and prospective third-party partners and, therefore, on us.

 

Risk Factors – United States Regulation

 

Our measures to ensure that persons located in the United States do not access XTAGE may not be completely successful, which could open us up to enforcement actions by U.S. regulators or subject us to regulatory regimes inconsistent with the operations of XTAGE.

 

Although we have measures in place to ensure that persons located in the United States do not access XTAGE, and we believe these measures are reasonable, it is possible that those measures may not be completely successful to ensure that persons located in the United States do not access XTAGE, or that U.S. regulators find our measures to not be sufficient. To the extent that, because of such failure or otherwise, we are deemed to be operating within the United States or to be offering our services to persons within the United States, we may be viewed as being in violation of certain U.S. laws, regulations or policies, which may open us up to enforcement actions by U.S. regulators or subject us to regulatory regimes inconsistent with our plans for XTAGE. This may restrict us from providing certain services to our customers, and adversely impact our business, financial condition and results of operations as well as the market price of XP Shares (including in the form of XP BDRs).

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Risk Factors – Digital Asset Business Operations

 

We rely on third-party partners to operate our digital asset platform.

 

We rely on third-party custody services and software providers such as Nasdaq, BitGo and Parfin to operate the XTAGE digital assets platform and perform auctions of digital assets. If we are unable to maintain a good relationship with such providers; if the terms and conditions or pricing of such providers change; if we violate or cannot comply with the terms and conditions of such providers; or if any such providers loses market share or falls out of favor or is unavailable for a prolonged period of time, access to and use of our digital assets platform will suffer. In addition, if new legislation or regulation or interpretations of legislation or regulation, including those related to digital assets, limits or prohibits our third-party partners from providing services to us, we may be unable to provide certain services to our customers or may need to find other third-party partners that may be more expensive. In addition, if our partners and other digital asset market participants no longer provide their services for a particular digital asset, the price of or demand for that digital asset might fall, which could have a negative impact on our digital asset business and therefore on the market price of XP Shares (including in the form of XP BDRs).

 

We may not maintain sufficient insurance to cover customer digital asset losses.

 

XTAGE contracts with BitGo and Parfin to custody digital assets that trade on XTAGE. XP and XTAGE do not maintain insurance policies covering the digital assets in which XTAGE customers transact. However, BitGo has agreed to obtain and maintain insurance against loss or theft of any of our or our customers’ digital assets up to a maximum amount of US$250 million. If (a) BitGo fails to comply with the BitGo Agreemenrt; (b) an event occurs that results in a digital asset loss that is not covered by the insurance; or (c) the amount of the losses exceeds the maximum insurance amount, customers who purchase digital assets through XTAGE may suffer losses with respect to their digital assets that are not covered by insurance and for which no person is liable for damages and may have limited rights of legal recourse in the event of such loss. For additional information regarding our arrangement with BitGo, see exhibit 10.4 to the registration statement of which this prospectus is a part.

 

A failure to safeguard and manage our customers’ digital assets by us or our partners could adversely impact our business, operating results, and financial condition.

 

Supported digital assets are not insured or guaranteed by any government or government agency. BitGo receives and holds digital assets transferred to it from us and our partners. Our and our partners’ abilities to manage and accurately safeguard these customer assets requires a high level of internal controls. As our business continues to grow and we expand our product and service offerings, we must continue to strengthen our associated internal controls and ensure that our partners do the same. Our success and the success of our offerings requires significant public confidence in our and our partners’ ability to properly manage customers’ balances and handle large and growing transaction volumes and amounts of customer funds. In addition, we are dependent on our partners’ operations, liquidity, and financial condition for the proper maintenance, use, and safekeeping of these customer assets. Any failure by us or our partners to maintain the necessary controls or to manage customer digital assets and funds appropriately and in compliance with applicable regulatory requirements could result in reputational harm, litigation, regulatory enforcement actions, significant financial losses, lead customers to discontinue or reduce their use of our and our partners’ products, and result in significant penalties and fines and additional restrictions, which could adversely impact our business, operating results, and financial condition. Any failure to increase our customer base, discontinuation or reduction in use of our platform and products by existing customers as a result could adversely impact our business, operating results, and financial condition.

 

Certain Risks Relating to the Modal Business and Industry

 

Any failure to improve Modal’s operational IT systems or to make the necessary investments to keep pace with technological developments in the banking industry may materially adversely affect Modal.

 

Modal’s core business is intrinsically linked to the digital environment in which new technologies are developed daily. Modal’s ability to maintain its competitiveness and expand its business depends on its ability to improve IT systems and efficiently increase its operational capacity. As a result, Modal must continuously make investments in significant improvements to its IT infrastructure in order to remain competitive. Modal cannot assure that it will have the funds available to maintain the levels of investment required to support improvements or upgrades to its IT infrastructure, which may result in a significant loss of competitiveness against its main competitors, and an inability to keep pace with the evolution of the sector and customer needs, materially adversely affecting Modal.

 

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Modal is unable to foresee the effect of technological changes on its operations. In addition to its own initiatives, it depends in part on third parties for the development of, and access to, new technologies, especially service providers for IT and the development of software used on its platforms. New services and technologies applicable to its industry may arise and make the current technology used in its products and services obsolete. The development of new technologies and their integration into its products and services may require significant investment and considerable time and may ultimately prove unsuccessful. In addition, its ability to adopt new products and services and to develop new technologies may be limited by industry standards, changes in rules and regulations, customer resistance, intellectual property rights held by third parties, and other factors.

 

Furthermore, Modal’s competitors may have the ability to devote more financial and operational resources than Modal can to the development of new technologies and services that provide improved functionality and features to their existing service offerings. If successful, their development efforts could render Modal’s services less desirable to clients, resulting in the loss of clients or a reduction in the fees Modal could generate from its service offerings. Modal’s success will depend on its ability to develop and incorporate new technologies to meet the challenges of a rapidly evolving market for financial services that are provided through electronic means, and to adapt to changing technologies. If it is unable to do so in a timely or profitable manner, its business and results of operations may be materially adversely affected.

 

The potential obsolescence of Modal’s products and services in relation to those of its competitors may reduce its revenues and make investment in new technologies necessary. Modal cannot assure you that it will be able to maintain the level of investment required to upgrade and/or continue to modernize its technology infrastructure or that it will be able to incorporate the necessary technologies into its products and services in order to retain its customers or attract new customers, which may restrict its ability to efficiently compete in the markets in which it operates and materially impact its business strategy and, consequently, its financial condition and results of operations.

 

Any failure to identify and respond to customer trends and preferences in a timely and effective manner could negatively impact Modal’s relationship with its customers, resulting in reduced revenues and results. These events may negatively affect the demand for the services it offers, as well as its market share. The occurrence of any of these risks may impact its financial condition and results of operations.

 

The increasingly competitive environment of the Brazilian banking sector may materially adversely affect Modal.

 

Brazil’s financial services industry is concentrated around five traditional financial institutions with US$1.5 trillion in assets that account for approximately 93% of retail assets under custody, or “AUC,” according to a report by Oliver Wyman published in 2019, and 77% of all personal loans and 66% of all deposits in 2021, according to Brazilian Central Bank.

 

Modal faces growing competition from other Brazilian and international banks, both public and private, as well as other companies that provide financial services, such as fintechs. A number of new institutions with a digital focus have recently entered the market, while large traditional financial institutions expand their activities to offer digital products and platforms.

 

Additionally, in Brazil as in other countries, a significant number of commercial banks and other large financial institutions have incorporated or acquired financial advisory and brokerage firms or merged with other financial institutions and/or asset managers. These institutions have the ability to offer a wide range of products, ranging from loans, deposits and insurance to brokerage, asset and wealth management, and investment banking services, which may enhance their competitive position.

 

Many of Modal’s competitors have substantially greater financial, technological, operational and marketing resources than it has. Modal cannot assure that it will be able to continue to adequately compete in this market. Thus, these competitors may be able to offer more attractive rates to Modal’s existing and potential customers, especially competitors that are affiliated with financial institutions. If competition causes Modal to reduce the price of its services, Modal will need to control its costs in order to maintain its profit margin, and its revenues may be

 

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adversely affected. In addition, Modal may not be successful in reducing or controlling costs and its margins may be adversely affected.

 

Increased competition may materially adversely affect Modal, including by limiting its ability to increase its customer base and expand its operations, resulting in a reduction of its profit margins, and increasing the competition for investment opportunities, which may adversely affect Modal.

 

The loss of customers may cause Modal’s revenues to decline and the deterioration of the quality of its products and services, including support services, may adversely affect its ability to attract and retain customers and partners.

 

Modal frequently faces a variety of situations in its operation, including, but not limited to, customer business terminations, account transfers to competitors and a lack of customer satisfaction with its platform and their overall user experience (which includes reliability, performance, functionality and quality of its products and services). It is not possible to predict the level of customer satisfaction in the future, and Modal’s revenues may decline as a result of higher customer dissatisfaction than expected in the normal course of business. This situation may have material adverse effects on Modal’s business, financial condition and results of operations.

 

Moreover, Modal’s growth to date has been partially driven by growth in its customers' businesses, and it cannot assure you that its customers’ growth will continue to occur or that it will continue to drive its own growth. If the growth rate of its customer business slows down or declines, this could have an adverse effect on its results of operations. Also, if Modal is not able to sell additional solutions to its active customer base, it may not be able to achieve its expected growth rates.

 

Modal’s customers expect a consistent level of quality from its platform and in the provision of other products and services. Its support services are also a key element of the value proposition for customers. Increased market volatility may result in unexpected losses in equities, derivatives and other products, which may lead to doubts about the accuracy of its suitability procedures and advisory services. If the reliability, performance or functionality of its products and services are compromised, or the quality of these products or services deteriorates, or if Modal ceases to provide a high level of support, its reputation and user confidence in its products and services may be adversely affected. Under such circumstances, Modal may lose existing customers and find it more difficult to attract new customers and partners.

 

Finally, if Modal is unable to increase its support functions and adequacy procedures to handle the growth of its customer and collaboration networks, the quality of its products and services may decline, which may adversely affect its ability to attract and retain customers and partners.

 

The offering of investment products and services to retail clients subjects Modal to various risks.

 

Modal offers investment products and services to its retail clients, including through investment advisors and consultants. The risks associated with these investment products and services include those arising from potential conflicts of interest, unsuitable investment recommendations, inadequate due diligence on issuers or other securities providers, inadequate disclosures of information and fraud.

 

The perception of these risks may make Modal liable for losses incurred by its clients, regulatory fines and civil penalties, as well as damage its reputation and business. In addition, the perception of these risks may be intensified during periods of increased market volatility, which could result in unexpected losses in the products provided to its retail customers and cause a material adverse effect on Modal.

 

Modal does not have long-term contractual arrangements with most of its institutional brokerage clients, and its trading volume and revenues may be reduced if these clients cease to use its platform and solutions.

 

Modal’s business is partially dependent on institutional brokerage from some of its clients who use its solutions and trade on its platforms. A limited number of these clients can account for a significant portion of Modal’s trading volumes, which in turn results in a significant portion of its transaction fees. Most of its institutional brokerage clients do not have long-term contractual arrangements with Modal and use its platform and solutions on a transaction-by-transaction basis and may choose not to use its platform at any time. These institutional brokerage

 

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clients buy and sell a variety of products within various asset classes using traditional methods, including by telephone, email and instant messaging, and through other trading platforms. Any significant loss of these institutional brokerage clients or a significant reduction in their use of Modal’s platform and solutions could have a substantial negative impact on its trading volumes and revenues, and materially adversely affect its business, financial condition and results of operations.

 

Some of Modal’s activities depend on the activities of independent financial advisors, and relationship problems with independent financial advisors or the inability to select, retain and train independent financial advisors could adversely affect Modal.

 

Pursuant to CVM Resolution No. 16/21, independent financial advisors are Modal’s representatives and are hired to perform the following activities: (i) prospecting and attracting clients; (ii) receiving and registering orders and transmitting these orders to the relevant trading or registration systems applicable, in the form of the regulations in force; and (iii) providing information about its products and services.

 

Modal is directly responsible for the acts of these independent financial advisors, before the clients they serve and before third parties, such as regulatory and self-regulatory bodies. There can be no assurance that the independent financial advisors will remain aligned with Modal, that there will be no business misunderstandings between them and Modal or that they will not be able to associate and/or compete with Modal in any way. Any business relationship problem with Modal’s independent financial advisors may result in customer and financial losses and adversely affect Modal.

 

Furthermore, in case of any error, fraud or irregularities committed by any of these independent financial advisors, Modal may be held directly responsible, which may cause a material adverse effect on Modal.

 

Modal is also exposed to civil and regulatory risks related to customer service provided by independent financial advisors, in that it may be held liable for acts practiced by its independent financial advisors, which may adversely affect its results of operations. In some cases, acts practiced by independent financial advisors may cause Modal to have to bear indemnities, enter into commitment agreements and suffer penalties from regulatory and self-regulatory bodies.

 

Moreover, Modal may also be subject to risks related to labor claims, including those made by independent financial advisors, which are deemed independent contractors under Brazilian labor law, but may wish to challenge that status. If their independent contractor status is reviewed by labor courts, changing it to that of a regular bank employee, Modal may be forced to pay additional labor and social security fees, which may adversely affect its financial condition and results of operations.

 

Being hired to provide advisory services for investment banking activities does not necessarily imply subsequent hiring.

 

Modal’s clients generally engage it on a non-exclusive basis, by project, for short-term operations and specific projects related to investment banking activities, instead of entering into long-term exclusive agreements, such as mandates for the sale of all or a significant portion of their business. Because contracts and agreements do not necessarily lead to future contracts, Modal must constantly seek new projects, especially when existing contracts are successfully concluded or terminated. Consequently, high levels of activity in any one period are not necessarily indicative of continuing high levels of activity in the immediately following period or any other period. When a contract is terminated, whether due to cancellation of the transaction for reasons of market conditions or otherwise, Modal may earn limited or no commissions and may not be able to recover the costs incurred prior to the termination.

 

A significant portion of Modal’s business depends on the B3.

 

The B3 is the only public stock exchange in Brazil and a significant portion of Modal’s business is conducted through it, for which it is charged fees for clearing, custody and other financial services provided by the B3. Modal cannot assure you that the B3 will not impose restrictions on trading, require additional collateral or margin requirements, increase existing fees or introduce new fees, among other measures. The occurrence of any of the above may have a material adverse effect on Modal’s business, financial condition and results of operations.

 

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In addition, the B3 is subject to external factors that may interrupt the negotiation of assets listed in it. As an example, due to the uncertainties generated by the COVID-19 outbreak, in March 2020, the B3 suffered eight circuit-breakers in its negotiations. Similar impacts may occur again, creating volatility on assets negotiated on the B3, which may cause a material adverse effect on Modal.

 

Failures or breaches in critical processes may temporarily interrupt Modal’s business, increasing costs and resulting in losses, which could materially adversely affect Modal.

 

As a financial institution, Modal is exposed to various operational risks, including risks of failure, deficiency or inadequacy of internal processes, people and systems, or external events, including the possibility of losses arising from legal risk, due to inadequacy or deficiency in contracts entered into by Modal, as well as sanctions due to noncompliance with legal provisions and compensation for damages to third parties arising from Modal’s activities. Modal is also subject to operational risks, including events such as (1) internal frauds; (2) external frauds; (3) labor claims and deficient security in the work environment; (4) inadequate practices relative to clients, products and services; (5) damages to physical assets owned or used by the institution; (6) situations that cause the interruption of its activities; (7) failures in systems, processes or IT infrastructure; and (8) failures in the execution, compliance with deadlines or in the management of its activities.

 

Modal cannot assure you that the aforementioned events will not occur. Any of these events could adversely affect its business, financial condition, results of operations and reputation.

 

Moreover, Modal may be subject to significant operational process interruptions, including events that are entirely or to some measure beyond its control, which may materially adversely affect its operations, including:

 

·the total or partial unavailability of systems that support back office services; and

 

·interruptions in the supply of outsourced services on which Modal’s critical processes depend, such as processing interbank wire transfers, payment of public or private securities, settlement of purchase orders and/or sale of securities, environmental connectivity, infrastructure hosting services, among other processes.

 

Operational failures, including those resulting from human error or fraud, increase costs and may result in losses, disputes with customers, damage to Modal’s image, lawsuits, regulatory fines, sanctions, intervention, the obligation to issue refunds or other damages, each of which may materially adversely affect Modal.

 

Activities of fiduciary administration of funds expose Modal to certain risks.

 

Modal operates in the fiduciary administration market, focusing on structured funds (Private Equity Investment Funds, Receivables Investment Funds and Real Estate Investment Funds). This activity has specific characteristics, both in relation to its operational processes and to the regulatory and legal demands, and Modal, in the capacity of fiduciary administrators, assume several obligations and responsibilities vis-à-vis the fund’s regulators, quotaholders and service providers. Therefore, Modal is subject to inspections and complaints that may materially adversely affect Modal.

 

In certain situations (recurrent or not), operational risk events, compliance risk and image risk of the fund management entity may occur, concerning, but not limited to, regulatory and legal noncompliance, human errors, fraud, system failures, failure in the suitability process and in the offering of products, balancing of assets in the funds, exposure of client data and high turnover of professionals. The occurrence of these events can generate losses, adversely affecting Modal’s results of operations and reputation.

 

Failure to protect against risks related to cybersecurity may result in a loss of revenue and reputational damage, hampering Modal’s operations or resulting in the unauthorized disclosure of information and, consequently, materially adversely affect Modal. Failure to protect its clients’ personal information may also adversely affect Modal.

 

Modal’s business involves the collection, storage, processing and transmission of personal data of its clients, including financial information. Its security infrastructure is subject to cybersecurity failures, including cyber-

 

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attacks, which may include invasion of platforms and IT systems by malicious third parties, malware infiltration (such as computer viruses), contamination (whether intentional or accidental) of networks and systems by third parties with whom Modal exchanges data, or by inducing employees, customers or other users of its systems to provide their passwords to access information systems or their current account, card payment data or other confidential information, cyber-attacks designed to access, change, corrupt or destroy systems, computer networks, stored or transmitted information, and unauthorized access to or breach of sensitive and/or private data of customers by its employees, third parties or others.

 

Successful cyber-attacks may paralyze or make Modal’s services or systems unavailable, resulting in business losses, contamination, corruption or loss of customer data and other sensitive stored information, a breach of secured data, the dissemination of unauthorized information or the loss of significant levels of liquid assets (including cash). The occurrence of these events may have a negative effect on Modal’s reputation and brand.

 

Additionally, due to the remote working environment adopted in response to the COVID-19 pandemic, there is the possibility of an increase in cyber-attacks through employees’ computers because the cyber security of networks used by employees in their homes may not provide the same level of security as that of the corporate work environment. Modal’s employees may also be victims of fake e-mails containing spam, malware or malicious links, among other things, as well as social engineering tactics for sharing credentials, all of which may impair its ability to manage its business and result in losses, contamination, or the unauthorized disclosure or other violation of the protection of its internal and customer information.

 

If Modal’s security environment protections systematically fail, it will be exposed to, among others, the risk of access to the environment by unauthorized third parties, infection of systems by malicious programs, dissemination of malware in the networks and undue visibility of customer and/or strategic institutional information. These actions can result in the unavailability of critical systems, cause financial losses due to misappropriation of financial resources, poor user experience due to connection degradation, reputational damage due to data leakage, and may generate regulatory fines, sanctions, damages, or even intervention by a regulator.

 

The regulatory authorities are increasingly aware of the need for cyber risk management and, among the current regulations, Modal is subject to the Brazilian Central Bank Resolution No. 4,658, dated April 26, 2018, the requirements of which are related to the readiness to report attacks in response to cyber incidents and the adequacy of its control environment and information security policies. Failure to comply with these regulatory demands may adversely affect Modal.

 

Furthermore, Modal manages and maintain confidential personal information of clients in the ordinary course of its business. Unauthorized disclosures or security breaches may result in violations of banking secrecy regulations, the right to privacy, data security and other applicable regulations, subjecting Modal to legal action and administrative sanctions, as well as damages that could materially and adversely affect Modal’s results of operations, financial condition and prospects. Its business is also exposed to risks of possible noncompliance with policies, misconduct or employee negligence and fraud, which could result in regulatory sanctions and serious reputational or financial damage. Additionally, Modal may be required to report events related to information security issues (including any cyber security issues), events where customer information may be compromised, unauthorized access and other security breaches to regulatory authorities. Any significant interruption or slowdown in Modal’s systems could cause information, including data related to customer requests, to be lost or delivered with delays or errors to customers, which could reduce demand for its services and products and materially and adversely affect Modal.

 

Any security breach or perceived failure involving the misappropriation, loss or unauthorized disclosure of confidential information, as well as any non-compliance with laws, policies or industry standards about privacy and data protection by Modal or its business partners may: (i) constitute a violation of bank secrecy rules, privacy rights, data security and other applicable laws or regulations; and (ii) expose us to significant judicial and financial claims, including high value fines, in addition to damaging our brand and reputation due to negative publicity and our customers’ loss of confidence in us, each of which would have a material adverse effect on us.

 

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Modal may not be able to withstand the consequences of a cyber-security incident in a timely manner, which could result in significant adverse damage to its reputation and results of operations.

 

Modal may not be able to withstand the consequences of a cyber-security incident in a timely manner, as a successful breach to its systems, software or hardware, data technology networks and systems or other technological assets may occur and persist for a long period before being properly detected. In addition, as attempted cyber-attacks continue to evolve in size and sophistication, Modal may not be able to develop or obtain means for neutralizing these incidents in a timely manner to prevent damage to its products and the provision of its services.

 

The measures Modal must take to investigate and remediate cyber security incidents may require significant financial investments and/or be insufficient to repel or mitigate the effects of the incident, which could cause reputational damage and a material adverse effect on its business, financial condition, results of operations, cash flow, liquidity, reputation and/or future business.

 

Additionally, the completion of the investigation of cyber security incidents, with complete and reliable information about the incident, may take considerable time, which may not be compatible with the speed necessary for Modal to provide timely service to its customers, and, during the investigations, the full extent of the damage or the best way to remediate it may not be recognized. The occurrence of any of these risks may cause a material adverse effect on Modal.

 

Modal is subject to risks associated with noncompliance with data protection laws and may be materially adversely affected in the event it is subject to fines and other sanctions under these laws.

 

Modal is subject to personal data protection laws in Brazil, such as Law No. 12,965/14 (Marco Civil da Internet), “Brazilian Internet Law” and Law No. 13,709/18, as amended, the Brazilian General Data Protection Law (Lei Geral de Proteção de Dados Pessoais), or “LGPD,” which generally regulates practices related to the processing of personal data in Brazil and establishes the principles to be observed by all sectors of the economy in personal data processing operations, regardless of how the personal data is collected. In addition, the LGPD provides, among other provisions, the rights of the owners of personal data, the legal bases upon which the processing of personal data is permitted, the obligations and requirements relating to information security incidents involving personal data, leaks, transfers, and sharing of personal data, as well as sanctions for noncompliance with its provisions, and authorizes the creation of the Brazilian National Authority for the Protection of Data (Autoridade Nacional de Proteção de Dados), or the “ANPD,” the authority responsible for preparing guidelines on the provisions of the LGPD and applying administrative sanctions in the event of noncompliance with the LGPD.

 

The Brazilian General Data Protection Law came into effect on September 18, 2020 and administrative penalties came into effect as of August 1, 2021. Non-compliance with any provisions of the Brazilian General Data Protection Law, even before the administrative penalties become applicable, exposes Modal to the following risks: (i) filing of individual or collective judicial proceedings seeking compensation for damages resulting from violations of the Brazilian General Data Protection Law and the sparse and sector regulations on data protection that are still in effect; and (ii) the application of the penalties set forth in the Brazilian Consumer Protection Code and the Brazilian Civil Internet Framework by certain consumer protection agencies, given that such agencies have already acted in this direction, even before LGPD came into force and the effective structuring of the ANPD, especially in cases of security incidents that result in improper access to personal data.

 

Pursuant to the LGPD, the penalties and fines for violations include: (1) warnings, with the imposition of a deadline for the adoption of corrective measures; (2) a daily fine, up to a maximum amount of R$50.0 million per violation; (3) a fine of up to 2% of gross sales of the company or its economic group, limited to the maximum amount of R$50.0 million per violation; (4) public disclosure of the violation; (5) the restriction of access to the personal data to which the violation relates, until corrective measures are implemented; (6) deletion of the personal data to which the violation relates; (7) partial suspension of the databases to which the violation relates for up to 12 months, until corrective measures are implemented; (8) suspension of the personal data processing activities to which the violation relates for up to 12 months; and (9) partial or full prohibition on personal data processing activities. In addition, Modal may be held liable for material, moral, individual or collective damages caused by Modal or its subsidiaries due to noncompliance with the obligations established by the LGPD or in specific legislation.

 

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The absence of sufficient processes to ensure data protection of the data Modal collects from its clients, as well as potential inadequacies in its practices and business model in relation to LGPD requirements, may result in higher costs and adversely affect its results of operations.

 

Interruptions or failures in Modal’s IT systems may compromise its operations and materially adversely affect Modal.

 

Modal’s IT systems are a significant factor of its highly computerized operations. Its success and ability to provide continuous, high-quality customer service depend on the efficient and uninterrupted operation of its IT systems.

 

The smooth operation of its systems may be compromised by unforeseen circumstances or force majeure, telecommunications problems, or human or programming failures related to its infrastructure and/or data processing service providers, or any other factors or incidents beyond its control.

 

Any failure in its IT systems to operate effectively or to integrate with other systems may cause interruptions in the availability of its platform and services, such as the home broker service, as well as delays in the completion of financial transactions and reduction in the efficiency of its operations. Any failure in its systems could also mean that fewer customers will be able or willing to purchase its services and products in the future. Additionally, the technology systems are subject to constant upgrades. In the event Modal is unable to upgrade such systems properly, its operations could be adversely affected, which could have a material adverse effect on Modal.

 

Moreover, most of Modal’s contracts with IT system service providers specify that failure to pay the fees may result in immediate or short-term interruption of these services and/or subject Modal to monetary fines and other penalties. Accordingly, if Modal is unable to or otherwise fail to perform under such contracts, the services may be discontinued, without prejudice, and it may be subject to penalties that, individually or in the aggregate, could materially adversely affect its results of operations and financial condition.

 

Modal’s policies, procedures and models related to risk control may prove to be ineffective and may adversely affect its results of operations due to unexpected losses.

 

Modal’s risk management methods (including market, liquidity, credit, operational and socio-environmental risks), procedures and policies, including statistical measurement tools and models, such as Value at Risk, or “VaR” and models that estimate the probabilities of default, may not be fully effective in measuring its risk exposure in all economic environments and against all types of risks, including those that are not possible to identify or predict. Some of the qualitative measurement tools for risk management are based on its observations of historical market behavior and may not be fully effective in identifying its exposure.

 

In addition, statistical tools and measurements may not predict all types of future exposures. These risk exposures could, for example, arise from factors that Modal does not predict or incorrectly assess in statistical models. In this scenario, its ability to manage risks would be limited. Therefore, its losses could be significantly higher than expected, adversely affecting Modal.

 

Modal’s results of operations and financial condition depend on its ability to include these risks in its policies and assess the losses associated with the risks to which it is exposed. Modal’s qualitative model may not take into account all of the existing risks and its approach to managing these risks may prove to be insufficient, exposing it to material unexpected losses, adversely affecting Modal.

 

Modal may be materially adversely affected by damage to its reputation.

 

Modal highly depends on its image and credibility in the market to generate business and attract new customers. Several factors may damage its reputation and result in a negative perception of Modal by its customers, counterparties, shareholders, investors, supervising entities, government agencies, business partners and other audiences. These factors include noncompliance with legal obligations, conducting irregular or fraudulent operations, involvement with partners of ethically questionable posture, unauthorized disclosure of customer information, misconduct by Modal’s employees, failures in risk management, negative publicity generated by the dissemination of client complaints regarding its services through social networks, among others. Additionally, some

 

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significant actions taken by other financial institutions or other market participants, even if not related to Modal or its economic group, may indirectly damage its reputation. Damages to Modal’s reputation may adversely and materially affect its business and results of operations.

 

Modal’s reputation may also be harmed due to negative publicity generated by customer complaints on customer service platforms and social media, which may also reduce its ability to attract new customers or retain its current customers and, as a result, adversely affect Modal.

 

Modal’s branding efforts include partnerships with digital influencers. In case such digital influencers share controversial content, even if unrelated to Modal, it might be adversely affected.

 

As part of its digital strategy, Modal enters into agreements with digital influencers that have numerous followers on social media platforms to promote its brand, products and services. Taking into account that Modal does not have control over publications made by the digital influencers, and that these publications might contain controversial or even publicly repudiated opinions, Modal may be linked to such opinions, compromising its reputation before its clients and potential clients. If Modal’s brand happens to be linked to such controversial content, or any other controversial viewpoints espoused by these digital influencers, its results of operations and financial condition may be adversely affected.

 

Modal may not be able to effectively manage growth and maintain adequate internal controls to prevent or detect violations of applicable laws or internal policies by its officers, employees and suppliers, including violations of anti-fraud, anti-corruption and anti-bribery laws and regulations. Violations or allegations and investigations of violations of such laws may damage its reputation and have a material adverse effect on its business, results of operations and financial condition.

 

Modal’s internal controls and compliance procedures may not be sufficient to prevent or detect all misconduct, fraud or violations of applicable laws or internal policies by its employees, officers, suppliers and other agents, related parties and investees or to ensure that all of them act at all times in strict compliance with the internal policies, laws and regulations for preventing and combating corruption to which Modal is subject, as well as applicable Brazilian and foreign laws and regulations related to preventing and combating corruption, anti-money laundering, tax evasion and other similar matters. Failure to comply with these laws may result in the imposition of fines, forfeiture of illicitly obtained assets, rights and amounts, suspension or partial interdiction of activities, prohibition to contract with the government or to receive benefits or tax or credit incentives, among other sanctions which may adversely affect Modal’s reputation, business, financial condition and results of operations.

 

The mechanisms for preventing and fighting corruption, as well as Modal’s internal controls may not be able to prevent or detect (i) violations of anti-corruption or similar laws; (ii) occurrences of fraudulent and dishonest behavior by the directors, officers, employees or third parties acting on its behalf; or (iii) other occurrences of behavior inconsistent with ethical principles, which may adversely affect its reputation, business, financial condition and results of operations.

 

In this regard, Modal may be subject to one or more enforcement actions, investigations or proceedings by authorities for alleged violation of these laws. Non-compliance with anti-corruption laws or any investigations of misconduct or enforcement actions against Modal may lead to judicial or administrative sanctions, such as fines, interdictions, loss of business licenses and reputational damage, which may cause material adverse effects on its financial condition and results of operations. Modal may also be held jointly and severally liable for the payment of fines and full compensation for the damage caused due to practices contrary to the Brazilian anti-corruption law by its controlling companies, subsidiaries or affiliates, which in this case could materially and adversely affect its reputation, business, financial condition and results of operations, as well as the price of its units.

 

In addition, Modal may not be able to ensure that all of its managers, employees, representatives or suppliers always act in strict compliance with internal policies, laws and applicable regulations aimed at preventing and combating corruption. Furthermore, due to the COVID-19 pandemic, Modal has adopted a remote working environment for certain employees, a context that may create difficulties for Modal to monitor and follow up on the conduct of such employees relating to compliance with internal policies, laws and regulations. Accordingly, Modal may be subject to violations of internal controls, laws and regulations and related legislation caused by business

 

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conduct and occurrences of fraudulent and illicit behavior by its directors, officers, employees, business partners and third parties acting on its behalf.

 

Modal is subject to laws and regulations relating to money laundering, terrorism financing, corruption and other illegal activities in the jurisdictions in which it operates and may be materially adversely affected by violations of these laws and regulations.

 

Modal is subject to laws and regulations related to the prevention and combating of money laundering, terrorism financing, corruption and other illegal activities. These laws and regulations require, among other measures, that Modal adopts and apply “Know-your-Customer” (including politically exposed person, or PEP, assessments), “Know-your-Partner” and “Know-your-Supplier” policies and procedures. Modal must also provide training for employees in the prevention of money laundering, terrorism financing and other related illegal activities, as well as report suspicious transactions to the applicable authorities.

 

These standards have become more detailed and complex, requiring that Modal improves already sophisticated systems and use specialized personnel for compliance and monitoring purposes. Policies and procedures designed to detect and prevent the use of its framework for money laundering, terrorism financing, corruption and other related illegal activities as well as those designed to prevent bribery and other illegal practices may not prove effective in preventing the unauthorized use of its systems by its employees or third-party agents for illegal or improper activities. Modal may be subject to losses due to non-compliance with regulations related to the prevention of illegal activities, which may adversely impact its financial condition and results of operations.

 

In the event that Modal is unable to fully comply with applicable laws and regulations to prevent and combat money laundering and the financing of terrorism, corruption or other related illegal activities, regulatory and/or self-regulatory agencies with jurisdiction over Modal may impose fines and other penalties, including the revocation of licenses and operating permits. Additionally, Modal may also be held jointly and severally liable for the payment of a fine and full compensation for damage caused due to practices contrary to the Anticorruption Law by its parent companies, subsidiaries, affiliates or consortiums, which in this case could materially and adversely affect its reputation, business, financial condition and results of operations, as well as the market price of its shares.

 

If Modal, the members of its management, controllers, employees or third parties, acting or not on its behalf, become associated or even accused of being associated or involved in corruption cases, directly or indirectly, its reputation may be negatively affected and/or Modal may be subject to fines, sanctions and/or legal obligations, any of which may have a material adverse effect on its results of operations, financial condition, prospects and the market price of its securities.

 

Modal may not be able to guarantee the accuracy of third-party product information on its platform and it has limited control over the performance of third-party financial products.

 

Modal offers certain third-party financial products. The acceptance and popularity of its platform is partially based on the reliability and performance of the underlying products and information on it. Modal relies on third-party vendors to ensure the authenticity of its underlying products and the comprehensiveness, accuracy and timeliness of information related to them. If these vendors or their agents provide inauthentic financial products or incomplete, misleading, inaccurate or fraudulent information, Modal may lose the confidence of existing and potential investors. Furthermore, if investors purchase the underlying products they discover on its platform and suffer losses, these investors may blame Modal and attempt to hold it liable for their losses as they may believe that Modal is responsible for the quality and performance of those products. Modal’s reputation may be damaged and it may experience reduced user traffic on its platform, which would adversely affect its business and financial performance.

 

Modal may incur losses associated with counterparty exposure risks, including from the Brazilian government.

 

Modal routinely transacts with counterparties in the financial services industry, including brokerage and dealer firms, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. In addition, like most Brazilian banks, Modal invests in debt securities issued by the Brazilian government. As of December 31, 2021, approximately 15% of its assets and 48% of its securities portfolio consist of such government debt securities.

 

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Modal may incur losses in the event that any of its counterparties fail to honor their contractual obligations due to bankruptcy, lack of liquidity, operational failure or other reasons attributable solely to their counterparties. For example, any failure of the Brazilian government to pay these securities on time, or a significant reduction in their market value, could adversely affect Modal’s results of operations directly, due to losses in the portfolio, and indirectly, due to instabilities that could be caused to the banking system as a whole in the event of a default on public debt.

 

This counterparty risk may also arise if Modal enters into credit agreements in which counterparties have an obligation to make payments and are unable to do so, or if Modal enters into foreign exchange (or other markets) transactions that are not settled at the specified time because of non-delivery by the counterparty, clearing house or other financial intermediary. Failure to meet its contractual obligations may adversely affect its financial performance.

 

The securities and derivative financial instruments are subject to market price and liquidity variations, due to changes in economic conditions, and may cause significant losses for Modal.

 

Any future realized or unrealized gains or losses from securities and derivative financial instruments or hedging strategies could have a significant impact on Modal’s revenue. The accounting and recognition of such gains and losses may vary considerably from one period to another. For instance, if Modal enters into derivative transactions to hedge against devaluation of the real (or any other currency) or interest rates, Modal may incur financial losses if the real (or any other currency) appreciates or if interest rates increase.

 

Modal cannot predict the gains or losses in any future period, and furthermore, variations experienced from one period to another do not necessarily represent a significant benchmark, particularly in Brazil. Gains or losses in its investment portfolio may create volatility in net revenue levels and Modal may not earn a return on its consolidated investment portfolio or any portion thereof in the future. Any losses in its securities and derivative financial instruments could adversely affect Modal.

 

Such risk may be increased considering the impact on the Brazilian economy, the global economy and the financial market caused by the COVID-19 pandemic and the political instability in Brazil. In addition, any reduction in the value of the securities and derivatives portfolios could lead to a reduction in Modal’s capital ratios, which could compromise its ability to undertake certain activities, such as lending or trading of securities at current levels, and to continue to pursue its growth strategies, which could materially adversely affect Modal.

 

If loan losses exceed the provisions for credit risk in banking activities, Modal could be adversely affected.

 

Modal’s financial condition and results of operations depend on its ability to assess losses associated with the risks to which Modal is exposed. Modal makes provisions for banking losses according to the parameters established in IFRS 9 and in the Technical Pronouncement of the Brazilian Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis), or “CPC” No. 48 and use estimates that involve many factors, supported by available information, including recent events of loss or default, economic scenario, Modal’s financial condition and internal loan risk rating. The calculation of the allowances for loan losses involves significant judgment by management, and these judgments may change in the future depending on information as it becomes available, which may differ from those of other financial institutions in Brazil or abroad. Moreover, the estimates used by Modal involve many factors supported by publicly available information, which may not be correct.

 

If actual loan losses exceed the allowances for loan activities, Modal will be adversely affected. The ability of borrowers to meet their obligations on schedule is directly related to their operational and financial performance. A financial crisis, such as the 2008 crisis, the European sovereign debt crisis of 2010 to 2012, the financial impact of the COVID-19 pandemic, or poor economic performance resulting from the recession in Brazil, may increase the number of borrowers in default. An increase in the number of non-performing borrowers in Modal’s loan portfolio could increase the losses resulting from such loans and adversely affect Modal.

 

Modal may be unable to recover the value of secured loans and may be adversely affected.

 

Upon the occurrence of default, the only recourse, after exhausting all extrajudicial collection measures, is to foreclose the collateral, if any. The recovery of overdue loans from debtors under financial distress may be subject

 

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to insolvency proceedings in which Modal’s claim may be junior to other creditors deemed to have preference over Modal, such as employees and tax authorities.

 

Furthermore, once a court judgment is rendered, enforcement of the rights over the collateral involves additional hurdles. Taking into account the procedures applicable in judicial processes for debt collection and the low liquidity in certain markets, Modal may not be able to enforce its rights over the collateral, which may adversely affect its financial condition and results of operations.

 

Modal may experience an increase in the portion of overdue loans as its portfolio of credit products and derivatives grows.

 

Modal intends to continue to grow its portfolio of credit and derivative products. The growth of this portfolio may initially reduce the ratio of overdue loans to total loans until growth slows or the portfolio becomes more seasonal. When the portfolio is seasonal, an increase in the absolute level of past due loans may be experienced. This can result in increases in loan loss provisions, write-offs and the proportion of loans in arrears to total loans. In addition, Modal’s historical loan loss results may not be indicative of its future loan losses.

 

Modal’s models, management methods and procedures for the management of market, liquidity, credit, operational, social and environmental risks may not be sufficient to avoid exposure to uncategorized or unanticipated risks, as well as the materialization of known risks, which may adversely impact its financial condition and results of operations.

 

The set of methodologies, policies and processes that Modal uses to monitor, measure and manage risks may be insufficient to avoid exposure to unanticipated risks or the materialization of known risks. This may materially adversely impact its reputation, financial condition and results of operations. Possible legal measures or changes by the regulator, or legislation, could have a negative impact on its activities and results.

 

The statistical models and management tools used to estimate Modal’s exposures over a period may be inaccurate in measuring the capital, controls and safeguards needed to cover/control/mitigate unpredictable or wrongly quantified factors. Furthermore, stress tests and sensitivity analyses based on pre-defined scenarios may not show all the possible impacts on its results of operations.

 

Modal may also incur losses due to failures, inadequacies or deficiencies in internal processes, systems, human errors or even external events such as natural disasters, environmental accidents, terrorism, robbery and vandalism, in addition to occurrences that are not correctly identified and treated by the models allocated to operational risk, which could adversely affect its business, image, financial condition and results of operations.

 

Modal may have insufficient capital to meet the capital requirements established by the CMN and the Brazilian Central Bank.

 

Brazilian financial institutions must comply with the guidelines imposed by the CMN and the Brazilian Central Bank, which are similar to the guidelines of the Basel Accord, related to capital adequacy, including minimum capital requirements. Modal cannot guarantee that in the future it will have sufficient funds or resources available to ensure adequate capitalization, and therefore it may be unable to meet capital adequacy requirements imposed by the CMN and the Brazilian Central Bank.

 

CMN Resolution No. 4,192, dated March 1, 2013, as amended, establishes a calculation method for regulatory capital held by financial institutions and other institutions authorized to operate by the Brazilian Central Bank. This resolution establishes the beginning of the transition to new standards established by Basel III, and its main purposes are: (1) to improve the capacity of financial institution to absorb shocks arising from the financial system and other economic sectors; (2) to reduce the risk of contagion spreading from the financial sector to the real economic sector (systemic risk); (3) to help maintain financial stability; and (4) to promote sustainable economic growth.

 

Moreover, financial institutions may only distribute profits, at any time, in an amount higher than may be required by law or regulation if this distribution does not jeopardize compliance with capital and shareholders’ equity requirements. Furthermore, Modal cannot assure you that it will be able to comply with new minimum capital requirements in case they are issued by the Brazilian Central Bank, whether these new requirements stem from

 

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changes in the applicable regulatory framework, significant changes in the performance of the Brazilian economy, or any other reasons.

 

Accordingly, any failure to meet minimum capital requirements may negatively affect Modal’s ability to distribute dividends and interest of shareholders’ equity, in addition to adversely affecting its operating and lending capacity. As a result, Modal may have to sell assets or take other measures that may materially adversely affect Modal. In addition, Brazilian regulators may apply sanctions due to capital inadequacy, including administrative proceedings, fines, disqualification of management and the cancellation of its operating license, which may materially adversely affect Modal.

 

The expansion of Modal’s business depends on increasing the availability, quality and use of the Internet in Brazil, as well as increasing the use of Internet-connected devices for financial services.

 

Modal’s future revenues depend on the use of the Internet, as it focuses its growth strategy on providing financial services through online platforms. The use of digital platforms for financial services in Brazil depends, among other factors, on the perceived security, quality of connection and ease of use of the tools. In addition, limited internet access in certain regions of Brazil, particularly those with lower connection quality and/or low income levels, may constrain Modal’s potential growth.

 

Internet development in Brazil may never reach the levels seen in more developed countries for reasons beyond Modal’s control, including lack of necessary network infrastructure, delayed development of enabling technologies, performance improvements and security measures. The Brazilian Internet infrastructure may not be able to support the continued growth in the number of users, their frequency of use or their broadband requirements. Delays in telecommunications and infrastructure development or other technology failures may prevent improvements in the reliability of the Internet. If telecommunications services are not sufficiently available to support the growth of the Internet in Brazil, response times may be slower, which would reduce Internet usage and impair Modal’s offering of products and services.

 

In addition, the price of internet access and internet-connected devices, such as personal computers, tablets, cell phones and other mobile devices, may limit Modal’s growth, particularly in parts of Brazil with low income levels. Income levels in Brazil are significantly lower than in the United States and other more developed countries, while the prices of mobile devices and internet access in Brazil is higher than in these countries. Income levels in Brazil may still decrease and access prices may increase in the future. Any of these factors may limit Modal’s ability to generate revenues.

 

Modal may be materially adversely affected by the loss of members of management or other professionals who are key to its activities, as well as by the weakening of its organizational culture and / or its inability to attract and retain qualified personnel.

 

Modal’s businesses operate at the intersection of rapidly changing technological, social, economic and regulatory developments, requiring a broad range of knowledge and intellectual capital. Modal’s ability to maintain a competitive position depends to a large extent on the services provided by its management, its organizational culture and its ability to hire and retain a sufficient number of professionals who are aligned with its organizational culture. Consequently, Modal’s growth and future success depend to a large degree on its ability to retain management and other key professionals and to strategically hire, retain and motivate new talent. To the extent that the market for qualified financial market professionals is extremely competitive, Modal’s ability to attract, retain and motivate key employees and executives depends on its ability to offer highly attractive incentive opportunities. The incentives that Modal provides or offer to these individuals may not be effective in attracting, retaining and motivating them. In addition, its efforts to retain and develop employees may also result in additional expenses, which may negatively affect its profitability.

 

In order to manage its growth effectively, Modal must continue to strengthen its existing infrastructure, develop and improve its internal controls, create and improve reporting systems, and address problems as they arise. These efforts may require substantial financial expenditures, resource allocation, process development, and other investments and innovations. In addition, Modal encourages employees to quickly develop and launch new features

 

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for its products and services. As Modal grows, it may not be able to execute its plans as quickly as other smaller institutions, ceasing to attract qualified personnel for its management and development of its activities.

 

In addition, financial institutions and other institutions authorized to operate by the Brazilian Central Bank are required to comply with certain rules issued by the CMN regarding the election, approval by the Brazilian Central Bank and compensation of their managers. Members of the board of directors, directors or managing partners of financial institutions and other institutions authorized to operate by the Brazilian Central Bank must have and prove technical qualification compatible with the attributions of the position they hold, which may prevent them from undertaking functions in the institutions. If key members of management resign, or if Modal is unable to continue to attract and retain specialized management, its business, financial condition and results of operations may be adversely affected.

 

Unfavorable decisions, or the impossibility to make judicial deposits, in judicial or arbitration proceedings, investigation procedures involving Modal, its subsidiaries or its management may adversely affect Modal.

 

Modal, its subsidiaries and management are subject to, and may be parties to lawsuits, administrative proceedings and investigation procedures in the course of its business, relating to various matters.

 

Modal cannot guarantee that the results of the proceedings will be favorable to Modal or that the risks inherent to the proceedings will be adequately provided for. The provisions may be insufficient to cover the total cost arising from the lawsuits. Additionally, Modal cannot assure that new material judicial, arbitration or administrative proceedings or investigations against it, its subsidiaries or management will not be commenced and it may be subject to contingencies that require it to spend significant amounts. Modal also cannot assure that the proceedings will not directly affect its business model and expansion plans, or that the amounts accrued will be sufficient to cover the costs and expenses of the proceedings. There may be disagreements between Modal and the authorities with respect to the interpretation of the accounting regulation that governs the constitution of provisions, which may adversely impact Modal’s business and results of operations. Moreover, Modal’s management, as the case may be, incur costs with attorney fees to sponsor the proceedings mentioned in this offering memorandum, and Modal can as well be obliged to make judicial deposits, which may reduce its liquidity and affect its financial condition. In case of decisions unfavorable to Modal, especially in lawsuits involving significant amounts and related cases, which reach substantial amounts or prevent the performance of business as initially planned, there may be an adverse effect on Modal.

 

If lawsuits involving a substantial amount, for which Modal has made a provision significantly lower than actual loss or for which it has not made any provision, are definitively decided against it, its management or its subsidiaries, it may suffer a material adverse effect. Furthermore, unfavorable decisions in any lawsuits filed against members of its management may also render them ineligible to act as its managers, as well as adversely affect its image and business. For more information on legal disputes, see “Business––Legal and Administrative Proceedings.”

 

Modal’s insurance policies may be insufficient to cover possible claims and losses.

 

There can be no assurance that Modal’s insurance policies will be sufficient in all circumstances to cover all of the risks to which Modal, and its assets, are subject. The occurrence of a significant uninsured claim or loss, or a claim or loss not subject to indemnification, either in whole or in part, or any failure by its third-party service providers to meet their obligations to Modal, or to contract insurance, may materially adversely affect Modal. Additionally, there can be no assurance that Modal will be able to maintain coverage under its insurance policies at reasonable commercial rates or on otherwise acceptable terms. Furthermore, its insurance policies require the payment of a premium, which may generate additional costs to its business and, consequently, an adverse effect on its financial condition or results of operations. Any failure to so maintain coverage may materially adversely affect Modal.

 

Modal’s inability or failure to protect its intellectual property rights may adversely affect Modal.

 

Modal’s intellectual property rights and those of its subsidiaries, including trademarks, patents, copyrights, trade secrets and domain names, are important to its business and that of its subsidiaries. Modal cannot guarantee that its trademarks will not be infringed or that registrations already granted will not be subject to invalidity claims

 

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by third parties in administrative or judicial proceedings. Modal relies on applicable laws and regulations, as well as a variety of administrative procedures, to protect its intellectual property.

 

Furthermore, contractual arrangements and other measures taken by Modal to protect its intellectual property may not prevent third parties from infringing or misappropriating its intellectual property or from independently developing intellectual property rights equivalent to or greater than Modals’. In addition, Modal may not discover or determine the extent of any unauthorized use of its intellectual property rights. Any failure to adequately protect or enforce its intellectual property rights, or significant costs incurred in doing so, would materially harm its business.

 

Events such as the denial of trademark applications to the Brazilian Patent and Trademark Office (Instituto Nacional da Propriedade Industrial) or “INPI,” or the improper or unauthorized use of Modal’s trademarks may diminish the value of its brand or reputation. There is also the risk, even by default, that Modal may not be able to renew the registration of any of its trademarks in a timely manner, or that its competitors may challenge or invalidate any existing or future trademarks registered or licensed by Modal.

 

In addition, if any of its trademarks are challenged in court and in the event of an unfavorable court decision, Modal and its subsidiaries may be prohibited from continuing to use them. If Modal and its subsidiaries are unable to protect its property rights, this may have a material adverse effect on its business.

 

A decrease in Modal’s credit ratings may materially adversely affect its liquidity and competitiveness as well as increase its capital raising costs.

 

Modal’s capital raising costs and access to the debt capital markets are significantly dependent on its credit ratings. These ratings are provided by private ratings agencies that may, at any time, lower or withdraw its credit ratings or place Modal on a negative “credit watch.”

 

A decline in Modal’s ratings may increase its lending costs and limit its access to the capital markets, which may, in turn, result in a decrease in its revenues and materially adversely affect its liquidity. There can be no assurance that ratings agencies will not lower Modal’s credit ratings or the ratings of securities issued by Modal or place it on a negative credit watch. Changes in circumstances, whether real or perceived, may significantly alter its credit ratings, which may, in turn, materially adversely affect its results of operations and liquidity.

 

Modal may be unable to identify, complete, integrate or obtain the benefits of past and future acquisitions.

 

Modal have engaged in mergers and acquisitions in the past and may pursue acquisitions in the future as part of its growth strategy.

 

There can be no assurance that Modal will be able to identify and execute future acquisition opportunities. In addition, its ability to successfully execute acquisitions may be limited by the number of acquisition targets available, internal demand for resources, its ability to obtain financing (to the extent necessary and on satisfactory terms) for larger acquisitions and its ability to obtain the required corporate, regulatory or governmental approvals. Even if Modal is able to identify acquisition targets, third parties with which it has a commercial relationship may be unwilling to enter into agreements on commercially acceptable terms in respect of a particular transaction. Modal may experience significant delays in completing acquisitions, which may not come to fruition for a number of reasons, including failure to meet specified conditions or to obtain the required regulatory approvals. Unanticipated additional conditions for approval may also be imposed. The negotiation and completion of potential acquisitions, whether or not consummated, may potentially affect Modal’s current operations or divert substantial resources. As a result, its business, growth prospects, results of operations and financial conditions may be materially adversely affected.

 

In addition, acquisitions may expose Modal to unknown obligations or contingencies incurred prior to the acquisition of the target or its assets. The diligence performed to assess the legal and financial condition of the target, as well as any contractual guarantees or indemnities received from the target sellers, may be insufficient to protect or indemnify Modal for any contingencies that may arise. Any significant contingencies arising from acquisitions may materially adversely affect Modal’s business and results of operations. Modal may also acquire companies that are not subject to independent external audits, which may increase the risks related to the acquisition.

 

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As a result of a number of factors, Modal may be unable to benefit from completed acquisitions, including as a result of its inability to (1) implement its culture in the acquired companies, (2) integrate its operating and accounting policies and procedures, as well as back-office information and operation systems, with those of the acquired companies, (3) expedite the consolidation of subsidiaries, (4) retain existing management to the extent necessary or adapt the acquired companies’ operations, (5) prevent the loss of customers of the acquired companies or its existing customers, or (6) otherwise generate sufficient revenue to offset the costs and expenses of acquisitions. The operational and financial synergies and other benefits resulting from these transactions may not occur.

 

Moreover, the closing and success of any transaction will be, at least in part, subject to a number of economic and other factors that are beyond Modal’s control. Any combination of the factors mentioned above may result in its inability to integrate acquired companies or assets or achieve the expected growth or synergies of a particular transaction, which may materially adversely affect its business, results of operations and financial condition.

 

Modal may not be able to successfully negotiate with the unions to which its employees are affiliated, which may affect adversely affect Modal.

 

Modal’s employees and those of its subsidiaries are affiliated with different workers’ unions with which, according to labor laws, it must negotiate salaries, benefits, working hours and other items on an annual basis. If Modal fails to reach an agreement with the unions in terms that are satisfactory to Modal, Modal may be required to grant other benefits that may result in an increase in expenses or may generate employee dissatisfaction, which in turn may result in strikes and shutdowns adversely affecting Modal.

 

Negative results of subsidiaries can adversely affect Modal’s results.

 

Modal directly and indirectly control several companies, and the results of these participations compose, among others, its results. Thus, the results obtained in the activities of these companies impact its results. Also, due to possible negative results in the subsidiaries, there is no guarantee that Modal will receive any dividends or other distributions of results from these companies.

 

Furthermore, any failures in the provision of services by Modal’s subsidiaries could lead to financial losses and reputational damage for them and for Modal, since its subsidiaries provide services directly to its clients. Furthermore, an investigation or intervention by the Brazilian Central Bank, especially in the activities developed by any of its subsidiaries, may have a material adverse impact on other subsidiaries and on Modal. In the event that Modal and/or any of its financial subsidiaries become insolvent, the Brazilian Central Bank does not conduct the liquidation or intervention process on a consolidated basis, its creditors will not be able to make a direct claim on the assets of its financial subsidiaries and the creditors of the financial subsidiaries will not be able to claim its assets or the assets of other subsidiaries of which they are not direct creditors, and the creditors of the financial subsidiaries will have preference over its creditors regarding the assets of those financial subsidiaries. The Brazilian Central Bank also has the authority to carry out other corporate reorganizations or transfers of control in the event of intervention or liquidation proceedings. All of these factors may adversely impact the shareholders of Modal.

 

Finally, it is not possible to estimate whether reputational damage to its subsidiaries may also adversely affect its results.

 

Modal contracts for the storage of data and information produced in its operations through “cloud” storage. Any interruptions or failures in IT systems by those responsible for storing this data or information may result in a material adverse effect to Modal.

 

Modal’s operations depend on the efficient and uninterrupted operation of its IT systems. Data and information generated from its operations are processed and stored on virtual servers directly on the Internet through cloud storage. If cloud servers are interrupted by internal failures, failures in the provision of services by contracted suppliers (whether resulting from computer virus, physical or electronic invasion) or any inability to meet contractual obligations, its operations may be temporarily interrupted and Modal may be liable to third parties that are affected directly or indirectly by such occurrences, which may materially adversely affect Modal.

 

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Additionally, according to CMN Resolution No. 4,658, dated April 26, 2018, financial institutions must observe cybersecurity requirements when contracting data processing and storage and cloud computing services. If providers of these types of services fail to comply with its operational requirements Modal may be adversely affected.

 

Stored in the cloud by Modal are data of customers, managers, employees and other persons related to Modal. If the systems of the service providers suffer failures or interruptions in security processes, such data may be subject to leakage or other situations that characterize violations to the privacy of their respective holders. Modal may be subject to liability under the LGPD, as well as other regulatory penalties.

 

Modal is subject to the interruption in activities outsourced to third parties.

 

Modal’s back office, communication and information technology systems are highly complex and depend on a large network of outsourced companies involving services of various sizes, including services indispensable for their regular operation (for example, information technology and security, credit card processing and communication with the B3 platform). Thus, if Modal is not able to maintain or renew the contracts with its current service providers, it may have difficulties in integrating its systems with new providers, which may generate operational problems. In addition, Modal may not be able to replace these service providers in a timely manner or to avoid failures during the transition period, which may also impact its operations.

 

Modal cannot assure you that the external service providers will be able to continue to provide these services to meet its current needs efficiently and economically, or that they will be able to adequately expand their services to meet its needs in the future. Some external service providers may have assets and infrastructure that are important to the services they provide to Modal and that are located inside or outside Brazil, and their ability to provide these services is subject to risks of political, economic, legal or other unfavorable developments, such as social or political instability, changes in governmental policies or changes in the applicable laws and regulations of the jurisdictions in which their assets and operations are located.

 

Modal is subject to negative effects from any interruptions in activities performed by third parties that provide material services to Modal, especially those related to information technology. Such interruptions may adversely affect its results of operations and financial condition.

 

The effectiveness of Modal’s credit risk management is affected by the quality and scope of information available in Brazil.

 

In determining the credit capacity of customers, Modal uses credit information available in its database as well as public credit customer information provided by the Brazilian Central Bank and other sources. Due to limitations in the availability of information and the information infrastructure in existence in Brazil, Modal’s credit risk assessment associated with a particular customer may not be based on complete, accurate or reliable information. In addition, there can be no assurance that its credit scoring systems collect complete or accurate information that reflects the actual behavior of customers or that their credit risk can be properly assessed.

 

Modal relies on other publicly available resources and internal resources, which may not be effective. Modal may face losses above the provisions in loan activities and be adversely affected, as the borrowers’ ability to meet their obligations on schedule is connected to their operational and financial performance. As a consequence, its ability to efficiently manage credit risk, and subsequently, its provision for impairment losses, could be materially adversely affected.

 

Increases in borrower defaults could adversely affect Modal’s results of operations and financial condition.

 

In the ordinary course of its business, Modal is exposed to the risk of default by counterparties in credit operations. The ability of borrowers to honor their obligations on time is directly related to the performance of economic activity in Brazil. Economic crises or weak economic performance may generate an increase in defaults on loan operations. An increase in the level of default in Modal’s loan portfolio may result in increased loan losses and adversely affect its results of operations and financial condition. Modal cannot guarantee how its customers' delinquency levels will behave in the future.

 

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Modal faces increased risk as new business initiatives work with a wider variety of customers and counterparties and give rise to exposure to new asset classes and markets.

 

Establishing itself in the marketplace may expose Modal, directly or indirectly, to individuals and institutions that are not among its existing clients and counterparties, subjecting Modal to new asset classes and markets – as was the case with its entry into the digital banking segment, when Modal began to establish its position in the offering of products that were not part of its traditional portfolio, such as digital accounts and credit and debit cards. These activities may expose Modal to new and increased risks, including risks associated with increased regulatory scrutiny of Modal’s activities, engagement with governmental agencies, reputational concerns arising from dealings with less sophisticated counterparties and investors, or the manner in which its assets are being operated or maintained, which may adversely affect Modal.

 

Defaults by other financial institutions could harm the financial markets and Modal.

 

The financial condition of many financial institutions may be closely interrelated as a result of lending, trading, clearing or other relationships among the institutions. As a result, concerns about or the default of one institution itself could lead to significant liquidity problems, losses and/or defaults by other institutions. This is sometimes referred to as a systemic risk and can harm financial intermediaries, such as the clearing agencies, clearing houses, banks, securities firms and exchanges with which Modal interacts on a daily basis, as well as itself. Modal may be adversely affected if any financial institution that is a counterparty to operations with it fails to honor its obligations.

 

Certain Risks Relating to Brazil

 

You should read and consider the risk factors specific to our business that will also affect us after the Merger. These risks are described in “Item 3. Key Information—D. Risk Factors—Certain Risks Relating to Brazil” in the XP 2021 Form 20-F, as such risks may be updated or supplemented in our subsequently furnished current reports on Form 6-K, which are incorporated by reference into this prospectus. See the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

Certain Risks Relating to the XP Shares and XP BDRs

 

You should read and consider the risk factors specific to our shares that will also affect us after the Merger. These risks are described in “Item 3. Key Information—D. Risk Factors—Certain Risks Relating to Our Class A common shares” in the XP 2021 Form 20-F, as such risks may be updated or supplemented in our subsequently furnished current reports on Form 6-K, which are incorporated by reference into this prospectus. See the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

Shareholders could be diluted in the future, which could also adversely affect the market price of XP Shares or XP BDRs.

 

It is possible that XP may decide to offer additional XP Shares or securities convertible therein in the future either to raise capital or for other purposes. If XP Shareholders do not take up such offer of XP Shares (including in the form of XP BDRs) or were not eligible to participate in such offering, their proportionate ownership and voting interests in XP would be reduced.

 

The holders of the XP Shares and XP BDRs may not receive cash dividends in the foreseeable future.

 

The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors of XP and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as our board of directors considers relevant. In addition, our holding company structure makes us dependent on the operations of our subsidiaries. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

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We are a Cayman Islands exempted company with limited liability. The rights of our shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders governed by the laws of U.S. jurisdictions or Brazil.

 

We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Memorandum and Articles of Association and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions or Brazil. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (1) duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (2) duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (3) directors should not improperly fetter the exercise of future discretion; (4) duty to exercise powers fairly as between different sections of shareholders; (5) duty to exercise independent judgment; and (6) duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Memorandum and Articles of Association have varied this last obligation by providing that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. Conversely, under Delaware corporate law, a director has a fiduciary duty to the corporation and its shareholders (made up of two components) and the director’s duties prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Description of XP Share Capital—Principal Differences between Cayman Islands and U.S. Corporate Law.”

 

As a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.

 

As a foreign private issuer, we are subject to different disclosure and other requirements than domestic U.S. registrants. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we rely on exemptions from certain U.S. rules which permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.

 

We follow Cayman Islands laws and regulations that are applicable to Cayman Islands companies. However, Cayman Islands laws and regulations applicable to Cayman Islands companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above.

 

Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we are subject to Cayman Islands laws and regulations having, in some respects, a similar effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file or furnish reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Cayman Islands law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.

 

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Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands exempted company.

 

Our corporate affairs are governed by our Memorandum and Articles of Association, by the Companies Act, and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less exhaustive body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fulsome and judicially interpreted bodies of corporate law than the Cayman Islands.

 

While Cayman Islands law allows a dissenting shareholder to express the shareholder’s view that a court sanctioned reorganization of a Cayman Islands company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder appraisal rights in connection with a court sanctioned reorganization (by way of a scheme of arrangement). This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation (by way of a scheme of arrangement) or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands statutory law provides a mechanism for a dissenting shareholder in a merger or consolidation to apply to the Grand Court of the Cayman Islands or the “Cayman Islands Court,” for a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits prescribed.

 

Shareholders of Cayman Islands exempted companies (such as us) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have discretion under our Memorandum and Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

 

Subject to limited exceptions, under Cayman Islands’ law, a minority shareholder may not bring a derivative action against the board of directors. Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar.

 

United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable.

 

We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. In addition, the majority of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside of the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who are not resident in the United States and the substantial majority of whose assets are located outside of the United States.

 

Further, it is unclear if original actions predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States, including in the Cayman Islands and Brazil. Courts of the Cayman Islands may not, in an original action in the Cayman Islands, recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States on the grounds that such provisions are penal in nature. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, courts of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands’ judgment in respect of the

 

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same matters, and was not obtained in a manner which is contrary to the public policy of the Cayman Islands. In addition, a Cayman Islands Court may stay proceedings if concurrent proceedings are being brought elsewhere.

 

Upon completion of the Merger, the rights of Modal Shareholders who become holders of XP Shares (in the form of XP BDRs) will be governed by the deposit agreement between us and the BDR Depositary, as well as by the laws and regulations of Brazil. The XP Shares underlying the XP BDRs are governed by the XP Memorandum and Articles of Association and by the laws of the Cayman Islands. The rights associated with Modal Shares are different from the rights associated with XP Shares or XP BDRs. Material differences between the rights of Modal Shareholders and the rights of XP Shareholders include differences with respect to, among other things, dividends, redemptions, preemptive rights, shareholder voting rights, approval of mergers and business combinations, cumulative voting, nomination and appointment of directors, vacancies on the board of directors, committees of the board of directors, the fiscal counsel, the convening of annual meetings of shareholders and special shareholder meetings, notice provisions for meetings, the quorum for shareholder meetings, shareholder action by written consent, mandatory tender offer, shareholder information rights, rights of dissenting shareholders, the ability to amend governing documents and the indemnification of directors and officers. See the section of this prospectus entitled “Comparison of the Rights of Modal Shareholders and XP Shareholders.”

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Comparative Selected Unaudited Per Share Data

 

XP Per Share Data

 

The following table sets forth certain historical unaudited information with respect to net book value per share as of June 30, 2022 and dividends declared per share for the fiscal year ended December 31, 2021 for XP. The historical information for XP has been prepared under IFRS.

 

Modal financial statements and data have not been included in this prospectus because the significance test was not met at the 20% level in accordance with Rule 1-02(w) of Regulation S-X.

 

The information that follows should be read in conjunction with the historical unaudited interim condensed consolidated financial statements of XP as of June 30, 2022, appearing in the 2Q22 Financial Statements 6-K (as defined herein), incorporated by reference in this prospectus as well as the historical audited consolidated financial statements of XP appearing in the XP 2021 Form 20-F incorporated by reference into this prospectus.

 

    Historical XP
      (in US$)  
As of June 30, 2022        
Net book value per share(1)(2)   US$ 5.5553  
For the six months ended June 30, 2022        
Dividends declared per common share(3)      
Net income (loss) per common share attributable to XP – basic(2)(3)     0.6030  
Net income (loss) per common share attributable to XP – diluted(2)(3)     0.5842  
For the fiscal year ended December 31, 2021        
Dividends declared per common share(3)      
Net income (loss) per common share attributable to XP – basic(3)(4)     1.1505  
Net income (loss) per common share attributable to XP – diluted(3)(4)     1.1214  
 
(1) Net book value per share information was calculated using the total number of shares outstanding as of June 30, 2022.

 

(2) For convenience purposes only, amounts in reais as of June 30, 2022 have been translated to U.S. dollars using an exchange rate of R$5.238 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2022 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 

(3) Historical dividends declared per share and earnings per share information were based on historical information available elsewhere in this prospectus or incorporated herein by reference.

 

(4) For convenience purposes only, amounts in reais as of December 31, 2021 have been translated to U.S. dollars using an exchange rate of R$5.581 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2021 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 

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The Modal Shareholders’ Meeting

 

The Modal Shareholders’ Meeting is expected to be held virtually, on                 , 2022, at      :00 am (Brasília time, or “BRT,” through an electronic platform.

 

At the Modal Shareholders’ Meeting, Modal Shareholders will be asked to consider and vote upon the following proposals:

 

·to approve the Merger, which involves (i) the Merger of Shares, so that Banco XP becomes the sole shareholder of Modal by virtue of such merger; and (ii) the subsequent delivery of the Redeemable Shares to Modal Shareholders, which will be redeemed on the same date of their delivery in exchange for XP Shares (in the form of XP BDRs);

 

·to approve the execution of the Merger Protocol;

 

·to waive the obligation that Banco XP be listed on B3’s Novo Mercado listing segment after the implementation of the Merger;

 

·to authorize Modal’s management to conduct all necessary acts and to execute the necessary documents in connection with the Merger; and

 

·related resolutions.

 

Shareholders Entitled to Vote

 

All Modal Shareholders as of the Modal Record Date are entitled to vote on the Merger Proposal at the Modal Shareholders’ Meeting. Each Modal Share as of the Modal Record Date is entitled to one vote on the Merger Proposal presented for consideration at the Modal Shareholders’ Meeting. As of the date of this prospectus, according to Modal bylaws, there are               Modal common shares.

 

If you are an Modal Shareholder, you may be required under the Brazilian Corporation Law to show documents proving your identity to gain admittance to the Modal Shareholders’ Meeting. If you grant a proxy to someone to act for you at the meeting you shall comply with the procedures, which are expected to be set forth in the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto.

 

Quorum – Required Vote

 

The Merger must be approved by the shareholders of Modal at the Modal Shareholders’ Meeting. The quorum required to hold the Modal Shareholders’ Meeting is 66.66% of the voting capital stock on first call, provided that, if the required quorum is not reached, the Modal Shareholders’ Meeting may be held on second call with any number of shareholders present. After the Modal Shareholders’ Meeting is convened, pursuant to Modal’s bylaws, approval of the Merger at such extraordinary general meeting requires the affirmative vote of shareholders holding shares representing a majority of the capital stock of Modal as well as a majority of the Modal Shares in the free float attending the meeting (excluding abstentions).

 

Abstentions from voting by shareholders attending the meeting will be counted for the purpose of determining the presence of a quorum.

 

It is currently expected that Modal Controle Participações S.A. will vote in favor of the Merger Proposal. The affirmative vote of the Modal Shares controlled by Modal Controle Participações S.A. in favor of the Merger constitutes sufficient votes to approve the Merger at the Modal Shareholders’ Meeting, but the vote of the majority of Modal’s free float attending Modal Shareholders’ Meeting is necessary to approve the waiver of the obligation that Banco XP be listed on B3’s Novo Mercado listing segment after the implementation of the Merger.

 

Modal Shareholders will be informed of the Modal Shareholders’ Meeting by publication of a notice in the “Monitor Mercantil” newspaper, which will also be available on Modal’s website at http://ri.modal.com.br. The call notice is expected to be disclosed on Modal’s website on                 , 2022.

 

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Treatment of Abstentions; Failure to Vote

 

An abstention occurs when a shareholder attends a meeting, either in person or by proxy, but abstains from voting. At the Modal Shareholders’ Meeting at which shareholders will consider the Merger Proposal, abstentions will be counted in determining whether a quorum is present.

 

Although abstentions and a failure to vote your Modal Shares are accounted for separately, in practice they will have the same effect as being disregarded when computing the votes, considering the approval requires the affirmative vote of shareholders representing the majority of Modal’s share capital in the free float attending the meeting (excluding abstentions).

 

Manner of Voting

 

If you are a Modal Shareholder entitled to attend and vote at the Modal Shareholders’ Meeting, you must either (i) attend the virtual meeting and vote in person; or (ii) appoint a proxy to vote on your behalf at the virtual meeting. Neither XP nor Modal is asking you for a proxy, and you are requested not to send XP or Modal a proxy.

 

Voting procedures will be available on the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto.

 

Modal Shareholders attending the Modal Shareholders’ Meeting must deliver proof of their status as shareholders and proof that they hold the Modal Shares they intend to vote by delivery of proper identification as per the instructions that will be set out in the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto.

 

Tabulation of Votes

 

Among other functions, the person appointed as secretary at the Modal Shareholders’ Meeting will be responsible for determining the number of Modal Shares represented at the Modal Shareholders’ Meeting to confirm the existence of a quorum, as well as for counting the votes cast at the meeting.

 

Withdrawal Rights

 

Assuming that the Merger is approved, individuals and legal entities who are Modal Shareholders from                 , 2022 and who still own Modal Shares until the exercise of their withdrawal rights and did not vote in favor of the Merger (including those that were absent from the relevant shareholders’ meeting) at the Modal Shareholders’ Meeting, are entitled to withdrawal rights in connection with the Merger as provided under Article 137 of the Brazilian Corporation Law.

 

Under Brazilian law, withdrawal rights are akin to appraisal or dissenters’ rights in that they permit shareholders to receive a fixed amount of cash in exchange for each Modal Share calculated on the basis of the book value per share of Modal’s shareholders’ equity, subject to the conditions set forth below and described in further detail herein. Other than the withdrawal rights described herein, you do not have appraisal or dissenters’ rights under Brazilian law.

 

In order to exercise such withdrawal rights, Modal Shareholders must give notice thereof within 30 days following the publication of the Modal Merger Approval in the “Monitor Mercantil” newspaper.

 

The amount payable as reimbursement for the value of the Modal Shares will correspond to the book value of shareholders’ equity per share of Modal on          , 2022 according to Modal’s financial statements approved at the annual general shareholders meeting held on          , 2022 without prejudice to the right of such holders to request the preparation of a special balance sheet. Modal Shareholders that exercise their withdrawal rights will receive the cash amount on within            days from the end of the withdrawal rights exercise period.

 

If you do not exercise your withdrawal rights as a shareholder of Modal within 30 days of the publication of the Modal Merger Approval and following consummation of the Merger, you will automatically receive XP Shares (in

 

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the form of XP BDRs) according to the Exchange Ratio, provided that you hold such Modal Shares through the Cut-off Date. See “The Merger—Withdrawal Rights for Modal Shareholders.”

 

Creditor Opposition Rights

 

Creditors of Modal will have no creditor opposition rights in connection with the Merger.

 

Shareholding Structure

 

Unless the Alternative Structure is implemented (as defined herein), following the completion of the Merger, Modal will become a wholly-owned subsidiary of Banco XP and Modal Shareholders will hold XP Shares (in the form of XP BDRs), pursuant to the Exchange Ratio, as further described in this prospectus.

 

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The Merger

 

The following is a description of the material aspects of the Merger. This section does not purport to be complete and may not contain all of the information that is important to you. You should carefully read this entire prospectus, the documents incorporated by reference into this prospectus, including the full text of the Merger Protocol, forms of which are included as Exhibits to the registration statement of which this prospectus is a part, for a more complete understanding of the Merger. All descriptions in this summary and in this prospectus of the terms and conditions of the Merger are qualified in their entirety by reference to transaction agreements. In addition, important business and financial information about each of XP and Modal is included in or incorporated by reference into this prospectus and Exhibits to the registration statement of which this prospectus is a part. For a listing of the documents incorporated by reference into this prospectus, see the section of this prospectus entitled “Incorporation of Certain Documents by Reference.”

 

Overview

 

XP is a “foreign private issuer” in accordance with Rule 405 of the Securities Act. XP’s Class A common shares are registered with the SEC and listed on the Nasdaq under the ticker symbol “XP.” Modal is a corporation (sociedade anônima) organized under the laws of Brazil. Modal’s Shares are registered with the CVM and listed on the B3 in the form of units which are comprised of one Modal common share and two Modal preferred shares under the ticker symbol “MODL11.”

 

The Merger will consist of a merger of Modal with Banco XP, subject to compliance with Brazilian law. Unless the Alternative Structure is implemented (as defined herein), following the completion of the Merger, Modal will become a wholly-owned subsidiary of Banco XP and Modal Shareholders will hold XP Shares (in the form of XP BDRs), pursuant to the Exchange Ratio, as further described in this prospectus. Subject to the terms and conditions of the Merger Protocol between Modal and XP, the Merger is expected to become effective on the Closing Date.

 

The Merger is being proposed by XP with the aim to continue to grow its open investment platform presence. XP believes that the synergies that will result from the Merger will accelerate the process of disrupting the Brazilian financial markets, promoting an increase in, and continuing to facilitate consumer access to, investment products.

 

The Merger Protocol provides that, subject to the terms and conditions described therein, and upon consummation of all of the transactions contemplated thereby, all Modal Shares will be merged by Banco XP and Modal will become a wholly-owned subsidiary of Banco XP. The terms and conditions of the contemplated transactions are contained in the Merger Protocol, which are described in this prospectus and included as an Exhibit to the registration statement of which this prospectus forms a part. You are encouraged to read the Merger Protocol carefully, as it is the legal documents that governs the Merger. All descriptions in this summary and in this prospectus of the terms and conditions of the Merger are qualified in their entirety by reference to the Merger Protocol.

 

Upon the completion of the Merger, the Modal Controlling Shareholder will receive XP Shares. The remaining Modal Shareholders, which may be Brazilian or non-Brazilian residents, will receive in the Merger XP Shares (in the form of XP BDRs), pursuant to the procedures set forth in section “—Receipt of XP Shares (in the form of XP BDRs).” Modal Shareholders who receive XP Shares (in the form of XP BDRs) and who wish to cancel their XP BDRs and receive the XP Shares represented thereby may inform their broker of such intention at any time after the completion of the Merger.

 

No fractions of XP Shares or XP BDRs will be distributed. Following the Merger, XP Shares underlying fractional entitlements to XP BDRs will be grouped into whole numbers for issuance of XP BDRs to be sold on the open market managed by B3. The proceeds from the sale of the XP BDRs will be distributed on a pro rata basis to the former Modal Shareholders who held the right to receive fractional XP BDRs net of taxes and fees, pursuant to a notice to former Modal Shareholders (aviso aos acionistas) to be disclosed by Modal. No additional consideration in cash or in kind will be paid by XP or Banco XP to Modal Shareholders in connection with the Merger. See also “The Merger—Overview.”

 

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Background to the Merger

 

XP’s board of directors, together with XP’s management and with the assistance of advisors, have periodically reviewed and considered various strategic opportunities available to XP and ways to enhance shareholder value and to enhance performance and growth prospects. Even with the expansion of Modal’s financial and operational performance in recent years, the Modal share price has depreciated since its initial public offering on April 29, 2021, primarily due to market conditions and the challenging macroeconomic scenario in Brazil which impacted it and other private and public companies, including XP and other financial services providers.

 

Due to XP’s strategic positioning and continuous tracking of the financial services market, Modal’s operational and financial performance has always been benchmarked internally by XP for market and competition analysis and discussions, in particular due to the similarities of Modal’s business model to XP’s, albeit on a smaller scale. At that stage, there were no internal discussions regarding the opportunity of a potential business combination of the two companies, nor was any acquisition of either party by the other discussed.

 

On November 1, 2021, following a weekly internal meeting of XP executive directors discussing business strategy, Bruno Constantino, XP’s CFO, had a meeting with XP’s M&A team to ask them to prepare an analysis of a potential merger with Modal and prepare for a meeting that he would have later that week with certain executive officers of Modal. The purpose of XP in scheduling this high-level meeting would be to assess Modal’s openness to discuss the possibility of a business combination of the two companies.

 

At that meeting with Thiago Maffra (XP CEO), José Berenguer (XP Bank CEO) and Bruno Constantino Modal officers indicated that any discussion would require first the execution of a non-disclosure agreement. In parallel, on November 9, 2021, Fabricio Almeida, XP’s chief legal officer, contacted Sergio Spinelli, the founding partner of Spinelli Advogados, external Brazilian counsel, with a view to engaging Spinelli Advogados and as a preliminary matter, discuss the potential legal and structural aspects of a potential merger and its regulatory consequences. Throughout November 2021, XP and Spinelli Advogados discussed and developed primary and alternative structures for a potential merger.

 

Following the discussion of the draft non-disclosure agreement, it was entered into by XP and Modal on December 17, 2021, and due to the highly confidential nature of the discussions to be held thereafter, the flow of information was limited to a restricted number of XP and Modal executives and their external legal advisors. Given both XP and Modal are publicly listed on the Nasdaq and B3, respectively, both companies were initially limited to publicly available information regarding their respective operations and financials in the elaboration and negotiation of financial terms.

 

At that time, following discussions related to transaction structure and valuation, Spinelli Advogados advised that, as a next step, XP should enter into a MoU with Modal in order to formalize the transaction and mitigate the risk of market speculation and rumors after the transaction is announced. During that time period, Modal engaged Pinheiro Neto Advogados to act as its external legal advisor to the transaction. In late December 2021, Modal’s management and Pinheiro Neto Advogados met to discuss the proposal from XP.

 

On December 21, 2021, XP and Spinelli Advogados sent a first draft of a memorandum of understanding, or the “MoU,” to Modal and Pinheiro Neto Advogados, setting out in more detail the terms of a merger of Modal and XP. On December 27, 2021, Modal, with the assistance of their respective advisors, shared with XP their preliminary comments to the MoU.

 

Between December 24, 2021, and January 3, 2022, XP, Spinelli Advogados, Modal and Pinheiro Neto Advogados had a series of meetings to negotiate the terms of the MoU and finalize the proposed structure for the transaction, including a potential corporate restructuring and required shareholder approvals.

 

Throughout negotiations with Modal in late December 2021, XP expressed to Modal the importance of the purchase price for any potential transaction having a significant share component (to the extent shares are not the only payable consideration), in order to ensure that the long-term underlying reasons for the transaction remain aligned. Accordingly, and given that both companies are publicly listed, valuation discussions focused on the implied exchange ratio of the average trading share price of each of XP and Modal over specific time periods (in particular, over 30, 60 and 90 day trading periods).

 

On December 22, 2021, executive directors of XP and Modal met to further discuss valuation and the exchange ratio for the transaction. At the meeting, it was concluded that, since both XP and Modal are similar in terms of products, client profile and market, the performance of each company’s share price would, for purposes of calculating the exchange ratio, provide a more objective indicator of value and be the most adequate method to evaluate the XP and Modal businesses. Accordingly, XP and Modal agreed that, for purposes of determining the exchange ratio for the transaction and as a first step, they would analyze the average market trading price of each of the XP and Modal shares over specific time periods, taking into account market volatility and the share price decline of both companies in 2021. XP and Modal also analyzed the performance of the Modal shares since the Modal IPO in April 2021, taking into account (i) market volatility and the share price decline of the Modal shares since the Modal IPO; and (ii) part of the economic benefits that Modal would have captured had it invested part of the still uninvested proceeds of its IPO in its business.

 

In determining the calculation formula for the exchange ratio, XP and Modal calculated the average trading share price of both XP and Modal for each of the preceding 30, 60 and 90 day trading periods. Following further discussions between XP and Modal and their analysis of each calculation, XP and Modal agreed that the most adequate reference period for negotiating the final exchange ratio would be the average trading share price for the preceding 90 day trading period. Both parties concluded that using this longer time window to determine the exchange ratio allowed for the most accurate share performance and value analysis, while minimizing the market volatility impacts on the trading price of the shares during the period. Between December 22 and December 28, 2021, XP and Modal executives worked on bridging the implied market exchange ratios using the 90 day trading period as the reference point, with Modal’s valuation expectations.

 

Accordingly, on December 28, 2021, XP proposed to Modal a merger of Modal with Banco XP, pursuant to which Modal’s shareholders would receive XP Shares in exchange for their Modal shares according to the Exchange Ratio. This would represent approximately          % of the XP shares outstanding (excluding treasury shares) and         % of the pro forma combined company. In addition, this would represent, based on the then-current price of XP Shares and on the then-current official foreign exchange rate published by the Central Bank of Brazil, a premium of approximately 35%, calculated over the average price of XP’s and Modal’s shares in the 30 day trading period immediately preceding the announcement date of the transaction on January 7, 2022. It was also agreed between XP and Modal that the Exchange Ratio (including the premium) would reflect Modal’s change of control in favor of XP as a result of the transaction.

 

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On January 6, 2021, Modal’s board of directors discussed XP’s proposal and directed its management and advisors to proceed with the execution of the binding MoU, establishing that both parties would work together towards the execution of the Merger Proposal that would be subject to the satisfactory conclusion of the financial and legal due diligence process of Modal by XP, to be carried out by XP and its third party legal and financial advisors, including Spinelli Advogados and Ernst & Young Auditores Independentes, or “E&Y,” respectively.

 

On January 6, 2022, the XP board of directors met with XP management participating in the transaction to consider a vote on approving the execution of the binding MoU and a Merger Proposal, subject to the satisfactory conclusion of the financial and legal due diligence process. At the meeting, the XP board of directors discussed the terms of the proposed transaction. After considering the factors described in “—XP’s Reasons for the Merger,” the XP board of directors unanimously adopted resolutions approving the proposed memorandum of understanding and transaction with Modal.

 

On January 7, 2022, XP issued a press release and furnished a corresponding Form 6-K to the SEC, announcing that it had entered into a binding MoU to merge Modal with Banco XP in exchange for XP Shares (in the form of BDRs), pursuant to the Exchange Ratio. In case Modal fails to obtain the necessary consents to implement the Merger, XP would still intend to carry out the Alternative Structure, to acquire 55.7% of Modal’s share capital from its controlling shareholder in a stock for stock transaction and to grant the right to all the minority shareholders of Modal to sell their equity stake for the same consideration. See “—Alternative Structure.”

  

Over the following months, representatives of Modal and XP, together with XP’s legal and financial advisors, worked on the due diligence of Modal and discussions as to the structure of the transaction. During this due diligence process, neither party had access to the strategic information of the other party, and XP’s financial and legal advisors worked closely with Modal’s management in order to complete their analysis of potential financial adjustments and contingencies, none of which were identified. In addition, XP’s directors had high-level discussions with Modal in connection with Modal’s business plan and its projected future financial performance, as well as potential synergies and cost reductions expected by XP.

 

On February 16, 2022, in order to facilitate certain aspects of the due diligence process, XP and Modal formed a so-called clean team composed of XP and Modal employees to mitigate the risk of sensitive competitive information being shared. These employees are not allowed to share information obtained within the scope of the clean team.

 

On January 24, 2022, XP’s counsel, Spinelli Advogados, sent Modal and Pinheiro Neto Advogados a first draft of the Merger Proposal acknowledging the understanding set forth in the executed and binding MoU for a merger of Modal with Banco XP whereby Modal’s shareholders would receive XP BDRs in exchange for their Modal shares.

 

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From February through April 2022, XP and Modal held several meetings to discuss and negotiate additional aspects to the Merger, together with their respective legal advisors, while the due diligence process was ongoing. Drafts of terms of the Merger Proposal were exchanged between Spinelli Advogados and Pinheiro Neto Advogados, which included the proposed terms of the Merger, as well as additional terms and conditions that were not negotiated in the MoU, such as long term retention plans, non-compete provisions, lock ups and valuation adjustment mechanisms upon the occurrence of certain events (including scheduled interest on equity payments).

 

On May 3, 2022, XP’s board of directors held a meeting to discuss the final version of the Merger Proposal to be sent by XP to Modal. Following presentations by XP’s management and Spinelli Advogados, the XP board of directors discussed the proposed final version and after discussion, unanimously determined to approve the revised terms, reaffirm its recommendation of the Merger and asked XP’s management to send the Merger Proposal to Modal. For further information, see “—XP’s Reasons for the Merger.”

 

On May 3, 2022, Modal’s board of directors discussed the final version of the Merger Proposal sent by XP. Among others, the Modal board of directors considered the business, strategic direction, financial performance and prospects of Modal and XP and consulted with Modal’s management, who presented the proposed transaction after carefully evaluating the Merger in several dimensions, such as valuation, strategic complementarity, value creation potential and synergy opportunities, among others. Modal board of directors also considered the Exchange Ratio, which includes the premium proposed by XP calculated by comparing the share price of each of XP and Modal, as detailed above. After due consideration and discussion of such factors, the Modal board of directors approved (i) the Merger Proposal, and (ii) the authorization for its executive officers to implement the Merger. For further information, see “—Modal’s Reasons for the Merger.”

 

On May 4, 2022, XP and Modal executed the Merger Proposal and agreed on the final form of the Merger Protocol and the Exchange Ratio. For more information about the Merger Protocol, see the section of this prospectus entitled “The Merger Protocol—Merger Protocol (Protocolo e Justificação) under Brazilian Law.”

 

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As set forth in the Merger Protocol, the Merger is expected to consist of (i) a merger of Modal with Banco XP, subject to compliance with Brazilian laws; (ii) the subsequent delivery of the Redeemable Shares to Modal Shareholders, which will be redeemed on the same date of their delivery. Upon effectiveness of the Merger, in exchange for their Redeemable Shares, the Modal Controlling Shareholder and the remaining Modal Shareholders, which may be Brazilian or non-Brazilian residents, will receive in the Merger XP Shares (in the form of XP BDRs). In order to receive XP Shares (in the form of XP BDRs) subject to the conditions described in this prospectus, you must be a Modal Shareholder on the Cut-off Date. Modal Shareholders who receive XP Shares (in the form of XP BDRs) and who wish to cancel their XP BDRs and receive the XP Shares represented thereby may inform their broker of such intention at any time after the completion of the Merger.

 

Unless the Alternative Structure is implemented (as defined herein), upon effectiveness of the Merger, which is subject to certain conditions, including regulatory approvals, Modal will become a wholly-owned subsidiary of Banco XP and Modal Shareholders will hold XP Shares (in the form of XP BDRs), pursuant to the Exchange Ratio, as further described in this prospectus.

 

Subject to the terms and conditions of the Merger Protocol, the Merger is expected to become effective on the Closing Date.

 

Receipt of XP Shares (in the form of XP BDRs)

 

The dates on which you will receive your XP Shares (in the form of XP BDRs) are expected to be set forth in the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto.

 

The Modal Shareholders who receive BDRs and who wish to cancel their BDRs and receive the XP Shares represented thereby may inform their broker, and such broker in turn informs the BDR Depositary, of such intention at any time after the completion of the Merger. Modal Shareholders must consult their respective brokers in order to assess the required documents and relevant fees in connection with the cancellation of the XP BDRs to receive the XP Shares represented thereby.

 

The procedures for the receipt of the XP Shares (in the form of XP BDRs) (and further cancelation of such XP BDRs after the completion of the Merger, if Modal Shareholders so intend to do so) are expected to be set forth in the call notice for the Modal Shareholders’ Meeting and/or in the documents relating thereto.

 

No fractions of XP Shares or XP BDRs will be distributed. Following the Merger, XP Shares underlying fractional entitlements to XP BDRs will be grouped into whole numbers for issuance of XP BDRs to be sold on the open market managed by B3. The proceeds from the sale of the XP BDRs will be distributed on a pro rata basis to the former Modal Shareholders who held the right to receive fractional XP BDRs net of taxes and fees, pursuant to a notice to former Modal Shareholders (aviso aos acionistas) to be disclosed by Modal. No additional consideration in cash or in kind will be paid by XP or Banco XP to Modal Shareholders in connection with the Merger.

 

Exchange Ratio for Modal Shareholders

 

The Exchange Ratio is expected to be of one XP Share (in the form of XP BDRs) for           Modal Shares. This exchange ratio corresponds to up to 19,500,000 XP Shares divided by           Modal Shares outstanding immediately prior to the completion of the Merger (which excludes Modal treasury shares).

 

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Modal’s Reasons for the Merger

 

At its meeting held on May 20, 2022, after due consideration and consultation with Modal’s management and advisors, the Modal board of directors unanimously approved and deemed it advisable that the respective shareholders of Modal adopt and approve the Merger Documents, including the Exchange Ratio, which would represent a premium of approximately 35% over the average price of Modal’s shares in the last 30 days prior to the announcement, based on the then-current price of XP Shares and on the then-current official foreign exchange rate published by the Central Bank of Brazil on the last trading day. In doing so, the Modal board of directors considered the business, assets, and liabilities, results of operations, financial performance, strategic direction and prospects of XP. In making its determination, the Modal board of directors considered a number of factors, including the following:

 

· the aligned long-term purpose and strategic vision of both companies is expected to generate an even greater focus on results of operations and ownership culture, enabling concurrent growth and profitability, combining the mission of providing clients a sustainable and long-lasting financial journey, while consistently adding value to shareholders, as well as a meritocratic and partnership-driven mindset towards people and talent;

 

· the proposed complementary value of the ecosystems and multiple levers for value creation therein is expected to generate significant gains in customer experience, scale and ability to execute multiple growth opportunities. The synergies between Modal’s and XP’s investment services and platforms present an opportunity to create value for Modal, XP and their respective clients by expanding the scope of Modal’s services and solutions, while anticipating future growth by allowing Modal to focus on core areas rather than expanding the backbone of its operations, which will be provided by XP’s platform.

 

· Modal’s clients will continue to have a fluid, omnichannel experience, both online and offline, putting greater competitive pressure on the Brazilian financial industry, characterized by its high growth potential, on the one hand, and by the presence of few dominant players, on the other hand. Modal and XP stand out as independent players that have accelerated the ongoing disruption process of the Brazilian financial industry by democratizing access to high quality and low-cost financial products and services;

 

· that the Merger will accelerate the process of disrupting the Brazilian financial markets, promoting an increase in, and continuing to facilitate consumer access to, investment products, with the aim to continue to grow its open investment platform presence due to the synergies that will result from the merger of Modal’s and XP’s businesses and experiences;

 

· aiming at the objective of unlocking existing value within the XP portfolio and allowing XP, with the result of the proposed transaction, to enhance shareholder value and to enhance performance and growth prospects; and

 

· evaluating the Merger in several dimensions, such as strategic complementarity, value creation potential and synergy opportunities, among others.

 

After due consideration and discussion of such factors, the Modal board of directors approved (i) the Merger Proposal, and (ii) the authorization for its executive officers to implement the Merger.

 

The foregoing discussion of the information and factors that Modal’s board of directors considered is not intended to be exhaustive, but is meant to include the material factors that Modal’s board of directors considered. In view of the complexity and wide variety of factors that Modal’s board of directors considered, Modal’s board of directors did not find it practical to, and did not attempt to, quantify, rank or otherwise assign relative or specific weights or values to any of the factors considered. In addition, individual members of Modal’s board of directors may have given different weights to different factors.

 

The foregoing description of Modal’s consideration of the factors supporting the transaction is forward-looking in nature. This information should be read in light of the factors discussed in the section entitled “Cautionary Statement Concerning Forward-Looking Statements” of this prospectus.

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XP’s Reasons for the Merger

 

At its meeting held on January 6, 2022, after due consideration and consultation with XP’s management and advisors, the XP board of directors approved the Merger. In making its determination, the XP board of directors considered that the Merger will accelerate the process of disrupting the Brazilian financial markets, promoting an increase in, and continuing to facilitate consumer access to, investment products, with the aim to continue to grow its open investment platform presence due to the synergies that will result from the merger of Modal’s and XP’s businesses and experiences.

 

The foregoing discussion of the information and factors that XP’s board of directors considered is not intended to be exhaustive, but is meant to include the material factors that XP’s board of directors considered. In view of the complexity and wide variety of factors that XP’s board of directors considered, XP’s board of directors did not find it practical to, and did not attempt to, quantify, rank or otherwise assign relative or specific weights or values to any of the factors considered. In addition, individual members of XP’s board of directors may have given different weights to different factors.

 

The foregoing description of XP’s consideration of the factors supporting the transaction is forward-looking in nature. This information should be read in light of the factors discussed in the section entitled “Cautionary Statement Concerning Forward-Looking Statements” of this prospectus.

 

Financial Implications of the Merger

 

In accordance with IFRS, XP Inc will account for the Merger as a business combination applying the acquisition method of accounting with XP Inc as the acquirer. For a more detailed discussion of the accounting treatment of the Merger, see the section entitled “The Merger—Accounting Treatment of the Merger.”

 

Shareholder Approval of XP

 

XP Shareholders are not required to approve the Merger under Cayman law.

 

Conditions Precedent

 

The completion of the Merger is subject to certain conditions precedent to the Merger of Shares, including:

 

·the approval of the Merger Proposal at the Modal Shareholders’ Meeting and at Banco XP’s shareholders meeting;

 

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· the approval of the Merger by CADE, which was obtained on July 26, 2022;

  

·the approval of the Merger by the Brazilian Central Bank;

 

·the absence of any law or order prohibiting or enjoining the consummation of the Merger;

 

·the registration statement of which this prospectus forms a part shall have been declared effective by the SEC;

 

·Modal shall (i) have obtained the respective third-party consents of its agreements currently in force and there will not be material obligations that may have declared their early termination (or other incident penalties) due to the Merger, or the Obligations Subject to Early Termination;” or (ii) have liquidated all its Obligations Subject to Early Termination; or (iii) have cash representing 100% of the necessary amount to liquidate all the Obligations Subject to Early Termination (including any incident penalties); and

 

·other customary conditions precedent for transactions of this type.

 

Alternative Structure

 

If the Merger is not completed, XP shall (i) acquire all Modal Shares held by Modal Controlling Shareholder in exchange for XP Shares, in a stock for stock transaction, and (ii) carry out a public tender offer for the acquisition of the remaining Modal Shares held by Modal Shareholders in accordance with Brazilian law, whereby we would grant the right to all the minority shareholders of Modal to sell their equity stake for the same consideration. As a result of the Alternative Structure, XP expects to acquire 55.68% of Modal’s share capital from the Modal Controlling Shareholder.

 

Withdrawal Rights for Modal Shareholders

 

Modal Shareholders have the following withdrawal rights under Brazilian law in connection with the Merger. Assuming that the Merger is approved, individuals and legal entities who are Modal Shareholders from                 , 2022 and who still own Modal Shares until the exercise of their withdrawal rights and did not vote in favor of the Merger (including those that were absent from the relevant shareholders’ meeting) are entitled to exercise withdrawal rights as provided under Article 137 of Brazilian Corporation Law.

 

Under Brazilian law, withdrawal rights are akin to appraisal or dissenters’ rights in that they permit shareholders to receive a fixed amount of cash in exchange for each Modal Share calculated on the basis of the book value per share of Modal’s shareholders’ equity, subject to the conditions set forth below and described in further detail herein. Other than the withdrawal rights described herein, you do not have appraisal or dissenters’ rights under Brazilian law.

 

In order to exercise such withdrawal rights, Modal Shareholders must give notice thereof within 30 days following the publication of the Modal Merger Approval in the “Monitor Mercantil” newspaper.

 

The amount payable as reimbursement for the value of the Modal Shares will correspond to the book value of shareholders’ equity per share of Modal on          , 2022 according to Modal’s financial statements approved at the annual general shareholders meeting held on          , 2022 without prejudice to the right of such holders to request the preparation of a special balance sheet. Modal Shareholders that exercise their withdrawal rights will receive the cash amount on within            days from the end of the withdrawal rights exercise period.

 

If you do not exercise your withdrawal rights as a shareholder of Modal within 30 days of the publication of the Modal Merger Approval and following consummation of the Merger, you will automatically receive XP Shares (in the form of XP BDRs) according to the Exchange Ratio, provided that you hold such Modal Shares through the Cut-off Date.

 

XP Shareholders that hold Class A common shares have no dissenters’ rights under Cayman law.

 

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Certain Information on the Ownership and Management of XP and Modal Prior to and Following the Merger

 

Ownership of XP Prior to and After the Merger

 

The following table summarizes the shareholder participation in XP prior to the Merger:

 

   Shares Beneficially Owned Before the Merger  % of Total Voting Power(1)
  

Class A 

    

Class B 

      
Shareholders   

Shareholders 

    

    

Shares 

    

      
XP Control LLC(2)     —         —         103,375,726       91.7 %     66.2 %
ITB Holding Brasil Participações Ltda.(3)     47,484,254       10.6 %     8,285,060       7.4 %     8.4 %
Itaúsa S.A.(4)     57,470,985       12.8 %     —         —         3.7 %
General Atlantic (XP) Bermuda, L.P.(5)     25,317,733       5.7 %     —         —         1.6 %
São Carlos Investimentos Ltd.(6)     9,906,362       2.2 %     —         —         0.6 %
São Marcos Investimentos Ltd.(7)     9,906,362       2.2 %     —         —         0.6 %
Free Float     293,718,018       65.7 %     —         —         18.8 %
Treasury XP Inc.     3,496,822       0.7 %     1,056,308       0.9 %     0.0 %

 
(1)Percentage of total voting power represents voting power with respect to all of our Class A common shares and Class B common shares, as a single class. Holders of our Class B common shares are entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share. For more information about the voting rights of our Class A common shares and Class B common shares, see “Description of XP Share Capital.”

 

(2)Includes Class B common shares owned by XP Control LLC, or “XP Control,” with its registered address of PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Guilherme Dias Fernandes Benchimol, Bernardo Amaral Botelho, Carlos Alberto Ferreira Filho, Gabriel Klas da Rocha Leal, Fabrício Cunha de Almeida, Bruno Constantino Alexandre dos Santos and Guilherme Sant’Anna Monteiro da Silva are indirect controlling shareholders of XP Control, or the “XP Control Controlling Shareholders” in accordance with XP Control’s Amended and Restated Limited Liability Company Agreement and Unitholders’ Agreement. The XP Control Controlling Shareholders have beneficial ownership of the Class B common shares held of record by XP Control. Each of the XP Control Controlling Shareholders disclaims ownership of the Class B common shares except to the extent he has a pecuniary interest therein.

 

(3) Includes Class A common shares and Class B common shares owned by ITB Holding Brasil Participações Ltda., with its principal business address at Praça Alfredo Egydio de Souza Aranha, No. 100, Torre Conceição, 7th floor, Parque Jabaquara, 04344-902, São Paulo, Brazil. Itaú Unibanco Holding S.A. directly or indirectly, through its wholly owned subsidiary, Itaú Unibanco S.A., holds all of the membership interests of ITB Holding Brasil Participações Ltda. Itaú Unibanco Holding S.A. is controlled by IUPAR – Itaú Unibanco Participações S.A., a holding company organized under the laws of Brazil, or “IUPAR.” IUPAR is jointly controlled by (i) Itaúsa – Investimentos Itaú S.A., or “Itaúsa,” a holding company organized under the laws of Brazil, and (ii) Companhia E. Johnston de Participações, or “E. Johnston” and, together with IUPAR and Itaúsa, the “Controlling Shareholders,” a holding company organized under the laws of Brazil. Each of the Controlling Shareholders is in the business of investing in securities.

 

(4)Includes Class A common shares owned by Itaúsa S.A., or “Itaúsa,” with its principal business address at Av. Paulista, No. 1938, 5th floor, Bela Vista, 01310-200, São Paulo, Brazil.

 

(5)The GA Funds (as hereinafter defined) and the Sponsor Coinvestment Funds (as hereinafter defined) share beneficial ownership of the Class A common shares and the Class B common shares held of record by GA Bermuda. The “GA Funds” are General Atlantic Partners 92A, L.P., General Atlantic Partners 92B, L.P., General Atlantic Partners 92C, L.P., General Atlantic Partners 92D, L.P., General Atlantic Partners 92E, L.P., General Atlantic Partners 92F, L.P., General Atlantic Partners 92G, L.P., General Atlantic Partners 92H, L.P., General Atlantic Partners 92I, L.P., General Atlantic Partners 92J, L.P. and General Atlantic Partners (Bermuda) IV, L.P., or “GAP Bermuda IV.” Each of the GA Funds (other than GAP Bermuda IV) is the sole member of a limited liability company, and each such limited liability company is a limited partner of GA Bermuda. Such limited liability companies are General Atlantic XP A, LLC, General Atlantic XP B, LLC, General Atlantic XP C, LLC, General Atlantic XP D, LLC, General Atlantic XP E, LLC, General Atlantic XP F, LLC, General Atlantic XP G, LLC, General Atlantic XP H, LLC, General Atlantic XP I, LLC and General Atlantic XP J, LLC. The “Sponsor Coinvestment Funds” are GAP Coinvestments III, LLC, or “GAPCO III,” GAP Coinvestments IV, LLC, or “GAPCO IV,” GAP Coinvestments V, LLC, or “GAPCO V,” GAP Coinvestments CDA, L.P., or “GAPCO CDA,” and GAPCO GmbH & Co. KG, or “GAPCO KG.” The Sponsor Coinvestment Funds are members of GA Latin America Coinvestments, LLC, which is also a limited partner of GA Bermuda. GAP Bermuda IV, GAPCO CDA, GAPCO III, GAPCO IV and GAPCO V are also limited partners of GA Bermuda. The general partner of GA Bermuda is GAP (Bermuda) Limited. The general partner of the GA Funds (other than GAP Bermuda IV) is General Atlantic GenPar, L.P., or “GenPar.” The general partner of GenPar is General Atlantic LLC, or “GA LLC.” The general partner of GAP Bermuda IV

 

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is General Atlantic GenPar (Bermuda), L.P., or “GenPar Bermuda,” and the general partner of GenPar Bermuda is GAP (Bermuda) Limited. GA LLC is the managing member of GAPCO III, GAPCO IV and GAPCO V and the general partner of GAPCO CDA. The general partner of GAPCO KG is GAPCO Management GmbH, or “GAPCO GmbH.” There are eight members of the management committee of GA LLC, or the “GA Management Committee” as of the date of the Schedule 13G/A. The address of each of the Reporting Persons (other than GmbH, KG, GA XP, GAP Bermuda IV, GAP (Bermuda) L.P., GenPar Bermuda, GAP Bermuda EU, GA XP II, GAP Lux, GA GenPar Lux and GA Lux) is c/o General Atlantic Service Company, L.P., 55 East 52nd Street, 33rd Floor, New York, NY 10055. The address of GmbH and KG is c/o General Atlantic GmbH, Luitpoldblock, Amirplatz 3, 80333 Munich, Germany. The address of GA XP, GAP Bermuda IV, GAP (Bermuda) L.P., GenPar Bermuda, GAP Bermuda EU and GA XP II is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The address of GAP Lux, GA GenPar Lux and GA Lux is Luxembourg is 412F, Route d’Esch, L-2086 Luxembourg. The members of the GA Management Committee are also the directors and the members of the management committee of GAP (Bermuda) Limited. Martin Escobari is a member of the GA Management Committee. GA Bermuda, GA LLC, GenPar, GenPar Bermuda, GAP (Bermuda) Limited, the GA Funds and the Sponsor Coinvestment Funds are a “group” within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as amended. Each of the members of the GA Management Committee disclaims ownership of the Class A common shares and the Class B common shares except to the extent he has a pecuniary interest therein.

 

(6)Includes Class A common shares owned by São Carlos Investimentos Ltd., an entity controlled by Mr. João Moreira Salles, with its registered office at The R&H Trust Co. Ltd., Windward 1, Regatta Office Park, Grand Cayman, KY1-1103, Cayman Islands.

 

(7)Includes Class A common shares owned by São Marcos Investimentos Ltd., an entity controlled by Mr. Walther Moreira Salles Junior, with its principal business address at The R&H Trust Co. Ltd., Windward 1, Regatta Office Park, Grand Cayman, KY1-1103, Cayman Islands.

 

The following table summarizes the expected shareholder participation in XP upon the effectiveness of the Merger, including in the form of XP BDRs:

 

   Shares Beneficially Owned After the Merger  % of Total Voting Power(1)
    

Class A 

    

Class B 

      
Shareholders   

Shareholders 

    

    

Shares 

    

      
XP Control LLC(2)     —         —         103,375,726       91.7 %     65.4 %
ITB Holding Brasil Participações Ltda.(3)     47,484,254       10.2 %     8,285,060       7.4 %     8.2 %
Itaúsa S.A.(4)     64,470,985       13.8 %     —         —         4.1 %
General Atlantic (XP) Bermuda, L.P.(5)     20,475,733       4.4 %     —         —         1.6 %
São Carlos Investimentos Ltd.(6)     9,906,362       2.1 %     —         —         0.6 %
São Marcos Investimentos Ltd.(7)     9,906,362       2.1 %     —         —         0.6 %
Modal Controle Participações S.A.(8)     11,297,956       2.4 %     —         —         0.7 %
Free Float     301,920,062       64.7 %     —         —         19.1 %
Treasury XP Inc.     3,496,822       0.7 %     1,056,308       0.9 %     0.0 %

 
(1)Percentage of total voting power represents voting power with respect to all of our Class A common shares and Class B common shares, as a single class. Holders of our Class B common shares are entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share. For more information about the voting rights of our Class A common shares and Class B common shares, see “Description of XP Share Capital.”

 

(2)Includes Class B common shares owned by XP Control LLC, or “XP Control,” with its registered address of PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Guilherme Dias Fernandes Benchimol, Bernardo Amaral Botelho, Carlos Alberto Ferreira Filho, Gabriel Klas da Rocha Leal, Fabrício Cunha de Almeida, Bruno Constantino Alexandre dos Santos and Guilherme Sant’Anna Monteiro da Silva are indirect controlling shareholders of XP Control, or the “XP Control Controlling Shareholders” in accordance with XP Control’s Amended and Restated Limited Liability Company Agreement and Unitholders’ Agreement. The XP Control Controlling Shareholders have beneficial ownership of the Class B common shares held of record by XP Control. Each of the XP Control Controlling Shareholders disclaims ownership of the Class B common shares except to the extent he has a pecuniary interest therein.

 

(3) Includes Class A common shares and Class B common shares owned by ITB Holding Brasil Participações Ltda., with its principal business address at Praça Alfredo Egydio de Souza Aranha, No. 100, Torre Conceição, 7th floor, Parque Jabaquara, 04344-902, São Paulo, Brazil. Itaú Unibanco Holding S.A. directly or indirectly, through its wholly owned subsidiary, Itaú Unibanco S.A., holds all of the membership interests of ITB Holding Brasil Participações Ltda. Itaú Unibanco Holding S.A. is controlled by IUPAR – Itaú Unibanco Participações S.A., a holding company organized under the laws of Brazil, or “IUPAR.” IUPAR is jointly controlled by (i) Itaúsa – Investimentos Itaú S.A., or “Itaúsa,” a holding company organized under the laws of Brazil, and (ii) Companhia E. Johnston de Participações, or “E. Johnston” and,

 

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together with IUPAR and Itaúsa, the “Controlling Shareholders,” a holding company organized under the laws of Brazil. Each of the Controlling Shareholders is in the business of investing in securities.

 

(4)Includes Class A common shares owned by Itaúsa S.A., or “Itaúsa,” with its principal business address at Av. Paulista, No. 1938, 5th floor, Bela Vista, 01310-200, São Paulo, Brazil.

 

(5)The GA Funds (as hereinafter defined) and the Sponsor Coinvestment Funds (as hereinafter defined) share beneficial ownership of the Class A common shares and the Class B common shares held of record by GA Bermuda. The “GA Funds” are General Atlantic Partners 92A, L.P., General Atlantic Partners 92B, L.P., General Atlantic Partners 92C, L.P., General Atlantic Partners 92D, L.P., General Atlantic Partners 92E, L.P., General Atlantic Partners 92F, L.P., General Atlantic Partners 92G, L.P., General Atlantic Partners 92H, L.P., General Atlantic Partners 92I, L.P., General Atlantic Partners 92J, L.P. and General Atlantic Partners (Bermuda) IV, L.P., or “GAP Bermuda IV.” Each of the GA Funds (other than GAP Bermuda IV) is the sole member of a limited liability company, and each such limited liability company is a limited partner of GA Bermuda. Such limited liability companies are General Atlantic XP A, LLC, General Atlantic XP B, LLC, General Atlantic XP C, LLC, General Atlantic XP D, LLC, General Atlantic XP E, LLC, General Atlantic XP F, LLC, General Atlantic XP G, LLC, General Atlantic XP H, LLC, General Atlantic XP I, LLC and General Atlantic XP J, LLC. The “Sponsor Coinvestment Funds” are GAP Coinvestments III, LLC, or “GAPCO III,” GAP Coinvestments IV, LLC, or “GAPCO IV,” GAP Coinvestments V, LLC, or “GAPCO V,” GAP Coinvestments CDA, L.P., or “GAPCO CDA,” and GAPCO GmbH & Co. KG, or “GAPCO KG.” The Sponsor Coinvestment Funds are members of GA Latin America Coinvestments, LLC, which is also a limited partner of GA Bermuda. GAP Bermuda IV, GAPCO CDA, GAPCO III, GAPCO IV and GAPCO V are also limited partners of GA Bermuda. The general partner of GA Bermuda is GAP (Bermuda) Limited. The general partner of the GA Funds (other than GAP Bermuda IV) is General Atlantic GenPar, L.P., or “GenPar.” The general partner of GenPar is General Atlantic LLC, or “GA LLC.” The general partner of GAP Bermuda IV is General Atlantic GenPar (Bermuda), L.P., or “GenPar Bermuda,” and the general partner of GenPar Bermuda is GAP (Bermuda) Limited. GA LLC is the managing member of GAPCO III, GAPCO IV and GAPCO V and the general partner of GAPCO CDA. The general partner of GAPCO KG is GAPCO Management GmbH, or “GAPCO GmbH.” There are eight members of the management committee of GA LLC, or the “GA Management Committee” as of the date of the Schedule 13G/A. The address of each of the Reporting Persons (other than GmbH, KG, GA XP, GAP Bermuda IV, GAP (Bermuda) L.P., GenPar Bermuda, GAP Bermuda EU, GA XP II, GAP Lux, GA GenPar Lux and GA Lux) is c/o General Atlantic Service Company, L.P., 55 East 52nd Street, 33rd Floor, New York, NY 10055. The address of GmbH and KG is c/o General Atlantic GmbH, Luitpoldblock, Amirplatz 3, 80333 Munich, Germany. The address of GA XP, GAP Bermuda IV, GAP (Bermuda) L.P., GenPar Bermuda, GAP Bermuda EU and GA XP II is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The address of GAP Lux, GA GenPar Lux and GA Lux is Luxembourg is 412F, Route d’Esch, L-2086 Luxembourg. The members of the GA Management Committee are also the directors and the members of the management committee of GAP (Bermuda) Limited. Martin Escobari is a member of the GA Management Committee. GA Bermuda, GA LLC, GenPar, GenPar Bermuda, GAP (Bermuda) Limited, the GA Funds and the Sponsor Coinvestment Funds are a “group” within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as amended. Each of the members of the GA Management Committee disclaims ownership of the Class A common shares and the Class B common shares except to the extent he has a pecuniary interest therein.

 

(6)Includes Class A common shares owned by São Carlos Investimentos Ltd., an entity controlled by Mr. João Moreira Salles, with its registered office at The R&H Trust Co. Ltd., Windward 1, Regatta Office Park, Grand Cayman, KY1-1103, Cayman Islands.

 

(7)Includes Class A common shares owned by São Marcos Investimentos Ltd., an entity controlled by Mr. Walther Moreira Salles Junior, with its principal business address at The R&H Trust Co. Ltd., Windward 1, Regatta Office Park, Grand Cayman, KY1-1103, Cayman Islands.

 

(8)Modal Controle Participações S.A. is controlled by Modal Holding Controle Ltda., which holds 41.01% of Modal Controle Participações S.A.’s common shares. Modal Holding Controle Ltda. is owned by Mr. Diniz Baptista, who holds 99.9% of its equity interests.

 

For more information, see “Major Shareholders and Related Party Transactions.”

 

Ownership of Modal Prior to the Merger

 

The following table summarizes the shareholder participation in Modal prior to the Merger:

 

Shareholders  Common Shares  %  Preferred Shares  %  Total Shares  Units
(theoretical)
  % of Total
Modal Controle Participações S.A.     308,535,499       74.8 %     83,573,000       28.7 %     392,108,499       130,702,833       55.7 %
Management     702,475       0.2 %     1,404,950       0.5 %     2,107,425       702,475       0.3 %
Banco de Investimentos Credit Suisse (Brasil) S.A.     37,206,000       9.0 %     74,394,000       25.5 %     111,600,000       37,200,000       15.8 %
Treasury Shares     6,223,615       2.2 %     12,447,230       4.3 %     18,670,845       6,223,615       2.7 %
Others (free float)     59,898,412       14.5 %     119,814,819       41.1 %     179,713,231       59,904,410       25.5 %
Shares outstanding     412,566,001       100.0 %     291,633,999       100.0 %     704,200,000       234,733,333       100.0 %

 

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Ownership of Modal Following the Merger

 

Unless the Alternative Structure is implemented (as defined herein), following the completion of the Merger, Modal will be merged by Banco XP, with Modal as a wholly-owned subsidiary of Banco XP. Modal Shareholders will own a direct interest in XP (in the form of XP BDRs), according to the Exchange Ratio.

 

Management of XP Following the Merger

 

Upon the closing of the Merger contemplated by the Merger Protocol, XP’s board of directors and executive officers is expected to remain the same as prior to the Merger.

 

Accounting Treatment of the Merger

 

Under IFRS as issued by the IASB, the acquisition of the Modal Shares will be accounted for through the application of the acquisition method of accounting for business combinations. Under the acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible assets, liabilities and any non-controlling interest based on their estimated fair values as of the acquisition date.

 

Treatment of Equity and Equity-Based Awards

 

Our current equity compensation plans, which we make available to our directors, executive officers and members of our management, will not vest as a result of the Merger. Modal does not have an equity compensation plan currently in place.

 

Dividend Information

 

The following table shows the amount of dividends declared and paid by XP to our shareholders during the years ended from 2018 to 2021:

 

   Amount Declared
and Paid
   (in R$ million)
2021(1)     
2020(1)     
2019(2)    500.0 
2018    325.0 
 
(1)For the years ended December 31, 2020 and 2021, XP Inc. has not declared or paid dividends to its shareholders.

 

(2)On October 16, 2019, XP Investimentos S.A. declared and paid dividends totaling R$60 million. On November 1, 2019, XP Investimentos S.A. declared dividends totaling R$440 million, which were paid in December 2019. Dividends paid prior to our incorporation on August 29, 2019 were paid by XP Investimentos S.A.

 

For the years ended December 31, 2021, 2020, 2019 and 2018, Modal has not declared or paid dividends to its shareholders.

 

Past Contracts, Mergers, Negotiations and Agreements

 

There have been no past, present or proposed material contracts, arrangements, understandings, relationships, negotiations or transactions during the periods for which financial statements are presented in this prospectus between XP or its affiliates and Modal or its affiliates, other than those described in this prospectus or in the

 

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documents incorporated by reference therein, and in particular sections entitled “The Merger Protocol” and “The Merger.”

 

Interests of Experts and Counsel

 

Not applicable.

 

Expenses

 

The following is an itemized statement of the expenses incurred or estimated to be incurred by XP in connection with the Merger:

 

Expenses

Amounts

(in US$ thousands)

Legal fees  
Accounting fees and advisory fees  
Printing costs
Total

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The Merger Protocol

 

This section describes the material terms of the Merger Protocol (Protocolo e Justificação) under Brazilian Law. The rights and obligations of the parties to the Merger Protocol is governed by the express terms and conditions of the Merger Protocol and not by this summary or any other information contained in this prospectus. The description in this section and elsewhere in this prospectus is qualified in its entirety by reference to the complete text of the Merger Protocol, form of which is attached as an exhibit to the registration statement of which this prospectus is a part. This summary does not purport to be complete and may not contain all of the information about the Merger Protocol that is important to you. XP and Modal encourage you to read the Merger Protocol carefully and in its entirety.

 

Overview

 

The Merger Protocol governs the Merger of Modal with Banco XP and follows the requirements provided by Articles 224, 225 and 252 of the Brazilian Corporation Law. According to the Merger Protocol, the Merger will be carried out at fair value, based on the equity held by the shareholders of Modal.

 

The Merger Protocol will be submitted to shareholders of XP and Modal in connection with the Merger, the steps of which are detailed below and which will consist of (i) the contribution, by means of the Merger of Shares, of Modal Shares to Banco XP in exchange for the issuance of preferred and mandatorily redeemable Banco XP shares to Modal Shareholders, or the “Redeemable Shares,” and, subsequently, (ii) the redemption of the Redeemable Shares for XP Shares (in the form of XP BDRs) to Modal Shareholders.

 

Unless the Alternative Structure is implemented (as defined herein), according to the terms and conditions of the Merger Protocol, the Merger will be effected upon the immediate Merger of Shares. As a consequence, Banco XP will become the sole shareholder of Modal, without any expected changes to the assets, rights and obligations of Modal, and Modal will become a wholly-owned subsidiary of Banco XP for all purposes and legal effects, in accordance with Article 252 of the Brazilian Corporation Law. For more information on the Alternative Structure, see “The Merger—Alternative Structure.”

 

Upon the redemption of the Redeemable Shares for XP Shares, Modal Shareholders will receive up to a number of XP Shares (in the form of XP BDRs) in exchange for the Banco XP shares received in the Merger of Shares, pursuant to the Exchange Ratio (as defined herein). Modal Shareholders who receive XP Shares (in the form of XP BDRs) and who wish to cancel their XP BDRs and receive the XP Shares represented thereby may inform their broker of such intention at any time after the completion of the Merger. The Exchange Ratio is expected to be of one XP Share (in the form of XP BDRs) for Modal Shares. The Exchange Ratio agreed by the parties is expected to amount to           % of the share capital of XP Inc. on January 6, 2022 in exchange for 100% of Modal Shares, which represented, based on the price of XP shares and on the official foreign exchange rate published by the Brazilian Central Bank, the amount of approximately R$3.0 billion on January 6, 2022. Based on the number of Modal Shares as of the date of this prospectus, it is anticipated that, upon effectiveness of the Merger, the Modal Shareholders are expected to own approximately           % of XP’s total issued share capital (excluding treasury shares) and approximately           % of XP’s total voting rights, both on a fully diluted basis. For more information on the Alternative Structure, see “The Merger—Alternative Structure.”

 

No fractions of XP Shares or XP BDRs will be distributed. Following the Merger, XP Shares underlying fractional entitlements to XP BDRs will be grouped into whole numbers for issuance of XP BDRs to be sold on the open market managed by B3. The proceeds from the sale of the XP BDRs will be distributed on a pro rata basis to the former Modal Shareholders who held the right to receive fractional XP BDRs net of taxes and fees, pursuant to a notice to former Modal Shareholders (aviso aos acionistas) to be disclosed by Modal. No additional consideration in cash or in kind will be paid by XP or Banco XP to Modal Shareholders in connection with the Merger. See also “The Merger—Overview.” 

 

Unless the Alternative Structure is implemented (as defined herein), following the completion of the Merger, which includes the regulatory approval by the Brazilian Central Bank, Modal will be a wholly-owned subsidiary of Banco XP, Modal will be deregistered from the CVM and the Modal Shares will be delisted from the B3. As a result, Modal will no longer file or make submissions with the CVM or B3. The Merger was also subject to approval by CADE, which was obtained on July 26, 2022.

 

At the time of deregistration and delisting following the completion of the Merger, former Modal Shareholders will have received XP Shares (in the form of XP BDRs) and Banco XP will be the sole shareholder of Modal. XP will continue to be registered under the Exchange Act and will continue to file Annual Reports on Form 20-F with

 

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the SEC and make submissions to the SEC on Form 6- K. For more information on the terms and conditions of the Alternative Structure, see “The Merger—Alternative Structure.”

 

Shareholder Approval and Conditions Precedent

 

The completion of the Merger and the redemption of the Redeemable Shares for XP Shares are subject to:

 

· at the Modal Shareholders’ Meeting, (i) the approval of the Merger, pursuant to the Merger Protocol; and (ii) waiver of the obligation that Banco XP be listed on B3’s Novo Mercado listing segment after the implementation of the Merger. See “The Modal Shareholders’ Meeting;” and

 

· at Banco XP’s extraordinary general meeting, among others, (i) the approval of the Merger Protocol; (ii) the ratification of the appointment of the appraisers in connection with the Merger; (iii) the approval of the Merger and related capital increase and issuance of Redeemable Shares; and (iv) the approval of the redemption of the Redeemable Shares for XP Shares, and related amendments of the bylaws.

 

Therefore, pursuant to the Merger Protocol, the Modal Shareholders will be asked to consider and vote, among other things, on the following resolutions at the Modal Shareholders’ Meeting:

 

· to approve the Merger, which involves (i) the Merger of Shares, so that Banco XP becomes the sole shareholder of Modal by virtue of such Merger of Shares; and (ii) the subsequent delivery of the Redeemable Shares to Modal Shareholders, which will be redeemed on the same date of their delivery in exchange for XP Shares (in the form of XP BDRs);

 

·to approve the execution of the Merger Protocol;

 

·to waive the obligation that Banco XP be listed on B3’s Novo Mercado listing segment after the implementation of the Merger;

 

·to authorize Modal’s management to conduct all necessary acts and to execute the necessary documents in connection with the Merger; and

 

·related resolutions.

 

The completion of the Merger is subject to certain conditions precedent, including:

 

· the approval of the Merger Proposal at the Modal Shareholders’ Meeting and at Banco XP’s shareholders meeting;

 

· the approval of the Merger by CADE, which was obtained on July 26, 2022;

   

· the approval of the Merger by the Brazilian Central Bank;

 

· the absence of any law or order prohibiting or enjoining the consummation of the Merger;

 

· the registration statement of which this prospectus forms a part shall have been declared effective by the SEC;

 

· Modal shall (i) have obtained the respective third-party consents of its agreements currently in force and there will not be material obligations that may have declared their early termination (or other incident penalties) due to the Merger, or the “Obligations Subject to Early Termination;” or (ii) have liquidated all its Obligations Subject to Early Termination; or (iii) have cash representing 100% of the necessary amount to liquidate all the Obligations Subject to Early Termination (including any incident penalties); and

 

· other customary conditions precedent for transactions of this type.

 

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Representations and Warranties

 

The Merger Protocol contains representations and warranties of Modal and Banco XP as to, among other things: (i) corporate existence and power; (ii) corporate authorization; (iii) governmental authorization; (iv) non-contravention; (v) capitalization; (vi) financial statements, among others.

 

Withdrawal Rights

 

Modal Shareholders have the following withdrawal rights under Brazilian law in connection with the Merger. Assuming that the Merger is approved, individuals and legal entities who are Modal Shareholders from            , 2022 and who still own Modal Shares until the exercise of their withdrawal rights and did not vote in favor of the Merger (including those that were absent from the relevant shareholders’ meeting) are entitled to exercise withdrawal rights as provided under Article 137 of Brazilian Corporation Law.

 

Under Brazilian law, withdrawal rights are akin to appraisal or dissenters’ rights in that they permit shareholders to receive a fixed amount of cash in exchange for each Modal Share calculated on the basis of the book value per share of Modal’s shareholders’ equity, subject to the conditions set forth below and described in further detail herein. Other than the withdrawal rights described herein, you do not have appraisal or dissenters’ rights under Brazilian law.

 

In order to exercise such withdrawal rights, Modal Shareholders must give notice thereof within 30 days following the publication of the Modal Merger Approval in the “Monitor Mercantil” newspaper.

 

Termination

 

If the exercise of withdrawal rights by Modal’s minority shareholders becomes, at the discretion of XP Brasil, excessively onerous, XP Brasil may terminate the Merger Protocol, rendering it ineffective.

 

Costs

 

Except as otherwise provided for in the Merger Protocol, the costs and expenses incurred with the Merger shall be borne by the party that incurs them, including expenses related to the fees of their respective advisors, auditors, appraisers and lawyers.

 

Applicable Law

 

The Merger is governed and interpreted in accordance with Brazilian law.

 

Dispute Resolution

 

Any and all disputes that may arise between the parties as a result of the Merger Protocol or related to it will be definitively settled by arbitration, conducted by the Market Arbitration Chamber created by B3, or the “Market Arbitration Chamber,” in accordance with the rules of the aforementioned institution in force at the time the arbitration commences. In the event that the rules of the Market Arbitration Chamber are silent in any aspect, the parties hereby agree to apply the provisions set forth in Law No. 9,307/1996 in a complementary manner.

 

The place of the arbitration shall be the City of São Paulo, State of São Paulo, Brazil, where the arbitration award shall be rendered. The language of the arbitration shall be Portuguese.

 

The terms and conditions of the contemplated transaction are contained in the Merger Protocol and included as an Exhibit to the registration statement of which this prospectus forms a part.

 

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Material Tax Considerations

 

Material U.S. Federal Income Tax Considerations

 

The following is a discussion of material U.S. federal income tax consequences to U.S. holders (as defined below) of (i) the Merger and (ii) the ownership and disposition of XP Shares and XP BDRs received by U.S. holders of Modal Shares in the Merger. In general, a U.S. Holder that owns XP BDRs will be treated as the owner of the underlying XP Shares represented by those XP BDRs for U.S. federal income tax purposes.

 

This discussion is based on the Internal Revenue Code of 1986, as amended, or the “Code,” administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof. These laws are subject to change, possibly with retroactive effect.

 

We have not sought, and do not intend to, seek any rulings from the Internal Revenue Service, or the “IRS,” as to any U.S. federal income tax considerations described herein. There can be no assurance that the IRS will not take positions inconsistent with the considerations discussed below or that any such positions would not be sustained by a court.

 

This discussion applies only to U.S. holders that hold Modal Shares and, after the completion of the Merger, will hold XP Shares or XP BDRs, as capital assets for U.S. federal income tax purposes and it does not describe all tax consequences that may be relevant to U.S. holders subject to special rules, such as:

 

·certain financial institutions;

 

·insurance companies;

 

·dealers or traders in securities or foreign currencies who use a mark-to-market method of tax accounting;

 

·persons that hold Modal Shares, or will hold XP Shares or XP BDRs, as part of a hedge, “straddle,” wash sale, conversion transaction, integrated transaction or similar transaction or persons entering into a constructive sale with respect to the XP Shares or XP BDRs;

 

·persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

 

·partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

 

·persons liable for the alternative minimum tax or the provisions of the Code known as the Medicare Contribution Tax;

 

·tax-exempt entities, including “individual retirement accounts” or “Roth IRAs;”

 

·persons who acquired Modal Shares pursuant to the exercise of an employee stock option or otherwise as compensation;

 

·persons required for U.S. federal income tax purposes to conform the timing of income accruals with respect to the Modal Shares to an “applicable financial statement” under Section 451(b) of the Code;

 

·persons that hold Modal Shares, or will hold XP Shares or XP BDRs, in connection with a trade or business conducted outside the United States;

 

·persons that hold Modal Shares, or will hold XP Shares or XP BDRs, that own or are deemed to own 10% or more of Modal or XP stock (by vote or value); or

 

·U.S. holders that will own (directly or indirectly) 5% of either the total voting power or the total value of the shares of XP immediately after the Merger.

 

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In addition, this discussion does not address other U.S. federal taxes (such as gift or estate taxes) or the tax consequences of the Merger under state, local or non-U.S. tax laws.

 

If an entity that is classified as a partnership for U.S. federal income tax purposes holds Modal Shares or XP Shares or XP BDRs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Modal Shares or XP Shares or XP BDRs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of the Merger and of owning and disposing of XP Shares or XP BDRs following the Merger in their particular circumstances.

 

For purposes of this discussion, a “U.S. holder” is a beneficial owner of Modal Shares or, after the Merger, XP Shares or XP BDRs that is, for U.S. federal income tax purposes:

 

·a citizen or individual resident of the United States;

 

·a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or

 

·an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

 

This discussion assumes that XP is not, and will not become, a “passive foreign investment company” or “PFIC” for U.S. federal income tax purposes.

 

Shareholders are urged to consult their tax advisors as to the particular U.S. federal income tax consequences of the Merger to them, as well as any tax consequences arising under any state, local and non-U.S. tax laws or any other U.S. federal tax laws.

 

The Merger

 

Consequences of the Merger

 

For U.S. federal income tax purposes, the contribution of Modal Shares for Redeemable Shares followed by the immediate redemption of such Redeemable Shares for XP Shares (in the form of XP BDRs) will be treated as an integrated transaction. The receipt of XP Shares (in the form of XP BDRs) and/or cash in exchange for Modal Shares in the Merger will be a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder of Modal Shares will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the sum of the value of the XP Shares (in the form of XP BDRs) and cash received in the Merger and (ii) such U.S. holder’s adjusted tax basis in the Modal Shares exchanged therefor. Subject to application of the PFIC rules discussed below, any gain or loss so recognized would generally be long-term capital gain or loss if the U.S. holder had held the Modal Shares for more than one year (and short-term capital gain or loss otherwise). Such gain or loss will be U.S.-source gain or loss for foreign tax credit purposes. If a Brazilian tax is withheld on the sale or other disposition of Modal Shares, a U.S. holder’s amount realized will include the gross amount of the proceeds of such sale or other disposition before reduction in respect of the Brazilian tax withheld, as described in “Material Brazilian Tax ConsiderationsCapital Gains” below. The deductibility of capital losses is subject to limitations.

 

Foreign Tax Credits in Respect of Brazilian Taxes

 

Treasury regulations generally preclude U.S. holders from claiming a foreign tax credit with respect to any tax imposed on gains from the disposition of shares by a jurisdiction, such as Brazil, that does not have an applicable income tax treaty with the United States, although such taxes may be applied to reduce the amount realized by the U.S. holder on the disposition.

 

The rules governing foreign tax credits are complex and U.S. holders are urged to consult their own tax advisors regarding the creditability or deductibility of any Brazilian tax in their particular circumstances (including any applicable limitations).

 

U.S. holders of Modal Shares are urged to discuss the consequences of the Merger with their tax advisors.

 

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Application of the PFIC Rules to the Merger

 

The treatment of U.S. holders of Modal Shares would be materially different from that described above if Modal is or was treated as a PFIC for U.S. federal income tax purposes. In general, a non-U.S. corporation is a PFIC for U.S. federal income tax purposes for any taxable year in which (i) 50% or more of the value of its assets (generally determined on the basis of a weighted quarterly average) consists of assets that produce, or are held for the production of, passive income, or (ii) 75% or more of its gross income consists of passive income. Passive income generally includes dividends, interest, royalties, rents, investment gains, net gains from the sales of property that does not give rise to any income and net gains from the sale of commodities (subject to certain exceptions, such as an exception for certain income derived in the active conduct of a trade or business). Neither XP nor Modal has determined, nor intends to determine, whether Modal is or was a PFIC for U.S. federal income tax purposes.

 

For a description of the U.S. federal income tax consequences of the disposition of stock in a PFIC, see the discussion under “—Passive Foreign Investment Company Rules” of “Item 10.E. Taxation” of the XP 2021 Form 20-F. All U.S. holders of Modal Shares are urged to consult their own tax advisors concerning the consequences to them of the PFIC rules.

 

Consequences of Ownership and Disposition of XP Shares

 

For a discussion of the U.S. federal income tax considerations of owning and disposing of XP Shares, see “Item 10.E. Taxation” of the XP 2021 Form 20-F, which is incorporated by reference into this prospectus. In general, a holder of BDRs will be treated as the owner of the underlying shares represented by those BDRs for U.S. federal income tax purposes. Accordingly, the discussion in “Item 10.E Taxation” of the 2021 Form 20-F should generally apply to holders of XP BDRs.

 

TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO EACH U.S. HOLDER OF MODAL SHARES MAY DEPEND ON SUCH HOLDER’S PARTICULAR FACTS AND CIRCUMSTANCES. HOLDERS OF MODAL SHARES ARE URGED TO CONSULT THEIR TAX ADVISORS TO UNDERSTAND FULLY THE TAX CONSEQUENCES TO THEM OF THE MERGER.

 

Material Brazilian Tax Considerations

 

The Merger

 

The following discussion summarizes the material Brazilian tax considerations of the Merger, and, therefore, does not specifically address all of the Brazilian tax considerations applicable to any particular Modal Shareholder. This discussion is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and to differing interpretations. Any change in such law may change the consequences described below.

 

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. The discussion also does not address any tax consequences under the tax laws of any state or locality of Brazil.

 

The description below is not intended to constitute a complete analysis of all tax consequences relating to the Merger. Due to the complexity relating to the tax treatment that may apply to Modal Shareholders, we advise such investors to consult their own lawyers and tax advisors for specific advice regarding their particular situation with respect to the Merger.

 

Capital Gains

 

According to Brazilian tax rules, gains on the disposition of assets located in Brazil by a holder who resides in Brazil, or a “Brazilian Holder,” or by a holder deemed to not be domiciled in Brazil for Brazilian tax purposes, or a “Non-Brazilian Holder,” are subject to Brazilian taxation.

 

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Notwithstanding the analysis of the tax treatment applicable to the Merger, any gains recognized by Modal Shareholders are expected to be subject to Brazilian income tax at different rates, depending on the nature, domicile and regime of the corresponding holder.

 

As a general rule, capital gains realized on the disposition of common shares located in Brazil may be calculated as the positive difference between (i) the amount in Brazilian currency realized on the sale or exchange of the common share and (ii) their acquisition cost, without any correction for inflation.

 

Capital Gains assessed by a Brazilian Holder are subject to taxation in Brazil depending on the legal nature of such Brazilian Holder, including (i) income tax at rates varying from 15% to 22.5% for individuals resident in Brazil, and (ii) IRPJ/CSLL at a combined 34% for legal entities domiciled in Brazil.

 

The rate for a Non-Brazilian Holder may generally vary from 15% to 22.5%, or may be a flat rate of (i) 15% for Non-Resident Holder that (1) holds its investment in Brazil under the rules of Resolution No. 4,373 or the “4,373 Holder,” of the Brazilian Monetary Council and (2) is not resident in Low or Nil Tax Jurisdiction, as defined below or (ii) 25% for a Non-Brazilian Holder resident of or domiciled in a “No Taxation or Low Taxation Jurisdiction.” The rate for a Brazilian Holder may vary widely, for example, from 15% to 22.5% for individuals, or 34% for Brazilian companies, which may be also subject to taxes on gross revenues, or “PIS/Cofins,” up to a combined rate of 9.25%, as the case may be. In any case, one should note that the sale of shares booked as non-current assets of the Brazilian legal entity are currently exempt from the assessment of PIS/Cofins, while Brazilian individuals and Non-Brazilian Holders are not subject to the payment of such contributions.

 

Discussion of Low or Nil Taxation Jurisdictions and Privileged Tax Regimes

 

According to Law No. 9,430, dated December 27, 1996, as amended, a Low or Nil Taxation Jurisdiction, or Tax Favorable Jurisdiction is a country or location that (1) does not impose taxation on income, (2) imposes the income tax at a rate lower than 20%, or (3) imposes restrictions on the disclosure of shareholding composition or investment ownership.

 

Additionally, on June 24, 2008, Law No. 11,727/08, which introduced the articles 24-A and 24-B in Law No. 9,430/96, created the concept of Privileged Tax Regimes, which encompasses the countries and jurisdictions that: (1) do not tax income or tax it at a maximum rate lower than 20%; (2) grant tax advantages to a non-resident entity or individual (i) without the need to carry out a substantial economic activity in the country or a said territory or (ii) conditioned to the non-exercise of a substantial economic activity in the country or a said territory; (3) do not tax or that taxes income generated abroad at a maximum rate lower than 20%; or (4) does not provide access to information related to shareholding composition, ownership of assets and rights or economic transactions carried out.

 

On November 28, 2014, the Brazilian tax authorities issued Ordinance No. 488, which decreased from 20% to 17%, which is the minimum threshold for certain specific cases. Under Ordinance No. 488, the 17% threshold applies only to countries and regimes aligned with international standards of fiscal transparency in accordance with rules to be established by the Brazilian tax authorities.

 

The interpretation of current Brazilian tax legislation should lead to the conclusion that the concept of Privileged Tax Regimes should only apply for certain Brazilian tax purposes, such as transfer pricing and thin capitalization rules. According to this interpretation, the concept of Privileged Tax Regimes should not apply in connection with the taxation of dividends, interest on shareholders’ equity and gains related to investments made by Non-Brazilian Holders in Brazilian corporations. Regulations and non-binding tax rulings issued by Brazilian federal tax authorities seem to confirm this interpretation, especially in view of provisions introduced by Normative Ruling No. 1,037, dated as of June 4, 2010, as amended, which presents two different lists (Low or Nil Tax Jurisdictions—taking into account the non-transparency rules—and Privileged Tax Regimes).

 

Notwithstanding the above, we recommend that you consult your own tax advisors regarding the consequences of the implementation of Law No. 11,727, Normative Ruling No. 1,037 and any related Brazilian tax law or regulation concerning Low or Nil Tax Jurisdictions or Privileged Tax Regimes.

 

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Investment in XP Shares (in the form of XP BDRs)

 

This section describes the main tax implications in Brazil for holders of XP Shares and XP BDRs.

 

Taking into consideration the peculiarities concerning the tax treatment that may apply to Brazilian Holders and Non-Brazilian Holders, we advise such investors to consult their own lawyers and tax advisors for specific advice regarding their particular situation.

 

Non-Brazilian Holders

 

Dividends and Other Income

 

Under current rules, dividends or other similar income arising from XP Shares and XP BDRs paid by XP should not be subject to income tax in Brazil when paid in favor of a Non-Brazilian Holder.

 

Gains

 

According to Law No. 10,833/03, dated December 29, 2003 and Law No. 11,033, dated December 21, 2004, gains assessed on the sale or other disposition of assets located in Brazil are generally subject to income tax in Brazil.

 

Notwithstanding the analysis of “indirect sale” of Brazilian assets, XP Shares should, in principle, not be treated as an asset located in Brazil and therefore, their disposal should not generate income tax in Brazil.

 

Nonetheless, due to the complexity relating to the tax treatment that may apply to Brazilian Holders and Non-Brazilian Holders, we advise such investors to consult their own legal and tax advisors for specific counsel regarding their particular situation with respect to the Merger.

 

With respect to XP BDRs, as they are assets registered in Brazil, they would most likely fall within the definition of assets located in Brazil for purposes of Law No. 10,833/03 and Law No. 11,033/04, notwithstanding the possibility of different interpretations of the matter. Given the lack of precedent on the matter and in light of the general and unclear scope of regulations dealing with the subject, we cannot predict which position will ultimately prevail in the courts of Brazil. Under this scenario, a conservative approach would recommend to consider XP BDRs as assets located in Brazil.

 

For purposes of Brazilian taxation, the income tax rules on gains related to disposition of assets in Brazil, such as XP BDRs, vary depending on the domicile of the Non-Brazilian Holder, the form by which such Non-Brazilian Holder holds its investment and/or how the disposition is carried out, as described below.

 

As a general rule, capital gains realized on the disposition of assets located in Brazil are equal to the difference between the amount in Brazilian currency realized on the sale or exchange of the assets and their acquisition cost, without any correction for inflation.

 

Capital gains realized by a Non-Brazilian Holder on a sale or disposition of XP BDRs carried out on the Brazilian stock exchange, which includes the transactions carried out on the organized over-the-counter market, or “OTC,” are:

 

·exempt from income tax when realized by a Non-Resident Holder that (1) holds its investment in Brazil under the rules of Resolution No. 4,373 or the “4,373 Holder,” of the Brazilian Monetary Council and (2) is not resident in Low or Nil Tax Jurisdiction, as defined above;

 

·arguably subject to income tax at a rate of 15% in the case of gains realized by (A) a Non-Resident Holder that (1) is not a 4,373 Holder and (2) is not resident or domiciled in a Low or Nil Tax Jurisdiction (although different interpretations may be raised to sustain the application of the progressive rates set forth by Law No. 13,259/16); or by (B) a Non-Resident Holder that (1) is a 4,373 Holder and (2) is resident or domiciled in a Low or Nil Tax Jurisdiction (although different interpretations may be raised to sustain the application of the progressive rates set forth by Law No. 13,259/16).

 

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If the capital gains are earned by a Holder resident or domiciled in a Low or Nil Tax Jurisdiction, a WHT of 0.005% of the sale value shall be applicable and withheld by the intermediary institution (i.e., a broker) that receives the order directly from the Non-Resident Holder, which can be later offset against any income tax due on the capital gain earned by the Non-Resident Holder.

 

Any other capital gains assessed on a sale or disposition of XP BDRs that is not carried out on the Brazilian stock exchange or the organized OTC market are, subject to:

 

·income tax at a rate of 15% when realized by any Non-Resident Holder that is a 4,373 Holder not resident or domiciled in a Low or Nil Tax Jurisdiction (although different interpretations may be raised to sustain the application of the progressive rates set forth by Law No. 13,259/16);

 

·income tax at progressive rates ranging from 15% up to 22.5% when realized by a Non-Resident Holder that is not a 4,373 Holder and is not resident or domiciled in a Low or Nil Tax Jurisdiction, as of January 1, 2017; and

 

·income tax up to a rate of 25.0% when realized by a Non-Resident Holder that it is domiciled or resident in a Low or Nil Tax Jurisdiction, whether a 4,373 Holder or not.

 

If the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation of a financial institution, the withholding income tax of 0.005% will apply and can be later offset against any income tax due on the capital gain earned by the Non-Brazilian Holder.

 

In the case of redemption of XP BDRs or capital reduction by XP, as well as on the exchange of XP BDRs for XP Shares, the positive difference between the amount received by the Non-Brazilian Holder and the acquisition cost of the corresponding XP BDRs disposed will be treated as a capital gain derived from a transaction of XP BDRs carried out outside a Brazilian stock exchange. Therefore, the same tax treatment outlined above would apply.

 

Any exercise of preemptive rights, if applicable, relating to the XP BDRs will not be subject to Brazilian income tax as such exercise may represent an acquisition cost to the non-Brazilian Holder. Gains realized by a Non-Brazilian Holder on the disposition of preemptive rights in Brazil, however might be subject to Brazilian income tax according to the same rules applicable to the sale or disposition of XP BDRs explained above. Tax authorities may attempt to tax such gains even when the sale or assignment of such rights takes place outside Brazil, based on the interpretation that such right is an asset located in Brazil according to the provisions of Law No. 10,833.

 

There can be no assurance that the current favorable tax treatment of 4,373 Holders will continue in the future.

 

Tax on Foreign Exchange Transactions, or the “IOF/FX”

 

Brazilian law imposes an IOF/FX, due on the conversion of Brazilian currency into foreign currency (e.g., for purposes of paying dividends and interest) and the conversion of foreign currency into Brazilian currency. Currently, for most exchange transactions, the rate of IOF/FX is 0.38%. However, other rates apply to specific types of transactions, as we describe below.

 

The conversion of Brazilian currency into foreign currency and the conversion of foreign currency into Brazilian currency may be subject to IOF/FX. The rate of IOF/FX applicable to inflow and outflow transactions for the investment/ divestment in XP BDRs is currently zero. The Brazilian Government is permitted to increase the rate of the IOF/FX at any time, up to 25% of the amount of the foreign exchange transaction. However, any increase in rates may only apply to transactions carried out after this increase in rate and not retroactively.

 

In March 2022, the Brazilian government announced changes involving IOF/FX, including a proposal to reduce to zero all hypotheses of application of the IOF/FX until the year 2029, as a way of stimulating the country’s economic integration.

 

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Tax on Transactions Involving Bonds and Securities, or the “IOF/Bonds”

 

Brazilian law imposes a tax on transaction involving IOF/Bonds on transactions involving Brazilian bonds and securities, including those carried out on a Brazilian stock exchange. The rate of IOF/Bonds applicable to transactions involving XP BDRs is currently zero. The Brazilian Government is permitted to increase such rate at any time up to 1.5% per day, but only in respect of future transactions.

 

Other Brazilian Taxes

 

There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of XP BDRs and XP, except for gift and inheritance taxes that may be imposed by certain Brazilian states on gifts, inheritances or bequests by a Non-Brazilian Holder to individuals or entities domiciled or residing within such states only after the enactment of a federal complementary law on this matter. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of XP BDRs and XP Shareholders.

 

Brazilian Holders

 

Dividends and Other Income

 

Dividends or other similar income arising from XP Shares and XP BDRs earned by Brazilian Holders may be subject to income tax in accordance with applicable rules for investments held outside Brazil, including (i) Individuals Income Tax, or “IRPF,” at progressive rates up to 27.5% and (ii) Corporate Income Taxes, or “IRPJ/CSLL,” at a combined rate of 34% in the case of XP Shares that are held by legal entities domiciled in Brazil. In the case of legal entities domiciled in Brazil, dividends or other similar income arising from XP Shares and XP BDRs may be also subject to taxes on gross revenues, or “PIS/Cofins,” up to a combined rate of 9.25%.

 

Gains

 

Gains assessed on Brazilian Holders arising from any disposal of XP Shares are subject to taxation in Brazil depending on the legal nature of such Brazilian Holders, including: (i) income tax at rates varying from 15% up to 22.5% in the case of individuals are resident in Brazil (except for disposals of XP BDRs carried out within the Brazilian stock exchange or the organized OTC, which will remain with the flat 15% rate); and (ii) IRPJ/CSLL at a combined 34% in the case of XP Shares that are held by legal entities domiciled in Brazil, in addition to possible taxes on gross revenue (PIS/Cofins), depending on the nature of the investment for the legal entity.

 

Taking into consideration that exemptions and peculiarities concerning the IRPF calculation may apply, we advise individuals resident in Brazil to consult their own lawyers and tax advisors, whom can provide specific advice regarding their particular situation on any exemption or peculiarity possibly applicable in disposal of XP BDRs in Brazil.

 

If Brazilian Holder decides to dispose XP BDRs in Brazil, and considering that this disposal is carried out on the stock exchange or on the OTC market, this transaction might be subject to withholding tax at a rate of 0.005% on its corresponding disposal amount. In this case, the withholding tax paid can be offset with the income tax.

 

IOF/FX

 

As a rule, Brazilian Holders may be subject to IOF/FX, currently at 0.38%, in the case of flows, such as receipt of dividends, related to XP Shares and XP BDRs. The Brazilian Government is permitted to increase the rate of the IOF/Exchange at any time, up to 25% of the amount of the foreign exchange transaction. However, any increase in rates may only apply to transactions carried out after this increase in rate and not retroactively.

 

In March 2022, the Brazilian government announced changes involving IOF/FX, including a proposal to reduce to zero all hypotheses of application of the IOF/FX until the year 2029, as a way of stimulating the country’s economic integration.

 

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IOF/Bonds

 

Brazilian law imposes IOF/Bonds on transactions involving Brazilian bonds and securities, including those carried out on a Brazilian stock exchange. The rate of IOF/Bonds applicable to transactions involving XP BDRs is currently zero. The Brazilian Government is permitted to increase such rate at any time up to 1.5% per day, but only in respect of future transactions.

 

Other Brazilian Taxes

 

There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of XP BDRs and XP Shares, except for the gift and inheritance taxes imposed by certain Brazilian states on gifts, inheritances or bequests by a Brazilian Holder. There are no Brazilian stamps, issues, registrations or similar taxes or duties payable by holders of XP BDRs and XP Shareholders.

 

Material Cayman Islands Tax Considerations

 

The following is a discussion of the material Cayman Islands tax consequences of the Merger. The following discussion is not exhaustive of all possible tax considerations. We urge you to consult your own tax advisor regarding your particular tax circumstances.

 

At present, there are no income or profit taxes, withholding taxes, levies, registration taxes, or other duties or similar taxes or charges imposed on Cayman Islands corporations or their shareholders. The Cayman Islands currently have no form of corporate or capital gains tax and no estate duty, inheritance tax or gift tax. Therefore, there will be no Cayman Islands tax consequences to XP Shareholders or Modal Shareholders with respect to the Merger. This is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any shareholder’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.

 

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Information About XP

 

XP is a leading, technology-driven platform and a trusted provider of low-fee financial products and services in Brazil. We have developed a mission-driven culture and a revolutionary business model that we believe provide us with strong competitive advantages in our market. We use these to disintermediate the legacy models of traditional financial institutions by educating new classes of investors, democratizing access to a wider range of financial services, developing new financial products and technology applications to empower our clients, and providing what we believe is the highest-quality customer service experience in the industry in Brazil. We believe we have established ourselves as the leading alternative to the traditional banks, with a large ecosystem of retail investors, institutions and corporate issuers in local and international markets, with offices in Brazil, New York, Miami, London, Lisbon and Geneva.

 

Our revolutionary XP Model has been developed over the course of our evolution and enables us to go to market in a very different way from the legacy models of the large traditional financial institutions. We believe our model provides us with a unique value proposition for our clients and partners and has enabled us to instill trust in the XP brands and begin to change the way investment services are sold in Brazil. This proprietary approach incorporates a unique combination of capabilities, services and technologies to deliver a highly differentiated and integrated client experience, with significant operating efficiency advantages that have enabled us to scale and grow profitably.

 

Our technology-driven business model is asset-light and highly scalable. This enables us to generate scale efficiencies from increases in total AUC. We conduct most of our business online and through mobile applications and emphasize operational efficiency and profitability throughout our operations. These operating efficiencies enable us to generate strong cash flow in various market conditions, allowing us to continue investing in the growth of our business. Our business requires minimal capital expenditures to facilitate growth, with expenditures amounting to 2.9% for the year ended December 31, 2021, a decrease from 3.6% of net revenues in 2020.

 

We are an exempted company incorporated under the laws of the Cayman Islands on August 29, 2019. Our legal name is XP Inc. and our commercial name is “XP.” Our principal executive offices are located at Av. Chedid Jafet, 75, Torre Sul, 30th floor, Vila Olímpia – São Paulo, Brazil 04551-065. Our telephone number at this address is +55 (11) 3075-0429, and our investors relation e-mail is ir@xpi.com.br. Our website is www.xpinc.com. In addition, the SEC maintains a website that contains information which XP has filed electronically with the SEC, including its annual reports, periodic reports and other filings, which can be accessed at http://www.sec.gov.

 

For a discussion of XP’s business, see “Item 4. Information on the Company” of the XP 2021 Form 20-F, which is incorporated by reference into this prospectus. For more information about how to obtain copies of this information, see the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

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Information About Modal

 

Modal was incorporated on July 29, 1980, as a corporation (sociedade anônima) organized under the laws of Brazil. We believe Modal is one of the leading investment platforms in Brazil, being one of the first to combine a complete variety of investment products with digital banking, all integrated in the same place with the support of our purpose-built technological architecture.

 

Modal’s business model incorporates traditional banking and investments products into a digital platform that includes financial educational content and qualified financial advice to individual customers based on their risk profile and their level of knowledge with respect to banking, financial investments, and capital markets. This business model is in line with Modal’s purpose of not only democratizing access to investment products, offering more than an open platform of products, with improved usability and content, but also providing customized financial advice. Through this approach, Modal seeks to understand the needs and demands of its customers to better help them in their investment decisions. Modal offers diversified educational tools, investment, and financial planning solutions for a comprehensive range of customers, including retail investors with different levels of sophistication, independent financial advisors, investment consultants and family offices.

 

Modal offers complementary services and exclusive products in its digital platform, such as: (i) a wide range of products (such as structured notes, investment funds, credit operations, among others) originated and/or distributed by Credit Suisse Brazil, an entity forming part of one of the largest wealth management banking groups in the world; (ii) banking as a service through Modal as a Service (i.e., the provision of the infrastructure required to non-banks to operationalize financial services and solutions to their clients); (iii) financial and education content through Eleven, an important independent research company in Brazil; (iv) a complete educational platform to attract, engage and educate customers on a game-focused educational journey (through Investir Juntos); and (v) tailored support to train and develop the independent financial advisors’ sales forces (through Proseek, its vertical specialized in the training of professionals for the financial market).

 

Modal’s legal name is Banco Modal S.A. and its commercial name is “Modal.” Modal’s registered office and principal executive office is located at Praia de Botafogo, 501, 5th floor, Bldg. 01, Botafogo, city of Rio de Janeiro, state of Rio de Janeiro, 22250-040, Brazil. The Modal investor relations department is located at its São Paulo office, at Av. Pres. Juscelino Kubitschek, 1455, 3rd floor, city of São Paulo, state of São Paulo, 04543-011, Brazil. The phone number of Modal’s investor relations department is +55 (11) 3525-6600, the e-mail is ri@modal.com.br and the website is http://ri.modal.com.br.

 

Modal’s corporate purpose is to process transactions permitted to be conducted by a Brazilian financial institution that manages commercial and investment portfolios, including foreign exchange transactions, loans, investments, leasing, and home equity loans transactions. Unless the Alternative Structure is implemented (as defined herein), following the completion of the Merger, Modal will become a wholly-owned subsidiary of Banco XP. See “Where You Can Find More Information” for additional information on Modal.

 

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Management’s Discussion and Analysis of Financial Condition
and Results of Operations of XP

 

For a discussion of XP’s financial condition and results of operations, see “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk” of the XP 2021 Form 20-F, as well as our 2Q22 MD&A 6-K, which is incorporated by reference into this prospectus. For more information about how to obtain copies of documents incorporated by reference, see the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

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Management and Compensation of XP

 

For a discussion of XP’s management and compensation (as well as certain other corporate governance matters), see “Item 6. Directors, Senior Management and Employees” and “Item 7. Major Shareholders and Related Party Transactions” of the XP 2021 Form 20-F, which is incorporated by reference into this prospectus. For more information about how to obtain copies of documents incorporated by reference, see the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

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Description of XP Share Capital

 

General

 

XP, the company whose Class A common shares are being offered in this prospectus, was incorporated on August 29, 2019, as a Cayman Islands exempted company with limited liability with the Cayman Islands Registrar of Companies. Our corporate purposes are unrestricted and we have the authority to carry out any object not prohibited by any law as provided by Section 7(4) of the Companies Act.

 

Our affairs are governed principally by: (1) our Memorandum and Articles of Association; (2) the Companies Act; and (3) the common law of the Cayman Islands. As provided in our Memorandum and Articles of Association, subject to Cayman Islands law, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction, and, for such purposes, full rights, powers and privileges. Our registered office is c/o Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

 

Our Memorandum and Articles of Association, as of the date of adoption, authorized the issuance of up to 2,000,000,000 Class A common shares and 1,000,000,000 Class B common shares of our authorized share capital. As of the date of this prospectus, 447,300,536 Class A common shares and 112,717,094 Class B common shares of our authorized share capital were issued, fully paid and outstanding. Upon the completion of the Merger, we will have 466,800,536 Class A common shares and 112,717,094 Class B common shares of our authorized share capital issued and outstanding.

 

Our Class A common shares are listed on the Nasdaq under the symbol “XP.”

 

Settlement of our Class A common shares takes place through The Depository Trust Company, or “DTC,” in accordance with its customary settlement procedures for equity securities. Each person owning Class A common shares held through DTC must rely on the procedures thereof and on institutions that have accounts therewith to exercise any rights of a holder of the Class A common shares. Persons wishing to obtain certificates for their Class A common shares must make arrangements with DTC.

 

The following is a summary of the material provisions of our authorized share capital and our Memorandum and Articles of Association.

 

Share Capital

 

Our Memorandum and Articles of Association authorize two classes of common shares: Class A common shares, which are entitled to one vote per share and Class B common shares, which are entitled to 10 votes per share and to maintain a proportional ownership interest in the event that additional Class A common shares are issued. Any holder of Class B common shares may convert his or her shares at any time into Class A common shares on a share-for-share basis. The rights of the two classes of common shares are otherwise identical, except as described below. The implementation of this dual class structure was required by XP Controle and Itaú, certain of our principal shareholders at the time, as a condition of undertaking the initial public offering of our common shares. See “—Anti-Takeover Provisions in our Memorandum and Articles of Association—Two Classes of Common Shares.”

 

As of the date of this prospectus, XP’s total authorized share capital was US$35,000, divided into 3,500,000,000 shares par value US$0.00001 each, of which:

 

·2,067,479,549 shares are designated as Class A common shares; and

 

·932,520,451 shares are designated as Class B common shares.

 

The remaining authorized but unissued shares are presently undesignated and may be issued by our board of directors as common shares of any class or as shares with preferred, deferred or other special rights or restrictions.

 

As of the date of this prospectus, we have a total issued share capital of US$5,600.1763, divided into 560,017,630 common shares. Those common shares are divided into 447,300,536 Class A common shares and 112,717,094 Class B common shares.

 

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Therefore, XP is authorized to increase capital up to this limit, subject to approval of the Board of Directors. See “Item 3. Key Information—B. Capitalization and indebtedness” of the XP 2021 Form 20-F.

 

Treasury Stock

 

As of the date of this prospectus, XP has 3,117,134 Class A common shares and 1,056,308 Class B common shares in treasury.

 

Issuance of Shares

 

Except as expressly provided in XP’s Memorandum and Articles of Association or the Shareholders’ Agreement, XP’s board of directors has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the company’s capital without the approval of our shareholders (whether forming part of the original or any increased share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Companies Act. In accordance with its Memorandum and Articles of Association, XP shall not issue bearer shares.

 

XP’s Memorandum and Articles of Association provide that at any time that there are Class A common shares in issue, additional Class B common shares may only be issued pursuant to (1) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits; (2) a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration; or (3) an issuance of Class A common shares, whereby holders of the Class B common shares are entitled to purchase a number of Class B common shares that would allow them to maintain their proportional ownership and voting interests in XP (following an offer by XP to each holder of Class B common shares to issue to such holder, upon the same economic terms and at the same price, such number of Class B common shares as would ensure such holder may maintain a proportional ownership and voting interest in XP pursuant to XP’s Memorandum and Articles of Association). In light of: (a) the above provisions; and (b) the ten-to-one voting ratio between our Class B common shares and Class A common shares, holders of our Class B common shares will in many situations continue to maintain control of all matters requiring shareholder approval. This concentration of ownership and voting power will limit or preclude your ability to influence corporate matters for the foreseeable future. For more information see “—Preemptive or Similar Rights.”

 

Fiscal Year

 

XP’s fiscal year begins on January 1 of each year and ends on December 31 of the same year.

 

Voting Rights

 

The holder of a Class B common share is entitled, in respect of such share, to 10 votes per share, whereas the holder of a Class A common share is entitled, in respect of such share, to one vote per share. The holders of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, except as provided below and as otherwise required by law.

 

XP’s Memorandum and Articles of Association provide as follows regarding the respective rights of holders of Class A common shares and Class B common shares:

 

(1)Class consents from the holders of Class A common shares and Class B common shares, as applicable, shall be required for any variation to the rights attached to their respective class of shares, however, the Directors may treat the two classes of shares as forming one class if they consider that both such classes would be affected in the same way by the proposal;

 

(2)the rights conferred on holders of Class A common shares shall not be deemed to be varied by the creation or issue of further Class B common shares and vice versa; and

 

(3)the rights attaching to the Class A common shares and the Class B common shares shall not be deemed to

 

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be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights.

 

As set forth in the Memorandum and Articles of Association, the holders of Class A common shares and Class B common shares, respectively, do not have the right to vote separately if the number of authorized shares of such class is increased or decreased. Rather, the number of authorized Class A common shares and Class B common shares may be increased or decreased (but not below the number of shares of such class then outstanding) by both classes voting together by way of an “ordinary resolution,” which is defined in the Memorandum and Articles of Association as being a resolution (1) of a duly constituted general meeting passed by a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote present in person or by proxy and voting at the meeting; or (2) approved in writing by all of the shareholders entitled to vote at a general meeting in one or more instruments each signed by one or more of the shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed.

 

Conversion Rights

 

As set forth in the Memorandum and Articles of Association, Class B common shares shall be convertible into Class A common shares in any of the manners set out in the Shareholders’ Agreement. See “Major Shareholders and Related Party Transactions.”

 

Furthermore, as set forth in the Memorandum and Articles of Association, each Class B common share will convert automatically into one Class A common share and no Class B common shares will be issued thereafter if, at any time, the total number of votes of the issued and outstanding Class B common shares represents less than 10% of the voting share rights of the Company.

 

Preemptive or Similar Rights

 

The Class B common shares are entitled to maintain a proportional ownership and voting interest in the event that additional Class A common shares are issued. As such, except for certain exceptions, if XP increases its share capital or issues common shares, it must first make an offer to each holder of Class B common shares to issue to such holder on the same economic terms such number of Class A common shares and Class B common shares, as applicable, as would ensure such holder may maintain a proportional ownership and voting interest in XP. This right to maintain a proportional ownership and voting interest may be waived by the holders of two-thirds of the Class B common shares in the context of a public offering. Pursuant to the Shareholders’ Agreement, preemptive rights will be deemed waived to the extent a holder of Class B common shares does not exercise them within 30 days of XP first making an offer to such holder of Class B common shares. See “Major Shareholders and Related Party Transactions.”

 

Equal Status

 

Except as expressly provided in XP’s Memorandum and Articles of Association, Class A common shares and Class B common shares have the same rights and privileges and rank equally, share ratably and are identical in all respects as to all matters. In the event of any merger, consolidation, scheme, arrangement or other business combination requiring the approval of our shareholders entitled to vote thereon (whether or not XP is the surviving entity), the holders of Class A common shares shall have the right to receive, or the right to elect to receive, the same form of consideration (as shall be adjusted, in the case of share or equivalent consideration, by the directors so as to account for the different economic and voting rights that exist or may exist between such consideration and the share classes) as the holders of Class B common shares, and (save as aforesaid) the holders of Class A common shares shall have the right to receive, or the right to elect to receive, at least the same amount of consideration on a per share basis as the holders of Class B common shares. In the event of any (1) tender or exchange offer to acquire any Class A common shares or Class B common shares by any third party pursuant to an agreement to which XP is a party, or (2) tender or exchange offer by XP to acquire any Class A common shares or Class B common shares, the holders of Class A common shares shall have the right to receive, or the right to elect to receive, the same form of consideration (as shall be adjusted, in the case of share or equivalent consideration, by the directors so as to account for the different economic and voting rights that exist or may exist between such consideration and the share classes) as the holders of Class B common shares, and (save as aforesaid) the holders of Class A common shares shall have

 

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the right to receive, or the right to elect to receive, at least the same amount of consideration on a per share basis as the holders of Class B common shares.

 

Record Dates

 

For the purpose of determining shareholders entitled to notice of, or to vote at any general meeting of shareholders or any adjournment thereof, or shareholders entitled to receive dividend or other distribution payments, or in order to make a determination of shareholders for any other purpose, XP’s board of directors may set a record date which shall not exceed forty clear days prior to the date where the determination will be made.

 

General Meetings of Shareholders

 

As a condition of admission to a shareholders’ meeting, a shareholder must be duly registered as a shareholder of XP at the applicable record date for that meeting and, in order to vote, all calls or installments then payable by such shareholder to XP in respect of the shares that such shareholder holds must have been paid.

 

Subject to any special rights or restrictions as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative not being himself or herself a shareholder entitled to vote) shall have one vote per Class A common share and 10 votes per Class B common share.

 

As a Cayman Islands exempted company, XP is not obliged by the Companies Act to call annual general meetings; however, the Memorandum and Articles of Association provide that in each year the company will hold an annual general meeting of shareholders. For the annual general meeting of shareholders the agenda will include, among other things, the presentation of the annual accounts and the report of the directors (if any). In addition, the agenda for an annual general meeting of shareholders will only include such items as have been included therein by the board of directors.

 

Also, XP may, but is not required to (unless required by the laws of the Cayman Islands), hold other extraordinary general meetings during the year. General meetings of shareholders are generally expected to take place in São Paulo, Brazil, but may be held elsewhere if the directors so decide.

 

The Companies Act provides shareholders a limited right to request a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting in default of a company’s Memorandum and Articles of Association. However, these rights may be provided in a company’s Memorandum and Articles of Association. XP’s Memorandum and Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Memorandum and Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.

 

Subject to regulatory requirements, the annual general meeting and any extraordinary general meetings must be called by not less than eight days’ notice prior to the relevant shareholders’ meeting and convened by a notice discussed below. Alternatively, upon the prior consent of all holders entitled to receive notice, with regards to the annual general meeting, and the holders of 95% in par value of the shares entitled to attend and vote at an extraordinary general meeting, that meeting may be convened by a shorter notice and in a manner deemed appropriate by those holders.

 

XP will give notice of each general meeting of shareholders by publication on its website and in any other manner that it may be required to follow in order to comply with Cayman Islands law, Nasdaq and SEC requirements. The holders of registered shares may be given notice of a shareholders’ meeting by means of letters sent to the addresses of those shareholders as registered in our shareholders’ register, or, subject to certain statutory requirements, by electronic means.

 

Holders whose shares are registered in the name of DTC or its nominee, which we expect will be the case for all holders of Class A common shares, will not be a shareholder or member of the company and must rely on

 

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the procedures of DTC regarding notice of shareholders’ meetings and the exercise of rights of a holder of the Class A common shares.

 

A quorum for a general meeting consists of any one or more persons holding or representing by proxy not less than fifty percent of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted. If a quorum is not present within half an hour from the time appointed for the meeting to commence or if during such a meeting a quorum ceases to be present, a second meeting may be called with at least five days’ notice to shareholders specifying the place, the day and the hour of the second meeting, as the Directors may determine, and if at the second meeting a quorum is not present within half an hour from the time appointed for the meeting to commence, the shareholders present shall be a quorum.

 

A resolution put to a vote at a general meeting shall be decided on a poll. Generally speaking, an ordinary resolution to be passed by the shareholders at a general meeting requires the affirmative vote of a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote, present in person or by proxy and voting at the meeting and a special resolution requires the affirmative vote on a poll of no less than two-thirds of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our Company, as permitted by the Companies Act and our Memorandum and Articles of Association.

 

Pursuant to XP’s Memorandum and Articles of Association, general meetings of shareholders are to be chaired by the chairman of our board of directors or in his absence the vice-chairman of the board of directors. If the chairman or vice-chairman of our board of directors is absent, the directors present at the meeting shall appoint one of them to be chairman of the general meeting. If neither the chairman nor another director is present at the general meeting within 15 minutes after the time appointed for holding the meeting, the shareholders present in person or by proxy and entitled to vote may elect any one of the shareholders to be chairman. The order of business at each meeting shall be determined by the chairman of the meeting, and he or she shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls.

 

Actions Void Ab Initio

 

Pursuant to the Memorandum and Articles of Association, certain actions which are taken in contravention of the Shareholders’ Agreement shall be void ab initio. These include any share and security issuances as well as share sales, transfers, purchases and redemptions, and board appointments.

 

Liquidation Rights

 

If XP is voluntarily wound up, the liquidator, after taking into account and giving effect to the rights of preferred and secured creditors and to any agreement between XP and any creditors that the claims of such creditors shall be subordinated or otherwise deferred to the claims of any other creditors and to any contractual rights of set-off or netting of claims between XP and any person or persons (including without limitation any bilateral or any multi-lateral set-off or netting arrangements between the company and any person or persons) and subject to any agreement between XP and any person or persons to waive or limit the same, shall apply XP’s property in satisfaction of its liabilities pari passu and subject thereto shall distribute the property amongst the shareholders according to their rights and interests in XP.

 

Changes to Capital

 

Pursuant to the Memorandum and Articles of Association, XP may from time to time by ordinary resolution:

 

·increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe;

 

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·consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;

 

·convert all or any of its paid-up shares into stock and reconvert that stock into paid up shares of any denomination;

 

·subdivide its existing shares or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or

 

·cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled.

 

XP’s shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by the Company for an order confirming such reduction, reduce its share capital or any capital redemption reserve in any manner permitted by law.

 

In addition, subject to the provisions of the Companies Act, our Memorandum and Articles of Association and the Shareholders’ Agreement, XP may:

 

·issue shares on terms that they are to be redeemed or are liable to be redeemed;

 

·purchase its own shares (including any redeemable shares); and

 

·make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Companies Act, including out of its own capital.

 

Transfer of Shares

 

Subject to any applicable restrictions set forth in the Memorandum and Articles of Association and the Shareholders’ Agreement, any shareholder of XP may transfer all or any of his or her common shares by an instrument of transfer in the usual or common form or in the form prescribed by the Nasdaq or any other form approved by the Company’s board of directors.

 

The Class A common shares acquired by Modal Shareholders pursuant to this transaction will be traded on the Nasdaq in book-entry form and may be transferred in accordance with XP’s Articles of Association and Nasdaq’s rules and regulations.

 

However, XP’s board of directors may, in its absolute discretion, decline to register any transfer of any common share that is either not fully paid up to a person of whom it does not approve or is issued under any share incentive scheme for employees that contains a transfer restriction that is still applicable to such common share. The board of directors may also decline to register any transfer of any common share unless:

 

·the instrument of transfer is lodged with XP, accompanied by the certificate (if any) for the common shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

 

·the instrument of transfer is in respect of only one class of shares;

 

·the instrument of transfer is properly stamped, if required;

 

·the common shares transferred are free of any lien in favor of XP; and

 

·in the case of a transfer to joint holders, the transfer is not to more than four joint holders.

 

If the directors refuse to register a transfer they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal.

 

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Share Repurchase

 

The Companies Act and the Memorandum and Articles of Association permit XP to purchase its own shares, subject to certain restrictions. The board of directors may only exercise this power on behalf of XP, subject to the Companies Act, the Memorandum and Articles of Association, the Shareholders’ Agreement and to any applicable requirements imposed from time to time by the SEC, the Nasdaq, or by any recognized stock exchange on which our securities are listed.

 

Dividends and Capitalization of Profits

 

We have not adopted a dividend policy with respect to payments of any future dividends by XP. Subject to the Companies Act, XP’s shareholders may, by resolution passed by a simple majority of the voting rights entitled to vote at a general meeting, declare dividends (including interim dividends) to be paid to shareholders but no dividend shall be declared in excess of the amount recommended by the board of directors. The board of directors may also declare dividends. Dividends may be declared and paid out of funds lawfully available to XP. Except as otherwise provided by the rights attached to shares and the Memorandum and Articles of Association of XP, all dividends shall be paid in proportion to the number of Class A common shares or Class B common shares a shareholder holds at the date the dividend is declared (or such other date as may be set as a record date); but, (1) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly; and (2) where we have shares in issue that are not fully paid up (as to par value), we may pay dividends in proportion to the amounts paid up on each share.

 

The holders of Class A common shares and Class B common shares shall be entitled to share equally in any dividends that may be declared in respect of XP’s common shares from time to time. In the event that a dividend is paid in the form of Class A common shares or Class B common shares, or rights to acquire Class A common shares or Class B common shares, (1) the holders of Class A common shares shall receive Class A common shares, or rights to acquire Class A common shares, as the case may be and (2) the holders of Class B common shares shall receive Class B common shares, or rights to acquire Class B common shares, as the case may be.

 

Appointment, Disqualification and Removal of Directors

 

XP is managed by its board of directors. The Memorandum and Articles of Association provide that the board of directors will be composed of such number of directors as a majority of directors in office may determine, being up to 12 directors on the date of adoption of the Memorandum and Articles of Association. There are no provisions relating to retirement of directors upon reaching any age limit. The Memorandum and Articles of Association also provide that, while XP’s shares are admitted to trading on Nasdaq, the board of directors must always comply with the residency and citizenship requirements of the U.S. securities laws applicable to foreign private issuers.

 

The Memorandum and Articles of Association provide that directors shall be elected by an ordinary resolution of our shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed for a two year term, unless they resign or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed).

 

Our directors are Guilherme Dias Fernandes Benchimol, Bernardo Amaral Botelho, Gabriel Klas da Rocha Leal, Bruno Constantino Alexandre dos Santos, Fabrício Cunha de Almeida, Guilherme Sant’Anna Monteiro da Silva, Luiz Felipe Amaral Calabró, Martin Emiliano Escobari Lifchitz, Geraldo José Carbone, Cristiana Pereira and Guy Almeida Andrade. Luiz Felipe Amaral Calabró, Cristiana Pereira and Guy Almeida Andrade are “independent” as that term is defined under Rule 10A-3 under the Exchange Act and the Nasdaq rules applicable to audit committees.

 

Grounds for Removing a Director

 

A director may be removed with or without cause by ordinary resolution. The notice of general meeting must contain a statement of the intention to remove the director and must be served on the director not less than ten

 

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calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.

 

The office of a director will be vacated automatically if he or she (1) becomes prohibited by law from being a director; (2) becomes bankrupt or makes an arrangement or composition with his creditors; (3) dies or is in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director; (4) resigns his office by notice to us; or (5) has for more than six months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his or her office be vacated.

 

Proceedings of the Board of Directors

 

The Memorandum and Articles of Association provide that XP’s business is to be managed and conducted by the board of directors. The quorum necessary for the board meeting shall be a simple majority of the directors then in office, which majority must include such directors as may be specified in the Shareholders’ Agreement, and business at any meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman shall not have a casting vote.

 

Subject to the provisions of the Memorandum and Articles of Association, the board of directors may regulate its proceedings as they determine is appropriate. Board meetings shall be held at least once every calendar quarter and shall take place either in São Paulo, Brazil or at such other place as the directors may determine.

 

Subject to the provisions of the Memorandum and Articles of Association, to any directions given by ordinary resolution of the shareholders and the listing rules of the Nasdaq, the board of directors may from time to time at its discretion exercise all powers of XP, including, subject to the Companies Act, the power to issue debentures, bonds and other securities of the company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party. Subject to the overall oversight authority of our board of directors, our day-to-day operations, business and activities are carried out by our executive officers, which may act on behalf of XP according to XP’s Memorandum and Articles of Association.

 

Corporate Opportunities

 

Pursuant to XP’s Memorandum and Articles of Association, to the fullest extent permitted by applicable law, XP, on behalf of itself and its subsidiaries, agrees that Itaú, its affiliates and subsidiaries or any of their respective officers, directors, representatives, agents, shareholders, members and partners, (each a “specified party”) has the right to, and shall have no duty (statutory, fiduciary, contractual or otherwise) not to, (1) directly or indirectly engage in the same or similar business activities or lines of business as XP or its subsidiaries, including those deemed to be competing with XP or its subsidiaries, or (2) directly or indirectly do business with any client or customer of XP or its subsidiaries. In addition, in the event that any specified party gains knowledge of a potential transaction or matter that may be a corporate opportunity for XP or its subsidiaries, such specified party shall have no duty (statutory, fiduciary, contractual or otherwise) to communicate or present such corporate opportunity to XP or its subsidiaries and, notwithstanding anything in XP’s Memorandum and Articles of Association to the contrary and, to the fullest extent permitted by applicable law, shall not be liable to XP or its subsidiaries by reason of the fact that such specified party, directly or indirectly, pursues or acquires such opportunity for itself, directs such opportunity to another person, or does not present such opportunity to XP or its subsidiaries. Notwithstanding anything in XP’s Memorandum and Articles of Association to the contrary, a specified party who is a director or officer of XP and who is offered a business opportunity for XP or its subsidiaries solely in his or her capacity as a director or officer of XP, or a “directed opportunity,” shall communicate such directed opportunity to XP. Nothing in the Memorandum and Articles of Association shall be deemed to supersede any rights or obligations of any specified party under the Shareholders’ Agreement. Each shareholder and director of XP, shall comply with the applicable duties and obligations under the Companies Act. All confidential information of XP that is disclosed by XP to (a) any of the directors while such person is acting solely in his or her capacity as a director of XP; or (b) the shareholders solely in their capacity as shareholders of XP, shall not be used by such receiving party in any manner that violates applicable law. In this context, “confidential information” means all proprietary information of XP that is disclosed by XP to the directors or shareholders of XP in their capacity as directors or shareholders, respectively, other than information that (i) is or becomes part of the public domain other than as a result of unauthorized

 

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disclosure by the directors or shareholders of XP; (ii) is or becomes available to any such director or shareholder from a source other than XP, provided that such other source is not, to the applicable director’s or shareholder’s reasonable knowledge, acting in breach of applicable laws; (iii) was in the possession of such director or shareholder prior to the disclosure of such information to such party by XP, other than as a result of a disclosure in a breach of applicable laws; or (iv) was independently developed by such director or shareholder without reference to such confidential information.

 

Inspection of Books and Records

 

XP Shareholders will have no general right under Cayman Islands law to inspect or obtain copies of the list of shareholders or corporate records of the Company. However, the board of directors may determine from time to time whether and to what extent XP’s accounting records and books shall be open to inspection by shareholders who are not members of the board of directors. Notwithstanding the above, the Memorandum and Articles of Association provide shareholders with the right to receive annual financial statements. Such right to receive annual financial statements may be satisfied by publishing the same on the company’s website or filing such annual reports as we are required to file with the SEC.

 

Register of Shareholders

 

Our Class A common shares are held through DTC, and DTC or Cede & Co., as nominee for DTC, is recorded in the shareholders’ register as the holder of our Class A common shares.

 

Under Cayman Islands law, XP must keep a register of shareholders that includes:

 

·the names and addresses of the shareholders, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member;

 

·the date on which the name of any person was entered on the register as a member; and

 

·the date on which any person ceased to be a member.

 

Under Cayman Islands law, the register of shareholders of XP is prima facie evidence of the matters set out therein (i.e., the register of shareholders will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered in the register of shareholders is deemed as a matter of Cayman Islands law to have prima facie legal title to the shares as set against his or her name in the register of shareholders.

 

If the name of any person is incorrectly entered in or omitted from the register of shareholders, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a shareholder of XP, the person or member aggrieved (or any shareholder of XP, or XP itself) may apply to the Cayman Islands Grand Court for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.

 

Exempted Company

 

XP is an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:

 

·an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;

 

·an exempted company’s register of shareholders is not open to inspection;

 

·an exempted company does not have to hold an annual general meeting;

 

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·an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

 

·an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

 

·an exempted company may register as a limited duration company; and

 

·an exempted company may register as a segregated portfolio company.

 

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

 

XP is subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Except as otherwise disclosed in this prospectus, XP currently complies with the Nasdaq rules in lieu of following home country practice.

 

Anti-Takeover Provisions in Our Memorandum and Articles of Association

 

Some provisions of the Memorandum and Articles of Association may discourage, delay or prevent a change in control of XP or management that shareholders may consider favorable. In particular, the capital structure of XP concentrates ownership of voting rights in the hands of XP Control as the controlling shareholder. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of XP to first negotiate with the board of directors. However, these provisions could also have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of the Class A common shares that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the management of XP. It is possible that these provisions could make it more difficult to accomplish transactions that shareholders may otherwise deem to be in their best interests.

 

Two Classes of Common Shares

 

The Class B common shares of XP are entitled to 10 votes per share, while the Class A common shares are entitled to one vote per share. Since XP Control owns the majority of the Class B common shares, XP Control currently has the ability to elect a majority of the members of our board of directors and to determine the outcome of most matters submitted for a vote of shareholders, with XP Control as the controlling shareholder. ITB Holding holds our remaining Class B common shares. This concentrated voting control could discourage others from initiating any potential merger, takeover or other change of control transaction that other shareholders may view as beneficial.

 

So long as XP Control and ITB Holding have the ability to determine the outcome of most matters submitted to a vote of shareholders as well, third parties may be deterred in their willingness to make an unsolicited merger, takeover or other change of control proposal, or to engage in a proxy contest for the election of directors. As a result, the fact that XP has two classes of common shares may have the effect of depriving you as a holder of Class A common shares of an opportunity to sell your Class A common shares at a premium over prevailing market prices and make it more difficult to replace the directors and management of XP.

 

Preferred Shares

 

XP’s board of directors is given wide powers to issue one or more classes or series of shares with preferred rights. Such preferences may include, for example, dividend rights, conversion rights, redemption privileges, enhanced voting powers and liquidation preferences.

 

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Despite the anti-takeover provisions described above, under Cayman Islands law, XP’s board of directors may only exercise the rights and powers granted to them under the Memorandum and Articles of Association, for what they believe in good faith to be in the best interests of XP.

 

Protection of Non-Controlling Shareholders

 

The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of the shares of XP in issue, appoint an inspector to examine the Company’s affairs and report thereon in a manner as the Grand Court shall direct.

 

Subject to the provisions of the Companies Act, any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the Court is of the opinion that this winding up is just and equitable.

 

Notwithstanding the U.S. securities laws and regulations that are applicable to XP, general corporate claims against XP by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by XP’s Memorandum and Articles of Association.

 

The Cayman Islands courts ordinarily would be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against XP, or derivative actions in XP’s name, to challenge (1) an act which is ultra vires or illegal; (2) an act which constitutes a fraud against the minority and the wrongdoers themselves control XP; and (3) an irregularity in the passing of a resolution that requires a qualified (or special) majority.

 

Registration Rights and Restricted Shares

 

Although no shareholders of XP currently have formal registration rights, they or entities controlled by them or their permitted transferees will, subject to the lock-up agreements described below, be able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. On December 1, 2019, we entered into a registration rights agreement (as amended from time to time, the “Registration Rights Agreement”), with XP Controle, Itaú and GA Bermuda. Following the merger of XPart with and into us on October 1, 2021, we entered into an amended and restated registration rights agreement with XP Controle (including XP Control LLC as XP Controle’s successor in relation to its shares due to the XP Controle reorganization), GA Bermuda, Itaú Unibanco Holding S.A, IUPAR – Itaú Unibanco Participações S.A., and Itaúsa S.A. On December 13, 2021, IUPAR – Itaú Unibanco Participações S.A. completed a corporate reorganization resulting in the transfer of its XP Shares to Itaúsa S.A., São Marcos Investimentos Ltd. and São Carlos Investimentos Ltd. On December 14, 2021, XP Controle completed a corporate reorganization resulting in the transfer of 108,631,284 Class B common shares to XP Control, so that XP Controle retained only 12,730,020 Class B common shares acquired before our initial public offering in connection with our corporate reorganization on November 29, 2019. The indirect holders of such common shares and our indirect controlling shareholders did not change as a result of such XP Controle corporate reorganization, since XP Control is under the same control as XP Controle. On April 29, 2022, XP Controle sold all its Class B common shares to ITB Holding in connection with the Itaú Transaction entered into on May 11, 2017 and ITB Holding also became a party to such amended and restated registration rights agreement.

 

XP Shares (in the form of XP BDRs) received by the Modal Controlling Shareholder will also be registered under the Securities Act and be freely transferable under the Securities Act after the lock-up period (which is subject to certain exceptions) pursuant to which: (i) 15% of the XP Shares received by the Modal Controlling Shareholders will be released each year during the period starting on the date that is two years following the Closing Date and ending on the date that is four years following the Closing Date; and (ii) the remaining XP Shares received by the Modal Controlling Shareholders will be released on the date that is five years following the Closing Date.

 

Principal Differences between Cayman Islands and U.S. Corporate Law

 

The Companies Act was modelled originally after similar laws in England and Wales but does not follow subsequent statutory enactments in England and Wales. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the

 

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provisions of the Companies Act applicable to XP and the laws applicable to companies incorporated in the United States and their shareholders.

 

Mergers and Similar Arrangements

 

The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies.

 

For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies in the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company; and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be approved by the directors of each constituent company and filed with the Registrar of Companies together with a declaration as to: (1) the solvency of the consolidated or surviving company; (2) the merger or consolidation is bona fide and not intended to defraud unsecured creditors of the constituent companies; (3) no petition or other similar proceeding has been filed and remains outstanding and no order or resolution to wind up the company in any jurisdiction; (4) no receiver, trustee, administrator or similar person has been appointed in any jurisdiction and is acting in respect of the constituent company, its affairs or property; (5) no scheme, order, compromise or similar arrangement has been entered into or made in any jurisdiction with creditors; (6) a list of the assets and liabilities of each constituent company; (7) the non-surviving constituent company has retired from any fiduciary office held or will do so; (8) that the constituent company has complied with any requirements under the regulatory laws, where relevant; and (9) an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and published in the Cayman Islands Gazette.

 

Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, may be determined by the Cayman Islands’ Court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

 

In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the Court the view that the transaction should not be approved, the Court can be expected to approve the arrangement if it satisfies itself that:

 

·XP is not proposing to act illegally or ultra vires and the statutory provisions as to majority vote have been complied with;

 

·the shareholders have been fairly represented at the meeting in question;

 

·the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

 

·the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority.”

 

When a takeover offer is made and accepted by holders of 90.0% in value of the shares affected within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

 

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If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which might otherwise ordinarily be available to dissenting shareholders of U.S. corporations and allow such dissenting shareholders to receive payment in cash for the judicially determined value of their shares.

 

Shareholders’ Suits

 

Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar. However, a class action suit could nonetheless be brought in a U.S. court pursuant to an alleged violation of U.S. securities laws and regulations.

 

In principle, XP itself would normally be the proper plaintiff and as a general rule, whilst a derivative action may be initiated by a minority shareholder on behalf of XP in a Cayman Islands Court, such shareholder will not be able to continue those proceedings without the permission of a Grand Court judge, who will only allow the action to continue if the shareholder can demonstrate that XP has a good case against the Defendant, and that it is proper for the shareholder to continue the action rather than the Company’s board of directors. Examples of circumstances in which derivative actions would be permitted to continue are where:

 

·a company is acting or proposing to act illegally or beyond the scope of its authority;

 

·the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a simple majority vote that has not been obtained; and

 

·those who control the company are perpetrating a “fraud on the minority.”

 

Corporate Governance

 

Cayman Islands law restricts transactions between a company and its directors unless there are provisions in the Articles of Association which provide a mechanism to alleviate possible conflicts of interest. Additionally, Cayman Islands law imposes on directors’ duties of care and skill and fiduciary duties to the companies which they serve. Under XP’s Articles of Association, a director must disclose the nature and extent of his interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, the interested director may vote in respect of any transaction or arrangement in which he or she is interested. The interested director shall be counted in the quorum at such meeting and the resolution may be passed by a majority of the directors present at the meeting.

 

Subject to the foregoing and our Memorandum and Articles of Association, our directors may exercise all the powers of XP to vote compensation to themselves or any member of their body in the absence of an independent quorum. Our Memorandum and Articles of Association provide that, in the event a compensation committee is established, it shall be made up of such number of independent directors as is required from time to time by the Nasdaq rules (or as otherwise may be required by law).

 

As a foreign private issuer, we are permitted to follow home country practice in lieu of certain Nasdaq corporate governance rules, subject to certain requirements. We currently rely, and will continue to rely, on the foreign private issuer exemption with respect to the following rules:

 

·Nasdaq Rule 5605(b), which requires that independent directors comprise a majority of a company’s board of directors. As allowed by the laws of the Cayman Islands, independent directors do not comprise a majority of our board of directors.

 

·Nasdaq Rule 5605(e)(1), which requires that a company have a nominations committee comprised solely of “independent directors” as defined by Nasdaq. As allowed by the laws of the Cayman Islands, we do not have a nominations committee nor do we have any current intention to establish one.

 

·Nasdaq Rule 5605(d) & (e), which require that compensation for our executive officers and selection of our director nominees be determined by a majority of independent directors. As allowed by the laws of the

 

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Cayman Islands, we do not have a nomination and corporate governance committee nor do we have any current intention to establish one.

 

· Nasdaq Rule 5635, which requires that a listed issuer obtain shareholder approval prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings. Pursuant to the laws of the Cayman Islands and our Articles of Association, we are not required to obtain any such approval.

 

Borrowing Powers

 

XP’s directors may exercise all the powers of XP to borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof and to issue debentures, debenture stock, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of XP or of any third party. Such powers may be varied by a special resolution of shareholders (requiring a two-thirds majority vote of those shareholders attending and voting at a quorate meeting).

 

Indemnification of Directors and Executive Officers and Limitation of Liability

 

The Companies Act does not limit the extent to which a company’s articles of association may provide for indemnification of directors and officers, except to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. XP’s Articles of Association provide that we shall indemnify and hold harmless our directors and officers against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil, criminal or other proceedings concerning XP or our affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to XP’s directors, officers or persons controlling the Company under the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

Directors’ Fiduciary Duties

 

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company. Accordingly, directors owe fiduciary duties to their companies to act bona fide in what they consider to be the best interests of the company, to exercise their powers for the purposes for which they are conferred and not to place themselves in a position where there is a conflict between their personal interests and their duty to the company. Accordingly, a director owes a company a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. However, this obligation may be varied by the company’s articles of association, which may permit a director to vote on a matter in which he has a personal interest provided that he has disclosed that nature of his interest to the board of directors. XP’s Articles of Association provides that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.

 

A director of a Cayman Islands company also owes to the company duties to exercise independent judgment in carrying out his functions and to exercise reasonable skill, care and diligence, which has both objective and

 

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subjective elements. Recent Cayman Islands case law confirmed that directors must exercise the care, skill and diligence that would be exercised by a reasonably diligent person having the general knowledge, skill and experience reasonably to be expected of a person acting as a director. Additionally, a director must exercise the knowledge, skill and experience that he or she actually possesses.

 

A general notice may be given to the board of directors to the effect that (1) the director is a member or officer of a specified company or firm and is to be regarded as interested in any contract or arrangement which may after the date of the notice be made with that company or firm; or (2) he or she is to be regarded as interested in any contract or arrangement which may after the date of the notice to the board of directors be made with a specified person who is connected with him or her, will be deemed sufficient declaration of interest. This notice shall specify the nature of the interest in question. Following the disclosure being made pursuant to XP’s Articles of Association and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, a director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.

 

In comparison, under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself or herself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

 

Shareholder Proposals

 

Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders an express right to put any proposal before the annual meeting of shareholders, but Delaware corporations generally afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

 

The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. XP’s Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.

 

Cumulative Voting

 

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Cayman Islands law, XP’s

 

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Articles of Association do not provide for cumulative voting. As a result, the shareholders of XP are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

 

Removal of Directors

 

The office of a director shall be vacated automatically if, among other things, he or she (1) becomes prohibited by law from being a director; (2) becomes bankrupt or makes an arrangement or composition with his creditors; (3) dies or is in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director; (4) resigns his office by notice to us; or (5) has for more than six months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his/her office be vacated.

 

Transaction with Interested Shareholders

 

The Delaware General Corporation Law provides that; unless the corporation has specifically elected not to be governed by this statute, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that this person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting shares or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which the shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

 

Cayman Islands law has no comparable statute. As a result, XP cannot avail itself of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that the board of directors owe duties to ensure that these transactions are entered into bona fide in the best interests of the company and for a proper corporate purpose and, as noted above, a transaction may be subject to challenge if it has the effect of constituting a fraud on the minority shareholders.

 

Dissolution; Winding Up

 

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. If the dissolution is initiated by the board of directors it may be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company resolves by ordinary resolution that it be wound up because it is unable to pay its debts as they fall due. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.

 

Under the Companies Act, XP may be dissolved, liquidated or wound up by a special resolution of shareholders (requiring a two-thirds majority vote of those shareholders attending and voting at a quorate meeting). XP’s Articles of Association also give its board of directors authority to petition the Cayman Islands Court to wind up XP.

 

Variation of Rights of Shares

 

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of that class, unless the certificate of incorporation provides otherwise. Under XP’s Articles of Association, if the share capital is divided into more than one class of shares, the rights attached to any class may only be varied with the written consent of the holders of two-thirds of the shares of that class or the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.

 

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Also, except with respect to share capital (as described above), alterations to XP’s Articles of Association may only be made by special resolution of shareholders (requiring a two-thirds majority vote of those shareholders attending and voting at a quorate meeting).

 

Amendment of Governing Documents

 

Under the Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board of directors. Under Cayman Islands law, XP’s Articles of Association generally (and save for certain amendments to share capital described in this section) may only be amended by special resolution of shareholders (requiring a two-thirds majority vote of those shareholders attending and voting at a quorate meeting).

 

Rights of Non-Resident or Foreign Shareholders

 

There are no limitations imposed by XP’s Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on XP’s shares. In addition, there are no provisions in the Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.

 

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Major Shareholders And Related Party Transactions

 

For a discussion of XP’s Major Shareholders and Related Party Transactions, see “Item 7. Major Shareholders and Related Party Transactions” of the XP 2021 Form 20-F, which is incorporated by reference into this prospectus. For more information about how to obtain copies of this information, see the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

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Comparison of the Rights of XP Shareholders and Modal Shareholders

 

The rights of holders of XP Shares (in the form of XP BDRs) are governed by the deposit agreement between us and the BDR Depositary and by the laws and regulations of Brazil. The rights of XP Shares underlying the XP BDRs are governed by the XP Memorandum and Articles of Association and by the laws of the Cayman Islands. There are differences between holding XP Shares (in the form BDRs) and holding XP Shares, and the rights associated with Modal Shares are different from the rights associated with XP Shares or XP BDRs.

 

An XP BDR holder will not be treated as one of our XP Shareholders and, as a result, may not have the same XP Shareholder’s rights. For further information (i) on the XP BDRs, see “Certain Rights of XP BDRs,” and (ii) on the XP Shares, see “Description of XP Share Capital.”

 

This section summarizes material differences between the rights of Modal Shareholders before consummation of the Merger and the rights of XP Shareholders after consummation of the Merger. These differences in shareholder rights result from the differences between the respective constitutional documents of XP and Modal and the applicable governing law. The following summary does not include a description of rights or obligations under the U.S. federal securities laws, Brazilian securities laws, or Nasdaq listing requirements or standards.

 

The following summary is not a complete statement of the rights of the XP Shareholders or the Modal Shareholders nor a complete description of the specific provisions referred to below. The identification of specific differences is not intended to indicate that other equally significant or more significant differences do not exist. This summary is qualified in its entirety by reference to the Companies Act, the Brazilian Corporation Law, CVM rulings, and XP’s and Modal’s constitutional documents, which you are urged to read carefully.

 

 

 

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Authorized Share Capital

At the date of this prospectus, XP’s total authorized share capital was US$35,000, divided into 3,500,000,000 shares par value US$0.00001 each, of which:

 

·   2,067,479,549 shares are designated as Class A common shares; and

 

·   932,520,451 shares are designated as Class B common shares.

 

Modal’s authorized share capital is 948,825,000 shares, either common or preferred, with no par value, thus Modal’s share capital may be increased by a resolution of Modal’s board of directors within such limit. The authorized share capital limit may only be increase by a resolution of Modal’s shareholders amending its Bylaws. Within the limits of the authorized capital, the board of directors may also (i) issue subscription warrants, (ii) issue stock options to managers and employees of the Modal and its subsidiaries, excluding the preemptive right of shareholders in the granting or exercise of stock options (after approval of a stock option plan by the shareholders), and (iii) approve a capital increase through the capitalization of income or reserves, with or without bonus shares.

 

Preferred stock allowed under Bylaws.

 

Structure of Board of Directors

XP is managed by its board of directors. The Memorandum and Articles of Association provide that the board of directors will be composed of such number of directors as a majority of directors in office may determine, being up to 12 directors on the date of adoption of XP’s Memorandum and Articles of Association. There are no provisions relating to retirement of directors upon reaching any age limit.

 

Modal’s Bylaws provide that the board of directors must be composed of at least five members and no more than nine members, including one chairman and one vice-chairman, as so designated by the general shareholders’ meeting. Directors are elected and removed by the shareholders’ meeting, and serve a unified term of office of two years, each year being

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The Memorandum and Articles of Association also provide that, while XP’s shares are admitted to trading on Nasdaq, the board of directors must always comply with the residency and citizenship requirements of the U.S. securities laws applicable to foreign private issuers.

 

The Memorandum and Articles of Association provide that directors shall be elected by an ordinary resolution of our shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed for a two year term, unless they resign or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed).

 

consider as the period between two annual shareholders’ meeting.
Shareholder Voting Rights
The holder of a Class B common share is entitled, in respect of such share, to 10 votes per share, whereas the holder of a Class A common share is entitled, in respect of such share, to one vote per share. The holders of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, except as provided below and as otherwise required by law.

Holders of Modal common shares are entitled to one vote per share on the resolutions to be adopted by the shareholders.

 

Holders of Modal preferred shares are not entitled to vote on the resolutions to be adopted by the shareholders, except in case of (a) transformation, merger into another entity, merger with another entity or spin-off; (b) approval of agreements among the Company and its controlling shareholder or other entities in which the controlling shareholder has interests; (c) appraisal of assets used for paying up a capital increase carried out by the Company; (d) selection of the appraiser that will determine the fair market value of the Company in case of a tender offer to exit B3’s Nível 2 listing segment (e) any amendment to Modal’s Bylaws that change or exclude some of the minimum requirements from B3’s Nível 2 listing segment.

 

Except as otherwise provided in the Memorandum and Articles of Association or under Cayman Islands law, resolutions submitted to the shareholders’ meetings may be approved by a majority of the shareholder votes validly cast in favor of such action Except as otherwise provided in the Modal Bylaws or under the Brazilian Corporation Law, resolutions submitted to the shareholders’ meetings may be approved by a majority of the shareholder votes validly cast in favor of such action, with abstentions not taken into account.
Approval of Mergers and Business Combinations
The Companies Act permits mergers and consolidations between Cayman Islands companies Under the Brazilian Corporation Law, “merger” is an operation whereby one or more corporations are merged into another, which succeeds to all their

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and between Cayman Islands companies and non-Cayman Islands companies. rights and obligations and can be carried out (i) as a simple merger, in which the entity being merged ceases to exist after the merger; and (ii) as a merger of shares, in which the entity being merged becomes a wholly-owned subsidiary after the merger.
For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies in the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company; and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be approved by the directors of each constituent company and filed with the Registrar of Companies together with a declaration as to: Pursuant to the Brazilian Corporation Law, any merger or consolidation must be submitted to a general shareholders’ meeting, with a statement of reasons (protocolo e justificação) that shall include:
(1)   the solvency of the consolidated or surviving company; (i)   the reasons for or the objectives of the operation, and the interest of the corporation in effecting it;
(2)   the merger or consolidation is bona fide and not intended to defraud unsecured creditors of the constituent companies; (ii)   the composition, after the operation, of the capital of the corporations issuing shares in substitution for those to be cancelled;
(3)   no petition or other similar proceeding has been filed and remains outstanding and no order or resolution to wind up the company in any jurisdiction; (iii)   the refund value of the shares to which dissenting shareholders shall be entitled;
(4)   no receiver, trustee, administrator or similar person has been appointed in any jurisdiction and is acting in respect of the constituent company, its affairs or property; (iv)   the amount of shares to be delivered as a result of the operation and the criteria adopted to determine the Exchange Ratio;
(5)   no scheme, order, compromise or similar arrangement has been entered into or made in any jurisdiction with creditors; (v)   the criteria used to calculate the net worth, the base date of evaluation and the treatment to be applied to subsequent variations;
(6)   a list of the assets and liabilities of each constituent company; (vi)   the solutions to be adopted in case of crossed participation;
(7)   the non-surviving constituent company has retired from any fiduciary office held or will do so; (vii)   the capital increase or reduction of the involved parties;

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(8)   that the constituent company has complied with any requirements under the regulatory laws, where relevant; and (viii) the draft of the bylaws or changes in the existing bylaws; and
(9)   an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and published in the Cayman Islands Gazette. (ix)   other conditions applicable to the operation, if any.
  The target corporation to be merged into the acquiring corporation is subject to a special quorum requirement, where the merger must be approved by shareholders representing at least the majority of the share capital of the target corporation.
  In the case of a simple merger, if the protocol of the operation and the merger are approved by the shareholders of the corporations involved on the transaction, the corporation to be merged shall be extinguished.
  The Brazilian Corporation Law also provides for a “merger of shares,” which is a corporate operation pursuant to which the acquiring corporation acquires all shares issued by the target corporation, which then becomes a wholly-owned subsidiary of the acquiring corporation. If the transaction is approved by the shareholders’ meetings of both corporations, the target corporation shareholders will receive shares of the acquiring corporation, pursuant to an exchange ratio to be fixed under the statement of reasons (protocolo e justificação).
Cumulative Voting
As permitted under Cayman Islands law, XP’s Articles of Association do not provide for cumulative voting. Pursuant to Article 141 of Brazilian Corporation Law, shareholders representing at least 0.1 of the voting capital can request the adoption of cumulative voting procedures in the election of directors. Considering Modal’s share capital, CVM reduced the shareholding necessary to require cumulative voting to 5%.
  Under the cumulative voting process, each shareholder is entitled to a number of votes totaling the number of board members to be elected multiplied by the number of shares held by such shareholder. Shareholders are entitled to aggregate their votes in favor of one candidate or split their votes among several candidates.

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Nomination and Appointment of Directors
The Memorandum and Articles of Association provide that directors shall be elected by an ordinary resolution of our shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Modal Bylaws provides that directors shall be elected by a general shareholders’ meeting and shall serve a two-year term, each year being consider as the period between two annual shareholders’ meeting. Of the members of the Board of Directors, at least twenty percent (20%) must be independent directors, as defined in the B3’s Nível 2 listing segment rules.
Removal of Directors and Vacancies
The Memorandum and Articles of Association provide that each director shall be appointed for a two year term, unless they resign or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed). Modal directors are appointed to a two-year term, but may be removed without cause prior to the completion of that term. Provided a director is not removed, the director’s term shall last until the new appointed members take office.
A director may be removed with or without cause by ordinary resolution. The notice of general meeting must contain a statement of the intention to remove the director and must be served on the director not less than ten calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal. Modal’s Bylaws provide that if a vacancy occurs on the board of directors, a substitute shall be elected by the general shareholders’ meeting to hold office for the remaining term of office of the substituted. Modal’s Bylaws specify further that, in the event of the absence or temporary impediment of the Chairman of the Board of Directors, the Vice-Chairman will perform the duties of the Chairman. However, in the event of an impediment or a permanent vacancy of the Chairman, the Vice-President will automatically assume the position and must call a meeting of the Board of Directors within 60 (sixty) days from the vacancy date, for the appointment of the new Chairman of the Board of Directors on a permanent basis, until the end of the original term of office, or call a general shareholders’ meeting with the purpose of appointing the new Chairman of the Board of Directors to replace him, until the end of the term of the original term.
The office of a director will be vacated automatically if he or she (1) becomes prohibited by law from being a director; (2) becomes bankrupt or makes an arrangement or composition with his creditors; (3) dies or is in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director; (4) resigns his office by notice to us; or (5) has for more than six months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his or her office be vacated. If a director elected by cumulative voting is removed by a shareholders’ meeting, all other members of the Board of Directors will be removed as well and new elections will be held.

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Executive Officers
The Memorandum and Articles provide for a board of executive officers comprising three (3) to ten (10) members, one (1) being the chief executive officer, one (1) being the chief financial officer, and the other officers having such designation as the Board of Directors may determine, elected and removed at any time by the Board of Directors. The Modal Bylaws provide for a board of executive officers, whose members will be elected and removed at any time by the Board of Directors and which shall be composed of at least five members and no more than twenty-seven members, including (i) at least one and no more than two chief executive officers, (ii) at least two or more than eight executive officers, (iii) one investor relations officer, and (iv) at least one and no more than eight officers without specific designation, in accordance with the establishments by the Board of Directors. Members shall be elected by the board of directors to serve a two-year term with reelection permitted. The board of directors may also remove members of the board of executive officers at any time.
Subject to the overall oversight authority of our board of directors, our day-to-day operations, business and activities are carried out by our executive officers, which may act on behalf of XP according to our Memorandum and Articles of Association. The Board of Executive Officers has full powers of administration and management of the corporate business to perform all acts and carry out all operations related to the corporate purpose, in compliance with the provisions of the Bylaws. In addition to legal attributions and the attributions mentioned above, The Modal Bylaws vest the executive officers with powers to:
 

(i)      represent the company, assuming obligations or exercising rights in any act, contract or document that entails liability for liability for the company, including providing guarantees for third party obligations;

 

(ii)     comply with and enforce the provisions of the Bylaws and the resolutions of the Board of Directors;

 

(iii)    authorize the sale of non-current assets and the constitution of liens, as well as the provision of guarantees for third-party obligations that are not related to the company’s corporate purpose; and

 

(iv)   open and close agencies, branches, main branches, stores and other facilities of the company in any part of the national territory and abroad, as well as appoint representatives or correspondents, in compliance with the legal requirements and rules of the Brazilian Central Bank.

 

Fiscal Council
XP does not have a fiscal council. In accordance with the Brazilian Corporation Law, the Modal Bylaws contemplate the formation of a

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  fiscal council, composed of at least three and at most five sitting members and equal number of alternates. The fiscal council will not operate on a permanent basis and will only operate when called to do so by the shareholders holding 0.1 of voting shares or 5% non-voting shares of Modal capital stock, in accordance with the provisions of applicable law. Considering Modal’s share capital, CVM reduced the shareholding necessary to require the Fiscal Council to operate voting to 2% of voting shares or 1% of non-voting shares. Once called, the fiscal council will operate until the next annual shareholders’ meeting. Modal Shareholders are vested with the power to set annual compensation for members of the fiscal council, which cannot be less than 10% of the compensation attributed to each officer.
Committees
The Memorandum and Articles provide for committees of directors and of officers.

Modal Bylaws set forth two statutory committees, being (i) Audit Committee; and (ii) Compensation Committee.

 

The Modal Bylaws provide for an Audit Committee, which shall be composed of at least three and at most five members, including one coordinator. Members shall be elected by the board of directors to serve a five-year term. The board of directors may also remove members of the Audit Committee at any time.

 

The Modal Bylaws vest the Audit Committee with powers to:

 

(i)      recommend to the Board of Director the entity to be hired as independent auditor and its respective compensation;

 

(ii)     review, prior to disclosure, the financial statements of the Company, including notes, management report and independent auditors report;

 

(iii)    evaluate the effectiveness of the independent and internal audits, including regarding compliance with legal and regulatory requirements, in addition to internal codes and rules;

 

(iv)    evaluate the compliance of the Company with recommendations made by independent and internal auditors, as well as recommend to the Board of Directors solution for any conflict between external auditors and

 

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offices;

 

(v)    establish and disclose procedures for receiving and treating information regarding non-compliance with legal requirements, rules, internal codes, including with specific procedures to safeguard the person providing the information and its confidentiality;

 

(vi)    recommend to the officers corrections or improvements to the policies, practices and procedures identified in their attributions;

 

(vii)   gather, at least quarterly, with the Executive Officers and independent and internal auditors;

 

(viii)  oversee, during the meetings, compliance with its recommendations and/or clarification regarding its questions, including in relation to planning of audit works, formalizing it in minutes with the discussions carried out in the meeting; and

 

(ix)    prepare, at the end of each semester the Audit Committee’s report, containing the resolutions, new practices, opinions and other acts that happened in such period.

 

The Modal Bylaws provide for a Compensation Committee, which shall be composed of at least three and at most five members, including one coordinator. Members shall be elected by the board of directors to serve a ten-year term. The board of directors may also remove members of the Compensation Committee at any time.

 

The Modal Bylaws vest the Compensation Committee with powers to:

 

(i)      analyze the policies, structures and practices of human resources proposed by the Officers, in light of the best practices adopted by national and foreign companies, as well as the strategies, opportunity context and risks that the Company is subject to;

 

(ii)     prepare and propose a compensation policy, including salary policy and of benefits, short and long-term compensation, ordinary and extraordinary, to managers of the Company

 

(iii)    evaluate, discuss and prepare recommendations to the Board of Directors regarding correcting or improving policies, practices and procedures identified in their

 

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attributions;

 

(iv)    propose to the Board of Directors the total annual amount for compensation of management to be submitted to the shareholder’s meeting, pursuant to article 152 of the Brazilian Corporate; and

 

(v)     prepare, within 90 days after the end of the fiscal year, the Compensation Committee report.

 

Annual Meetings of Shareholders
As a Cayman Islands exempted company, XP is not obliged by the Companies Act to call annual general meetings; however, XP’s Memorandum and Articles of Association provide that in each year the company will hold an annual general meeting of shareholders. For the annual general meeting of shareholders the agenda will include, among other things, the presentation of the annual accounts and the report of the directors (if any). In addition, the agenda for an annual general meeting of shareholders will only include such items as have been included therein by the board of directors.

The Brazilian Corporation Law requires corporations to hold an annual general meeting of shareholders within four months following the end of the fiscal year to deliberate on the following matters:

 

(i)      management accounts and year-end financial statements;

 

(ii)     allocation of the net profits for the fiscal year and distribution of dividends; and

 

(iii)    appointment of managers and members of the fiscal council, if any, and associated compensation.

 

 

In addition to the matters of exclusive authority set forth in the Brazilian Corporation Law, the Modal Bylaws specify further that shareholders are empowered to resolve on the following items at the general shareholders’ meetings:

 

(i)      restricted shares or stock option compensation plans;

 

(ii)     previously approve trading, by Modal, of shares issued by Modal, pursuant to CVM’s regulation;

 

(iii)    modification of Modal’s bylaws and any decision related to dissolution, liquidation or extinction involving the Modal, including by means of amalgamation, spin-off or merger transaction into another company;

 

(iv)   delist from B3’s Nível 2 listing segment; and

 

(v)    stay the exercise of political rights of a shareholder, pursuant to the law and Bylaws, being the relevant shareholder prevented from voting on such resolution.

 

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  The Modal Shareholders’ meetings shall be called by the board of directors.
  Under the Brazilian Corporation Law, shareholders’ meetings may also be called (i) by the fiscal council, (ii) by any shareholder if the board of directors delays calling the meeting for more than 60 days, or (iii) by shareholders representing at least 5% of the voting capital when the management delays calling the meeting for more than eight days.
Special Meetings of Shareholders
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. The Memorandum and Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the Board of Directors will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Memorandum and Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings. Under the Brazilian Corporation Law and the Modal Bylaws, special shareholders’ meetings may be called at any time by the Chairman of the board of directors or by resolution of the majority of the board members or even by request of the executive officers. Under the Brazilian Corporation Law, shareholders’ meetings may also be called (i) by the fiscal council, (ii) by any shareholder if the board of directors delays calling the meeting for more than 60 days, or (iii) by shareholders representing at least 5% of the voting capital when the management delays calling the meeting for more than eight days.
Notice of Shareholder Meetings
The Memorandum and Articles provide that any notice of shareholder meetings must be given at least eight days’ in advance, and must specify the place, the day and the hour of the meeting and the general nature of the business to be transacted at the meeting.

According to the Brazilian Corporation Law, notice of an annual or extraordinary general shareholders’ meeting of Modal must be published at least 3 times in the newspapers used by the company and contain information on the location, date and time of the meeting, as well as the agenda items.

 

Closely-held companies are subject to a minimum notice period, counted as of the first published notice, of at least 8 days for the first call, and at least 5 days for the second call.

 

Publicly-held companies (such as Modal) are subject to a minimum notice period, counted as of the first published notice, of at least 21 days for the first call, and at least 8 days for the second call.

 

Quorum at Shareholder Meetings
A quorum for a general meeting consists of any one or more persons holding or representing by proxy not less than fifty percent of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted. If a quorum is not present

The quorum for opening shareholders’ meetings under the Brazilian Corporation Law is:

 

 

 

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within half an hour from the time appointed for the meeting to commence or if during such a meeting a quorum ceases to be present, a second meeting may be called with at least five days’ notice to shareholders specifying the place, the day and the hour of the second meeting, as the Board of Directors may determine, and if at the second meeting a quorum is not present within half an hour from the time appointed for the meeting to commence, the shareholders present shall be a quorum.

(i)       On first call, shareholders representing at least twenty-five percent (25%) of the company’s voting capital; and

 

(ii)       On second call, any number of shareholders

 

Further, an extraordinary general meeting convened to amend the company’s bylaws may only be opened on the first call in the presence of shareholders representing at least 2/3 of the voting capital.

 

Unless otherwise described in the applicable law or in the Modal bylaws, the resolutions of the Modal Shareholders’ meetings will be taken by majority of votes present at the meeting, not taking absent votes into account.

 

Shareholder Action by Written Consent
The Memorandum and Articles of Association provide that ordinary and special resolutions, if passed in writing, must be signed by all shareholders. Given the COVID-19 social distancing rules, the Brazilian Corporation Law was amended to allow all companies to permit its shareholders to remote voting, whether through virtual meeting or remote voting ballots.
Mandatory Tender Offer
There are no mandatory tender offer provisions under the Companies Act or XP’s Memorandum and Articles of Association.

Upon the sale of a controlling interest in a publicly listed company, the purchaser of control must file a mandatory tender offer with the CVM to acquire all of the remaining outstanding common shares of the target company for at least 80% of the price per common share paid to a selling controlling shareholder. Pursuant to B3’s Nível 2 listing segment rules, the amount offered for the outstanding shares must be equal to the one offered to the controlling shareholder.

 

In addition, delisting of a publicly-held company, like Modal, is subject to an administrative proceeding before the CVM, having as a condition the launch of a tender offer by the controlling shareholder or the company itself for the acquisition of all outstanding shares (defined as those owned by shareholders other than the controlling shareholder, officers and directors) at their fair value, as determined by an independent appraiser. Shareholders representing more than two-thirds of the free float of shares registered to participate in the tender offer auction must accept the tender offer or must expressly agree with the deregistration.

 

Pursuant to the B3’s Nível 2 listing segment rules and Modal’s Bylaws, except for a migration of Modal Shares to B3’s Novo Mercado listing segment, in

 

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  order to delist from B3’s Nível 2 listing segment, the controlling shareholder must launch a tender offer for the of all outstanding shares (defined as those owned by shareholders other than the controlling shareholder, officers and directors) at their fair value, as determined by an independent appraiser.
Related Party Transactions
The Companies Act does not include any rules on related party transactions. Pursuant to Article 245 of the Brazilian Corporation Law, the officers of a corporation may not favor an associated, controlling or controlled corporation to the detriment of their own corporation and shall ensure that the transaction between the corporations, if any, shall be on an arm’s length basis or be compensated by adequate payment; they shall be liable to the corporation for any loss arising from the transaction.
Withdrawal Rights
The Companies Act provides for dissenter rights under certain circumstances, which do not include the Merger. The Brazilian Corporation Law provides for appraisal rights under certain circumstances.
  Among other scenarios set forth under the Brazilian Corporation Law, a dissenting shareholder is entitled to withdraw from the company if any of the following occurs:
 

(i)      creation or issuance of new preferred shares;

 

(ii)     change in the conditions of the preferred shares or creation of a different class with more advantages than the others;

 

(iii)    decrease of the annual minimum dividend;

 

(iv)    consolidation or merger of the company;

 

(v)     participation of the company in a corporate group;

 

(vi)    change of the company’s corporate purpose; and

 

(vii)   spin-off of the corporation that results in (a) a change in the corporate purpose, (b) a reduction in the annual minimum dividend or (c) participation in a group of corporations.

 

  For items (i) and (ii) above, only shareholders that have been harmed shall have the right to withdraw from Modal. Dissenting shareholders that withdraw

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  from Modal will receive the corresponding book value of their shares.
Shareholder Information Rights
XP Shareholders will have no general right under Cayman Islands law to inspect or obtain copies of the list of shareholders or corporate records of XP. However, the Board of Directors may determine from time to time whether and to what extent XP’s accounting records and books shall be open to inspection by shareholders who are not members of the Board of Directors. Notwithstanding the above, XP’s Memorandum and Articles of Association provide shareholders with the right to receive annual financial statements.

Under the Brazilian Corporation Law, shareholders have the right to:

 

(i)      request copies of the minutes of general meetings and resolutions of Modal;

 

(ii)     receive copies of support documents for resolutions in annual or extraordinary general shareholders’ meetings (i.e., management and auditors’ reports and statements of financial position); and

 

(iii)    receive certificates of corporate books.

 

  Additionally, shareholders representing at least 5% of Modal capital stock may apply for a court order requiring complete disclosure of corporate books in connection with any violation of law or the Modal Bylaws, or if the shareholders have grounds to suspect that management has committed serious irregularities.
Amendments of Constituent Documents

The Companies Act provides that articles of association may only be amended by special resolution. A resolution is a special resolution when:

 

(a)     it has been passed by a majority of at least two-thirds of such members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given, except that a company may in its articles of association specify that the required majority shall be a number greater than two thirds, and may additionally so provide that any such majority (being not less than two-thirds) may differ as between matters required to be approved by a special resolution; or

 

(b)     if so authorized by its articles of association, it has been approved in writing by all of the members entitled to vote at a general meeting of the company in one or more instruments each signed by one or more of the members aforesaid, and the effective date of the special resolution so adopted shall be the date on

 

The Brazilian Corporation Law provides that bylaws may only be amended at a general shareholders’ meeting. An extraordinary general meeting convened to amend the bylaws shall only be held on first call in the presence of shareholders representing at least 2/3 of the voting capital, but may be held on second call with any number of shareholders present. Any proposed amendment to the bylaws must be expressly identified in the notice required for the shareholders’ meeting

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which the instrument or the last of such instruments, if more than one, is executed.

 
Limitation on Personal Liability of Directors and Officers
The Companies Act does not limit the extent to which a company’s articles of association may provide for indemnification of directors and officers, except to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Under the Brazilian Corporation Law, managers shall not be personally liable for obligations undertaken on behalf of the company in the ordinary course performance of their duties. However, a company may not exempt its managers from liability for negligence, willful misconduct, breach of duty, or breach of the applicable law or the company’s bylaws.
  Managers shall not be liable for illegal acts performed by the other managers, except in cases of complicity, negligence in investigating such acts or failure to take action with respect to known illegal acts. According to the Brazilian Corporation Law, a company, upon prior approval of a shareholders’ meeting, may bring an action for civil liability against a manager. Where a breach of duty has been established, managers may be exempted by a Brazilian court from personal liability for negligence or breach of duty if, among other things, the court determines that they have acted in good faith and in the interests of the company.
  In addition, the Brazilian Corporation Law provides that the filing of a civil liability action by a company against a director does not preclude any action available to any shareholder or third party directly harmed by the director’s acts.
  The foregoing applies equally to officers and committee members.
Indemnification of Directors and Officers
The Memorandum and Articles of Association provide that XP shall indemnify and hold harmless its directors and officers against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil, criminal or other proceedings Pursuant to Modal Bylaws, the company may execute an indemnity agreement in favor of its directors, officers and members of the Fiscal Council and the members of the Committees, in order to guarantee the payment of expenses in the event of any damage or loss actually suffered by them for acts practiced in the regular exercise of management, thus considered those performed diligently, in good faith, aiming at the company’s interest, and in compliance with the fiduciary duties of the management. The payment of expenses within the scope of an indemnity agreement should be submitted to the Board of Directors for approval, without prejudice to the contracting of specific insurance to cover the management risks of the company’s managers.

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concerning XP or our affairs in any court whether in the Cayman Islands or elsewhere.  
Preemptive Rights / Preferential Subscription Rights
The Companies Act does not provide for preemptive rights for shareholders. The Brazilian Corporation Law provides that the shareholders shall have a preemptive right in the subscription of a capital increase in proportion to the number of shares they own. As Modal bylaws do not specify the applicable period of the preemptive right, pursuant to the Brazilian Corporation Law, a shareholders’ meeting shall establish a period of not less than 30 days within which a preemptive right may be exercised.
Dividends, Repurchases and Redemptions
Subject to the Companies Act, XP’s shareholders may, by resolution passed by a simple majority of the voting rights entitled to vote at a general meeting, declare dividends (including interim dividends) to be paid to shareholders but no dividend shall be declared in excess of the amount recommended by the Board of Directors. Modal Bylaws require a distribution of at least 25% of the net income adjusted by an allocation to legal reserve (net income as calculated according to statutory individual financial statements prepared in accordance with Brazilian GAAP). After the allocation of profits to legal reserve and payment to the annual minimum dividend, (i) a portion of the net income, as proposed by the management, may be allocated to the formation of a reserve for contingencies, pursuant to article 195 of the Brazilian Corporation Law; (ii) the portion of net income resulting from government subsidies for investments may be allocated to the tax incentive reserve, which may be excluded from the calculation basis of the mandatory dividend; (iii) a portion not exceeding 75% (seventy-five percent) of the annual net income adjusted as provided for in article 202 of the Brazilian Corporation Law, after deducting the reserve indicated in item (ii) above, may be allocated to the formation reserve for investments and working capital, which will have the purpose of funding investments for growth and expansion and financing the company's working capital, with the exception that the accumulated balance of this reserve, added to the balances of other profit reserves (except for the unrealized profits, reserves for contingencies and tax incentives reserve), may not exceed 100% (one hundred percent) of the value of the company's capital stock, pursuant to the Brazilian Corporation Law; and (iv) the general shareholders’ meeting may, at the proposal of the Board of Directors, allocate a portion of the profits to the constitution of reserves or retentions provided for by law or the Bylaws.
The Board of Directors may also declare dividends. Dividends may be declared and paid out of funds lawfully available to XP. Except as otherwise provided by the rights attached to shares and XP’s

The annual minimum dividend will not be mandatory for any fiscal year in which the Modal accumulates losses.

 

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Memorandum and Articles of Association, all dividends shall be paid in proportion to the number of Class A common shares or Class B common shares a shareholder holds at the date the dividend is declared (or such other date as may be set as a record date); but, (1) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly; and (2) where we have shares in issue that are not fully paid up (as to par value), we may pay dividends in proportion to the amounts paid up on each share.

Following distribution of the annual minimum dividend, the shareholders may vote to approve at any time a payment of dividends out of existing profits reserves or earnings from prior years retained pursuant to a resolution of the shareholders’ meeting. In addition, the board of directors may (i) approve a distribution of dividends out of income determined as per semi-annual or other interim balance sheets or (ii) declare an interim dividend out of retained earnings or existing profits reserves, as shown on such balance sheets or the most recent annual balance sheet.

 

Under the Brazilian Corporation Law, a company’s bylaws or an extraordinary general meeting may authorize the allocation of profits or reserves to the redemption of shares, and shall prescribe the conditions and the procedure for this purpose. Redemptions which do not cover all shares of the same class shall be carried out by drawing lots.

 

The redemption of shares must be approved at a general meeting called to resolve this matter by shareholders who represent at least half of the Modal shares of the specific class of shares which will be affected by the redemption.

 

Shareholders Litigation

The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of the shares of XP in issue, appoint an inspector to examine XP’s affairs and report thereon in a manner as the Grand Court shall direct. Subject to the provisions of the Companies Act, any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the Court is of the opinion that this winding up is just and equitable.

 

Notwithstanding the U.S. securities laws and regulations that are applicable to XP, general corporate claims against XP by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by XP’s Memorandum and Articles of Association.

 

The Cayman Islands courts ordinarily would be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against XP, or derivative actions in XP’s name, to challenge (1) an act which is ultra vires or illegal; (2) an act which constitutes a fraud against the minority and the wrongdoers

 

The Bylaws provide that the company, its shareholders, managers, members of the fiscal council (effective and alternates), if any, undertake to resolve through arbitration, before the Market Arbitration Chamber (Câmara de Arbitragem do Mercado), in the form of its regulation, any dispute that may arise among them, related to or arising from its status as issuer, shareholders, managers, and members of the fiscal council, in particular, arising from the provisions contained in Law No. 6,385/76, in the Brazilian Corporation Law, in the Bylaws, in the rules issued by the National Monetary Council (Conselho Monetário Nacional), the Brazilian Central Bank and the CVM, as well as other rules applicable to the operation of the capital market in general, in addition to those contained in the B3’s Nível 2 listing segment rules, other B3 regulations and the Participation in B3’s Nível 2 listing segment.

 

The Brazilian Corporation Law provides that any shareholder that has suffered direct losses may individually file judicial proceedings against the company or its managers. The Brazilian Corporation Law also authorizes derivative actions against the company’s managers. Once the shareholders’ meeting resolves to file a derivative lawsuit, if the

 

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themselves control XP; and (3) an irregularity in the passing of a resolution that requires a qualified (or special) majority.

lawsuit has not been initiated within three months following this resolution, any shareholder may do so on behalf of the company. If the shareholders’ meeting votes against filing a derivative lawsuit, shareholders representing at least 5% of the company’s capital stock are entitled to file such lawsuit, notwithstanding the voting result. Considering Modal’s share capital, CVM reduced the shareholding necessary to entitle the shareholder to sue to 4%.

 

Further, the Brazilian Corporation Law provides that shareholders representing at least 5% of the company’s capital stock may bring claims against the controlling shareholder to recover damages caused by the breach of its fiduciary duties. Considering Modal’s share capital, CVM reduced the shareholding necessary to entitle the shareholder to sue to 4%.

 

The Brazilian Corporation Law permits a wide variety of bases for shareholder lawsuits. For example, shareholders are entitled to file lawsuits to:

 

(i)      void the act of incorporation of the company (statutes of limitation of one year);

 

(ii)     void decisions taken by irregular meetings (statutes of limitation of two years);

 

(iii)    claim civil liabilities against experts and capital subscribers (statutes of limitation of one year);

 

(iv)    claim the payment of dividends (statutes of limitation of 3 years, calculated as from the date on which such dividends were made available to the shareholder);

 

(v)     claim civil liabilities against the founders, shareholders, managers, liquidators, auditors or controlling companies, in the case of violation of the law or bylaws (statutes of limitation of three years); and

 

(vi)    claims against the company for whatever reason (statutes of limitation of three years).

 

Certain Rights of XP BDRs

 

The rights of holders of XP Shares (in the form XP BDRs) are set forth in a deposit agreement between us and Itaú Unibanco S.A., as depositary of our BDR program. There are differences between holding XP BDRs and holding XP Shares.

 

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Each XP BDR represents one XP Share, maintained in custody by the custodian in the offices of Bank of New Your Mellon at One Wall Street, New York, New York 10286. The BDR Depositary’s office at which the BDRs will be managed is located at Praça Alfredo Egydio de Souza Aranha, 100, São Paulo, Brazil, Zip Code 04344-902.

 

An XP BDR holder will not be treated as one of our XP Shareholders and, as a result may not have the same XP Shareholder’s rights. The rights of XP Shareholders are governed by the laws of the Cayman Islands and the provisions of our Memorandum and Articles of Association. See “Description of XP Share Capital.” The rights of holders of XP BDRs are governed by the laws and regulations of Brazil, as well as the provisions of the deposit agreement. For more complete information, you should read:

 

·the rules and regulations applicable to BDRs, particularly CMN Resolution No. 3,568/08, CVM Instructions No. 332 and 480, as amended, and the Central Bank of Brazil Circular No. 3,691/13, as amended; and

 

·the deposit agreement, copies of which are available for review upon request.

 

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Regulatory Matters

 

The completion of the Merger is subject to, among others, the approval of the Merger Proposal at the Modal Shareholders’ Meeting, the approval of the transaction by the Brazilian Central Bank and any supplemental listing of the XP Shares on Nasdaq. The Merger was also subject to approval by CADE, which was obtained on July 26, 2022.

  

XP Control, Modal Controle Participações S.A., Modal and XP have agreed to cooperate with one another to obtain the approval by the competent authorities and to prepare any other documents related to the Merger.

 

Although XP and Modal believe that they will be able to obtain the requisite approvals (and deemed approvals) in a timely manner, neither XP nor Modal can predict when or if they will do so, or if the required approvals will contain terms, conditions or restrictions that will adversely affect the Merger, XP, Modal, or XP’s subsidiaries after the Merger is consummated.

 

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Experts

 

The financial statements and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Annual Report on Internal Control over Financial Reporting) incorporated in this Prospectus by reference to the XP 2021 Form 20-F have been so incorporated in reliance on the report of PricewaterhouseCoopers Auditores Independentes Ltda., an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

 

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Legal Matters

 

We were advised as to certain matters of Brazilian law by Spinelli Advogados, São Paulo, Brazil. We were advised as to certain matters of U.S. law by Davis Polk & Wardwell LLP, New York, New York. The validity of the Class A common shares and other matters of Cayman Islands law matters will be passed upon by Maples and Calder (Cayman) LLP.

 

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Enforceability of Civil Liabilities

 

We are registered under the laws of the Cayman Islands as an exempted company with limited liability. We are registered in the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands have a less developed body of securities laws as compared to the United States and provide protections for investors to a significantly lesser extent. In addition, Cayman Islands companies may not have standing to sue before the federal courts of the United States. Maples and Calder (Cayman) LLP, our counsel as to Cayman Islands law, and Spinelli Advogados, our counsel as to Brazilian law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or Brazil would, respectively, (1) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or (2) entertain original actions brought in the Cayman Islands or Brazil against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

 

Our Cayman Islands counsel has informed us that the uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the United States courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands’ company. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands.

 

Our Cayman Islands counsel has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation.

 

Substantially all of our assets are located outside the United States, in Brazil. In addition, a majority of the members of our board of directors and all of our officers are nationals or residents of Brazil and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

 

We have appointed XP Investments US, LLC, with offices at 55 West 46th Street, 30 Floor, New York, NY 10036, as our agent to receive service of process with respect to any action brought against us in the United States under the federal securities laws of the United States or of any state in the United States arising out of this transaction.

 

A judgment of a United States court for civil liabilities predicated upon the federal securities laws of the United States may be enforced in Brazil, subject to certain requirements described below. Such counsel has advised that a judgment against us, the members of our board of directors or our executive officers obtained in the United States would be enforceable in Brazil without retrial or re-examination of the merits of the original action including, without limitation, any final judgment for payment of a certain amount rendered by any such court, provided that such judgment has been previously recognized by the Brazilian Superior Tribunal of Justice (Superior Tribunal de Justiça), or “STJ.” That recognition will only be available, pursuant to Articles 963 and 964 of the Brazilian Code of Civil Procedure (Código de Processo Civil, Law No. 13,105, dated March 16, 2015, as amended), if the U.S. judgment:

 

·complies with all formalities necessary for its enforcement;

 

·is issued by a court of competent jurisdiction after proper service of process is made or after sufficient evidence of our absence has been given, as requested under the laws of the United States;

 

111 

 

·is not rendered in an action upon which Brazilian courts have exclusive jurisdiction, pursuant to the provisions of art. 23 of the Brazilian Code of Civil Procedure (Law No. 13,105/2015, as amended);

 

·is final and, therefore, not subject to appeal (res judicata) in the United States;

 

·creates no conflict between the United States judgment and a previous final and binding (res judicata) judgment on the same matter and involving the same parties issued in Brazil;

 

·is duly apostilled by a competent authority of the United States, according to the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents dated as of October 5, 1961 authentication, or the “Hague Convention.” If such decision emanates from a country that is not a signatory of the Hague Convention, it must be duly authenticated by a Brazilian Diplomatic Office or Consulate;

 

·is accompanied by a translation into Portuguese made by a certified translator in Brazil, unless an exemption is provided by an international treaty to which Brazil is a signatory; and

 

·is not contrary to Brazilian national sovereignty or public policy and does not violate the dignity of the human person, as set forth in Brazilian law.

 

The judicial recognition process may be time-consuming and may also give rise to difficulties in enforcing such foreign judgment in Brazil. Accordingly, we cannot assure you that judicial recognition of a foreign judgment would be successful, that the judicial recognition process would be conducted in a timely manner or that a Brazilian court would enforce a judgment of countries other than Brazil.

 

We believe original actions may be brought in connection with this transaction predicated on the federal securities laws of the United States in Brazilian courts and that, subject to applicable law, Brazilian courts may enforce liabilities in such actions against us or the members of our board of directors or our executive officers and certain advisors named herein.

 

In addition, a plaintiff, whether Brazilian or non-Brazilian, who resides outside Brazil or is outside Brazil during the course of litigation in Brazil and who does not own real property in Brazil must post a bond to guarantee the payment of the defendant’s legal fees and court expenses in connection with court procedures for the collection of money according to Article 83 of the Brazilian Code of Civil Procedure (Código de Processo Civil). This is so except in the case of: (1) claims for collection on a título executivo extrajudicial (an instrument which may be enforced in Brazilian courts without a review on the merits), or enforcement of foreign judgments that have been duly recognized by the Superior Court of Justice; (2) counterclaims as established; and (3) when an exemption is provided by an international agreement or treaty to which Brazil is a signatory.

 

If proceedings are brought in Brazilian courts seeking to enforce our obligations with respect to our Class A common shares, payment shall be made in reais. Any judgment rendered in Brazilian courts in respect of any payment obligations with respect to our Class A common shares would be expressed in reais.

 

We have also been advised that the ability of a judgment creditor to satisfy a judgment by attaching certain assets of the defendant in Brazil is governed and limited by provisions of Brazilian law.

 

Notwithstanding the foregoing, we cannot assure you that confirmation of any judgment will be obtained, or that the process described above can be conducted in a timely manner.

 

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PROSPECTUS

 

 

 

 

 

                , 2022

 

 

 

Table of Contents 

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

 

Item 20. Indemnification of Directors and Officers

 

Cayman Islands law does not limit the extent to which a company’s articles of association may provide indemnification of officers and directors, except to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as providing indemnification against civil fraud or the consequences of committing a crime.

 

The registrant’s Articles of Association provide that each director or officer of the registrant shall be indemnified out of the assets of the registrant against all actions, proceedings, costs, charges, expenses, losses, damages, or liabilities, judgments, fines, settlements and other amounts (including reasonable attorneys’ fees and expenses and amounts paid in settlement and costs of investigation (collectively “Losses”) incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of such person’s duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any Losses incurred by such director or officer in defending or investigating (whether successfully or otherwise) any civil, criminal, investigative and administrative proceedings concerning or in any way related to our Company or its affairs in any court whether in the Cayman Islands or elsewhere.

 

Also, the registrant expects to maintain director’s and officer’s liability insurance covering its directors and officers with respect to general civil liability, including liabilities under the Securities Act, which he or she may incur in his or her capacity as such.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

Item 21. Exhibits and Financial Statement Schedules

 

(a)       The following is a list of all exhibits filed as part of this registration statement on Form F-4, including those incorporated herein by reference.

 

Exhibit No.

Exhibit

2.1*† Form of Merger Protocol between Modal and the Registrant (English translation).
3.1* Amended and Restated Memorandum and Articles of Association of XP Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s annual report on Form 20-F (File No. 001-39155 filed with the SEC on April 13, 2022)).
5.1* Opinion of Maples and Calder (Cayman) LLP, Cayman Islands counsel of XP, as to the validity of the Class A common shares.
10.1* Form of Shareholders’ Agreement among XP Controle Participações S.A., ITB Holding Brasil Participações Ltda., General Atlantic (XP) Bermuda, L.P. and XP Inc., among others. (incorporated herein by reference to Exhibit 10.2 to Amendment No. 2 to the Company’s Registration Statement on Form F-1 (File No. 333-234719 filed with the SEC on December 2, 2019)).
10.2* Form of First Amendment to the Shareholders’ Agreement, dated as of March 24, 2020, among XP Controle Participações S.A., General Atlantic (XP) Bermuda, L.P., ITB Holding Brasil Participações Ltda., and the consenting interveners listed as parties thereto (free English translation).
10.3* Form of Second Amendment to the Shareholders’ Agreement, dated as of October 1, 2021, among XP Controle Participações S.A., General Atlantic (XP) Bermuda, L.P., Itaú Unibanco Holding S.A., IUPAR – Itaú Unibanco Participações S.A. and Itaúsa S.A., and the consenting interveners listed as parties thereto (free English translation).
10.4#** Custodial Services Agreement, dated March 1, 2022, by and between BitGo Trust Company, Inc. and Xtage Intermediação S.A. (formerly known as Xchange Intermediação S.A.).
10.5#** Custodial Services Agreement, dated April 25, 2022, by and between Parfin Pagamentos Ltda. and Xtage Intermediação S.A. (formerly known as Xchange Intermediação S.A.).

 

II-1

Exhibit No.

Exhibit

21.1* List of subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company’s annual report on Form 20-F (File No. 001-39155 filed with the SEC on April 13, 2022)).
23.1* Consent of Maples and Calder (Cayman) LLP, Cayman Islands counsel of XP (included in Exhibit 5.1).
23.2** Consent of PricewaterhouseCoopers Auditores Independentes Ltda.
24.1* Powers of attorney (included on signature page to the registration statement).
107.1** Calculation of Filing Fee Tables.
 
*Previously filed.

 

**Filed herewith.

 

# Portions of this exhibit have been omitted as the registrant has determined that (i) the omitted information is not material and (ii) the omitted information is of the type that the registrant customarily and actually treats as private or confidential.

 

Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K, and will be supplementally provided to the SEC upon request.

 

(b)Financial Statement Schedules.

 

No financial statement schedules are provided because the information called for is not applicable or is shown in the financial statements or notes thereto.

 

Item 22. Undertakings

 

(a)The undersigned registrant hereby undertakes:

 

(1)To file, during any period in which offers or sales are being made of securities registered hereby, a post-effective amendment to this registration statement:

 

(i)To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered), and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

 

(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2)That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

II-2

(4)To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Securities Act of 1933 need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Securities Act of 1933 or Rule 3-19 if such financial statements and information are contained in periodic reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement.

 

(5)That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

 

(i)Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement.

 

(ii)Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933, shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

 

(6)That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii)Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii)The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv)Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

II-3

(b)The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(c)Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in this registration statement, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted against the registrant by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and be governed by the final adjudication of such issue.

 

(d)The undersigned registrant hereby undertakes that:

 

(1)For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(e)The undersigned registrant hereby undertakes (i) to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form F-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means, and (ii) to arrange or provide for a facility in the United States for the purpose of responding to such requests. The undertakings in subparagraph (i) above include information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

 

(f)The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning the Merger and Modal, that was not the subject of and included in the registration statement when it became effective.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of São Paulo, Brazil, on this 7th day of September, 2022.

 

  XP Inc.
   
   
  By:  /s/ Thiago Maffra
    Name: Thiago Maffra
    Title: Chief Executive Officer

 

 

 

   
  By:  /s/ Bruno Constantino Alexandre dos Santos
    Name: Bruno Constantino Alexandre dos Santos
    Title: Chief Financial Officer

 

 

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

 

Signature Title Date
     
* Chief Executive Officer
(principal executive officer)
September 7, 2022
Thiago Maffra
     
/s/ Bruno Constantino Alexandre dos Santos Chief Financial Officer
(principal financial officer and principal accounting officer)
September 7, 2022
Bruno Constantino Alexandre dos Santos
     
* Director September 7, 2022
Guilherme Dias Fernandes Benchimol
     
* Director September 7, 2022
Bernardo Amaral Botelho
     
* Director September 7, 2022
Gabriel Klas da Rocha Leal
     
* Director September 7, 2022
Fabrício Cunha de Almeida
     
* Director September 7, 2022
Guilherme Sant’Anna Monteiro da Silva
     
* Director September 7, 2022
Luiz Felipe Amaral Calabró
     
* Director September 7, 2022
Martin Emiliano Escobari Lifchitz
     

 

Table of Contents 

Signature Title Date
* Director September 7, 2022
Geraldo José Carbone
     
  Director
Cristiana Pereira
     
* Director September 7, 2022
Guy Almeida Andrade
     
* XP Investments US, LLC
Authorized representative in the United States
September 7, 2022
Jared Wilson
   
* By attorney-in-fact:
 
/s/ Bruno Constantino Alexandre dos Santos
Bruno Constantino Alexandre dos Santos

 

Exhibit 10.4

 

THE SYMBOL “[**]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL AND (ii) OF THE TYPE THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.

 

BITGO CUSTODIAL SERVICES AGREEMENT

 

This Custodial Services Agreement (the “Agreement”) is made as of the later date of the signatures below (the “Effective Date”) by and between XCHANGE Intermediação S.A., a Brazil Corporation (“Client”) and BitGo Trust Company, Inc., a trust company duly organized and chartered in South Dakota, (“Trust Company”). This Agreement governs Client’s use of the Custodial Services and the Wallet Services (each as defined below, and collectively, the “Services”) provided or made available by Trust Company.

 

1.    SERVICES.

 

1.1.    Custodian.

 

Trust Company through the “Custodial Services” enables Client to create one or more custody accounts (each a “Custodial Account”), controlled and secured by Trust Company in accordance with this Agreement, to store certain supported digital currencies and digital tokens (“Digital Assets”) or certain fiat currencies such as Dollars or Euros (“Fiat Currency”). Trust Company is a trust company under § 51-A of the South Dakota Banking Law and is licensed to act as custodian of Client’s Digital Assets on Client’s behalf.

 

1.2.    Wallet Software and Non-Custodial Wallet Service.

 

Trust Company also provides Client with the option to create non-custodial wallets that support certain Digital Assets via an API and web interface (“Wallet Services”). Wallet Services are provided by BitGo, Inc., an affiliate of Trust Company (“BitGo Inc.’’). Wallet Services provide access to wallets where BitGo Inc. holds a minority of the keys, and Client is responsible for holding a majority of the keys (“Client Keys”).

 

1.3.    Fiat Services.

 

(A)Client may elect to store Fiat Currency with Trust Company (“Fiat Services”). Trust Company has no right, interest, or title in such Fiat Currency. Trust Company hereby confirms that the Fiat Currency is not an asset on the balance sheet of Trust Company.

 

(B)Trust Company will hold any Fiat Currency received by Trust Company on behalf of Client, at Trust Company’s discretion, in one or more omnibus bank accounts (“Omnibus Account”), at depository institutions (a “Bank”) or in money market accounts (“Money Market Account”). Each Omnibus Account shall be in the name of Trust Company for the benefit of Client and shall be maintained separately and apart from Trust Company’s business, operating, and reserve accounts. Each Omnibus Account constitutes a banking relationship between Trust Company and Bank and shall not constitute a custodial relationship between Trust Company and Bank and does not create or represent any relationship between Client and any Bank. Likewise, any Money Market Account shall be in the name of Trust Company and shall be maintained separately and apart from Trust Company’s business, operating, and reserve accounts. Such Money Market Accounts constitute an investment account between Trust Company and the asset management firm of such Money Market Account and do not create or represent any relationship between Client and any asset management firm.

 

(C)Client acknowledges and agrees that Trust Company may hold some or any portion of Fiat Currency in accounts that may or may not receive interest or other earnings. Client hereby agrees that the amount of any such interest or earnings attributable to such Fiat Currency may be retained by Trust Company as additional consideration for its services. In addition, Trust Company may receive earnings or compensation for an Omnibus Account or Money Market Account either in the form of services provided at a reduced rate, the payment of any shareholder service fees, or similar compensation. Client agrees that any such compensation shall be retained by Trust Company and no portion of any such compensation shall be paid to or for Client.

 

 

 

1.4.    API Access.

 

(A)Most Services are provided through https://www.bitgo.com/ or any associated websites or application programming interfaces (“APIs”) (collectively, the “Company Site”). Client may elect to utilize the APIs either directly or indirectly within an independently developed application (“Developer Application”).

 

(B)All API-based services are subject to usage limits. If Client exceeds a usage limit, Trust Company may provide assistance to seek to reduce Client usage so that it conforms to that limit. If Client is unable or unwilling to abide by the usage limits, Client will order additional quantities of the applicable Services promptly upon request or pay Trust Company’s invoices for excess usage.

 

1.5.    Fees.

 

The fees associated with the Services shall be calculated, invoiced and paid in accordance with Schedule A (“Fee Schedule”). Trust Company reserves the right to revise its Fee Schedule at any time following the Initial Term, provided that Trust Company will provide Client with at least 30 days’ advance notice of any such revision. Within such 30-day period, Client may terminate the Agreement in accordance with Section 4.10(A) of this Agreement and discontinue the Custodial Services hereunder at no additional charge to Client.

 

1.6.    No Investment Advice or Brokerage.

 

Trust Company does not provide investment, tax, or legal advice, nor does Trust Company broker transactions on Client’s behalf. Client acknowledges that Trust Company has not provided and will not provide any advice, guidance or recommendations to Client with regard to the suitability or value of any Digital Assets, and that Trust Company has no liability regarding any selection of a Digital Asset that is held by Client through Client’s Custodial Account and the Custodial Services or the Wallet Services. All deposit and withdrawal transactions are executed based on Client’s instructions, and Client is solely responsible for determining whether any investment, investment strategy, or related transaction involving Digital Assets is appropriate for Client based on Client’s investment objectives, financial circumstances, and risk tolerance. Client should seek legal and professional tax advice regarding any transaction.

 

1.7.    Acknowledgement of Risks.

 

(A)Client acknowledges that Digital Assets are not covered by the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation or any other governmental, quasi-governmental, regulatory or industry-backed insurance or protection program of any kind.

 

(B)Client acknowledges that using Digital Assets and any related networks and protocols, involves serious risks. It is Client’s duty to learn about all the risks involved with Digital Assets and any related protocols and networks. Trust Company makes no representations or warranties regarding the value of Digital Assets or the security or performance of any related network or protocol.

 

2.    CUSTODIAL ACCOUNT.

 

2.1.    Registration.

 

To use the Custodial Services, Client must create a Custodial Account by providing Trust Company with all information requested. Trust Company may, in its sole discretion, refuse to allow Client to establish a Custodial Account, or limit the number of Custodial Accounts.

 

2.2.    General.

 

The Custodial Services allow Client to deposit supported Digital Assets from a public blockchain address Client controls to Client’s Account, and to withdraw supported Digital Assets from Client’s Custodial Account to a public blockchain address Client controls, in each case, pursuant to instructions Client provides through the Company Site (each such transaction is a “Custody Transaction’’). The Digital Assets stored in Client’s Custodial Account are not commingled with other Digital Assets without express action taken by Client and are held in custody pursuant to the terms of this Agreement. Trust Company reserves the right to refuse to process or to cancel any pending Custody Transaction: as required by Applicable Law; to enforce transaction, threshold, and condition limits; or if Trust

 

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Company reasonably believes that the Custody Transaction may violate or facilitate the violation of any applicable law, regulation or rule of a governmental authority or self-regulatory organization. Trust Company cannot reverse a Custody Transaction which has been broadcast to a Digital Asset network. As used in this Agreement, “Applicable Law” means any applicable statute, rule, regulation, regulatory guideline, order, law, ordinance or code; the common law and laws of equity; any binding court order, judgment or decree; any applicable industry code, rule, guideline, policy or standard enforceable by law (including as a result of participation in a self-regulatory organization), and any official interpretations of any of the foregoing.

 

2.3.    Custodial Instructions.

 

Trust Company acts upon instructions (“Instructions”) given by Client or Client’s authorized representatives (“Authorized Person”) that are received and verified by Trust Company in accordance with its procedures and this Agreement. Instructions shall continue in full force and effect until cancelled or executed. If any Instructions are ambiguous or conflicting, Trust Company shall refuse to execute such Instructions until any ambiguity or conflict has been resolved. Trust Company may refuse to execute Instructions if in Trust Company’s opinion such Instructions are outside the scope of its duties under this Agreement or are contrary to any Applicable Law. Trust Company may rely in the performance of its duties under this Agreement and without liability on its part, upon any Instructions believed by it in good faith in accordance with Trust Company’s verification procedures to be given by an Authorized Person and upon any notice, request, consent, certificate or other instrument believed by it in good faith to be genuine and to be signed or furnished by an Authorized Person. Trust Company does not guarantee the identity of any user, receiver, requestee, or other party to a Custody Transaction. Client must verify all transaction information prior to submitting Instructions to Trust Company. Client is responsible for losses and liabilities resulting from inaccurate Instructions (e.g., if Client provides the wrong destination address to Trust Company for executing a withdrawal transaction).

 

2.4.    Digital Asset Deposits and Withdrawals.

 

Client must manage and keep secure any and all information or devices associated with deposit and withdrawal verification procedures, including YubiKeys and passphrases or other security or confirmation information (see Section 4.5). Trust Company reserves the right to charge network fees (a.k.a. miner fees) to process a Digital Asset transaction on Client’s behalf. Trust Company will notify Client of the network fee at or before the time Client authorizes the transaction.

 

2.5.    Digital Asset Access Time.

 

(A)Trust Company requires up to 24 hours (excluding weekends and federal holidays) between any request to withdraw Digital Assets from Client’s Custodial Account and submission of Client’s withdrawal to the applicable Digital Asset network. Client acknowledges and agrees that a Custody Transaction facilitated by Trust Company may not be withdrawn upon less than 24 hours’ notice to Trust Company. Such notice shall be initiated from Client’s Custodial Account. The time of such request shall be considered the time of transmission of such notice from Client’s Custodial Account.

 

(B)Trust Company reserves the right to take additional time beyond the 24hr period in (A) if such time is required to verify security processes for large or suspicious transactions. Any such processes will be executed reasonably and in accordance with Trust Company documented protocols, which may change from time to time at the sole discretion of Trust Company.

 

(C)Trust Company makes no representations or warranties with respect to the availability and/or accessibility of the Digital Assets. Trust Company will make reasonable efforts to ensure that Client initiated deposits are processed in a timely manner, but Trust Company makes no representations or warranties regarding the amount of time needed to complete processing of deposits which is dependent upon factors outside of Trust Company’s control.

 

2.6.    Fiat Currency Deposits and Withdrawals.

 

(A)Trust Company shall not accept, for the benefit of Client, Fiat Currency deposits from third parties. Fiat Currency deposits shall only be accepted from banks that have been approved through Trust Company’s BSA/AML program and are in the name of an individual or an institution named on the Custodial Account. This prohibition may be modified by mutual written agreement of Client and Trust Company in

 

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order to accommodate Client’s receipt of deposits from its subscribers and may be subject to additional terms, conditions, and fees.

 

(B)Fiat Currency withdrawals are only permitted to bank accounts that have been approved through Trust Company’s BSA/AML program and are in the name of an individual or an institution named on the recipient’s account.

 

2.7.    Wire Transfers.

 

Custodian accepts wire deposits and processes wire withdrawals only from or to Client Bank Accounts. Wire deposits sent before 3pm ET by domestic wire from a Client Bank Account will typically settle and be credited to Client’s Fiat Account on the same day or next business day. Wire withdrawals initiated before 3pm ET will typically be processed on the same day or next business day. Wire deposits may not be credited and wire withdrawals may not be processed outside of normal banking hours. Client agrees and understands that wire deposit settlement times and wire withdrawal transfer times are subject to bank holidays, the internal processes and jurisdictions of Client or Account Holder’s bank and the internal processes of Custodian’s bank.

 

2.8    Supported Digital Assets.

 

The Custodial Services are available only in connection with those Digital Assets that Trust Company supports. The Digital Assets that Trust Company supports may change from time to time in Trust Company’s discretion. Prior to initiating a deposit of Digital Assets to Trust Company, Client must confirm that Trust Company offers Custodial Services for that specific Digital Asset. The list of supported Digital Assets is available at: https://www.bitgo.com/resources/multicurrency. By initiating a deposit of Digital Assets to a Custodial Account, Client attests that Client has confirmed that the Digital Asset being transferred is supported by Trust Company. Under no circumstances should Client attempt to use the Custodial Services to deposit or store any Digital Assets that are not supported by Trust Company. Depositing or attempting to deposit Digital Assets that are not supported by Trust Company will result in such Digital Asset being unretrievable by Client and Trust Company. Trust Company assumes no obligation or liability whatsoever regarding any unsupported Digital Asset sent or attempted to be sent to it, or regarding any attempt to use the Custodial Services for Digital Assets that Trust Company does not support. Trust Company may from time to time determine types of Digital Assets that will be supported or cease to be supported by the Custodial Services. Trust Company shall provide Client with 30 days’ prior written notice before ceasing to support a Digital Asset, unless Trust Company is required to cease such support sooner to comply with Applicable Law (in which event Trust Company will provide as much notice as is practicable under the circumstances).

 

2.9.    Advanced Protocols.

 

Unless specifically announced on the Trust Company website or through some other official public statement of Trust Company, Trust Company does not support metacoins, colored coins, side chains, or other derivative, enhanced, or forked protocols, tokens, or coins which supplement or interact with a Digital Asset supported by Trust Company (collectively, “Advanced Protocols”). Client shall not use its Custodial Account to attempt to receive, request, send, store, or engage in any other type of transaction involving an Advanced Protocol. Trust Company assumes absolutely no responsibility whatsoever in respect to Advanced Protocols.

 

2.10.    Operation of Digital Asset Protocols.

 

(A)Trust Company does not own or control the underlying software protocols which govern the operation of Digital Assets supported on the Trust Company platform. By using the Custodial Services, Client acknowledges and agrees that (i) Trust Company is not responsible for operation of the underlying protocols and that Trust Company makes no guarantee of their functionality, security, or availability; and (ii) the underlying protocols are subject to sudden changes in operating rules (a.k.a. “forks”), and (iii) that such forks may materially affect the value, function, and/or even the name of the Digital Assets that Client stores in Client’s Custodial Account. In the event of a fork, Client agrees that Trust Company may temporarily suspend Trust Company operations with respect to the affected Digital Assets (with or without advance notice to Client) and that Trust Company may, in its sole discretion, decide whether or not to support (or cease supporting) either branch of the forked protocol entirely. Client acknowledges

 

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and agrees that Trust Company assumes absolutely no liability whatsoever in respect of an unsupported branch of a forked protocol or its determination whether or not to support a forked protocol.

 

(B)Client agrees that all “airdrops” (free distributions of certain Digital Assets) and forks will be handled by Trust Company pursuant to its fork policy (the “Fork Policy”) (www.bitgo.com/resources/bitgo-fork-policy). Client acknowledges that Trust Company is under no obligation to support any airdrops or forks, or handle them in any manner, except as detailed above and in the Fork Policy. Client further acknowledges that Trust Company, at its sole discretion, may update the Fork Policy from time to time and post it on Trust Company’s website and Client agrees that Client is responsible for reviewing any such updates. Client is under no obligation to provide notification to Client of any modification to the Fork Policy.

 

2.11.    Account Statements.

 

(A)Trust Company will provide Client with an electronic account statement every calendar quarter, or as otherwise expressly agreed to in writing between Client and Trust Company. Each account statement will identify the amount of each Digital Asset in Client’s Custodial Account at the end of the period and set forth all transactions in Client’s account during that period. Each statement will be provided via the Trust Company’s website and will bee-mailed or mailed if requested by Client. Please note there may be an additional fee for paper statements.

 

(B)Client is solely responsible for notifying Trust Company in writing if Client requires Trust Company to send periodic statements of the Client’s account to subscribers of the Client. If required, it is the Client’s sole responsibility to keep the list of subscribers along with delivery addresses current to ensure Trust Company can fulfill its responsibility to provide periodic statements. It is Client’s sole responsibility to make the determination if Client is required to provide statements to its subscribers to comply with Applicable Law.

 

(C)To value Digital Assets held in the Client’s account, the Trust Company will electronically obtain USD equivalent prices from digital asset market data providers or other sources, with amounts rounded up to the seventh decimal place to the right. Trust Company cannot guarantee the accuracy or timeliness of prices received and the prices are not to be relied upon for any investment decisions for the Client’s account.

 

2.12.    Independent Verification.

 

If Client is subject to Rule 206(4)-2 under the Investment Advisers Act of 1940, Trust Company shall, upon written request, provide Client authorized independent public accountant confirmation of or access to information sufficient to confirm (i) Client’s Digital Assets as of the date of an examination conducted pursuant to Rule 206(4)-2(a)(4), and (ii) Client’s Digital Assets are held either in a separate account under Client’s name or in accounts under Client’s name as agent or trustee for Client’s clients.

 

2.13.    Third-Party Payments.

 

The Custodial Services are not intended to facilitate third-party payments of any kind. As such, Trust Company has no control over, or liability for, the delivery, quality, safety, legality or any other aspect of any goods or services that Client may purchase or sell to or from a third party (including other users of Custodial Services) involving Digital Assets that Client intends to store, or have stored, in Client’s Custodial Account.

 

2.14.    Support and Service Level Agreement.

 

(A)Trust Company will: (i) provide reasonable technical support to Client, by email or telephone, during Trust Company’s normal business hours (8:30 a.m. to 5 p.m. CST); (ii) respond to support requests in a timely manner, and (iii) resolve such issues by providing updates and/or workarounds to Client, consistent with the severity level of the issues identified in such requests and their impact on Client’s business operations.

 

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(B)Trust Company will use commercially reasonable efforts: (i) to make the Services available under the terms of our Service Level Agreement at https://www.bitgo.com/resources/bitgo- service-level-agreement; and (ii) to make Custodial Accounts available via the internet 24 hours a day, 7 days a week.

 

2.15.    Suspension, Termination, and Cancellation.

 

(A)Trust Company may suspend or restrict Client’s access to the Custodial Services and/or deactivate, terminate or cancel Client’s Custodial Account if:

 

(i)Trust Company is so required by a facially valid subpoena, court order, or binding order of a government authority;

 

(ii)Trust Company reasonably suspects Client of using Client’s Custodial Account in connection with a Prohibited Use or Prohibited Business, as set forth in Appendix 1 to this Agreement;

 

(iii)Trust Company perceives a risk of legal or regulatory non-compliance associated with Client’s Custodial Account activity;

 

(iv)Trust Company service partners are unable to support Client’s use;

 

(v)Client takes any action that Trust Company deems as circumventing Trust Company’s controls, including, but not limited to, opening multiple Custodial Accounts, abusing promotions which Trust Company may offer from time to time, or otherwise making a misrepresentation of Client’s Custodial Account;

 

(vi)Client breaches the terms of this Agreement; or (vii) Client fails to pay fees for a period of 90 days.

 

(B)If Trust Company suspends or restricts Client’s access to the Custodial Services and/or deactivates, terminates or cancels Client’s Custodial Account for any reason, Trust Company will provide Client with notice of Trust Company’s actions via email unless prohibited by Applicable Law. Client acknowledges that Trust Company’s decision to take certain actions, including limiting access to, suspending, or closing Client’s Custodial Account, may be based on confidential criteria that are essential to Trust Company’s risk management and security protocols. Client agrees that Trust Company is under no obligation to disclose the details of its risk management and security procedures to Client.

 

(C)Client will be permitted to withdraw Digital Assets and Fiat Currency associated with Client’s Custodial Account for ninety (90) days after Custodial Account deactivation or cancellation unless such withdrawal is prohibited Applicable Law (including but not limited to applicable sanctions programs or a facially valid subpoena, court order, or binding order of a government authority).

 

2.16.    Clearing and Settlement Services.

 

(A)Trust Company may offer clearing and settlement services (the “Settlement Services”) that facilitate the settlement of transactions of Digital Assets or Fiat Currency between Client and Client’s trade counterparty that also has a Custodial Account with Trust Company (“Settlement Partner”). Client acknowledges that the Settlement Service is an application programming interface (API) product complemented by a Web user interface (UI). Clients may utilize the Settlement Services by way of a number of options, including settlement of one-sided requests with counterparty affirmation; one-sided requests with instant settlement; and two-sided requests with reconciliation. Client understands that the Digital Assets available for use within the Settlement Services may not include all of Client’s Digital Assets under custody.

 

(B)The Settlement Services allow Client to submit, through the Trust Company’s settlement platform, a request to settle a purchase or sale of Digital Assets with a Settlement Partner. Client authorizes Trust Company to accept Client’s cryptographic signature submitted by way of the Settlement Services API. When a cryptographic signature is received by way the Settlement Services along with the settlement transaction details, Client is authorizing Trust Company to act on Client’s direction to settle such transaction.

 

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i)A one-sided request with counterparty affirmation requires Client to submit a request, including its own cryptographic signature on the trade details, via API calls. Trust Company will notify the Settlement Partner and lock funds of both parties while waiting for the Settlement Partner to affirm the request. Trust Company will settle the trade immediately upon affirmation and the locked funds will be released.

 

ii)A one-sided request with instant settlement requires one side of the trade to submit a request, including cryptographic signatures of both parties to the trade, via API calls. Trust Company will settle the trade immediately.

 

iii)A two-sided request with reconciliation requires that both Client and Settlement Partner submit requests via API calls, with each party providing their own cryptographic signatures. Trust Company will reconcile the trades and settle immediately upon successful reconciliation.

 

iv)In any one-sided or two sided request, the Settlement Partner must be identified and selected by Client prior to submitting a settlement request.

 

v)Client may submit a balance inquiry through the settlement platform, to verify that Settlement Partner has a sufficient balance of Digital Asset to be transacted before the Parties execute a transaction. This balance inquiry function is to be utilized only for the purpose of executing a trade transaction to ensure the Settlement Partner has sufficient fiat currency (funds) or Digital Assets to settle the transaction. Client hereby expressly authorizes and consents to Trust Company providing access to such information to Client’s Settlement Partner in order to facilitate the settlement.

 

vi)Client and Settlement Partner’s Custodial Accounts must have sufficient funds or Digital Assets prior to initiating any settlement request. The full amount of assets required to fulfill a transaction are locked until such order has been completed. All orders are binding on Client and Client’s Custodial Account. Trust Company does not guarantee that any settlement will be completed by any Settlement Partner. Client may not be able to withdraw an offer (or withdraw its acceptance of an offer) prior to completion of a settlement and Trust Company shall not be liable for the completion of any order after a cancellation request has been submitted.

 

vii)Client acknowledges and accepts responsibility for ensuring only an appropriate Authorized Person of their Custodial Account has access to the API key(s).

 

viii)Client further understands and agrees that Client is solely responsible for any decision to enter into a settlement by way of the Settlement Services, including the evaluation of any and all risks related to any such transaction and has not relied on any statement or other representation of Trust Company. Client understands that Trust Company is a facilitator and not a counterparty to any settlement; and, as a facilitator, Trust Company bears no liability with respect to any transaction and does not assume any clearing risk.

 

ix)Any notifications that Client may receive from the trading platform regarding trades are Client’s responsibility to review in a timely manner.

 

(C)Upon execution of the settlement, the Settlement Services shall provide Client, by electronic means, a summary of the terms of the transaction, including: the type of Digital Asset purchased or sold; the delivery time; and the purchase or sale price. Settlement of a transaction is completed in an off-chain trading account by way of offsetting journal transactions within Trust Company’s Digital Asset Off-chain Settlement System. On-chain synchronization occurs at the time the withdrawal from Client’s trading account takes place (other than through a subsequent Settlement Services transaction).

 

(D)Trust Company reserves the right to refuse to settle any transaction, or any portion of any transaction, for any reason, at its sole discretion. Trust Company bears no responsibility if any such order was placed or active during any time the Settlement Services system is unavailable or encounters an error; or, if any such order triggers certain regulatory controls.

 

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(E)Client understands and agrees that Trust Company may charge additional fees for the Settlement Services furnished to Client as indicated in the Fee Schedule attached as Schedule A and any amendments to Schedule A.

 

(F)Clearing and settlement transactions shall be subject to all applicable laws and the rules and regulations of all federal, state and self-regulatory agencies. Client acknowledges receipt of the statement on Material Risks of Investing in Digital Currencies, identified as Appendix A to this Addendum.

 

3.    WALLET SERVICES

 

3.1.    General.

 

The Wallet Services do not send or receive money or digital assets. The Wallet Services enable Client to interface with virtual currency networks to view and transmit information about a public cryptographic key commonly referred to as a blockchain address. Client assumes all responsibility and liability for securing the Client Keys (see Section 4.5). Further, Client assumes all responsibility and liability for creation, storage, and maintenance of any backup keys associated with accounts created using the Wallet Services.

 

3.2.    Terms; Conflict.

 

Client’s use of the Wallet Services is subject to the terms and conditions set forth at https://www.bitgo.com/terms (the “Wallet Terms”). In the event of a conflict between the Wallet Terms and the terms of this Agreement, the terms of this Agreement shall control.

 

4.    USE OF SERVICES; TERM AND TERMINATION.

 

4.1.    Company Site and Content.

 

Trust Company hereby grants Client a limited, nonexclusive, non transferable, revocable, royalty-free license, subject to the terms of this Agreement, to access and use the Company Site and related content, materials, information (collectively, the “Content”) solely for approved purposes as permitted by Trust Company from time to time. Any other use of the Company Site or Content is expressly prohibited and all other right, title, and interest in the Company Site or Content is exclusively the property of Trust Company and its licensors. Client shall not copy, transmit, distribute, sell, license, reverse engineer, modify, publish, or participate in the transfer or sale of, create derivative works from, or in any other way exploit any of the Content, in whole or in part, “www.bitgo.com,” “BitGo,” “BitGo Custody,” “Trust Company” and all logos related to the Custodial Services or displayed on the Company Site are either trademarks or registered marks of Trust Company or its licensors. Client may not copy, imitate or use them without Trust Company’s prior written consent in each instance.

 

4.2.    Website Accuracy.

 

Although Trust Company intends to provide accurate and timely information on the Company Site, the Company Site (including, without limitation, the Content, but excluding any portions thereof that are specifically referenced in this Agreement) may not always be entirely accurate, complete, or current and may also include technical inaccuracies or typographical errors. In an effort to continue to provide Client with as complete and accurate information as possible, such information may be changed or updated from time to time without notice, including without limitation information regarding Trust Company policies, products and services. Accordingly, Client should verify all information before relying on it, and all decisions based on information contained on the Company Site are Client’s sole responsibility and Trust Company shall have no liability for such decisions. Links to third-party materials (including without limitation websites) may be provided as a convenience but are not controlled by Trust Company. Trust Company is not responsible for any aspect of the information, content, or services contained in any third-party materials or on any third-party sites accessible from or linked to the Company Site.

 

4.3.    Third-Party or Non-Permissioned Use.

 

Except for fund administrators, Client shall not grant permission to a third party or non- permissioned user to access or connect to Client’s Custodial Account, either through the third party’s product or service or through the Company Site. Client acknowledges that granting permission to a third party or non-permissioned user to take

 

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specific actions on Client’s behalf does not relieve Client of any of Client’s responsibilities under this Agreement and may violate the terms of this Agreement. Client is fully responsible for all acts or omissions of any third party or non-permissioned user with access to Client’s Custodial Account. Further, Client acknowledges and agrees that Client will not hold Trust Company responsible for, and will indemnify Trust Company from, any liability arising out of or related to any act or omission of any third party or non-permissioned user with access to Client’s Custodial Account. Client must notify Trust Company immediately if a third party or non-permissioned user accesses or connects to Client’s Custodial Account by contacting Client’s Custodial Account representative or by emailing security@bitgo.com from the email address associated with Client’s Custodial Account.

 

4.4.    Prohibited Use.

 

Client acknowledges and agrees that Trust Company may monitor use of the Services and the resulting information may be utilized, reviewed, retained and or disclosed by Trust Company for its internal purposes or in accordance with Applicable Law.

 

4.5.    Security; Client Responsibilities.

 

(A)Client is responsible for maintaining adequate security and control of any and all Client Keys, IDs, passwords, hints, personal identification numbers (PINs), noncustodial wallet keys, API keys, yubikeys, 2-factor authentication devices or backups, or any other codes that Client uses to access the Services. Any loss or compromise of the foregoing information and/or Client’s personal information may result in unauthorized access to Client’s Custodial Account by third-parties and the loss or theft of Digital Assets or Fiat Currency. Client is responsible for keeping Client’s email address and telephone number up to date in Client’s profile in order to receive any notices or alerts that Trust Company may send Client. Trust Company assumes no responsibility for any loss that Client may sustain due to compromise of login credentials due to no fault of Trust Company and/or failure to follow or act on any notices or alerts that Trust Company may send to Client. In the event Client believes Client’s Custodial Account information has compromised, Client will contact Trust Company Support immediately at security@bitgo.com.

 

(B)Client will maintain an updated and current list of Authorized Persons at all times and will immediately notify Trust Company of any changes to the list of Authorized Persons, including for termination of employment, or otherwise. Client agrees that Trust Company may rely on the list of Authorized Persons. Client shall make available all necessary documentation and Know Your Customer identification, as reasonably requested by Trust Company to verify: (i) the identity of each Authorized Person; (ii) that each Authorized Person is eligible to be deemed an “Authorized Person” as defined in this Agreement; and (iii) the party(ies) requesting the changes in the list of Authorized Persons have valid authority to request changes on behalf of Client. Client will ensure that all Authorized Persons will be adequately trained to safely and securely access the Trust Services, including understanding of general security principles regarding passwords and physical security of computers, keys, and personnel.

 

(C)Client will immediately notify Trust Company of any unauthorized access, use or disclosure of Client’s Account credentials, or any relevant breach or suspected breach of security (including breach of Client’s systems, networks or developer applications). Client will provide Trust Company with all relevant information Trust Company reasonably requests to assess the security of the assets, Custodial Accounts and wallets.

 

4.6.    Taxes.

 

It is Client’s sole responsibility to determine whether, and to what extent, any taxes apply to any deposits or withdrawals Client conducts through the Custodial Services, and to withhold, collect, report and remit the correct amount of taxes to the appropriate tax authorities. Client’s deposit and withdrawal history is available by accessing Client’s Custodial Account through the Company Site or by contacting Trust Company directly.

 

4.7.    Third Party Providers.

 

Client acknowledges and agrees that the Services may be provided from time to time by, through or with the assistance of affiliates of or vendors to Trust Company, including BitGo Inc. as described above. Client shall receive

 

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notice of any material change in the entities that provide the Custodial Services. Trust Company shall be responsible for any breach of this Agreement caused by such affiliates or any vendor.

 

4.8.    Developer Applications.

 

(A)Subject to Trust Company’s acceptance of Client as a developer, and subject to Client’s performance of its obligations under this Agreement, Trust Company grants Client a nonassignable, non-transferrable, revocable, personal and nonexclusive license under Trust Company’s applicable intellectual property rights to use and reproduce the SDK solely to develop or test a website or application (“Developer Application”).

 

(B)Client agrees that all users of any Developer Application will be subject to the same use restrictions as Client (including under Section 4.4 (Prohibited Use) and Appendix 1).

 

(C)Client is solely responsible and has sole liability for Client’s end users that access or use the Trust Services via the Developer Application. Client is responsible for the accuracy, quality and legality of Developer Application content and user data. Client will comply with, and ensure that Client’s Developer Application and end users comply with all Applicable Law.

 

4.9.    Term.

 

This Agreement will commence on the Effective Date and will continue for twenty-six (26) months, unless earlier terminated in accordance with the terms of this Agreement (the “Initial Term”). After the Initial Term, this Agreement will automatically renew for successive one-year periods (each a “Renewal Term”), unless either party notifies the other of its intention not to renew at least 60 days prior to the expiration of the then-current Term. “Term” means the Initial Term and any Renewal Term.

 

4.10.    Termination by Client.

 

(A)From the Effective Date of this Agreement through the duration of the Initial Term, Client may only terminate this Agreement by submitting to Trust Company a onetime early termination fee equal to thirty percent (30%) of the Monthly Minimum stated in the Fee Schedule applicable to Client multiplied by the remaining months left in Client’s Initial Term (the “Early Termination Fee”).

 

(B)After the Initial Term, Client may terminate this Agreement at any time for any reason upon 30 days’ prior written notice and/or cancel Client’s Custodial Account by withdrawing all balances and contacting Trust Company at support@bitgo.com. Client will not be charged for canceling Client’s Custodial Account, although Client will be required to pay any outstanding amounts owed to Trust Company. Client authorizes Trust Company to cancel or suspend any pending deposits or withdrawals at the time of cancellation.

 

(C)Client may terminate this Agreement during the Initial Term if Trust Company breaches a material term of this Agreement and fails to cure such breach within 30 days following written notice thereof from Client.

 

5.    TRUST COMPANY OBLIGATIONS.

 

5.1.    Bookkeeping.

 

Trust Company will keep timely and accurate records as to the deposit, disbursement, investment, and reinvestment of the Digital Assets and Fiat Currency. Trust Company will maintain accurate records and bookkeeping of the Custodial Services as required by Applicable Law and in accordance with Trust Company’s internal document retention policies.

 

5.2.    Insurance.

 

Trust Company will obtain and maintain insurance coverage in such types and amounts as are commercially reasonable for the Custodial Services provided hereunder. Client acknowledges that any insurance related to theft of

 

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coins will apply to Custodial Services only (where keys are held by Trust Company) and not Wallet Services for non-custodial accounts (where keys are held by Client).

 

5.3.    Standard of Care.

 

Trust Company will use commercially reasonable efforts in performing its obligations under this Agreement. Subject to the terms of this Agreement, Trust Company shall not be responsible for any loss or damage suffered by Client as a result of the Trust Company performing such duties unless the same results from an act of fraud, willful default or gross negligence on the part of the Trust Company. Trust Company shall not be responsible for the title, validity or genuineness of any of the Digital Assets or Fiat Currency (or any evidence of title thereto) received or delivered by it pursuant to this Agreement.

 

5.4.    Business Continuity Plan.

 

Trust Company has established a business continuity plan that will support its ability to conduct business in the event of a significant business disruption (“SBD”). This plan is reviewed and updated annually, and can be updated more frequently, if deemed necessary by Trust Company in its sole discretion. Should Trust Company be impacted by an SBD, Trust Company aims to minimize business interruption as quickly and efficiently as possible. To receive more information about Trust Company’s business continuity plan, please send a written request to security@bitgo.com.

 

6.    DISPUTE RESOLUTION.

 

THE PARTIES AGREE THAT ALL CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE USE OF THE SERVICES (“DISPUTES”), WHETHER ARISING PRIOR, ON, OR SUBSEQUENT TO THE EFFECTIVE DATE, SHALL BE SUBJECT TO THE JURISDICTION OF THE COURTS OF THE CITY OF NEW YORK.

 

7.    REPRESENTATIONS, WARRANTIES, AND COVENANTS; DISCLAIMERS.

 

7.1.    By Client.

 

Client represents, warrants, and covenants to Trust Company that:

 

(A)Client operates in full compliance with all Applicable Law in each jurisdiction in which Client operates, including without limitation U.S. securities laws and regulations, efforts to fight the funding of terrorism and money laundering, the USA PATRIOT Act and Bank Secrecy Act and all related regulations and requirements.

 

(B)To the extent that Client utilizes the Settlement Services on behalf of any third party, Client hereby agrees and represents that (i) it has adopted procedures, (the “Client AML/KYC Program”) designed to elicit and verify information from all third parties to substantiate the representations, warranties agreements contained in the Agreement as well as Client’s compliance with all applicable laws and governmental rules and regulations; (ii) it will provide copies of its AML/KYC Program policies and procedures to Trust Company, and any amendments; (iii) it is in compliance with its AML/KYC Program in all material respects; (iv) that all information that has been or will in the future be provided Trust Company regarding Client’s AML/KYC Program is accurate and complete in all material respects; (v) it has not omitted any information regarding its AML/KYC Program necessary to prevent any information provided to Trust Company from being misleading; (vi) it will maintain all records of its compliance and customer identification program reviews and related customer personally identifiable information in accordance with all applicable privacy laws; (vii) it will provide to Trust Company copies, or make readily accessible during normal business hours, any or all records of its AML/KYC Program reviews at the request of Trust Company; (viii) that it will provide Trust Company an annual certification as to the effectiveness of its AML/KYC Program and a yearly random sample of its AML/KYC Program reviews for use in evaluating the effectiveness of its compliance with this Agreement; and (ix) it will provide Trust Company notice of any third party requiring enhanced due diligence in accordance with guidelines under its AML/KYC Program. The provisions of this paragraph B is contingent upon the written approval of Trust Company as to the application of this paragraph B.

 

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(C)Client shall have conducted and satisfied any and all due diligence procedures required by Applicable Law with respect to such third parties prior to placing with Trust Company any Digital Assets or Fiat Currency associated with such third party.

 

(D)Client will not use any Services for any illegal activity, including without limitation illegal gambling, money laundering, fraud, blackmail, extortion, ransoming data, the financing of terrorism, other violent activities or any prohibited market practices, including without limitation the prohibited activities and business set forth in Appendix 1.

 

(E)Client is currently and will remain at all times in good standing with all relevant government agencies, departments, regulatory or supervisory bodies in all relevant jurisdictions in which Client does business, including but not limited to and as applicable, FINRA, the Municipal Securities Rulemaking Board, SIPC, the National Futures Association, the Commodity Futures Trading Commission and the Securities and Exchange Commission, and Client will immediately notify Trust Company if Client ceases to be in good standing with any applicable regulatory authority;

 

(F)Client will promptly provide such information as Trust Company may reasonably request from time to time regarding (i) Client’s policies, procedures, and activities which relate to the Custodial Services in any manner, as determined by Trust Company in its sole and absolute discretion, and (ii) any transaction which involves the use of the Services, to the extent reasonably necessary to comply with Applicable Law, or the guidance or direction of, or request from any regulatory authority or financial institution, provided that such information may be redacted to remove confidential commercial information not relevant to the requirements of this Agreement;

 

(G)Client either owns or possesses lawful authorization to transact with all Digital Assets involved in the Custody Transactions;

 

(H)Client has the full capacity and authority to enter into and be bound by this Agreement and the person executing or otherwise accepting this Agreement for Client has full legal capacity and authorization to do so;

 

(I)All information provided by Client to Trust Company in the course of negotiating this Agreement and the on-boarding of Client as Trust Company’s customer and user of the Custodial Services is complete, true, and accurate in all material respects, including with respect to the ownership of Client, no material information has been excluded; and no other person or entity has an ownership interest in Client except for those disclosed in connection with such onboarding; and

 

(J)Client is not owned in part or in whole, nor controlled by any person or entity that is, nor is it conducting any activities on behalf of, any person or entity that is (i) the subject of any sanctions administered or enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the U.S. Department of State, or any other Governmental Authority with jurisdiction over Trust Company or its affiliates with respect to U.S. sanctions laws; (ii) identified on the Denied Persons, Entity, or Unverified Lists of the U.S. Department of Commerce’s Bureau of Industry and Security; or (iii) located, organized or resident in a country or territory that is, or whose government is, the subject of U.S. economic sanctions, including, without limitation, Cuba, Iran, North Korea, Sudan, or Syria.

 

7.2.    By Trust Company.

 

Trust Company represents, warrants, and covenants to Client that:

 

(A)Trust Company will safekeep the Digital Assets and segregate all Digital Assets from both the (i) property of Trust Company, and (ii) assets of other customers of Trust Company, except for Digital Assets specifically moved into shared accounts by Client;

 

(B)Trust Company will maintain adequate capital and reserves to the extent required by Applicable Law;

 

(C)Trust Company is duly organized, validly existing and in good standing under the laws of the State of South Dakota, has all corporate powers required to carry on its business as now conducted, and is duly qualified to do business in each jurisdiction where such qualification is necessary;

 

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(D)Trust Company has the full capacity and authority to enter into and be bound by this Agreement and the person executing or otherwise accepting this Agreement for Trust Company has full legal capacity and authorization to do so.

 

7.3.    Notification.

 

Without limitation of either party’s rights or remedies, each party shall immediately notify the other party if, at any time after the Effective Date, any of the representations, warranties, or covenants made by it under this Agreement fail to be true and correct as if made at and as of such time. Such notice shall describe in reasonable detail the representation, warranty, or covenant affected, the circumstances giving rise to such failure and the steps the notifying party has taken or proposes to take to rectify such failure.

 

7.4.    DISCLAIMER.

 

EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE CUSTODIAL SERVICES ARE PROVIDED ON AN “AS IS” AND “AS AVAILABLE” BASIS WITHOUT ANY REPRESENTATION OR WARRANTY, WHETHER EXPRESS, IMPLIED OR STATUTORY. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, TRUST COMPANY SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND/OR NON-INFRINGEMENT. TRUST COMPANY DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES THAT ACCESS TO THE SITE, ANY PART OF THE TRUST COMPANY CUSTODIAL SERVICES, OR ANY OF THE MATERIALS CONTAINED THEREIN, WILL BE CONTINUOUS, UNINTERRUPTED, OR TIMELY; BE COMPATIBLE OR WORK WITH ANY SOFTWARE, SYSTEM OR OTHER SERVICES; OR BE SECURE, COMPLETE, FREE OF HARMFUL CODE, OR ERROR-FREE.

 

7.5.    Computer Viruses.

 

Trust Company shall not bear any liability, whatsoever, for any damage or interruptions caused by any computer viruses, spyware, scareware, Trojan horses, worms or other malware that may affect Client’s computer or other equipment, or any phishing, spoofing or other attack, unless such damage or interruption directly resulted from Trust Company’s gross negligence, fraud, or willful misconduct. Trust Company advises the regular use of a reputable and readily available virus screening and prevention software. Client should also be aware that SMS and email services are vulnerable to spoofing and phishing attacks and should use care in reviewing messages purporting to originate from Trust Company. Client should always log into Client’s Custodial Account through the Company Site to review any deposits or withdrawals or required actions if Client has any uncertainty regarding the authenticity of any communication or notice.

 

8.    CONFIDENTIALITY, PRIVACY, DATA SECURITY

 

8.1.    Confidentiality.

 

(A)As used in this Agreement, “Confidential Information” means any non-public, confidential or proprietary information of a party (“Discloser”) including, without limitation information relating to Discloser’s business operations or business relationships, financial information, pricing information, business plans, customer lists, data, records, reports, trade secrets, software, formulas, inventions, techniques, and strategies. The terms of this Agreement are the Confidential Information of each party. A party receiving Confidential Information of Discloser (“Recipient”) will not disclose it to any third party without the prior written consent of the Discloser, except as provided in subsection (B) below or to such party’s officers, directors, agents, employees, consultants, contractors and professional advisors who need to know the Confidential Information and who are informed of, and who agree to be or are otherwise bound by obligations of confidentiality no less restrictive than, the obligations set forth herein. Recipient will protect such Confidential Information from unauthorized access, use and disclosure. Recipient shall not use Discloser’s Confidential Information for any purpose other than to perform its obligations or exercise its rights under this Agreement. The obligations herein shall not apply to any (i) information that is or becomes generally publicly available through no fault of the recipient, (ii) information that the recipient obtains from a third party (other than in connection with this Agreement) that, to recipient’s best knowledge, is not bound by a confidentiality agreement prohibiting such disclosure; (iii) information that

 

 13

 

is independently developed or acquired by the recipient without the use of or reference to Confidential Information of Discloser.

 

(B)Notwithstanding the foregoing, Recipient may disclose Confidential Information of Discloser to the extent required under Applicable Law; provided, however, Recipient shall first notify Discloser (to the extent legally permissible) and shall afford Discloser a reasonable opportunity to seek a protective order or other confidential treatment. For the purposes of this Agreement, no affiliate of Trust Company shall be considered a third party; provided that Trust Company causes such entity to undertake the obligations in this Section 8.

 

(C)“Confidential Information” includes all documents and other tangible objects containing or representing Confidential Information and all copies or extracts thereof or notes derived therefrom that are in the possession or control of Recipient and all of the foregoing shall be and remain the property of the Discloser. At Discloser’s request, Recipient shall return or destroy all Confidential Information; provided, however, Recipient may retain one copy of Confidential Information (i) if required by law or regulation, or (ii) pursuant to a bona fide and consistently applied document retention policy; provided, further, that in either case, any Confidential Information so retained shall remain subject to the confidentiality obligations of this Agreement.

 

8.2.    Privacy.

 

Client acknowledges that Client has read and agrees to the Trust Company Privacy Policy, available at https://www.bitgo.com/privacy.

 

8.3.    Security.

 

Trust Company has implemented and will maintain a reasonable information security program that includes policies and procedures that are reasonably designed to safeguard Trust Company’s electronic systems and Client’s Confidential Information (as defined below) from, among other things, unauthorized disclosure, access, or misuse. In the event of a Data Security Incident (as defined below) and in addition to any other actions required under Applicable Law, Trust Company shall promptly notify Client and such notice shall include the following information: (i) the timing and nature of the Data Security Incident, (ii) the information related to Client that was compromised, including the names of any individuals’ acting on Client’s behalf in his or her corporate capacity whose personal information was compromised, (iii) when the Data Security Incident was discovered, and (iv) remedial actions that have been taken and that Trust Company plans to take. “Data Security Incident” is defined as any incident whereby (a) an unauthorized person (whether within Trust Company or a third party) acquired or accessed Client’s information, or (b) Client’s information is otherwise lost, stolen or compromised.

 

9.    INDEMNIFICATION.

 

9.1.    Indemnities.

 

(A)Client will indemnify and hold harmless Trust Company, its affiliates and service providers, and each of its or their respective officers, directors, agents, employees, and representatives (collectively the “Trust Company Indemnitees”) from and against any liabilities, damages, losses, costs and expenses, including but not limited to attorneys’ fees and costs and any fines, fees or penalties imposed by any regulatory authority (collectively, “Losses”), arising out of or incurred in connection with, and defend each of them from and against any third-party claim, demand, action or proceeding (a “Claim”) arising out of or related to (i) Client’s use of the Services; (ii) Client’s breach of this Agreement, (iii) any breach or inaccuracy of any of Client’s representations, warranties or covenants in this Agreement; (iv) Client’s failure to provide true and accurate information in connection with the onboarding process or any failure to promptly update such information, (v) Client’s violation of any Applicable Law, or the rights of any third party, or (vi) any Dispute between Client and a third party; except where such Claim directly results from the gross negligence, fraud or willful misconduct of Trust Company.

 

(B)Trust Company will indemnify and hold harmless Client, from and against any liabilities, damages, losses, costs and expenses, including but not limited to attorneys’ fees and costs and any fines, fees or penalties imposed by any regulatory authority (collectively, “Losses”), arising out of or incurred in connection with, and defend each of them from and against any third-party claim, demand, action or

 

 14

 

proceeding (a “Claim”) arising out of or related to (i) Trust Company’s breach of this Agreement, (ii) any breach or inaccuracy of any of Trust Company’s representations, warranties or covenants in this Agreement; (iii) Trust Company’s violation of any Applicable Law, or the rights of any third party, or (iv) any Dispute between Trust Company and a third party; except where such Claim directly results from the gross negligence, fraud or willful misconduct of Client.

 

(C)In addition, in connection with any Developer Application, Client will indemnify and hold harmless the Trust Company Indemnitees from and against any Losses arising out of any Claim brought against Trust Company or a Representative by a third party arising out of or incurred in connection with any Claim arising out of relating to: (i) Client’s content, Developer Application, trademarks, logos or marks infringing any third party intellectual property rights; (ii) Client’s development, marketing, operation, use, licensing, support or distribution of Client’s Developer Application; (iii) a dispute between Client and any end user; (d) a security breach of involving a Developer Application or Client’s computers, or systems; (g) the unauthorized use, access or disclosure of confidential or personal information, private keys, or authentication credentials held by Client or Client’s computers or systems.

 

9.2.    Indemnification Process.

 

(A)Trust Company will (i) provide Client with prompt notice of any indemnifiable Claim under Section 9.1 (provided that the failure to provide prompt notice shall only relieve Client of its obligation to the extent it is materially prejudiced by such failure and can demonstrate such prejudice); (ii) permit Client to assume and control the defense of such action upon Client’s written notice to Trust Company of Client’s intention to indemnify; and (iii) upon Client’s written request, and at no expense to Trust Company, provide to Client all available information and assistance reasonably necessary for Client to defend such Claim. Trust Company shall be permitted to participate in the defense and settlement of any Claim with counsel of Trust Company’s choice at Trust Company’s expense (unless such retention is necessary because of Client’s failure to assume the defense of such Claim, in which event Client shall be responsible for all such fees and costs). Client will not enter into any settlement or compromise of any such Claim, which settlement or compromise would result in any liability to any Trust Company Indemnitee or constitute any admission of or stipulation to any guilt, fault or wrongdoing, without Trust Company’s prior written consent.

 

(B)Client acknowledges and agrees that any Losses imposed on Trust Company (whether in the form of fines, penalties, or otherwise) as a result of a violation by Client of any Applicable Law, may at Trust Company’s discretion, be passed on to Client and Client acknowledges and represents that Client will be responsible for payment to Trust Company of all such Losses.

 

10.    Limitations of Liability.

 

10.1.    NO CONSEQUENTIAL DAMAGES.

 

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW AND SUBJECT TO THE EXCEPTIONS PROVIDED IN SECTION 10.3 BELOW, IN NO EVENT SHALL TRUST COMPANY, ITS AFFILIATES AND SERVICE PROVIDERS, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES OR REPRESENTATIVES, BE LIABLE FOR ANY LOST PROFITS OR ANY SPECIAL, INCIDENTAL, INDIRECT, INTANGIBLE, OR CONSEQUENTIAL DAMAGES, WHETHER BASED IN CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY, OR OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH AUTHORIZED OR UNAUTHORIZED USE OF THE COMPANY SITE OR THE TRUST COMPANY CUSTODIAL SERVICES, OR THIS AGREEMENT, EVEN IF TRUST COMPANY HAS BEEN ADVISED OF OR KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.

 

10.2.    LIMITATION ON DIRECT DAMAGES.

 

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW AND SUBJECT TO THE EXCEPTIONS PROVIDED IN SECTION 10.3 BELOW, IN NO EVENT SHALL TRUST COMPANY, ITS AFFILIATES AND SERVICE PROVIDERS, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES OR REPRESENTATIVES, BE LIABLE (I) FOR ANY AMOUNT GREATER THAN

 

 15

 

THE FEES PAID OR PAYABLE TO TRUST COMPANY UNDER THIS AGREEMENT DURING THE 18 -MONTH PERIOD IMMEDIATELY PRECEDING THE INCIDENT GIVING RISE TO SUCH LIABILITY.

 

10.3.    EXCEPTIONS TO EXCLUSIONS AND LIMITATIONS OF LIABILITY.

 

THE EXCLUSIONS AND LIMITATIONS OF LIABILITY IN SECTION 10.1 AND SECTION 10.2 WILL NOT APPLY TO (I) A BREACH BY TRUST COMPANY OF ITS CONFIDENTIALITY OBLIGATIONS OR (II) TRUST COMPANY’S FRAUD, WILLFUL MISCONDUCT, OR GROSS NEGLIGENCE. TRUST COMPANY’S LIABILITY FOR GROSS NEGLIGENCE SHALL BE LIMITED TO THE VALUE OF THE AFFECTED DIGITAL ASSETS OR FIAT CURRENCY.

 

11.    Miscellaneous.

 

11.1.    Notice.

 

All notices under this Agreement shall be given in writing, in the English language, and shall be deemed given when personally delivered, when sent by email or confirmed fax, or three days after being sent by prepaid certified mail or internationally recognized overnight courier to the addresses set forth in the signature blocks below (or such other address as may be specified by party following written notice given in accordance with this Section).

 

11.2.    No Publicity.

 

The Parties will not make any public statement, including any press release, media release, or blog post which mentions or refers to another Party or a partnership between Client and Trust Company, without the prior written consent of the other Party.

 

11.3.    Entire Agreement.

 

This Agreement, any appendices or attachments to this Agreement, the Trust Company Privacy Policy, and all disclosures, notices or policies available on the Trust Company website that are specifically referenced in this Agreement, comprise the entire understanding and agreement between Client and Trust Company as to the Custodial Services, and supersedes any and all prior discussions, agreements, and understandings of any kind (including without limitation any prior versions of this Agreement) and every nature between and among Client and Trust Company. Section headings in this Agreement are for convenience only and shall not govern the meaning or interpretation of any provision of this Agreement.

 

11.4.    No Waiver.

 

The waiver by a party of any breach or default will not constitute a waiver of any different or subsequent breach or default.

 

11.5.    Amendments.

 

Any modification or addition to this Agreement must be in a writing signed by a duly authorized representative of each of the parties. Client agrees that Trust Company shall not be liable to Client or any third party for any modification or termination of the Custodial Services, or suspension or termination of Client’s access to the Custodial Services, except to the extent otherwise expressly set forth herein.

 

11.6.    Assignment.

 

Client may not assign any rights and/or licenses granted under this Agreement without the prior written consent of Trust Company. Trust Company may not assign any of its rights or delegate any of its duties without the prior written consent of Client; except that Trust Company may assign this Agreement without the prior consent of Client to any Trust Company affiliates or subsidiaries or pursuant to a transfer of all or substantially all of Trust Company’s business and assets, whether by merger, sale of assets, sale of stock, or otherwise. Any attempted transfer or assignment in violation hereof shall be null and void. Subject to the foregoing, this Agreement will bind and inure to the benefit of the parties, their successors, and permitted assigns.

 

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11.7.    Severability.

 

If any provision of this Agreement shall be determined to be invalid or unenforceable, such provision will be changed and interpreted to accomplish the objectives of the provision to the greatest extent possible under any applicable law and the validity or enforceability of any other provision of this Agreement shall not be affected.

 

11.8.    Survival.

 

All provisions of this Agreement which by their nature extend beyond the expiration or termination of this Agreement, including, without limitation, sections pertaining to suspension or termination, Custodial Account cancellation, debts owed to Trust Company, general use of the Company Site, disputes with Trust Company, indemnification, and general provisions, shall survive the termination or expiration of this Agreement.

 

11.9.    Governing Law.

 

The laws of the State of New York, without regard to principles of conflict of laws, will govern this Agreement and any claim or dispute that has arisen or may arise between Client and Trust Company, except to the extent governed by federal law of the United States of America.

 

11.10.    Force Majeure.

 

Trust Company shall not be liable for delays, suspension of operations, whether temporary or permanent, failure in performance, or interruption of service which result directly or indirectly from any cause or condition beyond the reasonable control of Trust Company, including but not limited to, any delay or failure due to any act of God, natural disasters, act of civil or military authorities, act of terrorists, including but not limited to cyber-related terrorist acts, hacking, government restrictions, exchange or market rulings, civil disturbance, war, strike or other labor dispute, fire, interruption in telecommunications or Internet services or network provider services, failure of equipment and/or software, other catastrophe or any other occurrence which are beyond the reasonable control of Trust Company.

 

12.    Relationship of the Parties.

 

Nothing in this Agreement shall be deemed or is intended to be deemed, nor shall it cause, Client and Trust Company to be treated as partners, joint ventures, or otherwise as joint associates for profit, or either Client or Trust Company to be treated as the agent of the other.

 

IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.

 

BITGO TRUST COMPANY, INC.   XCHANGE INTERMEDIAÇÃO S.A.
      
By:   [**]   By: [**]
  Name: [**]     Name: [**]
  Title: [**]     Title: [**]

 

 

Address for Notice:   Address for Notice:
     
     
6216 Pinnacle Place
Suite 101
Sioux Falls, SD 57108
Attn: Legal
Email: [**]
  Av. Chedid Jafet 75, 30 Floor


Attn: Legal Department
Email: [**]

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APPENDIX 1: PROHIBITED USE, PROHIBITED BUSINESSES AND CONDITIONAL USE

 

Prohibited Use

 

Client may not use Client’s Custodial Account to engage in the following categories of activity (“Prohibited Uses”). The Prohibited Uses extend to any third party that gains access to the Custodial Services through Client’s account or otherwise, regardless of whether such third party was authorized or unauthorized by Client to use the Custodial Services associated with the Custodial Account. The specific types of use listed below are representative, but not exhaustive. If Client is uncertain as to whether or not Client’s use of Custodial Services involves a Prohibited Use, or have questions about how these requirements applies to Client, please contact Trust Company at support@bitgo.com. By opening a Custodial Account, Client confirms that Client will not use Client’s Custodial Account to do any of the following:

 

·Unlawful Activity: Activity which would violate, or assist in violation of any law, statute, ordinance, or regulation, sanctions programs administered in the countries where Trust Company conducts business, including, but not limited to, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), or which would involve proceeds of any unlawful activity; publish, distribute or disseminate any unlawful material or information.

 

·Abusive Activity: Actions which impose an unreasonable or disproportionately large load on Trust Company’s infrastructure, or detrimentally interfere with, intercept, or expropriate any system, data, or information; transmit or upload any material to the Site that contains viruses, Trojan horses, worms, or any other harmful or deleterious programs; attempt to gain unauthorized access to the Site, other Custodial Accounts, computer systems or networks connected to the Site, through password mining or any other means; use Custodial Account information of another party to access or use the Site; or transfer Client’s Custodial Account access or rights to Client’s Custodial Account to a third party, unless by operation of law or with the express permission of Trust Company.

 

·Abuse Other Users: Interfere with another Trust Company user’s access to or use of any Custodial Services; defame, abuse, extort, harass, stalk, threaten or otherwise violate or infringe the legal rights (such as, but not limited to, rights of privacy, publicity and intellectual property) of others; incite, threaten, facilitate, promote, or encourage hate, racial intolerance, or violent acts against others; harvest or otherwise collect information from the Site about others, including, without limitation, email addresses, without proper consent.

 

·Fraud: Activity which operates to defraud Trust Company, Trust Company users, or any other person; provide any false, inaccurate, or misleading information to Trust Company.

 

·Gambling: Lotteries; bidding fee auctions; sports forecasting or odds making; fantasy sports leagues with cash prizes; Internet gaming; contests; sweepstakes; games of chance.

 

·Intellectual Property Infringement: Engage in transactions involving items that infringe or violate any copyright, trademark, right of publicity or privacy or any other proprietary right under the law, including but not limited to sales, distribution, or access to counterfeit music, movies, software, or other licensed materials without the appropriate authorization from the rights holder; use of Trust Company intellectual property, name, or logo, including use of Trust Company trade or service marks, without express consent from Trust Company or in a manner that otherwise harms Trust Company, or Trust Company’s brand; any action that implies an untrue endorsement by or affiliation with Trust Company.

 

·Written Policies: Client may not use the Custodial Account or the Custodial Services in a manner that violates, or is otherwise inconsistent with, any operating instructions promulgated by Trust Company.

 

Prohibited Businesses

 

The following categories of businesses, business practices, and sale items are barred from the Custodial Services (“Prohibited Businesses”). The specific types of use listed below are representative, but not exhaustive. If Client is uncertain as to whether or not Client’s use of the Custodial Services involves a Prohibited Business or has questions about how these requirements apply to Client, please contact us at support@bitgo.com.

 

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By opening a Custodial Account, Client confirms that Client will not use the Custodial Services in connection with any of the following businesses, activities, practices, or items:

 

·Restricted Financial Services: Check cashing, bail bonds, collections agencies.

 

·Intellectual Property or Proprietary Rights Infringement: Sales, distribution, or access to counterfeit music, movies, software, or other licensed materials without the appropriate authorization from the rights holder.

 

·Counterfeit or Unauthorized Goods: Unauthorized sale or resale of brand name or designer products or services; sale of goods or services that are illegally imported or exported or which are stolen.

 

·Regulated Products and Services: Marijuana dispensaries and related businesses; sale of tobacco, e-cigarettes, and e-liquid; online prescription or pharmaceutical services; age restricted goods or services; weapons and munitions; gunpowder and other explosives; fireworks and related goods; toxic, flammable, and radioactive materials; products and services with varying legal status on a state-by-state basis.

 

· Drugs and Drug Paraphernalia: Sale of narcotics, controlled substances, and any equipment designed for making or using drugs, such as bongs, vaporizers, and hookahs.

 

· Pseudo-Pharmaceuticals: Pharmaceuticals and other products that make health claims that have not been approved or verified by the applicable local and/or national regulatory body.

 

·Substances designed to mimic illegal drugs: Sale of a legal substance that provides the same effect as an illegal drug (e.g., salvia, kratom).

 

·Adult Content and Services: Pornography and other obscene materials (including literature, imagery and other media); sites offering any sexually-related services such as prostitution, escorts, pay-per view, adult live chat features.

 

·Multi-level Marketing: Pyramid schemes, network marketing, and referral marketing programs.

 

·Unfair, Predatory or Deceptive Practices: Investment opportunities or other services that promise high rewards; sale or resale of a service without added benefit to the buyer; resale of government offerings without authorization or added value; sites that we determine in our sole discretion to be unfair, deceptive, or predatory towards consumers.

 

·Gambling Services.

 

·Weapons Manufacturers/Vendors.

 

·Hate Groups.

 

·Money Services: Gift cards; prepaid cards; sale of in-game currency unless the merchant is the operator of the virtual world; act as a payment intermediary or aggregator or otherwise resell any of the Custodial Services.

 

·Crowdfunding.

 

·Resell any of the Custodial Services or software.

 

·High-risk Businesses: any businesses that we believe pose elevated financial risk or legal liability.

 

Conditional Use

 

Express written consent and approval from Trust Company must be obtained prior to using Custodial Services for the following categories of business and/or use (“Conditional Uses”). Consent may be requested by contacting Trust Company at support@bitgo.com. Trust Company may also require Client to agree to additional conditions, make supplemental representations and warranties, complete enhanced on-boarding procedures, and operate subject to restrictions if

 

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Client uses the Custodial Services in connection with any of the following businesses, activities, or practices:

 

·Charities: Acceptance of donations for nonprofit enterprise.

 

·Games of Skill: Games which are not defined as gambling under this Agreement or by Applicable Law, but which require an entry fee and award a prize.

 

·Religious/Spiritual Organizations: Operation of a for-profit religious or spiritual organization.

 

·Digital Currency Services: Operation of a Bitcoin (“BTC”) ATM, BTC mining, BTC exchange, or other high-risk Digital Currency service.

 

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SCHEDULE A: FEE SCHEDULE

 

The monthly minimum fee adjustment is effective as of the 1st day of March, 2022. The parties hereto agree that the fees associated with the Custodial Services for Client shall be as set forth below. All capitalized terms not defined herein shall have the meaning ascribed to that term in the Agreement.

 

1.    Fees.

 

For the avoidance of doubt, no fees, as set forth in this Fee Schedule, shall be owed or due by Client for Services performed during the first six (6) months following the Effective Date of the Agreement. For Services performed during months seven (7) and eight (8), following the Effective Date of the Agreement, Client shall receive a discount of [**]% on all fees set forth in this Fee Schedule. Beginning with the ninth (9th) month following the Effective Date of the Agreement, Client shall pay the full amount of fees owed under this Fee Schedule.

 

2.    Onboarding Fee.

 

The Client implementation fee set forth below is a one-time, flat fee assessed to cover onboarding and implementation costs (the “Onboarding Fee”): The Onboarding Fee will be $[**] due upon the Effective Date.

 

3.    Digital Custody Fee.

 

The Digital Custodial Fee is a tiered fee charged monthly that is a percentage of the U.S. Dollar value of Client’s monthly Digital Assets held in custodial wallets (“AUC”) and is based on a per cryptocurrency basis and defined in the AUC schedule below. Tiers are cumulative.

 

Assets Under Custody Fee(1):

Range of Assets Under Custody ($ USD)

Basis Points (bps)

$0 - $200M [**]
$200M - $1B [**]
$1B - $2B [**]
$2B - $5B [**]
$5B and above [**]
 
1AUC Fees are assessed at the end of each calendar month based on the USD volume of average holdings (per asset type) and are billed monthly.

 

4.    Transaction Fee.

 

Transaction Fees are charged on all outgoing transactions from custodial and noncustodial Digital Asset wallets that leave the Client’s Account. Fees are assessed at the end of each calendar month and based on a per-cryptocurrency basis as defined in the Transaction Fee schedule below. Tiers are cumulative.

 

Transaction Fee(1):

Range of Transaction Volume ($ USD)

Basis Points (bps)

$0 - $1B [**]
$51 and above [**]
 
1Transaction Fees are calculated on outgoing transactions only. For clarity, transfers by Client to Non-custodial wallets offered under this Agreement under Client’s account will not be assessed Transaction Fees. Transaction Fees are also exclusive of any network fees charged by the underlying blockchain.

 

For the purpose of calculating fees please consult:
https://www. bitgo. com/resources/price-feeds for current information on how BitGo computes USD value of digital currencies.

 

 21

 

4.    Settlement Fee.

 

__________[**]____________ bps

 

5.    Monthly Minimum Fee.

 

Aggregate monthly fees (Digital Asset Custody Fees + Transaction Fees + Settlement Fees) are subject to a minimum charge of US$[**] (“Monthly Minimum Fee”) per month.

 

6.    Optional Services.

 

Client may order the following additional Service by initialing below:

 

_____[**]_____Customer API Endpoint:

 

7.    Payment Terms.

 

Client shall pay such fees and expenses to Trust Company within [**] days after the date of Trust Company’s invoice. Invoices may be provided by electronic delivery. Payments shall be made to Trust Company in U.S. Dollars or Bitcoin. If any invoice is disputed in good faith, Client shall pay all undisputed amounts and the disputed amount will be due and payable within [**] days after any such dispute has been resolved either by agreement of the parties or in accordance with dispute resolution procedures in the Agreement. All late payments and any disputed payments made after the resolution of such dispute shall bear interest accruing from the original payment due date through the date that such amounts are paid at the lower interest rate of (A) [**]% per month and (B) the highest interest rate allowed by Applicable Law. Notwithstanding the foregoing, failure to pay fees and expenses by Client [**] days after the date of Trust Company’s invoice (or the date enumerated in the Fee Schedule) for undisputed payments, or [**] days after the resolution of disputed amounts, shall constitute a material breach of this Agreement. Client agrees that, without limitation of Trust Company’s other rights and remedies, Trust Company shall have the right and authority, in its discretion, to liquidate any and all Digital Assets in Client’s Account to cover any unpaid fees and expenses.

 

If a correct taxpayer number is not provided to Trust Company, Client understands and agrees that Client may be subject to backup withholding tax at the appropriate rate on any interest and gross proceeds paid to the account for the benefit of Client. Backup withholding taxes are sent to the appropriate taxing authority and cannot be refunded by Trust Company.

 

8.    [Intentionally Removed.]

 

9.    Special Terms.

 

Trust Company agrees to waive application of Client’s fee payment obligation of Section 7 hereof for [**] ([**]) months following the Effective Date of the Agreement. Trust Company further agrees to reduce the Monthly Minimums obligation of Client pursuant to Section 5 by [**] percent ([**]%) for the first [**] ([**]) months following the Effective Date.

 

 

 22

 

Exhibit 10.5

 

THE SYMBOL “[**]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL AND (ii) OF THE TYPE THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.

 

MASTER SERVICE AGREEMENT

 

By this private instrument and in accordance with the law:

 

XCHANGE INTERMEDIAÇÃO S.A., registered with the National Corporate Taxpayer Registry of the Ministry of Economy (CNPJ/ME) (CNPJ/ME) under No. 41.460.365/0001-86, registered office in the City and State of Rio de Janeiro, at Av. Ataulfo de Paiva, No. 153, Sl. 201, Leblon, CEP (Postal Code) 22440-032, by its legal representatives, hereinafter referred to as “Client”; and

 

PARFIN PAGAMENTOS LTDA., registered office in the city and state of São Paulo, at Avenida Brigadeiro Faria Lima, 2.369, suite 1.102, CEP (Postal Code) 01452-922, registered with the National Corporate Taxpayer Registry of the Ministry of Economy (CNPJ/ME) under No. 39.806.266/0001-61, by its representatives hereinafter referred to as “Parfin”, collectively referred to as “Parties” and, individually and indistinctly, “Party”.

 

Resolve to enter into this Service Agreement (“Agreement”), which will be governed by the following sections and conditions:

 

1.    Definitions

 

(i)API”: Acronym for Application Programming Interface (in Portuguese: Interface de Programação de Aplicativos), means an application that allows the integration between the Client’s front-end and the Parfin Platform back-end.

 

(ii)Client”: Institutional clients who enter into service provision agreements for the use of the “Parfin Services”, as End Users of the Platform or vendors for third parties.

 

(iii)Service Agreement”: Document that lists the legal conditions applicable to the Services contracted by the Client.

 

(iv)Cryptoassets”: Virtual assets, protected by cryptography, present exclusively in digital records, whose operations are performed and stored in a computer network.

 

(v)Order Form”: Document that details the services contracted by the Client and the applicable commercial conditions.

 

(vi)Platform Parfin”: Platform for custody services, storage, management and transaction of cryptoassets offered by virtual means, through the website Parfin.io or any of the websites, mobile applications, APIs associated provided by Parfin.

 

(vii)Parfin Service”: Together, all services offered to the Client and Users through the Parfin Platform.

 

(viii)Third Party Services”: Third party websites, mobile software applications, products and services that are not owned or controlled by Parfin.

 

(ix)Terms”: General Terms and Conditions of Use that govern Parfin’s services.

 

(x)Users”: Means users authorized and enabled by the Client to use the Platform.

 

2.    Purpose

 

2.1The purpose of this Agreement is: (i) licensing the use of the software that, together, constitute the Parfin Platform, for internal use by the user or in an integrated manner in the offer of services by the Client to

 

 

 

its end customers; (ii) the provision of intermediation, management and custody services for digital assets, made available through the Parfin Platform to the Client, as detailed in the respective Order Forms entered into between the parties; (iii) the provision of support and maintenance services for the Platform, under the terms described in this Agreement.

 

2.2Parfin is a modular Platform that allows the contracting of one or more modules independently, by signing one or more Order Forms. This Master Agreement, together with the Terms, sets out the general conditions applicable to Parfin’s services for all legal purposes, as of its signature. With each new contracting of Services, a new Order Form must be signed, becoming an integral and inseparable part of this Agreement.

 

2.3Certain Parfin services are subject to specific Exhibits, supplementary to the Terms. The Client will be informed of the specific Exhibits applicable to each service contracted, and must ensure that all Users of the Platform under its responsibility are legally bound to the conditions applicable to each service.

 

2.4The Parties agree that, in the event of a conflict between the provisions of this instrument and any other, the provisions shall prevail, in the following order: (i) Service Agreement; (ii) Order Form; (iii) General Terms and Conditions of Use; (iv) Specific Exhibits.

 

3.    Price and Form of Payment

 

3.1The Platform Fees are payable as provided in the Order Form by issuing a bill to the Client. Unless otherwise agreed in the Order Form, invoices will be due within forty-five (45) days from the bill date.

 

3.1.1.Cases of disputes relating to the bill amount do not exempt the Client from full payment of the Fees due within the aforementioned period. However, upon notification of the Client to Parfin through the available communication channels, Parfin will analyze the merits of the questioning and any discount/increase will be passed on in the subsequent bill.

 

3.2Fees are earned in US Dollars and converted to Reais on the bill, using the monthly average P-TAX rate published by the Central Bank of Brazil for conversion to US Dollars.

 

3.3In addition to any other rights or remedies of Parfin, if the Client fails to make any payments on the due date or otherwise in accordance with the Agreement:

 

(i)Any part of any amounts not paid when due will accrue interest of 1% (one percent) per month, plus adjustment for inflation by the IPCA/IBGE calculated from the due date until the effective payment of the outstanding amounts; and

 

(ii)Parfin may immediately suspend the provision of any access to the provided services.

 

3.4All amounts referred to in the Order Form do not include taxes and fees, which will be added to such amounts on the bill, where applicable.

 

3.5In any event of termination of the Agreement, Parfin will issue a final bill to the Client in respect of all outstanding amounts due in respect of services actually performed up to the date of termination. The obligation to pay any final bill under this section survives the expiration or termination of the Agreement.

 

3.6Regardless of whether or not Parfin passes on to the Client any fees in connection with the Services or the operation, fees may be charged directly by a Third-Party Service or the applicable blockchain network (“Network”) for operations carried out in connection with the Services of Third Parties (“Third-Party Fees”), for which the Client shall be solely responsible.

 

3.7If, during the term of this Master, new taxes, charges and tax contributions are created, or the rates used are modified, the values of the respective fees will be changed to reflect such changes and will be applied from the effective term of the changes.

 

 

 

4.    Term of Effectiveness and Termination

 

4.1This instrument will be in force for an indefinite period, counting from the Effective Date of the first Order Form.

 

4.2Any Party may terminate the Agreement or an Order Form without reason after 12 (months), counted from the Effective Date of the Agreement or Order Form, without any encumbrances or charges, by sending prior notice to the other Party at least in advance of three (3) months.

 

4.3This Agreement and/or Order Form may be terminated for reasons by one of the Parties in the following cases:

 

(i)Default by the other Party, in whole or in part, of any of the obligations assumed in this Agreement, provided that it is irremediable by its nature or is not remedied within 15 (fifteen) days, counting from the receipt, by the Defaulting PARTY, of written notice from the Non-defaulting Party.

 

(ii)Extrajudicial or judicial recovery or settlement, request or declaration of bankruptcy or dissolution of either Party.

 

(iii)Occurrence of an act or fact, including any legal or regulatory provision that makes it impossible to fully perform the obligations set herein;

 

(iv)Occurrence of proven facts or situations that lead to commercial discredit on the other Party, such as unfair competition, involvement in acts of corruption or legitimate protest of bonds;

 

(v)Failure to comply with the SLA due to unavailability of the Platform (except in cases of scheduled unavailability previously notified to the client according to section 13) for three (3) subsequent months with a percentage of availability lower than [**]% during each month.

 

4.4If there is more than one Order Form in force, the termination of one of them does not imply the termination of the others, nor of this Agreement. If there is only one Order Form in force, its termination will result in the definitive termination of this Agreement and all instruments that comprise it.

 

4.5The Parties hereby agree that, in any case of termination, Parfin will be entitled to receive the Services actually provided and the Software actually delivered regularly until the moment of termination.

 

4.6In any event of termination, Parfin shall use its best efforts to offer support to the Client to carry out the portability of the Client’s data to any system that replaces Parfin’s, during the period of 60 (sixty) days after the termination.

 

5.    Confidentiality

 

5.1The sharing of data and information between the Parties will be solely and exclusively so that Parfin can make available to the Client the system and/or services object of the Order Forms, requiring the evaluation and knowledge of confidential information. The Parties agree that it will be considered as “Confidential Information” any and all information disclosed by one Party to the other, by any means and in any form, whether electronic, written or verbal, by the representatives of the disclosing party and/or any of its employees, including, among others, all tangible, intangible, visual, electronic, present or future information, such as: (a) trade secrets, financial, personal, cryptoasset market data, including, but not limited to, prices, quotes and traded quantities of Users and Service Clients; (b) financial information, including prices; (c) technical information; including research, development, procedures, eventual algorithms, data, designs and know-how, source codes, code repositories, programming code sets, designs, plans, drawings, data, notes, documents, reports, observations, materials, documents; (d) any inventions, discoveries and improvements, designs, drawings, blueprints, databases, product ideas, concepts, prototypes, features, procedures, training, promotional materials, training courses and other training and instructional materials, and other technical, legal and financial information; and (f) the terms of any agreement, written or otherwise, entered into between the Parties and the discussions, negotiations

 

 

 

and proposals related thereto. Confidential Information will also be considered, for all purposes, the very existence of this instrument and the nature of negotiations and discussions, in addition to any other terms, conditions or other facts relating to such negotiations and discussions.

 

5.2By this instrument, the Parties undertake, on an irrevocable and irreversible basis, to:

 

a)Maintain the confidentiality of any and all Confidential Information received at any time, as well as undertake that its officers, employees, agents or professionals, in any capacity, will also maintain the confidentiality of Confidential Information;

 

b)Refrain from disclosing or providing, without the prior written consent of the disclosing party, to any individual or legal entity, any Confidential Information;

 

c)Take all precautions to maintain confidentiality, object of this Agreement, so that the Confidential Information cannot be used for any purposes other than the provision of the Services by Parfin and provided that it is expressly authorized by the disclosing party; and

 

d)Keep as confidential and not reveal to any individual or legal entity the discussions or negotiations related to this instrument.

 

5.3At the request of the disclosing party, the receiving Party shall immediately destroy, or cause to be destroyed, all copies of any analysis, compilation, studies or other documents prepared by said Party or its representatives, or any of them, which contain or reflect Confidential Information.

 

5.4The Parties will use Confidential Information for the sole purpose for which it was disclosed. The Parties undertake not to use the Confidential Information for any purpose other than that provided for in this Agreement and in the Order Form, and its use, for their own benefit or for the benefit of third parties, without prior written authorization from the Client, committing to not reproduce, copy, store, give or facilitate access to, assign, share or in any other way transfer or make known to third parties the Confidential Information, without the prior written consent of the other Party.

 

5.5For purposes hereof, the following information will not be considered Confidential Information:

 

a)Information that is in the public domain at the time of signature of this instrument, or becomes public domain after this date, other than for breach of any of the obligations of this instrument or the breach of another contractual or legal obligation, or as a result of an act or omission of any of the Parties;

 

b)Information obtained as a result of the execution of the work resulting from this instrument, which must be disclosed by the Parties due to a judicial, legal or normative determination;

 

(c)Information that may become available to any of the Parties in a non-confidential manner by third parties (not related to the Parties and/or the works provided herein), exclusively as long as they are legally or contractually authorized to provide it; or

 

d)Information that has been developed by one of the Parties independently of any information provided by other Parties.

 

e)Information that is disclosed as a result of compliance with a legal requirement or requirement of a Governmental Authority, under the terms of the law, or of a self-regulatory entity.

 

In the event of a legal determination, and provided that it is not prevented by such order or applicable regulation, either Party shall notify the other as soon as possible so that it has time to adopt all measures it deems necessary to prevent the disclosure of Confidential Information, under penalty of being liable for damages.

 

5.6The confidentiality obligation set forth herein will survive for a period of five (5) years after the expiration or termination of this Agreement and/or the Order Forms.

 

 

 

6.    Non-Solicitation

 

6.1During the term of this Agreement and after [**] ([**]) months from the end of the services, the Client and/or the group companies may not, in any way, directly or indirectly, on their own behalf or on behalf of third parties, or in conjunction with any other individuals or legal entities, of which they are partners or not, to employ or attempt to employ or offer any type of service to any administrator, employee or service provider of Parfin who are under their respective management, work or provision of services in force, as the case may be, except with the prior and express agreement and consent of Parfin.

 

6.2Notwithstanding the foregoing, the Client may freely hire any person who: (i) starts discussions about such hiring with the Client or (ii) responds to a public announcement made by the Client or third parties engaged by the Client; in both cases, the Client must inform the Contractor within 48 hours of the start of the candidate’s participation in the vacancy filling process.

 

7.    Compliance and anti-money laundering

 

7.1The Parties are aware of their duty to comply with all laws, rules and regulations applicable to the fight against corruption and money laundering practices, including, without limitation, Law No. 12.846/2013 (Anticorruption Law). The Parties undertake to comply with, or enforce, by themselves, their affiliates or their owners, shareholders, employees, or eventual subcontracted, the rules that apply to them and deal with acts of corruption and harmful acts against the government, pursuant to Law No. 12.846/13 and other applicable rules, and must (i) maintain internal policies and procedures that ensure full compliance with such rules; (ii) give full knowledge of such rules to all its professionals who may have a relationship with the other Party, prior to the beginning of their performance under this Agreement; (iii)refrain from corruption or acting in a manner harmful to the Brazilian or a foreign government, in the interest or for the benefit, whether exclusive or otherwise, from the other Party; and (iv) if it becomes aware of any act or fact that violates the aforementioned rules, immediately notify the other Party, which may take all the measures it deems necessary.

 

7.2Except for cases in which Parfin is hired specifically for the provision of identity verification and “KYC” (know your customer) services, for the purpose of complying with Law No. 9.613/1998 and other provisions of financial market standards, for the purposes of preventing and combating money laundering and the financing of terrorism, the Client will be fully responsible for the adoption of compliance measures and verification of its customers who will have access to the Platform. By making the Parfin Platform available to third parties, the Client undertakes, throughout the term of this agreement, to:

 

a)have an Anti-Money Laundering and Anti-Terrorism Financing Policy, adopting the procedures and internal controls aimed at preventing the use of the financial system for the practice of crimes of laundering or concealment of assets, rights and values, which it deals with Law No. 9,613, of March 3, 1998, and on the financing of terrorism, provided for in Law No. 13,260, of March 16, 2016.

 

b)Develop AML/KYC policies and processes, internally or through third parties, parameterized according to the needs of its business, to be carried out monthly, assuming responsibility for reporting to Parfin any and all transactions that may constitute evidence of laundering money and other white-collar crimes, including those provided for in Federal Law No. 9.613/98, and paying special attention to situations and transactions that have evidence or that may constitute evidence of money laundering and other white-collar crimes;

 

c)Adopt the best practices for verifying the identity of Users, not inferior to the practices foreseen in Parfin’s Anti-Money Laundering policies. Parfin will not be held accountable for actions or omissions related to KYC procedures, unless it has been specifically hired to perform such services, by signing the relevant documentation, not being responsible, however, for actions and/or omissions by part of the Client’s employees responsible for conducting the KYC process with Parfin.

 

d)To be solely and exclusively responsible for managing the receipt and transfers of the Client’s resources made by the Users, for meeting the respective legal and regulatory requirements of its

 

 

 

Users, especially the AML/KYC processes, which it undertakes to comply with, and the maintenance and updating of these processes, providing Parfin with documents and evidence related to these diligences whenever requested;

 

e)Require Users, whenever requested by Parfin, for additional information, documents and vouchers from Users that relate to AML/KYC policies and other compliance and regulatory policies typical of the financial and digital assets market, as well as make available to Parfin when required, within up to five (5) days of the request, access to compliance policies, information security, AML/KYC, monitoring of suspicious transactions, code of ethics and conduct and other procedures and policies adopted by the Client that aim to ensure security in transactions with third parties.

 

8.    Data Protection

 

8.1The Parties undertake to process the personal data to which they have access as a result of this Agreement, solely and exclusively to fulfill the purpose for which their treatment is intended and in compliance with all applicable legislation on information security, privacy and protection data, including Federal Law No. 13.709/2018 - Brazilian General Data Protection Law (“LGPD”), without excluding other sectorial or general rules on the topics (“Applicable Legislation”).

 

8.2The Parties undertake to restrict processing to the minimum number of personal data necessary to achieve the purpose of the Agreement.

 

8.3The Parties shall treat personal data as confidential information, being responsible for whoever may access them, mutually guaranteeing that such persons are subject to the same duty of confidentiality and to rules no less stringent than those established under this instrument.

 

8.4Purpose. In the cases of treatment in which Parfin acts as Operator, it will carry out the personal data processing according to the Client’s instructions solely for the scope of the purposes defined in the agreement, and it shall not be liable to the holder of the personal data, nor to the Brazilian Data Protection Authority, within the scope of any administrative, arbitration and/or judicial procedure, except in the event of non-compliance with the Applicable Legislation or the legal instruction of the Controller, and the Controller, in all other cases, make the necessary efforts in order to exempt Parfin from any legal action or administrative or arbitration procedure that may be proposed as a result of the processing of personal data to which it had access as a result of the execution of the Agreement, provided that Parfin’s complete absence of responsibility in the scope of any breach that has taken place.

 

8.4.1.If Parfin bears any of the aforementioned procedures, its right of recourse against the Controller is protected, without prejudice to the reimbursement of expenses arising from the process, in addition to other measures, such as denunciation to the dispute, arising from any breach of personal data that will be imputed to him.

 

8.4.2.Parfin reserves the right to refuse, by means of written notice, any instruction from the Controller that involves the processing of personal data in violation of the Applicable Legislation.

 

8.4.3.If Parfin acts in violation of this Section 8, of the provisions of the LGPD, or, when acting as OPERATOR, of the treatment guidelines given by the CLIENT, Parfin will assume full responsibility for any and all sanctions, indemnities or losses incurred by the Client directly and demonstrably due to its attitudes, and the Client is also responsible for the right of recourse with Parfin, in cases of joint and several liability provided for by law.

 

8.5.Subcontracting. Parfin may subcontract third parties, in whole or in part, to carry out the data processing activities necessary for the execution of the object of this agreement, remaining fully responsible for the acts of the subcontracted third party.

 

8.6The Parties, individually or jointly, shall keep updated the records of the Personal Data Processing operations, under the terms defined by the LGPD, carried out under this Agreement, which will contain the category of data processed, the subjects involved in the activity, which purpose of the various

 

 

 

processing activities carried out and for how long the Personal Data will be processed and stored after fulfilling its original purpose.

 

8.7The Parties shall guarantee the fulfillment of requests made by data subjects, in accordance with the law, undertaking to communicate the other party about the request, if the order has an impact on the other party’s operation.

 

8.8International transfer: If the international transfer of Personal Data is necessary for the fulfillment of this Agreement, Parfin will define, in the agreement, the limits to the use of the Personal Data transferred, preventing any deviation from the purpose of the Personal Data shared, and guarantee the implementation of measures of security necessary to guarantee the confidentiality, integrity and availability of the transferred personal data, as well as compliance with the requirements stipulated in article 33 of the LGPD. Parfin states that, when acting as Operator, it will not carry out the international transfer of personal data without prior notice of the Controller, and must refrain from carrying out any transfer operation if requested by the Controller. In this case, the Client will be responsible for informing its end customers of the existence of data transfer procedures for the purpose of fulfilling the agreement.

 

8.9Incidents. Incidents are understood to mean any loss, deletion, or improper or accidental exposure of personal information. If you become aware of the occurrence of any unauthorized access, undue disclosure, unwanted exposure and/or accidental or intentional situation of destruction, deletion, loss, alteration (“Incident”) involving the personal data processed as a result of this contractual relationship, a Party shall notify the other, within a period of up to 24 (twenty-four) hours, bringing at least the following information: (i) date and time of the Incident; (ii) date and time of the awareness; (iii) list of the types of data affected by the Incident; (iv) number of users affected (Incident volume); (v) information regarding the affected data subjects; (vi) risks related to the Incident; (vii) measures that have been or will be adopted to reverse or mitigate the effects of the Incident; (viii) contact details of the Person in Charge (DPO - Data Protection Officer) or, if there is no Person in Charge, the other person from whom it is possible to obtain further information about what happened;

 

8.9.1.In the event that a party does not have all the information at the time of sending the communication, it must transmit it gradually, committing to speed up the fulfillment of the contractual provisions.

 

8.10For incidents involving Personal Data caused by the sole and exclusive conduct of one of the Parties, the latter will be responsible for complying with any sanctions and fines set by the Brazilian Data Protection Authority.

 

8.11If one of the Parties exclusively undertakes such sanctions and fines, without having given rise to the fact, it may exercise the right of recourse against the others, with this contractual instrument being constituted as an extrajudicial enforceable instrument.

 

8.12Notwithstanding anything to the contrary, the obligations of the Parties related to data protection and confidentiality defined in this Agreement will last as long as a Party continues to have access, is in possession of or performs any processing operation on the personal data obtained as a result of the contractual relationship with the other Party, even if all the agreement between the Parties has expired or been terminated.

 

8.13Security. The Parties undertake to adopt security, technical and administrative measures capable of protecting data against unauthorized access and accidental or unlawful situations of destruction, loss, alteration, communication, or any form of inappropriate or unlawful processing of personal data.

 

8.14Parfin will document and file the Client’s instructions regarding the processing of personal data necessary for the execution of this Agreement, for a period sufficient to protect itself, in the event of any administrative or judicial proceeding due to non-compliance with the applicable legislation.

 

8.15Termination of the contractual relationship. Upon termination of the contractual relationship established as a result of the execution of this instrument, Parfin shall return or delete the entirety of the personal data processed under this agreement, as instructed by the Client, within five (5) business days, unless

 

 

 

legal and regulatory obligations apply that require continued storage or if otherwise permitted by Applicable Law. Parfin will provide the Client with a written statement signed by its representatives indicating the fulfillment of any obligation to delete/discard processed personal data that will not be kept to comply with a legal obligation, under penalty of full liability for maintaining the processing of any personal data without proper legal basis.

 

8.16The Client, when acting as Controller, is authorized to take all appropriate judicial or extrajudicial measures in relation to an Operator to enforce its guidelines regarding the processing of personal data.

 

8.17If there is a change in the laws applicable to the matter that might require changes in the structure of the scope of this Agreement or in the performance of activities related to it, the Parties undertake to adapt to the conditions in force. If there is any provision preventing the continuance of this Agreement, Client may terminate it without any burden, penalties, or charges, and shall only determine the services and/or products provided until the date of termination and, consequently, cause the payment of the amounts due, if any.

 

8.18Survival of Obligations of the Parties. Even after the expiration of this Agreement, the obligations of the Parties, as data processing agents, will last as long as any of them performs personal data processing activities to which they had access as a result of this Agreement.

 

9.    Intellectual Property

 

9.4The Client acknowledges that all Intellectual Property rights over the Platform are the exclusive property of Parfin, or of third parties who have licensed the rights to it. The Client, through its partners, representatives, agents, employees, attorneys or interested third parties, is not allowed to: assign, sublicense, sell, lease or guarantee, donate, dispose of in any way, transfer, in whole or in part, the rights to the Platform object of this license for use, as well as its manuals and any information related thereto.

 

9.5The execution of this Agreement does not transfer or confer any Intellectual Property rights from one Party to the other, other than those expressly indicated in this instrument. Thus, this Agreement does not imply the assignment of any rights to use the intangible property owned by one Party to the other, such as trademarks or other distinctive signs, patents, know-how, source codes, among others, unless otherwise described here.

 

9.6The Client shall be subject to the rules and restrictions provided for in the Terms, ensuring that its Users and end customers are subject to the same rules when using the Platform.

 

9.7Parfin guarantees that the Services to be provided, including the materials, equipment, computer programs, execution processes and methodologies used, do not infringe any copyright, intellectual and industrial property, patents or trade secrets of third parties. The right of recourse against Parfin is ensured, if the Client is held responsible for acts of violation of Intellectual Property Rights attributable to the Client, through a final unappealable court decision.

 

10.    Indemnification and Limitations of Liability

 

10.1The Client agrees to indemnify Parfin, its affiliates and service providers, and each of their respective officers, directors, agents, employees and representatives, against any damages and costs (including attorneys’ fees and any fines, fees or penalties imposed by any regulatory authority) that are incurred in connection with any claims, demands or damages arising out of or relating to your breach of the Terms or your breach of any law, rule or regulation, or the rights of any third party.

 

10.2In cases where the Client uses the Platform to offer services to its end customers, the Client must maintain a contingency plan and redundancy mechanisms that allow the continuity of the processes of receiving and executing orders by end customers, with the objective of to preserve the service in case of unavailability on the Platform. Parfin will not be liable for any losses and damages caused to third parties by the impossibility of transmitting orders, if the Client has not correctly activated its contingency mechanisms.

 

 

 

10.3Parfin will be liable for direct losses or damages caused by the breach of the Terms and will have its limited liability, as set out in the rest of this section, without prejudice to additional limitations in the General Terms and Conditions and in the specific Exhibits referring to each contracted service.

 

10.4Parfin, its affiliates or service providers, or any of our or their respective officers, directors, agents, employees or representatives will not be liable for any amount in excess of the total amount that the Client or its end customer has transferred to an account and which is maintained by Parfin in connection with use of the Services. In the event of a claim relating to a specific transaction, Parfin’s liability will be limited to the amount of the transaction in dispute.

 

10.5Parfin will not be responsible for: (i) any unavailability or failure resulting from connection or infrastructure problems of the Client or any end customer; (ii) any error or inaccuracy in information provided by third parties, over which Parfin has no power of interference or interference; (iii) any unavailability or failure resulting from the malfunction of APIs, applications and third-party software not provided and/or not under the responsibility of Parfin; (iv) acts of God or events of force majeure, pursuant to article 393 of the Civil Code; (vi) pain and suffering, loss of profit, loss of chance or indirect damages arising from the use of the Platform by the Client and the end customers who make use of the Platform; (vii) outages on the Platform that do not exceed the contracted SLA.

 

11.    Services of third parties

 

11.1In providing the Services, Parfin may be required to interact with links, websites, applications, products and services of third parties that are not owned or controlled by Parfin. Parfin will not be responsible for the execution of Third-Party-Service orders, content, security or privacy practices. The Client must read and agree to the terms, conditions and privacy policies of each Third-Party Service with which the Client chooses to interact and Parfin will not, in any event, be responsible for any Third-Party Service.

 

11.2Parfin undertakes to disclose and display the values of cryptoassets from the Client’s connected accounts in an exact and complete manner in relation to the information received by it, being liable to the Client, the User and third parties for any delays, inaccuracies, errors or omissions in the provision, reception and/or distribution provided for in this Agreement or for damages arising from these events or caused by them, provided that they arise from any lapse, failure, stoppage or error resulting from the exclusive fault of Parfin Services. Parfin cannot, under any circumstances, be held liable for damages arising from Third Party Services caused to the Client and third parties, especially in the services of quotation and execution of orders with cryptoasset liquidity providers, regardless of the value and/or nature, being certain that, for the purposes of this Section 10, Parfin will be solely and exclusively responsible for the damages resulting from its exclusive and duly proven fault, observing the indemnification limits of Section 10.4 above.

 

11.3If the Client chooses to connect Parfin with a Third-Party Service, the Client shall grant Parfin the right to access that Third-Party Service account. Additionally, the Client will authorize Parfin to use its credentials to access and control the Third-Party Service API platform, in order to allow the transactions and other operations requested by the Customer to be performed by Parfin before its partners, subject to the guidelines and information that may be transmitted by the Contracting Party to Parfin.

 

11.4In the event that the Client grants express permission for a third party to connect to its account, whether through the third-party product or Parfin, the Client acknowledges that granting permission to a third party to perform specific actions on its behalf does not exempt it from any of your responsibilities under this Agreement. Furthermore, the Client acknowledges and agrees that he will not hold Parfin liable and will indemnify Parfin from any liability arising from the actions or omissions of this third party in connection with the permissions that the Client grants.

 

12.    Service Level Agreement

 

12.1The Parfin Platform makes use of advanced features of modern cloud solutions to provide state-of-the-art scalability, security and reliability.

 

 

 

12.2During the Terms, Parfin will provide a percentage of availability of the Services of [**]% (the “Service Level Agreement” or “SLA“).

 

12.3This percentage of uptime is valid for all times and all days of the year. Scheduled maintenance is not considered system unavailability, provided they are communicated in advance to the User.

 

12.4The scheduled maintenance of the Services will be communicated to the Client at least five (5) days in advance. Scheduled maintenance communications will be carried out through Parfin’s “Status Page” (http://status.parfin.io), which will also indicate the status of each stage of maintenance, including, but not limited to, information on the start, estimated time, possible delay and completion, which will be communicated to the Client in real time on Parfin’s “Status Page”.

 

12.5To keep up-to-date on scheduled maintenance, the Client must subscribe to the preferred contact channel available on Parfin’s “Status Page”, such as e-mail, slack and RSS feed.

 

12.6If Parfin fails to meet the availability SLA, and if the Client fulfills its obligations under the Terms, the Client will be entitled to receive financial credits for the unavailable service in accordance with the table below (“Financial Credits”)

 

Total Time of Unavailability in the Month Financial Credit Percentage
Less than 99.8% but greater than or equal to 99% [**]%
Less than 99% but greater than or equal to 95% [**]%
Less than 95% [**]%

 

12.7The Financial Credit percentage will always be applied to the monthly amount issued on the bill (excluding applicable taxes and fees due to third parties). The credits have a compensatory nature, and the client has nothing more to claim.

 

12.8In order to receive any of the Financial Credits described above, the Client must notify Parfin’s technical support within 30 (thirty) days from the moment it becomes eligible to receive a Financial Credit. Failure to comply with this requirement will mean the loss of the right to receive the Financial Credit.

 

12.9Financial Credits may be used at the Contractor’s sole discretion during the term of the Order Form, made in the form of monetary credit applied to the future use of the Service, made available to the Client within a period of 60 (sixty) days after requesting the Credit Financial.

 

12.10Financial Credits will be in the form of monetary credit applied to the future use of the Service and will be applied within 60 days of applying for the Financial Credit.

 

13.    Technical Support

 

13.1Parfin will provide technical support to the Client during the term of these Terms. The service time will be determined by the priority of the occurrence according to the following factors:

 

Severity Definition
P1 Total unavailability of the Services with no immediate possible workarounds.
P2 Partial unavailability of the Services (for multiple customers or just one Client), where the operation can be reestablished with contingency actions to circumvent or the operation continues normally with little loss of quality.
P3 Unavailability of the Services only for one Client, where the operation can be re-established with contingency circumvention actions or the operation continues normally with little loss of quality.

 

 

13.2.According to the priority determined through the matrix above, the times and goals for support by Parfin are stipulated as shown below:

 

14.    Business Continuity and Disaster Recovery.

 

Priority Service time Period Service Target Percentage
P1 <[**] hours 24 x 7 [**]%
P2 <[**] hours 24 x 7 [**]%
P3 <[**] hours Mon-Fri – 8am to 6pm [**]%

 

14.1.Business Continuity Plans

 

(i)Parfin, at its own expense, must keep Business Continuity Plans updated for the services within the scope of this Agreement and all the Parfin’s internal infrastructure that supports it (“Business Continuity Plans”), which must include (1) disaster recovery plans for critical infrastructure and technology, including communication capabilities and networks; (2) appropriate risk control, in the event of disaster, that allows the continuous delivery of the services scope of this Agreement and (3) proven ability to provide the contracted services during an eventual disaster and within the recovery time objectives agreed between the Parties, always committing to make the best efforts to meet the necessary turnaround time stipulated by the Client.

 

(ii)The Business Continuity Plans must include information and procedures developed and maintained for use in case of disaster. The Business Continuity Plans must focus on the main business processes, facilities, communication networks, supply line, information technology systems, infrastructure and related staff necessary for the delivery of the Services to Client within the established SLA.

 

(iii)Parfin shall notify the Client as soon as practicable in the event that the Business Continuity Plan is activated.

 

(iv)CONTRACTOR must participate in tests and business continuity training organized by CLIENT, whenever necessary and with 30 (thirty) days’ notice, in order to ensure that the procedures described in the business continuity plans are feasible and appropriate.

 

14.2Parfin will guarantee support and availability for the development of the services within the scope of this Agreement, in case of interruptions and critical incidents that affect the CLIENT’s business continuity, by means of the existing communication channels. Confirmation of the Plans Provided to the CLIENT

 

15.Where applicable, due to the nature of the service provision and the essentiality of Parfin’s services to Client, Parfin must deliver to Client’s Representative, at least once a year and whenever requested by Client, (1) proof of the Disaster Recovery Tests; (2) a statement certifying that the tests were carried out and the guarantee that the Business Continuity Plans underwent testing and are sufficient to ensure the services will not stop during a disaster.

 

Data Processing and Cloud Computing

 

15.1.For the purposes of this Agreement, Cloud Computing Services are deemed to be the following services: data processing, data storage, network infrastructure and other computing resources allowing to implement or execute software, which may include operating systems and applications developed by or acquired by it; implementation or execution of applications developed or acquired by Parfin, using the computer resources of the service provider; execution, through the Internet, of the applications implemented or developed by service provider, using the computing resources of service provider itself.

 

15.2.Parfin represents that it complies with all requirements of the Brazilian laws applicable to Cloud Computing Services, subject matter of the Agreement, particularly Resolution 4.893, and undertakes to observe and comply with the following requirements:

 

 

 

(i)Provide unrestricted access to data and information stored or to be processed by Parfin, according to the specific services defined in this Agreement, ensuring confidentiality, integrity, availability and recovery capacity of such data and information;

 

(ii)Provide visibility to the procedures and controls used by Parfin for the rendering of services, as described in item (i) above, in particular, for the identification and separation of the data from clients of the Client, by means of physical or logical controls;

 

(iii)Ensure that Parfin has the highest capacity level in the provision of information and management resources to monitor the services to be rendered, as well as to ensure compliance with legislation and regulations in force, besides adhering to all the certifications required by the Client and/or BACEN for the performance of the services rendered.

 

(iv)Prevent, detect, and reduce vulnerability to incidents connected to the cybernetic environment, making every effort by using procedures and controls that cover, at least, the authentication, encryption, intrusion prevention and detection, information leakage prevention, periodic testing and scans for detection of vulnerabilities, protection against malware, establishment of traceability mechanisms, access and computer network segmentation control, and maintenance of data and information backup copies.

 

a.Ensure, in the cases of execution, via the Internet, applications installed or developed by Parfin, using its own computing resources, that it adopts controls that reduce the effects of any vulnerabilities in the release of new versions of the application.

 

(v)Provide, when requested, information related to the number of incidents relevant to the Client that occurred in the 12-month period, provided that these are not confidential and do not violate the confidentiality imposed on Parfin’s or third parties’ information

 

(vi)Inform the Client about any limitations that may affect the provision of services or compliance with legislation and regulations in force.

 

(vii)Inform and provide to the Client, whenever requested, about (a) necessary certifications for the provision of the services, as well as the reports regarding the controls used in the provision of the services engaged, prepared by a specialized independent audit company, when available, (b) the management resources appropriate to the monitoring of the services engaged and (c) safety measures for the transmission and storage of the data and information.

 

(viii)Notify, as soon as possible, the CLIENT, about the subcontracting of relevant services to the CLIENT related to Data Processing and Cloud Computing. Whenever the cloud computing and/or data storage services directly hired by Parfin are rendered in primary locations abroad, comply with existing agreement between BACEN and the inspection authorities of the countries in which the services may be rendered, ensuring that the provision of the mentioned services will not cause harm to its operation, or pose obstacles to the activities of BACEN;

 

a.Parfin must ensure that the legislation and regulations of the countries and regions in each country in which the services will be rendered do not restrict or prevent it and BACEN from accessing data and information;

 

b.Parfin shall indicate the countries and regions in each country where services may be rendered and data may be stored, processed and managed.

 

(ix)In cases of termination of the provision of services established between the Parties, Parfin shall transfer/distribute the stored data and information to the new provider appointed by the Client within the period stipulated in section 4.6 and/or to the Client, excluding them after the transfer/distribution has been carried out, except for items where there is a legal requirement to maintain information.

 

 

 

(x)In the event BACEN declares the resolution regime for the Client, Parfin must provide full and unrestricted access, to the person responsible for the resolution regime, to the Agreements, contracts, documentation and information regarding the services rendered, data stored and information about its processing, data and information backup copies, as well as access codes.

 

(xi)Parfin, upon the receipt of previous notification from the responsible person for the resolution regime, undertakes to carry on with the services for thirty (30) days more, and must accept an order for thirty (30) days additional extension, if necessary, before interrupting the services. The acceptance of the order mentioned in this item must also take place in cases of interruption due to default.

 

(xii)At any time, in case of a request from BACEN, provide it with full and unrestricted access to the data and information stored or processed of the Client maintained by Parfin, including, but not limited to, backup copies and access codes that are on Parfin’s power, besides Agreements and definitions of the services rendered, as well as the adoption of measures determined by BACEN.

 

(xiii)Ensure quality and maintenance of the separation of data and access controls for the protection of information from the Client’s customers.

 

15.3.All the procedures must be documented, including the information related to the verification of (a) compliance with the legislation and regulations in force, (b) access by Client to data and information processed and stored by Parfin, (c) confidentiality, integrity, availability, and recovery of data and information processed or stored by Parfin, (d) adherence to the required certifications, (e) access by Client to the reports prepared by the specialized independent auditor, regarding the procedures and controls used in the rendering of services, (f) provision of information and management resources for the monitoring of the services to be provided, (g) identification and separation of the data of Client’ customers, by means of physical and logical controls, and (h) quality of the access controls designed to protect the data and information of Client’s customers.

 

16.    Communications

 

16.1.Any communication regarding this Agreement must be in writing and sent to the email addresses for notifications set out in the respective Order Form.

 

16.2.Notices will be deemed received at the time of transmission as noted by the sender’s records (or if sent outside of business hours, at 9:00 am on the first business day after submission).

 

16.3.The Parties may change the contact details provided in the Order Form upon written notice.

 

16.4.Communications between Parfin and the User may take place through the Platform itself, e-mail or other communication channels approved by Parfin.

 

17.    Dispute Resolution

 

17.1.Jurisdiction. Any dispute originating in or related to this agreement, including its interpretation or execution, will be definitively resolved by the Court of Justice of the City of São Paulo.

 

18.    General Provisions

 

18.1.If any commitment or other provision of this instrument is held to be illegal or unenforceable, in whole or in part, in accordance with any enactment or principle of law, such commitment or other provision or part thereof shall be deemed not to form part of this instrument, but the validity of the remainder of the commitments and other provisions of this instrument will not be affected.

 

18.2.Any omission by either Party regarding compliance with this instrument will constitute mere tolerance and will not result in waiver, novation, amendment or modification of contractual sections.

 

 

 

18.3.This Agreement obliges the Parties and their successors, in any capacity, and the assignment or transfer, in whole or in part, of the rights and obligations arising therefrom, without the prior written authorization of the other Party, is prohibited.

 

18.4.A Party may not assume any obligation on behalf of the other or, in any way or condition, oblige the other Party to third parties.

 

18.5.By virtue of this instrument, no form of company, association, mandate, representation, agency, consortium, joint venture, joint liability and/or employment relationship is established between the Parties.

 

18.6.Obligations that, by their nature, have a perennial character will remain in effect after the termination or termination of this Agreement, for any reason.

 

18.7.The Parties acknowledge the veracity, authenticity, integrity, validity and effectiveness of this Agreement, in accordance with the provisions of article 219 of the Civil Code, in electronic format and/or signed by the Parties through electronic certificates, even if they are electronic certificates not issued by ICP-Brasil, as provided for in article 10, paragraph 2 of Provisional Presidential Decree No. 2.220-2, of August 24, 2001, such as, for example, by uploading and existing this Agreement on platforms such as DocuSign or similar.

 

And, in witness whereof, the Parties sign this Agreement with two (2) witnesses.

 

São Paulo, 04/25/2022.

 

   
By: [**]  
  Name: [**]  
  Title: [**]  
     
   
By: [**]  
  Name: [**]  
  Title: [**]  
     

CONTRACTOR

 

   
By: [**]  
  Name: [**]  
  Title: [**]  
     
   
By: [**]  
  Name: [**]  
  Title: [**]  
     

 

 

CLIENT

 

Witnesses:

 

   
By: [**]  
  Name: [**]  
  Title: [**]  
     
   
By: [**]  
  Name: [**]  
  Title: [**]  
     

 

 

ORDER FORM

 

This Order Form (“Order Form”) presents the commercial conditions agreed between the Parties indicated below regarding the Service Agreement entered into between the parties.

 

The Client declares that he is aware of the entire content of the Master Agreement, the General Terms and Conditions of the Service and the Specific Terms applicable to the contracted services, assuming all his obligations and responsibilities as Client, for himself and for the Users authorized by him to use the Services.

 

Client’s name/corporate name: Contractor’s Name/Corporate Name:
[blank] Parfin Pagamentos Ltda.
INDIVIDUAL TAXPAYER’S REGISTER (CPF)/NATIONAL CORPORATE TAXPAYER’S REGISTER (CNPJ): INDIVIDUAL TAXPAYER’S REGISTER (CPF)/NATIONAL CORPORATE TAXPAYER’S REGISTER (CNPJ):
[blank] [**]
Full address Full address:
[blank] Avenida Brigadeiro Faria Lima, 2.369, suite 1.102
  São Paulo - State of São Paulo, Brazil
  CEP (Postal Code) 01452-922
Client’s Legal Representative(s) Contractor’s Legal Representative(s)
Name: [blank] Name: [blank]
Email: [blank] Email: [**]
Responsible for billing: Responsible for billing:
Name: [blank] Name: [blank]
Email: [blank] Email: [blank]
Effective Date: April 30, 2022
First bill due on: [**]
Initial Term of Effectiveness: thirty (30) months
Renewal Term: twelve (12) months

 

Services offered: By the present instrument Parfin will provide the Client, in accordance with the Terms and Conditions, the following services:

 

Crypto Plug & Play Full Service:

 

·Integration service by APIs and white-label

 

·Execution of purchase and sale of Digital Assets

 

·OTC Desk Plugin

 

·OTC Desk Settings

 

·FX Liquidity Provider - Execution with Integrated Banks

 

·Trade & Position Ledger - execution of spot Crypto trades on integrated counter-parties

 

·Customer Fund and Configuration Management

 

·OEMS / SOR (onshore and offshore)

 

·Report Suite for operational and financial data

 

·Management console for position, trades and commissions per user

 

·Priority operational support

 

·Custody of Digital Assets

 

 

 

·Treasury Management

 

·Generation of operational, financial and tax reports

 

·AML/TF Control for Digital Assets

 

·Position, operations and commission management per user

 

·Priority operational support

 

MPC Custody:

 

·Custody of Cryptoassets in MPC Wallets

 

·Compliance Controls (KYC/AML/KYT) for Digital Assets

 

·Defi / Staking Support (roadmap for Q2/22)

 

·Creation, operation and control of unlimited custody addresses

 

·Policies & Rules Engine for transferring digital assets

 

·Unlimited number of users on the platform

 

·APIs for integration, including: creating addresses, checking balances, signing transactions, temporary limitation and unlocking escrow addresses, among others

 

·Backup and Disaster Recovery System

 

·SaaS, Hybrid, or OnP deployment options

 

Parfin Terminal (included with MPC Custody):

 

·Treasury management

 

·Reporting and Billing

 

·Portfolio consolidation and Risk Management

 

·User management

 

·Advanced Operational Reports

 

·Integration thru APIs

 

·Operational support

 

Applicable fees:

 

·Minimum Monthly Fee: [**] dollars (US$[**])

 

Crypto Plug & Play Full Service:

 

·Implementation Fee: [**]

 

·Transaction Volume Fee: rate levied on the [**] volume of purchase and sale operations according to the following table:

 

·Up to USD[**]M: [**]%

 

 

 

·USD[**]M to USD[**]M: [**]%

 

·USD[**]M to USD[**]M: [**]%

 

·Higher than USD [**]M: [**]%

 

MPC Custody (includes Parfin Terminal):

 

·Implementation Fee: [**]

 

·Transaction Volume Fee: annual fee levied on the [**] volume of assets under custody (AUC), according to the following table:

 

·Up to USD[**]M: [**]%

 

·USD[**]M to USD[**]M: [**]%

 

·USD[**]M to USD[**]M: [**]%

 

·Higher than USD[**]M: [**]%

 

Parfin’s billing model is based on the PAYG (“pay as you go”) model with a minimum consumption commitment. The sum of the aforementioned Minimum Monthly Fees form the minimum monthly commitment and will be due by the Client to Parfin after the start of production regardless of the use of the platform. The minimum monthly consumption commitment is shared by the volume of both products. If one of the products alone exceeds the [**] thousand dollars (USD[**]) minimum commitment, no minimum fee will be charged.

 

Consumption fees linked to the execution of purchase and sale operations or AUC (“assets under custody”), specified above, will be calculated according to the rule established in the respective systems of “tiers” (or bands). Execution costs are not included in Parfin’s fees. Applicable execution costs include, but are not limited to, [**].

 

Other provisions:

 

Parfin will grant a contractual “waiver” (discount) of [**]% on the Minimum Monthly Rate for a period of [**] months from the signing of the agreement. During this period, only the fees per volume used will be considered.

 

The calculation of the aforementioned Fees will be done every calendar month, by sending the corresponding tax invoice for the provision of services to the Client.

 

The Client may terminate the agreement after the twelfth month at any time without contractual penalty, subject to a minimum notice of [**] days. If the Client terminates the Agreement before [**] ([**]) months (considering [**] months of waiver), the respective Minimum Monthly Fee pending until the [**] month will automatically expire, and the Client will be obliged to credit Parfin with this remaining balance at the time of termination.

 

Notwithstanding Parfin’s obligations contained in this agreement, Parfin undertakes to:

 

1) Obtain SOC 2 Type 2 approval by September 2022;

 

2) Ensure the restriction of access via API to only the IP’s of Internet output from XP (White List) - It is already implemented

 

3) Integrate the access control and logins of the Platform with one of the Client’s access control systems (Azure AD or Office 365 or SAML) by June 2022. The integration in question covers:

 

(a) Integration between Parfin Platform with XP’s Azure AD via SAML;

 

(b) Creating a user on the Parfin Platform that is linked to XP’s Azure AD; and

 

 

 

(c) Parfin Platform login authentication based on XP’s Azure AD credentials.

 

The Client undertakes to make resources available and allocate professionals in a timely manner for the execution of items 2 and 3 above within the agreed deadlines.

 

The Parties acknowledge the veracity, authenticity, integrity, validity and effectiveness of this instrument, in electronic format and/or signed by the Parties through electronic certificates, even if they are electronic certificates not issued by ICP-Brasil, as provided for in article 10, paragraph 2 of Provisional Presidential Decree No. 2.220-2, of August 24, 2001, such as, for example, by uploading and existing this instrument on platforms such as DocuSign or similar.

 

São Paulo, April 25, 2022

 

   
By: [**]  
  Name: [**]  
  Title: [**]  
     
   
By: [**]  
  Name: [**]  
  Title: [**]  
     

CONTRACTOR

 

   
By: [**]  
  Name: [**]  
  Title: [**]  
     
   
By: [**]  
  Name: [**]  
  Title: [**]  
     

CLIENT

 

Witnesses:

 

   
By: [**]  
  Name: [**]  
  Title: [**]  
     

 

   
By: [**]  
  Name: [**]  
  Title: [**]  
     

 

 

 

EXHIBIT I: CRYPTO PLUG & PLAY

 

The purpose of this term is to establish the terms and conditions in order to regulate the rights and duties between Parfin and the Client in order to facilitate the structuring, development, implementation and maintenance of the Crypto Plug&Play system to be offered by Parfin to the Client in accordance with Parfin’s Terms and Conditions of Use, in addition to the specific conditions set out below:

 

1.    From Crypto Plug&Play Service

 

1.1.Parfin has developed a technological integration solution that allows it to act in the form of Crypto Plug&Play, making it available to its customers, through a service provided 100% (one hundred percent) through APIs (Application Programming Interface), so that customers can offer its users (“Users”), directly on the Customer’s front-end, the service of purchase and sale of digital assets by its Users.

 

1.2.Through the Crypto Plug&Play modality, Parfin will act as an agent for the purchase, sale and custody of digital assets for Users, in accordance with the specific conditions agreed in the form of the Summary Table of the Service Agreement.

 

1.3.Parfin, through this instrument and observing the specific conditions defined in the Summary Table of the Service Agreement, undertakes to provide Crypto Plug&Play services and solutions to the Client, undertaking to provide development, implementation and maintenance services purchase, sale and custody services of digital assets through APIs owned by Parfin.

 

1.4.The Client may, at any time, request the expansion, customization and/or development of new functionalities of the Crypto Plug&Play system, in which case Parfin will evaluate the Client’s requests and formulate a specific proposal for the provision of services to the Client, in which the commercial conditions, deadlines and other specific rules for the adjustment requested by the Client remain agreed. Thus, Parfin will only be obliged to make the adjustments requested by the Client in the form and term of the specific contractual instrument that will be entered into between Parfin and the Client.

 

2.    System Integration

 

2.1.For the correct provision and availability of the Crypto Plug&Play Services by Parfin, it is essential to integrate Parfin’s systems with the Client’s, which is why the Client undertakes to:

 

a.Integrate your solutions with Parfin’s APIs, in accordance with the technical and security standards established by Parfin, and be responsible for the correct use of all software and hardware necessary for the use of the Crypto Plug&Play service and other systems made available by Parfin within the scope of this instrument;

 

b.Dedicate the necessary resources for the correct implementation and/or integration with Parfin’s APIs, as well as for the development of the front-end that will be integrated with Parfin’s APIs;

 

c.Be responsible for the use of the Crypto Plug&Play system, APIs and other systems offered by Parfin, adapting its operational structure to the APIs and systems adopted by Parfin;

 

d.Comply with all rules established by Parfin under the terms and deadlines of the Summary Table and/or this instrument, especially those related to the security of API integration systems, technical standards, functionalities and other procedures related to the Crypto Plug&Play system, using methods that guarantee a security level, including compliance with specific policy regarding the security of API integration systems;

 

e.Be responsible for Parfin’s full reimbursement in case of systemic errors by the Client that will result in financial losses for Parfin;

 

2.2.In turn, in order to enable the correct integration of the Client’s systems for the provision of Crypto Plug&Play services, Parfin undertakes to:

 

 

 

a.Make available, implement and be responsible for maintaining the APIs necessary for the Crypto Plug&Play service;

 

b.Implement the improvements, adjustments and customizations requested by the Client in the form of the instruments that may be entered into;

 

3.    Compliance Policy - AML/KYC

 

3.1.Parfin values the highest standards and best practices in terms of Compliance and protection against money laundering and terrorist financing, which is why, throughout the term of this Agreement, the Client undertakes to:

 

a.To be solely and exclusively responsible for managing the receipt and transfers of resources from Users to themselves and from themselves to Users, for meeting the legal and regulatory requirements of its Users, especially the AML/KYC processes, which it undertakes to comply with, and to maintain and update these processes, providing Parfin with documents and evidence related to these diligences whenever requested;

 

b.Require Users, whenever requested by Parfin, for additional information, documents and vouchers from Users that relate to AML/KYC policies and other compliance and regulatory policies typical of the financial and digital assets market, as well as making them available to Parfin when required, within up to five (5) days of the request, access to compliance policies, information security, AML/KYC, monitoring of suspicious transactions, code of ethics and conduct and other procedures and policies adopted by the Client that aim to guarantee security in transactions with third parties;

 

c.Develop AML/KYC policies and processes, internally or through third parties, parameterized according to the needs of their business, to be carried out monthly, assuming responsibility for reporting to Parfin any and all transactions that may constitute evidence of money laundering and other white collar crimes, including those provided for in Federal Law No. 9.613/98 and/or the UK Bribery Act, with special attention being paid to transactions that have substantial evidence or that money and other white collar crimes;

 

4.    Operating Obligations

 

4.1.In addition to the systems integration provided for in item 2 above, in order for Parfin to correctly provide the Crypto Plug&Play Services, the Customer undertakes to:

 

a.Inform Users of the risks associated with investments in cryptoassets and request their consent before allowing them to carry out purchase and sale operations of these assets through Parfin, ensuring that they have access according to the risk profile (suitability);

 

b.Ensure that Users have a financial balance with the necessary volume to carry out the intended purchase of digital assets, before sending the purchase order to Parfin;

 

c.Ensure that Users have a balance of digital assets with the necessary volume for the intended transaction, before sending the sales order to Parfin;

 

d.Ensure that Users authorize, if necessary, the opening by Parfin of payment accounts held by Users with Parfin to enable the execution of purchase and sale orders of Users’ Digital Assets, ensuring that the account in question will be controlled by Parfin and will have the sole and exclusive purpose of making payments, credits or debits related to the financial settlements necessary for the execution of the purchase and sale orders of Digital Assets transmitted by the Users;

 

e.Comply with the automation of transfers of financial resources for the purpose of financial settlement of digital asset purchase transactions carried out by Users, ensuring that the amount related to the purchase is immediately transferred from the User’s account to an account held by

 

 

 

Parfin (“Operating Account”) or, in the event mentioned in item “d” above, that the amount related to the purchase be transferred to the User’s payment account with Parfin;

 

f.If the Operating Account is held by the Client, give Parfin the respective access to control the Operating Account, either through an API or web interface.

 

g.Ensure that all Users have adhered to Parfin’s Terms and Conditions of Use and Privacy Policy, in addition to the specific terms of the Crypto Plug&Play service, which must be replicated by the Client to users, in order to ensure complete awareness and agreement by Users with the terms set forth in this instrument;

 

h.Ensure that, in the event mentioned in item “d” above, in the Digital Asset sales operations, Users authorize Parfin to proceed with the transfer of funds from the User’s Payment Account with Parfin to the User’s account with the Client.

 

4.2.In turn, in order to maintain adequate operational levels, Parfin undertakes to:

 

a.Maintain a level of support adequate to the Client’s demands, observing the SLO standards set forth in the Terms and Conditions of Use;

 

b.Ensure the security of digital assets that belong to Users and are in the custody of Parfin, subject to the provisions of the Terms and Conditions of Use of the Service Agreement;

 

c.Provide the Client and Users with adequate financial, operational and tax reports for the development of the service;

 

d.Comply with Normative Instruction No. 1.888/2019 of the Brazilian Federal Revenue Office, providing the Federal Revenue Office of Brazil with all information related to the operations of Users carried out by the Parfin platform under the terms of said normative instruction, being the responsibility of the Client and/or the User is responsible for the correct and punctual collection of any taxes levied on the operations carried out;

 

e.Ensuring the Client access to Parfin’s platform for consultation and visualization of purchase and sale transactions, balances and custody holdings and extraction of adequate reports for the development of the service;

 

f.Comply with the automation of transfers of financial resources for the purpose of financial settlement of digital asset sales transactions carried out by Users, ensuring that the amount related to the sale is transferred from an account held by Parfin (“Operating Account”) to the account of the User, or, in the event mentioned in item “d” of item 4.1 above, that the amount related to the sale be transferred from the Operating Account to the User’s payment account with Parfin, to then be transferred to the User’s Account of the User with the Customer.

 

g.Observe, respect and comply with all laws, regulations and instructions applicable to its activities, including, but not limited to, consumer protection rules, the Brazilian General Data Protection Law, as well as those issued by the competent regulatory bodies, in particular the Securities and Exchange Commission, the Federal Revenue Office and the Central Bank

 

5.    Purchase and Sale Execution

 

5.1.For the provision of Crypto Plug&Play Services, Parfin will be responsible for executing the purchase and sale orders of digital assets requested by the User, observing the following premises:

 

a.The execution of purchase and sale orders for Digital Assets sent by the User will follow the following process:

 

i.User will select the type of Digital Assets he wants to quote, the type of operation (purchase or sale), and the desired number of Digital Assets or the equivalent amount in reais;

 

 

 

ii.User will send orders according to the price quote of the Digital Asset presented by Parfin’s platform;

 

iii.Parfin will execute the order sent by the User to buy or sell the Digital Asset at partner broker dealers and by the quotation presented by the platform at the time of sending the order by the User;

 

iv.In the case of purchase, the User will send the purchase value of the Digital Assets to Parfin, and in the case of sale, Parfin will send the sale value to the User to the accounts previously informed in the registration.

 

v.Parfin will keep records of the executed purchase and sale orders, in particular the amount of assets that the User will be entitled to in the case of executed purchase orders, as well as the amount of assets that the User will be available in the case of executed sale orders.

 

b.Parfin may refuse to process the User’s purchase or sale orders in the following cases:

 

i.If there is not the necessary quantity of the Digital Asset available on the market to execute the User’s complete order;

 

ii.If Parfin’s partner Digital Assets broker dealer is not available at the time of sending the order by the User;

 

iii.If Parfin has any suspicion that the purchase or sale order is being carried out for illegal activities (such as fraud);

 

iv.If Parfin suspects that the purchase or sale instruction may have an adverse effect on Parfin’s reputation; and

 

v.If Parfin identifies a volatility of the Digital Assets outside the expected patterns, which may imply a drop in liquidity, at Parfin’s sole discretion.

 

c.Parfin will execute orders to buy and sell digital assets under conditions favorable to Users, using its best efforts to obtain the best relationship between asset price, liquidity, market and counterparty risks;

 

d.Parfin will manage and use its own capital, limits and other resources necessary to execute orders to buy and sell Digital Assets at partner broker dealer firms.

 

5.2.Parfin will not be held responsible for the refusal to execute the orders sent by the User in the event of any of the hypotheses provided for in item “b” above, recognizing the Client that both he and the User will not, under any circumstances, be entitled to any kind of indemnity, fine and/or loss of loss of profit.

 

6.    Market Information

 

6.1.Parfin compiles and publishes Digital Assets market data. The Client understands, acknowledges and agrees that the values of the digital assets displayed by Parfin may be lagging behind the market and, therefore, may not reflect the market value of the Digital Assets at that exact moment. In any case, the Client agrees that such market data will be used for the purposes of managing the Client’s and Users’ wallet and for executing orders to buy and sell Digital Assets.

 

6.2.The Customer agrees that Parfin will not be responsible for any adverse consequences that the Customer and/or the User may experience, regardless of the value and/or nature, as well as for the costs that may be incurred, arising from any lapse, failure, stoppage or error. regarding Digital Assets market data compiled and published by Parfin.

 

6.3.Parfin may share (including by sale or license) market data with third parties. This market data will not identify any specific customer, nor will it attribute transactions to a particular customer, so any data shared will be anonymized.

 

 

 

6.4.The Client will not be able to store the market data provided by Parfin, being only allowed the consultation of such data by the Client via API or web consultation, the Client may not store and/or use such data for any purpose other than calculating the profitability of the Users.

 

7.    Extraordinary Services

 

7.1.In case the User requests a service not included as part of Crypto Plug&Play, directly to Parfin, Parfin undertakes to consult and obtain prior authorization from the Client to provide the direct service.

 

8.    Custody by Parfin

 

8.1.For the correct provision of Crypto Plug&Play Services, the Client appoints Parfin as its custody services provider in accordance with the rules and conditions set forth in this Section 8, in addition to those provided for in Parfin’s Terms and Conditions of Use and Privacy Policy.

 

8.2.Parfin will provide the Client with segregated and controlled custody wallets to store certain digital assets supported by Parfin (“Wallets”) on behalf of the Client. The Digital Assets in the Client’s Wallets are not treated as general assets of Parfin, serving Parfin as a trustee and custodian on behalf of the Client, and the Digital Assets in the Client’s Wallets are considered to be fiduciary assets that remain in the possession of the Client and are held by Parfin in custody for the Client.

 

8.3.Parfin will store Digital Assets that require high availability in partner broker dealer firms and/or the Client’s online Wallets (Warm) as working capital to comply with the Users’ execution requirements. The Digital Assets that Parfin requires high availability will be stored in the Client’s offline Wallets (AirGap), in the minimum proportion to be decided by mutual agreement between the Parties.

 

8.4.Parfin securely stores all Supported Cryptoassets private keys associated with its Parfin Wallets. Client accepts and agrees that Parfin will retain full ownership and control of the Private Keys associated with its Parfin Wallets and that Client will have no control, access or ability to use such Private Keys.

 

8.5.Parfin has a partnership with Coincover for the recovery of Digital Assets from the Client’s Wallets, in case Parfin’s systems are compromised. In this case, the back-up private key stored by Coincover together with non-sensitive Client information stored offline by Parfin or by the Client, may be used to recover the private keys belonging to the Client’s Wallets. The Wallet recovery procedure must be consulted by the Client with Parfin.

 

9.    Network Protocol and Operating Rules

 

9.1.The underlying software protocols that govern the operation of Supported Cryptoassets are open source. Thus, anyone can use, copy, modify and distribute them and Parfin has no domain or control over these protocols. By contracting the Crypto Plug&Play Service, you accept and agree that:

 

a.Parfin is not responsible for the operation of any underlying software protocols of the cryptoasset network and makes no guarantee as to their availability, security or functionality;

 

b.The underlying software protocols are subject to sudden changes in operational rules (known as “forks”) and that such forks can materially affect the value, function and/or name of any cryptoassets you store in your Parfin Wallets. In the event of a fork, Parfin may, with or without notice, temporarily suspend our operations and, in our sole discretion, decide whether or not to support any branch of the forked protocol;

 

c.Parfin has no control over, nor accepts any responsibility for, any underlying blockchain network issues, including but not limited to forks, double spend and 51% attacks, for which Parfin cannot be held liable, the Client being aware of such premise; and

 

d.If Parfin decides not to support a forked protocol branch, you will not have access to the assets of that fork after the date Parfin ceases to support such fork. These assets will be held securely by

 

 

 

Parfin and we will not buy or sell them. We may agree to transfer these assets to you or make them available to you, but we reserve the right to charge fees in connection therewith.

 

10.    Intellectual Property

 

10.1.The intellectual property rights of the brands and programs related to Parfin, to this instrument, to the Crypto Plug&Play services are the exclusive property of Parfin, and the use of any of them does not confer any ownership right or license to use such rights, brands and programs for the Client and/or its Users.

 

10.2.Likewise, Client acknowledges that all systems, including but not limited to APIs made available by Parfin for the purposes of Crypto Plug&Play, as well as any enhancements, enhancements, new developments and/or releases, even if arising from Client’s requests, belong solely and exclusively to Parfin, which is the sole and legitimate holder of any and all intellectual and/or industrial property rights related to these products and services resulting from this instrument, notably the property rights relating to the economic and commercial exploitation of the products that belong exclusively to Parfin.

 

11.    Data Protection

 

11.1.Parfin declares that it is aware of and in compliance with the rules applicable to privacy and data protection, including, but not limited to, the Brazilian General Data Protection Law (Law 13.709/2018 - “LGPD”), Consumer Protection Code (Law 8.078 /1990), the Civil Code (Law 10.406/2002), the Marco Civil da Internet (Law 12.965/2014), the Federal Constitution and other related rules, especially regarding the rights of the holder of personal data provided for in art. 18 of the LGPD and the general principles listed in art. 6 of the same legal provision.

 

11.2.The Client is aware that, in order to enable the correct provision of Crypto Plug&Play services, Parfin performs data processing operations, both for the Client and its Users, as expressed in its Privacy Policy, the Client being aware that should consult it and, where applicable, reproduce it to its Users, being obliged to act in accordance with it.

 

11.3.Parfin shall not process sensitive or personal data, use or disclose them in any way and for any purpose other than that which justified their access, being obliged only to share them if the due legal basis is observed.

 

11.4.Without prejudice to the above provisions, the Parties mutually undertake to comply with any justified request from Party to Party regarding information regarding the processing of personal data carried out pursuant to this instrument.

 

11.5.If either Party performs data processing operations in disagreement with the obligations assumed herein, or in case of non-compliance with any legitimate request for information or data deletion, under the terms of this instrument and the applicable rules, the defaulting Party will be the solely and exclusively responsible for any consequences arising from the fact.

 

11.6.The Client declares, for all due purposes, that it has the proper legal basis and/or authorization of its Users to share their personal data with Parfin, so that Parfin can provide the Crypto Plug&Play service, taking full responsibility for any questions of Users in relation to any personal data shared with Parfin.

 

12.    Confidentiality and No Solicitation

 

12.1.The Parties agree, by mutual agreement, to maintain confidentiality in accordance with the following sections and conditions:

 

12.2.The sharing of data and information will be solely and exclusively so that Parfin can make the Crypto Plug&Play system available to the Client, requiring the evaluation and knowledge of confidential information. The Parties expressly agree that “Confidential Information” will be considered as any and all information disclosed by one Party to the other, by any means and in any form, whether electronic, written or verbal, by the representatives of the disclosing party and/or any of its collaborators, including

 

 

 

but not limited to all tangible, intangible, visual, electronic, present or future information, such as: (a) trade secrets; (b) financial information, including prices; (c) technical information; including research, development, procedures, eventual algorithms, data, designs and know-how, source codes, code repositories, programming code sets, designs, plans, drawings, data, notes, documents, reports, observations, materials, documents; (d) any inventions, discoveries and improvements, designs, drawings, blueprints, databases, product ideas, concepts, prototypes, features, procedures, training, promotional materials, training courses and other training and instructional materials; and (f) the terms of any agreement, written or otherwise, entered into between the Parties and the discussions, negotiations and proposals related thereto. Confidential Information will also be considered, for all purposes, the very existence of this instrument and the nature of negotiations and discussions, in addition to any other terms, conditions or other facts relating to such negotiations and discussions.

 

12.3.By this instrument, the Parties undertake, on an irrevocable and irreversible basis, to:

 

a.Maintain the confidentiality of any and all Confidential Information received at any time, as well as undertake that its officers, employees, agents or professionals, in any capacity, will also maintain the confidentiality of Confidential Information;

 

b.Refrain from disclosing or providing, without the prior written consent of the disclosing party, to any individual or legal entity, any Confidential Information;

 

c.Take all precautions to maintain confidentiality, object of this Agreement, so that Confidential Information cannot be used for any purposes other than the provision of Crypto Plug&Play services by Parfin and provided that it is expressly authorized by the disclosing party;

 

d.Return to the other Party, at the end of negotiations regarding a possible partnership, or immediately, if requested, any Confidential Information in tangible form, without keeping copies of such information, as well as other materials, whether in digital or physical format, even if prepared or developed by the receiving party and/or that include any part of the Confidential Information; and

 

e.Keep as confidential and not reveal to any individual or legal entity the discussions or negotiations regarding this instrument.

 

12.4.The Parties will use Confidential Information for the sole purpose for which it was disclosed.

 

12.5.For purposes hereof, the following information will not be considered Confidential Information:

 

a.Information that is in the public domain at the time of signature of this instrument, or becomes public domain after this date, other than for breach of any of the obligations of this instrument or the breach of another contractual or legal obligation, or as a result of an act or omission of any of the Parties;

 

b.Information obtained as a result of the execution of the work resulting from this instrument, which must be disclosed by the Parties due to a judicial, legal or regulatory determination;

 

c.Information that may become available to any of the Parties in a non-confidential manner by third parties (not related to the Parties and/or the works provided herein), exclusively as long as they are legally or contractually authorized to provide it; or

 

d.Information that has been developed by one of the Parties independently of any information provided by other Parties.

 

12.8.Additionally, during the term of this instrument and after 12 (twelve) months from the end of the services offered under this term, Parfin may not try to attract, for itself or for third parties, any User, nor try to persuade any individual or legal entity that is a Client’s user to cease doing business or to reduce the amount of business that such person normally does or intends to do with Client.

 

 

 

13.    Representations and Warranties

 

13.1.Parfin has implemented and will maintain in place an information security program that includes the adoption of policies and procedures reasonably designed to protect Parfin’s electronic systems and Clients’ confidential information.

 

13.2.Parfin declares and warrants that:

 

a.It will hold the Digital Assets and segregate all digital assets both (i) owned by Parfin and (ii) from the assets of other Parfin customers;

 

b.Has no right, interest or title in Client’s digital assets;

 

c.Will not loan, pledge or mortgage any digital assets of Clients;

 

d.It will maintain adequate capital and reserves to the extent required by applicable law; and

 

e.It will not make any public statement, including any press release, media release or blog post that mentions or refers to Client or a partnership between Parfin and Client, without Client’s prior written consent.

 

14.    General Provisions

 

14.1.Nothing in this instrument shall be construed as granting an implied license or ownership of any other nature, nor rights of any kind over the Confidential Information or intellectual property rights of one Party to the other. Thus, at the request of the disclosing party, the receiving party shall immediately, upon receipt, destroy or return, as indicated by the disclosing party, all Confidential Information that is in its custody, including, but not limited to, documents, analyzes or any other written materials that are delivered or generated by virtue of the terms and conditions embodied in this instrument, without a copy of such information being kept.

 

14.2.The Parties declare and agree that the breach of this instrument may cause losses, damages and irreparable harm to the other Party. Thus, in case of violation of any provision of this instrument, the defaulting Party shall indemnify the other for any losses, damages and losses caused directly or indirectly, and the indemnity will only be due after a court decision, subject to the provisions of the Terms and Conditions of Use.

 

14.3.Parfin is not responsible for the tax obligations of the Users and/or the Client arising from the purchase and sale of digital assets carried out through Parfin’s platform, as well as the collection thereof, being obliged to inform the user about their tax liabilities arising from the transactions carried out. Additionally, the Client is aware that all transactions carried out by the Client and/or user will be duly communicated by Parfin to the Brazilian Federal Revenue Office, in strict compliance with Normative Instruction No. 1.888/2019 of the Brazilian Federal Revenue Office, which is not any assumption of tax liability on the part of Parfin in relation to the operations carried out by the Client and/or the user.

 

14.4.If any commitment or other provision of this instrument is held to be illegal or unenforceable, in whole or in part, in accordance with any enactment or principle of law, such commitment or other provision or part thereof shall be deemed not to form part of this instrument, but the validity of the remainder of the commitments and other provisions of this instrument will not be affected.

 

14.5.Any omission by either Party regarding compliance with this instrument will constitute mere tolerance and will not result in novation, alteration or modification of contractual sections.

 

14.6.This instrument will be interpreted in under the laws and will be subject to the jurisdiction of Brazilian courts.

 

14.7.The jurisdiction of the Judicial District of São Paulo, State of São Paulo, is elected as the only one competent to eliminate doubts arising from this instrument, with express waiver of any other, however privileged it may be.

 

 

 

EXHIBIT II: CUSTODY

 

The purpose of this term is to establish the terms and conditions in order to regulate the rights and duties between Parfin and the Client in order to facilitate the structuring, development, implementation and maintenance of a Cryptoasset custody system to be offered by Parfin to the Client of in accordance with Parfin’s Terms and Conditions of Use, in addition to the specific conditions set out below:

 

1.    Custody Service

 

a.The Client appoints Parfin as its Custody Services provider in accordance with the rules and conditions set forth in these terms, in addition to those set out in Parfin’s Terms and Conditions of Use and Privacy Policy.

 

b.Parfin will provide Client with a segregated and controlled custody wallet by Parfin to store certain Parfin-supported digital assets as defined below on behalf of Customer (“Custody Services”). The Digital Assets in the Client’s Custody Account are not treated as general assets of Parfin, Parfin serving as a trustee and custodian on behalf of the Client, and the Digital Assets in the Client’s custody wallet are considered to be fiduciary assets that remain the property of the Client and are held by Parfin in custody for the Client.

 

c.Parfin will charge the fees specified in the Summary Table for custody services. Parfin may propose changes in the value of fees at any time, at least 30 (thirty) days in advance of such changes to the Client. If the Client does not agree with the new fees imposed by Parfin, the Client may choose to terminate the custody services, without any cost and/or penalty.

 

d.By maintaining its wallet, the Client authorizes Parfin to automatically debit from its wallet the amounts due as fees arising from the Custody Services as agreed in the Summary Table.

 

e.Digital assets are stored in the Client’s wallet in accordance with these terms and are not mixed with other clients’ digital assets. Parfin reserves the right to refuse to process or cancel any outstanding escrow transaction as required by law or in response to a subpoena, court order or other binding government order or to impose transaction limits or if Parfin reasonably believes that the Custody Transaction may violate or facilitate the violation of an applicable law, regulation or rule of a governmental authority or self-regulatory organization.

 

f.Parfin cannot reverse a Custody Transaction that has been transmitted to a Digital Asset network.

 

2.    Wallet

 

2.1Parfin wallets allow you to send, receive and store certain cryptoassets (together, “Parfin Wallet(s)”).

 

2.1.1We reserve the right to provide support for specific cryptoassets (“Supported Cryptoassets”). Information about Supported Cryptoassets can be found on the Parfin Support Portal (support.parfin.io). We may change Supported Cryptoassets from time to time without notice, in which case we will notify you to withdraw within ten (10) days. After this period, the balance will be unavailable for withdrawal. Under no circumstances should you attempt to trade on the Parfin Wallet in relation to a cryptoasset that is not a Supported Cryptoasset. Before completing any operation on the Parfin Wallet, you must therefore ensure that cryptocurrencies are on the updated list of Supported Cryptoassets. Including, but not limiting the generality of the foregoing, you accept and agree that you will have no access, right or claim to:

 

a.Any cryptoasset sent to a receiving address associated with your Parfin Wallet, where that cryptocurrency is not a Supported Cryptoasset; or any cryptoasset sent to a receiving address associated with your Parfin Wallet, where that receiving address is associated with another cryptoasset. For example, you will not have access, right or claim to any Bitcoin Cash (BCH) sent to a Bitcoin (BTC) receiving address.

 

 

 

2.1.2.We will process Parfin Wallet transactions in accordance with your instructions, subject to the provisions of these Terms. You accept and agree that Parfin will not:

 

(i)guarantees the identity of any user, judicial depositary or other party to a Parfin Wallet transaction. You are solely responsible for ensuring that all permitted addresses or details of the operation of the Third-Party Service are correct, and you must carefully verify all transaction information before submitting the transaction instructions to Parfin, and you acknowledge that entering of incorrect operations for Parfin may result in loss to you for which Parfin bears no responsibility;

 

(ii)have any control over or any responsibility for the delivery, quality or any other aspect of any goods or services that you may buy or sell to any third party. Parfin will not be responsible for, and will not take any action in relation to, ensuring that any buyer or seller with whom you transact using your Parfin Wallet completes the relevant transaction or has the necessary competence to do so;

 

(iii)has control, nor does Parfin accept any liability with respect to any underlying blockchain network issues, including but not limited to forks, double spend and 51% attacks.

 

2.2You may receive Supported Cryptoassets in your Parfin Wallet by providing the sender with the receiving address of your Parfin Wallet. Your Parfin Wallet will only be credited with Supported Cryptoassets sent to the receiving address of your Parfin Wallet and associated with such Supported Cryptoassets. For example, your Parfin Wallet will be credited with ETH when it is sent to an ETH receiving address from your Parfin Wallet. Likewise, the Parfin Wallet will only allow you to send Supported Cryptoassets to other wallets previously registered by you on the Parfin Platform, which will depend on KYT analysis and Parfin’s approval.

 

3.    Wallet Security

 

3.1Parfin securely stores all Supported Cryptoassets private keys (“Private Keys”) associated with its Parfin Wallets. You accept and agree that Parfin will retain full ownership and control of the Private Keys associated with your Parfin Wallets and that you will have no control, access or ability to use such Private Keys. For example, but without limiting the generality of the foregoing, Parfin will not:

 

a.accept or comply with any instruction to sign any data with a Private Key;

 

b.give access to any funds associated with your private keys, other than those of Supported Cryptoassets associated with your Parfin Wallet;

 

c.allow the creation of any deposit address associated with a Private Key, except the receiving addresses associated with your Parfin Wallet.

 

3.2When you select a Wallet protected by Digital Asset Services Ltd. (“Coincover”) (“Coincover Protection”), you agree that we may share your information with Coincover so that they can provide you with a personalized certificate of coverage (“Coincover Protection Certificate”). By selecting Coincover Protection, you confirm that you have read and understood Coincover’s Coverage Document and Terms and Conditions, and agree that coverage is appropriate for your circumstances. Coverage begins on the start date indicated on your Coincover Protection Certificate.

 

3.3Parfin has a partnership with Coincover for the recovery of Digital Assets from the Client’s Wallets, in case Parfin’s systems are compromised. In this case, the back-up private key stored by Coincover together with non-sensitive Client information stored offline by Parfin or by the Client, may be used to recover the private keys belonging to the Client’s Wallets. The Wallet recovery procedure must be consulted by the Client with Parfin.

 

 

 

4.    Operation in Cryptoassets Networks

 

4.1When you use your Parfin Account to send or receive cryptoasset, the transaction must be confirmed and recorded in the public ledger associated with the corresponding cryptoasset network (e.g., the Bitcoin network or the Ethereum network). This cryptoasset network is solely responsible for verifying and confirming such operations. Parfin cannot confirm, cancel or reverse operations on a cryptoasset network, except to confirm to you that the network has completed the operation. You accept and agree that:

 

a.Once submitted to a cryptoasset network, an operation will be pending for a period of time awaiting proper confirmation of the operation by the network. An operation will not be completed while it is pending. The funds associated with transactions that are pending will be designated accordingly and will not be included in your Parfin Wallet balance or will be available for you to carry out transactions;

 

b.When you send cryptoassets from your Parfin Wallets, you are authorizing us to send your transaction request to the corresponding cryptoasset network. Once the trade request has been sent to the corresponding cryptoasset network, the network will automatically complete or reject the request and neither you nor Parfin will be able to cancel or modify your trade, even if you have incorrectly entered the recipient’s wallet details; and

 

c.Cryptoasset networks are operated by decentralized networks of independent third parties. They are not owned, controlled or operated by Parfin. Therefore, we cannot guarantee that any transaction details you submit will be confirmed by the cryptoasset network in question. You agree that any transaction details you submit may not be completed, or may be materially delayed, by the cryptoasset network used to process the transaction and Parfin is not responsible for any delay.

 

4.2If any instruction received by Parfin is ambiguous, Parfin will refuse to carry out such instructions until such ambiguity has been resolved to Parfin’s satisfaction. Likewise, Parfin may refuse to carry out instructions if, in Parfin’s opinion, such instructions are outside the scope of its obligations under this Agreement or are contrary to any applicable law, rule or other regulatory requirement (whether arising from any authority government or self-regulatory organization)

 

4.3Client must manage and secure any and all information or devices associated with deposit and withdrawal verification procedures, including two-factor authentication and passwords or other security or confirmation information.

 

4.4Parfin reserves the right to charge network fees (mining fees) to process a digital asset transaction on behalf of the Client. Parfin will calculate the network fee, if any, seeking to optimize costs while maintaining a high level of preference in processing the transaction on the network. Parfin will make the network fee available for consultation by the Client on the platform after the completion of any transaction.

 

4.5The network fees (mining fees) referred to in item 4.4 above are dynamic, and may vary depending on the volume and/or moment of the transaction carried out, and Parfin is hereby authorized to deduct from the Client and/or User’s balance network fees (mining fee) if the intended transaction amount is less than the network fees (mining fee). In the event of such a situation and, if the Client and/or User does not have sufficient balance to cover the network fees (mining fee), the operation will not be processed by Parfin, without any right to fine, indemnity and/or claim on the part of the Client and/or User, regardless of value or nature.

 

5.    Network Protocols and Operating Rules

 

5.1The underlying software protocols governing the operation of Supported Cryptoassets are open source. Thus, anyone can use, copy, modify and distribute them and Parfin has no domain or control over these protocols. By using the Parfin Account, you accept and agree that:

 

 

 

a.Parfin is not responsible for the operation of any underlying software protocols of the cryptoasset network and makes no guarantee as to their availability, security or functionality;

 

b.The underlying software protocols are subject to sudden changes in operational rules (known as “forks”) and that such forks can materially affect the value, function and/or name of any cryptoassets you store in your Parfin Wallets. In the event of a fork, Parfin may, with or without notice, temporarily suspend our operations and, in our sole discretion, decide whether or not to support any branch of the forked protocol; and

 

c.If Parfin decides not to support a forked protocol branch, you will not have access to the assets of that fork after the date Parfin ceases to support such fork. These assets will be held securely by Parfin and we will not buy or sell them. We may agree to transfer these assets to you or make them available to you, but we reserve the right to charge fees in connection therewith.

 

5.2In the case of Parfin Wallets with offline subscription (“AirGap Cards”), once the withdrawal is approved by a User of the Client, Parfin will ask the approving user to schedule a video conference with Parfin for operational verification of the withdrawal and identity of the approver, without limiting other additional verifications at Parfin’s discretion. Once the verification has been completed, Parfin will have a period of up to 24 (twenty-four) hours to process transactions with the withdrawal of digital assets from the Client’s wallet and submission of the withdrawal to the network of digital assets in question. Parfin keeps one of the pieces of the private key required to complete the signature of the digital asset transaction offline, which is why Parfin needs the deadline in question.

 

5.3Customer acknowledges and agrees that a custodial transaction in relation to AirGap Wallets may be delayed, and that transactions may take up to 24 (twenty-four) hours, in accordance with the above clause, to be effected from the Customer’s wallet.

 

6.    Representations and Warranties

 

6.1.Parfin has implemented and will maintain in place an information security program that includes the adoption of policies and procedures reasonably designed to protect Parfin’s electronic systems and Clients’ confidential information.

 

6.2Parfin declares and warrants that:

 

a.Parfin will hold the Digital Assets and segregate all digital assets both (i) owned by Parfin and (ii) from the assets of other Parfin customers;

 

b.Parfin has no right, interest or title in Client’s digital assets;

 

c.Parfin will not loan, pledge or mortgage any digital assets of Clients;

 

d.Parfin will maintain adequate capital and reserves to the extent required by applicable law; and

 

e.Parfin will not make any public statement, including any press release, media release or blog post that mentions or refers to Client or a partnership between Parfin and Client, without Client’s prior written consent.

 

 

 

CONSENT TO ELECTRONIC RECEIPT OF ELECTRONIC RECORDS AND SIGNATURE DISCLOSURES

 

Electronic Registration and Disclosure of Signature

 

From time to time, XPI Suprimentos may be legally obligated to provide you with certain written notices or disclosures. Described below are the terms and conditions for providing you with such notices and disclosures electronically through the DocuSign, Inc. electronic signature system. (DocuSign). Please read the information below carefully and thoroughly, and if you can satisfactorily access this information electronically and agree to these terms and conditions, please confirm your acceptance by clicking on the “I agree” button at the bottom of this document.

 

Obtaining hard copies

 

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Exhibit 23.2

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in this Registration Statement on Form F-4 (No. 333-264629) of XP Inc. of our report dated April 5, 2022 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in XP Inc’s Annual Report on Form 20-F for the year ended December 31, 2021. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

/s/PricewaterhouseCoopers

Auditores Independentes Ltda.

São Paulo, Brazil

September 7, 2022

 

 

 

 

Exhibit 107.1

 

Calculation of Filing Fee Tables

 

Form F-4

 

 

(Form Type)

XP Inc.

 

 

(Exact Name of Registrant as Specified in its Charter)

 

Table 1: Newly Registered Securities

 

 

Security Type

Security Class Title(1)

Fee

Calculation Rule

Amount Registered(2)

Proposed Maximum Offering Price Per Unit(3)

Maximum Aggregate Offering Price

Fee Rate

Amount of Registration Fee(4)

Newly Registered Securities
Fees to Be Paid Equity Common shares 457(f) 19,500,000 US$ 18.96

US$ 369,720,000.00

US$ 92.70 per US$ 1,000,000.00 US$ 34,273.04
Fees Previously Paid Equity Common shares 457(f) 19,500,000 US$ 24.42 US$ 476,238,750.00 US$ 44,147.33
Carry Forward Securities
Carry Forward Securities
Total Offering Amounts       US$ 34,273.04
Total Fees Previously Paid       US$ 44,147.33
Total Fee Offsets       US$ 34,273.04
Net Fee Due       US$         0.00

 

 
(1)This Registration Statement relates to Registrant’s Class A common shares, US$0.00001 par value, or the “XP Shares,” to be delivered to holders of common shares, or the “Modal Shares,” of Banco Modal S.A., a Brazilian corporation (sociedade anônima), or “Modal,” in connection with the proposed Merger of Modal with XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., unless the Alternative Structure is implemented (as defined herein), an indirect wholly-owned subsidiary of the Registrant.

 

(2)Represents the maximum number of the Registrant’s Class A common shares estimated to be delivered to Modal Shareholders upon completion of the transaction described in the prospectus contained herein and is based upon an exchange ratio of one XP Share (in the form of XP BDRs) for           Modal Shares. This exchange ratio corresponds to           Modal Shares outstanding immediately prior to the completion of the Merger (which excludes Modal treasury shares) divided by           XP Shares.

 

(3)Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended (referred to as the Securities Act) and computed pursuant to Rules 457(f)(1) and 457(c) under the Securities Act. The aggregate offering price of the XP Shares was calculated as follows: (a) 19,500,000 XP Shares to be exchanged for the Modal Shares, multiplied by (b) US$18.96, the average of the high and low prices of the XP Shares on the Nasdaq Global Select Market on September 6, 2022.

 

(4)Calculated at a rate equal to 0.0000927 multiplied by the proposed maximum aggregate offering price.

 

Table 2: Fee Offset Claims and Sources

 

 

Registrant or Filer Name

Form

or Filing Type

File Number

Initial Filing Date

Filing Date

Fee Offset Claimed

Security Type Associated with Fee Offset Claimed

Security Title Associated with Fee Offset Claimed

Unsold Securities Associated with Fee Offset Claimed

Unsold Aggregate Offering Amount Associated with Fee Offset Claimed

Fee Paid with Fee Offset Source

Rules 457(b) and 0-11(a)(2)
Fee Offset Claims              
Fee Offset Sources            
Rule 457(p)                      
Fee Offset Claims    
Fee Offset Sources            

  

Table 3: Combined Prospectuses

 

Security Type

Security Class Title

Amount of Securities Previously Registered

Maximum Aggregate Offering Price of Securities Previously Registered

Form Type

File Number

Initial Effective Date