Portugal Telecom SGPS, S.A . (PT)

New Corporate Governance Model

        As mentioned above in "—Portuguese Legal Framework," in March 2006, the Portuguese Companies Code was broadly amended with important implications for the models and principles of corporate governance, in particular those applicable to issuers of securities traded on a regulated market. These amendments required companies to make changes to their corporate governance and supervision structures by June 30, 2007. At the general meeting of shareholders' held on June 22, 2007, our shareholders approved a proposal of the Board of Directors adopting a new corporate governance model and introducing the required amendments into our articles of association. The decision to adopt

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the new "Anglo-Saxon" model took into account, among other things, the fact that we have securities traded on the New York Stock Exchange ("NYSE"), where this structure is mandatory for U.S. domestic companies, as well as the fact that Portugal Telecom already had an audit committee. Following the adoption of the Anglo-Saxon model, our corporate bodies consist of the General Meeting of Shareholders, the Board of Directors, which includes an Audit Committee, and a Statutory Auditor.

        Although we have had an audit committee as an internal committee of the Board since 2003, until June 2007, the statutory audit board was the corporate body responsible for supervision of the audit function and other supervisory functions. In June 2007, we replaced the statutory audit board with the audit committee, consisting of three non-executive directors, all elected at the general shareholders' meeting. In addition, we have a statutory chartered accountant that is responsible for the audit function and is elected by our shareholders based on a proposal of the audit committee.

        The June 2007 amendments to our articles of association also addressed such matters as voting by correspondence, the absence and surety of directors and share capital reductions (this latter rule resulting from the amendments to the Portuguese Companies Code approved by Decree-Law 8/2007 on January 17, 2007).

New Corporate Governance Model

        As mentioned above in "—Portuguese Legal Framework," in March 2006, the Portuguese Companies Code was broadly amended with important implications for the models and principles of corporate governance, in particular those applicable to issuers of securities traded on a regulated market. These amendments required companies to make changes to their corporate governance and supervision structures by June 30, 2007. At the general meeting of shareholders' held on June 22, 2007, our shareholders approved a proposal of the Board of Directors adopting a new corporate governance model and introducing the required amendments into our articles of association. The decision to adopt the new "Anglo-Saxon" model took into account, inter alia, the fact that we have securities traded on the New York Stock Exchange ("NYSE"), where this structure is mandatory for U.S. domestic companies, as well as the fact that Portugal Telecom already had an audit committee. Following the adoption of the Anglo-Saxon model, our corporate bodies consist of the General Meeting of Shareholders, the Board of Directors, which includes an Audit Committee, and a Statutory Auditor.

        Although we have had an audit committee as an internal committee of the Board since 2003, until June 2007, the statutory audit board was the corporate body responsible for supervision of the audit function and other supervisory functions. In June 2007, we replaced the statutory audit board with the audit committee, consisting of three directors, all elected at the general shareholders' meeting. In addition, we have a statutory chartered accountant that is responsible for the audit function and is elected by our shareholders based on a proposal of the audit committee.

        The June 2007 amendments to our articles of association also addressed such matters as voting by correspondence, the absence and surety of directors and share capital reductions (this latter rule resulting from the amendments to the Portuguese Companies Code approved by Decree-Law 8/2007 on January 17, 2007).

New Corporate Governance Model

        As mentioned above, in March 2006, the Portuguese corporate law was broadly amended with relevant implications for the models and principles of corporate governance, in particular those concerning issuers of securities traded on a regulated market. These amendments required companies to change their corporate governance and supervision by June 30, 2007. At the general meeting held on June 22, 2007, shareholders approved a proposal from the Board adopting a new corporate governance model and introducing the required amendments to the Articles of Association of Portugal Telecom. The decision to adopt the new Anglo-Saxon model took into account, inter alia, the fact that the company has securities traded on the NYSE, where this structure is mandatory for domestic companies, as well as the fact that Portugal Telecom already had an audit committee. Following the adoption of the Anglo-Saxon model Portugal Telecom's corporate bodies consist of the General Meeting, the Board of Directors, which includes an Audit Committee, and a Statutory Auditor.

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        Although Portugal Telecom has had an audit committee as an internal committee of the board since December 2003, until June 22, 2007, the statutory audit board was the corporate body responsible for supervision of the audit function and other supervisory functions. At the General Meeting held last June 22, 2007, Portugal Telecom replaced the statutory audit board with the audit committee, consisting of three directors, one of them being its Chairman, all elected by the general shareholders' meeting. Additionally, the Company has a statutory auditor elected by shareholders following a proposal of the audit committee responsible for the audit function.

        The aforementioned proposal of the Board of Directors, approved at the general meeting held on June 22, 2007, also included other amendments to the Company's Articles of Association deemed necessary or convenient for compliance with the remaining amendments to the Portuguese Companies Code, with respect to matters that go beyond the corporate governance model, such as the rules governing voting by correspondence, the absence and surety of directors, and share capital reduction (this latter rule resulting from the amendments to the Portuguese Companies Code approved by Decree-Law no. 8/2007 on January 17, 2007).