PagSeguro Digital Ltd. (Form: F-1/A, Received: 01/10/2018 06:06:01)

/s/ Eduardo Alcaro

Eduardo Alcaro

Attorney-in-fact

Pursuant to Power of Attorney

As filed with the Securities and Exchange Commission on January 9, 2018

No. 333-222292

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Pre-Effective

Amendment No.1 to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

PagSeguro Digital Ltd.

(Exact name of Registrant as specified in its charter)

The Cayman Islands

(State or other jurisdiction of incorporation or organization)

7374

(Primary Standard Industrial Classification Code Number)

Not applicable

(I.R.S. Employer Identification No.)

Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A

São Paulo, SP, 01451-001, Brazil

+55 11 3038 8127

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Cogency Global Inc.

10 East 40th Street, 10th Floor

New York, NY 10016

(212) 947-7200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies of all communications, including communications sent to agent for service, should be sent to:

Robert M. Ellison, Esq.

Jonathan E. Kellner, Esq.

Shearman & Sterling LLP

Av. Brigadeiro Faria Lima, 3400, 17 ^th Floor

São Paulo, SP, 04538-132, Brazil

Manuel Garciadiaz, Esq.

Davis Polk & Wardwell LLP

Av. Presidente Juscelino Kubitschek 2041,

Torre E, 17 ^th Floor

São Paulo, SP, 04543-011, Brazil

Approximate date of commencement of proposed sale to the public : As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☐

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(c) 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, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by a 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.

CALCULATION OF REGISTRATION FEE


Title of each class of securities to be registered	Proposed Maximum Aggregate Offering Price ⁽¹⁾	Amount of registration fee
Class A common shares	US$2,171,381,566.00	US$270,337.00 ⁽²⁾

(1)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(2)	Of this amount, $12,450.00 has been previously paid.

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 the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

LOGO

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS (Subject to completion, dated January 9, 2018)

Class A Common Shares

LOGO

PAGSEGURO DIGITAL LTD.

(incorporated in the Cayman Islands)

This is an initial public offering by us and the selling shareholder referred to in this prospectus, or the Selling Shareholder, of 92,105,263 of our Class A common shares, of which 43,289,474 Class A common shares will be offered by us and 48,815,789 Class A common shares will be offered by the Selling Shareholder. This prospectus relates to the offering by the underwriters of Class A common shares in the United States and elsewhere.

No public market currently exists for our Class A common shares. We anticipate that the initial public offering price will be between US$17.50 and US$20.50 per Class A common share. We have applied to list our Class A common shares on the New York Stock Exchange, or NYSE, under the symbol “PAGS”.

Following this offering, our parent company and Selling Shareholder, Universo Online S.A., or UOL, will beneficially own 69.4% of our outstanding share capital, assuming no exercise of the underwriters’ overallotment option referred to below but after accounting for new Class A common shares expected to be issued without cash consideration to certain members of our management who are beneficiaries under our Long-Term Incentive Plan, or LTIP. The shares held by UOL are Class B common shares, which carry rights that are identical to the Class A common shares being sold in this offering, except that (i) the holder of Class B common shares is entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share, (ii) Class B common shares have certain conversion rights and (iii) the holder of Class B common shares is entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued. For further information, see “Description of Share Capital.” As a result, UOL will control approximately 95.8% of the voting power of our outstanding share capital following this offering, assuming no exercise of the underwriters’ overallotment option but after accounting for new Class A common shares expected to be issued to certain members of our management.

Our Board of Directors has resolved to convert the vested portion of each beneficiary’s rights under our LTIP into Class A common shares of our company at the IPO price, without cash consideration, upon completion of this offering. Based on the midpoint of the estimated price range shown above, we expect that 1,895,879 new Class A common shares will be issued to certain members of our management who are beneficiaries under the LTIP immediately upon completion of this offering, giving them as a group approximately 0.6% of our outstanding share capital and 0.1% of the voting power. The maximum number of Class A common shares that can be delivered to beneficiaries under the LTIP, including pursuant to rights that will not have vested immediately following this offering, may not exceed 3% of our issued share capital at any time. For further information regarding the LTIP, see “Management–Long-Term Incentive Plan.”

We are an “emerging growth company” under the federal securities laws as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as a result, have elected to comply with certain reduced public company disclosure and financial reporting requirements.

Investing in our Class A common shares involves risks. See “Risk Factors” beginning on page 22 of this prospectus.


	Per Class A Common Share	Total
Public offering price ⁽¹⁾	US$	US$
Underwriting discounts and commissions ⁽¹⁾ ⁽²⁾	US$	US$
Proceeds, before expenses, to UOL ⁽¹⁾	US$	US$
Proceeds, before expenses, to us	US$	US$

(1)	Assumes no exercise of the underwriters’ overallotment option.

(2)	See “Underwriters” for a description of all compensation payable to the underwriters.

The underwriters also have the option, exercisable in whole or in part on a maximum of two occasions, to purchase up to an additional 13,815,789 Class A common shares from the Selling Shareholder, or the overallotment option, at the public offering price, for 30 days after the date of this prospectus to cover overallotments. See “Underwriters—Option to Purchase Additional Class A Common Shares.”

Neither the Securities and Exchange Commission, or the SEC, nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the Class A common shares against payment in New York, New York on or about , 2018.

Global Coordinators


Goldman Sachs & Co. LLC		Morgan Stanley

Bookrunners


BofA Merrill Lynch		Bradesco BBI		Credit Suisse		Deutsche Bank Securities		Itaú BBA		J.P. Morgan

The date of this prospectus is , 2018

TABLE OF CONTENTS


GLOSSARY OF TERMS			iii
PROSPECTUS SUMMARY			1
THE OFFERING			15
SUMMARY FINANCIAL AND OPERATING DATA OF PAGSEGURO BRAZIL			18
RISK FACTORS			22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			54
PRESENTATION OF FINANCIAL AND OTHER INFORMATION			56
USE OF PROCEEDS			60
DIVIDENDS AND DIVIDEND POLICY			61
EXCHANGE RATES			62
CAPITALIZATION			63
DILUTION			64
MARKET INFORMATION			67
SELECTED FINANCIAL AND OPERATING INFORMATION OF PAGSEGURO BRAZIL			68
INDUSTRY			73
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PAGSEGURO BRAZIL			77
BUSINESS			116
MANAGEMENT			165
PRINCIPAL AND SELLING SHAREHOLDER			171
RELATED PARTY TRANSACTIONS			173
DESCRIPTION OF SHARE CAPITAL			176
TAXATION			194
COMMON SHARES ELIGIBLE FOR FUTURE SALE			200
UNDERWRITERS			201
EXPENSES OF THE OFFERING			209
VALIDITY OF SECURITIES			210
EXPERTS			211
WHERE YOU CAN FIND MORE INFORMATION			212
ENFORCEABILITY OF CIVIL LIABILITIES			213
INDEX TO FINANCIAL STATEMENTS			F-1
EXHIBIT INDEX			EX-1

This prospectus has been prepared by us solely for use in connection with the proposed offering of Class A common shares in the United States and elsewhere outside Brazil. Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC are acting as the representatives of the underwriters in this offering and Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banco Bradesco BBI S.A., Credit Suisse (USA) Securities LLC, Deutsche Bank Securities Inc., Itau BBA USA Securities, Inc. and J.P. Morgan Securities LLC will collectively act as underwriters.

Neither we, the Selling Shareholder, or the underwriters nor any of their respective agents, have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We, the Selling Shareholder, the underwriters and their respective agents take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we, the Selling Shareholder, nor the underwriters have authorized any other person to provide you with different or additional information. Neither we, the Selling Shareholder or the underwriters, nor their respective agents, are making an offer to sell the Class A common shares in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus (except as otherwise indicated), regardless of the time of delivery of this prospectus or any sale of the Class A common shares. Our business, financial condition, results of operations, cash flows and prospects may have changed since the date on the front cover of this prospectus.

The offering is made in the United States and elsewhere solely on the basis of the information contained in this prospectus. Investors should take this into account when making investment decisions.

The following references in this prospectus have the meanings shown below:

•

“PagSeguro Digital” or the “Company” mean PagSeguro Digital Ltd., the company whose shares are being offered by this prospectus. PagSeguro Digital Ltd. is an exempted company with limited liability incorporated under the laws of the Cayman Islands.

•

“PagSeguro Brazil” means Pagseguro Internet S.A., our operating company, a sociedade anônima incorporated in Brazil. Pagseguro Internet S.A. is substantially wholly-owned by PagSeguro Digital Ltd.

•

“We,” “us” and “our” mean PagSeguro Digital, PagSeguro Brazil and PagSeguro Brazil’s subsidiaries on a consolidated basis.

•

“PagSeguro” means our digital payments business, which is operated by PagSeguro Brazil.

•

“UOL” or the “Selling Shareholder” mean Universo Online S.A., the controlling shareholder, of PagSeguro Digital. UOL is selling 48,815,789 existing Class A common shares of PagSeguro Digital in this offering, in addition to the 43,289,474 new Class A common shares being issued and sold by PagSeguro Digital itself. For more information regarding UOL, see “Principal and Selling Shareholder.”

•

The “Underwriters” means Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banco Bradesco BBI S.A., Credit Suisse (USA) Securities LLC, Deutsche Bank Securities Inc., Itau BBA USA Securities, Inc. and J.P. Morgan Securities LLC, who will together act as the underwriters of this offering.

The term “Brazil” refers to the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil. “Central Bank” refers to Banco Central do Brasil. References in the prospectus to “ real ,” “ reais ” or “R$” refer to the Brazilian real , the official currency of Brazil and references to “U.S. dollar,” “U.S. dollars” or “US$” refer to U.S. dollars, the official currency of the United States.

This prospectus contains various illustrations of our products and services. For convenience, we have translated the text in those illustrations into English. The actual products and services are generally presented to our customers in Portuguese only.

GLOSSARY OF TERMS

The following is a glossary of industry and other defined terms used in this prospectus:

“ABECS” means the Brazilian Association of Credit Card and Services Companies ( Associação Brasileira de Empresas de Cartões de Crédito e Serviços ).

“ABRANET” means the Brazilian Internet Association ( Associação Brasileira de Internet ).

“active merchant” means a merchant that has completed at least one transaction during the 12 months prior to a specified date.

“acquirer” means a payment institution that does not manage payment accounts, but enables merchants to accept payment cards issued by a payment institution or by a financial institution that participates in a card scheme. The acquirer receives the card transaction details from the merchant’s terminal, passes them to the card issuer via the card scheme for authorization, and completes the processing of the transaction. The acquirer arranges settlement of the card transaction and credits the merchant’s bank account with the funds in accordance with its service agreement with the merchant. The acquirer also deals with any chargebacks that may be received via the card issuer regarding consumer transactions with merchants.

“average spending per active merchant” is calculated by dividing our total TPV for a specified period by the number of active merchants in such period.

“ boleto ” means a printable document issued by merchants that is used to make payments in Brazil. Boletos can be used to pay bills for products or services, utilities or taxes. Each boleto refers to a specific merchant and customer transaction, and includes the merchant’s name, customer information, expiration date and total amount due, plus a serial number that identifies the account to be credited and a barcode so the entire document can be read and processed by a Brazilian ATM. A boleto can be paid in cash at a bank teller, at an ATM, or by bank transfer. PagSeguro’s payment platform and merchant account can be used to pay boletos .

“Brazilian Payments System” ( Sistema de Pagamentos Brasileiro, or SPB) refers to all the entities, systems and procedures related to the clearing and settlement of funds transfer, foreign currency operations, financial assets, and securities transactions in Brazil. The SPB includes systems in charge of check clearing; the clearing and settlement of electronic debit and credit orders, funds transfer, and other financial assets; the clearing and settlement of securities transactions; the clearing and settlement of commodities and futures transactions; and, since the introduction of Law No. 12,865/13 of May 17, 2013, payment schemes and payment institutions.

“card scheme” means a payment network using payment cards, such as debit or credit cards. Any bank or any other eligible institution can become a member of a card scheme, allowing it to issue payment cards operating on the card scheme. The card scheme passes card transaction details from the acquirer to the issuer and passes payments back to the acquirer, which in turn pays the merchant. MasterCard and Visa are major card schemes.

“Chargeback” refers to a claim where the consumer makes a purchase using a payment card and subsequently requests a reversal of the transaction amount from the card issuer on the basis of a commercial claim (for example, if the goods are not delivered, or are delivered damaged). Chargebacks occur more frequently in online transactions than in in-person transactions, and more frequently for goods than for services.

iii

“Chargebacks related to fraudulent transactions” refers to chargebacks where the consumer’s request for a reversal of the transaction amount is related to an illegitimate transaction.

“eWallet” is a digital wallet that offers customers the ability to make payments online using a variety of payment methods, including cards, without having to type in the card details each time.

“FIDC” means Fundo de Investimento em Direitos Creditórios (Fund for Investment in Receivables), a type of investment fund established under Brazilian law composed of receivables.

“GPRS” means “General Packet Radio Service”, a packet-based wireless communication service on the 2G and 3G cellular communication systems that provides continuous connection to the Internet for mobile phone and computer users.

“Grupo Folha” means the group of companies of which PagSeguro is a part. Grupo Folha also includes the newspaper Folha de S. Paulo; the eCommerce logistics companies Transfolha and SPDL; the research company Datafolha; the printing company Plural; the digital content and products companies UOL, UOL Host and UOL Ad_Lab; the e-learning company UOL Edtech; and the cloud and information technology, or IT, infrastructure services company UOL Diveo.

“Individual Micro Entrepreneurs” refers to businesses operated by individuals with annual gross revenues of up to R$60,000, as determined in accordance with the standard segmentation of Brazilian businesses by size under Brazilian Law No. 123/2006, known as the General Law on Micro and Small Enterprises, as amended, and the Brazilian tax code.

“Large Companies” refers to legal entities with annual gross revenues in excess of R$78 million. This commonly-used definition in Brazil refers to companies that are not eligible for the deemed profit ( lucro presumido ) taxation regime under Brazilian Law No. 9,718/1998, as amended.

“MDR” means merchant discount rate, a commission that we withhold from the transaction value paid to the merchant.

“meal voucher card” refers to a labor benefit included in Brazilian employment contracts, where employers provide cash for employee meals on a tax-efficient basis. The employer deposits the benefit to a prepaid card held by the employee, and the employee can use the balance on the card to make purchases in restaurants and grocery stores.

“Medium-Sized Companies” refers to legal entities with annual gross revenues of between R$3.6 million and R$78 million. This commonly-used definition in Brazil refers to companies that are eligible for the deemed profit ( lucro presumido ) taxation regime under Brazilian Law No. 9,718/1998, as amended.

“Micro Companies” refers to legal entities with annual gross revenues of up to R$360,000, as determined in accordance with the standard segmentation of Brazilian businesses by size under Brazilian Law No. 123/2006, known as the General Law on Micro and Small Enterprises, as amended, and the Brazilian tax code.

“Micro-Merchant” means Micro Companies and Individual Micro Entrepreneurs.

“Mobile Payments” refers to the payment method where a mobile phone is used to complete payment (with payment information being transmitted in real-time), instead of simply as an alternative channel to send payment instructions.

“mPOS” means mobile POS. mPOS devices are similar to POS devices, but they require the merchant’s cell phone in order to function and accept payments. mPOS devices connect to a merchant’s cell phone network by Bluetooth. As an example, the Minizinha is an mPOS device.

“NFC” means near-field communication.

“Portal do Empreendedor” means the Entrepreneur’s Portal – Individual Micro Entrepreneur ( Portal do Empreendedor – Microempreendedor Individual ), a Brazilian government web portal for Individual Micro Entrepreneurs.

“POS” means point of sale. POS devices allow merchants to accept payments where a sale is made, whether inside an establishment or outside on the street. POS includes mPOS, although various features differentiate the two systems. As an example, the Moderninha Pro is a POS device.

“SDK” means software development kit, which is typically a set of software development tools that allows for the creation of applications for software packages or frameworks, hardware platforms, computer or operating systems or similar development platforms.

“SEBRAE” means the Brazilian Micro and Small Businesses Support Service ( Serviço Brasileiro de Apoio às Micro e Pequenas Empresas ).

“Small Companies” refers to legal entities with annual gross revenues of above R$360,000 and up to R$3.6 million, as determined in accordance with the standard segmentation of Brazilian businesses by size under Brazilian Law No. 123/2006, known as the General Law on Micro and Small Enterprises, as amended, and the Brazilian tax code.

“SMEs” refers to Small Companies and Medium-Sized Companies.

“TPV” means total payment volume, being the value of payments successfully processed through our end-to-end digital ecosystem, net of payment reversals.

“unique visitor” refers to a person who visits a website at least once in a predetermined time period, typically 30 days. Each visitor to the website is only counted once during the relevant period (i.e., if the same IP address accesses the website several times, it only counts as one visitor).

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you and we urge you to read this entire prospectus carefully, including the “Risk Factors—Risks Relating to Our Business and Industry” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil” sections and the consolidated financial statements of PagSeguro Brazil and notes to those statements before deciding to invest in our Class A common shares.

Our Mission

To disrupt and democratize financial services in Brazil, a concentrated, underpenetrated and high interest rate market, by providing an end-to-end digital ecosystem that is safe, affordable, simple and mobile-first for both merchants and consumers.

Overview

We are a disruptive provider of financial technology solutions focused primarily on Micro-Merchants, Small Companies and Medium-Sized Companies, or SMEs, in Brazil. Among our peers, we are the only financial technology provider in Brazil whose business model covers all of the following five pillars:

•

Multiple digital payment solutions

•

In-person payments via POS devices that we sell to merchants

•

Free digital accounts

•

Issuer of prepaid cards to clients for spending or withdrawing account balances

•

Operating as an acquirer.

Our end-to-end digital ecosystem enables our customers not only to accept payments, but also to grow and manage their businesses. Before PagSeguro, many of these Micro-Merchants and SMEs were overlooked or underserved by incumbent payment providers and large financial institutions in Brazil. For example, according to a survey conducted by us in June 2017, 75% of merchants who own our entry-level mPOS device, the Minizinha, did not accept card payments prior to signing up with PagSeguro. We offer safe, affordable, simple, mobile-first solutions for merchants to accept payments and manage their cash through their PagSeguro digital accounts, without the need for a bank account. Our digital account offers more than 30 cash-in methods and six cash-out options including our PagSeguro prepaid card, all using our proprietary technology platform and backed by the trusted PagSeguro and UOL brands. Our digital ecosystem also features other digital financial services, business management tools and functionalities for our clients.

We launched PagSeguro in 2006 as an online payment platform to provide the digital payment infrastructure necessary for e-commerce to grow in Brazil. The credibility of our parent company UOL was key to this success. Founded in 1996, UOL is Brazil’s largest Internet content, digital products and services company. According to comScore, Inc., or comScore, 81.2 million unique visitors (approximately 73% of Brazilian internet users) accessed a UOL website in May 2017, representing an increase of 22% from 67 million in May 2016. In addition, according to Adobe Analytics (which we use to measure our audience) and Google Doubleclick for Publishers, or DFP (the adserver system that we utilize), as of May 2017, UOL achieved five billion page views, provided 15 billion display ads and had a potential video inventory of one billion video ads, each on a monthly average basis. Furthermore, UOL had more than 1.2 million monthly subscribers in May 2017. The PagSeguro and UOL brands together gave online consumers the confidence to share their sensitive personal and financial data with us, allowing them to shop online easily and safely. As an example, we brought trust to the online merchant-customer relationship by introducing a feature where we hold the consumer’s payment in escrow for a period of time after the purchase, as a precaution in case of any commercial claims.

In 2013, we expanded from online payments into point of sale, or POS, payments, allowing merchants to receive in-person payments. Focusing primarily on Micro-Merchants and SMEs, we sell a range of POS and mobile POS, or mPOS, devices specifically designed to fit their business needs. Our devices all offer competitive transaction fees and access to our end-to-end digital ecosystem, with a PagSeguro prepaid card, and without the need for a bank account. They span from our entry-level product, the Minizinha, to the Moderninha Pro, the POS device with the most connectivity features in Brazil. Unlike the incumbent payment providers in Brazil, who rent their POS devices to merchants, we innovated by allowing merchants to acquire their own POS device from us in 12 monthly installments. For the equivalent of three to six months of rental fees with the incumbents, merchants can buy a comparable device from PagSeguro.

Our digital ecosystem helps drive financial inclusion in Brazil providing business solutions primarily designed for Micro-Merchants and SMEs. Our main target markets include unbanked merchants who have been ignored or underserved by the incumbents. These merchants are attracted by our disruptive technology, which enables us to offer innovative, scalable and low-cost products and services with simpler onboarding, no paperwork and a high acceptance rate, while maintaining levels of fraud below those required by the card schemes. Once on our platform, merchants can offer consumers more than 30 cash-in methods, choose to obtain early payment of their card receivables on consumer installment transactions, and manage their cash balances on our free PagSeguro digital account, which offers six cash-out options including bank transfers, online purchasing through our eWallet, and in-person and online purchases or cash withdrawals using our PagSeguro prepaid card. Our management tools help them start or grow their business with PagSeguro as a partner, with functionalities such as sales reports and inventory control, which we believe create a strong commercial bond with our clients. We believe the combination of all these features increases our clients’ loyalty, leading them to conduct additional business with us, in a virtuous cycle. Our merchants span businesses of all types and sizes, ranging from Micro-Merchants and Small Companies such as street vendors and beauty salons, to Medium-Sized Companies and Large Companies in retail and other sectors. We also have a growing presence in the business-to-business commerce segment.

At September 30, 2017, the PagSeguro network consisted of active clients in all 26 states and the federal district in Brazil. Our business has continued to grow rapidly, despite the major macroeconomic slow-down in Brazil since 2014:

•

At September 30, 2017, our active merchants totaled 2.5 million, compared with 1.4 million at year-end 2016 and 1.2 million at September 30, 2016. Our active merchants at year-end 2016 represented an increase of 55.6% compared with 0.9 million at year-end 2015. Our active merchants at year-end 2015 represented an increase of 80.0% compared with 0.5 million at year-end 2014.

•

In the first nine months of 2017, our TPV totaled R$24.8 billion, compared with R$9.3 billion in the first nine months of 2016. Our TPV totaled R$14.1 billion in 2016, an increase of 90.8% compared with R$7.4 billion in 2015. Our TPV in 2015 represented an increase of 99.6% compared with R$3.7 billion in 2014. The growth in our TPV from R$4.9 billion in the first nine months of 2015 to R$24.8 billion in the first nine months of 2017 represented an average growth rate of 125.1% for the period.

•

In the first nine months of 2017, our average spending per active merchant totaled R$15,190, compared with R$11,920 in the first nine months of 2016. Our average spending per active merchant totaled R$12,404 in 2016, an increase of 12.3% compared with R$11,047 in 2015. Our average spending per active merchant in 2015 represented an increase of 5.7% compared with R$10,449 in 2014.

•

In the first nine months of 2017, our Total revenue and income totaled R$1,692.3 million, compared with R$757.4 million in the first nine months of 2016. Our Total revenue and income totaled R$1,138.4 million in 2016, an increase of 68.7% compared with R$674.9 million in 2015. Total revenue and income in 2015 represented an increase of 107.2% compared with R$325.8 million in 2014. The principal components of our Total revenue and income posted the following growth:

•

Our two net revenue items (Net revenue from transaction activities and other services and Net revenue from sales) together totaled R$1,152.7 million in the first nine months of 2017, compared with R$484.0 million in the first nine months of 2016. These net revenue items totaled R$740.6 million in 2016, an increase of 66.5% compared with R$444.7 million in 2015. The total of these net revenue items in 2015 represented an increase of 113.5% compared with R$208.3 million in 2014.

•

Our Financial income totaled R$535.7 million in the first nine months of 2017, compared with R$270.5 million in the first nine months of 2016. Our Financial income totaled R$392.4 million in 2016, an increase of 78.8% compared with R$219.5 million in 2015. Financial income in 2015 represented an increase of 89.5% compared with R$115.8 million in 2014.

•

In the first nine months of 2017, our Net income for the period totaled R$290.2 million, compared with R$89.3 million in the first nine months of 2016. Our Net income for the year totaled R$127.8 million in 2016, an increase of 260.1% compared with R$35.5 million in 2015. Net income for the year in 2015 represented an increase of 30.2% compared with R$27.2 million in 2014. The growth in our Net income from R$29.4 million (unaudited) in the first nine months of 2015 to R$290.2 million in the first nine months of 2017 represented an average growth rate of 214.4% for the period.

Brazil has approximately 7.1 million Individual Micro Entrepreneurs, and 3.9 million Micro Companies, 0.1 million SMEs and 0.02 million Large Companies according to SEBRAE and the Portal do Empreendedor. Individual Micro Entrepreneurs and Micro Companies represent a major market opportunity, as many of them remain unbanked and seek digital payments solutions. In addition, according to SEBRAE, the number of Individual Micro Entrepreneurs in Brazil increased by approximately one million each year from 2010 to 2016. We believe that by continuing to migrate these Individual Micro Entrepreneurs and Micro Companies into our ecosystem, we can continue to drive significant additional revenue growth in the coming years. At the same time, we will continue to introduce more value-added products and services targeted at larger clients. For example, in August 2017 we rolled out an electronic funds transfer at point of sale, or EFTPOS, integration solution enabling clients to integrate their sales software directly with our electronic funds transfer system, allowing them to process large transaction volumes and issue tax receipts more easily than with traditional POS devices.

Our merchant base is highly diversified, which shields us from dependence on a small number of business sectors or major accounts. In 2016, general retail stores, our largest volume sector, accounted for less than 15% of our overall transaction business and no other major business sector (clothing stores, food and beverage merchants, beauty parlors, or auto spares and repair shops) accounted for more than 10% of our overall transaction business. We are not dependent on any individual merchants. In 2016, our top 10 clients represented only 5% of our TPV and our top 100 clients represented only 8% of our TPV.

Our Market Opportunity

The Brazilian Payments Market Is Large, Yet Underpenetrated

•

Although Brazil is the largest economy in Latin America as measured by gross domestic product, or GDP, digital payment penetration in the country remains low compared to more developed economies. In 2015, 59% of the Brazilian population above age 15 reported having made or received a digital payment, compared to 92% in the United States and 97% in the United Kingdom, according to the World Bank. In addition, according to a December 2016 report by the Bank of International Settlements, or BIS, and data from the World Bank, card usage as a payment method in Brazil represented only approximately 28% of private consumption in 2015, compared to approximately 45% in the United States and 55% in the United Kingdom. Credit card penetration levels are a fundamental driver for the digital payments industry, yet, according to the World Bank, in 2015, only 32% of the Brazilian population above age 15 held a credit card, compared to 60% in the United States and 62% in the United Kingdom. Furthermore, 42% of the Brazilian population above age 15 made a purchase using a debit card in 2015, compared with 67% in the United States and 92% in the United Kingdom.

•

Brazil shows strong structural growth drivers for digital payments as its economy continues the transition away from cash. In 2014, according to ABECS and the Central Bank, the transaction volume for payment cards overtook the transaction volume for checks for the first time. Credit and debit card transaction volume in Brazil has increased at a compound annual growth rate of 14% from 2010 to 2016 according to ABECS. As a further indication of this growth, MasterCard stated that the Brazilian real was one of its three primary revenue billing currencies during 2016.

•

In e-commerce, transaction volumes in Brazil grew to R$44.4 billion in 2016 from R$18.7 billion in 2011 according to eMarketer, representing average growth of 18.9% per year for the period. However, e-commerce in Brazil remains underpenetrated compared to more developed economies. In Brazil, e-commerce accounted for only 3.6% of retail sales in 2016, compared to 7.8% in the United States and 18% in the United Kingdom, according to the World Bank. Furthermore, according to eMarketer, in 2015, mobile e-commerce represented 11.7% of e-commerce transactions in Brazil, compared to 23.6% in the United States. According to a 2017 report commissioned by ABECS and carried out by Datafolha, online purchases made up only 19.2% of the total credit card transaction volume in Brazil in 2016, an increase of 3.2% from 18.6% in 2015.

•

Access to mobile Internet in Brazil is growing. According to eMarketer, Brazil had the fourth largest online audience in the world with 139 million Internet users in 2016, representing penetration of 58.2% of the population, compared with penetration of 82.5% in the United States. Furthermore, according to the World Bank and calculated using the weighted average, Brazil has a high penetration of mobile phones, with 119 mobile phones per 100 inhabitants at December 31, 2016, compared to 118 in Organization for Economic Cooperation and Development, or OECD, member countries and 102 worldwide. This trend is driven in part by the rollout of 3G and 4G networks. According to the Brazilian Telecommunications Association ( Associação Brasileira de Telecomunicações, or Telebrasil), 5,016 municipalities (where 98.3% of the Brazilian population resides) had access to 3G networks as of May 2017 and 372 new municipalities had received 3G networks in the prior 12 months, representing an 8% increase during that period. Access to 4G networks also continues to grow, reaching 76% of the Brazilian population during the first quarter of 2017, an increase of 21 percentage points from the first quarter of 2016 , according to data from Telebrasil.

•

As access to mobile Internet has grown, so has the use of mobile banking. According to a research report prepared by Deloitte on behalf of the Brazilian Bank Federation ( Federação Brasileira de Bancos , or Febraban ), mobile banking increased 96% during 2016, with 34% of all online banking transactions in 2016 being made on cell phones or tablets. However, mobile banking and mobile e-commerce remain underpenetrated in Brazil. Globally, according to information compiled from Capgemini and BNP Paribas and extracted from World Payments Report 2017 dated as of October 9, 2017, the Mobile Payments purchase volume was expected to increase to US$59.7 billion in 2016 from US$24.6 billion in 2013; yet only 9% of the Brazilian population above age 15 reported having paid bills or made a purchase online in 2015, compared to 65% in the United States and 73% in the United Kingdom, according to the World Bank.

Micro-Merchants and SMEs Account for a Large Portion of the Brazilian Economy and Need Suitable Payments Solutions to Flourish

•

Due to higher prices by banks and other incumbent providers many Micro-Merchants and SMEs remain unbanked and seek digital payments solutions. We believe that by attracting these merchants into our ecosystem with our superior value proposition, we can continue to drive significant additional revenue growth in the coming years.

•

Demand for payment solutions by Micro-Merchants and SMEs is resilient, both during times of higher economic activity when sales increase, as well as during times of lower economic activity and higher unemployment, when more individual entrepreneurs open new small businesses, as demonstrated by our growth rates since our launch.

Micro-Merchants and SMEs Need Working Capital Financing

•

In the standard payment cycle in Brazil, merchants receive sales revenues from credit card transactions 30 business days after the consumer transaction. In addition, Brazilian consumers expect merchants to allow them to choose at the point of purchase to have the purchase price either (i) charged to their credit card accounts in a single payment, as in other markets, or (ii) split into several payments and only charged to their credit card accounts in monthly installments. In this case, the merchant only receives the revenues after the respective monthly installment has been charged, rather than 30 business days after the original transaction. Together, the 30-day payment cycle and the installment option create working capital difficulties for merchants. We offer two services to help merchants improve their cash flow. To shorten the payment cycle, our “payment date election” service ( regime de recebimento ) allows our merchants to receive their credit card revenues from us either (i) in the regular 30-day payment cycle or (ii) if the merchant so elects, on the 14 ^th or first business day. To help our merchants offer the installment payment option to consumers, we offer to pay the monthly installment receivables to our merchants either (i) when each installment is charged to the consumer’s card or (ii) if the merchant elects our early payment feature, on an up-front basis. Micro-Merchants and SMEs have historically faced difficulties obtaining this service from the incumbent payment processing providers, and they often require merchants to request early payment on a transaction-by-transaction basis via phone call. We offer a solution to these bottlenecks through simpler onboarding and preapproval of a merchant’s early payments. The underlying receivables relating to these payments are owed to us by the credit card issuers, which are owned primarily by Brazil’s large retail banks. This early payment of receivables feature creates an important working capital alternative for our merchants while also generating income for us.

Major Benefits for Our Customers

We offer the following major benefits for both merchants and consumers:

•

Customers do not need a bank account to join our ecosystem. With a 100% online onboarding process, without paperwork, quick turnaround and a high acceptance rate, we offer access to our advanced digital payment processing and early payment of merchants’ installment receivables. We accept merchants who are either individuals or companies.

•

We offer a full suite of more than 30 cash-in options under a single contract, with security and reliability, plus six cash-out options including bank transfers, online purchasing, and spending both in-person and online as well as cash withdrawals using our PagSeguro prepaid card.

•

Our pricing model for all of our services––whether transaction fees, early payment of installment receivables or sales of POS devices––is simple, transparent and easy to understand.

•

Our social payment solutions, such as Pag.ae, allow both consumers and merchants to use their PagSeguro account to request payments via web links sent through e-mail, social networks or messaging services such as WhatsApp.

•

We offer a comprehensive suite of affordable POS devices, with user-friendly features and functionalities, reliable connectivity and a five-year warranty. Our devices range from the entry-level Minizinha to the Moderninha Pro, the first single unit to offer GPRS/2G/3G chip connection, NFC, plug-and-play Wi-Fi and Bluetooth connections (for commercial automation and connection to other devices) on the same device, making it the POS device with the most connectivity features in Brazil. Merchants purchase their own device through a flexible payment plan. For the equivalent of three to six months’ rental payments with incumbents, merchants can buy a comparable device from PagSeguro and avoid continuous monthly rental fees.

•

Data protection and confidentiality for consumers, with merchant verification and transaction protection mechanisms, including escrow periods and claim mediation services.

•

Our payment solutions reduce the need for consumers to carry cash since more Micro-Merchants and SMEs are able to accept digital payments in-person.

Our Products and Services

We provide a wide range of affordable solutions and tools to help our merchants manage and grow their businesses. These include a variety of cash-in and cash-out options with features designed to attract and retain clients, provide them with access to working capital and help them manage their cash flow.

The PagSeguro Ecosystem

LOGO

The Free PagSeguro Digital Account

Merchants can sign up for a free PagSeguro digital account, gaining access to all of the offerings in our ecosystem, through a single online contract that can be completed in minutes without paperwork. By signing up with us, merchants can automatically start accepting more than 30 cash-in methods, all with antifraud protection, and can access our business management tools. For merchants who require more complex functionalities, we offer value-added services and features such as the early payment of installment receivables, accounting reconciliation and shipping solutions. With our free PagSeguro digital account, merchants may transfer their revenues to a bank account and also use our products and services to spend their revenues or other funds directly on our platform by (i) buying online, (ii) making peer-to-peer transfers or (iii) transferring their balance to the PagSeguro prepaid card, allowing them to buy goods and services in-person and online or withdraw cash at more than one million Cirrus network ATMs in Brazil and abroad.

For consumers, the free PagSeguro digital account offers not only numerous easy and safe options to pay merchants, but also the option to save their card details on our eWallet solution and to make and receive peer-to-peer payments.

We believe these products and services create a “network growth effect”. The advantages of our digital payment solutions for merchants drive growth in their businesses, and the advantages of our digital payment solutions for consumers lead them to prefer merchants who offer these solutions, resulting in the acquisition of new clients through word-of-mouth recommendations by both merchants and consumers.

Our main products and services fall into the follow categories:

•

Cash-In Solutions

Online and in-person payment tools

Wide range of payment methods including credit cards, debit cards, meal voucher cards, boletos , bank transfers, bank debits and cash deposits

•

Early payment of installment receivables

•

Advanced Built-in Functionalities and Value-Added Services and Features : Our digital account comes with a number of advanced built-in functionalities, provided free of charge, as well as value-added services and features designed to protect both merchants and consumers and help our merchants successfully manage their businesses.

•

Cash-Out Solutions

Online purchases via eWallet

PagSeguro prepaid cards

On-platform peer-to-peer transfers

Bank transfers

Cross-border remittances

Our Competitive Strengths

We believe the following business strengths have allowed us to compete successfully and grow profitably in the 10 years since our launch:

Disruptive Provider of Payment Solutions to Clients

We have taken a new approach to offering digital financial services to Brazilian clients, especially Micro-Merchants and SMEs. Instead of simply processing transactions, our end-to-end digital platform creates an ecosystem where our clients can transact and manage their cash, without the need to open a bank account. We are focused on providing disruptive products and solutions that are secure, affordable, scalable and easy to use, with simple and transparent pricing. According to a survey conducted by us in October 2016, 81% of our merchants used PagSeguro as their sole electronic payments service and according to a survey conducted by us in June 2017, 75% of Minizinha owners did not accept cards before signing up with us. For larger merchants who have larger transaction volumes and require more complex controls, we offer value-added services and features such as (i) flexible crediting dates; (ii) payment into separate bank accounts for each card scheme; (iii) a split payment solution, which automatically segregates credits between two different companies; (iv) a seamless single-click checkout option, allowing customers to make purchases with a single click; and (v) our EFTPOS integration solution, which we launched in August 2017. Our innovative approach also brought trust to the online merchant-customer relationship by introducing a feature where we hold the consumer’s payment in escrow for a period after the purchase, as a precaution in case of any commercial claims.

We have also created an innovative business model for merchants to access POS devices in Brazil, as we sell rather than rent our devices to merchants. For the equivalent of three to six months of leasing costs with our competitors, merchants can buy a comparable device from PagSeguro with no need to pay continuous rental fees.

Trusted Brand with Strong Merchant and Consumer Relationships

We have promoted transaction security since our launch. UOL is a well-known and trusted brand with a large audience. According to comScore, 81.2 million unique visitors accessed the UOL website in May 2017 (approximately 73% of Brazilian internet users). Consumers trust the PagSeguro and UOL brands with their sensitive personal and financial data. We continue to build and maintain brand recognition and trust through a variety of marketing campaigns, including advertising through traditional media, such as television, magazines and newspapers, and online advertising such as display media, videos, search results and social media.

In addition, we continually invest in our merchant and consumer relationships by providing continuous customer service, account support and business solutions.

The strength of our brand, products and services has been recognized in a number of awards, including:

•

Named as the “ Best Company for Consumers ” for electronic payments in both 2017 and 2016 and for online payments in 2015 by Época magazine and Reclame Aqui , a consumer protection service;

•

Recognized for “ Best Payment Processing ” in 2015 by Afiliados Brasil , a marketing company;

•

Recognized as the best company in our industry in terms of client service excellence by Consumidor Moderno , a customer service magazine, in 2015 and 2017; and

•

Recognized for leading performance in Brazilian retail by Prêmio BR Week in 2016.

Customer-Centric Approach Focused on Innovation and Disruption of Incumbents

We have an in-depth understanding of our clients, the issues they face and the markets in which they operate. As a pioneer in the Brazilian digital payments market, we are able to anticipate trends and translate them into products and solutions that meet our customers’ needs more efficiently than global competitors operating in Brazil. The Brazilian market expects payment providers to offer a number of country-specific features, such as boletos and early payment of merchants’ receivables when consumers purchase in installments by credit card, all of which are central to Brazilian financial culture. We built our payments ecosystem and our merchant services offering around these specificities, offering tailor-made solutions for the Brazilian market.

Although all our solutions also work for desktop and other non-mobile platforms, we design our solutions on a mobile-first basis so that our clients can be self-sufficient at all times. This is important for us since, according to a client survey that we conducted, 49% of our new clients do not do business in a “bricks and mortar” location. All of our transaction systems are fully compatible with the mobile environment. We also maintain a strict focus on ongoing innovation, selecting and developing new products and services with a high level of speed to market. This is evidenced by our investment of R$68.0 million in expenditures on software and technology in the nine months ended September 30, 2017, equal to 4.0% of our Total revenue and income for the period. Additionally, we believe our distribution platform and marketing strategies are well-suited to reaching Micro-Merchants and SMEs in Brazil.

Innovative, Reliable and Scalable Proprietary Technology Platform

We manage large volumes of system access data and transactions, with more than 99.9% availability from May 2016 to April 2017, using Internet data centers provided by UOL Diveo, a UOL group company that provides IT, outsourcing, data centers, cloud computing and other managed IT services to UOL, PagSeguro and 1,200 other large clients, including Amazon, with which UOL Diveo has an eight-year colocation contract, renewable for four more years. Our transactions per second monthly peak increased by a multiple of 39 between May 2015 and August 2017 and our monthly deployments increased by a multiple of 49 from January 2016 to January 2017. Backed by UOL Diveo, we are able to scale up our services while retaining high availability for peak-volume occasions such as Christmas, Mother’s Day and Black Friday. This high-availability and continuously deployed platform ensures that all of our clients are able to operate with the latest features and the newest innovations without needing to patch or upgrade their software. Our scale as a UOL group company allows us to establish favorable partnerships with several suppliers, including software developers and hardware manufacturers. With our specialized team of 621 people focused on developing reliable, scalable and proprietary systems and new products and features, we regularly roll out innovative and disruptive solutions that are tailored to the Brazilian market.

Highly Experienced Management Team, Innovation-Driven Culture

Our highly experienced management team has extensive experience in all areas of the Brazilian payments market, with in-depth knowledge of online payments, retail, financial services, technology, payment processing, in-person electronic payments, acquiring and card issuance. Together, this management experience covers all of our customers’ needs, allowing us to plan the future of PagSeguro.

Our culture reflects UOL’s innovation-driven focus, instilling in our professionals a passion for serving consumers and merchants and motivating them to provide next-generation payment capabilities in Brazil. At September 30, 2017, the average age of our employees was 32, 85% of them had a bachelor’s degree or higher and 36% were women. We also offer a long-term motivation plan for key professionals and apply meritocratic methods to engage all our professionals, recognize their value and keep them motivated.

Our Growth Strategies

We aim to continue to drive rapid profitable growth and generate further shareholder value by implementing the following strategic initiatives:

Expand Our Customer Base and Deepen Our Relationships with Existing Accounts

Our focus is to continue acquiring new clients in our target markets by investing strategically in our brand and solutions, targeting the business sectors and geographic regions where there are still significant opportunities to reach new customers, expanding TPV and, consequently, generating more revenues. We believe there remains a significant unmet need in these markets that our solutions can fulfill. We are focused on cultivating our ecosystem to address these everyday electronic payment needs. At the same time, we will introduce further value-added products and services aimed at larger clients, leveraging our lean, technological, scalable, proprietary and secure infrastructure.

We will continue to invest in retaining and deepening relationships with our existing clients, offering new cash-in and cash-out solutions to drive additional revenues and increasingly replacing bank accounts for customers that already have them. Many of our merchants have grown within our platform, for example from purchasing a single POS device to choosing to receive early payment of their card receivables on consumer installment transactions, and we believe our business management tools can be further leveraged to increase customer engagement. We intend to continue to be a first mover, extending our platform to offer a full integrated suite of financial products and services, further enhancing customer experience.

Continuous Innovation and Focus on Technology

Technology and innovation are in the DNA of the UOL group and are at the core of our business success, with products and engineering personnel representing 61% of the total headcount of PagSeguro as at September 30, 2017. We will continue to invest in research and development to strengthen and extend our digital solutions. Using our qualified product and service design teams and research and development team, we intend to roll out a portfolio of new solutions, for both merchants and consumers, based on mobile apps, in order to drive more revenues while further strengthening our mobile-first commitment and simplifying our clients’ lives.

Our efficiencies of scale, relentless cost discipline, and ongoing improvements to systems and processes allow us to continue lowering our costs. As our scale has expanded over the past three years, our expenses have declined when compared to our Total revenue and income: for example, our Selling expenses and Administrative expenses, taken together, decreased to 17.2% of our Total revenue and income in the nine months ended September 30, 2017 from 21.2% in the nine months ended September 30, 2016 and decreased to 25.0% of our Total revenue and income in 2016 from 40.7% in 2014. By maintaining our spirit of innovation combined with our cost focus, we intend to continue to drive costs down to achieve further profitable growth.

Seize Opportunities from Ongoing Amendments to Regulation

The Central Bank’s regulatory program seeks to increase competition in the payments industry. Recently it terminated the exclusive banking arrangements between banks and some card and meal voucher schemes. By seizing these opportunities, disruptive product offerings like our PagSeguro prepaid cards gave unbanked customers access to a card payment solution. We were also the first payments provider in Brazil, other than the incumbent acquirers controlled by banks, to obtain accreditation from MasterCard and Visa as an acquirer, and we have also signed partnerships with Elo, American Express and other card schemes. We will continue using our local knowledge and proximity to customers to seize new business opportunities as the market continues to open.

Recent Developments

BIVA Acquisition

In October 2017, we acquired a controlling interest in BIVACO Holding S.A., or BIVA, an online platform that facilitates peer-to-peer lending. In November 2017, we acquired an additional interest in BIVA, bringing our total interest to 59.3% of BIVA’s share capital. The total amount we paid for our shareholding in BIVA was R$18.4 million. BIVA’s activity falls within the advanced built-in functionalities and value-added services and features that we offer. For more information, see “Business—Our History” and “Business—Our Products and Services—The PagSeguro Ecosystem—Advanced Built-In Functionalities and Value-Added Services and Features—Peer-to-Peer Lending.”

Preliminary Results for Full Year 2017 and Fourth Quarter of 2017

Our financial results for the year ended December 31, 2017 and the three months ended December 31, 2017 are not yet finalized. The following information reflects our preliminary results for these periods:

Year Ended December 31, 2017

Our TPV for the year ended December 31, 2017 is expected to be approximately R$38.5 billion, compared with R$14.1 billion in 2016.

Our number of active merchants is expected to total approximately 2.8 million at December 31, 2017, compared with 1.4 million at year-end 2016.

Our Total revenue and income for the year ended December 31, 2017 is expected to be between R$2,485.0 million and R$2,515.0 million, compared with R$1,138.4 million in 2016.

Net income for the year ended December 31, 2017 is expected to be between R$460.0 million and R$480.0 million, compared with R$127.8 million in 2016.

Three Months Ended December 31, 2017

Our TPV for the three months ended December 31, 2017 is expected to be approximately R$13.7 billion, compared with R$4.8 billion in the same period of 2016.

Our Total revenue and income for the three months ended December 31, 2017 is expected to be between R$795.0 million and R$825.0 million, compared with R$381.0 million in the same period of 2016.

Net income for the three months ended December 31, 2017 is expected to be between R$170.0 million and R$190.0 million, compared with R$38.5 million in the same period of 2016.

Cautionary Statement Regarding Preliminary Results

The results for the year ended December 31, 2017 and the three months ended December 31, 2017 are preliminary, unaudited and subject to completion, reflect our management’s current views and may change as a result of our management’s review of results and other factors, including a wide variety of significant business, economic and competitive risks and uncertainties. Such preliminary results for the year ended December 31, 2017 and the three months ended December 31, 2017 are subject to the finalization and closing of our accounting books and records (which have yet to be performed), and should not be viewed as a substitute for full quarterly financial statements prepared in accordance with IFRS. We caution you that these preliminary results for the year ended December 31, 2017 and for the three months ended December 31, 2017 are not guarantees of future performance or outcomes and that actual results may differ materially from those described above. For more information regarding factors that could cause actual results to differ from those described above, please see “Risk Factors” and “Special Note Regarding Forward-Looking Statements”. Neither we nor the Selling Shareholder undertake any obligation to update publicly or to revise any forward-looking statements after we distribute this prospectus because of new information, future events or other factors. You should read this information together with the sections of this prospectus entitled “Selected Financial and Operating Information of PagSeguro Brazil” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil,” the audited consolidated financial statements of PagSeguro Brazil and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil included elsewhere in this prospectus.

These preliminary results have been prepared by and are the sole responsibility of our management. PricewaterhouseCoopers Auditores Independentes has not audited, reviewed, compiled or performed any procedures with respect to the accompanying preliminary financial data. Accordingly, PricewaterhouseCoopers Auditores Independentes does not express an opinion or any other form of assurance with respect thereto.

Summary of Risk Factors

An investment in our Class A common shares is subject to a number of risks, including risks relating to our business and industry, risks related to Brazil and risks related to the offering and our Class A common shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.

Risks Relating to Our Business and Industry

•

If we cannot keep pace with rapid technological developments to provide new and innovative products and services, and address the rapidly evolving market for transactions on mobile devices, the use of our product and services and, consequently, our revenues could decline.

•

Our services must integrate with a variety of operating systems and networks, and the hardware that enables merchants to accept payment cards must interoperate with mobile networks offered by telecom operators and third-party mobile devices utilizing those operating systems. If we are unable to ensure that our services or hardware interoperate with such networks, operating systems and devices, our business may be seriously harmed.

•

Our business depends on a strong and trusted brand, and any failure to maintain, protect and enhance our brand would harm our business.

•

Our business is subject to extensive government regulation and oversight and our status under these regulations may change. Violation of or compliance with present or future regulation could be costly, expose us to substantial liability and force us to change our business practices, any of which could seriously harm our business and results of operations.

•

Failure to deal effectively with fraud, fictitious transactions, bad transactions or negative customer experiences would increase our loss rate and harm our business, and could severely diminish merchant and consumer confidence in and use of our services.

•

The e-commerce market in Brazil is developing, and the expansion of our business depends on the continued growth of e-commerce, as well as increased availability, quality and usage of the Internet in Brazil.

•

Some of the key components of our POS devices are sourced from a limited number of suppliers. We are therefore at risk of shortage, price increases, changes, delay or discontinuation of key components, which could disrupt and harm our business.

•

We partially rely on card issuers or card schemes to process our transactions. Changes to credit card scheme fees, rules or practices may harm our business.

•

We are a holding company and do not have any material assets other than the shares of our subsidiaries.

Risks Relating to Brazil

•

The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares.

•

Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our Class A common shares.

•

Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our Class A common shares.

Risks Relating to the Offering and our Class A Common Shares

•

Our Class A common shares have not previously been traded on any stock exchange and, therefore, an active and liquid trading market for such securities may not develop, which could potentially depress the trading price of our Class A common shares after this offering.

•

UOL, our largest shareholder, will own 100% of our outstanding Class B common shares, which represent approximately 95.8% of the voting power of our issued share capital following the offering, and will control all matters requiring shareholder approval. This concentration of ownership and voting power limits your ability to influence corporate matters.

•

Our dual class capital structure means our stock will not be included in certain indices. We cannot predict the impact this may have on our stock price.

Corporate Information

PagSeguro Digital is incorporated as an exempted company with limited liability in the Cayman Islands. Our principal executive office is located at Avenida Brigadeiro Faria Lima, 1384, 01452-002 São Paulo – SP, Brazil. Our investor relations office can be reached at +55 (11) 3038-8123 and our website address is www.pagseguro.uol.com.br . Information provided on our website is not part of this prospectus and is not incorporated by reference herein.

THE OFFERING

This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our Class A common shares. You should carefully read this entire prospectus before investing in our Class A common shares including “Risk Factors” and the audited consolidated financial statements of PagSeguro Brazil.

Issuer

PagSeguro Digital Ltd.

Offering

We are offering 43,289,474 Class A common shares and UOL, the Selling Shareholder, is offering 48,815,789 Class A common shares.

Offering price range

Between US$17.50 and US$20.50 per Class A common share.

LTIP

In addition, 1,895,879 new Class A common shares will be issued without cash consideration to certain members of our management who are beneficiaries under the LTIP immediately upon completion of this offering. This expected number of shares issuable under the LTIP is based on the midpoint of the estimated offering price range set forth on the cover page of this prospectus. See “Management – Long-Term Incentive Plan.”

Shares outstanding

Immediately prior to this offering, UOL holds all of the 262,288,607 issued and outstanding shares in PagSeguro Digital Ltd. After accounting for the 43,289,474 new Class A common shares to be issued and sold by PagSeguro Digital in this offering and the 1,895,879 new Class A common shares expected to be issued to certain members of our management who are beneficiaries under the LTIP immediately upon completion of this offering (share number based on the midpoint of the estimated price range set forth on the cover page of this prospectus), PagSeguro Digital will have a total of 307,473,960 common shares issued and outstanding immediately following this offering. 213,472,818 of these shares will be Class B common shares beneficially owned by UOL, 92,105,263 of these shares will be Class A common shares beneficially owned by investors purchasing in this offering and 1,895,879 will be Class A common shares beneficially owned by members of our management (numbers of shares in this paragraph assume no exercise of the underwriters’ option to purchase up to 13,815,789 additional shares from UOL, which shares would convert from Class B common shares to Class A common shares upon such purchase).

Voting rights

The Class A common shares will be entitled to one vote per share, whereas the Class B common shares (which are not being sold in this offering) will be entitled to 10 votes per share.

Option to purchase additional Class A common shares

UOL, the Selling Shareholder, has granted the underwriters the right, exercisable in whole or in part on a maximum of two occasions, to purchase up to an additional 13,815,789 Class A common shares of PagSeguro Digital from UOL within 30 days from the date of this prospectus.

Listing

We have applied to list the Class A common shares on the New York Stock Exchange, or NYSE, under the symbol “PAGS”.

Use of proceeds

We estimate that the net proceeds to PagSeguro Digital from the offering will be approximately US$789.0 million, after deducting commissions and estimated expenses payable by us, and assuming an initial public offering of US$19.00 per Class A common share, which is the midpoint of the estimated price range set forth on the cover of this prospectus. We currently plan to use the net proceeds from this offering to finance working capital, particularly the early payment of receivables feature that we offer merchants, and to fund future selective acquisitions and investments in businesses, technologies or products that are complementary to our business. Any remaining net proceeds will be used for other general corporate purposes. Our management will have broad discretion in allocating the net proceeds from this offering. We will not receive any proceeds from the sale of common shares by UOL. See “Use of Proceeds.”

Authorized share capital

As of the date of this prospectus, the authorized share capital of PagSeguro Digital is US$50,000 consisting of 2,000,000,000 shares of par value US$0.000025 each. Of those authorized shares, 1,000,000,000 are designated as Class A common shares and 500,000,000 are designated as Class B common shares. The remaining authorized shares are as yet undesignated and may be issued as common shares or shares with preferred rights.

Dividend policy

Lock-up agreements

offering, as well as UOL, have agreed to substantially similar lock-up provisions, subject to certain exceptions. See “Common Shares Eligible for Future Sale.”

In addition, the shares expected to be issued to certain members of our management under the LTIP upon completion of this offering will be subject to a one-year lock-up period under the terms of the LTIP. Any shares that are issued under the LTIP on subsequent vesting dates during the first year after our initial public offering will be subject to the remainder of that same lock-up period, expiring one year after the closing of this offering. See “Management – Long-Term Incentive Plan.”

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in Class A common shares.

Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the option granted by UOL to the underwriters, exercisable in whole or in part on a maximum of two occasions, to purchase up to 13,815,789 additional Class A common shares of PagSeguro Digital from UOL in connection with this offering.

SUMMARY FINANCIAL AND OPERATING DATA OF PAGSEGURO BRAZIL

The following tables summarize financial and operating data of PagSeguro Brazil for each of the periods indicated. You should read this information in conjunction with the audited consolidated financial statements and related notes for PagSeguro Brazil, the information included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil”, all included elsewhere in this prospectus.

This summary financial data at and for the years ended December 31, 2016, 2015 and 2014, has been derived from the audited consolidated financial statements of PagSeguro Brazil, which are included elsewhere in this prospectus and which have been prepared in accordance with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.

This summary financial data at and for the nine months ended September 30, 2017 and 2016, has been derived from the unaudited condensed consolidated interim financial statements of PagSeguro Brazil, which are included elsewhere in this prospectus and which have been prepared in accordance with Accounting Standard IAS 34 Interim Financial Reporting, or IAS 34, as issued by the IASB.

Statements of Operations Data


	For the Years Ended December 31,
	2016			2016			2015			2014
	(US$) ⁽¹⁾			(R$)			(R$)			(R$)
	(in millions, except amounts per share and%)
Net revenue from transaction activities and other services		151.5			480.0			268.2			160.1
Net revenue from sales		82.3			260.6			176.5			48.2
Financial income		123.9			392.4			219.5			115.8
Other financial income		1.7			5.3			10.7			1.8

Total revenue and income		359.3			1,138.4			674.9			325.8


Cost of sales and services		(196.9	)		(623.7	)		(382.5	)		(142.5	)
Selling expenses		(63.1	)		(199.9	)		(162.6	)		(81.4	)
Administrative expenses		(26.7	)		(84.5	)		(61.1	)		(51.3	)
Financial expenses		(21.6	)		(68.3	)		(29.7	)		(11.1	)
Other (expenses) income, net		(2.1	)		(6.7	)		1.3			(3.3	)

Profit before Income Taxes		49.0			155.4			40.3			36.2
Current income tax and social contribution		(2.3	)		(7.4	)		(2.6	)		(9.9	)
Deferred income tax and social contribution		(6.4	)		(20.1	)		(2.2	)		1.0

Income Tax and Social Contribution		(8.7	)		(27.6	)		(4.8	)		(8.9	)

Net Income for the Year		40.3			127.8			35.5			27. 2


Attributable to:
Owners of PagSeguro Brazil		40.1			127.2			35.1			26.0
Non-controlling interests		0.2			0.6			0.4			1.3

Basic and diluted earnings per common share – R$ ⁽²⁾		0.1531			0.4849			0.1338			0.0990

(1)

For convenience purposes only, amounts in reais for the year ended December 31, 2016 have been translated to U.S. dollars using a rate of R$3.1680 to US$1.00, the commercial selling rate for U.S. dollars at September 30, 2017 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 into U.S. dollars at that or at any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

(2)	Based on 262,288,607 common shares of PagSeguro Brazil issued and outstanding.


	For the Nine Months Ended September 30,
	2017			2017			2016
	(US$) ⁽¹⁾			(R$)			(R$)
	(in millions, except amounts per share and%)
Net revenue from transaction activities and other services		249.7			791.2			319.8
Net revenue from sales		114.1			361.5			164.2
Financial income		169.1			535.7			270.5
Other financial income		1.2			3.9			2.9

Total revenue and income		534.2			1,692.3			757.4

Cost of sales and services		(289.9	)		(918.4	)		(435.1	)
Selling expenses		(58.1	)		(184.1	)		(99.8	)
Administrative expenses		(34.0	)		(107.7	)		(60.7	)
Financial expenses		(20.1	)		(63.8	)		(39.5	)
Other (expenses) income, net		(1.6	)		(5.0	)		(6.0	)

Profit before Income Taxes		130.4			413.3			116.2
Current income tax and social contribution		(39.2	)		(124.1	)		(15.8	)
Deferred income tax and social contribution		0.3			1.1			(11.0	)

Income Tax and Social Contribution		(38.8	)		(123.0	)		(26.8	)

Net Income for the Period		91.6			290.2			89.3


Attributable to:
Owners of PagSeguro Brazil		91.5			289.8			88.7
Non-controlling interests		0.1			0.4			0.6

Basic and diluted earnings per common share – R$ ⁽²⁾		0.3488			1.1050			0.3 383

(1)

For convenience purposes only, amounts in reais for the nine months ended September 30, 2017 have been translated to U.S. dollars using a rate of R$3.1680 to US$1.00, the commercial selling rate for U.S. dollars at September 30, 2017 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 into U.S. dollars at that or at any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

(2)	Based on 262,288,607 common shares of PagSeguro Brazil issued and outstanding.

Operating Data

At and For the Years Ended December 31,

2016 ⁽¹⁾

2016

2015

2014

Operating Statistics:

Active merchants at year-end (in millions)

1.4

0.9

0.5

TPV (in billions)

US$4.5

R$14.1

R$7.4

R$3.7

Average spending per active merchant

US$3,915

R$12,404

R$11,047

R$10,449

(1)

For convenience purposes only, amounts in reais for the year ended December 31, 2016 have been translated to U.S. dollars using a rate of R$3.1680 to US$1.00, the commercial selling rate for U.S. dollars at September 30, 2017, 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 into U.S. dollars at that or at any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

At and For the Nine Months Ended
September 30,

2017 ⁽¹⁾

2017

2016

Operating Statistics:

Active merchants at period-end (in millions)

2.5

1.2

TPV (in billions)

US$7.8

R$24.8

R$9.3

Average spending per active merchant

US$4,795

R$15,190

R$11,920

(1)

For convenience purposes only, amounts in reais for the nine months ended September 30, 2017 have been translated to U.S. dollars using a rate of R$3.1680 to US$1.00, the commercial selling rate for U.S. dollars at September 30, 2017, 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 into U.S. dollars at that or at any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

Balance Sheet Data

The following table presents key line items from our consolidated balance sheet data:

At December 31,

2016

2015

2014

(US$) ⁽¹⁾

(R$)

(in millions)

Total Current Assets

716.8

2,270.8

1,240.8

778.6

Total Non-Current Assets

31.5

99.7

59.9

39.0

TOTAL ASSETS

748.2

2,370.4

1,300.7

817.6


	At December 31,
	2016		2016		2015		2014
	(US$) ⁽¹⁾		(R$)		(R$)		(R$)
	(in millions)
Total Current Liabilities		542.7		1,719.2		832.5		385.3
Total Non-Current Liabilities		7.7		24.4		6.3		5.7

TOTAL LIABILITIES		550.3		1,743.5		838.8		391.0
TOTAL EQUITY		197.9		626.9		461.9		426.6

TOTAL LIABILITIES AND EQUITY		748.2		2,370.4		1,300.7		817.6

(1)

At September 30,
(Unaudited)

At December 31,
(Audited)

2017

2016

(US$) ⁽¹⁾

(R$)

(in millions)

Total Current Assets

981.3

3,108.8

2,270.8

Total Non-Current Assets

49.0

155.3

99.7

TOTAL ASSETS

1,030.3

3,264.1

2,370.4


	At September 30, (Unaudited)				At December 31, (Audited)
	2017		2017		2016
	(US$) ⁽¹⁾		(R$)		(R$)
	(in millions)
Total Current Liabilities		803.0		2,543.9		1,719.2
Total Non-Current Liabilities		13.2		41.8		24.4

TOTAL LIABILITIES		816.2		2,585.7		1,743.5
TOTAL EQUITY		214.1		67 8.4		626.9

TOTAL LIABILITIES AND EQUITY		1,030.3		3,264.1		2,370.4

(1)

RISK FACTORS

This initial public offering and an investment in our Class A common shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment decision regarding our Class A common shares. The risks described below are those that we currently believe may harm our business or the trading price of our Class A common shares. In general, investing in the securities of issuers whose operations are located in emerging market countries such as Brazil involves a higher degree of risk than investing in the securities of U.S. companies and companies located in other countries with more developed capital markets.

If any of the risks discussed in this prospectus actually occur, alone or together with additional risks and uncertainties that we are not currently aware of or do not currently deem material, our business, financial condition, results of operations and prospects may be seriously harmed. If this were to occur, the value of our Class A common shares may decline and you may lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this prospectus, including our financial statements and the related notes thereto. You should also carefully review the cautionary statements referred to under “Special Note Regarding Forward-Looking Statements.” Our actual results could be materially lower than those anticipated in this prospectus.

Risks Relating to Our Business and Industry

Rapid, significant and disruptive technological changes continue to impact the industries in which we operate, including developments in payment card tokenization, mobile payments, social commerce (i.e., e-commerce through social networks), authentication, virtual currencies, distributed ledger or blockchain technologies, near field communication and other proximity or contactless payment methods, virtual reality, machine learning and artificial intelligence.

For instance, mobile devices are increasingly used for e-commerce transactions and payments. A significant and growing portion of our customers access our platforms through mobile devices, including for regular online shopping as well as for in-person transactions. In the first nine months of 2017, 42% of our customers accessed our platforms through mobile devices, compared with 32% in the first nine months of 2016. We may lose customers if we are not able to continue to meet our customers’ mobile and multi-screen experience expectations. Different mobile devices and platforms use a wide variety of technical and other configurations, which increase the challenges involved in providing payments in the mobile environment. In addition, a number of other companies with significant resources and a number of innovative startups have introduced products and services focusing on mobile markets. We cannot guarantee that we will be able to continue to meet customer expectations in the mobile environment or increase our volume of mobile transactions.

We cannot predict the effects of technological changes on our business. In addition to our own initiatives and innovations, we rely in part on third parties for the development of and access to new technologies. We expect that new services and technologies applicable to the industries in which we operate will continue to emerge and may be superior to, or render obsolete, the technologies we currently use in our products and services. Developing and incorporating new technologies into our products and services may require substantial expenditures, take considerable time, and ultimately may not be successful. In addition, our ability to adopt new products and services and develop new technologies may be inhibited by industry-wide standards, payment networks, changes to laws and regulations, resistance to change from consumers or merchants, third-party intellectual property rights, or other factors. Our success will depend on our ability to develop and incorporate new technologies, address the challenges posed by the rapidly evolving market for mobile transactions through our platforms and adapt to technological changes and evolving industry standards; if we are unable to do so in a timely or cost-effective manner, our business could be harmed.

Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.

We compete in markets characterized by vigorous competition, changing technology, changing customer needs, evolving industry standards and frequent introductions of new products and services. We compete with existing providers of digital payment solutions, in-person payments via POS, free digital accounts, prepaid cards and acquisition activities. In the online digital payments market, we compete primarily with international online payment services, such as PayPal, and regional players, such as MercadoPago from MercadoLibre and MoIP/Wirecard. In the POS payments market, we compete primarily with international players, such as SumUp/Payleven, and regional players, such as MercadoPago from MercadoLibre. As is the case with the digital payments industry in general, we also compete with other means of payment, both digital and traditional, including cash, checks, money orders and electronic bank deposits.

We expect competition to intensify in the future as existing and new competitors introduce new services or enhance existing services. We compete against many companies to attract customers, and some of these companies have greater financial resources and substantially larger bases of customers than we do, which may provide them with significant competitive advantages. These companies may devote greater resources than we do to the development, promotion and sale of products and services, and they may be more effective in introducing innovative products and services that hinder our growth. Competing services tied to established banks and other financial institutions may offer greater liquidity and create greater consumer confidence in the safety and efficiency of their services than PagSeguro. Mergers and acquisitions by or among these companies may lead to even larger competitors with more resources. We also expect new entrants to offer competitive products and services. For example, established banks and other financial institutions currently offer online payments and those which do not yet provide such services could quickly and easily develop them. Certain merchants have longstanding exclusive, or nearly exclusive, relationships with our competitors to accept payment cards and other services that we offer. These relationships may make it difficult or cost prohibitive for us to conduct material amounts of business with them. If we are unable to differentiate ourselves from and successfully compete with our competitors, our business will suffer serious harm.

We may also face pricing pressures from competitors. Certain competitors are able to offer lower prices to merchants for similar services by cross-subsidizing their digital payments services using other services they offer. This competition may mean we need to reduce our pricing, which could reduce our profits. As they grow, merchants may demand more customized and favorable pricing from us, and competitive pressures may require us to agree to this, further reducing our profits. If market conditions require us to increase the discounts or incentives we provide, our business could suffer serious harm.

Interruption or failure of our information technology and communications systems could impair our operations, which could damage our reputation and harm our results of operations.

Our success and ability to process payments and provide high quality customer service depend on the efficient and uninterrupted operation of our computer and information technology systems. Any failure of our computer systems and information technology to operate effectively or to integrate with other systems, performance inadequacy or breach in security may cause interruptions in the availability of our sites, delays in product fulfillment and reduced efficiency of our operations. Any failures, problems or security breaches may mean that fewer customers are willing to purchase the products we offer in the future. Factors that could occur and significantly disrupt our operations include: system failures and outages caused by fire, floods, earthquakes, power loss, telecommunications failures, sabotage, vandalism, terrorist attacks and similar events, software errors, computer viruses, worms, physical or electronic break-ins and similar disruptions from unauthorized tampering with our computer systems and data centers; in addition, security breaches related to the storage and transmission of proprietary information or customer information, such as credit card numbers or other personal information. Also, if too many customers access our sites within a short period of time due to any reason, we have experienced in the past and may in the future experience system interruptions that make our sites unavailable or prevent us from efficiently completing payment transactions, which may reduce the attractiveness of our products and services. We cannot assure you that such events will not occur. While we have backup systems and contingency plans for certain aspects of our operations and business processes, our planning does not account for all possible scenarios.

Specifically, we have contracted with one party, UOL Diveo, to provide us with Internet data centers to host our sites and keep them operational, and we rely on it and its operational, privacy and security procedures and controls and its ability to keep our sites operational. UOL Diveo is controlled by our parent company UOL and is therefore an affiliate of our company. Failure by UOL Diveo to adequately keep our sites operational, including any prolonged or unscheduled service disruption that affects our customers’ ability to utilize our sites, could result in the loss of sales and customers and/or increased costs, which could materially affect our reputation or results of operations. In addition, we rely in part on UOL Diveo to advise us of any security breaches. If UOL Diveo does not provide notice on a timely basis, our reputation and results of operations may be harmed. We may not be able to timely replace UOL Diveo, or find a replacement on a cost-efficient basis, in the event of disruptions, failures to provide services or other issues with it that may harm our business. For more information on our agreement with UOL Diveo, see “Related Party Transactions.”

Any disruptions or service interruptions that affect our sites could damage our reputation, require us to spend significant capital and other resources and expose us to a risk of loss or litigation and possible liability. Some of our agreements with third-party service providers do not require those providers to indemnify us for losses resulting from any disruption in service. Any of the above disruptions could seriously harm our results of operations.

Our business is subject to cyberattacks and security and privacy breaches.

Our business involves the collection, storage, processing and transmission of customers’ personal data, including financial information. In addition, a significant number of our customers authorize us to bill their payment card or bank accounts directly for all transaction and other fees charged by us. We have built our reputation on the premise that our platform offers customers a secure way to make payments. An increasing number of organizations, including large merchants and businesses, other large technology companies, financial institutions and government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on portions of their websites or infrastructure.

The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degrade service, or to sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized until launched against a target. Unauthorized parties may attempt to gain access to our systems or facilities through various means, including, among others, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or other users of our systems into disclosing user names, passwords, payment card information or other sensitive information, which may in turn be used to access our information technology systems. Certain efforts may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. Although we have developed systems and processes that are designed to protect our data and customer data and to prevent data loss and other security breaches, and expect to continue to expend significant additional resources to bolster these protections, these security measures cannot provide absolute security. Our information technology and infrastructure may be vulnerable to cyberattacks or security breaches, and third parties may be able to access our customers’ personal or proprietary information and card data that are stored on or accessible through those systems. Our security measures may also be breached due to human error, malfeasance, system errors or vulnerabilities, or other irregularities. Any actual or perceived breach of our security could interrupt our operations, result in our systems or services being unavailable, result in improper disclosure of data, materially harm our reputation and brand, result in significant legal and financial exposure, lead to loss of customer confidence in, or decreased use of, our products and services, and adversely affect our business and results of operations. In addition, any breaches of network or data security at our customers, partners or vendors (including data center and cloud computing providers) could have similar negative effects. Actual or perceived vulnerabilities or data breaches may lead to claims against us.

In addition, under card rules and our contracts with our card processors, if there is a breach of card information that we store, we could be liable to the payment card issuers for their cost of issuing new cards and related expenses. We also expect to spend significant additional resources to protect against security or privacy breaches, and may be required to address problems caused by breaches. Additionally, while we maintain insurance policies, we do not maintain insurance policies specifically for cyber-attacks and our current insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies.

We are dependent on the ability of our products and services to integrate with a variety of operating systems and networks, as well as web browsers that we do not control. Any changes in these systems or networks that degrade the functionality of our products and services, impose additional costs or requirements on us, or give preferential treatment to competitive services, including their own services, could seriously harm the levels of usage of our products and services. We also rely on bank platforms to process some of our transactions. If there are any issues with or service interruptions in these bank platforms, users may be unable to have their transactions completed, which would seriously harm our business.

In addition, our hardware interoperates with mobile networks offered by telecom operators and mobile devices developed by third parties. Changes in these networks or in the design of these mobile devices may limit the interoperability of our hardware with such networks and devices and require modifications to our hardware. If we are unable to ensure that our hardware continues to interoperate effectively with such networks and devices, or if doing so is costly, our business may be seriously harmed.

Our business depends on a strong and trusted brand, and any failure to maintain, protect and enhance our brand would harm our business.

We have developed a strong and trusted brand, highly linked to the reputation and public image of UOL, our controlling shareholder, which has contributed significantly to the success of our business. Our brand is predicated on the idea that sellers and buyers will trust us and find value in building and growing their businesses with our products and services. Maintaining, protecting and enhancing our brand are critical to expanding our base of sellers, buyers and other third-party partners, as well as increasing engagement with our products and services. This will depend largely on our ability to maintain trust, be a technology leader, and continue to provide high-quality and secure products and services. Any negative publicity about our industry, our company or UOL, our controlling shareholder, the quality and reliability of our products and services, our risk management processes, changes to our products and services, our ability to effectively manage and resolve seller and buyer complaints, our privacy and security practices, litigation, regulatory activity, the experience of sellers and buyers with our products or services, and changes in the public opinion of UOL, could harm our reputation and the confidence in and use of our products and services. Harm to our brand can arise from many sources, including failure by us or our partners to satisfy expectations of service and quality; inadequate protection of sensitive information; compliance failures and claims; litigation and other claims; employee misconduct; and misconduct by our partners, service providers or other counterparties. If we do not successfully maintain a strong and trusted brand, our business could be seriously harmed.

In December 2014 PagSeguro Brazil applied for authorizations from the Central Bank relating to three of our digital payments activities, and we have not yet received those authorizations. The activities involved are the PagSeguro digital account, our issuance of PagSeguro prepaid cards, and our activities as an acquirer. We applied for these authorizations because those businesses began to be regulated by Brazilian Federal Law No. 12,865/13, which took effect on October 9, 2013. Although the Central Bank regulations permit us to continue carrying on these activities pending grant of the authorizations because we were already operating these activities before Law No. 12,865/13 became effective, there can be no assurance that we will obtain the authorizations. If we do not obtain them, or if we are found to be in violation of any current or future regulations, we could be (i) required to pay substantial fines (including per transaction fines) and disgorgement of our profits, (ii) required to change our business practices or (iii) subjected to insolvency procedures such as an intervention by the Central Bank and the out-of-court liquidation of PagSeguro Brazil. We could also be subject to private lawsuits. Any of these consequences could seriously harm our business and results of operations.

In addition, the early payment of receivables feature that we offer merchants makes up a significant portion of our activities. Law No. 12,865/13 prohibits payment institutions such as PagSeguro Brazil from performing activities that are restricted to financial institutions. There is some debate under Brazilian law as to whether providing early payment of receivables to merchants could be characterized as “lending”, which is an activity that is restricted to financial institutions. Similarly, there is some debate as to whether the discount rates applicable to this early payment feature should be considered as “interest,” in which case the limits set by the Brazilian Usury Law would apply to these rates. If new laws are enacted or the courts’ interpretation of this activity changes, either preventing us from providing this feature or limiting the fees we usually charge, our financial performance could be negatively affected.

For further information regarding these regulatory matters, see “Business—Regulation—Regulation of the digital payments industry in Brazil.”

We are subject to costs and risks associated with increased or changing laws and regulations affecting our business, including those relating to the sale of consumer products. Specifically, developments in data protection and privacy laws could harm our business, financial condition or results or operations.

We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks and that could materially affect our results of operations. These laws may change, sometimes significantly, as a result of political, economic or social events. Some of the federal, state or local laws and regulations that affect us include: those relating to consumer products, product liability or consumer protection; those relating to the manner in which we advertise, market or sell products; labor and employment laws, including wage and hour laws; tax laws or interpretations thereof; data protection and privacy laws and regulations; and securities and exchange laws and regulations. For instance, data protection and privacy laws are developing to take into account the changes in cultural and consumer attitudes towards the protection of personal data. There can be no guarantee that we will have sufficient financial resources to comply with any new regulations or successfully compete in the context of a shifting regulatory environment. Any additional privacy laws or regulations could seriously harm our business, financial condition or results of operations.

Changes in tax laws, tax incentives, benefits or differing interpretations of tax laws may harm our results of operations.

Changes in tax laws, regulations, related interpretations and tax accounting standards in Brazil, the Cayman Islands or the United States may result in a higher tax rate on our earnings, which may significantly reduce our profits and cash flows from operations. For example, in 2015 the Brazilian government increased the rate of PIS/COFINS tax (which is a social contribution on gross revenues) from 0% to 4.65% on financial income realized by Brazilian companies that are taxed under the non-cumulative regime (which is the tax regime that applies to us). In addition, our results of operations and financial condition may decline if certain tax incentives are not retained or renewed. For example, Brazilian Law No. 11,196 currently grants tax benefits to companies that invest in research and development, which significantly reduces our annual income tax expense. If the taxes applicable to our business increase or any tax benefits are revoked and we cannot alter our cost structure to pass our tax increases on to customers, our financial condition, results of operations and cash flows could be seriously harmed. Our payment processing activities are also subject to a Municipal Tax on Services ( Imposto Sobre Serviços , or ISS). Any increases in ISS rates would also harm our profitability.

In addition, Brazilian government authorities at the federal, state and local levels are considering changes in tax laws in order to cover budgetary shortfalls resulting from the recent economic downturn in Brazil. If these proposals are enacted they may harm our profitability by increasing our tax burden, increasing our tax compliance costs, or otherwise affecting our financial condition, results of operations and cash flows. Tax rules in Brazil, particularly at the local level, can change without notice. We may not always be aware of all such changes that affect our business and we may therefore fail to pay the applicable taxes or otherwise comply with tax regulations, which may result in additional tax assessments and penalties for our company.

Furthermore, we are involved in tax proceedings based on differences of interpretation between us and the Brazilian tax authorities regarding tax laws and regulations. For further information, see “Business—Legal and Administrative Proceedings—Tax and Social Security Matters.”

Our financial success is sensitive to the method consumers choose to make payments, since these methods differ in profitability. Our profitability could be harmed if the proportion of our business funded using less profitable methods goes up.

We pay transaction fees to card schemes, banks and other intermediaries that vary according to the method chosen by consumers to fund payment transactions. These transaction fees are higher when consumers fund payments using credit cards, and lower when consumers fund payments with debit cards. Transaction fees are nominal when customers fund payment transactions by digital transfer of funds from bank accounts, and we pay no fees when customers fund payment transactions from an existing PagSeguro account balance. Our financial success is therefore sensitive to changes in the proportion of our business funded by consumers using credit and debit cards, which would increase our costs if we were unable to adjust the rates we charge our customers accordingly. Consumers may resist funding payments by digital transfer from bank accounts because of the incentives offered by credit cards, for example, or general concerns about providing bank account information to a third party.

We incur losses and expenses due to claims from consumers that merchants have not performed or that their goods or services do not match the merchant’s description. We seek to recover these losses and expenses from the merchant, but may not be able to recover them in full when the merchant is unwilling or unable to pay. We also incur losses and expenses from claims that the consumer did not authorize the purchase, from consumer fraud and from erroneous transmissions. In addition, if the losses we incur related to card transactions become excessive, they could potentially result in a loss of our right to accept cards for payment. In the event that we were unable to accept cards, the number of transactions processed through our platform would decrease substantially and our business would be harmed. We are also subject to the risk of fraudulent activity by merchants, consumers of products purchased through our platform, or third parties handling our user information. We take measures to detect and reduce the risk of fraud, but these measures need to be continually improved and may not be effective against new and continually evolving forms of fraud or in connection with new product offerings. If these measures do not succeed, our business could be harmed.

We rely on third parties in many aspects of our business, which creates additional risk.

We rely on third parties in many aspects of our business, including, among others:

•

networks, banks, payment processors, and payment gateways that link us to the payment card and bank clearing networks to process transactions;

•

third parties that provide certain outsourced customer support and product development functions, which are critical to our operations; and

•

third parties that provide facilities, infrastructure, components and services, including data center facilities and cloud computing.

The third parties that we rely on to process transactions may fail or refuse to process transactions adequately. Any of the third parties we use may breach their agreements with us, refuse to renew these agreements on commercially reasonable terms, take actions that degrade the functionality of our services, impose additional costs or requirements on us, or give preferential treatment to competing services. Financial or regulatory issues, labor issues, or other problems that prevent these third parties from providing services to us or our customers could harm our business. If our service providers do not perform satisfactorily, our operations could be disrupted, which could result in customer dissatisfaction, damage our reputation, and harm our business.

In particular, we rely on UOL, our largest shareholder, and its subsidiaries for a number of business services, particularly: data storage services; telecommunications services; internet security services; software development, maintenance and management; and call center, marketing, corporate, litigation and back-office services. UOL and its subsidiaries also provide us with advertising and media space and resell cloud services to us. For further details of these services, see “Related Party Transactions.”

Our failure to manage the assets underlying our customer funds properly could harm our business.

Our ability to manage and account accurately for the assets underlying our customer funds requires a high level of internal controls. As our business continues to grow and we expand our product offerings, we must continue to strengthen our internal controls accordingly. Our success requires significant public confidence in our ability to handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain the necessary controls or to manage the assets underlying our customer funds accurately could severely diminish customer use of our products and/or result in penalties and fines, which could harm our business.

Our future revenues from digital payments depend substantially on consumers’ widespread acceptance and use of the Internet as a way to conduct commerce. Rapid growth in the use of the Internet (particularly as a way to provide and purchase products and services) is a relatively recent phenomenon in Brazil and we cannot assure you that this acceptance and usage will continue or increase. Furthermore, if the penetration of Internet access in Brazil does not increase quickly, it may limit our potential growth, particularly in regions with low levels of Internet quality and access and/or low levels of income.

Internet penetration in Brazil may never reach the levels seen in more developed countries for reasons that are beyond our control, including the lack of necessary network infrastructure or delayed development of enabling technologies, performance improvements and security measures. The infrastructure for the Internet in Brazil may not be able to support continued growth in the number of users, their frequency of use or their bandwidth requirements. Delays in telecommunication and infrastructure development or other technology shortfalls may impede improvements in Internet reliability in Brazil. If telecommunications services are not sufficiently available to support the growth of the Internet in Brazil, response times could be slower, which would reduce Internet usage and harm our services. In addition, even if Internet penetration in Brazil increases, this may not lead to growth in e-commerce due to a number of factors, including lack of confidence by users in online security.

Furthermore, the price of Internet access and Internet-connected devices, such as personal computers, tablets, mobile phones and other portable devices, may limit our growth, particularly in parts of Brazil with low levels of income. Income levels in Brazil are significantly lower than in the United States and other more developed countries, while prices of both portable devices and Internet access in Brazil are higher than in those countries. Income levels in Brazil may decline and device and access prices may increase in the future.

Any of these factors could limit our ability to generate revenues in future.

Our quarterly results of operations and operating metrics may fluctuate and are unpredictable and subject to seasonality, which could result in the price of our Class A common shares being unpredictable or declining.

Our quarterly results of operations may vary significantly and are not necessarily an indication of future performance. These fluctuations may be due to a variety of factors, some of which are outside of our control and may not fully reflect the underlying performance of our business. In addition, we operate in a somewhat seasonal industry, which tends to experience relatively fewer transactions in the first quarters of the year, increased activity as the year-end holiday shopping season initiates, and fewer transactions after the year-end holidays.

Factors that may cause fluctuations in our quarterly results of operations include our ability to attract and retain customers; the timing, effectiveness and costs of expansion and upgrades of our systems and infrastructure, as well as the success of those expansions and upgrades; the outcomes of legal proceedings and claims; our ability to maintain or increase revenue, gross margins and operating margins; our ability to continue introducing new services and to continue convincing customers to adopt additional offerings; increases in and timing of expenses that we may incur to grow and expand our operations and to remain competitive; period-to-period volatility related to fraud and risk losses; system failures resulting in the inaccessibility of our products and services; changes in the regulatory environment, including with respect to security, privacy or enforcement of laws and regulations by regulators, including fines, orders, or consent decrees; changes in global business or macroeconomic enforcement of laws and regulations by regulators, including fines, orders, or consent decrees; changes in global business conditions; general retail buying patterns; and the other risks described in this prospectus. Future fluctuations in quarterly results may mean that our business is less predictable and may harm the trading price of our Class A common shares.

Our business could be harmed if we are unable to forecast demand for our products accurately or to manage our product inventory adequately.

With the goal of increasing our transaction business and POS device sales, we invest broadly in our POS unit technology. Our products, such as the Moderninha and the Minizinha, often require investments with long lead times. An inability to forecast the success of a particular product correctly could harm our business. We must forecast inventory needs and expenses and place orders sufficiently in advance with our third-party suppliers and contract manufacturers based on our estimates of future demand for particular products. Our ability to forecast demand for our products accurately could be affected by many factors, including an increase or decrease in demand for our products or for our competitors’ products, unanticipated changes in general market conditions, and the change in economic conditions.

If we underestimate demand for a particular product, our contract manufacturers and suppliers may not be able to deliver sufficient quantities of that product to meet our requirements, and we may experience a shortage of that product available for sale or distribution. The shortage of a popular product could seriously harm our brand, our seller relationships, the acquisition of additional sellers and our total transaction business. If we overestimate demand for a particular product, we may have excess inventory for that product and the excess inventory may become obsolete or out of date. Inventory levels in excess of demand may lead us to write down or write off the inventory or sell excess inventory at further discounted prices, which could harm our profit and our business.

Some of the key components used to manufacture our POS devices, such as the chip and pin reader, come from limited sources of supply. In addition, we currently rely on one manufacturer to manufacture, test and assemble a significant amount of our POS devices. The agreements for the components used to manufacture our POS devices are entered into directly by the manufacturer of our POS devices and we do not have agreements with these suppliers.

Due to reliance of our POS manufacturers on these components, we are subject to the risk of shortages and long lead times in the supply of certain products. If our manufacturers cannot find alternative sources of supply, we could be subject to components shortages or delays or other problems in product assembly. In addition, various sources of supply-chain risk, including strikes or shutdowns, or loss of or damage to our products while they are in transit or storage, could limit the supply of our POS devices. Any interruption or delay in component supply, any increases in component costs, the inability of our manufacturers to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, and/or difficulties in fulfilling obligations in connection with the warranties we provide for our POS devices, would harm our ability to provide our POS devices or other services to our merchants on a timely basis. This could hurt our relationships with our customers, prevent us from acquiring new customers, and seriously harm our business.

We are subject to anticorruption, anti-bribery and anti-money laundering laws and regulations.

We are subject to various anticorruption, anti-bribery and anti-money laundering laws and regulations that prohibit, among other things, our involvement in improper payments to certain public officials for the purpose of obtaining advantages or in transferring the proceeds of criminal activities. We have programs designed to comply with new and existing legal and regulatory requirements. However, any errors, failures, or delays in complying with anticorruption, anti-bribery and anti-money laundering laws and regulations could result in significant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions, as well as reputational harm.

Regulators may increase enforcement of these obligations, which may require us to further revise or expand our compliance program, including the procedures we use to verify the identity of our customers and to monitor our transactions. Regulators regularly reexamine the transaction volume thresholds at which we must obtain and keep applicable records or verify identities of customers and any change in such thresholds could result in greater costs for compliance. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations on our ability to grow could harm our business and any new requirements or changes to existing requirements could impose significant costs, result in delays to planned product improvements, make it more difficult for new customers to join our network and reduce the attractiveness of our products and services.

The loss of any member of our management team and our inability to make up for such loss with a qualified replacement, could harm our business.

Our business depends upon the efforts and skill of our senior management, who has played an important role in shaping our company culture. Our future success depends to a significant extent on the continued service of our senior management team, who are critical to the development and the execution of our business strategies. Any member of our senior management team may leave us to set up or work in businesses that compete with ours. There is no guarantee that the compensation arrangements and noncompetition agreements we have entered into with our senior management team are sufficiently broad or effective to prevent them from resigning in order to set up or join a competitor, or that the noncompetition agreements would be upheld in a court of law. In the event that a number of our senior management members leave our company, we may have difficulty finding suitable replacements, which could seriously harm us.

Our future success also depends on our ability to identify, attract, hire, train, retain, motivate and manage other highly skilled technical, managerial, information technology, marketing, product, risk management and customer service personnel. Competition for these personnel is intense, and we may not be able to successfully attract, hire, train, retain, motivate and manage sufficiently qualified personnel.

We partially rely on card issuers or card schemes to process our transactions. Changes to credit card scheme fees, rules or practices may harm our business.

We partially rely on card issuers or card schemes to process our transactions, and must pay a fee for this service. From time to time, card schemes such as MasterCard and Visa may increase the interchange fees that they charge for each transaction using one of their cards. Credit card processors have the right to pass any increases in interchange fees on to us as well as increase their own fees for processing. In addition, card schemes have imposed and may again impose special assessments for transactions that are executed through a “digital wallet,” and these fees could particularly affect us and significantly increase our costs. These increased fees increase our operating costs and reduce our profit margins.

We are also required by credit card schemes to comply with their operating rules. The credit card schemes and their member banks set and interpret these rules. The bank accounts offered by those member banks compete with our digital account services. Visa, MasterCard, American Express or other credit card companies could adopt new operating rules or reinterpret existing rules that we or our processors might find difficult or even impossible to follow. As a result, we could lose our ability to provide our customers the option of using credit cards to fund their payments and our users the option to pay their fees using a credit card. If we were unable to accept credit cards, our business would be seriously harmed.

We could lose the right to accept credit cards or could be required to pay fines if credit card schemes such as MasterCard or Visa determine that users are using our platform to engage in illegal or “high risk” activities, or if users generate a large volume of chargebacks related to fraudulent transactions. Additionally, we may be unable to access financing in the credit and capital markets at reasonable rates to fund our operations and for that reason our profitability and total transaction business could decline significantly.

We might not successfully implement strategies to increase adoption of our digital payment methods, which would limit our growth.

Our future profitability will depend, in part, on our ability to successfully implement our strategy to increase adoption of our digital payment methods. We cannot assure you that the market for digital payments will continue to grow or will remain viable. We expect to invest substantial amounts to:

•

drive consumer and merchant awareness of digital payments;

•

encourage consumers and merchants to sign up for and use our digital payment products;

•

enhance our infrastructure to handle seamless processing of transactions;

•

continue to develop state of the art, easy-to-use technology;

•

expand our operations;

•

increase the number of users who collect and pay digitally; and

•

grow and diversify our customer base.

Despite these investments, we may fail to implement these programs successfully or to increase substantially the number of customers who pay for our digital payment methods. This would hold back any growth in our revenues and harm our business.

If we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.

After this offering, we will be subject to the Sarbanes-Oxley Act, which requires, among other things, that we establish and maintain effective internal controls over financial reporting and disclosure controls and procedures. Under the SEC’s current rules, starting in 2019 we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to assess the effectiveness of our internal controls. Our testing may reveal deficiencies in our internal controls that are deemed to be material weaknesses or significant deficiencies and render our internal controls over financial reporting ineffective. We expect to incur additional accounting and auditing expenses and to spend significant management time in complying with these requirements. If we are not able to comply with these requirements in a timely manner, or if we or our management identifies material weaknesses or significant deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our Class A common shares may decline and we may be subject to investigations or sanctions by the SEC, the Financial Industry Regulatory Authority, Inc., or FINRA, or other regulatory authorities. In addition, we may be required to expend significant management time and financial resources to correct any material weaknesses that may be identified or to respond to any regulatory investigations or proceedings.

Our operating results are affected by decreases in consumer discretionary spending. Changes in macroeconomic conditions may reduce the volume and prices of transactions on our payments platforms and harm our growth strategies and business prospects.

Our operating results are affected by the condition of the economy. Our business and financial performance may be harmed by current and future economic conditions that cause a decline in business and consumer spending, including a reduction in the availability of credit, increased unemployment levels, higher energy and fuel costs, rising interest rates, financial market volatility and recession. Additionally, we may experience difficulties in operating and growing our operations as a result of economic pressures.

As a business that depends on consumer discretionary spending, we may suffer harm if our merchants’ customers reduce their purchases due to continued job losses, foreclosures, bankruptcies, higher consumer debt and interest rates, reduced access to credit, lower consumer confidence, uncertainty or changes in tax policies and tax rates. Decreases in customer traffic or average value per transaction negatively affect our financial performance, and a prolonged period of depressed consumer spending could seriously harm our business. Promotional activities and decreased demand for consumer products, particularly higher-end products, could affect our profitability. The potential effects of the ongoing economic crisis in Brazil are difficult to forecast and mitigate. Any of the foregoing could seriously harm our business, results of operations and financial condition and could cause the trading price of our Class A common shares to decline.

Increases in interest rates may harm our business.

Processing consumer transactions made using credit cards, as well as providing early payment of receivables to merchants when consumers make credit card purchases in installments, both make up a significant portion of our activities. If Brazilian interest rates increase, consumers may choose to make fewer purchases using credit cards; and fewer merchants may decide to use our early payment of receivables feature if our overall financing costs require us to increase the discount rate we charge for this feature. Either of these factors could cause our business activity levels to decrease.

Customer complaints or negative publicity about our customer service could reduce usage of our products and, as a result, our business could suffer.

Customer complaints or negative publicity about our customer service could severely diminish consumer confidence in and use of our product. Breaches of our customers’ privacy and our security measures could have the same effect. Measures we sometimes take to combat risks of fraud and breaches of privacy and security, such as freezing customer funds, can damage relations with our customers. These measures heighten the need for prompt and accurate customer service to resolve irregularities. Effective customer service requires significant expenses, which, if not managed properly, could impact our profitability significantly. Any inability by us to manage or train our customer service representatives properly could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may suffer and we may lose our customers’ confidence.

We are susceptible to illegal or improper uses of our platform, which could expose us to additional liability and harm our business.

We, like our platforms, are susceptible to potentially illegal or improper uses. These may include illegal online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or controlled substances, software and other intellectual property piracy, money laundering, bank fraud, child pornography trafficking, terrorist financing, prohibited sales of alcoholic beverages and tobacco products and online securities fraud. The owners of intellectual property rights or government authorities may seek to bring legal action against us if our platform is used for the sale of infringing items. These claims could result in reputational harm and any resulting liabilities, loss of transaction volume or increased costs could harm our business.

In addition, our services could be subject to unauthorized credit card use, identity theft, employee fraud or other internal security breaches. We may incur significant costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by any breaches. Laws may require us to notify regulators, customers or employees of security breaches and we may be required to reimburse customers or banks for any funds stolen as a result of any breaches or to provide credit monitoring or identity theft protection in the event of a privacy breach. These requirements, as well as any additional restrictions that may be imposed by credit card companies, could raise our costs significantly and reduce our attractiveness.

In addition to the direct costs of such losses, if they are related to credit card transactions and become excessive they could result in us losing the right to accept credit cards for payment. Since credit cards are the most widely used method for our customers to pay for the products we sell, our business will be harmed if we are unable to accept credit cards.

Unauthorized disclosure of sensitive or confidential customer information or our failure or the perception by our customers that we failed to comply with privacy laws or properly address privacy concerns could harm our business and standing with our customers.

We collect, store, process, and use certain personal information and other user data in our business. A significant risk associated with e-commerce and communications is the secure transmission of confidential information over public networks. The perception of privacy concerns, whether or not valid, may harm our business and results of operations. We must ensure that all processing, collection, use, storage, dissemination, transfer and disposal of data for which we are responsible comply with relevant data protection and privacy laws. The protection of our customer, employee and company data is critical to us. Currently, a number of our users authorize us to bill their credit card accounts directly. We rely on commercially available systems, software, tools and monitoring to provide secure processing, transmission and storage of confidential customer information, such as credit card and other personal information. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach, or any perceived failure involving the misappropriation, loss or other unauthorized disclosure of confidential information, as well as any failure or perceived failure to comply with laws, policies, legal obligations or industry standards regarding data privacy and protection, whether by us or our vendors, could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business. Our security measures may fail to prevent security breaches, which could harm our business.

We have only a limited ability to protect our intellectual property rights, which are important to our success.

We believe the protection of our intellectual property, including our trademarks, patents, copyrights, domain names, trade dress, and trade secrets, is critical to our success. We seek to protect our intellectual property rights by relying on applicable laws and regulations, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services, including confidentiality agreements with parties with whom we conduct business.

However, contractual arrangements and other steps we have taken to protect our intellectual property may not prevent third parties from infringing or misappropriating our intellectual property or deter independent development of equivalent or superior intellectual property rights by others. Trademark, copyright, patent, domain name, trade dress and trade secret protection is expensive to maintain and may require litigation. Protecting our intellectual property rights and other proprietary rights is expensive and time-consuming and may not be successful in every jurisdiction. Also, we may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. We have licensed certain of our proprietary rights, such as trademarks or copyrighted material, to others in the past, and expect to do so in the future. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation. Any failure to protect or enforce our intellectual property rights adequately, or significant costs incurred in doing so, could materially harm our business.

As the number of products in the software industry increases and the functionalities of these products further overlap, and as we acquire technology through acquisitions or licenses, we may become increasingly subject to infringement claims, including patent, copyright, and trademark infringement claims. We may be required to enter into litigation to determine the validity and scope of the patents or other intellectual property rights of others. The ultimate outcome of any allegation is uncertain and, regardless of the outcome, any such claim, with or without merit, may be time-consuming, result in costly litigation, divert management’s time and attention from our business, require us to stop selling, delay shipping, or redesign our products, or require us to pay substantial amounts to satisfy judgments or settle claims or lawsuits or to pay substantial royalty or licensing fees, or to satisfy indemnification obligations that we have with some of our customers. Our failure to obtain necessary license or other rights, or litigation or claims arising out of intellectual property matters, may harm our business.

If we continue to grow, we may not be able to appropriately manage the increased size of our business.

We are currently experiencing a period of significant expansion and anticipate that further expansion will be required to address potential growth in our customer base and market opportunities.

We must constantly add new hardware, update software, enhance and improve our billing and transaction systems, and add and train new engineers and other personnel to accommodate the increased use of our platforms and the new products and features we regularly introduce. This upgrade process is expensive, and the increasing complexity and enhancement of our website results in higher costs. Failure to upgrade our technology, features, transaction processing systems, security infrastructure, or network infrastructure to accommodate increased traffic or transaction volume could harm our business. Adverse consequences could include unanticipated system disruptions, slower response times, degradation in levels of customer support, impaired quality of users’ experiences of our services and delays in reporting accurate financial information.

Our revenues depend on prompt and accurate transaction processes. Our failure to grow our transaction-processing capabilities to accommodate the increasing number of transactions that must be billed on our website would harm our business and our ability to collect revenue. Furthermore, we may need to enter into relationships with various strategic partners, websites and other online service providers and other third parties necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problems that can affect current and future revenues, and operating margins.

We cannot assure you that our current and planned systems, procedures and controls, personnel and third-party relationships will be adequate to support our future operations. In addition, our current expansion has placed a significant strain on management and on our operational and financial resources, and this strain is expected to continue. Our failure to manage growth effectively could seriously harm our business, results of operations and financial condition.

Failure to maintain sufficient working capital could limit our growth and harm our business, financial condition and results of operations.

We have significant working capital requirements, primarily driven by payment terms agreed with our merchant clients and the extended payment terms that they offer their customers. Differences between the date when we pay our merchant clients and the date when we receive payments from financial institutions may harm our liquidity and our cash flows. We expect our working capital needs to increase as our total transaction business increases. In order to finance our working capital needs, we have recently been entering into financing arrangements that decrease the amount of time it takes for us to collect our accounts receivable, and to increase the amount of time we have to pay our accounts payable. We believe these financing arrangements allow us to gain access to capital faster and more cheaply than we would otherwise be able to. There can be no assurance that these types of financing arrangements will continue to be available to us on acceptable terms, or at all. If we do not have sufficient working capital, we may not be able to pursue our growth strategy, respond to competitive pressures or fund key strategic initiatives, such as the development of our sites, which may harm our business, financial condition and results of operations.

We may face restrictions and penalties under the Brazilian Consumer Protection Code in the future.

Brazil has a series of strict consumer protection laws, referred to together as the Consumer Protection Code ( Código de Defesa do Consumidor ). These laws apply to all companies in Brazil that supply products or services to Brazilian consumers. They include protection against misleading and deceptive advertising, protection against coercive or unfair business practices and protection in the formation and interpretation of contracts, usually in the form of civil liabilities and administrative penalties for violations. These penalties are often levied by the Brazilian Consumer Protection Agencies ( Fundação de Proteção e Defesa do Consumidor , or PROCONs), which oversee consumer issues on a district-by-district basis. Companies that operate across Brazil may face penalties from multiple PROCONs, as well as from the National Secretariat for Consumers ( Secretaria Nacional do Consumidor , or SENACON). Companies may settle claims made by consumers via PROCONs by paying compensation for violations directly to consumers and through a mechanism that allows them to adjust their conduct, called a conduct adjustment agreement ( Termo de Ajustamento de Conduta , or TAC). Brazilian Public Prosecutors may also commence investigations of alleged violations of consumer rights, and the TAC mechanism is also available as a sanction in those proceedings. Companies that violate TACs face potential automatic fines. Brazilian Public Prosecutors may also file public civil actions against companies who violate consumer rights, seeking strict observation of the consumer protection laws and compensation for any damages to consumers.

At September 30, 2017, we had approximately 3,900 active judicial proceedings and proceedings with PROCONs and small claims courts relating to consumer rights. Most of these proceedings are related to consumer allegations of non-delivery of products by merchants and requests for withdrawal of digital account balances that were blocked by PagSeguro because they were under investigation for fraud or undergoing claim resolution. To the extent consumers file such claims against us in the future, we may be required to pay fines for noncompliance that could harm our results of operations.

We are subject to regulatory activity and antitrust litigation under competition laws.

We receive scrutiny from various governmental agencies under competition laws. Other companies or governmental agencies may allege that our actions violate antitrust or competition laws, or otherwise constitute unfair competition. Contractual agreements with buyers, sellers, or other companies could give rise to regulatory action or antitrust investigations or litigation. Also, our unilateral business practices could give rise to regulatory action or antitrust investigations or litigation. Any such claims and investigations, even if they are unfounded, are usually very expensive to defend, involve negative publicity and substantial diversion of management time and effort, and could result in significant judgments against us.

Unfavorable outcomes in litigation or our inability to post judicial collateral or provide guarantees in pending legal or administrative proceedings could have a material adverse effect on our business, financial condition and results of operations.

We are defendants in a significant number of judicial proceedings, including indemnity, labor and tax proceedings. At September 30, 2017, we had recorded R$1.3 million in provisions for current civil proceedings and no provisions for non-current civil proceedings; and at December 31, 2016, we had recorded R$0.6 million in provisions for current civil proceedings and no provisions for non-current civil proceedings. We have not recorded any provisions with respect to our proceedings in which our chance of loss has been deemed possible. We cannot guarantee that such proceedings will have favorable outcomes for us or that the provisions made will be sufficient to pay any amounts due. Any proceedings that require us to make substantial payments, affect our reputation or otherwise interfere with our business operations could have a material adverse effect on our business, financial condition and operating results.

Additionally, we may not have sufficient funds to post collateral or provide guarantees in judicial or administrative proceedings that claim substantial amounts. Even if we do not post such collateral or provide guarantees, we will be liable for paying any amounts due pursuant to any unfavorable outcomes in legal proceedings. We cannot assure you that, if we cannot make such payments, our assets, including financial assets, will not be attached, or that we will be able to obtain tax good standing certificates, all of which may have a material adverse effect on our business, financial condition and results of operations.

We may pursue strategic acquisitions or investments. The failure of an acquisition or investment to produce the anticipated results, or the inability to integrate an acquired company fully, could harm our business.

We may from time to time acquire or invest in complementary companies or businesses. The success of an acquisition or investment will depend on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors related to that business. We cannot assure you that our acquisitions or investments will produce the results that we expect at the time we enter into or complete a given transaction. Furthermore, acquisitions may result in difficulties integrating the acquired companies, and may result in the diversion of our capital and our management’s attention from other business issues and opportunities. We may not be able to integrate successfully the operations that we acquire, including their personnel, financial systems, distribution or operating procedures. If we fail to integrate acquisitions successfully, our business could suffer. In addition, the expense of integrating any acquired business and their results of operations may harm our operating results.

Our developer platforms, which are open to merchants and third-party developers, subject us to additional risks.

We provide third-party developers with access to application programming interfaces, software development kits and other tools designed to allow them to produce applications for use, with a particular focus on mobile applications. There can be no assurance that merchants or third-party developers will develop and maintain applications and services on our open platforms on a timely basis or at all. A number of factors could cause them to curtail or stop development for our platforms. In addition, our business is subject to many regulatory restrictions. It is possible that merchants and third-party developers who utilize our development platforms or tools could violate these regulatory restrictions and we may be held responsible for such violations, which could harm our business.

We are a holding company and do not have any material assets other than the shares of our subsidiaries.

We are a Cayman Islands exempted company with limited liability. Our material assets are our direct and indirect equity interests in our subsidiaries, particularly Pagseguro Internet S.A., our Brazilian operating company, which we refer to as PagSeguro Brazil. We are, therefore, dependent upon payments, dividends and distributions from our subsidiaries for funds to pay our operating and other expenses and to pay future cash dividends or distributions, if any, to holders of our Class A common shares or Class B common shares, and we may have tax costs in connection with any dividend or distribution. Furthermore, exchange rate fluctuations will affect the U.S. dollar value of any distributions our subsidiaries make with respect to our equity interests in those subsidiaries. See “—Risks Relating to Brazil—The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our Class A common shares,” “—Risks Relating to the Offering and our Class A Common Shares—We have not adopted a dividend policy with respect to future dividends. If we do not declare any dividends in the future, you will have to rely on price appreciation of our Class A common shares in order to achieve a return on your investment.” and “Dividends and Dividend Policy.”

An occurrence of a natural disaster, widespread health epidemic or other outbreaks could seriously harm our business, financial condition and results of operations.

Natural disasters, such as fires or floods, the outbreak of a widespread health epidemic, or other events, such as wars, acts of terrorism, political events, environmental accidents, power shortages or communication interruptions could seriously harm our business. The occurrence of a disaster or similar event could materially disrupt our business and operations. These events could also cause us to close our operating facilities temporarily, which would severely disrupt our operations and seriously harm our business, financial condition and results of operations. In addition, our net sales could be significantly reduced to the extent that a natural disaster, health epidemic or other major event harms the economy of Brazil or any other jurisdictions where we may operate. Our operations could also be severely disrupted if our consumers, merchants or other participants were affected by natural disasters, health epidemics or other major events.

Risks Relating to Brazil

The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our Class A common shares.

The Brazilian federal government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, foreign exchange rate controls, currency devaluations, capital controls and limits on imports. We have no control over and cannot predict what measures or policies the Brazilian government may take in the future. We and the market price of our securities may be harmed by changes in Brazilian government policies, as well as general economic factors, including, without limitation:

•

growth or downturn of the Brazilian economy;

•

interest rates and monetary policies;

•

exchange rates and currency fluctuations;

•

inflation;

•

liquidity of the domestic capital and lending markets;

•

import and export controls;

•

exchange controls and restrictions on remittances abroad;

•

modifications to laws and regulations according to political, social and economic interests;

•

fiscal policy and changes in tax laws;

•

economic, political and social instability;

•

labor and social security regulations;

•

energy and water shortages and rationing; and

•

other political, social and economic developments in or affecting Brazil.

In addition, Brazil is currently experiencing a recession and weak macroeconomic conditions are expected to continue through at least the first six months of 2018, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Principal Factors Affecting Our Financial Condition and Results of Operations of PagSeguro Brazil.” We cannot predict what measures the Brazilian federal government will take in the face of mounting macroeconomic pressures or otherwise.

Uncertainty over whether the Brazilian federal government will implement changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in Brazil, which may have an adverse effect on us and our Class A common shares. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect us and our Class A common shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil—Brazilian political environment and macroeconomic conditions, interest rates, consumer credit and consumer spending.”

The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares.

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.

The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. Weak macroeconomic conditions in Brazil are expected to continue through at least the first six months of 2018. In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigation, known as “ Operação Lava Jato ”, have negatively impacted the Brazilian economy and political environment. Members of the Brazilian government as well as senior officers of large state-owned companies have faced or are currently facing allegations of corruption and money laundering as a result of these investigations. These individuals are alleged to have accepted bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas and construction companies. The profits of these kickbacks allegedly financed the political campaigns of political parties forming the previous government’s coalition that was led by former President Dilma Rousseff, which funds were unaccounted for or not publicly disclosed. These funds were also allegedly destined toward the personal enrichment of certain individuals. A number of senior politicians, including members of Congress, and high-ranking executives officers of major corporations and state-owned companies in Brazil have been arrested, convicted of various charges relating to corruption, entered into plea agreements with federal prosecutors and/or have resigned or been removed from their positions. The potential outcome of Operação Lava Jato as well as other ongoing corruption-related investigations is uncertain, but they have already hurt the image and reputation of those companies that have been implicated as well as the general market perception of the Brazilian economy, political environment and the Brazilian capital markets. We have no control over, and cannot predict, whether such investigations or allegations will lead to further political and economic instability or whether new allegations against government officials will arise in the future.

President Dilma Rousseff was suspended from office on May 12, 2016, when the Brazilian Senate voted to hold a trial on impeachment charges against her. President Rousseff was replaced by Vice-President Michel Temer, who served as acting President until Ms. Rousseff was permanently removed from office by the Senate on August 31, 2016 for infringing budgetary laws. Michel Temer then became President for the remainder of the presidential term, which is due to end in October 2018. In June 2017, the Brazilian Higher Electoral Court ( Tribunal Superior Eleitoral ) cleared the electoral alliance formed by Ms. Rousseff and Mr. Temer of charges that it had violated campaign finance laws in the 2014 election. President Temer remains the subject of investigations by the Brazilian Federal Police and the Office of the Brazilian Federal Prosecutor relating to allegations of corruption, however, and may ultimately be subject to impeachment proceedings before his presidential term ends. We cannot predict how the ongoing investigations and proceedings will affect us or the price of our Class A common shares. Furthermore, uncertainty over whether the acting Brazilian government will implement changes in policy or regulation in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the securities issued abroad by Brazilian companies.

In addition, political demonstrations in Brazil over the last few years have affected the development of the Brazilian economy and investors’ perceptions of Brazil. For example, street protests, which started in mid-2013 and continued through 2016, demonstrated the public’s dissatisfaction with the worsening Brazilian economic condition (including an increase in inflation and fuel prices as well as rising unemployment), the perception of widespread corruption, as well as the potential for severe water and electricity rationing following a decrease in rainfall and water reservoir levels throughout Brazil in early 2016.

Any of the above factors may create additional political uncertainty, which could harm the Brazilian economy and, consequently, our business and the price of our Class A common shares.

In the past, Brazil has experienced extremely high rates of inflation. Inflation and some of the measures taken by the Brazilian government in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Inflation, policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian capital markets.

According to the National Consumer Price Index ( Índice Nacional de Preços ao Consumidor Amplo ), or IPCA, Brazilian inflation rates were 6.3%, 10.7% and 6.4% in 2016, 2015 and 2014, respectively. Brazil may experience high levels of inflation in the future and inflationary pressures may lead to the Brazilian government’s intervening in the economy and introducing policies that could harm our business and the price of our Class A common shares. In the past, the Brazilian government’s interventions included the maintenance of a restrictive monetary policy with high interest rates that restricted credit availability and reduced economic growth, causing volatility in interest rates. For example, the SELIC ( Sistema Especial de Liquidação e de Custódia ), the Central Bank’s overnight rate, as established by the Monetary Policy Committee ( Comitê de Política Monetária do Banco Central do Brasil—COPOM ), increased from 10.00% at the beginning of 2014 to a high point of 14.25% in 2016 before a series of rate reductions in 2017, bringing the SELIC rate down to 7.00% as of December 7, 2017. Conversely, more lenient government and Central Bank policies and interest rate decreases have triggered and may continue to trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect us and increase our indebtedness.

Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our Class A common shares.

The Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real , the U.S. dollar and other currencies. The real depreciated against the U.S. dollar by 32.0% at year-end 2015 as compared to year-end 2014, and by 11.8% at year-end 2014 as compared to year-end 2013. The real /U.S. dollar exchange rate reported by the Central Bank was R$3.9048 per U.S. dollar on December 31, 2015 and R$3.2591 per U.S. dollar on December 31, 2016, which reflected a 19.8% appreciation in the real against the U.S. dollar during 2016. The real /U.S. dollar exchange rate reported by the Central Bank was R$3.1680 per U.S. dollar on September 30, 2017, remaining relatively stable as compared to the rate at year-end 2016. There can be no assurance that the real will not again depreciate against the U.S. dollar or other currencies in the future.

A devaluation of the real relative to the U.S. dollar could create inflationary pressures in Brazil and cause the Brazilian government to, among other measures, increase interest rates. Any depreciation of the real may generally restrict access to the international capital markets. It would also reduce the U.S. dollar value of our results. Restrictive macroeconomic policies could reduce the stability of the Brazilian economy and harm our results of operations and profitability. In addition, domestic and international reactions to restrictive economic policies could have a negative impact on the Brazilian economy. These policies and any reactions to them may harm us by curtailing access to foreign financial markets and prompting further government intervention. A devaluation of the real relative to the U.S. dollar may also, as in the context of the current economic slowdown, decrease consumer spending, increase deflationary pressures and reduce economic growth.

On the other hand, an appreciation of the real relative to the U.S. dollar and other foreign currencies may deteriorate the Brazilian foreign exchange current accounts. We and certain of our suppliers purchase goods and services from countries outside Brazil, and thus changes in the value of the U.S. dollar compared to other currencies may affect the costs of goods and services that we purchase. Depending on the circumstances, either devaluation or appreciation of the real relative to the U.S. dollar and other foreign currencies could restrict the growth of the Brazilian economy, as well as our business, results of operations and profitability.

Infrastructure and workforce deficiency in Brazil may impact economic growth and have a material adverse effect on us.

Our performance depends on the overall health and growth of the Brazilian economy. Brazilian GDP growth has fluctuated over the past few years, with growth of 3.0% in 2013 but decreasing to 0.5% in 2014, a contraction of 3.8% in 2015 and a contraction of 3.6% in 2016. Growth is limited by inadequate infrastructure, including potential energy shortages and deficient transportation, logistics and telecommunication sectors, the lack of a qualified labor force, and the lack of private and public investments in these areas, which limit productivity and efficiency. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth and ultimately have a material adverse effect on us.

Developments and the perceptions of risks in other countries, including other emerging markets, the United States and Europe, may harm the Brazilian economy and the price of Brazilian securities, including the price of our Class A common shares.

The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging markets, as well as the United States, Europe and other countries. To the extent the conditions of the global markets or economy deteriorate, the business of Brazilian companies may be harmed. The weakness in the global economy has been marked by, among other adverse factors, lower levels of consumer and corporate confidence, decreased business investment and consumer spending, increased unemployment, reduced income and asset values in many areas, reduction of China’s growth rate, currency volatility and limited availability of credit and access to capital. Developments or economic conditions in other emerging market countries have at times significantly affected the availability of credit to Brazilian companies and resulted in considerable outflows of funds from Brazil, decreasing the amount of foreign investments in Brazil.

Crises and political instability in other emerging market countries, the United States, Europe or other countries could decrease investor demand for Brazilian securities, such as our Class A common shares. In June 2016, the United Kingdom had a referendum in which the majority voted to leave the European Union. We have no control over and cannot predict the effect of the United Kingdom’s exit from the European Union nor over whether and to which effect any other member state will decide to exit the European Union in the future. On January 20, 2017, Donald Trump became the President of the United States. We have no control over and cannot predict the effect of Donald Trump’s administration or policies. These developments, as well as potential crises and forms of political instability arising therefrom or any other as of yet unforeseen development, may harm our business and the price of our Class A common shares.

Any further downgrading of Brazil’s credit rating could reduce the trading price of our Class A common shares.

We may be harmed by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.

Brazil has lost its investment grade sovereign debt credit rating by the three main U.S. based credit rating agencies, Standard & Poor’s, Moody’s and Fitch. Standard & Poor’s downgraded Brazil’s sovereign debt credit rating from BBB- to BB+ in September 2015, subsequently reduced it to BB in February 2016, and maintained its negative outlook on the rating, citing Brazil’s fiscal difficulties and economic contraction as signs of a worsening credit situation. In December 2015, Moody’s placed Brazil’s Baa3 sovereign debt credit rating on review and downgraded Brazil’s sovereign credit rating in February 2016 to Ba2 with a negative outlook, citing the prospect for further deterioration in Brazil’s indebtedness figures amid a recession and challenging political environment. Fitch downgraded Brazil’s sovereign credit rating to BB+ with a negative outlook in December 2015, citing the country’s rapidly expanding budget deficit and worse-than-expected recession, and further downgraded Brazil’s sovereign debt credit rating in May 2016 to BB with a negative outlook.

Brazil’s sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently the prices of securities issued by Brazilian companies have been negatively affected. A prolongation or worsening of the current Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, cause the trading price of our Class A common shares to decline.

Internet regulation in Brazil is recent and still limited and several legal issues related to the Internet are uncertain.

In 2014, Brazil enacted a law, which we refer to as the Internet Act, setting forth principles, guarantees, rights and duties for the use of the Internet in Brazil, including provisions about Internet service provider liability, Internet user privacy and Internet neutrality. In May 2016, further regulations were passed in connection with the Internet Act. However, unlike in the United States, little case law exists around the Internet Act and existing jurisprudence has not been consistent. Legal uncertainty arising from the limited guidance provided by current laws in force allows for different judges or courts to decide very similar claims in different ways and establish contradictory jurisprudence. This legal uncertainty allows for rulings against us and could set adverse precedents, which individually or in the aggregate could seriously harm our business, results of operations and financial condition. In addition, legal uncertainty may harm our customers’ perception and use of our service.

Risks Relating to the Offering and Our Class A Common Shares

Before this offering, none of our Class A common shares have ever been traded on any stock exchange. In connection with the offering, we will apply to list Class A common shares on the NYSE. An active and liquid public trading market for our Class A common shares may not develop or, if it develops, may not be sufficiently liquid. Active, liquid trading markets generally result in lower price volatility and more efficient purchases and sales of shares.

The initial public offering price for our Class A common shares will be determined by negotiation between us and the underwriters based upon several factors, and the price of our Class A common shares after this offering may decline below the initial public offering price. The market price of our Class A common shares could vary significantly as a result of a number of factors, some of which are beyond our control. As a result, investors may experience a significant decrease in the market price of our Class A common shares. If an active trading market does not develop or is not maintained, the liquidity and price of our Class A common shares could be seriously harmed.

Our Class B common shares are entitled to 10 votes per share and our Class A common shares, which are the common shares we are offering in this offering, are entitled to one vote per share. Our Class B common shares are convertible into an equivalent number of Class A common shares and generally convert into Class A common shares upon transfer subject to limited exceptions. Following this offering, UOL will control our company and will hold all of our outstanding Class B common shares, representing 69.4% of our issued share capital, or 64.9% if the underwriters’ option to purchase additional common shares from UOL is exercised in full. Because of the ten-to-one voting ratio between our Class B common shares and Class A common shares, these Class B common shares will give UOL approximately 95.8% of the voting power of our issued share capital, or 94.9% if the underwriters’ option to purchase additional common shares from UOL is exercised in full. UOL will therefore control the outcome of all decisions at our shareholders’ meetings, and will be able to elect a majority of the members of our board of directors. It will also be able to direct our actions in areas such as business strategy, financing, distributions, acquisitions and dispositions of assets or businesses. UOL’s decisions on these matters may be contrary to your expectations or preferences, and it may take actions that could be contrary to your interests. It will be able to prevent any other shareholders, including you, from blocking these actions. For further information regarding shareholdings in our company, see “Principal and Selling Shareholder.”

If UOL sells or transfers any of its Class B common shares, they will generally convert automatically into Class A common shares, subject to limited exceptions, such as transfers to affiliates, to trustees for the holder or its affiliates and certain transfers to U.S. tax exempt organizations. The fact that any Class B common shares convert into Class A common shares if UOL sells or transfers them means that UOL will in many situations continue to control a majority of the combined voting power of our outstanding share capital, due to the voting rights of any Class B common shares that it retains. If our Class B common shares at any time represent less than 10% of the combined voting power of our Class A common shares and Class B common shares together, however, the Class B common shares then outstanding will automatically convert into Class A common shares. For a description of the dual class structure, see “Description of Share Capital.”

Investors in this offering will experience immediate and substantial dilution in the book value of their investment.

The assumed initial public offering price of US$19.00 per Class A common share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, when converted into reais is substantially higher than the pro forma net tangible book value per Class A common share in reais upon the completion of this offering. Therefore, if you purchase Class A common shares in this offering, you will incur immediate dilution of 83.4%. In addition, investors purchasing our Class A common shares from us in this offering will have contributed 92.5% of the total consideration paid to us by all shareholders who purchased our common shares, in exchange for acquiring approximately 30.1% of our outstanding common shares, after giving effect to this offering. These calculations exclude the new Class A common shares that are expected to be issued without cash consideration under our LTIP upon completion of this offering, which would lead to further dilution. See “Dilution” for more information.

Class A common shares eligible for future sale may cause the market price of our Class A common shares to drop significantly.

The market price of our Class A common shares may decline as a result of sales of a large number of our Class A common shares in the market after this offering (including Class A common shares issuable upon conversion of Class B common shares) 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.

After the consummation of this offering, we will have outstanding 94,001,142 Class A common shares and 213,472,818 Class B common shares (or 107,816,931 Class A common shares and 199,657,029 Class B common shares, if the underwriters exercise in full their option to purchase additional shares from UOL, which shares would convert from Class B common shares to Class A common shares upon such sale). Subject to the lock-up agreements described below, the Class A common shares sold in this offering 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.

Our shareholders 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. If any of our shareholders, the affiliated entities controlled by them or their respective permitted transferees were to sell a large number of their Class A common shares, the market price of our Class A common shares may decline significantly. In addition, the perception in the public markets that sales by them might occur may also cause the trading price of our Class A common shares to decline.

PagSeguro Digital has agreed with the underwriters, subject to certain exceptions, not to offer, sell or dispose of any shares in its share capital or securities convertible into or exchangeable or exercisable for any shares in its share capital during the 180-day period following the date of this prospectus. PagSeguro Digital’s executive officers and the members of its board of directors, as well as UOL, have agreed to substantially similar lock-up provisions. However, the underwriters may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. In addition, these lock-up agreements are subject to the exceptions described in “Common Shares Eligible for Future Sale,” including the right for our company to issue new shares if we carry out an acquisition or enter into a merger, joint venture or strategic participation.

In addition, the shares expected to be issued to certain members of our management under our LTIP upon completion of this offering will be subject to a one-year lock-up period under the terms of the LTIP. Any shares that are issued under the LTIP on subsequent vesting dates during the first year after our initial public offering will be subject to the remainder of that same lock-up period, expiring one year after the closing of this offering. After the close of that one-year period, shares to be issued under the LTIP will no longer be subject to a lock-up. For further information on our LTIP, see “Description of Share Capital—Long-Term Incentive Plan.”

Sales of a substantial number of our common shares upon expiration of the lock-up agreements and the lock-up period in our LTIP, the perception that such sales may occur, or early release of these lock-up periods, could cause our market price to fall or make it more difficult for you to sell your Class A common shares at a time and price that you deem appropriate.

We have not adopted a dividend policy with respect to future dividends. If we do not declare any dividends in the future, you will have to rely on price appreciation of our Class A common shares in order to achieve a return on your investment.

We have not adopted a dividend policy with respect to future dividends. The amount of any distributions will depend on many factors such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors or, where applicable, our shareholders. Accordingly, if we do not declare dividends in the future, investors will most likely have to rely on sales of their Class A common shares, which may increase or decrease in value, as the only way to realize cash from their investment. There is no guarantee that the price of our Class A common shares will ever exceed the price that you pay.

Our management will have broad discretion over the use of proceeds and may apply the proceeds of this offering in ways that may not improve our business or increase the value of your investments.

We intend to use the net proceeds to us from this offering to finance working capital, particularly the early payment of receivables feature that we offer merchants, and to fund future selective acquisitions and investments in businesses, technologies or products that are complementary to our business. Any remaining net proceeds will be used for other general corporate purposes. We cannot specify with certainty the particular purposes for which we will use our net proceeds from this offering, however. Accordingly, our management will have considerable discretion in the application of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Until we use the net proceeds we may place them in investments that do not produce significant income or that may lose value.

We may raise additional capital in the future by issuing equity securities, which may result in a potential dilution of your equity interest.

We may issue additional equity securities to raise capital, make acquisitions, or for a variety of other purposes. Additional issuances of our shares may be made pursuant to the exercise or conversion of convertible debt securities, warrants, stock options or other equity incentive awards such as our LTIP. Any strategic partnership, issuance or placement of shares and/or securities convertible into or exchangeable for shares may affect the market price of our shares and could result in dilution of your equity interest.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, the market price and trading volume of our Class A common shares could decline.

The trading market for our Class A common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common shares could decline, which might cause the market price and trading volume of our Class A common shares to decline.

Our dual class capital structure means our stock will not be included in certain indices. We cannot predict the impact this may have on our stock price.

In July 2017, S&P Dow Jones, a provider of widely followed stock indices, announced that companies with multiple share classes, such as ours, will not be eligible for inclusion in certain of their indices. As a result, our Class A common shares will not be eligible for these stock indices. Additionally, since September 2017, FTSE Russell, another provider of widely followed stock indices, requires new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. UOL will control approximately 95.8% of the voting power of our outstanding share capital following this offering, assuming no exercise of the underwriters’ overallotment option, or 94.9% assuming full exercise of the overallotment option. Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A common shares if we were not included in such indices. We cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones and FTSE Russell in the future. Exclusion from indices could make our Class A common shares less attractive to investors and, as a result, the market price of our Class A common shares could be adversely affected.

We are a Cayman Islands exempted company with limited liability. The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.

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. In the performance of its duties, the board of directors of a solvent Cayman Islands exempted company is required to consider the company’s interests, which is generally defined with reference to the interests of its shareholders (both present and future) as a whole, which may differ from the interests of one or more of its individual shareholders. See “Description of Share Capital—Principal Differences between Cayman Islands and U.S. Corporate Law.”

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 Law (as amended) of the Cayman Islands and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under the laws of the Cayman Islands are not as clearly defined as under statutes or judicial precedent in existence in jurisdictions in the United States. Therefore, you may have more difficulty protecting your interests than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less formal nature of Cayman Islands law in this area.

While Cayman Islands law allows a dissenting shareholder to express a 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 in respect of schemes of arrangement does not specifically provide for shareholder appraisal rights in connection with a merger or consolidation effected by a scheme of arrangement of a company. This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands statutory law, which permits a merger/consolidation without a court order, provides a mechanism for a dissenting shareholder in a merger or consolidation to require us to apply to the Grand 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 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.

Our Memorandum and Articles of Association contain anti-takeover provisions that may discourage a third party from acquiring us and reduce the rights of holders of our Class A common shares.

Our Memorandum and Articles of Association contain certain provisions that could limit the ability of others to acquire our control, including a provision that grants authority to our board of directors to issue new shares in our company from time to time (including common shares and preferred shares) without action by our shareholders. These provisions could have the effect of depriving our shareholders of the opportunity to sell their Class A common shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain our control in a tender offer or similar transactions. See “Description of Share Capital—Anti-Takeover Provisions in our Memorandum and Articles of Association.”

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

PagSeguro Digital is a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. In addition, all of our current directors and officers are residents of Brazil, and a substantial portion of their assets 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 those officers and directors.

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 a foreign judgment in personam of a court of competent jurisdiction and give a judgment based thereon 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 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.

Judgments of Brazilian courts to enforce our obligations with respect to our Class A common shares may be payable only in reais.

Most of our assets are located in Brazil. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our Class A common shares, we may not be required to discharge our obligations in a currency other than the real . Under Brazilian exchange control laws, an obligation in Brazil to pay amounts denominated in a currency other than the real may only be satisfied in Brazilian currency at the exchange rate in effect on the date the judgment is obtained as determined by the Central Bank. These amounts are then adjusted to reflect exchange rate variations through the effective payment date. The exchange rate at that time may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the Class A common shares.

As a foreign private issuer and an “emerging growth company” (as defined in the JOBS Act), the disclosure requirements that we must comply with and other requirements are different from those applicable to U.S. domestic registrants and non-emerging growth companies.

As a foreign private issuer and emerging growth company, the disclosure requirements that we must comply with and other requirements are different from those applicable to U.S. domestic registrants and non-emerging growth companies. For example, as a foreign private issuer for U.S. purposes, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Securities Exchange Act of 1934, as amended, or 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 intend to rely on exemptions from certain U.S. rules which will permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.

We will follow the Cayman Islands laws and regulations that are applicable to Cayman Islands companies. However, these laws and regulations 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. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information that is material to us and which we make public pursuant to Cayman Islands law, or are required to distribute to shareholders generally, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.

The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company, we will not be subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as an emerging growth company we are permitted to, and intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Also, our auditors will not have to comply with any new auditing standards promulgated by the PCAOB (unless the SEC determines otherwise) or attest to our internal controls under Section 404(b) of the Sarbanes-Oxley Act. We may follow these reporting exemptions until we are no longer an emerging growth company. As a result, our shareholders may not have access to certain information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual revenues of at least US$1.07 billion or (c) in which we are deemed to be a large accelerated filer and (2) the date on which we have issued more than US$1.00 billion in nonconvertible debt during the prior three-year period. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a company that is not an emerging growth company.

We cannot predict if investors will find our Class A common shares less attractive because we will rely on these exemptions. If some investors find our Class A common shares less attractive as a result, there may be a less active trading market for our Class A common shares and our share price may be more volatile.

We will be a foreign private issuer and, as a result, in accordance with the listing requirements of the NYSE we will rely on certain home country governance practices from the Cayman Islands, rather than the corporate governance requirements of the NYSE.

Following completion of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. The NYSE rules provide that foreign private issuers are permitted to follow home country practice in lieu of certain NYSE corporate governance standards. The standards applicable to us are considerably different from the standards applied to U.S. domestic issuers. For instance, we are not required to:

•

have a majority of independent members on our board of directors (other than as may result from the requirements for the audit committee member independence under the Exchange Act);

•

have a minimum of three members on our audit committee;

•

have a compensation committee or a nominating and corporate governance committee;

•

have regularly scheduled executive sessions of our board that consist of independent directors only; or

•

adopt and disclose a code of business conduct and ethics for directors, officers and employees.

As a foreign private issuer, we may follow home country practice from the Cayman Islands in lieu of the above requirements. Therefore, the approach to governance adopted by our board of directors may be different from that of a board of directors consisting of a majority of independent directors, and, as a result, our management oversight may be more limited than if we were subject to all of the NYSE corporate governance standards. Accordingly, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

Although we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, there can be no assurance that we will not be a PFIC for any taxable year, which could subject United States investors in our shares to significant adverse U.S. federal income tax consequences.

We do not expect to be a PFIC for the current taxable year or any future year, based on our current business plans. However, whether we are a PFIC will be determined annually based upon the composition and nature of our income and the composition, nature and valuation of our assets, all of which are subject to change. The determination of whether we are a PFIC will also depend upon the application of complex U.S. federal income tax rules concerning the classification of our assets and income for this purpose, and the application of these rules is uncertain in some respects. Accordingly, there can be no assurance that the IRS will not challenge any determination by us that we are not a PFIC.

If we were classified a PFIC, special adverse U.S. federal tax rules would generally apply to a United States Holder (as defined in “Taxation – U.S. Federal Income Tax Considerations”) that holds our Class A common shares. United States Holders are urged to consult their own tax advisers with respect to the potential tax consequences of the PFIC rules to their particular circumstances.

Although we consider ourselves to be actively engaged in an active business with respect to a number of business lines, and to be engaged in an active financing activity with respect to the early payment of receivables feature that we offer merchants regarding credit card transactions in installments in particular, and we believe that income from such businesses and features is likely not treated as passive income for purposes of the PFIC rules, it is not entirely clear how such income will be treated for these purposes. In particular, certain of our income may be treated as passive income unless such income is eligible for an exception for certain income derived in the active conduct of a financing business under Section 954(h) of the Code (the “active financing exception”), and related assets may be considered passive assets unless the active financing exception applies. We believe that the active financing exception will likely apply to treat such income as active, but if it is determined, contrary to our view, that the income from these businesses and features is passive for such purposes, that would alter the composition of our income and assets for purposes of testing our PFIC status, and may cause us to be treated as a PFIC. For more information on the application of the PFIC rules to us, see “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.”

Our Class A common shares may not be a suitable investment for all investors, as investment in our Class A common shares presents risks and the possibility of financial losses.

The investment in our Class A common shares is subject to risks. Investors who wish to invest in our Class A common shares are thus subject to asset losses, including loss of the entire value of their investment, as well as other risks, including those related to our Class A common shares, the company, the sector in which we operate, our shareholders and the general macroeconomic environment in Brazil, among other risks.

Each potential investor in our Class A common shares must therefore determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:

•

have sufficient knowledge and experience to make a meaningful evaluation of our Class A common shares, the merits and risks of investing in our Class A common shares and the information contained in this prospectus;

•

have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in our Class A common shares and the impact our Class A common shares will have on its overall investment portfolio;

•

have sufficient financial resources and liquidity to bear all of the risks of an investment in our Class A common shares;

•

understand thoroughly the terms of our Class A common shares and be familiar with the behavior of any relevant indices and financial markets; and

•

be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes estimates and forward-looking statements principally under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil” and “Business.”

These estimates and forward-looking statements are based mainly on our current expectations and estimates of future events and trends that affect or may affect our business, financial condition, results of operations, cash flow, liquidity, prospects and the trading price of our Class A common shares. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to many significant risks, uncertainties and assumptions and are made in light of information currently available to us.

These statements appear throughout this prospectus and include statements regarding our intent, belief or current expectations in connection with:

•

the inherent risks related to the digital payments market, such as the interruption or failure of our computer or information technology systems;

•

our ability to innovate and respond to technological advances and changing customer demands;

•

the maintenance of tax incentives;

•

our ability to attract and retain qualified personnel;

•

our ability to maintain our classification as an emerging growth company under the JOBS Act;

•

general economic, political and business conditions in Brazil, particularly in the geographic markets we serve as well as any other countries we may serve in the future and their impact on our business, notably with respect to inflation;

•

labor disputes, employee strikes and other labor-related disruptions, including in connection with negotiations with unions;

•

management’s expectations and estimates concerning our future financial performance and financing plans and programs;

•

our interest rates and our level of debt and other fixed obligations;

•

inflation, appreciation, depreciation and devaluation of the real ;

•

expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability;

•

our ability to anticipate market needs and develop and introduce new and enhanced products and service functionality to adapt to changes in our industry;

•

our anticipated growth and growth strategies and our ability to effectively manage that growth;

•

the impact of increased competition in our market, innovation by our competitors, and our ability to compete effectively;

•

our ability to successfully enter new markets and manage our expansion;

•

our ability to further penetrate our existing client base to grow our ecosystem;

•

our expectations concerning relationships with third parties and key suppliers;

•

our ability to maintain, protect and enhance our brand and intellectual property;

•

the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements, as well as our plans for the net proceeds from this offering;

•

our compliance with applicable regulatory and legislative developments and regulations and legislation that currently apply or become applicable to our business;

•

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

•

other risk factors discussed under “Risk Factors.”

The words “believe,” “understand,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “seek,” “intend,” “expect,” “should,” “could,” “forecast” and similar words are intended to identify forward-looking statements. You should not place undue reliance on such statements, which speak only as of the date they were made. Neither we nor the Selling Shareholder undertake any obligation to update publicly or to revise any forward-looking statements after we distribute this prospectus because of new information, future events or other factors. Our independent public auditors have neither examined nor compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. In light of the risks and uncertainties described above, the future events and circumstances discussed in this prospectus might not occur and are not guarantees of future performance. Because of these uncertainties, you should not make any investment decision based upon these estimates and forward-looking statements.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Financial Statements

PagSeguro Digital Ltd., our Cayman Islands company, which is offering its Class A common shares in this offering, was incorporated on July 19, 2017 for an indefinite term. Prior to the contribution of Pagseguro Internet S.A. to it on January 4, 2018, PagSeguro Digital Ltd. had not commenced operations and had only nominal assets and liabilities.

We present in this prospectus the audited consolidated financial statements at December 31, 2016, 2015 and 2014 and for each of the three years ended December 31, 2016 of Pagseguro Internet S.A., our Brazilian operating company, which we refer to as PagSeguro Brazil. These audited consolidated financial statements were prepared in accordance with IFRS, as issued by the IASB. PagSeguro Brazil maintains its books and records in reais .

In addition, we present the unaudited condensed consolidated interim financial statements of PagSeguro Brazil at September 30, 2017 and for the nine-month periods ended September 30, 2017 and 2016, which have been prepared in accordance with IAS 34.

The financial information presented in this prospectus should be read in conjunction with the following information, all included elsewhere in this prospectus:

•

the audited consolidated financial statements of PagSeguro Brazil and the related notes;

•

the unaudited condensed consolidated interim financial statements of PagSeguro Brazil and the related notes; and

•

the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil.”

Following this offering, PagSeguro Digital will begin reporting consolidated financial information to shareholders, and PagSeguro Brazil will not present consolidated financial statements. PagSeguro Digital also maintains its books and records in reais and its consolidated financial statements will be prepared in accordance with IFRS, as issued by the IASB.

Corporate Events

Our Incorporation

At the time of incorporation of PagSeguro Digital Ltd., UOL also held 524,577,214 shares of our principal operating company, PagSeguro Brazil (which were substantially all of the shares PagSeguro Brazil, the one remaining share being held by a separate shareholder, as required by Brazilian law). On August 1, 2017, PagSeguro Brazil carried out a reverse stock split, following which UOL held 262,288,606 shares in PagSeguro Brazil, the one remaining share being held by the separate shareholder.

On January 4, 2018, prior to the launch of this initial public offering, UOL contributed all of its shares in PagSeguro Brazil to PagSeguro Digital. As a result, prior to this offering, PagSeguro Digital owns substantially all of the shares of PagSeguro Brazil, together with PagSeguro Brazil’s subsidiaries and activities. In return for this contribution, PagSeguro Digital issued 262,288,606 new Class B common shares to UOL in a 1:1 exchange for the shares of PagSeguro Brazil contributed to it. Taken together with the one Class B common share of PagSeguro Digital that UOL already held prior to that contribution, UOL holds all of the issued shares of PagSeguro Digital immediately prior to this offering, consisting of 262,288,607 Class B common shares.

Immediately prior to this initial public offering, therefore, UOL holds all of the 262,288,607 issued and outstanding shares in PagSeguro Digital, and PagSeguro Digital holds all of the 262,288,607 issued and outstanding shares in PagSeguro Brazil except one. After accounting for the 43,289,474 new Class A common shares to be issued and sold by PagSeguro Digital in this offering and the 1,895,879 new Class A common shares expected to be issued without cash consideration to certain members of our management who are beneficiaries under the LTIP immediately upon completion of this offering (share number based on the midpoint of the estimated offering price range set forth on the cover page of this prospectus), PagSeguro Digital will have a total of 307,473,960 common shares issued and outstanding immediately following this offering. 213,472,818 of these shares will be Class B common shares beneficially owned by UOL, 92,105,263 of these shares will be Class A common shares beneficially owned by investors purchasing in this offering and 1,895,879 will be Class A common shares beneficially owned by members of our management.

The 2015 Reorganization

PagSeguro Brazil was incorporated as a legal entity in 2006, although it did not operate the PagSeguro business prior to August 1, 2015 since most of the PagSeguro business activities were operated by other UOL group members prior to that date. On August 1, 2015, UOL carried out a corporate reorganization in which it segregated some of the PagSeguro activities from its other activities and contributed them to PagSeguro Brazil.

Prior to the contribution of these PagSeguro activities to PagSeguro Brazil, their results of operations were recorded in UOL’s financial statements. As a result, the financial information of PagSeguro Brazil reflects a carve-out of the PagSeguro activities for periods prior to August 1, 2015. That carve-out financial information is derived from UOL’s accounting records and does not necessarily reflect the financial position, results of operations or cash flows that would have been recorded had PagSeguro Brazil been operating as a separate entity in those periods or at those dates.

From January 1, 2014 through July 31, 2015, certain of the assets and liabilities, revenues, costs and expenses directly related to the PagSeguro business were already controlled separately from UOL’s other activities. On the other hand, certain other corporate balances and transactions relating to the PagSeguro operations were not accounted for separately within UOL; these have been allocated to the audited consolidated financial statements of PagSeguro Brazil for the period from January 1, 2014 through July 31, 2015 based on assumptions similar to those used after August 1, 2015, when the PagSeguro business was transferred to PagSeguro Brazil.

PagSeguro currently uses centralized cash management with UOL. Consequently, all amounts received or paid in connection with the PagSeguro business have been recognized as balances between related parties in the audited consolidated financial statements of PagSeguro Brazil. This approach is consistent with the treatment of the audited consolidated financial statements of PagSeguro Brazil prior to August 1, 2015, which were prepared on a carve-out basis. The PagSeguro cash management will be separate from UOL’s cash management starting from the date of completion of this offering. Any remaining balances that relate to prior cash management activities will begin accruing interest on arms’ length terms from the date of completion of this offering, and any such balances will in any event be repaid within 60 days following completion of this offering.

In addition, during 2016, UOL transferred its 100% interest in Net+Phone and its 75% interest in Boa Compra to PagSeguro Brazil as a capital contribution, and PagSeguro Brazil purchased the remaining 25% non-controlling interests in Boa Compra from its minority shareholders.

Effect of Rounding

Certain amounts and percentages included in this prospectus, including in the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil” have been rounded for ease of presentation. Percentage figures included in this prospectus have not been calculated in all cases on the basis of the rounded figures but on the basis of the original amounts prior to rounding. For this reason, certain percentage amounts in this prospectus may vary from those obtained by performing the same calculations using the figures in the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil. Certain other amounts that appear in this prospectus may not sum due to rounding.

Market and Industry 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. Data and statistics regarding the Brazilian Internet, payment solutions and e-commerce markets are based on publicly available data published by the Brazilian Association of Credit Card and Services Companies ( Associação Brasileira de Empresas de Cartões de Crédito e Serviços , or ABECS); comScore, a cross-platform measurement company that measures audiences, brands and consumer behavior, and provides market and analytical data to clients; Datafolha, a research institute and affiliate of UOL created by Grupo Folha, which conducts statistical surveys, election polling and opinion and market surveys for the market at large; the Brazilian Institute of Geography and Statistics ( Instituto Brasileiro de Geografia e Estatĺstica , or IBGE); the World Bank; SEBRAE; Neoway Business Solutions; Webshoppers; and eMarketer; among others. We also make statements in this prospectus about our competitive position and the size of the Brazilian digital payments and e-commerce markets.

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, neither we, the Selling Shareholder, the underwriters, nor their respective agents have independently verified it. Governmental publications and other market sources, including 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.

The sources of market and industry data contained in this prospectus are listed below:

(1)

Bank of International Settlements, Statistics on Payment, Clearing and Settlement Systems in the CPMI Countries, December 2016.

(2)

ABECS, 2016 Sector Balance ( Balanço do Setor 2016 ), March 2017. (Maria Judith de Brito, a member of our board of directors, is currently a member of the board of ABECS.)

(3)

eMarketer, Worldwide Retail Ecommerce Sales: eMarketer’s Updated Estimates And Forecast Through 2019, December 2015.

(4)

eMarketer, Worldwide Internet and Mobile Users - eMarketer’s Estimates for 2016–2021, April 2017.

(5)

eMarketer, Worldwide Mcommerce Sales Penetration by Country, April 2017.

(6)

Ebit, Webshoppers 2017.

(7)

Deloitte, FEBRABAN Bank Technology Report ( Pesquisa FEBRABAN de Tecnologia Bancária ), 2017.

(8)

BCG and Google, Digital Payments 2020: The Making of a $500 Billion Ecosystem in India, July 2016.

(9)

World Bank, The Global Findex Database 2014: Measuring Financial Inclusion Around the World, April 2015.

(10)

SEBRAE, CAGED – Employment Analysis (Análise do Emprego – CAGED), June and September 2017.

(11)

Worldpay, Global Payments Report, November 2016.

(12)

Datafolha, The Payment Methods Market ( O Mercado dos Meios de Pagamento ), June 2017. (Datafolha is a member of Grupo Folha. This report was commissioned by us and Datafolha has consented to our inclusion of this market data in this prospectus.)

(13)

Neoway Business Solutions, using source data principally from SEBRAE, Brazil’s Tax Authority ( Receita Federal ), and RAIS, June 2017.

(14)

Source data compiled from the Strawhecker Group, BNR Market Research Report, and the Engagement Survey for Boston Retail Partners, 2016.

(15)

eMarketer, Netflix Subscribers in Latin America, by Country for Q4 2016, June 2017.

(16)

eMarketer, Paid Netflix Subscribers in Select Countries in Western Europe, 2012-2020, September 2016.

(17)

eMarketer, Subscription Video-on Demand (SVOD) Subscribers in North America, by Country, 2016-2022, August 2017.

(18)

Veja, São Paulo is the city with the most Uber rides in the world, August 2017.

(19)

Brazilian Association of Companies with Rotate Offset ( Associação Brasileira de Empresas com Rotativa Offset , or ABRO), Sector Analysis, 2015.

(20)

Hostmapper Brasil, Panorama of the Brazilian Shared Hosting Market, May 2017.

(21)

Panrotas, Rio is the fourth largest market for Airbnb, January 2017.

Financial Information in U.S. Dollars

We have translated some of the real amounts included in this prospectus into U.S. dollars. You should not construe these translations as representations by us that the amounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated. Unless otherwise indicated, we have translated real amounts into U.S. dollars using a rate of R$3.1680 to US$1.00, the commercial selling rate for U.S. dollars at September 30, 2017 as reported by the Central Bank.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual revenues of at least US$1.07 billion or (c) in which we are deemed to be a large accelerated filer and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, exemptions from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and any Public Company Accounting Oversight Board, or PCAOB, rules, including any future audit rule promulgated by the PCAOB (unless the SEC determines otherwise). Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company.

USE OF PROCEEDS

We estimate that the net proceeds to PagSeguro Digital from the sale of Class A common shares in this offering will be approximately US$789.0 million, after deducting commissions and estimated expenses payable by us, and assuming an initial public offering of US$19.00 per Class A common share, which is the midpoint of the estimated price range set forth on the cover of this prospectus.

We currently plan to use the net proceeds from this offering to finance working capital, particularly the early payment of receivables feature that we offer merchants, and to fund future selective acquisitions and investments in businesses, technologies or products that are complementary to our business. Any remaining net proceeds will be used for other general corporate purposes. Our management will have broad discretion in allocating the net proceeds from this offering.

We will not receive any proceeds from the sale of common shares by UOL.

DIVIDENDS AND DIVIDEND POLICY

PagSeguro Digital has not adopted a dividend policy with respect to future dividends. The amount of any distributions will depend on many factors such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and, where applicable, our shareholders.

On September 29, 2017, PagSeguro Brazil’s shareholders approved a distribution of R$238.8 million in dividends. This amount consisted of (i) R$142.8 million of dividends related to the six-month period ended June 30, 2017 and (ii) R$96.0 million in dividends related to the year ended December 31, 2016. For more information regarding the 2016 dividend, see Note 8 to the audited consolidated financial statements of PagSeguro Brazil.

The R$238.8 million in dividends were distributed on September 29, 2017 in the following manner: (i) R$54.3 million paid in cash and (ii) R$184.5 million offset against amounts then due to PagSeguro Brazil and Boa Compra under our centralized cash management with UOL. For further information on our centralized cash management with UOL, see “Presentation of Financial and Other Information—Corporate Events—The 2015 Reorganization.”

In addition, subject to certain limitations, Brazilian companies generally also distribute amounts in respect of interest on own capital, which is calculated based on a government interest rate. In its 2016 financial statements PagSeguro Brazil recorded an amount of R$22.2 million in interest on own capital payable to UOL. This amount was paid to UOL on April 30, 2017, although the payment was offset in full against amounts then due to PagSeguro Brazil and Boa Compra under our centralized cash management with UOL, rather than being paid in cash.

EXCHANGE RATES

PagSeguro Brazil, our principal operating company, generates substantially all of its revenues in reais and maintains its books and records in reais .

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.

Since 1999, the Central Bank has allowed the real /U.S. dollar exchange rate to float freely, which resulted in increasing exchange rate volatility. Until early 2003, the real declined against the U.S. dollar. Between 2004 and 2008, the real strengthened against the U.S. dollar, except in the most severe periods of the global economic crisis. Given the recent turmoil in international markets and the current Brazilian macroeconomic outlook, the real depreciated against the U.S. dollar from mid-2011 to early 2016. Beginning in early 2016 through the end of 2016, the real appreciated against the U.S. dollar, primarily as a result of Brazil’s changing political conditions. Between year-end 2016 and September 30, 2017, the real remained relatively stable, depreciating only 2.8% against the U.S. dollar. In the past, the Central Bank has intervened occasionally to control high volatility in the foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to permit the real to float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. In the future, the real may fluctuate substantially against the U.S. dollar. See “Risk Factors—Risks Relating to Brazil—Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our Class A common shares.”

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 such measures will not be taken by the Brazilian government in the future.

The following table shows the low, high, average and period-end commercial selling rates for the real as against the U.S. dollar, as reported by the Central Bank on its website for the periods and dates indicated.


	R$ per US$1.00
Year Ended December 31,	Low		High		Average ⁽¹⁾		Period End
2013		2.45		1.95		2.16		2.34
2014		2.74		2.20		2.35		2.66
2015		4.19		2.58		3.34		3.90
2016		4.16		3.12		3.48		3.26
2017		3.38		3.05		3.19		3.31


Month Ended	Low		High		Average ⁽²⁾		Period End
July 2017		3.32		3.13		3.21		3.13
August 2017		3.20		3.12		3.15		3.15
September 2017		3.19		3.09		3.13		3.17
October 2017		3.28		3.13		3.19		3.28
November 2017		3.29		3.21		3.26		3.26
December 2017		3.23		3.33		3.29		3.31
January 2018 (through January 8)		3.27		3.23		3.25		3.24

(1)	Represents the average of exchange rates on each day of each month during the periods indicated.

(2)	Represents the average of the daily exchange rates during each day of the respective month indicated.

CAPITALIZATION

The table below presents our consolidated cash and cash equivalents, financial investments and capitalization as follows:

(a)

historical financial information of PagSeguro Brazil, on an actual basis;

(b)

PagSeguro Digital, as adjusted to give effect to (i) the constitution of PagSeguro Digital and (ii) the contribution of PagSeguro Brazil to PagSeguro Digital by UOL; and

(c)

PagSeguro Digital, as further adjusted to give effect to (i) the constitution of PagSeguro Digital, (ii) the contribution of PagSeguro Brazil to PagSeguro Digital by UOL and (iii) the issuance and sale by PagSeguro Digital of 43,289,474 Class A common shares in this offering at an assumed initial public offering price of US$19.00 per Class A common share (the midpoint of the indicative price range set forth on the cover page of this prospectus, translated into reais using a rate of R$3.1680 to US$1.00, the commercial selling rate for U.S. dollars at September 30, 2017 as reported by the Central Bank), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by PagSeguro Digital as set forth under “Expenses of the Offering.”

You should read this table together with the sections of this prospectus entitled “Selected Financial and Operating Information of PagSeguro Brazil” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil,” and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil included elsewhere in this prospectus.


	At September 30, 2017
	PagSeguro Brazil, actual		PagSeguro Digital, as adjusted for the contribution ⁽¹⁾	PagSeguro Digital, as further adjusted for the contribution and this offering ⁽²⁾
	(in millions) (R$)		(in millions) (R$)	(in millions) (R$)
Cash and cash equivalents		41.8	41.8	2,541.2
Total equity		678.4	678.4	3,177.8

Total capitalization ⁽³⁾		678.4	678.4	3,177.8

(1)	As adjusted to reflect (i) the constitution of PagSeguro Digital and (ii) the contribution of PagSeguro Brazil to PagSeguro Digital by UOL.

(2)

As further adjusted to reflect (i) the constitution of PagSeguro Digital, (ii) the contribution of PagSeguro Brazil to PagSeguro Digital by UOL and (iii) the issuance and sale by PagSeguro Digital of 43,289,474 Class A common shares in this offering at an assumed initial public offering price of US$19.00 per Class A common share (the midpoint of the indicative price range set forth on the cover page of this prospectus, translated into reais using a rate of R$3.1680 to US$1.00, the commercial selling rate for U.S. dollars at September 30, 2017 as reported by the Central Bank), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by PagSeguro Digital as set forth under “Expenses of the Offering.”

(3)	Total capitalization is the sum of Borrowings, Derivative financial instruments and Total equity.

Except as described above, there have been no material changes to the capitalization of PagSeguro Brazil or PagSeguro Digital since September 30, 2017.

DILUTION

On January 4, 2018, prior to the launch of this initial public offering, UOL contributed all of its shares in PagSeguro Brazil to PagSeguro Digital in exchange for new shares in PagSeguro Digital, following which UOL holds all of the issued 262,288,607 Class B common shares of PagSeguro Digital. Prior to that contribution (and after accounting for a reverse stock split carried out by PagSeguro Brazil on August 1, 2017, which reduced the total number of its common shares outstanding from 524,577,214 to 262,288,607), UOL held 262,288,606 shares of PagSeguro Brazil, which represented substantially all of the shares of PagSeguro Brazil (the one remaining share being held by a separate shareholder, as required by Brazilian law).

We have presented the dilution calculation below on the basis of PagSeguro Brazil’s net tangible book value at September 30, 2017 because (i) PagSeguro Digital had not commenced operations and had nominal assets and liabilities prior to the contribution of PagSeguro Brazil to it; (ii) we present the historical financial statements of PagSeguro Brazil in this prospectus; and (iii) the number of common shares of PagSeguro Digital in issuance prior to this offering was the same as the number of shares of PagSeguro Brazil in issuance at September 30, 2017 (after accounting for the reverse stock split).

If you invest in our Class A common shares, your interest will be diluted to the extent of the difference between the initial public offering price per Class A common share (when converted into reais ) and the pro forma net tangible book value per Class A common share after accounting for the issuance and sale of new common shares in this offering.

Because the Class A common shares and Class B common shares of PagSeguro Digital have the same dividend and other rights, except for voting, preemption and conversion rights, we have counted the Class A common shares and Class B common shares equally for purposes of the dilution calculations below.

•

The historical net tangible book value at September 30, 2017 was R$552.5 million. Net tangible book value consists of total tangible assets less total liabilities.

•

The historical net tangible book value per common share at September 30, 2017 was R$2.11. Net tangible book value per share is the net tangible book value divided by the number of common shares outstanding at September 30, 2017 (262,288,607 shares, after giving effect to the reverse stock split carried out by PagSeguro Brazil on August 1, 2017).

•

Pro forma net tangible book value is equal to the historical net tangible book value plus the proceeds of this offering to PagSeguro Digital, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by PagSeguro Digital. PagSeguro Digital will issue and sell 43,289,474 new common shares at an assumed initial public offering price equivalent to R$60.19 per common share (which is the equivalent in reais of US$19.00 per common share, the midpoint of the estimated price range set forth on the cover page of this prospectus, translated into reais using a rate of R$3.1680 to US$1.00, the commercial selling rate for U.S. dollars at September 30, 2017 as reported by the Central Bank). Accordingly, the pro forma net tangible book value, after accounting for the issuance and sale of the 43,289,474 new common shares in this offering, less the underwriting discounts and commissions and estimated offering expenses payable by PagSeguro Digital, is R$3,051.9 million.

•

The pro forma net tangible book value per common share at September 30, 2017 would have been R$9.99, based on the 262,288,607 common shares outstanding prior to this offering plus the 43,289,474 new common shares to be issued and sold in this offering (excluding the Class A common shares that are expected to be issued under the LTIP).

These figures represent an immediate increase in net tangible book value per common share on a pro forma basis of R$7.88 per common share to UOL, and a dilution in the net tangible book value per common share of R$50.20 to new shareholders purchasing in this offering. Dilution is the difference between the offering price per common share paid by the new shareholders and the pro forma net tangible book value per common share.

The following table illustrates this dilution to new investors per common share:


	R$ (except for %)
Assumed initial offering price per common share (converted into reais using rate at September 30, 2017)		60.19
Historical net tangible book value per common share at September 30, 2017		2.11
Pro forma net tangible book value per common share after completion of this offering		9.99
Increase in net tangible book value per common share to UOL on pro forma basis		7.88
Dilution in net tangible book value per common share to new shareholders		50.20
Percentage of dilution per share to new investors		83.4%

The actual offering price per Class A common share is not based on the pro forma net tangible book value of our common shares, but will be established based through a bookbuilding process.

The following table summarizes, on the same pro forma as adjusted basis, the number of common shares acquired from PagSeguro Digital, and the total cash consideration paid and the average price per common share paid to PagSeguro Digital by UOL and by the new shareholders purchasing Class A common shares in this offering (excluding the Class A common shares that are expected to be issued under the LTIP). This information is based on the assumed initial public offering price of R$60.19 per Class A common share, before deducting the underwriting discounts and commissions and estimated offering expenses payable by PagSeguro Digital in connection with this offering.


	Common Shares Purchased (excluding LTIP)			Total Consideration		Average Price per Common Share (R$)
	Class B	Class A	Percentage of total common shares	Amount (R$ millions)	Percentage	Average Price per Common Share (R$)

UOL	213,472,818	—	69.9%	450.4	7.5%	2.11
New shareholders	—	92,105,263	30.1%	5,543.8	92.5%	60.19

Total	213,472,818	92,105,263	100.0%	5,994.2	100.0%	19.50

An increase (decrease) of US$1.00 in the assumed initial public offering price of US$19.00 per Class A common share (the midpoint of the indicative price range per Class A common share indicated on the cover page of this prospectus), translated into an increase (decrease) of R$3.168 using the exchange rate above, would, after the conclusion of this offering, increase (decrease) (1) the value of our shareholders’ equity by R$132.3 million, and (2) the value of our pro forma net tangible book value per common share to new investors by R$0.43, assuming that the number of Class A common shares offered herein, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by PagSeguro Digital.

The discussion and tables above exclude the 1,895,879 Class A common shares that are expected to be issued without cash consideration under our LTIP upon completion of this offering (share number based on the midpoint of the estimated offering price range set forth on the cover page of this prospectus). If these additional Class A common shares are issued, new investors will experience further dilution. For further information, see “Management—Long-Term Incentive Plan.”

MARKET INFORMATION

Prior to this offering, there has been no public market for our Class A common shares. We cannot assure you that an active trading market will develop for our Class A common shares, or that our Class A common shares will trade on the public market subsequent to this offering at or above the initial public offering price.

SELECTED FINANCIAL AND OPERATING INFORMATION OF PAGSEGURO BRAZIL

The following tables summarize financial data for PagSeguro Brazil for each of the periods indicated. You should read this information in conjunction with the following other information included elsewhere in this prospectus:

•

the audited consolidated financial statements of PagSeguro Brazil at December 31, 2016, 2015 and 2014 and for each of the three years ended December 31, 2016 and the related notes;

•

the unaudited condensed consolidated interim financial statements of PagSeguro Brazil at September 30, 2017 and for the nine-month periods ended September 30, 2017 and 2016 and the related notes; and

•

the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil.”

The selected financial data for PagSeguro Brazil at and for the years ended December 31, 2016, 2015 and 2014 included below is derived from the audited consolidated financial statements of PagSeguro Brazil included elsewhere in this prospectus, which were prepared in accordance with IFRS.

The selected financial data for PagSeguro Brazil included below at and for the nine months ended September 30, 2017 and 2016 has been derived from PagSeguro Brazil’s unaudited condensed consolidated interim financial statements, which were prepared in accordance with IAS 34 and are included elsewhere in this prospectus and which include, in the opinion of management, all adjustments considered necessary to present fairly PagSeguro Brazil’s results of operations and financial position for the periods and dates presented. The results of operations for these interim periods are not necessarily indicative of PagSeguro Brazil’s results for the full year or any other interim period.

Statements of Operations Data


	For the Years Ended December 31,
	2016			2016			2015			2014
	(US$) ⁽¹⁾			(R$)			(R$)			(R$)
	(in millions, except amounts per share and%)
Net revenue from transaction activities and other services		151.5			480.0			268.2			160.1
Net revenue from sales		82.3			260.6			176.5			48.2
Financial income		123.9			392.4			219.5			115.8
Other financial income		1.7			5.3			10.7			1.8

Total revenue and income		359.3			1,138.4			674.9			325.8

Cost of sales and services		(196.9	)		(623.7	)		(382.5	)		(142.5	)
Selling expenses		(63.1	)		(199.9	)		(162.6	)		(81.4	)
Administrative expenses		(26.7	)		(84.5	)		(61.1	)		(51.3	)
Financial expenses		(21.6	)		(68.3	)		(29.7	)		(11.1	)
Other (expenses) income, net		(2.1	)		(6.7	)		1.3			(3.3	)

Profit before Income Taxes		49.0			155.4			40.3			36.2
Current income tax and social contribution		(2.3	)		(7.4	)		(2.6	)		(9.9	)
Deferred income tax and social contribution		(6.4	)		(20.1	)		(2.2	)		1.0

Income Tax and Social Contribution		(8.7	)		(27.6	)		(4.8	)		(8.9	)

Net Income for the Year		40.3			127.8			35.5			27. 2


Attributable to:
Owners of PagSeguro Brazil		40.1			127.2			35.1			26.0
Non-controlling interests		0.2			0.6			0.4			1.3

Basic and diluted earnings per common share – R$ ⁽²⁾		0.1531			0.4849			0.1338			0.0990

(1)

(2)	Based on 262,288,607 common shares of PagSeguro Brazil issued and outstanding.


	For the Nine Months Ended September 30,
	2017			2017			2016
	(US$) ⁽¹⁾			(R$)			(R$)
	(in millions, except amounts per share and%)
Net revenue from transaction activities and other services		249.7			791.2			319.8
Net revenue from sales		114.1			361.5			164.2
Financial income		169.1			535.7			270.5
Other financial income		1.2			3.9			2.9

Total revenue and income		534.2			1,692.3			757.4

Cost of sales and services		(289.9	)		(918.4	)		(435.1	)
Selling expenses		(58.1	)		(184.1	)		(99.8	)
Administrative expenses		(34.0	)		(107.7	)		(60.7	)
Financial expenses		(20.1	)		(63.8	)		(39.5	)
Other (expenses) income, net		(1.6	)		(5.0	)		(6.0	)

Profit before Income Taxes		130.4			413.3			116.2
Current income tax and social contribution		(39.2	)		(124.1	)		(15.8	)
Deferred income tax and social contribution		0.3			1.1			(11.0	)

Income Tax and Social Contribution		(38.8	)		(123.0	)		(26.8	)

Net Income for the Period		91.6			290.2			89.3


Attributable to:
Owners of PagSeguro Brazil		91.5			289.8			88.7
Non-controlling interests		0.1			0.4			0.6

Basic and diluted earnings per common share – R$ ⁽²⁾		0.3488			1.1050			0.3 383

(1)

(2)	Based on 262,288,607 common shares of PagSeguro Brazil issued and outstanding.

Operating Data

At and For the Years Ended December 31,

2016 ⁽¹⁾

2016

2015

2014

Operating Statistics:

Active merchants at year-end (in millions)

1.4

0.9

0.5

TPV (in billions)

US$4.5

R$14.1

R$7.4

R$3.7

Average spending per active merchant

US$3,915

R$12,404

R$11,047

R$10,449

(1)

At and For the Nine Months Ended
September 30,

2017 ⁽¹⁾

2017

2016

Operating Statistics:

Active merchants at period-end (in millions)

2.5

1.2

TPV (in billions)

US$7.8

R$24.8

R$9.3

Average spending per active merchant

US$4,795

R$15,190

R$11,920

(1)

Balance Sheet Data

The following table presents key line items from PagSeguro Brazil’s consolidated balance sheet data:


	At December 31,
	2016		2016		2015		2014
	(US$) ⁽¹⁾		(R$)		(R$)		(R$)
	(in millions)
Current Assets
Cash and cash equivalents		25.3		80.0		6.9		1.2
Financial investments		41.4		131.2		–		–
Note receivables		541.5		1,715.5		1,110.0		665.9
Receivables from related parties		95.0		300.8		55.9		84.3
Inventories		6.6		21.0		41.2		16.1
Taxes recoverable		5.6		17.7		5.8		6.7
Other receivables		1.4		4.5		21.0		4.3

Total Current Assets		716.8		2,270.8		1,240.8		778.6

Non-Current Assets
Judicial deposits		0.2		0.5		0.4		0.5
Prepaid expenses		–		0.1		0.4		–
Deferred income tax and social contribution		2.6		8.3		6.7		8.1
Property and equipment		1.5		4.6		3.8		1.9
Intangible assets		27.2		86.1		48.6		28.5

Total Non-Current Assets		31.5		99.7		59.9		39.0

TOTAL ASSETS		748.2		2,370.4		1,300.7		817.6


	At December 31,
	2016		2016		2015		2014
	(US$) ⁽¹⁾		(R$)		(R$)		(R$)
	(in millions)
Current Liabilities
Payables to third parties		411.6		1,304.0		683.1		369.9
Trade payables		19.5		61.7		35.3		3.5
Payables to related parties		24.1		76.2		92.4		–
Derivative financial instruments		2.1		6.6		–		–
Borrowings		64.8		205.2		–		–
Salaries and social charges		6.4		20.3		13.7		0.4
Taxes and contributions		2.2		6.9		3.0		2.8
Provision for contingencies		0.2		0.7		–		1.6
Dividends payable and interest on own capital		7.0		22.2		3.2		3.1
Other payables		4.8		15.2		1.8		4.0

Total Current Liabilities		542.7		1,719.2		832.5		385.3
Non-Current Liabilities
Deferred income tax and social contribution		7.7		24.4		6.3		5.4
Provision for contingencies		–		–		–		0.3

Total Non-Current Liabilities		7.7		24.4		6.3		5.7


TOTAL LIABILITIES		550.3		1,743.5		838.8		391.0
TOTAL EQUITY		197.9		626.9		461.9		426.6

TOTAL LIABILITIES AND EQUITY		748.2		2,370.4		1,300.7		817.6

(1)


	At September 30, (Unaudited)			At December 31, (Audited)
	2017		2017	2016
	(US$) ⁽¹⁾		(R$)	(R$)
	(in millions)
Current Assets
Cash and cash equivalents		13.2	41.8	80.0
Financial investments		–	–	131.2
Note receivables		940.9	2,980.8	1,715.5
Receivables from related parties		0.1	0.3	300.8
Inventories		20.9	66.3	21.0
Taxes recoverable		3.8	11.9	17.7
Other receivables		2.5	7.8	4.5

Total Current Assets		981.3	3,108.8	2,270.8

Non-Current Assets
Judicial deposits		0.3	0.8	0.5
Prepaid expenses		0.0	0.1	0.1
Deferred income tax and social contribution		7.3	23.2	8.3
Property and equipment		1.7	5.3	4.6
Intangible assets		39.7	125.9	86.1

Total Non-Current Assets		49.0	155.3	99.7

TOTAL ASSETS		1,030.3	3,264.1	2,370.4


	At September 30, (Unaudited)			At December 31, (Audited)
	2017		2017	2016
	(US$) ⁽¹⁾		(R$)	(R$)
	(in millions)
Current Liabilities
Payables to third parties		713.9	2,261.5	1,304.0
Trade payables		35.5	112.6	61.7
Payables to related parties		22.9	72.6	76.2
Derivative financial instruments		–	–	6.6
Borrowings		–	–	205.2
Salaries and social charges		10.2	32.2	20.3
Taxes and contributions		12.7	40.1	6.9
Provision for contingencies		0.5	1.6	0.7
Dividends payable and interest on own capital		0.0	0.0	22.2
Other payables		7.4	23.4	15.2

Total Current Liabilities		803.0	2,543.9	1,719.2

Non-Current Liabilities
Deferred income tax and social contribution		12.1	38.2	24.4
Other payables		1.1	3.6	–

Total Non-Current Liabilities		13.2	41.8	24.4

TOTAL LIABILITIES		816.2	2,585.7	1,743.5

TOTAL EQUITY		214.1	678.4	626.9

TOTAL LIABILITIES AND EQUITY		1,030.3	3,264.1	2,370.4

(1)

INDUSTRY

Micro-Merchants and Small and Medium Businesses Drive the Brazilian Economy

According to SEBRAE and the Portal do Empreendedor, in 2016, Micro-Merchants and SMEs accounted for 99.8% of Brazil’s 12 million businesses. According to data published by Neoway Business Solutions in 2017, Micro-Merchants and SMEs represented 35.4%, or R$1.8 trillion, of the R$5.1 trillion total annual TPV from businesses in the following sectors: wholesale, retail, other commercial, electronics, pharmaceutical, hotels and food service, education, healthcare, professional and technical services, textiles and transportation. SEBRAE and Brazil’s General Registry of the Employed and Unemployed Workers ( Cadastro Geral de Empregados e Desempregados , or CAGED) report Micro-Merchants and Small Companies created more than 310,000 new jobs in the first nine months of 2017. In addition, according to SEBRAE, between 2010 and 2016, the number of individual entrepreneurs in Brazil grew by approximately one million per year.

Significant Room for Growth of Alternative and Digital Payment Methods

Business and consumers in developed economies are moving away from cash and paper payments at a slow but steady rate and migrating to electronic payment mechanisms. Since this trend has not yet fully impacted the Brazilian economy, the opportunity for expansion of digital payments in Brazil remains significant. For example, 59% of the Brazilian population reported having made or received a digital payment in 2015, compared to 92% in the United States and 97% in the United Kingdom, according to the World Bank. In the same year, cash and other physical payment means represented 48% of total consumer payments by transaction volume in Brazil, compared to 37% in the United States and 27% in the United Kingdom.

The migration away from checks, in particular, creates efficiencies for businesses, who can reduce cost and accelerate cash flow if their accounts payable and accounts receivable functions are automated through electronic payments and reconciliation. Similar opportunities exist for consumer bill payment, direct deposit, and person-to-person payments.

Brazil has been an early adopter of disruptive innovation in a number of areas, being the third largest market for Uber (including São Paulo, the city that generated the largest annual number of Uber rides of any city worldwide as of August 11, 2017, according to Veja), the second largest market for Waze, the fourth largest market for Netflix, and the third largest market for Facebook worldwide in terms of mobile Facebook users, in each case, except as otherwise noted, according to eMarketer. In addition, the city of Rio de Janeiro was the fourth largest market for Airbnb in terms of number of registered homes during 2016, according to Panrotas. In e-commerce, transaction volumes in Brazil grew to R$44.4 billion in 2016 from R$18.7 billion in 2011 according to eMarketer, representing average growth of 18.9% per year for the period. In addition, the growth of e-commerce over mobile devices, which, according to eMarketer, in 2015 represented 11.7% of e-commerce transactions in Brazil, compared to 23.6% in the United States, creates new payments options for both sellers and buyers, bringing business opportunities for acquirers and digital payments providers. Furthermore, according to the World Bank and calculated using the weighted average, Brazil has a high penetration of mobile phones, with 119 mobile phones per 100 inhabitants at December 31, 2016, compared to 118 in Organization for Economic Cooperation and Development, or OECD, member countries and 102 worldwide. This trend is driven by (i) the rollout of 3G and 4G networks (98% of the Brazilian population had access to 3G at year-end 2016); (ii) increased smartphone penetration (the number of smartphones in Brazil represented 96% of the population at year-end 2016); and (iii) the increasing accessibility of mobile data plans.

The Structure of the Brazilian Financial Market Creates Significant Opportunities for Disruption

The structure of the Brazilian financial market creates significant opportunities for technology-driven disruption, particularly when compared to more developed markets. The banking market is relatively concentrated for global standards. For example, a World Bank report using 2015 data rated principal banking markets using the Herfindahl-Hirschman Index, or HHI, which expresses market concentration of gross loans, where 10,000 represents a perfect monopoly and 1 represents perfect competition. According to this report, Brazil had HHI concentration of 1,248 in 2015, making it the 18 ^th most concentrated market in the world on this measure. In the same year the United States had HHI concentration of 714, making it the 36 ^th most concentrated market; and the United Kingdom had HHI concentration of 432, making it the 42 ^nd most concentrated market. The same report showed that banking penetration in Brazil lags more developed markets in terms of the percentage of the population that had a bank account, had a credit card, or had made or received a digital payment. Brazil’s relative lack of penetration was even greater with respect to e-commerce and mobile payments. These lower penetration measures are amplified among the lower income classes in Brazil.

LOGO

Source: World Bank

Payment card use also remains relatively low in Brazil compared to more developed markets. According to a December 2016 report by BIS, and data from the World Bank, debit and credit card payments accounted for 28.4% of Brazilian household consumption in 2015, compared with 45.0% in the United States and 54.9% in the United Kingdom, representing significant growth potential for acquirers in Brazil. Credit card penetration levels are a fundamental driver for the digital payments industry.

Commerce Is Increasingly Digital and Mobile Worldwide

According to the International Telecommunications Union, an estimated 3.3 billion people, or 44.6% of the total global population, used the Internet in 2016, compared with 2.1 billion people, or 30.7% of the total global population, in 2011. Of this user base, 58.3% carried out e-commerce transactions in 2016, compared with 37.2% in 2011, showing significant growth in e-commerce. This growth is supported by the global increase in mobile device penetration, reductions in the cost of Internet access in various markets, and improving telecommunications network infrastructure.

The increasing number of businesses offering online shopping is fueling consumer demand for faster and more reliable payment methods. We believe these trends create an environment where merchants feel compelled to interact more closely with a broader range of customers, through the use of online stores, mobile-friendly technologies and extensive compatibility with digital payment methods, such as cards and e-wallets. For example, according to BIS the World Bank and Worldpay, in 2015, 25% of total money spent online was via credit cards, 17% was via debit cards, 10% was via bank transfer, 7% was via cash on delivery, 31% was via an e-wallet and 10% was via other payment methods.

We believe that there is a significant market opportunity for growth in e-commerce in Brazil. As mentioned above, e-commerce transaction volumes in Brazil grew to R$44.4 billion in 2016 from R$18.7 billion in 2011 according to Webshoppers. According to eMarketer, Brazil had the fourth largest online audience in the world with 139 million Internet users in 2016, representing penetration of 58.2% of the population, compared with penetration of 82.5% in the United States. Regionally, e-commerce in Latin America grew at an average growth rate of 28.9% per year from 2012 to 2015 according to data prepared by eMarketer, despite recent macroeconomic volatility in certain countries, particularly Brazil.

Businesses Are Shifting Towards Increasingly Non-Bureaucratic, Friendly and All-in-One Services

As technology and the regulatory environment evolve, sellers of all types and sizes face a continuous need for new solutions. Significant number of businesses in Brazil remain unserved or underserved in terms of online payments, POS and mPOS services as well as value-added financial services tools for a number of reasons, including:

•

Lack of access: According to a Datafolha survey carried out in June 2017, more than half of the Micro-Merchants and SMEs in Brazil did not accept payment cards in 2016, and only one in 10 operates via a digital platform.

•

Lack of all-in-one offerings: Given the low availability of integrated, end-to-end ecosystems, merchants frequently have to assemble hardware, software, and payment services from a number of third parties in order to run their businesses.

•

Time-consuming, limited access to conventional funds: Micro-Merchants and SMEs have historically faced difficulties accessing early payment of installment receivables from the incumbent payment processing providers in Brazil. In addition, when they provide the feature, the incumbents often require customers to request early payment on a transaction-by-transaction basis. Furthermore, conventional funds generally involve high interest rates in Brazil. According to the Central Bank, at September 30, 2017, when the SELIC, the Central Bank’s overnight rate, rate was 8.15%, financial costs were 127% per annum for a personal loan, 321% per annum for overdraft credit for a private individual, 339% per annum for overdraft credit for a business, 332% for revolving credit for a private individual and 264% per annum for revolving credit for a business. In comparison, we offer our early payment of installment receivables feature for merchants at a rate equivalent to 42% per annum. Given these comparatively low interest rates, we believe there is a large market opportunity for our early payment of installment receivables feature.

•

Lack of transparency: Certain incumbent payment processing providers in Brazil offer terms and pricing that can be complex and unpredictable. The process for obtaining a POS device can be time-consuming and complex, since the larger acquirers are linked to major banks and require the merchant to become a bank client in order to receive the device. Partly for these reasons, a significant portion of Micro-Merchants remain unbanked and therefore represent a market opportunity for digital payment solutions, particularly from a provider who can offer simpler onboarding and preapproved early payment of installment receivables.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PAGSEGURO BRAZIL

You should read the following discussion of PagSeguro Brazil’s financial condition and results of operations in conjunction with the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil and the notes thereto included elsewhere in this prospectus, as well as the data set forth in “Summary Financial and Operating Data of PagSeguro Brazil” and “Selected Financial and Operating Information of PagSeguro Brazil.” The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations of PagSeguro Brazil, the words “we,” “us” and “our” mean PagSeguro Brazil and its subsidiaries on a consolidated basis. Prior to receiving the shares of PagSeguro Brazil from UOL in a contribution transaction on January 4, 2018, PagSeguro Digital Ltd., the Company whose shares are being offering by this prospectus, had not commenced operations and had only nominal assets and liabilities.

Overview

We are a disruptive provider of financial technology solutions focused primarily on Micro-Merchants, Small Companies and Medium-Sized Companies, or SMEs, in Brazil. We are the only financial technology provider in Brazil whose business model covers all of the following five pillars:

•

Multiple digital payment solutions

•

In-person payments via POS devices that we sell to clients

•

Free digital accounts

•

Issuer of prepaid cards to clients for spending or withdrawing account balances

•

Operating as an acquirer.

Our end-to-end digital ecosystem enables our customers not only to accept payments, but also to grow and manage their businesses. Before PagSeguro, many of these Micro-Merchants and SMEs were overlooked or underserved by incumbent payment providers and large financial institutions in Brazil. For example, according to a survey conducted by us in June 2017, 75% of merchants who own our entry-level mPOS device, the Minizinha, did not accept card payments prior to signing up with PagSeguro. We offer safe, affordable, simple, mobile-first solutions for merchants to accept payments and manage their cash through their PagSeguro digital accounts, without the need for a bank account. Our digital account offers more than 30 payment methods and six cash-out options including our PagSeguro prepaid card, all using our proprietary technology platform and backed by the trusted PagSeguro and UOL brands. Our digital ecosystem also features other digital financial services, business management tools and functionalities for our clients.

Corporate Events

Our Incorporation

PagSeguro Digital Ltd. was incorporated in July 2017 by UOL. At that time UOL also held 524,577,214 shares of our principal operating company, PagSeguro Brazil (which were substantially all of the shares PagSeguro Brazil, the one remaining share being held by a separate shareholder, as required by Brazilian law). On August 1, 2017, PagSeguro Brazil carried out a reverse stock split, following which UOL held 262,288,606 shares in PagSeguro Brazil, the one remaining share being held by the separate shareholder.

On January 4, 2018, prior to the launch of this initial public offering, UOL contributed all of its shares in PagSeguro Brazil to PagSeguro Digital. As a result, PagSeguro Digital owns substantially all of the shares of PagSeguro Brazil, together with PagSeguro Brazil’s subsidiaries and activities. In return for this contribution, PagSeguro Digital issued 262,288,606 new Class B common shares to UOL in a 1:1 exchange for the shares of PagSeguro Brazil contributed to it. Taken together with the one Class B common share of PagSeguro Digital that UOL already held prior to that contribution, UOL holds all of the issued shares of PagSeguro Digital immediately prior to this offering, consisting of 262,288,607 Class B common shares.

Immediately prior to this initial public offering, therefore, UOL holds all of the issued and outstanding 262,288,607 shares in PagSeguro Digital, and PagSeguro Digital holds all of the 262,288,607 issued and outstanding shares in PagSeguro Brazil except one. After accounting for the 43,289,474 new Class A common shares to be issued and sold by PagSeguro Digital in this offering and the 1,895,879 new Class A common shares expected to be issued without cash consideration to certain members of our management who are beneficiaries under the LTIP immediately upon completion of this offering (share number based on the midpoint of the estimated offering price range set forth on the cover page of this prospectus), PagSeguro Digital will have a total of 307,473,960 common shares issued and outstanding immediately following this offering. 213,472,818 of these shares will be Class B common shares beneficially owned by UOL, 92,105,263 of these shares will be Class A common shares beneficially owned by investors purchasing in this offering and 1,895,879 will be Class A common shares benficially owned by members of our management.

The 2015 Reorganization

Prior to the contribution of these PagSeguro activities to PagSeguro Brazil, their results of operations were recorded in UOL’s financial statements. As a result, the financial information of PagSeguro Brazil reflects a carve-out of our PagSeguro activities for periods prior to August 1, 2015. This carve-out financial information is derived from UOL’s accounting records and does not necessarily reflect the financial position, results of operations or cash flows that would have been recorded had PagSeguro Brazil been operating as a separate entity in those periods or at those dates.

PagSeguro currently uses centralized cash management with UOL. Consequently, all amounts received or paid in connection with the PagSeguro business have been recognized as balances between related parties in the audited consolidated financial statements of PagSeguro Brazil. This approach is consistent with the treatment of the audited consolidated financial statements of PagSeguro Brazil prior to August 1, 2015, which were prepared on a carve-out basis. PagSeguro’s cash management will be separate from UOL’s cash management starting from the date of completion of this offering. Any remaining balances that relate to prior cash management activities will begin accruing interest on arms’ length terms from the date of completion of this offering, and any such balances will in any event be repaid within 60 days following completion of this offering.

Financial Presentation and Accounting Practices

For information on our consolidated financial statements, see “Presentation of Financial and Other Information.”

Principal Factors Affecting Our Financial Condition and Results of Operations

We believe our operating and business performance is driven by various factors that affect the global and Brazilian economy, the Brazilian digital payments market, trends affecting the broader Brazilian financial technology solutions industry, and trends affecting the specific markets and customer base that we target, particularly Micro-Merchants and SMEs in Brazil. The following key factors may affect our future performance.

Adoption of our digital payment services and POS devices, and usage of our early payment of receivables feature

We believe our digital platform, digital payment services and POS devices are the foundation of our relationship with our clients. We generate revenue through the commissions and other fees that we charge for electronic payment intermediation, as well as fees for other services and revenues from sales of POS devices and related items, and we generate financial income through the early payment of receivables feature that we offer our merchant clients. We intend to continue to drive growth in our digital payment services, POS devices and early payment of receivables feature by scaling our solutions to meet the needs of our clients.

Our digital payment solutions and POS devices are the principal way in which our clients become familiar with our full range of products and services. We seek to leverage the familiarity generated by these services, features and devices to encourage merchants to sign up for our other services, which can help them increase their sales and, in turn, generate incremental revenue for us. As a result, the number of new merchants who adopt our digital payment services and purchase our POS devices will affect our growth.

Furthermore, our customer base consists primarily of Micro-Merchants and SMEs, who tend to generate relatively high levels of early payment of receivables from installment transactions in order to fulfill their working capital needs. These Micro-Merchants and SMEs are at the core of our strategy. In the future, however, as we sign up a greater proportion of larger merchants, we expect early payment to represent a smaller relative proportion of our overall results, since larger merchants tend to request significantly lower volumes of early payment, given their easier access to alternative funding. Hence, we believe that while our Financial income will continue to increase in absolute terms as our client base grows, it may decrease as a proportion of our Total revenues and income in the medium and longer term.

Increased use of credit and debit cards and expanded card payments network

The results of our operations depend to a significant degree on the use of credit and debit cards to make digital payments in Brazil. In 2014, according to ABECS and the Central Bank, the transaction volume for payment cards overtook the transaction volume for checks for the first time. Credit and debit card transaction volume in Brazil has increased at a compound annual growth rate of 15.2% from 2010 to 2016 according to ABECS. As a further indication of this growth, MasterCard stated that the Brazilian real was one of its three primary revenue billing currencies in 2016.

Growth of e-Commerce

Our results of operations depend in part on consumers’ widespread acceptance and use of the Internet as a way to conduct commerce and financial transactions. E-commerce is also underpenetrated compared to e-commerce levels in more developed economies. In Brazil, e-commerce accounted for only 3.6% of retail sales in 2016, compared to 7.8% in the United States. According to a 2017 report commissioned by ABECS and carried out by Datafolha, online purchases made up only 19.2% of the total credit card transaction volume in Brazil in 2016, an increase of 3.2% from 18.6% in 2015. Since we view commerce via mobile devices as a key driver of growth going forward, we focus on maintaining a mobile-first digital platform, and we design our solutions on a mobile-first basis so that our merchants can be self-sufficient at all times.

Launch of new products and services and cross-selling to our clients

We strive to stay on the cutting edge of the financial technology solutions industry by developing and launching new products and services to offer to both new and existing clients and intend to continue to invest in product development to build new products and services and to bring them to market. This allows us to continue to meet the needs of our clients, as these needs grow and change over time. While we expect our total expenses to increase in the short term as we plan for growth, we expect our expenses to decline as a percentage of our Total revenue and income over the medium term as these investments benefit our business and our business grows.

Our existing clients represent a sizable opportunity to cross-sell products and services with relatively low incremental marketing and advertising expenses for us. We believe that our range of services, many of which can be used for both business and personal needs, represents an opportunity to further increase engagement with our existing clients. We plan to continually invest in product development so as to maintain and increase the attractiveness of our products and services. To the extent that we are able to cross-sell these products and services and develop and introduce new products and services to our existing clients and attract new clients, we expect our revenues and financial income to continue to grow and our margins to increase.

Marketing and advertising

Our marketing strategy is designed to grow our platform by reinforcing brand recognition and confidence associated with the PagSeguro brand, attracting new users and increasing frequency of use by our existing users. We continue to build and maintain brand recognition and awareness, while generating demand for our products and services through a variety of marketing campaigns, including advertising through traditional media, such as television, magazines and newspapers, online advertising and sponsored blogs. Marketing initiatives that specifically aim to recruit merchants to our ecosystem currently focus on our POS and mPOS devices, web checkout solutions and other online payment solutions, such as Pag.ae. We believe that introducing our digital payment solutions to merchants who are not yet our clients is the most efficient and cost-effective strategy to sustain our growth among both merchants and consumers, creating a “network effect” where existing clients recruit new clients for us through word-of-mouth recommendations. Given the nature of our revenue streams, which are distributed over time as merchants purchase POS devices and/or process transactions, our investments in marketing and advertising campaigns do not realize returns in the same period in which they are made but over subsequent periods, which could adversely affect our short-term results.

Merchant size

We benefit from our primary focus on Micro-Merchants and SMEs, who we believe were overlooked or underserved by incumbent payment providers and large financial institutions in Brazil before PagSeguro. As our existing merchants grow and as we serve increasingly larger merchants we expect our TPV to grow accordingly, while we will remain focused on Micro-Merchants and SMEs. Serving an increasing number of larger merchants also presents an opportunity to cross-sell value-added services and features such as accounting reconciliation, which generate incremental revenues and margin with low or no customer acquisition costs. Over time, we expect an increasing portion of our growth to come from a combination of increased numbers of active merchants and increased average spending per active merchant.

Consumer adoption of our products and services

Many of our products and services reach consumers directly. Our escrow period service for consumer protection and mediation services make e-commerce safer for consumers, and we believe our digital account and PagSeguro prepaid cards provide easy, attractive alternatives for consumers who do not have bank accounts. In addition, our social payment solutions, such as Pag.ae, allow our clients to use their PagSeguro account for either business or personal needs. We have made significant investments in the development of these consumer-facing products and services, and our ability to grow our consumer network going forward will be important for strengthening our ecosystem and driving our growth.

Currency fluctuations

We do not generate material revenues in foreign currencies that could substantially affect our results of operations. Certain of our expenses are subject to currency fluctuation, as the prices of the POS devices we purchase are set in U.S. dollars (both for the devices we imported from outside Brazil prior to mid-2015, and for the locally-made devices we have been purchasing since then).

Inflation

Inflation, government policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty in Brazil. According to the IPCA, Brazilian inflation rates were 6.3%, 10.7% and 6.4% in 2016, 2015 and 2014, respectively, while the SELIC rate, the Central Bank’s overnight rate, increased from 10.00% at the beginning of 2014 to a high point of 14.25% in 2016, before a series of rate reductions in 2017, bringing the SELIC rate down to 8.25% as of September 30, 2017. For more information, see “—Brazilian political environment and macroeconomic conditions, interest rates, consumer credit and consumer spending” and “Risk Factors—Risks Relating to Brazil—Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital market, and high levels of inflation in the future would harm our business and the price of our Class A common shares.”

Inflation has a direct effect on our contracts with certain suppliers, such as telecommunications operators, whose costs are indexed to the IPCA, and data processors, whose labor costs are adjusted according to inflation. While inflation may cause our suppliers to increase their prices, we are generally able to offset this effect by increasing the prices we charge for our products and services.

When merchants adjust their prices for inflation, the purchasing power of consumers may be reduced, which may adversely affect our revenue if it results in a reduction in the number and volume of transactions. However, if our merchants raise their prices due to inflation, the amount we receive on each transaction also increases.

Pricing and revenue mix in our payment processing services

We generate revenue in the form of commissions and fees on the capture, transmission, processing and settlement of transactions carried out using credit, debit and meal voucher cards, as well as fees for other services. Credit and debit cards generate commissions in the form of the merchant discount rate, or MDR, which is a commission withheld by us from the transaction value paid to the merchant. The MDR we charge may vary over time and we may make different commercial offers for different services or for larger clients. However, overall, the MDR for debit cards is lower than that for credit cards. Our current standard MDR rates are 2.39% for POS debit card transactions, 3.19% for POS credit card transactions not paid in installments, 3.79% for POS credit card transactions paid in installments and 3.99% for online transactions, irrespective of whether such online transaction was paid in installments. Online transactions are also charged a fixed amount of R$0.40 per sale in addition to these MDR rates. Payments made using meal voucher cards and other payment methods generate per-transaction and/or percentage commissions at various rates. The MDR rates for credit card transactions vary according to whether the merchant has opted for the 14-day or one-day payment service under our payment date election service. For merchants who select the one-day payment date election, the standard MDR is 4.99% for POS credit card transactions not paid in installments and 5.59% for POS credit card transactions paid in installments. For merchants who select the 14-day payment date election, the standard MDR is 3.99% for POS credit card transactions not paid in installments and 4.59% for POS credit card transactions paid in installments. Our revenues are therefore impacted by the mix of these types of services that we sell, as well as any changes in the pricing for each service.

We face competition in all of our payment services and sales of POS devices, and we expect this competition to intensify in the future. For further information, see “Risk Factors—Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.” In addition, we currently offer lower pricing to certain of our clients who generate higher TPV, and we may be required to extend this pricing to other clients as our merchant base expands to include a greater proportion of larger merchants.

Financing of our early payment of merchants’ receivables feature

We receive significant financial income from offering our merchants the option to obtain early payment of their receivables from credit card installments. We also incur significant financial expenses in order to fund this optional feature. Through the date of this initial public offering, we have funded this feature (i) principally by obtaining early payment of note receivables due to us from the card issuers and acquirers, enabling us to provide the related early payment to merchants, as well as (ii) through our general third party borrowings and own capital. We plan to use a portion of the proceeds from this offering in order to reduce our recourse to outside funding for our early payment feature. Our ability to maintain adequate funding for the early payment feature is important for our operations and future income generation. For further information, see “Principal Components of Our Results of Operations—Financial Expenses.”

Interchange fees

We rely on card issuers and card schemes to process our transactions, and we are required to pay fees for this service. In addition, although we are accredited as an acquirer, we also use third-party acquirers. From time to time, card schemes such as MasterCard and Visa may increase the interchange fees that they charge for each transaction using one of their cards. Credit card schemes have the right to pass any increases in interchange fees on to us as well as increase their own fees for processing. In addition, card schemes have imposed and may again impose special assessments for transactions that are executed through a “digital wallet,” and these fees could particularly affect us and significantly increase our costs. Although our standard contract with our merchant clients allows us to adjust our rates and tariffs at our discretion by notice to the merchant, our ability to vary our pricing remains subject to a variety of factors, including competition from other payment providers, market conditions and, in certain cases, direct price negotiations with the merchant. As a result, we may not necessarily be able to pass through all interchange and processing fees to our merchant clients, and increases in these fees may therefore increase our Cost of sales and services and reduce our margins.

The interchange fee, which we record as Transaction costs within Cost of sales and services, has the potential to affect our margins. An increase in interchange fees will result in an increase in our Cost of sales and services and if we cannot pass the interchange fees onto customers via a corresponding increase in MDR, our margin will also be affected. Currently, the difference between interchange fees and the MDR we charge is less for debit card transactions than for credit card transactions, so our margins on credit card transactions are greater. We cannot predict if or when the card schemes will increase their interchange fees, or what the amount of any such increases may be. For further information, see “Risk Factors—Risks Relating to Our Business and Industry—We partially rely on card issuers or card schemes to process our transactions. Changes to credit card scheme fees, rules or practices may harm our business.”

Brazilian political environment and macroeconomic conditions, interest rates, consumer credit and consumer spending

Substantially all of our operations are located in Brazil. As a result, our revenues, financial income and profitability are affected by political and economic developments in Brazil and the effect that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our operations, and the financial technology solutions industry in general, are particularly sensitive to changes in economic conditions.

Our Total revenue and income are affected by levels of consumer spending, interest rates and the expansion or retraction of consumer credit in Brazil, each of which impact the number and overall value of payment transactions. The interest rates charged on consumer credit transactions have an indirect effect on us to the extent that lower interest rates can lead to increases in private consumption, and therefore increases in the number of credit and debit card transactions or decreases in the number of installments consumers elect when making a purchase. Increases in interest rates, on the other hand, may lead to a decrease in private consumption or an increase in the number of installments consumers elect when making a purchase. Increases in interest rates may also cause fewer merchants to decide to use our early payment of receivables feature if our overall financing costs require us to increase the discount rate we charge for this feature.

The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment, and weak macroeconomic conditions are expected to continue through at least the first six months of 2018. For more information, see “Risk Factors—Risks Relating to Brazil—The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares.”

Brazil is the largest economy in Latin America, as measured by gross domestic product, or GDP, yet digital payment penetration remains low compared to more developed economies. According to a December 2016 report by BIS and Bureau of Economic Analysis, or BEA, card usage as a payment method in Brazil represented only approximately 28% of private consumption in 2015, compared to approximately 45% in the United States. According to Datafolha, out of the 53% of entrepreneurs who do not own POS devices, 26% intended to acquire one in the next six months, this percentage being even higher among Micro-Merchants. We believe that a significant portion of this underpenetration is due to the number of unbanked individuals, who make up a major target sector for us. According to data from the World Bank, as of 2014, 31.9% of the Brazilian population above 15 years old, or 65.1 million individuals, did not have a bank account.

The following table shows data for real GDP, inflation and interest rates in Brazil and the U.S. dollar/ real exchange rate at the dates and for the periods indicated.


	For the Nine Months Ended September 30,				For the Years Ended December 31,
	2017		2016		2016		2015		2014
Real growth (contraction) in gross domestic product		(0.6)%		(3.8)%		(3.5)%		(3.5)%		0.5%
Inflation (IGP-M) ⁽¹⁾		(2.1)%		6.5%		7.2%		10.5%		3.7%
Inflation (IPCA) ⁽²⁾		1.8%		5.5%		6.3%		10.7%		6.4%
Long-term interest rates – TJLP (average) ⁽³⁾		7.2%		7.5%		7.5%		6.3%		5.0%
CDI interest rate (average) ⁽⁴⁾		10.9%		14.1%		14.1%		13.3%		10.8%
LIBOR ⁽⁵⁾		1.2%		0.7%		0.7%		0.3%		0.2%
Period-end exchange rate— reais per US$ 1.00		3.168		3.246		3.259		3.905		2.656
Average exchange rate— reais per US$ 1.00 ⁽⁶⁾		3.175		3.545		3.483		3.339		2.355
Change in average exchange rate of the real vs. US$		11.7%		(10.6)%		(4.2)%		(29.5)%		(8.2)%
Unemployment rate ⁽⁷⁾		13.1%		11.3%		11.5%		8.5%		6.8%

Source : FGV, IBGE, Central Bank and Bloomberg

(1)	Inflation (IGP-M) is the general market price index measured by the FGV.

(2)	Inflation (IPCA) is a broad consumer price index measured by the IBGE.

(3)	TJLP is the Brazilian long-term interest rate (average of monthly rates for the period).

(4)	The CDI interest rate is an average of interbank overnight rates in Brazil (daily average for the period).

(5)	Average US dollar three-month London Interbank Offer Rate.

(6)	Average of the exchange rate on each business day of the period.

(7)	Average unemployment rate for year as measured by the IBGE.

The Brazilian political and economic scenario has recently been characterized by high levels of uncertainty and instability, including a contraction of economic growth, despite a recent appreciation, an overall sharp depreciation of the real against the U.S. dollar, increased levels of unemployment and depressed levels of consumer confidence and spending. Brazil entered a recession in 2014 due in part to a decrease in global commodities prices as well as wide-scale corruption probes focused on certain state-owned companies and uncertainty surrounding the presidency of President Dilma Rousseff, which culminated in impeachment in 2016. For further information, see “Risk Factors—The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares.”

Our business has grown rapidly, driven by new clients and increased TPV, with our Total revenue and income increasing to R$1,692.3 million in the first nine months of 2017 from R$757.4 million in the first nine months of 2016, and increasing to R$1,138.4 million in 2016 from R$325.8 million in 2014. In addition to continuing to grow our client base, we believe that our business model will allow us to benefit from Brazil’s economic growth potential, particularly among Micro-Merchants, SMEs and individuals without bank accounts.

Seasonality

We operate in a somewhat seasonal industry, which tends to experience relatively fewer transactions in the first quarter of the year, increased activity as the year-end holiday shopping season initiates, and fewer transactions after the year-end holidays. While we have not experienced significant seasonality in our results as of the date of this prospectus due to our ongoing growth, this could change in the future. For additional information, see “Risk Factors—Risks Relating to Our Business and Industry—Our quarterly Results of Operations of PagSeguro Brazil and operating metrics may fluctuate and are unpredictable and subject to seasonality, which could result in the price of our Class A common shares being unpredictable or declining.”

Trend Information

We believe that demand for our products and services will remain strong in coming years, since our addressable market remains significant. We believe that this market opportunity will continue to fuel volume growth in our business, supported by increasing levels of penetration and usage of credit cards among the Brazilian population and the introduction of new products and services.

New IFRS standards that may affect our future results of operations

Certain IFRS standards and interpretations that have been issued but are not yet in effect could impact the presentation of our financial position or performance once they become effective. For further information, see Note 2.17 to the audited consolidated financial statements of PagSeguro Brazil and Note 2.2 to the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

Principal Components of Our Results of Operations

The following is a summary of the items comprising our statements of income:

Total revenue and income

Our Total revenue and income consists of the total of our Net revenue from transaction activities and other services, Net revenue from sales, Financial income and Other financial income.

Net revenues

We generate revenues from transaction activities and other services, and from sales. In each case, our net revenues consist of gross revenues less deductions from those revenues.

Net revenue from transaction activities and other services

Our Net revenue from transaction activities and other services consists of Gross revenue from transaction activities and other services, less deductions from those gross revenues.

Our main source of Gross revenue from transaction activities and other services is commissions and fees on the capture, transmission, processing and settlement of transactions carried out using credit, debit and meal voucher cards and fees for other services. We have the primary responsibility for providing the services to our clients and we also directly set the prices for such services, independently from the related transaction costs agreed between us and the card schemes or card issuers. Since we have primary responsibility for providing our merchant clients with the intermediation service, and we have price discretion to adjust the rates and tariffs we charge merchants, we are the principal in the intermediation transaction. We therefore recognize our transaction fees as revenue on a gross basis, and we recognize the transaction costs separately as discussed below. Depending on the type of cash-in payment or transaction, these commissions and fees consist of the MDR, which is a commission withheld by us from the transaction value paid to the merchant, and/or other commissions or per-transaction fees. This line item also includes the fees we charge for other services. We recognize revenues from these commissions and fees when the purchase is approved by the card issuer, in the case of cash-in payments made via payment cards; when the transaction is carried out, in the case of payments made via other cash-in payment methods; or in the case of services, when the service, is rendered.

The amounts deducted from our Gross revenue from transaction activities and other services consist principally of the applicable Brazilian sales taxes and social security contributions: service tax ( Imposto sobre Serviços , or ISS); contributions to the Brazilian government’s Social Integration Program ( Programa Integração Social , or PIS); and contributions to the Brazilian government’s social security program ( Contribuição para o Financiamento da Seguridade Social , or COFINS). We are required to collect each of these on our transaction activities and other services.

Net revenue from sales

Our Net revenue from sales consists of Gross revenue from sales, less deductions from those gross revenues.

We earn revenue from the sale to merchants of our POS devices. We currently offer the Minizinha for a purchase price of 12 monthly installments of R$9.90, the Moderninha Wifi for a purchase price of 12 monthly installments of R$39.90 and the Moderninha Pro for 12 monthly installments of R$69.90. This line item also includes revenues from sales of POS device peripherals such as charging bases and protective covers. We recognize these revenues upon delivery of the equipment to the merchant.

The amounts deducted from our Gross revenues from sales consist of (i) PIS and COFINS, as well as the Imposto sobre Circulação de Mercadorias e Serviços tax, or ICMS, that we are required to collect on sales of devices and peripherals, and (ii) amounts corresponding to defective POS devices that are returned to us and purchases that are cancelled by merchants.

The applicable taxes and contributions vary according to whether the device and peripheral was manufactured in Brazil or imported. For locally-made devices, when we purchase the device we pay the taxes and contributions to the supplier at standard rates; and when we sell the device to our clients, we collect these taxes at the same rates on the selling price, record the tax on the sale in this line item as a deduction, and remit the difference between the taxes on or input cost and our selling price to the taxing authorities. For imported devices, we pay a lower rate of tax in place of ICMS on the purchase, and are not required to charge ICMS when we sell the device to our clients, meaning that the amount recorded in this deductions line item is relatively lower for imported devices. Prior to mid-2015 we purchased significant numbers of imported POS devices, but since mid-2015 substantially all of the POS devices we sell have been manufactured in Brazil.

Financial Income

As described under “Business—Our Products and Services—Cash-in Solutions—Credit Cards”, our early payment of receivables feature consists of paying our merchants their installment receivables upfront when consumers paying by credit card choose to pay the merchant in installments. We account for the remuneration from this feature as Financial income. This Financial income makes up a significant portion of our overall Total revenue and income.

Our remuneration from the early payment of receivables feature consists of a discount that we withhold from the transaction value of the receivables that we pay to merchants in advance. We recognize this discount as Financial income (separate from and in addition to the MDR fee for the payment processing transaction, which we recognize as Gross revenue from transaction activities and other services). We recognize the discount amount as Financial income at the time a sale transaction is approved involving a merchant who has opted to receive early payments of the receivables from their credit card installment sales. The discount that generates our Financial income relates only to the early payment of the second and successive installments of the purchase; the first installment is not paid early as it is disbursed to the merchant within the normal billing cycle, so it does not generate remuneration in the form of Financial income (although it does generate MDR, which is recognized as Gross revenue from transaction activities and other services).

In addition, the Financial income line item does not include the fees we charge for the merchant’s payment date election within the monthly billing cycle, which are part of the MDR and are accounted for in Gross revenue from transaction activities and other services.

Our Financial income relates to early payments to merchants of amounts related to receivables from purchase transactions that have been approved by the card issuer and the card scheme.

The financial expenses we incur in funding this early payment of receivables feature are accounted for in our Financial expenses, discussed below.

For more information regarding our early payment of receivables feature and the FIDC that we established in the fourth quarter of 2017 to finance a portion of our related Financial expenses, see “Business—Our Products and Services—Advanced Integrated Functionalities and Value-Added Services and Features—Early Payment of Receivables.”

Other Financial Income

Our Other financial income consists principally of interest generated by bank savings accounts and by deposits we make with Brazilian courts, known as judicial deposits, which guarantee any compensation we may be required to pay in litigation matters.

Our Other financial income also includes our net foreign exchange variations, i.e. the net gain or loss on our assets and liabilities related to the appreciation or depreciation of the real against foreign currencies, which has limited impact on our cash position. We had swaps in place to protect us against exposure to currency fluctuations on all of our borrowings in foreign currencies.

Cost of Sales and Services

Our Cost of sales and services represents the amounts that make up the cost of the services and devices we sell. These amounts are divided into Transaction costs, Cost of goods sold, Marketing and advertising, Personnel expenses, Depreciation and amortization and Other costs. For further information on these costs, see Note 21 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

•

Our Transaction costs consist of interchange fees set by card schemes that are paid to the financial institution that is the issuer of the card; assessment fees paid to card schemes; fees paid to third-party payment processors; fees paid to acquirers; and bank settlement fees. All of our Transaction costs are accounted for within our Cost of sales and services. Since we are the principal in the intermediation transaction, we recognize the transaction costs that we pay to third parties, such as card schemes and card issuers who process these transactions, within our Cost of sales and services separately from the transaction fees we receive, which we recognize on a gross basis. The transaction costs are agreed between the card schemes or card issuers and us, independently from the fees we charge our merchant clients.

•

Cost of goods sold consists of the amounts we spend in purchasing POS devices and peripherals from our suppliers, together with the related shipping charges and applicable purchase tax. All of our Cost of goods sold is accounted for within our Cost of sales and services.

•

Our Marketing and advertising expenses are divided between our Cost of sales and services as well as our Selling expenses. Of this total, the portion of Marketing and advertising that is accounted for within our Cost of sales and services relates to customer support.

•

Our Personnel expenses consist of wages, overtime, benefits (such as meal vouchers, transportation vouchers and medical insurance, among others), profit sharing, and social contribution and payroll taxes. In Brazil, social contribution and payroll taxes consist of the Brazilian Social Security Institute ( Instituto Nacional de Seguridade Social – INSS ) contribution and the Brazilian Unemployment Compensation Fund ( Fundo de Garantia por Tempo de Serviço – FGTS ) contribution. Our Personnel expenses are divided between our Cost of sales and services as well as our Selling expenses and our Administrative expenses. Of this total, the portion of our Personnel expenses that is accounted for within our Cost of sales and services refers to employees engaged in activities related to the cost of goods and services that we sell, such as technology, customer support, logistics, antifraud activities and mediation services.

•

Our Depreciation and amortization expenses are divided between our Cost of sales and services as well as our Selling expenses and our Administrative expenses. Of this total, the portion of our Depreciation and amortization expenses that is included in our Cost of sales and services consists mainly of (i) the depreciation of equipment, furniture, technology and installations that form part of the cost of the goods and services that we sell, and (ii) the amortization of software that we develop internally for use in our operations.

•

Our Other expenses are divided between our Cost of sales and services as well as our Selling expenses and our Administrative expenses. Of this total, the portion of our Other expenses that is included in our Cost of sales and services consists mainly of items such as travel expenses and office supplies that form part of the cost of the goods and services that we sell.

Selling Expenses

Our Selling expenses represent the amounts that we spend on publicity, marketing, quality control and direct or indirect relations with our clients. These amounts are divided into Marketing and advertising, Personnel expenses, Chargebacks, Depreciation and amortization expenses and Other expenses. For further information on these expenses, see Note 21 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

•

The portion of Marketing and advertising expenses included in our Selling expenses relates to the production and distribution of our marketing and advertising campaigns on traditional offline media, traditional online advertising, the positioning of our products in search platforms, telemarketing related to POS device sales, commissions to our third party sales force and partners such as platforms, bloggers and developers, expenses incurred in relation to trade marketing at events, and amounts that we spend on consulting services and call centers for our telemarketing campaigns.

•

The portion of our Personnel expenses included in our Selling expenses relates to employees engaged in marketing and advertising of our services, POS devices and features.

•

Chargebacks consist of transaction losses arising from chargebacks related to fraudulent transactions, which occurs, principally in online transactions, when a consumer makes a purchase via credit card and then requests a chargeback from the issuing bank after receiving the goods or services purchased. All of our Chargeback expenses are accounted for within our Selling expenses.

•

The portion of our Depreciation and amortization expense included in our Selling expenses consists of the depreciation of equipment used for client relationships.

•

The portion of our Other costs included in our Selling expenses consist of expenses related to travel, lodging and insurance, facilities, rent, consultancy fees and office supplies relating to marketing and advertising of our services, POS devices and features.

Administrative Expenses

Our Administrative expenses represent the amounts that we spend on back office and overhead expenses. These amounts are divided into Personnel expenses, Depreciation and amortization expenses and Other costs. While we expect our Administrative expenses to increase in the short term as we plan for growth and as we incur costs of compliance associated with being a public company, we expect these expenses to decline as a percentage of our Total revenue and income over the medium term as our business grows.

•

The portion of our Personnel expenses that form part of our Administrative expenses relates to our finance, legal, human resources, and administrative personnel, as well as fees paid for professional services, including legal, tax and accounting services.

•

The portion of our Depreciation and amortization expenses that form part of our Administrative expenses relates to (i) the depreciation of the equipment, furniture, tools and technology used in our head office and back-office operations and (ii) the amortization of software developed internally to support our head office and back-office needs, which is shown in Note 11 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

•

The portion of our Other costs that form part of our Administrative expenses includes items such as bank charges, travel, reimbursement of staff expenses and office supplies.

Financial Expenses

Our financial expenses include (i) the charges we incur to obtain early payment of note receivables owed to us by card issuers and acquirers in order to finance the early payment of receivables feature that we offer merchants, (ii) interest expense on our other borrowings and (iii) the cost of swaps relating to our foreign currency borrowings. Variations in our Financial expenses when expressed as a percentage of Financial income are driven by Brazilian interest rates, which determine the cost of most of our financing, together with changes in the mix of the financing we use for our early payment of receivables feature.

Through the date of this initial public offering, we have funded the early payment of receivables feature (i) principally by obtaining early payment of receivables owed to us by card issuers and acquirers, as well as (ii) through our general third party borrowings and own capital. We plan to use a significant portion of the proceeds from this offering to fund the early payment of receivables feature. In addition, in November 2017 we set up a Brazilian investment fund to purchase and hold receivables known as a Fundo de Investimento em Direitos Creditórios (a Fund for Investment in Credit Rights, or FIDC) through which we may raise debt to finance the early payment of receivables feature. The FIDC is controlled by our Brazilian operating company (by virtue of subscribing for its subordinated quotas) but raises capital by issuing senior quotas in the fund to outside investors, who receive interest on these investments from the FIDC. The FIDC uses the capital it raises to finance the growth of our early payment of receivables feature. Our remuneration from the early payment of receivables feature continues to be reflected as Financial income in the consolidated financial statements of PagSeguro Brazil. We do not expect the establishment of the FIDC to impact the discount rate we charge in connection with the early payment of receivables feature or the expenses we incur to obtain early payment of note receivables from card issuers and acquirers. For further information regarding the FIDC, see “—Organizational Structure.”

All of our third-party borrowings at December 31, 2016 were denominated in U.S. dollars and therefore exposed to currency fluctuations. We contracted derivative financial instruments known as swaps in order to protect us against this exposure. We did not have any outstanding borrowings at September 30, 2017 or at December 31, 2015 or 2014. For further information on our borrowings, see “—Loans and Financing”, Note 13 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

Other (Expenses) Income, Net

Our Other (expenses) income, net line item consists mainly of contingencies, charges and miscellaneous income and/or expense items.

Current Income Tax and Social Contribution

Current income tax and social contribution consists of tax assets and liabilities for the current year. Our liability to income tax principally reflects the level of our Profit before income taxes; this line item also varies, however, to the extent that we are entitled to defer tax on certain investments in technological innovation, in which case our tax base for income tax for the year is reduced and the related deferred tax liability is accounted for in the Deferred income tax and social contribution line item below.

Our tax assets for the current year are calculated based on the expected recoverable amount, and tax liabilities for the current year are calculated based on the amount payable to the applicable tax authorities. The tax rates and tax laws used to calculate this amount are those enacted or substantially enacted at the balance sheet date. Current income tax and social contribution related to items recognized directly in equity is also recognized in equity. We periodically evaluate our tax positions with respect to interpreting tax regulations and, when appropriate, establish provisions.

Deferred Income Tax and Social Contribution

Deferred income tax and social contribution consists of temporary differences between the tax bases of assets and liabilities and their carrying amounts at the balance sheet date. This line item refers principally to deferrals of tax liability that we are entitled to take on capital investments that we make in technological innovation under Brazilian Law No. 11,196/2005, known as the Technological Innovation Law or “ Lei do Bem.” We are able to use this tax deferral law principally for the investments we make in developing software internally, where we capitalize the labor and other costs involved as an intangible asset rather than accounting for these amounts as expenses, and we depreciate the accounting value of the intangible asset over its useful life. The Lei do Bem allows us to defer our tax liability on these investments. Other Brazilian tax rules also allow us to defer tax on certain items, for example on unpaid amounts due from creditors. The Deferred income tax and social contribution line item consists of our liability to future tax under the Lei do Bem and these other tax laws, less the depreciation and amortization that we take during the year on the respective capitalized assets, and less the tax losses carried forward from prior years that we are able to offset against our tax liability during the year. For further information on this line item, see Note 17 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

Deferred tax liabilities are recognized for all taxable temporary differences, except in certain situations explained in Note 2.15 of the audited consolidated financial statements of PagSeguro Brazil. The carrying amount of deferred tax assets is reviewed at each balance sheet date and impairment is recognized to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reviewed, at each balance sheet date, and recognized to the extent that it is probable that future taxable profit will be available to allow for their utilization.

Deferred tax assets and liabilities are measured using the prevailing tax rates in the year in which the assets will be realized and the liabilities will be settled. The currently defined tax rates of 25% for income tax and 9% for social contribution are used to calculate deferred taxes.

Deferred tax assets and liabilities are presented on a net basis when there is a legally or contractually enforceable right to offset the tax asset against the tax liability, and the deferred taxes are related to the same taxable entity and subject to the same tax authority.

Results of Operations

The following discussion of our results of operations is based on the financial information derived from the audited consolidated financial statements and unaudited condensed consolidated interim financial statements of PagSeguro Brazil included elsewhere in this prospectus.

Results of Operations in the Nine Months Ended September 30, 2017 and 2016


	For the Nine Months Ended September 30,
	2017			Percent Change		2016
	(in millions of *reais* , with the exception of percentages and per-share amounts) (Unaudited)
Net revenue from transaction activities and other services		791.2			147.4%		319.8
Net revenue from sales		361.5			120.2%		164.2
Financial income		535.7			98.0%		270.5
Other financial income		3.9			38.1%		2.9

Total revenue and income		1,692.3			123.4%		757.4

Cost of sales and services		(918.4	)		111.1%		(435.1	)
Selling expenses		(184.1	)		84.5%		(99.8	)
Administrative expenses		(107.7	)		77.5%		(60.7	)
Financial expenses		(63.8	)		61.3%		(39.5	)
Other (expenses) income, net		(5.0	)		(16.7)%		(6.0	)

Profit before Income Taxes		413.3			255.7%		116.2
Current income tax and social contribution		(124.1	)		685.7%		(15.8	)
Deferred income tax and social contribution		1.1			(110.0)%		(11.0	)

Income Tax and Social Contribution		(123.0	)		358.3%		(26.8	)

Net Income for the Period		290.2			224.9%		89.3

Attributable to:
Owners of PagSeguro Brazil		289.8			226.6%		88.7
Non-controlling interests		0.4			(31.7)%		0.6
Basic and diluted earnings per common share – R$ ⁽¹⁾		1.1050			226.6%		0.3383

(1)	Based on 262,288,607 common shares of PagSeguro Brazil issued and outstanding.

Total revenue and income

Our Total revenue and income increased by 123.4% to R$1,692.3 million in the nine months ended September 30, 2017 from R$757.4 million in the nine months ended September 30, 2016.

Net revenue from transaction activities and other services

Our Gross revenue from transaction activities and other services in the nine months ended September 30, 2017 amounted to R$899.4 million, an increase of R$536.9 million, or 148.1%, from R$362.5 million in the nine months ended September 30, 2016. This increase was due to the increase in our TPV during the period. Our Gross revenue from transaction activities and other services during the period increased by a lesser percentage than our TPV, however, which increased to R$24.8 billion from R$9.3 billion in the first nine months of 2016. This difference in the rate of growth was principally due to the higher proportion of debit card transactions in our TPV in the first nine months of 2017 as compared to the first nine months of 2016, driven by the fact that in December 2016 we established a new partnership with Elo, a Brazilian card scheme whose business is heavily weighted toward debit cards. Our TPV for the first nine months of 2017 therefore included this additional debit card TPV that we did not have in the first nine months of 2016; and debit cards generate lower MDR than credit card transactions.

Our Deductions from gross revenue from transaction activities and other services, which consist principally of sales taxes, amounted to R$108.2 million in the nine months ended September 30, 2017, or 12.0% of our Gross revenue from transaction activities and other services for the period. In the nine months ended September 30, 2016, Deductions from gross revenue from transaction activities and other services totaled R$42.7 million, or 11.8% of Gross revenue from transaction activities and other services for the period.

As a result, our Net revenue from transaction activities and other services increased by 147.4% to R$791.2 million in the nine months ended September 30, 2017 from R$319.8 million in the nine months ended September 30, 2016.

Net revenue from sales

Our Gross revenue from sales in the nine months ended September 30, 2017 amounted to R$502.3 million, an increase of R$266.9 million, or 113.4%, from R$235.4 million in the nine months ended September 30, 2016. The significant growth in this item was due to an increase in the volume of POS devices sold during the period.

Our Deductions from gross revenue from sales in the nine months ended September 30, 2017 amounted to R$140.7 million, or 28.0% of our Gross revenues from sales for the period. In the nine months ended September 30, 2016, these Deductions totaled R$71.2 million, or 30.2% of Gross revenues from sales for the period. This small decrease in these Deductions as a percentage of our Gross revenues from sales is due to a change in the mix of Brazilian states in which we sold POS devices, since ICMS is levied by each state at a different rate.

As a result, our Net revenue from sales increased by 120.2% to R$361.5 million in the nine months ended September 30, 2017 from R$164.2 million in the nine months ended September 30, 2016.

Financial income

Our Financial income, which represents the volume of the discount fees we withhold from TPV in the early payment of receivables feature that we offer merchants, amounted to R$535.7 million in the nine months ended September 30, 2017, an increase of R$265.2 million, or 98.0%, from R$270.5 million in the nine months ended September 30, 2016. The growth in this activity was due to growth in the volume of usage of our early payment feature by merchants, driven by the growth in our TPV.

Other financial income

Our Other financial income amounted to R$3.9 million in the nine months ended September 30, 2017 compared with R$2.9 million in the nine months ended September 30, 2016.

Our Other financial income included a positive net foreign exchange variation of R$0.7 million in the nine months ended September 30, 2017. This variation reflects the effect of exchange rate fluctuations in our foreign currency accounts located outside of Brazil. In the nine months ended September 30, 2017, this amount related to Boa Compra’s international operations and also included cash-out payments using PagSeguro prepaid cards outside of Brazil and cash-in payments via international cards in Brazil, both of which are settled in foreign currency. Our Other financial income did not include any amount of foreign exchange variation in the nine months ended September 30, 2016.

Expenses

Our total expenses in the nine months ended September 30, 2017 amounted to R$1,279.1 million, an increase of R$637.9 million, or 99.5%, from R$641.2 million in the nine months ended September 30, 2016. As a percentage of our Total revenue and income, our total expenses decreased by 9.1 percentage points, to 75.6% in the nine months ended September 30, 2017 from 84.7% in the nine months ended September 30, 2016.

Cost of sales and services

Our Cost of sales and services amounted to R$918.4 million in the nine months ended September 30, 2017, an increase of R$483.3 million, or 111.1%, from R$435.1 million in the nine months ended September 30, 2016. As a percentage of the total of our Net revenue from transaction activities and other services and our Net revenue from sales, our Cost of sales and services decreased by 10.2 percentage points to 79.7% in the nine months ended September 30, 2017 from 89.9% in the nine months ended September 30, 2016.

Within our Cost of sales and services line item, our Cost of services, expressed as a percentage of our Net revenue from transaction activities and other services, decreased to 67.5% in the nine months ended September 30, 2017 from 83.6% in the nine months ended September 30, 2016, reflecting a reduction in the fees we paid to third party acquirers as well as ongoing economies of scale due to growth in our TPV. Our Cost of sales, expressed as a percentage of our Net revenue from sales, increased to 106.2% in the nine months ended September 30, 2017 from 102.2% in the nine months ended September 30, 2016, due to the change in our device product mix: the launch of the higher-value Moderninha Wifi in June 2016 and Moderninha Pro in October 2016 led to increased expenses throughout the first nine months of 2017 that largely did not impact the mix in the first nine months of 2016.

Selling expenses

Our Selling expenses amounted to R$184.1 million in the nine months ended September 30, 2017, an increase of R$84.3 million, or 84.5%, from R$99.8 million in the nine months ended September 30, 2016. As a percentage of our Total revenue and income, our Selling expenses decreased by 2.3 percentage points, to 10.9% in the nine months ended September 30, 2017 from 13.2% in the nine months ended September 30, 2016. Our Marketing and advertising costs in particular, while increasing in absolute terms, decreased significantly as a percentage of Total revenue and income due to growth in our revenue volumes and the return on our investments in marketing and advertising in prior periods, as well as a decision to focus our online advertising on relatively cheaper spaces rather than headline banners.

Administrative expenses

Our Administrative expenses amounted to R$107.7 million in the nine months ended September 30, 2017, an increase of R$47.0 million, or 77.5%, from R$60.7 million in the nine months ended September 30, 2016. This increase was mainly due to an increase in employee costs, bank charges and consulting fees. As a percentage of our Total revenue and income, however, our Administrative expenses decreased by 1.6 percentage points, to 6.4% in the nine months ended September 30, 2017 from 8.0% in the nine months ended September 30, 2016. This decline in the relative level of our Administrative expenses as a percentage of our Total revenue and income reflects the scalable nature of our business from a relatively fixed overhead base.

Financial expenses

Our Financial expenses amounted to R$63.8 million in the nine months ended September 30, 2017, an increase in expense of R$24.3 million, or 61.3%, from expenses of R$39.5 million in the nine months ended September 30, 2016. Our Financial expenses expressed as a percentage of our Financial income decreased to 11.9% in the nine months ended September 30, 2017 from 14.6% in the nine months ended September 30, 2016.

The variation in our Financial expenses when expressed as a percentage of Financial income is driven by Brazilian interest rates, which determine the cost of most of our financing, together with changes in the mix of the financing we use for our early payment of receivables feature. The SELIC rate, the Central Bank’s overnight rate, was 14.25% throughout the first nine months of 2016; whereas a series of rate reductions brought the rate down from 13.75% at the beginning of 2017 to 8.25% at September 30, 2017. In the nine months ended September 30, 2016, we financed our early payment of receivables feature using our third party borrowings and by obtaining early payment of note receivables due to us from the card issuers and acquirers, as well as capital received from UOL. During the nine months ended September 30, 2017, we repaid our two third party borrowings and thereafter financed the early payment feature by obtaining early payment of note receivables due to us from the card issuers and acquirers. For more information, see “—Financing of our early payment of merchants’ receivables feature.”

Other (expenses) income, net

Our Other (expenses) income, net, recorded expenses of R$5.0 million in the nine months ended September 30, 2017. In the nine months ended September 30, 2016, this line item recorded expense of R$6.0 million. The net amounts in both periods reflect expenses related to civil litigation proceedings.

Profit before income taxes

Our Profit before income taxes amounted to R$413.3 million in the nine months ended September 30, 2017, an increase of R$297.1 million, or 255.7%, from R$116.2 million in the nine months ended September 30, 2016. The increase was due to significant growth in our Total revenue and income, reflecting volume growth in both our net revenue items as well growth in income from our early payment of receivables feature.

Income tax and social contribution

Income and social contributions tax amounted to expenses of R$123.0 million in the nine months ended September 30, 2017, an increase of R$96.2 million from expenses of R$26.8 million in the nine months ended September 30, 2016. This total item consists of Current income tax and social contribution and deferred income tax and social contribution, which relates principally to the tax benefit under the Lei do Bem , which applies to investments made in innovation and technology by PagSeguro Brazil.

Our Current income tax and social contribution expense in the nine months ended September 30, 2017 amounted to R$124.1 million, an increase of R$108.3 million from R$15.8 million in the nine months ended September 30, 2016. This increase is mainly due to the growth in our Profit before income taxes, partly offset by the tax benefit under the Lei do Bem .

Our Deferred income tax and social contribution in the nine months ended September 30, 2017 amounted to a tax benefit of R$1.1 million. In the nine months ended September 30, 2016, our Deferred income tax and social contribution amounted to expenses of R$11.0 million.

The amount of Deferred income tax and social contribution recorded in the nine months ended September 30, 2017 principally reflected the tax benefit on our significant new capital investments in software and technology during the period, less the depreciation and amortization expenses that we recorded against those assets during the period. This tax benefit was partially offset by the amounts we recorded during the period, provisions for slower-selling POS devices held in inventory, provisions for employee corporate results-sharing and tax contingencies.

The amount of Deferred income tax and social contribution recorded in the nine months ended September 30, 2016 principally reflected the tax benefit on our significant new capital investments in software and technology during the period, less the depreciation and amortization expenses that we recorded against those assets during the period.

Our total effective tax rate was 30% in the nine months ended September 30, 2017, compared with 23% in the nine months ended September 30, 2016. The increase was due to the increase in our Profit before income taxes while the amount of our Lei do Bem tax benefits remained stable.

Net income for the period

Our Net income for the nine months ended September 30, 2017 amounted to R$290.2 million, an increase of R$200.9 million, or 224.9%, from R$89.3 million in the nine months ended September 30, 2016. As a percentage of our Total revenue and income, our Net income for the period increased by 5.4 percentage points, to 17.2% in the nine months ended September 30, 2017 compared with 11.8% in the nine months ended September 30, 2016. This increase was principally driven by volume growth in both our net revenue items as well growth in income from our early payment of receivables feature, as discussed above.

Results of Operations in 2016, 2015 and 2014


	For the Years Ended December 31,
	2016			Percent Change		2015			Percent Change			2014
	(in millions of *reais* , with the exception of percentages and per-share amounts)
Net revenue from transaction activities and other services		480.0			79.0%		268.2			67.5%			160.1
Net revenue from sales		260.6			47.6%		176.5			266.2%			48.2
Financial income		392.4			78.8%		219.5			89.5%			115.8
Other financial income		5.3			(50.3)%		10.7			511.8%			1.8

Total revenue and income		1,138.4			68.7%		674.9			107.2%			325.8

Cost of sales and services		(623.7	)		63.1%		(382.5	)		168.4%			(142.5	)
Selling expenses		(199.9	)		22.9%		(162.6	)		99.7%			(81.4	)
Administrative expenses		(84.5	)		38.2%		(61.1	)		19.0%			(51.3	)
Financial expenses		(68.3	)		130.0%		(29.7	)		167.9%			(11.1	)
Other (expenses) income, net		(6.7	)		(595.2)%		1.3			(140.3)%			(3.3	)

Profit before Income Taxes		155.4			285.4%		40.3			11.5%			36.2
Current income tax and social contribution		(7.4	)		187.2%		(2.6	)		(73.9	)%		(9.9	)
Deferred income tax and social contribution		(20.1	)		799.9%		(2.2	)		(319.7	)%		1.0

Income Tax and Social Contribution		(27.6	)		471.5%		(4.8	)		(45.8)%			(8.9	)

Net Income for the Year		127.8			260.1%		35.5			30.2%			27.2

Attributable to:
Owners of PagSeguro Brazil		127.2			262.5%		35.1			35.1%			26.0
Non-controlling interests		0.6			46.1%		0.4			(68.2)%			1.3
Basic and diluted earnings per common share – R$ ⁽¹⁾		0.4849			262.4%		0.1338			35.2%			0.0990

(1)	Based on 262,288,607 common shares of PagSeguro Brazil issued and outstanding.

Total revenue and income

Our Total revenue and income amounted to R$1,138.4 million in 2016, an increase of 68.7% from R$674.9 million in 2015. Our Total revenue and income in 2015 represented an increase of 107.2% from R$325.8 million in 2014.

Net revenue from transaction activities and other services

Our Gross revenue from transaction activities and other services in 2016 amounted to R$543.8 million, an increase of R$238.5 million, or 78.1%, from R$305.3 million in 2015. Gross revenue from transaction activities and other services in 2015 represented an increase of R$120.5 million, or 65.2%, from R$184.8 million in 2014. These year-on-year increases were principally due to continued increases in our customer base and TPV.

The increase in gross revenue from transaction activities and other services in 2016 was principally due to an increase in TPV during the period. This increase was partially offset by a change in mix in 2016 as cash-in payments from debit cards, which generate lower MDR fees, increased in proportion to cash-in payments from credit cards, which generate higher MDR fees.

The growth in our business in 2015 and 2016 was fueled by the launch of the Moderninha POS device in March 2015, which (in addition to the Gross revenues from sales discussed below) generated further growth in our transaction revenues by providing increased sources of in-person transactions. As discussed above, however, this also altered the mix of our revenues, since in-person transactions include payments made via debit cards, which generate lower MDR than credit card transactions.

Our Deductions from gross revenue from transaction activities and other services, which consist principally of sales taxes, amounted to R$63.8 million in 2016, or 11.7% of our Gross revenue from transaction activities and other services for the year. In 2015, Deductions from gross revenue from transaction activities and other services totaled R$37.1 million, or 12.2% of Gross revenue from transaction activities and other services for the year. In 2014 Deductions from gross revenue from transaction activities and other services totaled R$24.7 million, or 13.4% of Gross revenue from transaction activities and other services for the year. This gradual year-on-year decrease in Deductions as a percentage of our Gross revenue from transaction activities and other services was principally due to the fact that when our digital payments business was carried out by other subsidiaries within the UOL group, this line item also included Brazilian employer social security contributions, known as INSS. UOL benefited from a specific tax provision in force at the time allowing companies to pay INSS on revenues, rather than on employee salaries, and consequently the INSS was accounted for in this line item. Commencing August 1, 2015, the date of the corporate reorganization in which our PagSeguro activities were transferred to PagSeguro Brazil, we began to pay INSS on employee salaries rather than on revenue, and the INSS was accounted for in Personnel expenses. In addition, our ISS registration changed during 2015, leading to a lower applicable ISS rate.

As a result of the above, our Net revenue from transaction activities and other services in 2016 amounted to R$480.0 million, an increase of R$211.8 million, or 79.0%, from R$268.2 million in 2015. Net revenue from transaction activities and other services in 2015 represented an increase of R$108.1 million, or 67.5%, from R$160.1 million in 2014.

Net revenue from sales

Our Gross revenue from sales in 2016 amounted to R$371.5 million, an increase of R$132.6 million, or 55.5%, from R$238.9 million in 2015. Gross revenue from sales in 2015 represented an increase of R$183.0 million, or 327.7%, from R$55.9 million in 2014. The significant growth in this item was due to the rapid ramp-up of our POS device sales, and our rollout of an increasingly broad range of POS devices. Prior to March 2014, our POS device offering, which had commenced in April 2013, consisted of a magnetic strip card reader that plugged into a smartphone jack combined with a digital app. In March 2014, we launched our first standalone POS device that allowed merchants to process debit and credit cards using chips, which resulted in an increase in sales in the final three quarters of 2014. In March 2015, we launched the Moderninha, which spurred the significant growth in sales in 2015 compared to 2014. In 2016, we launched the Moderninha Wi-Fi and Moderninha Pro standalone POS devices.

Our Deductions from gross revenue from sales in 2016 amounted to R$110.9 million, or 29.9% of our Gross revenue from sales for the year. In 2015, these Deductions totaled R$62.4 million, or 26.1% of Gross revenue from sales for the year. In 2014 these Deductions totaled R$7.7 million, or only 13.7% of Gross revenue from sales for the year. This significant increase in these Deductions as a percentage of our Gross revenue from sales in 2016 and 2015 as compared to 2014 is due to the fact that since mid-2015, substantially all of the POS devices we sell are manufactured in Brazil. As noted above, the deductions for sales taxes on imported devices are significantly lower than for locally-manufactured devices.

As a result of the above, our Net revenue from sales in 2016 amounted to R$260.6 million, an increase of R$84.1 million, or 47.6%, from R$176.5 million in 2015. Net revenue from sales in 2015 represented an increase of R$128.3 million, or 266.2%, from R$48.2 million in 2014.

Financial income

Our Financial income, which represents the volume of the discount fees we withhold from TPV in the early payment of receivables feature that we offer merchants, amounted to R$392.4 million in 2016, an increase of R$172.9 million, or 78.8%, from R$219.5 million in 2015. In 2015 this item represented an increase of R$103.7 million, or 89.5%, compared with R$115.8 million in 2014. The year-on-year growth in this activity was due to growth in the volume of usage of our early payment feature by merchants, driven by the growth in our TPV.

Other financial income

Our Other financial income amounted to R$5.3 million in 2016, a decrease of R$5.4 million, or 50.3%, from R$10.7 million in 2015. Our Other financial income in 2015 represented an increase of R$8.9 million, or 511.8%, compared with R$1.8 million in 2014.

Our Other financial income included a positive net foreign exchange variation of R$2.3 million in 2016, an increase of R$1.5 million from R$0.8 million in 2015. These variations reflect the effect of exchange rate fluctuations in our foreign currency accounts located outside of Brazil. In 2014 and 2015, our net foreign exchange variation related only to Boa Compra’s international operations, while in 2016 it also included cash-out payments using PagSeguro prepaid cards outside of Brazil and cash-in payments via international cards in Brazil, both of which are settled in foreign currency.

Expenses

Our total expenses amounted to R$983.0 million in 2016, an increase of R$348.4 million, or 54.9%, from R$634.6 million in 2015. As a percentage of our Total revenue and income, our total expenses in 2016 decreased by 7.7 percentage points, to 86.3% in 2016 from 94.0% in 2015.

Our total expenses in 2015 represented an increase of R$344.9 million, or 119.1%, from R$289.7 million in 2014. As a percentage of our Total revenue and income, our total expenses in 2015 increased by 5.1 percentage points, to 94.0% in 2015 from 88.9% in 2014.

Cost of sales and services

Our Cost of sales and services amounted to R$623.7 million in 2016, an increase of R$241.2 million, or 63.1%, from R$382.5 million in 2015. As a percentage of the total of our Net revenue from transaction activities and other services and our Net revenue from sales, our Cost of sales and services remained relatively stable, posting a decrease of 1.8 percentage points to 84.2% in 2016 from 86.0% in 2015.

Within our Cost of sales and services line item, our Cost of services, expressed as a percentage of our Net revenue from transaction activities and other services, increased to 74.5% in 2016 from 71.5% in 2015. This increase reflected the change in the mix of our revenue from transaction services, with a greater proportion of debit card transactions compared with credit card transactions as discussed above under “—Net revenue from transaction activities and other services.” Because the difference between interchange fees and the MDR we charge is less for debit card transactions than for credit card transactions, this change in mix led to the higher level of Cost of services relative to our Net revenue from transaction activities and other services. Our Cost of sales, expressed as a percentage of our Net revenue from sales, decreased to 102.0% in 2016 from 108.1% in 2015, largely due to cost savings achieved starting mid-2015, when substantially all of the POS devices we sold began to be manufactured in Brazil, partly offset by the launch of the higher-value Moderninha Wifi in June 2016 and Moderninha Pro in October 2016, which led to increased expenses in the later months of 2016.

Our Cost of sales and services amounted to R$382.5 million in 2015, an increase of R$240.0 million, or 168.4%, from R$142.5 million in 2014. As a percentage of the total of our Net revenue from transaction activities and other services and our Net revenue from sales, our Cost of sales and services increased by 17.6 percentage points, to 86.0% in 2015 from 68.4% in 2014.

Within our Cost of sales and services, our Cost of services, expressed as a percentage of our Net revenue from transaction activities and other services, increased to 71.5% in 2015 from 61.0% in 2014, reflecting the change in the mix of our revenue from transaction services, with a greater proportion of debit card transactions compared with credit card transactions. Our Cost of sales, expressed as a percentage of our Net revenue from sales, increased to 108.1% in 2015 from 92.9% in 2014, reflecting depreciation in the average exchange rate of the Brazilian real against the U.S. dollar in 2015, meaning that the cost of imported POS device components that are priced in U.S. dollars increased when expressed in Brazilian reais .

Selling expenses

Our Selling expenses amounted to R$199.9 million in 2016, an increase of R$37.3 million, or 22.9%, from R$162.6 million in 2015. As a percentage of our Total revenue and income, our Selling expenses decreased by 6.5 percentage points, to 17.6% in 2016 from 24.1% in 2015. This reduction in our Selling expenses as a percentage of our Total revenue and income was driven by the fact that we had incurred expenses in connection with a major marketing campaign in 2015 to promote the launch of the Moderninha POS device. While our marketing and advertising expenses continued to increase in 2016, the increase was significantly outpaced by growth in our net revenue during the year. In addition, our Chargebacks expense declined as a percentage of our net revenue since chip-&-pin transactions involve significantly lower chargebacks.

Our Selling expenses in 2015 increased by R$81.2 million, or 99.7%, compared with R$81.4 million in 2014, due to the expenses we incurred in 2015 in connection with the major marketing campaign to promote the launch of the Moderninha POS device. As a percentage of our Total revenue and income, our Selling expenses remained relatively stable, posting a decrease of 0.9 percentage point, to 24.1% in 2015 compared with 25.0% in 2014.

Administrative expenses

Our Administrative expenses amounted to R$84.5 million in 2016, an increase of R$23.4 million, or 38.2%, from R$61.1 million in 2015. This increase was mainly due to an increase in employee costs and bank charges. As a percentage of our Total revenue and income, our Administrative expenses posted a decrease of 1.7 percentage points, to 7.4% in 2016 from 9.1% in 2015.

In 2015, our Administrative expenses increased by R$9.8 million, or 19.0%, compared with R$51.3 million in 2014. This increase was mainly due to an increase in employee costs and bank charges. As a percentage of our Total revenue and income, however, our Administrative expenses decreased by 6.7 percentage points, to 9.1% in 2015 from 15.8% in 2014.

The reduction in the relative level of our Administrative expenses as a percentage of our Total revenue and income over the three years reflects the scalable nature of our business from a relatively fixed overhead base.

Financial expenses

Our Financial expenses amounted to R$68.3 million in 2016, an increase in expense of R$38.6 million, or 130.0%, from expenses of R$29.7 million in 2015. The same item in 2015 reflected an increase in expense of R$18.6 million, or 167.9%, compared with expenses of R$11.1 million in 2014. Expressed as a percentage of our Financial income, our Financial expenses represented 17.4% in 2016, 13.5% in 2015 and 9.6% in 2014.

100

The variation in our Financial expenses when expressed as a percentage of Financial income is driven by Brazilian interest rates, which determine the cost of most of our financing, together with changes in the mix of the financing we use for our early payment of receivables feature. The three-year period saw incremental increases in the SELIC rate, the Central Bank’s overnight rate. In 2014 the SELIC rate increased steadily from 10.00% at January 1 to 11.75% by year-end, and in 2015 the SELIC rate continued to increased from 11.75% to 14.25% by year-end. The SELIC rate was held at 14.25% for the first nine months of 2016, being reduced to 14.00% in October 2016 and 13.75% in December 2016. Our financial expense also reflected changes in our mix of financing: in 2014, a significant portion of our business financing was provided by related parties, principally UOL; while in 2015 we began to increase the portion of our financing that we obtained in the form of early payment of the receivables due to us from acquirers. In 2016, in addition to our existing financing sources, we further increased our levels of external financing, with early payment of the receivables due to us from card issuers as well as acquirers, and we incurred the two borrowings shown in Note 13 to the audited consolidated financial statements of PagSeguro Brazil.

Other (expenses) income, net

Our Other (expenses) income, net, recorded expense of R$6.7 million in 2016. This net amount principally reflected expenses related to civil litigation proceedings during the year.

In 2015, our Other (expenses) income, net, recorded income of R$1.3 million. This net amount principally reflected expenses related to civil litigation proceedings during the year, offset by the net effect of write-offs of payables to third parties.

In 2014, our Other (expenses) income, net, recorded expenses of R$3.3 million, which consisted entirely of expenses incurred in connection with civil litigation proceedings.

Profit before income taxes

Our Profit before income taxes amounted to R$155.4 million in 2016, an increase of R$115.1 million, or 285.4%, from R$40.3 million in 2015. The increase was due to significant volume growth in both our net revenues and financial income from our early payment of receivables feature for merchants.

In 2015, our Profit before income tax increased by R$4.1 million, or 11.5%, compared with R$36.2 million in 2014. This increase was also mainly due to the increase in our TPV.

Income tax and social contribution

Income and social contributions tax amounted to expenses of R$27.6 million in 2016, an increase of R$22.8 million from expenses of R$4.8 million in 2015. In 2014, our total Income and social contributions tax amounted to expenses of R$8.9 million. This total item consists of Current income tax and social contribution and deferred income tax and social contribution, which relates principally to the tax benefit under the Lei do Bem , which applies to investments made in innovation and technology by PagSeguro Brazil.

Our Current income tax and social contribution expense in 2016 amounted to R$7.4 million, an increase of R$4.8 million, or 187.2%, from R$2.6 million in 2015. In 2015, our Current income tax and social contribution decreased by R$7.3 million, or 73.9%, compared with R$9.9 million in 2014. The increase in 2016 is mainly due to the growth in our Profit before income taxes, partly offset by the tax benefit under the Lei do Bem and the tax benefit on payment of interest on PagSeguro Brazil’s share capital (which is a form of mandatory dividend under Brazilian law). In 2015, while our Profit before income taxes remained relatively stable compared with 2014, the decrease in Current income tax and social contribution reflected an increase in the tax benefit under the Lei do Bem .

101

Our Deferred income tax and social contribution in 2016 amounted to an expense of R$20.1 million, an increase of R$17.9 million compared with an expense of R$2.2 million in 2015. In 2014, our Deferred income tax and social contribution posted a tax benefit of R$1.0 million.

The amount of Deferred income tax and social contribution recorded in 2016 principally reflected (i) the tax benefit on our significant new capital investments in software and technology during the year, less the depreciation and amortization expenses that we recorded against those assets during the year and (ii) the tax benefit on payment of interest on PagSeguro Brazil’s share capital.

In 2015, the transfer of our activities from the UOL group to PagSeguro Brazil as part of the corporate reorganization led to a tax event under Brazilian tax law, requiring UOL to pay all existing tax liabilities that had been deferred from prior years under the Lei do Bem . The amount of Deferred income tax and social contribution recorded for the year therefore reflects deferred tax liabilities on our capital investments in software and technology after August 1, 2015, less the depreciation and amortization expenses that we recorded against those assets during those months.

In 2014, the reduction in our deferred tax liability on accrued amounts due from creditors more than offset the new deferred tax liability on our capital investments in software and technology, resulting in the positive amount for this line item.

Our total effective tax rate was 17.8% in 2016, compared with 12.0% in 2015 and 24.6% in 2014. The increase in 2016 was due to the increase in our Profit before income taxes while the amount of our Lei do Bem tax benefits remained stable. The decrease observed in 2015 was mainly due to the transfer of our activities from the UOL group to PagSeguro Brazil, enabling PagSeguro Brazil to benefit from the Lei do Bem as discussed above.

Net income for the year

Our Net income for the year in 2016 amounted to R$127.8 million, an increase of R$92.3 million, or 260.1%, from R$35.5 million in 2015. As a percentage of our Total revenue and income, our Net income for the year increased by 5.9 percentage points, to 11.2% in 2016 compared with 5.3% in 2015. This increase was principally driven by the volume growth in both our net revenue items as well growth in income from our early payment of receivables feature, as discussed above.

102

Our Net income for the year in 2015 increased by R$8.3 million, or 30.2%, compared with R$27.2 million in 2014. As a percentage of our Total revenue and income, our Net income for the year decreased to 5.3% in 2015 compared with 8.4% in 2014.

Quarterly Financial Data (Unaudited)

The table below shows certain financial data for our company for the indicated periods:


	Three Months Ended
	March 31, 2015			June 30, 2015			September 30, 2015			December 31, 2015			March 31, 2016 ⁽²⁾			June 30, 2016 ⁽²⁾			September 30, 2016 ⁽²⁾			December 31, 2016			March 31, 2017 ⁽²⁾			June 30, 2017 ⁽²⁾			September 30, 2017 ⁽²⁾
	(Unaudited) (in millions of *reais* , except as otherwise indicated)
Net revenue from transaction activities and other services		49.6			58.2			72.0			88.4			90.6			105.8			123.4			160.2			190.4			256.4			344.4
Net revenue from sales		13.9			54.2			65.8			42.6			43.7			52.1			68.4			96.4			118.4			125.6			117.4
Financial income		42.6			47.5			62.1			67.3			74.6			93.5			102.4			121.9			138.8			172.6			224.2
Other financial income		0.8			1.3			4.0			4.7			1.5			0.3			1.0			2.5			0.8			2.5			0.6

Total revenue and income		107.0			161.2			203.9			202.9			210.4			251.8			295.2			381.0			448.5			557.2			686.6

Cost of sales and services		(46.9	)		(98.8	)		(126.8	)		(110.0	)		(115.4	)		(148.0	)		(171.7	)		(188.5	)		(242.9	)		(327.0	)		(348.5	)
Selling expenses		(27.7	)		(36.6	)		(39.5	)		(58.8	)		(33.4	)		(39.4	)		(27.0	)		(100.1	)		(71.1	)		(54.6	)		(58.4	)
Administrative expenses		(10.7	)		(12.9	)		(18.4	)		(19.2	)		(18.5	)		(21.2	)		(21.0	)		(23.8	)		(32.5	)		(33.5	)		(41.7	)
Financial expenses		(2.6	)		(5.2	)		(10.3	)		(11.6	)		(6.6	)		(8.1	)		(24.8	)		(28.8	)		(19.2	)		(23.5	)		(21.0	)
Other (expenses) income, net		(1.2	)		(1.3	)		(0.7	)		4.5			(1.6	)		(2.7	)		(1.7	)		(0.6	)		(0.6	)		(2.1	)		(2.3	)

Profit before Income Taxes		17.9			6.4			8.2			7.8			34.8			32.3			49.1			39.2			82.2			116.4			214.7
Current income tax and social contribution		(1.1	)		(0.3	)		(1.8	)		0.6			(4.8	)		(2.0	)		(9.0	)		8.4			(19.1	)		(38.8	)		(66.2	)
Deferred income tax and social contribution		(0.1	)		0.3			(0.2	)		(2.2	)		(3.6	)		(4.7	)		(2.7	)		(9.1	)		(2.5	)		4.6			(1.1	)

Income Tax and Social Contribution		(1.2	)		0.0			(2.0	)		(1.7	)		(8.4	)		(6.7	)		(11.8	)		(0.7	)		(21.6	)		(34.2	)		(67.3	)

Net Income for the Period		16.7			6.4			6.2			6.1			26.4			25.6			37.3			38.5			60.6			82.2			147.4

Attributable to:
Owners of PagSeguro Brazil		16.2			6.3			6.0			6.6			25.9			25.6			37.3			38.5			60.6			82.2			147.0
Non-controlling interests		0.5			0.1			0.3			(0.5	)		0.5			0.0			—			—			0.0			0.1			0.4
Basic and diluted earnings per common share – R$ ⁽¹⁾		0.0619			0.0241			0.0227			0.0251			0.0986			0.0976			0.1422			0.1466			0.2311			0.3133			0.5606

(1)	Based on 262,288,607 common shares of PagSeguro Brazil issued and outstanding.

(2)	Reclassified in order to reflect the current presentation of financial information.

Liquidity and Capital Resources

The following discussion of our liquidity and capital resources is based on the financial information derived from the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil included elsewhere in this prospectus.

General

Our principal liquidity requirements relate to the early payment of receivables feature that we offer merchants. We believe our current working capital is sufficient for present requirements. Through the date of this offering, we have satisfied our funding and working capital requirements (i) through the cash generated by our businesses, (ii) by obtaining early payment of note receivables due to us from the card issuers and acquirers, as well as (iii) through our general third party borrowings and own capital. We plan to use a portion of the proceeds from this offering in order to reduce our recourse to third-party funding.

103

The table below presents our cash position at the beginning of each period, and our net cash provided by operating activities, net cash used in investing activities and net cash provided by financing activities during the periods indicated:


	At and for the Nine Months Ended September 30,						At and for the Year Ended December 31,
	(in millions of *reais* )
	(unaudited)
	2017			2016			2016			2015			2014
Liquidity and Capital Resources
Cash and cash equivalents		41.8			13.9			80.0			6.9			1.2
Net cash provided by (used in) operating activities		163.6			(145.2	)		77.0			47.6			15.5
Net cash provided by (used in) investing activities		57.8			(47.2	)		(203.3	)		(41.9	)		(22.6	)
Net cash provided by (used in) financing activities		(259.6	)		199.5			199.4			—			—

Our cash and cash equivalents include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less, and with immaterial risk of change in value. For more information, see Note 2.4 to the audited consolidated financial statements of PagSeguro Brazil. Our short-term investments refer to Brazilian debentures, which produced a return of 60.0% of the Brazilian Interbank Deposit Certificate, or CDI.

Cash Flows

Our Net Cash provided by operating activities consists of (i) our Profit before income taxes for the year, (ii) amounts that are recorded as expenses or revenues in our statement of income but which do not affect cash, (iii) amounts representing changes in our operating assets and liabilities, (iv) the cash amounts of income taxes and social contributions that we pay during the period, (v) the cash amounts of interest income received and (vi) interest paid on outstanding borrowings.

Our Cash flows used in investing activities consist of amounts paid on acquisitions, our purchases of property and equipment, our purchases of intangible assets, and our new financial investments less the payments we make to redeem existing financial investments.

Our Cash flows from financing activities consist of the payment of dividends and the cash proceeds from our borrowings, which refer only to the loans of US$40.0 million (approximately R$129.4 million) and US$21.8 million (approximately R$70.0 million) that we obtained during 2016 and repaid during the first half of 2017. For further information on these borrowings, see “—Loans and Financings.”

Cash Flows in the Nine Months ended September 30, 2017

Our cash and cash equivalents at the beginning of the nine months ended September 30, 2017 amounted to R$80.0 million.

Our Profit before income taxes in the nine months ended September 30, 2017, as discussed above, was R$413.3 million.

104

The adjustments for revenue, income and expenses recorded in our statement of income in the nine months ended September 30, 2017 but which did not affect our cash flows totaled the positive amount of R$74.7 million, principally reflecting increases of R$35.4 million of Chargebacks and R$36.2 million of Depreciation and amortization recorded in our statement of income, which are detailed in Note 21 to the unaudited condensed consolidated interim financial statements of PagSeguro Brazil. Chargebacks relate to amounts that we initially recorded as revenues but for which we did not receive the related cash payment due to fraud.

The adjustments for changes in our operating assets and liabilities in the nine months ended September 30, 2017 amounted to negative cash flows of R$382.2 million:

•

Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, consists of the difference between the opening and closing balances of the Note receivables item of Current Assets on our balance sheet (R$2,980.8 million at September 30, 2017 versus R$1,715.5 million at year-end 2016) excluding interest income received in cash and chargebacks, which are presented separately in the statement of cash flows. Note receivables represented negative cash flow of R$1,457.5 million in the nine months ended September 30, 2017. The cash amount that we receive under the note receivables consists of the original note receivable amount, less the respective interchange fee charged by the financial institution, and less the finance charge withheld by the card issuer for the early payment.

•

Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, consists of the difference between the opening and closing balances of the Payables to third parties item of Current Liabilities on our balance sheet (R$2,261.5 million at September 30, 2017 versus R$1,304.0 million at year-end 2016). Payables to third parties represented positive cash flow of R$957.4 million in the nine months ended September 30, 2017.

•

Our Receivables from (payables to) related parties item consists of the difference between the opening and closing balances of the Receivables from related parties item (i.e., UOL) of Current Assets on our balance sheet (R$0.3 million at September 30, 2017 versus R$300.8 million at year-end 2016) offset by the difference between the opening and closing balances of the Payables to related parties item (i.e., UOL) of Current Liabilities on our balance sheet (R$72.6 million at September 30, 2017 versus R$76.2 million at year-end 2016), representing movements in our treasury cash position with UOL during the period. This item represented positive cash flow of R$89.3 million in the nine months ended September 30, 2017. For more information on our treasury cash position with UOL, see Note 9 to the audited consolidated financial statements of PagSeguro Brazil and Note 8 to the unaudited condensed consolidated interim financial statements of PagSeguro Brazil. Our cash management will be separate from UOL’s cash management starting from the date of completion of this offering. Any remaining balances that relate to prior cash management activities will begin accruing interest on arms’ length terms from the date of completion of this offering, and any such balances will in any event be repaid within 60 days following completion of this offering.

105

•

Our Inventories item represents changes in the carrying value of the Inventories item of Current Assets on our balance sheet. This item represented negative cash flow of R$45.3 million in the nine months ended September 30, 2017.

•

Our Salaries and social charges item represents amounts that were recorded on our statement of income, but which remained unpaid at the end of the period, principally because they related to the final month of the period. This item represented positive cash flow of R$11.8 million in the nine months ended September 30, 2017.

•

Our Taxes and contributions item represents sales taxes (ISS, ICMS, PIS and COFINS). This item represented negative cash flow of R$0.7 million in the nine months ended September 30, 2017.

Since our statement of cash flows begins with our Profit before income taxes, it also adjusts for cash amounts paid in respect of our income tax and social contribution, which totaled R$90.3 million during the period. Our statement of cash flows also adjusts for interest income received in cash and interest paid, which represented a positive cash flow of R$157.5 million and a negative cash flow of R$9.2 million, respectively, in the nine months ended September 30, 2017.

As a result of the above, our Net Cash provided by operating activities in the nine months ended September 30, 2017 totaled R$163.6 million.

Our Cash flows provided by investing activities in the nine months ended September 30, 2017 totaled R$57.8 million. This amount consisted of R$132.1 million in redemptions of financial investments, representing total cash that we withdrew during the period, less the R$3.3 million we paid for our acquisitions of R2Tech Informática S.A., or R2Tech, and BCPS Online Services, Lda., or BCPS. We also invested R$69.2 million in purchases and development of intangible assets, which represent purchases of third party software and the salaries and other amounts that we paid to develop internally our software and technology, which we capitalize as intangible assets. For more information on our intangible assets, see Note 11 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

Our Cash flows used in financing activities in the nine months ended September 30, 2017 totaled R$259.6 million, consisting in part of R$199.5 million representing the repayment of our two outstanding borrowings and R$5.8 million representing the liquidation of derivative financial instruments (swaps) relating to those borrowings during the period. For further information on our borrowings, see “—Loans and Financing”, Note 13 to the unaudited condensed consolidated interim financial statements of PagSeguro Brazil. Furthermore, on September 29, 2017, PagSeguro Brazil’s shareholders approved a distribution of R$238.8 million in dividends. This amount consisted of (i) R$142.8 million of dividends related to the six-month period ended June 30, 2017 and (ii) R$96.0 million in dividends related to the year ended December 31, 2016. For more information regarding the 2016 dividend, see Note 8 to the audited consolidated financial statements of PagSeguro Brazil.

106

After accounting for the total decrease in Cash and cash equivalents of R$38.2 million discussed above, our Cash and cash equivalents at September 30, 2017 amounted to R$41.8 million.

Cash Flows in the Nine Months ended September 30, 2016

Our cash and cash equivalents at the beginning of the nine months ended September 30, 2016 amounted to R$6.9 million.

Our Profit before income taxes in the nine months ended September 30, 2016, as discussed above, was R$116.2 million.

The adjustments for revenue, income and expenses recorded in our statement of income in the nine months ended September 30, 2016 but which did not affect our cash flows totaled the positive amount of R$46.6 million, principally reflecting a positive amount of R$20.7 million of Chargebacks and a positive amount of R$21.6 million of Depreciation and amortization recorded in our statement of income, which are detailed in Note 21 to the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

The adjustments for changes in our operating assets and liabilities in the nine months ended September 30, 2016 amounted to negative cash flows of R$395.1 million. Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, represented reduction of cash flow of R$460.5 million (Note receivables on our balance sheet were R$1,449.7 million at September 30, 2016 versus R$1,110.0 million at year-end 2015) excluding interest received in cash and chargebacks, which are presented separately in the statement of cash flows. Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, represented positive cash flow of R$257.9 million (Payables to third parties on our balance sheet were R$941.0 million at September 30, 2016 versus R$683.1 million at year-end 2015). Our Receivables from (payables to) related parties item represented negative cash flow of R$248.0 million (Receivables from related parties, i.e. UOL, were R$304.9 million at September 30, 2016 versus R$55.9 million at year-end 2015; and payables to related parties, i.e. UOL, were R$27.4 million at September 30, 2016 versus R$92.4 million at year-end 2015). Inventories represented positive cash flow of R$21.5 million; and Salaries and social charges represented positive cash flow of R$6.0 million.

We paid income taxes and social contributions in cash totaling R$12.5 million and we recorded a positive cash flow of R$99.6 million related to interest income received in cash during the nine months ended September 30, 2016.

As a result of the above, our Net Cash used in operating activities in the nine months ended September 30, 2016 totaled R$145.2 million.

107

Our Cash flows used in investing activities in the nine months ended September 30, 2016 totaled R$47.2 million. This amount consisted of R$132.1 million paid in acquisitions of financial investments, representing cash that we invested in short-term deposits during the period and R$132.3 million received in redemptions of financial investments, representing, cash that we withdrew from these short-term deposits during the period. We also invested R$47.0 million in purchases and development of intangible assets, which represent purchases of third party software and the salaries and other amounts that we paid to develop internally the software and technology, which we capitalize as intangible assets. Our cash flows in the nine months ended September 30, 2016 show no amount paid on acquisitions.

Our Cash flows used in financing activities in the nine months ended September 30, 2016 totaled R$199.5 million, which we received as the proceeds of the borrowings we incurred during the period, discussed in Note 13 to the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

After accounting for the total increase in Cash and cash equivalents of R$7.0 million discussed above, our Cash and cash equivalents at September 30, 2016 amounted to R$13.9 million.

Cash Flows in 2016

Our cash and cash equivalents at the beginning of 2016 amounted to R$6.9 million.

Our Profit before income taxes in 2016, as discussed above, was R$155.4 million.

The adjustments for revenue, income and expenses recorded in our statement of income in 2016 but which did not affect our cash flows totaled the positive amount of R$75.6 million, principally reflecting the positive amount of R$31.6 million of Chargebacks and the positive amount of R$31.2 million of Depreciation and amortization recorded in our statement of income, which are detailed in Note 21 to the audited consolidated financial statements of PagSeguro Brazil. Also in 2016, we recorded an unrealized loss of R$6.6 million on derivative instruments (swaps).

The adjustments for changes in our operating assets and liabilities for 2016 amounted to negative cash flows of R$282.2 million. Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, represented negative cash flow of R$784.0 million (Note receivables on our balance sheet were R$1,715.5 million at year-end 2016 versus R$1,110.0 million at year-end 2015) excluding interest income received in cash and chargebacks, which are presented separately in the statement of cash flows. Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, represented positive cash flow of R$620.9 million (Payables to third parties on our balance sheet were R$1,304.0 million at year-end 2016 versus R$683.1 million at year-end 2015). Our Receivables from (payables to) related parties item represented negative cash flow of R$214.5 million (Receivables from related parties, i.e. UOL, were R$300.8 million at year-end 2016 versus R$55.9 million at year-end 2015; and payables to related parties, i.e. UOL, were R$76.2 million at year-end 2016 versus R$92.4 million at year-end 2015). Inventories represented positive cash flow of R$20.2 million; and Salaries and social charges represented positive cash flow of R$6.6 million. Taxes and contributions represented positive cash flow of R$3.9 million.

108

We paid income taxes and social contributions in cash totaling R$18.1 million and we recorded a positive cash flow of R$146.3 million related to interest income received during the year.

As a result of the above, our Net Cash provided by operating activities in 2016 totaled R$77.0 million.

Our Cash flows used in investing activities in 2016 totaled R$203.3 million. This amount consisted of acquisition of financial investments of R$337.1 million, representing total cash that we invested in short-term deposits during the year, less R$206.2 million in redemptions of financial investments, representing total cash that we withdrew from these short-term deposits during the year. We also invested R$70.4 million in purchases and development of intangible assets, which represent purchases of third party software and the salaries and other amounts that we paid to develop internally the software and technology, which we capitalize as intangible assets. For more information on our intangible assets, see Note 11 to the audited consolidated financial statements of PagSeguro Brazil.

Our Cash flows from financing activities in 2016 provided total cash flows of R$199.4 million, which we received as the proceeds of the borrowings we incurred during the year, discussed in Note 13 to the audited consolidated financial statements of PagSeguro Brazil.

After accounting for the total increase in Cash and cash equivalents of R$73.1 million discussed above, our Cash and cash equivalents at the close of 2016 amounted to R$80.0 million.

Cash Flows in 2015

Our cash and cash equivalents at the beginning of 2015 amounted to R$1.2 million.

Our Profit before income taxes in 2015, as discussed above, was R$40.3 million.

The adjustments for revenue, income and expenses recorded in our statement of income for 2015 but which did not affect cash totaled the positive amount of R$40.4 million, principally reflecting R$27.5 million in Chargebacks and R$18.9 million in depreciation and amortization recorded in our statement of income, which are detailed in Note 21 to the audited consolidated financial statements of PagSeguro Brazil.

The adjustments for changes in our operating assets and liabilities for 2015 amounted to negative cash flows of R$111.8 million. Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, represented reduction of cash flow of R$553.0 million (Note receivables on our balance sheet were R$1,110.0 million at year-end 2015 versus R$665.9 million at year-end 2014) excluding interest income received in cash and chargebacks, which are presented separately in the statement of cash flows. Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, represented positive cash flow of R$314.0 million (Payables to third parties on our balance sheet were R$683.1 million at year-end 2015 versus R$369.9 million at year-end 2014). Our Receivables from (payables to) related parties item represented positive cash flow of R$121.5 million (Receivables from related parties, i.e. UOL, were R$55.9 million at year-end 2015 versus R$84.3 million at year-end 2014; and payables to related parties, i.e. UOL, were R$92.4 million at year-end 2015 versus R$0 at year-end 2014). Inventories represented negative cash flow of R$25.1 million; and Salaries and social charges represented positive cash flow of R$13.3 million.

109

We paid income taxes and social contributions in cash totaling R$2.7 million and we recorded a positive cash flow of R$81.3 million related to interest income received during the year.

As a result of the above, our Net cash provided by operating activities in 2015 totaled R$47.6 million.

Our Cash flows used in investing activities in 2015 totaled R$41.9 million, consisting principally of Purchases and development of intangible assets of R$38.9 million. Our cash flows in 2015 show no movement of cash into financial investments, and a non-material amount of redemptions from financial investments. Prior to the transfer of our activities to our PagSeguro Brazil entity on August 1, 2015, any such investments were carried out within the UOL group but these cash movements regarding the PagSeguro business were not controlled separately. Following the transfer of our activities to our PagSeguro Brazil entity on August 1, 2015, any cash movements by the PagSeguro Brazil Group have been controlled separately, but we did not make any such financial investments during the last five months of the year.

We incurred no new borrowings and therefore did not generate Cash flows from financing activities in 2015.

After accounting for the total increase in Cash and cash equivalents of R$5.7 million discussed above, our Cash and cash equivalents at the close of 2015 amounted to R$6.9 million.

Cash Flows in 2014

Our cash and cash equivalents at the beginning of 2014 amounted to R$8.3 million.

Our Profit before income taxes in 2014, as discussed above, was R$36.2 million.

The adjustments for revenue, income and expenses recorded in our statement of income in 2014 but which did not affect cash totaled the positive amount of R$26.6 million, principally reflecting R$14.8 million in Chargebacks and R$11.6 million in depreciation and amortization recorded in our statement of income, which are detailed in Note 21 to the audited consolidated financial statements of PagSeguro Brazil.

The adjustments for changes in our operating assets and liabilities in 2014 amounted to negative cash flows of R$75.9 million. Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, represented negative cash flow of R$459.6 million. Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, represented positive cash flow of R$145.5 million. The Note receivables item is relatively greater when compared to Payables to third parties in 2014 than in later years, because we were obtaining relatively less financing through early receipt of the receivables that we obtain from acquirers in 2014 when compared to 2015 and 2016. Our Receivables from (payables to) related parties item, i.e. UOL, represented positive cash flow of R$253.6 million. Inventories represented negative cash flow of R$13.8 million; and Taxes and contributions represented negative cash flow of R$1.9 million.

We paid income taxes and social contribution totaling R$4.9 million and we recorded a positive cash flow of R$33.6 million related to interest income received during the year.

110

As a result of the above, our Net Cash provided by operating activities in 2014 totaled R$15.5 million.

Our Cash flows used in investing activities in 2014 totaled R$22.6 million, consisting principally of Purchases and development of intangible assets of R$21.0 million. As in the first seven months of 2015, any movements of cash into financial investments were carried out within the UOL group but any such cash movements regarding the PagSeguro business were not controlled separately.

We incurred no new borrowings and therefore did not generate Cash flows from financing activities in 2014.

After accounting for the total decrease in Cash and cash equivalents of R$7.1 million discussed above, our Cash and cash equivalents at the close of 2014 amounted to R$1.2 million.

Loans and Financings

Our total third-party borrowings amounted to R$205.2 million at December 31, 2016, discussed below. We had no third-party borrowings at September 30, 2017 or 2016. We had no third-party borrowings in 2015 or 2014, since we satisfied our funding and working capital requirements in those years (i) through the cash generated by our businesses, (ii) by obtaining early payment of note receivables due to us from the card issuers and acquirers, as well as (iii) through our own capital.

The following table sets forth the balance and principal terms of our debt at September 30, 2017 and at December 31, 2016:

At September
30, 2017

At December
31, 2016

Type

Interest rate

Average annual
interest rate%

Maturity

Amount
(R$ million)

Borrowings in foreign currency

Bank Borrowings

Fixed interest rates

2.36365%

January

2017

—

133.9

Bank Borrowings

Fixed interest rates

2.86450%

March

2017

—

71.3

Total

—

205.2

In July 2016, we obtained a loan in the amount of US$40.0 million (approximately R$129.4 million applying exchange rates in effect at the time), which matured in January 2017. In September 2016, we obtained a further loan in the amount of US$21.8 million (approximately R$70.0 million applying exchange rates in effect at the time), which matured in March 2017. We purchased swaps to provide protection against exchange rate fluctuations for both loans. Neither of these credit agreements contains any provisions requiring us to provide collateral or comply with any financial covenants.

These loans were repaid on schedule in the first half of 2017 and we have incurred no new borrowings since then. As discussed above, we are increasingly financing our services and features by obtaining early payment of receivables owed to us from acquirers and card issuers, in order to finance the early payment of receivables feature that we offer to our merchant clients.

For further information on our financing activities, see Note 13 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

111

Capital Expenditures

The net total of our capital expenditures (purchases of property and equipment and purchases and development of intangible assets), for the nine months ended September 30, 2017 and 2016 were R$71.0 million and R$47.5 million, respectively, most of which related to data processing equipment, facilities, machinery and equipment, furniture and fittings, leasehold improvements, software and technology.

The capital expenditures (purchases of property and equipment and purchases and development of intangible assets), for each of the years ended December 31, 2016, 2015 and 2014 were R$72.4 million, R$42.1 million and R$22.8 million, respectively, most of which related to data processing equipment, facilities, machinery and equipment, furniture and fittings, leasehold improvements, software and technology.

For further information on our capital expenditures, see Notes 10 and 11 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

Commitments and Contractual Obligations

Our contractual obligations at September 30, 2017 consisted of obligations to purchase POS devices and platform technology for our acquirer operations as follows:


	At September 30, 2017
	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
	(R$ millions)
POS device purchases		302.2		—		—		—		302.2
Acquirer platform technology		2.1		6.1		—		—		8.2
Total		304.3		6.1		—		—		310.4

Off-Balance Sheet Arrangements

Other than the contractual obligations shown above, we do not have any off-balance sheet arrangements and did not have any such arrangements for the nine months ended September 30, 2017 and the years ended December 31, 2016, 2015 or 2014.

Critical Accounting Estimates and Judgments

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying our accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are described below and in Note 3 to the audited consolidated financial statements of PagSeguro Brazil.

112

Accounting estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Based on assumptions, PagSeguro Brazil makes estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

Estimated useful life of intangible assets

PagSeguro Brazil uses an estimated useful life to calculate and record the amortization applied to its intangible assets which may differ from the actual term over which the intangible assets are expected to generate benefits for PagSeguro Brazil.

The amortization of software usage rights is defined based on the effective period of the license contracted.

The amortization of internally developed software is defined based on the period over which the software will generate future economic benefits.

Deferred income tax and social contribution

PagSeguro Brazil recognizes deferred income tax and social contribution based on future taxable profit estimates for the next ten years. These projections are periodically reviewed and approved by management.

Quantitative and Qualitative Disclosures about Market Risk

General

PagSeguro Brazil’s activities expose it to a variety of financial risks: market risk (including currency risk and cash flow or fair value interest rate risk), fraud risk (chargebacks), credit risk and liquidity risk. PagSeguro Brazil’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on its financial performance. PagSeguro Brazil uses derivative financial instruments to hedge certain risk exposures.

Among the main market risk factors that may affect the PagSeguro business are the following:

Foreign Exchange Risk

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. At December 31, 2016, PagSeguro Brazil had borrowings denominated in foreign currency that were linked to derivatives (swaps). At September 30, 2017, PagSeguro Brazil did not have any borrowings.

In accordance with policies of PagSeguro Brazil’s management, derivative transactions are allowed, as long as they are hedged by a swap entered into with prime financial institutions, for the sole purpose of hedging against risks of fluctuation in exchange or interest rates.

113

The amounts of derivative financial instruments are summarized as follows:


	At December 31, 2016 (in millions of *reais* )
	Maturity		Notional Value			Fair Value
Foreign exchange and interest		January 2017		129.4			132.8
Interbank Deposit Certificate (CDI)		January 2017		(129.4	)		(138.0	)

				—			(5.3	)

Foreign exchange and interest		March 2017		70.0			71.5
Interbank Deposit Certificate (CDI)		March 2017		(70.0	)		(72.9	)

				—			(1.3	)

Total Fair Value				—			(6.6	)

Cash Flow and Fair Value Interest Rate Risk

This risk arises from the derivative financial instrument (the swap) that replaces the risk of exchange and interest rate variation associated with borrowings by the CDI. In this case, the swap’s liability leg is the CDI, exposing PagSeguro Brazil to variations in this interest rate. For better risk management, PagSeguro Brazil chooses to enter into borrowings and derivatives with short-term maturities, which enable a better management of the rates.

At December 31, 2016, if CDI interest rates had been 0.25% higher/lower with all other variables held constant, profit for the year would have been R$0.5 million lower/higher, as a result of higher/lower interest expenses linked to the swap’s liability leg. The equivalent lower/higher values for both 2015 and 2014 would have been zero, since no swaps were in place during those periods. At September 30, 2017, PagSeguro Brazil did not have any derivative financial instruments.

Fraud Risk (Chargebacks)

PagSeguro Brazil’s sales transactions are susceptible to potentially fraudulent or improper sales. PagSeguro Brazil uses the following two main procedures to control fraud risk:

The first procedure consists of monitoring, on a real time basis, transactions carried out using credit and debit cards and boletos through an anti-fraud system. This process approves or rejects suspicious transactions at the time of the authorization, based on statistical models that are revised on an ongoing basis.

The second procedure detects chargebacks and disputes not identified by the first procedure. This is a complementary procedure and increases PagSeguro Brazil’s ability to avoid and manage chargebacks.

Credit Risk

Credit risk is managed on a group basis. This risk is limited to the possibility of default by (a) card issuers, who are required to transfer the fees charged for transactions carried out by their card holders to the credit and debit card schemes, and/or (b) acquirers, which PagSeguro Brazil uses to approve transactions with card issuers.

114

In order to mitigate this risk, PagSeguro Brazil has established a Credit and Liquidity Risk Committee, whose responsibility is to assess the level of risk of each card issuer served by PagSeguro Brazil, classifying them into three groups:

(i)

card issuers presenting a low level of risk, who have credit ratings assigned by Fitch, S&P or Moody’s and who do not require additional monitoring;

(ii)

card issuers presenting a medium level of risk, who are monitored in accordance with Basel requirements and property, plant and equipment ratios; and

(iii)

card issuers presenting a high level of risk, who are assessed by the Credit and Liquidity Risk Committee at monthly meetings.

No credit limits were exceeded in 2016, 2015 or 2014 nor in the nine months ended September 30, 2017 and 2016. Management does not expect any losses from non-performance by these counterparties in addition to the amounts already recognized as chargebacks, presented as fraud risk.

Liquidity Risk

PagSeguro Brazil manages liquidity risk by maintaining reserves, bank and credit lines to obtain borrowings when deemed appropriate. PagSeguro Brazil continuously monitors actual and projected cash flows, and matches the maturity profile of its financial assets and liabilities in order to ensure it has sufficient funds to honor its obligations to third parties and meet its operational needs.

PagSeguro Brazil invests surplus cash in interest-bearing financial investments, choosing instruments with appropriate maturity or sufficient liquidity to provide adequate margins as determined by the forecasts.

115

BUSINESS

Overview

•

Multiple digital payment solutions

•

In-person payments via POS devices that we sell to clients

•

Free digital accounts

•

Issuer of prepaid cards to clients for spending or withdrawing account balances

•

Operating as an acquirer.

•

In the first nine months of 2017, our TPV totaled R$24.8 billion, compared with R$9.3 billion in the first nine months of 2016. Our TPV totaled R$14.1 billion in 2016, an increase of 90.8% compared with R$7.4 billion in 2015. Our TPV in 2015 represented, an increase of 99.6% compared with R$3.7 billion in 2014. The growth in our TPV from R$4.9 billion in the first nine months of 2015 to R$24.8 billion in the first nine months of 2017 represented an average growth rate of 125.1% for the period.

•

In the first nine months of 2017, our average spending per active merchant totaled R$15,190, compared with R$11,920 in the first nine months of 2016. Our average spending per active merchant totaled R$12,404 in 2016, an increase of 12.3% compared with R$11,047 in 2015. Our average spending per active merchant in 2015 represented, an increase of 5.7% compared with R$10,449 in 2014.

116

•

Brazil has approximately 7.1 million Individual Micro Entrepreneurs, 3.9 million Micro Companies, 0.1 million SMEs and 0.02 million Large Companies according to SEBRAE and the Portal do Empreendedor. Micro Entrepreneurs and Micro Companies represent a major market opportunity, as most of them remain unbanked and seek digital payments solutions. We believe that by continuing to migrate these Micro-Merchants and Micro Companies into our ecosystem, we can continue to drive significant additional revenue growth in the coming years. At the same time, we will continue to introduce more value-added products and services targeted at larger clients. For example, in the second half of 2017 we expect to roll out a solution enabling clients to integrate their sales software directly with our electronic funds transfer system, allowing them to process large transaction volumes and issue tax receipts more easily than with traditional POS devices.

Our History

UOL launched PagSeguro in 2006, acquiring a Brazilian digital payments startup and combining it with UOL’s own know-how in Internet services. Initially launched as an online payment platform, PagSeguro aimed to provide the digital payment infrastructure necessary to support the growth of e-commerce in Brazil and by 2016 we were considered the largest Brazilian online payment company in terms of TPV, according to data compiled by Ebit. UOL’s credibility in the Brazilian Internet sector was key to this successful launch, and remains so today. Founded in 1996, UOL is Brazil’s largest Internet content, digital products and services company. According to comScore, 81.2 million unique visitors (approximately 73% of Brazilian internet users) accessed a UOL website in May 2017. The PagSeguro and UOL brands together gave Brazilian online consumers the confidence to use their sensitive personal and financial data on our payments platform, in order to shop online easily and safely. As an example of our commercial initiatives to instill trust and safety in online shopping, we introduced our escrow service where we hold the consumer’s payment for a set period of time following the purchase, as a precaution in case of a commercial claim.

117

In 2008, PagSeguro was named “Preferred E-commerce Company” by Info Exame magazine. Customer numbers continued to grow, with 20,000 stores and approximately 600,000 consumers carrying out transactions through the PagSeguro platform during the year.

In 2009, we strengthened our presence in digital payments by acquiring Boldcron Technologies, a gateway payment company linked to the main acquisition providers in Brazil, which offered payment programs and networks. In the same year, Exame magazine named UOL in the Digital Industry category as one of the 1000 Melhores e Maiores (“biggest and best”) companies in Brazil, when many of the PagSeguro business activities were still operated by UOL. In 2009, approximately 100,000 online stores carried out transactions through the PagSeguro platform.

In 2010, approximately 5,000,000 consumers carried out transactions through the PagSeguro platform.

In 2011, we acquired Boa Compra, a company focused on online gaming licenses and digital payment solutions in various countries. In the same year, approximately 311,000 online stores and approximately 6.5 million consumers carried out transactions through the PagSeguro platform using one of the 14 payment methods we accepted at the time.

In 2013, the Central Bank amended regulations to terminate the exclusive banking arrangements between banks and some card and meal voucher schemes, ending the effective duopoly in the acquirer industry in Brazil. This move was part of a concerted focus by the Central Bank on concentration in the market, following a report issued by it in 2010 on the effective duopoly between two acquirers, both of which were owned by some of the largest banks in Brazil: RedeCard (now known as Rede, which had exclusive accreditation with MasterCard) and Visanet (now known as Cielo, which had exclusive accreditation with Visa).

Also in 2013, we expanded from online payments into point of sale, or POS, payments, which enable merchants to receive in-person payments from payment cards, becoming the first payment provider in Brazil to sell POS devices (as opposed to offering rentals). Our first POS, a magnetic strip card reader that plugged into a smartphone headphone jack combined with an app, was released in April 2013. In the same year, we became accredited with Sorocred, a local card scheme, as an acquirer, and we also received PCI-DSS Certificate-Data Security Standard Certification. In 2013, approximately 7.8 million consumers carried out transactions through the PagSeguro platform.

In 2014, we applied to the Central Bank to become an authorized payment institution under Brazilian Federal Law No. 12,865 of 2013. Since we were already accredited by Sorocred as an acquirer, the Central Bank regulations permit us to continue carrying out our activities until the authorization is granted, as further described in “—Regulation—Regulation of the digital payments industry in Brazil.”

In March 2014, we launched our first POS device, which was compatible with iOS and Android, that allowed merchants to process debit and credit cards using chips. In the same year, we accepted 25 payment methods.

118

In 2015, we launched the Moderninha, our first standalone POS device branded with its own nickname, and our PagSeguro prepaid card under the MasterCard scheme. We also established a partnership with Ticket, a major meal voucher scheme. With the launch of our PagSeguro prepaid card, we became the first payment provider in Brazil to operate as a closed loop where clients are able to receive and spend funds all within our end-to-end digital ecosystem.

In 2016, we became the first payments provider in Brazil, other than the incumbent acquirers associated with banks, to obtain accreditation as an acquirer with MasterCard and Visa. We had already been operating as a local acquirer for Sorocred since 2014, and we began operating as an acquirer on a large-scale basis in the second half of 2016, once we had completed the integration of our platform with Visa and MasterCard. In the same year, we established partnerships with Elo, a card scheme, and Sodexo, a major meal voucher card scheme. We also launched our Moderninha Wi-Fi and Moderninha Pro standalone POS devices; began accepting in-app checkout; and launched our free POS app PagSeguro Vendas . In 2016, we became larger than our parent company UOL for the first year in terms of our Total revenue and income as compared with UOL’s net revenue (without including its consolidated subsidiaries).

In 2017, we launched PlugPag, our POS device Minizinha, EFTPOS, our i-Banking app PagSeguro Minha Conta and Pag.ae and other new services such as our Facebook chatbot, reconciliation services and one-day approval for merchants who wish to obtain early payment of their installment receivables. The launch of our EFTPOS integration solution made us the first payment provider in Brazil to connect POS devices to a merchant’s sales system. We also obtained accreditation as an issuer with Visa, established partnerships with major meal voucher schemes VR and Alelo, and obtained accreditation as an acquirer with Hipercard. Furthermore, in October 2017, we acquired a controlling interest in BIVA, an online platform that facilitates peer-to-peer lending. In November 2017, we acquired an additional interest in BIVA, bringing our total interest to 59.3% of BIVA’s share capital. The total amount we paid for our shareholding in BIVA was R$18.4 million.

Our Products and Services

We have an in-depth understanding of our clients, the issues they face and the markets in which they operate. As a pioneer in the Brazilian digital payments market, we are able to anticipate trends and translate them into new products and solutions that meet our clients’ needs more efficiently than foreign competitors operating in Brazil. For example, the Brazilian market expects digital payments providers to offer a number of country-specific features, such as installment payments on credit cards, early payment of installment receivables and payments via boletos , all of which are central to Brazilian financial culture. We built our end-to-end digital ecosystem and our digital financial services offering around these local specificities.

With the increased adoption of mobile devices by merchants and consumers as a form of payment, we design all our solutions on a mobile-first basis so that our merchants can be self-sufficient at all times and offer payment options to consumers using mobile devices.

Our industry is characterized by rapidly changing technology, changing customer needs, evolving industry standards and frequent introductions of new products and services. For example, in addition to the products and services that we currently offer, WeChat Pay and Alipay, players in the Chinese digital payments industry, already offer promotions and cashback features as well as on-platform third-party bill payments. We strive to continue to develop and release new products and services to match the needs and expectations of our clients.

119

The PagSeguro Ecosystem

Our end-to-end digital ecosystem operates as a closed loop where our clients are able to address their main day to day financial needs, including receiving and spending funds and managing and growing their businesses. Clients do not need to purchase a POS device in order to gain access to our end-to-end digital ecosystem. Our main products and services fall into the following categories, described in further detail below:

•

the free PagSeguro digital account, around which all our functionalities and services are designed

•

more than 30 cash-in solutions

•

early payment of merchants’ installment receivables

•

advanced built-in functionalities as well as value-added services and features

•

a variety of cash-out methods

The diagram below shows our main cash-in and cash-out solutions:

LOGO

The Free PagSeguro Digital Account

The free PagSeguro digital account, which is the core of our client offering for both merchants and consumers, centralizes all cash-in options, functionalities, services and cash-out options in a single ecosystem so that our clients can grow their business in a safe, affordable, scalable and simple way, all without needing a bank account. As a “closed-loop domestic” payment scheme for Brazilian regulatory purposes, the PagSeguro digital account does not provide credit facilities or enable holders to incur negative balances, however.

120

Merchants can sign up for a free PagSeguro digital account, gaining access to all of the offerings in our ecosystem, through a single online contract that can be completed in minutes without paperwork. Our online contract is typically for an indefinite term, but for certain clients who generate higher TPV, we may offer contracts with terms between 12 and 24 months. By signing up with us, merchants can automatically start accepting more than 30 cash-in methods, all with antifraud protection, and can begin accessing our business management tools. For merchants who require more complex functionalities, we offer value-added services and features such as the early payment of installment receivables for merchants, accounting reconciliation and shipping solutions. With our free PagSeguro digital account, merchants may request the transfer of their account balance to a bank account and also use our products and services to spend their account balance or other funds directly on our platform by (i) buying online, (ii) making peer-to-peer transfers or (iii) transferring their balance to the PagSeguro prepaid card, allowing them to buy goods and services in-person and online or withdraw cash at more than one million Cirrus network ATMs in Brazil and abroad.

For consumers, the free PagSeguro digital account offers not only numerous simple and safe options to pay merchants, but also the option to save their card details on our eWallet solution and to make and receive payments on a peer-to-peer basis.

We believe that these products and services create a “network growth effect.” The advantages of our digital payment solutions for merchants drive growth in their businesses, and the advantages of our digital payment solutions for consumers lead them to prefer merchants who offer these solutions, resulting in the acquisition of new clients through word-of-mouth recommendations by both merchants and consumers.

LOGO

1. Translation for illustrative purposes only.

2. Free translation from Portuguese.

121

•

Cash-In Solutions

Our cash-in methods can be accepted through web checkout, in-app checkout or in-person using our POS devices. They include credit and debit cards, meal vouchers, boletos , bank transfers, bank debits, transfers between PagSeguro digital accounts and cash deposits.

✓

Online and In-Person Payment Tools

Our merchants can choose to accept payments from consumers through various online and in-person payment tools. For our merchants conducting business online, we offer web checkout solutions and in-app payment options. For merchants conducting in-person transactions, we offer a range of POS devices.

•

Online Payment Tools

We offer a variety of online payment tools that enable merchants to integrate sophisticated checkout and payment processes into their online business. These include (i) three web checkout options for merchants conducting business over browsers (whether desktop or mobile), (ii) an in-app payment tool for merchants conducting business using mobile apps and (iii) P2P and social payment tools.

Web Checkout : Our web checkout options offer tokenization, advanced handling of shipping information, management of subscriptions and automatic billing and order tracking. We offer three different levels of web checkout integration: “Redirect”, “Lightbox” and “Transparent”, all of which are easy to set up and customize. We supply our code and documentation to the merchant free of charge, allowing the merchant to select and implement the web checkout solution that best meets his or her needs.


		Redirect : With Redirect, upon clicking on the payment option, the consumer is redirected away from the merchant’s website to the PagSeguro secure domain, where the payment is processed. After payment, the consumer is redirected to the merchant’s website.

1. Translation for illustrative purposes only.

2. Free translation from Portuguese.

122


		Lightbox : With Lightbox, the payment is processed on the merchant’s own website but using the PagSeguro secure domain. The consumer sees both interfaces during the online checkout process, with a PagSeguro pop-up overlaying the merchant’s website. After completing the purchase, the pop-up will close and the consumer can continue navigating on the merchant’s website.
1. Translation for illustrative purposes only. 2. Free translation from Portuguese.
		Transparent : The Transparent checkout solution allows the merchant to create a fully customized consumer experience. Payments are processed by us under the merchant’s domain while still benefiting from the features and functionalities of the PagSeguro ecosystem, such as antifraud and consumer data protection.
1. Translation for illustrative purposes only. 2. Free translation from Portuguese.

123

In-App Checkout: Our in-app checkout is a payment tool developed to be integrated in our merchants’ mobile apps which allows payment processing via the PagSeguro secure domain, while offering single-click checkout within the merchant’s mobile app.

LOGO

1. Translation for illustrative purposes only.

2. Free translation from Portuguese.

P2P and Social Payment Tools (Pag.ae): Our innovative P2P and “social payment” tools allow our clients to request payments by sending a web link via social media straight to the person paying, creating a fast and easy way for anyone to send and receive money electronically. Users can request payments even if they do not have a website, and the person paying does not need to register with PagSeguro and may pay through a variety of options, including credit card, boleto or bank deposit. With our Pag.ae social payment tool, our customer can request payments using a link and can send this link to one or more payer(s) via e-mail, social network or messaging service such as WhatsApp, using the recipient’s phone number or e-mail address. The payer clicks on the link and can make the payment easily in various ways (credit card, boleto or bank deposit). Pag.ae allows the recipient to pay in up to 12 installments.

We believe these P2P and social payment tools drive organic growth in our customer base, establishing relationships with potential PagSeguro customers and encouraging them to join our platform when they make a payment.

124

•

In-Person Payment Tools

Our range of affordable POS devices allows merchants to accept credit, debit and meal voucher card payments on an in-person basis. Our POS devices can be set up in less than five minutes. They are designed to be easy to use and have high levels of system availability, efficient back-up solutions, value-added functionalities and a five-year warranty.

LOGO

With PagSeguro, merchants can purchase their own device with a flexible payment plan and no monthly rental or other recurring fees. For the equivalent of three to six months’ rental payments to an incumbent, merchants can buy a comparable or better device from PagSeguro, freeing them from the incumbents’ continuous monthly rental fees. No credit checks on the merchant are required. All of our POS devices come with a free PagSeguro prepaid card to give the merchant an immediate cash-out option without needing a bank account.

We offer a comprehensive suite of POS devices, from our entry-level Minizinha to the Moderninha Pro. These POS devices are offered separately from our transaction services.

•

The Minizinha mPOS device connects via Bluetooth to our free POS app PagSeguro Vendas installed on the merchant’s smartphone and provides a simple yet secure means to accept payment cards. The Minizinha provides receipts via SMS for the consumer. We offer the Minizinha for a purchase price of 12 monthly installments of only R$9.90 (or US$3.13), appealing to the Micro-Merchants and SMEs who plan their own business expenses on a monthly basis.

•

For businesses with greater needs we offer two more sophisticated units, the Moderninha Wi-Fi (priced at 12 monthly installments of R$39.90 (or US$12.59)) and the Moderninha Pro (priced at 12 monthly installments of R$69.90 (or US$22.06)). The Moderninha Wi-Fi, which provides consumer receipts via SMS, is aimed at merchants who generate lower transaction volumes; while the Moderninha Pro, which provides consumer receipts via SMS or in paper form, is aimed at merchants who generate higher transaction volumes. The Moderninha Pro is the first single unit to offer GPRS/2G/3G chip connection, NFC, plug-and-play Wi-Fi and Bluetooth connections (for commercial automation and connection to other devices) on the same device, making it the POS device with the most connectivity features in Brazil. The device switches automatically between the various connection formats.

•

Our devices range from the entry-level Minizinha to the Moderninha Pro, the only single unit to offer GPRS/2G/3G chip connection, NFC, plug-and-play Wi-Fi and Bluetooth connections (for commercial automation and connection to other devices) on the same device, making it the POS device with the most connectivity features in Brazil.

125

We also offer a virtual POS terminal via our free Android and iOS app that enables the merchant’s smartphone to be used as a POS device for credit card payments, from seven different card schemes, with no external hardware. The merchant types the consumer’s card number into the app, with security provided via network encryption.

We generate revenues from our sales of POS devices to merchants, in addition to the commissions generated on the credit, debit and meal voucher card transactions processed through the device. All POS devices are set up to offer up to 12 monthly installments on credit card payments at the point of purchase if the consumer chooses.

We currently rely on one manufacturer to manufacture, test and assemble a significant amount of our POS devices. The Equipment Supply Agreement, dated as of June 26, 2014, as amended from time to time, by and among PAX BR Comércio de Equipamentos de Informática Ltda., or PAX, Transire Fabricação de Componentes Eletrônicos Ltda., or Transire, and Net+Phone Telecomunicações Ltda, or Net+Phone, sets forth the types of POS devices to be sold by PAX and Transire to Net+Phone and the standard terms and conditions governing this supply of POS devices. PAX and Transire together serve as our main supplier of POS devices. Consideration payable to PAX and Transire under this agreement is determined by the number of POS devices ordered by Net+Phone. For more information, see “Risk Factors—Some of the key components of our POS devices are sourced from a limited number of suppliers. We are therefore at risk of shortage, price increases, changes, delay or discontinuation of key components, which could disrupt and harm our business.”

✓

Payment Methods

The free PagSeguro digital account provides more than 30 cash-in methods, including the items listed below. Our cash-in methods can be accepted through web checkout, in-app checkout, or in-person using our POS devices. For debit card transactions, card issuers in Brazil pay us as acquirer on the first business day following the consumer transaction; and for credit card transactions, card issuers in Brazil pay us as acquirer on the 30th business day following the consumer transaction. We believe our pricing model is simple, transparent and easy to understand, when compared with that of incumbent payment processing providers, which is typically determined based on a mix of volume, card scheme and payment method.

•

Credit cards

We accept card payments, through our online and in-person POS payment tools, from all the major credit card schemes active in Brazil, including Visa, MasterCard, Elo, American Express, Hiper and regional schemes. The credit card schemes accepted on our platform together represent 99% of the total payment volume carried out using credit cards in Brazil in 2016, according to the Central Bank. We generate revenue from credit card transactions by charging a merchant discount rate, or MDR, a commission withheld by us from the transaction value paid to the merchant. The transaction amount, less the MDR, is credited to the merchant’s PagSeguro digital account. Our MDR pricing model is standardized, easy to understand and transparent. We also offer customized MDR pricing for certain merchants who process large payment volumes. We recognize the MDR fees in our financial statements as revenue.

In the standard payment cycle in Brazil, merchants receive sales revenues from credit card transactions 30 business days after the consumer transaction. We offer our merchants the option to receive their credit card revenues from us earlier, on either the first or the 14 ^th business day following the consumer transaction. We refer to this option as the merchant’s “payment date election” service ( regime de recebimento ). If the merchant selects the one-day or 14-day payment date election, the fees for this service are included in the merchant’s overall MDR fee. This service is separate from the early payment of receivables feature that we offer merchants, which is described in the following paragraph.

126

Except when merchants choose to receive early payment of their receivables related to credit card transactions to be paid in installments, as described in the following paragraph, and/or when merchants select the 14-day or one-day payment date election service, we release the amount of the consumer transaction (less our commission) to the merchant’s PagSeguro digital account three days after we receive the underlying payment from the credit card issuer.

In addition, Brazilian consumers expect merchants to allow them to choose at the point of purchase to have the purchase price either (i) charged to their credit card accounts in a single payment, as in other markets, or (ii) split into several payments and only charged to their credit card accounts in monthly installments. In this case, the merchant only receives the revenues after the respective monthly installment has been charged, rather than 30 business days after the original transaction. To help our merchants offer the installment payment option to consumers, we offer to pay the monthly installment receivables to our merchants up-front in a lump sum when the consumer choses to pay in installments. Micro-Merchants and SMEs have historically faced difficulties obtaining this service from the incumbent payment processing providers, and they often require merchants to request early payment on a transaction-by-transaction basis. We offer a solution to these bottlenecks through simpler onboarding and preapproval of a merchant’s early payments. The underlying receivables relating to these payments are owed to us by the credit card issuers, which are owned primarily by Brazil’s large retail banks.

When merchants choose to make use of this early payment of receivables feature we charge them a finance fee in the form of a discount from the lump sum of the receivable. This discount is additional to the MDR fee withheld from the merchant. The finance fee is deducted from the amounts payable to the merchant at the same time as MDR, but is recognized in our financial statements as financial income rather than revenues. The discount that generates our Financial income relates only to the early payment of the second and successive installments of the purchase; the first installment is not paid early as it is disbursed to the merchant within the normal billing cycle, so it does not generate remuneration in the form of Financial income (although it does generate MDR, which is recognized as Gross revenue from transaction activities and other services). (The lump sum receivable, less the finance fee discount and the MDR or the intermediation transaction, is credited to the merchant on the 30 ^th , 14 ^th or 1 ^st business day after the transaction, according to the merchant’s “payment date election” described in the paragraph above.)

Merchants who choose not to make use of our early payment of receivables feature only receive the amount payable to them under the consumer transaction (after deduction of the MDR fee) after the monthly installments are charged to the consumer’s credit card and the card issuer has paid us.

•

Debit cards

We accept debit cards from all the major card schemes active in Brazil, including Maestro (MasterCard), Visa Electron and Elo, for in-person payments. The debit card schemes accepted on our platform together represent 98% of the total payment volume carried out using debit cards in Brazil in 2016, according to the Central Bank. We generate revenues in the form of MDR commissions using a standardized, easy to understand and transparent pricing model. Unlike credit cards, Brazilian debit cards do not offer an installment payment option.

For debit card transactions, we receive the underlying payment from the debit card issuer one business day after the consumer transaction, and we pay the amount of the consumer transaction (less our commission) to the merchant on the same day as we receive it.

•

Meal voucher cards

Meal voucher cards are a labor benefit included in Brazilian employment contracts. The employer simply credits the employee’s card on a prepaid basis, and the employee can use the prepaid balance on the card to make purchases in restaurants and grocery stores. We accept in-person card payments from the principal meal voucher card issuers active in Brazil, generating revenues in the form of a value added network, or VAN, commission, which is currently charged at a flat rate per transaction. Meal voucher cards do not offer an installment payment option.

127

•

Boletos

Boletos are payment slip documents issued by Brazilian businesses and utilities through banks to enable consumers to pay their bills. Boletos can be used for products or services, utilities or taxes. Each boleto refers to a specific merchant and customer transaction, and includes the merchant’s name, customer information, expiration date and total amount due, plus a serial number that identifies the account to be credited and a barcode so that the entire document can be read and processed. The consumer can pay the boleto through his or her bank either online, over the phone, at a branch or at an ATM. Merchants can receive credits from boletos directly into their PagSeguro digital account. We generate MDR commissions on cash-in payments made via boletos to a merchant’s PagSeguro digital account.

•

Bank transfers and bank debits

Consumers can make transfers from bank accounts, either to their own PagSeguro digital account in order to add funds to their account balance that can then be used anywhere on our ecosystem, or to a merchant’s digital account to pay for a product or service. These payments can be made via any bank transfer or, in the case of payments to merchants, via an online bank debit tool. We generate MDR commissions on payments made via bank transfer or bank debit to a merchant’s PagSeguro digital account. There is no MDR or any other commission charged by us when consumers add funds to their own PagSeguro digital account.

•

Cash deposits

Similar to bank transfers, consumers can make cash deposits at a bank branch or ATM directly to PagSeguro digital accounts – either to a merchant’s digital account to pay for a product or service, or to the consumer’s own digital account. We generate MDR commissions on payments made via cash deposit to a merchant’s PagSeguro digital account. There is no MDR or any other commission charged by us when consumers add funds to their own PagSeguro digital account.

•

Early payment of installment receivables

As described under “—Cash-in Solutions—Credit Cards” above, our early payment of installment receivables feature helps our merchants offer the installment payment option to their consumers paying by credit card, without sacrificing their own cash flow. In addition to generating financial income for us, this early payment feature is an important source of working capital for merchants, in particular for our Micro-Merchants and SMEs, who may not otherwise have efficient access to capital from banks or traditional financial institutions. We believe that by offering this feature, we can strengthen our business partnerships with our merchants by providing this capital to help them grow their businesses.

We generate financial income through this early payment feature by charging a finance fee in the form of a discount from the second and successive installments that are paid early in the lump sum, in addition to the MDR fee on the intermediation transaction. The finance fee is deducted from the amounts payable to the merchant, but is recognized in our financial statements as financial income rather than revenues.

128

Prior to this initial public offering, we funded the working capital for this early payment service using debt incurred by us. We plan to use a portion of the proceeds from this initial public offering to finance this activity through equity capitalization. In addition, in November 2017 we set up a Brazilian investment fund to purchase and hold receivables known as a FIDC through which we may raise debt to finance the early payment of receivables feature. The FIDC is controlled by our Brazilian operating company (by virtue of subscribing for its subordinated quotas) but raises capital by issuing senior quotas in the fund to outside investors, who receive interest on these investments from the FIDC. The FIDC uses the capital it raises to finance the growth of this early payment of receivables feature. Our remuneration from the early payment of receivables feature continues to be reflected as Financial income in the consolidated financial statements of PagSeguro Brazil. We do not expect the establishment of the FIDC to impact the discount rate we charge in connection to the early payment of receivables feature or the expenses we incur to obtain early payment of note receivables from card issuers and acquirers. For further information regarding the FIDC, see “—Organizational Structure.”

LOGO

129

•

Advanced Built-In Functionalities and Value-Added Services and Features

Our PagSeguro digital account comes with a number of advanced built-in functionalities, provided free of charge, as well as value-added services and features that are designed to protect both merchants and consumers and help our merchants better manage their businesses. These functionalities and value-added services and features include purchase protection mechanisms, antifraud platform, account and business management tools, eWallet and our POS App. Our platform also provides solutions such as PlugPag, a free tool compatible with iOS, Android and Windows, aimed at our medium-sized and larger merchants, enabling them to connect their POS device directly to their enterprise resource planning, or ERP, software or sales automation system via Bluetooth; cart recovery solutions to improve sales conversion rates on e-commerce websites; and developer platforms allowing merchants to give third-party developers access to their PagSeguro digital accounts on a secure basis using application programming interfaces, or APIs; among other functionalities.

✓

Purchase Protection

Our Purchase Protection solution adds multiple layers of security for online purchases made on our platform. As a payment card industry, or PCI, compliant company, we do not share consumer credit card data or sensitive information with merchants, helping to prevent fraud and data misuse. For added protection to online consumers, our ecosystem holds consumer payments in escrow for a set period after purchase. If there is no consumer complaint, the funds are typically released to the merchant in two weeks from the purchase date. If a problem occurs with the purchase and the transaction is eligible for Purchase Protection, the consumer can file a claim and, if requested, we will act as mediator to help resolve the issue with the merchant. If the issue is not resolved, we reimburse the consumer for the full purchase price plus shipping costs. In the nine months ended September 30, 2017, only 0.2% of our transactions required claim mediation and for those that did, the average time for claim mediation settlement was 25 days. 85% of the disagreements related to non-receipt of a purchase, and 65% were resolved in favor of the merchant.

✓

Antifraud platform

In addition, our IT background combined with the 10 years of historical transaction data we have amassed since our launch allow us to develop proprietary technology and gain expertise against online fraud and chargebacks related to fraudulent transactions in Brazil. Our antifraud platform combines proprietary features, such as internal risk modeling and scoring through artificial intelligence and risk assessment tools that collect public and private market information, as well as front-line third-party solutions such as Feedzai, Emailage and Threatmetrix. The antifraud platform is fully integrated into our ecosystem, and features processes designed to monitor potential fraud in real time, tracking transaction approvals and denials, enabling us to maintain high transaction approval rates and low incidences of fraud.

When a client requests a chargeback from the card issuer, we verify whether the sale occurred and whether the product or service was delivered by the merchant. If the chargeback claim was fraudulent, we pay the amount due to the merchant and we contest the attempted chargeback with the card issuer by providing the supporting documentation. If the chargeback claim was justified, we pass on the cost to the merchant. For information on claim mediation requests filed by our clients on our platform, see “—Protecting Our Clients—Transaction Security.”

130

✓

Account management tools

We aim to help our merchants expand their businesses by offering free tools such as account statements for their PagSeguro digital account, customized digital invoicing, sales data reports, simulations of early payment of merchants’ receivables, and revenue management.

✓

Business management tools

For merchants who generate larger transaction volumes and require more complex controls, we offer services such as flexible crediting dates, payment into separate bank accounts for each card scheme, and a split payment solution that automatically segregates credits between two different companies. Our split payment solution allows merchants to generate payments, integrate employees, manage receivables and receive commissions in real time. We offer these services by providing our merchants with the code and documentation to implement these tools.

✓

eWallet

With our eWallet, users can save their credit card information directly to our ecosystem, allowing them to make online payments to merchants without having to type in the credit card details for each purchase. This improves user experience and makes the payment process faster, easier and more secure. Our eWallet allows users to save multiple credit cards. Credit card transactions made using credit cards stored in eWallet generate MDR fees.

131

LOGO

1. Translation for illustrative purposes only.

2. Free translation from Portuguese.

Our related eWallet app, currently available in the Google Play store, offers an in-app card scanner and allows clients to use the credit card information saved in their eWallet to pay any PagSeguro merchant via their smartphone. In addition, using a QR code feature that is currently in the pilot phase, consumers will be able to make purchases with our eWallet app by simply scanning the QR code (created using our proprietary QR code technology) generated by the merchant’s PagSeguro Vendas app, Moderninha Pro or Moderninha Wifi. After scanning the QR code, the consumer’s eWallet app will authenticate and finalize the transaction by scanning the consumer’s fingerprint on his or her smartphone.

132

✓

POS App (PagSeguro Vendas)

Our free sales app PagSeguro Vendas is a POS software app available for smartphones and tablets running iOS or Android that integrates seamlessly with our payment processing solution but can also be used on a stand-alone basis. The tablet version of the app allows merchants using POS devices to improve their business operations by registering and itemizing their services and products, selling merchandise on customizable terms, tracking business data and allowing for faster in-app checkout. Items can be grouped, categorized, sorted, and linked to inventory management. PagSeguro Vendas is user-friendly and secure, and fully integrated with our merchants’ free PagSeguro digital accounts and the Moderninha Pro, Moderninha and Minizinha POS devices. At the date of this prospectus, PagSeguro Vendas is rated 4.5 stars by 643 reviewers in Apple’s Brazilian app store and 4.2 stars by 41,852 reviewers in the Android app store.

✓

PagSeguro Minha Conta (i-Banking App)

Our free digital account app, PagSeguro Minha Conta , is a transaction management app available for smartphones and tablets running iOS or Android which provides our clients with an easy and practical way to manage their account balances. Through PagSeguro Minha Conta , our clients can transfer their account balances directly to their PagSeguro prepaid cards or third-party financial institutions. PagSeguro Minha Conta also provides real-time statements of a user’s historical account and PagSeguro prepaid card activity. At the date of this prospectus, PagSeguro Minha Conta is rated an average of 4.6 stars by 16,725 reviewers in the Android app store.

✓

PlugPag

PlugPag is a free tool, aimed at our medium-sized and larger merchants, enabling them to connect their POS device directly to their enterprise resource planning (ERP) software or sales automation system via Bluetooth. The PlugPag feature offers various advantages such as a direct connection between the merchant’s software and the POS device, which automates the flow of information, avoiding human intervention so as to minimize potential mistakes and fraud. By sending the confirmation or rejection of each sale directly to the merchant’s software, this tool facilitates automatic reconciliation of sales records, a common requirement of larger merchants.

✓

Accounting reconciliation

We offer merchants a platform for reconciling their digital transaction revenues and the related fees with their bank account balance and accounting records. This service offering ramped up significantly with our acquisition of 51% of the shares of R2Tech, a company specialized in reconciliation, in May 2017, and is backed by our expertise in middleware and back-office solutions processing. We generate revenues from this service in the form of a flat commission per transaction reconciled for the client.

✓

Peer-to-Peer Lending

Through our 59.3% controlling interest in BIVA, which we acquired in October and November 2017, we facilitate peer-to-peer lending services. This activity consists of connecting a borrower to a lender or group of lenders. We generate revenues from this service in the form of a commission per transaction, plus a performance fee if the lenders’ return on their portfolio of loans exceeds certain targets. The lenders take the full credit risk on the loans; as intermediary between lender and borrower, we are not exposed to this credit risk.

133

✓

Cart recovery

Our cart recovery solution aims to improve sales conversion rates on e-commerce websites. If the consumer accesses a merchant website, places items in the website’s virtual cart, continues to our web checkout but then leaves the website before finalizing the purchase, this tool keeps the items in the cart, saving the consumer time if he or she later returns to the merchant’s website to complete the purchase. It also features e-mail reminders and remarketing to direct the consumer back to the merchant’s web checkout.

✓

Subscription service and automatic billing

Our Merchants can provide subscription services and automatic billing for their consumers. This tool enables the merchant to manage, cancel or renew subscriptions and manage and cancel automatic billings, all through the free PagSeguro digital account.

✓

Smart Supply

Our Moderninha Pro has built-in technology that measures the consumption of POS receipt paper. This technology, combined with an advanced logistics system, allows us to deliver replacement paper rolls to the merchant automatically in advance. We believe this tool increases merchant satisfaction while reducing inquiries and the related customer service costs. We consider this service a loyalty initiative and provide it free of charge.

✓

POS Assistance

All of our POS devices have a five-year warranty. In order to reduce the inconvenience of waiting for repair to or replacement of a POS device, we offer eligible merchants three levels of assistance: (i) standard service, where the replacement device is delivered via mail, (ii) express service, where the replacement device is delivered via courier service, and (iii) quarterly preventive assistance for larger clients, where our field technicians visit the merchant periodically to carry out maintenance on a preventive basis.

✓

Developer platform

We enable merchants to give third-party developers access to their PagSeguro digital accounts on a secure basis using application programming interfaces, or APIs. Our APIs are designed to allow developers a plug-and-play service to create integrated websites and software applications that connect to the PagSeguro platform, allowing merchants to benefit fully from the features and value-added services and features available on our ecosystem, while keeping our customers’ financial information confidential. Our developer platform offers integration tests and guides (including modules and a virtual library) and community and GitHub forums.

✓

Shipping solutions

Through a partnership with the Brazilian Post Office, we offer integrated shipping solutions enabling online merchants to send, insure and track their packages at lower overall shipping rates than the Brazilian Post Office’s standard prices. Delivery fees can be included in the online sales transaction or paid separately by the purchaser. Using our shipping cost calculator, merchants can choose to offer (i) a fixed freight rate based on the number of items shipped, (ii) a weight-based rate or (iii) a customized rate based on a fixed amount plus an incremental rate for each additional item. Merchants can also track all shipments and insure their products against loss. We monitor and review the Brazilian Post Office’s performance and compliance with our contractual terms.

134

✓

EFTPOS Integration Solution

Our EFTPOS integration solution, which we launched in August 2017, offers solutions that integrate EFTPOS technology with merchant software, secured via PIN pad. This service allows merchants to process of large transaction volumes and issue tax receipts more easily than with traditional POS devices.

✓

Single-Click

Our Single-Click service is a functionality offered across our e-commerce platforms that enables merchants to request customer approval to save their payment information, simplifying future purchases. Once approved, e-commerce merchants can provide a seamless checkout option, allowing customers to make purchases with a single click.

✓

Promotional engine

Our promotional engine is a marketing tool that allows merchants to advertise across our client base. For example, a merchant can offer promotional discounts to other PagSeguro customers in specific sectors.

•

Cash-Out Solutions

Our cash-out solutions enable our clients to transfer or spend the balance on their PagSeguro digital account securely by a variety of means including online purchases via eWallet, in-person and online purchases or cash withdrawals using our PagSeguro prepaid card, on-platform peer-to-peer transfers, transfers to bank accounts and cross-border remittances.

✓

Online purchases via eWallet

Users can save information for multiple credit cards directly to our ecosystem using our eWallet solution, allowing them to make online payments to merchants on a secure basis without having to type in the credit card details for each purchase. This improves user experience and makes the payment process faster and easier. For further information regarding our eWallet solution, see “—Our Products and Services—The Free PagSeguro Digital Account—Advanced Built-In Functionalities and Value-Added Services and Features—eWallet.”

✓

PagSeguro prepaid cards

Our PagSeguro MasterCard prepaid cards allow merchants or consumers to use the balance from their free PagSeguro digital account to buy goods and services in-person and online or withdraw cash at more than one million Cirrus network ATMs in Brazil and abroad. Merchants can therefore receive payments from sales transactions into their PagSeguro digital account and spend that money directly using the PagSeguro prepaid card, without needing a bank account. With a modest initial purchase cost, the card comes with no annual fees or interest rates – and we provide it free to merchants who purchase a PagSeguro POS or mPOS device. The PagSeguro prepaid card does not require credit checks on the merchant or preapproval for issuance. At December 31, 2016, more than 749,000 PagSeguro prepaid cards had been issued.

135

We generate revenues from (i) the issuance fees for PagSeguro prepaid cards, (ii) interchange fees we receive, as a card issuer, from each transaction made through PagSeguro prepaid cards, and (iii) a flat fee for cash withdrawals at ATMs using PagSeguro prepaid cards. After the initial issuance fee, the cardholder does not pay an annual fee or other fees for using the card.

LOGO

✓

On-platform peer-to-peer transfers

Our clients can use the balance on their PagSeguro digital account to transfer funds to other PagSeguro digital accounts on our platform. We charge a commission paid by the recipient of the payment.

✓

Bank transfers

Clients can make transfers from their PagSeguro digital account directly to a bank account. We believe, however, that our numerous direct cash-out options are increasingly reducing the need for our merchants to transfer balances out of our digital platform. We do not receive revenues from cash-out bank transfers.

✓

Cross-border remittance

Our “Boa Compra” platform allows our clients to operate cross-border transactions when consumers are located in different countries across Latin America, Spain, Portugal and Turkey (for example, for foreign merchants selling to Brazilian consumers, or for Brazilian merchants selling to foreign consumers – although the platform is also used for transactions where neither party is Brazilian). Boa Compra originally operated in the online gaming industry and has been particularly attractive to clients in that industry. Since its launch, however, Boa Compra has now expanded to serve other industries.

136

Using Boa Compra, international online merchants, such as Valve (Steam), Electronic Arts and Riot Games, can provide their end-users with local payment methods, leveraging conversion rates and unlocking the market potential of cross-border e-commerce. The Boa Compra platform features an integrated web-checkout solution which allows clients to save their credit card information for future transactions and enables international checkout by offering users more than 150 payment methods in multiple currencies, including our proprietary digital currency Créditos Gold . Créditos Gold can be purchased online through Boa Compra’s online digital gaming portal Go4Gold in Brazil, Chile, Peru, Mexico, Portugal and Turkey. Once purchased, Créditos Gold can be used immediately to make in-app purchases. When Brazilian consumers, for instance, make a purchase abroad using Boa Compra, we organize the remittance of the funds outside Brazil on behalf of each customer in accordance with Central Bank regulations using the consumer’s Brazilian taxpayer identification number.

Our Customers

We offer our clients free digital accounts which they can use to sell products as merchants, or to buy products as consumers. There is no division between the two categories, since the same digital account serves both types of clients – indeed, our merchants are also consumers when they spend their digital account balance using our cash-out features, and our consumer clients can also be merchants.

We offer the following major benefits for both merchants and consumers:

•

Customers do not need a bank account to join our ecosystem. With a 100% online onboarding process (as compared with the offline onboarding process of incumbent providers, which typically requires a technician to install the POS device), without paperwork, quick turnaround and a high acceptance rate, we offer access to our advanced digital payment processing and receivables early payment features. We accept merchants who are either individuals or companies.

•

Our pricing model for all of our services and features – whether transaction fees, early payment of installment receivables or sales of POS devices – is simple, transparent and easy to understand. For example, we offer the Minizinha mPOS device for a purchase price of 12 monthly installments of only R$9.90 (or US$3.13), the Moderninha Wi-Fi for a purchase price of 12 monthly installments of R$39.90 (or US$12.59) and the Moderninha Pro for a purchase price of 12 monthly installments of R$69.90 (or US$22.06).

•

We offer a comprehensive suite of affordable POS devices, with user-friendly features and functionalities, reliable connectivity and a five-year warranty. Our devices range from the entry-level Minizinha to the Moderninha Pro, the first single unit to offer GPRS/2G/3G chip connection, NFC, plug-and-play Wi-Fi and Bluetooth connections (for commercial automation and connection to other devices) on the same device, making it the POS device with the most connectivity features in Brazil. Our merchants purchase their own device through a flexible payment plan. For the equivalent of three to six months’ rental payments with incumbents, merchants can buy a comparable device from PagSeguro and avoid continuous monthly rental fees.

137

•

Data protection and confidentiality for consumers, with merchant verification and transaction protection mechanisms, including escrow periods and claim mediation services.

•

Our payment solutions reduce the need for consumers to carry cash since more Micro-Merchants and SMEs are able to accept digital payments in-person.

Since we only provide the payment service and the acquiring service, the consumer in the underlying commercial transaction is not our client, and we are not responsible for providing the goods or services or fulfilling the consumer order. As provider of the payment service, we facilitate the payment transaction on behalf of the merchant; while as acquirer, we enable merchants to accept payment cards by completing the processing of the payment transaction.

We principally target Micro-Merchants and SMEs, many of whom were ignored or underserved by the incumbent payment providers and financial institutions in Brazil before PagSeguro was launched. These incumbents generally charge Micro-Merchants and SMEs higher overall fees and commissions because they generate lower transaction volumes. Our platform enables us to keep overall per-transaction fees lower for merchants who generate lower transaction volumes. We believe our client data supports this model: According to a survey conducted by us in October 2016, 81% of our merchants used PagSeguro as their sole electronic payments service (while 2% of our merchants also used GetNet, 4% also used MercadoPago, 6% also used Rede and 11% also used Cielo, according to the same survey) and according to a survey conducted by us in June 2017, 75% of Minizinha owners did not accept cards before signing up with us.

138

Our merchants tell our story for us:

•

Mauro Maia, restaurant owner : “I now have the new Moderninha Pro, which offers a number of interesting features. First, it has a Wi-Fi connection, which means you don’t have to rely on cellular connections where sometimes you can’t get a signal. This device involves no rental fees and accepts cards from all the main card schemes.”

LOGO

•

Carolina Ikeda, florist: “The device helps me sell flowers to people who don’t carry cash around, just like me!”

LOGO

139

•

Luiz Augusto Pinheiro, personal trainer: “With this device I can receive my payments easily. Before, if the client didn’t have cash I had to take a check, which meant a trip to the bank. With PagSeguro, the whole payment process is automatic.”

LOGO

•

Karina Carneiro, e-commerce jeweler : “For retailers like me, being able to offer customers an installment plan on their credit cards is sensational. PagSeguro has been a strong business partner. I recommend them without hesitation!”

LOGO

140

•

Rafael Bauer dos Santos, fresh coconut seller: “After lots of research, I chose the Moderninha Pro for one simple reason: no monthly rental fees. The technical support is very professional and the device has a five-year warranty. The Moderninha increased my sales, and my customers love the practicality. It also makes financial management easy.

LOGO

•

Célia Vilas Boas, cafe owner : “ Our customer base has grown thanks to PagSeguro. Once we bought the Moderninha our revenues increased noticeably because we started accepting all major card schemes and meal vouchers .”

LOGO

141

•

Marinaldo Nogueira, store owner : “The Minizinha allowed me to accept both debit and credit cards, which increased sales and benefited my business.”

LOGO

•

Beatriz Ribeiro, self-employed manicurist : “The Minizinha offers plenty of advantages, and the lower fees help my bottom line.”

LOGO

142

•

Juliana Toshimatsu, market stallholder : “The Moderninha Wi-Fi, in addition to making our life easier, helped us to drive sales up!”

LOGO

•

Ana Laura Mato, clothing store owner : “With the Moderninha Pro, I said ciao to rental fees, and I can accept all debit and credit cards.”

LOGO

143

We strive to provide relevant products, efficient customer service, account support and protection from fraud and loss. We have developed a number of security procedures to provide protection to consumers by offering escrow periods and claim mediation, covering issues such as non-delivery or failure to match the merchant’s description of the product sold. See, “—Protecting Our Clients” and “—Our Products and Services—The Free PagSeguro Digital Account—The PagSeguro Ecosystem—Advanced Built-In Functionalities and Value-Added Services and Features—Purchase Protection.”

Product Development and Technology

We develop most of the software technology used by our digital payments platform in-house, although we also outsource certain projects to outside developers in order to expedite the delivery of software and keep our time-to-market advantage. Through this combination of technology, developed both in-house and by outsourced developers, we have developed a stable, reliable, proprietary and highly scalable platform with intuitive user interfaces, management tools, transaction processing, APIs, and database and network applications that help our customers utilize our suite of products and services, while keeping their financial information confidential.

Our platform allows consumers to make purchases using a broad range of payment methods, regardless of where a merchant is located. For purchases made outside Brazil, we partner with local payment service providers.

We manage large volumes of system access data and transactions, with more than 99.9% availability from May 2016 to April 2017, using Internet data centers provided by UOL Diveo, a UOL group company that focuses on IT outsourcing, data centers, cloud computing and other managed IT services. This allows us to have multiple redundancies and, to the benefit of our merchants, automatically switch to the networks of other acquirers in the case of connection failure. Backed by UOL Diveo, we are able to scale up our services while retaining high availability for peak-volume occasions such as Christmas, Mother’s Day and Black Friday. This high-availability and continuously deployed platform ensures that all of our clients are able to operate with the latest features and the newest innovations without any need to patch or upgrade their software. Our scale as a UOL group company allows us to establish favorable partnerships with several suppliers, including software developers and hardware manufacturers. We work with these suppliers to continuously tailor our solutions and POS devices to fit the needs of our main target merchants.

At September 30, 2017, 61% of the total headcount of PagSeguro was engaged in products and engineering. With our specialized team of 621 people focused on developing reliable, scalable and proprietary systems and new products and features, we regularly roll out innovative and disruptive solutions that are tailored to the Brazilian market. Our expenditure on software and technology (including salaries) amounted to R$68.0 million in the nine months ended September 30, 2017, R$68.6 million in 2016, R$37.0 million in 2015 and R$20.1 million in 2014.

We strive to offer new features and formats to improve our users’ experience on our platform. This process starts by listening to suggestions from our clients. We hold focus group meetings and conduct surveys periodically with regular and highly active customers to obtain feedback regarding our products and services, as well as suggestions and ideas for new features.

We test all new products and features rigorously in-house and with pilot groups of merchants before rolling them out. Once our internal team has ensured they are working properly, we typically roll them out first to a select group of customers on a trial basis, listening to feedback and suggestions and enhancing the final details of the product or feature before rolling out to all customers. We frequently update our software products and follow a regular software release schedule with improvements deployed periodically, ensuring our merchants get immediate access to the latest features.

144

Managing our platform’s software architecture and hardware is as important as offering new products and features. We focus on optimizing our processes and equipment to help ensure that our systems are capable of handling our rapid growth in an efficient and cost-effective way.

Our technology infrastructure simplifies the storage and processing of large amounts of data, automates many administrative tasks, and enables us to deploy and operate products and services on a wide scale. Our technology infrastructure is designed to reduce downtime in the event of system outages or catastrophic events, with continuity features, system redundancy and protection against cyber-security threats. For further information on the measures we take to protect against cyber-security threats, see “—Protecting Our Clients.” We strive to improve our technology infrastructure and platform continuously in order to enhance the customer experience and to increase security, efficiency and scalability.

Our research and development team focuses on our ongoing pipeline of reliable, scalable and proprietary systems and new products and features tailored to the current Brazilian market. Using our qualified product and service design teams and research and development team, we intend to roll out a portfolio of new solutions, for both merchants and consumers, based on mobile apps, further strengthening our mobile-first commitment and simplifying our clients’ lives. We anticipate that we will continue to devote considerable resources to research and development in the future as we add new features and functionality to our products and services. Our market is characterized by rapidly changing and disruptive technologies, as well as evolving industry and regulatory standards, and we seek to remain in the front line of these changes. We believe our ability to adapt to rapidly changing technologies, products and services in an evolving industry is the cornerstone of our future success. For further information on the technological challenges in our industry, see “Risk Factors—Risks Relating to our Business and Industry—Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.”

Protecting Our Clients

Trust and security are essential to success in the digital payments market. Fraud is a constant threat, involving items such as account takeover, identity theft and malicious counterparty activities. The ability to protect our clients from financial loss and data theft has been key to our competing successfully and growing our business sustainably, and we believe security will continue to be a major competitive factor in the future. We invest in providing comprehensive protection for our clients on our ecosystem, focusing on three main areas: transaction security; platform security; and customer service.

Our investments in this area have been recognized by our customers and the industry. For example, we were recognized as the “ Best Company for Consumers ” for electronic payments in both 2017 and 2016 and for online payments in 2015 by Época magazine and Reclame Aqui , a consumer protection service and were recognized for client service excellence in the financial services category in 2015 and 2017 by Consumidor Moderno .

145

Transaction Security

We have focused since our launch on ensuring the security of payment transactions carried out on our ecosystem. We believe we have been a pioneer in developing technology and expertise against online fraud and chargebacks related to fraudulent transactions in Brazil, backed by the reputation of the PagSeguro and UOL brands. Our transaction approval rate continues to increase, with rates in the nine months ended September 30, 2017 higher than those achieved in 2016 and earlier years. In 2016, we were named the Brazilian acquirer with the lowest chargeback-to-sales ratio by Visa. Our net chargeback rates for transactions of six months old averaged 0.26% in 2016, and the first nine months of this year show that our net chargeback rates for transactions are declining. These net chargeback rates compare highly favorably with the 1.0% limit established by the card schemes. We achieve transaction security through a combination of antifraud technology, the design of our platform, and protection programs for our clients.

LOGO

As is the case with any digital transaction, those that take place on our digital platform are susceptible to potentially fraudulent or improper sales. We use two main processes to control this fraud risk. The first process consists of monitoring credit card, debit card and boleto transactions on a real time basis, through systems that identify potential fraud. This process approves or rejects suspicious transactions at the time of the authorization, based on statistical models that are revised on an ongoing basis. The second process, which occurs after approval of the transaction, consists of a reconciliation process in which PagSeguro Brazil follows up on all chargebacks with the card issuers and, where appropriate, opens a claim process to seek reversal of the chargeback. This is a complementary process and increases our ability to avoid and manage chargebacks.

146

Our antifraud platform combines proprietary features, such as internal risk modeling and scoring through artificial intelligence and risk assessment tools that collect public and private market information, as well as front-line third-party solutions such as Feedzai, Emailage and Threatmetrics. For more information, see “—Our Products and Services—The Free PagSeguro Digital Account—The PagSeguro Ecosystem—Advanced Built-In Functionalities and Value-Added Services and Features—Antifraud Platform.”

The design of our platform also assists in preserving data confidentiality. Consumers can make payments through PagSeguro without sharing sensitive financial information such as credit card or debit card details with the merchant. Transactions on PagSeguro are tokenized and payment authorization credentials are kept separated from account holder’s information, helping us to better detect and prevent fraud when funds enter, flow through and exit our ecosystem. In addition, the ability to make and accept digital payments increases personal security in in-person transactions by reducing the need for both consumers and merchants to carry cash.

Our protection programs guard our clients from loss through fraud and counterparty non-performance. We believe the history and critical mass of our consumer database allows us to provide quicker and more reliable transaction approval when compared with smaller or more recently established digital payments providers in Brazil. Our protection programs, which apply to online purchase transactions completed through our ecosystem, aim to reassure consumers the confidence that they will only be required to pay if they receive the product in the condition as described, and merchants the confidence that they will receive payment for the product that they are delivering to the customer.

Our merchant program protects against losses for chargebacks related to fraudulent transactions and similar claims on substantially all of our online transactions. A chargeback situation may also occur if the card used was unauthorized or if there is a non-fraudulent cardholder claim. If a chargeback claim is valid, the card issuer sends the transaction back to the merchant and charges the merchant the amount of the questioned sale. If the merchant cannot remedy the chargeback, it is the merchant’s loss. If there are not sufficient funds in the merchant’s account, the chargeback amount is charged to the acquirer.

For consumers, we provide protection against losses under which they can submit a claim if there is a problem with a purchase. The consumer can file a claim through our PagSeguro website, in which case the consumer and the merchant can seek to resolve the claim together. If they cannot resolve the claim within seven days after the claim is filed, the consumer has up to 20 days after filing the claim to request our assistance, in which case we act as mediator to help resolve the issue with the merchant. If a consumer does not request mediation within 20 days after filing a claim, the claim will be resolved in favor of the merchant.

Platform Security

The architecture of our proprietary end-to-end payments platform coupled with third-party front-line solutions are key to our ability to provide consumers and merchants with continuity and security in their transactions. Through our numerous cash-in and cash-out options we are able to collect data from our clients, which allows us to save important information on customers for purposes of the approval of future transactions. The multiple layers of protection included in our platform help ensure continuity as well as addressing the cybersecurity risks discussed in “—Transaction Security” above.

147

We have developed intuitive user interfaces, customer tools and transaction processing and database and network applications that help our users complete transactions reliably and securely, both on our platform and on merchant sites integrated with PagSeguro. Our technology infrastructure simplifies the storage and processing of large amounts of data, facilitates the deployment and operation of large-scale global products and services, and automates administrative tasks. This technology infrastructure has been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences. We work hard to improve our technology infrastructure continuously in order to enhance customer experience and increase efficiency, scalability and security. We also make use of well-known security protocols and solutions to secure user data, including, among others: EV-SSL certificate, multiple data encryption techniques, intrusion detection (IPS/IDS), application firewalls (WAF), Anti-Distributed Denial-of-Service (Anti-DDos), Data Loss Prevention (DLP), 2-factor authentication and encrypted communications. We also hold the following certifications: PIN security; MasterCard and Visa merchant acquiring host; MasterCard terminal integration process, or M-TIP; Visa acquirer device validation toolkit, or ADVT; MasterCard end-to-end demonstration services, or ETED; PCI Data Security Standard, or PCI-DSS; and Europay, MasterCard, and Visa, or EMV, Levels 1 and 2. Our data centers are also certified under the International Organization of Securitization, or ISO, standards 9001, 20000 and 27001. We also perform security penetration tests on a regular basis and apply top-most security solutions for code and application scanning (SAST/DAST).

Our platform’s architecture enables us to connect all parties regardless of whether the transaction is occurring at a traditional physical location (such as inside a store), a nontraditional physical location (such as in a park), or online, and whether through a mobile or fixed-line device. We believe that mobile devices, in addition to being the future of e-commerce, create opportunities to make digital payments safer. For example, we are able to use location data from mobile devices to reduce risk for our clients.

Customer Service

We believe in excellence in customer service. By helping our clients navigate our applications and answering their questions quickly, we have been able to grow rapidly and to build trust with our clients, which has increased their loyalty and enhanced our reputation.

We provide our customers with an array of digital self-service features including real-time online chat, chatbots, customer service e-mail and a customer service hotline. Our customer service operations are provided by a combination of PagSeguro employees and outsourced providers, which together make up approximately 800 full-time equivalent, or FTE, positions.

We maintain service quality by placing emphasis on careful selection of our customer service personnel and regular monitoring of employee performance. Our employees are trained to have in-depth product and service knowledge, professional service attitudes and communication skills to best address customer needs and inquiries.

148

Sales and Marketing

Our marketing strategy is designed to grow our platform by building and maintaining the brand recognition and trust of the PagSeguro and UOL brands, attracting new users and generating more frequent activity by our existing users. Our marketing initiatives aiming to recruit merchants to our ecosystem currently focus on our POS devices, web checkout solutions and other online payment solutions, such as Pag.ae. We believe that introducing our digital payment solutions to merchants who are not yet our clients is the most efficient and cost-effective strategy to sustain our growth among both merchants and consumers, creating a “network growth effect.” The advantages of our digital payment solutions for merchants drive growth in their businesses, and the advantages of our digital payment solutions for consumers lead them to prefer merchants who offer these solutions, resulting in the acquisition of new clients through word-of-mouth recommendations by both merchants and consumers.

LOGO

Our existing clients, many of whom use PagSeguro as an exclusive payment method, enable us to grow our merchant base rapidly and organically. Each time a consumer who has not yet registered with PagSeguro visits our website or pays a merchant using one of our online or in-app checkout solutions, the consumer is invited to open a free PagSeguro digital account to make his or her next purchase with PagSeguro easy and seamless.

149

LOGO

We strive to position PagSeguro products and services in top of mind and present them as a desirable, easy and secure means to accept and make payments in Brazil, while accompanying the consumer throughout the purchasing process, from general brand awareness through to actual purchase or account registration. As a digital company, and with the support of UOL’s audience, we continue to build and maintain brand recognition and awareness, while generating demand for our products and services through a variety of marketing campaigns, including:

•

traditional offline media: television advertisements and merchandising (broadcast and cable), radio, movie theaters, the printed press, festivals and events, and display media such as billboards, urban digital time and weather displays, and airport and bus station displays;

•

traditional online advertising: display media (including banners, rich media, interstitials, videos and native ads) on a variety of online platforms, such as premium websites, portals, video platforms such as YouTube, social media platforms such as Facebook and Instagram, mobile apps, e-mail marketing and affiliates programs; and

•

search: we have expertise in positioning our products in preferential placements on search platforms displayed on desktops, tablets and smartphones, using specific initiatives such as paid search (Search Engine Marketing, or SEM, which includes bid management tools and keywords analysis) and natural or organic search (Search Engine Optimization, or SEO, which includes website optimization).

Our marketing department develops all these online and offline marketing strategies using single integrated concepts, so that our campaigns include key visual characteristics and consistent messages across all channels. In line with our growth strategy, most of our campaigns focus on Micro-Merchants and SMEs, with messages that highlight our easy, safe and hassle-free way of accepting payments, such as “a single online contract that allows you to accept more than 30 cash-in methods” and “free yourself from POS rental fees.” We regularly compare our pricing to our competitors’ and point out the advantages of our products and services for new or growing businesses. At the same time, we also advertise value-added products and services targeted at larger merchants and consumers from higher income sectors, including our business management tools and commercial automation solutions.

We believe that our association with the UOL group brings experience and competitive advantages in designing, negotiating and purchasing advertising space.

150

Through our ongoing focus on expanding our payment solutions and increasing our brand recognition, the strength of our brand, products and services has been recognized in a number of awards, including:

•

Recognized for “ Best Payment Processing ” in 2015 by Afiliados Brasil , a marketing company;

•

Recognized as the best company in its industry in terms of client service excellence by Consumidor Moderno Award in 2015 and 2017; and

•

Recognized for leading performance in Brazilian retail by Prêmio BR Week in 2016.

As further support of the increasing strength of our brand, according to Google Trends, and as illustrated by the below chart, as of July 2017, “PagSeguro” and “Moderninha” have experienced rapid growth in search volume over the past five years (or since the March 2015 launch, in the case of Moderninha) when compared to the other digital payment solutions in Brazil (the vertical axis in the below chart represents the relative number of Google searches for each name). According to Google Trends, in August 2017 for every 100 Google searches for the term “Pagseguro,” there were 21 for the term “MercadoPago” and 23 for the term “PayPal.”

LOGO

We use our proprietary tools and market measurement systems developed by third parties, such as Adobe and Google, to deepen our knowledge about consumer behavior and, consequently, optimize our marketing efforts and expenditures by customizing our sales messages to make it easier for users to understand, find and buy our products and services.

Our marketing strategy is customized and we manage our desktop sites, mobile websites and mobile applications differently, each optimized for the screens they fit and the way our customers use them.

In addition to our online and offline advertising efforts described above, we developed a broad range of marketing and sales channels to access potential clients, including:

•

our own sales team, mainly focused on sales of our POS devices and online products and solutions to larger clients, as well as on providing ongoing support to those clients;

151

•

partner companies that distribute PagSeguro devices and solutions to their customer base (mostly point of sale solutions’ companies);

•

third parties hired as independent sale organizations to distribute our POS devices across Brazil;

•

online store platforms and web development companies, which integrate PagSeguro as an exclusive or preferred payment method to their clients; and

•

third-party call center service provider hired to answer calls, e-mails and chat inquiries from our clients and prospects, and to sell our devices and solutions.

Organizational Structure

We are a Cayman Islands exempted company with limited liability and are a subsidiary of Universo Online S.A., or UOL. Our principal executive office is located at Avenida Brigadeiro Faria Lima, 1384, 01452-002 São Paulo – SP, Brazil. Our investor relations office can be reached at +55 (11) 3038-8127 and our website address is www.pagseguro.uol.com.br . Information provided on our website is not part of this prospectus and is not incorporated by reference herein.

UOL is a Brazilian sociedade por ações that was founded in 1996. UOL is Brazil’s largest Internet content, digital products and services company. Its majority shareholder is Grupo Folha, one of the largest media groups in Brazil and the owner of the São Paulo daily newspaper Folha de S. Paulo , Brazil’s most-read newspaper according to the Circulation Verifier Institute ( Instituto Verificador de Circulação, or IVC). Grupo Folha also includes Transfolha, one of the three top eCommerce logistics companies in Brazil in terms of orders during 2017, based on data from Ebit; Plural, the largest printing company in Latin American in terms of rotate offset printers during 2015, according to ABRO; UOL Host, the second largest Brazilian web hosting company in terms of “.br” domain names in May 2017, according to Hostmapper Brasil; and UOL Diveo, the largest cloud and IT infrastructure services company controlled by Brazilian shareholders in terms of data center area as of December 11, 2017, according to publicly available information.

We carry out our operations principally through our Brazilian operating company, Pagseguro Internet S.A., a Brazilian sociedade por ações. Pagseguro Internet S.A. carries out most operations directly, and also has five subsidiaries. The following subsidiaries are substantially wholly-owned: (i) Boa Compra Tecnologia Ltda., organized in Brazil, which operates our online gaming and cross-border digital services in Latin America, Portugal, Spain and Turkey; (ii) NET+Phone Telecomunicações Ltda., organized in Brazil, which handles purchases and sales of our POS devices; (iii) BCPS Online Services, Lda, organized in Portugal, which serves as Boa Compra’s hub in Portugal and handles part of its account management; and (iv) R2Tech Informática S.A., organized in Brazil, which manages our reconciliation product. BCPS, and R2Tech were both acquired during 2017. The following subsidiary is majority owned: BIVA, organized in Brazil, which is an online platform that facilitates peer-to-peer lending.

In November 2017 we set up a FIDC through which we may raise debt to finance the growth of our business. The FIDC is controlled by PagSeguro Brazil, and raises capital by issuing senior quotas in the fund to outside investors, who receive interest on these investments from the FIDC. As of the date of this prospectus, the FIDC is rated AA+ by Fitch Ratings. In accordance with Brazilian law, the FIDC may use between 50% and 100% of its capital to purchase merchant receivables. The FIDC uses the capital it raises to finance the early payment of receivables feature. Our remuneration from the early payment of receivables feature continues to be reflected as Financial income in the consolidated financial statements of PagSeguro Brazil. We do not expect the establishment of the FIDC to impact the discount rate we charge in connection with the early payment of receivables feature or the expenses we incur to obtain early payment of note receivables from card issuers and acquirers. The FIDC is a common structure for Brazilian payment providers who offer early payment of merchants’ receivables. In addition to broadening our financing options for this feature generally, it reduces certain regulatory constraints since the FIDC structure is specifically designed for this financing activity under Brazilian law, and we also expect it will allow us to defer certain tax obligations. For further information regarding our early payment of receivables feature, see “—Our Products and Services—The Free PagSeguro Digital Account—The PagSeguro Ecosystem—Early payment of installment receivables.”

152

The chart below shows our corporate structure after giving effect to the contemplated issuance and sale of Class A common shares in this offering, assuming (i) conversion of all existing vested rights under our LTIP into 1,895,879 Class A common shares (share number based on the midpoint of the estimated offering price range set forth on the cover page of this prospectus) and (ii) no exercise of the underwriters’ over-allotment option to purchase additional common shares from UOL:

LOGO

Competition

The Brazilian payments industry is highly competitive and fast-changing. We compete in the online digital payments market and in the POS payments market.

In the online digital payments market, we compete primarily with international online payment services, such as PayPal, and regional players, such as MercadoPago from MercadoLibre and MoIP/Wirecard. In the POS payments market, we compete primarily with international players, such as SumUp/Payleven, and regional players, such as MercadoPago from MercadoLibre. Our business model differs from the model used by the incumbent Brazilian providers, such as Cielo, Rede, GetNet and Stone, who generally offer their POS devices under long-term monthly rental contracts with pricing that works out to be more expensive than the monthly installments for the purchase of our POS devices. These incumbent providers also target larger clients, since their business model results in more expensive products and services, while our primary target customers are currently Micro-Merchants and SMEs, who are underserved by incumbent payment providers and large financial institutions in Brazil.

Like the digital payments industry in general, we also compete with other means of payment, both digital and traditional, including cash, checks, money orders and electronic bank deposits.

Among our peers, we are the only financial technology provider in Brazil, however, whose business model covers all of the following five pillars:

•

Multiple digital payment solutions

•

In-person payments via POS devices that we sell to clients

•

Free digital accounts

•

Issuer of prepaid cards to clients for spending or withdrawing account balances

•

Operating as an acquirer

153

We seek to differentiate ourselves from our competitors primarily on the basis of this end-to-end coverage as well as our focus on transaction security, on ease of use, and on the mobile environment. While competitive factors and their relative importance vary based on the size, industry and focus of each merchant, we believe the following factors are key to competition in the digital payments market in Brazil:

•

an ecosystem that attracts, retains and engages merchants and consumers;

•

speed and simplicity of the customer onboarding process;

•

consumer confidence in transaction security, including the ability for consumers to make payments without sharing their financial information with the merchant or counterparty;

•

POS devices with affordable prices and no rental fees;

•

quality of customer service;

•

breadth and depth of features and functionality; and

•

brand recognition and reputation.

For information on risks relating to increased competition in our industry, see “Risk Factors—Risks Relating to our Business and Industry—Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.”

Our Team

We believe that our team is one of PagSeguro’s most important assets. Our culture reflects UOL’s teamwork and innovation-driven focus, instilling in our professionals a passion for our consumers and merchants. At September 30, 2017, our total team consisted of 1,020 people, including 721 employees plus outsourced staff. At September 30, 2017, our employees had an average age of 32, 85% of whom held a bachelor’s degree or higher and 36% of whom were women, with 61% of our employees specializing in products and engineering. Together, our management team and employees represent experience in all areas of the Brazilian payments market, with in-depth knowledge of online payments, retail and financial services, technology, payment processing, in-person electronic payments, acquiring and card issuance. They therefore represent a complete picture of all of our customers’ needs and can prepare the future of our organization.

We seek to attract and train the best professionals in the market. We seek to motivate our employees to provide next-generation payment capabilities through a corporate results-sharing plan ( plano de participações nos resultados ) for all employees and a long-term motivation plan for key professionals. Our corporate results-sharing plan includes salary multiples of two for coordinators, three for managers, 3.5 for general managers, 4.1 or more for directors and one for other employees and is based on annual targets for metrics such as free cash flow, net income, revenues, working capital and TPV. See “Management—Long-Term Incentive Plan.” We believe that we offer competitive compensation packages and a dynamic culture, and have therefore been able to attract and retain qualified personnel and a stable management team. We also offer our employees medical and dental insurance, life insurance, meal voucher cards and a retirement savings plan, among other benefits. In a 2017 survey carried out by the website LinkedIn, UOL was named as the second best place to work in Brazil. We are aware, however, that our continued success will depend on our ability to continue to attract and retain these qualified professionals. See “Risk Factors—Risks Relating to our Business and Industry—The loss of any member of our management team and our inability to make up for such loss with a qualified replacement, could harm our business.”

We train our teams in the use of modern management tools such as Agile, Lean, Kanban and Management 3.0.

Our employees are represented by the Union of Employees of Information Technology Businesses and Course Providers of the State of São Paulo ( Sindicato dos Trabalhadores nas Empresas e Cursos de Informática do Estado de São Paulo—SINDIESP ). We consider our relations with our employees to be good. We have not experienced any significant labor disputes.

154

Insurance

We have insurance policies with reputable insurers in amounts that our management considers to be sufficient to cover potential losses arising from events that may affect our assets, as well as for any damages that we may have to pay to third parties due to our business activities. We seek coverage against risks that are appropriate for our business activities and our scale, taking into account the nature of our business, the risks we are exposed to, market practices in our industry, and advice from our insurance consultants. We currently have the following insurance policies, which were contracted by our controlling shareholder, UOL, and list our company and/or our subsidiaries as co-beneficiaries, as applicable:

•

insurance policy for coverage of damages to property, business interruption and lost profits, which expires on December 10, 2017 and has a coverage limit of R$997.9 million;

•

D&O insurance, contracted for by UOL, which expires on August 8, 2018 and has a coverage limit of R$60 million;

•

warehouse and storage facility insurance policy, which expires on November 11, 2017 and has a coverage limit of R$30 million; and

•

general liability insurance, which covers damage awards paid by us in connection with tort claims. This policy expires on December 31, 2017 and has a coverage limit of R$10 million.

We review our coverage limits every year when the policies are renewed, to ensure that they remain consistent with the value of our assets and the liabilities linked to our business. We do not currently anticipate any difficulties in renewing any of our insurance policies.

While we believe our insurance contracts reflect standard market practices, there are certain types of risks that may not be covered by our policies (such as war, terrorism, acts of God and force majeure, liability for certain harm or interruption of certain business activities). Therefore, if any of these uncovered events occur, we may be required to incur additional costs to remedy the situation, reconstitute our assets or indemnify our customers, which may adversely affect us. In addition, even if a risk is covered by our policies, we cannot assure you that any payment from our insurers will be sufficient to cover the loss. For additional information regarding our insurance contracts, see “Management—Directors’ and Officers’ Insurance.”

Seasonality

We operate in a somewhat seasonal industry, which tends to experience relatively fewer transactions in the first quarter of the year, increased activity as the year-end holiday shopping season initiates, and fewer transactions after the year-end holidays. While we have not experienced significant seasonality in our results at the date of this prospectus due to our ongoing growth, this could change in the future. For additional information, see “Risk Factors—Risks Relating to Our Business and Industry—Our quarterly results of operations and operating metrics may fluctuate and are unpredictable and subject to seasonality, which could result in the price of our Class A common shares being unpredictable or declining.”

155

Regulation

Regulation of the digital payments industry in Brazil

Our activities in Brazil are subject to Brazilian laws and regulations relating to digital payments. Law No. 12,865/13, which took effect on October 9, 2013, establishes the first set of rules regulating the digital payments industry within the overall Brazilian Payment System (the Sistema de Pagamentos Brasileiro, or SPB), which refers to all the entities, systems and procedures related to the clearing and settlement of funds transfer, foreign currency operations, financial assets, and securities transactions in Brazil). This law created the concepts of payment schemes ( arranjos de pagamento ), payment scheme owners ( instituidores de arranjos de pagamento ) and payment institutions ( instituições de pagamento ).

Law No. 12,865/13 gave the Central Bank and the National Monetary Council (the Conselho Monetário Nacional , or CMN) powers to regulate entities involved in the digital payments industry. These powers cover matters such as the incorporation and operation of these entities, risk management, the opening of payment accounts, and the transfer of funds to and from payment accounts. After enactment of Law No. 12,865/13, the CMN and the Central Bank created a regulatory framework regulating the operation of payment schemes and payment institutions. The framework consists of Resolutions 4,282 and 4,283 and Circulars 3,680, 3,681, 3,682 and 3,683, all of which were published on November 4, 2013. The circulars originally became effective on May 5, 2014 and have been amended since that date.

Payment Schemes

A payment scheme, for Brazilian regulatory purposes, is a body of rules and technical standards for the execution of payment transactions through a payment system. The regulations applicable to payment schemes depend on certain features, such as the number of users and the annual cash value of transactions handled by the payment scheme:

•

Payment schemes that exceed certain thresholds are considered to form part of the SPB and require authorization by the Central Bank.

•

Payment schemes that operate below these thresholds are not considered to form part of the SPB and are therefore not required to obtain authorization from the Central Bank, although they are required to report certain operational information to the Central Bank on an annual basis.

•

Certain types of payment schemes have specific exemptions from the requirement to obtain authorization from the Central Bank. This applies, for example, to limited-purpose payment schemes and payment schemes set up by governmental authorities.

Payment Scheme Owners

Payment scheme owners, for Brazilian regulatory purposes, are the legal entities responsible for managing the rules, procedures and the use of the brand associated with a payment scheme. Central Bank regulations require that payment scheme owners must be incorporated in Brazil, must have a corporate purpose compatible with payments activities, and must have the technical, operational, organizational, administrative and financial capacity to meet their obligations. They must also have clear and effective corporate governance mechanisms that are appropriate for the needs of payment institutions and the users of payment schemes.

156

Payment Institutions

Payment institutions are classified into the following types under Brazilian regulations:

•

Issuers of electronic currency (generally prepaid deposits): these payment institutions manage prepaid payment accounts for cardholders or end-users. They carry out payment transactions using electronic currency deposited into these pre-paid such accounts, and convert the deposits into physical or book-entry currency or vice versa.

•

Issuers of post-paid payment instruments (principally credit cards): these payment institutions manage payment accounts where the cardholder or end-user intends to make payment on a post-paid basis. They carry out payment transactions using these post-paid accounts.

•

Acquirers: these payment institutions do not manage payment accounts, but enable merchants to accept payment instruments issued by a payment institution or by a financial institution that participates in a payment scheme. They participate in the settlement process for payment transactions by receiving the payment from the issuer of the prepaid or post-paid instrument, and settling with the merchant.

A payment institution must be incorporated in Brazil and must have a corporate purpose that is compatible with payments activities. If it operates within a payment scheme that forms part of the SPB, it must be authorized by the Central Bank. The CMN and Central Bank regulations applicable to payment institutions cover a wide variety of issues, including penalties for noncompliance; the promotion of financial inclusion; the reduction of systemic, operational and credit risks; reporting obligations; and governance.

The regulations applicable to payment institutions also cover “payment accounts” ( contas de pagamento ), which are the end-user accounts, in registered (i.e., book-entry) form, which are opened with payment institutions that are issuers of prepaid or post-paid instruments and used for carrying out each payment transaction. Circular No. 3,860/13 classifies payment accounts into two types:

•

Prepaid payment accounts: where the funds have been deposited into the payment account in advance of the intended payment transaction.

•

Post-paid payment accounts: where the payment transaction is intended to be performed regardless of whether or not funds have been deposited into the payment account in advance.

In order to provide protection from bankruptcy, Law No. 12,865/13 requires payment institutions that are issuers of prepaid instruments to segregate the funds deposited in prepaid payment accounts from their own assets. In addition, with respect to prepaid electronic currency, the payment institution must hold a portion of the funds deposited in the prepaid payment account in certain specified instruments: either (i) in a specific account with the Central Bank that does not pay interest; or (ii) in federal government bonds registered with the SELIC. The portion of the prepaid electronic currency that must be held in this form is currently 60%; this will increase to 80% on January 1, 2018 and to 100% on January 1, 2018.

157

PagSeguro Brazil’s Regulatory Position

In December 2014, PagSeguro Brazil applied to the Central Bank for the following authorizations:

Authorization as a payment scheme owner of a “closed-loop domestic” payment scheme, forming part of the SPB. This application relates to the PagSeguro digital account, which is a prepaid account available to our customers. The application relates to our rules applying to the PagSeguro digital account and our brand.

Authorization as a payment institution , as an issuer of prepaid electronic money . This application relates to relates to the PagSeguro digital account and to our issuance of PagSeguro prepaid cards. The application regarding the PagSeguro digital account relates to our rules and our brand, and the application regarding our prepaid cards relates to the third-party payment schemes within which the cards are issued.

Authorization as a payment institution , as an acquirer .

At the date of this prospectus, we are still awaiting these authorizations, although PagSeguro Brazil entitled to continue carrying on these businesses pending receipt of the authorizations because it were already operating these regulated activities before Law No. 12,865/13 took effect.

PagSeguro Brazil is also a payment scheme owner of a “closed-loop domestic” payment scheme not forming part of the SPB, which relates to peer-to-peer transfers between accounts opened by our clients within the PagSeguro digital account, using our rules applying to the PagSeguro digital account and our brand. Since this payment scheme does not form part of the SPB it does not currently require Central Bank authorization; however, we are required to report certain operational information regarding this scheme to the Central Bank on an annual basis, such as the number of users and the annual cash value of our peer-to-peer transfer transactions. If these numbers or certain other operational data exceed the relevant Central Bank thresholds in the future, we will also be required to apply for Central Bank authorization for this payment scheme.

PagSeguro Brazil has also applied to the Central Bank for authorization as a payment institution , as an issuer of post-paid cards within third-party payment schemes. We do not currently carry on this business and will not be entitled to do so prior to receipt of the Central Bank authorization, since we did not operate this regulated activity before Law No. 12,865/13 took effect.

Law No. 12,865/13 prohibits payment institutions from performing activities that are restricted to financial institutions, which are regulated by Law No. 4,595, of December 31, 1964. There is some debate under Brazilian law as to whether providing early payment of receivables to merchants could be characterized as “lending”, which is an activity that is restricted to financial institutions. Similarly, there is some debate as to whether the discount rates applicable to this early payment feature should be considered as “interest,” in which case the limits set by the Brazilian Usury Law would apply to these rates.

For transactions that form part of the Brazilian financial system, financial institutions may set interest rates freely, provided that they are not excessively burdensome to consumers. For transactions that do not form part of the Brazilian financial system, the Brazilian Usury Law (Decree-Law No. 22,623 of April 7, 1933) capped interest rates at 12% per year. Subsequently, the Brazilian Civil Code, which replaced the Usury Law, capped interest rates at two times the interest rates applicable to National Treasury ( Fazenda Nacional ), which is currently the SELIC rate (although there is some legal debate as to whether the Brazilian Civil Code has effectively replaced the original Usury Law). As a result, if the discount rate that we charge merchants for early payment of their receivables is considered to be “interest,” it would be capped at two times the SELIC rate. This limitation is mitigated by the FIDC that we use to finance our early payment of receivables feature.

158

If we fail to comply with the requirements of the Brazilian legal and regulatory frameworks, we could be prevented from carrying out our regulated activities, we could be (i) required to pay substantial fines (including per transaction fines) and disgorgement of our profits, (ii) required to change our business practices or (iii) subjected to insolvency procedures such as an intervention by the Central Bank and the out-of-court liquidation of PagSeguro Brazil. We could also be subject to private lawsuits. For additional information, see “Risk Factors—Risks Relating to Our Business and Industry—Our business is subject to extensive government regulation and oversight and our status under these regulations may change. Violation of or compliance with present or future regulation could be costly, expose us to substantial liability and force us to change our business practices, any of which could seriously harm our business and results of operations.”

The Central Bank also regulates our international transfers of funds under foreign exchange regulations. Compliance with these rules is mandatory and any failure to comply may result in penalties against us.

The Central Bank’s regulations also allow payment schemes to set additional rules for entities that use their brands. Since we participate in these payment schemes, we must comply with their rules in order to continue accepting payments from payment instruments bearing their brands.

Anti-Money Laundering Rules

We comply with all anti-money laundering, or AML, rules applicable to us and have implemented policies and procedures to report suspicious activities to the authorities, including any suspected terrorism financing and other potentially illegal activities. We have a risk and fraud division led by a risk officer.

Our activities in Brazil are subject to Brazilian laws and regulations relating to anti-money laundering, or AML, terrorism financing and other potentially illegal activities. These rules require us to implement policies and internal procedures to monitor and identify suspicious transactions, which must be duly reported to the relevant authorities. We have implemented all the required policies and internal procedures to ensure full compliance with these rules and regulations, including structuring a risk and fraud division led by a risk officer. Our employees are informed of our policies and internal procedures and their compliance is mandatory and supervised.

The Brazilian anti-money laundering law establishes the basic framework to prevent and punish money laundering as a crime. It prohibits the concealment or dissimulation of origin, location, availability, handling or ownership of assets, rights or financial resources directly or indirectly originated from crimes, subjecting the agents of these illegal practices to imprisonment, temporary disqualification from managing enterprises up to 10 years and monetary fines.

The Brazilian anti-money laundering law also created the Financial Activities Control Council, or COAF, which is the Brazilian financial intelligence unit that operates under the jurisdiction of the Ministry of Finance. COAF performs a key role in the Brazilian anti-money laundering and counter-terrorism financing system, and its legal responsibility is to coordinate the mechanisms for international cooperation and information exchange.

In compliance with the Brazilian anti-money laundering law, payment institutions in Brazil must establish internal control and procedures aiming at:

•

identifying and knowing their clients;

•

checking the compatibility between the movement of funds of a client and such client’s economic and financial capacity;

159

•

checking the origin of funds;

•

carrying out a prior analysis of new products and services, under the perspective of money laundering prevention;

•

keeping records of all transactions;

•

reporting to COAF, within one business day, any transaction deemed to be suspicious by the financial institution, as well as all transactions in cash equivalent to or higher than R$100,000, without informing the involved person or any third party;

•

applying special attention to (i) unusual transactions or proposed transactions with no apparent economic or legal bases; (ii) client and transactions for which the UBO cannot be identified; and (iii) situations in which it is not possible to keep the clients’ identification records duly updated;

•

offering anti-money laundering training for employees;

•

monitoring transactions and situations which could be considered suspicious for anti-money laundering purposes;

•

reporting to COAF the occurrence of suspicious transactions, as required under applicable regulations, and also, at least once a year, whether or not suspicious transactions are verified, in order to certify the non-occurrence of transactions subject to reporting to COAF (negative report);

•

ensuring that policies, procedures and internal controls are commensurate with the size and volume of transactions; and

•

unavailability of goods, values and rights of possession or ownership and all other rights, real or personal, owned, directly or indirectly, of natural or legal persons subject to sanctions by the resolutions of the United Nations Security Council.

E-Commerce, Data Protection, Consumer Protection and Taxes

In addition to regulations affecting digital payment schemes, we are also subject to laws relating to Internet activities and e-commerce, as well as consumer protection laws, tax laws and other regulations applicable to Brazilian companies generally. Internet activities in Brazil are regulated by Law No. 12,965/14, known as the Brazilian Civil Rights Framework for the Internet, which embodies a substantial set of rights and obligations relating to Internet service providers. This law exempts intermediary platforms such as PagSeguro from liability for activities carried out by their users. Since there are no settled court decisions in this area, however, it is still possible that we may be subject to joint civil liability for activities carried out by our users.

Law No. 8,078/90, known as the Consumer Protection Code, regulates consumer relations in Brazil, including matters such as: commercial practices; product and service liability; areas where suppliers of products or services are subject to strict liability; the reversal of the burden of proof so as to benefit consumers; the joint and several liability of all companies within a supply chain; unfair contract terms; advertising; and information on products and services that are offered to the public. Consumers have the right to receive clear and accurate information regarding retail products and services, with correct specification of characteristics, structure, quality, price, risks, and consumers’ rights to access and amend personal information collected about them and stored in private databases.

160

Customer accounts on our digital platform are subject to data protection under the Brazilian Civil Rights Framework for the Internet and Article 17 of the CMN’s Resolution No. 4,282/13. We are also subject to trademark protection rules, and to tax laws and related obligations such as the rules governing the sharing of customer information with tax and financial authorities. It is unclear whether the tax and regulatory authorities would seek to obtain information regarding our customers. Any such request could come into conflict with the data protection rules, which could create risks for our business.

The laws and regulations applicable to the Brazilian digital payments industry are subject to ongoing interpretation and change, and our digital payments business may become subject to regulation by other authorities. For further information on the risks relating to regulation of business, please see “Risk Factors—Risks Relating to our Business and Industry.”

Property, Plant and Equipment

Our

Facilities

We do not own any real estate. Our head office and operations center in São Paulo are provided by UOL on a cost-sharing basis under an agreement for apportionment of expenses signed between us and UOL. For more information on this agreement, see “Related Party Transactions—Agreements with UOL and UOL Subsidiaries—Expense Apportionment Agreements.” We also lease office space for our three subsidiaries.

Other Equipment

The majority of our equipment consists of data processing equipment, which made up 89.5% of our equipment costs in 2016. The rest of our equipment consists of machinery, facilities and furniture and fittings.

Intellectual Property

We regard the protection of our trademarks, copyrights, logos, service marks, trade dress, domain names, patents and trade secrets as critical to our future success. To establish and protect our proprietary rights in our products and services, we rely on a combination of trademark, copyright, service mark, patent and trade secret laws, administrative procedures and contractual restrictions. We have entered into confidentiality and invention assignment agreements with our employees and certain outside contractors. We have also established non-disclosure agreements with our employees, strategic partners and some suppliers in order to limit access to and disclosure of our proprietary information and technology.

We actively pursue registration of our trademarks, copyrights, logos, service marks, trade dress and domain names. We have registered or applied for registration of trademarks with the Brazilian Patent and Trademark Office ( Instituto Nacional da Propriedade Industrial , or INPI) including, among others, the trademarks and logos of “PagSeguro,” “Moderninha,” “Minizinha” and “PlugPag”. We have also registered several domain names with NIC.br, Brazil’s Internet domain name registry, and domain registrars in the United States and elsewhere, including “pagseguro.com.br,” “pagseguro.com,” “moderninha.com.br,” “moderninhapro.com.br,” “minizinha.com.br” and “boacompra.com.br.” We own or have the right to use all of the material intellectual property that we use.

161

We have material contracts with Visa and MasterCard in connection with our activities as an acquirer for these card schemes. Our Visa Payment Arrangements Participation and Trademark License Agreement, dated as of April 23, 2015, between Visa do Brasil Empreendimentos Ltda. and PagSeguro Brazil sets forth the general terms and conditions under which PagSeguro Brazil acts as a merchant acquiring principal participant for Visa in Brazil and provides PagSeguro Brazil with a non-exclusive and non-transferable license to use certain trademarks owned by Visa in connection with its activities as an acquirer in Brazil. Under this agreement, PagSeguro Brazil is exclusively responsible for all the costs and risks associated with its participation as a merchant acquiring principal and consideration payable to Visa under this agreement is determined by the standard payment terms set forth in the Visa Core Rules and Visa Product and Service Rules, available on Visa’s website. Our License Agreement, dated as of June 18, 2015 and as amended from time to time, between MasterCard International Incorporated and PagSeguro Brazil sets forth the general terms and conditions under which MasterCard grants PagSeguro Brazil a non-exclusive license to use certain trade names, trademarks, service marks and logotypes (including MasterCard, Cirrus and Maestro branded marks) in Brazil in connection with PagSeguro Brazil’s issuing and acquiring activities. No consideration is due to MasterCard under this agreement.

We operate software products under licenses, including certain open source licenses, from our vendors, including, among others, Verifone, Oracle, Feedzai and Cisco. Even if any such third-party technology did not continue to be available to us on commercially reasonable terms, we believe that alternative technologies would be available as needed in every case.

The standard online contract entered into between us and our merchants when they open a PagSeguro digital account provides a limited, non-transferable license to certain of our proprietary rights, such as our name and logo, for use by our merchants for commercial purposes. We expect to continue this practice in the future as part of our marketing strategy. While we attempt to ensure that our licensees maintain the quality of the PagSeguro brand, they may take actions that could materially adversely affect the value of our proprietary rights or reputation.

For information about risks affecting our intellectual property, see “Risk Factors—Risks Relating to our Business and Industry—We have only a limited ability to protect our intellectual property rights, which are important to our success.”

Legal Proceedings

From time to time, we are involved in proceedings that arise in the ordinary course of our business. Any claims against us, whether or not they have merit, can be time consuming, result in costly litigation, and require significant management time and operational resources.

We are subject to a number of proceedings in the Brazilian judicial and administrative court systems, relating to civil, tax and labor law claims. We believe these proceedings are normal and incidental to the operation of a business in Brazil. We recognize provisions for legal proceedings in our financial statements when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation, and (ii) a reliable estimate can be made of the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence, the hierarchy of laws, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management relies on the opinions of our external legal advisors.

162

The amounts we had accrued in our financial statements as at December 31, 2016 for all types of legal proceedings for which we believe a loss is probable were R$0.7 million. The amounts we had accrued in our financial statements at September 30, 2017 for all types of legal proceedings for which we believe a loss is probable were R$1.6 million. However, legal proceedings are inherently unpredictable and subject to significant uncertainties. If one or more cases were to result in a judgment against us in any reporting period for amounts that exceeded our management’s expectations, the impact on our operating results or financial condition for that reporting period could be material. See “Risk Factors—Risks Relating to our Business and Industry—Unfavorable outcomes in litigation or our inability to post judicial collateral or provide guarantees in pending legal or administrative proceedings could have a material adverse effect on our business, financial condition and Results of Operations of PagSeguro Brazil.”

Civil Proceedings

The civil claims to which we are party generally relate to customer claims, including those related to non-delivery of products by merchants, denials by PagSeguro of requests for withdrawal of digital account balances and allegations of POS device defects.

At September 30, 2017 and December 31, 2016, we were party to approximately 3,900 proceedings of a civil nature (consisting of proceedings with PROCONs and small claims courts relating to consumer rights). At September 30, 2017, we had recorded R$1.3 million in provisions for current civil proceedings and no provisions for non-current civil proceedings; and at December 31, 2016, we had recorded R$0.6 million in provisions for current civil proceedings and no provisions for non-current civil proceedings. Most of these proceedings are related to consumer allegations of non-delivery of products by merchants and requests for withdrawal of digital account balances that were blocked by PagSeguro because they were under investigation for fraud or undergoing claim resolution. PagSeguro does not appear in the rankings of companies with large numbers of consumer claims published by the PROCON.

We are also a party to certain civil lawsuits involving risks classified by management as possible losses, based on the evaluation of our external legal advisors, totaling approximately R$1.1 million at September 30, 2017 and approximately R$0.8 million at December 31, 2016. We have not recognized provisions for these possible losses.

We make judicial deposits, which are court-ordered deposits that serve as collateral until the final settlement of the disputes to which they are related, in connection with certain of these civil proceedings. At September 30, 2017 and December 31, 2016, we had judicial deposits for civil proceedings in an aggregate amount of R$0.3 million.

Labor Proceedings

At September 30, 2017, we were party to approximately 30 labor-related judicial and administrative proceedings for which we recorded a provision of R$0.3 million and at December 31, 2016, we were party to approximately 40 labor-related judicial and administrative proceedings for which we recorded a provision of R$0.1 million. In general, the labor claims to which we are a party were filed by former employees of third-party service providers hired by us as part of the outsourcing of certain of our non-core activities.

We are not a party to any labor lawsuits involving risks classified by management as possible losses. For more information, see Note 16 of the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

163

Tax and Social Security Proceedings

At September 30, 2017, we had made judicial deposits of R$6.3 million related to the Brazilian government’s Social Integration Program ( Programa Integração Social , or PIS) and R$39.0 million related to Brazilian social security ( Contribuição para o Financiamento da Seguridade Social , or COFINS) relating to our financial income. At December 31, 2016, we had made judicial deposits of R$2.5 million related to PIS and R$15.5 million related to COFINS relating to our financial income. These judicial deposits relate to a tax proceeding filed by us to challenge certain Brazilian regulations that changed the PIS/COFINS taxation regime. Laws 10,637/2002 and 10,833/2003 increased the PIS and COFINS calculation basis, which was previously assessed on operating revenues and expanded to cover all types of revenue, including revenues generated by financial investments, with a few exceptions. Since the issuance of Decree No. 5,164/2004, taxpayers subject to the non-cumulative PIS/COFINS methodology, like our company, were subject to PIS and COFINS at a 0% tax rate on financial income. On April 1, 2015, the Brazilian federal government published Decree No. 8,426/2015, which increased the PIS and COFINS rates levied on financial income by legal entities subject to the non-cumulative methodology to 0.65% and 4%, respectively. In December 2015, we filed a tax proceeding alleging the unconstitutionality of the PIS/COFINS increase on financial income by Decree No. 8,426/2015, based on violation of the constitutional principle of legality, which provides that an increase in existing taxes can only be implemented by federal law. As an alternative request, we asked the court to recognize our right to discount PIS/COFINS tax credits from financial expenses incurred by us. As we were not granted injunctive relief, we have obtained a court decision allowing us to deposit the amount related to these PIS/COFINS payments in escrow while this payment obligation is discussed in court. For more information, see Note 15 to the audited consolidated financial statements and the unaudited condensed consolidated interim financial statements of PagSeguro Brazil and “Risk Factors—Risks Relating to our Business and Industry— Changes in tax laws, tax incentives, benefits or differing interpretations of tax laws may harm our Results of Operations.”

We are not a party to any tax lawsuits involving risks classified by management as possible losses.

164

MANAGEMENT

Pursuant to our Memorandum and Articles of Association and Cayman Islands corporate law, we are managed by a board of directors who may delegate certain functions to the executive officers. In addition, our Memorandum and Articles of Association also provide for the establishment of a permanent audit committee.

Board of Directors

Our board of directors is responsible for, among other things, establishing our overall strategy and general business policies, supervising management, electing and removing our executive officers, and appointing our independent auditors.

At the date of this prospectus our board of directors will be composed of four members. Within one year of the date of this offering, the size of our board of directors is expected to increase to seven members. Each director holds office for the term, if any, fixed by the shareholders’ resolution that appointed him or her or, if no term is fixed on the appointment of the director, until the earlier of his or her death, resignation or removal. Directors appointed by the board of directors hold office until the next annual general meeting. Our directors do not have a retirement age requirement under our Articles of Association. Maria Judith de Brito was appointed to our board of directors on July 19, 2017 and all other current members of the board of directors were appointed on December 18, 2017. All current members of our board of directors have been appointed to serve for an indefinite period.

We do not have any service contracts with our executive directors that provide benefits upon termination of employment.

The table below sets forth certain information of the current members of our board of directors:


Name	Title	Date of Birth
Luis Frias	Chairman	April 6, 1963
Eduardo Alcaro	Director	April 26, 1972
Maria Judith de Brito	Director	April 30, 1958
Ricardo Dutra da Silva	Director	December 1, 1975

In addition, we have identified one independent director, Noemia Gushiken, who will join our board of directors by the listing date for our Class A common shares. We intend to appoint two additional independent board members within three months and one year following the offering, respectively.

The following is a brief summary of the business experience of our current directors and those who have been identified to join our board. Unless otherwise indicated, the current business address for our directors is Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A, São Paulo, SP, 01451-001, Brazil.

Luis Frias. Mr. Frias has been the Chairman of our board of directors and our Principal Executive Officer since December 18, 2017. He joined Grupo Folha in 1981 and has been its principal executive officer since 1989. In that capacity he led Grupo Folha’s expansion into various new markets, such as commercial printing (through Plural, a partnership with Quad Graphics) and e-commerce logistics (through Transfolha). In 1996, he founded UOL, a pioneering Brazilian Internet company. As Principal Executive Officer and Chairman of the Board of Directors of UOL, he has expanded UOL’s business, through organic growth and more than 20 acquisitions, to cover digital content and products, e-learning and cloud/IT services, as well as the PagSeguro financial technology business. He holds a bachelor’s degree in economics from the University of São Paulo ( Universidade de São Paulo – USP ).

165

Eduardo Alcaro. Mr. Alcaro has been a member of our board of directors and our Chief Financial and Investor Relations Officer and Chief Accounting Officer since December 18, 2017. He has been the Chief Financial and Mergers & Acquisitions Officer of the UOL group and Executive Officer of the Folha Group since 2011. He holds a bachelor’s degree in business administration from the Getúlio Vargas Foundation ( Fundação Getúlio Vargas – FGV-SP ) in São Paulo. Before joining our group, Mr. Alcaro held several positions, including Finance Vice President at Walmart Brazil from 2008 to 2011, Financial Planning and Investors Relations Director at Walmart USA from 2006 to 2008, Mergers & Acquisitions Director at Walmart USA from 2003 to 2006, Finance Manager at Walmart Brazil from 1997 to 2003 and Senior Auditor at PricewaterhouseCoopers from 1992 to 1997.

Maria Judith de Brito. Mrs. de Brito has been a member of our board of directors since July 19, 2017. She has also been head of human resources, legal matters and institutional relations of the UOL group since its creation in 1996, and has been the Vice Chairman of UOL’s board of directors since 2005. She has worked for Grupo Folha since 1990, and is the current Superintendent of Grupo Folha. She holds a bachelor’s degree in public administration from the Getúlio Vargas Foundation ( Fundação Getúlio Vargas – FGV-SP ) in São Paulo and a master’s degree in political science from the Pontifical Catholic University of São Paulo ( Pontifícia Universidade Católica de São Paulo – PUC-SP ). Mrs. de Brito was a professor of the undergraduate course in Business Administration at the Getúlio Vargas Foundation from 1986 to 1990, and professor of the graduate program in journalism at ESPM ( Escola Superior de Propaganda e Marketing ) from 2011 to 2013. She was president of the National Newspaper Association ( Associação Nacional de Jornais ) from 2008 to 2012, and is currently a member of the board of ABECS.

Ricardo Dutra da Silva . Mr. Dutra has been a member of our board of directors and our Executive Officer since December 18, 2017. He has been Chief Executive Officer of PagSeguro Brazil and Chief Executive Officer of UOL Digital Content and Products since 2016. Mr. Dutra worked for the UOL group from 1997 to 2005, holding management positions in operations, marketing and sales, and rejoined the group in 2009 as Country Manager at UOL Argentina in Buenos Aires, where he served until 2010. He holds a bachelor’s degree in electrical/industrial engineering from the Industrial Engineering University ( Centro Universitário da Faculdade de Engenharia Industrial – FEI ), a post-graduate degree in business from the Getúlio Vargas Foundation ( Fundação Getúlio Vargas –FGV ) in São Paulo, and a full-time MBA from Darden Graduate School of Business Administration at the University of Virginia. Prior to rejoining UOL, he was a management consultant at Bain & Company from 2007 to 2009.

Noemia Gushiken . Ms. Gushiken is expected to join our board of directors in 2018 by the listing date for our Class A common shares. She has more than 20 years of experience in the technology and consumer industries. She is currently a strategic advisor for family offices and startup companies in Brazil, providing advice on a variety of matters, including operations, management, legal and compliance. Ms. Gushiken served as the Operations Director at Cerveja Proibida from 2013 to 2017, as the Legal Director at Microsoft from 2007 to 2013, and as the Head of Legal at UOL from 2000 to 2007. She has also represented these companies in industry associations and corporate affairs initiatives in Brazil. She holds a law degree and a post-graduate degree in Commercial and Corporate Law, both from the Pontifical Catholic University of São Paulo ( Pontifĺcia Universidade Católica de São Paulo – PUC ). Ms. Gushiken also studied Japanese Constitutional Law at the University of Shizuoka – Japan from 1993 to 1994. She is admitted to the Brazilian Bar in São Paulo.

Executive Officers

Our executive officers are primarily responsible for the day-to-day management of our business and for implementing the general policies and directives established by our board of directors. Our board of directors is responsible for establishing the roles of each executive officer. Our executive officers were appointed by our board of directors for an indefinite term.

166

The table below shows our current executive officers:


Name	Title	Date of Birth
Luis Frias	Principal Executive Officer	April 6, 1963
Eduardo Alcaro	Chief Financial and Investor Relations Officer and Chief Accounting Officer	April 26, 1972
Ricardo Dutra da Silva	Executive Officer	December 1, 1975

The business address of each of our executive officers is Avenida Brigadeiro Faria Lima, 1384, 01452-002 São Paulo – SP, Brazil.

Audit Committee

Upon completion of this offering, our board of directors will have established an audit committee. Members will serve on this committee until the earliest of (1) the moment they cease to be a director, (2) their resignation or (3) as otherwise determined by our board of directors. Our audit committee will initially consist of three members, including Eduardo Alcaro and Ricardo Dutra da Silva. Noemia Gushiken has been identified as an independent director to be appointed by the listing date for our Class A common shares, and in such capacity will also be appointed to our audit committee. Eduardo Alcaro will be the chairman of our audit committee. Upon appointment, Noemia Gushiken will satisfy the “independence” requirements of the NYSE rules and will meet the independence standards under Rule 10A-3 under the Exchange Act. Eduardo Alcaro satisfies the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC.

The composition of our audit committee complies with the requirements of the NYSE rules pursuant to the phase-in rules for newly listed companies. Pursuant to these rules, one member of our audit committee must satisfy the audit committee member independence and other qualification requirements at the time of listing. Within one year following the completion of this offering, we expect that all members of our audit committee will either satisfy the independence requirements of the SEC and NYSE applicable to audit committees of foreign private issuers or will qualify for an exemption under applicable rules, with the Rule 10A-3 exemption. Our audit committee will comply with these requirements by the applicable deadlines.

The audit committee will oversee our accounting and financial reporting processes and the audits of our financial statements. Our audit committee will be responsible for, among other things:

•

selecting our independent auditor, approving related fees and terminating our relationship with our independent auditor in the committee’s discretion;

•

pre-approving audit and non-audit services permitted to be performed by the independent auditor;

•

annually reviewing the independent auditor’s report describing the auditing firm’s internal quality control procedures, any material issues raised by the most recent internal quality control review, or peer review, of the independent auditors and all relationships between the independent auditor and our company;

•

reviewing with the independent auditor any audit problems or difficulties and management’s response, as well as resolving any disagreements between management and the independent auditor regarding financial reporting;

•

reviewing and discussing the annual audited financial statements with management, internal audit team (or third-service provider performing this function) and the independent auditor, as well as quarterly unaudited financial statements;

•

reviewing and discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations;

•

discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and rating agencies;

167

•

reviewing the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on our financial statements;

•

overseeing our disclosure controls and procedures and internal control over financial reporting;

•

assessing and monitoring our risk exposures, as well as the policies and guidelines with respect to risk management;

•

timely reviewing reports from the independent auditor regarding all critical accounting policies and practices to be used by our company, all alternative treatments of financial information within IFRS that have been discussed with management and all other material written communications between the independent auditor and management;

•

establishing procedures for the receipt, retention and treatment of complaints received by our company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;

•

analyzing our related-party transactions based on our policy for these transactions;

•

periodically reviewing and reassessing the adequacy of our audit committee charter;

•

any other matters that are specifically delegated to our audit committee by our board of directors from time to time;

•

periodically meeting with management, internal audit team (or third-party service providers performing this function) and the independent auditors, separately; and

•

reporting regularly to the full board of directors.

Duties of Directors

Directors are responsible to the company and not, in the absence of special circumstances, to the shareholders as individuals. For the purposes of describing directors’ duties, the company is generally defined with reference to the interests of both present and future shareholders of the company as a whole. Under Cayman Islands law, a director owes two types of duties to the company: fiduciary duties and duties of skill and care. In fulfilling their duty of care to us, our directors must ensure compliance with our Memorandum and Articles of Association, as amended and restated from time to time. You should refer to “Description of Share Capital—Principal Differences between Cayman Islands and U.S. Corporate Law” for additional information on our standard of corporate governance under Cayman Islands law.

Management Compensation

Our executive officers, directors and management receive fixed and variable compensation. They also receive benefits in line with market practice in Brazil. The fixed component of their compensation is set on market terms and adjusted annually.

The variable component consists of cash bonuses and awards of restricted shares (or the cash equivalent) under our LTIP as discussed below. Cash bonuses are paid to executive officers and members of our management based on the previously agreed corporate results-sharing plan ( plano de participações nos resultados ) and overall targets for the business.

168

Certain of our directors and officers receive compensation from UOL for services rendered to PagSeguro. The related cost is apportioned between UOL and PagSeguro in accordance with the services that are rendered.

The aggregate compensation paid to the executive officers of PagSeguro Brazil in 2016 was R$2.7 million. This includes benefits paid in kind and variable compensation.

Long-Term Incentive Plan

Members of our management participate in a Long-Term Incentive Plan, or LTIP, which was established by UOL for its group companies on July 29, 2015 and has been adopted by PagSeguro Digital Ltd. We believe the LTIP helps us attract and retain individuals who have a high potential to contribute to our success, and further aligns their interests with ours. Beneficiaries under the LTIP are selected by UOL’s LTIP Committee, which consists of our Chairman and two officers of UOL, and submitted to our Board of Directors.

Beneficiaries under the LTIP were granted rights in the form of notional cash amounts without cash consideration. These rights vest in five equal annual installments starting one year after the beneficiary’s grant date, the earliest of which was on July 29, 2015. Under the terms of the LTIP, upon our initial public offering the vested portion of each beneficiary’s LTIP rights may, at the discretion of our Board of Directors, either be converted into Class A common shares of our company at the IPO price or paid to the beneficiary in cash. The conversion rate applicable for any issuance of Class A common shares to be issued in respect of vested LTIP rights may be adjusted, pursuant to each beneficiary’s individual LTIP agreement, if our market capitalization at the date of this offering is lower or, in some cases, higher than the reference market capitalization set in the LTIP. Our Board of Directors has resolved to convert all such vested portions of the beneficiaries’ LTIP rights into Class A common shares of our company at the IPO price, without cash consideration, upon completion of this offering, instead of paying such vested portions in cash. As a result, we expect that members of our management who are beneficiaries under the LTIP will as a group receive a total of 1,895,879 new Class A common shares upon completion of this offering (share number based on the midpoint of the estimated price range shown on the cover page of this prospectus). The remaining portions of each beneficiary’s LTIP rights will on each future annual vesting date, at the discretion of our Board of Directors, either (a) be converted into Class A common shares of PagSeguro Digital (i) at the average of the closing prices for the 30 trading days prior to that date or (ii) if the beneficiary has so elected prior to the completion of this offering, at the IPO price, or (b) be paid to the beneficiary in cash. To the extent that these rights are satisfied by the issuance of new Class A common shares, purchasers of Class A common shares in this offering will experience further dilution.

The directors of PagSeguro Digital Ltd. are all beneficiaries under the LTIP.

After completion of this offering, if a beneficiary is dismissed by us, resigns, retires or dies, the portion of his or her rights under the LTIP that has vested at that date will be delivered, but the non-vested portion will be cancelled. If a beneficiary is terminated for cause, all of his or her rights under the LTIP will be cancelled.

Any shares issued under the LTIP upon completion of this offering will be subject to a one-year lock-up period under the terms of the LTIP. Any shares that are issued on a subsequent vesting date during the first year after our initial public offering will be subject to the remainder of that same lock-up period, expiring one year after the closing of this offering. After the close of that one-year period, shares to be issued under the LTIP will no longer be subject to a lock-up.

169

The maximum number of Class A common shares that can be delivered to beneficiaries under the LTIP may not exceed 3% of our issued share capital at any time.

Directors’ and Officers’ Insurance

We have contracted civil liability insurance coverage for acts carried out by our directors and executive officers in the course of their duties. Our current directors’ and officers’ insurance policy, which we entered into on August 10, 2017, is provided by XL Seguros Brasil S.A. and the maximum amount of coverage is R$60 million. The current policy expires on August 8, 2018.

Significant Differences between our Current Corporate Governance Practices and the U.S. Corporate Governance Standards

We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, however, the standards applicable to us are considerably different from the standards that apply to U.S. listed companies. Under the NYSE rules, as a foreign private issuer, we may follow the “home country” practice of the Cayman Islands, except that we are required (a) to have an audit committee or audit board that meets certain requirements, pursuant to an exemption available to foreign private issuers (subject to the phase-in rules described above under “—Audit Committee”) (b) to provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules; and (c) to provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies.

A summary of the significant differences between our corporate governance practices and those required of U.S. listed companies is included below.

Majority of Independent Directors

The NYSE rules applicable to U.S. companies require a majority of the board of directors to be comprised of Independent Directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. This is not required by the laws of the Cayman Islands. While our directors meet the qualification requirements of Cayman corporate law, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence. Within one year of the date of this offering, three of our seven directors are expected to be independent. When Noemia Gushiken joins our board of directors by the listing date for our Class A common shares, she will be our first independent director. We intend to appoint two additional independent board members within three months and one year following the offering, respectively.

Compensation committee

The NYSE rules applicable to U.S. companies require the company to have, and to certify that it has and will continue to have, a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. This is not required by the laws of the Cayman Islands. Our board of directors is responsible for determining the individual compensation of each executive officer, as well as the compensation of our board and committee members. In making such determinations, the board will review the performance of our executive officers, including the performance of our principal executive officer, who will be required to excuse him- or herself from discussions regarding his or her performance and compensation.

170

PRINCIPAL AND SELLING SHAREHOLDER

The table below contains information regarding the beneficial ownership of PagSeguro Digital’s Class A common shares and Class B common shares by UOL and members of our management, as a single group (1) immediately prior to the completion of this offering, (2) following the sale of Class A common shares in this offering, assuming no exercise of the underwriters’ option to purchase additional common shares from UOL, and (3) following the sale of Class A common shares in this offering, assuming the underwriters’ option to purchase additional common shares from UOL is exercised in full.

Beneficial ownership, which is determined under SEC rules, generally includes voting or investment power over securities or the right to receive the economic benefit of ownership of the securities. We believe that each shareholder identified in the table below possesses sole voting and investment power over all the Class A common shares or Class B common shares shown as beneficially owned by the shareholder in the table. Common shares subject to options, warrants or rights that are exercisable at the time of completion of this offering, or that will be exercisable within 60 days thereafter (which in the case of the Company, only consist of Class A common shares), are considered to be outstanding and beneficially owned by the person who holds such options, warrants or rights for purposes of computing that person’s common share ownership, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

The percentages of beneficial ownership in the table below are calculated on the basis of the following numbers of shares outstanding:

•

immediately prior to the completion of this offering: zero Class A common shares and 262,288,607 Class B common shares (without accounting for the shares to be sold by UOL in this offering, which will be converted from Class B common shares to Class A common shares in a preliminary step prior to that sale);

•

following the sale of Class A common shares in this offering, assuming (i) conversion of all existing vested rights under our LTIP into 1,895,879 Class A common shares (share number based on the midpoint of the estimated offering price range set forth on the cover page of this prospectus) and (ii) no exercise of the underwriters’ option to purchase additional common shares from UOL (which shares would convert from Class B common shares to Class A common shares upon such sale): 94,001,142 Class A common shares and 213,472,818 Class B common shares; and

•

following the sale of Class A common shares in this offering, assuming (i) conversion of all existing vested rights under our LTIP into 1,895,879 Class A common shares (share number based on the midpoint of the estimated offering price range set forth on the cover page of this prospectus) and (ii) exercise in full of the underwriters’ option to purchase additional Class A common shares from UOL (which shares would convert from Class B common shares to Class A common shares upon such sale): 107,816,931 Class A common shares and 199,657,029 Class B common shares.

The holders of our Class A common shares and Class B common shares have identical rights, except that UOL as holder of Class B common shares (i) is entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share (ii) has certain conversion rights and (iii) is entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued. For more information see “Description of Share Capital—Preemptive or Similar Rights” and “Description of Share Capital—Conversion.” Each Class B common share is convertible into one Class A common share. At the closing of this offering, all of the common shares to be sold by UOL will be converted from Class B common shares to Class A common shares. UOL will not own any Class A common shares after completing the offering.

171


	Shares Beneficially Owned Prior to Offering ⁽¹⁾								% of Total Voting Power Before Our Initial Public Offering ⁽¹⁾		Shares To Be Sold In Offering		Shares Beneficially Owned After Offering Without Exercise of Underwriters’ Option								% of Total Voting Power After Offering Without Exercise of Underwriters’ Option ⁽²⁾		Additional Shares To Be Sold In Offering With Full Exercise of Underwriters’ Option		Shares Beneficially Owned After Offering With Full Exercise of Underwriters’ Option								% of Total Voting Power After Offering With Full Exercise of Underwriters’ Option ⁽¹⁾
	Class A				Class B								Class A				Class B								Class A				Class B
Name	Shares		%		Shares		%						Shares		%		Shares		%						Shares		%		Share		%
Universo Online S.A. ⁽³⁾		—		—		262,288,607		100.0%		100.0%		48,815,789		—		—		213,472,818		100.0%		95.8%		13,815,789		—		—		199,657,029		100.0%		94.9%
Management		—		—		—		—		—		—		1,895,879		2.0%		—		—		0.1%		—		1,895,879		1.8%		—		—		0.1%

Total		—		—		262,288,607		100.0%		100.0%		48,815,789		1,895,879		2.0%		213,472,818		100.0%		95.9%		13,815,789		1,895,879		1.8%		199,657,029		100.0%		95.0%

(1)	Without accounting for the shares to be sold by UOL in this offering, which will be converted from Class B common shares to Class A common shares in a preliminary step prior to that sale.

(2)

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. UOL as holder of our Class B common shares is 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 Share Capital—Voting Rights.”

(3)

The following persons are beneficial owners of 5% or more of PagSeguro Digital’s Class A common shares and Class B common shares indirectly through their ownership interests in UOL: (i) Folhapar S.A., which holds a 64.46% ownership interest in UOL, (ii) João Alves de Queiroz Filho, who holds a 14.90% ownership interest in UOL, (iii) Negotio Magni, S.A. de C.V., which holds a 10.81% ownership interest in UOL, and (iv) BTG Pactual Principal Investments Fundo de Investimento em Participações, which holds a 6.46% ownership interest in UOL. The following persons hold ownership interests in Folhapar S.A.: (i) Empresa Folha da Manhã S.A., which holds a 33.23% direct ownership interest in Folhapar S.A., and (ii) Luis Frias, who holds a 66.27% direct ownership interest and a 8.77% indirect ownership interest in Folhapar S.A. Luis Frias also holds a 2.04% direct ownership interest in UOL. The principal business address of Universo Online S.A. and Luis Frias is Avenida Brigadeiro Faria Lima, 1384, 01452-002 São Paulo – SP, Brazil. The principal business address of Folhapar S.A. is Alameda Barão de Limeira, 401, São Paulo – SP, Brazil 01202-900. The principal business address of João Alves de Queiroz Filho is Av. Brigadeiro Faria Lima, 2277, 6th floor, São Paulo – SP, Brazil, 01452-000. The principal business address of Negotio Magni, S.A. de C.V. is Av. Chapultepec, 218, Col. Roma Norte, Mexico City, DF 06700 – Mexico. The principal business address of BTG Pactual Principal Investments Fundo de Investimento em Participações is Av. Brigadeiro Faria Lima, 3729, São Paulo – SP, Brazil, 04538-133.

172

RELATED PARTY TRANSACTIONS

We currently engage in various transactions with UOL, our controlling shareholder, and other affiliated companies. All of our related party transactions are conducted at arms’ length, based on terms that reflect those that would apply to transactions with third parties, other than our centralized cash management with UOL, described below. The total amount of costs and expenses incurred by PagSeguro Brazil for shared services and sales of services provided by UOL and other affiliated companies in the nine months ended September 30, 2017 under such of these agreements as were in force during the nine months ended September 30, 2017 was R$105.4 million, representing 8% of our total expenses for the period. Of the total amount of costs and expenses incurred by PagSeguro Brazil for shared services and sales of services provided by affiliated companies during the period, 71% were provided by UOL, 21% were provided by UOL Diveo and 8% were provided by Transfolha. PagSeguro also provided services to certain other UOL affiliates during the nine months ended September 30, 2017 for an amount of R$0.9 million. For more information, see Note 8 to the unaudited condensed consolidated interim financial statements of PagSeguro Brazil.

Prior to this offering, PagSeguro’s cash management was centralized with UOL, leading to positive or negative balances with UOL from time to time as referred to in Note 9 to the audited consolidated financial statements of PagSeguro Brazil and Note 8 to the unaudited condensed consolidated interim financial statements of PagSeguro Brazil. When PagSeguro provided cash to UOL or UOL provided cash to PagSeguro, these transactions were not carried out at arms’ length because no interest was recorded in either company’s income statement. Our cash management will be separate from UOL’s cash management starting from the date of completion of this offering. Any remaining balances that relate to prior cash management activities will begin accruing interest on arms’ length terms from the date of completion of this offering, and any such balances will in any event be repaid within 60 days following completion of this offering.

Agreements with Our Management and Directors

Certain of our directors and officers receive compensation from UOL for services they provide to PagSeguro. The cost is apportioned between UOL and PagSeguro in accordance with the services provided. In addition, we have entered into indemnification agreements with our directors and officers, as described below.

Indemnification Agreements

We have entered into or will enter into indemnification agreements with each of our directors and officers. Pursuant to these agreements, we have agreed to indemnify and hold harmless each director and officer to the full extent permitted by applicable law in the event of any claim made against him or her in any proceeding due to the fact that he or she is or was a director or officer of our company or served at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.

In addition, under the terms of these agreements we have agreed to cover all expenses actually and reasonably incurred by each director and officer in connection with any such proceeding, with certain limited exceptions.

The indemnification extends to the beneficiary’s services as a director or officer prior to the date of the indemnification agreement as well as afterward. It continues after the beneficiary ceases to be a director or officer.

173

Agreements with UOL and UOL Subsidiaries

PagSeguro Brazil was incorporated as a legal entity in 2006, although it did not operate the PagSeguro business prior to August 1, 2015 since most of the PagSeguro business activities were operated by other UOL group members prior to that date. On August 1, 2015, UOL carried out a corporate reorganization in which it segregated some of the PagSeguro Brazil activities from its other activities and contributed them to PagSeguro Brazil. Following this reorganization, PagSeguro Brazil entered into the contracts summarized below governing its relationship with UOL and its subsidiaries.

Advertising Space Assignment Agreement

Under this agreement, UOL may assign to PagSeguro Brazil certain advertising and media space on UOL’s own website, as well as other space that UOL obtains from unrelated third parties. We pay UOL monthly fees for this space, based on the actual amount of advertising and media space we use. For advertising and media space on UOL’s own website, UOL charges us a price that it determines on market terms. For space that UOL obtains from unrelated third parties, UOL charges us the same price as it pays for the space.

Cost-Sharing Agreements

PagSeguro Brazil is party to two agreements with UOL under which UOL apportions to PagSeguro Brazil the expenses of certain services and personnel hired by UOL for the benefit of PagSeguro Brazil and expenses related to our head office and operations center in São Paulo, which are provided by UOL. Under one agreement, UOL apportions to PagSeguro Brazil expenses relating to call center services, marketing activities, certain ordinary course corporate services, and certain contingency expenses related to litigation. All insurance policies listed under “Business – Insurance” are contracted by UOL under this agreement. Under the other agreement, UOL apportions to PagSeguro Brazil expenses relating to certain back-office personnel who are employed by UOL but allocated to work on matters related to our business.

The two agreements apportion the costs and expenses for these services as between PagSeguro Brazil and UOL. The amounts PagSeguro Brazil pays to UOL are based on different criteria depending on the type of service:

•

for marketing, financial and legal services, the amount payable is based on the number of hours actually worked by UOL personnel on PagSeguro Brazil’s behalf;

•

for human resources services, the amount payable is based on the number of hours actually worked by UOL personnel on PagSeguro Brazil’s behalf and on the number of UOL personnel dedicated to PagSeguro Brazil matters;

•

for call center services, the amount payable is based on the number of UOL personnel dedicated to PagSeguro Brazil matters;

•

for technology services, the amount payable is based on the expenses incurred by UOL on PagSeguro Brazil’s behalf.

Platform Licensing Agreements

PagSeguro Brazil and UOL are party to an agreement under which UOL provides services related to the development, maintenance and management of the software used to conduct PagSeguro Brazil’s business. The services include the development of new software, analysis and improvement of the efficiency of existing software and resolution of technical issues. The services are provided in accordance with parameters set by PagSeguro Brazil. The amount payable under this agreement is based on the number of hours actually worked by UOL personnel.

Boa Compra and UOL are party to an agreement under which UOL provides services related to software for Boa Compra’s business on substantially the same terms.

174

UOL Diveo Agreements

Cloud Services Agreement

PagSeguro Brazil is party to two agreements with UOL Diveo under which UOL resells cloud services provided by Amazon Web Services, Inc., or AWS, and Microsoft Ireland Operations Limited, or Microsoft, to PagSeguro Brazil. These cloud services include the storage of PagSeguro Brazil data on the cloud managed by the respective services providers and related technical support. PagSeguro Brazil may manage its data through online access or specific software provided by AWS and Microsoft. UOL Diveo, as a reseller of the services, is not responsible for the quality, warranty, technical support, efficiency or results of the services or for any losses incurred by PagSeguro Brazil deriving from these services.

Hosting and Colocation Agreements

PagSeguro Brazil and UOL Diveo are party to a hosting agreement and a colocation agreement under which UOL Diveo provides data storage services to PagSeguro Brazil. These services include the lease of equipment, software licenses, assignment of information technology infrastructure and provision of space and internet access to PagSeguro Brazil’s data center. In addition, under technical proposal OPT-17-21638 related to the hosting agreement, UOL Diveo also provides PagSeguro Brazil with payment methods monitoring and invoice issuing services.

Telecommunication Services Agreement

PagSeguro Brazil and UOL Diveo are party to an agreement under which UOL Diveo provides telecommunication services that allow PagSeguro Brazil to offer national and international transmission capacity (voice, data and images) and the submission and reception of multimedia information to its customers throughout the telecommunications network of UOL Diveo or third parties.

Internet Security Agreements

PagSeguro Brazil is party to three agreements with UOL Diveo under which UOL Diveo provides internet security services to PagSeguro Brazil. The payments under these agreements are made on a monthly basis in fixed amounts previously agreed between the parties.

Under the first agreement, UOL Diveo provides brand protection services regarding the management of threats and the improper use of PagSeguro Brazil’s brand on the internet, including on social networks, domain names, malicious emails, such as phishing and spam, piracy and other threats involving PagSeguro Brazil’s intellectual property.

Under the second agreement, UOL Diveo provides internet security services against denial-of-services attacks (DoS attacks) that may impact PagSeguro Brazil’s technological infrastructure or online services. This service uses technology to prevent and mitigate such attacks thorough the behavioral analysis of the data flowing through PagSeguro Brazil’s data center and network.

Under the third agreement, UOL Diveo provides application firewall against threats of fraud, unavailability and theft of information on PagSeguro Brazil network, as well as the protection of PagSeguro Brazil’s security operation and data centers.

175

DESCRIPTION OF SHARE CAPITAL

PagSeguro Digital Ltd., the company whose shares are being offered by this prospectus, was incorporated on July 19, 2017 as a Cayman Islands exempted company with limited liability for an indefinite term. PagSeguro Digital’s principal executive office is located at Avenida Brigadeiro Faria Lima, 1384, 01452-002 São Paulo – SP, Brazil.

PagSeguro Digital’s affairs are governed principally by (1) its Memorandum and Articles of Association, (2) the Companies Law of the Cayman Islands (as amended), or the Companies Law, and (3) the common law of the Cayman Islands.

The following discussion summarizes the material terms of the Class A common shares of PagSeguro Digital being offered by this prospectus. This discussion does not purport to be complete and is qualified in its entirety by reference to the Memorandum and Articles of Association. The form of the Memorandum and Articles of Association, which have been adopted, is filed as an exhibit to the registration statement of which this prospectus forms a part.

Share Capital

The 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 UOL, our principal shareholder, as a condition of undertaking an initial public offering of our common shares. See “—Anti-Takeover Provisions of our Memorandum and Articles of Association—Two Classes of Shares.”

At the date of this prospectus, PagSeguro Digital’s total authorized share capital was US$50,000, divided into 2,000,000,000 shares par value US$0.000025 each, of which:

•

1,000,000,000 shares are designated as Class A common shares; and

•

500,000,000 shares are designated as Class B common shares.

The remaining authorized but unissued shares are presently undesignated and may be issued by the Board of Directors as common shares of any class or as shares with preferred, deferred or other special rights or restrictions.

Following this offering, PagSeguro Digital will have a total issued share capital of US$7,686.85, divided into 307,473,960 common shares. Those common shares will be divided into 94,001,142 Class A common shares and 213,472,818 Class B common shares (assuming no exercise of the underwriters’ overallotment option to purchase additional common shares from UOL); or 107,816,931 Class A common shares and 199,657,029 Class B common shares, assuming full exercise of the overallotment option. See “Capitalization” and “Dilution.”

Treasury Stock

At the date of this prospectus, PagSeguro Digital has no shares in treasury.

176

Listing

The Class A common shares offered in this offering will be listed on the NYSE under the symbol “PAGS.” Settlement of the Class A common shares offered in this offering is expected to take place on or about the completion date of this offering through The Depository Trust Company, or DTC, in accordance with its customary settlement procedures for equity securities. If your shares are registered in the name of DTC, you will not be a shareholder or member of the company. 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.

We will list the Class A common shares in registered form and they will not be certificated.

Transfer Agent and Registrar

PagSeguro Digital has appointed American Stock Transfer & Trust Company, LLC as our agent in New York to maintain the shareholders’ register and to act as transfer agent, registrar and paying agent for the Class A common shares. The Class A common shares will be traded on the NYSE in book-entry form. The transfer agent, registrar and paying agent’s address is 6201 15 ^th Avenue, Brooklyn, NY, 11219, and its telephone number is +1 (800) 937-5449 or +1 (718) 921-8124.

Corporate Purpose

The corporate objects of PagSeguro Digital, as stated in the Memorandum of Association, are unrestricted and PagSeguro Digital has the authority to carry out any object not prohibited by any law, as provided by Section 7(4) of the Companies Law.

Issuance of Shares

Except as expressly provided in PagSeguro Digital’s Memorandum and Articles of Association, PagSeguro Digital’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 Law. PagSeguro Digital will not issue bearer shares.

PagSeguro Digital’s 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 receive a number of Class B common shares that would allow them to maintain their proportional ownership interests in PagSeguro Digital. For more information see “—Preemptive or Similar Rights.”

PagSeguro Digital’s Articles of Association also provide that the issuance of non-voting common shares requires the affirmative vote of a majority of the of then outstanding Class A common shares.

177

Fiscal Year

PagSeguro Digital’s fiscal year begins on January 1 of each year and ends on December 31 of the same year.

Voting Rights

The holders of the Class A common shares and Class B common shares have identical rights, except that (i) the holder of Class B common shares is entitled to 10 votes per share, whereas holders of Class A common shares are entitled to one vote per share, (ii) Class B common shares have certain conversion rights and (iii) the holder of Class B common shares is entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued. For more information see “—Preemptive or Similar Rights” and “—Conversion.” 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.

PagSeguro Digital’s Articles of Association provide as follows regarding the respective rights of holders of Class A common shares and Class B common shares:

(i)

Class consents from the holders of Class A common shares or 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 any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposal;

(ii)

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

(iii)

the rights attaching to the Class A common shares and the Class B common shares shall not be deemed to 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 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 the affirmative vote of the holders of a majority of the voting power of the issued and outstanding Class A common shares and Class B common shares, voting together in a general meeting.

Preemptive or Similar Rights

The Class A common shares and Class B common shares are not entitled to preemptive rights upon transfer and are not subject to conversion (except as described below under “—Conversion”), redemption or sinking fund provisions.

The Class B common shares are entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued. As such, except for certain exceptions, including the issuance of Class A common shares in furtherance of this offering, if PagSeguro Digital issues Class A 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 B common shares as would ensure such holder may maintain a proportional ownership interest in PagSeguro Digital. This right to maintain a proportional ownership interest may be waived by a majority of the holders of Class B common shares.

178

Conversion

The outstanding Class B common shares are convertible at any time as follows: (1) at the option of the holder, a Class B common share may be converted at any time into one Class A common share or (2) upon the election of the holders of a majority of the then outstanding Class B common shares, all outstanding Class B common shares may be converted into a like number of Class A common shares. In addition, each Class B common share will convert automatically into one Class A common share upon any transfer, whether or not for value, except for certain transfers described in the Articles of Association, including transfers to affiliates, trusts solely for the benefit of the shareholder or their affiliates, and partnerships, corporations and other entities exclusively owned by the shareholder or their affiliates and certain transfers to organizations that are exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. Furthermore, 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 voting power of the outstanding Class B common shares represents less than 10% of the combined voting power of the Class A common shares and Class B common shares then outstanding.

No class of PagSeguro Digital’s common shares may be subdivided or combined unless the other class of common shares is concurrently subdivided or combined in the same proportion and in the same manner.

Equal Status

Except as expressly provided in PagSeguro Digital’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 PagSeguro Digital 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 the holders of Class B common shares, and 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 PagSeguro Digital is a party, or (2) any tender or exchange offer by PagSeguro Digital 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 the holders of Class B common shares, and 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.

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, PagSeguro Digital’s board of directors may set a record date which shall not exceed forty (40) 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 PagSeguro Digital at the applicable record date for that meeting and, in order to vote, all calls or installments then payable by such shareholder to PagSeguro Digital in respect of the shares that such shareholder holds must have been paid.

179

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, PagSeguro Digital is not obliged by the Companies Law to call annual general meetings; however, the Articles of Association provide that in each year the company will hold an annual general meeting of shareholders, at a time determined by the board of directors, provided that the board of directors of PagSeguro Digital has the discretion whether or not to hold an annual general meeting in 2018. 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. 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, PagSeguro Digital 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 Law 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 articles of association. However, these rights may be provided in a company’s articles of association. PagSeguro Digital’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.

Subject to regulatory requirements, the annual general meeting and any extraordinary general meetings must be called by not less than ten (10) clear 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.

PagSeguro Digital 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, NYSE 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 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 one-third of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted.

180

A resolution put to a vote at a general meeting shall be decided on a poll. 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. 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 Law and our Articles of Association.

Pursuant to PagSeguro Digital’s Articles of Association, general meetings of shareholders are to be chaired by the chairman of our board of directors. If the 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 fifteen 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.

Liquidation Rights

If PagSeguro Digital 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 PagSeguro Digital 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 PagSeguro Digital 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 PagSeguro Digital and any person or persons to waive or limit the same, shall apply PagSeguro Digital’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 PagSeguro Digital.

Changes to Capital

Pursuant to the Articles of Association, PagSeguro Digital 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;

•

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.

181

PagSeguro Digital’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 Law and our Articles of Association, PagSeguro Digital 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 Law, including out of its own capital.

Transfer of Shares

Subject to any applicable restrictions set forth in the Articles of Association, any shareholder of PagSeguro Digital 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 NYSE or any other form approved by the Company’s board of directors.

The Class A common shares sold in this offering will be traded on the NYSE in book-entry form and may be transferred in accordance with PagSeguro Digital’s Articles of Association and NYSE’s rules and regulations.

However, PagSeguro Digital’s board of directors may, in its absolute discretion, decline to register any transfer of any common share which 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 which 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 ordinary share unless:

•

a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as the board of directors may from time to time require is paid to PagSeguro Digital in respect thereof;

•

the instrument of transfer is lodged with PagSeguro Digital, 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 PagSeguro Digital; 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.

Share Repurchase

The Companies Law and the Articles of Association permit PagSeguro Digital to purchase its own shares, subject to certain restrictions. The board of directors may only exercise this power on behalf of PagSeguro Digital, subject to the Companies Law, the Articles of Association and to any applicable requirements imposed from time to time by the SEC, the NYSE, or by any recognized stock exchange on which our securities are listed.

182

Dividends and Capitalization of Profits

We have not adopted a dividend policy with respect to payments of any future dividends by PagSeguro Digital. Subject to the Companies Law, PagSeguro Digital’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 PagSeguro Digital. Except as otherwise provided by the rights attached to shares and the Articles of Association of PagSeguro Digital, 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, (i) 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 (ii) where we have shares in issue which 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 PagSeguro Digital’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

PagSeguro Digital is managed by its board of directors. The Articles of Association provide that, unless otherwise determined by a special resolution of shareholders, the board of directors will be composed of four to 11 directors, with the number being determined by a majority of the directors then in office. There are no provisions relating to retirement of directors upon reaching any age limit. The Articles of Association also provide that, while PagSeguro Digital’s shares are admitted to trading on NYSE, 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 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 and elected for such term as the resolution appointing him or her may determine or until his or her death, resignation or removal.

By the listing date of this offering, the directors will be Luis Frias, Eduardo Alcaro, Maria Judith de Brito, Ricardo Dutra da Silva and Noemia Gushiken. Ms. Gushiken is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of the NYSE. We intend to appoint two additional independent directors within three months and one year following the offering, respectively.

Any vacancies on the board of directors that arise other than upon the removal of a director by resolution passed at a general meeting can be filled by the remaining directors (notwithstanding that they may constitute less than a quorum). Any such appointment shall be as an interim director to fill such vacancy until the next annual general meeting of shareholders.

Additions to the existing board (within the limits set pursuant to the Articles of Association) may be made by ordinary resolution of the shareholders.

Upon the completion of the offering, the board of directors will have in place an audit committee. See “Management—Audit Committee”.

183

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 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 Articles of Association provide that PagSeguro Digital’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 (subject to there being a minimum of two directors present) and business at any meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman shall have a casting vote.

Subject to the provisions of the 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 NYSE, the board of directors may from time to time at its discretion exercise all powers of PagSeguro Digital, including, subject to the Companies Law, 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.

Inspection of Books and Records

Holders of PagSeguro Digital shares 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 PagSeguro Digital’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 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

The Class A common shares offered in this offering will be held through DTC, and DTC or Cede & Co., as nominee for DTC, will be recorded in the shareholders’ register as the holder of our Class A common shares.

184

Under Cayman Islands law, PagSeguro Digital 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 PagSeguro Digital 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. Upon the completion of this offering, the register of shareholders will be immediately updated to record and give effect to the issuance of new Class A common shares in this offering. Once the register of shareholders has been updated, the shareholders recorded in the register of shareholders should be deemed to have legal title to the shares set against their name.

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 PagSeguro Digital, the person or member aggrieved (or any shareholder of PagSeguro Digital, or PagSeguro Digital 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

PagSeguro Digital is an exempted company with limited liability under the Companies Law. The Companies Law 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;

•

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.

185

“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).

Upon the closing of this offering, PagSeguro Digital will be subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Except as otherwise disclosed in this prospectus, PagSeguro Digital currently intends to comply with the NYSE rules in lieu of following home country practice after the closing of this offering.

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 PagSeguro Digital or management that shareholders may consider favorable. In particular, the capital structure of PagSeguro Digital concentrates ownership of voting rights in the hands of UOL. 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 PagSeguro Digital 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 PagSeguro Digital. 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 PagSeguro Digital are entitled to 10 votes per share, while the Class A common shares are entitled to one vote per share. Since it owns of all of the Class B common shares of PagSeguro Digital, UOL currently has the ability to elect all directors and to determine the outcome of most matters submitted for a vote of shareholders. 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 UOL has the ability to determine the outcome of most matters submitted to a vote of shareholders as well as the overall management and direction of PagSeguro Digital, 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 PagSeguro Digital 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 PagSeguro Digital.

Preferred Shares

PagSeguro Digital’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.

Despite the anti-takeover provisions described above, under Cayman Islands law, PagSeguro Digital’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 PagSeguro Digital.

186

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 PagSeguro Digital 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 Law, 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 PagSeguro Digital, general corporate claims against PagSeguro Digital 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 PagSeguro Digital’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 PagSeguro Digital, or derivative actions in PagSeguro Digital’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 PagSeguro Digital, 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 PagSeguro Digital 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. PagSeguro Digital, our executive officers and directors who will hold shares upon completion of this offering and UOL have agreed to lock-up agreements that restrict us and them, subject to specified exceptions, from selling or otherwise disposing of any shares for a period of 180 days after the date of this prospectus without the prior consent of the representatives for the underwriters. However, the underwriters may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. In addition, these lock-up agreements are subject to the exceptions described in “Common Shares Eligible for Future Sale,” including the right for PagSeguro Digital to issue new shares if we carry out an acquisition or enter into a merger, joint venture or strategic participation.

Principal Differences between Cayman Islands and U.S. Corporate Law

The Companies Law 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 Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to PagSeguro Digital and the laws applicable to companies incorporated in the United States and their shareholders.

187

Mergers and Similar Arrangements

The Companies Law 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:

•

PagSeguro Digital 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 Law or that would amount to a “fraud on the minority.”

188

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.

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, PagSeguro Digital 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 PagSeguro Digital 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 PagSeguro Digital 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 Memorandum and 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 PagSeguro Digital’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 NYSE, 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.

189

Indemnification of Directors and Executive Officers and Limitation of Liability

The Companies Law 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. PagSeguro Digital’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 PagSeguro Digital 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 PagSeguro Digital’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. PagSeguro Digital’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 NYSE, 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 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 which he or she actually possesses.

190

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 PagSeguro Digital’s Articles of Association and subject to any separate requirement under applicable law or the listing rules of the NYSE, 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 Law 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. PagSeguro Digital’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 Memorandum and Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.

191

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, PagSeguro Digital’s Articles of Association do not provide for cumulative voting. As a result, the shareholders of PagSeguro Digital 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, PagSeguro Digital 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.

192

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 Law, PagSeguro Digital may be dissolved, liquidated or wound up by a special resolution of shareholders (requiring a two-thirds majority vote). PagSeguro Digital’s Articles of Association also give its board of directors authority to petition the Cayman Islands Court to wind up PagSeguro Digital.

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 PagSeguro Digital’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.

Also, except with respect to share capital (as described above), alterations to PagSeguro Digital’s Memorandum and Articles of Association may only be made by special resolution of shareholders (requiring a two-thirds majority vote).

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, PagSeguro Digital’s Memorandum and 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).

Rights of Non-Resident or Foreign Shareholders

There are no limitations imposed by PagSeguro Digital’s Memorandum and Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on PagSeguro Digital’s shares. In addition, there are no provisions in the Memorandum and Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.

193

TAXATION

The following summary contains a description of certain Cayman Islands and U.S. federal income tax consequences of the acquisition, ownership and disposition of our Class A common shares but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase Class A common shares. The summary is based upon the tax laws of the Cayman Islands and regulations thereunder and on the tax laws of the United States and regulations thereunder at the date hereof, which are subject to change.

Cayman Islands Tax Considerations

The Cayman Islands laws currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of Class A common shares. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

As a Cayman Islands exempted company with limited liability, we are entitled, upon application, to receive an undertaking as to tax concessions pursuant to Section 6 of the Tax Concessions Law (1999 Revision). This undertaking would provide that, for a period of 20 years from the date of issue of the undertaking, no law thereafter enacted in the Cayman Islands imposing any taxes to be levied on profits, income, gains or appreciation will apply to us or our operations.

Payments of dividends and capital in respect of our Class A common shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our Class A common shares, nor will gains derived from the disposal of our Class A common shares be subject to Cayman Islands income or corporation tax.

There is no income tax treaty or convention currently in effect between the United States and the Cayman Islands.

U.S. Federal Income Tax Considerations

The following discussion describes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our Class A common shares. This discussion deals only with Class A common shares that are held as capital assets by a United States Holder (generally property held for investment).

As used herein, the term “United States Holder” means a beneficial owner of our Class A common shares that is, for U.S. federal income tax purposes, any of the following:

•

an individual who is a citizen or resident of the United States;

•

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

•

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

194

•

a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended, or the Code, and regulations, rulings and judicial decisions thereunder at the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those summarized below.

This discussion does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

•

a dealer in securities or currencies;

•

a financial institution;

•

a regulated investment company;

•

a real estate investment trust;

•

an insurance company;

•

a person holding our Class A common shares in a retirement account or other tax-deferred account;

•

a tax-exempt organization;

•

a person holding our Class A common shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;

•

a trader in securities that has elected the mark-to-market method of accounting for your securities;

•

a person liable for alternative minimum tax;

•

a person who owns or is deemed to own 10% or more of our voting stock;

•

a partnership or other pass-through entity for U.S. federal income tax purposes; or

•

a person whose “functional currency” is not the United States dollar.

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our Class A common shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Class A common shares, you should consult your tax advisors.

Except where specifically described below, this discussion assumes that we are not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. See the discussion under “—Passive Foreign Investment Company” below.

This discussion does not contain a detailed description of all the U.S. federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-United States tax laws. If you are considering the purchase of our Class A common shares, you should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of our Class A common shares, as well as the consequences to you arising under other U.S. federal tax laws and the laws of any other taxing jurisdiction.

195

Taxation of Dividends

Subject to the discussion under “—Passive Foreign Investment Company” below, the gross amount of distributions on the Class A common shares will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in the tax basis of the Class A common shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain recognized on a sale or exchange. We do not, however, expect to determine earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution generally will be reported as a dividend.

With respect to non-corporate United States Holders, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation so long as certain holding period and other requirements are met. A foreign corporation is treated as a qualified foreign corporation provided that (i) the corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a PFIC (as discussed below), and (ii) either (A) the corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for purposes of the qualified dividend rules or (B) the stock with respect to dividends paid by that corporation on shares that are readily tradable on an established securities market in the United States. We will apply to list our Class A common shares on the NYSE.

Provided that the listing is approved, United States Treasury Department guidance indicates that our Class A common shares will be readily tradable on an established securities market in the United States. Thus, we believe that dividends we pay on our Class A common shares will meet the conditions required for the reduced tax rate. There can be no assurance that our Class A common shares will be considered readily tradable on an established securities market in later years. Non-corporate United States Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding the application of these rules to your particular circumstances.

Any dividends that you receive will be includable in your gross income as ordinary income on the day actually or constructively received by you. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

Passive Foreign Investment Company

196

Under the Code, we will be a PFIC for any taxable year in which, after the application of certain “look-through” rules with respect to subsidiaries, either (i) 50% or more of the average quarterly value of our assets consist of assets that produce, or are held for the production of, passive income (the “asset test”) or (ii) 75% or more of our gross income consists of passive income (the “income test”). For purposes of the asset test, any cash, including proceeds from the public offering, will generally be treated as a passive asset and the amount of cash held by us in any year will depend, in part, on when we spend the cash raised from the public offering and generated in our operations. Furthermore, to the extent any of our receivables are considered to give rise to passive income, such receivables will be considered passive assets for purposes of the asset test. In addition, the determination of our PFIC status will depend upon the nature of the assets acquired by us. Moreover, the determination of the value of our assets may depend on our market capitalization, and that market capitalization may fluctuate. Accordingly, there can be no assurance that we will satisfy the asset test in the current or any future year.

For purposes of the income test, passive income generally includes dividends, interest (including certain types of income that are equivalent to interest), royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person), as well as gains from the sale of assets (such as stock) that produce passive income, foreign currency gains, and certain other categories of income. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of determining whether we are a PFIC, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.

Although we consider ourselves to be actively engaged in an active business with respect to a number of business lines and to be engaged in an active financing activity with respect to the early payment of receivables feature that we offer merchants regarding credit card transactions in installments in particular, and we believe that income from such businesses and features is likely not treated as passive income for purposes of the PFIC rules, it is not entirely clear how such income will be treated for these purposes. In particular, certain of our income may be treated as passive income unless such income is eligible for an exception for certain income derived in the active conduct of a financing business under Section 954(h) of the Code (the “active financing exception”), and related assets may be considered passive assets unless the active financing exception applies. We believe that the active financing exception will likely apply to treat such income as active, but if it is determined, contrary to our view, that the income from these businesses and features is passive for U.S. federal income tax purposes, that would alter the composition of our income and assets for purposes of testing our PFIC status, and may cause us to be treated as a PFIC.

If we are a PFIC for any taxable year during which you hold our Class A common shares and you do not make a timely mark-to-market election, as described below, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of Class A common shares. Distributions received in a taxable year will be treated as excess distributions to the extent that they are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the Class A common shares. Under these special tax rules:

•

the excess distribution or gain will be allocated ratably over your holding period for the Class A common shares,

•

the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and

•

the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year for individuals or corporations, as applicable, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

197

Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our Class A common shares, you generally will be subject to the special tax rules described above for that year and for each subsequent year in which you hold the Class A common shares (even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, you can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if you had sold our Class A common shares on the last day of the last taxable year during which we were a PFIC. You are urged to consult your own tax advisor about this election.

In lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with respect to our Class A common shares provided such Class A common shares are treated as “marketable stock.” The Class A common shares generally will be treated as marketable stock if they are “regularly traded” on a “qualified exchange or other market” (within the meaning of the applicable Treasury regulations), such as the NYSE.

If you make an effective mark-to-market election, for each taxable year that we are a PFIC you will include as ordinary income the excess of the fair market value of our Class A common shares at the end of the year over your adjusted tax basis in the Class A common shares. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the Class A common shares over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Your adjusted tax basis in the Class A common shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. In addition, upon the sale or other disposition of our Class A common shares in a year that we are a PFIC, any gain will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election. If you make a mark-to-market election, the tax rules that apply to distributions by corporations that are not PFICs would apply to distributions by us, except that the reduced rate discussed above under “—Taxation of Dividends” would not apply.

If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the Class A common shares are no longer regularly traded on a qualified exchange or other market, or the Internal Revenue Service consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.

Alternatively, you can sometimes avoid the special tax rules described above by electing to treat a PFIC as a “qualified electing fund” under Section 1295 of the Code. However, this option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.

If we are a PFIC for any taxable year during which you hold our Class A common shares and any of our non-United States subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules.

You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.

You generally will be required to file Internal Revenue Service Form 8621 if you hold our Class A common shares in any year in which we are classified as a PFIC. You are urged to consult your tax advisors concerning the U.S. federal income tax consequences of holding Class A common shares if we are considered a PFIC in any taxable year.

198

Taxation of Capital Gains

For U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of the Class A common shares in an amount equal to the difference between the amount realized for the Class A common shares and your tax basis in the Class A common shares. Your initial tax basis in the Class A common shares will be the U.S. dollar value of the purchase price determined on the date of purchase. Subject to the discussion under “—Passive Foreign Investment Company” above, such gain or loss generally will be capital gain or loss and generally will be long-term capital gain or loss if you have held the Class A common shares for more than one year. Long-term capital gains of noncorporate United States Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you generally will be treated as United States source gain or loss.

Information Reporting and Backup Withholding

In general, information reporting will apply to dividends in respect of our Class A common shares and the proceeds from the sale, exchange or other disposition of our Class A common shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of exempt status or fail to report in full dividend and interest income. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished to the IRS.

In addition, you should be aware that additional reporting requirements apply (including a requirement to file IRS Form 8938, Statement of Specified Foreign Assets) with respect to the holding of certain foreign financial assets, including stock of foreign issuers which is not held in an account maintained by certain financial institutions, if the aggregate value of all of such assets exceeds US$50,000 at the end of the taxable year or US$75,000 at any time during the taxable year. The thresholds are higher for individuals living outside of the United States and married couples filing jointly. You are encouraged to consult your own tax advisors regarding the application of the information reporting rules to the Class A common shares and the application of these additional reporting requirements for foreign financial assets to their particular situations.

YOU ARE ENCOURAGED TO CONSULT YOUR OWN INDEPENDENT TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF CLASS A COMMON SHARES.

199

COMMON SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, PagSeguro Digital will have 94,001,142 Class A common shares issued and outstanding, and 213,472,818 Class B common shares issued and outstanding.

Lock-up Agreements

PagSeguro Digital, its executive officers and directors who will hold shares upon completion of this offering and UOL have agreed not to carry out any of the following actions regarding Class A common shares of PagSeguro Digital for 180 days after the date of this prospectus, without first obtaining the written consent of the underwriters:

•

offer, pledge, sell or contract to sell any Class A common shares;

•

sell any option or contract to purchase any Class A common shares;

•

purchase any option or contract to sell any Class A common shares;

•

grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any Class A common shares or any other securities so owned convertible into or exercisable or exchangeable for Class A common shares;

•

enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of Class A common shares

(whether any of the transactions described above are to be settled by delivery of Class A common shares or other securities of our company, in cash, or otherwise), or file a registration statement with the Securities and Exchange Commission related to any of our Class A common shares.

These lock-up restrictions apply to Class A common shares of PagSeguro Digital and to securities convertible into or exercisable or exchangeable for Class A common shares of PagSeguro Digital.

These lock-up restrictions are, however, subject to certain exceptions, including any issuance of Class A common shares by PagSeguro Digital in connection with a merger, acquisition, joint venture or strategic participation entered into by us, provided that (i) the aggregate number of Class A common shares issued or issuable thereunder shall not exceed 10% of the total number of Class A common shares issued and outstanding as of the date of such merger, acquisition, joint venture or strategic participation, and (ii) the recipient of such Class A common shares shall have agreed with the Underwriters not to carry out any of the actions described above regarding such Class A common shares.

200

UNDERWRITERS

We and the underwriters named below have entered into an underwriting agreement dated , 2018 with respect to the Class A common shares being offered. Under the terms and subject to the conditions contained in the underwriting agreement, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us and the Selling Shareholder the number of Class A common shares set forth opposite its name below. Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC are acting as the representatives of the underwriters in this offering and Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banco Bradesco BBI S.A., Credit Suisse (USA) Securities LLC, Deutsche Bank Securities Inc., Itau BBA USA Securities, Inc. and J.P. Morgan Securities LLC are acting as joint bookrunners of this offering.


Underwriter	Number of Class A Common Shares
Goldman Sachs & Co. LLC
Morgan Stanley & Co. LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Banco Bradesco BBI S.A.
Credit Suisse (USA) Securities LLC
Deutsche Bank Securities Inc.
J.P. Morgan Securities LLC
Itau BBA USA Securities, Inc.

Total		92,105,263

Bradesco Securities Inc. will act as agent of Banco Bradesco BBI S.A. for sales of the Class A common shares in the United States of America. Banco Bradesco BBI S.A. is not a broker-dealer registered with the SEC, and therefore may not make sales of any shares in the United States to U.S. persons. Banco Bradesco BBI S.A. and Bradesco Securities Inc. are affiliates of Banco Bradesco S.A.

Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the Class A common shares sold under the underwriting agreement if any of these Class A common shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.

Subject to the terms and conditions set forth in the underwriting agreement, we have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

The underwriters are offering the Class A common shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the absence of any material adverse change in our business, the receipt by the underwriters of officer’s certificates and certain certificates, letters and opinions from our local and international counsel and our independent auditors. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

201

Commissions and Discounts

The underwriters have advised us that they propose initially to offer the Class A common shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of US$ per Class A common share (based on the midpoint of the estimated offering price range set forth on the cover page of this prospectus). After the initial offering, the public offering price, concession or any other term of the offering may be changed.

The following table shows the public offering price, underwriting discount and proceeds to PagSeguro Digital before expenses. This information assumes either no exercise or full exercise by the underwriters of their option to purchase additional Class A common shares.


	Per Class A Common Share
	Without Option		With Option

Public offering price		US$		US$

Underwriting discounts and commissions to be paid by PagSeguro Digital		US$		US$

Proceeds, before expenses, to PagSeguro Digital		US$		US$

The expenses of the offering, not including the underwriting discounts and commissions, are estimated at $ and are payable by us. We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $ .

Option to Purchase Additional Class A Common Shares

The Selling Shareholder, UOL, has granted an option to the underwriters, exercisable in whole or in part on a maximum of two occasions for 30 days after the date of this prospectus, to purchase up to 13,815,789 additional Class A common shares at the public offering price listed on the cover page of this prospectus. If the underwriters choose to purchase these shares, they will convert from Class B common shares to Class A common shares upon such sale. The underwriters may exercise this option solely to cover any sales by the underwriters of a greater number of Class A common shares than the total number set forth on the cover page of this prospectus. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional Class A common shares proportionate to that underwriter’s initial amount reflected in the above table. The underwriters are not required to take or pay for the shares covered by the underwriters’ option to purchase additional Class A common shares.

No Sales of Similar Securities

We, our executive officers and directors who will hold shares upon completion of this offering and UOL have agreed to certain lock-up restrictions regarding common shares of our company for 180 days after the date of this prospectus. These restrictions are subject to certain exceptions. For further information, see the section of this prospectus entitled “Common Shares Eligible for Future Sale.”

NYSE Listing

We expect the shares to be approved for listing on the NYSE under the symbol “PAGS.” In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell a minimum number of Class A common shares to a minimum number of beneficial owners as required by that exchange.

Before this offering, there has been no public market for our Class A common shares. The initial public offering price will be determined through negotiations among us and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:

•

the valuation multiples of publicly traded companies that the representatives believe to be comparable to us;

•

our financial information;

202

•

the history of, and the prospects for, our company and the industry in which we compete;

•

an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;

•

the present state of our development; and

•

the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

An active trading market for the Class A common shares may not develop. It is also possible that after the offering the Class A common shares will not trade in the public market at or above the initial public offering price.

Price Stabilization, Short Positions and Penalty Bids

Until the distribution of the Class A common shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our Class A common shares. However, the representatives may engage in transactions that stabilize the price of the Class A common shares, such as bids or purchases to peg, fix or maintain that price.

In connection with the offering, the underwriters may purchase and sell our Class A common shares in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of Class A common shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional Class A common shares from us in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional Class A common shares or purchasing Class A common shares in the open market. In determining the source of Class A common shares to close out the covered short position, the underwriters will consider, among other things, the price of Class A common shares available for purchase in the open market as compared to the price at which they may purchase shares through the option described above. “Naked” short sales are sales in excess of the underwriters’ option described above. The underwriters must close out any naked short position by purchasing Class A common shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our Class A common shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of Class A common shares made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased Class A common shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our Class A common shares or preventing or retarding a decline in the market price of our Class A common shares. As a result, the price of our common shares may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on the NYSE, in the over-the-counter market or otherwise, in accordance with applicable laws and regulations.

203

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our Class A common shares. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Electronic Offer, Sale and Distribution of Class A Common Shares

A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The underwriters may agree to allocate a number of shares of Class A common shares for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that may make Internet distributions on the same basis as other allocations.

Relationships

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking commercial banking, financial advisory and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.

The underwriters may enter into derivative transactions in connection with our Class A common shares, acting at the order and for the account of their clients. The underwriters may also purchase some of our Class A common shares offered hereby to hedge their risk exposure in connection with these transactions. Such transactions may have an effect on demand, price or offer terms of the offering without, however, creating an artificial demand during the offering.

In addition, in the ordinary course of their business activities, the underwriters and their respective affiliates, officers, directors and employees may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities), commodities, currencies, credit default swaps and other financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their respective affiliates may also make investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Discretionary Sales

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of Class A common shares offered by them.

204

Pricing of the Offering

Prior to this offering, there has been no public market for our Class A common shares. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price of the Class A common shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.

The address of Goldman Sachs & Co. LLC is 200 West Street, New York, New York 10282-2198. The address of Morgan Stanley & Co. LLC is 1585 Broadway, New York, New York 10036.

Selling Restrictions

No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the Class A common shares, or the possession, circulation or distribution of this prospectus or any other material relating to us or the Class A common shares in any jurisdiction where action for that purpose is required. Accordingly, the Class A common shares may not be offered or sold, directly or indirectly, and neither this prospectus nor any other material or advertisements in connection with the Class A common shares may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable laws, rules and regulations of any such country or jurisdiction.

Argentina

The Class A common shares are not authorized for public offering in Argentina by the Comisión Nacional de Valores pursuant to Argentine Public Offering Law No. 17,811, as amended, and they shall not be sold publicly. Therefore, any transaction carried out in Argentina must be made privately.

Brazil

For purposes of Brazilian law, this offer of securities is addressed to you personally, upon your request and for your sole benefit, and is not to be transmitted to anyone else, to be relied upon elsewhere or for any other purpose either quoted or referred to in any other public or private document or to be filed with anyone without our prior, express and written consent.

This offering has not been and will not be registered under Brazilian Federal Law No. 6,385/76 or under any other Brazilian securities law. Accordingly, our Class A common shares and the offering have not been and will not be registered with the Comissão de Valores Mobilários .

Therefore, as this prospectus does not constitute or form part of any public offering to sell or solicitation of a public offering to buy any shares or assets, the offering and THE CLASS A COMMON SHARES OFFERED HEREBY HAVE NOT BEEN, AND WILL NOT BE, AND MAY NOT BE OFFERED FOR SALE OR SOLD IN BRAZIL EXCEPT IN CIRCUMSTANCES WHICH DO NOT CONSTITUTE A PUBLIC OFFERING OR DISTRIBUTION UNDER BRAZILIAN LAWS AND REGULATIONS. DOCUMENTS RELATING TO THE CLASS A COMMON SHARES, AS WELL AS THE INFORMATION CONTAINED THEREIN, MAY NOT BE SUPPLIED TO THE PUBLIC, AS A PUBLIC OFFERING IN BRAZIL OR BE USED IN CONNECTION WITH ANY OFFER FOR SUBSCRIPTION OR SALE OF THE CLASS A COMMON SHARES TO THE PUBLIC IN BRAZIL.

Cayman Islands

This prospectus does not constitute a public offer of the Class A common shares, whether by way of sale or subscription, in the Cayman Islands. Class A common shares have not been offered or sold, and will not be offered or sold, directly or indirectly, in the Cayman Islands.

205

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of our Class A common shares may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of our Class A common shares may be made at any time under the following exemptions under the Prospectus Directive:

(a)

to any legal entity which is a qualified investor as defined in the Prospectus Directive;

(b)

to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the representatives of the underwriters for any such offer; or

(c)

in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of our common shares shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to our common shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and our Class A common shares to be offered so as to enable an investor to decide to purchase our Class A common shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as amended), including by Directive 2010/73/EU, and includes any relevant implementing measure in the Relevant Member State.

This European Economic Area selling restriction is in addition to any other selling restrictions set out below.

United Kingdom

Each underwriter has represented and agreed that:

(A)

it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or FSMA, received by it in connection with the issue or sale of our Class A common shares in circumstances in which Section 21(1) of the FSMA does not apply to us; and

(B)

it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to our Class A common shares in, from or otherwise involving the United Kingdom.

Switzerland

This document as well as any other material relating to the securities which are the subject of the offering contemplated by this prospectus does not constitute an issue prospectus pursuant to Articles 652a and/or 1156 of the Swiss Code of Obligations. The Class A common shares will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the Class A common shares, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The Class A common shares are being offered in Switzerland by way of a private placement, i.e. to a small number of selected investors only, without any public offer and only to investors who do not purchase the Class A common shares with the intention to distribute them to the public. The investors will be individually approached by the Issuer from time to time. This document as well as any other material relating to the Class A common shares is personal and confidential and does not constitute an offer to any other person. This document may only be used by those investors to whom it has been handed out in connection with the offering described herein and may neither directly nor indirectly be distributed or made available to other persons without express consent of the Issuer. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.

206

Dubai International Financial Centre

This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The securities to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

Hong Kong

The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

207

Japan

The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

Canada

The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this offering memorandum (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory of these rights or consult with a legal advisor.

Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

208

EXPENSES OF THE OFFERING

We estimate that PagSeguro Digital’s expenses in connection with this offering, other than underwriting discounts and commissions, will be as follows:


Expenses	Amount (in U.S. dollars)
Securities and Exchange Commission registration fee		US$270,337
NYSE listing fee		US$25,000
Financial Industry Regulatory Authority filing fee		US$225,500
Printing and engraving expenses		US$185,000
Legal fees and expenses		US$2,500,000
Accounting fees and expenses		US$1,350,000
Miscellaneous costs		US$200,000

Total		US$4,755,837

All amounts in the table are estimated except the Securities and Exchange Commission registration fee, the NYSE listing fee and the Financial Industry Regulatory Authority (FINRA) filing fee. We will pay a total of in respect of underwriting discounts and commissions and certain expenses of the offering.

209

VALIDITY OF SECURITIES

Certain legal matters with respect to U.S. federal and New York State law in connection with this offering will be passed upon for PagSeguro Digital by Shearman & Sterling LLP. Certain legal matters with respect to U.S. federal and New York State law in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP. The validity of the Class A common shares offered in this offering and other legal matters as to Cayman Islands law will be passed upon for PagSeguro Digital by Conyers Dill & Pearman. Legal matters as to Brazilian law will be passed upon for PagSeguro Digital by Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, and for the underwriters by Pinheiro Neto Advogados.

210

EXPERTS

The consolidated financial statements of PagSeguro Brazil at December 31, 2016, 2015 and 2014 and for each of the three years ended December 31, 2016, included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

211

WHERE YOU CAN FIND MORE INFORMATION

PagSeguro Digital has filed with the SEC a registration statement (including amendments and exhibits to the registration statement) on Form F-1 under the Securities Act. This prospectus, which is part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information, we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. If a document has been filed as an exhibit to the registration statement, we refer you to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit. Each statement regarding a contract, agreement or other document is qualified in its entirety by reference to the actual document.

Upon completion of this offering we will be subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy the reports and other information to be filed with the SEC at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at http://www.sec.gov, from which you can electronically access the registration statement and its materials.

As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements and our executive officers, directors and principal shareholders are exempt from reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

You may request a copy of our SEC filings, at no cost, by contacting us at our headquarters at Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A, São Paulo, SP, 01451-001, Brazil. Our investor relations office can be reached at +55 11 3038-8127.

212

ENFORCEABILITY OF CIVIL LIABILITIES

PagSeguro Digital is registered under the laws of the Cayman Islands as an exempted company with limited liability. PagSeguro Digital is 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. Conyers Dill & Pearman, PagSeguro Digital’s counsel as to Cayman Islands law, and Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, PagSeguro Digital’s counsel as to Brazilian law, have advised 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.

PagSeguro Digital’s Cayman Islands counsel has informed us that the uncertainty with regards 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 PagSeguro Digital’s assets are located outside the United States, in Brazil. In addition, all of the members of PagSeguro Digital’s board of directors and all of its officers are 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 believe 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. We believe 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 upon confirmation of that judgment by the Brazilian Superior Tribunal of Justice ( Superior Tribunal de Justiça ), or STJ. That confirmation will be made without review on the merits, and will only be available if the U.S. judgment:

•

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;

•

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);

213

•

is final and, therefore, not subject to appeal ( res judicata ) in the United States;

•

there is 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 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 initial public offering 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) that 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, except in the case of (1) an exemption is provided by an international agreement or treaty to which Brazil is a signatory; (2) claims for collection on a título executivo extrajudicial (an instrument which may be enforced in Brazilian courts without a review on the merits bond), in the case of enforcement of foreign judgments that have been duly recognized by the STJ; or (3) counterclaims as established, according to Article 83 of the Brazilian Code of Civil Procedure ( Código de Processo Civil ).

If proceedings are brought in the courts of Brazil 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 . See “Risk Factors—Risks Relating to the Offering and our Class A Common Shares— Judgments of Brazilian courts to enforce our obligations with respect to our Class A common shares may be payable only 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.

PagSeguro Digital has appointed Cogency Global Inc. as its agent upon whom process may be served in any action brought against it under the securities laws of the United States.

214

INDEX TO FINANCIAL STATEMENTS

Unaudited condensed c onsolidated interim financial statements of Pagseguro Internet S.A. at September 30, 2017 and for the nine-month periods ended September 30, 2017 and 2016


Unaudited condensed consolidated interim balance sheets		F-2
Unaudited condensed consolidated interim statements of income		F-3
Unaudited condensed consolidated interim statements of comprehensive income		F-4
Unaudited condensed consolidated interim statements of changes in equity		F-5
Unaudited condensed consolidated interim statements of cash flows		F-6
Notes to the unaudited condensed consolidated interim financial statements		F-7

Consolidated financial statements of Pagseguro Internet S.A. at December 31, 2016, 2015 and 2014 and Report of Independent Registered Public Accounting Firm


Report of independent registered public accounting firm		F-31
Consolidated balance sheets		F-32
Consolidated statements of income		F-33
Consolidated statements of comprehensive income		F-34
Consolidated statements of changes in equity		F-35
Consolidated statements of cash flows		F-36
Notes to the consolidated financial statements		F-37

F-1

PagSeguro Internet S.A.

Unaudited condensed consolidated interim balance sheets at

(All amounts in thousands of reais)


ASSETS	Note		September 30, 2017		December 31, 2016		LIABILITIES AND EQUITY	Note		September 30, 2017		December 31, 2016
CURRENT ASSETS							CURRENT LIABILITIES
Cash and cash equivalents		5		41,811		79,969	Payables to third parties		12		2,261,472		1,304,031
Financial investments		6		—		131,239	Trade payables				112,597		61,719
Note receivables		7		2,980,780		1,715,514	Payables to related parties		8		72,616		76,249
Receivables from related parties		8		279		300,809	Derivative financial instruments				—		6,613
Inventories				66,306		21,023	Borrowings		13		—		205,204
Taxes recoverable				11,853		17,703	Salaries and social charges		14		32,192		20,269
Other receivables				7,812		4,495	Taxes and contributions		15		40,081		6,911

Total current assets				3,108,841		2,270,752	Provision for contingencies		16		1,587		680

							Dividends payable and interest on own capital				1		22,243
NON-CURRENT ASSETS							Other payables				23,398		15,244

Judicial deposits				795		534	Total current liabilities				2,543,944		1,719,163

Prepaid expenses				69		146
Deferred income tax and social contribution		17		23,232		8,305	NON-CURRENT LIABILITIES
Property and equipment		10		5,268		4,558	Deferred income tax and social contribution		17		38,201		24,378
Intangible assets		11		125,928		86,108	Other payables				3,557		—

Total non-current assets				155,292		99,651	Total non-current liabilities				41,758		24,378

							TOTAL LIABILITIES				2,585,702		1,743,541

							EQUITY
							Share capital		18		524,577		524,577
							Legal reserve		18		6,277		6,276
							Profit retention reserve		18		—		96,009
							Result of the period		18		147,042		—

											677,896		626,862

							Non-controlling interests				535		—

							TOTAL EQUITY			678,431		626,862

TOTAL ASSETS				3,264,133		2, 37 0, 4 0 3	TOTAL LIABILITIES AND EQUITY				3,264,133		2, 37 0, 4 0 3

The accompanying notes are an integral part of these unaudited condensed Consolidated interim financial statements.

F-2

PagSeguro Internet S.A.

Unaudited condensed consolidated interim statements of income

Nine-month periods ended

(All amounts in thousands of reais unless otherwise stated)


	Note		September 30, 2017			September 30, 2016
Net revenue from transaction activities and other services		20		791,215			319,790
Net revenue from sales		20		361,519			164,223
Financial income		20		535,667			270,525
Other financial income		20		3,937			2,850
Total revenue and income				1,692,337			757,388
Cost of sales and services				(918,415	)		(435,133	)
Selling expenses		21		(184,106	)		(99,813	)
Administrative expenses		21		(107,731	)		(60,689	)
Financial expenses		21		(63,792	)		(39,540	)
Other (expenses) income, net		21		(5,035	)		(6,045	)

PROFIT BEFORE INCOME TAXES				413,258			116,168

Current income tax and social contribution		17		(124,118	)		(15,797	)
Deferred income tax and social contribution		17		1,104			(11,042	)

INCOME TAX AND SOCIAL CONTRIBUTION				(123,014	)		(26,839	)

NET INCOME FOR THE PERIOD				290,244			89,329

Attributable to:
Owners of the Company				289,839			88,736
Non-controlling interests				405			593
Basic and diluted earnings per common share - R$		19		1.1050			0.3383

The accompanying notes are an integral part of these unaudited condensed Consolidated interim financial statements.

F-3

PagSeguro Internet S.A.

Unaudited condensed consolidated interim statements of comprehensive income

Nine-month periods ended

(All amounts in thousands of reais)


	September 30, 2017		September 30, 2016
NET INCOME FOR THE PERIOD		290,244		89,329

Total comprehensive income for the period		290,244		89,329

Attributable to
Owners of the Company
Net income for the period		289,839		88,736

Non-controlling interests		405		593

Net income for the period		290,244		89,329

The accompanying notes are an integral part of these unaudited condensed Consolidated interim financial statements.

F-4

PagSeguro Internet S.A.

Unaudited condensed consolidated interim statements of changes in equity

(All amounts in thousands of reais)


								Profit reserve
	Note		Share capital		Net parent investment			Legal reserve			Profit retention reserve			Retained earnings			Total			Non-controlling interests			Total equity
AT JANUARY 01, 2016				441,616		9,730			757			7,588			—			459,691			2,186			461,877

Net income for the period		18		—		—			—			—			88,736			88,736			593			89,329
Capital increase				26,610		36,654			—			—			—			63,264			—			63,264
Payout capitalization				56,351		(46,384	)		(267	)		4,539			(14,239	)		—			—			—
Non-controlling acquisition		18		—		—			—			—			2,779			2,779			(2,779	)		—

AT September 30, 2016				524,577		—			490			12,127			77,276			614,470			—			614,470

Net income for the period				—		—			—			—			38,451			38,451			—			38,451
Constitution of legal reserve		18		—		—			5,787			—			(5,787	)		—			—			—
Distribution of interest on own capital		18		—		—			—			—			(26,059	)		(26,059	)		—			(26,059	)
Profit retention reserve		18		—		—			—			83,881			(83,881	)		—			—			—

AT DECEMBER 31, 2016				524,577		—			6,277			96,008			—			626,862			—			626,862

Net income for the period		18		—		—			—			—			289,839			289,839			405			290,244
Non-controlling acquisition		18		—		—			—			—			—			—			130			130
Distribution of interest on own capital		18		—		—			—			(96,008	)		(142,797	)		(238,805	)		—			(238,805	)

AT September 30, 2017				524,577		—			6,277			—			147,042			677,896			535			678,431

The accompanying notes are an integral part of these unaudited condensed Consolidated interim financial statements.

F-5

PagSeguro Internet S.A.

Unaudited condensed consolidated interim statements of cash flows

Nine-month periods ended

(All amounts in thousands of reais)


	Note		September 30, 2017			September 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income taxes				413,258			116,168
Expenses (revenues) not affecting cash:
Depreciation and amortization		21		36,165			21,612
Chargebacks		21		35,429			20,723
Accrual/ (reversal) of provision for contingencies				746			361
Unrealized loss on derivative instruments				—			1,382
Other financial cost, net				2,310			2,488
Changes in operating assets and liabilities
Note receivables				(1,457,481	)		(460,527	)
Inventories				(45,283	)		21,516
Taxes recoverable				9,309			4,264
Other receivables				(3,441	)		831
Other payables				5,275			(95	)
Payables to third parties				957,440			257,912
Trade payables				51,556			21,227
Receivables from (payables to) related parties				89,305			(248,017	)
Salaries and social charges				11,760			5,966
Taxes and contributions				(678	)		1,806

				105,670			(232,383	)

Income tax and social contribution paid				(90,318	)		(12,493	)
Interest income received				157,451			99,638
Interest paid				(9,175	)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES				163,628			(145,238	)

CASH FLOWS FROM INVESTING ACTIVITIES
Amount paid on acquisitions		9		(3,346	)		—
Purchases of property and equipment		10		(1,796	)		(491	)
Purchases and development of intangible assets		11		(69,165	)		(46,980	)
Acquisition of financial investments				—			(132,066	)
Redemption of financial investments				132,107			132,343

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES				57,800			(47,194	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		13		—			199,480
Payment of borrowings				(199,480	)		—
Payment of derivative financial instruments				(5,833	)		—
Distribution of dividends				(54,273	)		—

NET CASH USED IN FINANCING ACTIVITIES				(259,586	)		199,480

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				(38,158	)		7,048

Cash and cash equivalents at the beginning of the period				79,969			6,888
Cash and cash equivalents at the end of the period				41,811			13,936

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

F-6

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

1.	General information

Pagseguro Internet S.A. (“PagSeguro Brazil”), a subsidiary of Universo Online S.A. (“UOL”), referred to together with its subsidiaries as the “PagSeguro Brazil Group”, is a privately-held corporation established on January 20, 2006, headquartered in the city of São Paulo, Brazil, and engaged in providing financial technology solutions and services and the corresponding related activities, focused principally on micro-merchants and small and medium-sized businesses (“SMEs”).

The subsidiary Net+Phone Telecomunicações Ltda. (“Net+Phone”) is mainly engaged in acquisition and selling of POS (Point of sale) devices and similar items, while the subsidiary Boa Compra S.A. (“Boa Compra”) allows its clients to operate cross-border transactions where the merchant and consumer are located in different countries across Latin America, Spain, Portugal and Turkey.

These unaudited condensed consolidated interim financial statements include PagSeguro Brazil and its subsidiaries. Net+Phone and Boa Compra were transferred between entities under common control resulting from the transfer to PagSeguro Brazil from its parent UOL on July 29, 2016 and were accounted for retrospectively in these interim unaudited condensed consolidated financial statements at UOL’s carrying amounts.

As at August 1, 2017, PagSeguro Brazil carried out a reverse share split of 2:1 shares which was approved and effective at the same date. As a consequence of the reverse share split, the share capital previously represented by 524,577,214 common shares was reduced to 262,288,607 common shares. The reverse share split was accounted retrospectively (Notes 18 and 19).

2.	Presentation and preparation of the unaudited condensed consolidated interim financial statements and significant accounting policies

These unaudited condensed consolidated interim financial statements include the financial statements of PagSeguro Brazil, Net+Phone and Boa Compra, which are all under common control and were prepared exclusively for the purpose of presenting, on a comparative basis, operations in a consolidated manner, for the nine-month period ended September 30, 2016. The information presented in these unaudited condensed consolidated interim financial statements does not reflect the operations of PagSeguro Brazil as a single entity. Therefore, these unaudited condensed consolidated interim financial statements do not necessarily reflect the results that would have been achieved had the companies operated as a single business during the periods presented.

These unaudited consolidated interim financial information for the nine-month period ended September 30, 2017 also include the financial statements of BCPS Online Services, Lda. (“BCPS”) and R2TECH Informática S.A. (“R2TECH”) as from January 1 and May 2, 2017, respectively, dates on which the control over the entities was obtained by PagSeguro Brazil (Notes 3 and 9).

These unaudited condensed consolidated interim financial statements disclose all (and only) the applicable significant information related to the unaudited condensed consolidated interim financial statements, which is consistent with the information utilized by management in the performance of its duties. The unaudited condensed consolidated interim financial statements are presented in thousands of Brazilian reais, unless otherwise indicated, which is the PagSeguro Brazil Group’s functional currency.

F-7

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

The PagSeguro Brazil Group has adopted all pronouncements and interpretations issued by International Accounting Standards Board (“IASB”) that were in effect at September 30, 2017.

These unaudited condensed consolidated interim financial statements for the nine-month period ended September 30, 2017 were approved by PagSeguro Brazil’s Board of Directors at a meeting held on December 22, 2017.

2.1

Basis of preparation of interim financial information

This unaudited condensed consolidated interim financial report for the nine-month period ended September 30, 2017 has been prepared in accordance with Accounting Standard IAS 34 Interim Financial Reporting.

This unaudited condensed consolidated interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended December 31, 2016.

The accounting policies and critical accounting estimates and judgments adopted are consistent with those of the previous financial year and corresponding interim reporting period.

2.2

New standards not yet effective

The following new standards have been issued by IASB, but are not effective for the nine-month ended September 30, 2017:

IFRS 9—“Financial Instruments”: addresses the classification, measurement and recognition of financial assets and liabilities. The complete version of IFRS 9 was issued in July 2014 and is effective as from January 1, 2018. It replaces the guidance included in IAS 39 related to the classification and measurement of financial instruments. The main amendments brought by IFRS 9 are: (i) new criteria for the classification of financial assets; (ii) new impairment model for financial assets, which is based on expected losses, replacing the current model of incurred losses; and (iii) relaxation of the requirements for the adoption of hedge accounting. Management evaluated the new guidelines introduced by IFRS 9 and did not identify any material impact for the PagSeguro Brasil Group.

IFRS 15—“Revenue from Contracts with Customers”: this new standard introduces the principles to be applied by an entity to determine the measurement and recognition of revenue. This standard is based on the principle that revenue is recognized when control of a good or service is transferred to a customer, and, therefore, the principle of control will replace the principle of risks and benefits. This standard will replace IAS 11—“Construction Contracts”, IAS 18—“Revenues” and related interpretations, and becomes effective on January 1, 2018. Management has performed a preliminary assessment and did not identify any material impacts on its products and services.

F-8

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

IFRS 16—“Leases”—this new standard requires lessees to recognize the liability of the future payments and the right of use of the leased asset for virtually all lease contracts, including operating leases. Certain short-term and low-value contracts may be out of the scope of this new standard. The criteria for recognition and measurement of leases in the financial statements of the lessors are substantially maintained. IFRS 16 is effective for years beginning on or after January 1, 2019 and replaces IAS 17—“Leases” and related interpretations. Management has performed a preliminary assessment and did not identify any material impacts to date.

There are no other IFRS or IFRIC interpretations not yet effective that could have a material impact on PagSeguro Brazil’s financial statements.

2.3

New and revised pronouncements in effect

The amendments to standards or new pronouncements applicable to the years presented in the unaudited condensed consolidated interim financial statements were not relevant to the PagSeguro Brazil Group.

2.4

Seasonality

PagSeguro Brazil operates in a somewhat seasonal industry, which tends to experience relatively fewer

transactions in the first quarter of the year, increased activity as the year-end holiday shopping season

initiates, and fewer transactions after the year-end holidays. For the periods presented in these unaudited condensed consolidated interim financial statements, PagSeguro Brazil has not experienced significant seasonality in its results.

3.	Consolidation of subsidiaries


	At September 30, 2017
Company	Assets		Liabilities		Equity		Net income (loss) for the period			Ownership - %
Net + Phone		925,890		878,201		47,689		(4,710	)		99,99
Boa Compra		530,709		513,012		17,697		3,451			99,99
BCPS		889		160		729		210			99,50
R2TECH		1,769		685		1,084		421			51,00

Operations of the subsidiaries

•

Net+Phone: On July 29, 2016, UOL transferred its total equity interest in Net+Phone to PagSeguro Brazil, as a capital contribution, in the amount of R$44,317.

•

Boa Compra: On July 29, 2016, UOL transferred its total equity interest in Boa Compra to PagSeguro Brazil as a capital contribution, in the total amount of R$12,034.

F-9

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

•

BCPS: On January 1, 2017, PagSeguro Brazil acquired a 99.5% equity interest in BCPS Online Services, Lda. (“BCPS”). Refer to Note 9.

•

R2TECH: On May 2, 2017, PagSeguro Brazil acquired a 51% equity interest in R2Tech Informática S.A. (“R2TECH”). Refer to Note 9.

4.	Segment reporting

Operating segments are reported consistently with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, responsible for allocating resources and assessing the performance of the operating segments, is the Board of Directors, which is also responsible for making the PagSeguro Brazil Group strategic decisions.

Considering that all decisions are based on consolidated reports, and that all decisions related to strategic and financial planning, purchases, investments and the allocation of funds are made on a consolidated basis, the PagSeguro Brazil Group and its subsidiaries operate in a single segment, as payment arrangement agents.

The PagSeguro Brazil Group is domiciled in Brazil and has revenue arising from local customers and customers located abroad. The mainly revenue is related sales from domestic market. The international market represents 2% and 4% for the nine-month periods ended September 30, 2017 and 2016, respectively.

5.	Cash and cash equivalents


	September 30, 2017		December 31, 2016
Short-term bank deposits		41,811		79,969

		41,811		79,969

Cash and cash equivalents are held for the purpose of meeting short-term cash needs and include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less, and with immaterial risk of change in value.

F-10

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

6.	Financial investments


	September 30, 2017		December 31, 2016
Short-term investment		—		131,239

		—		131,239

Short-term investments refer to two debentures, with a return of 60% of the Interbank Deposit Certificate (CDI). This financial asset was classified as fair value thought profit and loss. Debentures were contracted with a large financial institution which has received a positive rating by major credit rating agencies.

7.	Note receivables


	September 30, 2017								December 31, 2016
Legal obligors	Visa		Master		Hipercard		Total		Visa		Master		Total
Itaú		190,645		687,672		115,602		993,919		99,433		244,741		344,174
Bradesco		252,988		80,224		—		333,212		115,009		36,032		151,041
Banco do Brasil		204,801		71,536		—		276,337		91,414		29,425		120,839
CEF		51,093		79,089		—		130,182		23,837		30,979		54,816
Santander		95,754		261,693		—		357,447		48,695		79,085		127,780
Other		100,868		314,923		—		415,791		50,716		93,473		144,189
Total card issuers (i)		896,149		1,495,137		115,602		2,506,888		429,104		513,735		942,839

Vero		—		—		—		30,057		—		—		331,807
Cielo		—		—		—		252,742		—		—		355,949
Redecard		—		—		—		164,126		—		—		56,025
Amex		—		—		—		10,255		—		—		4,090
Other		—		—		—		16,712		—		—		24,804
Total acquirers (ii)		—		—		—		473,892		—		—		772,675

Total note receivables		896,149		1,495,137		115,602		2,980,780		429,104		513,735		1,715,514

(i)

Card issuers: receivables derived from transactions where the PagSeguro Brazil acts as the financial intermediary in operations with the issuing banks, related to the intermediation agreements between PagSeguro Brazil and Visa, Mastercard or Hipercard. However, the PagSeguro Brazil´s contractual note receivables are with the financial institutions, which are the legal obligors on the note receivables. Additionally, amounts due within 27 days of the original transaction, including those that fall due with the first installment of installment receivables, are guaranteed by Visa, Mastercard or Hipercard, as applicable, in the event that the legal obligors do not make payment. PagSeguro Brazil started operating directly as a financial intermediary in 2016.

(ii)	Acquirers: refer to card processing transactions to be received from the acquirers, which are a third parties acting as a financial intermediaries between the issuing bank and PagSeguro Brazil. This balance also includes the receivables from sales of debit and credit card readers.

F-11

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

The maturity analysis of note receivables is as follows:


	September 30, 2017		December 31, 2016
Due within 30 days		1,554,247		970,086
Due within 31 to 120 days		849,803		609,689
Due within 121 to 180 days		297,646		43,144
Due within 181 to 360 days		279,084		92,595

		2,980,780		1,715,514

8.	Related-party balances and transactions

The PagSeguro Brazil Group is controlled by UOL (incorporated in Brazil), which owns 99.99% of the shares.

i.	Balances and transactions with related parties:


	September 30, 2017				December 31, 2016
	Receivables		Payables		Receivables		Payables
Immediate parent
UOL – cash management (a)		—		32,492		300,809		—
UOL – sale of services (b)		—		28,125		—		59,692
Affiliated companies
UOL Diveo – cash management (a)		—		—		—		1,383
UOL Diveo – sale of services (b)		—		2,441		—		9,360
Concurso Virtual S.A.		—		1,829		—		1,900
Transfolha Transportadora e Distribuição Ltda.		—		3,200		—		1,196
Livraria da Folha Ltda.		—		685		—		2,285
Empresa Folha da Manhã S/A		—		3,176		—		21
Others		279		668		—		412

		279		72,616		300,809		76,249

(a)	The receivables/payables with related parties arising from cash management are settled within one month and are free of interest. Shared service costs are offset with these balances. The receivables are unsecured in nature and no provisions are held against receivables from related parties.

In April and September 2017, the PagSeguro Brazil Group decided to settle a portion of its outstanding balance with related parties, as described below.

On April 30, 2017, PagSeguro Brazil approved the settlement of R$22,149 related to interest on own capital that was distributed with respect to the year ended December 31, 2016. PagSeguro Brazil and Boa Compra agreed with UOL that the full amount of this outstanding interest on own capital would be offset against receivables under the centralized cash management with UOL.

In addition, as described in Note 18, on September 29, 2017 PagSeguro Brazil approved and distributed a total of R$238,804 in dividends, consisting of (i) dividends related to the year ended December 31, 2016 in the amount of R$96,009; and (ii) dividends related to the six-month period ended June 30, 2017 in the amount of R$142,794. PagSeguro Brazil and Boa Compra agreed with UOL to offset R$184,530 from the total amount of R$238,804 against receivables under the centralized cash management with UOL and that PagSeguro Brazil would pay the remaining balance of R$54,272 in cash to UOL.

(b)	Sale of services refers mainly to purchase of (i) advertising services from UOL and (ii) services related to technical support in computing and hosting from UOL Diveo Tecnologia Ltda. (“UOL Diveo”).

F-12

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)


	September 30, 2017				September 30, 2016
	Revenue		Expense		Revenue		Expense
Immediate parent
UOL – shared service costs (a)		—		40,609		—		—
UOL – sale of services (b)		261		33,977		—		24,156
Affiliated companies
UOL Diveo – shared service costs (c)		—		24		—		—
UOL Diveo – sale of services (d)		—		22,593		—		91
Transfolha Transportadora e Distribuição Ltda.		—		8,188		—		—
Livraria da Folha Ltda.		259		—		54		—
Others		335		—		407		1

		855		105,391		461		24,248

(a)	Shared services costs mainly related to (i) payroll costs, (ii) IT structure / software and (iii) rental costs are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to contractual agreements. Such costs are included in administrative expenses.

(b)	Sale of services related to advertising services are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to contractual agreements.

(c)	Shared services costs are incurred by the affiliated company UOL Diveo and are charged to PagSeguro Brazil pursuant to contractual agreements. The main costs are related to IT structure/software.

(d)	Sale of services from the affiliated company UOL Diveo related to technical support in computing and hosting services (started in 2016) and are charged to PagSeguro Brazil pursuant to contractual agreements.

ii.	Key management compensation

Key management compensation includes only short term benefits of PagSeguro Brazil’s executive officers. At September 30, 2017, the total compensation paid to the executive officers for the nine-month period ended September 30, 2017 amounted to R$ 2,722 (September 30, 2016—R$ 2,028).

9.	Business combinations

The acquisitions described below are in accordance with PagSeguro Brazil’s business strategies, as well as the products offered by them and their client portfolio.

BCPS

On January 1, 2017, PagSeguro Brazil acquired 99.5% of the share capital and obtained the control of BCPS. BCPS’s main activity is to enable clients of the PagSeguro Brazil Group to operate cross-border transactions where the merchant and the consumer are located in different countries of Latin America, Spain, Portugal and Turkey.

F-13

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

The amount paid in the acquisition was R$406, which was settled in cash on that date. The fair value of the acquired assets, amounting R$568, and the assumed liabilities amounting of R$75 at the acquisition date are substantially similar to their book value. A bargain purchase gain of R$87 arose from the acquisition of BCPS. The impacts of the acquisition were not considered material to PagSeguro Brazil.

R2TECH

On May 2, 2017, PagSeguro Brazil acquired 51% of the share capital and obtained the control of R2TECH.

R2TECH’s main activity is in the information technology industry, focused on the processing of back-office solutions, including sales reconciliation, gateway solutions and services, the capture of credit cards with administrators and acquirers.

The purchase consideration was R$9,200, of which R$2,940 was settled in cash on the acquisition date and R$460 was deposited into an escrow account for future price adjustments; R$2,300 is due on December 31, 2017, recorded in the balance sheet as Current other payables and the remaining amount of R$3,500 is due on December 31, 2018, recorded in the balance sheet as Non-current other payables. The last payment is linked to R2TECH performance targets. Based on the current expectations of management, these performance targets should be achieved.

The fair value of the acquired assets, amounting to R$348, and the assumed liabilities, amounting of R$ 215 at the acquisition date are substantially similar to their book value. The goodwill of R$9,067 arising from the acquisition is attributable to the future profitability of the business in synergy with the products offered by the PagSeguro Brazil Group. The purchase price allocation may be subject to changes within the measurement period, as defined in IFRS 3 – Business Combination.

Amounts attributed to R2TECH and included in the PagSeguro Brazil’s unaudited condensed consolidated interim financial statements since the acquisition date are not material. Since the acquisition date until September 30, 2017, R2TECH did not generate significant amounts of net revenue and net income. In addition, the amount of net revenue and net profit generated by this entity during the nine-month period ended September 30, 2017, had it been acquired at the beginning of that period, would not be material.

F-14

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

10.

Property and equipment

(a)	Property and equipment is composed as follows:


	September 30, 2017
	Cost		Accumulated depreciation			Net
Data processing equipment		8,185		(4,765	)		3,420
Facilities		52		(22	)		30
Machinery and equipment		1,566		(196	)		1,370
Furniture and fittings		326		(55	)		271
Leasehold improvements		179		(23	)		156
Others		38		(17	)		21

		10,346		(5,078	)		5,268


	December 31, 2016
	Cost		Accumulated depreciation			Net
Data processing equipment		7,574		(3,692	)		3,882
Facilities		52		(19	)		33
Machinery and equipment		548		(140	)		408
Furniture and fittings		190		(40	)		150
Leasehold improvements		100		(15	)		85

		8,464		(3,906	)		4,558

F-15

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

(b)	The changes in cost and accumulated depreciation were as follows:


	Data processing equipment			Facilities			Machinery and equipment			Furniture and fittings			Leasehold improvements			Others			Total
At December 31, 2016
Cost		7,574			52			548			190			100			—			8,464
Accumulated depreciation		(3,692	)		(19	)		(140	)		(40	)		(15	)		—			(3,906	)

Net book value		3,882			33			408			150			85			—			4,558

At September 30, 2017
Opening balance		3,882			33			408			150			85			—			4,558
Cost
Purchases		581			—			1,013			123			79			—			1,796
Acquisition of subsidiary Depreciation		30			—			5			13			—			38			86
Depreciation		(1,073	)		(3	)		(56	)		(15	)		(8	)		(17	)		(1,172	)

Net book value		3,420			30			1,370			271			156			21			5,268

At September 30, 2017
Cost		8,185			52			1,566			326			179			38			10,346
Accumulated depreciation		(4,765	)		(22	)		(196	)		(55	)		(23	)		(17	)		(5,078	)

Net book value		3,420			30			1,370			271			156			21			5,268

11.

Intangible assets

(a)	Intangible assets are composed as follows:


	September 30, 2017
	Cost		Accumulated amortization			Net
Expenditures related to software and technology		211,976		(99,635	)		112,341
Software licenses		6,230		(1,710	)		4,520
Goodwill (i)		9,067		—			9,067

		227,273		(101,345	)		125,928


	December 31, 2016
	Cost		Accumulated amortization			Net
Expenditures related to software and technology		143,989		(61,858	)		82,131
Software licenses		5,393		(1,416	)		3,977

		149,382		(63,274	)		86,108

F-16

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

The PagSeguro Brazil Group capitalizes the expenses incurred with the development of platforms, which are amortized over the useful lives, within a range from three to five years.

(b)	The changes in cost and accumulated amortization were as follows:


	Expenditures with software and technology			Software licenses			Goodwill (i)		Total
At December 31, 2016
Cost		143,989			5,393			—		149,382
Accumulated amortization		(61,858	)		(1,416	)		—		(63,274	)

Net book value		82,131			3,977			—		86,108

At September 30, 2017
Opening balance		82,131			3,977			—		86,108
Cost
Additions		67,977			837			—		68,814
Acquisition of subsidiary		10			—			9,067		9,077
Amortization
Amortization		(37,777	)		(294	)		—		(38,071	)

Net book value		112,341			4,520			9,067		125,928

At September 30, 2017
Cost		211,976			6,230			9,067		227,273
Accumulated amortization		(99,635	)		(1,710	)		—		(101,345	)

Net book value		112,341			4,520			9,067		125,928

(i)	Refer to Note 9.

F-17

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

12.

Payables to third parties


	September 30, 2017		December 31, 2016
Payables to third parties		2,261,472		1,304,031

		2,261,472		1,304,031

Payables to third parties correspond to amounts to be paid to commercial establishments with respect to transactions carried out by their card holders, net of the intermediation fees and discounts applied. PagSeguro Brazil’s average settlement terms agreed upon with commercial establishments is up to 30 days.

13.

Borrowings

Type

Interest rate

Average
annual
interest
rate%

Maturity

September
30, 2017

December
31, 2016

Borrowings in foreign currency

Bank Borrowings

Fixed interest rates

2,36365%

January 2017

—

133,874

Bank Borrowings

Fixed interest rates

2,86450%

March 2017

—

71,330

—

205,204

In July 2016, PagSeguro Brazil obtained a borrowing denominated in foreign currency in the amount of US$ 40,000 thousand, equivalent to approximately R$ 129,390, which was fully paid on the January 6, 2017 maturity date in the total amount of R$ 139,541. In addition, in September 2016, PagSeguro Brazil obtained another borrowing in foreign currency in the amount of US$ 21,766 thousand, equivalent to approximately R$ 70,000, which was fully paid on the March 27, 2017 maturity date in the total amount of R$ 74,773. At the same time that the loans were obtained, PagSeguro Brazil contracted derivatives (Swaps) for both borrowings, with the specific objective of protecting them against exchange rate fluctuations. The derivative rate corresponded to 110% of the average daily interest rate of interbank deposits (DIs), and was settled together with the loans.

F-18

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

14.

Salaries and social charges


	September 30, 2017		December 31, 2016
Profit sharing		11,675		8,696
Salaries payable		2,311		1,682
Social charges		3,888		3,225
Payroll accruals		13,106		5,877
Other		1,212		789

		32,192		20,269

15.

Taxes and contributions


	September 30, 2017			December 31, 2016
Taxes
Services tax (i)		5,519			1,382
Value-added tax on sales and services (ii)		5,021			3,596
Social integration program (iii)		7,731			2,690
Income tax and social contribution		22,855			—
Social contribution on revenues (iii)		46,247			16,544
Other		885			690

		88,258			24,902

Judicial deposits
Services tax (i)		(2,883	)		—
Social integration program (iii)		(6,331	)		(2,516	)
Social contribution on revenues (iii)		(38,963	)		(15,475	)

		(48,177	)		(17,991	)

		40,081			6,911

(i)	Refers to taxes on revenue of transaction activities.

(ii)	Refers to the Value-added Tax on Sales and Services (ICMS) amounts due by Net+Phone, related to tax substitution and tax rate differential, applied on sales of credit and debit card readers.

(iii)

Refers mainly to Social Integration Program (PIS) and Social Contribution on Revenues (COFINS) charged on financial income. The PagSeguro Brazil Group obtained a court decision to deposit the amount related to the payments in escrow while the obligation of the payment is discussed in court.

F-19

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

16.

Provision for contingencies

The PagSeguro Brazil Group is party to labor and civil litigation in progress and are discussing such matters at the administrative and judicial levels, which, when applicable, are supported by judicial deposits. The provisions for probable losses arising from these matters are estimated and periodically adjusted by management, supported by the opinion of its external legal advisors.


	September 30, 2017		December 31, 2016
Civil		1,320		555
Labor		267		125

Current		1,587		680

The PagSeguro Brazil Group is a party on civil lawsuits involving risks classified by management as possible losses, based on the evaluation of its legal advisors, for which no provision was recognized at September 30, 2017, totaling approximately R$1,138 (December 31, 2016—R$ 816). PagSeguro Brazil Group is not a party to tax and labor lawsuits involving risks classified by management as possible losses.

17.

Income tax and social contribution

(a)	Deferred income tax and social contribution


	Tax losses			Tax credit		Technological inovation (i)			Other temporary differences - ASSETS			Other temporary differences - LIABILITY			Total
Deferred tax
At December 31,2015		3,363			—		(6,257	)		3,362			—			468
Included in the statement of income		(1,818	)		—		(12,581	)		3,357			—			(11,042	)

At September 30, 2016		1,545			—		(18,838	)		6,719			—			(10,574	)

Included in the statement of income		(494	)				(5,540	)		(3,071	)					(9,105	)
Taken directly to equity		—			3,606		—			—			—			3,606

At December 31, 2016		1,051			3,606		(24,378	)		3,648			—			(16,073	)

Included in the statement of income		282			—		(12,156	)		14,645			(1,667	)		1,104

At September 30, 2017		1,333			3,606		(36,534	)		18,293			(1,667	)		(14,969	)

F-20

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

(i)	The main temporary differences representing the balance of the deferred tax liability refers to the benefit granted by the Technological Innovation Law ( Lei do Bem ), which reduces the tax charges on the capitalized amount of property and equipment.

Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. Tax losses do not have expiration date.

The estimated realization of deferred tax assets in non-current assets and liabilities is as follows:


	September 30, 2017					December 31, 2016
	Asset		Liability			Asset		Liability
2017		2,246		(3,129	)		940		(8,126	)
2018		3,659		(12,511	)		940		(8,126	)
2019		3,659		(12,511	)		940		(8,126	)
2020		3,659		(9,467	)		940		—
2021		3,659		(333	)		4,545		—
2022		6,350		(250	)		—		—

		23,232		(38,201	)		8,305		(24,378	)

(b)	Reconciliation of the income tax and social contribution expense

At September 30, 2017 and 2016, the PagSeguro Brazil Group computed income tax and social contribution under the taxable income method. The following is a reconciliation of the difference between the actual income tax and social contribution expense and the expense computed by applying the federal statutory rate for the nine-month periods ended September 30, 2017 and 2016:


	September 30, 2017			September 30, 2016
Profit for the period before taxes		413,258			108,169
Statutory rate		34%			34%

Expected income tax and social contribution		(140,508	)		(36,777	)
Income tax and social contribution effect on:
Permanent additions (exclusions)
Gifts and other non-deductible expenses		(1,167	)		(2,789	)
R&D and technological innovation benefit - Law 11.196/05 (i)		17,595			12,660
Other additions		1,066			67

Income tax and social contribution expense		(123,014	)		(26,839	)

Effective rate		30%			25%
Income tax and social contribution - current		(124,118	)		(15,797	)
Income tax and social contribution - deferred		1,104			(11,042	)

(i)	Refers to the benefit granted by the Technological Innovation Law ( Lei do Bem ), which reduces the income tax charges, based on the amount invested by the PagSeguro Brazil Group on some specific property and equipment.

F-21

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

18.

Equity

Share capital

At September 30, 2017, share capital, after retroactively reflecting the reverse share split described in Note 1, is represented by 262,288,607 common shares, with no par value . Share capital is composed of the following shares for the nine-month periods ended September 30, 2017 and 2016:


December 31, 2015 shares outstanding			220,808,044

Capitalization of control party related party payable (1) Issuance of shares to UOL for transfer of Net+Phone and Boa Compra (2)			13,305,204 28,175,359

December 31, 2016 shares outstanding			262,288,607

September 30, 2017 shares outstanding			262,288,607

PagSeguro Brazil has reflected in its statement of changes in shareholders’ equity the issuance of shares during the periods that such shares were issued. For earnings per share purposes, the PagSeguro Brazil has considered 262,288,607 as outstanding during the nine-month period ended September 30, 2017, as shares in (2) and (3) above were issued to UOL, the control party, as part of the recapitalization.

(1)	On May 31 2016, UOL capitalized balances of related parties as a capital contribution in the amount of R$ 26,610 (13,305,204 shares).

(2)	As described in Note 1, in July 2016, UOL transferred its investment in Boa Compra and Net+Phone to PagSeguro Brazil, as a capital contribution in the amount of R$ 56,351 (28,175,359 shares).

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Legal reserve

The legal reserve is established pursuant to the bylaws, at 5% of annual profit, up to the limit of 20% of paid-up share capital. The legal reserve will be used only for capital increases or absorption of losses.

Profit retention reserve

The PagSeguro Brazil management is proposing the establishment of a profit retention reserve totaling R$ 96,008, relating to the profit for the year ended December 31, 2016, plus profits accumulated in prior years, to cover the PagSeguro Brazil capital budget and was approved by the shareholders in June 26, 2017.

On September 29, 2017 the total retained earnings reserve was distributed as dividends.

F-22

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

Dividends

Pursuant to the bylaws of PagSeguro Brazil, 1% of profits are distributed as dividends to the shareholders. The bylaws also provide that profit for the year and interest on own capital should be allocated, in full or in part, to the constitution of reserves.

At the Extraordinary General Shareholders Meeting held on September 29, 2017, PagSeguro Brazil’s shareholders approved the distribution of (i) $142,794 of dividends related to the six-month period ended June 30, 2017 and (ii) R$96,009 in additional dividends related to the year ended December 31, 2016. The total dividends distributed amounted to R$238,804, of which $184,530 was offset against receivables under the centralized cash management with UOL and the balance of R$54,272 was paid in cash by PagSeguro Brazil to UOL. For further details, see Note 8.

19.

Earnings per share

Basic and diluted earnings per share are calculated by dividing the profit attributable to shareholders of the PagSeguro Brazil Group by the weighted average number of common shares issued and outstanding during the nine-month periods ended September 30, 2017 and 2016:


	September 30, 2017		September 30, 2016
Profit attributable to
owners of the Company		289,839		88,736
Weighted average number of common shares		262,288,607		262,288,607

Basic and diluted earnings per share - in reais		1.1050		0.3383

The denominator was retrospectively adjusted for the issuance of new shares as a result of the reorganization of companies under common control, as further described in Note 1, as well as to the share split approved and executed on August 01, 2017 (See note 18).

The PagSeguro Brazil Group’s basic earnings per share equal its diluted earnings per share, since the PagSeguro Brazil Group does not have any dilutive instruments.

F-23

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

20.

Total revenue and income


	September 30, 2017			September 30, 2016
Gross revenue from transaction activities and other services		899,435			362,527
Gross revenue from sales		502,268			235,391
Gross financial income (i)		562,376			283,934
Other financial income		3,937			2,850

Total gross revenue and income		1,968,016			884,703


Deductions from gross revenue from transactions activities and other services (ii)		(108,221	)		(42,737	)
Deductions from gross revenue from sales (iii)		(140,749	)		(71,168	)
Deductions from gross financial income (iv)		(26,709	)		(13,410	)

Total deductions from gross revenue and income		(275,679	)		(127,315	)

Total revenue and income		1,692,337			757,388

(i)	Includes (a) interest from early payment related to the discount of notes payable to third parties paid in advance and (b) interest on note receivables due in installments.

(ii)	Deductions consist of sales taxes.

(iii)

The deductions are composed by sales taxes and returns.

(iv)	Deductions consist of taxes on financial income.

21.

Expenses by nature


	September 30, 2017			September 30, 2016
Transactions costs		(427,243	)		(199,444	)
Cost of goods sold		(340,091	)		(146,297	)
Marketing and advertising		(204,620	)		(121,540	)
Personnel expenses		(74,692	)		(47,066	)
Financial expenses (i)		(63,792	)		(39,540	)
Chargebacks (ii)		(35,429	)		(20,723	)
Depreciation and amortization (iii)		(36,165	)		(21,612	)
Other		(97,047	)		(44,997	)

		(1,279,079	)		(641,220	)

Classified as:
Cost of services		(534,309	)		(267,368	)
Cost of sales		(384,106	)		(167,765	)
Selling expenses		(184,106	)		(99,813	)
Administrative expenses		(107,731	)		(60,689	)
Financial expenses		(63,792	)		(39,540	)
Other (expenses) income, net		(5,035	)		(6,045	)

		(1,279,079	)		(641,220	)

(i)

Our financial expenses include (a) the charges we incur to obtain early payment of receivables owed to us by card issuers and acquirers in order to finance our early payment of receivables feature for merchants, (b) interest expense on our other borrowings and (c) the cost of swaps relating to our foreign currency borrowings.

(ii)	Chargebacks refer to losses recognized in the period reflecting the risks of fraud associated with card processing operations, as detailed in Note 23 (iii).

(iii)

The depreciation and amortization amounts incurred in the period are segregated between costs and expenses as presented below:

F-24

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)


	September 30, 2017			September 30, 2016
Depreciation
Cost of sales and services		(687	)		(678	)
Selling expenses		(8	)		(8	)
Administrative expenses		(479	)		(282	)

		(1,174	)		(968	)

Amortization
Cost of sales and services		(38,330	)		(22,406	)
Administrative expenses		(91	)		(30	)

		(38,421	)		(22,436	)

PIS and COFINS credits (*)		3,430			1,792

Depreciation and amortization expense, net		(36,165	)		(21,612	)

(*)	PagSeguro Brazil has a tax benefit on PIS and COFINS that allows to reduce the depreciation and amortization expenses when incurred. This tax benefit is recognized directly as a reduction of depreciation and amortization expense.

22.

Financial instruments by category

The PagSeguro Brazil Group estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies for each situation.

The interpretation of market data, as regards the choice of methodologies, requires considerable judgment and the establishment of estimates to reach an amount considered appropriate to each situation. Therefore, the estimates presented may not necessarily indicate the amounts that could be obtained in the current market. The use of different hypotheses to calculate market value or fair value may have a material impact on the amounts obtained. The assets and liabilities presented in this note were selected based on their relevance.

The PagSeguro Brazil Group believes that the financial instruments recognized in these unaudited condensed consolidated interim financial statements at their carrying amount are substantially similar to their fair value. However, since they do not have an active market, variations could occur in the event the PagSeguro Brazil Group were to decide to settle or realize them in advance.

F-25

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

The PagSeguro Brazil Group classifies its financial instruments into the following categories:


	September 30, 2017		December 31, 2016
Financial assets
Measured at fair value through profit or loss:
Financial investments		—		131,239
Loans and receivables:
Cash and cash equivalents		41,811		79,969
Note receivables		2,980,780		1,715,514
Receivables from related parties		279		300,809
Other receivables		7,812		4,495

		3,030,682		2,232,026


	September 30, 2017		December 31, 2016
Financial liabilities
Measured at fair value through profit or loss:
Derivative financial instruments		—		6,613

		—		6,613

Amortized cost:
Payables to third parties		2,261,472		1,304,031
Trade payables		112,597		61,719
Trade payables to related parties		72,616		76,249
Borrowings		—		205,204
Dividends payable and interest on own capital		1		22,243
Other payables		26,955		15,244

		2,473,641		1,684,690

F-26

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

23.

Financial risk management

The PagSeguro Brazil Group activities expose it to a variety of financial risks: market risk (including currency risk and cash flow or fair value interest rate risk), fraud risk (chargebacks), credit risk and liquidity risk. The PagSeguro Brazil Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the PagSeguro Brazil Group’s financial performance. The PagSeguro Brazil Group uses derivative financial instruments to hedge certain risk exposures, when applicable.

Among the main market risk factors that may affect the PagSeguro Brazil Group’s business are the following ones:

(i)	Foreign exchange risk

Foreign exchange risk arises when future business transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. At December 31, 2016, the PagSeguro Brazil Group had foreign currency loans that were linked to derivatives (swaps). At September 30, 2017, the PagSeguro Brazil Group did not have any foreign currency loans, or derivatives financial instruments.

(ii)	Cash flow and fair value interest rate risk

At December 31, 2016 this risk arises from the derivative financial instruments (swap) that replaces the risk of the exchange and interest rate variation associated with borrowings by the CDI. In this case, the swap’s liability leg is the CDI, exposing PagSeguro Brazil Group to the variation of this interest rate. For better risk management, PagSeguro Brazil Group chooses to enter into borrowings and derivatives with short-term maturities, which enable a better management of the rates. At September 30, 2017, the PagSeguro Brazil Group did not have any derivate financial instrument.

(iii)

Fraud Risk (chargeback)

The PagSeguro Brazil Group’s sales transactions are susceptible to potentially fraudulent or improper sales and it uses two processes to control the fraud risk as such:

The first one consists of monitoring, on a real time basis, the transactions carried out with credit and debit cards and payment slips, through an anti-fraud system. This process approves or rejects suspicious transactions at the time of the authorization, based on statistical models that are revised on a periodic basis.

The second process detects chargebacks and disputes not identified by the first process. This is a complementary process and increases the PagSeguro Brazil Group’s ability to avoid new frauds.

F-27

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

(iv)	Credit risk

Credit risk is managed on a group basis and are limited to the possibility of default by: (a) the card issuers, which have the obligation of transferring to the credit and debit card labels the fees charged for the transactions carried out by their card holders, and/or (b) the acquirers, which are used by PagSeguro Brazil Group to approve transactions with the issuers.

In order to mitigate this risk, the PagSeguro Brazil Group has established a Credit and Liquidity Risk Committee, whose responsibility is to assess the level of risk of each of the card issuers served by the PagSeguro Brazil Group, classifying them into three groups:

(i)	card issuers with a low level of risk, with credit ratings assigned by FITCH, S&P and Moody’s, which do not require additional monitoring;

(ii)	card issuers with a medium level of risk, which are also monitored in accordance with the Basel and property, plant and equipment ratios; and

(iii)

card issuers with a high level of risk, which are assessed by the Committee at monthly meetings.

No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties in addition to the amounts already derecognized as chargebacks, presented as fraud risk.

(v)	Liquidity risk

The PagSeguro Brazil Group manages liquidity risk by maintaining reserves, bank and credit lines for the obtaining borrowings, when deemed appropriate. The PagSeguro Brazil Group continuously monitors actual and projected cash flows, and matches the maturity profile of its financial assets and liabilities in order to ensure the PagSeguro Brazil Group has sufficient funds to honor its obligations to third parties and meet its operational needs.

The PagSeguro Brazil Group invests cash surplus in interest bearings financial investments, choosing instruments with appropriate maturity or sufficient liquidity to provide adequate margin as determined by the forecasts.

At September 30, 2017, the PagSeguro Brazil Group held cash and cash equivalents of R$41,811 (R$79,969 at December 31, 2016).

F-28

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

The table below shows the PagSeguro Brazil Group’s non-derivative financial liabilities divided into the relevant maturity group based on the remaining period from the balance sheet date and the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.


	Due within 30 days		Due within 31 to 120 days		Due within 121 to 180 days		Due within 181 to 360 days		Due to 361 days or more days
At September 30, 2017
Payables to third parties		2,102,976		109,996		25,644		22,856		—
Trade payables		112,597		—		—		—		—
Trade payables to related parties		—		—		—		72,616		—
Dividends payable and interest on own capital		—		—		—		1		—
Other payables		—		—		—		23,398		3,557
At December 31, 2016
Payables to third parties		1,228,922		60,396		10,152		4,561		—
Trade payables		54,125		4,827		63		2,704		—
Trade payables to related parties		—		—		—		76,249		—
Borrowings		—		208,374
Dividends pay able and interest on own capital		—		—		—		22,243		—
Other payables		—		—		—		15,244		—

24.

Capital management

The PagSeguro Brazil Group monitors capital on the basis of the gearing ratio which corresponds to net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated balance sheet) less cash and banks. Total capital is calculated as equity as shown in the consolidated balance sheet plus net debt.

During the nine-month period ended September 30, 2017, the PagSeguro Brazil Group’s strategy was to maintain a gearing ratio of up to 20%. The PagSeguro Brazil Group had no loans at September 30, 2017, therefore no gearing ratio is presented. The gearing ratio at December 31, 2016 was as follows:


	December 31, 2016
Borrowings		205,204
(-) Cash and cash equivalents		(79,969	)

Net debt		125,235

Total equity		626,862
Total capital		752,097

Gearing ratio		16.65%

F-29

PagSeguro Internet S.A.

Notes to the unaudited condensed consolidated interim financial statements at September 30, 2017 and for the nine-month period ended September 30, 2017

(All amounts in thousands of reais unless otherwise stated)

25.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy is used to measure fair value, as shown below:

◾	Level 1—Quoted prices (unadjusted) in active markets for identical assets and liabilities.

◾	Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

◾	Level 3—Inputs for the assets and liabilities that are not based on observable market data (that is, unobservable inputs).

The financial investments whose fair value adjustments is classified as Level 1 and derivative liabilities whose fair value measurement is classified as Level 2.

There were no transfers between Levels 1, 2 and 3 during the nine-month period ended September 30, 2017.

26.

Subsequent events

In October 2017, PagSeguro Brazil acquired a 51.41% controlling stake in BIVACO Holdings S.A. (“BIVA”), a company that facilitates peer-to-peer lending between borrowers and lenders. In November 2017, we acquired an additional interest in BIVA, bringing our total interest to 59.3% of BIVA’s total share capital. The total amount paid for these acquisitions was R$18.4 million.

* * *

F-30

Report of independent registered public accounting firm

To the board of Directors and Stockholders Pagseguro Internet S.A.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of changes in equity and of cash flows present fairly, in all material respects, the financial position of Pagseguro Internet S.A. and its subsidiaries at December 31, 2016, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers

Auditores Independentes

São Paulo, Brazil, December 22, 2017

F-31

PagSeguro Internet S.A.

Consolidated balance sheets

At December 31

(All amounts in thousands of reais)


ASSETS	Note		2016		2015		2014		LIABILITIES AND EQUITY	Note		2016		2015		2014
CURRENT ASSETS									CURRENT LIABILITIES
Cash and cash equivalents		6		79,969		6,888		1,199	Payables to third parties		12		1,304,031		683,092		369,921
Financial investments		7		131,239		—		33	Trade payables				61,719		35,344		3,537
Note receivables		8		1,715,514		1,110,020		665,872	Payables to related parties		9		76,249		92,402		—
Receivables from related parties		9		300,809		55,856		84,302	Derivative financial instruments		22		6,613		—		—
Inventories				21,023		41,204		16,114	Borrowings		13		205,204		—		—
Taxes recoverable				17,703		5,761		6,730	Salaries and social charges		14		20,269		13,651		376
Other receivables				4,495		21,032		4,320	Taxes and contributions		15		6,911		2,998		2,849

Total current assets				2,270,752		1,240,761		778,570	Provision for contingencies		16		680		48		1,593

									Dividends payable and interest on own capital				22,243		3,246		3,072
NON-CURRENT ASSETS									Other payables				15,244		1,754		3,974

Judicial deposits				534		376		548	Total current liabilities				1,719,163		832,535		385,322

Prepaid expenses				146		373		—
Deferred income tax and social contribution		17		8,305		6,726		8,086	NON-CURRENT LIABILITIES
Property and equipment		10		4,558		3,838		1,943	Deferred income tax and social contribution		17		24,378		6,257		5,377
Intangible assets		11		86,108		48,619		28,451	Provision for contingencies		16		—		24		336

Total non-current assets				99,651		59,932		39,028	Total non-current liabilities				24,378		6,281		5,713

													—		—		—

									TOTAL LIABILITIES				1,743,541		838,816		391,035

									EQUITY
									Share capital		18		524,577		441,616		42,568
									Net parent investment				—		9,730		381,569
									Legal reserve		18		6,276		757		266
									Profit retention reserve		18		96,009		7,588		380

													626,862		459,691		424,783

									Non-controlling interests				—		2,186		1,780

									TOTAL EQUITY				626,862		461,877		426,563

TOTAL ASSETS				2,370,403		1,300,693		817,598	TOTAL LIABILITIES AND EQUITY				2,370,403		1,300,693		817,598

The accompanying notes are an integral part of these consolidated financial statements.

F-32

PagSeguro Internet S.A.

Consolidated statements of income

Years ended December 31

(All amounts in thousands of reais unless otherwise stated)


	Note		2016			2015			2014
Net revenue from transaction activities and other services		20		480,025			268,198			160,081
Net revenue from sales		20		260,594			176,517			48,207
Financial income		20		392,429			219,462			115,792
Other financial income		20		5,337			10,744			1,756

Total revenue and income				1,138,385			674,920			325,836
Cost of sales and services		21		(623,667	)		(382,483	)		(142,483	)
Selling expenses		21		(199,937	)		(162,642	)		(81,428	)
Administrative expenses		21		(84,461	)		(61,129	)		(51,348	)
Financial expenses		21		(68,301	)		(29,696	)		(11,085	)
Other (expenses) income , net		21		(6,660	)		1,345			(3,341	)

PROFIT BEFORE INCOME TAXES				155,359			40,315			36,150

Current income tax and social contribution		17		(7,431	)		(2,587	)		(9,920	)
Deferred income tax and social contribution		17		(20,149	)		(2,239	)		1,019

INCOME TAX AND SOCIAL CONTRIBUTION		17		(27,580	)		(4,826	)		(8,901	)

NET INCOME FOR THE YEAR				127,779			35,490			27,249

Attributable to:
Owners of the Company				127,186			35,084			25,972
Non-controlling interests				593			406			1,277
Basic and diluted earnings per common share - R$		19		0.4849			0.1338			0.0990

The accompanying notes are an integral part of these consolidated financial statements.

F-33

PagSeguro Internet S.A.

Consolidated statements of comprehensive income

Years ended December 31

(All amounts in thousands of reais)

2016

2015

2014

NET INCOME FOR THE YEAR

127,780

35,488

27,250

Total comprehensive income for the year

127,780

35,488

27,250

Attributable to

Owners of the Company

Net income

127,187

35,082

25,973

Non-controlling interests

Net income

593

406

1,277

127,780

35,488

27,250

The accompanying notes are an integral part of these consolidated financial statements.

F-34

PagSeguro Internet S.A.

Consolidated statements of changes in equity

(All amounts in thousands of reais)


								Profit reserve
	Note		Share capital		Net parent investment			Legal reserve			Profit retention reserve			Retained earnings			Total			Non-controlling interests			Total equity
AT JANUARY 1, 2014				42,568		362,550			177			2,909			(9,144	)		399,060			503			399,563

Net income for the year				—		19,019			—			—			6,954			25,973			1,277			27,250
Constitution of legal reserve		18		—		—			89			—			(89	)		—			—			—
Distribution of dividends		18		—		—			—			—			(250	)		(250	)		—			(250	)
Profit retention reserve		18		—		—			—			(2,529	)		2,529			—			—			—

AT DECEMBER 31, 2014				42,568		381,569			266			380			—			424,783			1,780			426,563

Net income for the year				—		27,209			—			—			7,873			35,082			406			35,488
Constitution of legal reserve		18		—		—			490			—			(490	)		—			—			—
Distribution of dividends		18		—		—			—			—			(174	)		(174	)		—			(174	)
Profit retention reserve		18		—		—			—			7,209			(7,209	)		—			—			—
Reclassification of net parent investment in connection with separation		18		399,048		(399,048	)		—			—			—			—			—			—

AT DECEMBER 31, 2015				441,616		9,730			757			7,588			—			459,691			2,186			461,877

Net income for the year				—		—			—			—			127,186			127,186			593			127,779
Non-controlling acquisition				—		—			—			—			2,779			2,779			(2,779	)		—
Capital increase		18		26,610		36,654			—			—			—			63,264			—			63,264
Payout capitalization		18		56,351		(46,384	)		(267	)		4,539			(14,239	)		—			—			—
Constitution of legal reserve		18		—		—			5,787			—			(5,787	)		—			—			—
Distribution of interest on own capital		18		—		—			—			—			(26,059	)		(26,059	)		—			(26,059	)
Profit retention reserve		18		—		—			—			83,881			(83,880	)		—			—			—

AT DECEMBER 31, 2016				524,577		—			6,277			96,008			—			626,862			—			626,862

The accompanying notes are an integral part of these consolidated financial statements.

F-35

PagSeguro Internet S.A.

Consolidated statements of cash flows

Years ended December 31

(All amounts in thousands of reais)


	Note		2016			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income taxes				155,360			40,313			36,151
Expenses (revenues) not affecting cash:
Depreciation and amortization		21		31,246			18,933			11,637
Chargebacks		21		31,557			27,490			14,833
Accrual/ (reversal) of provision for contingencies				603			(2,134	)		499
Unrealized loss on derivative instruments		22		6,613			—			—
Other financial cost, net				5,549			(3,902	)		(352	)
Changes in operating assets and liabilities
Note receivables				(783,954	)		(552,984	)		(459,630	)
Inventories				20,181			(25,090	)		(13,846	)
Taxes recoverable				8,579			4,760			(499	)
Other receivables				17,214			(16,912	)		(3,255	)
Other payables				13,490			(2,221	)		267
Payables to third parties				620,940			313,958			145,485
Trade payables				25,430			31,836			3,968
Receivables from (payables to) related parties				(214,549	)		121,467			253,643
Salaries and social charges				6,618			13,275			(98	)
Taxes and contributions				3,867			150			(1,873	)
Provision for contingencies				(42	)		—			(75	)

				(51,298	)		(31,061	)		(13,144	)

Income tax and social contribution paid				(18,059	)		(2,690	)		(4,885	)
Interest income received				146,346			81,349			33,576

NET CASH PROVIDED BY OPERATING ACTIVITIES				76,989			47,598			15,547

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		10		(1,996	)		(3,219	)		(1,774	)
Purchases and development of intangible assets		11		(70,394	)		(38,880	)		(21,002	)
Acquisition of financial investments				(337,098	)		—			—
Redemption of financial investments				206,190			190			150

NET CASH USED IN INVESTING ACTIVITIES				(203,298	)		(41,909	)		(22,626	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		13		199,390			—			—

NET CASH PROVIDED BY FINANCING ACTIVITIES				199,390			—			—

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				73,081			5,689			(7,079	)

Cash and cash equivalents at the beginning of the year				6,888			1,199			8,278
Cash and cash equivalents at the end of the year				79,969			6,888			1,199

The accompanying notes are an integral part of these consolidated financial statements.

F-36

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

1. General information

The subsidiary Net+Phone Telecomunicações Ltda. (“Net+Phone”) is mainly engaged in acquisition and selling POS (Point of sale) devices and similar items, while the subsidiary Boa Compra S.A. (“Boa Compra”) allows its clients to operate cross-border transactions where the merchant and consumer are located in different countries across Latin America, Spain, Portugal and Turkey.

These consolidated financial statements include PagSeguro Brazil and its subsidiaries, Net+Phone and Boa Compra. These subsidiaries were transferred between entities under common control resulting from the transfer to PagSeguro Brazil from its parent UOL on July 29, 2016 and were accounted for retrospectively in these consolidated financial statements at UOL’s carrying amounts.

Additionally, UOL transferred net assets of its business related to the payment operations on August 1, 2015, which were also accounted for retrospectively as a transfer under common control. For periods prior to the transfer date, the operations included in these consolidated financial statements were on a carve-out basis, and reflect an allocation of UOL costs using methods that the PagSeguro Brazil Group believes is reasonable. See details in Note 9.

As at August 1, 2017, PagSeguro Brazil carried out a reverse share split of 2:1 shares which was approved and effective at the same date. As a consequence of the reverse share split, the share capital previously represented by 524,577,214 common shares, was reduced to 262,288,607 common shares. The reverse share split was accounted retrospectively (Notes 18 and 19).

2. Presentation and preparation of the consolidated financial statements and significant accounting policies

2.1 Preparation and presentation of the consolidated financial statements

These consolidated financial statements include the financial statements of PagSeguro Brazil, Net+Phone and Boa Compra, which are all under common control and were prepared exclusively for the purpose of presenting, on a comparative basis, operations in a consolidated manner, for the years ended December 31, 2016, 2015 and 2014. The information presented in these consolidated financial statements does not reflect the operations of the PagSeguro Brazil as a single entity. Therefore, these consolidated financial statements do not necessarily reflect the results that would have been achieved had the companies operated as a single business during the years presented.

Due to the corporate reorganization mentioned in Note 1, the consolidated financial statements include the carve-out of PagSeguro Brazil operations for the periods prior to August 1, 2015, when its activities were still recorded in UOL’s financial statements. These financial statements, which have been derived from UOL’s accounting records, do not necessarily reflect PagSeguro Brazil financial position, results of operations, or cash flows that would have been recorded had PagSeguro Brazil been operating as a separate entity.

F-37

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

From January 1, 2014 through July 31, 2015, when the PagSeguro Brazil financial statements were prepared on a carve out basis, certain assets and liabilities, revenues, costs and expenses directly related to the payment operations were controlled separately. Additionally, other indirect corporate expenses recorded at UOL were allocated to these carve-out financial statements based on assumptions that management believes are reasonable.

Pagseguro Brazil uses centralized cash management with UOL. Consequently, all amounts received or paid in connection with the PagSeguro business have been recognized as receivables from related parties and as payables to related parties in the balance sheet. This approach is consistent with the treatment of the consolidated financial statements prior to August 1, 2015, which were prepared on a carve-out basis.

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and disclose all (and only) the applicable significant information related to the consolidated financial statements, which is consistent with the information utilized by management in the performance of its duties. The consolidated financial statements are presented in thousands of Brazilian reais, unless otherwise indicated, which is the PagSeguro Brazil Group’s functional currency.

The consolidated financial statements have been prepared under the historical cost convention, which is modified for certain financial assets and liabilities (including derivative instruments) measured at fair value.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the PagSeguro Brazil Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

The PagSeguro Brazil Group has adopted all pronouncements and interpretations issued by IASB that were in effect at December 31, 2016.

These consolidated financial statements for the years ended December 31, 2016, 2015 and 2014 were approved by the PagSeguro Brazil Group’s Board of Directors at a meeting held on December 22, 2017.

2.2 Consolidation

Consolidated financial statements

The PagSeguro Brazil Group consolidates all entities over which it has control, when it is exposed or has rights to variable returns on its interest in the investee, and has the ability to govern the investee’s relevant activities.

The subsidiaries included in the consolidation are described in Note 4.

Subsidiaries

Subsidiaries are all entities over which the PagSeguro Brazil has control. Subsidiaries are fully consolidated from the date on which control is transferred to the PagSeguro Brazil. They are deconsolidated from the date that control ceases.

F-38

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

Identifiable assets acquired and liabilities and contingent liabilities assumed for the acquisition of subsidiaries in a business combination are measured initially at their fair values at the acquisition date. The PagSeguro Brazil Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the fair value of the acquiree’s identifiable net assets. Non-controlling interests are determined on each acquisition. Acquisition-related costs are accounted for in the statement of income as incurred. These accounting practices do not apply to transactions under common control.

Transactions, balances and unrealized gains on intercompany transactions are eliminated. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the asset transferred. The accounting policies of the subsidiaries are changed, where necessary, to ensure consistency with the policies adopted by the PagSeguro Brazil Group.

2.3 Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or the dates of valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of these transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income.

2.4 Cash and cash equivalents

Cash and cash equivalents are held for the purpose of meeting short-term cash needs and not for investment or any other purposes. The PagSeguro Brazil Group classifies as cash equivalents a financial investment that can be immediately converted into a known amount of cash and is subject to immaterial risk of change in value. The PagSeguro Brazil Group classifies financial instruments with original maturities of three months or less as cash equivalents.

2.5 Financial instruments–initial recognition and subsequent measurement

Financial assets

Initial recognition and measurement

Financial assets are classified in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity, and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. The PagSeguro Brazil Group does not classify its financial assets as held-to-maturity or and available-for-sale.

Derivatives are also categorized as measured at fair value through profit or loss unless they are designated as hedges.

Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of income.

F-39

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

Financial assets include cash and cash equivalents, current financial investments, note receivables, receivables from related parties, and other receivables.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification, which may be as follows:

Loans and receivables

Loans and receivables are carried at amortized cost using the effective interest rate method.

Financial assets at fair value through profit or loss

This category includes derivative financial instruments which do not meet the hedge accounting criteria defined by IAS 39.

Financial assets at fair value through profit or loss are presented at fair value in the balance sheet, with the corresponding gains or losses recognized in the statement of income.

The PagSeguro Brazil Group values its financial assets at fair value through profit or loss, as it intends to trade them within a short period of time. Reclassification to loans and receivables, available-for-sale financial assets or held-to-maturity investments depends on the nature of the asset. This valuation does not affect any financial assets designated at fair value through profit or loss at initial recognition, which cannot be subsequently reclassified.

Derecognition

A financial asset or, where applicable, a part of a financial asset or part of a group of similar financial assets, is derecognized when:

•

The rights to receive cash flows from the asset expire;

•

The PagSeguro Brazil Group transfers its rights to receive cash flows from the asset, or assumes an obligation to pay the received cash flows in full to a third party under a “pass-through” arrangement; and (a) transfers virtually all the risks and benefits of the asset, or (b) neither transfers nor retains virtually all the risks and benefits of the asset, but transfers control of the asset.

When the PagSeguro Brazil Group has transferred its rights to receive cash flows from an asset and has not transferred or retained substantially all the risks and benefits of the asset, this asset is recognized to the extent of the PagSeguro Brazil Group’s continuing involvement in the asset. In such case, the PagSeguro Brazil Group also recognizes an associated liability.

The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the PagSeguro Brazil Group has retained.

F-40

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration that the PagSeguro Brazil Group may be required to repay.

Impairment of financial assets

The PagSeguro Brazil Group assesses, at the balance sheet date, if there is objective evidence that a financial asset or a group of financial assets is impaired.

A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indication that the debtors are experiencing significant financial difficulty, probability that the debtor will enter bankruptcy or other financial reorganization, default or delinquency in interest or principal payments, and indication of a substantial decline in the estimated future cash flows, such as changes in maturity dates or economic conditions related to default.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified as financial liabilities at fair value through profit or loss, other financial liabilities, or as derivatives designated used for hedge, when appropriate. The PagSeguro Brazil Group determines the classification of its financial liabilities at initial recognition.

Financial liabilities are initially recognized at fair value and, in the case of other financial liabilities, plus directly related transaction costs.

Financial liabilities include payables to third parties, payables to third parties of related parties, trade payables, trade payables of related parties, borrowings, and other payables.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification, which may be as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include held-for-trading financial liabilities and financial liabilities designated at fair value through profit or loss at initial recognition.

Financial liabilities are classified as held-for-trading if acquired for sale in the short term. This category includes derivative financial instruments entered into by the PagSeguro Brazil Group, which do not meet the hedge accounting criteria defined by IAS 39.

Gains and losses on held-for-trading liabilities are recognized in the statement of income.

F-41

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

Other financial liabilities

After initial recognition, interest-bearing borrowings and debentures are subsequently measured at amortized cost, using the effective interest rate method, and are recognized in the statement of income.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in “Financial expenses” in the statement of income.

Derecognition

A financial liability is derecognized when the obligation is discharged, canceled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.

Financial instruments—offsetting

Financial assets and liabilities are presented net in the balance sheet if, and only if, there is an existing and enforceable legal right to offset the amounts recognized and an intention to offset or to realize the asset and settle the liability simultaneously.

Fair value of financial instruments

The fair value of financial instruments actively traded in organized markets is determined based on quoted market prices at the balance sheet date, without a deduction of transaction costs.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These techniques include the use of recent arm’s length transactions, reference to other similar instruments, discounted cash flow analysis or other valuation methods.

2.6. Note receivables

The amounts are mainly related to receivables from credit/debit card issuers and acquirers originated from transactions through PagSeguro Brazil Group platform, and from the sales of credit/debit card readers. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

The PagSeguro Brazil Group does not establish a provision for impairment of note receivables because the balance of note receivables is mainly comprised of transactions approved by large financial institutions that have low level risk based on ratings by major credit rating agencies. PagSeguro Brazil performed this risk assessment. See Note 23. Additionally, these financial institutions are the legal obligors to the note agreements.

Note receivables are recorded at present value. The balance of note receivables from installment transactions in an estimate based on the calculation of the present value of these transactions (Adjustment to Present Value), using average terms and rates, which are subject to variation in accordance with the term of these transactions and the rates applied.

F-42

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

PagSeguro Brazil incurs financial expenses when elects to receive early payment of note receivables from financial institutions. The finance expense is recognized at the time financial institution agrees to liquidate a note receivable due in installments on a prepaid basis, and it is recorded as Financial expenses in the income statement.

2.7 Inventories

The amounts are related to debit and credit card readers. Inventories are stated at the lower of cost and net realizable value. The method used to appraise inventories is the weighted moving average method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.

2.8 Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items and may also include finance costs related to the acquisition of qualifying assets.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with these costs will flow to the PagSeguro Brazil Group and they can be measured reliably. The carrying amount of replaced items or parts is derecognized. All other repairs and maintenance are charged to the statement of income during the year in which they are incurred.

The assets’ residual values and useful lives are reviewed at the end of each reporting period, and adjusted on a prospective basis if appropriate. Depreciation is calculated under the straight-line method, based on the estimated useful lives, in years, as shown below:


	December, 31
	2016		2015		2014
Data processing equipment		2.5 to 5		2.5 to 5		2.5 to 5
Furniture and fittings		10		10		10
Facilities		10		10		10
Leasehold improvements		10		10		10
Machinery and equipment		10		10		10

An asset’s carrying amount is immediately written down to its recoverable amount when the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amounts, and are recognized within “Other (expenses), income, net” in the statement of income.

2.9 Intangible assets

Software licenses are capitalized on the basis of the costs incurred to acquire the software and bring it to use. These costs are amortized on the straight-line basis over the estimated useful life of the software (three to five years).

Costs associated with maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the PagSeguro Brazil Group are recognized as intangible assets.

F-43

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

Directly attributable costs, which are capitalized as part of the software product, include costs incurred with employees and expenses allocated to software development. Borrowing costs incurred during the software development period may also be capitalized.

Other development expenditures that do not meet the capitalization criteria are expensed as incurred. Development costs previously recorded as an expense are not recognized as an asset in a subsequent period, and are presented within “Advisory and consulting services”.

Computer software development costs recognized as assets are amortized over the estimated useful life, which does not exceed five years from the date that technological feasibility is met.

2.10 Impairment of non-financial assets

Non-financial assets are annually reviewed for impairment to determine whether there are any events or changes in economic and technological conditions or in operations that may indicate that an asset is impaired. When applicable, such evidence is identified through the annual impairment test. In order to assess a non-financial asset, it is necessary to estimate its recoverable amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, a provision for impairment is established.

When estimating the value in use of an asset, the future estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects the weighted average cost of capital for the cash-generating unit. The net sales price is determined, whenever possible, based on a firm sales contract entered into on an arm’s length basis, between well-informed and willing parties, adjusted by expenses attributable to the asset sale, or, when there is no firm sales contract, based on the price in an active market, or the most recent transaction price for similar assets.

The PagSeguro Brazil Group annually assesses whether there is any indication that a previously recognized impairment loss no longer exists or has decreased. If there is such indication, the asset’s recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the asset’s carrying amount does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized for the asset in prior years.

2.11 Payables to third parties

Payables to third parties refer to funds payable and amounts due to merchants that use PagSeguro Brazil platform. The PagSeguro Brazil Group recognizes the fair value of the transaction which is the transaction amount, net of the transaction cost.

2.12 Provisions

Provisions are recognized when the PagSeguro Brazil Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be estimated reliably. When the PagSeguro Brazil Group expects the value of a provision to be reimbursed, in whole or in part, for example, due to an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain.

F-44

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

Expenses associated with any provisions are presented in the statement of income, net of any reimbursements.

The PagSeguro Brazil Group is a party to legal and administrative proceedings. Provisions are established for all contingencies referring to lawsuits for which it is probable that an outflow of funds will be necessary to settle the contingency/obligation and a reasonable estimate can be made. The assessment of the likelihood of loss includes the evaluation of available evidence, the hierarchy of laws, available case law, recent court decisions and their importance in the legal system, as well as the opinion of outside legal counsel. The provisions are reviewed and adjusted to reflect changes in circumstances.

2.13 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of services and goods in the ordinary course of the PagSeguro Brazil Group’s activities. Revenue is presented net of sales and excise taxes and returns.

The PagSeguro Brazil Group recognizes revenue when: (i) the amount of revenue can be reliably measured; (ii) it is probable that future economic benefits will flow to the PagSeguro Brazil Group; and (iii) specific criteria have been met for the PagSeguro Brazil Group’s activities.

The PagSeguro Brazil Group’s revenue substantially comprises:

•

Revenue from transaction activities and other services: Revenue from fees charged for intermediation of electronic payments, and other services such as prepaid cards, which are recognized at the time the purchase is approved by the financial institution. Revenues from fees charged for intermediation of electronic payments are recognized on a gross basis and related transaction costs are recognized as Cost of sales and services, since the PagSeguro Brazil Group is considered to be the principal in the intermediation transaction. The PagSeguro Brazil Group has primary responsibility for providing the services to customers and also directly sets the prices for such services, independently from the related transaction costs agreed between the PagSeguro Brazil Group and the card schemes or card issuers; and

•

Revenue from sales: Revenue from sales of credit and debit card readers and similar items, which is recognized at the time the risks and benefits are transferred to the customers, i.e., on delivery of the equipment. Under Brazilian consumer law, clients have seven days after ordering Point of Sale equipment (“POS devices”) in which to cancel the purchase. Returns of devices are accounted for as Deductions from revenue from sales at the time the equipment is returned.

Income is recognized as a result of the discount rate charged on the early payments of Payables to third parties (merchants). The income is recognized at the time the merchant agrees to receive a sale in installments on an early payment basis, and it is recorded as Financial income in the income statement.

2.14 Distribution of dividends and interest on own capital

Distributions of dividends and interest on own capital to the PagSeguro Brazil Group shareholders are recognized as a liability in the financial statements at year-end, based on the PagSeguro Brazil Group’s bylaws, which require the distribution of a minimum of 1% of the profit for the year as dividends. Any amount that exceeds the minimum required is only accrued on the date such distribution is approved by the shareholders at a General Meeting.

The tax benefit of interest on own capital is recognized in the statement of income.

F-45

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

2.15 Current and deferred income tax and social contribution

Current income tax and social contribution

Tax assets and liabilities for the current year are calculated based on the expected recoverable amount or the amount payable to the tax authorities. The tax rates and tax laws used to calculate the amount are those enacted or substantively enacted at the balance sheet date in the countries where the PagSeguro Brazil Group operates and generates taxable income.

Current income tax and social contribution related to items recognized directly in equity are recognized in equity. The PagSeguro Brazil Group periodically evaluates the tax positions involving interpretation of tax regulations and establishes provisions when appropriate.

Deferred taxes

Deferred taxes arise from temporary differences between the tax bases of assets and liabilities and their carrying amounts at the balance sheet date.

Deferred tax liabilities are recognized for all taxable temporary differences, except in the following situations:

•

When the deferred tax liability arises from the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit;

•

On temporary tax differences related to investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future;

•

Deferred tax assets are recognized on all deductible temporary differences and tax loss carryforwards, to the extent that it is probable that taxable profit will be available against which they can be offset, except when the deferred tax asset related to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss; and

•

Deferred tax assets are recognized on the deductible temporary differences associated with investments in subsidiaries only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and that taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and a deferred tax asset is recognized to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reviewed, at each balance sheet date, and recognized to the extent that it is probable that future taxable profit will be available to allow their utilization.

F-46

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

2.16 Employee benefits—Profit-sharing

The Group recognizes a liability and an expense for profit-sharing based on a methodology that takes into consideration the profit attributed to the PagSeguro Brazil Group’s stockholders after certain adjustments. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

2.17 New standards not yet effective

The following new standards have been issued by IASB, but are not effective for 2016:

IFRS 9—“Financial Instruments”: addresses the classification, measurement and recognition of financial assets and liabilities. The complete version of IFRS 9 was issued in July 2014 and is effective as from January 1, 2018. It replaces the guidance included in IAS 39 related to the classification and measurement of financial instruments. The main amendments brought by IFRS 9 are: (i) new criteria for the classification of financial assets; (ii) new impairment model for financial assets, which is based on expected losses, replacing the current model of incurred losses; and (iii) relaxation of the new requirements for the adoption of hedge accounting. Management evaluated the new guidelines introduced by IFRS 9 and did not identify any material impact for the PagSeguro Brazil Group.

There are no other IFRS or IFRIC interpretations not yet effective that could have a material impact on the PagSeguro Brazil Group financial statements.

2.18 New and revised pronouncements in effect

The amendments to standards or new pronouncements applicable to the years presented in the consolidated financial statements were not relevant to the PagSeguro Brazil Group.

F-47

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

3. Critical accounting estimates and judgments

Based on assumptions, the PagSeguro Brazil Group makes estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

(a) Estimated useful life of intangible assets

The PagSeguro Brazil Group uses an estimated useful life to calculate and record the amortization applied to its intangible assets which may differ from the actual term over which the intangible assets are expected to generate benefits for the PagSeguro Brazil Group.

The amortization of software usage rights is defined based on the effective period of the license contracted.

The amortization of internally developed software is defined based on the period over which the software will generate future economic benefits.

(b) Deferred income tax and social contribution

The PagSeguro Brazil Group recognizes deferred income tax and social contribution based on future taxable profit estimates for the next ten years. These projections are periodically reviewed and approved by management.

4. Consolidation of subsidiaries


	At December 31, 2016
Company	Assets		Liabilities		Equity		Net income for the year		Ownership - %
Company	Assets		Liabilities		Equity		Net income for the year		Ownership - %
Net+Phone		72,051		27,734		44,317		8,081		99.99
Boa Compra		345,059		333,025		12,034		2,213		99.99

Operations of the subsidiaries

•

Net+Phone: On July 29, 2016, UOL transferred its investment in Net+Phone to PagSeguro Brazil, as a capital contribution, in the amount of R$ 44,317.

F-48

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

•

Boa Compra: On April 5, 2011, UBN Internet Ltda. (“UBN”), a subsidiary of UOL, acquired a 51% equity interest in Boa Compra. On July 26, 2013, UBN acquired additional 24% equity interest, increasing its total ownership in Boa Compra to 75%. In May 2016, UBN acquired the remaining 25% equity interest, becoming the fully owner of Boa Compra. On July 29, 2016, UBN’s equity interest in Boa Compra was spun off to its parent company UOL. Subsequently, UOL transferred its total equity interest in Boa Compra to PagSeguro Brazil as a capital contribution, in the total amount of R$ 12,034.

5. Segment reporting

Operating segments are reported consistently with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, responsible for allocating resources and assessing the performance of the operating segments is the Board of Directors, which is also responsible for making the PagSeguro Brazil Group strategic decisions.

The PagSeguro Brazil Group is domiciled in Brazil and has revenue arising from local customers and customers located abroad. The mainly revenue is related sales from domestic market. The international market represents 5%, 8% and 16% for the years 2016, 2015 and 2014 respectively.

6. Cash and cash equivalents

December 31,

2016

2015

2014

Short-term bank deposits

79,969

6,888

1,199

79,969

6,888

1,199

7. Financial investments


	December 31,
	2016		2015		2014
Short-term investment		131,239		—		33

		131,239		—		33

Short-term investments refer to two debentures, with a return of 60.0% of the Interbank Deposit Certificate (CDI). This financial asset was classified as fair value thought profit and loss. Debentures were contract with large financial institutions which have received a positive rating by major credit rating agencies.

F-49

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

8. Note receivables


	December 31,
	2016						2015		2014
Legal obligors	Visa		Master		Total		Total		Total
Itaú		99,433		244,741		344,173		—		—
Bradesco		115,009		36,032		151,041		—		—
Banco do Brasil		91,414		29,425		120,838		—		—
CEF		23,837		30,979		54,816		—		—
Santander		48,695		79,085		127,780		—		—
Other		50,716		93,473		144,191		—		—
Total card issuers (i)		429,104		513,735		942,839		—		—


Vero		—		—		331,807		546,221		158,003
Cielo		—		—		355,949		363,520		433,938
Redecard		—		—		56,025		168,067		45,292
Amex		—		—		4,090		19,676		5,639
Other		—		—		24,804		12,536		23,000
Total acquirers (ii)		—		—		772,675		1,110,020		665,872

Total		—		—		1,715,514		1,110,020		665,872

(i)

Card issuers: receivables derived from transactions where the PagSeguro Brazil acts as the financial intermediary in operations with the issuing banks, related to the intermediation agreements between PagSeguro Brazil and Visa or Mastercard. However, the PagSeguro Brazil’s contractual note receivables are with the financial institutions, which are the legal obligors on the note receivables. Additionally, amounts due within 27 days of the original transaction, including those that fall due with the first installment of installment receivables, are guaranteed by Visa or Mastercard, as applicable, in the event that the legal obligors do not make payment. PagSeguro Brazil started operating directly as a financial intermediary in 2016.

(ii)	Acquirers: refers to card processing transactions to be received from the acquirers, which are a third parties acting as a financial intermediaries between the issuing bank and PagSeguro Brazil. This balance also includes the receivables from sales of debit and credit card readers.

The maturity analysis of note receivables is as follows:


	December 31,
	2016		2015		2014
Due within 30 days		970,086		534,800		295,125
Due within 31 to 120 days		609,689		426,787		342,912
Due within 121 to 180 days		43,144		46,898		8,995
Due within 181 to 360 days		92,595		101,535		18,840

		1,715,514		1,110,020		665,872

F-50

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

9. Related-party balances and transactions

The PagSeguro Brazil Group is controlled by UOL (incorporated in Brazil), which owns 99.99% of the shares.

i. Balances and transactions with related parties:


	December 31, 2016				December 31, 2015				December 31, 2014
	Receivables		Payables		Receivables		Payables		Receivables		Payables
Immediate parent
UOL—cash management (a)		300,809		—		—		64,442		32,903		—
UOL—sale of services (b)		—		59,692		—		22,458		—		—
Affiliated companies
UOL Diveo—cash management (a)		—		1,383		34,022		63		26,417		—
UOL Diveo—sale of services (b)		—		9,360		—		—		—		—
UBN Internet Ltda.		—		—		21,814		—		24,962		—
Concurso Virtual S.A.		—		1,900		—		2,420		—		—
Livraria da Folha Ltda.		—		2,285		—		2,282		—		—
Transfolha Transportadora Ltda.		—		1,196		—		231		—		—
Others		—		433		20		506		20		—

		300,809		76,249		55,856		92,402		84,302		—

(a)	The receivables/payables with related parties arising from cash management are settled within one month and are free of interest. Shared service costs are offset with these balances. The receivables are unsecured in nature and no provisions are held against receivables from related parties.

(b)	Sale of services refers mainly to purchase of (a) advertising services from UOL and (b) services related to technical support in computing and hosting from UOL Diveo Tecnologia Ltda. (“UOL Diveo”), which started in 2016.

F-51

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

In addition, during 2016, the amount of R$ 63,264 (composed by R$ 26,610 and R$ 36,654) previously recorded as accounts payable was used for capital contributions, as described in Note 18.


	December 31, 2016				December 31, 2015				December 31, 2014
	Revenue		Expense		Revenue		Expense		Revenue		Expense
Immediate parent
UOL—shared service costs (a)		—		31,498		—		12,369		—		—
UOL—shared service costs—carved out (b)		—		—		—		12,032		—		13,707
UOL—sale of services (c)		—		81,007		—		22,458		—		—
UOL—sale of services—carved out (d)		—		—		—		36,737		—		49,233
Affiliated companies
UOL Diveo—shared service costs (e)		—		1,710		—		—		—		—
UOL Diveo—sale of services (f)		—		18,069		—		25		—		—
Concurso Virtual S.A.		134		—		389		—		—		—
Livraria da Folha Ltda.		349		—		347		—		—		—
Transfolha Transportadora Ltda.		—		5,500		—		806		—		1,723
Others		261		101		121		—		—		—

		744		137,885		857		84,427		—		64,664

(a)	Shared services costs mainly related to (i) payroll costs, (ii) IT structure / software and (iii) rental costs are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to contractual agreements. Such costs are included in administrative expenses.

(b)

The main costs that were allocated based on the number of employees and/or the time from the UOL group to PagSeguro Brazil, a basis that management believes is reasonable, are (i) payroll costs, (ii) IT structure / software and (iii) rental costs (from January 2014 through July 2015). The allocated costs to the carve-out financial statements are included in administrative expenses as follow: (i) Payroll costs and others (2015—R$ 7,610; 2014—R$ 8,289); (ii) IT structure / software (2015—R$ 2,450; 2014—R$ 2,561); and (c) Rental costs (2015—R$ 1,972; 2014—R$ 2,857).

(c)	Sale of services related to advertising services are incurred by the parent company UOL and are charged to PagSeguro pursuant to contractual agreements.

(d)	Sales of services related to advertising services were allocated based on intercompany cost, a basis that management believes is reasonable (from January 2014 through July 2015).

(e)	Shared services costs are incurred by the affiliated company UOL Diveo and are charged to PagSeguro pursuant to contractual agreements. The main costs are related to IT structure / software.

(f)	Sale of services from the affiliated company UOL Diveo related to technical support in computing and hosting services (started in 2016) and are charged to PagSeguro Brazil pursuant to contractual agreements.

ii. Key management compensation

Key management personnel includes only short term benefits of PagSeguro Brazil executive officers. In 2016, the total compensation paid to the executive officers amounted to R$ 2,658, while the amounts of R$ 2,243 and R$ 1,008 were incurred in 2015 and 2014, respectively.

F-52

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

10. Property and equipment

(a) Property and equipment is composed as follows:


	December 31, 2016
	Cost		Accumulated depreciation			Net
Data processing equipment		7,574		(3,692	)		3,882
Facilities		52		(19	)		33
Machinery and equipment		548		(140	)		408
Furniture and fittings		190		(40	)		150
Leasehold improvements		100		(15	)		85

		8,464		(3,906	)		4,558


	December 31, 2015
	Cost		Accumulated depreciation			Net
Data processing equipment		5,790		(2,475	)		3,315
Facilities		51		(15	)		36
Machinery and equipment		409		(103	)		306
Furniture and fittings		151		(27	)		124
Leasehold improvements		66		(9	)		57

		6,467		(2,629	)		3,838

F-53

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)


	December 31, 2014
	Cost		Accumulated depreciation			Net
Data processing equipment		2,768		(1,213	)		1,555
Facilities		29		(8	)		21
Machinery and equipment		284		(70	)		214
Furniture and fittings		112		(10	)		102
Leasehold improvements		55		(4	)		51

		3,248		(1,305	)		1,943

(b)	The changes in cost and accumulated depreciation were as follows:


	Data processing equipment			Facilities			Machinery and equipment			Furniture and fittings			Leasehold improvements			Total
Year ended December 31, 2014
Opening balance		1,113			15			95			20			2			1,245
Purchases		1,453			10			172			87			52			1,774
Depreciation		(1,011	)		(4	)		(53	)		(5	)		(3	)		(1,076	)

Net book value		1,555			21			214			102			51			1,943

Year ended December 31, 2015
Opening balance		1,555			21			214			102			51			1,943
Purchases		3,022			22			125			39			11			3,219
Depreciation		(1,262	)		(7	)		(33	)		(17	)		(5	)		(1,324	)

Net book value		3,315			36			306			124			57			3,838

Year ended December 31, 2016
Opening balance		3,315			36			306			124			57			3,838
Purchases		1,784			1			139			40			34			1,996
Depreciation		(1,217	)		(4	)		(37	)		(14	)		(6	)		(1,277	)

Net book value		3,882			33			408			150			85			4,558

At December 31, 2016
Cost		7,574			52			548			190			100			8,464
Accumulated depreciation		(3,692	)		(19	)		(140	)		(40	)		(15	)		(3,906	)

Net book value		3,882			33			408			150			85			4,558

F-54

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

11. Intangible assets

(a) Intangible assets are composed as follows:


	December 31, 2016
	Cost		Accumulated amortization			Net
Expenditures related to software and technology		143,989		(61,858	)		82,131
Software licenses		5,393		(1,416	)		3,977

		149,382		(63,274	)		86,108


	December 31, 2015
	Cost		Accumulated amortization			Net
Expenditures related to software and technology		75,360		(29,549	)		45,811
Software licenses		3,628		(820	)		2,808

		78,988		(30,369	)		48,619


	December 31, 2014
	Cost		Accumulated amortization			Net
Expenditures related to software and technology		38,372		(11,505	)		26,867
Software licenses		1,736		(152	)		1,584

		40,108		(11,657	)		28,451

The PagSeguro Brazil Group capitalizes the expenses incurred with the development of platforms, which are amortized over the useful lives, within a range from three to five years.

F-55

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

(b)	The changes in cost and accumulated amortization were as follows:


	Expenditures with software and technology			Software licenses			Total
Year ended December 31, 2014
Opening balance		18,310			796			19,106
Additions		20,062			940			21,002
Amortization		(11,505	)		(152	)		(11,657	)

Net book value		26,867			1,584			28,451

Year ended December 31, 2015
Opening balance		26,867			1,584			28,451
Additions		36,988			1,892			38,880
Amortization		(18,044	)		(668	)		(18,712	)

Net book value		45,811			2,808			48,619

Year ended December 31, 2016
Opening balance		45,811			2,808			48,619
Additions		68,629			1,765			70,394
Amortization		(32,309	)		(596	)		(32,905	)

Net book value		82,131			3,977			86,108

At December 31, 2016
Cost		143,989			5,393			149,382
Accumulated amortization		(61,858	)		(1,416	)		(63,274	)

Net book value		82,131			3,977			86,108

F-56

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

12. Payables to third parties

December 31,

2016

2015

2014

Payables to third parties

1,304,031

683,092

369,921

1,304,031

683,092

369,921

13. Borrowings

December 31,

Type

Interest rate

Average annual
interest rate%

Maturity

2016

Borrowings in foreign currency

Bank Borrowings

Fixed interest rates

2.36365

January 2017

133,874

Bank Borrowings

Fixed interest rates

2.86450

March 2017

71,330

205,204

In July 2016, PagSeguro Brazil obtained a borrowing denominated in foreign currency in the amount of US$ 40,000 thousand, equivalent to approximately R$ 129,390, maturing in January 2017. In addition, in September 2016, PagSeguro Brazil obtained another borrowing in foreign currency in the amount of US$ 21,766 thousand, equivalent to approximately R$ 70,000, maturing in March 2017. At the same time, PagSeguro Brazil contracted derivatives (Swaps) for both borrowings, for the specific purpose of protecting them against exchange rate fluctuations. The derivative rate corresponds to 110% of the average daily interest rate of the Interbank Deposits (DIs).

Interest on borrowings is paid on the maturities of the transactions, together with the total settlement of the financial instruments.

The borrowing agreements do not contain any collateral clauses or covenants to be complied with by PagSeguro Brazil.

F-57

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

14. Salaries and social charges


	December 31,
	2016		2015		2014
Profit sharing		8,696		6,221		—
Salaries payable		1,682		105		58
Social charges		3,225		2,997		89
Provision for vacation		5,877		3,781		229
Other		789		547		—

		20,269		13,651		376

15. Taxes and contributions


	December 31,
	2016			2015		2014
Taxes
Services tax (i)		1,382			641		311
Value-added tax on sales and services (ii)		3,596			1,356		10
Social integration program (iii)		2,690			68		257
Social contribution on revenues (iii)		16,544			578		1,183
Other		690			355		1,088

		24,902			2,998		2,849

Judicial deposits
Social integration program (iii)		(2,516	)		—		—
Social contribution on revenues (iii)		(15,475	)		—		—

		(17,991	)		—		—

		6,911			2,998		2,849

(i)	Refers to taxes on revenue of transaction activities.

(ii)	Refers to the Value-added Tax on Sales and Services (ICMS) amounts due by Net+Phone, related to tax substitution and tax rate differential, applied on sales of credit and debit card readers.

(iii)

F-58

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

16. Provision for contingencies


	December 31,
	2016		2015		2014
Current
Civil		555		22		1,593
Labor		125		26		—

		680		48		1,593

Non-current
Civil		—		24		336

		—		24		336

The PagSeguro Brazil Group is a party on civil lawsuits involving risks classified by management as possible losses, based on the evaluation of its legal advisors, for which no provision was recognized, totaling approximately R$ 816 (2015—R$ 175; 2014—nil). The PagSeguro Brazil Group is not a party to tax and labor lawsuits involving risks classified by management as possible losses.

F-59

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

17. Income tax and social contribution

(a)	Deferred income tax and social contribution


	Tax losses		Tax credit		Technological inovation (i)		Other temporary differences		Total
Deferred tax
At January 1, 2014		3,294		—		(2,332)		727		1,689
Included in the statement of income		(412)		—		(3,045)		4,477		1,020

At December 31, 2014		2,882		—		(5,377)		5,204		2,709
Included in the statement of income		481		—		(880)		(1,841)		(2,240)

At December 31, 2015		3,363		—		(6,257)		3,363		469
Included in the statement of income		(2,312)		—		(18,121)		284		(20,149)
Taken directly to equity		—		3,606		—		—		3,606

At December 31, 2016		1,051		3,606		(24,378)		3,647		(16,074)

(i)	The main temporary differences representing the balance of the deferred tax liability refers to the benefit granted by the Technological Innovation Law ( Lei do Bem ), which reduces the tax charges on the capitalized amount of property and equipment.

The estimated realization of deferred tax assets in non-current assets and liabilities is as follows:


	December 31,
	2016					2015					2014
	Asset		Liability			Asset		Liability			Asset		Liability
2015		—		—			—		—			1,617		(1,792	)
2016		—		—			1,345		(2,086	)		1,617		(1,792	)
2017		940		(8,126	)		1,345		(2,086	)		1,617		(1,793	)
2018		940		(8,126	)		1,345		(2,085	)		1,617		—
2019		940		(8,126	)		1,345		—			1,618		—
2020		940		—			1,346		—			—		—
2021		4,545		—			—		—			—		—

		8,305		(24,378	)		6,726		(6,257	)		8,086		(5,377	)

F-60

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

(a)	Reconciliation of the income tax and social contribution expense

At December 31, 2016, 2015 and 2014, the PagSeguro Brazil Group computed income tax and social contribution under the taxable income method. The following is a reconciliation of the difference between the actual income tax and social contribution expense and the expense computed by applying the federal statutory rate for the years ended December 31, 2016, 2015 and 2014:


	December 31,
	2016			2015			2014
Profit for the year before taxes		155,361			40,313			36,151
Statutory rate		34%			34%			34%

Expected income tax and social contribution		(52,823	)		(13,706	)		(12,291	)
Income tax and social contribution effect on:
Permanent additions (exclusions)
Participation in the results of partners and managers		—			(234	)		—
Gifts and other non-deductible expenses		—			(149	)		(257	)
R&D and technological innovation benefit—Law 11196/05 (i)		15,898			11,596			3,434
Interest on own capital		8,860			—			—
Other additions (exclusions)		485			(2,333	)		213

Income tax and social contribution expense		(27,580	)		(4,826	)		(8,901	)

Income tax and social contribution—current		(7,431	)		(2,587	)		(9,920	)
Income tax and social contribution—deferred		(20,149	)		(2,239	)		1,019

(i)	Refers to the benefit granted by the Technological Innovation Law ( Lei do Bem ), which reduces the income tax charges, based on the amount invested by the PagSeguro Brazil Group on some specific property and equipment.

F-61

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

18. Equity

a)	Share capital

At December 31, 2016, all issued shares were fully paid. At December 31, 2016, the share capital, after retroactively reflecting the reverse share split described in Note 1, is represented by 262,288,607 common shares, with no par value. Share capital is composed of the following shares:


December 31, 2014 and 2013 shares outstanding			21,283,999
Issuance of shares to UOL for net assets for payment operations (1)			199,524,045
December 31, 2015 shares outstanding			220,808,044

Capitalization of control party related party payable (2)			13,305,204
Issuance of shares to UOL for transfer of Net+Phone and Boa Compra (3)			28,175,359
December 31, 2016 shares outstanding			262,288,607

The PagSeguro Brazil has reflected in its statement of changes in shareholders’ equity the issuance of shares during the periods that such shares were issued. For earnings per share purposes, the PagSeguro Brazil has considered 262,288,607 as outstanding during each of the years ended December 31, 2016, 2015, and 2014, as shares in (1), (2) and (3) above were issued to UOL, the control party, as part of the recapitalization.

(1)

The shareholder UOL increased the PagSeguro Brazil share capital on August 1, 2015 by the amount of R$ 329,961 (164,980,523 shares) and on December 30, 2015, by the amount of R$ 69,087 (34,543,522 shares), in the total amount of R$ 399,048, through the transfer of assets and liabilities related to payment operations which had been previously recorded in UOL, thus centralizing these activities in the PagSeguro Brazil from thereon.

(2)	On May 31, 2016, UOL capitalized balances of related parties as a capital contribution in the amount of R$ 26,610 (13,305,204 shares).

(3)

On May 31, 2016, UOL capitalized balances of related parties as a capital contribution in the amount of R$ 36,654 (18,327,103 shares) in Net+Phone. After that, as described in Note 2, in July 2016, UOL transferred its investment in Boa Compra and Net+Phone to PagSeguro Brazil, as a capital contribution in the amount of R$ 56,351 (28,175,359 shares).

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

b)	Legal reserve

F-62

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

c)	Profit retention reserve

The PagSeguro Brazil management is proposing the establishment of a profit retention reserve totaling R$ 96,008, relating to the profit for the year ended December 31, 2016, plus profits accumulated in prior years, to cover the PagSeguro Brazil capital budget, to be approved by the shareholders following the issuance of the financial statements.

Dividends

Pursuant to the bylaws, 1% of the profit will be distributed as dividends to the shareholders.

The PagSeguro Brazil bylaws establish that profit for the year and interest on own capital should be allocated, in full or in part, to the constitution of reserves. Presented below are the dividends distributed by each entity consolidated in these financial statements other than Net+Phone which recorded accumulated losses in all periods presented:


	December 31,
Pagseguro	2016			2015			2014
Net income for the year		115,727			37,010			19,019
Net investment		—			(27,209	)		(19,019	)

Net income		115,727			9,801			—
Transfer to legal reserve (5%)		(5,786	)		(490	)		—

Adjusted income for the year		109,941			9,311			—
Mandatory minimum dividends (1%)		—			93			—
Additional dividends proposed		—			—			—

Total dividends distributed		—			93			—

Interest on own capital (i)		26,059			—			—

Number of common shares (in thousands)		262,289			220,808			21,284
Dividends per share (in reais)		0.0000			0.0004			0.0000

Interest on own capital per share (in reais)		0.0994			0.0000			0.0000

(i)	The distribution of interest on own capital was approved in the shareholders’ meeting held in December 2016.

F-63

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)


	December 31,
Boa Compra	2016		2015		2014
Net income for the year		4,858		1,625		5,113
Transfer to legal reserve (*)		—		—		(89	)

Adjusted income for the year		4,858		1,625		5,024
Mandatory minimum dividends (1%)		—		16		49
Additional dividends proposed		—		65		201

Total dividends distributed		—		81		250

Number of common shares (in thousands)		5,381		199		199
Dividends per share (in reais)		0.0000		0.4079		1.2591

(*)	Legal reserve was not constituted because reached the limit of 20% of share capital.

19. Earnings per share


	December 31,
	2016		2015		2014
Profit attributable to owners of the Company		127,188		35,082		25,973
Weighted average number of common shares		262,288,607		262,288,607		262,288,607
Basic and diluted earnings per share—in reais		0.4849		0.1338		0.0990

F-64

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

The PagSeguro Brazil Group’s basic earnings per share equal its diluted earnings per share, since the PagSeguro Brazil Group does not have any dilutive instruments.

20. Total revenue and Income


	December 31,
	2016		2015		2014
Gross revenue from transaction activities and other services		543,818		305,298		184,816
Gross revenue from sales		371,517		238,947		55,874
Gross financial income (i)		411,413		243,566		129,599
Other financial income		5,337		10,744		1,756
Total gross revenue and income		1,332,085		798,556		372,045

Deductions from gross revenue from transaction activities and other services (ii)		(63,793)		(37,101)		(24,735)
Deductions from gross revenue from sales (iii)		(110,923)		(62,430)		(7,667)
Deductions from gross financial income (iv)		(18,984)		(24,104)		(13,807)
Total deductions from gross revenue and income		(193,700)		(123,635)		(46,209)
Total revenue and income		1,138,385		674,920		325,836

(i)	Includes (a) interest from early payment related to the discount of notes payable to third parties paid in advance and (b) interest on note receivables due in installments.

(ii)	Deductions consist of sales taxes.

(iii)

The deductions are composed by sales taxes and returns.

(iv)	Deductions consist of taxes on financial income.

F-65

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

21. Expenses by nature


	December 31,
	2016			2015			2014
Transactions costs		(283,630	)		(145,969	)		(71,942	)
Cost of goods sold		(233,419	)		(178,608	)		(42,437	)
Marketing and advertising		(204,857	)		(153,467	)		(83,802	)
Personnel expenses		(63,280	)		(48,130	)		(32,112	)
Financial expenses (i)		(68,301	)		(29,696	)		(11,085	)
Chargebacks (ii)		(31,557	)		(27,490	)		(14,833	)
Depreciation and amortization (iii)		(31,246	)		(18,580	)		(11,637	)
Other		(66,737	)		(32,665	)		(21,839	)

		(983,027	)		(634,606	)		(289,685	)

Classified as:
Cost of services		(357,811	)		(191,710	)		(97,687	)
Cost of sales		(265,856	)		(190,773	)		(44,796	)
Selling expenses		(199,937	)		(162,642	)		(81,428	)
Administrative expenses		(84,461	)		(61,129	)		(51,348	)
Financial expenses		(68,301	)		(29,696	)		(11,085	)
Other (expenses) income, net		(6,660	)		1,345			(3,341	)

		(983,027	)		(634,606	)		(289,685	)

(i)

(ii)	Chargebacks refer to losses recognized in the period reflecting the risks of fraud associated with card processing operations, as detailed in Note 23 (iii).

(iii)

The depreciation and amortization amounts incurred in the period are segregated between costs and expenses as presented below:

F-66

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)


	December 31,
	2016			2015			2014
Depreciation
Cost of sales and services		(895	)		(904	)		(710	)
Selling expenses		(11	)		(27	)		—
Administrative expenses		(371	)		(393	)		(366	)

		(1,277	)		(1,324	)		(1,076	)

Amortization
Cost of sales and services		(32,846	)		(18,377	)		(11,604	)
Selling expenses		—			—			—
Administrative expenses		(59	)		(333	)		(53	)

		(32,905	)		(18,710	)		(11,657	)

PIS and COFINS credits (*)		2,936			1,101			1,096

Depreciation and amortization expense, net		(31,246	)		(18,933	)		(11,637	)

(*)	PagSeguro Brazil has a tax benefit on PIS and COFINS that allows to reduce the depreciation and amortization expenses, when incurred. This tax benefit is recognized directly as a reduction of depreciation and amortization expense.

22. Financial instruments by category

The PagSeguro Brazil Group estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies for each situation.

The PagSeguro Brazil Group believes that the financial instruments recognized in these consolidated financial statements at their carrying amount are substantially similar to their fair value. However, since they do not have an active market, variations could occur in the event the PagSeguro Brazil Group were to decide to settle or realize them in advance.

F-67

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

The PagSeguro Brazil Group classifies its financial instruments into the following categories:


	December 31,
	2016		2015		2014
Financial assets
Measured at fair value through profit or loss:
Financial investments		131,239		—		33
Loans and receivables:
Cash and cash equivalents		79,969		6,888		1,199
Note receivables		1,715,514		1,110,020		665,872
Receivables from related parties		300,809		55,856		84,302
Other receivables		4,495		21,032		4,320

		2,232,026		1,193,796		755,726


	December 31,
	2016		2015		2014
Financial liabilities
Measured at fair value through profit or loss:
Derivative financial instruments		6,613		—		—

		6,613		—		—

Amortized cost:
Payables to third parties		1,304,031		683,092		369,921
Trade payables		61,719		35,344		3,537
Trade payables to related parties		76,249		92,402		—
Borrowings		205,204		—		—
Dividends payable and interest on own capital		22,243		3,246		3,072
Other payables		15,243		1,754		3,974

		1,684,689		815,838		380,504

23. Financial risk management

Among the main market risk factors that may affect the PagSeguro Brazil Group’s business are the following ones:

(i)	Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. Currently, the PagSeguro Brazil Group has borrowings denominated in foreign currency which are linked to derivatives (swaps).

F-68

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

In accordance with Management policies, derivative transactions are allowed, as long as they are hedged by a swap entered into with prime financial institutions, for the sole purpose of hedging against risks of fluctuation in exchange or interest rates.

The amounts of derivative financial instruments are summarized as follows:


	December 31, 2016
	Maturity	Notional value			Fair value
Foreign exchange and interest	January 2017		129,480			132,761
Interbank Deposit Certificate (CDI)	January 2017		(129,480	)		(138,036	)

			—			(5,275	)

Foreign exchange and interest	March 2017		70,000			71,537
Interbank Deposit Certificate (CDI)	March 2017		(70,000	)		(72,875	)

			—			(1,338	)

Total fair value			—			(6,613	)

(ii)	Cash flow and fair value interest rate risk

This risk arises from the derivative financial instruments (swap) that replaces the risk of the exchange and interest rate variation associated with borrowings by the CDI. In this case, the swap’s liability leg is the CDI, exposing PagSeguro Brazil Group to the variation of this interest rate. For better risk management, PagSeguro Brazil Group chooses to enter into borrowings and derivatives with short-term maturities, which enable a better management of the rates.

At December 31, 2016, if CDI interest rates had been 0.25% higher/lower with all other variables held constant, profit for the year would have been R$ 530 (2015—R$ 0 and 2014—R$ 0) lower/higher, as a result of higher/lower interest expenses linked to the swap’s liability leg.

(iii)

Fraud Risk (chargeback)

The PagSeguro Brazil Group’s sales transactions are susceptible to potentially fraudulent or improper sales and it uses two processes to control the fraud risk as such:

The second process detects chargebacks and disputes not identified by the first process. This is a complementary process and increases the PagSeguro Brazil Group’s ability to avoid new frauds.

F-69

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

(iv)	Credit risk

(i)	card issuers with a low level of risk, with credit ratings assigned by FITCH, S&P and Moody’s, which do not require additional monitoring;

(ii)	card issuers with a medium level of risk, which are also monitored in accordance with the Basel and property, plant and equipment ratios; and

(iii)

card issuers with a high level of risk, which are assessed by the Committee at monthly meetings.

(v)	Liquidity risk

At December 31, 2016, the PagSeguro Brazil Group held cash and cash equivalents of R$ 79,969 (R$ 6,888 at December 31, 2015 and R$ 1,199 at December 31, 2014).

F-70

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)


	Due within 30 days		Due within 31 to 120 days		Due within 121 to 180 days		Due within 181 to 360 days
	Due within 30 days		Due within 31 to 120 days		Due within 121 to 180 days		Due within 181 to 360 days
At December 31, 2016
Payables to third parties		1,228,922		60,396		10,152		4,561
Trade payables		54,125		4,827		63		2,704
Trade payables to related parties								76,249
Borrowings				208,374
Dividends payable and interest on own capital								22,243
Other payables								15,244
At December 31, 2015
Payables to third parties		678,751		3,259		543		539
Trade payables		21,748		4,871		3,389		5,336
Trade payables to related parties								92,402
Dividends payable and interest on own capital								3,246
Other payables								1,754
At December 31, 2014
Payables to third parties		369,921
Trade payables		2,401		263		153		720
Trade payables—related parties								—
Dividends payable and interest on own capital								3,072
Other payables								3,974

24. Capital management

F-71

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

During 2016, the PagSeguro Brazil Group’s strategy was to maintain a gearing ratio of up to 20%. The gearing ratio at December 31, 2016 was as follows:


	December 31, 2016
Borrowings		205,204
(-) Cash and cash equivalents		(79,969	)

Net debt		125,235

Total equity		626,862
Total capital		752,097

Gearing ratio		16.65%

The PagSeguro Brazil Group had no borrowings in the years ended December 31, 2015 and 2014.

25. Fair value measurement

◾	Level 1—Quoted prices (unadjusted) in active markets for identical assets and liabilities.

◾	Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

◾	Level 3—Inputs for the assets and liabilities that are not based on observable market data (that is, unobservable inputs).

At December 31, 2016, the PagSeguro Brazil Group had financial investments whose fair value adjustments is classified as Level 1 and derivative liabilities whose fair value measurement is classified as Level 2. The PagSeguro Brazil Group did not have any assets measured at fair value in 2016, 2015 and 2014.

There were no transfers between Levels 1, 2 and 3 during the year.

26. Other disclosures on cash flows

Non-cash investing and financing activities


	2016		2015		2014
Transfer of assets and liabilities		56,351		399,048		—
Capitalization of related party transactions		26,610		—		—

The issuance of shares described in Note 18 refers to non-cash consideration.

F-72

PagSeguro Internet S.A.

Notes to the consolidated financial

statements at December 31, 2016

(All amounts in thousands of reais unless otherwise stated)

27. Subsequent events

Share Split

As described in Note 1, at the Extraordinary General Shareholders Meeting held on August 1, 2017, PagSeguro Brazil´s shareholders approved and executed a 2:1 (two for one) reverse share split for all outstanding shares. As a result of the reverse share split, PagSeguro Brazil´s historical financial statements have been revised to reflect the number of shares and per share data as if the reverse share split had been in effect for all periods presented.

BCPS, R2TECH and BIVA acquisitions

On January 1, 2017, PagSeguro Brazil acquired 99.95% of the share capital and obtained control of BCPS Online Services LDA. whose main activity is to enable clients of the PagSeguro Brazil Group to operate cross-border transactions where the merchant and the consumers are located in different countries of Latin America, Spain, Portugal and Turkey. The amount paid for the acquisition was R$406, which was settled in cash on that date. The fair value of the acquired assets, amounting R$568, and the assumed liabilities amounting of R$75 at the acquisition date are substantially similar to their book value.

On May 2, 2017, PagSeguro Brazil acquired 51% of the share capital and obtained control of R2TECH Informática SA. whose main activity is within the information technology industry, focusing on the processing of back-office solutions, including sales reconciliation, gateway solutions and services, and the capture of credit cards with administrators and acquirers. The purchase consideration was R$9,200, of which R$2,940 was settled in cash on the acquisition date and R$460 was deposited into an escrow account for future price adjustments; R$2,300 is due on December 31, 2017 and the remaining amount of R$3,500 is due on December 31, 2018.

* * *

F-73

LOGO

Class A Common Shares

LOGO

PAGSEGURO DIGITAL LTD.

PROSPECTUS

Global Coordinators


Goldman Sachs & Co. LLC		Morgan Stanley

Bookrunners

BofA Merrill Lynch

Bradesco BBI

Credit Suisse

Deutsche Bank Securities

Itaú BBA

J.P. Morgan

, 2018

Through and including , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 6. 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.

Under the indemnification agreements entered into with our directors and officers, the form of which has been filed as Exhibit 10.11 to this registration statement, we have agreed to indemnify and hold harmless our directors and officers against certain liabilities and expenses incurred by them in connection with claims made by reason of their being such a director or officer.

Also, the registrant expects to maintain director’s and officer’s liability insurance covering its directors and officers with respect to general civil liability which he or she may incur in his or her capacity as such.

The form of underwriting agreement filed as Exhibit 1.1 to this registration statement will also provide for indemnification by the underwriters of the registrant and its directors and officers for certain liabilities, including liabilities arising under the Securities Act, but only to the extent that these liabilities are caused by information relating to the underwriters that was furnished to us by the underwriters in writing expressly for use in this registration statement and certain other disclosure documents.

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 7. Recent Sales of Unregistered Securities

None.

Item 8. Exhibits

(a)

The following documents are filed as part of this registration statement:

The exhibit index attached hereto is incorporated herein by reference.

(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 9. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6 of this registration statement, or otherwise, the registrant has been advised that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act 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 its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby also undertakes that:

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 at the time it was declared effective.

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.

For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; 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 first use, 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 date of first use.

For the purposes of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the 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:

any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

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;

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

any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

EXHIBIT INDEX


Exhibit Number		Exhibit
1.1		Form of Underwriting Agreement
3.1		Memorandum and Articles of Association of the Registrant
5.1		Opinion of Conyers Dill & Pearman, Cayman Islands legal counsel to the Registrant
10.1**†		English translation of the Agreement for the Supply of Equipment – PIN pad Terminals, dated as of June 26, 2014, among PAX BR Comercio de Equipamentos de Informática Ltda., CIS Eletrônica Indústria e Comércio Ltda., and Net+Phone Telecomunicações Ltda., including 1st Addendum to the Agreement for the Supply of Equipment, dated as of October 21, 2014, among PAX BR Comercio de Equipamentos de Informática Ltda., CIS Eletrônica Indústria e Comércio Ltda., Densam da Amazônia Industria Eletrônica Ltda., and Net+Phone Telecomunicações Ltda.; 2nd Addendum to the Agreement for the Supply of Equipment, dated as of July 3, 2015, among PAX BR Comercio de Equipamentos de Informática Ltda., CIS Eletrônica Indústria e Comércio Ltda., Densam da Amazônia Industria Eletrônica Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.; 3rd Addendum to the Agreement for the Supply of Equipment, dated as of October 8, 2015, among PAX BR Comercio de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.; Statement of Liability for the Application Signer’s Use on PAX Terminals, dated as of March 9, 2016, among PAX BR Comercio de Equipamentos de Informática Ltda. and Net+Phone Telecomunicações Ltda.; 4th Addendum to the Agreement for the Supply of Equipment, dated as of May 20, 2016, among PAX BR Comercio de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.; 5th Addendum to the Agreement for the Supply of Equipment, dated as of December 9, 2016, among PAX BR Comercio de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.; 6th Addendum to the Agreement for the Supply of Equipment, dated as of February 6, 2017, among PAX BR Comercio de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.
10.2**†		English translation of the Colocation Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – Colocation Center – OPT-17/21630, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – Glete Colocation Datacenter, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – Tamboré Colocation Center – OPT-17-17/21632, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – Tamboré Colocation Datacenter, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.

EX-1


10.3**†		English translation of the Hosting Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – Hosting/APM – OPT-17/21629, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – Hosting – Tamboré DTC & Licensing Service and Dynatrace Support – RUXIT, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – DDos Protection – OPT-17/21631, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – DDoS Protection, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – WAF – Web Application Firewall – OPT-17/21635, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – WAF – Web Application Firewall, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – Brand Protection – OPT-17/21636, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – Brand Protection, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – BPAG & NOTANET – OPT-17/21638, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – Payment Means Management Services, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.
10.4**†		English translation of the Service Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – Allocation of Resources – OPT-17/21087, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – Allocation of Resources, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.
10.5**†		English translation of the Telecommunications Service Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – TELECOM Services, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – Lan-to-Lan between Data Centers – Lan-to-Lan, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.
10.6**†		License Agreement, dated as of June 18, 2015, between MasterCard International Incorporated and Pagseguro Internet Ltda., including the Acceptance Letter, dated as of June 18, 2015, from MasterCard International Incorporated to Pagseguro Internet Ltda.; the Summary of Licenses Granted, dated as of June 18, 2015; and Supplement to MasterCard License Agreement, effective as of March 11, 2015, between MasterCard International Incorporated and Pagseguro S.A.
10.7**†		English translation of the Service Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – Managed Services – OPT-17/21628, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – IT Asset Management and Monitoring, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.
10.8**		Visa Payment Arrangements Participation and Trademark License Agreement, dated as of April 23, 2015, between Visa do Brasil Empreendimentos Ltda. and Pagseguro Internet Ltda.
10.9**		Advertising Space Assignment Agreement for Insertion of Advertisements, dated as of August 1, 2015, by and between Universo Online S.A. and Pagseguro Internet Ltda., including 1 ^st Addendum to the Advertising Space Assignment Agreement for Insertion of Advertisements, dated as of January 1, 2017 and UOL – Table of Prices – August 2016.

EX-2


10.10**		English translation of the Long-Term Incentive Plan (LTIP) Restricted Shares Plan – Universo Online S.A., dated as of July 29, 2015.
10.11**		Form of Indemnification Agreement
21.1**		Subsidiaries of the Registrant
23.1		Consent of PricewaterhouseCoopers Auditores Independentes
23.2		Consent of Conyers Dill & Pearman, Cayman Islands legal counsel to the Registrant (included in Exhibit 5.1)
23.3		Consent of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados
24.1**		Powers of Attorney (included on signature page to the Registration Statement)
99.1**		Consent of Datafolha
99.2**		Representations required by Instruction 2 to Item 8.A.4 of Form 20-F
99.3**		Consent of Noemia Gushiken

(*)	To be filed by amendment.

(**)	Previously filed.

( ^† )

Portions of this exhibit will be omitted pursuant to the Registrant’s request for confidential treatment.

EX-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended (the “Securities Act”), the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing this pre-effective amendment No.1 to the Registration Statement on Form F-1 and 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 9 ^th day of January, 2018.


PagSeguro Digital Ltd.

By:		/s/ Eduardo Alcaro
Name:		Eduardo Alcaro
Title:		Chief Financial and Investor Relations Officer, Chief Accounting Officer and Director

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act, this pre-effective amendment No.1 to the Registration Statement on Form F-1 has been signed by the following persons in the capacities and on the dates indicated.


Signature	Title	Date

* Luis Frias	Principal Executive Officer and Director	01/09/18


/s/ Eduardo Alcaro Eduardo Alcaro	Chief Financial and Investor Relations Officer, Chief Accounting Officer and Director	01/09/18


*	Executive Officer and Director	01/09/18
Ricardo Dutra da Silva

*	Director	01/09/18
Maria Judith de Brito

* Colleen De Vries Senior Vice President of Cogency Global Inc.	Authorized U.S. Representative	01/09/18

Exhibit 1.1

PAGSEGURO DIGITAL LTD.

[•] CLASS A COMMON SHARES (PAR VALUE US$0.000025 PER SHARE)

UNDERWRITING AGREEMENT

[•], 2018

Goldman Sachs & Co. LLC

200 West Street,

New York, New York 10282-2198

Morgan Stanley & Co. LLC

1585 Broadway

New York, New York 10036

Ladies and Gentlemen:

PagSeguro Digital Ltd., an exempted company incorporated under the laws of the Cayman Islands with limited liability (the “ Company ”), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the “ Underwriters ”) an aggregate of [•] Class A common shares (par value US$0.000025 per share) of the share capital of the Company, and Universo Online S.A. (the “ Selling Shareholder ”), proposes to sell to the Underwriters an aggregate of [•] Class A common shares (par value US$0.000025 per share) of the share capital of the Company and, if and to the extent that you, as Managers of the offering, shall have determined to exercise, on behalf of the Underwriters, the option to purchase such Class A common shares granted to you in Section 3 hereof, not more than an additional [•] Class A common shares (par value US$0.000025 per share) of the share capital of the Company. The aggregate of Class A common shares to be sold by the Company and the Selling Shareholder is herein called the “ Firm Shares ” and the additional Class A common shares to be sold by the Selling Shareholder are herein called the “ Additional Shares ”. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the “ Shares. ” The Class A common shares (par value US$0.000025 per share) of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the “ Common Shares .”

The Company has filed with the Securities and Exchange Commission (the “ Commission ”) a registration statement, including a prospectus, relating to the Shares, on Form F-1 (File No. 333-222292). The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the “ Securities Act ”), is hereinafter referred to as the “ Registration Statement ”; the prospectus in the form first used to confirm sales of Shares (or in the form first made available to the Underwriters by the Company to meet requests of purchasers pursuant to Rule 173 under the Securities Act) is hereinafter referred to as the “ Prospectus. ” If the Company has filed an abbreviated registration statement to register additional Common Shares pursuant to Rule 462(b) under the Securities Act (the “ Rule 462 Registration Statement ”), then any reference herein to the term “ Registration Statement ” shall be deemed to include such Rule 462 Registration Statement.

For purposes of this Agreement, “ free writing prospectus ” has the meaning set forth in Rule 405 under the Securities Act, “ Time of Sale Prospectus ” means the preliminary prospectus together with the documents and pricing information set forth in Schedule II hereto, and “ broadly available road show ” means a “bona fide electronic road show” as defined in Rule 433(h)(5) under the Securities Act. As used herein, the terms “Registration Statement,” “preliminary prospectus,” “Time of Sale Prospectus” and “Prospectus” shall include the documents (or portions thereof), if any, incorporated by reference therein as of the date hereof.

1. Representations and Warranties of the Company . The Company represents and warrants to and agrees with each of the Underwriters that:

(a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission.

(b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Time of Sale Prospectus does not, and at the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers and at the Closing Date (as defined in Section 5), the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iv) each broadly available road show, if any, when considered together with the Time of Sale Prospectus, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (v) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement, the Time of Sale Prospectus or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.

(c) The Company is not an “ineligible issuer” in connection with the offering pursuant to Rules 164, 405 and 433 under the Securities Act. Any free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or behalf of or used or referred to by the Company complies or will comply in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Except for the free writing prospectuses, if any, identified in Schedule II hereto, and electronic road shows, if any, each furnished to you before first use, the Company has not prepared, used or referred to, and will not, without your prior consent, prepare, use or refer to, any free writing prospectus.

(d) The Company has been duly incorporated, is validly existing as an exempted company with limited liability in good standing under the laws of the Cayman Islands, has the corporate power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing (to the extent such concept is applicable) in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing, as applicable, would not have, individually or in the aggregate, a material adverse effect or a prospective material adverse effect on the Company and its subsidiaries, taken as a whole (a “ Material Adverse Effect ”).

(e) Each subsidiary of the Company has been duly incorporated, is validly existing as a corporation or company under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing (to the extent such concept is applicable) in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that any failure to be so qualified or be in good standing (to the extent such concept is applicable) would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; all of the issued shares of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned by the Company, free and clear of all liens, encumbrances, equities or claims.

(f) This Agreement has been duly authorized, executed and delivered by the Company.

(g) This Agreement is in an acceptable legal form under the laws of the Cayman Islands and Brazil for the enforcement thereof in such jurisdiction against the Company, and to ensure the legality, validity, enforceability or admissibility into evidence in the Cayman Islands and Brazil of this Agreement, except that, Cayman Islands stamp duty would be required to be paid before the Agreement could be admitted into evidence before the courts of the Cayman Islands and for the purpose of enforcing and admitting this Agreement executed outside Brazil into evidence before the public agencies and courts in Brazil: (A)(i) the signatures of the parties executing this Agreement outside Brazil shall have been notarized by a notary public licensed as such under the law of the place of signing and the signature of such notary public shall have been legalized by a Brazilian Consulate; (ii) this Agreement shall have been translated into Portuguese by a sworn translator; and (iii) this Agreement shall have been registered with the appropriate Registry of Titles and Deeds in Brazil, together with its sworn translations; or (B) if the state in which this Agreement was executed is party to the Hague Convention of October 5, 1961 Abolishing the Requirement of Legalization for Foreign Public Documents (the “ Apostille Convention ”), (i) an authority designated by the state in which this Agreement is executed shall have issued a certificate that authenticates the origin of this Agreement (“ Apostille ”) and (ii) the Apostille and this Agreement shall have been translated into the Portuguese language by a sworn translator.

(h) It is not necessary under the laws of the Cayman Islands or Brazil (i) to enable the Underwriters to enforce their rights under this Agreement, to enable any holder of Shares to enforce their respective rights thereunder, provided that they are not otherwise engaged in or carrying on business in the Cayman Islands or Brazil, or (ii) solely by reason of the execution, delivery or consummation of this Agreement, for any of the Underwriters or any holder of Shares of the Company to be qualified or entitled to carry out business in the Cayman Islands or Brazil.

(i) The authorized share capital of the Company conforms as to legal matters to the description thereof contained in each of the Time of Sale Prospectus and the Prospectus.

(j) The Common Shares of the Company (including the Shares to be sold by the Selling Shareholder, which will be converted from Class B common shares to Class A common shares in a preliminary step prior to sale) issued and outstanding prior to the issuance of the Shares to be sold by the Company have been duly authorized and are validly issued, fully paid and non-assessable. [Except as described in the Time of Sale Prospectus and the Prospectus,] none of the issued and outstanding Common Shares of the Company were issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company, and no options, warrants or other rights to purchase, agreements or any other obligations to issue, or rights to convert any obligations into or exchange any securities for, shares of, or ownership interests in, the Company are outstanding.

(k) The unissued Shares to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered by the Company to the Underwriters in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or resale rights, rights of first refusal or similar rights, and will be freely transferable by the Company to or for the account of the several Underwriters and the initial purchasers thereof, and, except as otherwise set forth in the Time of Sale Prospectus, there are no restrictions on subsequent transfers of the Shares under the laws of the Cayman Islands or the United States.

(l) Under the current laws and regulations of the Cayman Islands all dividends and other distributions declared and payable on the Shares in cash may be freely remitted out of the Cayman Islands and may be paid in, or freely converted into, United States dollars, in each case without there being required any consent, approval, authorization or order of, or qualification with, any court or governmental agency or body in the Cayman Islands; and except as disclosed in the Time of Sale Prospectus, all such dividends and other distributions paid by the Company will not be subject to income, withholding or other taxes under the laws and regulations of the Cayman Islands or any political subdivision or taxing authority thereof or therein and will otherwise be free and clear of any other tax, duty, withholding or deduction in the Cayman Islands or any political subdivision or taxing authority thereof or therein.

(m) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; (ii) result in any violation of the provisions of the charter, memorandum and articles of association, by-laws or similar organizational documents of the Company or any of its subsidiaries; or (iii) result in the violation of any Brazilian, U.S. or other law or any statute or any judgment, order, rule, decree or regulation applicable to the Company or any of its subsidiaries of any Brazilian or U.S. or, to the knowledge of the Company, any other court, arbitrator, governmental body, agency, or court having jurisdiction over the Company or any of its subsidiaries or any of their properties, except, in the case of clauses (i) and (iii) above, for any breach or violation that would not, individually or in the aggregate, have (x) a material adverse effect on the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated hereby, or (y) a Material Adverse Effect. No consent, approval, authorization, filing, order, registration or qualification of or with any such court or arbitrator having jurisdiction over the Company or governmental body or agency or court is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares, and except where the lack thereof would not, individually or in the aggregate, have (i) a material adverse effect on the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated hereby, or (ii) a Material Adverse Effect.

(n) Neither the Company nor any of its subsidiaries is (i) in violation of its charter, memorandum and articles of association or by-laws or similar organizational documents, as applicable; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, credit or loan agreement, contract, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; or (iii) in violation of any Brazilian, U.S. or other law or statute or any judgment, order, rule, decree or regulation of any Brazilian, U.S. or other court or arbitrator or governmental or regulatory authority except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, have a Material Adverse Effect.

(o) No stamp, documentary, issuance, registration, transfer, withholding, capital gains, income or other taxes or duties are payable by or on behalf of the Underwriters, the Company or any of its subsidiaries in the Cayman Islands, Brazil or to any taxing authority thereof or therein in connection with (i) the execution, delivery or consummation of this Agreement, (ii) the creation, allotment and issuance of the Shares, (iii) the sale and delivery of the Shares to the Underwriters or purchasers procured by the Underwriters, or (iv) the resale and delivery of the shares by the Underwriters in the manner contemplated herein, except as otherwise disclosed in the Time of Sale Prospectus and the Prospectus, and other than any Brazilian withholding tax payable on commissions due to the Underwriters and any stamp duties arising if the Agreement is executed in or brought into the Cayman Islands.

(p) Any waiver, relief, concession or preferential treatment relating to taxes granted to the Company or any subsidiary by any Cayman Islands or Brazilian taxing authority is valid and in full force and effect.

(q) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business, prospects or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Prospectus.

(r) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited consolidated financial statements included in the Time of Sale Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree[, otherwise than as set forth or contemplated in the Time of Sale Prospectus].

(s) No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, shareholders, customers, suppliers or other affiliates of the Company or any of its subsidiaries, on the other, that is required by the Securities Act to be described in the Registration Statement or the Prospectus and that is not so described in such documents and in the Time of Sale Prospectus.

(t) There are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject (i) other than proceedings disclosed in the Time of Sale Prospectus and proceedings that would not individually or in the aggregate have a Material Adverse Effect, or a material adverse effect or a prospective material adverse effect on the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by the Time of Sale Prospectus or (ii) that are required to be described in the Registration Statement or the Prospectus and are not so described; and, to the knowledge of the Company, there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required.

(u) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, provided that the Company makes no representation and warranty with respect to statements or omissions based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter expressly for use therein.

(v) The Company has no reason to believe that the indemnification provisions set forth in Section 9 hereof contravene Cayman Islands or Brazilian law or public policy.

(w) Except for the appointment of the Underwriters, who may engage in stabilization activities and as to whose actions the Company makes no representation, the Company has not taken, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

(x) The Company is not, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

(y) Based upon the manner in which the Company currently operates its business, management’s estimates of the Company’s gross income and assets for the current taxable year, the Company’s business plans and the Company’s current interpretation of the “passive foreign investment company” (“ PFIC ”) provisions in the U.S. Internal Revenue Code of 1986, as amended and the Treasury regulations promulgated thereunder, some of which are subject to revision, the Company believes that it will likely not be treated as a PFIC as defined in Section 1297 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder for the current taxable year or for the foreseeable future.

(z) The Company is a “foreign private issuer” as defined in Rule 405 of the Securities Act.

(aa) Other than as set forth in the Time of Sale Prospectus, the Company and its subsidiaries have made all required payments for retirement, healthcare, death or disability benefits to any of the present or past employees of the Company or any of the subsidiaries, or to any other person except as would not, individually or in the aggregate, have a Material Adverse Effect.

(bb) PricewaterhouseCoopers Auditores Independentes, who have (A) conducted a limited review of the unaudited interim consolidated financial statements of Pagseguro Internet S.A. (“ PagSeguro Brazil ”) at and for each of the nine-month periods ended September 30, 2017 and 2016 contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus, and (B) audited the consolidated financial statements of PagSeguro Brazil at December 31, 2016, 2015 and 2014 and for each of the three years ended December 31, 2016 contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus, and whose report with respect to such audited annual consolidated financial statements are included in the Registration Statement, Time of Sale Prospectus and the Prospectus, are independent public accountants as required by the Securities Act and in accordance with applicable rules and regulations adopted by the U.S. Public Company Accounting Oversight Board.

(cc) The unaudited interim consolidated financial statements of PagSeguro Brazil at and for each of the nine-month periods ended September 30, 2017 and 2016 and the audited consolidated financial statements of PagSeguro Brazil at December 31, 2016, 2015 and 2014 and for each of the three years ended December 31, 2016 and related notes thereto included in the Time of Sale Prospectus, the Prospectus and the Registration Statement present fairly in all material respects the consolidated financial condition, results of operations and cash flows of PagSeguro Brazil and its consolidated subsidiaries, as of the dates and for the periods indicated and have been prepared in conformity with the International Financial Reporting Standards (“ IFRS ”) as issued by the International Accounting Standards Board (“ IASB ”), applied on a consistent basis throughout the periods covered thereby. The selected financial data provided in the Registration Statement, the Time of Sale Prospectus and the Prospectus present fairly in all material respects the consolidated financial condition, results of operations and cash flows of PagSeguro Brazil and its consolidated subsidiaries, as of the dates and for the periods indicated and was fairly prepared on a basis consistent with the financial statements and books and records of PagSeguro Brazil and its consolidated subsidiaries; and the Company and its subsidiaries do not have any material off-balance sheet liabilities and obligations, except as otherwise disclosed in the Time of Sale Prospectus and the Prospectus.

(dd) Any market and statistical information provided in the Time of Sale Prospectus and the Prospectus are based on or furnished by sources that the Company in good faith believes to be reliable and accurate in all material respects and, to the extent required, the Company has obtained written consent for the use of such data from such sources.

(ee) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in any of the Time of Sale Prospectus and the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

(ff) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“ Environmental Laws ”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, individually or in the aggregate, have a Material Adverse Effect.

(gg) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, individually or in the aggregate, have a Material Adverse Effect.

(hh) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement.

(ii) (i) None of the Company or its subsidiaries or any director or officer thereof, or, to the Company’s knowledge, any employee, agent or affiliate of the Company or of any of its subsidiaries, has taken, directly or indirectly, any action that would result in a violation by such persons of (A) to the extent applicable to such persons, the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “ FCPA ”), including, without limitation, taking any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment, giving or receipt of money, property, gifts or anything else of value, directly or indirectly, to any “foreign official” (as such term is defined in the FCPA) or to any foreign political party or official thereof or any candidate for foreign political office in contravention of the FCPA, (B) any provision of Brazil’s Anticorruption Law (Law No. 12,846/2013), or (C) any other applicable anti-bribery or anti-corruption law; (ii) the Company and its subsidiaries have conducted their businesses in compliance with such anti-corruption laws and have instituted and maintained and will continue to maintain policies and procedures reasonably designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith; and (iii) neither the Company nor its subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of any applicable anti-corruption laws.

(jj) The operations of the Company and its subsidiaries are and have been conducted at all times in material compliance with all applicable financial recordkeeping and reporting requirements, including, to the extent applicable to such persons, those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “ Anti-Money Laundering Laws ”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.

(kk) (i) None of the Company, any of its subsidiaries, or any director, or officer thereof, or, to the Company’s knowledge, any employee, agent or affiliate of the Company or any of its subsidiaries, is an individual or entity (“ Person ”) that is, or is 50% or more owned by one or more Persons that are:

(A) currently the subject of any sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control (“ OFAC ”) , the United Nations Security Council (“ UNSC ”), the European Union (“ EU ”), Her Majesty’s Treasury (“ HMT ”), or other relevant sanctions authority (collectively, “ Sanctions ”), or

(B) located, organized or resident in a country or territory that is the subject of Sanctions (currently Crimea, Cuba, Iran, North Korea, Sudan and Syria) (each, a “ Sanctioned Country ”).

(ii) The Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:

(A) to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject or the target of Sanctions; or

(B) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).

(iii) For the past 5 years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

(ll) Subsequent to the respective dates as of which information is given in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus [and except as disclosed in the Time of Sale Prospectus and the Prospectus], (i) the Company and its subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction; (ii) the Company has not purchased any of its outstanding share capital, nor declared, paid or otherwise made any dividend or distribution of any kind on its share capital other than ordinary and customary dividends; and (iii) there has not been any material change in the share capital, short-term debt or long-term debt of the Company and its subsidiaries, except in each case as described in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, respectively.

(mm) The Company and its subsidiaries do not own any real property and have good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the Time of Sale Prospectus; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries, in each case except as described in the Time of Sale Prospectus.

(nn) (i) The Company and its subsidiaries own or possess, or can acquire on reasonable terms, all trademarks, trade names, service marks, patent rights, copyrights (including copyright in software), domain names, licenses, approvals, trade secrets, inventions, technology, software and source code, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and any other intellectual property and similar rights, including registrations and applications for registration thereof (collectively, “ Intellectual Property Rights ”) necessary for the conduct of the business now operated by them; (ii) [except as disclosed in the Time of Sale Prospectus and the Prospectus,] the Company and its subsidiaries have not received any notice or are not otherwise aware of any claim of infringement, misappropriation or other violation of, or conflict with, any Intellectual Property Rights of others which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect; (iii) [except as disclosed in the Time of Sale Prospectus and the Prospectus,] the Company and its subsidiaries’ conduct of their respective businesses does not conflict with, infringe, misappropriate or otherwise violate any Intellectual Property Rights of any person, and, to the knowledge of the Company, the Intellectual Property Rights of the Company and its subsidiaries have not been in conflict with, infringed, misappropriated or otherwise been violated by any person, except where such conflict, infringement, misappropriation or violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(oo) (i) Neither the Company nor any of its subsidiaries is engaged in any illegal labor practice, (ii) no labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is contemplated or threatened; and (iii) there are no existing or, to the knowledge of the Company, imminent strikes, labor disputes, slowdowns or stoppages affecting the Company or its subsidiaries by the employees of any of its licensees, or outsourced companies, except as would not, individually or in the aggregate, have a Material Adverse Effect.

(pp) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are customary in the businesses in which they are engaged and the locations where they operate; and neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect, except as described in the Time of Sale Prospectus.

(qq) [Except as disclosed in the Time of Sale Prospectus and the Prospectus,] the Company and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where such failure to possess such certificates, authorizations and permits would not, individually or in the aggregate, have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect, except as described in the Time of Sale Prospectus.

(rr) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with IFRS and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company is not aware of any material weaknesses in its internal control over financial reporting. [Except as disclosed in the Time of Sale Prospectus and the Prospectus,] since the end of the Company’s most recent audited fiscal year, there has been (i) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (ii) no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

(ss) To the extent applicable to the Company as an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “ Emerging Growth Company ”), the Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration Statement, it will be in compliance with all provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof (the “ Sarbanes-Oxley Act ”) that are then in effect and with which the Company is required to comply as of the effectiveness of the Registration Statement, and is actively taking steps to ensure that it will be in compliance with other provisions of the Sarbanes-Oxley Act not currently in effect, upon the effectiveness of such provisions, or which will become applicable to the Company at all times after the effectiveness of the Registration Statement.

(tt) No subsidiary of the Company is currently prohibited, directly or indirectly, under any law, rule, regulation, decree, order, agreement or other instrument to which it is a party or is subject from paying any dividends to the Company, from making any other distribution on such subsidiary’s share capital, from repaying to the Company any loans or advances to such subsidiary from the Company, from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company, or from taking any other similar actions, except as described in or contemplated by the Time of Sale Prospectus and the Prospectus.

(uu) [Except as disclosed in the Time of Sale Prospectus and the Prospectus,] there are no contracts, agreements or understandings between the Company and any person (other than this Agreement) that would give rise to a valid claim against the Company or any Underwriter for a broker’s commission, finder’s fee or other like payment in connection with the issuance and sale of the Shares to the Underwriters.

(vv) Except as described in the Time of Sale Prospectus, the Company has not sold, issued or distributed any Common Shares during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants.

(ww) [Except as described in the Time of Sale Prospectus and the Prospectus,] the Company and each of its subsidiaries have filed all Brazilian and Cayman Islands tax returns required to be filed (if any) through the date of this Agreement or have requested extensions thereof (except where the failure to file would not, individually or in the aggregate, have a Material Adverse Effect) and have paid all taxes required to be paid thereon (except for cases in which the failure to file or pay would not have a Material Adverse Effect, or, except as currently being contested in good faith and for which reserves have been created in the financial statements of the Company), and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had a Material Adverse Effect (nor does the Company nor any of its subsidiaries have any notice or knowledge of any tax deficiency which could reasonably be expected to be determined adversely to the Company or its subsidiaries and which could reasonably be expected to have a Material Adverse Effect).

(xx) From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an Emerging Growth Company. “ Testing-the-Waters Communication ” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

(yy) The Company (i) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Underwriters with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) has not authorized anyone other than the Underwriters to engage in Testing-the-Waters Communications. The Company reconfirms that the Underwriters have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications [other than those listed on Schedule [•] hereto]. “ Written Testing-the-Waters Communication ” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.

(zz) As of the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers, none of (A) the Time of Sale Prospectus, (B) any free writing prospectus, when considered together with the Time of Sale Prospectus, and (C) any individual Written Testing-the-Waters Communication, when considered together with the Time of Sale Prospectus, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(aaa) The courts of Brazil would recognize as a valid judgment and enforce any final monetary or non-monetary judgment obtained against the Company in the courts of the State of New York, provided that such recognition would be provided by the Brazilian Superior Court of Justice, if such judgment (i) fulfills all formalities required for its enforceability under the laws of the country where foreign judgment was granted; (ii) is issued by a court of competent jurisdiction after proper service of process was made (and, if the relevant party is located in Brazil, service of process has been made in accordance with Brazilian law) or after sufficient evidence of the party’s absence has been given ( revelia ), as required under applicable law; (iii) is not subject to appeal; (iv) is Apostilled by the appropriate authority of the state rendering such foreign judgment in accordance with the Apostille Convention, or is duly authenticated by the appropriate Brazilian consulate; (v) is translated into Portuguese by a sworn translator in Brazil, unless an exemption is provided by an international treaty to which Brazil is a signatory; and (vi) is not contrary to Brazilian national sovereignty, public policy or public morality.

(bbb) The courts of the Cayman Islands would recognize as a valid judgment, a final and conclusive judgment in personam obtained against the Company in the courts of the State of New York based upon this Agreement under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that (i) such courts had proper jurisdiction over the parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of the Cayman Islands; (iii) such judgment was not obtained by fraud; (iv) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (vi) there is due compliance with the correct procedures under the laws of the Cayman Islands.

(ccc) Neither the Company nor any of its subsidiaries nor any of its or their properties or assets has any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under U.S. federal, New York state, Cayman Islands or Brazilian law. The irrevocable and unconditional waiver and agreement of the Company contained in Section 15(a) not to plead or claim any such immunity in any legal action, suit or proceeding based on this Agreement is valid and binding under the laws of the Cayman Islands and Brazil.

(ddd) The choice of law of the State of New York as the governing law of this Agreement is a valid choice of law under the laws of the Cayman Islands and Brazil and will be recognized and given effect by the courts of the Cayman Islands and Brazil, except for: (a) in the case of the Cayman Islands, those laws (i) which such court considers to be procedural in nature; (ii) which are revenue or penal laws; or (iii) the application of which would be inconsistent with public policy, as such term is interpreted under the laws of the Cayman Islands; and (b), in the case of Brazil, the choice of law will only be honored provided that (i) the contractual language makes it clear that the New York courts have exclusive jurisdiction; (ii) the contract is considered to be international by Brazilian courts; (iii) the clause of submission to an exclusive jurisdiction is not considered abusive by Brazilian courts and (iv) Brazilian courts do not have exclusive jurisdiction over any dispute arising therefrom. For the purposes of (b)(iv) of this paragraph, Brazilian courts have exclusive jurisdiction over matters involving real estate located in Brazil and the declaration of bankruptcy by a Brazilian individual or entity.

(eee) The Company has the power to submit, and pursuant to Section 15(a) has, to the extent permitted by law, legally, validly, effectively and irrevocably submitted, to the jurisdiction of the Specified Courts (as defined in Section 15(a)), and has the power to designate, appoint and empower, and pursuant to Section 15(b), has legally, validly and effectively designated, appointed and empowered an agent for service of process in any suit or proceeding based on or arising under this Agreement in any of the Specified Courts.

2. Representations and Warranties of the Selling Shareholder . The Selling Shareholder represents and warrants to and agrees with each of the Underwriters that:

(a) The Selling Shareholder has been duly incorporated, is validly existing as a sociedade por a ç õ es under the laws of Brazil, has the corporate power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing (to the extent such concept is applicable) in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing (to the extent such concept is applicable) would not have, individually or in the aggregate, a material adverse effect or a prospective material adverse effect on the Selling Shareholder and its subsidiaries, taken as a whole (a “ Selling Shareholder Material Adverse Effect ”).

(b) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder.

(c) The execution and delivery by the Selling Shareholder of, and the performance by the Selling Shareholder of its obligations under, this Agreement will not contravene (i) any provision of applicable law, (ii) the certificate of incorporation, by-laws or similar organizational documents of the Selling Shareholder, or (iii) any agreement or other instrument binding upon the Selling Shareholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Selling Shareholder, except, in the case of clauses (i) and (iii) above, for any breach or violation that would not, individually or in the aggregate, have (x) a material adverse effect on the power or ability of the Selling Shareholder to perform its obligations under this Agreement or to consummate the transactions contemplated hereby, or (y) a Selling Shareholder Material Adverse Effect. No consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Selling Shareholder of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares and except where the lack thereof would not reasonably be expected to have (i) a material adverse effect on the power or ability of the Selling Shareholder to perform its obligations under this Agreement or to consummate the transactions contemplated hereby, or (ii) a Selling Shareholder Material Adverse Effect.

(d) The Selling Shareholder has, and on the Closing Date or each Option Closing Date, as the case may be, will have, valid title to the Shares to be sold by the Selling Shareholder at the Closing Date or each Option Closing Date, as the case may be, free and clear of all security interests, claims, liens, equities or other encumbrances.

(e) The Selling Shareholder has the legal right and power, and all authorization and approval required by law, to enter into this Agreement and to sell, transfer and deliver the Shares to be sold by the Selling Shareholder.

(f) The Selling Shareholder is not, as of the date hereof or as of each Closing Date, planning to dispose of the remainder of its shares in the Company, provided it is understood that the Selling Shareholder shall not be deemed to be restricted from disposing of any or all of its shares in the Company following the expiry of the “Restricted Period” in the “lock-up” agreement delivered by it to the Underwriters.

(g) (i) No person has the right, contractual or otherwise, to cause the Selling Shareholder to sell to it any of the shares or other equity interests of the Company owned by the Selling Shareholder, including any of the Common Shares owned by the Selling Shareholder, and (ii) no person has any preemptive rights, resale rights, co-sale or rights of first refusal, options, warrants, or other rights to purchase, or convert or exchange any securities for any shares or other equity interests of the Company owned by the Selling Shareholder, including any of the Common Shares. [Except as described in the Time of Sale Prospectus and the Prospectus,] the Selling Shareholder has no options, warrants or other rights to purchase, or rights to convert any securities for shares of or ownership interests in the Company or any of its subsidiaries, including the Shares.

(h) Upon payment for the Shares to be sold by the Selling Shareholder pursuant to this Agreement, delivery of such Shares, as directed by the Underwriters, to Cede & Co. (“ Cede ”) or such other nominee as may be designated by the Depository Trust Company (“ DTC ”), registration of such Shares in the name of Cede or such other nominee and the crediting of such Shares on the books of DTC to securities accounts of the Underwriters (assuming that neither DTC nor any such Underwriter has notice of any adverse claim (within the meaning of Section 8-105 of the New York Uniform Commercial Code (the “ UCC ”)) to such Shares), (A) DTC shall be a “protected purchaser” of such Shares within the meaning of Section 8-303 of the UCC, (B) under Section 8-501 of the UCC, the Underwriters will acquire a valid security entitlement in respect of such Shares and (C) no action based on any “adverse claim”, within the meaning of Section 8-102 of the UCC, to such Shares may be asserted against the Underwriters with respect to such security entitlement; for purposes of this representation, the Selling Shareholder may assume that when such payment, delivery and crediting occur, (x) such Shares will have been registered in the name of Cede or another nominee designated by DTC, in each case on the Company’s register of members in accordance with its memorandum and articles of association, bylaws and applicable law, (y) DTC will be registered as a “clearing corporation” within the meaning of Section 8-102 of the UCC and (z) appropriate entries to the accounts of the several Underwriters on the records of DTC will have been made pursuant to the UCC.

(i) The Selling Shareholder has not taken, and will not take, directly or indirectly, any action which is designed to or which constituted or would be reasonably expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

(j) No filing with, or consent, approval, authorization, order, registration, qualification or decree of any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency, domestic or foreign, is necessary or required for the performance by the Selling Shareholder of its obligations hereunder, or in connection with the sale and delivery of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the Securities Act, the rules of the New York Stock Exchange (“ NYSE ”), state securities laws or the rules of the Financial Institutions Regulatory Authority (“ FINRA ”).

(k) The Selling Shareholder does not have any registration or other similar rights to have any equity or debt securities registered for sale by the Company under the Registration Statement or included in the offering contemplated by this Agreement.

(l) [Except as disclosed in the Time of Sale Prospectus and the Prospectus,] there are no contracts, agreements or understandings between the Selling Shareholder and any person (other than this Agreement) that would give rise to a valid claim against the Selling Shareholder or any Underwriter for a broker’s commission, finder’s fee or other like payment in connection with the issuance and sale of the Shares to the Underwriters.

(m) The representations and warranties of the Company contained in Section 1 are true and correct. The Selling Shareholder is not prompted by any information concerning the Company or its subsidiaries which is not set forth in the Time of Sale Prospectus to sell its Shares pursuant to this Agreement.

(n) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Time of Sale Prospectus does not, and at the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers and at the Closing Date (as defined in Section 5), the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iv) each broadly available road show, if any, when considered together with the Time of Sale Prospectus, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (v) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.

(o) This Agreement is in proper form under the laws of Brazil for the enforcement thereof in Brazil against the Selling Shareholder, and to ensure the legality, validity, enforceability or admissibility into evidence in Brazil of this Agreement, except that, for the purpose of enforcing and admitting this Agreement executed outside Brazil into evidence before the public agencies and courts in Brazil: (A)(i) the signatures of the parties executing this Agreement outside Brazil shall have been notarized by a notary public licensed as such under the law of the place of signing and the signature of such notary public shall have been legalized by a Brazilian Consulate; (ii) this Agreement shall have been translated into Portuguese by a sworn translator; and (iii) this Agreement shall have been registered with the appropriate Registry of Titles and Deeds in Brazil, together with its sworn translations; or (B) if the state in which this Agreement was executed is party to the Apostille Convention, (i) an authority designated by the state in which this Agreement is executed shall have issued an Apostille and (ii) the Apostille and this Agreement shall have been translated into the Portuguese language by a sworn translator.

(p) There are no legal or governmental proceedings pending or threatened to which the Selling Shareholder or any of its subsidiaries is a party or to which any of the properties of the Selling Shareholder or any of its subsidiaries is subject (i) other than proceedings accurately described in all material respects in the Time of Sale Prospectus and proceedings that would not have a Selling Shareholder Material Adverse Effect, or a material adverse effect or a prospective material adverse effect on the power or ability of the Selling Shareholder to perform its obligations under this Agreement or to consummate the transactions contemplated by the Time of Sale Prospectus or (ii) that are required to be described in the Registration Statement or the Prospectus and are not so described.

(q) (i) None of the Selling Shareholder or its subsidiaries or any director or officer thereof, or, to the Selling Shareholder’s knowledge, any employee, agent or affiliate of the Selling Shareholder or of any of its subsidiaries has taken, directly or indirectly, any action that would result in a violation by such persons of (A) to the extent applicable to such persons, the FCPA, including, without limitation, taking any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment, giving or receipt of money, property, gifts or anything else of value, directly or indirectly, to any “foreign official” (as such term is defined in the FCPA) or to any foreign political party or official thereof or any candidate for foreign political office in contravention of the FCPA, (B) any provision of Brazil’s Anticorruption Law (Law No. 12,846/2013), or (C) any other applicable anti-bribery or anti-corruption law; (ii) the Selling Shareholder and its subsidiaries have conducted their businesses in compliance with such anti-corruption laws and have instituted and maintained and will continue to maintain policies and procedures reasonably designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith; and (iii) neither the Selling Shareholder nor its subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of any applicable anti-corruption laws.

(r) The operations of the Selling Shareholder and its subsidiaries are and have been conducted at all times in material compliance with all applicable financial recordkeeping and reporting requirements, including, to the extent applicable to each such company, those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Selling Shareholder and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “ Selling Shareholder Anti-Money Laundering Laws ”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Selling Shareholder or any of its subsidiaries with respect to the Selling Shareholder Anti-Money Laundering Laws is pending or, to the best knowledge of the Selling Shareholder, threatened.

(s) (i) None of the Selling Shareholder, any of its subsidiaries, or any director, or officer thereof, or, to the Selling Shareholder’s knowledge, any employee, agent or affiliate of the Selling Shareholder or any of its subsidiaries, is a Person that is, or is 50% or more owned by one or more Persons that are:

(A) currently the subject of any Sanctions, or

(B) located, organized or resident in a Sanctioned Country.

(ii) The Selling Shareholder will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:

(B) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).

(iii) For the past 5 years, the Selling Shareholder and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

(t) The Selling Shareholder represents and warrants that it is not (i) an employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), (ii) a plan or account subject to Section 4975 of the Internal Revenue Code of 1986, as amended or (iii) an entity deemed to hold “plan assets” of any such plan or account under Section 3(42) of ERISA, 29 C.F.R. 2510.3-101, or otherwise.

(u) No stamp, documentary, issuance, registration, transfer, withholding, capital gains, income or other taxes or duties are payable by or on behalf of the Underwriters, the Selling Shareholder or any of its subsidiaries in the Cayman Islands, Brazil or to any taxing authority thereof or therein in connection with (i) the execution, delivery or consummation of this Agreement, (ii) the creation, allotment and issuance of the Shares, (iii) the sale and delivery of the Shares to the Underwriters or purchasers procured by the Underwriters, or (iv) the resale and delivery of the shares by the Underwriters in the manner contemplated herein, except as otherwise disclosed in the Time of Sale Prospectus and the Prospectus, and other than any Brazilian withholding tax payable on commissions due to the Underwriters and any stamp duties arising if the Agreement is executed in or brought into the Cayman Islands.

(v) The courts of Brazil would recognize as a valid judgment and enforce any final monetary or non-monetary judgment obtained against the Selling Shareholder in the courts of the State of New York, provided that such recognition would be provided by the Brazilian Superior Court of Justice, if such judgment (i) fulfills all formalities required for its enforceability under the laws of the country where foreign judgment was granted; (ii) is issued by a court of competent jurisdiction after proper service of process was made (and, if the relevant party is located in Brazil, service of process has been made in accordance with Brazilian law) or after sufficient evidence of the party’s absence has been given ( revelia ), as required under applicable law; (iii) is not subject to appeal; (iv) is Apostilled by the appropriate authority of the state rendering such foreign judgment in accordance with the Apostille Convention, or is duly authenticated by the appropriate Brazilian consulate; (v) is translated into Portuguese by a sworn translator in Brazil, unless an exemption is provided by an international treaty to which Brazil is a signatory; and (vi) is not contrary to Brazilian national sovereignty, public policy or public morality.

(w) The courts of the Cayman Islands would recognize as a valid judgment, a final and conclusive judgment in personam obtained against the Selling Shareholder in the courts of the State of New York based upon this Agreement under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that (i) such courts had proper jurisdiction over the parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of the Cayman Islands; (iii) such judgment was not obtained by fraud; (iv) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (vi) there is due compliance with the correct procedures under the laws of the Cayman Islands.

(x) Neither the Selling Shareholder nor any of its subsidiaries nor any of its or their properties or assets has any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under U.S. federal, New York state, Cayman Islands or Brazilian law. The irrevocable and unconditional waiver and agreement of the Selling Shareholder contained in Section 15(a) not to plead or claim any such immunity in any legal action, suit or proceeding based on this Agreement is valid and binding under the laws of the Cayman Islands and Brazil.

(y) The choice of law of the State of New York as the governing law of this Agreement is a valid choice of law under the laws of the Cayman Islands and Brazil and will be recognized and given effect by the courts of the Cayman Islands and Brazil, except for: (a) in the case of the Cayman Islands, those laws (i) which such court considers to be procedural in nature; (ii) which are revenue or penal laws; or (iii) the application of which would be inconsistent with public policy, as such term is interpreted under the laws of the Cayman Islands; and (b), in the case of Brazil, the choice of law will only be honored provided that (i) the contractual language makes it clear that the New York courts have exclusive jurisdiction; (ii) the contract is considered to be international by Brazilian courts; (iii) the clause of submission to an exclusive jurisdiction is not considered abusive by Brazilian courts and (iv) Brazilian courts do not have exclusive jurisdiction over any dispute arising therefrom. For the purposes of (b)(iv) of this paragraph, Brazilian courts have exclusive jurisdiction over matters involving real estate located in Brazil and the declaration of bankruptcy by a Brazilian individual or entity.

(z) The Selling Shareholder has the power to submit, and pursuant to Section 15(a) has, to the extent permitted by law, legally, validly, effectively and irrevocably submitted, to the jurisdiction of the Specified Courts (as defined in Section 15(a)), and has the power to designate, appoint and empower, and pursuant to Section 15(b), has legally, validly and effectively designated, appointed and empowered an agent for service of process in any suit or proceeding based on or arising under this Agreement in any of the Specified Courts.

3. Agreements to Sell and Purchase. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company hereby agrees to issue and sell, and the Selling Shareholder agrees to sell, to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company and the Selling Shareholder the respective numbers of Firm Shares set forth in Schedule I hereto opposite its name at US$[•] a share (the “ Purchase Price ”) ¹ .

On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Selling Shareholder agrees to sell, to the Underwriters the Additional Shares, and the Underwriters shall have the option to purchase, severally and not jointly, up to [•] Additional Shares at the Purchase Price, provided, however, that the amount paid by the Underwriters for any Additional Shares shall be reduced by an amount per share equal to any dividends declared by the Company and payable on the Firm Shares but not payable on such Additional Shares. You may exercise this option in whole or in part on a maximum of two occasions by giving written notice to the Company and the Selling Shareholder not later than 30 days after the date of this Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Each purchase date must be at least two business days after the written notice is given and may not be earlier than the Closing Date (as defined in Section 5) for the Firm Shares nor later than ten business days after the date of such notice (unless such date is in the agreement of the Company, the Selling Shareholder and the Underwriters). Additional Shares may be purchased as provided in Section 5 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. On each day, if any, that Additional Shares are to be purchased (an “ Option Closing Date ”), each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased on such Option Closing Date as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares. ²

4. Terms of Public Offering . The Company and the Selling Shareholder are advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company and the Selling Shareholder are further advised by you that the Shares are to be offered to the public initially at US$[•] a share (the “ Public Offering Price ”) and to certain dealers selected by you at a price that represents a concession not in excess of US$[•] a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of US$[•] a share, to any Underwriter or to certain other dealers.

¹	For Cayman Islands law purposes, the Purchase Price may not be lower than the par value of the Class A common shares to be issued by the Company.

5. Payment and Delivery. Payment for the Firm Shares to be sold by the Company and the Selling Shareholder shall be made to the Company and the Selling Shareholder in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on [•], 2018, or at such other time on the same or such other date, not later than [•], 2018, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the “ Closing Date .”

Payment for any Additional Shares shall be made to the Selling Shareholder in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in Section 3 or at such other time on the same or on such other date, in any event not later than [•], 2018, as shall be designated in writing by you.

The Firm Shares and Additional Shares shall, on the Closing Date or Option Closing Date, as applicable, be registered through the book entry facilities of DTC in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as the case may be. The Firm Shares and Additional Shares shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor.

6. Conditions to the Underwriters ’ Obligations . The obligations of the Company and the Selling Shareholder to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Firm Shares on the Closing Date or the Additional Shares on each Option Closing Date, as the case may be, are subject to the condition that the Registration Statement shall have become effective not later than [•] (New York City time) on the date hereof.

The several obligations of the Underwriters are subject to the following further conditions:

(a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date:

(i) there shall not have occurred any material change in the condition, financial or otherwise, or in the earnings, business, prospects or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Prospectus that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered on the Closing Date on the terms and in the manner contemplated in the Time of Sale Prospectus; and

(ii) there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the NYSE; (ii) a suspension or material limitation in trading in the Company’s securities on the NYSE; (iii) a general moratorium on commercial banking activities declared by U.S. federal, New York State, Cayman Islands or Brazilian authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (iv) the outbreak or escalation of hostilities involving the United States, the Cayman Islands or Brazil, or the declaration by the United States, the Cayman Islands or Brazil of a national emergency or war or (v) the occurrence of any other calamity or crisis or any material change in financial, political or economic conditions in the United States, the Cayman Islands or Brazil, if the effect of any such event specified in clause (iv) or (v) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered on the Closing Date on the terms and in the manner contemplated in the Time of Sale Prospectus.

(b) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Securities Act within the applicable time period prescribed for such filing by the rules and regulations under the Securities Act and in accordance with Section 7(a) hereof; all material required to be filed by the Company pursuant to Rule 433(d) under the Securities Act shall have been filed with the Commission within the applicable time period prescribed for such filing by Rule 433; if the Company has elected to rely upon Rule 462(b) under the Securities Act, the Rule 462(b) Registration Statement shall have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose or pursuant to Section 8A of the Securities Act shall have been initiated or threatened by the Commission; no stop order suspending or preventing the use of the Prospectus or any issuer free writing prospectus shall have been initiated or, to the knowledge of the Company, threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction.

(c) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer or director of the Company, to the effect set forth in Section 6(a)(i) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date.

The officer or director signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened.

(d) The Underwriters shall have received on the Closing Date an opinion and negative assurance letter of Shearman & Sterling LLP, U.S. counsel for the Company and the Selling Shareholder, each dated the Closing Date, substantially in form of Exhibit A hereto.

(e) The Underwriters shall have received on the Closing Date an opinion and negative assurance letter of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, Brazilian counsel for the Company and the Selling Shareholder, each dated the Closing Date, substantially in form of Exhibit B hereto.

(f) The Underwriters shall have received on the Closing Date an opinion of Conyers Dill & Pearman, Cayman Islands counsel for the Company, dated the Closing Date, substantially in form of Exhibit C hereto.

(g) The Underwriters shall have received on the Closing Date an opinion and negative assurance letter of Davis Polk & Wardwell LLP, U.S. counsel for the Underwriters, each dated the Closing Date, substantially in form of Exhibit D hereto.

(h) The Underwriters shall have received on the Closing Date an opinion and negative assurance letter of Pinheiro Neto Advogados, Brazilian counsel for the Underwriters, each dated the Closing Date, substantially in form of Exhibit E hereto.

(i) The Underwriters shall have received on the Closing Date an opinion of Maples and Calder, Cayman Islands counsel for the Underwriters, dated the Closing Date, substantially in form of Exhibit F hereto.

(j) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from PricewaterhouseCoopers Auditores Independentes, independent public accountants, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus; provided that the letter delivered on the Closing Date shall use a “cut-off date” not earlier than the date hereof.

(k) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by the Chief Financial Officer of PagSeguro Brazil, in form and substance reasonably satisfactory to the Underwriters.

(l) The Shares to be sold shall have been listed and admitted and authorized for trading, subject to notice of issuance, on the NYSE.

(m) The Shares shall have been made eligible for clearance and settlement through DTC.

(n) The “lock-up” agreements, each substantially in the form of Exhibit G hereto, between you, one the one hand, and the Selling Shareholder and certain officers and directors of the Company, on the other hand, relating to sales and certain other dispositions of Common Shares or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.

(o) The Company shall have appointed Cogency Global Inc., with offices at 10 East 40 ^th Street, 10 ^th Floor, New York, NY, 10016 as its authorized service of process agent as set forth in Section 15(b).

(p) Neither the Company nor its subsidiaries have any debt securities or preferred stock that are rated by any “nationally recognized statistical rating agency” (as defined in Section 3(a)(62) of the Exchange Act).

(q) The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of the following:

(i) a certificate, dated the Option Closing Date and signed by an executive officer of the Company, confirming that the certificate delivered on the Closing Date pursuant to Section 6(b) hereof remains true and correct as of such Option Closing Date;

(ii) an opinion and negative assurance letter of Shearman & Sterling LLP, U.S. counsel for the Company and the Selling Shareholder, each dated such Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion and negative assurance letter required by Section 6(d) hereof.

(iii) an opinion and negative assurance letter of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, Brazilian counsel for the Company and the Selling Shareholder, each dated such Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion and negative assurance letter required by Section 6(e) hereof.

(iv) an opinion of Conyers Dill & Pearman, Cayman Islands counsel for the Company, dated such Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 6(f) hereof.

(v) an opinion and negative assurance letter of Davis Polk & Wardwell LLP, U.S. counsel for the Underwriters, each dated such Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion and negative assurance letter required by Section 6(g) hereof.

(vi) an opinion and negative assurance letter of Pinheiro Neto Advogados, Brazilian counsel for the Underwriters, dated such Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion and negative assurance letter required by Section 6(h) hereof.

(vii) an opinion of Maples and Calder, Cayman Islands counsel for the Underwriters, dated such Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 6(i) hereof.

(viii) a letter dated such Option Closing Date, in form and substance reasonably satisfactory to the Underwriters, from PricewaterhouseCoopers Auditores Independentes, independent public accountants, substantially in the same form and substance as the letter furnished to the Underwriters pursuant to Section 6(h) hereof; provided that the letter delivered on such Option Closing Date shall use a “cut-off date” not earlier than three business days prior to such Option Closing Date; and

(ix) a certificate, dated the Option Closing Date and signed by the Chief Financial Officer of PagSeguro Brazil, confirming that the certificate delivered on the Closing Date pursuant to Section 6(k) hereof remains true and correct as of such Option Closing Date.

7. Covenants of the Company . The Company covenants with each Underwriter as follows:

(a) To furnish to you, without charge, 9 signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement, or as soon as possible thereafter, and during the period mentioned in Section 7(e) or 7(f) below, as many copies of the Time of Sale Prospectus, the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request.

(b) Before amending or supplementing the Registration Statement, the Time of Sale Prospectus or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule.

(c) To furnish to you a copy of each proposed free writing prospectus to be prepared by or on behalf of, used by, or referred to by the Company and not to use or refer to any proposed free writing prospectus to which you reasonably object.

(d) Not to take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of the Underwriter that the Underwriter otherwise would not have been required to file thereunder.

(e) If the Time of Sale Prospectus is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Time of Sale Prospectus in order to make the statements therein, in the light of the circumstances, not misleading, or if any event shall occur or condition exist as a result of which the Time of Sale Prospectus conflicts with the information contained in the Registration Statement then on file, or if, in the opinion of counsel for the Company and counsel for the Underwriters, it is necessary to amend or supplement the Time of Sale Prospectus to comply with applicable law, the Company will prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to any dealer upon request, either amendments or supplements to the Time of Sale Prospectus so that the statements in the Time of Sale Prospectus as so amended or supplemented will not, in the light of the circumstances when the Time of Sale Prospectus is delivered to a prospective purchaser, be misleading or so that the Time of Sale Prospectus, as amended or supplemented, will no longer conflict with the Registration Statement, or so that the Time of Sale Prospectus, as amended or supplemented, will comply with applicable law.

(f) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Company and counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, the Company will prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law.

(g) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request, p rovided , however, that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

(h) To make generally available to the Company’s security holders and to you as soon as practicable an earning statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the date of this Agreement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.

(i) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company’s counsel and the Company’s accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) the fees, disbursements and expenses of the Underwriters’ counsel, (iii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iv) the cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 7(g) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum, (v) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by the Financial Industry Regulatory Authority, (vi) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Shares and all costs and expenses incident to listing the Shares on the NYSE, (vii) the cost of printing certificates representing the Shares, (viii) the costs and charges of any transfer agent, registrar or depositary, (ix) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the preparation or dissemination of any electronic road show, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the Underwriters and officers of the Company and any such consultants and the cost of any aircraft chartered in connection with the road show, (x) the document production charges and expenses associated with printing this Agreement and (xi) all other costs and expenses incident to the performance of the obligations of the Company and Underwriters hereunder for which provision is not otherwise made in this Section, provided that any costs or expenses individually exceeding US$20,000 must be previously approved by the Company, such approval not to be unreasonably withheld (other than for the fees and disbursements of counsel to the Underwriters, which the Company has previously approved). It is understood, however, that except as provided in this Section, Section 9 entitled “Indemnity and Contribution” and the last paragraph of Section 11 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, share transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make.

The provisions of this Section shall not supersede or otherwise affect any agreement that the Company and the Selling Shareholder may otherwise have for the allocation of such expenses among themselves.

(j) The Company will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

(k) For so long as the Company is subject to the reporting requirements of either Section 13 or 15(d) of the Exchange Act, to furnish to its shareholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, shareholders’ equity and cash flows of the Company and its consolidated subsidiaries certified by an independent public accountant) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its shareholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail, provided, however, that the Company may satisfy the requirements of this subsection by filing such information through the Electronic Data Gathering, Analysis and Retrieval system or any successor system (“ EDGAR ”).

(l) During a period of four years from the effective date of the Registration Statement, for so long as the Company is subject to the reporting requirements of either Section 13 or 15(d) of the Exchange Act, to furnish to you copies of all reports or other communications (financial or other) furnished to shareholders, and to deliver to you (i) as soon as they are available, upon your request, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its shareholders generally or to the Commission); provided, however, that the Company shall not be required to provide documents that are available through EDGAR or posted on the Company’s website. If at any time within three years of the date of this Agreement the Company ceases to be subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act to file reports with the Commission on EDGAR, the Company shall furnish to the Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to shareholders for such year; provided that the Company may satisfy the requirements of this paragraph by posting any such information on its website.

(m) The Company will use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Time of Sale Prospectus under the caption “Use of Proceeds.”

(n) The Company will use its best efforts in cooperation with the Underwriters to permit the Shares to be eligible for clearance and settlement through DTC.

(o) The Company will use its best efforts to list, subject to notice of issuance, the Shares on the NYSE under the symbol “PAGS”.

(p) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Securities Act.

(q) The Company agrees to maintain a transfer agent and, if necessary under the laws of the Cayman Islands, a registrar for the Shares.

(r) The Company hereby grants to the Underwriters a non-exclusive, non-transferable, non-sub-licensable, royalty free license to use the Company’s trademarks, servicemarks and corporate logo on the Underwriters’ website, solely for the purpose of facilitating the on-line offering of the Shares . Such license shall expire on the last Option Closing Date.

(s) The Company will promptly notify the Underwriters if the Company ceases to be a Foreign Private Issuer or an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Shares within the meaning of the Securities Act and (b) completion of the Restricted Period (as defined in this Section 7).

(t) If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Underwriters and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.

(u) The Company shall pay, and shall indemnify and hold the Underwriters harmless against, any evidenced stamp, issue, registration, documentary, sales, transfer or other similar taxes or duties imposed under the laws of Brazil, the Cayman Islands or any political sub-division or taxing authority thereof or therein that is payable in connection with (i) the execution, delivery, consummation or enforcement of this Agreement, (ii) the creation, allotment and issuance of the Shares, (iii) the sale and delivery of the Shares to the Underwriters or purchasers procured by the Underwriters, or (iv) the resale and delivery of the Shares by the Underwriters in the manner contemplated herein.

(v) All sums payable by the Company or the Selling Shareholder under this Agreement shall be paid free and clear of and without deductions or withholdings of any present or future taxes or duties imposed by the Cayman Islands, Brazil or any political subdivision thereof (each, a “ Taxing Jurisdiction ”), unless the deduction or withholding is required by law, in which case the Company or the Selling Shareholder, as the case may be, shall pay such additional amount as will result in the receipt by each Underwriter of the full amount that would have been received had no deduction or withholding been made, provided that no such additional amounts shall be paid with respect to any taxes or duties that were imposed due to (i) an Underwriter having some connection with a Taxing Jurisdiction other than its participation as an Underwriter hereunder or (ii) the failure of the Underwriter or its agent, as the case may be, upon the reasonable request of the Company, to comply with any form, certificate, document or other reporting requirements concerning the nationality, residence, identity or connection with the Taxing Jurisdiction of the Underwriter or its agent that would have reduced or eliminated such deduction or withholding of taxes or duties (if such compliance is required or imposed by law as a precondition to an exemption from, or reduction in, such taxes or duties).

The Company also covenants with each Underwriter that, without the prior written consent of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus (the “ Restricted Period ”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Shares, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Shares or such other securities of the Company, in cash or otherwise or (3) file any registration statement with the Commission relating to the offering of any Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares.

The restrictions contained in the preceding paragraph shall not apply to (a) the Shares to be sold hereunder, (b) the issuance by the Company of Common Shares upon the exercise of an option or warrant or under the Company’s long-term incentive plan or the conversion of a security outstanding on the date hereof and described in the Time of Sale Prospectus, (c) any issuance by the Company of Common Shares in connection with a merger, acquisition, joint venture or strategic participation entered into by the Company, provided that the aggregate number of Common Shares issued or issuable under this clause (c) shall not exceed (i) 10% of the total number of Common Shares issued and outstanding as of the date of such merger, acquisition, joint venture or strategic participation, as the case may be, and (ii) the recipient of such Common Shares shall have executed and delivered to the Underwriters a letter or letters, substantially in the form of Exhibit G hereto, or (d) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Common Shares, provided that (i) such trading plan does not provide for the transfer of Common Shares during the Restricted Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Shares may be made under such plan during the Restricted Period.

If the Underwriters, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 6(n) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit H hereto through a major news service at least two business days before the effective date of the release or waiver.

8. Covenants of the Underwriters . Each Underwriter severally covenants with the Company not to take any action that would result in the Company being required to file with the Commission under Rule 433(d) a free writing prospectus prepared by or on behalf of such Underwriter that otherwise would not be required to be filed by the Company thereunder, but for the action of the Underwriter.

9. Indemnity and Contribution. (a) The Company and the Selling Shareholder, jointly and severally, agree to indemnify and hold harmless each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any reasonably incurred legal or other expenses in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show as defined in Rule 433(h) under the Securities Act (a “road show”), or the Prospectus or any amendment or supplement thereto, or any Written Testing-the-Waters Communication or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, (except in the case of the Registration Statement, in the light of the circumstances under which they were made), not misleading, except, in each case, insofar as such losses, claims, damages or liabilities arise out of, or are based upon any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.

(b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, any issuer free writing prospectus, road show or the Prospectus or any amendment or supplement thereto provided , however , that the aggregate liability of each Underwriter hereunder shall in no event exceed such Underwriter’s net underwriting discounts and commissions with respect to the sale of the Shares hereunder.

(c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 9(a) or 9(b), such person (the “ indemnified party ”) shall promptly notify the person against whom such indemnity may be sought (the “ indemnifying party ”) in writing, but the omission so to notify the indemnifying party, except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such omission, shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. The indemnifying party, will be entitled to participate therein and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume defense thereof, and retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party) and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such reasonably incurred fees and expenses shall be paid or reimbursed as they are incurred. Such firm shall be designated in writing by the relevant Underwriter, in the case of parties indemnified pursuant to Section 9(a), and by the Company, in the case of parties indemnified pursuant to Section 9(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement (i) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.

(d) To the extent the indemnification provided for in Section 9(a) or 8(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 9(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(d)(i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholder on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the Selling Shareholder and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Company and the Selling Shareholder on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Shareholder or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters’ respective obligations to contribute pursuant to this Section 9 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint.

(e) The Company, the Selling Shareholder and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 9(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 9(d) shall be deemed to include, subject to the limitations set forth above, any reasonably incurred legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

(f) The indemnity and contribution provisions contained in this Section 9 and the representations, warranties and other statements of the Company and the Selling Shareholder contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter, any person controlling any Underwriter or any affiliate of any Underwriter or by or on behalf of the Selling Shareholder or any person controlling the Selling Shareholder, or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares.

10. Termination . The Underwriters may terminate this Agreement by notice given by you to the Company and the Selling Shareholder, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by the NYSE, (ii) trading of any securities of the Company shall have been suspended on the NYSE, (iii) a material disruption in securities settlement or clearance services in the United States shall have occurred, (iv) a general moratorium on commercial banking activities shall have been declared by U.S. federal or New York State, Cayman Islands or Brazilian authorities or (v) there shall have occurred any outbreak or escalation of hostilities in the United States, the Cayman Islands or Brazil, or any material change in financial markets, currency exchange rates or controls or any calamity or crisis in the United States, the Cayman Islands or Brazil that, in your judgment, is material and adverse and which, singly or together with any other event specified in this clause (v), makes it, in your judgment, impracticable or inadvisable to proceed with the public offering or delivery of the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus or the Prospectus.

11. Effectiveness; Defaulting Underwriters . This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on such date, and arrangements satisfactory to you, the Company and the Selling Shareholder for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Shareholder. In any such case either you, the Company or the Selling Shareholder shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement, in the Time of Sale Prospectus, in the Prospectus or in any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares to be sold on such Option Closing Date or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.

If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company or the Selling Shareholder to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company or the Selling Shareholder shall be unable to perform its obligations under this Agreement, the Company and the Selling Shareholder will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder.

12. Entire Agreement; Successors . (a) This Agreement, together with any contemporaneous written agreements and any prior written agreements (to the extent not superseded by this Agreement) that relate to the offering of the Shares, represents the entire agreement between the Company, the Selling Shareholder and the Underwriters with respect to the preparation of any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, the conduct of the offering, and the purchase and sale of the Shares.

(b) The Company and the Selling Shareholder acknowledge and agree that in connection with the offering of the Shares: (i) the Underwriters have acted at arm’s length, are not agents of, and owe no fiduciary duties to, the Company, the Selling Shareholder or any other person, (ii) Underwriters owe the Company and the Selling Shareholder only those duties and obligations set forth in this Agreement and prior written agreements (to the extent not superseded by this Agreement), if any, and (iii) the Underwriters may have interests that differ from those of the Company and the Selling Shareholder. The Company waives to the full extent permitted by applicable law any claims they may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Shares.

(c) This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company, the Selling Shareholder and, to the extent provided in Section 9 hereof, the officers and directors of the Company and each person who controls the Company, the Selling Shareholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. The Company’s engagement of the Underwriters in connection with the offering and process leading up to such offering is as independent contractors and not in any other capacity.

13. Counterparts . This Agreement may be signed in two or more counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same Agreement, with the same effect as if the signatures thereto and hereto were upon the same instrument.

14. Applicable Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without regard to principles of conflict of laws that would result in the application of any law other than the internal laws of the State of New York.

15. Submission to Jurisdiction; Appointment of Agents for Service . (a) The Company and the Selling Shareholder irrevocably submit to the non-exclusive jurisdiction of any New York State or United States Federal court sitting in the Borough of Manhattan in The City of New York (the “ Specified Courts ”) over any suit, action or proceeding arising out of or relating to this Agreement, the Prospectus, the Registration Statement or the offering of the Shares (each, a “ Related Proceeding ”). The Company and the Selling Shareholder irrevocably waive, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any Related Proceeding brought in such a court and any claim that any such Related Proceeding brought in such a court has been brought in an inconvenient forum. To the extent that the Company or the Selling Shareholder has or hereafter may acquire any immunity (on the grounds of sovereignty or otherwise) from the jurisdiction of any Specified Court with respect to itself or its property, the Company and the Selling Shareholder irrevocably waive, to the fullest extent permitted by law, such immunity in respect of any such suit, action or proceeding.

(b) Each of the Company and the Selling Shareholder hereby irrevocably appoints Cogency Global Inc., with offices at 10 East 40 ^th Street, 10 ^th Floor, New York, NY, 10016 as its agent for service of process in any Related Proceeding and agrees that service of process in any such Related Proceeding may be made upon it at the office of such agent. The Company waives, to the fullest extent permitted by law, any other requirements of or objections to personal jurisdiction with respect thereto. Each of the Company and the Selling Shareholder represents and warrants that such agent has agreed to act as agent of the Company or the Selling Shareholder, as applicable, for service of process, and the Company and the Selling Shareholder agree to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect.

16. Waiver of Jury Trial. The Company, the Selling Shareholder and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

17. Amendment or Waivers . No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

18. Headings . The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of, or to affect the meaning or interpretation of, this Agreement.

19. Certain Defined Terms . For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under the Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed in New York City, the Cayman Islands or São Paulo; and (c) the term “subsidiary” has the meaning set forth in Rule 405 under the Securities Act.

20. Judgment Currency . If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder into any currency other than United States dollars, the parties hereto agree, to the fullest extent permitted by law, that the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Underwriters could purchase United States dollars with such other currency (the “ Judgment Currency ”) in The City of New York on the business day preceding that on which final judgment is given. The obligation of the Company or the Selling Shareholder with respect to any sum due from it to any Underwriter or any person controlling any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first business day following receipt by such Underwriter or controlling person of any sum adjusted to be so due in such other currency, and only to the extent that such Underwriter or controlling person may in accordance with normal banking procedures purchase United States dollars with such other currency. If the United States dollars so purchased are less than the sum originally due to such Underwriter or controlling person hereunder, the Company and the Selling Shareholder agree as a separate obligation and notwithstanding any such judgment, to indemnify such Underwriter or controlling person against such loss, except in the case that such United States dollars are the result of any variation between (i) the rate of exchange at which the United States dollar amount is converted into the Judgment Currency for the purpose of such judgment or order, and (ii) the rate of exchange at which such indemnified person is able to purchase United States dollars with the amount of the Judgment Currency actually received by the indemnified person. If the United States dollars so purchased are greater than the sum originally due to such Underwriter or controlling person hereunder, such Underwriter or controlling person agrees to pay to the Company or the Selling Shareholder, as applicable, an amount equal to the excess of the dollars so purchased over the sum originally due to such Underwriter or controlling person hereunder.

21. Notices . All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed, delivered or transmitted and confirmed by any standard form of telecommunication or electronic communication. Notices to the Underwriters shall be delivered, mailed or sent to Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282, Attention: Registration Department; and Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department. Notices to the Company shall be delivered, mailed or sent to PagSeguro Digital, Ltd., Av. Brigadeiro Faria Lima, 1384, 4 º andar, Parte A, São Paulo, SP, 01451-001, Brazil, Attention: Eduardo Alcaro (Email: ealcaro@uolinc.com),with a copy to the Legal Department. Notices to the Selling Shareholder shall be delivered, mailed or sent to Universo Online S.A., Av. Brigadeiro Faria Lima, 1384, 4 º andar, Parte A, São Paulo, SP, 01451-001, Brazil, Attention: Eduardo Alcaro (Email: ealcaro@uolinc.com), with a copy to the Legal Department.

If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement among the Company, the Selling Shareholder and the Underwriters in accordance with its terms.

By executing this Agreement, you hereby confirm and accept this Agreement as of the date first written above.

[SIGNATURE PAGES FOLLOW]


Very truly yours, PAGSEGURO DIGITAL LTD.
By:
		Name:
		Title:


UNIVERSO ONLINE S.A.
By:
		Name:
		Title:

Accepted as of the date hereof

Goldman Sachs & Co. LLC

Morgan Stanley & Co. LLC

Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto


By:		Goldman Sachs & Co. LLC

By:
		Name:
		Title:


By:		Morgan Stanley & Co. LLC

By:
		Name:
		Title:

SCHEDULE I


Underwriter		Number of Firm Shares To Be Purchased

Goldman Sachs & Co. LLC		[•]
Morgan Stanley & Co. LLC		[•]
Merrill Lynch, Pierce, Fenner & Smith Incorporated		[•]
Banco Bradesco BBI S.A.		[•]
Credit Suisse (USA) Securities LLC		[•]
Deutsche Bank Securities Inc.		[•]
Itau BBA USA Securities, Inc.		[•]
J.P. Morgan Securities LLC		[•]

Total:		[•]

SCHEDULE II

Time of Sale Prospectus

1.	Preliminary prospectus issued [•].

2.	Issuer free writing prospectuses: electronic road show.

3.	Testing-the-Waters Communication: [None.]

4.	Pricing information communicated orally by the Underwriters, which consists of:

The public offering price per Share is US$[•]; and

The aggregate number of Shares purchased by the Underwriters is [•].

EXHIBIT A

[FORM OF OPINION AND NEGATIVE ASSURANCE LETTER OF SHEARMAN & STERLING LLP]

EXHIBIT B

[FORM OF OPINION AND NEGATIVE ASSURANCE LETTER OF MATTOS FILHO, VEIGA FILHO, MARREY JR. E QUIROGA ADVOGADOS]

EXHIBIT C

[FORM OF OPINION OF CONYERS DILL & PEARMAN]

EXHIBIT D

[FORM OF OPINION AND NEGATIVE ASSURANCE LETTER OF DAVIS POLK & WARDWELL LLP, U.S.]

EXHIBIT E

[FORM OF OPINION AND NEGATIVE ASSURANCE LETTER OF PINHEIRO NETO ADVOGADOS]

EXHIBIT F

[FORM OF OPINION OF MAPLES AND CALDER]

EXHIBIT G

[FORM OF LOCK-UP LETTER]

[•], 2018

Goldman Sachs & Co. LLC

200 West Street,

New York, New York 10282-2198

Morgan Stanley & Co. LLC

1585 Broadway

New York, New York 10036

acting severally on behalf of themselves

and the several Underwriters named in Schedule I to the Underwriting Agreement (as defined below)

Ladies and Gentlemen:

The undersigned understands that Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC (the “ Representatives ”) as representatives of the several underwriters (the “ Underwriters ”) listed in Schedule I to the Underwriting Agreement (as defined below) propose to enter into an Underwriting Agreement (the “ Underwriting Agreement ”) with PagSeguro Digital Ltd., an exempted company incorporated under the laws of the Cayman Islands with limited liability (the “ Company ”) and Universo Online S.A. (the “ Selling Shareholder ”), providing for the public offering (the “ Public Offering ”) by the Underwriters of [•] Class A common shares (the “ Shares ”) (par value US$0.000025 per share) of the share capital of the Company (the “ Common Shares ”).

[To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representatives, the undersigned will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus (the “ Restricted Period ”) relating to the Public Offering (the “ Prospectus ”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Shares beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), by the undersigned or any other securities so owned convertible into or exercisable or exchangeable for Common Shares or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Shares, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Shares or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (a) transactions relating to Common Shares or other securities acquired in open market transactions after the completion of the Public Offering, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made in connection with subsequent sales of Common Shares or other securities acquired in such open market transactions, (b) transfers of Common Shares or any security convertible into Common Shares as a bona fide gift, (c) distributions of Common Shares or any security convertible into Common Shares to limited partners or shareholders of the undersigned, (d) transfers to the undersigned’s subsidiaries, affiliates or to any investment fund or other entity controlled or managed or under common control or management by the undersigned, (e) any transfer pursuant to a bona fide third-party tender offer, merger, acquisition, consolidation or other similar transaction made to all holders of any Common Shares or other securities of the Company involving a change of control of the Company occurring after the consummation of the Public Offering, that has been approved by the board of directors of the Company; provided that in the case of any transfer or distribution pursuant to clause (b), (c), (d) or (e), (i) each donee or distributee shall sign and deliver a lock-up letter substantially in the form of this letter and (ii) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of Common Shares, shall be required or shall be voluntarily made during the Restricted Period, or (f) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Common Shares, provided that (i) such plan does not provide for the transfer of Common Shares during the Restricted Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the

Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Shares may be made under such plan during the Restricted Period. For purposes of this agreement, “change of control” shall mean the consummation of any bona fide third party tender offer, merger, acquisition, consolidation or other similar transaction the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, other than the Company, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of 100% of total voting power of the voting stock of the Company.

In addition, the undersigned agrees that, without the prior written consent of the Representatives, it will not, during the Restricted Period, make any demand for or exercise any right with respect to, the registration of any Common Shares or any security convertible into or exercisable or exchangeable for Common Shares. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Common Shares except in compliance with the foregoing restrictions.

If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Shares the undersigned may purchase in the offering.

If the undersigned is an officer or director of the Company, (i) the Underwriters agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Common Shares, the Underwriters will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representatives hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.

The undersigned understands that the Company, the Selling Shareholder and the Underwriters are relying upon this agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.

Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company, the Selling Shareholder and the Underwriters.

[ Signature Page Follow s]




		Very truly yours,


		(Name)

		(Address)

EXHIBIT H

FORM OF WAIVER OF LOCK-UP

[•], 2018

[Name and Address of

Officer or Director

Requesting Waiver]

Dear Mr./Ms. [Name]:

This letter is being delivered to you in connection with the offering by PagSeguro Digital Ltd., an exempted company incorporated under the laws of the Cayman Islands with limited liability (the “ Company ”) and Universo Online S.A. (the “ Selling Shareholder ”) of [•] Class A common shares, US$0.000025 par value (the “ Common Shares ”), of the Company and the lock-up letter dated [•], 2018 (the “ Lock-up Letter ”), executed by you in connection with such offering, and your request for a [waiver] [release] dated [•], 2018, with respect to [•] Common Shares (the “ Shares ”). Terms used, but not otherwise defined herein shall have the meanings set forth in the Lock-up Letter.

The Underwriters hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective [•], 2018; [provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]]. This letter will serve as notice to the Company of the impending [waiver] [release].

Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.

Very truly yours,

Goldman Sachs & Co. LLC
Morgan Stanley & Co. LLC

Acting severally on behalf of themselves and the several Underwriters named in Schedule I of the Underwriting Agreement


Goldman Sachs & Co. LLC
By:
		Name:
		Title:
Morgan Stanley & Co. LLC
By:
		Name:
		Title:

cc: [Company]

FORM OF PRESS RELEASE

[Name of Company]

[Date]

PagSeguro Digital Ltd., an exempted company incorporated under the laws of the Cayman Islands with limited liability (the “ Company ”) announced today that [Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC], the lead book-running managers in the Company’s recent public sale of [•] class A common shares are [waiving][releasing] a lock-up restriction with respect to [•] class A common shares held by [certain officers or directors] [an officer or director] of the Company. The [waiver][release] will take effect on [•], 2018, and the shares may be sold on or after such date.

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

Exhibit 3.1

THE COMPANIES LAW (AS REVISED)

EXEMPTED COMPANY LIMITED BY SHARES

AMENDED AND RESTATED

MEMORANDUM OF ASSOCIATION

PAGSEGURO DIGITAL LTD.

(adopted by Special Resolution passed on 4 January 2018)

1.	The name of the Company is PagSeguro Digital Ltd.

2.	The registered office of the Company shall be at the offices of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.

3.	Subject to the following provisions of this Memorandum, the objects for which the Company is established are unrestricted.

4.	Subject to the following provisions of this Memorandum, the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided by Section 27(2) of the Companies Law.

5.	Nothing in this Memorandum shall permit the Company to carry on a business for which a licence is required under the laws of the Cayman Islands unless duly licensed.

The Company shall not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this clause shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands.

7.	The liability of each Member is limited to the amount from time to time unpaid on such Member’s shares.

The share capital of the Company is US$50,000 divided into 2,000,000,000 shares of a nominal or par value of US$0.000025 each which, at the date on which this Memorandum becomes effective, comprise (i) 1,000,000,000 Class A Common Shares; (ii) 500,000,000 Class B Common Shares (which Class B Common Shares may be converted into Class A Common Shares in the manner contemplated in the Articles of Association of the Company); and (iii) 500,000,000 shares of such class or classes (howsoever designated) and having the rights as the Board may determine from time to time in accordance with Article 4 of the Articles of Association of the Company, PROVIDED THAT, subject to the Law and the Articles of Association, the Company shall have the power to issue all or any part of its capital, whether original, redeemed, increased or reduced, with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any condition or restriction whatsoever and so that, unless the conditions of issue shall otherwise expressly provide, every issue of shares, whether stated to be common, preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided.

9.	The Company may exercise the power contained in the Law to deregister in the Cayman Islands and be registered by way of continuation in another jurisdiction.

10.	Capitalised terms that are not defined in this Memorandum of Association bear the meaning given in the Articles of Association of the Company.

THE COMPANIES LAW (AS REVISED)

EXEMPTED COMPANY LIMITED BY SHARES

AMENDED AND RESTATED ARTICLES OF ASSOCIATION

PAGSEGURO DIGITAL LTD.

(adopted by Special Resolution passed on 4 January 2018)

1.	Preliminary

1.1

The regulations contained in Table A in the First Schedule of the Law shall not apply to the Company and the following regulations shall be the Articles of Association of the Company.

1.2

In these Articles:

(a)

the following terms shall have the meanings set opposite if not inconsistent with the subject or context:

“allotment”

shares are taken to be allotted when a person acquires the unconditional right to be included in the Register of Members in respect of those shares;

“Affiliate”

in respect of a Person, means any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and (i) in the case of a natural person, shall include, without limitation, such person’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law, whether by blood, marriage or adoption or anyone residing in such person’s home, a trust for the benefit of any of the foregoing, a company, partnership or any natural person or entity wholly or jointly owned by any of the foregoing, and (ii) in the case of an entity, shall include a partnership, a corporation or any natural person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such entity;

“Articles”

these articles of association of the Company as from time to time amended by Special Resolution;

“Audit Committee”

the audit committee of the Company formed by the Board pursuant to Article 24 hereof, or any successor of the audit committee;

“Board or Board of Directors”

the board of directors of the Company;

“Business Combination”

a statutory amalgamation, merger, consolidation, arrangement or other reorganization requiring the approval of the members of one or more of the participating companies as well as a short-form merger or consolidation that does not require a resolution of members;

“Chairman”

the chairman of the Board of Directors appointed in accordance with Article 20.2;

“Class A Common Shares”

class A common shares of a nominal or par value of US$0.000025 each in the capital of the Company having the rights provided for in these Articles;

“Class B Common Shares”

class B common shares of a nominal or par value of US$0.000025 each in the capital of the Company having the rights provided for in these Articles;

“clear days”

in relation to a period of notice means that period excluding both the day when the notice is given or deemed to be given and the day for which it is given or on which it is to take effect;

“Clearing House”

a clearing house recognized by the laws of the jurisdiction in which shares in the capital of the Company (or depository receipts thereof) are listed or quoted on a stock exchange or interdealer quotation system in such jurisdiction;

“Common Shares”

Class A Common Shares, Class B Common Shares and shares of such other classes as may from time to time be designated by the Board pursuant to these Articles as being common shares for the purposes of Article 5.2;

“Company”

the above named company;

“Company’s Website”

the website of the Company and/or its web-address or domain name;

“Compensation Committee”

the compensation committee of the Company formed by the Board pursuant to Article 24 hereof, or any successor of the compensation committee;

“control”

the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, shares having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity;

“Designated Stock Exchange”

the New York Stock Exchange and any other stock exchange or interdealer quotation system listed in Schedule 4 of the Law on which shares in the capital of the Company are listed or quoted;

“Directors”

the Directors for the time being of the Company or, as the case may be, those Directors assembled as a Board or as a committee of the Board;

“dividend”

includes a distribution or interim dividend or interim distribution;

“electronic”

has the same meaning as in the Electronic Transactions Law (as revised);

“electronic communication”

a communication sent by electronic means, including electronic posting to the Company’s Website, transmission to any number, address or internet website (including the SEC’s website) or other electronic delivery methods as otherwise decided and approved by the Board;

“electronic record”

has the same meaning as in the Electronic Transactions Law (as revised);

“electronic signature”

has the same meaning as in the Electronic Transactions Law (as revised);

“Exchange Act”

the Securities Exchange Act of 1934, as amended of the United States of America;

“executed”

includes any mode of execution;

“holder”

in relation to any share, the Member whose name is entered in the Register of Members as the holder of the share;

“Incentive Plan”

any incentive plan or scheme established or implemented by the Company pursuant to which any Person who provides services of any kind to the Company or any of its direct or indirect subsidiaries (including , without limitation, any employee, executive, officer, director, consultant, secondee or other provider of services) may receive and/or acquire newly-issued shares of the Company or any interest therein;

“Indemnified Person”

every Director, alternate Director, Secretary or other officer for the time being or from time to time of the Company;

“Independent Director”

a Director who is an independent director as defined in the rules of any Designated Stock Exchange or in Rule 10A-3 under the Exchange Act, as the case may be;

“Islands”

the British Overseas Territory of the Cayman Islands;

“Law”

the Companies Law (as revised);

“Member”

has the same meaning as in the Law;

“Memorandum”

the memorandum of association of the Company as from time to time amended;

“month”

a calendar month;

“Nominating and Corporate Governance Committee”

the nominating and corporate governance committee of the Company formed by the Board pursuant to Article 24 hereof, or any successor of the nominating and corporate governance committee;

“officer”

includes a Director and any Secretary;

“Ordinary Resolution”

a resolution (i) of a duly constituted general meeting of the Company passed by a simple majority of the votes cast by, or on behalf of, the Members entitled to vote present in person or by proxy and voting at the meeting, or (ii) 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 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;

“Other Indemnitors”

persons or entities other than the Company that may provide indemnification, advancement of expenses and/or insurance to the Indemnified Persons in connection with such Indemnified Persons’ involvement in the management of the Company;

“paid up”

paid up as to the par value of the shares and includes credited as paid up;

“Person”

any individual, corporation, general or limited partnership, limited liability company, joint stock company, joint venture, estate, trust, association, organization or any other entity or governmental entity;

“Register of Members”

the register of Members required to be kept pursuant to the Law;

“Seal”

the common seal of the Company including every duplicate seal;

“SEC”

the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act;

“Secretary”

any person appointed by the Directors to perform any of the duties of the secretary of the Company, including a joint, assistant or deputy secretary;

“Securities Act”

the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time;

“share”

a share in the share capital of the Company, and includes stock (except where a distinction between shares and stock is expressed or implied) and includes a fraction of a share;

“signed”

includes an electronic signature or a representation of a signature affixed by mechanical means;

“Special Resolution”

has the same meaning as in the Law (thus requiring a two-thirds majority) and includes a unanimous written resolution of all Members entitled to vote and expressed to be a special resolution;

“subsidiary”

a company is a subsidiary of another company if that other company: (i) holds a majority of the voting rights in it; (ii) is a member of it and has the right to appoint or remove a majority of its board of directors; or (iii) is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it; or if it is a subsidiary of a company which is itself a subsidiary of that other company. For the purpose of this definition the expression “company” includes any body corporate established in or outside of the Islands;

“Treasury Share”

a share held in the name of the Company as a treasury share in accordance with the Law;

“U.S. Person”

a Person who is a citizen or resident of the United States of America;

“written and in writing”

includes all modes of representing or reproducing words in visible form including in the form of an electronic record.

(b)

unless the context otherwise requires, words or expressions defined in the Law shall have the same meanings herein but excluding any statutory modification thereof not in force when these Articles become binding on the Company;

(c)

unless the context otherwise requires: (i) words importing the singular number shall include the plural number and vice-versa; (ii) words importing the masculine gender only shall include the feminine gender; and (iii) words importing persons only shall include companies or associations or bodies of person whether incorporated or not;

(d)

the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative;

(e)

the headings herein are for convenience only and shall not affect the construction of these Articles;

(f)

references to statutes are, unless otherwise specified, references to statutes of the Islands and, subject to paragraph (b) above, include any statutory modification or re-enactment thereof for the time being in force; and

(g)

where an Ordinary Resolution is expressed to be required for any purpose, a Special Resolution is also effective for that purpose.

2.	Formation Expenses

The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration.

3.	Situation of offices of the Company

3.1

The registered office of the Company shall be at such address in the Islands as the Board shall from time to time determine.

3.2

The Company, in addition to its registered office, may establish and maintain such other offices, places of business and agencies in the Islands and elsewhere as the Board may from time to time determine.

4.	Shares

4.1

(a) Subject to the rules of any Designated Stock Exchange and to the provisions, if any, in the Memorandum and these Articles, the Board has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the capital of the Company without the approval of Members (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 Board may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Law.

(b)

In particular and without prejudice to the generality of paragraph (a) above, the Board is hereby empowered to authorise by resolution or resolutions from time to time and without the approval of Members;

(i)

the creation of one or more classes or series of preferred shares, to cause to be issued such preferred shares and to fix the designations, powers, preferences and relative participating, optional and other rights, if any, and the qualifications, limitations and restrictions thereof, if any, including, without limitation, the number of shares constituting each such class or series, dividend rights, conversion rights, redemption privileges, voting rights and powers (including full or limited or no voting rights or powers) and liquidation preferences, and to increase or decrease the number of shares comprising any such class or series (but not below the number of shares of any class or series of preferred shares then outstanding) to the extent permitted by law. Without limiting the generality of the foregoing, the resolution or resolutions providing for the establishment of any class or series of preferred shares may, to the extent permitted by law, provide that such class or series shall be superior to, rank equally with or be junior to the preferred shares of any other class or series;

(ii)

to designate for issuance as Class A Common Shares or Class B Common Shares from time to time any or all of the authorised but unissued shares of the Company which have not at that time been designated by the Memorandum or by the Directors as being shares of a particular class;

(iii)

to create one or more further classes of shares which represent common shares for the purposes of Article 5.2; and

(iv)

to re-designate authorised but unissued Class B Common Shares from time to time as shares of another class.

(c)

The Company shall not issue shares or warrants to bearer.

(d)

Subject to the rules of any Designated Stock Exchange, the Board shall have general and unconditional authority to issue options, warrants or convertible securities of similar nature conferring the right upon the holders thereof to subscribe for, purchase or receive any class of shares or securities in the capital of the Company to such persons, on such terms and conditions and at such times as the Board may decide.

4.2

Notwithstanding Article 4.1, at any time when there are Class A Common Shares in issue, Class B Common Shares may only be issued pursuant to:

(a)

a share-split, subdivision or similar transaction or as contemplated in Articles 5.7 or 34(b) below;

(b)

a Business Combination involving the issuance of Class B Common Shares as full or partial consideration; or

(c)

an issuance of Class A Common Shares, whereby holders of Class B Common Shares are entitled to receive an issuance of Class B Common Shares that would allow holders of Class B Common Shares to maintain their proportional ownership interest in the Company pursuant to Article 4.3.

4.3

Subject to Articles 4.4, 4.5 and 4.6, the Company shall not issue Class A Common Shares to a person on any terms unless:

(a)

it has made an offer to each person who holds Class B Common Shares in the Company to issue to him on the same economic terms such number of Class B Common Shares as would ensure that the proportion in nominal value of the issued Common Shares held by him as Class B Common Shares after the issuance of such Class A Common Shares will be as nearly as practicable equal to the proportion in nominal value of the issued Common Shares held by him as Class B Common Shares before the said issuance; and

(b)

the period during which any such offer may be accepted has expired or the Company has received notice of the acceptance or refusal of every offer so made.

An offer made pursuant to this Article 4.3 may be made in either hard copy or by electronic communication, must state a period during which it may be accepted and the offer shall not be withdrawn before the end of that period. The period referred to must be at least 14 days beginning with the date on which the offer is deemed to be delivered in accordance with Article 36.

4.4

An offer shall not be regarded as being made contrary to the requirements of Article 4.3 by reason only that:

(a)

fractional entitlements are rounded or otherwise settled or sold at the discretion of the Board; or

(b)

no offer of Class B Common Shares is made to a shareholder where the making of such an offer would in the view of the Board pose legal or practical problems in or under the laws or securities rules of any territory or the requirements of any regulatory body or stock exchange such that the Board considers it is necessary or expedient in the interests of the Company to exclude such shareholder from the offer; or

(c)

the offer is conditional upon the said issue of Class A Common Shares proceeding.

4.5

The provisions of Article 4.3 do not apply in relation to the issue of:

(a)

Class A Common Shares if these are, or are to be, wholly or partly paid up otherwise than in cash;

(b)

Class A Common Shares which would, apart from any renunciation or assignment of the right to their allotment, be held under or issued pursuant to an Incentive Plan; and

(c)

Class A Common Shares issued in furtherance of an initial public offering of shares of the Company (IPO) or issued to underwriters in connection with an IPO pursuant to any over-allotment options granted by the Company.

4.6

Holders of Class B Common Shares may from time to time by consent in writing (in one or more counterparts) approved by the holder or holders of a majority of the Class B Common Shares in issue, referring to this Article 4.6, authorise the Board to issue Class A Common Shares for cash and, on the granting of such an authority, the Board shall have the power to issue (pursuant to that authority) Class A Common Shares for cash as if Article 4.3 above did not apply to:

(a)

one or more issuances of Class A Common Shares to be made pursuant to that authority; and/or

(b)

such issuances with such modifications as may be specified in that authority,

and unless previously revoked, that authority shall expire on the date (if any) specified in the authority or, if no date is specified, 12 months after the date on which the authority is granted, but the Company may before the power expires make an offer or agreement which would or might require Class A Common Shares to be issued after it expires.

4.7

Notwithstanding Article 4.1, no non-voting Common Shares shall be issued without such issuance first being approved by an Ordinary Resolution of Members which resolution is also passed with the affirmative vote of a majority of the then outstanding Class A Common Shares.

4.8

The Company may issue fractions of a share of any class and a fraction of a share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contribution, calls or otherwise howsoever), limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a whole share of that class of shares.

4.9

The Company may, in so far as the Law permits, pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares in the capital of the Company. Such commissions may be satisfied by the payment of cash or the allotment of fully or partly paid up shares or partly in one way and partly in the other. The Company may also, on any issue of shares, pay such brokerage fees as may be lawful.

4.10

Except as required by law, no person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share (except only as by these Articles or by law otherwise provided) or any other rights in respect of any share except an absolute right to the entirety thereof in the holder.

4.11

(a) If at any time the share capital is divided into different classes of shares, the rights attached to any class of shares (unless otherwise provided by these Articles or the terms of issue of the shares of that class) may be varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a Special Resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting, the provisions of these Articles relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum shall be any one or more persons holding or representing by proxy not less than one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll;

(b)

For the purposes of Article 4.11(a), the Directors may treat all classes of shares or any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposals under consideration.

(c)

The rights conferred upon the holders of the shares of any class shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by:

(i)

the creation or issue of further shares ranking pari passu therewith;

(ii)

by the redemption or purchase of any shares of any class by the Company;

(iii)

the cancellation of authorised but unissued shares of that class; or

(iv)

the creation or issue of shares with preferred or other rights including, without limitation, the creation of any class or issue of shares with enhanced or weighted voting rights.

(d)

The rights conferred upon holders of Class A Common Shares shall not be deemed to be varied by the creation or issue from time to time of further Class B Common Shares and the rights conferred upon holders of Class B Common Shares shall not be deemed to be varied by the creation or issue from time to time of further Class A Common Shares.

4.12

The Directors may accept contributions to the capital of the Company otherwise than in consideration of the issue of shares and the amount of any such contribution may, unless otherwise agreed at the time such contribution is made, be treated by the Company as a distributable reserve, subject to the provisions of the Law and these Articles.

5.	Class A Common Shares and Class B Common Shares

5.1

Holders of Class A Common Shares and Class B Common Shares have the right to receive notice of, attend, speak and vote at general meetings of the Company. Holders of Class A Common Shares and Class B Common Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members in general meetings. Each Class A Common Share shall entitle the holder to one (1) vote on all matters subject to a vote at general meetings of the Company, and each Class B Common Share shall entitle the holder to ten (10) votes on all matters subject to a vote at general meetings of the Company.

5.2

Without prejudice to any special rights conferred thereby on the holders of any other shares or class of shares established pursuant to the Memorandum and/or these Articles from time to time, holders of Common Shares shall:

(a)

Be entitled to such dividends as the Board may from time to time declare;

(b)

In the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purposes of a reorganization or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and

(c)

Generally be entitled to enjoy all of the rights attaching to shares.

5.3

In no event shall Class A Common Shares be convertible into Class B Common Shares.

5.4

Class B Common Shares shall be convertible into Class A Common Shares as follows:

(a)

Right of Conversion . Class B Common Shares shall be convertible into the same number of Class A Common Shares, on a share-to-share basis, in the following manner:

(1)

a holder of Class B Common Shares has the right to call upon the Company to effect a conversion of all or any of his Class B Common Shares which right shall be exercised, at any time after issue and without payment of any additional sum, by notice in writing given to the Company at its registered office (and which conversion shall be effected by the Company promptly upon delivery of the said notice);

(2)

the holder(s) of a majority of the then outstanding Class B Common Shares have the right to require that all outstanding Class B Common Shares be converted, which right shall be exercised, at any time after issue and without payment of any additional sum, by notice in writing (which may be in one or more counterparts) signed by each of such holders given to the Company at its registered office (and which conversion shall be effected by the Company promptly upon delivery of the said notice);

(3)

a Class B Common Share shall automatically convert into a Class A Common Share immediately and without further action by the holder upon the registration of any transfer of a Class B Common Share (whether or not for value and whether or not the certificate(s) (if any) representing such Class B Common Share are surrendered to the Company), other than:

(i)

a transfer to an Affiliate of the holder of the Class B Common Share;

(ii)

a transfer to one or more trustees of a trust established for the benefit of the holder or an Affiliate of the holder of the Class B Common Share;

(iii)

a transfer to a partnership, corporation or other entity exclusively owned or controlled by the holder or an Affiliate of the holder of the Class B Common Share;

(iv)

transfers to organisations that are exempt from taxation under Section 501(3)(c) of the United States’ Internal Revenue Code of 1986, as amended (or any successor thereto).

For the avoidance of doubt, the creation of any pledge, charge, encumbrance or other security interest or third party right of whatever description on any Class B Common Shares to secure a holder’s contractual or legal obligations shall not be deemed to be a transfer unless and until any such pledge, charge, encumbrance or other third party right is enforced and results in such third party (or its nominee) holding legal title to the related Class B Common Shares, in which case all the related Class B Common Shares shall be automatically and immediately converted into the same number of Class A Common Shares.

(4)

if at any time, the voting power of the Class B Common Shares in issue represent less than 10% of the combined voting power of the Class A Common Shares and Class B Common Shares then in issue, the Class B Common Shares then in issue shall automatically and immediately convert into Class A Common Shares and no Class B Common Shares shall be issued by the Company thereafter.

(b)

Mechanics of Conversion . Before any holder of Class B Common Shares shall be entitled to convert such Class B Common Shares into Class A Common Shares pursuant to sub-paragraph (a) (1) above, the holder shall, if available, surrender the certificate or certificates therefor, duly endorsed (where applicable), at the registered office of the Company.

Upon the occurrence of one of the bases of conversion provided for in paragraph (a) above, the Company shall enter or procure the entry of the name of the relevant holder of Class B Common Shares as the holder of the relevant number of Class A Common Shares resulting from the conversion of the Class B Common Shares in, and make any other necessary and consequential changes to, the Register of Members and shall procure that certificate(s) in respect of the relevant Class A Common Shares, together with a new certificate for any unconverted Class B Common Shares comprised in the certificate(s) surrendered by the holder of the Class B Common Shares, are issued to the holders of the Class A Common Shares and Class B Common Shares, as the case may be, if so requested.

Any conversion of Class B Common Shares into Class A Common Shares pursuant to this Article 5 shall be effected by means of the re-designation and re-classification of the relevant Class B Common Share as a Class A Common Share together with such rights and restrictions for the time being attached thereto and shall rank pari passu in all respects with the Class A Common Shares then in issue. Such conversion shall become effective forthwith upon entries being made in the Register of Members to record the re-designation and re-classification of the relevant Class B Common Shares as Class A Common Shares.

If the conversion is in connection with an underwritten public offering of securities, the conversion may, at the option of any holder tendering such Class B Common Shares for conversion, be conditional upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event any persons entitled to receive Class A Common Shares upon conversion of such Class B Common Shares shall not be deemed to have converted such Class B Common Shares until immediately prior to the closing of such sale of securities.

Upon conversion of any Class B Common Shares, the composition of the authorised capital of the Company shall automatically be varied and amended by a reduction in the relevant number of authorised Class B Common Shares and a corresponding increase in the relevant number of authorised Class A Common Shares.

(c)

Effective upon and with effect from the conversion of a Class B Common Share into a Class A Common Share in accordance with this Article 5.4, the converted share shall be re-designated as and be treated for all purposes as a Class A Common Share and shall carry the rights and be subject to the restrictions attaching to Class A Common Shares including, without limitation, the right to one vote on matters subject to a vote at general meetings of the Company.

5.5

No subdivision of Class A Common Shares into shares of an amount smaller than the nominal or par value of such shares at the relevant time shall be effected unless Class B Common Shares are concurrently and similarly subdivided in the same proportion and the same manner, and no subdivision of Class B Common Shares into shares of an amount smaller than the nominal or par value of such shares at the relevant time shall be effected unless Class A Common Shares are concurrently and similarly subdivided in the same proportion and the same manner.

5.6

No consolidation of Class A Common Shares into shares of an amount larger than the nominal or par value of such shares at the relevant time shall be effected unless Class B Common Shares are concurrently and similarly consolidated in the same proportion and the same manner, and no consolidation of Class B Common Shares into shares of an amount larger than the nominal or par value of such shares at the relevant time may be effected unless Class A Common Shares are concurrently and similarly consolidated in the same proportion and the same manner.

5.7

In the event that a dividend or other distribution is paid by the issue of Class A Common Shares or Class B Common Shares or rights to acquire Class A Common Shares or Class B Common Shares (i) 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 (ii) 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.

5.8

No Business Combination (whether or not the Company is the surviving entity) shall proceed unless by the terms of such transaction: (i) the holders of Class A Common Shares have the right to receive, or the right to elect to receive, the same form of consideration as the holders of Class B Common Shares, and (ii) the holders of Class A Common Shares 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. The Directors shall not approve such a transaction unless the requirements of this Article are satisfied.

5.9

No 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 the Company is to be a party, nor any tender or exchange offer by the Company to acquire any Class A Common Shares or Class B Common Shares shall be approved by the Company unless by the terms of such transaction: (i) 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 the holders of Class B Common Shares, and (ii) 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. The Directors shall not approve such a transaction unless the requirements of this Article are satisfied.

5.10

Save and except for voting rights and conversion rights and as otherwise set out in Article 4.3 and in this Article 5, Class A Common Shares and the Class B Common Shares shall rank pari passu and shall have the same rights, preferences, privileges and restrictions and share ratably and otherwise be identical in all respects as to all matters.

6.	Share Certificates

6.1

A Member shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing Shares, if any, shall be in such form as the Directors may determine. Share certificates shall be signed by one or more Directors or other person authorised by the Directors. The Directors may authorise certificates to be issued with the authorised signature(s) affixed by mechanical process. All certificates for Shares shall be consecutively numbered or otherwise identified and shall specify the Shares to which they relate. All certificates surrendered to the Company for transfer or conversion shall be cancelled and subject to the Articles and, save as provided in Articles 6.3, 7 and 8 below and in the case of a conversion of shares pursuant to Article 5.4(a)(2), no new certificate shall be issued until the former certificate representing a like number of relevant Shares shall have been surrendered and cancelled.

6.2

Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act.

6.3

If a share certificate is defaced, worn-out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and payment of the expenses reasonably incurred by the Company in investigating evidence as the Directors may determine but otherwise free of charge, and (in the case of defacement or wearing-out) on delivery to the Company of the old certificate.

Lien

7.1

The Company shall have a first and paramount lien on every share (not being a share which is fully paid as to its par value and share premium) for all moneys (whether presently payable or not) payable at a fixed time or called in respect of that share (including any premium payable). The Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The Company’s lien on a share shall extend to any amount in respect of it.

7.2

The Company may sell in such manner as the Directors determine any shares on which the Company has a lien if a sum in respect of which the lien exists is presently payable and is not paid within fourteen (14) clear days after notice has been given to the holder of the share or to the person entitled to it in consequence of the death or bankruptcy of the holder, demanding payment and stating that if the notice is not complied with the shares may be sold.

7.3

To give effect to a sale, the Directors may authorise some person to execute an instrument of transfer of the shares sold to, or in accordance with the directions of, the purchaser. The title of the transferee to the shares shall not be affected by any irregularity or invalidity in the proceedings in reference to the sale.

7.4

The net proceeds of the sale, after payment of the costs, shall be applied in payment of so much of the sum for which the lien exists as is presently payable, and any residue shall (upon surrender to the Company for cancellation of the certificate for the shares sold, if any, and subject to a like lien for any moneys not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale.

8.	Calls on shares and Forfeiture

8.1

Subject to the terms of allotment, the Directors may make calls upon the Members in respect of any moneys unpaid on their shares (whether in respect of nominal value or premium) and each Member shall (subject to receiving at least fourteen (14) clear days’ notice specifying when and where payment is to be made) pay to the Company as required by the notice the amount called on his shares. A call may be required to be paid by instalments. A call may, before receipt by the Company of any sum due thereunder, be revoked in whole or in part and payment of a call may be postponed in whole or in part. A person upon whom a call is made shall remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect of which the call was made.

8.2

A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed.

8.3

The joint holders of a share shall be jointly and severally liable to pay all calls in respect of the share.

8.4

If a call remains unpaid after it has become due and payable, the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or, if no rate is fixed, at an annual rate of ten percent (10%), but the Directors may waive payment of the interest wholly or in part.

8.5

An amount payable in respect of a share on allotment or at any fixed date, whether in respect of nominal value or premium or as an instalment of a call, shall be deemed to be a call, and if it is not paid when due, all the provisions of the Articles shall apply as if that amount had become due and payable by virtue of a call.

8.6

Subject to the terms of allotment, the Directors may make arrangements on the issue of shares for a difference between the holders in the amounts and times of payment of calls on their shares.

8.7

If a call remains unpaid after it has become due and payable, the Directors may give to the person from whom it is due not less than fourteen (14) clear days’ notice requiring payment of the amount unpaid, together with any interest which may have accrued. The notice shall name the place where payment is to be made and shall state that if the notice is not complied with the shares in respect of which the call was made will be liable to be forfeited.

8.8

If the notice is not complied with, any share in respect of which it was given may, before the payment required by the notice has been made, be forfeited by a resolution of the Directors and the forfeiture shall include all dividends or other moneys payable in respect of the forfeited shares and not paid before the forfeiture.

8.9

Subject to the provisions of the Law, a forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the Directors determine either to the person who was before the forfeiture the holder or to any other person, and at any time before a sale, re-allotment or other disposition, the forfeiture may be cancelled on such terms as the Directors think fit. Where, for the purposes of its disposal a forfeited share is to be transferred to any person, the Directors may authorise any person to execute an instrument of transfer of the share to that person.

8.10

A person any of whose shares have been forfeited shall cease to be a Member in respect of them and shall surrender to the Company for cancellation the certificate for the shares forfeited, if any, but shall remain liable to the Company for all moneys which at the date of forfeiture were presently payable by him to the Company in respect of those shares with interest at the rate at which interest was payable on those moneys before the forfeiture or, if no interest was so payable, at an annual rate of ten percent (10%), from the date of forfeiture until payment but the Directors may waive payment wholly or in part or enforce payment without any allowance for the value of the shares at the time of forfeiture or for any consideration received on their disposal.

8.11

A statutory declaration by a Director or the Secretary that a share has been forfeited on a specified date shall be conclusive evidence of the facts stated in it as against all persons claiming to be entitled to the share and the declaration shall (subject to the execution of an instrument of transfer if necessary) constitute a good title to the share and the person to whom the share is disposed of shall not be bound to see to the application of the consideration, if any, nor shall his title to the share be affected by any irregularity in or invalidity of the proceedings in reference to the forfeiture or disposal of the share.

9.	Transfer of Shares

9.1

Subject to these Articles, any Member may transfer all or any of his shares by an instrument of transfer in the usual or common form or in a form prescribed by any Designated Stock Exchange or in any other form approved by the Board and may be under hand or, if the transferor or transferee is a Clearing House, by hand or by electronic signature or by such other manner of execution as the Board may approve from time to time. Without prejudice to the generality of the foregoing, title to listed shares of the Company may be evidenced and transferred in accordance with the laws applicable to and the rules and regulations of the Designated Stock Exchange on which such shares are listed.

9.2

The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the Board may dispense with the execution of the instrument of transfer by the transferee in any case which it thinks fit in its discretion to do so. Without prejudice to Article 9.1, the Board may also resolve, either generally or in any particular case, upon request by either the transferor or transferee, to accept mechanically executed transfers including, where applicable, in accordance with the laws and rules applicable to the Designated Stock Exchange. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register of Members in respect thereof. Nothing in these Articles shall preclude the Board from recognizing a renunciation of the allotment or provisional allotment of any share by the allottee in favour of some other person.

9.3

The Board may in its absolute discretion and without giving any reason therefor, refuse to register a transfer of any share:

(a)

that is not fully paid up (as to both par value and any premium) to a person of whom it does not approve;

(b)

issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists;

(c)

to more than four joint holders; or

(d)

on which the Company has a lien.

9.4

Without limiting the generality of Article 9.3, the Board may also decline to recognise any instrument of transfer unless:

(a)

a fee of such maximum sum as any Designated Stock Exchange may determine to be payable or such lesser sum as the Board may from time to time require is paid to the Company in respect thereof;

(b)

the instrument of transfer is in respect of only one class of shares;

(c)

the Shares are fully paid (as to both par value and any premium) and free of any lien;

(d)

the instrument of transfer is lodged at the registered office or such other place at which the Register of Members is kept in accordance with the Law accompanied by any relevant share certificate(s), if any, and/or such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do); and

(e)

if applicable, the instrument of transfer is duly and properly stamped.

9.5

If the Directors refuse to register a transfer of a share, they shall within two (2) months after the date on which the transfer was lodged with the Company send to the transferee notice of the refusal.

9.6

The registration of transfers of shares or of any class of shares may, after compliance with any notice requirement of any Designated Stock Exchange, be suspended and the Register of Members be closed at such times and for such periods (not exceeding in the whole thirty (30) days in any year) as the Board may determine.

9.7

The Company shall be entitled to retain any instrument of transfer which is registered, but any instrument of transfer which the Directors refuse to register shall be returned to the person lodging it when notice of the refusal is given.

10.

Transmission of Shares

10.1

If a Member dies, the survivor, or survivors where he was a joint holder, and his personal representatives where he was a sole holder or the only survivor of joint holders shall be the only persons recognised by the Company as having any title to his interest; but nothing in these Articles shall release the estate of a deceased Member from any liability in respect of any share which had been jointly held by him.

10.2

A person becoming entitled to a share in consequence of the death or bankruptcy of a Member may, upon such evidence being produced as the Directors may properly require, elect either to become the holder of the share or to have some person nominated by him registered as the transferee. If he elects to become the holder he shall give notice to the Company to that effect. If he elects to have another person registered he shall execute an instrument of transfer of the share to that person. All the Articles relating to the transfer of shares shall apply to the notice or instrument of transfer as if it were an instrument of transfer executed by the Member and the death or bankruptcy of the Member had not occurred.

10.3

A person becoming entitled to a share by reason of the death or bankruptcy of a Member shall have the rights to which he would be entitled if he were the holder of the share, except that he shall not, before being registered as the holder of the share, be entitled in respect of such share to attend or vote at any meeting of the Company or at any separate meeting of the holders of any class of shares in the Company.

11.

Changes of Capital

11.1

(a) Subject to and in so far as permitted by the provisions of the Law and these Articles, the Company may from time to time by Ordinary Resolution alter or amend the Memorandum to:

(i)

increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe;

(ii)

consolidate and divide all or any of its share capital into shares of larger amounts than its existing shares;

(iii)

convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination;

(iv)

sub-divide its existing shares, or any of them, into shares of smaller amounts than is fixed by the Memorandum 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; and

(v)

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.

(b)

Except so far as otherwise provided by the conditions of issue, the new shares shall be subject to the same provisions with reference to the payment of calls, lien, transfer, transmission, forfeiture and otherwise as the shares in the original share capital.

11.2

Whenever as a result of a consolidation of shares any Members would become entitled to fractions of a share, the Directors may, on behalf of those Members, sell the shares representing the fractions for the best price reasonably obtainable to any person (including, subject to the provisions of the Law, the Company) and distribute the net proceeds of sale in due proportion among those Members, and the Directors may authorise some person to execute an instrument of transfer of the shares to, or in accordance with the directions of, the purchaser. The transferee shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity in or invalidity of the proceedings in reference to the sale.

11.3

The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner and with and subject to any incident, consent, order or other matter required by law.

12.

Redemption and Purchase of Own Shares

12.1

Subject to the provisions of the Law and these Articles, the Company may:

(a)

issue shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the Member on such terms and in such manner as the Directors may, before the issue of shares, determine;

(b)

purchase its own shares (including any redeemable shares) in such manner and on such terms as the Directors may determine and agree with the relevant Member; and

(c)

make a payment in respect of the redemption or purchase of its own shares in any manner authorised by the Law, including out of capital.

12.2

The Directors may, when making a payment in respect of the redemption or purchase of shares, if so authorised by the terms of issue of the shares (or otherwise by agreement with the holder of such shares) make such payment in cash or in specie (or partly in one and partly in the other).

12.3

Upon the date of redemption or purchase of a share, the holder shall cease to be entitled to any rights in respect thereof (excepting always the right to receive (i) the price therefor and (ii) any dividend which had been declared in respect thereof prior to such redemption or purchase being effected) and accordingly his name shall be removed from the Register of Members with respect thereto and the share shall be cancelled.

13.

Treasury Shares

13.1

The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share.

13.2

The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration).

14.

Register of Members

14.1

The Company shall maintain or cause to be maintained an overseas or local Register of Members in accordance with the Law.

14.2

The Directors may determine that the Company shall maintain one or more branch registers of Members in accordance with the Law. The Directors may also determine which Register of Members shall constitute the principal register and which shall constitute the branch register or registers, and to vary such determination from time to time.

15.

Closing Register of Members or Fixing Record Date

15.1

For the purpose of determining Members entitled to notice of, or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any dividend or other distribution, or in order to make a determination of Members for any other purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period which shall not in any case exceed thirty (30) days. If the Register shall be so closed for the purpose of determining those Members that are entitled to receive notice of, attend or vote at a meeting of Members, the Register shall be so closed for at least ten (10) clear days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register.

15.2

In lieu of, or apart from, closing the Register of Members, the Directors may fix, in advance or in arrears, a date as the record date for any such determination of Members entitled to notice of, or to vote at any meeting of the Members or any adjournment thereof, or for the purpose of determining the Members entitled to receive payment of any dividend or other distribution, or in order to make a determination of Members for any other purpose, provided that such a record date shall not exceed forty (40) clear days prior to the date where the determination will be made.

15.3

If the Register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of, or to vote at, a meeting of Members or Members entitled to receive payment of a dividend or other distribution, the date on which notice of the meeting is sent or posted or the date on which the resolution of the Directors resolving to pay such dividend or other distribution is passed, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Article, such determination shall apply to any adjournment thereof.

16.

General Meetings

16.1

An annual general meeting of the Company may at the discretion of the Board be held in the year in which these Articles were adopted and shall be held in each year thereafter at such time as determined by the Board and the Company may, but shall not (unless required by the Law) be obliged to, in each year hold any other general meeting.

16.2

The agenda of the annual general meeting shall be set by the Board and shall include the presentation of the Company’s annual accounts and the report of the Directors (if any).

16.3

Annual general meetings shall be held in São Paulo, Brazil or in such other places as the Directors may determine.

16.4

All general meetings other than annual general meetings shall be called extraordinary general meetings and the Company shall specify the meeting as such in the notices calling it.

16.5

The Directors may, whenever they think fit, convene an extraordinary general meeting of the Company, and they shall on a Members’ requisition in accordance with these Articles forthwith proceed to convene an extraordinary general meeting of the Company.

16.6

A Members’ requisition is a requisition of one or more Members holding at the date of deposit of the requisition shares representing in the aggregate not less than one-third of the votes entitled to be cast at general meetings of the Company.

16.7

The Members’ requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office, and may consist of several documents in like form each signed by one or more requisitionists.

16.8

If there are no Directors as at the date of the deposit of the Members’ requisition or if the Directors do not within fourteen (14) days from the date of the deposit of the Members’ requisition duly proceed to convene a general meeting to be held within a further fourteen (14) days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of the requisitionists, may themselves convene a general meeting, but any meeting so convened shall be held no later than the day which falls three (3) months after the expiration of the first said fourteen (14) day period.

16.9

A general meeting convened as aforesaid by requisitionists shall be convened in as close to the same manner as possible as that in which general meetings are to be convened by Directors.

16.10

Save as set out in Articles 16.1 to 16.9, the Members have no right to propose resolutions to be considered or voted upon at annual general meetings or extraordinary general meetings of the Company.

17.

Notice of General Meetings

17.1

At least ten (10) clear days’ notice specifying the place, the day and the hour of each general meeting and the general nature of such business to be transacted thereat shall be given in the manner hereinafter provided, including, but not limited to, as described in Article 36, or in such other manner (if any) as may be prescribed by Ordinary Resolution, to such persons as are entitled to vote or may otherwise be entitled under these Articles to receive such notices from the Company; provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of the Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed:

(a)

in the case of an annual general meeting, by all of the Members entitled to attend and vote thereat; and

(b)

in the case of an extraordinary general meeting, by a majority in number of the Members having a right to attend and vote at the meeting, together holding not less than 95%, in par value of the Shares giving that right.

17.2

The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at that general meeting.

18.

Proceedings at General Meetings

18.1

No business shall be transacted at any meeting unless a quorum is present at the time when the meeting proceeds to business. One or more Members holding not less than one-third in aggregate of the voting power of all Shares in issue and entitled to vote, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorised representative, shall represent a quorum.

18.2

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, the meeting, if convened upon a Members’ requisition, shall be dissolved and in any other case it shall stand adjourned and shall reconvene on the same day in the next week at the same time and/or place or to such other day, time and/or place as the Directors may determine, and if at the reconvened meeting a quorum is not present within half an hour from the time appointed for the meeting to commence, the Members present shall be a quorum.

18.3

A person may participate in a general meeting by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other at the same time. Participation by a Member in a meeting in this manner is treated as presence in person at that meeting and is counted in a quorum and entitled to vote.

18.4

The Chairman or in his absence the vice-chairman of the Board (if any) shall preside as chairman of the meeting, but if neither the Chairman nor such vice-chairman (if any) is present within fifteen (15) minutes after the time appointed for holding the meeting and willing to act, the Directors present shall elect one of their number to be chairman and, if there is only one Director present and willing to act, he shall be chairman. If no Director is willing to act as chairman, or if no Director is present within fifteen (15) minutes after the time appointed for holding the meeting, the Members present in person or by proxy and entitled to vote shall choose one of their number to be chairman.

18.5

The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting 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. The chairman of the meeting shall announce at each such meeting the date and time of the opening and the closing of the polls for each matter upon which the Members will vote at such meeting.

18.6

A Director shall, notwithstanding that he is not a Member, be entitled to attend and speak at any general meeting and at any separate meeting of the holders of any class of shares in the Company.

18.7

The chairman of the meeting may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than business which might properly have been transacted at the meeting had the adjournment not taken place. When a meeting is adjourned for fourteen (14) days or more, at least seven (7) clear days’ notice shall be given in the manner herein provided, including, but not limited to, as described in Article 36, specifying the time and place of the adjourned meeting and the general nature of the business to be transacted. Otherwise it shall not be necessary to give any such notice.

18.8

At each meeting of the Members, all corporate actions, including the election of Directors, to be taken by vote of the Members (except as otherwise required by applicable law and except as otherwise provided in these Articles) shall be authorised by Ordinary Resolution. Where a separate vote by a class or classes or series is required, save as provided in Article 4.11(a), the affirmative vote of the majority of Shares of such class or classes or series present in person or represented by proxy at the meeting and voting shall be the act of such class or series (unless provided otherwise in the resolutions providing for the issuance of such class or series).

18.9

At any general meeting a resolution put to the vote of the meeting shall be decided on a poll.

18.10

A poll shall be taken in such manner as the chairman directs and he may appoint scrutineers (who need not be Members) and fix a place and time for declaring the result of the poll. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was taken.

18.11

In the case of equality of votes, the chairman of the meeting shall be entitled to a casting vote in addition to any other vote he may have.

18.12

If for so long as the Company has only one Member:

(a)

in relation to a general meeting, the sole Member or a proxy for that Member or (if the Member is a corporation) a duly authorised representative of that Member is a quorum and Article 18.1 is modified accordingly;

(b)

the sole Member may agree that any general meeting be called by shorter notice than that provided for by the Articles; and

(c)

all other provisions of the Articles apply with any necessary modification (unless the provision expressly provides otherwise).

19.

Votes of Members

19.1

Subject to any rights or restrictions attached to any shares (including without limitation the enhanced voting rights attaching to Class B Common Shares provided for in Article 5), every Member who (being an individual) is present in person or by proxy or (being a corporation) is present by a duly authorised representative (not being himself a Member entitled to vote) or by proxy, shall on a poll have one vote for every share of which he is the holder (or, in the case of a Class B Common Share, ten (10) votes for every Class B Common Share of which he is the holder).

19.2

In the case of joint holders, the vote of the senior joint holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders; and seniority shall be determined by the order in which the names of the holders stand in the Register of Members.

19.3

A Member in respect of whom an order has been made by any court having jurisdiction (whether in the Islands or elsewhere) in matters concerning mental disorder may vote, by his receiver, curator bonis or other person authorised in that behalf appointed by that court, and any such receiver, curator bonis or other person may vote by proxy. Evidence to the satisfaction of the Directors of the authority of the person claiming to exercise the right to vote shall be received at the registered office of the Company, or at such other place as is specified in accordance with these Articles for the deposit or delivery of forms of appointment of a proxy, or in any other manner specified in these Articles for the appointment of a proxy, not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the right to vote is to be exercised and in default the right to vote shall not be exercisable.

19.4

No Member shall, unless the Directors otherwise determine, be entitled to vote at any general meeting or at any separate meeting of the holders of any class of shares in the Company, either in person or by proxy or by a corporate representative, in respect of any share held by him unless all moneys presently payable by him in respect of that share have been paid.

19.5

No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is tendered, and every vote not disallowed at the meeting shall be valid. Any objection made in due time shall be referred to the chairman of the meeting whose decision shall be final and conclusive.

19.6

Votes may be given either personally or by proxy. Deposit or delivery of a form of appointment of a proxy does not preclude a Member from attending and voting at the meeting or at any adjournment of it, save that only the Member or his proxy may cast a vote.

19.7

A Member entitled to more than one vote need not, if he votes, use all his votes or cast all votes he uses the same way.

19.8

Subject as set out herein, an instrument appointing a proxy shall be in writing in any usual form or in any other form which the Directors may approve and shall be executed by or on behalf of the appointor save that, subject to the Law, the Directors may accept the appointment of a proxy received in an electronic communication at an address specified for such purpose, on such terms and subject to such conditions as they consider fit. The Directors may require the production of any evidence which they consider necessary to determine the validity of any appointment pursuant to this Article.

19.9

Subject to Article 19.10 below, the form of appointment of a proxy and any authority under which it is executed or a copy of such authority certified notarially or in some other way approved by the Directors may:

(a)

in the case of an instrument in writing, be left at or sent by post to the registered office of the Company or such other place within the Islands or elsewhere as is specified in the notice convening the meeting or in any form of appointment of proxy sent out by the Company in relation to the meeting at any time before the time for holding the meeting or adjourned meeting at which the person named in the form of appointment of proxy proposes to vote;

(b)

in the case of an appointment of a proxy contained in an electronic communication, where an address has been specified by or on behalf of the Company for the purpose of receiving electronic communications:

(i)

in the notice convening the meeting; or

(ii)

in any form of appointment of a proxy sent out by the Company in relation to the meeting; or

(iii)

in any invitation contained in an electronic communication to appoint a proxy issued by the Company in relation to the meeting;

be received at such address at any time before the time for holding the meeting or adjourned meeting at which the person named in the form of appointment of proxy proposes to vote;

(c)

in the case of a poll taken more than forty-eight (48) hours after it is demanded, be deposited or delivered as required by paragraphs (a) or (b) of this Article after the poll has been demanded and at any time before the time appointed for the taking of the poll; or

(d)

where the poll is taken immediately but is taken not more than forty-eight (48) hours after it was demanded, be delivered at the meeting at which the poll was demanded to the chairman of the meeting or to the secretary or to any Director;

and a form of appointment of proxy which is not deposited or delivered in accordance with this Article or Article 19.10 is invalid.

19.10

Notwithstanding Article 19.9 above, the Directors may by way of note to or in any document accompanying the notice of a general meeting (or adjourned meeting) fix the latest time by which the appointment of a proxy must be communicated to or received by the Company (being not more than 48 hours before the relevant meeting).

19.11

A vote or poll demanded by proxy or by the duly authorised representative of a corporation shall be valid notwithstanding the previous determination of the authority of the person voting or demanding a poll unless notice of the determination was received by the Company at the registered office of the Company or, in the case of a proxy, any other place specified for delivery or receipt of the form of appointment of proxy or, where the appointment of a proxy was contained in an electronic communication, at the address at which the form of appointment was received, before the commencement of the meeting or adjourned meeting at which the vote is given or the poll demanded or (in the case of a poll taken otherwise than on the same day as the meeting or adjourned meeting) the time appointed for taking the poll.

19.12

Any corporation or other non-natural person which is a Member of the Company may in accordance with its constitutional documents, or, in the absence of such provision, by resolution of its directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual Member.

19.13

If a Clearing House (or its nominee(s)) or depositary (or its nominee(s)) is a Member of the Company, it may, by resolution of its directors or other governing body or by power or attorney, authorise such Person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any class of shareholders of the Company, provided that, if more than one Person is so authorised, the authorisation shall specify the number and class of shares in respect of which such Person is so authorised. A Person so authorised pursuant to this Article shall be entitled to exercise the same powers on behalf of the recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) which he represents as that recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) could exercise if it were an individual Member holding the number and class of shares specified in such authorisation.

20.

Number of Directors and Chairman

20.1

Subject to Article 21.4, the Board shall consist of such number of Directors as a majority of the Directors then in office may determine from time to time, provided that, unless otherwise determined by the Members acting by Special Resolution, the Board shall consist of not less than four (4) Directors and not more than eleven (11) Directors.

20.2

The Board of Directors shall have a chairman of the Board of Directors elected and appointed by the Directors. The Directors may also elect a vice-chairman of the Board of Directors. The period for which the Chairman and the vice-chairman shall hold office shall also be determined by the Directors. The Chairman shall preside as chairman at every meeting of the Board of Directors at which he is present. Where the Chairman is not present at a meeting of the Board of Directors, the vice-chairman of the Board of Directors (if any) shall act as chairman, or in his absence, the attending Directors may choose one Director to be the chairman of the meeting.

21.

Appointment, Disqualification and Removal of Directors

21.1

Save as provided in Article 21.3, Directors shall be elected by an Ordinary Resolution of Members. Persons proposed by the Board for election at a general meeting of the Company shall be nominated only and after consultation with the Nominating and Corporate Governance Committee (if such committee is established).

21.2

Each Director shall hold office for such term as the resolution appointing him may determine or until his resignation or removal notwithstanding any agreement between the Company and such Director. Directors are eligible for re-election.

21.3

Any vacancies on the Board arising other than upon the removal of a Director by resolution passed at a general meeting can be filled by the remaining Director(s) (notwithstanding that the remaining Director(s) may constitute fewer than the number of Directors required by Article 20.1 or fewer than is required for a quorum pursuant to Article 28.1). Any such appointment shall be as an interim Director to fill such vacancy until the next annual general meeting of Members (and such appointment shall terminate at the commencement of the annual general meeting).

21.4

Additions to the existing Board (subject to the maximum provided for in Article 20.1 above) may be made by Ordinary Resolution.

21.5

There is no age limit for Directors of the Company.

21.6

No shareholding qualification shall be required for a Director. A Director who is not a Member shall nevertheless be entitled to receive notice of and to attend and speak at general meetings of the Company.

21.7

While any shares of the Company are admitted to trading on a Designated Stock Exchange, the Board must at all times comply with the residency and citizenship requirements of securities laws of the United States applicable to foreign private issuers and shall at no time have a majority of Directors who are U.S. Persons. Notwithstanding any other provision in these Articles, no appointment or election of a U.S. Person as a Director shall be permitted if such appointment or election would have the effect of creating a majority of Directors who are U.S. Persons, and any such appointment or election shall be disregarded for all purposes.

21.8

Directors may be removed (with or without cause) by Ordinary Resolution of Members. 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 (10) calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.

21.9

The office of a Director shall be vacated automatically if:

(a)

he or she becomes prohibited by law from being a Director;

(b)

he or she becomes bankrupt or makes any arrangement or composition with his creditors generally;

(c)

he or she dies or is, in the opinion of all his co-Directors, incapable by reason of mental disorder of discharging his duties as Director;

(d)

he or she resigns his or her office by notice to the Company; or

(e)

he or she has for more than six (6) months been absent without permission of the Directors from meetings of Directors held during that period and the remaining Directors resolve that his or her office be vacated.

22.

Alternate Directors

22.1

Any Director (but not an alternate Director) may by writing appoint any other Director, or any other person willing to act, to be an alternate Director and by writing may remove from office an alternate Director so appointed by him.

22.2

An alternate Director shall be entitled to receive notice of all meetings of Directors and of all meetings of committees of Directors of which his appointor is a member, to attend and vote at every such meeting at which the Director appointing him is not personally present, to sign any written resolution of the Directors (in place of his appointor) and generally to perform all the functions of his appointor as a Director in his absence.

22.3

An alternate Director shall cease to be an alternate Director if his appointor ceases to be a Director.

22.4

Any appointment or removal of an alternate Director shall be by written notice to the Company at its registered office, signed by the Director making or revoking the appointment, or in any other manner approved by the Directors.

22.5

Subject to the provisions of these Articles, an alternate Director shall be deemed for all purposes to be a Director and shall alone be responsible for his own acts and defaults and shall not be deemed to be the agent of the Director appointing him.

23.

Powers of Directors

23.1

Subject to the provisions of the Law, to the Memorandum and the Articles, to any directions given by Ordinary Resolution and to the listing rules of any Designated Stock Exchange, the business of the Company shall be managed by the Directors who may exercise all the powers of the Company. No alteration of the Memorandum or Articles and no such direction shall invalidate any prior act of the Directors which would have been valid if that alteration had not been made or that direction had not been given. The powers given by this Article shall not be limited by any special power given to the Directors by the Articles and a meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors.

23.2

The Board may exercise all the powers of the Company to raise capital or borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Law, to issue debentures, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

24.

Delegation of Directors’ Powers

24.1

Subject to these Articles, the Directors may from time to time appoint any Person, whether or not a director of the Company, to hold such office in the Company as the Directors may think necessary for the administration of the Company, including without prejudice to the foregoing generality, the offices of chief executive officer, chief operating officer and chief financial officer, one or more vice presidents, managers or controllers, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another) and with such powers and duties as the Directors may think fit.

24.2

Without limiting the generality of Article 24.1, the Directors may appoint one or more of their body to the office of managing Director or to any other executive office under the Company, and the Company may enter into an agreement or arrangement with any Director for his/her employment, subject to applicable law and any listing rules of the SEC or any Designated Stock Exchange, or for the provision by him of any services outside the scope of the ordinary duties of a Director. Any such appointment, agreement or arrangement may be made upon such terms as the Directors determine and they may remunerate any such Director for his services as they think fit. Any appointment of a Director to an executive office shall terminate automatically if he ceases to be a Director but without prejudice to any claim to damages for breach of the contract of service between the Director and the Company.

24.3

The Directors may, by power of attorney or otherwise, appoint any person to be the agent of the Company for such purposes and on such conditions as they determine, including authority for the agent to delegate all or any of his powers.

24.4

Subject to applicable law and the listing rules of any Designated Stock Exchange, the Directors may delegate any of their powers to any committee (including, without limitation, an Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee), consisting of one or more Directors. They may also delegate to any executive officer or committee of executive officers such of their powers as they consider desirable to be exercised by him or them. Any such delegation may be made subject to any conditions the Directors may impose, and either collaterally with or to the exclusion of its own powers and may be revoked or altered. Subject to any such conditions, the proceedings of a committee with two or more members shall be governed by the provisions of the Articles regulating the proceedings of Directors so far as they are capable of applying. Where a provision of the Articles refers to the exercise of a power, authority or discretion by the Directors and that power, authority or discretion has been delegated by the Directors to a committee, the provision shall be construed as permitting the exercise of the power, authority or discretion by the committee.

24.5

Without limiting the generality of Article 24.4, the Board shall establish a permanent Audit Committee and may establish a Compensation Committee and a Nominating and Corporate Governance Committee and, where such committees are established, the Board may adopt formal written charters for such committees and, if so, shall review and assess the adequacy of such formal written charters on an annual basis. Each of these committees shall be empowered to do all things necessary to exercise the rights of such committee set forth in these Articles and shall have such powers as the Board may delegate pursuant to Article 24.4 and as required by the rules of the Designated Stock Exchange or applicable law. Each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, if established, shall consist of such number of directors as the Board shall from time to time determine (or such minimum number as may be required from time to time by any Designated Stock Exchange). For so long as any class of Shares is listed on a Designated Stock Exchange, the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee shall be made up of such number of Independent Directors as is required from time to time by the rules of the Designated Stock Exchange or otherwise required by applicable law.

24.6

At least one (1) member of the Audit Committee will be an audit committee financial expert as determined by the rules adopted by the Designated Stock Exchange. Such financial expert shall have a special past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication.

25.

Remuneration and Expenses of Directors

25.1

The Directors shall be entitled to such remuneration as the Board may determine and, unless otherwise determined, the remuneration shall be deemed to accrue from day to day. If established, the Compensation Committee will assist the Board in reviewing and approving compensation decisions.

25.2

Members of the Audit Committee may be paid annual compensation in the form of a fixed salary in such amount as the Board may determine.

25.3

A Director who at the request of the Directors goes or resides outside of the Islands, makes a special journey or performs a special service on behalf of the Company may be paid such reasonable additional remuneration (whether by way of salary, percentage of profits or otherwise) and expenses as the Directors may decide.

25.4

The Directors may be paid all traveling, hotel and other expenses properly incurred by them in connection with their attendance at meetings of Directors or committees of Directors or general meetings or separate meetings of the holders of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties.

26.

Directors’ Gratuities and Pensions

The Directors may cause the Company to provide benefits, whether by the payment of gratuities or pensions or by insurance or otherwise, for any existing Director or any Director who has held but no longer holds any executive office or employment with the Company or with any body corporate which is or has been a subsidiary of the Company or a predecessor in business of the Company or of any such subsidiary, and for any member of his family (including a spouse and a former spouse) or any person who is or was dependent on him, and may (as well before as after he ceases to hold such office or employment) contribute to any fund and pay premiums for the purchase or provision of any such benefit.

27.

Directors’ Interests

27.1

Subject to the Law and listing rules of any Designated Stock Exchange, if a Director has disclosed to the other Directors the nature and extent of any direct or indirect interest which the Director has in any transaction or arrangement with the Company, a Director notwithstanding his office:

(a)

may be a party to or otherwise interested in any transaction or arrangement with the Company or in which the Company is otherwise interested;

(b)

may be a Director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is otherwise interested; and

(c)

shall not by reason of his office be accountable to the Company for any benefit which he derives from any such office or employment or from any such transaction or arrangement or from any interest in any such body corporate and no such transaction or arrangement shall be liable to be avoided on the ground of any such interest or benefit.

27.2

For the purposes of Article 27.1:

(a)

a general notice given to the Directors to the effect that (1) a Director is a member or officer of a specified company or firm and is to be regarded as having an interest in any transaction or arrangement which may after the date of the notice be made with that company or firm; or (2) a Director is to be regarded as interested in any transaction or arrangement which may after the date of the notice be made with a specified person who is connected with him or her shall be deemed to be a sufficient disclosure that the Director has an interest of the nature and extent so specified; and

(b)

an interest of which a Director has no knowledge and of which it is unreasonable to expect him to have knowledge shall not be treated as an interest of his.

27.3

A Director must disclose any direct or indirect interest in any transaction or arrangement with the Company, and following a declaration being made pursuant to the Articles, subject to any separate requirement for Audit Committee approval under applicable law or the listing rules of any Designated Stock Exchange, and unless disqualified by the chairman of the relevant meeting, a Director may vote in respect of any such transaction or arrangement in which such Director is interested and may be counted in the quorum at such meeting.

27.4

Notwithstanding the foregoing, no “Independent Director” (as defined herein) and with respect of whom the Board has determined constitutes an “Independent Director” for purposes of compliance with applicable law or the Company’s listing requirements, shall without the consent of the Audit Committee take any of the foregoing actions or any other action that would reasonably be likely to affect such Director’s status as an “Independent Director” of the Company.

28.

Proceedings of Directors

28.1

The quorum for the transaction of the business of the Directors shall be a simple majority of the Directors then in office (subject to there being a minimum of two (2) Directors present). A person who holds office as an alternate Director shall, if his appointor is not present, be counted in the quorum. A Director who also acts as an alternate Director shall, if his appointor is not present, count twice towards the quorum, but one such Director shall not constitute a quorum on his own.

28.2

Subject to the provisions of the Articles, the Directors may regulate their proceedings as they determine is appropriate. Questions arising at any meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote. A Director who is also an alternate Director shall be entitled in the absence of his appointor to a separate vote on behalf of his appointor in addition to his own vote.

28.3

Meetings of the Directors 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.

28.4

A person may participate in a meeting of the Directors or any committee of Directors by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other at the same time. Participation by a person in a meeting in this manner is treated as presence in person at that meeting and is counted in a quorum and entitled to vote.

28.5

A resolution in writing (in one or more counterparts) signed by all the Directors or all the members of a committee of the Directors (an alternate Director being entitled to sign such a resolution on behalf of his appointor and if such alternate Director is also a Director, being entitled to sign such resolution both on behalf of his appointor and in his capacity as a Director) shall be as valid and effective as if it had been passed at a meeting of the Directors, or committee of Directors as the case may be, duly convened and held. Unless otherwise provided by its terms, such a resolution shall be effective from the date and time of the last signature.

28.6

A Director or alternate Director may, and another officer of the Company on the direction of a Director or alternate Director shall, call a meeting of the Directors by at least five (5) clear days’ notice in writing to every Director and alternate Director which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held. To any such notice of a meeting of the Directors all the provisions of the Articles relating to the giving of notices by the Company to the Members shall apply mutatis mutandis .

28.7

Notwithstanding Article 28.6, if all Directors so agree to the meeting, a Director or alternate Director may, or other officer of the Company on the direction of a Director or alternate Director may, call a meeting of the Directors on shorter notice than is provided for in Article 28.6 by notice in writing to every Director and alternate Director, which notice shall set forth the general nature of the business to be considered.

28.8

The continuing Directors (or a sole continuing Director, as the case may be) may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to the Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to be equal to such fixed number, or of summoning a general meeting of the Company, but for no other purpose.

28.9

All acts done by any meeting of the Directors or of a committee of the Directors (including any person acting as an alternate Director) shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any Director or alternate Director, and/or that they or any of them were disqualified, and/or had vacated their office and/or were not entitled to vote, be as valid as if every such person had been duly appointed and/or not disqualified to be a Director or alternate Director and/or had not vacated their office and/or had been entitled to vote, as the case may be.

28.10

A Director who is present at a meeting of the Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Company immediately after the conclusion of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.

29.

Secretary and other officers

The Directors may by resolution appoint a Secretary and may by resolution also appoint such other officers as may from time to time be required upon such terms as to the duration of office, remuneration and otherwise as they may think fit PROVIDED THAT, the Directors may only appoint persons as directors of the Company in accordance with Article 21.3. Such Secretary or other officers need not be Directors and in the case of the other officers may be ascribed such titles as the Directors may decide. The Directors may by resolution remove from that position any Secretary or other officer appointed pursuant to this Article.

30.

Minutes

The Directors shall cause minutes to be made in books kept for the purposes of recording:

(a)

all appointments of officers made by the Directors; and

(b)

all resolutions and proceedings of meetings of the Company, of the holders of any class of shares in the Company and of the Directors and of committees of Directors, including the names of the Directors present at each such meeting.

31.

Seal

31.1

The Company may, if the Directors so determine, have a Seal. The Seal shall only be used by the authority of the Directors or of a committee of Directors authorised by the Directors. The Directors may determine who shall sign any instrument to which the Seal is affixed, and unless otherwise so determined every such instrument shall be signed by a Director or by such other person as the Directors may authorise.

31.2

The Company may have for use in any place or places outside the Islands a duplicate Seal or Seals, each of which shall be a reproduction of the Seal of the Company and, if the Directors so determine, shall have added on its face the name of every place where it is to be used.

31.3

The Directors may by resolution determine (i) that any signature required by this Article need not be manual but may be affixed by some other method or system of reproduction or mechanical or electronic signature and/or (ii) that any document may bear a printed reproduction of the Seal in lieu of affixing the Seal thereto.

31.4

No document or deed otherwise duly executed and delivered by or on behalf of the Company shall be regarded as invalid merely because at the date of the delivery of the deed or document, the Director, Secretary or other officer or person who shall have executed the same or affixed the Seal thereto, as the case may be, for and on behalf of the Company shall have ceased to hold such office and authority on behalf of the Company.

32.

Dividends

32.1

Subject to the provisions of the Law, the Company may by Ordinary Resolution declare dividends (including interim dividends) in accordance with the respective rights of the Members, but no dividend shall exceed the amount recommended by the Directors.

32.2

Subject to the provisions of the Law, the Directors may declare dividends in accordance with the respective rights of the Members and authorise payment of the same out of the funds of the Company lawfully available therefor. If at any time the share capital is divided into different classes of shares, the Directors may pay dividends on shares which confer deferred or non-preferred rights with regard to dividends as well as on shares which confer preferential rights with regard to dividends, but no dividend shall be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. The Directors may also pay at intervals settled by them any dividend payable at a fixed rate if it appears that there are sufficient funds of the Company lawfully available for distribution to justify the payment. Provided the Directors act in good faith they shall not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of a dividend on any shares having deferred or non-preferred rights.

32.3

The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for meeting contingencies, or for equalising dividends or for any other purpose to which those funds may be properly applied and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments (other than shares in the capital of the Company) as the Directors may from time to time think fit.

32.4

Except as otherwise provided by the rights attached to shares and subject to Article 15, all dividends shall be paid in proportion to the number of shares a Member holds as of the date the dividend is declared; save that (a) 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 (b) where the Company has shares in issue which are not fully paid up (as to par value) the Company may pay dividends in proportion to the amount paid up on each share.

32.5

The Directors may deduct from a dividend or other amounts payable to a person in respect of a share any amounts due from him to the Company on account of a call or otherwise in relation to a share.

32.6

Any Ordinary Resolution or Directors’ resolution declaring a dividend may direct that it shall be satisfied wholly or partly by the distribution of assets and, where any difficulty arises in regard to such distribution, the Directors may settle the same and in particular may issue fractional certificates and fix the value for distribution of any assets and may determine that cash shall be paid to any Member upon the footing of the value so fixed in order to adjust the rights of Members and may vest any assets in trustees.

32.7

Any dividend or other moneys payable on or in respect of a share may be paid by cheque sent by post to the registered address of the person entitled or, if two or more persons are the holders of the share or are jointly entitled to it by reason of the death or bankruptcy of the holder, to the registered address of that one of those persons who is first named in the Register of Members or to such person and to such address as the person or persons entitled may in writing direct. Subject to any applicable law or regulations, every cheque shall be made payable to the order of the person or persons entitled or to such other person as the person or persons entitled may in writing direct and payment of the cheque shall be a good discharge to the Company. Any joint holder or other person jointly entitled to a share as aforesaid may give receipts for any dividend or other moneys payable in respect of the share.

32.8

No dividend or other moneys payable in respect of a share shall bear interest against the Company unless otherwise provided by the rights attached to the share.

32.9

Any dividend which has remained unclaimed for six years from the date when it became due for payment shall, if the Directors so resolve, be forfeited and cease to remain owing by the Company.

33.

Financial Year, Accounting Records and Audit

33.1

Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31 December in each year and, following the year of incorporation, shall begin on 1 January each year.

33.2

The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors. The books of account shall be kept at the registered office or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors.

33.3

No Member shall be entitled to require discovery of or any information with respect to any detail of the Company’s trading or any matter which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors it will be inexpedient in the interests of the Members of the Company to communicate to the public.

33.4

The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books and corporate records of the Company or any of them shall be open to the inspection of Members not being Directors, and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by applicable law, the listing rules of any Designated Stock Exchange or authorised by the Directors.

33.5

Subject to Articles 33.4, and 33.6 a printed copy of the Directors’ report, if any, accompanied by the consolidated statements of financial position, profit or loss, comprehensive income (loss), cash flows and changes in shareholders’ equity, including every document required by the Law to be annexed thereto, made up to the end of the applicable financial year, shall be sent to the Members at least ten (10) days before the date of the general meeting and laid before the Company at the annual general meeting held in accordance with Article 16.2, provided that this Article 33.5 shall not require a copy of those documents to be sent to any person whose address the Company is not aware of or to more than one of the joint holders of any shares.

33.6

The requirement to send to a person referred to in Article 33.5 the documents referred to in that Article shall be deemed satisfied where, in accordance with all applicable laws, rules and regulations, including, without limitation, the rules of any Designated Stock Exchange, the Company publishes copies of the documents referred to in Article 33.5 on the Company’s Website, transmits it to SEC’s website or in any other permitted manner (including by sending any other form of electronic communication), and that person has agreed or is deemed by the Company to have agreed to treat the publication or receipt of such documents in such manner as discharging the Company’s obligation to send to him a copy of such documents.

33.7

Subject to applicable law and to the rules of any Designated Stock Exchange, the accounts relating to the Company’s affairs shall be audited in such manner as may be determined from time to time by the Directors.

33.8

The Directors, having considered the recommendations of the Audit Committee, shall appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Board, and shall fix his or their remuneration.

33.9

Every auditor of the Company shall have a right of access at all times to the books and accounts of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.

34.

Capitalisation of Profits

The Directors may:

(a)

subject as provided in this Article, resolve to capitalize any undivided profits of the Company not required for paying any preferential dividend (whether or not they are available for distribution) or any sum standing to the credit of the Company’s share premium account or capital redemption reserve;

(b)

appropriate the sum resolved to be capitalised to the Members who would have been entitled to it if it were distributed by way of dividend and in the same proportions and apply such sum on their behalf either in or towards paying up the amounts, if any, for the time being unpaid on any shares held by them respectively, or in paying up in full unissued shares or debentures of the Company of a nominal amount equal to such sum, and allot the shares or debentures credited as fully paid to those Members, or as they may direct, in those proportions, or partly in one way and partly in the other, provided that on any such capitalization 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 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);

(c)

resolve that any shares so allotted to any Member in respect of a holding by him of any partly-paid shares rank for dividend, so long as such shares remain partly paid, only to the extent that such partly paid shares rank for dividend;

(d)

make such provision by the issue of fractional certificates or by payment in cash or otherwise as they determine in the case of shares or debentures becoming distributable under this Article in fractions; and

(e)

authorise any person to enter on behalf of all the Members concerned into an agreement with the Company providing for the allotment to them respectively, credited as fully paid, of any shares or debentures to which they may be entitled upon such capitalization, any agreement made under such authority being binding on all such Members.

35.

Share Premium Account

35.1

The Directors shall in accordance with Section 34 of the Law establish a share premium account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share or capital contributed as described in Article 4.12.

35.2

There shall be debited to any share premium account:

(a)

on the redemption or purchase of a share the difference between the nominal value of such share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by Section 37 of the Law, out of capital; and

(b)

any other amounts paid out of any share premium account as permitted by Section 34 of the Law.

36.

Notices

36.1

Except as otherwise provided in these Articles and subject to the rules of any Designated Stock Exchange, any notice or document may be served by the Company or by the Person entitled to give notice to any Member either personally or by posting it airmail or by air courier service in a prepaid letter addressed to such Member at his address as appearing in the Register of Members, or by electronic mail to any electronic mail address such Member may have specified in writing for the purpose of such service of notices, or by advertisement in appropriate newspapers in accordance with the requirements of any Designated Stock Exchange, or by facsimile or by placing it on the Company’s Website. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register of Members in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders.

36.2

Notices posted to addresses outside the Cayman Islands shall be forwarded by prepaid airmail.

36.3

Any notice or other document, if served by:

(a)

post, shall be deemed to have been served five days after the time when the letter containing the same is posted;

(b)

facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient;

(c)

recognized courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service;

(d)

electronic mail, shall be deemed to have been served immediately upon the time of the transmission by electronic mail; or

(e)

placing it on the Company’s Website, shall be deemed to have been served one (1) hour after the notice or document is placed on the Company’s Website.

In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.

36.4

A Member present, either in person or by proxy, at any meeting of the Company or of the holders of any class of shares in the Company shall be deemed to have received notice of the meeting, and, where requisite, of the purpose for which it was called.

36.5

Any notice or document delivered or sent by post to or left at the registered address of any Member in accordance with the terms of these Articles shall notwithstanding that such Member be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Member as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register of Members as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share.

36.6

Notice of every general meeting of the Company shall be given to:

(a)

all Members holding Shares with the right to receive notice and who have supplied to the Company an address, facsimile number or email address for the giving of notices to them; and

(b)

every Person entitled to a Share in consequence of the death or bankruptcy of a Member, who but for his death or bankruptcy would be entitled to receive notice of the meeting.

No other Person shall be entitled to receive notices of general meetings.

37.

Winding Up

37.1

The Board shall have the power in the name and on behalf of the Company to present a petition to the court for the Company to be wound up.

37.2

If the Company is wound up, the liquidator may, with the sanction of a Special Resolution and any other sanction required by the Law, divide among the Members in specie the whole or any part of the assets of the Company and may, for that purpose, value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of the assets in trustees upon such trusts for the benefit of the Members as he with the like sanction determines, but no Member shall be compelled to accept any assets upon which there is a liability.

37.3

If the Company shall be wound up and the assets available for distribution amongst the Members as such shall be insufficient to repay the whole of the paid up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up, on the shares held by them respectively. If in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst the Members in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. This Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions.

38.

Indemnity

38.1

Every Indemnified Person for the time being and from time to time of the Company and the personal representatives of the same shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, expenses, losses, damages, 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 him otherwise than by reason of his own dishonesty, willful default or fraud in or about the conduct of the 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 Losses incurred by him in defending or investigating (whether successfully or otherwise) any civil, criminal, investigative and administrative proceedings concerning or in any way related to the Company or its affairs in any court whether in the Islands or elsewhere. Such Losses incurred in defending or investigating any such proceeding shall be paid by the Company as they are incurred upon receipt, in each case, of an undertaking by or on behalf of the Indemnified Person to repay such amounts if it is ultimately determined by a non-appealable order of a court of competent jurisdiction that such Indemnified Person is not entitled to indemnification hereunder with respect thereto.

38.2

No such Indemnified Person of the Company and the personal representatives of the same shall be liable (i) for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company or (ii) by reason of his having joined in any receipt for money not received by him personally or in any other act to which he was not a direct party for conformity or (iii) for any loss on account of defect of title to any property of the Company or (iv) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (v) for any loss incurred through any bank, broker or other agent or any other party with whom any of the Company’s property may be deposited or (vi) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities or discretions of his office or in relation thereto or (vii) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Person’s part, unless he has acted dishonestly, with willful default or through fraud.

38.3

The Company hereby acknowledges that certain Indemnified Persons may have certain rights to indemnification, advancement of expenses and/or insurance from or against (other than directors’ and officers’ or similar insurance obtained or maintained by or on behalf of the Company or any of its subsidiaries, including any such insurance obtained or maintained pursuant to Article 38.4 hereof) Other Indemnitors. The Company hereby agrees that: (i) it is the indemnitor of first resort (i.e., its obligations to an Indemnified Person are primary and any obligation of any Other Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Indemnified Person are secondary); (ii) it shall be required to advance the full amount of expenses incurred by an Indemnified Person and shall be liable for the full amount of all Losses to the extent legally permitted and as required by the terms of these Articles (or any other agreement between the Company and an Indemnified Person) without regard to any rights an Indemnified Person may have against any Other Indemnitors; and (iii) it irrevocably waives, relinquishes and releases any Other Indemnitors from any and all claims against the Other Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by any Other Indemnitors on behalf of an Indemnified Person with respect to any claim for which such Indemnified Person has sought indemnification from the Company shall affect the foregoing, and without prejudice to Article 39 below, Other Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Indemnified Person against the Company. For the avoidance of doubt, no Person or entity providing Directors’ or officers’ or similar insurance obtained or maintained by or on behalf of the Company or any of its subsidiaries, including any Person providing such insurance obtained or maintained pursuant to Article 38.4 hereof, shall be an Other Indemnitor.

38.4

The Directors may exercise all the powers of the Company to purchase and maintain insurance for the benefit of a Person who is or was (whether or not the Company would have the power to indemnify such Person against such liability under the provisions of this Article 38 or under applicable law): (a) a Director, alternate Director, Secretary or auditor of the Company or of a company which is or was a subsidiary of the Company or in which the Company has or had an interest (whether direct or indirect); or (b) the trustee of a retirement benefits scheme or other trust in which a person referred to in Article 38.1 is or has been interested, indemnifying him against any liability which may lawfully be insured against by the Company.

39.

Claims Against the Company

Notwithstanding Article 38.3, unless otherwise determined by a majority of the Board, in the event that (i) any Member (the “ Claiming Party ”) initiates or asserts any claim or counterclaim (“ Claim ”) or joins, offers substantial assistance to or has a direct financial interest in any Claim against the Company and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not obtain a judgment on the merits in which the Claiming Party prevails, then each Claiming Party shall, to the fullest extent permissible by law, be obligated jointly and severally to reimburse the Company for all fees, costs and expenses (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses) that the Company may incur in connection with such Claim.

40.

Untraceable Members

40.1

Without prejudice to the rights of the Company under Article 40.2, the Company may cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two (2) consecutive occasions. However, the Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered.

40.2

The Company shall have the power to sell, in such manner as the Board thinks fit, any shares of a Member who is untraceable, but no such sale shall be made unless:

(a)

all cheques or warrants in respect of dividends of the shares in question, being not less than three (3) in total number, for any sum payable in cash to the holder of such shares in respect of them sent during the relevant period in the manner authorised by the Articles of the Company have remained uncashed;

(b)

so far as it is aware at the end of the relevant period, the Company has not at any time during the relevant period received any indication of the existence of the Member who is the holder of such shares or of a person entitled to such shares by death, bankruptcy or operation of law; and

(c)

the Company, if so required by the rules governing the listing of shares on the Designated Stock Exchange, has given notice to, and caused advertisement in newspapers to be made in accordance with the requirements of, the Designated Stock Exchange of its intention to sell such shares in the manner required by the Designated Stock Exchange, and a period of three (3) months or such shorter period as may be allowed by the Designated Stock Exchange has elapsed since the date of such advertisement.

For the purposes of the foregoing, the “relevant period” means the period commencing twelve (12) years before the date of publication of the advertisement referred to in this Article 40.2 and ending at the expiry of the period referred to in that paragraph.

40.3

To give effect to any such sale the Board may authorise some person to transfer the said shares and an instrument of transfer signed or otherwise executed by or on behalf of such persons shall be as effective as if it had been executed by the registered holder or the person entitled by transmission to such shares, and the purchaser shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. The net proceeds of the sale will belong to the Company and upon receipt by the Company of such net proceeds it shall become indebted to the former Member for an amount equal to such net proceeds. No trust shall be created in respect of such debt and no interest shall be payable in respect of it and the Company shall not be required to account for any money earned from the net proceeds which may be employed in the business of the Company or as it thinks fit. Any sale under this Article shall be valid and effective notwithstanding that the Member holding the shares sold is dead, bankruptcy or otherwise under any legal disability or incapacity.

41.

Amendment of Memorandum and Articles

41.1

Subject to the Law, the Company may by Special Resolution change its name or change the provisions of the Memorandum with respect to its objects, powers or any other matter specified therein.

41.2

Subject to the Law and as provided in these Articles, the Company may at any time and from time to time by Special Resolution, alter or amend these Articles in whole or in part.

42.

Transfer by way of Continuation

The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company.

Exhibit 5.1

LOGO

9 January 2018

Matter No. 709918

Doc Ref:12815518

PagSeguro Digital Ltd.

Av. Brigadeiro Faria Lima, 1384

4º andar, parte A

São Paulo, SP, 01451-001

Brazil

Dear Sirs,

Re: PagSeguro Digital Ltd. (the “Company”)

We have acted as special Cayman Islands legal counsel to the Company in connection with a registration statement on Form F-1, including all amendments or supplements thereto (the “ Registration Statement ”, which term does not include any other document or agreement whether or not specifically referred to therein or attached as an exhibit or schedule thereto), originally filed with the U.S. Securities and Exchange Commission (the “ Commission ”) on 26 December 2017 under the U.S. Securities Act of 1933, as amended (the “ Securities Act ”) of an aggregate of up to 92,105,263 of the Company’s Class A common shares (the “ Shares ”), of which up to 43,289,474 are being offered by the Company and up to 48,815,789 (the “ Issued Shares ”) are being offered by Universo Online S.A. (the “ Selling Shareholder ”).

For the purposes of giving this opinion, we have examined a copy of the Registration Statement. We have also reviewed (i) the memorandum of association and the articles of association of the Company adopted on 19 July 2017 and which were in effect immediately prior to the effectiveness of the Amended M&A (as defined below); (ii) the amended and restated memorandum and articles of association of the Company adopted by shareholder resolution dated 4 January 2018 (the “ Amended M&A ”); (iii) written resolutions of the Company’s directors dated 18 December 2017, 4 January 2018 and 8 January 2018 and written resolutions of its sole shareholder dated 18 December 2017, 4 January 2018 and 8 January 2018 (together, the “ Resolutions ”); (iv) a draft of an underwriting agreement in the form filed as Exhibit 1.1 to the Registration Statement to be made by and among the Company, the underwriters referred to therein and the Selling Shareholder (the “ Underwriting Agreement ”); (v) a copy of the register of members of the Company certified by the secretary of the Company on 5 January 2018; (vi) a Certificate of Good Standing issued by the Registrar of Companies in relation to the Company on 4 January 2018 (the “ Certificate Date ”); and (vii) such other documents and made such enquiries as to questions of law as we have deemed necessary in order to render the opinion set forth below.

We have assumed (a) the genuineness and authenticity of all signatures and the conformity to the originals of all copies (whether or not certified) examined by us and the authenticity and completeness of the originals from which such copies were taken; (b) that where a document has been examined by us in draft form (including the Underwriting Agreement), it will be or has been executed and/or filed in the form of that draft, and where a number of drafts of a document have been examined by us all changes thereto have been marked or otherwise drawn to our attention; (c) the accuracy and completeness of all factual representations made in the Registration Statement and other documents reviewed by us, other than those dealing with matters of Cayman Islands law; (d) that the Resolutions were passed at one or more duly convened, constituted and quorate meetings, or by unanimous written resolutions, in compliance with the Company’s memorandum and articles of association in effect at the time and remain in full force and effect and have not been rescinded or amended; (e) that there is no provision of the law of any jurisdiction, other than the Cayman Islands, which would have any implication in relation to the opinions expressed herein; and (f) that upon issue of any shares to be sold by the Company the Company will receive consideration for the full issue price thereof which shall be at least equal to the par value thereof.

We have made no investigation of and express no opinion in relation to the laws of any jurisdiction other than the Cayman Islands. This opinion is to be governed by and construed in accordance with the laws of the Cayman Islands and is limited to and is given on the basis of the current law and practice in the Cayman Islands. This opinion is issued solely for the purposes of the filing of the Registration Statement and the offering of the Shares by the Company and the Issued Shares by the Selling Shareholder and is not to be relied upon in respect of any other matter.

On the basis of and subject to the foregoing, we are of the opinion that:

The Company is duly incorporated and existing under the laws of the Cayman Islands and, based on the Certificate of Good Standing, is in good standing as at the Certificate Date (meaning solely that it has not failed to make any filing with any Cayman Islands government authority or to pay any Cayman Islands government fee which would make it liable to be struck off the Register of Companies and thereby cease to exist under the laws of the Cayman Islands).

The Shares have been duly authorized and, when the Shares have been issued and delivered by the Company, recorded in the register of members of the Company and paid for as described in the Registration Statement and the Underwriting Agreement, the Shares will be legally issued, fully paid and non-assessable (which term when used herein means that no further sums are required to be paid by the holders thereof in connection with the issue of such shares).

When transferred by the Selling Shareholder, the transfer thereof recorded in the register of members of the Company and paid for as described in the Registration Statement and the Underwriting Agreement the Issued Shares (which shares are presently Class B common shares and, prior to the Closing Date (as defined in the Underwriting Agreement) are to be converted into Class A common shares by the Selling Shareholder in accordance with the Amended M&A) will remain legally issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to our firm under the captions “Validity of Securities” and “Enforceability of Civil Liabilities” and elsewhere in the prospectus forming a part of the Registration Statement. In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission promulgated thereunder.

Yours faithfully,

/s/ Conyers Dill & Pearman

Conyers Dill & Pearman

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Pre-Effective Amendment No.1 to the Registration Statement on Form F-1 of Pagseguro Digital Ltd. of our report dated December 22, 2017 relating to the financial statements of Pagseguro Internet S.A., which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers

Auditores Independentes

São Paulo, Brazil

January 9, 2018

Exhibit 23.3

Consent of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados

January 8, 2018

Ladies and Gentlemen:

We hereby consent to the reference to our name by PagSeguro Digital Ltd. (the “Company”) under the headings “Validity of Securities” and “Enforceability of Civil Liabilities” and elsewhere in the prospectus included in the pre-effective amendment No.1 to the Registration Statement on Form F-1 of the Company.

Very truly yours,

/ S / V ANESSA F IUSA

Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados