NOTICE TO SHAREHOLDERS

NOTICE TO SHAREHOLDERS 5 TH ISSUE OF CONVERTIBLE OR EXCHANGEABLE DEBENTURES METALÚRGICA GERDAU S.A. ( Company or Issuer ) (BM&FBOVESPA: GOAU), pursuant to Article 157, Paragraph 4 of Federal Law 6,404 of December 15, 1976, as amended ( Brazilian Corporations Law ) and Instruction 358 issued by the Securities and Exchange Commission of Brazil ) on January 3, 2002 ( CVM Instruction 358 ), announces to its shareholders and the general market that the Extraordinary Shareholders' Meeting held on July 7, 2016 ( ESM ) approved the Fifth Private Issue of Unsecured Convertible or Exchangeable Debentures, in a Single Series, for Private Placement, of the Company ( Debentures and Issue, respectively), for private placement, in the aggregate amount, on the Issue Date (as defined herein), of up to four hundred and fifty million reais (R$450,000,000.00), in accordance with the minutes of the ESM and the Private Indenture of the Fifth Private Issue of Unsecured Convertible or Exchangeable Debentures, in a Single Series, for Private Placement, of Metalúrgica Gerdau S.A. ("Issue Indenture"). Oliveira Trust Distribuidora de Títulos e Valores Mobiliários S.A., a financial institution with headquarters in the City of Rio de Janeiro, State of Rio de Janeiro, at Avenida das Américas nº 500, Bloco 13, grupo 205, Barra da Tijuca, CEP 22640-100, registered in the roll of Corporate Taxpayers (CNPJ/MF) under no. 36.113.876/0001-91, in the capacity of trustee ( Trustee ), shall represent the collective holders of the Debentures ( Debenture Holders ). We hereby clarify that all terms defined in this Notice to Shareholders are also defined in the Issue Indenture, which is available in the full version on the website of the Company (ri.gerdau.com/), on the website of the Trustee (www.oliveiratrust.com.br), and on the websites of the CVM and of the BM&FBOVESPA S.A. - Securities, Commodities and Futures Exchange ( BM&FBOVESPA ). The Issue shall observe the following terms and conditions: I. Characteristics of the Debentures: 1. Total Issue Amount: The total amount of the issue is up to four hundred and fifty million reais (R$450,000,000.00) on the Issue Date ( Total Issue Amount ). The minimum amount of the Issue, to be mandatorily subscribed to and paid up, shall be one hundred and fifty million reais (R$150,000,000.00) ( Minimum Amount ), therefore, the partial placement of the Debentures in an amount below the Minimum Amount is prohibited, observing the provisions of item II below. 2. Series: The Debentures shall be issued in a single series. 3. Number of debentures: Up to four million, five hundred thousand (4,500,000) Debentures, observing the possibility of the partial placement of the Debentures. 4. Unit Face Value: The Debentures shall have unit face value of one hundred reais (R$100.00) on the Issue Date ( Unit Face Value ). 5. Use of Proceeds: The Company shall use 100% of the net proceeds from the Debentures as follows: (i) approximately 88% of the net proceeds shall be used to amortize, pay interest and/or

settle, as applicable, short-term debt liabilities; (ii) approximately 12% of the net proceeds shall be used to strengthen the cash position. In the event that the Total Issue Amount is not achieved, the net proceeds shall be used primarily (without necessarily observing the above percentages) or even fully, at the sole discretion of the Company, to amortize, pay interest and/or settle, as applicable, short-term debt liabilities. 6. Form and Ownership: The Debentures shall be registered and book-entry, without issue of certificates or provisory certificates, and, for all legal purposes, the ownership of the Debentures may be demonstrated by the statement of the deposit account issued by the Transfer Agent (as defined herein), and, additionally, by BM&FBOVESPA. 7. Type: The Debentures shall be of the unsecured type. 8. Issue Date: For all legal purposes, the issue date of the Debentures shall be August 9, 2016, which corresponds to the last day of the Preemptive Rights Exercise Period (as defined herein) ( Issue Date ). 9. Subscription, Payment and Form of Payment: The Debentures shall be privately subscribed to and paid up at sight, in local currency, at their Unit Face Value, plus the Debenture Remuneration (as defined in Clause 6.11.1 of the Issue Indenture), calculated pro rata temporis as from the Issue Date until their effective subscription and payment. The Debentures must be paid up (i) if subscribed through the exercise of Preemptive Rights (as defined herein), on the Issue Date; (ii) if subscribed through the First Apportionment (as defined herein), on August 18, 2016; (iii) if subscribed through the Second Apportionment (as defined herein), on August 29, 2016; and (iv) the subscription of Debentures through any Auction of Unsubscribed Debentures (as defined herein), on the settlement date of the Auction of Unsubscribed Debentures. 9.1 Subscription to the Debentures shall take place (i) through the procedures established by the BM&FBOVESPA, if the subscribing Shareholders (as defined herein) own Shares held in custody at BM&FBOVESPA and the Debentures are subscribed to by Shareholders as a result of the exercise of Preemptive Rights, in the Apportionments of Unsubscribed Debentures (as defined herein) and in any Auction of Unsubscribed Debentures; or (ii) through the procedures established by the Transfer Agent, for the other cases. 10. Placement and Trading: The Debentures shall be the subject-matter of a private placement, without the intermediation of institutions that are members of the securities distribution system and/or any sales efforts involving indeterminate investors. 10.1 The partial placement of the Debentures is permitted, provided the total subscription and payment, in connection with the exercise of preemptive rights, of the Apportionments of Unsubscribed Debentures and of the Auction of Unsubscribed Debentures, if any, attain the Minimum Amount, with any unsubscribed balance then canceled and the Issue Indenture amended without the need to convene a general meeting of Debenture Holders. 10.2 The Debentures shall be accepted for trading in the secondary market (over-thecounter market) through the PUMA Trading System Plataforma Unificada de Multi Ativos of BM&FBOVESPA ( PUMA ) and electronically held in custody by BM&FBOVESPA. 10.3 The Debentures shall be traded in the over-the-counter market on PUMA as of the business day immediately subsequent to the last day for payment of the Debentures. 11. Term and Maturity Date: The Debentures shall have a term of three (3) years, as from the Issue Date, therefore maturing on August 9, 2019 ( Maturity Date ).

12. Scheduled Renegotiation: There shall be no scheduled renegotiations. 13. Early Maturity: The Trustee may declare the early maturity of the obligations arising from the Debentures, and demand immediate payment, by the Company, of the outstanding balance of the Unit Face Value of the Debentures, plus the Remuneration, calculated pro rate temporis as from the Issue Date or the Remuneration payment date immediately prior, as applicable, until the effective payment date, without prejudice, as applicable, of Interest on Arrears, in the event of any of the cases provided for in Articles 333 and 1,425 of Federal Law 10,406, of January 10, 2002, as amended ( Brazilian Civil Code ), and/or any of the following events (each event, a Default Event ): a) failure to pay or remit, upon maturity, any payment by the Company and that is not remedied within five (5) business days by the Company; b) failure to comply or violation, by the Company, of any term, covenant, agreement or obligation stipulated in the Issue Indenture that is not remedied within five (5) business days by the Company; c) provision, whether directly or through agents, of incomplete, false or tampered information, including through public or private documents of any nature, or the disclosure of information by the Company directly or through agents that, if known by the Debenture Holders, could have changed their judgment with regard to the Issue; d) if the Company, its subsidiaries, parent companies and related companies or parties incur late payments or fail to comply with the terms of one or more agreements or instruments entered into (1) with the Debenture Holders representing fifty-one percent (51%) of the Debentures, their subsidiaries, controlling shareholders and related companies or parties, regardless of the amount involved, that is not remedied within five (5) business days, observing any remediation period provided in such agreement or instrument; or (2) in another operation with third parties that amount to, individually or in aggregate, an amount equal to or greater than three hundred and fifty million reais (R$350,000,000.00); the declaration of early maturity of any debt liability of the Company, whose individual or aggregate amount is equal to or greater than three hundred and fifty million reais (R$350,000,000.00); f) the assignment, pledge to assign or any other form of transfer or promise to transfer to third parties, in full or part, by the Company, of any of its obligations under the Issue Indenture, except as previously authorized by the Debenture Holders representing a minimum of ninety percent (90%) of the Outstanding Debentures; g) if the Company, Gerdau (as defined herein) or any of their respective controlling shareholders (1) file for court-supervised reorganization or bankruptcy, or (2) declare their bankruptcy, court-supervised or extrajudicial liquidation, dissolution or civil insolvency, or (3) for any reason, terminate their activities or are subject to intervention, court-supervised or extrajudicial liquidation; h) if the Company ceases to validly and legally exist in accordance with the laws of the place where it is incorporated (for reasons other than consolidation, merger or spinoff); i) protest of notes against the Company and/or inclusion of the Company in the Central Bank s Credit Information System for liabilities amounting to, individually or in aggregate, an amount equal to or greater than three hundred and fifty million reais (R$350,000,000.00), except when such protest (i) was made by error or bad-faith of

third parties, provided this is duly substantiated by the Company; (ii) is canceled; (iii) is paid in a timely manner to remedy the delay; and (iv) is the subject of a court order to stop payment or court deposit, in any case for at most fifteen (15) calendar days as from its occurrence; j) if the Company is the subject of a final and unappealable sentence in the individual or aggregate amount of more than one hundred and fifty million reais (R$150,000,000.00) that, at the discretion of the Debenture Holders gathered in a General Meeting of Debenture Holders, could put at risk compliance with the obligations assumed by the Company under the Issue Indenture; k) if (a) any change occurs in existing laws or regulations, (b) the sanctioning of any applicable law or regulation or (c) any change in the interpretation, by any judge, court or regulatory authority with jurisdiction, of any applicable law or regulation after the Issue that makes it illegal for the Company to comply with any obligation assumed under the Issue; l) if the Company or any of its controlling shareholders undergo structural changes, such as a capital reduction or ownership restructuring that results in a significant change in the ownership structure and that, in the good-faith understanding of the Debenture Holders gathered in a general meeting of Debenture Holders, could lead to a breach of the obligations assumed by the Company under the Issue Indenture; m) the transfer or change in the direct or indirect control of the Company, at any time until the full compliance with all obligations assumed under the Issue, in which case control shall be construed as defined in Article 116 of Federal Law 6,404 of December 15, 1976, as amended; and n) if the Company sells, assigns, gives, burdens, contributes to the capital stock or transfers in any way (including through consolidation, merger, spin-off or any other form of ownership restructuring) and even if under conditions precedent, goods, assets or rights owned thereby in the individual or aggregate amount of more than five hundred million reais (R$500,000,000.00), with the exception of the sale, assignment, giving, encumbrance, contribution to the capital stock or transfer of any nature of (1) Gerdau preferred shares held by the Company; or (2) voting shares in Gerdau held by the Company, provided that the Company continues to hold a minimum of fifty percent (50%) plus one share of the voting capital of Gerdau without any encumbrance that, on the Issue Date, for reference purposes, represent two hundred eighty-six million, eight hundred thirteen thousand, seven hundred forty-two (286,813,742) common shares in Gerdau. The following operations, regardless of their amount, are hereby permitted: (A) any transfer of assets or ownership restructuring (i) between the Company and any of its subsidiaries, or (ii) exclusively among its subsidiaries; or (B) the sale, assignment, giving, encumbrance, contribution to the capital stock or transfer of any nature of any shares issued by the Company that the Company holds in treasury, observing the applicable regulations; or (C) the encumbrance of goods and assets as guarantee for debts taken by the Company or its subsidiaries in connection with loan operations in the normal course of its business. Upon occurrence of any Default Events that are not remedied within the applicable remediation period, the Trustee shall call a general meeting of debenture holders, so that the Debenture Holders may consider and vote on declaring the early maturity of the Debentures, in accordance with the Issue Indenture.

14. Optional Early Redemption: Not applicable. 15. Inflation Adjustment and Remuneration: The Unit Face Value of the Debentures shall not be subjected to inflation adjustment. The outstanding balance of the Unit Face Value of the Debentures shall pay a coupon rate corresponding to eighty-five percent (85.00%) of the cumulative variation in the average daily rates of the one-day overnight rate (Interbank Deposit DI), over extra group, expressed as a percentage per annum, based on two hundred and fiftytwo (252) business days, as calculated and published daily by CETIP S.A. Mercados Organizados ( CETIP ), in the daily notice made available on its website (http://www.cetip.com.br) ( DI Rate ) ( Remuneration ), calculated exponentially and cumulatively pro rata temporis based on the number of business days transpired between the Issue Date or the Remuneration payment date immediately prior, as applicable, and the effective payment date. Without prejudice to payments arising from the conversion or exchange of the Debentures into shares or the early maturity of the obligations arising from the Debentures, pursuant to the Issue Indenture, the Remuneration shall be paid semiannually as from the Issue Date, on the ninth (9 th ) day of February and August of each year, with the first payment to be made on February 9, 2017 and the last on the Maturity Date. The Remuneration also shall be due in cases of Conversion into Share Lots or Share Exchange, in accordance with the Issue Indenture, in which cases it shall be paid pro rata temporis until the Debenture Conversion Date or Debenture Exchange Date. The Remuneration shall be calculated in accordance with the following formula: [J = VNe x (FactorDI 1)] Where: J = the unit value of the Remuneration due, calculated to eight (8) decimal places, with no rounding; VNe = the outstanding balance of Unit Face Value of the Debentures, informed/calculated to eight (8) decimal places, with no rounding; FactorDI = multiplication of the DI Rates using the percentage applied, from the Issue Date or the Remuneration payment date immediately prior, as applicable, inclusive, until the calculation date, exclusive, calculated to eight (8) decimal places, with rounding, as follows: Factor DI TDI Where: S n = DI 1 + k k = 1 100 k = the order number of TDIk, ranging from one (1) to ndi; ndi = the total number of DI-Over Rates, where ndi is a whole number; S = 85.0000; TDIk = factor of the DI-Over Rate, expressed per day, calculated to eight (8) decimal places, with rounding, as follows: TDI k Where: DI k = + 1 100 1 252 1 DIk = the DI-Over Rate, as published by CETIP, valid for one (1) business day (overnight rate), using two (2) decimal places.

Notes: The factor resulting from the expression is considered to sixteen (16) decimal places with no rounding. Multiplication of the daily factors where, for each cumulative daily factor, the result is truncated up to sixteen (16) decimal places, by applying the next daily factor, and so on until the last one considered. Once the factors are accumulated, the resulting FactorDI is considered up to eight (8) decimal places, with rounding. The DI Rate shall be used considering the identical number of decimal places as disclosed by the entity responsible for its calculation, except when expressly indicated otherwise. 16. Payment Date and Place: Payments due in connection with the Debentures and any other amount due by the Issuer under the Issue Indenture shall be made through (i) the procedures adopted by BM&FBOVESPA for Debentures held in custody at BM&FBOVESPA, or (ii) the procedures adopted by the Transfer Agent for Debentures not held in custody at BM&FBOVESPA. 16.1 If the Issuer is prevented from making any payment due to the Debenture Holders, due to any inaccurate or outdated information of the Debenture Holder registered at the Transfer Agent of the Debentures, no late fee or damages shall be due to the Debenture Holder, although the latter shall be entitled to receive the Remuneration due as from the date of the financial obligation in default because of the provisions herein until the effective payment date. 17. Debenture Trustee: Oliveira Trust Distribuidora de Títulos e Valores Mobiliários S.A. 18. Agent Bank and Transfer Agent: The agent bank and transfer agent of the Debentures of this Issue shall be, respectively, (i) Itaú Unibanco S.A. a financial institution with headquarters at Praça Alfredo Egydio de Souza Aranha, n.º 100, in the City and State of São Paulo, and (ii) Itaú Corretora de Valores S.A. a securities broker with headquarters at Avenida Brigadeiro Faria Lima, nº 3400, 10º andar, in the City and State of São Paulo ( Agent Bank and Transfer Agent, respectively). 19. Convertibility: The Debentures, provided they have been duly paid up, may be converted into lots of shares composed of one (1) common share and two (2) preferred shares issued by the Company ( Share Lots ), at the sole discretion of the Debenture Holders, at any time as from the Issue Date until the limit date of five (5) business days prior to the Maturity Date of the Debentures, except on the dates of general meetings of shareholders of the Company ( Conversion Rights Exercise Period ), observing the procedures for exercising the conversion rights below ( Conversion into Share Lots ). 19.1 The shares issued by the Company resulting from the conversion of the Debentures (i) shall have the same characteristics and conditions and fully enjoy the same rights and advantages attributed by the Bylaws now or in the future to the shares issued by the Company, and (ii) entitle their holders to the distribution of profits, including any dividends and interest on equity declared as from the date of the Conversion Request Notice (as defined herein).

19.2 The capital increase of the Issuer arising from the conversion of Debentures into Share Lots (i) shall be ratified by the Board of Directors of the Issuer within thirty (30) days as from the respective Debenture Conversion Date (as defined herein), observing the provisions in Item III and Paragraph One of Article 166 of Brazilian Corporation Law, and (ii) shall not entitle preemptive rights to Shareholders, in accordance with Article 171, Paragraph 3 of Brazilian Corporation Law. 19.3 Procedures for Exercise of Conversion Rights. Debenture Holders wishing to convert their Debentures into Share Lots shall, during the Conversion Rights Exercise Period, express their intention by submitting a letter requesting the conversion, in accordance with the template in Appendix I to the Issue Indenture ( Conversion Request Notice ), (i) to their custody agent, if the Debentures owned thereby are held in custody at the BM&FBOVESPA or (ii) to the Transfer Agent, if the Debentures owned thereby are not held in custody at the BM&FBOVESPA. 19.3.1 Debenture Holders may convert all or part of the Debentures they hold, at their sole discretion, and shall inform the number of Debentures they wish to convert in the Conversion Request Notice, observing that the Unit Face Value of the Debentures may not be fractioned by the Debenture Holder. 19.3.2 The Conversion Request Notice shall be sent with a delivery receipt, with a copy to the Issuer and the Trustee, to the addresses provided in Clause 15 of the Issue Indenture. 19.3.3 For all legal purposes and the purposes of the Issue Indenture, the date of the physical settlement of the conversion of the Debentures shall be considered as the third (3 rd ) Business Day after (i) the date of receipt of the Conversion Request Notice by the Transfer Agent or (ii) the date of receipt of the request made to the custody agent by BM&FBOVESPA, as applicable ( Debenture Conversion Date ). Any requests for conversion received by BM&FBOVESPA after 2:00 p.m. shall be considered on the subsequent Business Day. 19.3.4 Observing the operating procedures of BM&FBOVESPA and of the Transfer Agent, as applicable, the number of Share Lots corresponding to the number of Debentures converted shall be deposited in the account held by the Debenture Holder at the transfer agent. 19.3.5 Any amounts, in local currency, corresponding to fractions of Share Lots, if any, calculated in accordance with item 19.4 herein, shall be deposited in the account held by the Debenture Holder at BM&FBOVESPA or in the checking account provided on the Debentures subscription order. 19.4 Conversion Price. The number of Share Lots to be delivered to the Debenture Holders after the conversion shall correspond to the division of (a) the Unit Face Value of the Debentures; by (b) the fixed price of eight reais and twenty-five centavos (R$8.25) per Share Lot, which is equivalent to two reais and seventy-five centavos (R$2.75) per common or preferred share issued by the Company, subject to any adjustments for dividends and interest on equity distributed by the Company, pursuant to item 19.4.1 herein ( Conversion Price ). 19.4.1 The Amount of Dividends and/or Interest on Equity (as defined herein) shall be deducted from the Conversion Price if, during the Conversion Rights Exercise Period, the Company announces the distribution of dividends and/or interest on equity to holders of the common and/or

preferred shares issued by the Company and the shares start to trade exdividend rights on the BM&FBOVESPA. Such deduction shall be made in accordance with the normal operating procedures of the BM&FBOVESPA. For the purposes of this item, the Amount of Dividends and/or Interest on Equity shall mean the amount equal to the total net cash amount of the dividends and/or interest on equity announced by the Company during the Conversion Rights Exercise Period. The total net amount shall represent the sum after any withholding taxes by or on behalf of the applicable authority, excluding any offsets or other credits, returns or deductions granted by any applicable authority. 19.5 The Conversion Price shall be simultaneously and proportionately adjusted in the event of a capital increase by means of a bonus, stock split or reverse stock split of the shares carried out by the Issuer, for any reason, after the Issue Date, without any burden to the holders of the Debentures and in the same ratio established for such events. Therefore, (i) in the event of a reverse stock split, the Conversion Price shall be multiplied by the same ratio of the reverse split of the stock issued by the Issuer; and (ii) in the event of a stock split or bonus, the Conversion Price shall be divided by the same ratio of the split of the stock issued by the issuer or the same ratio considered for the issue of bonus shares. 19.6 If, at any time during the Conversion Rights Exercise Period, the Company issues (i) debentures convertible into preferred or common shares of the Company, the Conversion Price shall become the lesser of (a) the conversion price of the new issue of convertible debentures of the Company; or (b) the Conversion Price of the Debentures provided in the Issue Indenture; or (ii) warrants of preferred or common shares of the Company at exercise prices below the Conversion Price of the Debentures, each Debenture holder shall be entitled to, at their discretion, convert their Debentures into Share Lots at the exercise price of the warrant. The right envisaged in this item shall be exercised within thirty (30) business days as from the later of (a) the date of the Shareholders Meeting or Meeting of the Board of Directors of the Company that approves the issue of warrants, or (b) the date of issue of the warrants, upon notification of the Company and the Trustee; or (iii) (iii.1) new common or preferred shares, or (iii.2) stock options with underlying common or preferred shares of the Company (except for stock options that may be granted by the Company to its employees, managers and/or outsourced workers in connection with stock option plans, or any shares issued as a result of the exercise of any option granted in connection with such plans), for public or private subscription, at an issue price below the Debenture Conversion Price, each Debenture Holder shall be entitled to, at their discretion, convert their Debentures into common or preferred shares, at the issue price of the newly issued common or preferred shares. The right provided in this item shall be exercised within thirty (30) business days as from the date of the corporate act of the Company approving the issue of the shares, upon notification of the Company and the Trustee. 19.7 Only whole numbers of Share Lots shall be delivered to the Debenture Holders, and any fractions of Share Lots arising from the conversion shall be paid in local currency, at the Conversion Price adopted for the calculation of the respective number of Share Lots. If a Debenture Holder requests the conversion of more than one Debenture at the same time from the Transfer Agent, the conversion of the Debentures shall be executed jointly, i.e. the result of the conversion into Share Lots of each Debenture shall be added, so that any fractions of Share Lots are grouped and

may thus form a new whole number of Share Lots. Requests for conversion made to the BM&FBOVESPA shall be processed by custody account, i.e. the fraction amount shall be treated individually for each custody account held by the investor. 20. Exchangeability. Each Debenture, provided it has been fully paid up, may be exchanged for preferred shares ( GGBR4 Shares ) issued by Gerdau S.A., a corporation registered in the roll of Corporate Taxpayer's (CNPJ/MF) under no. 33.611.500/0001-19 ( Gerdau ), and owned by the Company ( Share Exchange ), at any time, at the sole discretion of Debenture Holders, from the Issue Date until five (5) Business Days prior to the Maturity Date of the Debentures, except on dates of shareholders meetings of Gerdau ( Exchange Rights Exercise Period and Exchange Rights, respectively), in accordance with the following terms and conditions: 20.1 The shares issued by the Company resulting from the Gerdau Share Exchange (i) shall have the same characteristics and conditions and fully enjoy the same rights and advantages attributed by the Bylaws now or in the future to the shares issued by Gerdau, and (ii) fully entitle their holders to the distribution of profits, including any dividends and interest on equity declared as from the date of the Exchange Request Notice. 20.2 The number of GGBR4 Shares to be delivered to the Debenture Holders in connection with the Share Exchange pursuant to Clause 20 of the Issue Indenture shall be the result of the division of (a) the Unit Face Value of the Debentures; by (b) the fixed price of seven reais and eighty centavos (R$7.80) per GGBR4 Share, subject to any adjustments for dividends and interest on equity distributed by Gerdau, as described below ( Exchange Price ). 20.2.1 The Amount of Dividends and/or Interest on Equity (as defined herein) shall be deducted from the Exchange Price if, during the Exchange Rights Exercise Period, Gerdau announces the distribution of dividends and/or interest on equity for its preferred shareholders and the shares start to trade ex-dividends on the BM&FBOVESPA. Such deduction shall be made in accordance with the normal operating procedures of the BM&FBOVESPA. The Amount of Dividends and/or Interest on Equity for the purposes of this paragraph shall mean the amount equal to the total net cash amount of dividends and/or interest on equity announced by Gerdau during the Exchange Rights Exercise Period. The total net amount should represent the sum after any withholding taxes by or on behalf of the applicable authority, excluding any offsets or other credits, returns or deductions granted by any applicable authority. 20.3 If, at any time during the Exchange Rights Exercise Period, Gerdau issues (i) debentures convertible into preferred or common shares of Gerdau, the Exchange Price shall become the lesser of (a) the conversion price of the new issue of convertible debentures of the Company; or (b) the Debentures Exchange Price provided in the Issue Indenture; or (ii) warrants of preferred or common shares of Gerdau, at exercise prices below the Debenture Exchange Price, each Debenture Holder shall be entitled to, at their discretion, exchange their Debentures for preferred shares issued by Gerdau at the exercise price of the warrants. The right envisaged in this item shall be exercised within thirty (30) business days as from the later of (a) the date of the Shareholders Meeting or Meeting of the Board of Directors of Gerdau that approves the issue of warrants, or (b) the issue date of the warrants, upon notification of the Company and the Trustee; or (iii) (iii.1) new preferred shares, or (iii.2) stock options with underlying preferred shares of Gerdau (except for

stock options that may be granted by Gerdau to its employees, managers and/or outsourced workers in connection with stock option plans, or any shares issued by Gerdau as a result of the exercise of any option granted in connection with such plans), for public or private subscription, at an issue price below the Debentures Exchange Price, each Debenture Holder shall be entitled to, at their discretion, exchange their Debentures for preferred shares, at the issue price of the newly issued preferred shares. The right provided in this item shall be exercised within thirty (30) business days as from the date of the corporate act of Gerdau approving the issue of the shares, upon notification of the Company and the Trustee. 20.4 If, between the Issue Date and the Maturity Date of the Debentures, any changes occur to the number of shares comprising the capital stock of Gerdau arising from stock bonuses, stock splits and/or reverse stock splits, the number of shares exchangeable for each Debenture shall be altered accordingly. 20.5 The Issuer expressly warrants to be the legitimate owner of any preferred share issued by Gerdau that may be object of exchange by the Debentures, and that such shares are free and clear of any encumbrances or charges of any nature, and also fully paid up. 20.6 Procedures for Exercising Exchange Rights. Debenture Holders wishing to exchange their Debentures for GGBR4 Shares shall, during the Exchange Rights Exercise Period, express their intention by submitting a letter requesting the exchange, in accordance with the template in Appendix I to the Issue Indenture ( Exchange Request Notice ), (i) to their custody agent, if the Debentures owned thereby are held in custody at the BM&FBOVESPA or (ii) to the Transfer Agent, if the Debentures owned thereby are not held in custody at the BM&FBOVESPA. 20.6.1 Debenture Holders may exchange all or part of the Debentures they own, at their sole discretion, and shall inform the number of Debentures they wish to exchange in the Exchange Request Notice, observing that the Unit Face Value of the Debentures may not be fractioned by the Debenture Holder. 20.6.2 The Exchange Request Notice shall be sent with a delivery receipt, with a copy to the Company and the Trustee, to the addresses provided in Clause 15 of the Issue Indenture. 20.6.3 The date of physical settlement of the exchange of Debentures shall be considered the third (3 rd ) business day as from (i) the date of receipt of the Exchange Request Notice by the Transfer Agent or (ii) the date of receipt of the request made by the custody agent by the BM&FBOVESPA, as applicable ( Debenture Exchange Date ). Any requests for exchange received by the BM&FBOVESPA after 2:00 p.m. shall be considered on the following Business Day. 20.6.4 Only whole numbers of GGBR4 Shares shall be delivered to the Debenture Holders, and any fractions of GGBR4 Shares arising from the Share Exchange shall be paid in local currency, at the Exchange Price adopted for the calculation of the number of GGBR4 Shares. If a Debenture Holder requests the exchange of more than one Debenture at the same time from the Transfer Agent, the exchange of the Debentures shall be executed jointly, i.e., the result of the exchange into GGBR4 Shares of each Debenture shall be added, so that any fractions of shares

are grouped and may thus form a new whole number of GGBR4 Shares. Requests for conversion made to the BM&FBOVESPA shall be processed by custody account, i.e. the fraction number shall be treated individually for each custody account held by the investor. 20.7 Except in the event provided for in Clause 16.3 of the Issue Indenture, the exchange of any Debenture for preferred shares issued by Gerdau shall automatically imply the settlement of the outstanding balance of the Debentures exchange and the cancelation of said security. 20.8 If a Debenture Holder requests the Share Exchange in accordance with the procedures in Clause 20.6 of the Issue Indenture ( Requesting Debenture Holder ) and the issuer fails to provide, on the Debenture Exchange Date, the corresponding number of GGBR4 Shares to which the Requesting Debenture Holder is entitled in connection with the Share Exchange, without prejudice to the delivery of the GGBR4 Shares, the Issuer shall pay the Requesting Debenture Holder the amount corresponding to the difference between the closing price, on the date of the Exchange Request Notice, of the GGBR4 Shares trade on the BM&FBOVESPA and the Exchange Price, multiplied by the number of GGBR4 Shares the Issuer originally must have delivered to the Requesting Debenture Holder. A premium of fifteen percent (15%) shall apply on such amount ( Penalty Fee ). The Penalty Fee shall be paid by the third (3 rd ) Business Day as from the Debenture Exchange Date. The Penalty Fee shall not be due if the Company is legally prohibited from acquiring or delivering GGBR4 Shares in connection with the Share Exchange. II. Controlling Shareholders Commitment to Subscribe The controlling shareholders of the Company have declared to the Company: (a) their commitment to subscribe to and pay up the Debentures, by fully exercising their respective Preemptive Rights (as defined herein), which corresponds to the Minimum Amount of the Debentures issue; (b) that they are assessing the possibility of subscribing to additional Debentures in any Apportionments of Unsubscribed Debentures and any auctions of unsubscribed debentures. III. Preemptive Rights, Assignment of Preemptive Rights and Apportionment of Unsubscribed Debentures Preemptive Rights: 1. The shareholders of the Issuer ( Shareholders ) shall be entitled to preemptive rights in the subscription to the Debentures, proportionately to the number of common and/or preferred shares issued by the Issuer held thereby, in accordance with shareholder records as from July 7, 2016 ( Preemptive Rights ). Consequently, as of the date hereof (inclusive), the common and preferred shares issued by the Issuer shall trade ex-subscription rights (ex-preemptive rights). 2. The Preemptive Rights may be exercised within thirty (30) days as from the publication of the notice to shareholders by the Issuer, starting on July 11, 2016 (inclusive) and ending on August 9, 2016 (inclusive), announcing the Issue and informing the Preemptive Rights Exercise Period ( Preemptive Rights Exercise Period ).

3. Based on the capital stock of the Company and excluding treasury shares, and based on shareholders of record on July 7, 2016, each common or preferred share issued by the Company shall correspond to preemptive rights in the subscription of 0.00496456767 (0.496456767%) in Debentures. 4. Shareholders may, at their sole discretion, assign their respective Preemptive Rights to third parties ( Assignees ), pursuant to Article 171, Paragraph Six of Brazilian Corporation Law, including via trading on the BM&FBOVESPA, observing the provisions in items 15 and 17 herein. 5. Shareholders or Assignees that express their wish to exercise their Preemptive Rights may, upon signing the respective subscription orders: (i) (ii) (iii) condition the subscription of Debentures upon the placement of all Debentures, in which case, unless all Debentures are placed, the respective subscription order shall be canceled; condition the subscription of Debentures upon the placement of a certain minimum amount of the Debentures, defined at the investor's discretion, but which shall not be lower than the Minimum Amount, in which case (a) if Debentures are placed in an amount lesser than that defined by the investor, the respective subscription order shall be canceled; and (b) if Debentures are placed in amount greater than the amount defined by the investor, but lesser than the total amount of the Debentures, the order of said investor shall be reduced proportionately; or not condition the subscription to the Debentures upon any minimum percentage or amount of placement of the Debentures, in which case the order of said investor (a) if all Debentures are placed, shall be fully complied with, and (b) in the case of partial placement, shall be reduced proportionately. 5.1 Failure by the shareholder to make any reservations on the subscription order shall be construed as their decision to fully subscribe to the issue. 5.2 In the event that the conditions referred to in subitems (i) or (ii) of item 5 above are not fulfilled, or in the event that the Minimum Amount of the placement is not achieved, as applicable, the holders of Preemptive Rights that have expressed their intention to exercise such Preemptive Rights shall have their Subscription Orders canceled by the Issuer, and any amounts paid thereby shall be refunded within three (3) Business Days, without interest or inflation adjustment, and without reimbursement of any levies. There shall be no period for a revision of the conditions chosen by the subscribers. 6. The holders of Preemptive Rights whose shares are not held in custody at the BM&FBOVESPA and who wish to exercise their Preemptive Rights must go to one of the branches of the Transfer Agent provided in this Notice to Shareholders after the start of the Preemptive Rights Exercise Period, to sign the subscription order for the Debentures. In the case of representation by power of attorney, the agent must present the respective instrument showing powers of representation on the subscription of Debentures. The Issuer shall have two (2) business days as from the end of the Preemptive Rights Exercise Period to publish a notice to shareholders informing the end of the Preemptive Rights Exercise Period, including, if applicable, the number of unsubscribed Debentures. Shareholders whose shares are held in custody at the BM&FBOVESPA shall exercise their respective Preemptive Rights

through their custody agents and in accordance with the procedures and rules stipulated by the BM&FBOVESPA. 7. Any fractions of debentures arising from the exercise of Preemptive Rights shall be disregarded. Apportionments of Unsubscribed Debentures: 8. First Apportionment. Holders of Preemptive Rights who subscribe to the Debentures within the Preemptive Rights Exercise Period may express their interest, through the subscription order, in subscribing to any unsubscribed Debentures within the Preemptive Rights Exercise Period, proportionately to the Debentures to which they subscribed ( First Apportionment ). 9. The period for subscribing to any unsubscribed Debentures shall be five (5) business days as from the publication of a new notice to shareholders informing the number of unsubscribed Debentures and the start of the period for subscription of unsubscribed Debentures under the First Apportionment ( First Apportionment Subscription Period ), with the number of Debentures to which each subscribing Shareholder shall be entitled determined by the application of the following formula: First Apportionment Debentures = Unsubscribed Debentures x Subscribed Debentures / Total Subscribed Debentures where, First Apportionment Debentures = number of Debentures to be attributed to the subscriber who expresses their intention to subscribe to unsubscribed Debentures in the First Apportionment; Unsubscribed Debentures = total unsubscribed Debentures at the end of the Preemptive Rights Exercise Period; Subscribed Debentures = number of Debentures subscribed to by the subscriber that requested to subscribe to any unsubscribed Debentures within the Preemptive Rights Exercise Period; Total Subscribed Debentures = total number of Debentures subscribed to by all subscribers. 10. In connection with the First Apportionment, subscribers shall sign a new subscription order indicating the number of Debentures attributed thereto in the First Apportionment ( First Apportionment Subscription Order ). Furthermore, each Debenture holder shall indicate, simultaneously to exercising their Right to Subscribe to Unsubscribed Shares in the First Apportionment, their interest in subscribing to an additional amount of Debentures ( Additional Amount ), indicating the number of additional debentures they wish to subscribe, limited to the total number of Unsubscribed Debentures. In this case, in the event of interest in subscribing to a number of Debentures greater than that offered, the Additional Amount shall be apportioned among the subscribers proportionately to the total number of Debentures subscribed until then by the respective subscribers. 11. Second Apportionment. If, after the First Apportionment, there are still Unsubscribed Debentures, the Company shall carry out a Second Apportionment, which shall enable the subscription of all unsubscribed Debentures by any subscriber that expresses, through the First Apportionment Subscription Order, interest in subscribing to all unsubscribed Debentures in a potential Second Apportionment

(and the Additional Amount, if applicable), within five (5) Business Days as from the publication date of the notice to shareholders informing the number of unsubscribed Debentures and the start of the period for subscribing to unsubscribed Debentures ( Second Apportionment Subscription Period ). In the event that more than one subscriber expresses interest in subscribing up to the total number of unsubscribed Debentures, they shall be apportioned among the subscribers proportionately to the total number of Debentures subscribed thereby until then ( Second Apportionment and, jointly with the First Apportionment, Apportionments of Unsubscribed Debentures ). 12. Subscribers participating in the Apportionments of Unsubscribed Debentures shall (i) if their Preemptive Rights are held in custody at the BM&FBOVESPA, subscribe to the Debentures to which they were attributed under apportionment through their custody agents; and (ii) if their Preemptive Rights are not held in custody at the BM&FBOVESPA, go exclusively to one of the branches of the Transfer Agent provided in the Notice to Shareholders to sign the subscription order for the Debentures. 13. Any fractions of debentures arising from the exercise of the right to subscribe to unsubscribed Debentures shall be disregarded. Auction of Unsubscribed Debentures: 14. Any Debentures that were not subscribed to after the First Apportionment and the Second Apportionment, as well as any Debentures that were subscribed to but not paid up on their respective subscription date may, at the discretion of the Issuer, be canceled or sold by the Issuer to third parties through an auction, in accordance with the applicable rules, observing Article 171, Paragraph 7, Item b of Brazilian Corporation Law ( Auction of Unsubscribed Debentures ). Procedures for Assignment of Preemptive Rights: 15. The holders of Preemptive Rights may assign their respective Preemptive Rights to third parties during the Preemptive Rights Exercise Period, including via trading on the BM&FBOVESPA. 16. The holders of Preemptive Rights not held in custody at the BM&FBOVESPA who wish to assign their Preemptive Rights must exclusively go to one of the Specialized Branches of the Transfer Agent indicated below. The holders of Preemptive Rights whose shares are held in custody at the BM&FBOVESPA must contact their custody agents. 17. The assigner of the Preemptive Rights must observe all periods and conditions applicable to the exercise of the Preemptive Rights, including, but not limited to, the Preemptive Rights Exercise Period. Procedures for the Exercise of Preemptive Rights and expression of intent to subscribe to unsubscribed Debentures: 18. The holders of Preemptive Rights who wish to exercise their respective rights may do so (i) through the Transfer Agent; or (ii) through the custody agent, as applicable.

19. Periods: The holders of Preemptive Rights must observe the periods established for the exercise of such rights and express their firm intention to subscribe to any unsubscribed Debentures: (i) The holders of rights to subscribe to Debentures not held in custody at the BM&FBOVESPA may exercise their Preemptive Rights (including, if they wish, their intention on the subscription order to subscribe to any Unsubscribed Debentures), through the Transfer Agent, Itaú Corretora S.A. by (inclusive) 4:00 p.m. on August 9, 2016, Brasília time, by signing the subscription order, as per the template provided by the Transfer Agent, and submit the documents described below. (ii) The holders of rights to subscribe to the Debentures held in custody at the BM&FBOVESPA may exercise their Preemptive Rights (including, if they wish, their intention in the subscription order to subscribe to any Unsubscribed Debentures), through their custody agent by (inclusive) 8:00 p.m. on August 5, 2016, Brasília time, in accordance with the procedures established by BM&FBOVESPA and/or their respective custody agents. (iii) The holders of rights to subscribe to the Debentures held in custody at the BM&FBOVESPA, after the deadline provided for in item (iii) above, shall exercise their Preemptive Right and express, on the subscription order, their firm subscription request on August 8 and 9, 2016, at 4:00 p.m., through the Transfer Agent. 20. Orders to subscribe to the Debentures in connection with the Preemptive Rights shall not be accepted after August 9, 2016. The documents required for subscribing to the Debentures by the holders of subscription rights not held in custody at the BM&FBOVESPA, whether original or notarized copy. (i) (ii) (iii) (iv) Natural Persons: Identity Document, Brazilian Individual Taxpayers ID (CPF) and proof of address: Legal Persons: Current Bylaws or Articles of Incorporation/Organization, minutes of the election of the current executive board, Brazilian Corporate Taxpayers ID (CNPJ) and Identity Document, Brazilian Individual Taxpayers ID (CPF) and proof of address of its representatives; In the case of investment funds, the documents listed in item (ii) for the manager of the fund, as well as the regulations of the fund; In the case of representation by power of attorney, whether natural persons or legal persons, the respective public or private instrument of powers of representation, with notarization required in the latter case. Specialized Branches of the Transfer Agent: Branches of Itaú Corretora de Valores S.A. at the following addresses: Belo Horizonte: Av. João Pinheiro, 195 Subsolo - Centro Rio de Janeiro: Av. Almirante Barroso, 52-2º andar - Centro São Paulo: R. Boa Vista, 176 1º Subsolo - Centro

Salvador: Av. Estados Unidos, 50-2º andar - Comércio Additional information on the specialized branches and on the subscription of Debentures through the Transfer Agent is available through the Investfone Shareholder Services Center at: State capitals and metropolitan areas: 3003-9285 Other regions: 0800-720-9285 - on business days from 9 a.m. to 6 p.m. IV. Payment of the Debentures: The payment of the Debentures subscribed to through the exercise of Preemptive Rights shall be made by the subscribers, imperatively, by August 9, 2016, by means of: (i) Electronic Fund Transfer (TED) to checking account no. [ ], at the Company, at branch [ ] of Bank [ ]([ ]), in the case of subscription through the Transfer Agent; and (ii) pursuant to the terms and conditions established by the custody agents, in the case of holders of rights to subscribe to Debentures held in custody at the BM&FBOVESPA. Other information on the respective periods of Apportionments of Unsubscribed Debentures, payment dates and any auctions of unsubscribed debentures shall be informed in a timely manner through future Notices to Shareholders. V. Additional Information: Further information may be obtained from the Company s Investor Relations Department, located in the City of Porto Alegre, State of Rio Grande do Sul, at Avenida Farrapos, 1811 Floresta, CEP 90.220-005. Our Investor Relations Department is also available via telephone +55 51 3323-2703, fax +55 51 3323-2281 or e-mail inform@gerdau.com.br. Porto Alegre, July 8, 2016 Harley Lorentz Scardoelli Investor Relations Officer