S.COSTA 
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On past November 27, 2012, Grupo Soares da Costa, SGPS, SA ("GSC") informed the market that a Framework Agreement had been reached with six banks in order to reschedule the relevant bank debt, in a total amount of 228 million Euros.
In this statement, it was clarified that one of the conditions for such rescheduling would be the carrying out of a recapitalization operation, in an amount estimated of 25 million Euros, the terms of which were yet to be defined.
Following this capitalization commitment, GSC mandated "Banco Comercial Português" ("BCP") to identify potential investors with an interest and financial capacity to participate in the capitalization operation.
BCP, in discharging its mandate, identified a specific opportunity for the participation of an investor, Mr António Mosquito1 ("Investor" or "Parties", when referred in conjunction with GSC) in the capitalization operation ("Investment") to be carried out at the level of Soares da Costa Construções, SGPS, S.A
("SdC"), a company which is the wholly owned GSC's sub-holding for the construction sector.
Taking the adequate confidentiality protection measures, information deemed necessary was provided to the Investor, in order for him to carry out a due diligence to SdC, and negotiations were undertake n with his representatives, in order to define the model and structure of the Investment.
As a result of this negotiation, an agreement was reached with regard to the model and structure of the Investment, which has already been approved by GSC's Board of Directors ("Board of Directors") and is now submitted to GSC's shareholders to be voted in the Shareholders General Meeting, pursuant to and for the purposes of paragraph 3 of article 373 of the Commercial Companies Code.
The completion of the Investment herein described will depend on the verification of certain conditions, to be included in a contract between the Parties, and will require the preparation and implementation by the Board of Directors, in the terms deemed necessary by it, of the suitable le gal instruments
required for such purpose, preserving, however, the essential guidelines set-out in this proposal.
1 For information purposes, a summary of the Investor's business it is attached as Annex 1.
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II. VECTORS AND KEY ASSUMPTIONS OF THE INVESTMENT
The Investment which is now presented to the shareholders of GSC is based on the following two vectors:
a) A capital increase in SdC, to be subscribed and paid in full by the Investor, in order to capitalize the core business sector in which the group held by GSC ("SDC Group") operates, to create conditions for the increase of the value of GSC's shareholding in SDC;
b) A strategic partnership, of which the main terms will be defined in a Shareholders Agreement to be entered into between the Investor and GSC, which creates conditions that will enable: (i) to preserve GSC's shareholding in SDC, (ii) to ensure liquidity mechanisms to such shareholding and (iii) to maximize the stream of dividends.
The completion of the Investment is subject to the authorization of external entities and authorities, the verification of assumptions, conditions precedent and warranties customary in these contracts, as well as others that cater specifically to the Investment. Among the latter, a corporate restructuring stands out, in order to include in, and exclude from, the Scope of the Investment, some assets and geographies.
It should also be noted, concerning the conditions precedent, the rebalancing of the conditions attached to part of SdC's financial debt, which had already been subject of a rescheduling under the Framework Agreement disclosed to the market on November 27, 2012.
It is equally important to point out that GSC's liabilities for unknown facts, contingencies, representations and warranties, to be included in the contractual arrangements to be entered into are, however, subject to a number of important contractual limitations, further explained ahead.
The scope of the Investment concerns the construction business area, although it will likely not include certain areas of this activity, namely the activities in Israel and the USA. Thus, even though these assets are part of the SDC Group's construction business area, they will stay outside the scope of the Investment, either due to their prior exclusion from SdC's scope (in case of the USA),or by the contractually ring-fencing SdC of any future contingencies (i.e. impacts from Israel's activity).
Furthermore, other assets from SdC Group will be included in the scope of the Investment: the company
SCSP - SdC Serviços Partilhados, S.A. and some employees of GSC's central services.
The construction business, developed by SdC and its affiliated companies, is the core activity of the SdC Group, having been responsible for 89% of its turnover and 40% of EBITDA in 2012. The financial debt is, however, a factor of pressure and constraint on the activity.
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The Investment consists of the carrying out by the Investor of a capital increase in cash on SdC, with suppression of GSC's pre-emption rights, worth 70 million Euros, providing SdC with the financial means that can contribute to its sustainability. As a result of this capital increase, the Investor will hold a 66 .7% stake in SdC, with GSC holding the remaining 33.3%.
The Investor undertakes to deliver an autonomous bank guarantee, payable on first demand, to ensure payment of the price of the shares he will subscribe, once the conditions precedent to which the Investment is subject to are met.
Having regard to the specific objective of capitalization which governs the Investor's entrance in SdC, the priority quantitative allocation of the funds brought to SdC by him is subject to agreement between the Parties.
The Investment is part of a strategic partnership, under which the parties assume reciprocal obligations under a Shareholders Agreement to be entered into.
The general lines of this agreement are as follows:
GSC has the right to appoint two members out of seven to the BoD of GSC, one of them being an executive member, and a member to the BoD of each SdC subsidiary.
2. General Meeting and Sole AuditorThe Chairman of the General Meeting is chosen by the investors, with GSC's agreement, being an independent and relevant person. The sole auditor shall be appointed by agreement between the parties.
3. Reserved Matters of the General Meeting and the Board of Directors
The resolutions which relate to Reserved Matters are subject to the agreement of GSC or of the Board Members appointed by GSC, depending on whether they are taken by the General Meeting, the Board of Directors or the Executive Commission.
The following are Reserved Matters of the Board of Directors or of the Executive Committee:
(i) Decisions relating to the passing of resolutions at general meetings of affiliated companies regarding amendments to the bylaws, including the relocation or alteration of the registered office, capital increases and reductions, mergers, demergers, dissolution, liquidation, transformations,
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changes in the governance model, approval of the financial statements and resolutions on proposed applications of results, and appointment and removal without fair reason of members of corporate bodies;
(ii) Relocation or alteration of SdC's registered office;
(iii) Projects regarding the merger, demerger, transformation, dissolution and liquidation of SdC;
(iv) Related party transactions, should they reach, either separate or cumulatively, a value exceeding 10 million Euros per year;
(v) Approval of the BoD's Regulation;
(vi) Approval of dividend policies and proposals regarding SdC and its affiliated companies;
(vii) Proposals involving a change of the dividend policy provided for in the Agreement or approved under it (whether regarding SdC, or in relation to any of its affiliated companies).
It is also provided for a special procedure for the disposal of holdings held by SdC, by either selling shares or participations in limited companies or by way of a capital increase subscribed by third parties, the sale of interests in incorporated joint ventures, and transfer or temporary leasing of commercial establishments or companies, including the sale of holdings. This procedure is based on the mandatory consultation of GSC beforehand, whenever there is an intention to conduct a disposal of this nature, also granting GSC the right to request an independent evaluation to assess the value of the asset to dispose of. GSC may unilaterally sell its stake in SdC to the Investor until the end of the fourth year of the Shareholder Agreement ("Advance Put Option") should it not agree with the terms of the transaction and should the evaluation show that the value of the asset is more than 15 million and less than the value of business.
The following are, in turn, Reserved Matters of the General Meeting:
(i) Projects and proposals regarding the merger, demerger, transformation or dissolution of SdC; (ii) Removal without fair reason of members of corporate bodies;
(iii) Amendments to the bylaws, capital increases, issue of bonds or other securities convertible into shares, approval of the financial statements and proposals for allocation of profits, merger, demerger, transformation, and other matters for which the law requires a qualified majority;
(iv) Dissolution of SdC;
(v) Opening of SdC's capital to the public;
(vi) Changes to the governance model;
(vii) The non-distribution to shareholders of, at least, 80% of the legally distributable profits of the exercise;
(viii) Limitation or elimination of the shareholders pre-emptive rights in capital increases.
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4. Activity in Angola
Under the Shareholder Agreement to be entered into, the SdC must maintain control of the "branch in Angola of Sociedade de Construções Soares da Costa S.A." or of another company that may be incorporated or acquired by SdC for the undertaking of construction and public works in Angola.
Disposals of minority positions to third parties may, however, be made, provided that the me chanism established in V.3 above, regarding asset disposals worth more than 15 million Euros, is observed.
If, despite GSC's opposition, the Investor still chooses to bring to vote a resolution regarding Reserved Matters and if it that is not achieved after two meetings of the relevant corporate body, due to GSC's opposition, a Deadlock may be reached, by notification of one of the relevant parties to the other.
In this case, a mediation procedure shall be instated before the chairman of the General Meeting, in order to try to reach an agreement.
Should the mediation not come to a successful conclusion, the resolution will be considered as take n. In this case, and in order to protect its interests, GSC may exercise its Anticipated Put Option.
The Anticipated Put Option is exercisable for a value of 42 million Euros.
The same possibility to exercise the Anticipated Put Option by GSC applies if (i) The Board of Directors or the Executive Committee fail to observe the procedure for the sale of assets worth more than 15 million Euros set out above (including Angola), or (ii) if the same corporate bodies persist in making these sales with GSC's opposition, if the sale price is lower than the asset's value and it has been valued at over 15 million Euros, or also (iii) if SdC ceases to control of the activity in Angola.
Regarding dividend policy, the Parties undertake to maximize the distributions, always targeting to that effect 80% of the profits, provided they comply with the minimum Gearing ratios (ratio of Equity and Total Net Assets) and Overall liquidity (ratio between Current Assets and Current Liabilities).
In order to maximize financial flows to GSC, the Investor shall, in 2014, make a payment of 5 million Euros to GSC should there be no distributable dividends in SdC concerning the financial year 2013 in order to ensure GSC would receive at least that amount.
Should there be distributable dividends in SdC that enable the carrying out of a payment to GSC, but in an amount lower than 5 million Euros, the Investor ensures the payment to GSC, in the same period, of the difference between the 5 million Euros amount and the amount of dividends actually distributed to GSC.
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This amount is due on a loan basis and may be repaid, namely, either by netting such amount with the price due from the exercise of the options provided in the Shareholders Agreement or by reimbursin g it in cash or by transferring SdC shares owned by GSC to the Investor.
In the event that the dividend policy is not observed or if, for two consecutive years, no distributable dividends are available to GSC, GSC may exercise the Anticipated Put Option for 42 million Euros.
As a general rule, the rules and procedures referred to above will be applied to all affiliated companies. The failure to distribute dividends at an affiliate company does not preclude dividend distributions in
other affiliated companies where the legal and contractual requirements for this purpose are met.
SdC's bylaws and those of its affiliate companies will be amended to include, to the extent possible, the
terms of the Shareholder Agreement. .
The "Soares da Costa" logo shall be transferred to SdC, implying that GSC and any the companies it holds should remove any references to the name "Soares da Costa", respectively within 9 months (regarding the company name) and 2 years (regarding any other references) after the effective Investment date.
GSC may, with no geographical restriction, use the brand "SDC", and may as well request its registration,
with SdC refraining from using it.
The parties undertake to assign reciprocal preference rights of first refusal (direitos de preferência) in the transmission of shares. As an alternative to exercising such rights, GSC may require the Inves tor to make a third party acquire its stake, in case of a sale of shares by the Investor ("Tag Along").
Likewise, the Investor may demand that GSC sells the shares to a third party to whom it intends to sell its stake ("Drag Along") for the highest of following amounts: (i) the price per share of the sale of the Investor's stake or (ii) the price of the Put Option or the Anticipated Put Option, depending on the time the Drag Along occurs, or (iii) the value determined by an evaluation of GSC's stake at the effective date
of the sale.
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The transfer of SdC shares to third parties is subject to the prior written adhesion, without any reservation, by the purchaser, to the Shareholder Agreement that may be entered into between the Parties.
The Shareholder Agreement is valid for 6 years.
From the 5th year of the Agreement onwards, GSC may exercise its unilateral right to sell its stake to the Investor (Put Option), for the price of 38.5 million Euros, without prejudice to the Anticipated Put Option.
This right is reciprocal of a the right of the Investor to unilaterally acquire GSC's stake ("Call Option"),
from the same date, for the price of 38.5 million Euros.
The Shareholder Agreement may be partially terminated should GSC's stake drop below 25%. In this case, provided that GSC's participation stays above 10%, the rules governing dividends, control of Angola, shareholder stability and rights of first refusal, liquidity mechanisms, default, the Anticipated Put Option and conflict resolution are preserved.
However, should GSC's stake fall below 10%, it must choose between either the continuity of the Shareholder Agreement, limited to the liquidity mechanisms, shareholder stability and conflict resolution, or d the exercise of the Anticipated Put Option.
As long as long as GSC remains a SdC shareholder, and for a period of two years from the closing date, the former undertakes not to carrying out the construction business in the geographies where either the latter or its subsidiaries included in the Scope of the Investment are currently active.
In turn, as long as GSC holds at least 25% of the SdC, the Investor undertakes not carrying out the construction and public works business in Angola via other entity than either the SdC or other companies held directly or indirectly by SdC.
The Investor has had access to a broad collection of information about the Scope of the Investment, through the carrying out of a due diligence. However, as is usual in subscription agreements, there is a possibility that GSC may be liable for contingencies and disconformities regarding representations and warranties, in a limited maximum amount and subject to certain exclusions.
Part of the amounts to be paid by the Investor to GSC once either the Put Option, the Call Option or the
Anticipated Put Option are exercised could be kept in an Escrow Account, in order to guarantee the
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amounts that could be due by GSC to the Investor, as a result of latter's claims for indemnification The amounts kept in Escrow will be unfreeze, depending on the time elapsed since the closing and the maximum amount of responsibility attributed to GSC.
Considering all of the above, the Board of Directors proposes to the General Meeting that a resolution is passed, pursuant to and for the purposes of paragraph. 3 of article 373. of the Commercial Companies Code, to accept or reject the Investment and Strategic Partnership, the effective implementation of which depends on the negotiation, conclusion and implementation of legal instruments that would prove necessary and appropriate for the purpose and the fulfilment of the conditions precedent to
include in these instruments.
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ANNEX I SHORT DESCRIPTION OF THE INVESTOR'S BUSINESS 2
António Mosquito, Angolan businessman, has an experience of more than 20 years covering several leading economic fields, namely automobile, mining and oil. He is a founder and Chairman of An tónio Mosquito Group, which owns several Angolan companies, as the Mbakassy Veículos (which has been granted the concession of carmakers as Audi and Volkswagen), the Falcon Oil (holding shares in blocs for oil extraction) and the CCL-Construção Civil, which owns real estate undertakings in Angola. He set up recently the AMCP venture capital fund (Antonio Mosquito Capital Partners) and is shareholder of several financial institutions, as Banco Caixa Geral Totta de Angola, Banco Comercial Angolano, Banco
Sol, Banco Keve and Banco Comercial do Huambo.
2 This note was prepared by the Investor at GSC's request having the sole purpose of being used as Annex to the present Proposal. 9
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