Capped Call Transactions
On August 21, 2018, MercadoLibre entered into capped call transactions with Goldman Sachs & Co. LLC, JPMorgan Chase Bank, National Association,
London Branch, Morgan Stanley & Co. LLC, Bank of America, N.A. and Deutsche Bank AG, London Branch, having an expiration date of August 21, 2023 (collectively, the Counterparties and such transactions, the Capped Call
Transactions). The Capped Call Transactions have an initial strike price that approximately corresponds to the initial conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the
Notes, and initially have a cap price of 100% above the $328.45 per share closing price of MercadoLibres common stock on August 21, 2018. The Capped Call Transactions cover, subject to anti-dilution adjustments, the same number of shares
of MercadoLibres common stock initially underlying the Notes. If the Initial Purchasers exercise their option to purchase additional Notes, MercadoLibre expects to enter into additional capped call transactions with the Counterparties. In
addition, to the extent the Notes remain outstanding at the expiration of the Capped Call Transactions, MercadoLibre may seek to extend the expiration of these Capped Call Transactions or enter into new capped call transactions.
The Capped Call Transactions are expected generally to reduce potential dilution to MercadoLibres common stock upon any conversion of the Notes prior to
the expiration date of the Capped Call Transactions and/or offset any cash payments MercadoLibre is required to make in excess of the principal amount of any such converted Notes, as the case may be, in the event that the market price per share of
MercadoLibres common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions as adjusted pursuant to the anti-dilution adjustments. If, however, the market price per
share of MercadoLibres common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution and/or there would not be an offset of such potential
cash payments, in each case, upon exercise of the options that are a part of the Capped Call Transactions to the extent that such market price exceeds the cap price of the Capped Call Transactions. In addition, to the extent any observation period
for any converted Notes does not correspond to the period during which the market price of MercadoLibres common stock is measured under the terms of the Capped Call Transactions, there could also be dilution and/or a reduced offset of any such
cash payments as a result of the different measurement periods.
MercadoLibre has been advised that, in connection with establishing their initial hedges
of the Capped Call Transactions, the Counterparties or their respective affiliates have entered into various derivative transactions with respect to MercadoLibres common stock concurrently with, or shortly after, the pricing of the Notes. This
activity could increase (or reduce the size of any decrease in) the market price of MercadoLibres common stock or the Notes at that time.
In
addition, MercadoLibre has been advised that the Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to MercadoLibres common stock and/or
purchasing or selling MercadoLibres common stock or other securities of MercadoLibre in secondary market transactions following the pricing of the Notes and prior to the final settlement of the Capped Call Transactions. This activity could
also cause or avoid an increase or a decrease in the market price of MercadoLibres common stock or the Notes, which could affect the ability of holders of the Notes to convert the Notes and, to the extent the activity occurs during any
observation period related to a conversion of Notes, it could affect the number of shares and value of the consideration that holders of the Notes will receive upon conversion of the Notes.
The options MercadoLibre holds under the Capped Call Transactions will be exercised on their expiration date, and in the event MercadoLibre repurchases,
exchanges or redeems any Notes or any Notes are converted prior to the relevant valuation period under the Capped Call Transactions, a corresponding portion of the Capped Call Transactions may be terminated at MercadoLibres option. Upon such
termination, MercadoLibre expects to receive from the Counterparties either a number of shares of MercadoLibres common stock with an aggregate market value equal to, or an amount of cash equal to, the value of the Capped Call Transactions or
portion thereof, as the case may be, being early terminated, subject to the terms of the Capped Call Transactions. MercadoLibre has been advised that the Counterparties or their respective affiliates, in order to unwind their hedge positions with
respect to those exercised or terminated options, are likely to buy or sell shares of MercadoLibres common stock or other securities or instruments of MercadoLibre, including the Notes, in secondary market transactions or unwind various
derivative transactions with respect to such common stock during the relevant valuation period under the Capped Call Transactions, which may correspond to any observation period for any converted Notes. These unwind activities could have the effect
of increasing or decreasing the trading price of MercadoLibres common stock and, to the extent the activity occurs during any observation period related to a conversion of Notes, could have the effect of increasing or reducing the value of the
consideration that holders of the Notes will receive upon conversion of the Notes.
The Capped Call Transactions are separate transactions entered into by
and between MercadoLibre and the Counterparties and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to Capped Call Transactions.
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