PRIVATE TRANSACTION AGREEMENT AND OTHER ADJUSTMENTS On the one part: COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO - SABESP, a mixed-capital company controlled by the State of São Paulo, enrolled with the National Corporate Taxpayers Register under No. 43.776.517/0001-80, with its headquarters at Rua Costa Carvalho, nº 300, Pinheiros, São Paulo/SP, Postal Code: 05.429-000, herein represented in the manner of its By-laws, in accordance with the signatures below (hereinafter referred to as SABESP ). and, on the other part, EMPRESA METROPOLITANA DE ÁGUAS E ENERGIA S.A. - EMAE, a mixedcapital company controlled by the State of São Paulo, enrolled with the National Corporate Taxpayers Register of the Ministry of Finance (CNPJ/MF) under No. 02.302.101/0001-42, with its headquarters in the Municipality and State of São Paulo, at Avenida Nossa Senhora do Sabará, No. 5312, herein represented in the manner of its By-laws, in accordance with the signatures below, (hereinafter referred to as EMAE ). Jointly referred to as Parties, execute this Private Transaction Agreement and Other Adjustments (the Settlement ), pursuant to the following clauses and conditions. WHEREAS: (i) SABESP and EMAE have disagreements that are the subject of the following lawsuits, hereinafter jointly designated as Litigations : (a) Action Requesting Arbitral Submission (Ação de Instituição de Compromisso Arbitral) Case No. 0064069-18.2012.8.26.0100, which was handled by the 5th Civil Court of the Central Forum of the Judicial District São Paulo (5ª Vara Cível do Foro Central da Comarca de São Paulo), currently under appeal, filed by EMAE for the purpose of setting up arbitration to resolve the litigation (the Action Requesting Arbitration ); (b) Arbitration Proceeding (Procedimento Arbitral) Case No. 069/2013, being handled by the Arbitration Center of the American Chamber of Commerce for Brazil São Paulo Amcham, set up for the purpose of requesting financial compensation for alleged past and future losses of energy generation on account of the abstraction of -1 -
water and compensation for the costs already incurred and to be incurred with the operation, maintenance and inspection of the Guarapiranga Reservoir (the Guarapiranga Arbitration ); (c) Lawsuit (Ação Ordinária) Case No.1064876-84.2013.8.26.0100, in progress in the 6 th Lower Civil Court of the Central Jurisdiction of São Paulo (6ª Vara Cível do Foro Central da Comarca de São Paulo), filed by EMAE to request financial compensation for alleged past and future losses of energy generation on account of the abstraction of water, and the prorating if the costs already incurred, and to be incurred, with the operation, maintenance and inspection of the Billings Reservoir by SABESP (the Billings Lawsuit ); and (d) the Action for Provisional Remedy for the Presentation of Documents (Ação Cautelar de Exibição de Documentos) Case No. 0019598-24.2013.8.26.0053, filed by SABESP against EMAE with the 9 th Public Treasury Trial Court of the Judicial District of São Paulo, requesting presentation of documents that preceded the Instrument of Agreement (the Presentation of Documents ); (ii) the parties have mutually opened negotiations to bring the Litigations to an amicable and consensual close, seeking to avoid possible consequences of a more serious financial nature for both Parties, by which they have reached the conditions described below and which govern this Settlement. SECTION ONE SUBJECT MATTER 1.1. This Settlement aims to provide an amicable and consensual solution to all subjects of the Litigations involving EMAE and SABESP and described in the aforementioned lawsuits. SECTION TWO CONDITIONS PRECEDENT 2.1. With the exception of Sections 4.1. and 4.2. below, the efficacy of the other provisions of this Settlement is conditional upon satisfaction of the following Conditions Precedent: (i) (ii) approval of its terms at a Meeting of the Board of Directors of EMAE and at an Extraordinary Shareholders Meeting of the shareholders of EMAE, pursuant to Law No. 6.404/1976 and its By-laws, and at a Meeting of the Board of Directors of SABESP ( First Condition Precedent ); and full and unconditional approval of its terms by the Brazilian Electricity Regulatory Agency ANEEL ( ANEEL ), pursuant to article 3, XIII of -2 -
Law No. 9.427/1996 and article 18, I, of Normative Resolution No. 699, dated January 26, 2016 ( Second Condition Precedent ). 2.2. Both Parties agree to notify each other on the business day immediately following the Extraordinary Shareholders Meeting and the Meeting of the Board of Directors mentioned in Section 2.1., (i) above, regarding the outcome. 2.3. EMAE agrees to submit the Settlement for approval by ANEEL, mentioned in Section 2.1., (ii) above, within five (5) business days after signing it, and to notify SABESP about the decision of ANEEL within two (2) business days from the date of publication of that decision. 2.4. In the event that any of the Conditions Precedent referred to in Section 2.1 are not implemented within one (01) year from the signing of this arrangement, this Settlement will be considered as resolved, ipso jure, producing no effect and will be considered as never having taken place. SECTION THREE THE AMOUNTS PAYABLE FOR PURPOSES OF THE SETTLEMENT 3.1. For this Settlement SABESP shall pay EMAE the following amounts, pursuant to the conditions set forth below, (the Debt ): (a) six million, six hundred and ten thousand Reais (R$6,610,000.00) per annum, monetarily restated from the date of execution hereof, by the IPCA (Broad Consumer Price Index) or any other index that may replace it, always by the last business day of the month of October of each fiscal year, with (i) the first of these annual payments due by the last business day of the month of October 2017 and (ii) the last payment due by the last business day of the month of October 2042; and (b) forty-six million, two hundred and seventy thousand Reais (R$46,270,000.00), in five successive annual installments, monetarily restated using the IPCA or any other index that may replace it, with the first installment of nine million, two hundred and fifty-four thousand Reais (R$9,254,000.00) maturing on April 30, 2017 and the other four (04) installments of equal amount maturing on the thirtieth (30 th ) day of the month of April of the subsequent years, or on the first following business day. -3 -
Paragraph one. The payments mentioned herein will be made by SABESP to EMAE, simultaneously with the issuance and delivery of the corresponding Receipt by EMAE to SABESP, at the address of notice indicated in Section 9.7 below, whereby the proof of transfer will be valid proof that the payment was effectively made. Paragraph two. In the event of delays in paying the amounts indicated in letters (a) and (b) of the main section of this Section, monetary restatement using the IPCA or any other index that may replace it, from the respective maturity dates, delay interest of one per cent (1%) per month and a penalty of two per cent (2%) will be levied on the restated amount in arrears, all of these pro rata die. SECTION FOUR SUSPENSION OF THE LITIGATIONS, RATIFICATION BY THE COURT OF THIS SETTLEMENT, EXTINGUISHMENT OF THE ON- GOING LAWSUITS AND SETTLEMENTS 4.1. Within two (2) business days as from execution of this Settlement, the Parties will request, by means of a joint petition, suspension of the Litigations until implementation of the Conditions Precedent indicated in section two. Sole paragraph. The drafts of the petitions mentioned in the main section above are to be found in Exhibit I of this settlement and will be signed by the Parties lawyers pari passu with the signing of this Settlement. 4.2. If on account of non-approval of the terms of this Settlement following a definitive decision by the Extraordinary Shareholders Meeting of the shareholders of EMAE, or by the Board of Directors of SABESP or ANEEL, the conditions precedent are not implemented, any of the Parties, on their own, may request the continuation of the Litigations after giving advance notice to the other Party. 4.3. Within three (3) business days from the implementation of the Conditions Precedent, the Parties will request, by means of a joint petition, ratification of the Settlement in the records of the Billings Lawsuit and the Guarapiranga Arbitration so as to dismiss the case with prejudice (the Judgments of Ratification ). Furthermore, SABESP, in turn, will submit a request for discontinuance of the lawsuit in the records of the Presentation of Documents, with the consent of EMAE, based on the Code of Civil Procedure, or CPC, -4 -
in addition to a request for discontinuance of the appeal from final judgment filed in the records of the Action Requesting Arbitration, under the terms of the same procedural law, thereby extinguishing the lawsuit on account of this Settlement. Paragraph one. The drafts of the petitions mentioned in the main section above can be seen in Exhibit II of this Settlement. Paragraph two. The parties agree to discontinue all and any other pending appeals and incidents involving the Litigations, and they hereby waive the right to appeal against the future ratification decisions to be handed down, or to question them for any reason whatsoever. 4.4. Without prejudice to the caveat contained in Section Seven below, once the obligations provided for in this Settlement have been fully met, especially with regard to Section Three, the Parties will reciprocally grant each other unrestricted, irrevocable and irreversible settlement, with nothing more to claim before any court, forum of court of appeals, including any administrative authority of any nature, in addition to waiving any lawsuits, intentions or rights related to or arising in any manner, or for any purpose, from the subject matter of this Settlement. SECTION FIVE IN THE EVENT OF CONTRACTUAL BREACH 5.1. Partial or full non-payment of the amounts shown in letters (a) and (b) of Section 3.1 above, within the agreed time frames, will result in the early maturity of the total Debt, entitling EMAE to initiate proceedings for compliance with the Judgments of Ratification, pursuant to the law of civil procedure currently in force and without prejudice to the provisions of Section 3.1, Paragraph Two, and payment of attorneys fees equivalent to ten per cent (10%) of the credit to be executed. SECTION SIX SPECIFIC PERFORMANCE 6.1. The Parties agree that the specific performance of any obligation to do, not to do or deliver things provided for in this Settlement may be pursued through the courts under a proceeding for compliance with Judgments of Ratification, pursuant to current law of civil procedure, without prejudice to reimbursement of any damages incurred by the Plaintiff as -5 -
a result of non-compliance with such obligations and the payment of the penalties set forth in this Settlement. SECTION SEVEN OCCASIONAL FUTURE LOSSES 7.1. This Settlement is executed based on the legislation, regulations, grants and on the terms of the concession agreements currently in force for the electricity, water and sanitation industries. If, for any reason, the legislation, regulations, grants or remuneration of the EMAE are amended or in the event of supervening legislation, regulations, grants or amendments to the terms of the applicable concession agreements and in a manner that has a significant impact on the assumptions on which this Agreement is founded, the terms of this arrangement will be dealt with, in good faith, by the Parties for the purposes of possible renegotiation of redefinition of responsibilities. SECTION EIGHT NON-NOVATION 8.1. The Parties expressly acknowledge that, until the Conditions Precedent provided for in Section Two are in place, all stipulations contemplated in this Settlement and all acts to be committed in order to comply with it, including deliberations of the board of directors or the executive board of any of the Parties on account of this Settlement, do not constitute a confession, waiver, assumption or responsibility or novation of the obligations assumed herein, and must not be interpreted as a waiver or release by the Parties from any rights, obligations or intentions that any Party has with regard to the other Party, including with regard to the requests arising from the Litigations. SECTION NINE - GENERAL PROVISIONS 9.1. Tolerance by one of the Parties regarding the requirement of the other Party to fulfill any obligation provided for in this Settlement will be considered mere liberality and will not imply novation or waiver of any right of any of the Parties to demand that the other Party fulfill the duties exactly as provided for herein. 9.2. If any provision of this Settlement is considered void or unenforceable in any aspect, the validity or enforceability of the remaining provisions will not be affected or impaired in any manner, remaining in full force and effect. The Parties will negotiate, in good faith, the substitution of the void provision, or that which has been annulled or considered -6 -
unenforceable, by another valid and enforceable provision which, as soon as possible, effectively maintains the economic effects and other relevant implications of the provision declared void or unenforceable or which has been annulled. 9.3. Each Party will be liable for any taxes that may be levied on the deal provided for in this Settlement, or arising from it, in the exact terms of applicable law. Each Party will bear their own costs and expenses incurred in negotiating, preparing and concluding this Settlement, including the respective commissions and fees of financial advisers, lawyers, auditors and/or any other consultants, and each Party will also bear half of the court costs, expenses of litigation and the fees of the arbitrator and the impartial expert, as well as any expenses still outstanding from the Guarapiranga Arbitration. 9.3.1. The lawyers engaging in the Litigations produce, on the date of execution of this Settlement, the representations shown in Exhibit III hereof, in which they expressly waive, after the Conditions Precedent provided for in Section Two have been satisfied, the right to charge the opposing Party in the Litigations any amount by way of legal fees, including those of loss of suit, without prejudice to their right to receive from the respective client payment of the contractual compensation to which they may be entitled. 9.4. This Settlements covers all understanding between the Parties in regard to the subject matters covered herein, and prevails over all agreements, contracts and representations, verbal or written, previously existing between the Parties in regard to the subject matter of hereof, in addition to the subject matter of the Litigations. 9.5. This Settlement may only be modified by means of an amendment entered into in writing and signed by the Parties, with due regard for the provisions of Section Two, as appropriate. 9.6. The Parties, with the assistance of their lawyers, have participated in the negotiation and preparation of the terms and conditions of this Settlement, in addition to having agreed with all the clauses, terms and conditions hereof, consenting to and accepting the portion of the rights and obligation stipulated herein incumbent on them. In case of ambiguity or questions regarding intention or interpretation, this Settlement will be construed as if it had been jointly drafted by those Parties, with no presumption or burden of proof in favor of, or to the detriment of any principal Party on account of the authorship of any of the provisions of this Settlement. -7 -
9.7. Any communication between the Parties referring to this Settlement ( Notice ) shall be in writing and delivered personally or sent by registered mail, with confirmation of receipt, at the addresses and to the attention of the persons indicated below, with copies to the persons respectively designated: 1. If to SABESP: With copy (without Notice effect): C/O: CEO of SABESP Address: Rua Costa Carvalho, 300, Pinheiros, São Paulo, POSTAL CODE: 05429-000. C/O: Chief of Staff to the CEO of Sabesp Address: Rua Costa Carvalho, 300, Pinheiros, São Paulo, POSTAL CODE: 05429-000 2. If to the EMAE: With copy (without Notice effect): C/O: CEO of EMAE Address: Av. Nossa Senhora do Sabará, 5312, São Paulo SP, POSTAL CODE: 04447-011 C/O: Chief Financial Officer Address: Av. Nossa Senhora do Sabará, 5312, São Paulo SP, POSTAL CODE: 04447-011 9.8. All Notices given in accordance with Section 9.7. above will be deemed received on the date of delivery to the addressee, at the correct address, in the case of Notices delivered in person or sent by certified mail, in which event the date of receipt considered will be the immediately subsequent business day. Change of addressee or address must be promptly notified to the other Party. Failure to notify the other Party about the change of addressee or address will affect the validity and efficacy of the communication sent to the addressees at the addresses indicated above. 9.9. This Settlement will be considered irrevocable and irreversible for both Parties and their successors, and his assignment thereof to third parties is prohibited, for whatever reason, without the consent of the other Party. 9.10. The Parties mutually declare and warrant the following: -8 -
(i) (ii) (iii) (iv) Each of them is validly constituted and existing according to the laws of the respective state where they were constituted and where they operate, and they are legally empowered to enter into the obligations agreed herein; They have been properly informed, including under legal counseling from their respective lawyers, they understand the terms, conditions and effects of this Settlement and have taken an independent decision to adhere to it; There are no untrue statements, and they have not omitted any fact that might render the representations and warranties given herein misleading; The Parties will be liable for any award of damages in case of violation of the representations and warranties given, pursuant to the law and this Settlement. SECTION TEN JURISDICTION 10.1. The Parties hereto elect the venue of the Judicial District of São Paulo, in the State of São Paulo to clarify any matters arising during the execution of this Settlement, to the exclusion of any other, however privileged it may be. 10.2. By mutual agreement, the parties may opt to resolve any dispute using Arbitration, by electing, in mutual agreement, the respective Arbitration Chamber that will have three (03) arbitrators in the manner provided for in the legislation of Applicable Law. In witness whereof, they have executed this instrument in ten (10) counterparts of equal content and form and for one and the same purpose, together with the witnesses who were present at, and aware of, everything. São Paulo, October 28, 2016. COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO SABESP -9 -
Witnesses: EMPRESA METROPOLITANA DE ÁGUAS E ENERGIA S.A. EMAE Name: Name: ID CARD (RG): ID CARD (RG): INDIVIDUAL TAXPAYER CARD (CPF) NO.: INDIVIDUAL TAXPAYER CARD (CPF) NO.: - 10 -