a. Capital
As deliberated upon by the Administrative Council, regardless of the statutory reform, the Company is authorized to increase its capital by up to 2,500,000,000 (two billion and five hundred million) common or preferred shares.

The Shareholders’ Meeting held on April 11, 2008 approved a capital increase in the amount of R$63,085, with the issuance of 3,359,308 common shares and 6,503,066 preferred shares, with no par value, on behalf of TIM Brasil. This capital increase used the tax benefit produced by goodwill amortization and the Company’s spin-off. Minority shareholders were assured capitalization rights based on the same conditions applicable to majority shareholders, so that they may keep their minority interests. The subscription price was R$7.59 per common share and R$5.78 per preferred share.

The Shareholders’ Meeting held on April 2, 2009 approved a capital increase in the amount of R$18,761, with the issuance of 1,573,828 common shares and 3,046,671 preferred shares, with no par value, on behalf of TIM Brasil. This capital increase used the tax benefit produced by goodwill amortization and the Company’s spin-off. Minority shareholders were assured capitalization rights based on the same conditions applicable to majority shareholders, so that they may keep their minority interests. The subscription price was R$6.12 per common share and R$3.00 per preferred share.

The Shareholders’ Meeting held on December 30, 2009, following the merger of HOLDCO (Note 2b), approved a capital increase in the amount of R$516,725, with the issuance of 43,356,672 common shares and 83,931,352 preferred shares, with no par value. The shares were issued by the Company and subscribed on behalf of JVCO.

The Capital subscribed and paid-in comprises shares without par value, thus distributed:

	2009	2008
Number of common shares	843,281,477	798,350,977
Number of preferred shares	1,632,453,583	1,545,475,560
	2,475,735,060	2,343,826,537

b. Capital reserves
Special Goodwill Reserve

This reserve was set up during the corporate reorganization process in 2000. The portion of the special reserve corresponding to the tax benefit obtained may be capitalized at the end of each fiscal year for the benefit of the controlling shareholder, through issuance of new shares. The respective capital increase will be subject to preemptive rights of the minority shareholders, in proportion to their shareholdings, by type and class upon the new issuance, and the amounts payable during the year in connection with this right must be delivered directly to the controlling shareholder, in accordance with Instruction No. 319/99 of the Brazilian Securities Commission (CVM).

c. Revenue reserves
Legal Reserve

This refers to the 5% (five percent) of net income for every year ended December 31 to be appropriated to the legal reserve, which should not exceed 20% (twenty percent) of capital. Also, the Company is not authorized to set up a legal reserve when it exceeds 30% (thirty percent) of capital plus capital reserves. This reserve can be used only for capital increase or compensation of accumulated losses.

Reserve for Expansion

This reserve, which is set up based on paragraph 2, article 46 of the by-laws and article 194 of Law 6.404/76, is intended to fund investment and network expansion projects.

d. Dividends
Dividends are calculated in accordance with the Company’s by-laws and the Brazilian Corporate Law (“Lei das Sociedades por Ações”).

As stipulated in its by-laws, the Company shall distribute an amount equivalent to 25% of adjusted net income as minimum dividend every year ended December 31, provided there are funds available for distribution.

Preferred shares are nonvoting but take priority on: (i) the payment of capital at no premium, and (ii) payment of a minimum non cumulative dividend of 6% p.a. on the total obtained from dividing the capital stock representing this type of shares by the total number of the same class of shares issued by the Company.

In order to comply with Law 10.303/01, the Company’s by-laws were amended, including the First Paragraph of Section 10, which ensures the holders of preferred shares, every year, the right to receive stock dividends corresponding to 3% (three percent) of net earnings per share, based on the balance sheet most recently approved, whenever the dividend established according to this criterion exceeds the dividend calculated according to the criteria previously established, described in the preceding paragraph.

Dividends were calculated as follows:

	2009	2008
Capital common shares	2,775,734	2,593,337
Capital preferred shares	5,373,362	5,020,273
Capital	8,149,096	7,613,610
Dividends: 6% for preferred shares according to by-laws	322,402	301,216
Net income for the year	214,893	180,152
(-) Recognition of legal reserve	(10,744)	(9,008)
Adjusted net income	204,149	171,144
Minimum dividends to preferred shareholders
Minimum dividends based on 25% of adjusted income	51,037	42,786
(+)Supplementary dividends to income distributed	153,112	128,358
(=)Dividends referring to income distribution (all to preferred shareholders)	204,149	171,144
Dividends per share (amounts expressed in reais)
Preferred shares	0.1251	0.1107

According to the Company’s by-laws, minimum compulsory noncumulative dividends, calculated based on 6% of capital stock, should be R$322,402. However, management proposed to distribute available profits referring to the year ended December 31, 2009 as dividends to preferred shareholders.

At December 31, 2009, the balance of dividends and interest on equity payable includes prior years’ amounts totaling R$20,503 (R$22,221 in 2008) in the Company’s and consolidated financial statements.

Dividends proposed in previous years and not actually claimed by shareholders were reversed, once the legal period has lapsed pursuant to Brazilian legislation, to the expansion reserve account under shareholders’ equity, with R$9,643 referring to 2008 and R$4,790 to 2009.