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EXHIBIT T3E
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CUSIP
Nos. ISIN Codes
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P23557AC8 USP23557AC81
15548PAC5
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[CTG Logo]
CONSENT SOLICITATION AND INFORMATION MEMORANDUM
Central Termica Guemes S.A.
(incorporated in the Republic of Argentina)
Consent to Plan of Financial Restructuring, including an Exchange of
US$6,000,000
in Cash and Variable Rate Notes due 2010 in an Aggregate Principal Amount of
US$54,000,000 (the "New Notes") for Outstanding 12% Notes due 2001
in an Aggregate Principal Amount of US$60,000,000 (the "Old Notes")
Record Date: July 10, 2000
Voting Deadline: July 31, 2000, 5:00 p.m., New York
City time
Consent Solicitation
Central Termica Guemes S.A. (the "Company") is seeking your approval of a
plan of financial restructuring (the "Plan") it has proposed as part of its
court-supervised reorganization (concurso preventivo) pending with the Civil
and Commercial Court of First Instance, eighth nomination, in the City and
Province of Salta, Argentina (the "Court"), which is domiciled at Avenida
Sarmiento 201, First Floor, Judge Victor Daniel Ibanez presiding, Secretaria
No. 2, in accordance with Law 24,522, the Argentine Bankruptcy Law (the
"Bankruptcy Law") (File number 2C-45,689/99). This Plan includes an exchange
of US$900 in principal amount of New Notes and US$100 in cash for each
US$1,000 in outstanding principal amount of Old Notes.
New Notes
New Notes will be general unsecured senior obligations of the Company,
maturing on the tenth anniversary of the exchange contemplated by the Plan.
Interest will be payable in cash semi-annually on New Notes at a rate of 2.0%
per annum during the first year, 2.5% per annum during the second year, 3.0%
per annum during the third year, and 5.0% per annum thereafter.
(Continued on next page)
See "Risk Factors" beginning on page 6 of this Consent Solicitation and
Information Memorandum for a discussion of certain factors that you should
consider in connection with the Consent Solicitation.
----------------
New Notes have not been registered under the United States Securities Act of
1933, as amended (the "Securities Act") or any state securities laws. As
explained in greater detail herein, the issuance of New Notes is exempt from
the registration provisions of the Securities Act and holders of New Notes,
except for affiliates of the Company, may freely trade New Notes.
----------------
The date of this Consent Solicitation and Information Memorandum is July 10,
2000.
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Interest on the outstanding principal of New Notes will be payable
semiannually in arrears in each year commencing six months after the exchange
contemplated by the Plan. Principal will be paid in its entirety at maturity.
Mandatory Exchange
Each holder of a claim recognized by the Court is entitled to vote either to
accept or reject the Plan in accordance with applicable law and the procedures
set forth in this Consent Solicitation and Information Memorandum. Subject to
the approval (homologacion) by the Court, the Plan will be deemed to have been
accepted if (1) holders of at least two-thirds in principal amount of the
claims recognized by the Court have voted to accept the Plan, and (2) holders
of more than one-half in number of the claims recognized by the Court have
voted to accept the Plan. If the Plan is accepted and approved (homologado) by
the Court, the exchange of New Notes for Old Notes will be mandatory. Promptly
thereafter, the Company will set a date (the "Effective Date") upon which Old
Notes will be cancelled, the indebtedness represented by Old Notes will be
extinguished, and New Notes will be issued by the Company pro rata to the
holders of Old Notes. In light of the benefits to be attained under the Plan
by holders of Old Notes, the Company recommends that you vote to accept the
Plan.
New Notes Exempt from Registration
New Notes have not been registered under the Securities Act or the
securities law of any state of the United States. New Notes are exempt from
registration pursuant to Section 3(a)(9) of the Securities Act. New Notes may
be freely transferred to third parties, except by affiliates of the Company,
because, (1) with respect to New Notes issued in exchange for Old Notes issued
pursuant to Rule 144A of the Securities Act, the two-year holding period under
Rule 144(k) will have been satisfied, and (2) with respect to New Notes issued
in exchange for Old Notes issued pursuant to Regulation S, the requirements of
Regulation S have been met.
Procedures for Delivering Ballots
Brokerage firms, commercial banks, trust companies or other nominees which
hold an interest in the Old Notes directly or indirectly through the
Depository Trust Company ("DTC") system) ("Nominal Holders") and registered
holders who wish to vote to accept or reject the Plan for their own account
must complete, sign and date the attached ballot (the "Ballot") in accordance
with the instructions set forth herein, and deliver the Ballot and any other
required documentation to the Balloting Agent at its address set forth below.
Nominal Holders and registered holders who wish to vote to accept or reject
the Plan on behalf of beneficial owners of Old Notes must complete, sign and
date the attached master ballot (the "Master Ballot") in accordance with the
instructions set forth herein, and deliver the Master Ballot and any other
required documentation to the Balloting Agent. Ballots contain proxies
allowing the respective Nominal Holders to vote for or against the Plan, as
the case may be, on behalf of beneficial owners at any meeting of holders of
the Old Notes that may be called by the Company (the "Noteholders' Meeting"),
solely for the purpose of giving effect to the Plan. Master Ballots contain
proxies allowing the Balloting Agent to vote for or against the Plan on behalf
of beneficial owners at the Noteholders' Meeting. As discussed in great detail
herein, Ballots completed by Nominal Holders voting for their own account and
Master Ballots must be validated. Registered Holders are not required to
obtain validation.
Special Procedures for Beneficial Owners
Each beneficial owner of Old Notes who wishes to vote on the Plan and whose
Old Notes are held in the name of a Nominal Holder should either (1) complete
the Ballot and deliver it to the Nominal Holder through which it holds its
beneficial interest or (2) if such Ballot is or will be validated, deliver it
to the Balloting Agent.
Brokerage Commissions
No brokerage commissions are payable to the Company or the Solicitation
Agent by holders of Old Notes that approve the Plan. The Company is not paying
any commission or other remuneration, directly or indirectly, for soliciting
the exchange of securities contemplated by the Plan.
(Continued on next page)
ii
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Balloting Agent
The Company has appointed Bondholder Communications Group as the Balloting
Agent for the Consent Solicitation (the "Balloting Agent"). Additional copies
of this Consent Solicitation and Information Memorandum and the accompanying
Ballot may be obtained by contacting the Balloting Agent at the following
address: Bondholder Communications Group, 30 Broad Street, 46th Floor, New
York, New York 10004, Attention: Carmen Torres, Telephone: 212-809-2663 or
toll-free within the U.S. 888-385-2663, Fax: 212-422-0790, E-mail:
[email protected].
----------------
No person has been authorized to give any information or to make any
representation concerning the Company or the New Notes not contained in this
Consent Solicitation and Information Memorandum and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company. Neither the delivery of this Consent Solicitation
and Information Memorandum nor the offering, exchange and delivery of any New
Note shall create any implication that the information contained herein is
correct at any time after the date hereof or that there has been no change in
the business, financial condition, results of operations or prospects of the
Company since the date hereof.
----------------
The identity of beneficial owners and the submitting ballots to Nominal
Holders will remain confidential, subject to any request for additional
information from the Court. In any event, such information will not be made
public by the Company, the Balloting Agent or any Nominal Holder.
----------------
The distribution of this Consent Solicitation and Information Memorandum and
the exchange and delivery of New Notes in certain jurisdictions may be
restricted by law. Persons into whose possession this Consent Solicitation and
Information Memorandum comes are required to inform themselves about and to
observe any such restrictions. See "--Exemption from Registration of New
Notes" and "Transferability of New Notes" for a description of certain
restrictions on offers, sales and deliveries of New Notes, and on distribution
of this Consent Solicitation and Information Memorandum.
----------------
The Company has requested that the Argentine National Securities Commission
(Comision Nacional de Valores) ("CNV"), if and when granted, authorize the
public offering of New Notes in Argentina. Such authorization means only that
the information requirements of the CNV have been satisfied. The CNV has not
rendered any opinion in respect of the information contained in this Consent
Solicitation and Information Memorandum. Under Argentine Law, the accuracy of
the accounting, financial, economic and all other information contained in the
Consent Solicitation and Information Memorandum is the sole responsibility of
its Board of Directors and, to the extent applicable, the Statutory Auditors
(as defined under Argentine law), and the auditors who sign the financial
statements included in this Consent Solicitation and Information Memorandum.
The issue of New Notes will be subject to the approval by the Court. New
Notes will constitute Negotiable Obligations (Obligaciones Negociables) under
Law No. 23,576 of Argentina, as amended by Laws No. 23,962 and 24,435 (the
"Negotiable Obligations Law") and are entitled to its benefits and are subject
to its procedural requirements. It is a requirement under Argentine law that
securities offered to the public in Argentina must be rated by two Argentine
rating agencies. New Notes will be rated by each of Humphreys Argentina
Calificadora de Riesgo S.A. ("Humphreys Argentina") and Magister BankWatch
Calificadora de Riesgo S.A. ("Magister").
----------------
(Continued on next page)
iii
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business of the Company" may constitute forward-looking
statements within the meaning of Section 7A of the Securities Act and as such
may involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. See "Risk Factors"
for a description of important factors which may cause actual results,
performance or achievements to differ.
ENFORCEMENT OF FOREIGN JUDGMENTS IN ARGENTINA
The Company is an entity organized under the laws of Argentina. All of the
directors and officers of the Company are residents of Argentina, and all or a
significant portion of the assets of the directors and officers, and
substantially all of the assets of the Company, are located in Argentina. As a
result, it may not be possible for investors to effect service of process upon
such directors or officers outside Argentina, or to realize judgments of
courts outside Argentina predicated upon civil liabilities of such directors
or officers under the laws of jurisdictions other than Argentina, including
any judgments predicated upon civil liabilities under the federal laws of the
United States. The Company has been advised by its Argentine counsel, Estudio
O'Farrell, that there is doubt as to the enforceability, in original actions
in Argentine courts, of liabilities predicated solely on the United States
federal securities laws.
ENFORCEABILITY OF PARTICIPATIONS IN GLOBAL SECURITIES IN ARGENTINA
As described under "Description of New Notes--Terms and Conditions of New
Notes" if the Depository Trust Company or any successor depositary is at any
time unwilling or unable to continue as a depositary for a Global Security (as
defined herein) or ceases to be a "clearing agency" registered under the
United States Securities Exchange Act of 1934, as amended, and a successor
depositary is not appointed by the Company within 90 days after the Company
receives notice from such depositary to that effect or otherwise becomes aware
that the depositary is no longer so registered, or an Event of Default (as
defined herein) has occurred and is continuing with respect to New Notes, the
Trustee (as defined herein) will complete, authenticate and deliver New Notes
in certificated, registered form duly executed by the Company and deposited
with, for future authentication by, the Trustee, in exchange for interests in
such Global Security. The Company may also determine that interests in any
Global Security will be exchanged for Certificated New Notes (as defined
herein).
In Argentina, under the circumstances described in the preceding paragraph,
the Trustee will deliver, through Banco Rio de la Plata S.A., acting as
Trustee's Representative (as defined herein) in Argentina, Certificated New
Notes duly executed by the Company and deposited with, for future
authentication by, the Trustee in exchange for interests in a Global Security
to Argentine holders of notes at its office located at Bartolome Mitre 480,
Buenos Aires.
Under Argentine law, holders of notes may initiate legal proceedings against
the Company in Argentina for the payment of principal (and premium and
additional amounts, if any) and interest due under the notes, as the case may
be, by means of summary proceedings. However, since according to the Argentine
Negotiable Obligations Law (as defined herein), the notes representing
obligaciones negociables are the instruments that grant the right to institute
those proceedings, summary proceedings may not be available in Argentina to
beneficial owners of participations in a Global Security unless and until
Certificated New Notes are issued in exchange for their interests in the
Global Security. This does not prejudice the right of beneficial owners of
participations in a Global Security to initiate other legal actions to demand
payment against the Company before the Argentine courts or other foreign
courts of competent jurisdiction.
(Continued on next page)
iv
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PRESENTATION OF FINANCIAL INFORMATION
The Company maintains its financial books and records in Argentine pesos and
prepares its financial statements to conform to generally accepted accounting
principles in Argentina. This Consent Solicitation and Information Memorandum
refers to those accounting principles as "Argentine GAAP". Argentine GAAP
differs in some respects from generally accepted accounting principles in the
United States.
On August 22, 1995, the government of Argentina published Decree No. 316/95,
which eliminated the requirement that financial statements prepared after
September 1, 1995, be restated for inflation. In compliance with such Decree
and applicable regulations of the CNV, effective September 1, 1995, the
Company discontinued its use of the restatement method. This method is
accepted under Argentine GAAP provided that the annual variation in the
general level of the wholesale price index (the "WPI") in Argentina published
by the National Institute of Statistics and Census (Instituto Nacional de
Estadistica y Censos) ("INDEC") does not exceed 8%. In each of the years ended
after September 1, 1995, the variation of this price index was below this
limit. For the one-month period ended September 30, 1995, the fiscal years
ended September 30, 1996, 1997, 1998 and 1999, and the three-month period
ended December 31, 1999, the changes in the WPI were 0.92%, 2.78%, (0.45%),
(4.19%), (2.11%) and 0.08%, respectively. The conversion factor used to
restate the consolidated financial statements for the period September 30,
1994, to August 31, 1995, in constant Argentine pesos, was 1.07158. This
conversion factor was developed from the rate of inflation computed up to
August 31, 1995, as measured by the WPI, which was 7.16%.
In this Consent Solicitation and Information Memorandum, references to "US$"
and "dollars" are to United States dollars, and references to "Ps" or "pesos"
are to Argentine pesos. Unless this Consent Solicitation and Information
Memorandum states otherwise, the exchange rate used to convert foreign
currency amounts on the Company's historical balance sheets and income
statements into pesos was the exchange rate as of each relevant date or period
end that Banco de la Nacion Argentina ("Banco Nacion") quoted. In the case of
dollars, the Banco Nacion quotes for such exchange rates were Ps 1.00 =
US$1.00.
v
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TABLE OF CONTENTS
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Page
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Summary.................................................................. 1
Financial Restructuring.................................................. 2
New Notes................................................................ 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 9
Capitalization........................................................... 9
Financial Restructuring and Process of Voting and Confirmation........... 10
Ratings.................................................................. 16
Foreign Exchange Rates and Exchange Controls............................. 17
Selected Financial Information........................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Argentine Electricity Industry and Regulatory Framework.................. 26
Business of the Company.................................................. 39
Management and Employees................................................. 48
Principal Shareholders................................................... 52
Related-Party Transactions............................................... 53
Terms and Conditions of New Notes........................................ 54
Taxation................................................................. 66
Transfer Restrictions.................................................... 73
Legal Matters............................................................ 73
Independent Auditors..................................................... 73
Listing and General Information.......................................... 73
Index to Financial Statements............................................ F-1
Annex A--Principal Differences between Argentine GAAP and U.S. GAAP...... A-1
Annex B--Glossary........................................................ B-1
Annex C--Projections of Financial Results ............................... C-1
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vi
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SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements, including the notes thereto, contained elsewhere in
this Consent Solicitation and Information Memorandum.
Company
The Company, a corporation (sociedad anonima) organized under the laws of the
Republic of Argentina, is engaged in the generation and sale of electricity.
The Company owns and operates a three-unit gas-fired thermoelectric generation
plant located approximately 30 miles outside the city of Salta in the
northwestern Argentine province of Salta (the "Plant"). The Plant has a total
installed rated capacity of 245 megawatts ("MW") (gross 261 MW), consisting of
two turbo steam units of 60 MW (gross 63 MW) each and one turbo steam unit of
125 MW (gross 135 MW). This gross capacity represented approximately 1.31% of
the total gross installed generation capacity of the Argentine electricity
system, which was 19,921 MW at March 31, 2000.
The Company is located in the northwest Argentine ("NOA") region. The
Company's gross capacity represents 21.30% of total gross installed capacity in
the NOA region, which was 1,225 MW at March 31, 2000. During the first three
months of 2000 the Company accounted for 91.89% of the installed capacity of
NOA-north sub-region, which covers the provinces of Salta and Jujuy. Seventy
percent of the Company's gross capacity was sold in the NOA-North sub-region
and the rest was exported to the NOA-Center sub-region.
Of the Company's issued share capital, 60% is held by Powerco S.A., 30% is
held by the Federal Government of the Republic of Argentina (the "Argentine
Government") and 10% is held by a labor union representing certain employees of
the Company. Powerco S.A. was incorporated in 1992 under the laws of Argentina
for the purpose of acquiring its 60% interest in the Company.
The Company was incorporated as a shell in 1992 by the Argentine Government.
As part of the privatization of Agua y Energia Electrica S.A. ("AyEE"), a
state-owned electricity generation, transmission and distribution company,
certain of its assets were transferred to the Company on September 24, 1992.
These assets presently constitute the principal operating assets of the
Company. On September 28, 1992, a 60% interest in the Company was awarded to a
consortium formed by Duke Guemes Inc., Sociedad Comercial del Plata S.A.,
Iberdrola S.A., The Argentine Investment Company and TCW Americas Development
Association, L.P. On September 30, 1992, the shares of the Company were sold by
the Argentine Government to Powerco S.A., the investment vehicle formed by the
consortium, for a price of approximately US$86.3 million.
Since January 27, 1999, Powerco S.A. has been controlled by a group of the
Company's senior managers and original investors have no further interest.
The Company's shares are not listed or traded on any stock exchange or over-
the-counter market. The Company has been subject to the regulatory and
reporting requirements imposed by the CNV, in addition to its corporate
reporting requirements, since 1994.
At the time of the privatization of the Company, the Plant was operating at
an average capacity factor of approximately 55.3%. For the year ended December
31, 1999, the average capacity factor decreased to approximately 52.26%. During
the first three months of 2000, the Plant operated at an average capacity
factor of approximately 68.14%, due to the off-line operating system (esquema
de forzamiento) under which the Plant operated during such period. As part of
this system one of the 60 MW units remains off-line, but the Company is
compensated by CAMMESSA (as defined below) for its available capacity, which is
known as Base Power Reserve.
The Plant's efficiency, combined with its proximity to gas reserves in
northern Argentina, the low price paid by it for natural gas at the well-head,
its agreements for the transportation of natural gas, and its low heat rate
(9,129 BTU per kWh (gross) at March 31, 2000), enables the Company to generate
electricity at lower costs
1
<PAGE>
than most other steam thermal generators participating in the wholesale
electricity market (the "WEM") in Argentina. The electric energy produced by
the Plant is dispatched and transmitted to the WEM through the National
Interconnected System, the national electric power system which includes most
generators, transmitters and distributors of electric power in Argentina (the
"NIS"). Generators in the WEM are dispatched principally on a lowest marginal
cost basis, so that electricity produced by generators at a lower cost is used
prior to that generated at a higher cost. The Plant's generation units have
consistently been dispatched among the first thermoelectric generation units in
the WEM by the Administrative Company of the Wholesale Electricity Market, Inc.
(Compania Administradora del Mercado Mayorista Electrico) ("CAMMESSA").
The Company has entered into sales agreements with distribution companies and
with large users of energy known as Major Large Users (Grandes Usuarios
Mayores) ("GUMAs"), Minor Large Users (Grandes Usuarios Menores) ("GUMEs") and
Particular Large Users (Grandes Usuarios Particulares) ("GUPAs" and, together
with GUMEs and GUMAs, "Large Users"). In 1999, the Company sold approximately
36.68% (661 GWh) of its energy production in the Spot Market and approximately
63.32% (1,140 GWh) pursuant to negotiated agreements in the Term Market as an
alternative to making sales in the Spot Market (as these terms are defined
under "Argentine Electricity Industry and Regulatory Framework--The Wholesale
Electricity Market"). In 1999, the average price of the Company's sales
pursuant to agreements in the Term Market was approximately 10.04% higher than
the average Spot Market price for the same period.
The Company is domiciled in Argentina and has its registered office at Ruta
Nacional 34, Km. 1135, Guemes, Province of Salta, Argentina. The Company's
telephone number is 54-387-439-2737.
FINANCIAL RESTRUCTURING
Deteriorating prices for electricity in Argentina and the Company's large
debt burden allocated to it during the privatization process led the Company to
determine that, if prices did not improve considerably, it would be unable to
fulfill its obligations under the Old Notes. The Company therefore did not make
the interest payments due under Old Notes on May 26, 1999, and thereafter, and
began negotiations with an informal committee of holders of Old Notes.
After prolonged negotiations, the Company and such holders were unable to
reach agreement on a restructuring of Old Notes. The Company concluded that the
only way to ensure a definitive resolution as to its future was to file for a
court-supervised reorganization under Argentine law. The Company made such
filing on November 3, 1999, and this filing was acknowledged by the Court on
December 2, 1999. The initial stages of the court-supervised reorganization
involved the filing of proofs of claims by the Company's creditors, including
The Bank of New York, as Trustee on behalf of beneficial owners of Old Notes,
and the determination by the Court of the recognized holders of claims. In an
effort to expedite the court-supervised reorganization, the Company prepared a
term sheet with its proposal for restructuring the Old Notes (representing by
far the largest portion of the Company's outstanding debt). As described more
fully below, subject to the approval of the requisite number of holders and
principal amount of claims and the Court, the Plan provides for, among other
things, the exchange of New Notes for Old Notes and a cash payment to the
holders of Old Notes.
The Company intends to make a common proposal to all its court-recognized
unsecured creditors that will consist of: (1) a cash payment of 10% of the
principal amount of recognized claims promptly after the date when an agreement
with such creditors is approved by the Court, and (2) payment of the balance
(90%) of the principal amount of recognized claims on the 10th anniversary of
the date of approval of the agreement by the Court. This
2
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balance will accrue annual interest to be paid semi-annually at the following
rates: 2% during the first year, 2.5% during the second year, 3% during the
third year, and 5% between the fourth and the tenth year. In addition, all
interest accrued and unpaid on the recognized claims will be cancelled and will
not be paid.
The Company recommends that you approve the Plan. The Company commenced its
court-supervised reorganization because its cash flow projections showed that
it was generating insufficient cash to pay the principal and interest due under
Old Notes. If the Company's creditors do not approve the Plan, the Company may
request its own liquidation before the expiration of the exclusivity period in
November 2000. Although there is no controlling legal authority, this request
is likely to be granted by the Court. It is likely that you will receive
substantially less in a liquidation than if you approve the Plan and the
Company continues to operate and pay principal and interest due under New
Notes. Specifically, holders of Old Notes will be subordinated to certain
preferred creditors, including but not limited to (1) employees, (2) the
expenses of the liquidation proceeding (such as fees and costs of counsel to
the Company, fees payable to the bankruptcy supervisors appointed by the Court,
and costs incurred in the maintenance, operation and administration of the
assets of the Company) and (3) taxes. The liquidation process may also be very
lengthy. The total amount of the preferred creditors accepted by the Court is
Ps 953,919.86 and the total amount of the other creditors (non-noteholders)
arises to Ps 577,793.
If the Plan is approved, all holders of Old Notes will receive, on the
Effective Date, cash equal to 10% of the principal amount of their Old Notes,
New Notes in a principal amount equal to the unpaid principal amount of the Old
Notes and a greater likelihood that they will recover the unpaid principal
amount.
3
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New Notes
Subject to required approvals, New Notes will be issued and a cash payment
will be made by the Company in exchange for Old Notes and New Notes will be
entitled to the benefits of a new Indenture to be entered into between the
Company and The Bank of New York, as Trustee (the "New Indenture"). Certain
capitalized terms used below are defined in "Terms and Conditions of New Notes"
and "Taxation."
New Notes........... Variable Rate Notes issued in an aggregate principal
amount of US$54,000,000.
Maturity Date....... Upon the 10th anniversary of the exchange contemplated by
the Plan.
Cash Payment........ US$6,000,000 payable pro-rata to the holders of Old Notes
upon issuance of New Notes.
Interest............ New Notes will be general unsecured and unsubordinated
obligations of the Company. New Notes will mature on the
10th anniversary of the exchange contemplated by the
Plan. Interest will be payable in cash semi-annually on
New Notes at an annual rate of 2.0% during the first
year, 2.5% during the second year, 3.0% during the third
year, and 5.0% thereafter.
Withholding Tax..... Principal of, and interest on, New Notes will be payable
without withholding or deduction for any taxes, duties,
assessments or governmental charges in Argentina, subject
to certain exceptions. If any such taxes are required by
Argentina to be withheld or deducted, payments will be
increased (the "Additional Amounts"), subject to certain
exceptions.
Optional New Notes will be redeemable, at the option of the
Redemption.......... Company, in whole or in part, at their then outstanding
principal amount together with accrued and unpaid
interest and any Additional Amounts due up to the date of
redemption at any time.
Status.............. New Notes will constitute Negotiable Obligations
(Obligaciones Negociables) under Law No. 23,576 of
Argentina, as amended by Laws No. 23,962 and 24,435, (the
"Negotiable Obligations Law") and are entitled to the
benefits set forth therein and are subject to the
procedural requirements thereof (including summary
proceedings under Article 29 of the Negotiable
Obligations Law).
Ranking............. New Notes will constitute general unsecured and
unsubordinated obligations of the Company and will rank
pari passu in right of payment with all existing and
future unsecured and unsubordinated obligations of the
Company (other than obligations preferred by operation of
law).
Covenants........... As described under "Terms and Conditions of New Notes--
Covenants," the Indenture governing New Notes (the "New
Indenture") will contain covenants relating to, among
other things, (1) permitted indebtedness, (2) permitted
liens, (3) mergers and certain other transactions, and
(4) financial reporting.
Events of Default... The terms of New Notes contain certain events of default,
including cross default, as described under "Terms and
Conditions of New Notes--Events of Default."
4
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Listing............. Application will be made to list New Notes on the Buenos
Aires Stock Exchange, the Open Electronic Market (Mercado
Abierto Electronico) and the Luxembourg Stock Exchange.
New Notes have been made eligible for trading in PORTAL.
New Notes Exempt
from New Notes have not been registered under the Securities
Registration....... Act or the securities laws of any state of the United
States. New Notes are exempt from registration pursuant
to Section 3(a)(9) of the Securities Act and may be
freely traded, except by affiliates of the Company.
Form................
New Notes are in registered form without coupons. New
Notes will be represented by interests in the Global
Security. Solely for the purposes of Argentine law, New
Notes will constitute Negotiable Obligations
(Obligaciones Negociables) with a nominal value of
US$1.00 each.
Denominations....... New Notes will be issued in fully registered global form
in minimum denominations of US$1,000 and in integral
multiples of US$1,000 in excess thereof.
Rating..............
New Notes will be rated by each of Humphreys Argentina
and Magister.
Offering of the The Company has requested that the CNV authorize the
Notes............... public offering of New Notes in Argentina. It is a
condition to the issuance of New Notes that such approval
be granted prior to the Effective Date. A copy of the
Spanish language version of this Consent Solicitation and
Information Memorandum will be available for inspection
and copying during normal business hours at the office of
the Company in Salta.
Governing Law....... The Negotiable Obligations Law governs the requirements
for New Notes to qualify as Negotiable Obligations
(Obligaciones Negociables) thereunder, while such law,
together with the Argentine Business Company Law No.
19,550, as amended, and other applicable Argentine laws,
govern the capacity and corporate authorization by the
CNV of the Company to execute and deliver New Notes and
the authorization of the public offering of New Notes.
Notwithstanding the foregoing, the New Indenture and New
Notes are governed by and construed in accordance with
the laws of the State of New York, as provided under
"Terms and Conditions of New Notes--Governing Law and
Enforceability."
Use of Proceeds.....
The Company will not receive any cash proceeds from the
issuance and exchange of New Notes for Old Notes.
5
<PAGE>
RISK FACTORS
You should consider carefully the information below and in the rest of this
Consent Solicitation and Information Memorandum before deciding whether to
approve the Plan.
Single Purpose Company
The Company's principal business is the ownership and operation of the Plant
and the sale of the electricity generated thereby. The Company's ability to
generate revenues and meet its obligations under New Notes is dependent upon
the successful operation of the Plant and the sale of electricity at prices
sufficient to sustain its operations and meet its financial obligations. Under
certain circumstances, the Plant could fail to generate sufficient cash flow
to meet the Company's obligations under New Notes as a result of operational
and technical problems (including transmission outages or limitations and
catastrophic damage to the Plant), a decline in electricity capacity and
energy prices, or unanticipated modifications of the legal and regulatory
framework within which the Company operates.
Price of Energy Sales
The Company sells a portion of its electricity in the Spot Market at prices
based generally on the marginal cost of generation of the highest cost
generator providing electricity at any particular time in Argentina. A decline
in the marginal cost of generation of the highest cost generator providing
electricity will adversely affect the Company's revenues. Such a decline may
result from additions of lower cost generation capacity which are not offset
by additional demand, from decreases in the cost of the fossil fuels consumed
by thermoelectric generators and from decreases in demand. In addition, the
Company currently sells a significant portion of its electricity pursuant to
privately negotiated agreements in the Term Market. The Company's sales in the
Term Market would also be affected by Spot Market prices since the pricing of
such agreements at renewal would reflect then-prevailing Spot Market prices.
Competition
Currently, there is an excess of installed power capacity in the WEM
primarily due to the addition of more efficient thermal generation capacity
and to the completion of certain state-owned hydroelectric generators which
provide energy at lower prices than thermal generators. The addition of new,
more efficient capacity, together with competition among existing thermal
generators, has had the effect of lowering Spot Market prices. In addition,
some of the new combined cycle thermal generators to come on line have a
marginal cost of generation lower than that of the Plant, which may result in
such units being placed ahead of the Plant units on the dispatch queue.
Specifically, the Company's projected dispatch levels, and as a result its
revenues, could be materially adversely affected by the entrance of
Termoandes, S.A., a subsidiary of the Chilean electric power group Gener S.A.,
into the NOA-North sub-region. Termoandes was authorized by the Argentine
Government to begin operations solely as an exporter of electricity to Chile
and its filings with the Argentine Government indicated that they would not be
connected to the NIS.
Termoandes has a 625 MW installed power capacity and is currently connected
to the Chilean Grand North Interconnected System (Sistema Interconectado del
Norte Grande) through a 345 KV line. Termoandes uses Siemens generating
equipment and combined cycle technology, with two turbo gas units and one
turbo steam unit, using natural gas as fuel.
Termoandes has experienced an excess of more than 50% of its power capacity,
which it is unable to export to Chile, because it has not received
authorization by the regulatory authorities of such market.
6
<PAGE>
Since Termoandes has been unable to export all the energy it initially
contemplated, it has requested authorization from the Argentine Secretary of
Energy to connect to the NIS, at a 310 MW power capacity. Termoandes'
connecting point to the electric power distributor's 132 KV transmission line
would be in the NOA-North area, which is also the Company's connection point.
If Termoandes is granted this authorization, the Company's dispatch will be
substantially affected because the transmission line does not have the
capacity to carry both the Company's production (245 MW) and Termoandes'
production (310 MW requested).
The Company, Termoandes and the governors of the northern provinces of
Argentina are encouraging the construction of a 500 KV line between the NOA
region (from the Guemes node) and the northeast Argentine ("NEA") region (the
Resistencia node), in order to export to Brazil the excess of production in
the NOA-North area and thereby permit both the Company and Termoandes to
operate at full capacity.
It currently appears that the proposed line will be built pursuant to the
recently enacted Federal 500 KV Electric Power Transportation Plan; however,
no assurances can be given that the 500 KV line will be built. If built,
construction of the proposed line will probably take at least 36 months. Given
the uncertainty surrounding the construction of the 500 KV line, the Company
has not included any possible benefits from such line in its cash flow
projections appearing on Annex C.
Argentine Economic and Governmental Factors
The Company is an Argentine corporation (sociedad anonima), and
substantially all of its assets are presently located within Argentina. A
program of reform commenced by the Argentine Government in 1989 has modified
and in certain respects reduced the nature of the public sector's role in the
Argentine economy. Nevertheless, the Argentine Government has exercised and
continues to exercise a significant influence over many aspects of the
economy. Accordingly, Argentine Government actions concerning the economy have
had and could continue to have a significant effect on private sector
entities, such as the Company. The financial condition, results of operations
and prospects of the Company (and its controlled companies) may also be
affected by currency fluctuations, inflation, interest rates, taxation and
other political, social and economic developments in and affecting Argentina,
including any social unrest which may occur as a result of high rates of
unemployment or otherwise. The recent events in emerging markets have
increased the cost of capital to the Argentine private and public sectors, and
this has significantly contributed to recession in the Argentine economy.
Furthermore, even after the recent Argentine elections, domestic political
risk remains a material consideration, because of uncertainty over the ability
of the national administration of Fernando de la Rua, the new President of
Argentina, to address the structural economic changes that many economists
agree are necessary in order to improve Argentina's competitiveness in
regional and global markets and achieve long-term economic strength.
The Company cannot give assurances that any government measures will be
successful in improving the performance of the Argentine economy. Future
economic developments in Argentina, over which the Company has no control, may
adversely affect the Company's business, financial condition or results of
operations. The Company also gives no assurances that Law No. 23,928 and
Decree No. 529/91, which became effective on April 1, 1991, (together the
"Convertibility Law") will not be amended or repealed or that the Argentine
monetary authorities will not change their policy of supporting the existing
peso/dollar exchange rate.
The Company realizes substantially all of its earnings in Argentina in
pesos. Under the Convertibility Law, the Central Bank of the Argentine
Republic (Banco Central de la Republica Argentina) ("Central Bank") must (1)
sell dollars at a rate of one peso per dollar and (2) back the monetary base
with international reserves. Since the Convertibility Law was adopted, the
Central Bank has had sufficient international reserves to support the value of
the peso at such exchange rate. The Central Bank's future capacity to back the
Argentine currency depends upon various factors, including completion of
structural reforms, the Argentine Government's ability to achieve and maintain
a balanced fiscal budget over the years, continuation of low levels of
inflation and sustained economic growth. The Argentine Government currently
imposes no restrictions on an Argentine company's right to transfer dollars.
However, a restrictive exchange control policy, which could adversely affect
the Company's ability to meet its foreign currency-denominated obligations,
might be instituted in the future.
The Convertibility Law might be amended or repealed. Argentine monetary
authorities might change their policy of supporting the existing peso/dollar
exchange rate, even if in the future the level of international reserves
7
<PAGE>
or Argentine financial system is able to support the current peso/dollar
exchange rate. In the event of a significant devaluation of the peso, the
financial condition or results of operations of Argentine companies, including
the Company, and the ability of Argentine companies to meet their foreign
currency-denominated obligations could be adversely affected.
The Argentine financial and securities markets are, to varying degrees,
influenced by economic and market conditions in other countries. Although
economic conditions are different in each country, investor reaction to
developments in one country can have significant effects on the securities of
issuers in other countries, including Argentina. For example, political and
economic developments in December 1994 and early 1995 in Mexico, since mid-
1997 in several Southeast Asian nations and in August 1998 in Russia have had
a negative impact on the financial and securities markets in many emerging
market countries such as Argentina and its neighbor, Brazil. In January 1999,
a monetary and fiscal crisis led to devaluation of the Brazilian currency and
secondary negative effects on other emerging market countries. Although the
markets in more developed countries were also affected, such markets are
generally less vulnerable to developments in emerging markets and less
volatile than the markets in less developed economies. The financial and
securities markets in Argentina may continue to be adversely affected from
time to time by events occurring elsewhere, especially in other emerging
market countries. The value of outstanding New Notes might be adversely
affected thereby.
Foreign Exchange Rates
The Argentine government currently imposes no restrictions on an Argentine
company's ability to transfer Dollars offshore. However, no assurance can be
given that the Argentine Government will not institute any transfer
restrictions in the future. In the event that the Argentine Government imposes
any such restrictions in the future, the Company's access to dollars to meet
its dollar obligations under New Notes may be prevented or restricted.
However, Article 4 of the Negotiable Obligations Law provides as follows:
In the event that the Central Bank should limit, in whole or in part,
access to the foreign exchange market, it shall establish mechanisms in
order to facilitate compliance with the servicing of principal of and
interest on negotiable obligations denominated and subscribed in foreign
currencies, and placed through a public offering with the approval of the
CNV.
The Company has requested that the CNV authorize the public offering of New
Notes in Argentina.
Limitation on Attachment of the Company's Assets
Under Argentine law, the generation of electricity is not considered to be a
public service, but an activity of general interest related to the provision
of a public service, namely, the distribution and transportation of
electricity. It is not clear whether an Argentine court would permit the
enforcement of a judgment on any property of the Company located in Argentina
if it determines that such property provides, or is related to the provision
of, essential public services, or if such enforcement were to affect in any
way the public interest or the provision of any other public service of the
Argentine electricity industry.
Corporate Disclosure and Accounting Standards
Publicly available information about Argentine companies authorized to
publicly offer securities is generally less detailed and less current than the
information regularly published by or about public companies in the United
States and certain other countries. In addition, the Company maintains its
financial books and records in Pesos and in accordance with Argentine GAAP.
Argentine GAAP differs in certain respects from U.S. GAAP. Thus, the reported
earnings and presentation of the Company's financial statements may differ
from what they would have been if prepared using U.S. GAAP or another
country's methodologies.
8
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance and
exchange of New Notes for Old Notes.
CAPITALIZATION
The following table sets the capitalization of the Company at March 31,
2000. This table should be read in conjunction with the financial statements
of the Company and notes thereto included elsewhere in this Consent
Solicitation and Information Memorandum.
<TABLE>
<CAPTION>
March 31,
2000
-------------
<S> <C>
Current Liabilities
Accounts Payable............................................... Ps 2,745,315
Accrued Interest on Old Notes.................................. 6,740,000
Other.......................................................... 5,905,134
-------------
Total Current Liabilities.................................... Ps 15,390,449
=============
Non-Current Liabilities
Old Notes...................................................... Ps 60,000,000
Other.......................................................... 455,792
-------------
Total Non-Current Liabilities................................ Ps 60,455,792
=============
Stockholders' Equity
Common Shares.................................................. Ps 62,906,000
Legal Reserve and Capital Adjustment........................... 5,753,360
Retained Earnings.............................................. (23,501,605)
-------------
Total Stockholders' Equity................................... 45,157,755
-------------
Total Capitalization....................................... Ps121,003,996
=============
</TABLE>
9
<PAGE>
FINANCIAL RESTRUCTURING AND PROCESS OF VOTING AND CONFIRMATION
The following is a brief summary regarding the voting procedures,
requirements for confirmation and effects of the Plan. Additional information
regarding voting procedures is set forth in the Ballot accompanying this
Consent Solicitation and Information Memorandum.
Requirements of Argentine Law
Argentine law requires that the creditors of a company undergoing a court-
supervised reorganization file a proof of claim with the court overseeing this
process and that such creditors be recognized by the court in order that they
may vote on the plan of restructuring prepared by the debtor. The Trustee
pursuant to the Indenture governing the Old Notes (the "Old Indenture"), has
filed a proof of claim on behalf of one of the two registered holders of Old
Notes, CEDE & Co., as nominee of DTC, and all of the beneficial owners holding
directly or indirectly through the DTC system. On June 26, 2000, the Court
issued a decision recognizing the proof of claim filed by the Trustee in
respect of US$58,600,000 in principal and US$6,500,400 in accrued and unpaid
interest owing as of November 3, 1999, in connection with Old Notes. The Court
also recognized the claim of one holder who obtained a duly issued definitive
certificated Old Note (and therefore is no longer a beneficial owner under the
global notes held through DTC) in the principal amount of US$1,400,000 and
US$159,600 in accrued and unpaid interest.
However, such Old Indenture does not authorize the Trustee to vote on the
Plan. Therefore, the Company proposes that voting by the beneficial owners of
Old Notes be in accordance with the procedures described herein. Specifically,
CEDE & Co. will be requested to grant a notarized and apostilled omnibus
proxy, assignment letter form, or similar document in favor of DTC's
participants which will validate their identity in the manner set forth in the
Ballots and Master Ballots, thus allowing them to vote on behalf of each of
the beneficial owners and in accordance with their instructions. The
participants in turn are expected to validate the identity of Nominal Holders,
thus allowing them to vote on behalf of each of the beneficial owners and in
accordance with their instructions (or to vote for their own account if the
Nominal Holder is also the beneficial owner).
In order for beneficial owners to have their votes counted, each beneficial
owner is asked to complete a Ballot and deliver it to the Nominal Holder
through which it holds an interest in the Old Notes (or directly to the
Balloting Agent if the Ballot is or will be validated, as explained below).
This Ballot includes a proxy authorizing the respective Nominal Holder (or
subsequent duly authorized Nominal Holder) to vote on the beneficial owner's
behalf. Each Nominal Holder voting on behalf of a beneficial owner is then
asked to complete a Master Ballot including the required information for each
beneficial owner on whose behalf it is voting and deliver it to the Balloting
Agent. Master Ballots must also be notarized, apostilled and validated Nominal
Holders and registered holders voting for their own account are asked to
complete Ballots, notarize, apostille and validate such Ballots, and deliver
these to the Balloting Agent. Alternatively, a beneficial owner of Old Notes
which has properly validated its identity may vote in person at the
Noteholders' Meeting.
In order to approve the Plan, the Company intends to hold the Noteholders'
Meeting where the beneficial owners of Old Notes, through their
representatives as set forth herein, may vote to approve or reject the Plan.
Any plan of restructuring approved by the recognized creditors is subject to
the approval of the Court (homologacion). New Notes will have authorization to
be publicly offered by the CNV. Upon such approval, the unsecured court-
recognized creditors which are holders of Old Notes will receive a cash
payment of 10% of the principal amount of their recognized claims and New
Notes representing 90% of the principal amount of their recognized claims. The
claims of the other unsecured court-recognized creditors will be evidenced by
the order of the Court approving the Plan.
Voting Instructions
This Consent Solicitation and Information Memorandum is accompanied by a
Ballot (or a Master Ballot, as the case may be) to be used for voting on the
Plan at the Noteholders' Meeting. These materials are being distributed to the
registered, nominal and beneficial owners of Old Notes. Only beneficial owners
are entitled to
10
<PAGE>
vote to accept or reject the Plan at the Noteholders' Meeting and may do so by
completing the Ballot (or a Master Ballot) and returning it to the Balloting
Agent. In light of the benefits to be attained under the Plan by the
beneficial owners, the Company recommends that you vote to accept the Plan and
return the Ballot (or a Master Ballot) prior to the Voting Deadline referred
to below.
BALLOTS (OR MASTER BALLOTS) MUST BE RECEIVED BY THE BALLOTING AGENT ON OR
BEFORE 5:00 P.M., NEW YORK CITY TIME, ON JULY 31, 2000 (the "Voting
Deadline"). ANY BALLOTS (OR MASTER BALLOTS) RECEIVED AFTER THAT TIME MAY NOT
BE COUNTED. ANY BALLOT (OR MASTER BALLOT) WHICH IS EXECUTED BY A BENEFICIAL
OWNER BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN WILL
BE DEEMED AN ACCEPTANCE OF THE PLAN.
Except to the extent that the Company so determines, Ballots (or Master
Ballots) received after the Voting Deadline will not be accepted or counted by
the Company in connection with the Company's request for approval of the Plan.
The Company expressly reserves the right to amend, at any time and from time
to time, the terms of the Plan. If the Company makes a material change in the
terms of the Plan or if the Company waives a material condition thereof, the
Company will disseminate additional solicitation materials and will extend the
Voting Deadline, in each case to the extent required by law.
If a Ballot (or Master Ballot) is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person or entity acting in a fiduciary or representative capacity, such person
must so indicate and, unless otherwise determined by the Company, must submit
evidence satisfactory to the Company of such person's authority.
Except as provided below or as ordered by the Court, unless the Ballot (or
the Master Ballot) being furnished is timely submitted on or prior to the
Voting Deadline, the Company may, in its discretion, reject such Ballot (or
Master Ballot) as invalid and decline to recognize such Ballot (or Master
Ballot) in connection with approval of the Plan by the Court (homologacion).
The method of delivery of Ballots and Master Ballots to be delivered to the
Balloting Agent is at the election and risk of each beneficial owner and
Nominal Holder. Except as otherwise provided herein, such delivery will be
deemed made only when actually received by the Balloting Agent. Instead of
effecting delivery by mail, it is recommended that such beneficial owner or
Nominal Holder use an express courier, overnight or hand delivery service and
deliver a fax copy to the Balloting Agent. In all cases, sufficient time
should be allowed to assure timely delivery.
Subject to any contrary order of the Court, the Company reserves the
absolute right to reject any and all Ballots (or Master Ballots, as the case
may be) not in proper form the acceptance of which would, in the opinion of
the Company or its counsel, not be in accordance with the provisions of
Argentine law. Subject to contrary order of the Court, the Company further
reserves the right to waive any defects or irregularities or conditions of
delivery as to any particular Ballot (or Master Ballot) unless otherwise
directed by the Court. The Company's interpretation of the terms and
conditions of the Plan (including the Ballots and the Master Ballots), unless
otherwise directed by the Court, shall be final and binding on all parties.
Unless waived or as ordered by the Court, any defects or irregularities in
connection with deliveries of Ballots must be cured within such time as the
Company (or the Court) determines. Neither the Company nor any other person or
entity will be under any duty to provide notification of defects or
irregularities with respect to the delivery of Ballots and neither the Company
nor any other person or entity will incur any liability for failure to provide
such notice. Unless otherwise directed by the Court, delivery of such Ballots
(or Master Ballots) will not be deemed to have been made until such
irregularities have been cured or waived. Ballots (or Master Ballots) as to
which any irregularities have not therefore been cured or waived will not be
counted.
11
<PAGE>
Voting Procedures
If you are a Nominal Holder, you will receive a Ballot relating to the
securities you hold directly or indirectly. If you do not hold Old Notes for
your own account, you or your agent should provide copies of this
Consent Solicitation and Information Memorandum and appropriate Ballots to the
beneficial owners of the Old Notes. For further instructions, see "Beneficial
Owners of Old Notes" below. Any beneficial owner who has not received a
Consent Solicitation and Information Memorandum or Ballot should contact his,
her or its Nominal Holder or the Balloting Agent.
You should complete only the Ballot corresponding to Old Notes which you
beneficially own on the Record Date. Beneficial owners who purchase Old Notes
after the Record Date and who wish to vote on the Plan must arrange with the
seller to receive proxies from such persons or the Nominal Holders through
whom such persons held their securities on the Record Date.
Beneficial Owners who elect to vote on the Plan should complete and sign the
Ballot in accordance with the instructions thereon being sure to check the
appropriate box entitled "Accept the Plan" or "Reject the Plan". Beneficial
Owners may not split their vote on the Plan. Beneficial Owners must vote all
Old Notes beneficially owned in the same way (that is, all "accept" or all
"reject") even if such are owned through more than one broker or bank.
Each Ballot delivered directly to the Balloting Agent by a beneficial owner
or a Nominal Holder voting for its own account must be validated in accordance
with the instructions set forth on the Ballot by all Nominal Holders through
which such persons' interest in Old Notes is held until and including the
respective DTC participant through which such interest is ultimately held in
the global securities registered in the name of DTC's nominee, Cede & Co. Each
Master Ballot delivered to the Balloting Agent must be validated in accordance
with the foregoing sentence. Registered holders are not required to obtain any
validation (except notarization and apostilization).
You may receive multiple copies of this Consent Solicitation and Information
Memorandum, especially if you own your Old Notes through more than one broker
or bank. If you submit more than one Ballot because you beneficially own such
Old Notes through more than one broker or bank, be sure to indicate in item 3
of the Ballot(s) the names of ALL other brokers or other Nominal Holders who
hold Old Notes for you.
Beneficial Owners of Old Notes
A beneficial owner of Old Notes on the Record Date is eligible to vote on
the Plan, if his voting instrument is properly validated in accordance with
the instructions found in the Ballot and Master Ballot, regardless of whether
the Old Notes were held on the Record Date in such beneficial owner's name or
in the name of a brokerage firm, commercial bank, trust company or other
Nominal Holder.
IF A BENEFICIAL OWNER'S CLAIM OR INTEREST IS A RESULT OF SUCH BENEFICIAL
OWNER'S OWNERSHIP OF OLD NOTES ON SUCH BENEFICIAL OWNER'S BEHALF IN THE NAME
OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINAL HOLDER,
ONLY THE BENEFICIAL OWNER MAY EXECUTE A BALLOT WITH RESPECT TO SUCH CLAIM OR
INTEREST TO ACCEPT OR REJECT THE PLAN, PROVIDED THAT BENEFICIAL OWNERS MUST
TRANSMIT THEIR COMPLETED BALLOTS EITHER (1) IF IT IS OR WILL BE VALIDATED, TO
THE BALLOTING AGENT OR (2) OTHERWISE TO THE RECORD HOLDER, WHO MUST THEN
RETURN VALIDATED MASTER BALLOTS TO THE BALLOTING AGENT WHICH PROVIDE IN
SUMMARIZED TABULAR FORM THE VOTES BY EACH BENEFICIAL OWNER. ALL SUCH ACTIONS
MUST BE COMPLETED PRIOR TO THE VOTING DEADLINE. BECAUSE OF THE NUMBER OF STEPS
WHICH MAY BE NECESSARY FOR YOUR VOTE TO BE VALID, PLEASE ALLOW YOURSELF
SUFFICIENT TIME TO COMPLETE THE PROCESS.
Any beneficial owner as of the Record Date, holding Old Notes in physical
certificated form, registered in his, her or its own name or Nominal Holders
voting for their own account can vote by completing and signing
12
<PAGE>
the enclosed Ballot, duly notarized and apostilled, and returning the original
directly to the Balloting Agent so that it is actually received by the
Balloting Agent before the Voting Deadline of 5:00 p.m., New York City time on
July 31, 2000, which may be extended at the Company's sole discretion.
Authorized signatories voting on behalf of more than one beneficial owner
must complete a separate Ballot for each such beneficial owner. Any Ballot
submitted to a Nominal Holder will not be counted until such Nominal Holder
either validates such Ballot or properly completes and delivers a
corresponding Master Ballot to the Balloting Agent.
With respect to Old Notes that are held through Euroclear or Clearstream,
see "Special Procedures for Holders of Old Notes Held Through Euroclear or
Clearstream."
By submitting a vote for or against the Plan, you are certifying that you
are the beneficial owner of the Old Notes being voted, or an authorized
signatory for such a beneficial owner. Your submission of a Ballot will also
constitute a request that you (or in the case of an authorized signatory, the
beneficial owner) be treated as the beneficial owner of such securities for
purposes of voting on the Plan.
Brokerage Firms, Banks and Other Record Holders
A brokerage firm, commercial bank, trust company or other nominee which is
the Nominal Holder, on the Record Date of Old Notes for a beneficial owner, or
is a participant, directly or indirectly, in DTC, Euroclear or Clearstream
(each, a "Clearing System") and is authorized to vote in the name of such
Clearing System, directly or indirectly, pursuant to an omnibus proxy,
assignment letter form or similar document (as described below) and is acting
for a beneficial owner, may obtain the vote of the beneficial owner of such
Old Notes, consistent with customary practices for obtaining the votes of
securities held in "street name", in the following way:
The Nominal Holder must obtain the votes of the beneficial owners by
forwarding to the beneficial owners the unsigned Ballots, together with a copy
of this Consent Solicitation and Information Memorandum, a return envelope
provided by, and addressed to, the Nominal Holder, and other materials
requested to be forwarded. Each such beneficial owner must then indicate his,
her or its vote on the original Ballot, complete the information requested in
the Ballot, review the certifications contained in the Ballot, execute the
Ballot and return the original Ballot to the Nominal Holder, or if the Ballot
has been validated, to the Balloting Agent. After collecting the non-validated
Ballots, the Nominal Holder should, in turn, complete a Master Ballot
compiling the votes and other information from the Ballots, execute the Master
Ballot and deliver the original Master Ballot, duly validated, to the
Balloting Agent so that it is actually received by the Balloting Agent before
the Voting Deadline. All Ballots returned by the beneficial owners to a
Nominal Holder should be retained by the Nominal Holder for inspection for at
least one year from the Voting Deadline. The Nominal Holder should advise the
beneficial owner to return his, her or its non-validated Ballot to the Nominal
Holder by a date calculated by the Nominal Holder to allow it to prepare and
return the Master Ballot to the Balloting Agent so that it is actually
received by the Balloting Agent before the Voting Deadline.
A proxy intermediary on behalf of a Nominal Holder may follow the procedures
outlined in the preceding paragraph to vote on behalf of such beneficial
owner.
With respect to Old Notes that are held through Euroclear or Clearstream,
see the procedures set forth below.
Special Procedures for Holders of Old Notes Held Through Euroclear or
Clearstream:
The Balloting Agent will distribute this Consent Solicitation and
Information Memorandum, Ballots and other materials to Euroclear and
Clearstream with a request that such Clearing Systems distribute such
materials to the beneficial owners of Old Notes through the participant firms
holding accounts in such Clearing Systems.
Participants in Euroclear and Clearstream should generally follow the
procedures set forth in the immediately preceding section ("Brokerage Firms,
Banks and Other Record Holders") by using Master Ballots, with two exceptions,
as follows:
(1) The party executing the Ballot or Master Ballot (either the Clearing
System participant or the beneficial owner) should send the original
copy of the Ballot or Master Ballot, upon execution, by overnight
13
<PAGE>
courier and a copy by telecopy to the Balloting Agent. However, to be
counted for purposes of acceptance or rejection of the Plan, the
original of the Ballot or Master Ballot (not merely a telecopy thereof)
must be received by the Balloting Agent before the Voting Deadline. The
party executing the Ballot or Master Ballot should retain a copy of the
Ballot or Master Ballot.
(2) Each participant in Euroclear and Clearstream should also send a
custody instruction to Euroclear or Clearstream, as applicable, that
repeats the substance of the information contained in the executed
Ballots or Master Ballot. Euroclear and Clearstream will forward duly
Validated Master Ballots summarizing of the instructions received from
their participants to the Balloting Agent.
DTC
The Company expects that DTC, as one of the two registered holders of Old
Notes, will arrange for its participants to vote by executing an omnibus
proxy, assignment letter form, or similar document in favor of its
participants. It is expected that such participants will validate, directly or
indirectly, the Ballots or Master Ballots. The Company also expects that
Euroclear and Clearstream, upon the direction of their respective
participants, will provide duly validated Master Ballots summarizing the
Ballots received from their respective participants to the Balloting Agent,
thus confirming the validity of signed Ballots or Master Ballot.
Mandatory Exchange
Each holder of a claim recognized by the Court is entitled to vote either to
accept or reject the Plan in accordance with the procedures set forth in this
Consent Solicitation and Information Memorandum. Subject to the approval of
the Court (homologacion), the Plan will be deemed to have been accepted if (1)
the holders of at least two-thirds in principal amount of the claims of
beneficial owners and other non-preferred creditors recognized by the Court
have voted to accept the Plan, and (2) holders of more than one-half in number
of the claims of beneficial owners and other non-preferred creditors
recognized by the Court have voted to accept the Plan. If the Plan is accepted
and approved (homologado) by the Court, the exchange of New Notes for Old
Notes will be mandatory. On the Effective Date, Old Notes will be cancelled,
the indebtedness represented by Old Notes will be extinguished and New Notes
will be issued by the Company pro rata to the holders of Old Notes and the
holders of the Old Notes shall have no rights and such instruments shall
evidence no rights, except the right to receive the distributions, if any, to
be made to holders of such instruments under the Plan. Except with respect to
the performance by the Trustee under the Old Indenture or its agents of their
obligations under the Plan or in connection with any distribution to be made
under the Plan, effective as of the Effective Date, the Trustee and its
agents, successors and assigns shall be discharged of all of their obligations
associated with the Old Indenture and related agreements and released from all
claims arising in connection with the Old Notes and the Old Indenture and,
effective as of the Effective Date, the Old Indenture shall be deemed
cancelled, except that such cancellation shall not impair the rights of the
holders of the Old Notes to receive distributions under the Plan or the rights
of the Trustee under its charging lien pursuant to the Old Indenture to the
extent that the Trustee has not received payment of all amounts payable to the
Trustee. Once the Trustee has completed performance of all of its duties set
forth in the Plan or in connection with any distributions to be made under the
Plan, if any, the Trustee, and its successors and assigns, shall be relieved
of all obligations as Trustee under the Old Indenture effective as of the
Effective Date.
New Notes Exempt from Registration
The New Notes have not been registered under the Securities Act or the
securities laws of any state of the United States. The New Notes are exempt
from registration pursuant to Section 3(a)(9) of the Securities Act. The New
Notes may be freely transferred to third parties, except by affiliates of the
Company, because (1) with respect to New Notes issued in exchange for Old
Notes issued pursuant to Rule 144A of the Securities Act, the two-year holding
period under Rule 144(k) will have been satisfied, and (2) with respect to New
Notes issued in exchange for Old Notes issued pursuant to Regulation S, the
requirements of Regulation S have been met.
14
<PAGE>
New Notes
New Notes will be issued under the New Indenture to be entered into by the
Company and The Bank of New York, as Trustee, and will mature on the 10th
anniversary of the Effective Date. New Notes will be issued in exchange for
each US$1,000 principal amount of Old Notes cancelled. See "Description of New
Notes" for a complete description of New Notes.
Taxes
Certain Argentine and United States federal income tax consequences of the
exchange of New Notes and cash for Old Notes pursuant to the Plan and of the
acquisition, ownership and disposition of New Notes are discussed below under
"Taxation."
Balloting Agent
The Company has appointed Bondholder Communications Group as the Balloting
Agent for the Consent Solicitation. Requests for additional copies of this
Consent Solicitation and Information Memorandum, the Ballot and other related
documents should be addressed to the Balloting Agent as follows:
By hand, overnight courier or registered or certified mail: Bondholder
Communications Group, 30 Broad Street, 46th Floor, New York, New York
10004, Attention: Carmen Torres, Telephone: 212 809-2663 or toll-free
within the U.S. at 888-385-2663. By fax: 212-422-0790. By e-mail:
[email protected]
Fees and Expenses
All expenses incident to this consent to the Plan will be borne by the
Company.
The Company has also agreed to pay to the Trustee under the Old Indenture
its reasonable fees, costs and expenses and the reasonable fees, costs and
expenses of its professional advisors. The Company made certain payments in
respect of such fees, costs and expenses during the course of the financial
restructuring. If the Company were to fail to make such payments, the Trustee
may assert the right, under the terms of the Old Indenture, to be paid first
on account of such unpaid fees, costs and expenses prior to any distribution
of restructuring consideration to the holders of Old Notes under such Old
Indenture.
15
<PAGE>
RATINGS
National Executive Power Decree No. 656/92 issued on April 28, 1992, as
amended by Decree No. 2019/93 (the "Decree"), as supplemented by CNV General
Resolution No. 217/92 of August 24, 1992, established that the debt securities
of a company authorized by the CNV to be publicly offered in Argentina on or
after November 1, 1992, must be rated by two authorized Argentine rating
agencies. Prior to the introduction of this requirement, there were no rating
agencies in Argentina, and Argentine companies did not have ratings for their
outstanding securities. The Decree, together with CNV General Resolution No.
221/92, issued on October 21, 1992, established certain general rules in
relation to such ratings. Specific guidelines for the standards to be applied
in establishing ratings are submitted by prospective rating agencies to, and
approved by, the CNV.
The Company has selected Humphreys Argentina and Magister to rate the New
Notes. The Decree provides for rating agencies to operate five basic
categories of debt rating from "A" to "E" within which there may be sub-
categories. Categories "A" to "D" are to apply to debt issues in respect of
which the information requirements of applicable Argentine law and regulations
are fulfilled. Securities of an issuer will be given an "E" rating if such
requirements are not fulfilled. The exact parameters of each category and sub-
category form part of the submission to the CNV of any prospective rating
agency.
The methods used by Argentine rating agencies (including Humphreys Argentina
and Magister) to assign credit ratings may differ from those used by rating
agencies in the United States or other countries.
Ratings do not constitute a recommendation to purchase, hold or sell any New
Notes offered hereby and may be changed, suspended or withdrawn at any time.
16
<PAGE>
FOREIGN EXCHANGE RATES AND EXCHANGE CONTROLS
As a result of inflationary pressures, the Argentine currency was subject to
repeated devaluations during the four decades prior to 1991. During this
period, Argentina adopted and operated various exchange rate systems.
Macroeconomic instability produced wide fluctuations in the real exchange rate
of the Argentine currency with respect to the dollar.
Prior to December 1989, the Argentine foreign exchange market was subject to
exchange controls. From December 1989 until April 1991, Argentina had a freely
floating exchange rate for all foreign currency transactions. On March 20,
1991, the Argentine Government announced an economic reform plan known as the
Convertibility Plan. The Convertibility Plan included the Convertibility Law.
Since April 1, 1991, in accordance with the Convertibility Law, the Argentine
currency has continued to be freely convertible into dollars. Under the
Convertibility Law, the Central Bank is obligated to have a reserve in foreign
currencies, gold and public bonds denominated in foreign currency (at their
market value) equal to the amount of the outstanding Argentine currency and to
sell dollars at a rate of not more than Ps 1.00 per US$1.00. Additionally, on
January 12, 1995, the Central Bank promulgated Communication "A" 2298,
adopting a policy of purchasing dollars at a rate of Ps 1.00 per US$1.00.
Under the Argentine Government's medium-term program agreed to with the
International Monetary Fund ("IMF"), the convertibility scheme will maintain
the present fixed convertibility ratio of Ps 1.00 per US$1.00. The government
has recently affirmed its intention to maintain such policy; however, there
can be no assurance that the Argentine Government will continue this policy
for any period of time. In the event of a significant devaluation of the peso,
the financial condition or results of operations of Argentine companies,
including the Company, and the ability of Argentine companies to meet their
foreign currency-denominated obligations could be adversely affected.
The following table shows, for the calendar periods indicated, certain
information from Banco Nacion and the Argentine Central Bank regarding the
free and controlled exchange rates for dollars, expressed in nominal pesos per
dollar. The Federal Reserve Bank of New York does not report a noon buying
rate for Argentine pesos. On June l, 2000, the exchange rate in effect was Ps
1.00 to US$1.00.
<TABLE>
<CAPTION>
Controlled Rate Free Rate
------------------------------- -------------------------------
Period Period
High Low Average(1) End High Low Average(1) End
------ ------ ---------- ------ ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1988........... 0.0013 0.0004 0.0009 0.0013 0.0016 0.0007 0.0011 0.0016
1989........... 0.1300 0.0014 0.0414 0.1350 0.1350 0.0017 0.0465 0.1350
1990........... -- -- -- -- 0.6046 0.1715 0.4883 0.5139
1991........... -- -- -- -- 0.9990 0.9430 0.9866 0.9990
1992(2)........ -- -- -- -- 0.9990 0.9910 0.9919 0.9990
1993........... -- -- -- -- 1.0001 0.9967 0.9995 0.9990
1994........... -- -- -- -- 1.0000 0.9992 0.9996 1.0000
1995........... -- -- -- -- 1.0000 0.9992 0.9996 1.0000
1996........... -- -- -- -- 1.0000 0.9990 0.9995 1.0000
1997........... -- -- -- -- 1.0000 0.9990 0.9995 1.0000
1998........... -- -- -- -- 1.0000 0.9990 0.9995 1.0000
1999........... -- -- -- -- 1.0000 0.9990 0.9995 1.0000
2000(3)........ -- -- -- -- 1.0000 0.9990 0.9995 1.0000
</TABLE>
--------
(1) Average of month-end rates.
(2) On January 1, 1992, the peso replaced the austral as the legal currency of
Argentina at the rate of 10,000 australes per peso.
(3) Through June 1, 2000.
--------
Sources: Central Bank; Banco Nacion.
Fluctuations in the exchange rate between pesos and dollars could affect the
Company's ability to meet its foreign currency obligations. Devaluation of the
Argentine currency could adversely affect the Company's operating results.
17
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information of the Company for the years
ended December 31, 1999, 1998 and 1997, and for the three-month periods ended
March 31, 2000 and 1999, has been derived from, is qualified by reference to
and should be read in conjunction with the financial statements of the
Company, the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Consent Solicitation and Information Memorandum. The financial statements of
the Company for the years ended December 31, 1999, 1998 and 1997, have been
audited by Deloitte & Co. S.R.L., Argentine correspondents for Deloitte Touche
Tohmatsu International, the Company's independent certified public
accountants. Deloitte & Co. S.R.L. has performed a limited review of the
financial statements of the Company for the three-month periods ended March
31, 2000 and 1999. See the Auditor's Report and the Limited Review Report
included elsewhere in this Consent Solicitation and Information Memorandum.
Except as described in "Presentation of Financial Information," the
financial statements of the Company are prepared in accordance with Argentine
GAAP, which differs in certain respects from U.S. GAAP, and with Argentine
reporting practices. See Annex A--Principal Differences between Argentine GAAP
and U.S. GAAP.
Income Statement Data (in thousands of Pesos)
<TABLE>
<CAPTION>
Three Months
Ended March
Year Ended December 31, 31,
-------------------------- --------------
1999 1998 1997 2000 1999
--------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales(1)........................ Ps 36,468 35,440 35,347 8,043 9,697
Cost of Sales....................... Ps(35,158) 31,405 (30,734) (7,781) (9,111)
--------- ------ ------- ------ ------
Gross Profit........................ Ps 1,310 4,035 4,613 262 586
--------- ------ ------- ------ ------
Marketing Expenses.................. (875) (574) (352) (215) (101)
Administrative Expenses............. Ps (2,510) (1,994) (2,030) (585) (498)
--------- ------ ------- ------ ------
Operating Income.................... Ps (2,075) 1,467 2,231 (538) (13)
--------- ------ ------- ------ ------
Other Income-Expense (Net).......... Ps (8,742) (8,193) (6,882) (253) (2,109)
--------- ------ ------- ------ ------
Net (Loss) Income................. Ps(10,817) (6,726) (4,651) (791) (2,122)
--------- ------ ------- ------ ------
</TABLE>
--------
(1) Net sales represent gross sales less energy purchases, transmission costs
and turnover taxes. Energy purchases were Ps 14.07 million, Ps 16.87
million and Ps 12.84 million for 1999, 1998 and 1997, respectively, and Ps
4.11 million and Ps 3.69 million for the three months ended March 31, 2000
and 1999, respectively. Transmission costs were Ps 7.57 million, Ps 6.55
million and Ps 7.65 million for 1999, 1998 and 1997, respectively, and Ps
1.65 million and Ps 1.84 million for the three months ended March 31, 2000
and 1999, respectively. See "Argentine Electricity Industry and Regulatory
Framework--Pricing Energy Payments." Turnover taxes were Ps 0.18 million,
Ps 0.18 million and Ps 0.18 million for 1999, 1998 and 1997, and Ps 0.05
million and Ps 0.05 million for the three months ended March 31, 2000 and
1999, respectively.
18
<PAGE>
Balance Sheet Data (in thousands of Pesos)
<TABLE>
<CAPTION>
December 31, March 31,
------------------------- ---------------
1999 1998 1997 2000 1999
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and Bank Deposits............ Ps 787 594 536 531 1,639
Investments....................... 8,917 5,832 7,412 9,709 8,225
Trade Receivables................. 9,039 10,871 9,000 8,504 9,748
Other Receivables................. 1,458 1,085 1,243 2,906 1,131
Supplies and Materials............ Ps 1,891 1,467 1,555 1,856 1,486
--------- ------- ------- ------- -------
Total Current Assets............ Ps 22,092 19,849 19,746 23,506 22,229
--------- ------- ------- ------- -------
Non-Current Assets
Property, Plant and Equipment(1).. Ps 97,248 101,816 106,126 96,158 100,645
Intangible Assets................. Ps 1,520 2,391 3,471 1,340 2,143
--------- ------- ------- ------- -------
Total Non-Current Assets........ Ps 98,769 104,207 109,597 97,498 102,788
--------- ------- ------- ------- -------
Total Assets.................. Ps120,861 124,056 129,343 121,004 125,017
========= ======= ======= ======= =======
LIABILITIES
Current Liabilities
Accounts Payable.................. Ps 2,145 3,884 3,874 2,745 4,445
Loans............................. 6,740 680 737 6,740 2,906
Payroll and Social Security....... 210 111 154 361 148
Taxes............................. 3,351 2,223 910 3,187 2,532
Several Payment Accrual........... 24 8 6 26 25
Miscellaneous..................... Ps 2,137 -- -- 2,331 --
--------- ------- ------- ------- -------
Total Current Liabilities....... Ps 14,607 6,906 5,681 15,390 10,056
--------- ------- ------- ------- -------
Non-Current Liabilities
Loans............................. Ps 60,000 60,000 60,000 60,000 60,000
Reserve........................... Ps 306 384 171 456 317
--------- ------- ------- ------- -------
Total Non-Current Liabilities... Ps 60,306 60,384 60,171 60,456 60,317
--------- ------- ------- ------- -------
Total Liabilities............... Ps 74,913 67,290 65,852 75,846 70,373
--------- ------- ------- ------- -------
Total Stockholders' Equity...... Ps 45,948 56,766 63,491 45,158 54,644
--------- ------- ------- ------- -------
Total Liabilities and
Stockholders' Equity........... Ps120,861 124,056 129,343 121,004 125,017
========= ======= ======= ======= =======
Selected Financial Ratios
Total Non-Current Assets/Total
Assets............................. 0.82 0.84 0.85 0.81 0.82
Total Stockholders' Equity/Total
Liabilities........................ 0.61 0.84 0.96 0.60 0.78
Total Liabilities/Total Liabilities
and Stockholders' Equity........... 0.62 0.54 0.51 0.63 0.56
</TABLE>
--------
(1) Net of accumulated depreciation of Ps 31.90 million, Ps 27.11 million and
Ps 22.67 million at December 31, 1999, 1998 and 1997, respectively, and
Ps 33.07 million and Ps 28.33 million at March 31, 2000 and 1999,
respectively.
19
<PAGE>
Sources and Uses of Funds Data (in thousands of Pesos)
<TABLE>
<CAPTION>
Three Months
Year Ended December Ended March
31, 31,
----------------------- --------------
1999 1998 1997 2000 1999
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sources of Funds
EBITDA........................... Ps1,001 5,647 8,050 312 1,282
Net Interest Gain (Expense)...... 1,008 (6,837) (6,840) 253 (1,907)
Items No Representing Use
(Sources) of Funds.............. 1,250 380 205 450 --
------- ------ ------ ------ ------
Operating Cash Flow.............. Ps3,259 (810) 1,415 1,015 (625)
======= ====== ====== ====== ======
Changes in Assets and Liabilities
Decrease (Increase) in Accounts
Receivables..................... Ps1,612 (1,871) (1,261) 535 1,123
Decrease (Increase) in Other
Receivables..................... (373) 158 583 (1,447) (46)
Decrease (Increase) in Supplies
and Materials................... (423) 86 (52) 35 (17)
(Decrease) Increase in
Liabilities..................... (498) 1,059 454 483 3,083
------- ------ ------ ------ ------
Changes in Working Capital....... 318 (568) (276) (394) 4,143
------- ------ ------ ------ ------ ---
Capital Expenditures............. (298) (145) (1,369) (85) (79)
------- ------ ------ ------ ------
Net Increase (Decrease in Cash).. Ps3,279 (1,523) (230) 536 3,439
======= ====== ====== ====== ======
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and the notes thereto included elsewhere in this Consent
Solicitation and Information Memorandum. The Company prepares its financial
statements in accordance with Argentine GAAP, which differs in certain
respects from U.S. GAAP. Argentine GAAP is generally less restrictive and
allows wider latitude in the definition and application of certain accounting
principles than U.S. GAAP. See Annex A--Principal Differences Between
Argentine GAAP and U.S. GAAP.
Overview
The Company is principally engaged in the ownership and operation of the
Plant and the sale of electricity generated thereby. The Company derives its
revenues from the generation and sale of energy and capacity in the Spot
Market and in the Term Market pursuant to privately negotiated agreements. The
Company is paid through CAMMESA, which acts as a "clearing agent" for sales in
the Spot Market, and is paid directly by its customers for its sales pursuant
to term agreements. In selling energy to GUMEs under the Argentine regulatory
scheme, the Company acts as a broker, buying energy in the Spot Market at the
applicable Seasonal Price (as defined under "Argentine Electricity Industry
and Regulatory Framework--Pricing Energy Payments") and selling to GUMEs at
the Seasonal Price plus a margin.
The Argentine electricity generation industry has experienced excess
capacity since privatization began in 1992, primarily as a result of increased
competition among generators and the addition of more efficient generation
capacity. Spot Market prices have declined in recent years as a result of more
efficient electrical generation. To counteract the effect of lower Spot Market
prices and to reduce the effect of price fluctuations, the Company has adopted
the strategy of seeking increased sales in the Term Market through privately
negotiated agreements.
The two largest components of the Company's cost of sales are fuel and
salaries and wages, with fuel accounting for over 90% of the Company's
variable costs. The Company has sought to stabilize its fuel costs by entering
into long-term natural gas supply and transmission agreements.
Results of Operations
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
The following tables set forth information regarding the Company's total
gross sales, net sales, electricity generated and average sales prices for the
years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1999 1998
-------- ------
(in millions of
Pesos, except
for GWh and
sales price per
MWh)
<S> <C> <C>
Energy Sales in Spot Market................................... Ps 10.55 12.06
Capacity Sales in Spot Market................................. 3.84 2.75
Sales in Term Market (Energy & Capacity)...................... 43.24 43.88
Frequency Regulation Income................................... Ps 0.67 0.35
-------- ------
Total Gross Sales........................................... Ps 58.29 59.04
======== ======
Energy Purchases.............................................. Ps(14.07) (16.87)
Transmission Costs............................................ (7.57) (6.55)
Turnover Taxes................................................ Ps (0.18) (0.18)
-------- ------
Net Sales................................................... Ps 36.47 35.44
======== ======
Total GWh Generated........................................... 1,801 1,564
Average Sales Price per MWh................................... 20.25 22.66
</TABLE>
21
<PAGE>
The Company's net energy generation and capacity made available in 1999
produced total gross sales of Ps 58.29 million, comprised of Ps 10.55 million
of energy sales and Ps 3.84 million of capacity sales in the Spot Market, an
aggregate of Ps 43.24 million of energy sales and capacity sales in the Term
Market and Ps 0.67 million of frequency regulation income. The Company's net
energy generation and capacity made available during 1998 produced total gross
sales of Ps 59.04 million, comprised of Ps 12.06 million of energy sales and
Ps 2.75 million of capacity sales in the Spot Market, an aggregate of Ps 43.88
million of energy and capacity sales in the Term Market and Ps 0.35 million of
frequency regulation income. Netted from such gross revenues during 1999 were
energy purchases of Ps 14.07 million, transmission costs of Ps 7.57 million
and turnover taxes of Ps 0.18 million. Netted from such gross revenues during
1998 were energy purchases of Ps 16.87 million, transmission costs of Ps 6.55
million and turnover taxes of Ps 0.18 million.
The average price of energy and capacity in the Spot Market at the Ezeiza
node (the node serving the Buenos Aires region) increased approximately 12.7%
from Ps 16.17 per MWh for 1998 to Ps 18.22 per MWh for 1999. The average price
of energy and capacity in the Spot Market at the Guemes node increased
approximately 3.17% from Ps 16.06 per MWh for 1998 to Ps 16.57 per MWh for
1999. This increase was primarily due to the low hydraulic power generated by
the Comahue basin and the increased demand resulting from high temperatures.
The following table sets forth information regarding the Company's cost of
sales for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1999 1998
------------------- -------------------
(in millions (in millions
of Pesos(1)) % of Pesos(1)) %
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Fuel................................ Ps24.56 69.85% Ps20.62 65.67%
Salaries and Wages.................. 2.82 8.02% 2.33 7.42%
Amortization of Intangible Assets... 0.89 2.53% 1.09 3.47%
Third Party Services................ 0.61 1.73% 0.96 3.06%
Supplies and Materials.............. 0.48 1.37% 0.80 2.55%
Social Security Charges............. 0.36 1.02% 0.44 1.40%
Management Costs.................... 0.42 1.19% 0.61 1.94%
Other............................... Ps 5.02 14.29% 4.55 14.49%
------- ------ ------- ------
Total Costs of Sales.............. Ps35.16 100.00% 31.40 100.00%
======= ====== ======= ======
Total GWh Generated................. 1,801 1,564
Average Fuel Cost per net MWh
produced........................... 13.64 13.18
Average Cost per net MWh produced... 19.52 20.08
</TABLE>
--------
(1)Except for GWh, Fuel Cost per net MWh and Cost per net MWh.
Total cost of sales increased Ps 3.76 million from Ps 31.40 million for 1998
to Ps 35.16 million for 1999.
Fuel costs increased Ps 3.94 million to Ps 24.56 million for 1999 from Ps
20.62 million for 1998, primarily due to the increase in generation at the
Plant. Natural gas consumption for 1999 was approximately 544,996 Dm/3/ at a
price of Ps 45.06 per Dm/3/, compared to approximately 481,310 Dm/3/ at a
price of Ps 42.84 per Dm/3/ for the year ended December 31, 1998.
Net depreciation of fixed assets, included in cost of sales, for the years
ended December 31, 1999 and 1998, was Ps 4.73 million and Ps 4.34,
respectively. Depreciation of machinery and equipment is calculated based on
hours of service rendered in accordance with the remaining hours of useful
life determined in a technical study commissioned by the Company in 1992. The
rest of the Company's property, plant and equipment is depreciated by the
straight-line method over the remaining useful life.
Administrative expenses increased Ps 0.52 million to Ps 2.51 million in
1999, compared to Ps 1.99 million in 1998, due to a Ps 0.21 million increase
in salaries and social security charges related to personnel. Other expenses
increased Ps 0.30 million as a result of the Company's marketing efforts to
increase sales in the Term Market.
22
<PAGE>
The Company's net financial result reflects a net loss of Ps 6.08 million
during 1999, compared to a net loss of Ps 6.84 million during 1998, primarily
as a result of the non-payment of interest due with respect to the Old Notes
starting on March 11, 1999.
As a result of net loss carryover, the financial statements of the Company
for 1999 and 1998 reflect real tax rates of 0.0%. At December 31, 1999, the
Company had remaining Ps 21.30 million of tax loss carryover, which can be
carried over as follows: Ps 2.9 million until 2001, Ps 4.1 million until 2002,
Ps 5.0 million until 2003 and Ps 9.3 million until 2004.
Net loss increased Ps 4.09 million, from (Ps 6.73) million for 1998 to (Ps
10.82) million for 1999, as a result of the factors described above.
Three Months Ended March 31, 2000, Compared to the Three Months Ended March
31, 1999
The following tables set forth information regarding the Company's total
gross sales, net sales, electricity generated and average prices for the
three-month periods ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
2000 1999
----------- -----------
(in millions of Pesos,
except for GWh and
sales price per MWh)
<S> <C> <C>
Energy Sales in Spot Market........................... 2.33 2.77
Capacity Sales in Spot Market......................... 0.89 0.94
Sales in Term Market (Energy & Capacity).............. 10.41 11.44
Frequency Regulation Income........................... 0.22 0.12
----------- -----------
Total Gross Sales................................... 13.85 15.27
=========== ===========
Energy Purchases...................................... (4.11) (3.69)
Transmission Costs.................................... (1.65) (1.84)
Turnover Taxes........................................ (0.05) (0.05)
----------- -----------
Net Sales............................................. 8.04 9.69
=========== ===========
Total GWh Generated................................... 364 493
Average Sales Price per MWh........................... 22.09 19.66
</TABLE>
For the three months ended March 31, 2000, the Company had a net generation
of 364 GWh and an average available capacity of 167 MW, compared to 493 GWh
and 228 MW, respectively, for the three months ended March 31, 1999, primarily
as a result of the off-line operating system under which the Plant operated
during such period. As part of this system, one 60 MV unit remains off-line,
but receives compensation for available capacity, which is known as Base Power
Reserve.
The Company's net energy generation and capacity made available during the
three months ended March 31, 2000, produced total gross sales of Ps 13.85
million, comprised of Ps 2.33 million of energy sales and 0.89 million of
capacity sales in the Spot Market, an aggregate of Ps 10.41 million of energy
and capacity sales in the Term Market and Ps 0.22 million of frequency
regulation income. The Company's net energy generation and capacity available
during the three months ended March 31, 1999, produced total gross sales of Ps
15.27 million, comprised of Ps 2.77 million of energy sales and Ps 0.94
million of capacity sales in the Spot Market, an aggregate of Ps 11.44 million
of energy and capacity sales in the Term Market and Ps 0.12 million of
frequency regulation income. Netted from such gross revenues for the three
months ended March 31, 2000, were energy purchases of Ps 4.11 million,
transmission costs of Ps 1.65 million and turnover taxes of Ps 0.05 million.
Netted from such gross revenues during the three months ended March 31, 1999,
were energy purchases of Ps 3.69 million, transmission costs of Ps 1.84
million and turnover taxes of Ps 0.05 million. The decrease in transmission
costs of Ps 0.19 million reflects a change in the regulations concerning the
allocation of transmission costs among WEM agents.
23
<PAGE>
The average price of energy and capacity sold in the Spot Market at the
Ezeiza node decreased approximately 3.21% from Ps 17.13 per MWh for the three
months ended March 31, 1999, to Ps 16.58 per MWh for the three months ended
March 31, 2000. Such decrease was primarily due to increased capacity
resulting from new generation units beginning service and increased efficiency
of existing generation units.
The average price of energy and capacity sold in the Spot Market at the
Guemes node increased approximately 21%, from Ps 14.53 per MWh for the three
months ended March 31, 1999, to Ps 17.56 per MWh for the three months ended
March 31, 2000. The increase in price at the Guemes node was the result of the
off-line operating system used in the first three months of 2000. Under this
system, the Company is not compensated at market prices, but rather according
to its declared variable cost of production, which was higher than the market
price for the period.
The decrease in net sales for the three months ended March 31, 2000,
compared to the three months ended March 31, 1999, is primarily the result of
a decrease in the net energy produced, from 493 GWh for the three months ended
March 31, 1999, to 364 GWh for the three months ended March 31, 2000, which
offset the increase in average sales price generated from Ps 19.66 per MWh for
the three months ended March 31, 1999, to Ps 22.09 per MWh for the three
months ended March 31, 2000.
The following tables set forth the Company's total cost of sales for the
three-month periods ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months ended March 31
----------------------------------------
2000 1999
------------------- -------------------
(in millions (in millions
of Pesos(1)) % of Pesos(1)) %
<S> <C> <C> <C> <C>
Fuel................................ 4.98 64.01% 6.51 71.46%
Salaries and Wages.................. 0.83 10.67% 0.62 6.81%
Amortization of Intangible Assets... 0.18 2.31% 0.25 2.74%
Third Party Services................ 0.15 1.93% 0.08 0.88%
Supplies and Materials.............. 0.22 2.83% 0.13 1.43%
Social Security Charges............. 0.11 1.41% 0.09 0.99%
Management Costs.................... 0.10 1.29% 0.15 1.65%
Other............................... 1.21 15.55% 1.28 14.04%
----- ------ ----- ------
Total Costs of Sales.............. 7.78 100.00% 9.11 100.00%
===== ====== ===== ======
Total GWh Generated................. 364 493
Average Fuel Cost per net MWh
produced........................... 13.67 13.20
Average Cost per net MWh produced... 21.37 18.50
</TABLE>
--------
(1)Except GWh, Fuel Cost per net MWh and Cost per net MWh.
Total cost of sales decreased Ps 1.33 million to Ps 7.78 million for the
three months ended March 31, 2000, compared to Ps 9.11 million for the three
months ended March 31, 1999. This decrease was primarily the result of lower
fuel consumption.
Fuel costs decreased Ps 1.53 million to Ps 4.98 million for the three months
ended March 31, 2000, from Ps 6.51 million for the three months ended March
31, 1999, primarily due to a decrease in generation at the Plant. Natural gas
consumption for the three months ended March 31, 2000, was approximately
109,469 Dm/3/ at a price of Ps 45.49 per Dm/3/, compared to approximately
150,321 Dm/3/ at a price of Ps 43.31 per Dm/3/ for the three months ended
March 31, 1999.
Net depreciation of fixed assets, included in cost of sales was Ps 1.15
million for the three months ended March 31, 2000, compared to Ps 1.22 million
for the three months ended March 31, 1999. Depreciation of machinery and
equipment is calculated based on hours of service rendered in accordance with
the remaining hours of useful life determined in a technical study
commissioned by the Company in 1992. The rest of the Company's property, plant
and equipment is depreciated by the straight-line method over the remaining
useful life.
24
<PAGE>
Administrative expenses increased Ps 0.09 million, from Ps 0.50 million for
the three months ended March 31, 1999, to Ps 0.59 million for the three months
ended March 31, 2000, due primarily to an increase in salaries and social
security charges.
The Company's net financial results reflect a net gain of Ps 0.25 million
for the three months ended March 31, 2000, as compared with a net loss of Ps
1.91 million for the three months ended March 31, 1999, primarily as a result
of the non-payment of interest on the Old Notes and gains from temporary
deposits of funds in various Argentine financial institutions.
Net loss for the three months ended March 31, 2000, was Ps 0.79 million
compared to a net loss of (Ps 2.12 million) for the three months ended March
31, 1999.
Liquidity and Capital Resources
The Company had Ps 9.70 million and Ps 10.24 million in cash and short-term
investments for the year ended December 31, 1999, and the three months ended
March 31, 2000, respectively. Cash flow from operations, defined as net income
plus depreciation, amortization, and net financial expense, and items not
representing use (sources) of funds were Ps 3.26 million and Ps 1.02 million
for the year ended December 31, 1999, and the three months ended March 31,
2000, respectively.
The Company paid no interest on the Old Notes during 1999, compared with Ps
7.20 million during 1998. At March 31, 2000, the Company had outstanding
financial debt of Ps 66.74 million, equivalent to the Old Notes and accrued
interest thereon.
The Company had Ps 0.14 million of capital expenditures in 1998 and Ps 0.30
million in 1999. The Company currently plans approximately Ps 6.88 million of
capital expenditures in 2000, Ps 2.18 million in 2001, Ps 1.27 million in
2002, Ps 0.28 million in 2003, Ps 0.30 million in 2004 and Ps 0.33 million in
2005, for scheduled maintenance and overhaul of the Plant. Capital
expenditures for normal maintenance and overhaul of the Plant are expected to
be financed through internally generated cash flow.
25
<PAGE>
ARGENTINE ELECTRICITY INDUSTRY AND REGULATORY FRAMEWORK
The following is a summary of certain matters relating to the electricity
industry in Argentina, including provisions of Argentine laws and regulations
applicable to the electricity industry, including the Company. This summary is
not intended to constitute a complete analysis of all laws and regulations
applicable to the electricity industry. Holders of Old Notes are advised to
review the summary of such laws and regulations published by CAMMESA and to
consult their legal and business advisors for a more detailed analysis
thereof.
Privatization
As part of the new economic plan inaugurated by President Carlos Menem in
1989, the Argentine Government undertook an extensive program of privatization
of all major state-owned industries, including the electricity generation,
transmission and distribution sectors. Presidential Decree No. 634,
promulgated in March 1991, and Law No. 24,065 (the "Regulatory Framework
Law"), approved in January 1992, together with its implementing Decree
1398/92, established guidelines for the restructuring and privatization of the
electricity sector. The new framework identified the generation, transmission
and distribution of electricity as separate stages and subjected each to
appropriate regulation. The ultimate objective of the privatization process
was to achieve the reduction of rates and improve the quality of service
through competition. The privatization process commenced in February 1992 with
the sale of several large thermal generation facilities formerly operated by
Servicios Electricos del Gran Buenos Aires ("SEGBA"), and has continued with
the sale of transmission and distribution facilities and additional
thermoelectric and hydroelectric generation facilities.
Supply and Demand (Historical)
The generation of electricity in Argentina between 1980 and 1999 increased
by over 5.9% per annum compared with population growth per annum of 16.69%
between 1980 and 1991, 6.6% between 1991 and 1995 and 5.36% between 1995 and
1999. According to its forecasting reports, CAMMESA expects electric power
demand to grow at a rate of approximately 5% for the year 2001. The net demand
for energy in the WEM grew at a rate of 4.70% during 1999 and 7.5% between
January and March 2000, as compared with the year-ago period.
Growth of Electric Energy Generation and Population
<TABLE>
<CAPTION>
Generation of
Year Electric Energy(1) Population(2)
---- ------------------ --------------
(GWh) (in thousands)
<S> <C> <C>
1980.................................... 35,671 27,949(**)
1985.................................... 41,465 30,305
1990.................................... 47,001 32,527
1991.................................... 50,115 32,615(**)
1992.................................... 52,294 33,104(*)
1993.................................... 57,861 33,869(*)
1994.................................... 60,958 34,318(*)
1995.................................... 62,809 34,768
1996.................................... 68,318 35,220
1997.................................... 67,777 35,672
1998.................................... 68,174 36,125(*)
1999.................................... 77,984 36,612(*)
</TABLE>
--------
(1) Source: Secretary of Energy
(2) Source: INDEC (Instituto Nacional de Estadisticas y Censos)
(*) Amounts estimated by the Company
(**) Amounts obtained from national census conducted by INDEC
26
<PAGE>
According to CAMMESA, in 1999, energy consumption in Argentina was
approximately as follows: industrial (39.88%); residential (34.50%);
commercial (23.88%); and other (1.74%). Historically, industrial consumption
has grown more rapidly than any other sector, followed by residential
consumption.
CAMMESA estimates that during 1999, total generation of electricity in the
WEM (not including Sistema Patagonico, the southern transmission system which
is not connected to the NIS) was 72,857 GWh, of which 56.4% was produced by
thermal plants, 34.1% was produced by hydroelectric plants, 9.0% was produced
by nuclear plants and 0.5% was provided by other generators. Total installed
capacity in the WEM as of March 31, 2000, was 19,921 MW, of which 9,991 MW
corresponded to thermal generation, 8,925 MW to hydraulic generation and 1,005
MW to nuclear generation. During peak hours, 12,709 MW is required to meet
demand.
As of March 31, 2000, the total energy generated by the WEM was 19,739 GWh,
of which 60.51% corresponded to thermal generation facilities, 30.22% to
hydraulic generation facilities, 9.05% to nuclear generation facilities and
0.22% to other generation facilities.
In addition to the foregoing, CAMMESA estimates that an additional 3,456 MW
of thermal generating capacity will go on line between 2000 and 2002 after the
date of this Consent Solicitation and Information Memorandum. Between the year
2000 and 2006, CAMMESA expects an additional 2,665 MW to come on-line, of
which 745 MW will be nuclear, 1,000 MW will be thermal (combined cycle) and
920 MW will be hydraulic. In addition, CAMMESA does not include in its
projections projects which do not have a firm completion date. If these
projects were included, an additional 1,874 MW would come on line, of which 30
MW will be hydraulic and the rest will be thermal (combined cycle).
Generation Capacity
<TABLE>
<CAPTION>
Installed
Capacity
Generation Units Type Year (MW)
---------------- ------------- ---- ---------
<S> <C> <C> <C>
Yacyreta........................................... Hydroelectric 1996 564
1997 733
1998 345
Casa de Piedra..................................... Hydroelectric 1996 60
C.T. Buenos Aires.................................. Thermal 1996 240
C.T. Ave Fenix..................................... Thermal 1996 160
C.T. Tucuman....................................... Thermal 1996 144
C.T. Genelba....................................... Thermal 1996 219
1997 455
Lujan de Cuyo...................................... Thermal 1998 240
Argener............................................ Thermal 1998 180
Pichi Picun Leufu.................................. Hydroelectric 1999 249
Central Costanera.................................. Thermal 1999 851
Pluspetrol Energy.................................. Thermal 1999 158
C.T. Agua del Cajon................................ Thermal 2000 270
-----
Total............................................ 4,868
</TABLE>
--------
Source: CAMMESA
Generation Capacity after March 2000
<TABLE>
<CAPTION>
Installed
Capacity
Generation Units Type Year (MW)
---------------- ------- ---- ---------
<S> <C> <C> <C>
Central Puerto........................................... Thermal 2000 798
Dock Sud................................................. Thermal 2000 780
C.T. Parana.............................................. Thermal 2000 845
Ciclo Combinado Independencia............................ Thermal 2002 242
Central Electrica Buenos Aires Norte..................... Thermal 2002 791
-----
Total.................................................. 3,456
</TABLE>
--------
Source: CAMMESA
27
<PAGE>
Generation Capacity 2002 to 2006
<TABLE>
<CAPTION>
Installed
Capacity
Generation Units Type Year (MW)
---------------- ------------- ---- ---------
<S> <C> <C> <C>
Central Nuclear Atucha II.......................... Nuclear 2006 745
Enargen (Comahue).................................. Thermal 2003 480
Ciclo Combinado TermoRoca (TPC).................... Thermal 2003 60
San Pedro.......................................... Thermal 2003 60
Ciclo Combinado Futuro Cuyo 1...................... Thermal 2005 400
Yacyreta (cota 83)................................. Hydroelectric 2004 700
Cuyo Ampliacion.................................... Hydroelectric 2005 120
Bermejo............................................ Hydroelectric 2004 100
-----
Total............................................ 2,665
</TABLE>
--------
Source: CAMMESA
Generators which may become part of the WEM but which are not included in
CAMMESA's projections.
<TABLE>
<CAPTION>
Potential Accumulated
Generation Units Type MW Pot. MW
---------------- ------------- --------- -----------
<S> <C> <C> <C>
Las Maderas................................. Hydroelectric 30 30
Las Playas.................................. Thermal 250 280
Loma de la Lata Ciclo Combinado............. Thermal 200 480
C.T. San Miguel de Tucuman.................. Thermal 274 754
C.T. Termoandes............................. Thermal 270 1,024
Genelba 2 Ciclo Combinado................... Thermal 850 1,874
-----
Total..................................... 1,874
</TABLE>
--------
Source: CAMMESA
Wholesale Electricity Market
The WEM framework came into effect in August 1992. Under the WEM, a
competitive market has been established in which electricity generators and
distributors can buy and sell electricity at prices determined by the forces
of supply and demand, and can enter into long-term electricity supply
contracts.
The WEM consists of:
(1) a term market (the "Term Market"), with agreements whose quantities,
prices and conditions are agreed upon directly and freely between sellers
and buyers;
(2) a spot market (the "Spot Market"), with prices established on an
hourly basis as a function of economic production cost, represented by the
short term marginal cost of production measured at Ezeiza, the load center
of the WEM; and
(3) a system of stabilization, on a quarterly basis, of Spot Market
prices, designed for purchases by distributors.
Structure
According to the structure of the Argentine electricity industry, as set
forth in the Regulatory Framework Law, the WEM includes the following
categories of principal agents: generators, transmitters, distributors and
Large Users. These agents, together with the Secretary of Energy (on behalf of
the Argentine Government), form CAMMESA.
In addition, Article 54 of the Regulation Framework Law created the National
Electricity Regulation Entity (Ente Nacional Regulador de la Electricidad)
("ENRE"), the agency in charge of enforcing compliance with the Regulatory
Framework Law.
28
<PAGE>
Regulatory Control
A description of the principal regulatory authorities in the Argentine
electricity industry follows.
ENRE. The ENRE is an agency which functions under the Secretary of Energy
and which has a variety of regulatory and jurisdictional powers. The duties of
the ENRE include, among others: (1) to enforce compliance with the Regulatory
Framework Law and related regulations; (2) to control the delivery of services
and to enforce compliance with the terms of concession agreements; (3) to
adopt rules applicable to generators, transmission companies, distributors,
users of electricity and other related parties with respect to safety,
technical rules and procedures, measuring and billing consumption, the
interruption and reconnection of supplies, third party access to real estate
used in the electricity industry and the quality of the services offered; (4)
to issue opinions regarding anti-competitive, monopolistic and discriminatory
conduct between participants in the electricity industry; (5) to impose
penalties when provisions of the concession agreements or other related
regulations are infringed; and (6) to arbitrate conflicts between system
participants.
The ENRE is directed by a five-member Board of Directors appointed by the
executive branch of the Argentine Government. Two of these five members are
nominated by the Federal Council of Electric Energy (Consejo Federal de la
Energia Electrica). The ENRE is responsible for advising the Argentine
Government on matters related to electricity.
CAMMESA. The organization of CAMMESA and approval of CAMMESA's by-laws were
set forth in Decree No. 1,192 dated July 10, 1992. Of CAMMESA's shares, 20%
are held by the Argentine Government and 20% are held by each of the
associations representing (1) generation companies, (2) transmission
companies, (3) distribution companies and (4) Large Users.
CAMMESA is in charge of:
(1) the technical dispatch of the NIS pursuant to the Regulatory
Framework Law and related regulations. It is in charge of (a) determining
the technical and economic dispatch of electricity, seeking to maximize the
system's security and the quality of electricity supplied, and minimizing
wholesale prices in the Spot Market; (b) planning energy capacity needs and
optimizing the use of energy pursuant to the rules set from time to time by
the Secretary of Energy; and (c) monitoring the operation of the Term
Market and administering the technical dispatch of electricity pursuant to
any agreements entered into in such market;
(2) acting as agent of the various WEM participants and/or carrying out
the duties entrusted to it in connection with the electricity industry;
(3) purchasing and/or selling electric power from or to other countries
by performing the relevant import/export operations; and
(4) rendering services related to the Argentine electricity industry.
The operating costs of CAMMESA are covered by mandatory contributions made
by members of the WEM. The regulations in effect have established a maximum
amount for CAMMESA's annual budget, equivalent to 0.85% of the aggregate
transactions in the WEM.
WEM Agents
Generators. In Argentina, there are approximately 40 generating plants owned
by some 30 private companies, by companies owned by provincial joint ventures
and by international joint ventures. Generators participate in CAMMESA through
the Argentine Association of Electric Power Generators which is entitled to
appoint two acting and two alternate directors of CAMMESA.
As of December 1999, approximately 76.8% of the electric power generating
sector had been privatized. Privatized companies include hydroelectric
generators such as Hidroelectrica Alicura S.A., Hidroelectrica El Chocon S.A.,
Hidroelectrica Cerros Colorados S.A., Hidroelectrica Piedra del Aguila S.A.,
Hidroelectrica Los Nihuiles S.A., Pichi Picun Leufu and thermal generators
such as the Company, Central Puerto S.A., Central Costanera S.A., Central
Termica Alto Valle S.A., Central Termica Pedro de Mendoza S.A. and Central
Termica Sorrento S.A. Other large hydroelectric plants such as Yacyreta and
Salto Grande, and all nuclear plants, remain to be privatized.
29
<PAGE>
The following table sets forth information regarding the Argentine generation
companies participating in the WEM as of December 31, 1999.
Privatized Generators
<TABLE>
<CAPTION>
Generator City/Province/Region
--------- --------------------
<C> <S> <C>
1 AES Caracoles....................................... Cuyo
2 C.T. Agua del Cajon................................. Neuquen
3 C.T. Alto Valle S.A................................. Neuquen
4 C.T. Ave Fenix S.A.................................. Tucuman
5 C.T. Buenos Aires................................... Buenos Aires
6 C.T. Costanera S.A.................................. Buenos Aires
7 C.T. Dique S.A...................................... Province of Buenos Aires
8 C.T. Dock Sud S.A................................... Buenos Aires
9 C.T. Filo Morado.................................... Neuquen
10 C.T. Genelba S.A.................................... Province of Buenos Aires
11 C.T. Guemes S.A..................................... Salta
12 C.T. Litoral S.A.................................... Litoral
13 C.T. Mendoza S.A.................................... Mendoza
14 C.T. Modesto Maranzanas............................. Cordoba
15 C.T. del NOA S.A.................................... NOA
16 C.T. del NEA S.A.................................... NEA
17 C.T. Pedro de Mendoza S.A........................... Buenos Aires
18 C.T. Piedra Buena S.A............................... Province of Buenos Aires
19 C.T. Puerto S.A..................................... Buenos Aires
20 C.T. San Miguel de Tucuman.......................... Tucuman
21 C.T. San Nicolas S.A................................ Province of Buenos Aires
22 C.T. Sorrento S.A................................... Santa Fe
23 C.T. Turbine Power S.A.............................. Rio Negro
24 C.T. Parana......................................... San Nicolas
25 C.T. GECOR S.A...................................... Cordoba
26 H. Alicura.......................................... Neuquen
27 H. Cerros Colorados S.A............................. Neuquen
28 H. Casa de Piedra................................... La Pampa
29 H. Chocon........................................... Neuquen
30 H. Los Nihuiles S.A................................. Mendoza
31 H. Los Nihuiles S.A. (EMSE SE)........................Neuquen.
32 H. Piedra de Aguila S.A............................. Neuquen
33 H. Rio Diamante S.A................................. Mendoza
34 H. Rio Hondo S.A.................................... Santiago del Estero
35 H. Rio Juramento S.A................................ Salta
36 H. Tucuman.......................................... Tucuman
37 Hidrotermica San Juan............................... San Juan
38 Pichi Picun Leufu................................... Neuquen
39 Pluspetrol Energy S.A............................... Tucuman
Provincial Generators
<CAPTION>
Generator City/Province/Region
--------- --------------------
<C> <S> <C>
1 EPEC................................................ Cordoba
2 ESEBA............................................... Province of Buenos Aires
3 SES................................................. San Juan
</TABLE>
30
<PAGE>
Binational Generators
<TABLE>
<CAPTION>
Generator City/Province/Region
--------- --------------------
<C> <S> <C>
1 Yacyreta............................................. Corrientes
2 CTM Salto Grande..................................... Entre Rios
National Generators
<CAPTION>
Generator City/Province/Region
--------- --------------------
<C> <S> <C>
1 Atucha 1............................................. Buenos Aires
2 Embalse.............................................. Cordoba
</TABLE>
Transmitters
Electricity is transmitted from power generation facilities to distributors
through transmission systems. Transmitters are companies which provide high
and medium voltage power transmission. Transmission is defined as the delivery
from the connection points of a generator to a connection point of a
distributor or a Large User. Transmitters neither purchase nor sell power, and
their service is regulated by the Regulatory Framework Law and related
regulations promulgated by the Secretary of Energy.
In Argentina, transmission of electricity is carried at 500 kV, 200 kV, and
132 kV through a transmission system known as NIS. The NIS consists primarily
of overhead lines and substations and covers approximately 90% of Argentina.
This system has been privatized and divided into in one national net operated
by Transener S.A., and various regional systems operated by, among others,
Transnoa S.A., Transnea S.A., Translitoral S.A., Distrocuyo S.A., Transpa
S.A., Transba S.A. and Transcomahue S.A.
Supply points link the NIS to distribution systems, and there are also
interconnections between the transmission system of Argentina and that of
Uruguay, Brasil and Chile, allowing for the import or export of electricity
from one system to the other.
Users of electricity pay the following transmission costs: (1) a variable
transmission charge as a result of nodal and adaptation factors; (2) charges
for connection to the system; and (3) charges for capacity reserve.
Transmission companies operate as common carriers and must provide access to
all generators, distributors and Large Users. Transmission companies also
participate in CAMMESA by appointing two acting and two alternate directors
through their trade association, the Argentine Association of Electric Power
Transmitters ("ATEERA").
Distributors
Distribution is defined as the transfer of electricity from NIS supply
points to consumers through a widespread network of overhead lines,
underground cables and substations, each of which has successively lower
voltages. Like generation and transmission companies, distributors participate
in CAMMESA by appointing two acting and two alternate directors through their
trade association, the Argentine Association of Electric Power Distributors
("ADEERA").
Each distributor operates under a concession agreement which establishes,
among other things, the concession area, the quality of service which it is
required to provide, the rates which it is permitted to charge and its
obligation to satisfy demand. Provided that there is available distribution
capacity, such distributors are obliged to give open access to all users that
need its services, and to permit Large Users to transmit electricity purchased
from alternate sources through their networks, for which they receive a
wheeling fee.
31
<PAGE>
Three distributors have been granted concessions by the Argentine Government
to operate in the Federal District: EDENOR, EDESUR, and EDELAP. The ENRE
monitors compliance by these distributors with the provisions of their
respective concession agreements and with the Regulatory Framework Law, and
provides a mechanism for public hearings at which complaints against
distributors can be heard and resolved.
All other distributors (those which operate in the provinces) are controlled
by their respective local authorities, generally an agency with
characteristics similar to the ENRE's.
Most of Argentina's provincial distributors have been privatizated,
including those operating in Salta, Tucuman, La Rioja, San Luis, Rio Negro,
Entre Rios, Buenos Aires, Jujuy, San Juan, Catamarca, Formosa and Santiago del
Estero. Only a few are still owned by provincial governments, including those
operating in Santa Fe, Misiones and Cordoba and certain of these provinces,
such as Santa Fe and Cordoba, have begun the legal process to privatize their
distributors.
Large Users
Large Users are those who, as a result of their characteristics of energy
consumption, are permitted by the Secretary of Energy to buy their energy
directly from generators. Large Users pay their distributors a toll.
The WEM classifies three categories of large users:
The Major Large Users (GUMAs) are all users that have in each connection
point a minimum annual demand of power of 1MW and of energy of 4380 MWh. They
contract in the WEM at least 50% of their electricity demand. Their
transactions in the Spot Market are invoiced by CAMMESA.
The Minor Large Users (GUMEs) are all users that have in each connection
point a power demand which is less than 2 MW, but greater than or equal to
30kW. They must contract in the WEM the totality of their power and
electricity demand. They have no relationship with CAMMESA.
The Particular Large Users (GUPAs) are all users that have in each
connection point a power demand less than 100 kW, but greater than or equal to
30kW. They must contract in the WEM the totality of their power and
electricity demand. They have no relationship with CAMMESA.
Large Users participate in CAMMESA by appointing two acting and two
alternate directors through their trade association.
WEM Participants
General
In order to increase the number of agents involved in the wholesale
electricity market, and to promote competition and investment in the sector,
Government Decree No. 186/95 created the status of WEM participant.
Pursuant to this Decree, companies which obtain the authorization from the
relevant authorities to market electrical energy from international
interconnections and bilateral undertakings are able to enter the WEM. Even if
these companies cannot be admitted to any WEM agent category, they may market
power in blocks. Such Decree also instructed the Secretary of Energy to issue
complementary regulations to govern the categories of agents, including that a
new category of traders, which was effectively implemented by subsequent
regulations issued by the Secretary of Energy.
Under Section 5 of Decree No. 186/95, WEM participants are: (1) companies
authorized to market electrical energy from international interconnections and
bilateral undertakings; (2) companies that, though not WEM agents, market
electrical energy in blocks; and (3) companies that, though not WEM agents,
operate facilities
32
<PAGE>
used in connection with Electrical Connection Functions (as defined in the
Decree)
Annex 31 to the procedures regarding participant entry conditions include
the following new categories of agents:
Marketing province
These are provinces entitled to receive hydroelectric royalties. These
provinces may to collect such royalties in electrical energy and sell it.
Foreign company
This category consists of companies which own power generation, co-
generation or self-generation facilities, or transmission or distribution
systems, located outside the Republic of Argentina and are related to a WEM
agent or trader through an import or export agreement.
Trader
This category consists of companies which (a) engage in purchasing and
selling, on a wholesale basis, electrical energy produced and to be used by
third parties, (b) are not WEM agents and (c) have equity of at least US$14
million.
In order to support export transactions, traders must previously enter into
marketing agreements. A marketing agreement is an agreement entered into by a
WEM agent and a trader under which the marketing of partial or total
production capacity (in the case of power generation transactions), or of
partial or total demand (in the case of Large Users), is transferred for a
certain period to the trader.
Electricity Exports/Imports
The WEM is an open market, which means that energy transactions can involve
not only Argentine firms, but also firms located in countries interconected
with Argentina. Electricity exports and imports must be previously authorized
by the Secretary of Energy, under the terms of Section 34 of the Regulatory
Framework Law.
Accordingly, and pursuant to the powers granted to it, the Secretary of
Energy has regulated the electricity export and import system.
In order to guarantee the transparency of electricity export and import
transactions, minimum reciprocity and symmetry conditions must be established
between the WEM and the electricity market of the country from/to which
exports/imports are made.
Such conditions include:
.A supply dispatching and generation market which is based on economic
costs.
.Open access to residual transmission capacity.
.Non-discriminatory conditions in both countries.
WEM agents and traders may perform import and/or export operations under the
following conditions:
. Any generator or trader may be the seller in a futures market export
contract, and may also perform spot export operations.
. Any distributor, Large User or trader may be the buyer in a futures
market import contract.
. Any trader may perform spot import operations.
33
<PAGE>
International Interconnection Transmission Service
Import and export operations are completed through the International
Interconnection Transmission ("IIT") system. Naturally, the system's main
function is to transmit power between the WEM and the other country's
electricity market.
IIT services may be obtained by contracting with an existing IIT
concessionaire, through a connection to an IIT concessionaire's facilities
when there is residual capacity in the IIT line, through an expansion of an
existing concessionaire's line paid for with tolls, or by obtaining a new IIT
concession (which assumes building a transmission line to be connected with
the power sector in the neighbouring country).
By law, owners of facilities involved in the transmission of electricity
such as an IIT concessionaire, must permit free, non-discriminatory access by
third parties to their transmission capacity, receiving in consideration the
remuneration determined by the Secretary of Energy in the relevant IIT
concession agreement.
If there is residual capacity in the IIT system, users of the transmission
system may request access to such capacity from the corresponding IIT
concessionaire.
If there is no residual capacity in IIT facilities users may contract for an
expansion of an existing concessionaire's transmission line paid for with
tolls, according to the procedures applicable to granting IIT concessions.
IIT concessions are granted by the ENRE. The ENRE may also execute
concession agreements on behalf of the Argentine Government.
Dispatch
Subject to certain exceptions described below, energy is dispatched by
CAMMESA on a lowest cost of production basis. In order to enable CAMMESA to
determine the marginal cost of production, generators declare their variable
costs of production semi-annually.
After considering the variable production cost declared by each generator,
plus the cost of unsatisfied demand or cost of failure in the system, CAMMESA
performs seasonal and weekly dispatch, enabling it to establish seasonal and
short term schedules for each generator.
Based on the information that each generator sends to CAMMESA by the end of
each calendar week, CAMMESA determines a weekly dispatch with the goal of
minimizing total production cost and risk of system failures. The scheduled
weekly dispatch can be adjusted daily by CAMMESA.
Pricing
Generators are remunerated for energy sold to the WEM at prices determined
in the Spot Market, while distributors pay for their purchases of energy in
the WEM at Seasonal Prices (as defined below). Differences between such prices
are accumulated in a Stabilization Fund (as described below).
Seasonal Energy Price. Each year is divided into two seasons (November 1 to
April 30 and May 1 to October 31) which have different hydrological and demand
characteristics. Every six months (subject to a quarterly review), CAMMESA
determines the seasonal energy prices payable by distributors for their
purchases of energy in the WEM ("Seasonal Prices"). It also determines the
charges payable by distributors, Large Users and self-generators for their
capacity demand in the WEM.
The Seasonal Price determined by CAMMESA is based on the average cost of
providing one MW of additional energy (marginal cost), the costs associated
with the failure of the system and certain other factors. To determine the
Seasonal Price, CAMMESA uses a seasonable database and optimization models.
34
<PAGE>
In order to determine the Seasonal Price, CAMMESA must take into account
energy supplies provided by generators based on their expected availability,
committed imports of electricity and the availability declared by generators.
In determining demand, CAMMESA must include the requirements of distributors,
Large Users and self-generators purchasing in the WEM, and committed exports.
CAMMESA must simulate the operation of a given seasonal period for different
supply and demand scenarios. In each alternative scenario considered, CAMMESA
must make the optimum dispatch of available supply, taking into account the
restrictions of the NIS, in such way as to meet demand requirements while
seeking to minimize the production cost plus the cost associated with reducing
the risk of system failure, which varies by season.
The final factor considered in determining the seasonal price is the status
of the Stabilization Fund, as defined and discussed further below under "--
Stabilization Fund."
Spot Market Remuneration. In the Spot Market, generators are remunerated for
energy according to the marginal cost of the next unit to be dispatched. In
addition to energy payments, generators receive compensation for (1) capacity
placed at the disposal of the Spot Market, including stand-by capacity; (2)
additional stand-by capacity, in the event of any system capacity shortage;
and (3) providing ancillary services. Generators receive the following
payments as participants in the WEM:
--Energy Payments for actual output at the prevailing Spot Market prices;
--Capacity Payments for available capacity provided by a generator during
working days at certain hours;
--Cold Reserve Capacity Payments during periods when a generator has been
scheduled to provide a reserve (only thermal plants are used to provide
cold reserve); and
--Ancillary Service Payments for the provision of additional services such
as frequency regulation and voltage control which are incremental to the
services a generator is required to provide as a WEM agent.
The calculation of each of these payments is described in more detail below.
Energy Payments. Generators are paid as follows for electrical energy
produced and dispatched and for the electrical energy which each generator
makes available for the WEM which is accepted by CAMMESA so as to maintain
adequate reserves for the WEM.
The Spot Market price that generators are paid for electricity sold in the
WEM is calculated by adjusting the Market Price (as defined below) according
to the location of the generator in the NIS. The "Market Price" of electricity
is determined by the marginal cost of the last (i.e., most expensive) thermal
generator dispatched, inclusive of the cost of transmission of the
electricity, to the "load center" of the NIS. The load center is currently the
interchange "node" at Ezeiza, near Buenos Aires. The Market Price is
determined in accordance with the following formula:
MP = Pmc
------
NF(ltg)
where:
MP = Market Price
Pmc = Marginal cost of the next generator dispatched
NF(ltg) = Node factor of the next generator dispatched
Each WEM agent is connected to the transmission network at a node. Nodes are
located at important points along the transmission system.
35
<PAGE>
Each node has a "node factor" and an "adaptation factor" (as described under
"Capacity Payments" below). The node factor, calculated for each node, is a
coefficient expressed as a fraction which represents expected losses per
incremental unit of electricity generated in the transmission of electricity
from that node to the load center of the system. Node factors vary according
to seasonal and hourly load fluctuations.
The Spot Price paid to a generator is determined by the Market Price of
electricity generated, adjusted for the location of the generator's units on
the NIS. CAMMESA calculates factors for each connection made on the NIS. The
Market Price is transferred to the node using the relevant node adjustment
factors as follows:
P(g) = MP X NF(g)
where:
P(g) = Payments received by the generator (Spot Price)
MP = Market Price
NF(g) = Node factor of the generator dispatched
Dispatch of electricity from certain nodes may be limited by transmission
limitations, which can be based on either the physical limitations of the
lines connecting the node to the Ezeiza load center or on security limitations
established by CAMMESA and designed to protect the system from failure. In the
event that such limitations restrict the transmission of energy from a given
region, generators in such region are paid for electricity dispatched by them
to the WEM based on local prices ("Local Prices"). Local Prices are determined
based on the cost of providing the next MW of demand (marginal cost), taking
into account the generation and transportation restrictions in effect in that
region at that time, as follows:
PL(g) = MP(i) X NF(g)
where:
PL(g) = Payments received by the generator under Local Prices
MP(i) = Market Price of the region subject to transmission
restrictions
NF(g) = Node factor of the generator dispatched
The differences between the Spot Prices received by CAMMESA for energy
dispatched from regions subject to transmission restrictions and Local Prices
received by generators in such regions are accumulated in Local Price
Accounts, one for each region in the NIS. These accounts are managed by
CAMMESA and can only be used for financing expansions of transmission capacity
through a public bidding process.
Capacity Payments. Generators whose plants are scheduled for dispatch or are
actually dispatched receive a predetermined capacity payment for "peak hours,"
from 6:00 p.m. to 11:00 p.m. on working days, and "shoulder hours," from 5:00
a.m. to 6:00 p.m. on working days.
The Secretary of Energy establishes applicable capacity payments (as
adjusted by the relevant adaptation factor), which are currently set up at
US$10.00 per MW for each hour. It is expected that capacity payments for a
given plant will remain at this level over the medium-term.
The adaptation factor, calculated for relevant geographical areas,
represents the quality and reliability of the connection between each node and
the load center at Ezeiza and any excess costs resulting from a less than
optimum dispatch caused by a failure to the system.
Those thermal generators that are available but have not been dispatched
receive capacity payments based on the average monthly capacity at which
CAMMESA would have dispatched such generator during a particularly dry year.
36
<PAGE>
Cold Reserve Capacity Payments. The WEM also makes payments for capacity
classified as "cold reserve." The cold reserve list is made up of thermal
plants and is established by means of a weekly tender between generators who
wish to offer such capacity. Generators bid to be accepted at prices which may
not exceed the seasonal capacity charge, currently set at US$10.00 per MW per
hour. The cold reserve capacity price is determined based on the bid of the
last generator required to be accepted in order for the system to have
sufficient cold reserve. Cold reserve providers are required to be able to
provide additional capacity as required by CAMMESA.
Ancillary Service Payments. According to current regulations, generators
must contribute a proportion of their output for system services from which
they benefit, such as frequency regulation, voltage control and reactive
power. In the case that a thermal generator does not contribute these
services, the thermal generator may buy such services from a hydroelectric
generator. No payments are currently made for voltage control and reactive
power services.
Transaction Settlement. Billing for all WEM transactions is performed
monthly, and CAMMESA acts as clearing agent for all participants in the
market. A "proportionality factor" is applied to each payable or receivable
which each agent has with other agents in respect of each month's
transactions. CAMMESA is responsible for the preparation of distribution of
the invoices and for administering collection but does not receive any net
profit for the provision of these services. Payments are made approximately 40
days after the end of each month.
Stabilization Fund. The Stabilization Fund reflects the differences between
Seasonal Prices paid by distributors and Spot Market prices received by
generators. Differences arising each month between collections from
distributors and Large Users on account of energy purchases, on the one hand,
and payments to generators for energy sales and WEM transmission charges, on
the other, are accumulated in the Stabilization Fund. The growth of this fund
reflects the accumulation of differences between the Seasonal Price and the
hourly energy price in the Spot Market.
The Stabilization Fund is required to maintain a minimum amount to cover
payments to generators if prices on the Spot Market during the quarter exceed
the Seasonal Price. Seasonal scheduling and quarterly adjustment may vary in
accordance with the level of the Stabilization Fund.
Term Market. Generators can enter into agreements in the Term Market to
supply energy and capacity to distributors and Large Users. Two types of
agreements may be entered into in the Term Market:
--Energy supply agreements, pursuant to which an agreed energy supply is
provided throughout the period of the contract. The generator may rely on
purchase of energy and capacity from the WEM and other Term Market
contracts as a backup to meet its commitments under such agreements.
--Cold reserve capacity agreements, pursuant to which capacity availability
is provided by thermal generators as a reserve to be called upon by the
contracting party.
Compensation for Transmission
The transmission of high voltage power between different WEM energy regions
is a public utility service provided by Transener, the high voltage electric
energy transmission company, pursuant to a concession. The rate schedule for
this concession provides compensation to Transener for connection and
transmission capacity made available and for actual energy transmission.
Compensation for connection to the system corresponds to operation and
maintenance of the related connection equipment, and is based on the required
service quality of the connection to the transmission system.
Compensation for transmission capacity made available to the system
corresponds to the cost of operation and maintenance of the transmission
equipment, and is based on required service quality in the transmission
system.
37
<PAGE>
Compensation for electricity actually transmitted is based on: (i) any
difference between the value of energy received at the receiving node and the
value of energy supplied at the delivery node, due to transmission losses and
(ii) any excess costs imposed on consumers linked to receiving nodes on
account of long and short term outages in the transmission system, calculated
in terms of yearly outage rates and the cost of unsatisfied energy demand.
It should be noted that compensation for electricity transmitted will be
constant for each tariff period (five years) and will be calculated from the
system's forecasted annual revenue for such period. Compensation to
transmitters from the users of the transmission system are credited to a
transmission account managed by CAMMESA, from which Transener's compensation
is debited. The ENRE may reduce Transener's connection and transmission
capacity compensation by an efficiency encouragement factor for each tariff
period. Also a penalty scheme exists related to the quality of transmission
services. The amounts of any such reduction or penalty charged are later
credited to energy consumers.
Transmission in the WEM is paid for regardless of whether any agreement
exists. Each WEM member must pay its transmission charges in accordance with
its location and transmission network utilization, irrespective of any
agreements it may enter into.
38
<PAGE>
BUSINESS OF THE COMPANY
General
The Company is engaged in the generation and sale of electricity. The
Company owns and operates a three-unit gas-fired thermoelectric generation
plant which is located approximately 30 miles outside the city of Salta in the
northern Argentine province of Salta. The Plant has a total installed rated
capacity of 245 MW (gross 261 MW), consisting of two turbo steam units of 60
MW (gross 63 MW) each and one turbo steam unit of 125 MW (gross 135 MW). This
gross capacity represented approximately 1.31% of the total gross installed
capacity of the Argentine electricity system, which was 19,921 MW at March 31,
2000. The Plant's proximity to the gas reserves in northern Argentina, the low
price paid by it for natural gas at the well-head, its agreements for the
transportation of natural gas (see "--Raw Materials--Natural Gas") and its low
heat rate (9,129 BTU per kWh (gross) at March 31, 2000), enables the Company
to generate electricity at lower costs than most other thermal generators
participating in the WEM in Argentina. Accordingly, the Plant has been
dispatched consistently by CAMMESA. During 1999, the Company's units were
among the 30 generators (out of 132 thermal units in the market) which had an
availability factor (hours in operation compared to hours in a year) of more
than 80%.
Annex C sets forth the Company's projected cash flows over the next 10
years, which are the basis for its belief that it will be able to meet its
obligations under the New Notes. Such projections are subject to material
changes as there is uncertainty as to the price of electricity in Argentina.
If the 500 KV line connecting the NOA region with the Resistencia node, and
indirectly with Brazil, is constructed the Company may upgrade its facilities
and shift to combined cycle technology. Given the uncertainty surrounding the
construction of the 500 KV line, the Company has not included any possible
benefits from the use of combined cycle technology in its projections set
forth in Annex C hereto. In addition, the Company does not intend to finance
the construction of any such combined cycle generator from its operating
income or from any financing for which the Company as a whole would be liable.
Any such financing would be obtained form either a loan secured exclusively by
the newly acquired assets or from funds provided by a strategic partner.
Privatization
The assets of the Company were formerly owned by AyEE, a state-owned
electricity generation, transmission and distribution company. The Company was
formed as a shell on July 27, 1992, as part of the Argentine Government's
privatization of its state-owned enterprises.
The Argentine Government conducted an international bidding process to sell
60% of the capital stock of the Company. The Powerco consortium was selected
as the winning bidder, and subsequently entered into a transfer agreement with
the Republic of Argentina providing for the transfer of assets, liabilities
and personnel from AyEE to the Company. On September 30, 1992, 60% of the
issued share capital of the Company was acquired by Powerco, the holding
company formed by the Powerco consortium. An additional 30% of the issued
share capital of the Company is held by the Argentine Government and the
remaining 10% of the issued share capital of the Company is held by employees
of the Company. See "Principal Shareholders."
Since January 27, 1999, Powerco has been controlled by a group of the
Company's senior managers.
Production
Generating Units. There are three basic components to a thermoelectric
generating unit: the boiler, the turbine and the generator. The boiler
converts energy from fuel into steam at high pressure and temperature. The
steam drives a turbine which converts the heat energy into mechanical energy.
In turn, the mechanical energy drives a generator which converts the
mechanical energy into electrical energy. The three components are typically
designed and built separately and then combined into a single operating unit
by generation companies. The rated capacity of a unit depends upon the type of
generator, its condition, the efficiency of the boiler, the temperature of the
steam produced by the boiler and the fuel source. Natural gas provides a
higher rated capacity than other fuels such as fuel oil or coal because it
burns more efficiently, enabling the boiler superheaters to operate more
efficiently and require less maintenance.
39
<PAGE>
The Company owns and operates three turbo steam generating units with an
aggregate installed generating capacity of 245 MW (gross 261 MW) at the Plant.
Two of the generation units ("Unit 1" and "Unit 2,"), both completed in 1982,
have rated capacities of 60 MW (gross 63 MW) each; and the other ("Unit 3"),
completed in 1993, has a rated capacity of 125 MW (gross 135 MW). Each of the
generators, turbines and one of the boilers was manufactured by Skoda, a Czech
manufacturing company. Equipment manufactured by Skoda has a reputation within
the industry as being rugged, durable and capable of achieving economical
conversion rates. The following table sets forth certain selected information
in relation to the Company's generation units.
<TABLE>
<CAPTION>
Unit 1 Unit 2 Unit 3
------ ------ ------
<S> <C> <C> <C>
BOILER
Manufacturer............ MELLOR GOODWIN MELLOR GOODWIN SKODA
Steam production........ 265 tons/hour 265 tons/hour 425 tons/hour
Fuel.................... NATURAL GAS/FUEL OIL NATURAL GAS/FUEL OIL NATURAL GAS/FUEL OIL
Steam temperature....... 540(degrees)C- 540(degrees)C- 540(degrees)C-
OVERHEATED OVERHEATED OVERHEATED
Steam pressure.......... 95 Kg/cm/2/ 95 Kg/cm/2/ 13.63 MPa. OVERHEATED
OVERHEATED OVERHEATED
Water circulation....... NATURAL NATURAL NATURAL
Type of equipment....... OUTDOOR OUTDOOR OUTDOOR
Yield................... 93.2% 93.2% 93.7%
TURBINE
Nominal power........... 60 MW 60 MW 125 MW
Trademark and model..... SKODA/K60-90 SKODA/K60-90 SKODA/K125/12.75
Type.................... ACTION-CONSTANT ACTION-CONSTANT ACTION-CONSTANT
PRESSURE (VAPOR PRESSURE (VAPOR PRESSURE (VAPOR
PRESSURE 9MPa.) PRESSURE 9MPa.) PRESSURE 13MPa.)
Flow of cooling water... 10,200 M3/hour 10,200 M3/hour 17,500 M3/hour
GENERATOR
Nominal power........... Ap.: 75 MVA Ap.: 75 MVA Ap.: 156,250 MVA
Trademark and model..... SKODA/8HY 6378/2 SKODA/8HY 6378/2 SKODA/IHY 644872/2HH
Nominal tension......... 11,000 (+/-) 5%V 11,000 (+/-) 5%V 13,800 (+/-) 5%V
Cooling................. BY AIR BY AIR BY H2
Excitation.............. BE-3638-F/4 TYPE BE-3638-F/4 TYPE 4HE-5058/2- TYPE
POWER 280 KW POWER 280 KW POWER 750 KW
HEAT RATE (LOSS)........ 9,404 BTU/kWh 9,436 BTU/kWh 8,857 BTU/kWh
</TABLE>
Prior to privatization, the Plant operated at an average capacity factor of
approximately 55.3%, as only the two 60 MW units were in operation due to
transmission restrictions which were subsequently eliminated.
The following table sets forth (i) the average annual net output (in GWh) of
the Plant, (ii) the average annual availability of the Plant, expressed as a
percentage of total hours available for dispatch relative to the total hours
in a calendar year and (iii) the average annual load factor of the Plant,
expressed as a percentage of its net output relative to its maximum
theoretical output, in each case for each of 1998, 1999 and the first three
months of 2000.
<TABLE>
<CAPTION>
Net Output Availability Load Factor
---------- ------------ -----------
<S> <C> <C> <C>
1998..................................... 1,564 83.78 72.68
1999..................................... 1,801 95.48 83.71
2000 (through March 31).................. 364 89.82 72.23
</TABLE>
40
<PAGE>
The following table sets forth the total hours of operation of each of the
three generation units comprising the Plant for each of 1998, 1999 and the
first three months of 2000.
<TABLE>
<CAPTION>
Hours of
Operation
-----------------
Unit Unit Unit
1 2 3
----- ----- -----
<S> <C> <C> <C>
1998....................................................... 8,118 7,984 6,610
1999....................................................... 8,144 7,715 8,301
2000 (through March 31).................................... 1,388 1,632 2,064
</TABLE>
The following table sets forth the applicable load factor for each of the
three generation units comprising the Plant for each of 1998, 1999 and the
first three months of 2000.
<TABLE>
<CAPTION>
Load Factor
-----------------
Unit Unit Unit
1 2 3
----- ----- -----
<S> <C> <C> <C>
1998....................................................... 79.12 77.92 67.18
1999....................................................... 83.54 79.43 85.81
2000 (through March 31).................................... 53.86 63.13 85.16
</TABLE>
The figures presented in the table above are based on an available capacity
of 245 MW.
As set forth in the following table, Units 2, 3 and 1 were ranked
thirteenth, sixteenth and twenty-fourth, respectively, in capacity utilization
among all Argentine thermoelectric generating units in the NIS in 1999 by
CAMMESA based on availability and hours of operation.
<TABLE>
<CAPTION>
Hours of Load
Generation Unit Type Operation Factor(1) Ranking
--------------- ----------- --------- --------- -------
<S> <C> <C> <C> <C>
Filo Morado............................. TG01 8.732 99.68% 1
Filo Morado............................. TG02 8.701 99.33% 2
Puerto Nuevo............................ TV09 8.624 98.45% 3
Agua del Cajon.......................... TG05 8.580 97.95% 4
Agua del Cajon.......................... TG03 8.544 97.53% 5
Agua del Cajon.......................... TG01 8.504 97.08% 6
Agua del Cajon.......................... TG04 8.498 97.01% 7
Filo Morado............................. TG03 8.468 96.67% 8
Nuevo Puerto............................ TV05 8.450 96.46% 9
CMS Ensanada............................ Cogenerator 8.448 96.44% 10
C.T. Tucuman............................ TG02 8.440 96.35% 11
San Nicolas............................. TV15 8.336 95.16% 12
Guemes.................................. TV13 8.313 94.90% 13
Sorrento................................ TV13 8.264 94.34% 14
Agua del Cajon.......................... TG02 8.216 93.79% 15
Guemes.................................. TV11 8.159 93.14% 16
Pilar................................... TV03 8.157 93.12% 17
C.T. Tucuman............................ TG01 8.154 93.08% 18
Agua del Cajon.......................... TG06 8.125 92.75% 19
Argener................................. Cogenerator 8.056 91.96% 20
C.T. S.M. de Tucuman.................... TG01 7.861 89.74% 21
Maranzana............................... TG02 7.788 88.88% 22
Lujan de Cuyo........................... TG25 7.749 88.46% 23
Guemes.................................. TV12 7.734 88.29% 24
Necochea................................ TV03 7.898 87.88% 25
Lujan de Cuyo........................... TV15 7.671 87.57% 26
Puerto Nuevo............................ TV08 7.511 85.74% 27
Loma de la Lata......................... TG01 7.351 83.92% 28
Loma de la Lata......................... TG03 7.346 83.86% 29
Costanera............................... TV04 7.263 82.91% 30
</TABLE>
--------
(1) Represents the percentage at full speed during working hours.
Source: CAMMESA
41
<PAGE>
Management believes that the Plant is capable of performing at or better
than rated capacity. To this end, the Company has increased the maximum
continuous operating capacity of each of the units of the Plant to 63 MW, 63
MW and 135 MW, respectively.
Maintenance. Since assuming control of the Plant, the Company has shut down
and overhauled both of the 60 MW units, one in 1993 and the other in 1995. The
Company conducted similar major maintenance on Unit 3, the 125 MW unit, during
the first quarter of 1997. Major maintenance is performed by a combination of
the Company's own employees and supervisors contracted from Skoda; and,
according to prudent standards, should be carried out on average every six
years. Such maintenance requires the relevant unit to be down for a period of
eight to ten weeks. In addition, each unit requires annual maintenance
involving the shutting down of such unit for a period of two to three weeks.
Regular routine maintenance is conducted by the Company's own employees
throughout the year without the need to shut down any units. Management
expects most necessary spare parts to be readily available within Argentina.
Production and Marginal Costs
Production Costs. The following table sets forth information relating to the
Company's production costs for 1998, 1999 and the three-month periods ended
March 31, 1999 and 2000.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
----------------------------------------- -----------------------------------------
1999 1998 2000 1999
-------------------- -------------------- -------------------- --------------------
(in millions (Ps per (in millions (Ps per (in millions (Ps per (in millions (Ps per
of Ps) MWh) of Ps) MWh) of Ps) MWh) of Ps) MWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable costs.......... 25.89 14.38 22.82 14.59 5.40 14.84 6.82 13.83
Fixed costs............. 4.54 2.52 4.24 2.71 1.23 3.38 1.07 2.17
Depreciation............ 4.73 2.63 4.34 2.77 1.15 3.16 1.22 2.47
----- ----- ----- ----- ---- ----- ---- -----
Total costs........... 35.16 19.53 31.40 20.07 7.78 21.38 9.11 18.47
===== ===== ===== ===== ==== ===== ==== =====
</TABLE>
The Company's production costs are affected materially by the efficiency of
its generating units, the price of fuel and the amount of power actually
dispatched.
Marginal Cost. The marginal cost of a thermoelectric generation company is
defined by CAMMESA as the delivered cost of its fuel multiplied by the heat
rate of the Company's plant and, therefore, does not represent the full
operating costs of a generating plant. See "Argentine Electricity Industry and
Regulatory Framework--Dispatch." Marginal cost is used by CAMMESA in
determining the order in which electricity generators are dispatched and as a
reference for the price which they are paid for the energy delivered, the last
generator to be dispatched receiving by way of remuneration for the supply of
energy only the marginal cost of the next generator that would have been
dispatched, together with the capacity payment. See "Argentine Electricity
Industry and Regulatory Framework--Argentine Electricity Supply." Due to the
competitive price paid by it for natural gas at the well-head, the firm
contract for the transportation of natural gas with Distribuidora de Gas
Noroeste S.A. ("Gasnor") and Transportadora de Gas del Norte, S.A. ("TGN")
(see "--Raw Materials--Natural Gas") and its low heat rate, the Company
consistently has been among the lowest thermoelectric marginal cost generators
within the WEM. As a result, the Plant's generation units have been
consistently dispatched at base load ahead of most other thermoelectric
generation units. Accordingly, the Plant is less likely than most other
thermal plants to experience significant downtime as a result of its place in
CAMMESA's dispatch queue. For most of 1999, the Company was among the first
five thermoelectric generation plants in the dispatch queue.
42
<PAGE>
The following table sets forth the average Spot Market prices, and the
marginal cost of the Plant as estimated by CAMMESA, both calculated on an
average monthly basis for each month from January 1998 to January 31, 2000.
<TABLE>
<CAPTION>
Average Energy
Spot Market Plant Marginal
Month Price Cost of Generation
----- -------------- ------------------
(US$/MWh) (US$/MWh)
<S> <C> <C>
January 1998.................................. 12.73 20.36
February 1998................................. 15.50 20.36
March 1998.................................... 14.52 20.36
April 1998.................................... 14.87 20.36
May 1998...................................... 14.54 7.1
June 1998..................................... 16.52 7.1
July 1998..................................... 17.09 7.1
August 1998................................... 16.84 7.05
September 1998................................ 15.24 7.05
October 1998.................................. 16.69 7.05
November 1998................................. 19.45 7.05
December 1998................................. 20.01 7.05
January 1999.................................. 16.24 7.05
February 1999................................. 17.77 7.05
March 1999.................................... 17.36 7.05
April 1999.................................... 15.44 7.05
May 1999...................................... 19.02 5.19
June 1999..................................... 30.14 5.19
July 1999..................................... 20.14 5.19
August 1999................................... 18.76 5.19
September 1999................................ 15.21 5.19
October 1999.................................. 15.00 5.19
November 1999................................. 16.87 15.76
December 1999................................. 16.66 15.76
January 2000.................................. 16.74 15.76
February 2000................................. 17.62 15.76
March 2000.................................... 15.37 15.76
</TABLE>
--------
Source: CAMMESA
The Spot Market Price is measured hourly and may vary hour by hour. There
have been occasions when the Plant has been the marginal producer in the WEM
and even, on occasions, has had a marginal cost in excess of the Spot Market
Price. However, as the Company is the largest and lowest cost thermoelectric
generation company in its particular geographical area, even at such times at
least 160 MW of its production will be dispatched in order to maintain the
voltage and frequency in the local transmission and distribution system. Under
such circumstances, the receipts of the Plant may be less than its costs of
operation. Such circumstances have occurred very rarely and only when there
has been high rainfall with a resulting abundance of relatively inexpensive
hydroelectric generation or due to temporary constraints in the transmission
system.
Raw Materials
The principal raw materials used by the Company are natural gas, water and
various chemicals (such as salt and resins) used in the generation process.
Natural Gas. All three of the Company's units are fueled by natural gas.
Although the units are also capable of using fuel oil, it would not be
economical for them to do so under the pricing system currently in
43
<PAGE>
existence in Argentina. Therefore, any interruption in the gas supply to the
Plant would result in a reduction in, or cessation of, power generation. The
Plant is located in an area of abundant natural gas supplies. The area
comprising the north of Argentina and the south of Bolivia contains a number
of identified natural gas fields, the most important of which in Argentina are
the Ramos field and the Aguarague field. The Ramos field has proven reserves
of 140 billion m/3/, which at current levels of production are expected to
last at least 44 years. The Aguarague field has proven reserves of 44.1
billion m/3/, which at current levels of production are expected to last at
least 29 years.
Gas Supply
The Company has entered into a new supply agreement with the consortium
which has the concession to exploit the Aguarague gas field. This agreement
will be effective until May 2003. According to this agreement, the consortium
agrees to supply the Company with 1.7 million cubic meters of gas a day. In
the winter months (May to October), the Company pays 41.70 US$/Dm/3/ for the
first approximately 600,000 m/3//day it consumes and any additional
consumption is paid at a rate of 33.21 US$/Dm/3/. In the summer months
(November to April), the Company pays 39.85 US$/Dm/3/ for the first
approximately 600,000 m/3//day it consumes and any additional consumption is
paid at a rate of 33.21 US$/Dm/3/. Regardless of actual consumption, the
Company must pay a minimum of 18,000 Dm/3//month at the applicable winter or
summer rate. These prices will remain fixed during the term of the agreement.
This agreement represents a reduction in the cost of gas from the prior
agreement of approximately 11%.
Gas Transportation
The Company currently has gas transportation agreements with TGN, the
private-sector company which operates the northern gas transmission system and
Gasnor, a distributor of gas. The agreement with TGN covers 350,000 cubic
meters of gas per day for a period of 32 years, ending December 27, 2027.
Pursuant to the terms of the agreement, the Company may extend this term for
an additional ten years upon written notice. The price for the transportation
of gas under this agreement is determined according to the Tariff Conditions
of TGN for Firm Gas Transportation and the Tariff Charts of the Argentine
National Gas Regulator, and is currently Ps 0.119184 m/3//month. In addition,
the Company is required to pay a monthly fee of US$8,457 during the first 180
months of the agreement, adjustable semi-annually by reference to the U.S.
Producer Price Index.
The Company entered into an agreement with Gasnor for the firm
transportation of 450,000 m/3/ per day of natural gas. The term of the
agreement runs until April 30, 2002. The price pursuant to this agreement is
established according to the Tariff Conditions of TGN for Firm Gas
Transportation and, for the first three months of 2000, averaged 4.19
US$/Dm/3/.
As a result of the Company's two firm gas transportation agreements with
Gasnor and TGN, the Company now has 800,000 m/3/ of natural gas per day under
long-term agreements which the Company believes will allow it to generate
electricity without suffering significant interruptions in gas supply during
the winter months.
The remainder of the Company's gas requirements are transported from the
Aguarague gas field to Salta pursuant to an agreement with Gasnor which
expires on April 30, 2002. The price under this agreement is equal to the
volume of gas transported in excess of the 800,000 m/3/ covered by the firm
gas transportation agreements times 2.86 US$/Dm/3/. The agreement is an
"interruptible" agreement meaning that, in the event of lack of capacity in
the line because of commitments made pursuant to "firm" agreements, Gasnor may
interrupt the supply of gas to the Company, causing the Plant to reduce
output.
Pursuant to a toll-agreement, gas is brought from the main gas lines to the
Plant through a pipeline owned by Gasnor. This agreement expires on April 30,
2002, and allows the transportation of all gas purchased by the Company to
travel from the main gas lines via the pipeline to the Plant in return for
payment by the Company. Until December of 2000, this payment is at a variable
rate between US$13,004 and US$27,425, depending on the volume transported of
gas, and thereafter at a fixed rate of US$27,425. The Company does not store
any gas on site.
44
<PAGE>
Water. The water used to produce steam in the generation process is obtained
from nine wells located on site at the Plant. After driving the turbines, the
steam is condensed and, subject to certain planned discharges, the resulting
water is recirculated into the boilers to create more steam. Management
believes that there is an adequate supply of water in the wells for the
Company's purposes.
Other Raw Materials. The other raw materials, such as salt and resins used
in the generation process, are all readily available within Argentina and are
expected by management to remain so for the foreseeable future. For this
reason no significant stock piles are currently maintained by the Company.
Transmission
The Plant is connected to the NIS by three 132 kV lines, which form the
trunk of the transmission system operated by Transnoa, and to Jujuy in the
north of Argentina by a fourth line.
Sales
In 1999, the Company sold approximately 36.68% (661 GWh) of its energy
production in the Spot Market and approximately 63.32% (1,140 GWh) pursuant to
negotiated agreements in the Term Market. During the first three months of
2000, the Company sold an aggregate of 364 GWh of energy, of which
approximately 36.54% (133 GWh) was sold in the Spot Market and 63.46% (231
GWh) was sold in the Term Market. The Company is actively seeking to enter
into additional sales agreements with distribution companies and Large Users
as an alternative to making sales in the Spot Market. The Company believes
that such agreements provide a stable, secure and predictable source of
revenues, thereby reducing the volatility of making sales in the Spot Market,
and that such agreements generally have been more profitable to the Company
than selling into the Spot Market. The Company seeks to fix sales prices under
these agreements in U.S. Dollars. In general, due to the current low Spot
Market prices, agreements with Large Users currently tend to be relatively
short-term in nature.
At March 31, 2000, the Company had entered into term agreements for a total
capacity of 245 MW, or approximately 100% of the installed gross capacity of
the Plant, with terms ranging from one to three years, including a three year
agreement with Empresa Distribuidora de Energia de Salta S.A. ("EDESA"), the
distribution company of the province of Salta. The EDESA contract is at a
fixed price of US$28.70 per MWh, minus US$500,000 a year as a subsidy to
certain clients of EDESA. The contracted capacity is 80 MW at peak hours which
represents approximately 31.0% of the Company's installed capacity. During the
first three months of 2000, the average price of the Company's sales pursuant
to agreements in the Term Market was approximately 3.76% higher than the
average Spot Market price for the same period.
The Company intends to enter into agreements regarding as much of the
Plant's capacity as possible in order to be better hedged against fluctuations
in the Spot Market. The Company believes that such agreements are effective
hedges for the following reasons. First, the Company has negotiated and will
continue to seek to negotiate sales agreements that are generally at fixed
prices higher than Spot Market prices. Second, these agreements will allow the
Company to protect itself against periodic increases in hydroelectric
generation as a result of increased levels of precipitation occurring in
Argentina from time to time. During such periods, when the Spot Market prices
are lower and the Plant's units are dispatched less, the Company will be able
to purchase lower cost energy from the WEM to fulfill its obligations to its
Term Market purchasers.
Competition
The Company believes that its low cost of delivered fuel, the heat rate of
the Plant and the resulting low marginal cost of generation should keep it
competitive within the existing regulatory and market framework.
Electricity generation companies in Argentina were estimated by CAMMESA to
have a total gross installed capacity of approximately 19,921 MW at March 31,
2000, excluding the Sistema Patagonico. The addition of new planned facilities
(if constructed) will increase generating capacity by 6,121 MW by 2006 (or
7,995 MW if
45
<PAGE>
the 1,874 MW not included in CAMESSA's projections). Additionally, a number of
private sector thermal plants may be constructed over the next five to ten
years depending on the prevailing market price for electricity. However, the
Company believes it likely that some of Argentina's existing capacity is
represented by units which will be decommissioned over the next five to ten
years due to obsolescence and the inability of their operators to finance
necessary maintenance and capital expenditures. In addition, CAMMESA projects
that present excess capacity will be reduced over the next five to ten years.
The CAMMESA forecasting report published in 1999 projects that demand for
electricity in Argentina will increase at the rate of approximately 5% for
2001 and 2002. In order to meet this forecasted demand, additional generation
will be required. Power generating units currently under construction or
recently completed in Argentina are projected by CAMMESA to add approximately
3,456 MW of installed capacity between 2000 and 2002 and 2,665 MW between 2002
and 2006. The addition of other new planned facilities, if completed, will
increase generating capacity by 6,121 MW through 2006 (and 7,995 MW if
facilities not included by CAMMESA in its projections are included).
Competition from nuclear or hydroelectric plants constructed by the private
sector is unlikely as the construction and start-up costs of such units would
be uneconomical compared with the development of new thermal plants.
Therefore, the Company believes that the marginal cost of new nuclear or
hydroelectric plants not yet planned or under construction is unlikely to
become a material competitive factor. Newly constructed thermal units may be
more efficient than the Plant. Nevertheless, the proximity of the Plant to its
gas supply, the firm transportation agreement with Gasnor and TGN and the low
price paid for gas at the well-head is such that management believes that the
Plant should continue to be dispatched on a generally profitable basis.
Therefore, even if the growth in demand is less than expected, the Company
believes that it is unlikely that its dispatch levels would be substantially
reduced, although such growth may result in a fall in prices paid for
electricity across the system and reduction of the Company's operating margin.
Capital Expenditures
The Company had Ps 0.14 million in capital expenditures in 1998 and Ps 0.30
million in 1999. The Company currently plans capital expenditures of
approximately Ps 6.88 million in 2000, Ps 2.18 million in 2001, Ps 1.27
million in 2002, Ps 0.28 million in 2003, Ps 0.30 million in 2004 and Ps 0.33
million in 2005. These amounts represent scheduled maintenance and overhaul of
the Plant.
Insurance
The Company carries property, accident, third party liability and other
insurance (such as vehicle insurance) in amounts which are customary in the
electricity industry. The Company's property and equipment are insured on a
new for old basis in the total amount of US$50.0 million per event. The
Company's insured property is valued at US$217.0 million. The Company does not
carry loss of profit insurance. The Company intends to maintain similar
insurance coverage for the same risks for as long as any of the New Notes is
outstanding.
Environment
The Company's operations are subject to legislation governing environmental
pollution at the federal and provincial levels in Argentina. The Company has
not incurred material pollution costs to date; and, having conducted an
environmental impact study in January 1993 and being subsequently controlled
on a quarterly basis by external auditors appointed by the ENRE, the Company
believes that it is in material compliance with all applicable regulations in
Argentina. There is no environmental litigation involving the Company.
Patents
The Company does not own or rely on any significant patents, trademarks or
licenses in conducting its operations.
46
<PAGE>
Litigation
As of the date of this Consent Solicitation and Information Memorandum,
there were no material pending legal proceedings to which the Company was a
party or to which its properties were subject, with the exception of an action
currently pending before the Federal Court of First Instance No. 1, of the
City of Salta, Province of Salta, in which a petition has been made requesting
the court to declare the presumptive minimum income tax unconstitutional. The
court has granted injunctive relief suspending the accrual, collection and
payment of the tax from 1999 until a final decision is rendered by the court.
Subsidiaries
The Company has no subsidiaries.
47
<PAGE>
MANAGEMENT AND EMPLOYEES
Directors, Executive Officers and Members of Management
The Board of Directors of the Company consists of between three and 15
members elected at the annual general meeting of the Company for renewable
two-year terms. The directors of the Company are appointed by the different
classes of shareholders in proportion to their total shareholdings.
Pursuant to the Company's By-Laws (Estatutos Sociales) and Argentine
corporate law, management of the Company is entrusted to its Board of
Directors.
Under Argentine law, the Supervisory Committee (Comision Fiscalizadora) is
responsible for overseeing the Company's compliance with its By-Laws and
Argentine law and, without prejudice to the role of external auditors, is
required to present to the shareholders at the annual ordinary general meeting
a report in respect of the financial information presented to such holders by
the Board of Directors. The members of the Supervisory Committee, referred to
in Argentina as "Supervisors" (sindicos), also are authorized (1) to call
ordinary or extraordinary shareholders' meetings under certain circumstances,
(2) to place items on the agenda for meetings of shareholders, (3) to attend
meetings of shareholders and (4) generally to monitor the affairs of the
Company. The Company's By-Laws provide that the Supervisory Committee will be
formed by three members and three alternate members, elected by the
shareholders at an ordinary meeting, and will serve one-year terms with the
right to re-election. The Company's By-Laws provide that its business will be
supervised by two members (two members and two alternates) appointed by Class
A shareholders and that the other one member (one member and one alternate)
are to be appointed jointly by Class B and Class C shareholders (each as
defined in "Principal Shareholders" below).
Compensation and Other Matters
Argentine law provides that the aggregate annual compensation paid to all
directors (including those directors acting as executive officers) may not
exceed 5% of earnings for any fiscal year in which the Company does not pay
any dividends on earnings, which percentage increases in proportion to the
amount of dividends paid, up to a maximum of 25% of earnings. Under Argentine
law, the compensation of the directors acting in an executive capacity,
together with the compensation of all other directors and the statutory
auditors, to the extent that it exceeds in the aggregate such limits, requires
the prior approval of an ordinary shareholders' meeting.
The following table sets forth the members of the Board of Directors and the
Supervisory Committee of the Company and their respective alternates, and the
positions held by each of them as of March 31, 2000:
<TABLE>
<CAPTION>
Year of
Initial
Appointment
And Class
Name Appointed By Profession Other Appointments
---- ------------ ---------- ------------------
<S> <C> <C> <C>
Carlos Armando Peralta.. 1999 (Class A) C.P.A. President of Powerco S.A., and
(President and Chief Powerco Services S.A., alternate
Executive Officer) Supervisor of CAMMESA.
Marcelo Sergio Martos... 1999 (Class A) Electrical Vice-President of Powerco S.A.
(Vice-President) Industrial and Powerco Services S.A.;
Engineer Marketing Manager of Central
Termica Guemes S.A.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Year of
Initial
Appointment
And Class
Name Appointed By Profession Other Appointments
---- ------------ ---------- ------------------
<S> <C> <C> <C>
Dante Raul Apaza........ 1999 (Class A) Mechanical Director of Powerco S.A. and
(Director) Technician Powerco Services S.A.;
Communications & IT Manager of
Central Termica Guemes S.A.
Leonardo Juan Galia..... 1999 (Class A) Electronic Director of Powerco S.A. and
(Director) Engineer Powerco Services S.A.; Operations
& Production Manager of Central
Termica Guemes S.A.
Ruben Daniel Arguello... 1999 (Class A) Business Director of Powerco S.A.,
(Director) Administrator Alternate Director of Powerco
Services S.A.; Human Resources
Manager of Central Termica Guemes
S.A.
Claudio Villagra........ 1999 (Class B) C.P.A. Director of Central Termica
(Director) Guemes S.A. and Director of
Hidroelectrica Piedra del Aguila
S.A., Transener S.A., Ferrosur
Roca S.A., Buenos Aires Pacifico
Gral. San Martin S.A.,
Mesopotamico Gral. Urquiza S.A.,
Camuzzi, Gas Pampeana, Caja de
Ahorro y Seguro S.A., La Caja
Seguros de Retiro S.A., Nueva
Central Argentina S.A. Argentina
S.A. and Papel Prensa SAIC.
Jose Luis Tamagnini..... 1999 (Class B) Lawyer Director Central Termica Guemes
(Director) S.A. and Hidroelectrica Piedra
del Aguila S.A.
Higinio Daniel Romano... 1999 (Class C) None.
(Director)
Sergio Marcelo 1999 (Class A) Mechanical Director of Powerco S.A.,
Fernandez.............. Engineer Alternate Director of Powerco
(Alternate Director) Services S.A.; Engineering &
Maintenance Manager of Central
Termica Guemes S.A.
Jorge Alberto Reston.... 1999 (Class A) C.P.A. Director of Powerco S.A.,
(Alternate Director) Alternate Director of Powerco
Services S.A.; Controller of
Central Termica Guemes S.A.
Lauro Paz............... 1998 (Class C) None.
(Alternate Director)
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Year of Initial
Appointment
And Class
Name Appointed By Profession Other Appointments
---- --------------- ---------- ------------------
<S> <C> <C> <C>
Ruben Ruival............ 1995 (Class A) C.P.A. Supervisor of Bella Vista Oeste
(Supervisor) S.A., Atanor S.A., Con-Ser S.A.,
Con-Ser P. y A. Seguros,
Hidroelectrica Cerro Colorado
S.A., Cindor S.A., Fitalse S.A.,
Friogorifico Rhydmas, Mastellone
Hnos., Merrill Lynch S.A.,
Sociedad de Bolsa, Marca 4 S.A.,
Panam S.A., Panpack S.A., Promas
S.A., Rich Klinger S.A. and
General Re. Alternate Supervisor
Central Termica Alto Valle,
Courtage S.A. (Grupo Renault),
Dominion Generating S.A.,
Dominion Management S.A.,
Metalurgica Tandil S.A. (Grupo
Renault), Panam Group S.A.,
Patagonia Holding and Centro de
Rio Cuarto.
Armando Simesen de 1999 (Class C) C.P.A. Supervisor of Powerco S.A. and
Bielke................. Powerco Services S.A., President
(Supervisor) of the Professional Association
of Economic Sciences of Salta
province, Professor at the
National University of Salta,
Independent Auditor of local and
multinational companies.
Angel Carniel........... 1999 (Class B, Lawyer Supervisor of Nacion Seguros de
(Supervisor) Class C) Retiro S.A. and Nacion Seguros de
Vida S.A.
Washington Alvarez...... 1999 (Class A) Lawyer Supervisor of Powerco S.A. and
(Alternate Supervisor) Powerco Services S.A., Professor
on Judicial, Economic &
Administration Sciences at the
Catholic University of Salta,
Judicial Advisor of national and
multinational companies.
Carlos A. Palla......... 1999 (Class C) C.P.A. Supervisor of Powerco S.A. and
(Alternate Supervisor) Powerco Services S.A.; Partner-
in-charge of CPA, Business
Consultants.
Arturo Jorge Zaera...... 1999 (Class B, C.P.A. Supervisor of Hidroelectrica
(Alternate Supervisor) Class C) Alicura S.A.
</TABLE>
The total remuneration paid by the Company to the Board of Directors,
Supervisors and officers of the Company during the fiscal year ended December
31, 1999, was approximately Ps 0.89 million, including amounts reserved to
provide for pension, retirement or similar benefits.
There are no employment contracts between the Company and its Directors or
Supervisors.
There are no contracts between the Company and its Directors, Supervisors or
officers in which such Directors, supervisors or managers have an interest
contrary to the interest of the Company, in accordance with Section 272 of the
Argentine Corporations Law.
50
<PAGE>
Executive Officers
At the Plant, the management structure is comprised of seven active on-site
managers. The following are the principal on-site managers of the Plant, their
position and their background as of March 31, 2000:
. Carlos Armando Peralta, an Argentine citizen, is a public accountant. He
was appointed General Manager of the Company on January 28, 1999. Prior
to that, he was the Financial Administrative Manager of the Company
since 1992. He is also Alternate Supervisor of CAMMESSA.
. Jorge Alberto Reston, an Argentine citizen, is a public accountant. He
was appointed financial controller of the Company on January 28, 1999.
Prior to that, he was the General Accountant of the Company since 1992.
. Marcelo Sergio Martos, an Argentine citizen, is an Electrical Engineer.
He was appointed Commercial Manager of the Company on September 1997. He
began his work with the Company in 1993.
. Leonardo Juan Galia, an Argentine citizen, is an Electronic Engineer. He
was appointed Production Manager of the Company on January 28, 1999. He
began his work with the Company on October 1, 1992, after having worked
at the Plant under its prior owner since 1980.
. Sergio Marcelo Fernandez, an Argentine citizen, is a Mechanical
Engineer. He was appointed Maintenance and Engineering Manager of the
Company on January 28, 1999. He began his work with the Company in 1993.
. Dante Raul Apaza, an Argentine citizen, is a Mechanical Technician. He
was appointed System and Communication Manager on January 28, 1999. He
began working for the Company on December 9, 1992.
. Ruben Daniel Arguello, an Argentine citizen, is an Administrative
Licenciate. He was appointed Personal Manager on January 1, 1999. He
began working for the Company on October 22, 1992.
Employees
As of the date of this Consent Solicitation and Information Memorandum, 48
of the Company's employees were affiliated with Luz y Fuerza, the Argentine
electricity industry labor union, representing approximately 36% of the
workforce. When the Company was privatized, the entire workforce belonged to
either Luz y Fuerza or another labor union called APUAYE. However, since that
time, many employees of the Company have opted out of their unions. The
Company has not experienced any disruption of generation due to labor problems
and maintains good relations with the union representing the Company's
employees. The employees have a representative on the Board of Directors.
Under the Company's By-Laws, the Company is obliged in each year in which
the Company declares a dividend payable to its nominal shareholders to issue
participation bonds to its employees, as contemplated under Section 230 of the
Argentine Corporations Law, equal to 0.5% of the Company's profits before
taxes for such fiscal year.
51
<PAGE>
PRINCIPAL SHAREHOLDERS
At March 31, 2000, the issued share capital of the Company was Ps
62,906,000, divided into 37,743,600 registered common stock Class A shares
(the "A Shares") of Ps 1.00 each, 18,871,800 Class B shares (the "B Shares")
of Ps. 1.00 each and 6,290,600 Class C shares (the "C Shares") of Ps 1.00
each. All of the A Shares, representing 60% of the issued share capital of the
Company, are owned by Powerco. All of the B Shares, representing 30% of the
issued share capital of the Company, are owned by the Argentine Government.
All of the C Shares, representing 10% of the issued share capital of the
Company, are owned by the employees of the Company pursuant to an employee
stock ownership plan. None of the different classes of shares carry any
different voting rights.
The C shares have been transferred by the Argentine Government to certain
employees of the Company who had formerly been employed by AyEE. Such
employees were granted different numbers of shares by the Argentine Government
on the basis of four principal criteria: length of service with AyEE, level of
seniority in the Company, size of salary (those with lower salaries receiving
proportionately more shares than those with higher salaries) and the size of
an employee's family. The C shares, which were transferred at a price of Ps
1.00 each, are currently held in trust for the employees by a fiduciary bank
which has instructions to apply payments of dividends on the shares towards
payment of the transfer price to the Argentine Government. Once paid for and
pursuant to a Class C shareholders meeting, the C shares may be exchanged for
an equal number of B shares.
Under the Company's By-Laws, the Company is obliged in each year in which
the Company declares at a dividend payable to its nominal shareholders to
issue participation bonds to its employees, as contemplated under Section 230
of the Argentine Corporations Law, equal to 0.5% of the Company's profits
before taxes for such fiscal year.
New Notes are solely the obligation of the Company and are not otherwise
guaranteed by any person or entity, including the shareholders of the Company.
As the holder of all outstanding A Shares, Powerco is the majority
shareholder of the Company and controls the majority of the Company's Board of
Directors. The amount and payment of dividends, if any, by the Company is
under the control of Powerco. No dividend was declared for the years ended
December 31, 1997, 1998 or 1999.
52
<PAGE>
RELATED-PARTY TRANSACTIONS
Powerco S.A.
Powerco owns 60% of the Company's issued share capital.
In January 1999, the Secretary of Energy authorized Powerco to operate as a
Marketing Company of the WEM. Thus, Powerco may purchase electricity from the
WEM generators in order to resell it to any WEM agent, up to a maximum of
390MW per month.
During 1998, the Company entered into agreements with GUMEs and GUMAs in
excess of its maximum generating capacity established by CAMMESA in order to
ensure that, even in the event of loss or failure to renew of some of its
existing contracts, the Company would still be able to sell the maximum amount
of electricity permitted by CAMMESA.
Since January 1999, all contracts in excess of the Company's operating
capacity are sold by the Company to Powerco at a price equivalent to 20% of
the net profit made by Powerco upon fulfillment of the respective contract.
Powerco fulfills such contracts and supplies the GUMEs and GUMAs by purchasing
electricity in the open market. So far, Powerco has received 50 contracts for
approximately 25MW, which represent 7% of the operating capacity of the
Company, and all sales of contracts to Powerco constitute arms' length
transactions.
In addition, Powerco agreed to purchase contracts from other generators only
after all of the Company's excess contracts were purchased. In the event that
the Company's levels of contracted electricity fall below its maximum
operating capacity, Powerco will transfer back to the Company the GUMEs and
GUMAs contracts received from the Company at no cost to the Company.
53
<PAGE>
TERMS AND CONDITIONS OF NEW NOTES
The issue of New Notes was authorized by the unanimous resolution of a
general ordinary and extraordinary meeting of the shareholders of the Company
dated June 23, 2000, and is subject to the approval of the Court, as described
herein. New Notes will be issued pursuant to the New Indenture to be entered
into on the Effective Date among the Company, The Bank of New York, as Trustee
(the "Trustee", which term includes any successor as Trustee under the New
Indenture), Co-Registrar (the "Co-Registrar") and Principal Paying Agent (the
"Principal Paying Agent"), The Bank of New York S.A., as Registrar (the
"Registrar," which term includes any successor as Registrar under the New
Indenture) and Paying Agent and Kredietbank S.A. Luxembourgeoise, a
corporation duly organized and existing under the laws of Luxembourg,
presently at 43 Boulevard Royal, L-2955 Luxembourg, Grand Duchy of Luxembourg,
as Luxembourg Co-Registrar (the "Luxembourg Co-Registrar") and Paying Agent.
The Registrar will act as Paying Agent in Argentina (the Principal Paying
Agent and all other Paying Agents, including any successor paying agents, are
collectively referred to herein as the "Paying Agents"). The Trustee has
appointed Banco Rio de la Plata S.A., presently at Bartolome Mitre 480, 11th
Floor, Buenos Aires, Argentina, as its representative (the "Trustee's
Representative") in the city of Buenos Aires to receive notices on its behalf
in Argentina from holders of New Notes (the "New Noteholders") and to act on
the Trustee's behalf as necessary.
The following statements are subject to, and qualified in their entirety by,
reference to the applicable provisions of the New Indenture. Wherever
particular sections, articles or defined terms of the New Indenture are
referred to herein, such sections, articles or defined terms shall be as
specified in the New Indenture. Capitalized terms not otherwise defined below
or elsewhere in this Consent Solicitation and Information Memorandum shall
have the respective meanings given such terms in the New Indenture. New Notes
are issued in the English language; the Company will provide the Trustee a
Spanish translation of the original English text by an Argentine certified
public translator. Copies of the New Indenture will be available for
inspection and copying by the New Noteholders during normal business hours at
the offices of the Trustee, the Trustee's Representative, the Registrar, the
Co-Registrar and the Paying Agents. The New Noteholders will be bound by, and
will be deemed to have notice of, all the provisions of the New Indenture and
New Notes.
General
New Notes will be limited to US$54,000,000 in aggregate outstanding
principal amount and will mature on the 10th anniversary of the date of
issuance. New Notes will bear interest at 2.0% per annum during their first
year, at 2.5% per annum during their second year, at 3.0% per annum during
their third year, and at 5.0% per annum thereafter, payable in cash
semiannually in arrears on the six month and one year anniversaries of the
date of issuance of each year (each, an "Interest Payment Date"), commencing
six months after the date of issuance, to the person in whose name the New
Note is registered at the close of business two Business Days (each a "Regular
Record Date") immediately preceding such Interest Payment Date.
If there occurs an Event of Default (as defined below), such stated rate of
interest will continue to apply with respect to New Notes. Interest on New
Notes will be calculated on the basis of a 360-day year consisting of twelve
30-day months and, in the case of an incomplete month, the number of days
actually elapsed. Principal of, and interest and Additional Amounts (as
defined below) on, New Notes will be payable as provided under "--Payments and
Paying Agents" and "--Book Entry Ownership."
All New Notes will be in registered form, without coupons. New Notes will be
represented by interests in the DTC Unrestricted Global Security (the "Global
Security"). The Global Security will be deposited on or about the Effective
Date with a custodian for DTC and registered in the name of a nominee for DTC.
The Company will appoint The Bank of New York to serve as Trustee, Principal
Paying Agent and Co-Registrar of New Notes, The Bank of New York S.A. to serve
as Paying Agent and Registrar of New Notes, and Kredietbank S.A.
Luxembourgeoise to serve as Paying Agent and Co-Registrar of New Notes. The
Bank of
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New York, in its capacity as Trustee, Co-Registrar and Principal Paying Agent,
will be responsible for, among other things, (1) maintaining a record of the
registration of ownership, exchange and transfer of New Notes and accepting
New Notes for exchange and transfer, (2) transmitting payments of the
principal and Additional Amounts, if any, and interest received from the
Company in respect of New Notes to the registered New Noteholders thereof, (3)
transmitting to the Company any notices or other communications from New
Noteholders and (4) transmitting to the New Noteholders notice of the
occurrence of any Event of Default as soon as practicable after (a) obtaining
knowledge thereof in the case of a payment default or (b) receiving written
notice thereof in the case of all other defaults.
Form and Denomination
New Notes will be issued in fully registered global form in minimum
denominations of US$1,000 and in integral multiples of US$1,000 in excess
thereof (each an "authorized denomination"). The English language text of New
Notes will be translated for convenience into the Spanish language. The
Spanish language text will represent a true and accurate translation of the
English language text.
Certificated New Notes; Transfer and Exchange
Owners of beneficial interests in the Global Security will be entitled or
required, as the case may be, under the circumstances described below, to
receive physical delivery of certificated New Notes ("Certificated New Notes")
in fully registered definitive form. New Notes are not issuable in bearer
form.
Beneficial interests in the Global Security will be exchangeable or
transferable, as the case may be, for Certificated New Notes if (1) DTC
notifies the Company that it is unwilling or unable to continue as depository
for the Global Security, or DTC ceases to be a "clearing agency" registered
under the Exchange Act, and a successor depository is not appointed by the
Company within 90 days, or (2) an Event of Default has occurred and is
continuing with respect to such New Notes. Upon the occurrence of either of
the events described in the preceding sentence, the Company will cause the
appropriate Certificated New Notes in authorized denominations to be delivered
to the owners of beneficial interests in the Global Security upon instruction
of the Trustee or the Registrar.
Certificated New Notes may be exchanged or transferred in whole or in part
for other Certificated New Notes of any authorized denominations and of a like
tenor and aggregate principal amount by surrendering such Certificated New
Notes at the office of the Registrar or Co-Registrar with a written instrument
of transfer as provided in the Indenture.
The costs and expenses of effecting any exchange or registration of transfer
pursuant to the foregoing provisions, except for the expense of delivery by
other than regular mail (if any) and except for the payment of a sum
sufficient to cover any tax or other governmental charges or insurance charges
that may be imposed in relation thereto, will be borne by the Company.
The Registrar will keep books (the "Register") for the ownership, exchange
and transfer of any Certificated New Notes. Each Co-Registrar shall also
maintain a record of all registrations of ownership, exchange and transfer of
Certificated Notes. The Registrar will provide such Register to the Company.
Title to Certificated New Notes will pass by and upon registration of the
Certificated New Note in the Register.
Book-Entry Ownership
The Company will make application to DTC for acceptance in its book-entry
settlement system of New Notes represented by the Global Security. The Global
Security will be assigned a CUSIP number.
The custodian with whom the Global Security is deposited and DTC will
electronically record the principal amount of New Notes, held within the DTC
system. Investors may hold their interests in the Global Security
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directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
Payments of the principal of, and interest on (including any Additional
Amounts payable under Section 3.1 of the New Indenture), the Global Security
registered in the name of DTC's nominee will be to it or as the registered
owner of such Global Security. The Company expects that the nominee, upon
receipt of any such payment, will immediately credit the DTC participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Security as shown on the
records of DTC or the nominee. The Company also expects that payments by DTC
participants to owners of beneficial interests in such Global Security held
through such DTC participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such DTC participants. None of the
Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of ownership interests in the Global Security or for maintaining,
supervising or reviewing any records relating to such ownership interests.
Payments and Paying Agents
Payments in respect of the principal of New Notes will be made at the
corporate trust office of the Principal Paying Agent located in New York City,
at the office of the Paying Agent located in Buenos Aires, at the office of
the Paying Agent located in Luxembourg and subject to any fiscal or other laws
and regulations applicable thereto, at the specified offices of any other
Paying Agent appointed by the Company. The Company will maintain at all times
a principal paying agent in Buenos Aires, Argentina. Payments in respect of
principal on New Notes will be made only against surrender of such New Notes,
in the same manner as payments of interest as set forth below. Payment in
respect of interest on each Interest Payment Date with respect to any New Note
will be made to the person on whose name such New Note is registered on the
Regular Record Date immediately preceding such Interest Payment Date by dollar
check drawn on a bank in New York City and mailed to such person or, in the
case of a registered holder of at least US$1,000,000 principal amount of New
Notes, by wire transfer to a dollar account maintained by the payee with a
bank in the United States or in Argentina, provided that the registered New
Noteholder so elects by giving written notice to such effect designating such
account which is received and consented to by the Trustee or a Paying Agent no
later than 10 Business Days with complete wiring instructions, immediately
preceding such Interest Payment Date. Unless such designation is revoked, any
such designation made by such New Noteholder with respect to such New Notes
will remain in effect with respect to any future payments with respect to such
New Note payable to such New Noteholder.
If the due date for payment of any principal or interest in respect of any
New Note is not a Business Day at the place in which it is presented for
payment, the New Noteholder thereof will not be entitled to payment of the
amount due until the next succeeding Business Day at such place and will not
be entitled to any further interest or other payment in respect of any such
delay. "Business Day" means, with respect to each place of payment, a day on
which banks are open for business and carrying out transactions in Dollars in
New York City or the city of the Paying Agent effecting the payment.
The New Indenture will provide that any money deposited with the Trustee or
any Paying Agent, or then held by the Company, in trust for payment of the
principal of or interest or Additional Amounts, if any, on any New Note and
remaining unclaimed for three years after such principal, interest or
Additional Amounts, if any, has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the holder of such New Note will thereafter,
as an unsecured general creditor, look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as Trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, (1) in a newspaper published in the
English language, customarily published on each Business Day and of general
circulation in New York City, (2) in a newspaper published in the Spanish
language and of general circulation in Argentina, and (3) the
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Luxemburger Wort or another newspaper of general circulation in Luxembourg,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining shall be
repaid to the Company.
Under the terms of New Notes, in the event of any foreign exchange
restriction or prohibition in Argentina, any and all payments in respect of
New Notes will be made in Dollars obtained through (1) the sale of any series
or of any other public or private bond issued in Dollars in Argentina, or (2)
any other legal mechanism for the acquisition of Dollars in any exchange
market. All costs, including any taxes, relative to such operations to obtain
Dollars will be borne by the Company.
Status
New Notes constitute Negotiable Obligations (Obligaciones Negociables) under
the Negotiable Obligations Law and are entitled to the benefits set forth
therein and are subject to the procedural requirements thereof. In particular,
pursuant to Article 29 of the Negotiable Obligations Law, in the event of a
default by the Company in the payment of principal, interest and any other
amounts due under any New Note, the holder of such New Note will be entitled
to summary judicial proceedings (accion ejecutiva) to recover payment of any
such amount. New Notes will constitute unsecured and unsubordinated
obligations of the Company and, except for obligations preferred by operation
of Argentine law, will rank pari passu without any preference among
themselves. The payment obligations of the Company under New Notes will at all
times rank at least equal in priority of payment with all other present and
future unsecured and unsubordinated obligations of the Company from time and
time outstanding.
Optional Redemption
New Notes are redeemable, in whole or in part, at the option of the Company,
at any time, upon not less than 30 nor more than 60 days' notice mailed to
each holder of New Notes being redeemed at its address appearing in the
Register. New Notes are redeemable at their principal amount at maturity
together with accrued interest thereon, if any, to the redemption date.
Payment of Additional Amounts
All payments in respect of New Notes, including without limitation payment
of principal and interest, will be made by the Company without withholding or
deduction for or on account of any present or future taxes (whether in respect
of personal property or otherwise), duties, levies, or other governmental
charges of whatever nature in effect on the date of the Indenture or imposed
or established in the future by or on behalf of Argentina or any authority in
Argentina. In the event any such taxes or liabilities are so imposed or
established, the Company will pay such additional amounts ("Additional
Amounts") as may be necessary in order that the net amounts receivable by the
New Noteholders after any withholding or deduction in respect to such tax or
liability shall equal the respective amounts of principal and interest which
would have been receivable in respect of New Notes in the absence of such
withholding or deduction; except that no such Additional Amounts will be
payable with respect to any withholding or deduction on any New Note to, or to
a third party on behalf of, a New Noteholder for or on account of any such
taxes or liabilities that have been imposed by reason of (1) the New
Noteholder being a resident of Argentina or having some connection with
Argentina other than the mere holding of such New Note or the receipt of
principal and interest in respect thereof, or (2) the presentation by the New
Noteholder of a New Note for payment on a date more than 30 days after the
date on which such payment became due and payable or the date on which payment
thereof is duly provided for, whichever occurs later, except to the extent
that the New Noteholder would have been entitled to such Additional Amounts on
presenting such New Note for payment on the last date of such period of 30
days. Furthermore, no Additional Amounts shall be paid with respect to any
payment on a New Note to a New Noteholder that is a fiduciary or partnership
or other than the sole beneficial owner of such payment to the extent that a
beneficiary or settlor with respect to such fiduciary or a member of such
partnership or beneficial owner would not have been entitled to receive the
Additional Amounts had such beneficiary, settlor, member or beneficial owner
been the New Noteholder.
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Any reference herein or in New Notes to principal and/or interest shall be
deemed also to refer to any Additional Amounts which may be payable under the
undertakings described in this paragraph.
In addition, the Company will pay any stamp, issue, registration,
documentary or other similar taxes and duties, including interest and
penalties, payable in Argentina or the United States or any political
subdivision thereof or taxing authority of or in the foregoing in respect of
the creation, issue and offering of New Notes. The Company will also pay and
indemnify the New Noteholders from and against all court taxes or other taxes
and duties, including interest and penalties, paid by any of them in any
jurisdiction in connection with any action permitted to be taken by the New
Noteholders to enforce the obligations of the Company under New Notes.
The Company agrees to waive any right it may have under Argentine law to
seek reimbursement (whether by deduction from payments of principal or
interest or Additional Amounts with respect to New Notes or otherwise) from
the New Noteholder of New Notes of any amounts the Company may have had to pay
for personal property tax in respect of New Notes.
Covenants
Under the terms of the Indenture, the Company will covenant and agree that
as long as any New Note remains outstanding:
Payment of Principal and Interest. The Company will duly and punctually pay
the principal of and interest and Additional Amounts, if any, on New Notes in
accordance with the terms of New Notes and the New Indenture.
Maintenance of Office or Agency. The Company will maintain in each of Salta
and the Borough of Manhattan, New York City, an office or agency where New
Notes may be presented or surrendered for payment, where New Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of New Notes and the New Indenture
may be served.
Maintenance of Existence. The Company will (1) maintain in effect its
corporate existence and all registrations necessary therefor, and (2) take all
reasonable actions to maintain all rights, privileges, titles to property,
franchises and the like necessary or desirable in the normal conduct of its
business, activities or operations; provided, however, that this covenant
shall not prohibit any transaction by the Company otherwise permitted under
the covenant relating to "Mergers, Consolidations, Sales and Leases", and this
covenant shall not require the Company to maintain any such right, privilege,
title to property or franchise, if the Board of Directors of the Company shall
determine that (a) the maintenance thereof is no longer desirable in the
conduct of the business of the Company, and (b) the loss thereof is not, and
will not be, adverse in any material respect to the New Noteholders.
Maintenance of Properties. The Company will cause all tangible Properties
used or useful in the conduct of its business to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements and improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in connection therewith may
be properly and advantageously conducted at all times; provided, however, that
nothing shall prevent the Company from discontinuing the operation or
maintenance of any such Properties if such discontinuance is, as determined by
the Board of Directors in good faith, desirable in the conduct of the business
of the Company and not adverse in any material respect to the New Noteholders.
Payments of Taxes and Other Claims. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (1)
all taxes, assessments and governmental charges levied or imposed upon the
Company, and (2) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon the Property of the Company; provided,
however, that the Company will not be required to pay or discharge or cause to
paid or discharged any such tax, assessment, charge or claims whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
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Compliance with Laws and Other Agreements. The Company will comply with all
applicable laws, rules, regulations, orders and directions of any Governmental
Agency having jurisdiction over it or its business and all covenants and of
the obligations contained in any agreements to which the Company is a party,
except where the failure to so comply would not have a material adverse affect
on the condition, financial or otherwise, or on the earnings, operations,
business affairs or business prospects of the Company and except to the extent
any such law, regulation, order, directive, covenant or obligation is
contested in good faith.
Maintenance of Books and Records. The Company will maintain books, accounts
and records in accordance with Argentine GAAP and as required by Argentine
law.
Maintenance of Insurance. The Company will keep at all times all of their
Properties which are of an insurable nature insured against loss or damage
with insurers believed by the Company to be responsible to the extent that
Property of similar characteristics is usually so insured by corporations
similarly situated and owning like Properties in accordance with good business
practice.
Permitted Liens. The Company will not create or suffer to exist any Lien
upon any of its Property, other than Permitted Liens, unless, at the same time
or prior thereto, the Company's obligations under New Notes and the New
Indenture (1) are secured equally and ratably therewith to the reasonable
satisfaction of the Trustee, or (2) have the benefit of such other security,
guarantee, indemnity or other arrangement as the Trustee in its discretion
shall deem to be not materially less beneficial to the New Noteholders.
Permitted Indebtedness. So long as any New Note remains outstanding, the
Company will not incur or permit to exist any Indebtedness other than
Permitted Indebtedness.
Financial Reporting. The Company will furnish or cause to be furnished to
the Trustee (1) annual reports in English, which will include a report of the
Company's Board of Directors and annual audited financial statements prepared
in conformity with Argentine GAAP within 120 days after the end of each fiscal
year and (2) quarterly reports in English which will include unaudited interim
financial information prepared in conformity with Argentine GAAP within 60
days after the end of each quarter. The Company also shall furnish or cause to
be furnished to the Trustee in English all notice of shareholders' meetings
and other reports and communications that are made generally available to the
Company's shareholders.
Mergers, Consolidations, Sales and Leases. The Company will not merge or
consolidate with or into, or convey, transfer or lease its Properties and
assets substantially as an entirety to any Person, unless immediately after
giving effect to such transaction, (1) no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing, (2) with respect to a merger
or consolidation of the Company with or into any Person or conveyance,
transfer or lease by the Company of its Properties and assets substantially as
an entirety to any Person, any corporation formed by any merger or
consolidation with the Company or the Person which acquires by conveyance or
transfer or which leases the Properties of the Company substantially as an
entirety ("the Company's successor corporation") shall expressly assume the
due and punctual payment of the principal of and interest and Additional
Amounts, if any, on all New Notes according to their terms, and the due and
punctual performance of all of the covenants and obligations of the Company
under New Notes and the New Indenture, and the Company's successor corporation
(except in the case of leases), if any, succeeds to and becomes substituted
for the Company with the same effect as if it had been named in New Notes as
the Company, and (3) the Company delivers to the Trustee an officers'
certificate and an opinion of counsel (which opinion of counsel may be subject
to customary exceptions, limitations and qualifications) to the effect that
such merger, consolidation, conveyance, transfer or lease, as applicable,
complies with the foregoing requirements.
Further Assurances. The Company will, at its own cost and expense, execute
and deliver to the Trustee all such documents, instruments and agreements and
do all such other acts and things as may be reasonably required to enable the
Trustee to exercise and enforce its rights under the New Indenture and under
the documents, instruments and agreements required under the New Indenture and
to carry out the intent of the New Indenture.
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Events of Default
As long as any New Note remains outstanding, if any of the following events
(each an "Event of Default") shall occur and be continuing:
(1) Non-Payment: the Company fails to pay any principal, interest or
Additional Amounts due on New Notes when any such amount is due and payable
on a Payment Date and, only with respect to interest and Additional
Amounts, such default continues for a period of 10 days; or
(2) Breach of Other Obligations: default in the performance or observance
of any term, covenant or obligation of the Company in New Notes or the New
Indenture, not otherwise expressly defined as an Event of Default in
paragraph (1) above, for a period of more than 60 days after there has been
given, by registered or certified mail, to the Company by the Trustee or by
New Noteholders of a majority in aggregate principal amount of the
outstanding New Notes a written notice specifying such default or breach
and requiring it to be remedied; or
(3) Cross Default: any other present or future indebtedness of the
Company for or in respect of moneys borrowed becomes due and payable prior
to its stated maturity as result of any default (however defined), or any
such indebtedness is not paid when due or, as the case may be, within any
applicable grace period, or the Company fails to pay when due or, as the
case may be, within any applicable grace period, any amount payable by it
under any present or future guarantee for, or indemnity in respect of, any
moneys borrowed, provided that the aggregate amount of the relevant
indebtedness, guarantees and indemnities in respect of which one or more of
the events mentioned above have occurred equals or exceeds US$6,000,000 or
its equivalent (as reasonably determined by the Trustee); or
(4) Insolvency, etc.: a resolution is passed or adopted by the Board of
Directors or shareholders of the Company, or a final judgment of a court of
competent jurisdiction is made, that the Company be wound up or dissolved,
other than in connection with certain transactions otherwise permitted by
the Indenture, or an attachment, execution, seizure before judgment or
other legal process is levied or enforced upon any part of the Property of
the Company which Property is material to the condition, financial or
otherwise, or to the earnings, operations, business affairs or business
prospects of the Company, or a court having jurisdiction enters a decree or
order for relief in respect of the Company in an involuntary bankruptcy or
reorganization under Argentine Law No. 24,522 or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect or appointment
of an administrator, receiver, trustee or intervenor for the Company for
all or substantially all of the Property of the Company, or the Company
commences a voluntary bankruptcy or reorganization under Argentine Law No.
24,522 or any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, consents to the appointment of or taking possession by
an administrator, receiver, trustee, or intervenor for the Company for all
or substantially all of the Property of the Company, or effects any general
assignment for the benefit of creditors, or a moratorium is agreed or
declared in respect of any Indebtedness of the Company, or any governmental
agency condemns, seizes, compulsorily purchases or expropriates 10% or more
of the assets of the Company considered as one enterprise; subject in each
of the foregoing cases to any applicable exceptions and grace and cure
periods; or
(5) Judgments: a final judgment or judgments for the payment of money
aggregating in excess of US$6,000,000 are rendered against one or more of
the Company which judgments are not, within 60 days after entry thereof,
bonded, paid, discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay;
then, if an Event of Default occurs and is continuing, and in every such case
the Trustee or the New Noteholders of not less than 25% in aggregate principal
amount of the outstanding New Notes may declare the principal amount of all
the New Notes to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by New Noteholders), and upon any such
declaration such principal amount and any accrued interest shall become
immediately due and payable.
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New Noteholders of a majority in aggregate principal amount of the
outstanding New Notes present or represented at a meeting of such New
Noteholders at which a quorum is present may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
non-payment of the accelerated principal, have been cured or waived as
provided in the Indenture. For information as to waiver of defaults, see
"Meetings of New Noteholders" and "Modification and Waiver."
The foregoing provision shall be without prejudice to the rights of each
individual New Noteholder to initiate an action against the Company for the
payment of any principal, Additional Amount and/or interest past due on any
New Note, as the case may be.
The right of any individual New Noteholder to initiate such action against
the Company complies with Article 29 of the Negotiable Obligations Law.
Replacement of New Notes
If any New Note shall at any time become mutilated, defaced, destroyed,
stolen or lost, such New Note may be replaced at the cost of the applicant at
the specified office of the Trustee, upon provisions of evidence satisfactory
to the Trustee and the Company that such New Note was destroyed, stolen or
lost, together with such indemnity as the Trustee and the Company may require.
Mutilated or defaced New Notes must be surrendered before replacements will be
issued.
Notices
The Company is required to give notice to the Trustee of any event which
requires notice to be given to the New Noteholders in sufficient time for the
Trustee to provide such notice to the New Noteholders in the manner provided
in the New Indenture. All notices regarding New Notes will be given by the
Trustee.
All notices regarding the New Notes will be deemed to have been duly given
upon the mailing by first-class mail, postage prepaid, of such notices to each
New Noteholder at the address of such New Noteholder as it appears in the
Register, in each case not earlier than the earliest date and not later than
the latest date prescribed in the Indenture for the giving of such notice and,
while (1) there are New Noteholders domiciled in Argentina, published in a
general newspaper having general circulation in Argentina (such as La Nacion)
and, if required by Argentine law, in the Official Bulletin (Boletin Official)
and the Buenos Aires Stock Exchange Daily Gazette and (2) New Notes are listed
on the Luxembourg Stock Exchange, published in the Luxemburger Wort or such
other newspaper of general circulation from time to time in Luxembourg. Any
notice so mailed and published shall be deemed to have been given on the date
of such mailing and the last day of publication. The Trustee shall forward to
each registered New Noteholder the reports received by the Trustee, as
described under "--Covenants--Financial Statements."
Reports to New Noteholders
The Trustee shall transmit to New Noteholders such information, documents
and reports, and such summaries thereof, concerning the Trustee and its
actions under the Indenture in the manner provided pursuant thereto; provided
that any such information, documents or reports shall, at the time of such
transmission to New Noteholders, be filed by the Trustee with any stock
exchange upon which any New Notes are listed and with the Company. The Company
will notify the Trustee when any New Notes are listed on any stock exchange.
Meetings of New Noteholders
The Trustee or the Company shall, upon the request of the New Noteholder or
New Noteholders of at least 5% in aggregate principal amount of the
outstanding New Notes, or the Company or the Trustee at its discretion, may
call a meeting of the New Noteholders at any time and from time to time, to
make, give or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided by New Notes to be made,
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given or taken by the New Noteholders. With respect to all matters not
contemplated in the New Indenture, meetings of New Noteholders will be held in
accordance with the Negotiable Obligations Law. The meetings will be held in
Buenos Aires; provided, however, that the Company or the Trustee may determine
to hold any such meetings simultaneously in Salta and New York City by any
means of telecommunication which permits the participants to hear and to speak
to each other. In any case, meetings shall be held at such time and at such
place as the Company or the Trustee shall determine. If a meeting is being
held pursuant to a request of New Noteholders (which shall include the date,
place and time of the meeting, the agenda therefor and the requirements to
attend) shall be given not less than ten days nor more than 30 days prior to
the date fixed for the meeting in the Official Gazette of Argentina and also
in the manner provided above under "--Notices" and any publication thereof
shall be for five consecutive Business Days in each place of publication.
Any New Noteholder may attend the meeting in person or by proxy. Holders of
New Notes who intend to attend a meeting of New Noteholders must notify the
Registrar of their intention to do so at least three days prior to the date of
such meeting.
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the
outstanding New Notes; provided, however, that at any such reconvened meeting
adjourned for lack of the requisite quorum, the quorum will be persons holding
or representing 25% in aggregate principal amount of the outstanding New
Notes.
Modification and Waiver
Decisions shall be made by the affirmative vote of New Noteholders of a
majority in aggregate principal amount of the Outstanding New Notes present or
represented at a meeting of such New Noteholders at which a quorum is present;
provided, however, that the unanimous affirmative vote of the New Noteholders
shall be required to adopt a valid decision on (1) changing the stated
maturity of the principal of or any installment of interest on any New Note;
(2) reducing the principal amount of or interest on any New Note including
discharge of repayment of principal of or interest on any New Note; (3)
reducing the percentage in principal amount of Outstanding New Notes the
consent of the New Noteholders of which is required for the adoption of a
resolution or the quorum required at any meeting of New Noteholders at which a
resolution is adopted or the percentage in principal amount of outstanding New
Notes the New Noteholders of which are entitled to request the calling of a
New Noteholders' meeting, (4) any change in the percentage rules established
for adopting resolutions at meetings of New Noteholders or regarding the
quorum necessary to constitute a meeting; (5) any modification of the number
of New Noteholders necessary to waive a past Event of Default; (6) changing
the currency for payment of principal of, or premium or interest on, any New
Note; or (7) changing the requirement to pay Additional Amounts. Except as
provided above, any modifications, amendments or waivers to the terms and
conditions of the New Notes will be conclusive and binding on all New
Noteholders, whether or not they were present at any meeting, and whether or
not notation of such modifications, amendments or waivers is made upon New
Notes.
Indemnification of Trustee
The Indenture contains provisions for the indemnification of the Trustee and
for its relief from responsibility, including provisions relieving it from
taking action unless indemnified to its satisfaction.
The New Indenture also contains provisions pursuant to which the Trustee is
entitled, inter alia, (1) to enter into business transactions with the Company
and to act as trustee for the holders of any other securities issued or
guaranteed by, or relating to, the Company, (2) to exercise and enforce its
rights, comply with its obligations and perform its duties under or in
relation to any such transactions or, as the case may be, any such trusteeship
without regard to the interests of, or consequences for, the New Noteholders,
and (3) to receive, collect, hold and retain collections received in
connection therewith.
The Trustee has no responsibility in relation to the validity, sufficiency
and enforceability of the New Indenture or any disclosure document or any
offering material relating to New Notes.
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Governing Laws and Enforceability
The Negotiable Obligations Law governs the requirements for the New Notes to
qualify as Negotiable Obligations (Obligaciones Negociables) thereunder. The
Negotiable Obligations Law, together with Corporations Law No. 19,550 of
Argentina, as amended, and other applicable Argentine laws govern the capacity
and corporate authorization of the Company to execute and deliver New Notes
and the New Indenture. Notwithstanding the foregoing, New Notes and the New
Indenture are governed by, and shall be construed in accordance with, the laws
of the State of New York.
The Company will consent to the non-exclusive jurisdiction of any court of
the State of New York or any United States federal court sitting in the
Borough of Manhattan, New York City, New York, United States, and any
appellate court from any thereof, and will waive any immunity from the
jurisdiction of such courts over any suit, action or proceeding that may be
brought in connection with New Notes and the New Indenture. The Company will
irrevocably appoint CT Corporation System as its authorized agent upon which
all writs, process and summonses may be served in any suit, action or
proceeding brought in connection with New Notes or the New Indenture against
the Company in any court of the State of New York or any United States federal
court sitting in the Borough of Manhattan, New York City, and has agreed that
such appointment shall be irrevocable so long as any New Note remains
outstanding or until the irrevocable appointment by the Company of a successor
in New York City as its authorized agent for such purpose and the acceptance
of such appointment by such successor.
Currency Indemnity
The Dollar is the sole currency of account and payment for all sums payable
by the Company under or in connection with New Notes, including damages. Any
amount received or recovered in currency other than Dollars (whether as a
result of, or of the enforcement of, a judgment or order of a court of any
jurisdiction, in the winding up or dissolution of the Company or otherwise) by
any New Noteholder in respect of any sum expressed to be due to it from the
Company shall only constitute discharge of the Company to the extent of the
Dollar amount which the recipient is able to purchase with the amount so
received or recovered in that other currency on the date of the receipt or
recovery (or, if it is not practicable to make that purchase on that date, on
the first date on which it is practicable to do so). If that Dollar amount is
less than the Dollar amount expressed to be due to the recipient under any New
Note, the Company shall indemnify such recipient against any loss sustained by
it as a result. In any event, the Company shall indemnify the recipient
against the cost of making any such purchase. For the purposes of this
paragraph, it will be sufficient for the New Noteholder to certify in
satisfactory manner (indicating the sources of information used) that it would
have suffered a loss had an actual purchase of Dollars been made with the
amount so received in that other currency on the date of receipt of recovery
(of, if a purchase of Dollars on such date had not been practicable, on the
first date on which it would have been practicable, it being required that the
need for a change of date be certified in the manner mentioned above). These
indemnities constitute a separate and independent obligation from the
Company's other obligation, shall give rise to a separate and independent
cause of action, shall apply irrespective of any waiver granted by any New
Noteholder and shall continue in full force and effect despite any other
judgment, order, claim or proof for a liquidated amount in respect of any sum
due under any New Note or any other judgment or order.
Certain Definitions
The following terms have the following definitions in the Indenture:
"Indebtedness" means any obligation (whether present or future, actual or
contingent) for the payment or repayment of money which has been borrowed;
"Lien" means mortgage, charge, pledge, lien or other form of encumbrance
or security interest;
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"Permitted Indebtedness" means:
(1) Indebtedness evidenced by New Notes;
(2) Indebtedness outstanding from time to time under
(a) a credit facility or facilities, or
(b) an issue or issues of commercial paper or other short-term
securities with a maturity of less than 365 days;
in an aggregate principal amount not exceeding US$15,000,000 or its
equivalent (as reasonably determined by the Company);
(3) Indebtedness incurred by any joint venture in which the Company has
an interest and which Indebtedness is fully non-recourse to the Company;
(4) Indebtedness secured by any asset acquired by the Company and
existing on the date of such acquisition; and
(5) Indebtedness incurred or assumed solely for the purpose of financing
all or any part of the cost of acquiring an asset and secured solely by
such asset.
"Permitted Lien" means:
(1) any Lien created on any asset securing Indebtedness incurred or
assumed solely for the purpose of financing all or any part of the cost of
acquiring such asset, which Lien attaches to such asset concurrently with
or within 90 days after the acquisition thereof;
(2) any Lien created on any assets securing Indebtedness incurred in
relation to the construction, improvement or development, in whole or in
part, of (a) assets used in generation and/or transmission and/or
distribution and/or sale of electrical energy and (b) electricity
generating plants and/or electricity distribution facilities and/or
electricity transmission facilities, where in any case such Lien is in
respect of such assets or electricity generating plant, electricity
distribution facility or electricity transmission facility, as the case may
be, being constructed, improved or developed;
(3) any Lien on any asset existing at the date of acquisition of such
asset and not created in contemplation of such acquisition;
(4) any Lien securing an extension, renewal or refinancing of
Indebtedness secured in accordance with any of paragraphs (1) to (4) above,
provided that (a) the Lien is created with respect to the asset which
secured the Indebtedness being so extended, renewed or refinanced and (b)
the principal amount of Indebtedness secured by the Lien prior to such
extension, renewal or refinancing is not increased;
(5) any Lien by arising by operation of law; and
(6) any Lien arising in the ordinary course of business of the Company.
"Property" means any asset, revenue or other property, whether tangible
or intangible, real or personal, including without limitation any right to
receive income.
Transfer of Interests in Global Security
Transfers of interests in the Global Security within DTC, will be in
accordance with the respective usual rules and operating procedures of such
system. The law of some states in the United States require that certain
persons take physical delivery in definitive form of securities. Consequently,
the ability to transfer interests in a Global Security to such persons may be
limited. Because DTC can only act on behalf of participants, who in turn act
on behalf of indirect participants, the ability of a person having an interest
in the Global Security to pledge such interest to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of
such interest, may be affected by the lack of a physical certificate in
respect of such interest.
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DTC has advised the Company that it will take any action permitted to be
taken by a New Noteholder (including, without limitation, the presentation of
the Global Security for exchange as described above) only at the direction of
one or more participants in whose account with DTC an interest in the Global
Security is credited and only in respect of such portion of the aggregate
principal amount of the Global Security as to which such participant or
participants has or have given such direction. However, in the circumstances
described above, DTC will surrender the Global Security for exchange for
individual Certificated New Notes.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
United States Federal Reserve System, a "clearing corporation" within the
meaning of the United States Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
DTC is available to others, such as banks, brokers, dealers and trust
companies, that clear through or maintain a custodial relationship with a DTC
participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial interests in the Global Security among participants
and accountholders of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
None of the Company, the Trustee or any Agent will have any responsibility for
the performance by DTC or its direct or indirect participants or
accountholders of their respective obligations under the rules and procedures
governing their operations.
While the Global Security is lodged with DTC or its custodian, individual
Certificated New Notes will not be eligible for clearing or settlement through
DTC.
Individual Certificated New Notes
Registration of New Notes in a name other than depositary or its nominee for
DTC will not be permitted except under circumstances described in "--
Certificated New Notes; Transfer and Exchange." In such circumstances, the
Company will cause sufficient individual Certificated New Notes to be executed
and delivered to the Registrar for completion, authentication and dispatch to
the relevant New Noteholders. A person having an interest in the Global
Security must provide the Registrar, the Co-Registrar or the Luxembourg Co-
Registrar with a written order containing instructions and such other
information as the Company and the Registrar, the Co-Registrar or the
Luxembourg Co-Registrar may require to complete, execute and deliver such
individual Certificated New Notes.
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TAXATION
Prospective purchasers of the New Notes offered hereby are advised to
consult their own tax advisers as to the consequences under the tax laws of
the country of which they are resident in connection with purchases of the New
Notes, including without limitation, the consequences of the receipt of
interest and the sale or redemption of the New Notes.
Argentina
The following summary is based upon the tax laws of Argentina as in effect
on the date of this Consent Solicitation and Information Memorandum and is
subject to any change in Argentine law that may come into effect after such
date.
Except as described below, interest payments on New Notes shall be exempt
from Argentina income tax, provided New Notes are issued in accordance with
the Negotiable Obligations Law, and qualify for tax exempt treatment under
Section 36 of such Law. Under this section, interest on New Notes shall be
exempt if the following conditions (the "Article 36 Conditions") are
satisfied:
(1) New Notes must be placed through a public offering authorized by the
CNV;
(2) the proceeds of the Offering must be used by the Company for (a)
investments in physical assets located in Argentina, (b) working capital in
Argentina, (c) refinancing of liabilities, and (d) capital contributions to
controlled or affiliated companies, the proceeds of which are applied
exclusively for such purposes; and
(3) the Company must provide evidence to the CNV, in the time and manner
prescribed by regulations, as to the use of the proceeds of the Offering
for any of the purposes described in paragraph (2) above.
New Notes will be issued in compliance with all of the Article 36
Conditions.
If the Company does not comply with the Article 36 Conditions, Article 38 of
the Negotiable Obligations Law provides that the Company will be responsible
for the payment of any withholding taxes on interest received by the New
Noteholders. In such cases, the Company will be liable for the payment of such
withholding tax so that New Noteholders would receive the amount of interest
provided in New Notes as though no such withholding tax had been required.
Presidential Decree No. 1,076 of June 30, 1992, ratified by Law No. 24,307
of December 30, 1993 (the "Decree"), eliminated the exemption described above
with respect to those taxpayers subject to the tax adjustment for inflation
rules of the Argentine income tax law (in general, entities organized or
incorporated under Argentine law, local branches of foreign entities, sole
proprietorships and individuals carrying on certain commercial activities in
Argentina). As a result of the Decree, interest paid to New Noteholders that
are subject to the tax adjustments for inflation rules is subject to
withholding as prescribed by Argentine tax regulations.
All payments in respect of New Notes, including without limitation payments
of principal and interest, will be made by the Company without withholding or
deduction for or on account of any present or future taxes (whether in respect
of personal property or otherwise), duties, levies or other governmental
charges of whatever nature in effect on the date of the Indenture or imposed
or established in the future by or on behalf of Argentina or any authority in
Argentina.
Resident and non-resident individuals and foreign entities not having a
permanent establishment in Argentina are not subject to taxation on capital
gains derived from the sale or other disposition of New Notes if the Article
36 Conditions are satisfied. As a result of the Decree, those taxpayers
subject to the tax adjustment for inflation rules of Argentine income tax law
are subject to taxes on capital gains on the sale or other disposition of New
Notes as prescribed by Argentine tax regulations.
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All transactions and financial operations related to the issuance,
placement, purchase, transfer, payment of principal of, interest on or
redemption price for New Notes are exempt from the imposition of a value added
tax if the Article 36 Conditions are satisfied. No Argentine stamp tax shall
be payable by holders of New Notes under Section 35 of the Negotiable
Obligations Law. No Argentine transfer taxes are applicable on the sale or
transfer of New Notes.
Personal Assets Tax
Certain amendments introduced by Law No. 24,468, dated March 23, 1995 ("Law
No. 24,468"), have eliminated the previously existing exemption with respect
to the tax on personal assets (the "Personal Assets Tax") for negotiable
obligations publicly offered in Argentina, such as New Notes. In accordance
with such amendments, beginning with the 1995 fiscal year, individuals
domiciled, and undivided estates located, in Argentina or abroad must include
securities, such as New Notes, acquired by them since March 24, 1995 in the
composition of their assets in order to determine their tax liability for the
Personal Assets Tax. The rate of this tax is applied per year, based on the
year-end value of the property, with a non-taxable amount of Ps 102,300 in
respect of individuals and undivided estates located in Argentina. For these
taxpayers, the tax rate is 0.5% if the tax ranges between Ps 102,300 and Ps
200,000 or 0.75% if it ranges between Ps 102,300 and ranges more than Ps
200,000. For non-resident taxpayers, the tax rate is 0.75%. Although New Notes
directly held by individuals domiciled, and undivided estates located, outside
of Argentina would technically be subject to the Personal Assets Tax, Law
24,468 foresees no method or procedure for the collection of such tax in
respect of securities, including New Notes, that are directly held by such
individuals and undivided estates.
In addition, Law 24,468 establishes a legal presumption, which does not
allow proof of any kind to the contrary, that certain assets directly owned
(titularidad directa) by a foreign legal entity that is located in a country
which does not require shares or private securities to be held in registered
form are deemed to be owned by individuals domiciled, or undivided estates
located, in Argentina and, therefore, subject to the Personal Assets Tax. In
such cases, the law imposes the obligation to pay the Personal Assets Tax at
an increased rate of 1.5% on any individual or legal entity domiciled or
located in Argentina who is related to the securities by means of, inter alia,
co-ownership, deposit, custody or administration (the "Substitute Obligor").
Law No. 24,468 also authorizes the Substitute Obligor to seek recovery of the
amount so paid, without limitation, by way of withholding or by foreclosing on
the assets that gave rise to such payment.
The above legal presumption shall not apply to the following foreign legal
entities that directly own securities: (1) insurance companies, (2) open-ended
investment funds, (3) pension funds and (4) banks or financial entities whose
head-office is located in a country whose central bank or equivalent authority
had adopted the international standards of supervision established by the
Basle Committee.
Decree No. 127/96, dated February 16, 1996, appoints an issuer of
securities, such as New Notes, as Substitute Obligor for the holders of such
securities. However, this decree has limited the extent of the presumption
described above, stating that it will only apply to legal entities or
permanent establishments domiciled or located outside Argentina which, by
virtue of their legal nature or their articles of incorporation or by-laws,
develop as their principal activity investment outside the country of their
incorporation or location and/or which may not perform in such country
operations or investments pursuant to the legal framework, articles of
incorporation or bylaws to which they are subject (the "Offshore Taxable
Entities"). In addition, Resolution No. 4,172 of the Argentine Tax Authority
(Direccion General Impositiva) ("DGI"), dated June 6, 1996, has established
that the legal presumption discussed above will only apply if the stock of the
foreign entity owning the securities, such as New Notes, is represented by
shares or other securities that are not considered registered by the
applicable law in the country of its incorporation.
Pursuant to Decree No. 12/96, issuers of private securities subject to the
Personal Assets Tax, such as New Notes, must, so that the presumption should
not apply, require the foreign legal entities holding such securities to
provide evidence to such issuer that the direct holders of such securities are
not Offshore Taxable Entities subject to the legal presumption. In accordance
with such decree, Resolution No. 4,172 has established the
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requirements of such evidence, namely: (1) in respect of direct holders that
are not Offshore Taxable Entities, copy of its articles of incorporation or
by-laws, duly certified by the Argentine consular authority represented in the
country of incorporation; and (2) in respect of direct holders that qualify as
Offshore Taxable Entities, a certificate issued by the competent authority of
the country of incorporation stating that its stock is represented by shares
or other securities that are considered registered by the applicable law in
that country.
If such evidence is not provided within the time frame, in the form and in
compliance with the conditions set forth by the DGI with respect to all or any
portion of given issue of securities, the issuer thereof would be responsible
for the payment of the Personal Assets Tax in respect of such securities as to
which such evidence was not satisfactorily obtained. Accordingly, a foreign
legal entity that does not fall under an exemption to the legal presumption
described above will be subject to the Personal Assets Tax, and DGI could
pursue payment of such tax, to the extent there is a Substitute Obligor, in
respect of such securities.
Notwithstanding the above, Decree No. 812/96, dated July 24, 1996,
establishes that the legal presumption discussed above shall not apply to
shares and debt-related private securities, such as New Notes, whose public
offering has been authorized by the CNV and which are tradeable on stock
exchanges located in Argentina or abroad. According to Resolution No. 4,203 of
the DGI, dated August 1, 1996, the issuer shall keep in its records due CNV
certification of the resolution authorizing the public offering of the shares
or debt-related private securities and setting forth the time limit such
authorization will be in effect. The lack of such certification shall allow
the application of the legal presumption.
In the event that it becomes necessary to institute enforcement proceedings
in relation to the New Notes in Argentina, a court tax (currently at a rate of
3.0%) will be imposed on the amount of any claim brought before the Argentine
courts sitting in the city of Buenos Aires. A court tax (currently at a rate
of 4%) will be imposed on the amount of any claim brought before the Argentine
courts sitting in the city of Salta, Province of Salta.
Prospective purchasers of New Notes are advised to consult their own tax
advisers as to the consequences under the tax laws of the country of which
they are residents of a purchase of New Notes, including, without limitation,
the consequences of the receipt of interest and the sale, redemption or any
disposition of New Notes.
United States
The following discussion summarizes the material United States federal
income tax consequences to United States Holders (as defined herein) of the
Plan and of the acquisition, ownership and disposition of the New Notes. This
discussion does not purport to describe all of the tax considerations that may
be relevant to a holder of Old Notes. As used herein, a "United States Holder"
means a holder that is an individual citizen or resident of the United States
or a corporation created or organized in or under the laws of the United
States or any political subdivision thereof. The following summary deals only
with Old Notes that are, and New Notes that will be, held as capital assets by
United States Holders, and does not deal with persons that are subject to
special tax rules, such as dealers or traders in securities or currencies;
financial institutions or other United States Holders that treat income in
respect of the notes as financial services income; insurance companies; tax-
exempt entities; persons holding the notes as a part of a straddle, conversion
transaction or other arrangement involving more than one position; persons
that own (or are deemed for United States tax purposes to own) 5% or more of
either the total combined voting power or the total value of all classes of
stock of the Company and persons that have a principal place of business or
"tax home" outside the United States or persons whose "functional currency" is
not the Dollar.
The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and regulations,
rulings and judicial decisions thereunder as of the date hereof; any such
authority may be repealed, revoked or modified, perhaps with retroactive
effect, so as to result in United States federal income tax consequences
different from those discussed below.
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HOLDERS OF NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
UNITED STATES, ARGENTINE OR OTHER TAX CONSEQUENCES OF THE PLAN AND OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NEW NOTES, INCLUDING THE EFFECT OF ANY
STATE OR LOCAL TAX LAWS.
Exchange of New Notes for Old Notes
The Exchange
It is uncertain whether an exchange of New Notes for Old Notes pursuant to
the Plan should be treated as a taxable exchange or as a reorganization and
recapitalization (within the meaning of Section 368(a)(1)(E) of the Code). An
exchange of Old Notes for New Notes will be treated as a recapitalization only
if both Old Notes and New Notes are treated as "securities" for purposes of
the reorganization provisions of the Code. The term "securities" is not
defined in the Code or in the regulations promulgated thereunder. Under
applicable administrative pronouncements and judicial decisions, as a general
proposition, the original term of a debt instrument is the most important
factor in determining whether the debt instrument is a security (debt
instruments with an original term of at least ten years usually being
considered securities and debt instruments with a term of five years or less
usually not being considered securities). However, (1) the term of a debt
instrument is not necessarily determinative, and other factors such as the
degree of participation and continuing interest associated with the debt
instrument may be relevant, (2) even under this simplified original-term test,
the status of debt instruments with an original term of between five and ten
years is not clear, and (3) in any event, the applicable judicial decisions
are not entirely consistent. Because Old Notes have a maturity of five years,
they may not be treated as securities, in which case the exchange will be
treated as a taxable transaction, rather than as a recapitalization. United
States Holders are encouraged to consult their own tax advisors as to whether
an exchange of New Notes for Old Notes will be treated as a recapitalization.
The exchange should have the following United States federal income tax
consequences:
(1) An exchanging United States Holder of Old Notes should realize gain
or loss in an amount equal to the difference between (a) the amount of cash
and the issue price of New Notes received and (b) the adjusted tax basis of
Old Notes in the hands of the United States Holder. The amount of gain or
loss realized (as opposed to the amount of gain or loss recognized) does
not depend on whether the exchange is treated as a taxable exchange or as a
recapitalization.
(2) The issue price of New Notes will depend upon whether New Notes or
Old Notes are "traded on an established market" at any time within the 60-
day period ending 30 days after the issue date of New Notes. For this
purpose, a debt instrument is considered to be traded on an established
market, if (a) the debt instrument is listed on a national securities
exchange, an interdealer quotation system sponsored by a national
securities association or a designated foreign exchange or board of trade,
(b) the debt instrument is traded either on a board of trade designated as
a contract market by the United States Commodities Futures Trading
Commission or on an interbank market, (c) the debt instrument appears on a
"quotation medium" (which is a system of general circulation that provides
a reasonable basis to determine fair market value by disseminating either
recent price quotations of one or more identified brokers, dealers or
traders or actual prices of recent sales transactions) or (d) price
quotations for the debt instrument otherwise are readily available from
dealers, brokers or traders. Old Notes have been suspended from trading on
both the Buenos Aires Stock Exchange and the Open Electronic Market and
therefore, assuming that such suspension remains in effect, will not be
treated as traded on an established market. Assuming that, as is
anticipated, New Notes will be listed on either such exchange, the Company
believes that New Notes will be considered to be traded on an established
market.
(3) If New Notes are traded on an established market, then the issue
price of New Notes will be their fair market value on the issue date. If
neither New Notes nor Old Notes are traded on an established market, then
the issue price of New Notes will be equal to the present value of all
payments due under New Notes determined by using a discount rate equal to
the long-term Federal rate as of the date of the exchange.
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(4) If the exchange made by an exchanging United States Holder is treated
as a taxable exchange, then gain, if any, realized by the United States
Holder will be recognized. Loss, if any, realized by the exchanging United
States Holder will be recognized only to the extent permitted under the
wash sale rules of Section 1091 of the Code. United States Holders are
advised to consult their own tax advisors as to the potential application
of the wash sale rules.
(5) If the exchange made by an exchanging United States Holder is treated
as a recapitalization, then gain, if any, realized by the United States
Holder will be recognized, but only to the extent of the amount of cash
received. Loss, if any, realized by the exchanging United States Holder
will not be recognized.
(6) Except as discussed below, gain or loss recognized by an exchanging
United States Holder of Old Notes will be treated as capital gain or loss.
Gain recognized by an exchanging United States Holder will be treated as
ordinary income, to the extent of any market discount on Old Notes that has
accrued during the period that the exchanging United States Holder held Old
Notes and that has not previously been included in income by the United
States Holder. An Old Note generally will be considered to have been
acquired with market discount if the issue price of the Old Note at the
time of acquisition exceeded the initial tax basis of the Old Note in the
hands of the United States Holder by more than a specified de minimis
amount. Market discount accrues on ratable basis, unless the United States
Holder elects to accrue the market discount using a constant-yield method.
If the exchange made by an exchanging United States Holder is treated as a
recapitalization, then any accrued market discount on Old Notes that is not
recognized on the exchange will be transferred to New Notes received.
(7) If the exchange made by an exchanging United States Holder is treated
as a taxable exchange, then the tax basis of New Notes received in the
hands of the United States Holder will be equal to their issue price. The
holding period of New Notes will not include the holding period of Old
Notes surrendered in the exchange.
(8) If the exchange made by an exchanging United States Holder is treated
as a recapitalization, then the tax basis of the New Notes received in the
hands of the United States Holder will be equal to the adjusted tax basis
of the Old Notes transferred in the exchange, increased by any gain
recognized on the exchange and decreased by the amount of cash received.
The holding period of the New Notes will include the holding period of the
Old Notes surrendered in the exchange.
Tax Treatment of New Notes
Stated Interest
Interest on a New Note, other than interest that is not "qualified stated
interest," will be taxable to a United States Holder as ordinary interest
income at the time that such interest is received or is accrued, in accordance
with the United States Holder's method of accounting for federal income tax
purposes. In general, qualified stated interest is stated interest that is
unconditionally payable at least annually at a single fixed rate during the
entire term of a debt obligation. Interest on New Notes will be payable semi-
annually at an annual rate of 2.0% in the first year and at increasingly
higher rates in subsequent years; accordingly, only the portion of each
interest payment that represents the accrual of interest at a 2.0% rate will
be treated as qualified stated interest.
Original Issue Discount
General. New Notes will be issued with original issue discount ("OID"). The
amount of OID on a New Note will be equal to the excess of (1) the stated
redemption price at maturity of the New Note over (2) the issue price of the
New Note (determined in the manner described above). The stated redemption
price at maturity of a New Note is the sum of all payments on the New Note
other than payments of qualified stated interest.
Subject to the discussion below under "Acquisition Premium," a United States
Holder of a New Note must include OID in income, as ordinary interest income,
as it accrues, on a constant-yield basis, before the receipt of cash
attributable to such income, and will be required to include in income
increasingly greater amounts of OID
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over the life of the New Note. The amount of OID includible in income by a
United States Holder of a New Note is the sum of the daily portions of OID
with respect to the New Note for each day during the taxable year or portion
of the taxable year on which the United States Holder holds the New Note
("accrued OID"). The daily portion is determined by allocating to each day in
any "accrual period" a pro rata portion of the OID allocable to that accrual
period. Accrual periods with respect to a New Note may be of any length
selected by the United States Holder and may vary in length over the term of
the New Note, as long as (1) no accrual period is longer than one year and (2)
each scheduled payment of interest or principal on the New Note occurs on
either the final or first day of an accrual period. The amount of OID
allocable to an accrual period is equal to the excess of (a) the product of
the adjusted issue price of the New Note at the beginning of the accrual
period and the yield to maturity of the New Note (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of the accrual period) over (b) the sum of the payments of qualified
stated interest on the New Note that are allocable to the accrual period. The
"adjusted issue price" of a New Note at the beginning of any accrual period is
the issue price of the New Note, increased by the amount of accrued OID for
all prior accrual periods and decreased by the amount of any payments
previously made on such New Note other than payments of qualified stated
interest.
In general, the effect of the OID provisions described above is that United
States Holders will realize interest income on New Notes on a constant-yield
basis over the term of New Notes; United States Holders generally will not
realize additional income on the receipt of payments (other than payments of
qualified stated interest) on New Notes, even if those payments are
denominated as interest.
Acquisition Premium. A United States Holder that acquires a New Note for an
amount less than or equal to the sum of all amounts payable on such New Note
after the acquisition date (other than payments of qualified stated interest)
but in excess of its adjusted issue price (any such excess being "acquisition
premium") and that does not make the election described below under "Election
To Treat All Interest As Original Issue Discount," is permitted to reduce the
daily portions of OID includible in its income by a fraction, the numerator of
which is the excess of the United States Holder's adjusted tax basis in the
New Note immediately after its acquisition over the adjusted issue price of
such New Note, and the denominator of which is the excess of the sum of all
amounts payable on such New Note after the acquisition date (other than
payments of qualified stated interest) over the adjusted issue price of such
New Note. The ability to reduce OID inclusions to reflect acquisition premium
in the manner described above is specifically available to a United States
Holder (1) that acquires New Notes pursuant to the Plan in a transaction
treated as a recapitalization, and (2) that realizes a loss on the exchange
that it is not permitted to recognize under the recapitalization rules (with
the consequence that its initial tax basis in the New Notes exceeds the
adjusted issue price of those Notes).
Election To Treat All Interest as Original Issue Discount. A United States
Holder may elect to include in gross income all interest that accrues on a New
Note using the constant-yield method described above under the heading
"Original Issue Discount--General," with the modifications described below.
For purposes of this election, interest includes stated interest, OID, market
discount and de minimis market discount, as adjusted by any acquisition
premium.
In applying the constant-yield method to a New Note with respect to which
this election has been made, the issue price of the New Note will equal the
electing United States Holder's adjusted basis in such New Note immediately
after its acquisition, the issue date of such New Note will be the date of its
acquisition by the electing United States Holder and no payments on the New
Note will be treated as payments of qualified stated interest. This election
generally will apply only to the New Note with respect to which it is made and
may not be revoked without the consent of the United States Internal Revenue
Service ("IRS").
If the election to apply the constant-yield method to all interest on a New
Note is made with respect to a market discount Note (as defined below), then
the electing United States Holder will be treated as having made the election
discussed below under "Market Discount" to include market discount in income
currently over the life of all debt instruments held or thereafter acquired by
such United States Holder.
71
<PAGE>
Market Discount
A New Note will be considered to be acquired with market discount (a "market
discount Note") if the adjusted issue price of the New Note at the time of
acquisition exceeds the initial tax basis of the New Note in the hands of the
United States Holder by more than a specified de minimis amount. If such
excess is not sufficient to cause such New Note to be a market discount Note,
then such excess constitutes "de minimis market discount." In addition, as
discussed above under "Exchange of New Notes for Old Notes--The Exchange," if
a United States Holder acquires New Notes pursuant to the Plan in an exchange
treated as a recapitalization, then accrued market discount on an Old Note
that is not taken into account in connection with the exchange will carry over
to the New Note received in exchange therefor.
Any gain recognized on the receipt of payments on or disposition of a market
discount Note will be treated as ordinary income to the extent that such gain
does not exceed the accrued market discount on such New Note. Alternatively, a
United States Holder of a market discount Note may elect to include market
discount in income currently over the life of such New Note. Such an election
shall apply to all debt instruments with market discount acquired by the
electing United States Holder on or after the first day of the first taxable
year to which the election applies. This election may not be revoked without
the consent of the IRS. A United States Holder that makes the election
described under "Original Issue Discount--Election To Treat All Interest as
Original Issue Discount" will be deemed to have elected to include market
discount in income currently.
Market discount on a market discount note will accrue on a ratable basis
unless the United States Holder elects to accrue such market discount using a
constant-yield method. Such an election shall apply only to the New Note with
respect to which it is made and may not be revoked without the consent of the
IRS. A United States Holder of a market discount note that does not elect (and
is not deemed to have elected) to include market discount in income currently
generally will be required to defer deductions for net direct interest expense
with respect to such New Note (defined, for each taxable year, as the excess
of interest expense allocable to the New Note over interest (including OID)
includible in income in respect of such New Note) in an amount not exceeding
the accrued market discount on such New Note until the maturity or disposition
of such New Note.
Purchase, Sale and Retirement of New Notes
A United States Holder's initial tax basis in a New Note (determined in the
manner described above under "Exchange of New Notes for Old Notes--The
Exchange") will be increased by the amount of any OID or market discount
included in the United States Holder's income with respect to such New Note
and reduced by the amount of any payments on such New Note other than payments
of qualified stated interest. A United States Holder generally will recognize
gain or loss on the sale or retirement of a New Note in an amount equal to the
difference between the amount realized on the sale or retirement (other than
amounts attributable to accrued but unpaid interest, which will be taxable as
such) and the tax basis of the New Note. Except to the extent described above
under "Market Discount," gain or loss recognized on the sale or retirement of
a New Note will be capital gain or loss.
Foreign Tax Credit
For United States foreign tax credit purposes, interest and OID on a New
Note generally will be treated as foreign-source income and as passive income,
subject to the separate foreign tax credit limitation (basket) for passive
income. However, if such interest or OID becomes subject to Argentine
withholding tax at a rate of five percent or more, then such interest or OID
instead will be segregated in the separate foreign tax credit basket for so-
called high withholding tax interest.
Gain or loss recognized by a United States Holder on the sale or exchange of
a New Note generally will be treated as United States-source gain or loss.
72
<PAGE>
TRANSFER RESTRICTIONS
The New Notes may be subject to restrictions on transfer in certain
jurisdictions, including, but not limited to, the United States. Because of
such restrictions, purchasers of New Notes are advised to consult legal
counsel prior to making any offer, resale, pledge or transfer of any New
Notes.
Upon receipt of the New Notes, holders of New Notes issued in exchange for
Old Notes which were issued pursuant to Rule 144A, and who are not affiliates
of the Company (as defined in Rule 144), will be permitted under the
Securities Act to freely transfer their New Notes to third parties under Rule
144(k) because the two-year holding period under Rule 144(k) will be met.
Under Section 3(a)(9) of the Securities Act, these holders will be able to
tack onto the holding period of such Old Notes, which were issued by the
Company more than two years before the issuance of the New Notes.
In addition, upon receipt of New Notes, holders of New Notes issued in
exchange for Old Notes which were issued pursuant to Regulation S, and who are
not affiliates of the Company (as defined in Rule 144), will be permitted
under the Securities Act to freely transfer their New Notes to third parties
pursuant to Section 4(1) of the Securities Act because the requirements of
Regulation S were complied with at the time of the issuance of such Old Notes.
Under Section 3(a)(9) of the Securities Act, these holders will be able to
rely upon the satisfaction of the requirements of Regulation S at the time
such Old Notes were issued, which was more than one year before the issuance
of New Notes.
LEGAL MATTERS
The Company has received legal advice from Morgan, Lewis & Bockius LLP, New
York, New York, with respect to matters of United States and New York law;
from Estudio O'Farrell, Buenos Aires, Argentina with respect to matters of
Argentine corporate law; and Alvarez & Cornejo Costas, Estudio de Abogados,
City of Salta, Province of Salta, Argentina with respect to matters relating
to the court-supervised reorganization.
INDEPENDENT AUDITORS
The auditor of the financial statements and schedules of the Company is
Deloitte & Co. S.R.L. (a firm of independent public accountants who are the
Argentine correspondents for Deloitte Touche Tohmatsu International), which,
to the extent and for the periods indicated, has audited or reviewed the
financial statements of the Company included in this Consent Solicitation and
Information Memorandum.
LISTING AND GENERAL INFORMATION
Application has been made to list New Notes on the Luxembourg Stock
Exchange. Prior to the listing, a legal notice relating to the issue of the
Notes and By-Laws of the Company will be deposited with the Chief Registrar of
the District Court of Luxembourg (Greffier en Chef du Tribunal
d'Arrondissement de et a Luxembourg), where copies thereof may be obtained,
free of charge, upon request. Application has also been made to list New Notes
on the Buenos Aires Stock Exchange and the Open Electronic Market. New Notes
have been made eligible for trading in PORTAL.
Copies of the By-Laws of the Company and the New Indenture will be available
for inspection during the term of New Notes in the City of Luxembourg at the
office of Kredietbank S.A. Luxembourgeoise, the listing agent for New Notes on
the Luxembourg Stock Exchange (the "Luxembourg Listing Agent"). In addition,
copies of the most recent annual audited financial statements and unaudited
quarterly financial statements of the Company may be obtained in English, free
of charge, at the office of the Luxembourg Listing Agent during the term of
New Notes.
73
<PAGE>
The Company is not involved in any litigation or arbitration proceedings
relating to claims or amounts which are material to the Company or which
involve the issuance of New Notes, nor, so far as it is aware, is any such
litigation or arbitration pending or threatened with the exception of an
action currently pending before the Federal Court of First Instance No. 1, of
the City of Salta, Province of Salta, in which a petition has been made
requesting the court to declare the presumptive minimum income tax
unconstitutional. The court has granted injunctive relief to the Company
suspending the accrual, collection and payment of the tax from 1999 and until
a final decision is rendered by the court.
74
<PAGE>
CENTRAL TERMICA GUEMES S.A.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Auditors' Report......................................................... F-2
Balance Sheets as of December 31, 1999, 1998 and 1997.................... F-5
Statements of Income for the Years Ended December 31, 1999, 1998 and
1997.................................................................... F-6
Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1999 and 1998.............................................. F-7
Statements of Changes in Cash and Equivalents for the Years Ended
December 31, 1999, 1998 and 1997........................................ F-8
Notes to the Financial Statements for the Years Ended December 31, 1999,
1998 and 1997........................................................... F-9
Schedules................................................................ F-15
Auditor's Report (Limited Review)........................................ F-20
Balance Sheets as of December 31, 1998 and 1997.......................... F-21
Statements of Income for the Years Ended December 31, 1998 and 1997...... F-22
Statement of Changes in Cash and Cash Equivalents for the Years Ended
December 31, 1998 and 1997.............................................. F-23
Notes to the Financial Statements for the Years Ended December 31, 1998
and 1997................................................................ F-24
Schedules................................................................ F-31
Balance Sheets as of March 31, 2000 and 1999............................. F-33
Statements of Income for the Three-Month Periods Ended March 31, 2000 and
1999.................................................................... F-34
Statement of Changes in Shareholders' Equity for the Three-Month Period
Ended March 31, 2000.................................................... F-35
Statement of Changes in Shareholders' Equity for the Three-Month Period
Ended December 31, 1999................................................. F-36
Statements of Changes in Cash For the Three-Month Periods Ended March 31,
2000 and 1999........................................................... F-37
Notes to Financial Statements for the Three-Month Periods Ended March 31,
2000 and 1999........................................................... F-38
Schedules................................................................ F-45
Auditor's Report (Limited Review)........................................ F-50
Statuatory Auditor's Report.............................................. F-52
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the President and Directors of
Central Termica Guemes S.A.
1. We have audited the accompanying balance sheets of Central Termica Guemes
S.A. as of December 31, 1999 and 1998, and the related statements of income,
changes in shareholders' equity and changes in cash and notes 1 to 10 and
supplemental schedules I to V thereto for the years then ended. The
abovementioned financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our review, performed with the scope mentioned in 2 below.
2. We conducted our audit in accordance with auditing standards generally
accepted in Argentina. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management as well as evaluating the overall
financial statements presentation.
3. As mentioned in note 1, and as a consequence of a series of events, the
Board of Directors of Central Termica Guemes S.A. decided on March 29, 1999,
to commence a restructuring process of Company's financial debts, and on May
14, 1999, to postpone interest payments of the Corporate Notes maturing on May
26, 1999.
On October 29, 1999, the Board of Directors of the Company decided to reject
the last proposal of financial restructuring submitted by the Notes Holders
Committee as it included very heavy commitments and obligations for the
Company and its shareholders; it required a much too high cash payment leaving
a reduced cash to meet current obligations; an excessive decrease in the
percentage held by each of the partners in the capital stock of the Company
and did not guarantee the final acceptance of the proposal by a sufficient
number of holders, as the Committee represented a reduced group of
institutional investors, taking also into account that a great majority of
these holders are dispersed and that their interest might not be represented
in the proposal submitted by the Committee. On the other hand, the reduction
contemplated in the proposal continued to leave the Company with a high debt
ratio.
Consequently, the Board of Directors of the Company resolved on November 2,
1999, to file a petition for "a scheme of arrangement prior to the
adjudication in bankruptcy" (a process separate from that of bankruptcy aimed
at the satisfaction of creditors and at the avoidance of the adjudication in
bankruptcy). This decision was later ratified by the Special Meeting of
Shareholders held on November 30, 1999. Said petition was filed with the
corresponding authorities on November 3, 1999, suspending the accrual and
recording of interest as from that date, in accordance with the Bankruptcy Law
No. 24,522. The "scheme of arrangement" is being brought to the knowledge of
the public and is at the proof of claims stage, as contemplated by the
Bankruptcy Law No. 24,522.
Actually, the Company continues to carry out its electric power production
and marketing activities and the Board of Directors is committed to the
preparation of a proposal to be submitted to the Company's creditors whose
claims are allowed, that allows the payment of Company's debts and guarantees
the continuity of the Company as a going concern.
The probable adjustments that may result from the "scheme of arrangement"
cannot be objectively determined as of the date of the issuance of these
financial statements. Therefore, the Board of Directors of the Company has
decided to the maintain the valuation and exposure criteria that imply the
continuance of the business. If this were not the case, significant
adjustments could be necessary in relation to the valuation and exposure of
the recoverable values of assets, as well as the acceptance of the obligations
that would result from the hypothetical discontinuance of the business.
F-2
<PAGE>
4. In our opinion, subject to the probable adjustments that could arise from
the abovementioned situation described in section 3, the financial statements
mentioned in the first paragraph present fairly, in all material respects, the
financial position of Central Termica Guemes S.A. as of December 31, 1999 and
1998, and the results of its operations, changes in shareholders' equity and
changes in cash corresponding to the years then ended, in conformity with
accounting principles generally accepted in Argentina.
5. Special information required by current regulations (for the year ended
December 31, 1999)
a) The financial statements referred to in the first paragraph have been
prepared in accordance with the provisions of Law No. 19.550 and those of
General Resolution No. 290 of the National Securities Commission.
b) The amounts of the financial statements agree with the accounting
records of the Company which have been transcribed to the certified books.
c) As part of our audit, the scope of which is mentioned in section 2
above, we have examined the informative summary prepared by the Board of
Directors as required by the National Securities Commission, about which we
have no observations to raise as to matters within our jurisdiction.
d) In accordance with the accounting records, liabilities accrued as of
December 31, 1999 in favor of the Retirement and Pension Plan System amount
to US$123,672.51, of which US$15,483.69 is due as of that date.
6. The financial statements referred to above, are presented on the basis of
accounting principles generally accepted in Argentina and have been translated
into English for the convenience of foreign readers. The effects of the
differences between Argentine generally accepted accounting principles and the
accounting principles generally accepted in the countries in which the
accompanying financial statements are to be used have not been quantified.
Accordingly, they are not intended to present the financial position of the
Company nor the results of its operations, the changes in shareholders' equity
or in cash and cash equivalents in accordance with accounting principles
generally accepted in the countries of the users of the financial statements,
other than Argentina.
These financial statements have been prepared by the management of Central
Termica Guemes S.A. in order to fulfill the requirements set forth by the
National Securities Commission for foreign investors.
Salta, March 3, 2000
DELOITTE & Co. S.R.L.
F-3
<PAGE>
CENTRAL TERMICA GUEMES S.A.
Ruta 34, km. 1135--General Guemes--Pcia. de Salta
<TABLE>
<S> <C>
Company's main activity: Operation of electric-power plants
Registration Number in Companies' 1562323
Inspection Bureau:
Filing dates of Company's by-laws and
amendments thereto September 18, 1992, and August 4, 1999
in the Companies' Inspection Bureau:
Expiry date of the by-laws: February 28, 2092
Date of last amendment to the by-laws: May 14, 1999
Parent company: Powerco S.A.
Av. de Mayo 651, 3rd Floor--
Buenos Aires
Percentage held in capital stock and 60%
votes:
</TABLE>
FISCAL YEAR No. 8
COMMENCED JANUARY 1, 1999
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998
CAPITAL STOCK
(note 5)
<TABLE>
<CAPTION>
1999 and 1998
----------------------
Subscribed and paid in
----------------------
(stated in pesos)
<S> <C>
Ordinary shares Class A, N/V $1, 1 vote each............. 37,743,600
Ordinary shares Class B, N/V $1, 1 vote each............. 18,871,800
Ordinary shares Class C, N/V $1, 1 vote each............. 6,290,600
----------
Total.................................................. 62,906,000
==========
</TABLE>
F-4
<PAGE>
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(stated in pesos)
<S> <C> <C>
Assets
Current Assets
Cash and banks.......................................... 786,856 593,691
Investments (note 4.1).................................. 8,917,387 5,831,561
Accounts receivable (note 4.2).......................... 9,038,509 10,870,786
Other receivables (note 4.3)............................ 1,458,397 1,085,088
Supplies and materials.................................. 1,891,429 1,468,241
----------- -----------
Total Current Assets.................................. 22,092,578 19,849,367
----------- -----------
Non-Current Assets
Property, plant and equipment (schedule I).............. 97,248,406 101,815,995
Intangible assets (schedule II)......................... 1,520,143 2,390,679
----------- -----------
Total Non-Current Assets.............................. 98,768,549 104,206,674
----------- -----------
Total Assets.......................................... 120,861,127 124,056,041
=========== ===========
Liabilities
Current Liabilities
Accounts payable........................................ 2,145,086 3,883,693
Loans (note 8).......................................... 6,740,034 680,044
Payroll and social security charges..................... 210,304 110,983
Taxes................................................... 3,351,011 2,223,031
Other liabilities....................................... 24,333 9,000
Provisions (schedule III)............................... 2,136,252
----------- -----------
Total Current Liabilities............................. 14,607,020 6,906,751
----------- -----------
Non-Current Liabilities
Loans (note 8).......................................... 60,000,000 60,000,000
Provisions (schedule III)............................... 305,792 383,562
----------- -----------
Total Non-Current Liabilities......................... 60,305,792 60,383,562
----------- -----------
Total Liabilities..................................... 74,912,812 67,290,313
Shareholders' Equity
(as per the corresponding statements)................... 45,948,315 56,765,728
----------- -----------
Total................................................. 120,861,127 124,056,041
=========== ===========
</TABLE>
The attached notes 1 to 11 and supplemental schedules I to V are
an integral part of these statements.
F-5
<PAGE>
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(stated in pesos)
<S> <C> <C>
Net sales (note 4.5)...... 36,467,693 35,440,134
Cost of sales (schedule
V)....................... (35,157,889) (31,404,851)
----------- -----------
Gross profit............ 1,309,804 4,035,283
Selling expenses (schedule
V)....................... (875,432) (574,113)
Administrative expenses
(schedule V)............. (2,509,905) (1,993,912)
Other income and expense.. (941,082) (1,356,335)
Financial results
Generated by assets (note
4.6a).................... 1,008,326 708,359
Generated by liabilities
(note 4.6b and schedule
V)....................... (7,090,480) (7,545,010)
----------- -----------
Ordinary Loss........... (9,098,769) (6,725,728)
Extraordinary loss (note
6)....................... (1,718,644)
----------- -----------
Net Loss For The Year... (10,817,413) (6,725,728)
=========== ===========
</TABLE>
The attached notes 1 to 11 and supplemental schedules I to V are
an integral part of these statements.
F-6
<PAGE>
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Reserved
Shareholders' contributions earnings
-------------------------------- -------- Unappropriated
Capital Adjustment Legal retained
stock to capital Total reserve earnings Total
---------- ---------- ---------- -------- -------------- -----------
(stated in pesos)
<S> <C> <C> <C> <C> <C> <C>
Balances as of
December 31, 1997...... 62,906,000 5,341,154 68,247,154 412,206 (5,167,904) 63,491,456
Net loss for the year... (6,725,728) (6,725,728)
---------- --------- ---------- ------- ----------- -----------
Balances as of
December 31, 1998...... 62,906,000 5,341,154 68,247,154 412,206 (11,893,632) 56,765,728
Net loss for the year... (10,817,413) (10,817,413)
---------- --------- ---------- ------- ----------- -----------
Balances as of
December 31, 1999...... 62,906,000 5,341,154 68,247,154 412,206 (22,711,045) 45,948,315
========== ========= ========== ======= =========== ===========
</TABLE>
The attached notes 1 to 11 and supplemental schedules I to V are
an integral part of these statements.
F-7
<PAGE>
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
(stated in pesos)
<S> <C> <C>
Changes in Cash and Cash Equivalents
Balances at the beginning of the year................. 6,425,252 7,948,472
Net increase (decrease) in cash....................... 3,278,991 (1,523,220)
----------- ----------
Cash at end of year................................... 9,704,243 6,425,252
=========== ==========
Causes of the Variation of Cash
Net loss for the year................................. (10,817,413) (6,725,728)
Add: items not representing use of cash:
Accrual of unpaid interest.......................... 6,059,990
Depreciation of fixed assets........................ 4,843,538 4,446,179
Amortization of intangible assets................... 892,299 1,089,539
Provisions.......................................... 1,050,000 380,000
Accrual of the tax on the unpaid interest of
corporate notes.................................... 1,011,000
Allowance for bad debts............................. 220,000
Changes in assets and liabilities
Decrease (increase) in accounts receivable.......... 1,612,277 (1,870,550)
Decrease (increase) in liabilities.................. (498,491) 1,058,684
(Increase) decrease of supplies and materials....... (423,188) 86,084
(Increase) decrease in other receivables............ (373,309) 158,019
----------- ----------
Cash provided by (applied to) ordinary operations..... 3,576,703 (1,377,773)
----------- ----------
Investment activities
Purchases of fixed assets........................... (275,949) (136,210)
Increase of intangible assets....................... (21,763) (9,237)
----------- ----------
Cash applied to investment activities............... (297,712) (145,447)
----------- ----------
Net Increase (Decrease) in Cash................... 3,278,991 (1,523,220)
=========== ==========
</TABLE>
The attached notes 1 to 11 and supplemental schedules I to V are
an integral part of these statements.
F-8
<PAGE>
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
(stated in pesos)
1. COMPANY'S ECONOMIC-CASH CONDITION--PETITION FOR "A SCHEME OF ARRANGEMENT
PRIOR TO THE ADJUDICATION IN BANKRUPTCY"
After a detailed analysis of the current cash position of the Company, the
Board of Directors decided on March 29, 1999, to commence a restructuring
process of Company's financial debts and entrusted the General Management,
with the assistance of Bankers Trust--Alex Brown, with the preparation of a
plan for that purpose. Said decision was informed to the National Securities
Commission on May 17, 1999.
The decision of implementing a restructuring plan was due mainly to the
occurrence of a series of events which had a negative impact on the cash
position of the Company. The most significant events taken into account have
been the following: a) the difficulty faced by the Company to enter the
international credit market at adequate terms and rates; b) the effects
suffered by the Company as a consequence of the tax reform enacted by the
National Congress which includes the tax on deemed minimum income and tax on
interest; c) the reduction of the average sale price of energy at the Guemes
node as from the moment of the privatization and d) the high debt ratio.
In this context, the Board of Directors decided on May 14, 1999, to postpone
interest payments of the Corporate Notes maturing on May 26, 1999.
On October 29, 1999, the Board of Directors of the Company decided to reject
the last proposal of financial restructuring submitted by the Noteholders
Committee as it included very heavy commitments and obligations for the
Company and its shareholders; it required a much too high cash payment leaving
a reduced cash to meet current obligations; it included an excessive decrease
in the percentage held by each of the partners in the capital stock of the
Company and did not guarantee the final acceptance of the proposal by a
sufficient number of holders, as the Committee represented a reduced group of
institutional investors, taking also into account that a great majority of
these holders are dispersed and that their interest might not be represented
in the proposal submitted by the Committee. On the other hand, the reduction
contemplated in the proposal continued to leave the Company with a high debt
ratio.
Consequently, the Board of Directors of the Company resolved on November 2,
1999, to file a petition for "a scheme of arrangement prior to the
adjudication in bankruptcy" (a process separate from that of bankruptcy aimed
at the satisfaction of creditors and at the avoidance of the adjudication in
bankruptcy). This decision was later ratified by the Special Meeting of
Shareholders held on November 30, 1999. Said petition was filed with the
corresponding authorities on November 3, 1999, suspending the accrual and
recording of interest of debts as from that date, in accordance with the
Bankruptcy Law No. 24.522.
The grounds for this decision were the following: a) the rejection of the
three proposals prepared by the Company on the part of the Noteholders
Committee; b) the potential risks that any demand or claim could affect the
normal operation of the business; c) the convenience of offering a greater
legal certainty to any financial restructuring with Company's creditors
avoiding the uncertainty presented by an extrajudicial restructuring; d) the
convenience of looking for the best alternatives to continue providing the
electric-power generation service and employment; e) that Company's capacity
for the generation of funds is not enough to meet the financial commitments
arising from the liabilities represented by the corporate notes issued and f)
the Company's belief that it would more likely reach an agreement regarding
payment conditions of the debts compatible with the Company's need for cash
flow in a bankruptcy.
F-9
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998--(Continued)
The "scheme of arrangement prior to the adjudication in bankruptcy" was
accepted on December 2, 1999, and is handled by the Court of Original
Jurisdiction in Civil and Commercial Matters No. 8 of the Province of Salta.
It is being brought to the knowledge of the public and is at the proof of
claims stage, as contemplated by the Bankruptcy Law No. 24.522.
At present, the Company continues to carry out its electric-power production
and marketing activities, and the Board of Directors is committed to the
preparation of a proposal to be submitted to the Company's creditors whose
claims are allowed, that allows the payment of Company's debts and guarantees
the continuity of the Company as a going concern.
2. SUBMITTED INFORMATION
In accordance with General Resolution No. 272/95 of the National Securities
Commission, following the provisions of Decree No 316/95 of the National
Executive Power, the financial statements have not considered the effect of
the changes in the wholesale price index as from September 1, 1995. According
to Resolution No. 140/96 of the Argentine Federation of Professional Councils
in Economic Sciences has stated that inflation accounting is not mandatory as
long as annual inflation, as measured by the evolution of the wholesale price
index, does not exceed 8%. Accordingly, the Company has decided to discontinue
recognition of the full effects of inflation since that date.
3. VALUATION CRITERIA
3.1 Monetary items
Monetary assets and liabilities in pesos have been maintained at their
nominal values.
3.2 Investments
Time deposits have been valued at their nominal value plus the financial
results accrued at the end of each year.
Mutual funds have been valued at the quoted price of the units of ownership
as of the end of each year.
3.3 Supplies and materials
They have been value at replacement cost as of the end of each year.
3.4 Fixed assets
Fixed assets incorporated before August 31, 1995, have been valued at cost
restated in currency units of constant value as of that date, and those
incorporated after have been valued at their original cost, net of accumulated
depreciation.
Depreciation was determined by applying the straight-line method according
to the estimated useful life of each item, except for certain items for which
the unit of production method was used.
3.5 Intangible assets
Intangible assets incorporated before August 31, 1995, have been valued at
cost restated in currency units of constant value as of that date, and those
incorporated after have been valued at their original cost, net of accumulated
amortization.
F-10
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998--(Continued)
Amortization was determined by applying the straight-line method according
to the estimated useful life of each item.
3.6 Foreign currency denominated assets and liabilities
They have been valued at the rate of exchange as of the end of each year.
3.7 Capital stock
Capital stock has been restated in currency units of constant value of
August 31, 1995, as from the dates it was paid-in. Capital stock has been
disclosed at its nominal value and the surplus to reach restated value has
been included in Adjustment to Capital.
3.8 Legal reserve
Balances at the beginning of the year have been restated as described in
note 2.
3.9 Unappropriated retained earnings
Balances at the beginning of the year have been restated as described in
note 2.
3.10 Profit and loss accounts
Profit and loss accounts have been recorded at their nominal values except
for the non-monetary assets consumed (depreciation of fixed assets and
amortization of intangible assets) which have been determined according to the
values computed as described in 3.4 and 3.5.
3.11 Recoverable value
The net values of the assets do not exceed their recoverable value.
3.12 Implicit financing components
They have not been segregated due to their lack of significance.
4. BREAKDOWN OF MAIN CAPTIONS
4.1 Investments
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Time deposits............................................... 6,226,914 3,812,359
Mutual funds................................................ 2,690,473 2,019,202
--------- ---------
8,917,387 5,831,561
========= =========
</TABLE>
The breakdown according to the estimated collection period is as follows:
<TABLE>
<S> <C> <C>
Maturing within 3 months.................................... 8,917,387 5,831,561
========= =========
</TABLE>
F-11
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998--(Continued)
4.2 Accounts receivable
<TABLE>
<S> <C> <C>
Debtors from the forward market.......................... 8,806,982 10,809,675
Related Companies--Powerco S.A........................... 249,490
Doubtful accounts under legal proceedings................ 302,037 161,111
Allowance for bad debts (schedule III)................... (320,000) (100,000)
--------- ----------
9,038,509 10,870,786
========= ==========
</TABLE>
The breakdown according to the estimated collection period is as follows:
<TABLE>
<S> <C> <C>
a) Past due
Within 3 months.......................................... 164,306
In 3 and 6 months........................................ 131,879
More than 6 months....................................... 144,798 161,111
b) To become due:
Within 3 months.......................................... 8,597,526 10,709,675
--------- ----------
9,038,509 10,870,786
========= ==========
</TABLE>
4.3 Other receivables
<TABLE>
<S> <C> <C>
Advances to suppliers....................................... 799,605 179,396
Prepaid expenses............................................ 335,290 169,905
Fiscal credits.............................................. 243,084 587,448
Miscellaneous............................................... 80,418 148,339
--------- ---------
1,458,397 1,085,088
========= =========
</TABLE>
The breakdown according to the estimated collection period is as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
a) To become due
Within 3 months........................................... 799,605 179,396
In 3 and 6 months......................................... 243,084 757,353
b) With no specified due date............................... 415,708 148,339
--------- ---------
1,458,397 1,085,088
========= =========
</TABLE>
4.4 Liabilities
The classification of the balances is as follows:
<TABLE>
<S> <C> <C>
a) To become due
Within 3 months(1)...................................... 3,302,896 6,217,707
In 6 and 12 months...................................... 680,044
More than 12 months(2).................................. 60,305,792 60,000,000
With no specified due date.............................. 11,304,124 392,562
---------- ----------
74,912,812 67,290,313
========== ==========
</TABLE>
--------
(1) It includes a balance with the Related Companies (Powerco S.A.) for 3,000
which does not carry interest nor is it subject to any adjustment nor
restatement clause.
(2) It includes a US$60,000,000 a 5 years debt at a fixed annual interest rate
of 12%.
F-12
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998--(Continued)
4.5 Net sales
<TABLE>
<S> <C> <C>
Sales of electricity.................................... 44,218,196 42,173,804
Discounts for services received......................... (7,570,503) (6,553,670)
Turnover tax and municipal contribution................. (180,000) (180,000)
---------- ----------
36,467,693 35,440,134
========== ==========
</TABLE>
4.6 Financial results
<TABLE>
<S> <C> <C>
a) Generated by assets
Interest.............................................. 1,008,326 708,359
b) Generated by liabilities
Interest.............................................. (7,027,421) (7,358,001)
Expenses and commissions.............................. (63,059) (187,009)
---------- ----------
(7,090,480) (7,545,010)
---------- ----------
(6,082,154) (6,836,651)
========== ==========
</TABLE>
5. CAPITAL STOCK
The subscribed and paid-in capital, as of December 31, 1999 and 1998,
amounts to US$62,906,000. Such amount has been registered in the Public
Registry of Commerce.
The Special Meeting of Shareholders held on May 14, 1999, approved the
amendment of articles sixth, eighth and twentieth third (caption two) of the
By-Laws, aimed at contemplating the possibility of offering preferred shares
to the holders of Corporate Notes issued by the Company which become due in
2001.
6. EXTRAORDINARY INCOME
The expenses derived from the restructuring process of Company's financial
debts have been included in this item for the reasons detailed in note 1.
7. INCOME TAX AND TAX ON DEEMED MINIMUM INCOME
No income tax charge was recorded due to the existence of a tax loss. During
the month of March 1999, the Company filed with the Federal Court of Salta a
declaratory judgement action of negative certainty and requested granting of
an "in statu quo" injunction in respect of the payment of the tax on deemed
minimum income, alleging lack of payment capacity. Upon the judge's decision
against the Company, it later decided to appeal on April 6, 1999. On June 6,
1999, the Appellate Court granted the preliminary injunction suspending the
payment of said tax with respect to the year ended December 31, 1998. The
recovery of the charges accounted for is postponed until a final favorable
resolution is issued.
8. LOANS
Current:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Interest on Corporate Notes (see note 1)...................... 6,740,000 680,000
Advances in current accounts.................................. 34 44
--------- -------
6,740,034 680,044
========= =======
</TABLE>
F-13
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998--(Continued)
Non-current:
The Board of Directors of the Company arranged for a new issuance of
Corporate Notes (non convertible into shares) for a nominal value of
US$60,000,000 at an interest rate of 12%. The proceeds thereof plus Company's
own funds were used to settle the outstanding debt of US$65,000,000 due on
November 29, 1996.
The net proceeds of this new issuance amounted to US$59,025,000 and were
applied to the settlement of the Corporate Notes referred to in the first
paragraph.
The proceeds of the new issue were received on November 26, 1996. Capital is
to be paid back in one installment in 5 (five) years and bears interest at 12%
per annun, payable in 10 (ten) semiannual consecutive installments. As of the
date of the issuance of these financial statements, the first, second, third
and fourth installments were paid on May 16, 1997, November 26, 1997, May 26,
1998, and November 26, 1998, respectively, amounting to US$3,600,000 each.
The fifth and sixth installments which became due on May 26, 1999, and
November 26, 1999, respectively, have not been paid by the Company for the
reasons detailed in note 1.
The issuance of this debt has given rise to certain commitments whereby the
Company is bound to maintain a debt ratio equivalent to or lower than 0.6 to 1
considering for its computation the Loans over Total Liabilities plus
Shareholders' Equity ratio (0.55 as of December 31, 1999) and restrictions to
the payment of dividends.
9. CLAIMS
As of the date of the issuance of these financial statements there are
certain judicial and extrajudicial claims for different amounts. Although the
Company's management has filed the appropriate responses strongly supported by
the applicable legislation, the Company has made a provision of Ps 305,792 in
order to quantitatively reflect these contingencies. However, the Company's
management believes that these claims will not have a significant effect on
the financial and cash position of Central Termica Guemes S.A.
On the other hand, and based on that mentioned in note 7, the Company has
decided to include in the item Provisions the contingent debt arising from the
accrual of the tax on deemed minimum income during the years 1999 and 1998.
10. CHANGE OF SHAREHOLDERS IN THE PARENT COMPANY
On January 26, 1999, the shareholders of Powerco S.A. (parent company),
including Duke Guemes Inc., Iberdrola Holding & Finance B.V., Sociedad
Comercial del Plata S.A., TCW Americas Development Association L.P. and The
Argentine Investment Company, holding through Powerco S.A. 60% of the shares
of Central Termica Guemes S.A., sold the entire shareholding to a group of the
Company's management giving thus rise to the first case of Management Buy-out
in the Argentine electric-power market.
11. YEAR 2000 COMPLIANCE (NOT COVERED BY THE AUDITORS AND STATUTORY AUDITORS'
REPORTS)
As required by Resolution No. 309/98 of the National Securities Commission,
the Company hereby informs that the administrative-accounting management
system used by the Company to record its economic transactions contemplates
the change of date to operate subsequent to December 31, 1999. Consequently
this event will not cause any inconvenience in the records and/or operations
as from that date.
F-14
<PAGE>
SCHEDULE I
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------------------------------------------
Original Values Depreciation
--------------------------------------------- ---------------------------------------------------
Balance Accumulated Current Year
at the Balance at at the --------------- Accumulated Net
beginning the end of beginning Rate at the end Residual
of the year Additions Retirements the year of the year Retirements % Amount of the year Value
----------- --------- ----------- ----------- ----------- ----------- ----- --------- ----------- ----------
(stated in pesos)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Land............. 780,000 21,052 801,052 801,052
Buildings........ 27,299,281 145,652 27,444,933 4,277,484 2.55 693,473 4,970,957 22,473,976
Turbines......... 44,585,426 44,585,426 10,734,294 5.19 1,945,407 12,679,701 31,905,725
Boilers.......... 44,956,683 44,956,683 8,763,503 4.20 1,588,015 10,351,518 34,605,165
Transformers..... 6,358,163 6,358,163 1,584,934 5.33 254,328 1,839,262 4,518,901
Water treatment
plant............ 1,180,310 1,180,310 223,108 5.33 47,208 270,316 909,994
Auxiliary
equipment........ 381,162 381,162 95,024 5.34 15,252 110,276 270,886
Gas plant and gas
pipeline......... 1,916,659 1,916,659 477,776 5.33 76,668 554,444 1,362,215
Tools............ 350,038 350,038 206,740 10.00 41,067 247,807 102,231
Vehicles......... 209,412 47,438 54,091 202,759 185,272 54,091 20.00 17,136 148,317 54,442
Furniture and
fixtures......... 557,853 52,190 610,043 335,109 20.00 111,458 446,567 163,476
Installations.... 353,729 9,617 363,346 229,477 20.00 53,526 283,003 80,343
----------- ------- ------ ----------- ---------- ------ ----- --------- ---------- ----------
Total 1999...... 128,928,716 275,949 54,091 129,150,574 27,112,721 54,091 4,843,538 31,902,168 97,248,406
=========== ======= ====== =========== ========== ====== ===== ========= ========== ==========
Total 1998...... 128,792,506 136,210 128,928,716 22,666,542 4,446,179 27,112,721
=========== ======= ====== =========== ========== ====== ===== ========= ========== ==========
<CAPTION>
1998
-----------
Net
Residual
Value
-----------
<S> <C>
Land............. 780,000
Buildings........ 23,021,797
Turbines......... 33,851,132
Boilers.......... 36,193,180
Transformers..... 4,773,229
Water treatment
plant............ 957,202
Auxiliary
equipment........ 286,138
Gas plant and gas
pipeline......... 1,438,883
Tools............ 143,298
Vehicles......... 24,140
Furniture and
fixtures......... 222,744
Installations.... 124,252
-----------
Total 1999......
===========
Total 1998...... 101,815,995
===========
</TABLE>
CARLOS A. PERALTA
F-15
<PAGE>
SCHEDULE II
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------- ---------
Original Values Amortization
-------------------------------- ---------------------------------------
Balance Balance Accumulated
at the at the at the Current Year Accumulated Net Net
beginning of end of beginning Rate at the end Residual Residual
the year Additions the year of the year % Amount of the year Value Value
------------ --------- --------- ----------- ----- --------- ----------- --------- ---------
(stated in pesos)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Software................ 41,372 21,763 63,135 14,857 33.00 14,580 29,437 33,698 26,514
Programmed maintenance
expenses................ 3,641,488 3,641,488 2,222,888 16.67 523,092 2,745,980 895,508 1,418,600
Issuance of corporate
notes(1)................ 1,535,675 1,535,675 637,598 20.00 307,140 944,738 590,937 898,078
Rationalization of
operating costs......... 309,002 309,002 261,515 20.00 47,487 309,002 47,487
--------- ------ --------- --------- --------- --------- --------- ---------
Total 1999............ 5,527,537 21,763 5,549,300 3,136,858 892,299 4,029,157 1,520,143
========= ====== ========= ========= ========= ========= ========= ---------
Total 1998............ 7,986,747 9,237 7,995,984 4,515,766 1,089,539 5,605,305 2,390,679
========= ====== ========= ========= ========= ========= =========
</TABLE>
----
(1) It includes expenses derived from the issuance of corporate notes issued in
November, 1996 for US$60,000,000 maturing in November 2001.
F-16
<PAGE>
SCHEDULE III
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998
ALLOWANCES--PROVISIONS
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------- ----------
Balance
Balance at the at the Balance at
beginning of end of the end of
Items the year Increases Decreases the year the year
----- -------------- --------- --------- --------- ----------
(stated in pesos)
<S> <C> <C> <C> <C> <C>
Deducted from assets
Allowance for bad
debts.................. 100,000 220,000(1) 320,000 100,000
Included in liabilities
Provision for
contingencies.......... 2,136,252(2) 2,136,252
Provision for severance
payments............... 383,562 (77,770) 305,792 383,562
------- --------- ------- --------- -------
Total................. 483,562 2,356,252 (77,770) 2,762,044 483,562
======= ========= ======= ========= =======
</TABLE>
--------
(1) Charged to Selling expenses.
(2) Charged to Other income and expense for US$1,050,000 and reclassified from
Taxes for US$1,086,252.
F-17
<PAGE>
SCHEDULE IV
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998
FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ ---------------------------------
Amount in Amount in
Argentine Argentine
currency and currency and
Exchange amount amount
Class and amount rate accounted for Class and amount accounted for
Item of foreign currency $ (in pesos) of foreign currency (in pesos)
---- ------------------- -------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks.......... US$ 8,459 1.00 8,459 US$ 4,689 4,689
Investments............. US$ 1,004,924 1.00 1,004,924
Accounts receivable..... US$ 9,038,509 1.00 9,038,509
Other receivables....... US$ 668,316 1.00 668,316 US$10,870,786 10,870,786
---------- ----------
Total Current Assets.. 10,720,208 10,875,475
---------- ----------
TOTAL ASSETS.......... 10,720,208 10,875,475
========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable........
Suppliers............... US$ 1,781,149 1.00 1,781,149 US$ 3,486,175 3,486,175
Loans...................
Corporate notes......... US$ 6,740,000 1.00 6,740,000 US$ 680,000 680,000
---------- ----------
Total Current
Liabilities.......... 8,521,149 4,166,175
---------- ----------
NON-CURRENT LIABILITIES
Loans...................
Corporate notes......... US$60,000,000 1.00 60,000,000 US$60,000,000 60,000,000
---------- ----------
Total Non-Current
Liabilities.......... 60,000,000 60,000,000
---------- ----------
TOTAL LIABILITIES..... 68,521,149 64,166,175
========== ==========
</TABLE>
F-18
<PAGE>
SCHEDULE V
CENTRAL TERMICA GUEMES S.A.
Registration Number in the Companies' Inspection Bureau: 1562323
DETAIL OF COSTS AND EXPENSES AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------- ----------
Cost of Selling Administrative Financial
Items sales expenses expenses expenses Total Total
----- ---------- -------- -------------- --------- ---------- ----------
(stated in pesos)
<S> <C> <C> <C> <C> <C> <C>
Fees.................... 420,589 258,147 678,736 723,986
Salaries and wages...... 2,822,471 303,599 485,223 3,611,293 2,938,502
Social security
charges................ 360,056 47,936 89,594 497,586 572,254
Fuel.................... 24,562,743 24,562,743 20,624,584
Supplies and materials.. 478,738 478,738 804,314
Services contracted..... 611,151 812,140 1,423,291 1,694,999
Communications.......... 212,784 212,784 211,795
Office expenses......... 40,939 215,484 256,423 95,489
Depreciation of fixed
assets................. 4,731,448 112,090 4,843,538 4,446,179
Amortization of
intangible assets...... 892,299 892,299 1,089,539
Insurance policies...... 275,641 275,641 199,899
Interest and exchange
differences............ 7,027,421 7,027,421 7,358,001
Commissions............. 63,059 63,059 187,009
Taxes................... 2,182 91,111 16,270 109,563 3,158
Miscellaneous........... 571 391,847 308,173 700,591 568,178
---------- ------- --------- --------- ---------- ----------
Total 1999............ 35,157,889 875,432 2,509,905 7,090,480 45,633,706
========== ======= ========= ========= ==========
Total 1998............ 31,404,851 574,113 1,993,912 7,545,010 41,517,886
========== ======= ========= ========= ==========
</TABLE>
F-19
<PAGE>
AUDITORS' REPORT
To the President and Directors of
Central Termica Guemes S.A.
1. We have audited the accompanying balance sheets of Central Termica Guemes
S.A. as of December 31, 1998 and 1997, and the related statements of income,
and of changes in cash and cash equivalents, for the years then ended, with
the Notes 1 through 10 thereto and supplemental Schedule I. The abovementioned
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
2. Our examinations were made in accordance with auditing standards
generally accepted in Argentina. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management as well as evaluating the overall
financial statements presentation.
The format of this auditors' report follows the guidelines issued by the
International Federation of Accountants (IFAC), in accordance with the
requirements of General Resolution No. 290 of the National Securities
Commission.
3. As explained in Note 8 to the financial statements, the Company's
capacity to meet its financial obligations is strongly related to the
possibility of obtaining sources of financing. This is due to the fact that
funds generated by operations do not seem sufficient to comply with existing
commitments, specially the capital maturity of the negotiable obligations
which will become due in year 2001.
4. In our opinion, subject to the eventual effects which could derive from
point 3, the financial statements mentioned in point 1, present fairly, in all
significant aspects, the financial position of Central Termica Guemes S.A. as
of December 31, 1998 and 1997, as the results of its operations, changes in
stockholders' equity and in cash and cash equivalents, for the years then
ended, in accordance with accounting principles generally accepted in
Argentina.
5. The financial statements referred to above, are presented on the basis of
accounting principles generally accepted in Argentina and have been translated
into English for the convenience of foreign readers. The effects of the
differences between Argentine generally accepted accounting principles and the
accounting principles generally accepted in the countries in which the
accompanying financial statements are to be used have not been quantified.
Accordingly, they are not intended to present the financial position of the
Company nor the results of its operations, or the changes in cash and cash
equivalents in accordance with accounting principles generally accepted in the
countries of the users of the financial statements, other than Argentina.
These financial statements have been prepared by the management of Central
Termica Guemes S.A. in order to fulfill the requirements set forth by the
National Securities Commission for foreign investors.
Buenos Aires,
March 8, 1999
F-20
<PAGE>
CENTRAL TERMICA GUEMES S.A.
BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(in U.S. dollars--Note
1)
<S> <C> <C>
Assets
Current Assets
Cash and banks........................................ 593,691 536,289
Investments (Note 3.1)................................ 5,831,561 7,412,183
Trade accounts receivable (Note 3.2).................. 10,870,786 9,000,236
Other receivables (Note 3.3).......................... 1,085,088 1,243,107
Supplies and materials................................ 1,468,241 1,554,325
----------- -----------
Total Current Assets................................ 19,849,367 19,746,140
----------- -----------
Non-Current Assets
Property, plant and equipment (Note 3.4).............. 101,815,995 106,125,964
Intangible assets (Note 3.5).......................... 2,390,679 3,470,981
----------- -----------
Total Non-Current Assets............................ 104,206,674 109,596,945
----------- -----------
Total Assets........................................ 124,056,041 129,343,085
=========== ===========
Liabilities
Current Liabilities
Accounts payable...................................... 3,883,693 3,874,329
Loans (Note 7)........................................ 680,044 736,692
Payroll and social security........................... 110,983 153,612
Taxes................................................. 2,223,031 910,144
Miscellaneous......................................... 9,000 5,790
----------- -----------
Total Current Liabilities........................... 6,906,751 5,680,567
=========== ===========
Non-Current Liabilities
Loans (Note 7)........................................ 60,000,000 60,000,000
Reserves.............................................. 383,562 171,062
----------- -----------
Total Non-Current Liabilities....................... 60,383,562 60,171,062
----------- -----------
Total Liabilities................................... 67,290,313 65,851,629
Stockholders' Equity
Capital stock (Note 4)................................ 68,247,154 68,247,154
Legal reserve (Note 5b)............................... 412,206 412,206
Accumulated deficit (Note 5a)......................... (11,893,632) (5,167,904)
----------- -----------
56,765,728 63,491,456
----------- -----------
Total Liabilities and Stockholders' Equity............ 124,056,041 129,343,085
=========== ===========
</TABLE>
The attached Notes 1 to 11 and Schedule I are an integral part of these
statements.
F-21
<PAGE>
CENTRAL TERMICA GUEMES S.A
STATEMENTS OF INCOME FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(in U.S. dollars--Note
1)
<S> <C> <C>
Net sales (Note 3.7).................................. 35,440,134 35,346,735
Cost of sales (Schedule I)............................ (31,404,851) (30,734,344)
----------- -----------
Gross profit........................................ 4,035,283 4,612,391
Selling expenses (Schedule I)......................... (574,113) (352,069)
Administrative expenses (Schedule I).................. (1,993,912) (2,029,959)
Other expenses (Note 3.8)............................. (270,083) (41,712)
Net financial result:
Arising from assets (Note 3.9a)....................... 708,359 553,302
Arising from liabilities (Note 3.9b).................. (7,545,010) (7,392,613)
----------- -----------
Loss before taxes................................... (5,639,476) (4,650,660)
Minimum presumptive income tax........................ (1,086,252)
----------- -----------
Net Loss............................................ (6,725,728) (4,650,660)
=========== ===========
</TABLE>
The attached Notes 1 to 11 and Schedule I are an integral part of these
statements.
F-22
<PAGE>
CENTRAL TERMICA GUEMES S.A.
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(in U.S. dollars--
Note 1)
<S> <C> <C>
Changes in Cash and Cash Equivalents
Balance at beginning of year............................ 7,948,472 8,178,412
Net change in cash and cash equivalents................. (1,523,220) (229,940)
---------- ----------
Cash and cash equivalents at year-end................. 6,425,252 7,948,472
========== ==========
Causes of the Variation of Cash
Sources:
Net loss for the year................................... (6,725,728) (4,650,660)
Add: Items not representing use of cash:
Depreciation of property, plant and equipment......... 4,446,179 4,440,564
Amortization of intangible assets..................... 1,089,539 1,420,079
Withdrawals (net value)............................... 204,541
Severance reserve..................................... 380,000
---------- ----------
Cash provided by ordinary operations.................... (810,010) 1,414,524
---------- ----------
Other sources:
Decrease in other receivables........................... 158,019 583,822
Increase in liabilities................................. 1,058,684 453,701
---------- ----------
Other................................................... 1,216,703 1,037,523
---------- ----------
Total sources of cash............................... 406,693 2,452,047
---------- ----------
Uses of cash:
Increase in short-term receivables...................... (1,870,550) (1,260,627)
Acquisitions of property, plant and equipment........... (136,210) (114,240)
Increase of intangible assets........................... (9,237) (1,255,010)
Increase of supplies and materials...................... 86,084 (52,110)
---------- ----------
Total uses of cash.................................. (1,929,913) (2,681,987)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS............. (1,523,220) (229,940)
========== ==========
</TABLE>
The attached Notes 1 to 11 and Schedule I are an integral part of these
statements.
F-23
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
(in U.S. dollars)
1. INFORMATION PRESENTED
The transactions of the Company are recorded in pesos in the legal books.
In compliance with Resolution No. 290 of the National Securities Commission,
the financial statements were prepared in accordance with the disclosure and
valuation guidelines of Technical Resolutions Nos. 6 (except for the effect of
the matter described in the following paragraph), 8 and 9 of the Argentine
Federation of Professional Councils in Economic Sciences.
In accordance with General Resolution No. 290 of the National Securities
Commission, following the provisions of Decree No. 316/95 of the Federal
Government, the financial statements have not considered the effect of the
changes in the wholesale price index as from September 1, 1995. According to
Resolution No. 140/96 of the Argentine Federation of Professional Councils in
Economic Sciences, such discontinuance is permitted as long as the annual
variation of the "Wholesale price index--general level" does not exceed 8%.
The statutory financial statements (price level restated as described above)
have been converted into U.S. dollars at the rate of exchange of Ps 1.00 per
US$1.00, which approximates the free market exchange rate for the years
comprehended.
The conversion of the adjusted for inflation pesos into U.S. dollars should
not be construed as a representation that the peso balances have been or could
be converted into dollars at such or any other rate.
Both the translation into English and the conversion into U.S. dollars have
been made solely for the convenience of foreign readers.
2. VALUATION CRITERIA
2.1 Monetary items
Monetary assets and liabilities have been maintained at their nominal value.
2.2 Investments
They have been maintained at cost plus the accrued interest.
2.3 Supplies and materials
They have been valued at replacement cost.
2.4 Property, plant and equipment
They have been recorded at cost restated for inflation as described in Note
1, net of accumulated depreciation.
Depreciation was determined using the straight-line method over the
estimated useful life, except for certain items for which the unit of
production method was used.
F-24
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997--(Continued)
2.5 Intangible assets
They have been recorded at cost restated for inflation as described in Note
1, net of accumulated amortization. Amortization was determined using the
straight-line method upon estimated useful life of each item.
2.6 Foreign currency denominated assets and liabilities
They are stated at year-end current exchange rates.
2.7 Capital
Capital has been price level restated as described in Note 1.
2.8 Retained earnings and legal reserve
They have been price level restated as described in Note 1 as from their
appropriation dates.
2.9 Profit and loss accounts
All charges and credits have been recorded at their nominal value, except
for non-monetary assets consumed (depreciation and withdrawals of property,
plant and equipment and amortization of intangible assets) which were
determined upon the inflation restated values of such non-monetary assets,
through August 31, 1995.
2.10 Recoverable value
The net values of the assets do not exceed their recoverable value.
2.11 Implicit financing components
They have not been segregated due to immateriality.
F-25
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997--(Continued)
3. BREAKDOWN OF CERTAIN CAPTIONS
3.1 Investments
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Time deposits............................................ 3,812,359 7,412,183
Common investment funds.................................. 2,019,202
---------- ---------
5,831,561 7,412,183
========== =========
The classification of the balances is as follows:
Not due yet:
Maturing within three months........................... 5,831,561 7,412,183
========== =========
3.2 Trade accounts receivable
Other debtors............................................ 10,809,675 8,975,084
Past due................................................. 161,111 25,152
Allowance for doubtful accounts.......................... (100,000)
---------- ---------
10,870,786 9,000,236
========== =========
The maturity of the balances is as follows:
a) Past due between six and nine months.................. 161,111 25,152
b) Not due yet, maturing within three months............. 10,709,675 8,975,084
---------- ---------
10,870,786 9,000,236
========== =========
3.3 Other receivables
Tax credits.............................................. 587,448 707,011
Prepaid expenses......................................... 169,905 146,621
Related parties--art. 33 Law No. 19,550 (Powerco S.A.)... 69,736
Advance to suppliers..................................... 179,396 162,602
Miscellaneous............................................ 148,339 157,137
---------- ---------
1,085,088 1,243,107
========== =========
The classification of the balances is as follows:
a) Not due yet:
Maturing within three months........................... 179,396 263,775
Maturing between three and six months.................. 757,353 776,747
b) With no specified term:............................... 148,339 202,585
---------- ---------
1,085,088 1,243,107
========== =========
</TABLE>
F-26
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997--(Continued)
3.4 Property, plant and equipment
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
a) The evolution during the years is as follows:
Net balance at beginning of year.................... 106,129,964 110,656,829
Additions........................................... 136,210 114,240
Withdrawals (net value)............................. (204,541)
Depreciation for the year........................... (4,446,179) (4,440,564)
----------- -----------
Net balance at year-end........................... 101,815,995 106,125,964
=========== ===========
b) The detail of fixed assets is as follows:
Land................................................ 780,000 780,000
Building............................................ 23,021,797 23,713,219
Turbines............................................ 33,851,132 35,585,793
Boilers............................................. 36,193,180 37,608,215
Transformers........................................ 4,773,229 5,027,557
Water plant......................................... 957,202 1,004,410
Auxiliary equipment................................. 286,138 301,390
Gas plant and gas pipeline.......................... 1,438,883 1,515,551
Tools............................................... 143,298 186,810
Vehicles............................................ 24,140 14,050
Furniture and fixtures.............................. 222,744 278,956
Installations....................................... 124,252 110,013
----------- -----------
101,815,995 106,125,964
=========== ===========
3.5 Intangible assets
a) The evolution during the years is as follows:
Net balance at beginning of year.................... 3,470,981 3,636,050
Additions........................................... 9,237 1,255,010
Amortization of the year............................ (1,089,539) (1,420,079)
----------- -----------
Net balance at year-end........................... 2,390,679 3,470,981
=========== ===========
b) The detail of intangible assets is as follows:
Software............................................ 26,514 29,810
Start-up cost....................................... 101,154
Multiannual maintenance............................. 1,418,600 2,025,512
Issuance of amortizing obligations.................. 898,078 1,205,218
Rationalization of operating costs.................. 47,487 109,287
----------- -----------
2,390,679 3,470,981
=========== ===========
</TABLE>
F-27
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997--(Continued)
3.6 Liabilities
The maturity of liabilities is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
a) Not due yet:
Maturing within three months.......................... 6,217,707 5,674,777
Maturing within six and twelve months................. 680,044
Maturing beyond twelve months......................... 60,000,000 60,000,000
b) With no specified term............................... 392,562 176,852
---------- ----------
67,290,313 65,851,629
========== ==========
3.7 Net sales
Sales of electricity.................................... 42,173,804 43,172,019
Transmission services................................... (6,553,670) (7,645,284)
Turnover tax............................................ (180,000) (180,000)
---------- ----------
35,440,134 35,346,735
========== ==========
3.8 Other expenses
Result from sale of fixed assets........................ (9,917) 41,712
Severance............................................... 280,000
---------- ----------
270,083 41,712
========== ==========
3.9 Net financial results
a) Arising from assets
Interest.............................................. 708,359 553,302
---------- ----------
708,359 553,302
========== ==========
b) Arising from liabilities
Interest.............................................. (7,358,001) (7,263,739)
Financial expenses.................................... (187,009) (128,874)
---------- ----------
(7,545,010) (7,392,613)
---------- ----------
(6,836,651) (6,839,311)
========== ==========
</TABLE>
4. CAPITAL
The subscribed and paid-in capital as of December 31, 1998 and 1997, amounts
to US$62,906,000. Such amount has been registered in the Public Registry of
Commerce.
The difference between the original contributions and its price level
restated values amounting to US$68,247,154 corresponds to the adjustment of
capital for inflation.
F-28
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997--(Continued)
5. RETAINED EARNINGS AND LEGAL RESERVE
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
a) Retained earnings' evolution is detailed as
follows:
Balance at beginning of year....................... (5,167,904) (517,244)
Net loss for the year.............................. (6,725,728) (4,650,660)
----------- ----------
Balance at year-end................................ (11,893,632) (5,167,904)
=========== ==========
b) Changes in legal reserve are as follows:
Balance at beginning of year....................... 412,206 412,206
----------- ----------
Balance at year-end................................ 412,206 412,206
=========== ==========
</TABLE>
6. INCOME TAX
No income tax charge was recorded as of December 31, 1998 and 1997, due to a
tax loss of approximately US$20,240,000 and US$16,000,000, respectively, which
is available to offset future taxable income for five years after the fiscal
years in which they originated.
7. ISSUANCE OF NEGOTIABLE BONDS
The Board of Directors arranged for a new issuance of negotiable bonds (not
convertible into shares) for a face value of US$60,000,000. Proceeds thereof
were used to settle the outstanding debt of US$65,000,000 due on November 29,
1996.
The proceeds of this new issuance were received on November 26, 1996.
Capital is to be paid back in 2001 and bears interest at 12% per annum,
payable in ten semiannual consecutive installments. The first, second, third
and fourth semiannual interest obligations were paid on May 16, 1997, November
26, 1997, May 26, 1998, and November 26, 1998, amounting US$3,600,000 each
one.
The issuance of this debt has given rise to certain commitments whereby the
Company is bound to maintain a ratio of total liabilities over total assets
not exceeding 60% as of December 31, 1998, such ratio is 0.49%, and
restrictions to the payment of dividends. The net proceeds resulting from the
issuance amounted to US$59,025,000.
8. CLAIMS
As of the date of issuance of these financial statements there are certain
legal and out-of-court claims for different amounts. The Company's management
has filed the appropriate responses strongly supported by the applicable
legislation. The Company's management considers that these claims will have no
significant effect on the financial position of Central Termica Guemes S.A.
and no accruals have been considered necessary.
9. SUBSEQUENT EVENTS
The shareholders of Powerco S.A. hold, through Powerco S.A., 60% of Central
Termica Guemes S.A.'s shares. Such shareholders, including Duke Guemes Inc.,
Iberdrola Holding & Finance B.V., Sociedad Comercial del Plata S.A., TCW
Americas Development Association L.P. and The Argentine Investment Company,
sold on January 26, 1999, their entire shareholding to a group of the
Company's Management. Consequently, this is the first case of management
buyout in the Argentine power market.
F-29
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997--(Continued)
10. PROSPECTS
The decrease of spot prices in the wholesale power market and the
competition of other higher technology generators produced a fall in the
Company's profitability during the last years. This problem has increased
notoriously mostly due to the tax reform enacted in December 1998, by which
taxpayers are subject to a tax on minimum presumed income and to a new tax on
interest. In addition, the negotiation processes effected January 1999 with
EDESA, the Company's principal client, and the gas supplier, will result in an
additional negative impact on profitability.
The Company's capacity to meet its financial obligations is strongly related
to the possibility of obtaining sources of financing. This is due to the fact
that funds generated by operations do not seem sufficient to comply with
existing commitments, specially the capital maturity of the negotiable
obligations which will become due in year 2001.
Consequently, the Board of Directors is considering several alternatives in
order to overcome the current economic situation.
11. INFORMATION REQUIRED BY GENERAL RESOLUTION No. 309/98 OF THE NATIONAL
SECURITIES COMMISSION (NOT COVERED BY THE AUDITOR'S REPORT OR THE
SUPERVISORY COMMITTEE)
In compliance with the abovementioned General Resolution, we inform that the
administrative-accounting management system used by the Company to record its
economic transactions has scheduled the change of date to operate subsequent
to December 31, 1999. Therefore, this event will not produce any inconvenience
in the records and/or transactions as from such date.
F-30
<PAGE>
SCHEDULE I
CENTRAL TERMICA GUEMES S.A.
DETAIL OF COSTS AND EXPENSES AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------- ----------
Cost of Selling Administrative Financial
Concept sales expenses expenses expenses Total Total
------- ---------- -------- -------------- --------- ---------- ----------
(in U.S. dollars--Note 1)
<S> <C> <C> <C> <C> <C> <C>
Fees.................... 609,759 114,227 723,986 832,694
Salaries and wages...... 2,332,203 198,030 408,269 2,938,502 2,980,989
Social security
charges................ 435,632 39,688 96,934 572,254 528,034
Fuel.................... 20,624,584 20,624,584 20,202,366
Supplies and materials.. 804,314 804,314 622,040
Services contracted..... 964,023 730,976 1,694,999 1,274,155
Communications.......... 211,795 211,795 191,354
Office expenses......... 95,489 95,489 95,635
Depreciation of fixed
assets................. 4,340,224 105,955 4,446,179 4,440,564
Amortization of
intangible assets...... 1,089,539 1,089,539 1,420,079
Insurance............... 199,899 199,899 179,930
Interest and exchange
differences............ 7,358,001 7,358,001 7,263,739
Commissions............. 187,009 187,009 128,874
Taxes................... 2,656 502 3,158 5,962
Miscellaneous........... 2,018 335,893 230,267 568,178 342,570
---------- ------- --------- --------- ---------- ----------
Total 1998............ 31,404,851 574,113 1,993,912 7,545,010 41,517,886
========== ======= ========= ========= ==========
Total 1997............ 30,734,344 352,069 2,029,959 7,392,613 40,508,985
========== ======= ========= ========= ==========
</TABLE>
F-31
<PAGE>
CENTRAL TERMICA GUEMES S.A.
Ruta 34, km. 1135--General Guemes--Pcia. de Salta
<TABLE>
<S> <C>
Operation of electric-power
Company's main activity: plants
Registration Number in Companies' Inspection
Bureau: 1562323
Filing date of Company's by-laws in the September 18, 1992 and
Companies' Inspection Bureau: August 4, 1999
Expiry date of the by-laws: February 28, 2092
Date of last amendment to the by-laws: May 14, 1999
Parent company: Powerco S.A. Av. de Mayo
651, 3rd Floor--Suite 16th--
Buenos Aires
Percentage held by the parent company
in capital stock: 60%
in votes: 60%
</TABLE>
FISCAL YEAR No. 9
COMMENCED JANUARY 1, 2000
FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND 1999
(three-month periods)
(stated in pesos)
CAPITAL STOCK
(note 5)
<TABLE>
<CAPTION>
1999 and 1998
Subscribed and paid in
----------------------
(stated in pesos)
<S> <C>
Ordinary shares Class A, N/V $1, 1 vote each............. 37,743,600
Ordinary shares Class B, N/V $1, 1 vote each............. 18,871,800
Ordinary shares Class C, N/V $1, 1 vote each............. 6,290,600
----------
Total.................................................. 62,906,000
==========
</TABLE>
F-32
<PAGE>
CENTRAL TERMICA GUEMES S.A.
BALANCE SHEETS AS OF MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(stated in pesos)
<S> <C> <C>
Assets
Current Assets
Cash and banks........................................ 531,203 1,639,219
Investments (note 4.1)................................ 9,709,039 8,225,238
Accounts receivable (note 4.2)........................ 8,503,812 9,748,105
Other receivables (note 4.3).......................... 2,905,873 1,130,618
Supplies and materials................................ 1,856,219 1,485,543
----------- -----------
Total current assets................................ 23,506,146 22,228,723
----------- -----------
Non-Current Assets
Property, plant and equipment (schedule I)............ 96,158,218 100,644,753
Intangible assets (schedule II)....................... 1,339,632 2,143,269
----------- -----------
Total non-current assets............................ 97,497,850 102,788,022
----------- -----------
Total assets........................................ 121,003,996 125,016,745
=========== ===========
Liabilities
Current Liabilities
Accounts payable...................................... 2,745,315 4,444,627
Loans (note 7)........................................ 6,740,000 2,906,137
Payroll and social security charges................... 361,390 147,819
Taxes................................................. 3,186,866 2,532,137
Other liabilities..................................... 26,237 25,029
Provisions (schedule III)............................. 2,330,641
----------- -----------
Total current liabilities........................... 15,390,449 10,055,749
----------- -----------
Non-Current Liabilities
Loans (note 7)........................................ 60,000,000 60,000,000
Provisions (schedule III)............................. 455,792 317,404
----------- -----------
Total non-current liabilities....................... 60,455,792 60,317,404
----------- -----------
Total liabilities................................... 75,846,241 70,373,153
Shareholders' Equity (as per the corresponding
statements)
Total............................................... 45,157,755 54,643,592
----------- -----------
121,003,996 125,016,745
=========== ===========
</TABLE>
The attached notes 1 to 10 and supplemental schedules I to V are an integral
part of these statements.
F-33
<PAGE>
CENTRAL TERMICA GUEMES S.A.
STATEMENTS OF INCOME FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(stated in pesos)
<S> <C> <C>
Net sales (note 4.5).................................... 8,043,465 9,696,925
Cost of sales (schedule V).............................. (7,780,993) (9,110,565)
---------- ----------
Gross profit.......................................... 262,472 586,360
Transmission expenses (schedule V)...................... (214,642) (101,367)
Administrative expenses (schedule V).................... (584,615) (498,222)
Other expense........................................... (450,000) (202,248)
Financial results
Generated by assets (note 4.6a)......................... 276,896 193,164
Generated by liabilities (note 4.6b).................... (23,961) (2,099,819)
Ordinary loss......................................... (733,850) (2,122,132)
Extraordinary income (note 10).......................... (56,710)
---------- ----------
Net loss for the period............................... (790,560) (2,122,132)
========== ==========
</TABLE>
The attached notes 1 to 10 and supplemental schedules I to V are an integral
part of these statements.
F-34
<PAGE>
CENTRAL TERMICA GUEMES S.A.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Unappropriated
Capital Adjustment Legal retained
stock to capital reserve earnings Total
---------- ---------- ------- -------------- ----------
(stated in pesos)
<S> <C> <C> <C> <C> <C> <C>
Balances at the
beginning of the year.. 62,906,000 5,341,154 412,206 (22,711,045) 45,948,315
Net loss for the
period................. (790,560) (790,560)
---------- --------- ------- ----------- ----------
Balances at the end of
the period............. 62,906,000 5,341,154 412,206 (23,501,605) 45,157,755
========== ========= ======= =========== ==========
</TABLE>
The attached notes 1 to 10 and supplemental schedules I to V are an integral
part of these statements.
F-35
<PAGE>
CENTRAL TERMICA GUEMES S.A.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Unappropriated
Capital Adjustment Legal retained
stock to capital reserve earnings Total
---------- ---------- ------- -------------- ----------
(stated in pesos)
<S> <C> <C> <C> <C> <C> <C>
Balances at the
beginning of the year.. 62,906,000 5,341,154 412,206 (11,893,636) 56,765,724
Net loss for the
period................. (2,122,132) (2,122,132)
---------- --------- ------- ----------- ----------
Balances at the end of
the period............. 62,906,000 5,341,154 412,206 (14,015,768) 54,643,592
========== ========= ======= =========== ==========
</TABLE>
The attached notes 1 to 10 and supplemental schedules I to V are an integral
part of these statements.
F-36
<PAGE>
CENTRAL TERMICA GUEMES S.A.
STATEMENTS OF CHANGES IN CASH FOR THE THREE MONTH- PERIODS ENDED
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(stated in pesos)
<S> <C> <C>
Changes In Cash
Balance at the beginning of the year.................... 9,704,243 6,425,252
Net increase in cash.................................... 535,999 3,439,205
---------- ----------
Cash at end of period................................... 10,240,242 9,864,457
========== ==========
Causes of the Variation Of Cash
Net loss for the period................................. (790,560) (2,122,132)
Add: items not representing use of cash:
Depreciation of fixed assets.......................... 1,172,196 1,249,900
Amortization of intangible assets..................... 183,031 247,410
Increase of provisions................................ 450,000
---------- ----------
Cash provided by (applied to) ordinary operations....... 1,014,667 (624,822)
---------- ----------
Net increase in liabilities............................. 483,429 3,082,836
Decrease in accounts receivable......................... 534,697 1,122,681
Decrease of supplies and materials...................... 35,210
---------- ----------
Other sources of cash................................. 1,053,336 4,205,517
---------- ----------
Total sources of cash................................. 2,068,003 3,580,695
---------- ----------
Net increase in other receivables....................... (1,447,476) (45,530)
Purchases of fixed assets............................... (82,008) (78,658)
Increase of intangible assets........................... (2,520)
Increase of supplies and materials...................... (17,302)
---------- ----------
Total uses of cash.................................... (1,532,004) (141,490)
---------- ----------
Net increase in cash................................ 535,999 3,439,205
========== ==========
</TABLE>
The attached notes 1 to 10 and supplemental schedules I to V are an integral
part of these statements.
F-37
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999
(stated in pesos)
1. COMPANY'S ECONOMIC-CASH CONDITION--PETITION FOR "A SCHEME OF ARRANGEMENT
PRIOR TO THE ADJUDICATION IN BANKRUPTCY"
After a detailed analysis of the current cash position of the Company, the
Board of Directors decided on March 29, 1999, to commence a restructuring
process of Company's financial debts, and entrusted the General Management,
with the assistance of Bankers Trust--Alex Brown, with the preparation of a
plan for that purpose. Said decision was informed to the National Securities
Commission on May 17, 1999.
The decision of implementing a restructuring plan was due mainly to the
occurrence of a series of events which had a negative impact on the cash
position of the Company. The most significant events taken into account have
been the following: a) the difficulty faced by the Company to enter the
international credit market at adequate terms and rates; b) the effects
suffered by the Company as a consequence of the tax reform enacted by the
National Congress which includes the tax on deemed minimum income and tax on
interest; c) the reduction of the average sale price of energy at the Guemes
node as from the moment of the privatization and d) the high debt ratio.
In this context, the Board of Directors decided on May 14, 1999, to postpone
interest payments of the Corporate Notes maturing on May 26, 1999.
On October 29, 1999, the Board of Directors of the Company decided to reject
the last proposal of financial restructuring submitted by the Notes Holders
Committee as it included very heavy commitments and obligations for the
Company and its shareholders; it required a much too high cash payment leaving
a reduced cash to meet current obligations; it included an excessive decrease
in the percentage held by each of the partners in the capital stock of the
Company and did not guarantee the final acceptance of the proposal by a
sufficient number of holders, as the Committee represented a reduced group of
institutional investors, taking also into account that a great majority of
these holders are dispersed and that their interest might not be represented
in the proposal submitted by the Committee. On the other hand, the reduction
contemplated in the proposal continued to leave the Company with a high debt
ratio.
Consequently, the Board of Directors of the Company resolved on November 2,
1999, to file a petition for "a scheme of arrangement prior to the
adjudication in bankruptcy" (a process separate from that of bankruptcy aimed
at the satisfaction of creditors and at the avoidance of the adjudication in
bankruptcy). This decision was later ratified by the Special Meeting of
Shareholders held on November 30, 1999. Said petition was filed with the
corresponding authorities on November 3, 1999, suspending the accrual and
recording of interest of debts as from that date, in accordance with the
Bankruptcy Law No. 24.522.
The grounds for this decision were the following: a) the rejection of the
three proposals prepared by the Company on the part of the Notes Holders
Committee; b) the potential risks that any demand or claim could affect the
normal operation of the business; c) the convenience of offering a greater
legal certainty to any financial restructuring with Company's creditors
avoiding the uncertainty presented by an extrajudicial restructuring; d) the
convenience of looking for the best alternatives to continue providing the
electric-power generation service and employment; e) that Company's capacity
for the generation of funds is not enough to meet the financial commitments
arising from the liabilities represented by the corporate notes issued and f)
the Company's belief that it would be more likely to reach an agreement
regarding payment conditions of the debts compatible with the Company's need
for cash flow in a bankruptcy.
The "scheme of arrangement prior to the adjudication in bankruptcy" was
accepted on December 2, 1999, and is handled by the Court of Original
Jurisdiction in Civil and Commercial Matters No. 8 of the Province of Salta.
It is at the proof of claims legal stage, as contemplated by the Bankruptcy
Law No. 24.522.
F-38
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999--(Continued)
At present, the Company continues to carry out its electric-power production
and marketing activities, and the Board of Directors is committed to the
preparation of a proposal to be submitted to the Company's creditors whose
claims are allowed, that allows the payment of Company's debts and guarantees
the continuity of the Company as a going concern.
2. SUBMITTED INFORMATION
In accordance with General Resolution No. 272/95 of the National Securities
Commission, following the provisions of Decree No 316/95 of the National
Executive Power, the financial statements have not considered the effect of
the changes in the wholesale price index as from September 1, 1995. According
to Resolution No. 140/96 of the Argentine Federation of Professional Councils
in Economic Sciences has stated that inflation accounting is not mandatory as
long as annual inflation, as measured by the evolution of the wholesale price
index, does not exceed 8%. Accordingly, the Company has decided to discontinue
recognition of the full effects of inflation since that date.
3. VALUATION CRITERIA
3.1 Monetary items
Monetary assets and liabilities in pesos have been maintained at their
nominal values.
3.2 Investments
Time deposits have been valued at their nominal value plus the financial
results accrued at the end of each period.
Mutual funds have been valued at the quoted price of the units of ownership
as of the end of each period.
3.3 Supplies and materials
They have been value at replacement cost as of the end of each period.
3.4 Fixed assets
Fixed assets incorporated before August 31, 1995, have been valued at cost
restated in currency units of constant value as of that date, and those
incorporated after have been valued at their original cost, net of accumulated
depreciation.
Depreciation was determined by applying the straight-line method according to
the estimated useful life of each item, except for certain items for which the
unit of production method was used.
3.5 Intangible assets
Intangible assets incorporated before August 31, 1995, have been valued at
cost restated in currency units of constant value as of that date, and those
incorporated after have been valued at their original cost, net of accumulated
amortization.
Amortization was determined by applying the straight-line method according
to the estimated useful life of each item.
F-39
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999--(Continued)
3.6 Foreign currency denominated assets and liabilities
They have been valued at the applicable exchange rates as of the end of each
period.
3.7 Capital stock
Capital stock has been restated in currency units of constant value of
August 31, 1995, as from the dates it was paid-in. Capital stock is shown at
its nominal value and the surplus to reach restated value has been included in
Adjustment to Capital.
3.8 Legal reserve
Balances at the beginning of the year have been restated as described in
note 2.
3.9 Unappropriated retained earnings
Balances at the beginning of the year have been restated as described in
note 2.
3.10 Profit and loss accounts
Profit and loss accounts have been recorded at their nominal values except
for the non-monetary assets consumed (depreciation of fixed assets and
amortization of intangible assets) which have been determined according to the
values computed as described in 3.4 and 3.5.
3.11 Recoverable value
The net values of the assets do not exceed their recoverable value.
3.12 Implicit financing components
They have not been segregated due to their lack of significance.
4. BREAKDOWN OF MAIN CAPTIONS
4.1 Investments
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Time deposits.............................................. 8,098,605 5,479,894
Mutual funds............................................... 1,610,434 2,745,344
--------- ---------
Total.................................................... 9,709,039 8,225,238
========= =========
The classification of the balances is as follows:
Maturing within 3 months................................... 9,709,039
=========
</TABLE>
Time deposits as of March 31, 2000, carry at an annual interest rate of 8%
and 11%.
F-40
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999--(Continued)
4.2 Accounts receivable
<TABLE>
<S> <C> <C>
Debtors of the forward market............................. 8,283,953
Related Companies--Powerco S.A............................ 237,822 9,686,994
Doubtful accounts under legal proceedings................. 302,037 161,111
Allowance for bad debts (schedule III).................... (320,000) (100,000)
--------- ---------
Total................................................... 8,503,812 9,748,105
========= =========
</TABLE>
The classification of the balances is as follows:
<TABLE>
<S> <C>
a) Past due:
up to 3 months...................................................... 227,072
between 3 and 6 months.............................................. 129,224
between 6 and 9 months.............................................. 85,038
between 9 and 12 months............................................. 63,252
b) Maturing within 3 months 7,999,226
---------
Total............................................................... 8,503,812
=========
</TABLE>
Accounts receivable do not carry interest.
4.3 Other receivables
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Advances to suppliers....................................... 2,084,576 296,373
Tax credits................................................. 389,712 443,091
Prepaid expenses............................................ 377,194 190,275
Miscellaneous............................................... 54,391 200,879
--------- ---------
Total..................................................... 2,905,873 1,130,618
========= =========
</TABLE>
The classification of the balances is as follows:
<TABLE>
<S> <C>
a) To become due:
within 3 months..................................................... 2,272,524
in 3 and 6 months................................................... 148,044
in 6 and 9 months................................................... 148,044
in 9 and 12 months.................................................. 95,462
b) With no specified due date (2)..................................... 241,799
---------
Total............................................................... 2,905,873
=========
</TABLE>
These receivables do not carry interest
F-41
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999--(Continued)
4.4 Liabilities
The classification of the balances is as follows:
<TABLE>
<S> <C> <C>
To become due:
within 3 months......................................... 3,887,066 10,030,720
in more than 1 year (1)................................. 60,455,792 60,000,000
With no specified due date (2)............................ 11,503,383 342,433
---------- ----------
Total................................................... 75,846,241 70,373,153
========== ==========
</TABLE>
--------
(1) They include a US$60,000,000 a 5 years debt at a fixed annual interest
rate of 12%.
(2) It includes a balance with Related Companies (Powerco S.A.) for US$3,000
which does not carry interest and is not subject to any adjustment nor
restatement clause.
4.5 Net sales
<TABLE>
<S> <C> <C>
Sales of electricity.................................... 9,736,042 11,577,398
Discounts for services received......................... (1,647,577) (1,835,473)
Municipal contribution.................................. (45,000) (45,000)
---------- ----------
Total................................................. 8,043,465 9,696,925
========== ==========
</TABLE>
4.6 Financial results
<TABLE>
<CAPTION>
2000 1999
------- ----------
<S> <C> <C>
a) Generated by assets
Interest................................................. 276,896 193,164
------- ----------
Subtotal................................................. 276,896 193,164
------- ----------
b) Generated by liabilities
Interest................................................. (2,085,132)
Commissions.............................................. (23,961) (14,687)
------- ----------
Subtotal............................................... (23,961) (2,099,819)
------- ----------
Total.................................................. 252,935 (1,906,655)
======= ==========
</TABLE>
5. CAPITAL STOCK
The subscribed and paid-in capital, as of March 31, 2000 and 1999, amounts
to US$62,906,000. Such amount has been registered in the Public Registry of
Commerce.
6. INCOME TAX AND TAX ON DEEMED MINIMUM INCOME
No income tax charge was recorded due to the existence of a tax loss. During
the month of March 1999, the Company filed with the Federal Court of Salta a
declaratory judgement action of negative certainty and requested granting of
an "in statu quo" injunction in respect of the payment of the tax on deemed
minimum income, alleging lack of payment capacity. Upon the judge's decision
against the Company, on April 6, 1999, the later decided to appeal and the
Federal Court of Salta decided in its favor granting the preliminary
injunction. This decision was appealed by the Tax Authorities by filing with
the Supreme Court of Justice an Extraordinary
F-42
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999--(Continued)
Appeal. The Supreme Court confirmed the precautionary measure thus the
question of law is still pending resolution.
Additionally, the Company amended the complaint to include the advances of
the previously mentioned tax for the year 2000 which received a favorable
finding in first instance. The Tax Authorities have appealed and it is at
present pending a judicial resolution.
7. LOANS
Current:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Interest on Corporate Notes (see note 1).................... 6,740,000 2,480,000
Advances in current accounts................................ 426,137
--------- ---------
6,740,000 2,906,137
========= =========
</TABLE>
Non-current:
The Board of Directors of the Company arranged for a new issuance of
Corporate Notes (non convertible into shares) for a nominal value of
US$60,000,000. The proceeds thereof plus Company's own funds were used to
settle the outstanding debt of US$65,000,000 due on November 29, 1996.
The net proceeds of this new issuance amounted to US$59,025,000 and were
applied to the settlement of the Corporate Notes referred to in the first
paragraph.
The proceeds of the new issue were received on November 26, 1996. Capital is
to be paid back in one installment in 5 (five) years and bears interest at a
nominal annual rate of 12%, payable in 10 (ten) semiannual consecutive
installments. As of the date of the issuance of these financial statements,
the first, second, third and fourth installments were paid on May 16, 1997,
November 26, 1997, May 26, 1998, and November 26, 1998, respectively,
amounting to US$3,600,000 each.
The fifth and sixth installments which became due on May 26, 1999, and
November 26, 1999, respectively, have not been paid by the Company for the
reasons detailed in note 1.
The issuance of this debt has given rise to certain commitments whereby the
Company is bound to maintain a debt ratio equivalent to or lower than 0.6 to 1
considering for its computation the Loans over Total Liabilities plus
Shareholders' Equity ratio (0.55 as of March 31, 2000), and restrictions to
the payment of dividends.
8. CLAIMS
As of the date of the issuance of these financial statements there are
certain judicial and extrajudicial claims for different amounts. The Company's
management has filed the appropriate responses strongly supported by the
applicable legislation. However, the Company decided to determine the amount
of the provision to be US$350,181 in order to quantitatively reflect these
contingencies. Furthermore, the Company's management believes that these
claims will not have a significant effect on the financial and cash position
of Central Termica Guemes S.A.
On the other hand, and based on that mentioned in note 6, the Company has
decided to include in the item Provisions the debt arising from the accrual of
the tax on deemed minimum income during the years 1999 and 1998 and for the
three-month period ended on March 31, 2000.
F-43
<PAGE>
CENTRAL TERMICA GUEMES S.A.
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999--(Continued)
9. CHANGE OF SHAREHOLDERS IN THE PARENT COMPANY
On January 26, 1999 the shareholders of Powerco S.A., including Duke Guemes
Inc., Iberdrola Holding & Finance B.V., Sociedad Comercial del Plata S.A., TCW
Americas Development Association L.P. and The Argentine Investment Company,
holding through Powerco S.A. 60% of the shares of Central Termica Guemes S.A.,
sold the entire shareholding to a group of the Company's management, thus
giving rise to the first case of management buyout in the Argentine electric-
power market.
10. EXTRAORDINARY INCOME
It includes the expenses related to the restructuring of Company's financial
debts (note 1).
F-44
<PAGE>
SCHEDULE 1
CENTRAL TERMICA GUEMES S.A.
FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND 1999
(three-month periods)
(stated in pesos)
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
2000
---------------------------------------------------------------------------------------
Original values Depreciation
------------------------------------ ---------------------------------------
Balance Accumulated Current Year Accumulated
at the Balance at the --------------- at the end Net
beginning of at the end beginning Rate of the resulting
the year Additions of the period of the year % Amount period value
------------ --------- ------------- ----------- ----- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Land............. 801,052 801,052 801,052
Buildings........ 27,444,933 25,711 27,470,644 4,970,957 2.55 174,893 5,145,850 22,324,794
Turbines......... 44,585,426 44,585,426 12,679,701 5.19 469,352 13,149,053 31,436,373
Boilers.......... 44,956,683 44,956,683 10,351,518 4.20 383,241 10,734,759 34,221,924
Transformers..... 6,358,163 6,358,163 1,839,262 5.33 63,582 1,902,844 4,455,319
Water treatment
plant........... 1,180,310 1,180,310 270,316 5.33 11,802 282,118 898,192
Auxiliary
equipment....... 381,162 381,162 110,276 5.34 3,813 114,089 267,073
Gas plant and gas
pipeline........ 1,916,659 1,916,659 554,444 5.33 19,167 573,611 1,343,048
Tools............ 350,038 350,038 247,807 10.00 9,747 257,554 92,484
Vehicles......... 202,759 41,896 244,655 148,317 20.00 5,592 153,909 90,746
Furniture and
fixtures........ 610,043 14,401 624,444 446,567 20.00 19,976 466,543 157,901
Installations.... 363,346 363,346 283,003 20.00 11,031 294,034 69,312
----------- ------ ----------- ---------- --------- ---------- ----------
TOTAL........... 129,150,574 82,008 129,232,582 31,902,168 1,172,196 33,074,364 96,158,218
=========== ====== =========== ========== ========= ========== ==========
<CAPTION>
1999
---------------------------------------
Net
resulting
value
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Land............. 785,000
Buildings........ 22,868,860
Turbines......... 33,449,948
Boilers.......... 35,780,037
Transformers..... 4,709,647
Water treatment
plant........... 945,400
Auxiliary
equipment....... 282,325
Gas plant and gas
pipeline........ 1,419,716
Tools............ 131,265
Vehicles......... 48,382
Furniture and
fixtures........ 212,011
Installations.... 117,162
-----------
TOTAL........... 100,644,753
===========
</TABLE>
F-45
<PAGE>
SCHEDULE II
CENTRAL TERMICA GUEMES S.A.
FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND 1999
(three-month periods)
(stated in pesos)
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------------------------------------------- ---------
Original Values Amortization
------------------------------------ --------------------------------------
Accumulated
Balance at the Accumulated
at the Balance beginning Current Year at the end Net Net
beginning of at the end of the -------------- of the resulting resulting
Item the year Additions of the period period Rate % Amount period value value
---- ------------ --------- ------------- ----------- ------ ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Software................ 63,135 2,520 65,655 29,437 33 5,332 34,769 30,886 23,068
Programmed maintenance
expenses............... 3,641,488 3,641,488 2,745,980 17 100,914 2,846,894 794,594 1,266,872
Corporate Notes
Issue(1)............... 1,535,675 1,535,675 944,738 20 76,785 1,021,523 514,152 821,292
Rationalization of
operating costs........ 309,002 309,002 309,002 20 309,002 32,037
--------- ----- --------- --------- ------- --------- --------- ---------
Total.................. 5,549,300 2,520 5,551,820 4,029,157 183,031 4,212,188 1,339,632 2,143,269
========= ===== ========= ========= ======= ========= ========= =========
</TABLE>
--------
(1) It includes expenses incurred for the U$S 60,000,000 Corporate Notes issue
maturing in November, 2001.
F-46
<PAGE>
SCHEDULE III
CENTRAL TERMICA GUEMES S.A.
FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND 1999
(three-month periods)
(stated in pesos)
ALLOWANCES--PROVISIONS
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------- -------------
Balance
at the
beginning Balance Balance
of the at the end at the end
Items year Increases Decreases of the period of the period
----- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Deducted from assets
Allowance for bad
debts................ 320,000 320,000 100,000
--------- ------- -------- --------- -------
TOTAL............... 320,000 320,000 100,000
========= ======= ======== ========= =======
Included in liabilities
Provision for
contingencies........ 2,136,252 300,000 2,436,252
Provision for
severance payments... 305,792 150,000 (105,611) 350,181 317,404
--------- ------- -------- --------- -------
TOTAL............... 2,442,044 450,000(1) (105,611) 2,786,433 317,404
========= ======= ======== ========= =======
</TABLE>
--------
(1) Charged to Other income and expense.
F-47
<PAGE>
SCHEDULE IV
CENTRAL TERMICA GUEMES S.A.
FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND 1999
(three-month periods)
FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
2000 1999
-------------------------------------- -----------------------------
Amount in Amount in
Argentine Argentine
currency and currency and
Foreign currency recorded Foreign currency recorded
---------------- Exchange amount ---------------- amount
Item Class Amount rate $ (in pesos) Class Amount (in pesos)
---- ----- ---------- -------- ------------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks.......... U$S 9,282 1.00 9,282 U$S 1,915 1,915
Accounts receivable..... U$S 8,503,812 1.00 8,503,812 U$S 9,748,105 9,748,105
Other receivables....... U$S 1,881,747 1.00 1,881,747
---------- ----------
Total Current
Assets............. 10,394,841 9,750,020
---------- ----------
TOTAL ASSETS........ 10,394,841 9,750,020
========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable
Suppliers............. U$S 2,155,140 1.00 2,155,140 U$S 3,999,311 3,999,311
Loans...................
Corporate Notes....... U$S 6,740,000 1.00 6,740,000 U$S 2,480,000 2,480,000
---------- ----------
Total Current
Liabilities........ 8,895,140 6,479,311
---------- ----------
NON-CURRENT LIABILITIES
Loans...................
Corporate Notes....... U$S 60,000,000 1.00 60,000,000 U$S 60,000,000 60,000,000
---------- ----------
Total Non-Current
Liabilities........ 60,000,000 60,000,000
---------- ----------
TOTAL LIABILITIES... 68,895,140 66,479,311
========== ==========
</TABLE>
F-48
<PAGE>
SCHEDULE V
CENTRAL TERMICA GUEMES S.A.
INFORMATION REQUIRED BY ART. 64 Sec. b) OF LAW N(degrees) 19.550
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------- ----------
Cost of Transmission Administrative Financial
sales expenses expenses expenses Total Total
Items --------- ------------ -------------- --------- --------- ----------
(stated in pesos)
<S> <C> <C> <C> <C> <C> <C>
Fees.................... 96,534 51,191 147,725 201,547
Salaries and wages...... 828,328 122,372 161,432 1,112,132 737,780
Social security
charges................ 109,885 18,835 27,839 156,559 112,440
Fuel.................... 4,977,050 4,977,050 6,507,130
Supplies and materials.. 222,175 222,175 134,068
Services contracted..... 151,799 178,735 330,534 253,860
Communications.......... 59,957 59,957 38,566
Office expenses......... 10,422 48,328 58,750 25,684
Depreciation of fixed
assets................. 1,147,740 24,456 1,172,196 1,249,900
Amortization of
intangible assets...... 183,031 183,031 247,410
Insurance policies...... 63,394 63,394 66,696
Interest and exchange
differences............ 2,085,132
Commissions and bank
charges................ 23,961 23,961 14,687
Taxes and duties........ 1,057 22,305 51 23,413 5,603
Miscellaneous........... 40,708 32,626 73,334 129,466
--------- ------- ------- --------- --------- ----------
TOTAL 2000............ 7,780,993 214,642 584,615 23,961 8,604,211
========= ======= ======= ========= =========
TOTAL 1999............ 9,110,565 101,367 498,222 2,099,819 11,809,973
========= ======= ======= ========= ==========
</TABLE>
F-49
<PAGE>
AUDITORS' REPORT
(Limited review)
To the President and Directors of
Central Termica Guemes S.A.
1. Identification of the financial statements subject to our review
We have performed a limited review of the balance sheets of Central Termica
Guemes S.A. as of March 31, 2000 and 1999, the related statements of income,
of changes in shareholders' equity and of changes in cash, including notes 1
to 10 thereto and supplemental schedules I to V, for the three-month periods
then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to issue our report thereon based on our
limited review.
2. Scope of our review
Our review was restricted to the application of the procedures for the
limited reviews of financial statements for interim periods established by
Technical Resolution No. 7 of the Argentine Federation of Professional
Councils in Economic Sciences. A limited review consists basically in applying
analytical procedures on the accounting information included in the financial
statements and making enquiries to the personnel of the Company responsible
for accounting and financial issues. The scope of this review is not as broad
as that of an audit, the object of which is to express and opinion on the
financial statements taken as a whole. Therefore, we do not express an
opinion.
3. Prior clarifications
As mentioned in note 1, and as a consequence of a series of events, the
Board of Directors of Central Termica Guemes S.A. decided on March 29, 1999,
to commence a restructuring process of Company's financial debts, and on May
14, 1999, to postpone interest payments of the Corporate Notes maturing on
May 26, 1999. On October 29, 1999, the Board of Directors of the Company
decided to reject the last proposal of financial restructuring submitted by
the Notes Holders Committee as it included very heavy commitments and
obligations for the Company and its shareholders.
Consequently, the Board of Directors of the Company resolved on November 2,
1999, to file a petition for "a scheme of arrangement prior to the
adjudication in bankruptcy" (a process separate from that of bankruptcy aimed
at the satisfaction of creditors and at the avoidance of the adjudication in
bankruptcy). This decision was later ratified by the Special Meeting of
Shareholders held on November 30, 1999. Said petition was filed with the
corresponding authorities on November 3, 1999, suspending the accrual and
recording of interest as from that date, in accordance with the Bankruptcy Law
No. 24.522. The "scheme of arrangement" is at the proof of claims legal stage.
Actually, the Company continues to carry out its electric power production
and marketing activities and the Board of Directors is committed to the
preparation of a proposal to be submitted to the Company's creditors whose
claims are allowed, that allows the payment of Company's debts and guarantees
the continuity of the Company as a going concern.
The probable adjustments that may result from the "scheme of arrangement"
cannot be objectively determined as of the date of the issuance of these
financial statements. Therefore, the Board of Directors of the Company has
decided to the maintain the valuation and exposure criteria that imply the
continuance of the business. If this were not the case, significant
adjustments could be necessary in relation to the valuation and exposure of
the recoverable values of assets, as well as the acceptance of the obligations
that would result from the hypothetical discontinuance of the business.
F-50
<PAGE>
4. Limited review report
Based on the procedures applied as described in section 2, we are able to
report that:
a) the financial statements as of March 31, 2000 and 1999, take into
account all the events and circumstances we are aware of; and
b) we have no observations to raise with respect to such financial
statements other than those mentioned in section 3.
5. Special information required by current legal regulations
(for the three-month period ended March 31, 2000)
a) The financial statements referred to in section 1 are shown in
accordance with the provisions of Law No. 19.550 and those of General
Resolution No. 290 of the National Securities Commission.
b) The amounts of the financial statements agree with the accounting
records of the Company which are in the process of being transcribed to the
Company's legal books of account.
c) The financial statements mentioned in section 1 have been transcribed
to the Inventories and Financial Statements Book.
d) As part of our limited review, the scope of which is mentioned in
section 2, we have examined the Informative Summary prepared by the Board
of Directors as required by the National Securities Commission. With
respect to such informative summary, we have no observations to raise as to
matters within our professional competence.
e) According to the accounting records, liabilities accrued in favor of
the Retirement and Pension Plan System as of March 31, 2000, amount to
US$44,163.62, of which US$16,409.79 are due as of that date.
Buenos Aires, April 28, 2000
DELOITTE & CO. S.R.L.
F-51
<PAGE>
STATUTORY AUDITORS' REPORT
To the shareholders of Central Termica Guemes S.A.
In our capacity as statutory auditors, we have examined the documents
detailed in chapter I, prepared in accordance with the provisions of General
Resolution No. 290 of the National Securities Commission, to comply with the
provisions of article 294 of Law 19.550. These documents are the
responsibility of the Company's management.
I. IDENTIFICATION OF THE DOCUMENTS EXAMINED
a) Balance sheet as of March 31, 2000.
b) Statement of income for the three-month period ended March 31, 2000.
c) Statement of changes in shareholders' equity for the three-month period
ended March 31, 2000.
d) Statement of changes in cash and cash equivalents for the three-month
period ended March 31, 2000.
e) Notes 1 to 10 and supplemental schedules I to V to the financial
statements as of March 31, 2000.
f) Informative summary required by the National Securities Commission for
the three-month period ended March 31, 2000.
II. SCOPE OF OUR WORK
We have performed our examination in accordance with the current regulations
which require that the documents detailed in items a) to e) of chapter I
above, be examined in accordance with auditing standards generally accepted in
Argentina for interim periods and that the statutory auditors examine as well
the consistency of the documents subject to their review with the information
regarding management decisions shown by the minutes and whether such decisions
comply with the law and the Company's by-laws as to their formal and
documentary aspects.
In conducting our review of the documents detailed in chapter I, we have
examined the work performed by the external auditor, Deloitte & Co. S.R.L.,
who issued its report dated April 28, 2000, in accordance with auditing
standards generally accepted in Argentina for the limited review of financial
statements for interim periods. Our review included the work planning, nature,
scope and occasion of the review procedures applied, and the conclusions of
the limited review performed by said independent auditor. A limited review
consists basically in applying analytical procedures on the accounting
information included in the financial statements and making enquiries to the
personnel of the Company responsible for accounting and financial issues. The
scope of this review is not as broad as that of an audit, the object of which
is to express and opinion on the financial statements taken as a whole.
Therefore, we do not express an opinion. Provided that it is not our
responsibility to control Company's management, our review did not include the
criteria applied nor the decisions made by the different areas of the Company
which are the responsibility of the Company's management.
III. PRIOR CLARIFICATIONS
As mentioned in note 1, and as a consequence of a series of events the Board
of Directors of Central Termica Guemes S.A. decided on March 29, 1999, to
commence a restructuring process of Company's financial debts, and on May 14,
1999, to postpone interest payments of the Corporate Notes maturing on May 26,
1999.
On October 29, 1999, the Board of Directors of the Company decided to reject
the last proposal of financial restructuring submitted by the Notes Holders
Committee as it included very heavy commitments and obligations for the
Company and its shareholders.
F-52
<PAGE>
Consequently, the Board of Directors of the Company resolved on November 2,
1999, to file a petition for "a scheme of arrangement prior to the
adjudication in bankruptcy" (a process separate from that of bankruptcy aimed
at the satisfaction of creditors and at the avoidance of the adjudication in
bankruptcy). This decision was later ratified by the Special Meeting of
Shareholders held on November 30, 1999. Said petition was filed with the
corresponding authorities on November 3, 1999, suspending the accrual and
recording of interest of debts as from that date, in accordance with the
Bankruptcy Law No. 24.522. The "scheme of arrangement" is at the proof of
claims legal stage.
At present, the Company continues to carry out its electric power production
and marketing activities and the Board of Directors is committed to the
preparation of a proposal to be submitted to the Company's creditors whose
claims are allowed, that allows the payment of Company's debts and guarantees
the continuity of the Company as a going concern.
The probable adjustments that may result from the "scheme of arrangement"
cannot be objectively determined as of the date of the issuance of these
financial statements. Therefore, the Board of Directors of the Company has
decided to the maintain the valuation and exposure criteria that imply the
continuance of the business. If this were not the case, significant
adjustments could be necessary in relation to the valuation and exposure of
the recoverable values of assets, as well as the acceptance of the obligations
that would result from the hypothetical discontinuance of the business.
IV. OPINION
Based on our review, as described in chapter II, we are able to report that:
a) the financial statements as of March 31, 2000, take into account all
the events and circumstances we are aware of;
b) we have not other observations to raise with respect to such financial
statements other than those mentioned in chapter III; and
c) The Informative Summary required by General Resolution No. 290/97 of
the National Securities Commission for the three-month period ended March
31, 2000, includes the information required by item 6--Appendix I of Book
VII of General Resolution No. 290 of the National Securities Commission.
The affirmations regarding the economic framework in which the Company
carried out its activities, the company's management, and future events
included in the above-mentioned document are the responsibility of the
Company's Management. Furthermore, the amounts included in said document,
as to matters within our professional competence, agree with the accounting
records of the Company and with other pertinent documentation.
Buenos Aires,
April 28, 2000
F-53
<PAGE>
ANNEX A
PRINCIPAL DIFFERENCES BETWEEN ARGENTINE GAAP AND U.S. GAAP
There are certain differences between Argentine GAAP and U.S. GAAP.
Argentine GAAP are stated more generally than U.S. GAAP and the body of
pronouncements in which Argentine GAAP are set forth is considerably smaller
than those of U.S. GAAP. In addition, unlike U.S. GAAP, under Argentine GAAP
there are no specific pronouncements for certain matters such as business
combinations, translations of foreign currency, accounting and reporting for
oil and gas producing activities, research and development costs, leases,
accounting for futures contracts, post-retirement benefits, impairment of long
lived assets, accounting for certain equity and debt securities and accounting
for income taxes. Whenever any issue under any of these topics arises under
Argentine GAAP, the most usual practice is to deduce an appropriate solution
from the body of general pronouncements. In certain cases, relevant U.S. GAAP
are referred for guidance.
The following summary of certain of the differences between Argentine GAAP
and U.S. GAAP does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the respective pronouncements of
the Argentine and United States accounting professions.
Basis of Accounting; Adjustment for Inflation
Under U.S. GAAP, financial statements are prepared on the basis of
historical cost. Exceptions are made to this general rule when the historical
cost of an asset is impaired and market value is, therefore, lower. Under U.S.
GAAP, therefore, changes in the value of assets being held are generally only
recognized when there is a loss. Gains from holding assets are generally
postponed until they are realized. This is in contrast to Argentine GAAP.
Under Argentine GAAP, through August 31, 1995, financial statements were
required to be restated to account for the effect of inflation in accordance
with certain specified rules. Although monetary items were maintained at their
nominal values as of the ending date of the fiscal period for which financial
statements were prepared, non-monetary assets were adjusted by the variation
of the wholesale price index between the acquisition date and ending date of
the fiscal period or were stated at replacement cost values. Holding gains or
losses related to marketable investments and inventories and arising as a
result of inflation were computed for the period and were accordingly credited
or charged to income. See "--Price Level Restatement" below. Since August 31,
1995, both monetary items and non-monetary assets have been maintained at
their nominal values as of the ending date of the fiscal period for which
financial statements are being prepared.
Income Tax
The recording of inter-period allocations due to temporary differences is
not a common practice among Argentine corporations. In Argentina, income tax
is usually charged without considering the effect of such differences and the
charge represents the estimated amount payable for the period.
Fixed Assets
The most common method used for reporting the value of fixed assets under
Argentine GAAP is historical cost less accumulated depreciation. Through
August 31, 1995, fixed assets were commonly restated for inflation using the
wholesale price index. As an alternative, fixed assets can be stated at values
resulting from a technical appraisal made by independent qualified
professionals; the difference between the appraised value and restated
residual cost must be included under a special reserve in stockholders'
equity. In all cases, ending balances may not exceed the higher of market
value or recoverable value through future operations. The Company's financial
statements have been prepared on a historical cost basis. The priced levels of
the Company's assets have been restated as of August 31, 1995. See "--Price
Level Restatement" below.
A-1
<PAGE>
Inventories
Under Argentine GAAP, inventories can be valued at replacement cost, or as
an alternative, at the last restated purchase or production cost. First in-
first out (FIFO), last in-first out (LIFO), weighted average or specific
identification methods are all allowed under Argentine GAAP. Methods of
adjusting for inflation are described above under "--Basis of Accounting;
Adjustment for Inflation." In all cases, ending balances may not exceed net
realizable value.
Dividends
Under Argentine law, dividends may only be declared upon a positive balance
of retained earnings reflected in statutory financial statements.
Price Level Restatement
In accordance with Decree No. 316/95, all regulatory authorities, including
the Inspeccion General de Justicia (for most private companies) and the CNV
(for most public companies) have issued regulations not allowing the
accounting recognition of the effect of the variations in the WPI as from
September 1, 1995. Effective March 29, 1996, the Argentine Federation of
Professional Councils of Economic Sciences does not require an auditor to
qualify its report due to the lack of accounting for inflation as long as the
variation of the WPI does not exceed an annual rate of 8.0%.
A-2
<PAGE>
ANNEX B
GLOSSARY
Capacity................... An electric system must have sufficient capacity
to meet peak hour demand plus a reserve
requirement for unplanned outages. Some of the
installed capacity is idle during periods when
there is lower demand for energy output and
during those periods some of the potential output
is not generated. Capacity is generally measured
in megawatts.
Capacity Factor............ The annual capacity factor is defined as the
annual kilowatt hour sales divided by the product
of the total hours in a year and the rated
capacity of the utility in kilowatts.
Current.................... The flow of electrons in a conductor. If the
electrons possess energy, then this energy can be
given up in the form of heat or electromagnetic
force which can cause mechanical motion.
Demand..................... For an integrated electric system, the amount of
power demanded by consumers of energy at any
point in time, including transmission and
distribution losses.
Dispatch................... The schedule of production for all of the
generating units on a power system, generally
varying from moment to moment to match production
with power demanded. As a verb, to dispatch a
plant means to direct the plant to run. To
dispatch a system means to determine the
operating directions for all of the plants on the
system. Generally, dispatching is done to
minimize the incremental cost of the next
required units of energy, although there are some
deviations from this general standard because of
operational, transmission or other limitations.
Distribution............... The part of the electric power system that takes
power in bulk from a power sub-station to
customer switches. It includes distribution sub-
stations, circuits that extend from distribution
sub-stations to every customer location,
distribution transformers and metering equipment.
Energy..................... The capacity to do work. The basic unit of energy
is the Joule, which is defined in the
International System as a force of one newton
acting through a distance of one meter.
Generation................. Electricity in the large quantities required to
supply electric power systems is produced in
generating stations, or power plants. Such
generation of electricity is achieved by
converting the heat of fuel (coal, gas or
uranium) or the hydraulic energy of water into
electric energy. A generating station or facility
may consist of several independent generating
units.
GW......................... Gigawatt. One gigawatt equals 1 billion watts, 1
million kilowatts or 1 thousand megawatts.
GWh........................
Gigawatt-hour-One million kilowatt-hours. GWh is
used to measure the annual energy output from
large power generators.
B-1
<PAGE>
kVV........................
Kilovolt-One thousand volts.
kW......................... Kilowatt-One thousand watts.
kWh........................ Kilowatt-hour.
Load Factor................ The ratio of the average load in kilowatts
supplied during a designated period to the peak
or maximum load in kilowatts occurring in that
period. Load factor, in percent, also may be
derived by multiplying the Kilowatt-hours in the
period by 100 and dividing the product of the
maximum demand in kilowatts and the number of
hours in the period.
Low Demand Hours........... The time of the day when system demand is below
its maximum level.
m/3...................../.. One cubic meter.
Marginal Cost.............. For the purposes of discussing the Argentine
electric system, it is the cost of the unit
generating at any point in time in order to meet
the then-current demand.
MVA........................ Larger transformers are normally categorized in
terms of megavolt-amperes, where 1 MVA is
1,000,000 voltamperes. The capability of
electrical equipment can be expressed by
reference to its ability to handle given
quantities of current at specified voltages.
MW......................... Megawatt, or one million watts.
MWh........................ Megawatt-hour, or one thousand kilowatt-hours.
Peak Hours................. The time of the day when an electric system
experiences its maximum demand.
Power...................... The time rate of transferring energy. In the same
sense that speed is the time rate of motion of a
body at a point in time, power is the rate of
energy flow or consumption at a point in time and
is expressed in terms of a specific number of kW
or MW.
Reserve.................... The generating capacity of a generating set that
is realizable at a short notice to meet increased
demand or losses of generation that are not
planned.
SI......................... The International System of Units measures
physical quantities such as weight, time,
distance and energy in standard metric units.
Sub-Station................ An assembly of equipment through which electric
energy delivered by transmission circuits is
passed in order to convert it to voltages more
suitable for use by ultimate consumers.
Sub-Transmission........... A functional classification relating to that
portion of power plants used for the purpose of
distributing electric energy in bulk from
convenient points to the transmission system and
certain cases to ultimate consumers.
Tariff Structure........... A document filed with the regulatory authority(s)
specifying lawful rates, rules and conditions
under which the facility provides service to the
public.
B-2
<PAGE>
Thermal....................
A type of electric generating facility in which
the source of energy for the motive power is
heat.
Transformer................ An electromagnetic device for changing the
voltage level of alternating-current electricity.
Transmission Capacity...... The maximum amount of power that a transmission
line can safely transmit, usually expressed in
MW. A high voltage line generally has a higher
capacity than a lower voltage line. Transmission
lines are limited by several factors, including
heating of the conductors from current flow,
which causes the conductors to sag toward the
ground.
Transmission Line..........
An electrical connection between two points on a
power system for the purpose of transferring high
voltage electrical energy between the points.
Generally, a transmission line consists of large
wires, or conductors, held aloft by towers.
Transmission Losses........ Energy that appears as heat in the transmission
line conductors, which is therefore unavailable
for sale.
Voltage....................
The energy level of the electrons flowing in an
electric current. A high voltage line carries
electrons that are at a high energy level. A high
voltage line with a current flowing in it
transmits more power than a low voltage line with
the same current flowing in it. The symbol for
the Volt is "V."
Watt....................... The unit of power in the SI, which is equal to
one Joule/second. The symbol for the Watt is "W".
Watt-hour..................
The total amount of energy used in one hour by a
device that requires one watt of power for
continuous operation. Electric energy is commonly
sold by the Kilowatt-hour.
B-3
<PAGE>
ANNEX C
PROJECTIONS OF FINANCIAL RESULTS
The tables set forth below contain forecast results prepared by the Company
for the 10 year period ended July 2010 assuming the Plan is approved and based
on certain other assumptions as described herein (the "Forecast").
The inclusion of the Forecast herein should not be regarded as a
representation by the Company or any other person that the Forecast will be
achieved. In particular, the Forecast assumes, based on projections prepared
by CAMMESSA, that electricity prices will increase. The price of electricity
is highly volatile and no assurances can be given that such prices will be
achieved. Accordingly, actual results may vary materially from the Forecast.
The Forecast is based upon a number of estimates and assumptions that while
presented with numerical specificity and considered reasonable by the Company,
are inherently subject to significant business, economic, competitive,
regulatory and other uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the control of the Company.
The assumptions described herein are those that the Company believes are
significant to the Forecast and reflect the Company's judgment as of the date
hereof. The Forecast is necessarily speculative in nature, and it is usually
the case that one or more of the assumptions do not materialize. Not all
assumptions used in the preparation of the Forecast have been set forth
herein.
The Forecast has been prepared for purposes of illustrating the results
which could be achieved in the 10 year period ended December 31, 2009 (the
"Forecast Period") on the principal assumptions that (1) the Plan will be
approved in 2000 and (2) electricity prices will increase. The Forecast has
been prepared on the assumption, as described below, that no external factors
will adversely affect the Company or its business.
The actual results achieved during the Forecast Period will vary from those
set forth in the Forecast, and those variations may be material. As disclosed
elsewhere in this Consent Solicitation and Information Memorandum under "Risk
Factors," the business and operations of the Company are subject to
substantial risks which increase the uncertainty inherent in the Forecast.
Many of the factors disclosed under the "Risk Factors" in this Consent
Solicitation and Information Memorandum could cause actual results to differ
materially from those expressed in the Forecast. The complexity of the
Argentine wholesale electric power market makes it improbable that all the
variables affecting the financial results of the Company will converge in the
way that the Company has projected. These complexities, including the
commencement of generation by the Yacireta power plant, the growing demand in
Brazil, and the regulatory changes proposed by the Argentine Government, will
influence the future development of the Company's financial results. The
Forecast does not include the potentially positive effect of the construction
of a new transmission line to Brazil, nor the repowering of the Company's
equipment to incorporate combined cycle technology. The Forecast assumes the
successful implementation of the Company's business strategy. No assurance can
be given that the Company's strategy will be effective, or that benefits from
the Company's strategy will be realized during the Forecast Period, if ever.
The Forecast should be read together with the other information contained in
the Consent Solicitation and Information Memorandum.
C-1
<PAGE>
INDEPENDENT ACCOUNTANTS' SPECIAL REPORT
ON PROJECTED FINANCIAL INFORMATION
Buenos Aires, July 10, 2000
To the President and Directors of
Central Termica Guemes S.A.
1. Identification of the information subject to our review.
(a) Appendix I "Balance Sheet as of December 31, 1999 and Projected
Balance Sheets for the years to be ended December 31, 2000 to 2009"
with their basis of preparation which include the hypothesis used and
estimates made for the projections, which were defined by the
management and approved by the Board of Directors of Central Termica
Guemes S.A.
(b) Appendix II "Statement of Income for the year ended December 31, 1999
and Projected Statements of Income for the years to be ended on
December 31, 2000 to 2009" with their basis of preparation which
include the hypothesis used and estimates made for the projections,
which were defined by the management and approved by the Board of
Directors of Central Termica Guemes S.A.
(c) Appendix III "Statement of Cash Flows for the year ended December 31,
1999 and Projected Statements of Cash Flows for the years to be ended
December 31, 2001 to 2009" with their basis of preparation which
include the hypothesis used and estimates made for the projections,
which were defined by the Management and approved by the Board of
Directors of Central Termica Guemes S.A.
2. Scope of our review.
Our review was limited to the application of certain procedures established
in Technical Resolution No. 7 of the Argentine Federation of Professional
Councils in Economic Sciences, which we considered necessary to issue this
special report, such as the following:
. To verify that the figures corresponding to the year ended December 31,
1999, agree with the entries in the Company's legal books of accounts.
. To verify, on a selective basis, the data compilation.
. To review, on a selective basis, that the projections made by the
management and approved by the Board of Directors of the Company, agree
with their basis of preparation.
. To make inquiries to and discuss with management the projections made in
accordance with the basis of preparation.
. To review, on a selective basis, the arithmetical calculations made.
3. Prior clarifications.
(a) The projected balance sheets, statements of income and of cash flows,
mentioned in section 1 above, have been prepared in accordance with
the hypothesis and estimates referred to in the basis of preparation,
which reflect the projected business strategy of the management and
Board of Directors of Central Termica Guemes S.A. The confirmation of
said information depends mainly on the occurrence of the projected
future events. Furthermore, other events and circumstances not
considered in the hypothesis and estimates may occur and significantly
affect the projected financial statements detailed in section 1 above.
(b) It is not the purpose of our review to issue an opinion on the
reasonableness of the projected hypothesis and estimates, as they
depend on future events which may or may not occur.
C-2
<PAGE>
4. Independent Accountants' report.
Considering the clarifications of the preceding section, we do not express
an opinion on the reasonableness of the projected financial statements
referred to in section 1 above, prepared by the management and approved by the
Board of Directors of Central Termica Guemes S.A.
However, based on the procedures applied, with the scope mentioned in
section 2 above, we are able to report that:
. The figures included in the financial statements for the financial year
ended December 31, 1999, detailed in section 1 above, agree with the
accounting records of Central Termica Guemes S.A.
. The projected financial statements detailed in section 1 above have been
prepared considering the hypothesis and estimates described in their
basis of preparation.
DELOITTE & CO. S.R.L.
C-3
<PAGE>
Appendix I
to Annex C
CENTRAL TERMICA GUEMES S.A.
BALANCE SHEET AS OF DECEMBER 31, 1999 AND PROJECTED BALANCE SHEETS FOR THE
YEARS TO BE ENDED DECEMBER 31, 2000 TO 2009
(in thousands of United States dollars)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.............. 9,704 324 35 429 2,150 3,406 4,546 4,137 5,330 5,962 5,878
Accounts
Receivable........ 7,764 6,002 7,777 7,790 8,696 8,270 8,425 8,299 8,580 8,529 8,454
Supplies and
Materials......... 1,891 1,831 1,835 1,827 1,833 1,824 1,849 1,830 1,845 1,830 1,821
Other
Receivables....... 1,036 503 503 493 483 473 463 453 443 433 423
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL CURRENT
ASSETS.......... 20,395 8,660 10,150 10,540 13,162 13,972 15,282 14,718 16,197 16,754 16,575
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NON CURRENT ASSETS
Assets of
Privatization..... 126,843 126,843 126,843 126,843 126,843 126,843 126,843 126,843 126,843 126,843 126,843
Fixed Assets...... 2,278 7,558 7,794 8,065 8,345 8,641 8,972 9,203 9,483 9,764 10,045
Less: Accumulated
Depreciation...... (31,872) (36,543) (41,490) (46,390) (51,418) (56,454) (61,514) (66,339) (71,534) (76,644) (81,756)
Other Assets...... 1,908 1,599 1,599 1,599 63 63 63 63 63 63 63
Programmed
Maintenance
Expenses.......... 3,641 4,079 6,028 5,795 5,795 5,795 4,607 5,957 5,957 7,057 8,157
Less: Accumulated
Amortization...... (4,029) (3,502) (4,609) (4,444) (3,669) (4,430) (3,805) (4,593) (5,381) (6,352) (7,507)
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL NON
CURRENT ASSETS.. 98,769 100,034 96,165 91,467 85,959 80,457 75,165 71,133 65,431 60,730 55,844
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL ASSETS.... 119,164 108,694 106,314 102,007 99,121 94,429 90,447 85,852 81,628 77,484 72,419
======== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
LIABILITIES.......... 1,520.14
CURRENT LIABILITIES
Accounts Payable.. 530 464 597 602 663 677 692 658 684 669 735
Payroll and Social
Security Charges.. 5,181 6,632 6,512 6,208 5,934 5,596 5,277 4,948 4,635 4,311 3,908
Other
Liabilities....... 24 24 9 9 9 9 9 9 9 9 9
Accruals.......... 740 740 740 740 740 740 740 740 740 740 740
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL CURRENT
LIABILITIES..... 6,476 7,860 7,859 7,559 7,347 7,021 6,719 6,355 6,069 5,729 5,393
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NON CURRENT
LIABILITIES
Loans............. 66,740 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000
Bank Revolver..... 0 0 0 0 0 0 0 0 0 0 0
Restructuration
Balance........... 0 0 0 0 0 0 0 0 0 0
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL NON
CURRENT
LIABILITIES..... 66,740 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000 54,000
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL
LIABILITIES..... 73,216 61,860 61,859 61,559 61,347 61,021 60,719 60,355 60,069 59,729 59,393
======== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
SHAREHOLDERS EQUITY
Capital Stock....... 68,247 68,247 68,247 68,247 68,247 68,247 68,247 68,247 68,247 68,247 68,247
Retained Earnings
Beginning
Balance........... (11,481) (15,559) (21,413) (23,791) (27,799) (30,472) (34,839) (38,519) (42,750) (46,689) (50,492)
Profit (Loss)..... 0 (5,854) (2,378) (4,008) (2,673) (4,367) (3,680) (4,232) (3,938) (3,803) (4,729)
Ending Balance.... (10,817) (21,413) (23,791) (27,799) (30,472) (34,839) (38,519) (42,750) (46,689) (50,492) (55,221)
Dividends...........
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL
SHAREHOLDERS
EQUITY.......... 45,948 46,834 44,456 40,448 37,775 33,408 29,728 25,497 21,558 17,755 13,026
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL........... 119,164 108,694 106,314 102,007 99,121 94,429 90,447 85,852 81,628 77,484 72,419
======== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
C-4
<PAGE>
Appendix II to Annex C
CENTRAL TERMICA GUEMES S.A.
STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999 AND PROJECTED
STATEMENTS OF INCOME FOR THE YEARS TO BE ENDED DECEMBER 31, 2000 TO 2009
(in thousands of United States dollars)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Total Operating
Revenues.............. 84,035 82,945 84,843 84,984 94,869 90,214 91,913 90,533 93,597 93,046 92,223
Average Sales
Price............... 24.59 25.29 24.15 24.33 26.77 25.60 26.05 26.64 26.24 26.44 26.42
Less: Energy
Purchases............. 41,878 41,863 40,102 40,997 46,212 43,526 44,696 45,288 45,248 45,644 45,218
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Revenues............ 42,157 41,082 44,741 43,987 48,657 46,688 47,217 45,245 48,349 47,402 47,005
Average Sales Price... 24.59 25.50 24.20 24.14 25.97 25.07 25.42 25.17 25.48 25.81 25.80
Operating Expenses
Fuel.................. 24,563 20,884 23,009 22,835 25,205 26,046 26,118 24,511 26,737 25,955 26,535
Salaries.............. 4,109 5,267 5,244 5,244 5,267 5,244 5,244 5,244 5,267 5,244 5,267
Operating Expenses.... 4,269 3,988 3,752 3,735 4,233 4,163 4,193 3,906 3,978 3,822 3,751
Transmission Costs.... 5,509 6,186 6,300 6,300 6,300 4,896 5,040 5,736 5,940 5,940 5,940
Taxes................. 196 180 180 180 180 180 180 180 180 180 180
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating
Expenses................ 38,646 36,506 38,485 38,294 41,185 40,529 40,775 39,578 42,103 41,142 41,673
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating Net Income.... 3,510 4,576 6,256 5,693 7,472 6,158 6,441 5,667 6,246 6,260 5,332
Depreciations......... 4,844 4,672 4,947 4,900 5,028 5,036 5,060 4,824 5,196 5,110 5,112
Amortizations......... 892 941 1,107 1,068 761 761 563 788 788 971 1,155
5% Notes Interest
Expenses.............. 6,082 (87) 1,370 1,705 2,447 2,922 2,815 2,719 2,753 2,652 2,598
Extraordinary Loss.... 1,460 3,706 0 0 0 0 0 0 0 0 0
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (Loss) Before
Taxes................... (9,767) (4,654) (1,168) (1,980) (764) (2,561) (1,997) (2,664) (2,490) (2,473) (3,533)
Assets Tax.............. 1,050 1,200 1,210 2,027 1,909 1,806 1,683 1,568 1,448 1,331 1,196
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Income (Loss)....... (10,817) (5,854) (2,378) (4,008) (2,673) (4,367) (3,680) (4,232) (3,938) (3,803) (4,729)
======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
C-5
<PAGE>
Appendix III
to Annex C
CENTRAL TERMICA GUEMES S.A.
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 AND
PROJECTED FINANCIAL STATEMENTS OF CASH FLOWS FOR THE YEARS TO BE ENDED DECEMBER
31, 2000 TO 2009
(in thousands of United States dollars)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Cash Flow
Net Income (Loss)..... (10,817) (5,854) (2,378) (4,008) (2,673) (4,367) (3,680) (4,232) (3,938) (3,803) (4,729)
Depreciations......... 4,844 4,672 4,947 4,900 5,028 5,036 5,060 4,824 5,196 5,110 5,112
Amortizations......... 892 941 1,107 1,068 761 761 563 788 788 971 1,155
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Cash
Flow................ (5,082) (242) 3,676 1,961 3,115 1,431 1,943 1,381 2,045 2,278 1,538
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Sources and Uses of
Funds (Working Capital)
Accounts Receivable... 515 1,761 (1,775) (13) (906) 427 (156) 127 (281) 50 75
Supplies and Materi-
als................... (423) 60 (3) 7 (6) 9 (25) 19 (15) 15 9
Other Receivables..... (542) 534 0 10 10 10 10 10 10 10 10
Accounts Payable...... (2,182) (66) 133 4 62 13 16 (35) 27 (15) 66
Payroll and Social Se-
curity Charges........ 1,335 1,451 (120) (304) (274) (338) (318) (329) (313) (325) (402)
Other Liabilities..... 15 0 (15) 0 0 0 0 0 0 0 0
Provisions............ 2,094 0 0 0 0 0 0 0 0 0 0
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Working Capital... 812 3,740 (1,780) (296) (1,114) 121 (473) (209) (572) (265) (242)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Sources and Uses of
Funds (Long Term)
Assets of
Privatization......... 0 0 0 0 0 0 0 0 0 0 0
Fixed Assets.......... (276) (5,281) (236) (271) (281) (296) (331) (231) (281) (281) (281)
Other Assets.......... (22) (0) 0 0 0 0 0 0 0 0 0
Programmed Maintenance
Expenses.............. 0 (1,597) (1,949) (1,000) 0 0 0 (1,350) 0 (1,100) (1,100)
Loans................. 6,060 (12,740) 0 0 0 0 0 0 0 0 0
Bank Revolver.........
Restructuration Bal-
ance.................. 0 0 0 0 0 0 0 0 0 0 0
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Long Term......... 5,762 (19,618) (2,185) (1,271) (281) (296) (331) (1,581) (281) (1,381) (1,381)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Superavit (Deficit) Be-
fore Dividends.......... 1,493 (16,120) (289) 395 1,720 1,256 1,140 (409) 1,193 632 (85)
======= ======= ====== ====== ====== ====== ====== ====== ====== ====== ======
Bank Revolver (Cash)
Beginning Balance..... (8,211) (9,704) (324) (35) (429) (2,150) (3,406) (4,546) (4,137) (5,330) (5,962)
Deficit (Surplus)..... (1,493) 9,380 289 (395) (1,720) (1,256) (1,140) 409 (1,193) (632) 85
Dividends............. 0 0 0 0 0 0 0 0 0 0 0
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Ending Balance.......... (9,704) (324) (35) (429) (2,150) (3,406) (4,546) (4,137) (5,330) (5,962) (5,878)
======= ======= ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
C-6
<PAGE>
CENTRAL TERMICA GUEMES S.A.
PROJECTED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 TO 2009
BASIS OF PREPARATION
Prior Clarification
As a consequence of a series of events, the Board of Directors of Central
Termica Guemes S.A. (the "Company") decided on March 29, 1999, to commence a
restructuring process of its financial debts, and on May 14, 1999, to postpone
the interest payments due on May 26, 1999, and thereafter, on the Company's
12% Notes due 2001.
On October 29, 1999, the Board of Directors of the Company decided to reject
the last proposal of financial restructuring submitted by the ad hoc committee
of holders of such Notes, as it included very heavy commitments and
obligations for the Company and its shareholders.
Consequently, the Board of Directors of the Company resolved on November 2,
1999, to file a petition for a court-supervised reorganization. This decision
was later ratified by the special meeting of shareholders of the Company held
on November 30, 1999. Said petition was filed with the corresponding
authorities on November 3, 1999, suspending the accrual and payment of
interest as from that date, in accordance with Argentine Bankruptcy Law No.
24.522. The court-supervised reorganization is at the proof of claims legal
stage.
At present, the Company continues to carry out its electric power generation
and marketing activities, and the Board of Directors is committed to the
preparation of a proposal to be submitted to the Company's creditors that
allows the payment of the Company's debts and ensures the continuity of the
Company as a going concern.
Basis of Preparation
(a) Financial data corresponding to the year ended December 31, 1999: the
information included is that arising from the legal books of account
of the Company.
(b) Projected financial data for the years to be ended December 31, 2000
to 2009: the data have been projected in accordance with the criteria,
hypothesis and estimates set forth below.
Operating Revenues
For determining the revenues from sales to the Term Market, all the
contracts in force have been considered, and the calculation of the energy
sold has been made considering the sale prices agreed upon in each of the
contracts and the projections made by management, based on the forecast of
price levels and contracts to be signed in the future.
For determining the revenues from the sales to the Spot Market (CAMMESA),
the projections (regarding volume and price) made by management were used.
Such projections are based on the forecast of future average generation,
consumption and marketing of electric power.
Operating Expenses
The projected operating expenses are directly related to the levels of
operating revenues determined in accordance with the preceding paragraph.
Furthermore, these expenses are based on the projections made by management
which consider the forecast of fuel consumption, fuel price levels, salaries,
transmission expenses and other operating expenses, considering the prospects
for the energy market activity.
C-7
<PAGE>
Depreciation
Depreciation was determined by applying the straight-line method according
to the estimated useful life of each asset, except for certain assets which
are depreciated using the projected production units method.
Amortization
Amortization was determined by applying the straight-line method according
to the estimated useful life of each item.
Note Interest Expense
Include interest per annum on the New Notes (1% in 2000, 2.25% in 2001,
2.75% in 2002, 4% in 2003 and 5% from 2004 to 2009 on a principal of
US$54,000,000) and the tax on interest paid (15% according to current
regulations), net of the interest generated by the temporary investments of
funds projected by the Company, estimating an investment rate of 8.5% per
annum.
Extraordinary Loss
It includes the projection of the charges related to the financial
restructuring of the Company's debt.
Income Tax
Over the projected years, no amount is expected to be paid for income tax as
the Company has a tax loss as of December 31, 1999. Also no taxable income is
expected to be generated during the years under analysis.
Assets Tax
This amount has been determined taking into account the estimates made by
the Company which result from calculating the 1% over the total assets as of
each year-end, plus accrued interest on the tax debt approved in the court-
supervised reorganization, the principal of which is estimated to be repaid in
installments according to a payment plan.
Accounts Receivable
It includes the balance as of each year-end in accordance with the estimates
made by the Company, taking into account the historical level of collections
of the sales of each year.
Supplies and Materials
Inventories have been projected based on the assumptions regarding the
levels of materials to be used for maintenance and operation purposes.
Assets from Privatization
It includes the assets received in the privatization process that took place
during 1992, the balance of which as of each year-end does not change with
respect to December 31, 1999.
Fixed Assets
It includes fixed assets as of December 31, 1999, plus the additions
estimated by the Company during the projected years.
Programmed Maintenance Expenses
It includes maintenance costs charged as of December 31, 1999, the benefits
of which will be evident in more than one year. It also includes the estimates
made by the Company regarding maintenance costs of the steam turbo generators
which will be charged during the projected years.
C-8
<PAGE>
Accumulated Depreciation/Amortization
It includes accumulation of the balance as of December 31, 1999, of the
depreciation/amortization estimated by the Company of fixed assets and of
intangible assets in accordance with the useful lives assigned and the
projected units to be produced.
Accounts Payable
It includes balances estimated by the Company as of each year-end projected
in accordance with the levels of costs and expenses and the expected
equilibrium in cash balances.
Taxes and Payroll and Social Security Charges
Tax and social security debts have been projected in accordance with the
annual payment plans of tax and social security debts and with the debts
approved in the court-supervised reorganization, plus accrued interest
estimated for each year.
Other Liabilities and Accruals
They include average historical balances estimated by the Company like fees,
dividends payable, general expenses and other.
Long-Term Loans
The balance as of 1999 year-end includes the debt arising from the
US$60,000,000 in aggregate principal amount of the Company's 12% Notes due
2001, plus accrued interest until the commencement of the court-supervised
reorganization. The balances as of the projected year-ends estimated by the
Company include a debt for the New Notes in an aggregate principal amount of
US$54,000,000, for which no accrual of interest has been calculated as it is
going to be paid in cash in semiannual installments.
C-9
<PAGE>
Central Termica Guemes S.A.
Consent Solicitation and Information Memorandum
The Balloting Agent:
Bondholder Communications Group
<TABLE>
<S> <C>
By Mail/Overnight Delivery/Hand By Facsimile
------------------------------- ------------
Bondholder Communications Group (212) 422-0790
30 Broad Street, 46th Floor
New York, New York 10004 Confirm by Telephone
Attention: Carmen Torres Toll Free: 1-888-385-BOND (2663)
e-mail: [email protected] (212) 809-2663
Website www.bondcom.com/ctg
</TABLE>
ADDITIONAL COPIES
Requests for additional copies of this Solicitation Statement or any ballot
should be directed to the Balloting Agent. You may also contact your local
broker, dealer, commercial bank, trust company or nominee for assistance
concerning the Plan.
<PAGE>
<TABLE>
<CAPTION>
Securities of Central Termica Guemes S.A. CUSIP Nos. ISIN Codes
----------------------------------------- ---------- ------------
<S> <C> <C>
12% Notes Due 2001...................................... P23557AC8 USP23557AC81
12% Notes Due 2001...................................... 15548PAC5
</TABLE>
MASTER BALLOT FOR ACCEPTING OR REJECTING THE
PLAN OF FINANCIAL RESTRUCTURING PROPOSED BY
CENTRAL TERMICA GUEMES S.A.
RECORD DATE: July 10, 2000
VOTING DEADLINE: July 31, 2000, 5:00 p.m., New York City time
This Master Ballot is to be used by brokers, banks or other nominees (each,
a "Nominal Holder") for voting on behalf of beneficial owners of the above-
referenced securities (the "Old Notes") at the Noteholders' Meeting. A proof
of Closures has been filed by the trustee on behalf of all the beneficial
owners holding directly or indirectly through the DTC System and has been
recognized by the Court. Please read and follow the attached instructions
carefully. Please complete, sign and date this Master Ballot and return it in
the enclosed envelope promptly. If Bondholder Communications Group (the
"Balloting Agent") has not received this Master Ballot by 5:00 p.m., New York
City time, on July 31, 2000 (the "Voting Deadline"), unless extended at the
sole discretion of Central Termica Guemes S.A., it will not be counted.
Facsimile Ballots alone will not be accepted, however, facsimile copies of all
ballots should be submitted to the Balloting Agent in addition to paper
copies.
Central Termica Guemes S.A. (the "Company") is soliciting votes with respect
to its plan of financial restructuring (the "Plan") referred to and described
in the accompanying Consent Solicitation and Information Memorandum dated July
10, 2000 (the "Consent Solicitation and Information Memorandum"). This Master
Ballot is to be used by Nominal Holders for voting on behalf of beneficial
owners of Old Notes. Please review the Consent Solicitation and Information
Memorandum carefully before completing this Master Ballot. Capitalized terms
not otherwise defined herein shall have the meanings ascribed to them in the
Consent Solicitation and Information Memorandum.
This Master Ballot may not be used for any purpose other than for voting to
accept or reject the Plan.
With respect to the Old Notes, and subject to the approval (homologacion) by
the Court, the Plan will be deemed to have been accepted if (1) holders of at
least two-thirds in principal amount of claims recognized by the Court have
voted to accept the Plan, and (2) holders of more than one-half in number of
recognized claims have voted to accept the Plan. If the Plan is accepted and
approved (homologado) by the Court, the exchange of New Notes for Old Notes
will be mandatory. On the Effective Date, Old Notes will be cancelled, the
indebtedness represented by Old Notes will be extinguished and New Notes will
be issued by the Company pro rata to the holders of Old Notes.
The record date for purposes of determining which beneficial owners of Old
Notes are eligible to vote on the Plan is July 10, 2000 (the "Record Date").
Only (1) holders of Old Notes in whose name such Old Notes are registered on
the books of the Company or the Trustee on the Record Date, or any persons who
have obtained properly-completed proxies from such persons, or (2) beneficial
owners of Old Notes holding such Old Notes through Nominal Holders who (a) are
registered holders of such Old Notes on the books of the Company or the
Trustee on the Record Date, or (b) hold interests in such Old Notes directly
or indirectly through DTC are eligible to vote on the Plan. Each beneficial
owner of Old Notes who purchased such Old Notes or whose purchase of such Old
Notes occurred after the Record Date who wishes to vote on the Plan must
arrange with its respective seller(s) to receive a proxy from the beneficial
owner or Nominal Holder on such date.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THIS MASTER BALLOT
BEFORE COMPLETING THIS MASTER BALLOT:
<PAGE>
Item 1. Aggregate Principal Amount of the Old Notes as to Which Votes are
Cast.
The undersigned is a registered holder or a Nominal Holder which holds
interests in Old Notes directly or indirectly through DTC, and has been
granted a proxy or power of attorney for the following Old Notes for which
voting instructions have been received from beneficial owners of such Old
Notes as listed in Item 2 below:
<TABLE>
<CAPTION>
Principal Amount
of Ol
Type of Security Notes Voted
---------------- -------------------
<S> <C>
Old Notes................................................ US$
</TABLE>
Item 2. Votes of Holders of Old Notes.
The undersigned certifies that the following beneficial owners of Old Notes
or those on the attached list, as identified by their respective customer
account numbers set forth below, have delivered to the undersigned Ballots
casting the following votes. (Indicate the aggregate principal amount voted by
each respective beneficial owner under the appropriate column. Please use
additional sheets of paper if necessary):
<TABLE>
<CAPTION>
Customer Account
Number for Each Principal Amount of the Old Notes Voted
Beneficial Owner of ---------------------------------------------
Old Notes To Accept the Plan To Reject the Plan
------------------- ------------------- -----------------------
<C> <S> <C>
1. US$ US$
2. US$ US$
3. US$ US$
4. US$ US$
5. US$ US$
6. US$ US$
7. US$ US$
US$ US$
</TABLE> TOTAL:
Item 3. Certification as to Old Notes Held in Additional Accounts.
The undersigned certifies that it has transcribed below the information, if
any, as to Old Notes held in additional accounts as provided in Item 3 of each
Ballot received by the undersigned from a beneficial owner (Please use
additional sheets if necessary):
<TABLE>
<CAPTION>
Principal Amount Of
Name Of Your Old Notes Held In
Your Customer's Customer's Other Account Numbers At Other Accounts And
Account Number For Custodian Bank Or Other Custodian Bank Voted Through Such
Each Beneficial Owner Broker Nominee Or Broker Nominee Other Accounts
--------------------------- ----------------- -------------------- -------------------
<S> <C> <C> <C>
1. US$
2. US$
3. US$
4. US$
5. US$
</TABLE>
Item 4. By signing and returning this Master Ballot, the undersigned
certifies that each beneficial owner of Old Notes whose votes are being
transmitted by this Master Ballot has been provided with a copy of the Ballot
and the Consent Solicitation and Information Memorandum.
2
<PAGE>
Item 5. By signing and returning this Master Ballot, the undersigned
certifies that: (1) it received a separate, complete and fully executed Ballot
with respect to each beneficial owner referenced in Item 2 of this Master
Ballot, and (2) it (a) is the registered holder of Old Notes, or (b) it is a
Nominal Holder which holds interests in such Old Notes directly or indirectly
through DTC. The undersigned also acknowledges that this vote on the Plan is
subject to all the terms and conditions set forth in the Consent Solicitation
and Information Memorandum.
Item 6. The undersigned hereby appoints Bondholder Communications Group (or
the legal entity known as Bondholder Communications Group) as proxy of the
undersigned, with full power of substitution, to vote to accept or reject the
Plan in accordance with the instructions set forth herein with respect to Old
Notes of the Company at one or more Noteholders' Meetings duly called for such
purpose, pursuant to the Consent Solicitation and Information Memorandum dated
July 10, 2000, by which the Company is soliciting votes from Nominal Holders
and beneficial owners of Old Notes on the close of business on July 10, 2000,
with respect to the Plan, with all the power the undersigned would possess if
voting personally.
Participant Account Number: ___________________________________
Company Name: _________________________________________________
(Print or Type)
Name of
Authorized Employee: __________________________________________
(Print or Type)
Title: ________________________________________________________
(If Appropriate)
Department: ___________________________________________________
X
Signature: ____________________________________________________
Address: ______________________________________________________
Street
_______________________________________________________________
City, State and Postal Code
_______________________________________________________________
Country
Telephone Number: ( )_________________________________________
Facsimile Number: ( )_________________________________________
E-mail: _______________________________________________________
Dated: ________________________________________________________
Please note that in order for this Master Ballot to be valid under Argentine
law, you must have your identity validated in the following fashion:
. you must obtain a certification of ownership in the space indicated
below from all direct or indirect participants in the DTC system through
which you hold your Old Notes until and including the direct DTC
participant shown on DTC's books as holding Old Notes on the Record
Date;
. you and each such direct or indirect participant must have your or such
direct or indirect participant's signature notarized and validated by
the County Clerk of the county in which such notary is qualified, and
you or such direct or indirect participant must obtain an apostille from
the Secretary of State of the relevant state with respect to each
notarization; and
. you and the signatory for each such direct or indirect participant, if
signing on behalf of a corporation or other legal entity, must certify
that you, he or she have the authority to sign on behalf of such
corporation or legal entity.
3
<PAGE>
Please attach validations below:
THIS MASTER BALLOT MUST BE RECEIVED BY THE BALLOTING AGENT, BONDHOLDER
COMMUNICATIONS GROUP, AT THE ADDRESS LISTED BELOW, BY 5:00 P.M., NEW YORK CITY
TIME, ON MONDAY, JULY 31, 2000, UNLESS EXTENDED AT THE SOLE DISCRETION OF
CENTRAL TERMICA GUEMES S.A., OR THE VOTES TRANSMITTED HEREBY WILL NOT BE
COUNTED.
----------------
By Mail/Hand/Overnight Delivery:
Bondholder Communications Group
30 Broad Street, 46th Floor
New York, New York 10004
Telephone: 212-809-2663
or toll-free within the U.S.: 1-888-385-2663
Fax: 212-422-0790
Attention: Carmen Torres
[email protected]
4
<PAGE>
INSTRUCTIONS FOR COMPLETING THIS MASTER BALLOT
This Master Ballot is not a letter of transmittal and may not be used for
any purpose other than to vote to accept or reject the Plan. If the Plan is
confirmed, the Balloting Agent will provide you with instructions and
documents, if any, for effecting the exchange of the existing Old Notes for
New Notes to be issued pursuant to the Plan upon the Effective Date.
Accordingly, registered holders should not surrender certificates representing
their Old Notes in connection with voting on the Plan, and neither the Company
nor the Balloting Agent will accept delivery of any such certificates tendered
together with this Master Ballot.
To have the beneficial owners' votes count, you must complete, sign and
return this Master Ballot so that it is received by the Balloting Agent not
later than 5:00 p.m., New York City time, on July 31, 2000, unless extended at
the sole discretion of the Company as provided in the Consent Solicitation and
Information Memorandum. If you receive Ballots from beneficial owners after
July 31, 2000, please retain all such Ballots and notify the Balloting Agent
of your receipt of such late Ballots.
If you complete and return more than one Master Ballot and the later dated
Master Ballot(s) supplement rather than supersede the earlier Master
Ballot(s), please mark the subsequent Master Ballot(s) with the words
"Additional Votes" or such other language as you customarily use to indicate
votes that are not meant to revoke earlier votes.
To properly complete this Master Ballot, follow the procedures described
below:
(a) Provide appropriate information for each of the items on this Master
Ballot. Please note that Items 2 and 3 request information which should be
set forth in the Ballots received by you from each individual beneficial
owner for whom you hold Old Notes. To identify such beneficial owners
without disclosing their names, please use the customer account number
assigned by you to each such beneficial owner;
(b) Indicate in Item 2 the aggregate principal amounts of Old Notes, as
applicable, held by you as the registered or Nominal Holder on behalf of
the beneficial owners which are voting, and each beneficial owner's vote to
accept or to reject the Plan;
(c) Provide in Item 3 the information provided by each beneficial owner
with respect to Old Notes held by such beneficial owners in other accounts;
(d) Sign and date the Master Ballot;
(e) In order for the proxy and the validations delivered herewith to be
valid under Argentine law, have all signatures notarized and validated by
the County Clerk of the county in which such notary is qualified, and
obtain an apostille from the Secretary of State of the relevant state;
(f) If you are completing this Master Ballot on behalf of another entity,
indicate your relationship with such entity and the capacity in which you
are signing;
(g) Provide your name and mailing address if different from the
preprinted address on this Master Ballot, or if no preprinted address
appears on this Master Ballot;
(h) Please use additional sheets of paper if additional space is required
to respond to any item on this Master Ballot (clearly marked to indicate
the applicable item of this Master Ballot); and
(i) Please fax or e-mail a copy of this Master Ballot to the Balloting
Agent in addition to sending the paper copy.
SEND COMPLETED MASTER BALLOT TO THE BALLOTING AGENT AT:
Bondholder Communications Group
30 Broad Street, 46th Floor
New York, New York 10004
Telephone: 212-809-2663
or toll-free within the U.S.: 1-888-385-2663
Fax: 212-422-0790
Attention: Carmen Torres
E-mail: [email protected]
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING
PROCEDURES, PLEASE CONTACT THE BALLOTING AGENT AT THE ABOVE ADDRESS.
5
<PAGE>
[CTG Logo]
CENTRAL TERMICA GUEMES S.A.
--------------------------------------------------------------------------------
Ruta Nacional 34
Km. 1135
Guemes, Salta
Argentina
July 10, 2000
Re: Central Termica Guemes S.A.
12% Notes due 2001
CUSIP Nos. 15548PACS
P23557AC8
ISIN No.: USP23557AC81
Dear Noteholder,
You are being asked to cast your ballot to vote for or against the plan of
financial restructuring under Law 24,522 of Argentina, the Argentine Bankruptcy
Law (the "Plan"), proposed by Central Termica Guemes S.A. (the "Company"). The
Company is the obligor with respect to the above-referenced notes. The Company
filed for court-supervised reorganization (concurso preventivo) in the Civil
and Commercial Court of First Instance, eighth nomination, in the City and
Province of Salta, Argentina on November 3, 1999.
The terms and conditions of the Plan are described in the Consent
Solicitation and Information Memorandum, which is enclosed herewith. You should
read the Consent Solicitation and Information Memorandum carefully. You may
also wish to consult with your account executive or other financial and/or
legal advisor in deciding whether you should vote to accept or reject the Plan.
The Company believes that confirmation of the Plan is in the best interests of
Noteholders because it provides the greatest recovery.
Your vote is important. The Company urges you to follow the instructions for
voting contained in the Consent Solicitation and Information Memorandum and the
ballot and to return your ballot promptly in the enclosed return envelope. Only
those ballots actually received by the deadline of July 31, 2000, will be
counted. If you have any questions about the Plan or how to participate in the
vote, please contact Carmen Torres of Bondholder Communications Group at, 212-
809-2663 or, within the United States, toll-free at 1-888-385-2663.
The Company urges you to vote to ACCEPT the Plan.
Sincerely,
CENTRAL TERMICA GUEMES S.A.
<PAGE>
<TABLE>
<CAPTION>
Securities of Central Termica Guemes S.A. CUSIP Nos. ISIN Codes
----------------------------------------- ---------- ------------
<S> <C> <C>
12% Notes Due 2001...................................... P23557AC8 USP23557AC81
12% Notes Due 2001...................................... 15548PAC5
</TABLE>
BALLOT FOR BENEFICIAL OWNERS, NOMINAL HOLDERS AND REGISTERED HOLDERS OF
CENTRAL TERMICA GUEMES S.A.
TO ACCEPT OR REJECT THE
PLAN OF FINANCIAL RESTRUCTURING
PROPOSED BY CENTRAL TERMICA GUEMES S.A.
RECORD DATE: July 10, 2000
VOTING DEADLINE: July 31, 2000, 5:00 p.m. New York City time
This Ballot is to be used by:
. beneficial owners of the above captioned securities due 2001 of
Central Termica Guemes S.A. (the "Old Notes") and
. Nominal Holders (as defined below) voting for their own account and
registered holders.
Please read and follow the attached instructions carefully. Please complete,
sign and date this Ballot and return it in the enclosed envelope promptly. If
Bondholder Communications Group (the "Balloting Agent") has not received this
Ballot (or a Master Ballot including the votes transmitted hereby) by 5:00
p.m., New York City time, on July 31, 2000 (the "Voting Deadline"), it will
not be counted. If you return this Ballot to a custodian bank, broker or other
nominee (each, a "Nominal Holder") which holds your interest in Old Notes,
directly or indirectly, through DTC, please mail your Ballot sufficiently in
advance of the Voting Deadline so that it may be processed and forwarded by
such addressee to the Balloting Agent before the Voting Deadline. Facsimile
Ballots will not be accepted. You may return this Ballot directly to the
Balloting Agent if it has been validated in accordance with the instructions
set forth herein. See page 4 for the address of the Balloting Agent.
<PAGE>
Central Termica Guemes S.A. (the "Company") has proposed the plan of
financial restructuring described in its Consent Solicitation and Information
Memorandum dated as of July 10, 2000 (the "Plan"). Capitalized terms not
otherwise defined in this Ballot have the meanings assigned to them in the
Consent Solicitation and Information Memorandum. You are receiving this Ballot
because you have been identified as a registered holder, Nominal Holder or
beneficial owner of Old Notes as of July 10, 2000. Please review the Consent
Solicitation and Information Memorandum carefully before completing this
Ballot.
With respect to Old Notes, and subject to the approval (homologacion) of the
Court, the Plan will be deemed to have been accepted if (1) holders of at
least two-thirds in principal amount of claims recognized by the Court have
voted to accept the Plan, and (2) more than one-half in number of recognized
claims have voted to accept the Plan. If the Plan is accepted and approved
(homologado) by the Court, the exchange of New Notes for Old Notes will be
mandatory. On the Effective Date, Old Notes will be cancelled, the
indebtedness represented by Old Notes will be extinguished and New Notes will
be issued by the Company pro rata to the Holders of Old Notes.
The record date for purposes of determining which beneficial owners of Old
Notes are eligible to vote on the Plan is July 10, 2000 (the "Record Date").
Only (1) holders of Old Notes in whose name such Old Notes are registered on
the books of the Company or the Trustee on the Record Date, or (2) beneficial
owners of the Old Notes holding such Old Notes through Nominal Holders who (a)
are registered holders of such Old Notes on the books of the Company or the
Trustee on the Record Date or (b) hold interests in such Old Notes, directly
or indirectly, through DTC on the Record Date are eligible to vote on the
Plan. Nominal Holders may also be beneficial owners. Each beneficial owner of
Old Notes who purchased such Old Notes after the Record Date who wishes to
vote on the Plan must arrange with its respective seller(s) to receive a proxy
from the beneficial owner or Nominal Holder on such date.
You must decide whether you accept or reject the Plan. To accept or reject
the Plan, please mark the appropriate box in Item 2 below.
It is essential for the Company to identify not only the number of votes to
accept or reject, but also the principal amount of Old Notes held by each
registered holder or beneficial owner of Old Notes who has voted to accept or
reject. Accordingly, please place the aggregate principal amount of Old Notes
which you own in Item 1 below. You must vote all of your Old Notes either to
accept or reject the Plan. A Ballot that partially accepts and partially
rejects the Plan will not be counted.
2
<PAGE>
Item 1. Aggregate Principal Amount of Old Notes.
This Ballot is cast by or on behalf of the registered holder, Nominal Holder
or beneficial owner of the aggregate principal amount of Old Notes indicated
immediately below.
<TABLE>
<CAPTION>
Name of Custodian Bank
Aggregate Principal or Broker Nominee Where
Customer Account Number(s) Amount of Old Notes the Old Notes are Held
-------------------------- ------------------- -----------------------
<S> <C> <C>
US$
--------------- -----------
US$
--------------- -----------
US$
--------------- -----------
US$
--------------- -----------
</TABLE>
Item 2. Vote.
The registered holder, Nominal Holder or beneficial owner of the aggregate
principal amount of Old Notes set forth in Item 1 votes as follows with
respect to the plan (please check one):
Accept the Plan [_]
Reject the Plan [_]
Item 3. Certification as to the Old Notes Held in Additional Accounts.
By signing and returning this Ballot, the undersigned certifies that he, she
or it either (1) has not submitted any other Ballot(s) for Old Notes held in
other accounts or other nominal names, OR (2) has provided the information
specified in the following table for all other Old Notes for which he, she or
it has submitted additional Ballots (please use additional sheets of paper if
necessary):
<TABLE>
<CAPTION>
Other Principal Amount Name of Custodian Bank or
Account Number of Old Notes Broker Nominee
-------------- ---------------- -------------------------
<S> <C> <C>
US$
----------- -----------
US$
----------- -----------
US$
----------- -----------
US$
----------- -----------
</TABLE>
Item 4. Certifications and Proxy. By returning this Ballot, the undersigned
beneficial owner of Old Notes certifies that:
a. It has not submitted any other Ballot for accepting or rejecting the
Plan, or if it has submitted other Ballots, such earlier Ballots are hereby
revoked;
b. It has been provided with a copy of the Company's Consent Solicitation
and Information Memorandum dated as of July 10, 2000 (the "Consent
Solicitation and Information Memorandum");
c. It is a registered holder, Nominal Holder or beneficial owner of Old
Notes and has the full power and authority to vote to accept or reject the
Plan;
d. It acknowledges that this solicitation is subject to all of the terms and
conditions set forth in the Consent Solicitation and Information Memorandum;
3
<PAGE>
e. If it is a non-validated beneficial owner, it hereby appoints the Nominal
Holder through which it holds its interest as attorney and proxy of the
undersigned, with full power of substitution, to vote to accept or reject the
Plan in accordance with the instructions set forth herein at one or more
Noteholders' Meetings duly called for such purpose with respect to Old Notes,
pursuant to the Consent Solicitation and Information Memorandum dated July 10,
2000, by which the Company is soliciting votes from Nominal Holders and
beneficial owners of Old Notes as of the close of business on July 10, 2000,
with respect to the Plan, with all the power the undersigned would possess if
voting personally; and
f. If it is a registered holder, a Nominal Holder voting for its own
account, or a validated beneficial owner, it hereby appoints Bondholder
Communications Group (or the legal entity doing business as Bondholder
Communications Group) as attorney and proxy of the undersigned, with full
power of substitution, to vote to accept or reject the Plan in accordance with
the instructions set forth herein at one or more Noteholders' Meetings duly
called for such purpose with respect to Old Notes, pursuant to the Consent
Solicitation and Information Memorandum dated July 10, 2000, by which the
Company is soliciting votes from Nominal Holders and beneficial owners of Old
Notes as of the close of business on July 10, 2000, with respect to the Plan,
with all the power the undersigned would possess if voting personally.
Name: _______________________________
(Print or Type)
_____________________________________
Social Security or Tax ID No.
X
Signature(s): _______________________
X
----------------------------
Title: ______________________________
(If Appropriate)
Address: ____________________________
Street
_____________________________________
City, State and Postal Code
_____________________________________
Country
Telephone Number: ___________________
Fax Number: _________________________
E-mail: _____________________________
Please note that if you are a Nominal Holder voting for your own account or a
beneficial owner that wishes to vote directly on the Plan, in order for this
Ballot to be valid under Argentine law, you must have your identity validated
in the following fashion:
. you must obtain a certification of ownership in the space indicated
below from all direct or indirect participants in the DTC system through
which you hold your Old Notes until and including the direct DTC
participant shown or DTC's book as holding Old Notes on the Record Date;
4
<PAGE>
. you and each such direct or indirect participant must have your or such
direct or indirect participant's signature notarized and validated by
the County Clerk of the County in which such notary is qualified, and
you or such direct or indirect participant must obtain an apostille from
the Secretary of State of your or such direct or indirect participant's
state in order for your or such direct or indirect participant's vote to
be valid; and
. you and the signatory for each such direct or indirect participant, if
signing on behalf of a corporation or other legal entity, must certify
that you, he or she have the authority to sign on behalf of such
corporation or legal entity.
If you are a beneficial owner submitting a non-validated ballot to a Nominal
Holder, you do not need any such notarization or authentication. If you are a
registered holder voting for your own account you are not required to obtain
any validation, but you must notarize and authenticate your signature and, if
appropriate, certify as to your authority to sign on behalf of the corporation
or other legal entity holding Old Note(s).
Please attach validations below:
5
<PAGE>
THIS BALLOT (OR A MASTER BALLOT INCLUDING THE VOTES TRANSMITTED HEREBY) MUST
BE RECEIVED BY THE BALLOTING AGENT, BONDHOLDER COMMUNICATIONS GROUP, AT THE
ADDRESS LISTED BELOW, BY 5:00 P.M., NEW YORK CITY TIME, ON JULY 31, 2000, OR
THE VOTES TRANSMITTED HEREBY WILL NOT BE COUNTED.
By Mail/Hand/Overnight Delivery:
Bondholder Communications Group
30 Broad Street, 46th Floor
New York, New York 10004
Telephone: 212-809-2663
or toll-free within the U.S.:
1-888-385-2663
Fax: 212-422-0790
Attention: Carmen Torres
E-mail: [email protected]
THIS BALLOT DOES NOT CONSTITUTE AND SHALL NOT BE DEEMED A PROOF
OF CLAIM OR AN ASSERTION OF A CLAIM AGAINST THE COMPANY.
INSTRUCTIONS FOR COMPLETING THIS BALLOT
This Ballot is not a letter of transmittal and may not be used for any
purpose other than to vote to accept or reject the Plan. If the Plan is
approved, you will be provided with instructions and documents, if any, for
effecting the exchange of Old Notes for New Notes and cash to be issued
pursuant to the Plan on the Effective Date. Please review the Consent
Solicitation and Information Memorandum carefully before completing this
Ballot.
To have your vote count, you must complete, sign and return this Ballot so
that it is received by the Balloting Agent not later than 5:00 p.m., New York
City time, on July 31, 2000. If your Old Notes are held through a Nominal
Holder and you are not validating your Ballot you will need to return this
Ballot to such Nominal Holder in advance of the deadline to allow them time to
process your Ballot. Incomplete or facsimile Ballots will not be counted.
If you are a Nominal Holder and not the beneficial owner, please forward
this Ballot together with the Consent Solicitation and Information Memorandum
and other accompanying documents to the beneficial owner.
To properly complete the Ballot, follow the procedures described below:
(a) provide the information required by Item 1; if you do not know the
principal amount of Old Notes held by you, please contact the Balloting
Agent, your broker or other Nominal Holder;
(b) cast one vote to accept or reject the Plan as to your Old Notes by
checking the proper box in Item 2;
(c) provide the information required by Item 3 if you have submitted any
other Ballots for the Old Notes held in other accounts or other nominal
names;
(d) sign and date your Ballot;
(e) if you believe that you have received the wrong Ballot, please
contact the Balloting Agent or your Nominal Holder immediately;
(f) if you are completing this Ballot on behalf of another entity,
indicate your relationship with such entity and the capacity in which you
are signing;
(g) provide your name and mailing address if different from the printed
address which appears on the Ballot or if no preprinted address appears on
the Ballot. If additional sheets are used, name, account number, CUSIP
number, name of Nominal Holder, and phone number of beneficial owner must
be included;
(h) please use additional sheets of paper if additional space is required
to respond to any item on the Ballot (clearly marked to indicate the
applicable item of the Ballot);
(i) promptly return your Ballot; and
(j) send a duplicate copy of the Ballot to the Balloting Agent by fax.
6
<PAGE>
SOLICITATION OF VOTES WITH RESPECT
TO THE PLAN OF FINANCIAL RESTRUCTURING OF
CENTRAL TERMICA GUEMES S.A.
RELATING TO THE FOLLOWING SECURITY:
<TABLE>
<CAPTION>
Securities of Central Termica Guemes S.A. CUSIP Nos. ISIN Codes
----------------------------------------- ---------- ------------
<S> <C> <C>
12% Notes Due 2001...................................... P23557AC8 USP23557AC81
12% Notes Due 2001...................................... 15548PAC5
</TABLE>
THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JULY 31,
2000, UNLESS EXTENDED (THE "VOTING DEADLINE"). THE RECORD DATE FOR PURPOSES
OF DETERMINING WHICH HOLDERS OF THE SECURITIES ARE ELIGIBLE TO VOTE ON THE
PLAN IS JULY 10, 2000 (THE "RECORD DATE").
July 10, 2000
To Our Clients:
Enclosed for your consideration are (1) the Consent Solicitation and
Information Memorandum (WHITE) dated July 10, 2000 (the "Consent Solicitation
and Information Memorandum"), and (2) the related Ballot for accepting or
rejecting the Company's plan of financial restructuring (the "Plan") proposed
as part of its court-supervised reorganization (concurso preventivo) in
Argentina.
We hold the above-referenced securities (the "Old Notes") for your account.
We request that you complete and execute the Ballot with your vote on the
Plan. WE URGE YOU TO READ THE CONSENT SOLICITATION AND OFFERING MEMORANDUM AND
THE ENCLOSED BALLOT CAREFULLY BEFORE VOTING ON THE PLAN.
To vote on the Plan, you must complete and execute the applicable Ballot and
return such Ballot in the enclosed pre-addressed envelope. If you have
received an envelope pre-addressed to us, you must send your Ballot early
enough for your vote to be processed so we may transmit your vote to
Bondholder Communications Group (the "Balloting Agent") no later than the
Voting Deadline. If you have received an envelope pre-addressed to the
Solicitation Agent, you must send your Ballot early enough so as to be
received by the Solicitation Agent no later than the Voting Deadline.
To be counted for purposes of acceptance or rejection of the Plan, the
original of the Ballot (not merely a facsimile thereof) must be received by us
in sufficient time for us to transmit your vote to the Solicitation Agent, or
by the Solicitation Agent if the enclosed envelope is pre-addressed to the
Solicitation Agent, no later than the Voting Deadline. You should retain a
copy of the Ballot for your files.
If the Plan is confirmed, you will be provided with instructions and
documents, if any, for effecting the exchange of your existing Old Notes for
New Notes to be issued pursuant to the Plan promptly after the date of
confirmation of the Plan.
Requests for additional copies of the enclosed materials and any inquiries
you may have with respect to the solicitation procedures should be addressed
to us or to the Solicitation Agent at the following address:
Bondholder Communications Group
30 Broad Street, 46th Floor
New York, New York 10004
Telephone: 212 809-2663
or toll-free within the U.S.: 1-888-385-2663
Facsimile: 212 422-0790
Attention: Carmen Torres
[email protected]
<PAGE>
<TABLE>
<CAPTION>
Securities of Central Termica Guemes S.A. CUSIP Nos. ISIN Codes
----------------------------------------- ---------- ------------
<S> <C> <C>
12% Notes Due 2001...................................... P23557AC8 USP23557AC81
12% Notes Due 2001...................................... 15548P-AC5
</TABLE>
ARGENTINE LAW REQUIREMENT:
IDENTIFICATION OF ALL BENEFICIAL OWNERS OF
12% NOTES DUE 2001 OF
CENTRAL TERMICA GUEMES S.A.
RECORD DATE: July 10, 2000
VOTING DEADLINE: July 31, 2000, 5:00 PM New York City Time
This Certificate is to be used by brokers, proxy intermediaries or other
nominees (each, a "Nominal Holder") for identifying ALL beneficial owners of
the above-referenced securities (the "Old Notes") for which such Nominal
Holder holds an interest in Old Notes directly or indirectly through the DTC
system (including itself if such Nominal Holder holds for its own account).
Please read and follow the attached instructions carefully. Please complete,
sign and date this Certificate and return it in the enclosed envelope
promptly. If Bondholder Communications Group (the "Balloting Agent") has not
received this Certificate by 5:00 p.m., New York City time, on July 31, 2000
(the "Voting Deadline"), unless extended at the sole discretion of Central
Termica Guemes S.A., it will not be counted.
It is a requirement of Argentine law that the total number of beneficial
holders be identified. The identity of such beneficial owners and the names of
their nominee(s) will be confidential. Facsimile Certificates will not be
accepted.
Central Termica Guemes S.A. (the "Company") is soliciting votes with respect
to its plan of financial restructuring (the "Plan") referred to and described
in the accompanying Consent Solicitation and Information Memorandum dated July
10, 2000 (the "Consent Solicitation and Information Memorandum"). This
Certificate is to be used by Nominal Holders for identifying beneficial owners
of Old Notes. Please review the Consent Solicitation and Information
Memorandum carefully before completing this Certificate. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Consent Solicitation and Information Memorandum.
This Certificate may not be used for any purpose other than for identifying
beneficial owners.
With respect to Old Notes, and subject to the approval (homologacion) by the
Court, the Plan will be deemed to have been accepted if (1) holders of at
least two-thirds in principal amount of claims recognized by the Court have
voted to accept the Plan, and (2) holders of more than one-half in number of
recognized claims have voted to accept the Plan. If the Plan is accepted and
approved (homologado) by the Court, the exchange of New Notes for Old Notes
will be mandatory. Since approval of the Plan requires approval of more than
one-half in number of holders of recognized claims, and the Trustee has filed
a global proof of claim on behalf of all beneficial owners of Old Notes which
has been recognized by the Court, all such beneficial owners must
be identified. Such identification may be by account number and the beneficial
owners' names will remain confidential.
Item 1. Principal Amount and Number of Holders of Old Notes For Which the
Undersigned Serves as Nominal Holder.
The undersigned certifies that the following are all of the beneficial
owners of Old Notes which hold interests in Old Notes through the undersigned
(including itself if the undersigned holds for its own account) (Please use
additional sheets of paper if necessary):
1
<PAGE>
<TABLE>
<CAPTION>
Customer Account Number for
Each Beneficial Owner of Old Notes Principal Amount of Old Notes Owned
---------------------------------- --------------------------------------
<C> <S>
1. US$_____________________________
2. US$_____________________________
3. US$_____________________________
4. US$_____________________________
5. US$_____________________________
6. US$_____________________________
7. US$_____________________________
8. US$_____________________________
9. US$_____________________________
10. US$_____________________________
US$_____________________________
</TABLE> TOTAL:
Item 2. By signing and returning this Certificate, the undersigned certifies
that it is a Nominal Holder which holds interests in such Old Notes through
DTC for the beneficial owners identified herein.
Participant Account Number: ___________________________________________
Company Name: _________________________________________________________
(Print or Type)
Name of
Authorized Employee: __________________________________________________
(Print or Type)
Title: ________________________________________________________________
(If Appropriate)
Department: ___________________________________________________________
X
Signature: ____________________________________________________________
Address: ______________________________________________________________
Street
_______________________________________________________________________
City, State and Zip Code
_______________________________________________________________________
Country
Telephone Number: ( )____________________ E-Mail _____________________
Facsimile Number: ( )_________________________________________________
Dated: ________________________________________________________________
Please note that in order for this Certificate to be valid under Argentine
law, you must have your identity validated in the following fashion:
. you must obtain a certification in the space indicated below from all
direct or indirect participants in the DTC system through which you hold
your Old Notes until and including the direct DTC participant shown on
DTC's books as holding Old Notes on the Record Date;
. you and each such direct or indirect participant must have your or such
direct or indirect participant's signature notarized and validated by
the County Clerk of the county in which such notary is qualified, and
you or such direct or indirect participant must obtain an apostille from
the Secretary of State of the relevant state; and
. you and the signatory for each such direct or indirect participant, if
signing on behalf of a corporation or other legal entity, must certify
that you, he or she have the authority to sign on behalf of such
corporation or legal entity.
2
<PAGE>
Please attach validations below:
THIS CERTIFICATE MUST BE RECEIVED BY THE BALLOTING AGENT, BONDHOLDER
COMMUNICATIONS GROUP, AT THE ADDRESS LISTED BELOW, BY 5:00 P.M., NEW YORK CITY
TIME, ON MONDAY, JULY 31, 2000, UNLESS EXTENDED AT THE SOLE DISCRETION OF
CENTRAL TERMICA GUEMES S.A., OR THIS CERTIFICATE WILL NOT BE COUNTED.
----------------
By Mail/Hand/Overnight Delivery:
Bondholder Communications Group
30 Broad Street, 46th Floor
New York, New York 10004
Telephone: 212-809-2663
or toll-free within the U.S.: 1-888-385-2663
Fax: 212-422-0790
Attention: Carmen Torres
E-mail: [email protected]
3
<PAGE>
PLAN OF FINANCIAL RESTRUCTURING
REQUEST TO TRANSMIT TO YOUR CLIENTS
Materials relating to the
CONSENT SOLICITATION
made by
CENTRAL TERMICA GUEMES S.A.
to holders of its 12% Notes due 2001
(indicated by CUSIP and ISIN Numbers as follows)
<TABLE>
<CAPTION>
CUSIP Nos. ISIN Codes
---------- ----------
<S> <C>
P23557AC8 USP23557AC81
15548PAC5
</TABLE>
Voting Deadline: 5:00 p.m., New York City time on July 31, 2000.
Record Date: July 10, 2000
To: Bankruptcy Staffs of Brokers, Banks, Trust Companies and Other Nominees:
From: Central Termica Guemes S.A.
Date: July 10, 2000
Central Termica Guemes, S.A. (incorporated in the Republic of Argentina) is
soliciting consents to its court-supervised Plan of Financial Restructuring.
I. Which forms do I mail to my clients who held Old Notes on the July 10,
2000, Record Date?
A. Cover letter (IVORY)
B. Consent Solicitation and Information Memorandum (WHITE)
C. Ballot for Beneficial Owners (BLUE)
D. Reply Envelope (BLUE)
E. Client Letter (GRAY)
II. How should these forms be completed and by whom?
That depends on your answer to the following:
Are you the nominee holding Old Notes for the final beneficial owner?
If yes, you should:
1. Fill in the Note owner identification report (GREEN) and send it
immediately, via Fax to the Balloting Agent at 212-422-0790.
2. Either:
. pre-validate the ballots and send them to your customers; your
customers can then send them directly back to the Balloting Agent,
or,
. send non-validated ballots to your customers.
<PAGE>
3. Upon receipt of your customers' non-validated ballots, you should
. complete a Master Ballot (GOLD) which is simply a compilation of the
consents received from the non-validated ballots.
. validate your Master Ballot by: (a) having your signature notarized
and (b) obtaining an apostille from the relevant Secretary of State
with respect to the notarization.
. return your validated Master Ballot to the Balloting Agent. The
Master Ballot must be received by 5:00 PM, New York City time on the
Voting Deadline.
If no, you should either:
. provide the Balloting Agent with a list of such nominees, or,
. send to each such nominee (i.e. your downstream correspondents) a
sufficient supply of ballots and master ballots so that they can
mail them to their customers. You should also send to that nominee
this instruction letter.
III. How will Brokers and Banks be Reimbursed for Mailing Costs?
Central Termica Guemes S.A. will promptly reimburse brokers, banks, trust
companies or other nominees holding the Old Notes on behalf of beneficial
owners thereof for reasonable expenses incurred by such brokers, banks,
trust companies or other nominees in transmitting the Consent Solicitation
and Information Memorandum related materials to such beneficial owners.
Requests for reimbursement should be submitted to the Balloting Agent at
the address below by 5:00 p.m., New York City time, on or before the tenth
business day following the Voting Deadline. Any such reimbursement will be
made at levels established by the New York Stock Exchange.
If you need additional sets of the materials or have questions about the
consent solicitation, please contact the Balloting Agent:
Bondholder Communications Group
30 Broad Street, 46th Floor
New York, New York 10004
Attention: Carmen Torres
Telephone: 212-809-2663
or toll-free within the United States: 888-385-2663
Fax: 212-422-0790
E-mail: [email protected]
Website: www.bondcom.com/ctg
Nothing contained herein or in the enclosed documents authorizes you or any
other person to i) act on behalf of or as the agent of the Central Termica
Guemes S.A., the Balloting Agent, or any affiliate of them, or ii) use any
document or make any statement on behalf of any of them in connection with the
consent solicitation, other than the enclosed documents and the statements
contained therein.
2
