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BOARD OF DIRECTORS OF GRAÑA Y MONTERO S.A.A.
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FROM: | HERNÁNDEZ & CÍA. ABOGADOS |
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MATTER: | PLEA BARGIAN AGREEMENT AND WITHDRAWAL OF A COMPLAINT BEFORE ICSID |
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DATE
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DECEMBER 23TH, 2019 |
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The Prosecutor’s Office has undertaken to execute with the Company a memorandum of understanding or similar document that
would contain the general terms of a final plea agreement.
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The final plea agreement to be executed between the Company and the Prosecutor’s Office and the Ad hoc State Counsel (the
“Final Agreement”) will be negotiated within 60 business days.
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The Final Agreement will include all of the criminal investigations prosecuted against the Company, including but not limited
to the Construction Club case, the Lima Metro case, the IIRSA Sur case, GSP and other investigations that may arise in the future.
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The Company would not be obligated to provide relevant evidence in every case included within the scope of the Final
Agreement, it would only be required to admit guilt and the Prosecutors will make a global assessment of the information contributed by the Company in all of the cases in which it has been involved.
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The Company’s indictment in the Construction Club case will serve as a benchmark to determine the benefits that the Company
will receive under the Final Agreement as well, as to calculate the compensation for damages to be paid under it.
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The execution of a Final Agreement would definitively conclude all the criminal litigation prosecuted against the Company and
would provide certainty over the Company’s contingent indemnification obligations with the Peruvian state.
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We advise that the Company negotiate the inclusion of a clause in the Final Agreement that would allow the Company to pay
part of its compensation with the GSP Project assets. However, we cannot anticipate that such negotiation will be successful.
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The execution of a Final Agreement would end any doubt about its obligations with the Peruvian state, would mitigate its
financial and reputational risk and would increase the valuation of its shares.
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In the near future, it would produce substantial legal cost savings and would free board and management time.
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The immediate effect of maintaining the arbitration is that it would effectively terminate the plea bargain process, the
information provided during the process would be deemed not having been provided and the Company would lose any possibility of reaching a Final Agreement.
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Any decision regarding the Company’s potential criminal, civil or administrative liability would be resolved at the
conclusion of the criminal proceedings which would take between 3 to 5 years. The estimated cost of the defense disputes can be consulted with management, but we consider that they exceed USD 1.5 million year - USD 2 million per year. In
addition, the cost of the time spent by several managers of the current administration should be considered.
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The Prosecutors have warned us that the Company’s decision to litigate would force them to reclassify the Company to Category
1 under Law 30737. This would mean that the Company would suffer from several restrictions such as retentions from the proceeds obtained from its concession agreements (Linea 1, Survial, Canchaque, Terminales del Perú, GMP petroleum lots),
restrictions on the distribution of funds, restriction on asset sales and retention of funds to secure future payment obligations, restriction to contract with the government, among others.
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The Prosecutor will request the indictment of the Company in all of the cases in which it is involved.
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The Company will be vulnerable to coercive measures such as asset sequestration, intervention of premises, among others.
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The Prosecutors may aggressively prosecute other cases against the Company.
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The narrative employed by the Prosecutors in the media would change drastically. The Prosecutors will use the Company as its
public example in its struggle against corporate corruption and it would signal to the market the Company is a main target of its investigation. They would declare that the Company did not have the intent to collaborate with the authorities
nor to remediate its errors despite the Board of Directors commitment with the justice system and with the truth. The Company could face the risk that the Prosecutors may seek the dissolution of certain of its subsidiaries.
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The amount of the compensation for damages would remain uncertain.
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