<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-13584
ENRON GLOBAL POWER & PIPELINES L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 76-0456366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 CLAY STREET, SUITE 1800
HOUSTON, TEXAS 77002
(Address of principal executive offices) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 853-6220
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding as of April 30, 1997
----------- --------------------------------
<S> <C>
Common Shares 25,981,934 shares
----------
</TABLE>
================================================================================
<PAGE> 2
ENRON GLOBAL POWER & PIPELINES L.L.C.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 . . . . . 3
Consolidated Statements of Changes in Shareholders'
Equity - Three Months Ended March 31, 1997 . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . 18
Item 5. Other Matters . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 18
</TABLE>
i
<PAGE> 3
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
- ----------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------
(RESTATED)
<S> <C> <C>
Technical Assistance Fees $ 2,896 $ 2,505
Equity in Earnings of Unconsolidated Subsidiaries:
Pipeline Operations 8,064 8,855
Power Operations 4,417 3,525
--------------------------
Equity in Earnings and Technical Assistance Fees 15,377 14,885
General and Administrative Expenses (1,679) (1,597)
Taxes Other Than Income (105) (143)
Interest Expense (1,080) (1)
Interest Income 1,166 325
Other Income (Expense), Net 957 (736)
--------------------------
Income Before Income Taxes 14,636 12,733
Income Tax Benefit (Expense) 3,372 (1,212)
--------------------------
Net Income $ 18,008 $ 11,521
==========================
Net Income Per Common Share $ 0.72 $ 0.48
==========================
Average Number of Common Shares Used in Computation 24,848 23,950
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 44,717 $ 24,582
Accounts receivable 8,008 6,301
Dividends receivable 14,639 --
Current portion of notes receivable 1,432 1,394
Other current assets 651 404
--------------------------
Total Current Assets 69,447 32,681
--------------------------
Investments in and Advances to Unconsolidated Subsidiaries 274,672 298,530
Notes Receivable 22,421 12,111
Other 1,321 521
--------------------------
Total Assets $ 367,861 $ 343,843
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 14,949 $ 11,277
Accrued taxes 1,318 1,488
Current portion of note payable -- 36,583
--------------------------
Total Current Liabilities 16,267 49,348
--------------------------
Deferred Income Taxes 424 4,301
Notes Payable 26,518 24,750
Commitments and Contingencies (Note 9)
Shareholders' Equity
Common Shares, no par value,
200,000,000 Shares authorized
and 25,981,934 and 24,392,352
shares issued and outstanding, respectively 267,117 219,816
Retained earnings 57,535 45,628
--------------------------
Total Shareholders' Equity 324,652 265,444
--------------------------
Total Liabilities and Shareholders' Equity $ 367,861 $ 343,843
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------
(RESTATED)
<S> <C> <C>
Cash Flows From Operating Activities:
Reconciliation of net income to net cash flows from operating activities
Net income $ 18,008 $ 11,521
Equity in earnings of unconsolidated subsidiaries (12,481) (12,380)
Distributions from unconsolidated subsidiaries 21,700 12,649
Deferred income taxes (3,877) 445
Changes in components of working capital:
Accounts receivable (1,707) 1,032
Accounts payable 3,672 1,016
Accrued taxes (170) 598
Other, net (1,047) 319
--------------------------
Net Cash Flows from Operating Activities 24,098 15,200
--------------------------
Cash Flows from Investing Activities:
Loan to parent (8,580) --
Loan to project company (1,768) --
--------------------------
Net Cash Flows Used in Investing Activities (10,348) --
--------------------------
Cash Flows From Financing Activities:
Common shares issued 47,301 131
Loan from parent 1,768 --
Payment of long-term debt (36,583) --
Dividends paid (6,101) (4,589)
--------------------------
Net Cash Flows Provided by (Used in) Financing Activities 6,385 (4,458)
--------------------------
Increase in Cash and Cash Equivalents 20,135 10,742
Cash and Cash Equivalents, Beginning of Period 24,582 23,364
--------------------------
Cash and Cash Equivalents, End of Period $ 44,717 $ 34,106
==========================
Supplemental Cash Flow Information:
Cash Paid for Income Taxes $ 787 $ 196
==========================
Cash Paid for Interest $ 1,010 $ --
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
----------------------------------------------
COMMON RETAINED
SHARES EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <<C>
Balance at December 31, 1996 $ 219,816 $ 45,628 $ 265,444
Net income -- 18,008 18,008
Dividends -- (6,101) (6,101)
Exercise of purchase option by Enron Corp. 47,000 -- 47,000
Issuances for stock options 301 -- 301
----------------------------------------------
Balance at March 31, 1997 $ 267,117 $ 57,535 $ 324,652
==============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 7
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company,
and its wholly owned subsidiaries (EPP), own interests in natural gas pipeline
systems in Argentina and Colombia, two power plants in the Philippines, a power
plant in Guatemala and a power plant in the Dominican Republic. EPP's pipeline
operations in Argentina are conducted through its wholly owned subsidiary,
Enron Pipeline Company - Argentina S.A. (EPCA). EPCA owns 33 1/3% of Compania de
Inversiones de Energia S.A. (CIESA), which in turn owns 70% of Transportadora
de Gas del Sur S.A. (TGS), the entity that owns the pipeline system. EPP's
pipeline operations in Colombia are conducted through its 49% limited
partnership interest in Centragas - Transportadora de Gas de la Region Central
de Enron Development & Cia., S.C.A. (Centragas). EPP's power operations in the
Philippines are conducted through its wholly owned subsidiary, Enron Power
Philippines Corp. (EPPC). EPPC owns 50% of the outstanding stock of Subic Power
Corp. (SPC) and Batangas Power Corp. (BPC), the entities that own the
respective power plants. The Guatemala power operations are conducted through
EPP's 50% ownership interest in Puerto Quetzal Power Corp. EPP's Dominican
Republic power operations are conducted through its 50% partnership interest in
Smith/Enron Cogeneration Limited Partnership (SECLP) and Smith/Enron O&M
Limited Partnership (SEOM).
2. ACQUISITIONS
Acquisitions of projects from Enron Corp. are transactions between entities
under common control that are accounted for similar to the pooling of interests
method of accounting using the historical carryover basis and restating
historical results to include the results of acquired projects. There were no
acquisitions during the three months ended March 31, 1997.
The three months ended March 31, 1996, have been restated to include equity in
earnings and net income of approximately $2.8 million and $2.1 million,
respectively, related to the acquisition of Centragas in May 1996, and
approximately $1.2 million and $0.8 million, respectively, related to the
acquisition of SECLP and SEOM in June 1996.
The acquisition of an additional interest in CIESA occurred in July 1996.
Assuming the acquisition had occurred on January 1, 1996, pro forma equity in
earnings and technical assistance fees, net income and net income per common
share for the three months ended March 31, 1996, would have been approximately
$16.8 million, $12.5 million and $0.52, respectively.
3. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by EPP
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, the consolidated financial statements reflect
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial results for the interim periods. Certain
information and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles (GAAP) have been
condensed or omitted pursuant to such rules and regulations. However, EPP
believes that the disclosures are adequate to make the information presented
not misleading. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in EPP's Annual Report on Form 10-K for the year ended December 31,
1996.
5
<PAGE> 8
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from the
estimates.
EPP records as cash equivalents all highly liquid short-term investments with
original maturities of three months or less. From time to time, EPP invests
excess funds with affiliates of Enron Corp. under promissory notes payable on
demand at market interest rates. At March 31, 1997, approximately $36.5 million
was invested under such notes. Such amounts are classified as cash equivalents.
All monetary amounts presented in tables herein are expressed in thousands,
except per share amounts.
Certain prior period amounts have been reclassified to conform with the current
presentation.
4. SHAREHOLDERS' EQUITY
On March 5, 1997, Enron Corp. exercised an option, which was granted to Enron
Corp. in connection with Enron Corp. providing the financing for the
additional EPP interest in CIESA acquired in July 1996, to purchase $47.0
million of EPP common shares at the average market price for the 20 trading
days immediately preceding the second trading day prior to the exercise
(approximately 1.6 million EPP common shares). A portion of the proceeds were
used to repay the $36.6 million note payable to Enron Corp. (see Note 6).
On March 14, 1997, EPP paid a quarterly cash dividend of $0.25 per share.
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
EPP's investments in and advances to unconsolidated subsidiaries and the
changes in such balances are as follows:
<TABLE>
<CAPTION>
PIPELINE POWER TOTAL
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 198,204 $ 100,326 $ 298,530
Equity in Earnings 8,064 4,417 12,481
Declared Distributions (14,639) -- (14,639)
Distributions (14,200) (7,500) (21,700)
--------------------------------------------
Balance at March 31, 1997 $ 177,429 $ 97,243 $ 274,672
============================================
</TABLE>
At March 31, 1997, EPP's share of undistributed earnings of its pipeline and
power subsidiaries totaled approximately $4.1 million and $18.6 million,
respectively. In the first three months of 1997, EPPC received $6.0 million in
dividends from its Philippine power operations and EPCA received $14.2 million
in dividends from CIESA. In the first three months of 1997, EPP received $1.5
million in dividends from its Guatemala power plant operations. Equity in
earnings are net of amortization of excess investment related to CIESA and
SECLP/SEOM.
6
<PAGE> 9
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. NOTES PAYABLE
On March 5, 1997, EPP received $47.0 million in connection with the exercise of
Enron Corp.'s option to acquire EPP common shares (see Note 4). EPP used a
portion of the proceeds from the exercise of the option to repay the $36.6
million note payable to Enron Corp.
In the first three months of 1997, EPP borrowed $1.8 million from Enron Corp.
to loan to SECLP (see Note 8).
7. SUPPLEMENTAL CASH FLOW INFORMATION
The first three months of 1996, restated as discussed in Note 2, include the
issuance of approximately 3.5 million EPP common shares in exchange for assets
with a carryover basis totaling $62.5 million related to the acquisitions of
Centragas, SECLP and SEOM. There were no cash inflows or outflows related to
these acquisitions in the first three months of 1997.
8. NOTES RECEIVABLE
In the first three months of 1997, EPP loaned approximately $8.6 million to
Enron Corp. in the form of a note receivable. The note bears interest at 5.4%
payable quarterly and matures in October 2011 or on demand.
During the first three months of 1997, EPP made additional cost overrun loans
(COLs) to SECLP in the amount of $1.8 million for construction-related items.
The COLs now total in the aggregate $10.3 million, bear interest at 13.5% and
are due in semiannual principal and interest payments through December 15,
2005.
In April 1997, EPP made additional COLs to SECLP in the amount of $1.4 million
with the same terms as the previous COLs.
9. COMMITMENTS AND CONTINGENCIES
EPP and subsidiaries, in the ordinary course of business, are defendants in
various lawsuits and administrative proceedings before various courts and
governmental agencies. Management believes that the final outcome of these
proceedings, individually and in the aggregate, will not have a material
adverse impact on EPP's financial position or results of operations.
GdE Request
TGS received and denied a request from Gas del Estado S.E. (GdE), a company
owned and operated by the Argentine government, for the reimbursement of
approximately $23 million paid by GdE under purchase orders issued for the
construction of two compressor plants. GdE submitted this matter for
resolution to Ente Nacional Regulador del Gas (ENARGAS), the Argentine federal
gas regulatory entity, but ENARGAS concluded that it lacks jurisdiction to
adjudicate the dispute. In April 1996, GdE filed a legal action seeking
reimbursement from TGS of the $23 million. TGS has accrued approximately $4.8
million as property, plant and equipment based on its estimate of construction
costs of similar plants. TGS has thoroughly answered the demand and is
refusing the claim.
TGS has filed a claim against GdE and the Argentine government seeking the
reimbursement of amounts paid by TGS in connection with the registration and
payment of certain easements. On October 7, 1996, the Executive Branch,
through Decree No. 1,136/96, created a contribution fund, as provided for in
the license to transport natural gas through the southern Argentine gas
pipeline system granted to TGS in December 1992, to assume GdE's obligations
for paying easements and any other compensation to land owners for an initial
five-year period, beginning with privatization. ENARGAS has started managing
the above mentioned fund, which is financed by a special charge included in the
transportation rates and reimbursed to ENARGAS. TGS expects to recover the
amounts paid related to such easement. The total amount sought by TGS is
approximately $3.0 million.
7
<PAGE> 10
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Colombia
During 1996, EPP recorded approximately $4.7 million of equity in earnings from
Centragas, approximately $2.8 million of which related to an early completion
bonus, certain aspects of which are being contested by Empresa Colombiana de
Petroleos (Ecopetrol), the state-owned oil company of Colombia. In accordance
with the Transportation Services Contract dated May 12, 1994 between Centragas
and Ecopetrol, Ecopetrol is obligated to pay to Centragas an early completion
bonus if certain conditions are satisfied. Centragas believes that all of these
conditions have been satisfied; however, Ecopetrol is contesting certain
aspects of the early completion bonus. Centragas is vigorously asserting its
claim to such bonus through an amicable compoundment dispute resolution process
whereby an independent engineering firm, chosen by Centragas and Ecopetrol,
will decide the issue. Both Centragas and Ecopetrol have made their required
filings with the independent engineering firm, and both parties are vigorously
defending their respective positions. Centragas anticipates a decision during
June 1997. Although no assurances can be given, EPP believes that the ultimate
resolution of the dispute with Ecopetrol will not have a material adverse
effect on EPP's financial condition or results of operations.
Dominican Republic
SECLP is currently involved in an International Chamber of Commerce arbitration
proceeding against Corporacion Dominicana de Electricidad (CDE), the government
agency which provides electric services to the Dominican Republic, and the
Dominican Republic Government (DR Government). SECLP has alleged that CDE owes
approximately $25.0 million in past due amounts under the Electric Energy
Supply and Sales Contract dated July 26, 1993, as amended, among SECLP, CDE and
the DR Government (Puerto Plata Energy Supply Contract), a claim which CDE
disputes. CDE has alleged that SECLP owes approximately $13.6 million in delay
damages to CDE pursuant to the Puerto Plata Energy Supply Contract. In addition
to CDE's claims, the DR Government has alleged that its guaranty of CDE's
obligations under the Puerto Plata Energy Supply Contract and the $24 million
letter of credit furnished by the DR Government are void because such
commitments were not approved by the Congress of the Dominican Republic. The DR
Government has also requested that the arbitration tribunal enjoin SECLP from
drawing on the letter of credit. In the arbitration proceeding, SECLP has denied
the claims of CDE and the DR Government and is defending against such claims,
which defense includes the fact that the claim for delay damages was previously
waived by CDE and the DR Government in an earlier contractual undertaking.
SECLP believes that it has strong legal and factual defenses and is vigorously
pursuing its claims against, as well as contesting the claims brought by, CDE
and the DR Government. SECLP anticipates a decision by the arbitration panel by
the end of 1997. While the arbitration proceeding is ongoing, SECLP and CDE have
begun informal and preliminary discussions to negotiate a settlement of their
dispute. Although no assurances can be given, EPP believes that the ultimate
resolution of this matter will not have a material adverse effect on EPP's
financial position or results of operations.
On October 5, 1994, Hotelera del Atlantico, S.A. (Hotelera), the owner of a
hotel located near the Puerto Plata Plant in the Dominican Republic (Puerto
Plata Plant), initiated an action against SECLP in the Dominican Republic,
requesting damages in excess of 1.5 billion pesos (approximately $108 million
based on a conversion rate of 13.83 pesos/U.S. dollar) and a penalty of 50,000
pesos (approximately $3,600) for each day SECLP continued to operate the Puerto
Plata Plant after the action was initiated. Hotelera alleges that physical
damage and nuisance were caused to the hotel by the operation of the Puerto
Plata Plant on December 15, 1994. An agreement between the parties was reached
and a settlement agreement was signed (Settlement Agreement). However, on
September 4, 1995, Hotelera filed a petition with the Dominican Republic Council
of Reconciliation and Arbitration alleging, among other things, that the
environmental guidelines of the World Bank had not been followed by SECLP as
agreed to in the Settlement Agreement. SECLP has no reason to believe that it
has not complied with the World Bank guidelines and is agressively defending
against such claims. While Enron Corp. has agreed to indemnify EPP from any
changes in investment value due to the financial impact to the project of the
Hotelera dispute, an adverse decision in the Hotelera dispute may impact EPP's
earnings from SECLP. Although no assurances can be given, EPP believes that the
ultimate resolution of this matter will not have a material adverse effect on
EPP's financial position or results of operations.
SECLP, General Electric Company (GE), Raytheon Engineers & Constructors
(Raytheon), Enron Power Construction Company (EPCC) and certain subcontractors
and insurers have been involved in discussions covered by a confidentiality
arrangement relating to claims arising from the design, construction, start-up,
testing and operation of the Puerto Plata Plant. A settlement of
8
<PAGE> 11
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
claims has been agreed to between SECLP, GE and Raytheon. SECLP and EPCC are
currently negotiating to resolve disputes between them. While Enron Corp. has
agreed to indemnify EPP from any changes in the investment value due to the
potential financial impact of these settlements on the project, the settlements
could impact EPP's earnings from SECLP. Although no assurances can be given,
EPP believes that the ultimate resolutions of these matters will not have a
material adverse effect on EPP's financial position or results of operations.
Enron Corp. is obligated to fund certain amounts to SECLP associated with
construction-related and other issues. Pursuant to the purchase arrangement
regarding SECLP between subsidiaries of Enron Corp. and EPP, if required to
fund such amounts, Enron Corp. will loan funds as COLs to SECLP through EPP.
The Purchase Agreement among EPP, Enron International Inc. and Enron Holding
Company L.L.C. dated June 17, 1996, includes provisions that may require an
adjustment to the purchase price by December 31, 1997, depending upon the
resolution of certain contingencies, including the final amount of additional
COLs and collection of certain receivables ($2.8 million) by SECLP from CDE.
Any purchase price adjustments may be settled in EPP common shares or cash.
EPP does not believe that these contingencies will have a material impact on
EPP's financial statements.
Batangas
At March 31, 1997, Batangas had a value added tax (VAT) receivable of
approximately $7.0 million. The realization of the VAT receivable requires the
attainment of VAT exemption from the Bureau of Internal Revenue, the Philippine
tax authority. EPP believes that the VAT exemption will be obtained as a credit
against future tax liabilities and that the full amount of the VAT receivable
will be recovered.
10. DEFERRED INCOME TAXES
During the first three months of 1997, EPP reversed a reserve of approximately
$4.0 million for certain Philippine withholding taxes based upon the repeal of
a U.S. tax law which enabled EPP to alter its tax planning strategies. Under
the new strategies, EPP believes that such cash will ultimately be received
without incurring such witholding taxes and, accordingly, management believes
that a liability for such withholding taxes is no longer required.
11. DERIVATIVE FINANCIAL INSTRUMENTS
During the first quarter of 1997, EPP entered into forward purchase contracts
on Colombian pesos with a notional value of $14.8 million scheduled to settle
between late 1997 and early 1998. EPP entered into these contracts to offset
potential fluctuations in planned equity earnings from Centragas resulting from
changes in the peso exchange rate. Such changes can cause U.S. GAAP income to
vary by impacting Colombian tax expense and foreign exchange gains or losses on
peso-denominated payables. These forward purchase contracts generated
approximately $1.0 million of income during the first three months of 1997,
which is included in other income (expense).
12. SUBSEQUENT EVENT
In April 1997, EPCA received a request from Centragas to repay approximately
$11.3 million of the $24.8 million borrowed in 1996 on June 1, 1997. EPCA will
repay the $11.3 million with cash on hand and with proceeds from a loan from
EPP. Additionally, in April 1997, EPP requested repayment on June 1, 1997, of
the $8.6 million loaned to Enron Corp. (see Note 8).
13. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No.128 - "Earnings per
Share" effective for interim and annual periods beginning after December 15,
1997. This statement replaces primary earnings per share (EPS) with a newly
defined basic EPS and modifies the compuation of diluted EPS. EPP's basic and
diluted EPS computed using the requirements of SFAS 128 are the same as the
currently disclosed primary EPS amounts.
9
<PAGE> 12
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRIMARY ASSETS AND SOURCES OF EARNINGS AND CASH
The primary assets of Enron Global Power & Pipelines L.L.C. ("EPP"), a Delaware
limited liability company which is approximately 52% owned by Enron Corp.
(together with its subsidiaries, "Enron") at March 31, 1997, are its interests
in 50% or less owned companies ("Project Companies"), which it holds directly
or indirectly through wholly owned subsidiaries. EPP accounts for its
interests in the Project Companies under the equity method of accounting and
records its proportionate share of the earnings or losses of the Project
Companies. The operations of the Project Companies are EPP's primary source of
earnings. EPP also receives technical assistance fees, paid by Project
Companies to certain wholly owned subsidiaries of EPP, primarily by
Transportadora de Gas del Sur S.A. ("TGS") to Enron Pipeline Company -
Argentina S.A. ("EPCA"). Dividends paid by the Project Companies are EPP's
primary source of cash. Declaration and payment of such dividends are at the
sole discretion of the boards of directors of the Project Companies and are
subject to certain restrictions, including, among others, each Project
Company's operating profitability, restrictions on the distribution of cash
under applicable credit agreements and government imposed currency
restrictions. See "Liquidity and Capital Resources of EPP - Primary Sources of
Cash" for further discussion regarding cash.
RESULTS OF OPERATIONS OF EPP
GENERAL
For the three months ended March 31, 1997, EPP's equity in earnings and
technical assistance fees from its Argentine and Philippine operations
constituted approximately 65%, and 17%, respectively, of EPP's equity in
earnings and technical assistance fees. As of March 31, 1997, Argentine and
Philippine assets accounted for approximately 49% and 19%, respectively, of
EPP's assets. As a result, if Argentine or Philippine operations were
materially and adversely affected, EPP's financial condition and results of
operations could be materially and adversely affected. See "Pipeline
Operations" and "Power Operations" below for the results of operations of EPP's
Project Companies.
Acquisitions of projects from Enron are transactions between entities
under common control that are accounted for similar to the pooling of interests
method of accounting using the historical carryover basis and restating
historical results to include the results of acquired projects. There were no
acquisitions during the three months ended March 31, 1997. The three months
ended March 31, 1996, have been restated to include equity in earnings and net
income of approximately $2.8 million and $2.1 million, respectively, related to
the acquisition of Centragas - Transportadora de Gas de la Region Central de
Enron Development & Cia., S.C.A. ("Centragas") in May 1996, and approximately
$1.2 million and $0.8 million, respectively, related to the acquisition of
Smith/Enron Cogeneration Limited Partnership ("SECLP") and Smith/Enron O&M
Limited Partnership ("SEOM") in June 1996.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 VS. THE THREE
MONTHS ENDED MARCH 31, 1996
EQUITY IN EARNINGS AND TECHNICAL ASSISTANCE FEES. Equity in earnings and
technical assistance fees increased $0.5 million (3%) in the first quarter of
1997 compared to the first quarter of 1996. The increase is primarily due to
earnings resulting from the increased ownership in Compania de Inversiones de
Energia S. A. ("CIESA") and increased earnings in the Philippines. The
increased earnings in the Philippines are primarily a result of increased
revenues due to more efficient operations. These increases were partially
offset by decreased earnings in Colombia, primarily attributable to the early
completion bonus in 1996 and increased
10
<PAGE> 13
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
depreciation in 1997 resulting from completed construction, and the Dominican
Republic, primarily attributable to scheduled maintenance.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
remained relatively unchanged from the first quarter of 1996 to the first
quarter of 1997.
INTEREST EXPENSE. Interest expense increased $1.1 million (100%) during the
first quarter of 1997 compared to the first quarter of 1996 primarily due to
the interest expense associated with the debt incurred in obtaining the
additional ownership of CIESA in July 1996.
INTEREST INCOME. Interest income increased $0.8 million (259%) during the
first quarter of 1997 compared to the first quarter of 1996 primarily due to
the interest for the Dominican Republic cost overrun loans.
OTHER INCOME (EXPENSE). Other income (expense) represented income of
approximately $1.0 million for the first quarter of 1997 and expense of
approximately $0.7 million for the first quarter of 1996. The $1.0 million of
income in 1997 was primarily attributable to a gain recognized from forward
contracts used to mitigate foreign exchange risk in Colombia. The 1996 expense
primarily represents acquisition costs incurred for the Colombia and the
Dominican Republic Projects.
INCOME TAX BENEFIT (EXPENSE). The income of EPP is not taxable to EPP;
however, EPCA and Enron Power Philippines Corp. ("EPPC"), both wholly owned
subsidiaries of EPP, are taxable entities in their respective local
jurisdictions. The effective tax rate paid by these subsidiaries is less than
the statutory rate because a majority of the income of these subsidiaries
relates to ownership of equity investments, which is not subject to tax;
however, EPCA is subject to taxes (currently 33%) primarily on the technical
assistance fees received from TGS, net of interest expense. Dividends paid
to EPP from Centragas are subject to certain withholding taxes of 7%.
Income taxes decreased $4.6 million for the first quarter of 1997 compared
to the first quarter of 1996 primarily due to the one-time reversal of a reserve
for certain Philippine withholding taxes based upon the repeal of a U.S. tax law
which enabled EPP to alter its tax planning strategies. Under the new
strategies, EPP believes that such cash will ultimately be received without
incurring such withholding taxes and, accordingly, management believes that a
liability for such withholding taxes is no longer required.
LIQUIDITY AND CAPITAL RESOURCES OF EPP
PRIMARY CASH REQUIREMENTS
The primary cash requirements of EPP include the payment of dividends to its
shareholders and the payment of general and administrative expenses, including
salaries, overhead, debt service obligations and costs incurred under the
Administrative Services and Cost Sharing Agreements between Enron and EPP. EPP
may also use cash to satisfy its payment obligations, if any, under various
shareholder and credit agreements relating to the Project Companies and under a
Master Contribution Agreement among EPP, Enron and certain of their
subsidiaries (the "Contribution Agreement"). Pursuant to the Contribution
Agreement, Enron maintains certain commitments on behalf of EPP for the benefit
of certain Project Companies, as required by project lenders and certain other
third parties. In most instances, EPP has agreed to indemnify Enron against
liabilities that may be incurred under such commitments. Although these
indemnity obligations could result in certain otherwise nonrecourse liabilities
becoming recourse to EPP, EPP believes the events which would trigger liability
are remote, and therefore does not expect these obligations to create any
additional liability. If, however, EPP were required to make significant
payments to Enron under the Contribution Agreement, EPP believes it would have
adequate cash resources, would
11
<PAGE> 14
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
be able to obtain financing for such payments from Enron or other sources or
would be able to cause its subsidiaries to pay to EPP cash dividends sufficient
to make such payments. However, there can be no assurance that sufficient cash,
dividends or funds from other sources would be available for such purpose.
On March 14, 1997, EPP paid a quarterly dividend of approximately $6.1
million, or $0.25 per share.
PRIMARY SOURCES OF CASH
Primary sources of cash for EPP consist of cash on hand, dividends from the
Project Companies, technical assistance fees and long-term loans of project
cash balances which are currently restricted by local regulations from being
declared as dividends. The ability of the Project Companies to pay dividends
will be dependent on the future earnings and debt repayment obligations of such
subsidiaries, dividend restrictions included in credit agreements at the
project level, applicable currency restrictions, income and other taxes,
applicable laws and the declaration of dividends by the boards of directors of
each of the Project Companies. Project financings typically require that
certain cash reserves be established at each Project Company and that certain
additional capital and legal requirements be satisfied before the Project
Company may pay dividends to its shareholders. However, each of EPP's
subsidiaries has a stated dividend policy, set forth in its shareholders
agreement, of maximizing after-tax cash distributions to shareholders after
taking into consideration capital requirements and applicable legal
requirements. In the future, the Project Companies may also borrow funds or
otherwise accept encumbrances on their earnings resulting in further possible
constraints on their ability to pay dividends to EPP.
On March 5, 1997, EPP received $47.0 million in connection with the
exercise by Enron of its option to acquire EPP common shares ("Common Shares").
EPP used a portion of the proceeds from this option exercise to repay the $36.6
million note payable to Enron.
In the first three months of 1997, EPP loaned approximately $8.6 million to
Enron in the form of a note receivable. The note bears interest at 5.4%
payable quarterly and matures in October 2011 or on demand. Such note was
called in April 1997.
During the first three months of 1997, EPP made additional cost overrun
loans ("COLs") to SECLP in the amount of $1.8 million for construction-related
items. The COLs now total in the aggregate $10.3 million, bear interest at
13.5% and are due in semiannual principal and interest payments through
December 15, 2005.
In the first three months of 1997, Subic Power Corp. ("Subic") and Batangas
Power Corp. ("Batangas") paid $3.0 million and $9.0 million in dividends,
respectively, of which EPPC received approximately $6.0 million. EPCA received
approximately $14.2 million in dividends from CIESA in the first three months
of 1997. EPP received approximately $1.5 million in dividends from Puerto
Quetzal Power Corp. ("PQPC") in the first three months of 1997. During the
first three months of 1997, Centragas declared dividends of approximately $29.9
million, approximately $14.6 million of which is expected to be received by EPP
incrementally through December 1997. SECLP and SEOM paid no dividends during
the first three months of 1997.
On April 2, 1997, EPP received approximately $2.2 million of the declared
dividends from Centragas.
LONG-TERM FINANCING POLICY
EPP's business strategy is to generate long-term growth in earnings per
share, dividends and cash flow by acquiring interests in additional power and
natural gas pipeline projects from Enron and third parties. EPP currently
expects to fund any such acquisitions from Enron by issuing additional Common
Shares and to fund acquisitions from third parties with Common Shares, cash or
debt. EPP believes that it will have sufficient cash to meet its obligations
for the foreseeable future.
12
<PAGE> 15
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
PIPELINE OPERATIONS
Equity in earnings of the pipeline operations represents EPP's 33 1/3%
interest in CIESA (increased from 25% on July 31, 1996), which owns 70% of TGS,
and EPP's 49% interest in Centragas which EPP acquired in May 1996 and which
began full commercial operation in February 1996. See "Results of Operations of
EPP - General."
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 VS. THE THREE
MONTHS ENDED MARCH 31, 1996
Presented below is a summary of income statement information for the
combined pipeline operations of CIESA and Centragas for the first quarter of
1997 and 1996 on a U.S. Generally Accepted Accounting Principles ("GAAP"),
historical U.S. dollar, 100% ownership basis. The results for the first quarter
of 1996 have been restated to include the operations of Centragas. See "Results
of Operations of EPP - General."
13
<PAGE> 16
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------
(RESTATED)
<S> <C> <C>
Gas transportation revenues $ 105,169 $ 101,032
Gas processing revenues 8,545 10,946
----------------------------
Total Revenues 113,714 111,978
Operating, administrative and selling expenses (32,677) (32,775)
Interest income 749 1,520
Interest expense, net of capitalized interest (20,625) (20,370)
Other income 555 1,484
----------------------------
Income Before Minority Interest and Income Taxes 61,716 61,837
Minority interest (12,269) (12,729)
Income tax expense (24,911) (19,217)
----------------------------
Net Income $ 24,536 $ 29,891
============================
EPP's Equity in Earnings of Pipeline Operations $ 8,064 $ 8,855
============================
</TABLE>
GAS TRANSPORTATION REVENUES. Transportation revenues increased $4.1 million
(4%) primarily due to the extension of certain firm transportation agreements
and the 1.5% increase in tariff rates at TGS.
GAS PROCESSING REVENUES. During the first quarter of 1997 as compared to
the first quarter of 1996, processing revenues decreased by $2.4 million (22%)
primarily due to scheduled plant maintenance at the Cerri Complex in Argentina
during which the capacity of the facility was improved. Centragas does not
generate any processing revenues.
OPERATING, ADMINISTRATIVE AND SELLING EXPENSES. Operating, administrative
and selling expenses remained relatively unchanged from the first quarter of
1996 compared to the first quarter of 1997.
INTEREST INCOME. Interest income decreased $0.8 million (51%) during the
first quarter of 1997 compared to the same period in 1996 primarily due to
lower average short-term investment balances and lower interest rates at TGS
and CIESA.
INTEREST EXPENSE, NET OF CAPITALIZED INTEREST. Interest expense, net of
capitalized interest, remained relatively unchanged from the first quarter of
1996 compared to the first quarter of 1997.
INCOME TAX EXPENSE. The statutory tax rate in Argentina is 33% of taxable
net income, calculated according to Argentine tax regulations which differ in
certain respects from accounting practices followed under Argentine GAAP for
the preparation of financial statements. The statutory tax rate in Colombia is
35% of taxable net income, calculated according to Colombian tax regulations.
The effective tax rate for Centragas differs from the statutory tax rate
primarily due to the taxable effects of inflation and foreign currency exchange
fluctuations under Colombian tax regulations, which are eliminated for U.S.
GAAP reporting. Fluctuations in the value of the Colombian peso will result in
increases or decreases in local income taxes.
Income tax expense in the first quarter of 1997 increased $5.7 million
(30%) compared to the first quarter of 1996 primarily due to the effect of the
increase in the Argentine statutory income tax rate from 30% to 33% in
September 1996 and increased taxable income in Argentina.
14
<PAGE> 17
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES OF PIPELINE OPERATIONS
As of March 31, 1997, TGS had access to approximately $300 million under a
global program to issue up to $500 million of debt securities. In addition, TGS
had access to $200 million of debt securities under the shelf registration
statement filed with the Securities and Exchange Commission during 1996.
In January and February 1997, the board of directors and shareholders of
TGS, respectively, approved the creation of a new global program for the
issuance of short-term debt securities for a maximum amount of $150 million. In
April 1997, TGS issued approximately $100 million in debt securities at 5.80%
due in July 1997.
On April 22, 1997, CIESA issued a five year $220 million debt security at
the three month London Interbank Offering Rate plus 2%. CIESA used these
proceeds to retire a $220 million bridge credit facility.
TGS believes that cash flows from operations supplemented with external
debt financing will provide sufficient liquidity to fund its capital
expenditures, pay dividends, cover its debt service and provide sufficient
working capital.
As of March 31, 1997, CIESA's total capitalization amounted to $1.4
billion. Total capitalization was comprised of debt of $834 million,
shareholders' equity of $353 million and minority interest of $259 million.
Debt as a percentage of total capitalization increased from 55% at December 31,
1996, to 58% at March 31, 1997.
Future capital expenditures for Centragas are expected to be minimal.
Centragas expects to meet cash requirements from liquidity using cash flows
from operations.
POWER OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 VS. THE THREE
MONTHS ENDED MARCH 31, 1996
Presented below is a summary of income statement information for the
combined power operations of the Philippine power plants located in Subic Bay
("Subic Plant") and Batangas ("Batangas Plant") with the Puerto Quetzal Plant
in Guatemala ("Puerto Quetzal Plant") and the Puerto Plata Plant in the
Dominican Republic ("Puerto Plata Plant") for the first quarter of 1997 and
1996 on a U.S. GAAP, historical U.S. dollar, 100% ownership basis. The results
for the first quarter of 1996 have been restated to include the operations of
the Puerto Plata Plant, which was acquired in June 1996. See "Results of
Operations of EPP - General."
15
<PAGE> 18
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
(RESTATED)
<S> <C> <C>
Capacity revenues $ 30,396 $ 28,087
Variable revenues 24,818 24,730
-----------------------------
Total Revenues 55,214 52,817
Fuel cost (17,181) (17,075)
Operating and administrative expenses (9,297) (8,581)
Depreciation and amortization expense (8,705) (9,286)
-----------------------------
Net Operating Income 20,031 17,875
Interest expense, net (8,450) (8,728)
Other expense, net (1,322) (831)
-----------------------------
Income Before Income Taxes 10,259 8,316
Income tax expense (1,464) (1,266)
-----------------------------
Net Income $ 8,795 $ 7,050
=============================
EPP's Equity in Earnings of Power Operations $ 4,417 $ 3,525
=============================
</TABLE>
REVENUES. A significant portion of each Project Company's revenue is
attributable to payments tied to the capacity of the respective plant, whether
on annual availability (the Subic and Batangas Plants) or an annual capacity
test (the Puerto Quetzal and Puerto Plata Plants). Capacity revenues increased
$2.3 million (8%) in the first quarter of 1997 compared to the first quarter of
1996 primarily due to the increases at the Subic and Batangas Plants ($1.3
million) and the increase at the Puerto Plata Plant ($0.8 million). The
increase in capacity revenues at the Subic and Batangas Plants for the first
quarter of 1997 was primarily attributable to more efficient operations. The
increase in capacity revenues at the Puerto Plata Plant was primarily due to
a full quarter of operations in 1997 versus the shorter 1996 operating quarter
resulting from the commencement of commercial operations on January 16, 1996.
The second type of payment, an energy fee, varies directly with actual
output and, under the current cost structures of the plants, essentially covers
variable costs. Total variable revenues remained relatively unchanged from the
first quarter of 1996 to the first quarter of 1997. Variable revenues at the
Puerto Quetzal Plant decreased $1.1 million for the first quarter of 1997
primarily due to lower fuel prices. Variable revenues at the Puerto Plata Plant
increased $0.9 million for the first quarter of 1997 primarily due to increased
output. Variable revenues remained relatively unchanged for the first quarter
of 1997 at the Subic and Batangas Plants.
FUEL COST. Fuel cost is the expense for the fuel burned at the Puerto
Quetzal and Puerto Plata Plants. An Enron affiliate supplies fuel to these
plants at market-based rates. Total fuel cost remained relatively unchanged
from the first quarter of 1997 to the first quarter of 1996. Fuel cost at the
Puerto Quetzal Plant decreased $0.5 million for the first quarter of 1997
primarily due to the lower fuel prices discussed above. Fuel cost at the Puerto
Plata Plant increased $0.6 million for the first quarter of 1997 primarily due
to the increased output discussed above. Fuel is provided to the Subic and
Batangas Plants by their customer, National Power Corporation, at no cost to
these plants.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses increased $0.7 million (8%) in the first quarter of 1997 compared to
the first quarter of 1996. The increase was primarily due to increased
operating and administrative expenses of the Puerto Plata Plant ($1.4 million),
partially offset by decreased operating and administrative expenses at the
Subic Plant ($0.2 million), the Batangas Plant ($0.2 million) and the Puerto
Quetzal Plant ($0.3 million). The increase in operating and administrative
expenses at the Puerto Plata Plant for the first quarter of 1997 was primarily
due to costs incurred in connection with scheduled maintenance outages in
February and March 1997 and increased professional services. The decreases in
operating and administrative expenses for the first quarter of 1997 at the
Subic, Batangas and Puerto Quetzal Plants were primarily due to lower
maintenance expenses.
16
<PAGE> 19
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased $0.6 million (6%) in the first quarter of 1997 compared to the first
quarter of 1996. The decrease was due primarily to lower depreciation and
amortization at the Puerto Plata Plant ($0.5 million).
INTEREST EXPENSE, NET. Interest expense, net decreased $0.3 million (3%) in
the first quarter of 1997 compared to the first quarter of 1996. The decrease
is primarily due to lower debt principal balances at the Subic and Batangas
Plants. Interest expense remained relatively unchanged from the first quarter
of 1996 to the first quarter of 1997 at the Puerto Quetzal and Puerto Plata
Plants.
INCOME TAX EXPENSE. Income tax expense is the tax on the power plants in
their respective local jurisdictions. On an aggregate basis, the effective tax
rate for the Subic and Batangas Plants is less than the statutory rate due to
the Subic and Batangas Plants being granted certain income tax holidays and
concessions. PQPC is organized as a U.S. domiciled company with a foreign
branch office. SECLP has been granted an income tax holiday for the life of the
project. Income tax expense remained relatively unchanged in the first quarter
of 1997 compared to the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES OF POWER OPERATIONS
Capital expenditures for the power plant operations are expected to be
insignificant in 1997. The power plant operations expect to meet short and
long-term liquidity needs using cash flows from operations. If a specific power
plant has short-term liquidity needs that cannot be met with cash flows from
operations, it is expected that such plant would borrow or be advanced the
necessary funds from an affiliated company.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The statements in this Quarterly Report on Form 10-Q that are not
historical information are forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although EPP believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved. Important factors that could cause actual results
to differ materially from those in the forward looking statements herein
include political developments in foreign countries, the timing and success of
Enron's efforts to develop international power, pipeline and other
infrastructure projects and conditions of the capital markets and equity
markets during the periods covered by the forward looking statements.
17
<PAGE> 20
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER MATTERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amendment No. 3, dated December 28, 1992 to Shareholders
Agreement dated as of November 13, 1992, among EPCA, Citicorp Equity Investments
S.A. ("Citicorp"), Compana Naviera Perez Companc S.A.C.F.I.M.F.A. ("Perez
Companc") and Argentina Private Development Trust Company Limited.
10.2 Amendment No. 4, dated March 30, 1994 to the Shareholders
Agreement, and Amendment No. 5, dated March 30, 1994, to the Owners Agreement
dated as of November 13, 1992, among EPCA, Citicorp and Perez Companc.
10.3 Further Supplemental Trust Deed relating to U.S. $350,000,000
Euro Medium-Term Notes Programme, dated October 23, 1996, between TGS and
Citicorp Trustee Company Limited.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENRON GLOBAL POWER & PIPELINES L.L.C.
(Registrant)
Date: May 7, 1997 By /s/ RODNEY L. GRAY
------------------------------------
Rodney L. Gray
Chairman and Chief Executive Officer
Date: May 7, 1997 By /s/ Kurt S. Huneke
------------------------------------
President
(Chief Financial and
Accounting Officer)
19
<PAGE> 22
INDEX TO EXHIBITS
EXHIBIT
NUMBER
-------
10.1 Amendment No. 3, dated December 28, 1992 to Shareholders
Agreement dated as of November 13, 1992, among EPCA Citicorp
Equity Investments S.A. ("Citicorp"), Compana Naviera Perez
Companc S.A.C.F.I.M.F.A. ("Perez Companc") and Argentina
Private Development Trust Company Limited.
10.2 Amendment No. 4, dated March 30, 1994 to the Shareholder
Agreement, and Amendment No. 5, dated March 30, 1994, to the
Owners Agreement dated as of November 13, 1992, among EPCA,
Citicorp and Perez Companc.
10.3 Further Supplemental Trust Deed relating to U.S. $350,000,000
Euro Medium-Term Notes Programme, dated October 23, 1996,
between TGS and Citicorp Trustee Company Limited.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
AMENDMENT No. 3 TO SHAREHOLDERS AGREEMENT
This Amendment No. 3 to Shareholders Agreement (this "Amendment")
dated as of December 28, 1992 is by and among Enron Pipeline Company -
Argentina S.A., an Argentine corporation ("Enron Argentina"), Citicorp
Equity Investments S.A., an Argentine corporation ("Citicorp Argentina"),
Compania Naviera Perez Companc S.A.C.F.I.M.F.A., an Argentine corporation
("Perez Companc"), and Argentina Private Development Trust Company Limited,
a Cayman Islands corporation ("APDT").
Enron Argentina, Citicorp Argentina and Perez Companc have entered
into a Shareholders Agreement dated as of November 13, 1992, which
Agreement has heretofore been amended by that certain Amendment No. 1 to
Bid Agreement, Owners Agreement and Shareholders Agreement among Enron
Argentina, Citicorp Argentina, Perez Companc and APDT also dated as of
November 13, 1992, that certain Amendment No. 2 to Bid Agreement and
Shareholders Agreement and Amendment No. 4 to Owners Agreement among Enron
Argentina, Citicorp Argentina, Perez Companc and APDT dated as of December
28, 1992 (said Shareholders Agreement with its Amendments will be
hereinafter referred to as the "Shareholders Agreement"). Such parties now
wish to amend the Shareholders Agreement as hereinafter set forth.
In consideration of the mutual agreements set forth herein, the
parties hereto agree as follows:
1. Effective as of the date hereof, the option granted to Enron
Argentina in Section III of the Shareholders Agreement (the "Option") is
terminated and null and void. Consequently, the provisions of Section III of
the Shareholders Agreement will not be in force and effect and Enron Argentina
will not have the rights set forth therei
2. Section III of the Shareholders Agreement is hereby deleted in its
entirety
3. Except as amended by this Amendment No. 3, the Shareholders
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
4. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4 to be
executed as of the date first written above.
Enron Pipeline Company - Argentina S.A.
By:/s/
---------------------------
Name:
---------------------------
Title:
---------------------------
Citicorp Equity Investments S.A.
By:/s/
---------------------------
Name:
---------------------------
Title:
---------------------------
Compania Naviera Perez Companc S.A.C.F.I.M.F.A.
By:/s/
---------------------------
Name:
---------------------------
Title:
---------------------------
Argentina Private Development Trust Company Limited
By:/s/
---------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE> 1
EXHIBIT 10.2
AMENDMENT No. 4 TO SHAREHOLDERS AGREEMENT
AND AMENDMENT No. 5 TO OWNERS
AGREEMENT
This Amendment No. 4 to Shareholders Agreement and Amendment No. 5 to Owners
Agreement (this "Amendment") dated as of March 30, 1994 is by and among Enron
Pipeline Company - Argentina S.A., an Argentine corporation ("Enron
Argentina"), Citicorp Equity Investments S.A., an Argentine corporation
("Citicorp Argentina"), Compania Naviera Perez Companc S.A.C.F.I.M.F.A., an
Argentine corporation ("Perez Companc"), and Argentina Private Development
Trust Company Limited, a Cayman Islands corporation ("APDT").
Enron Argentina, Citicorp Argentina and Perez Companc have entered into a
Shareholders Agreement and an Owners Agreement dated as of November 13, 1992,
which agreements has heretofore been amended by that certain Amendment No. 1 to
Bid Agreement, Owners Agreement and Shareholders Agreement among Enron
Argentina, Citicorp Argentina, Perez Companc and APDT also dated as of November
13, 1992, that certain Amendment No. 2 to Owners Agreement among Enron
Argentina, Citicorp Argentina, Perez Companc and APDT dated as of December 28,
1992, that certain Amendment No. 3 to Owners Agreement among Enron Argentina,
Citicorp Argentina, Perez Companc and APDT dated as of December 28, 1992, that
certain Amendment No. 2 to Bid Agreement and Shareholders Agreement and
Amendment No. 4 to Owners Agreement among Enron Argentina, Citicorp Argentina,
Perez Companc and APDT dated as of December 28, 1992 and that certain Amendment
No. 3 to Shareholders Agreement among Enron Argentina, Citicorp Argentina, Perez
Companc and APDT dated also as of December 28, 1992 (said Shareholders
Agreement and Owners Agreement with their Amendments will be hereinafter
referred to as the "Shareholders Agreement" and Owners Agreement"). Such
parties now wish to amend the Shareholders Agreement and Owners Agreement as
hereinafter set forth.
In consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
1. Terms in capital letters not otherwise defined herein will have the meaning
given in the Shareholders Agreement and Owners Agreement.
2. Effective as of the date hereof, Citicorp Argentina assigns the total
number of Common Shares held by it to its affiliated Compania de Inversiones
en Transporte de Gas S.A., an Argentine corporation ("CITGAS").
3. The assignment of Common Shares indicated in Section 2 hereof is made under
the terms and conditions of Section 5.2 of the Shareholders Agreement and
Section 6.3 of the Owners Agreement, under which Citicorp
<PAGE> 2
Argentina will cause CITGAS to execute a counterpart of the Shareholders
Agreement and the Owners Agreement assuming all the obligations of Citicorp
Argentina thereunder.
4. As of the date hereof, each time the name "Citicorp Argentina" appears it
shall be interpreted and read as "CITGAS".
5. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
Enron Pipeline Company - Argentina S.A.
By: /s/
--------------------------
Name:
-----------------------------
Title:
-----------------------------
Citicorp Equity Investments S.A.
By: /s/
--------------------------
Name:
-----------------------------
Title:
-----------------------------
Compania Naviera Perez Companc S.A.C.F.I.M.F.A.
By: /s/
--------------------------
Name:
-----------------------------
Title:
-----------------------------
<PAGE> 3
Argentina Private Development Trust Company Limited
By: /s/
--------------------------
Name:
-----------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT 10.3
TRANSPORTADORA DE GAS DEL SUR S.A.
AND
CITICORP TRUSTEE COMPANY LIMITED
_________________________________________________________________
FURTHER SUPPLEMENTAL TRUST DEED
RELATING TO
U.S.$350,000,000
EURO MEDIUM-TERM NOTE PROGRAMME
____________________________________________________________
October 23, 1996
Clifford Chance
New York
<PAGE> 2
THIS FURTHER SUPPLEMENTAL TRUST DEED is made on October 23, 1996
BETWEEN
(1) TRANSPORTADORA DE GAS DEL SUR S.A. (the "ISSUER"); and
(2) CITICORP TRUSTEE COMPANY LIMITED (the "TRUSTEE").
WHEREAS
(A) The parties to this Deed have entered into a trust deed dated December
14, 1993 and a Supplemental Trust Deed dated July 25, 1995 (together
the "TRUST DEED") relating to the issuance of Euro Medium-Term Notes.
(B) This Deed is supplemental to and amends the Trust Deed.
IT IS AGREED as follows:
1. INTERPRETATION
In this Deed, unless otherwise specified herein, terms and expressions defined
in the Trust Deed have the same meaning.
2. AMENDMENTS
The Trust Deed is amended as follows:
(a) by inserting the words "and Resolution No. 11,484 dated October 17,
1996 of the CNV" in the definition of "Notes" after the letters "CNV"
in the parenthetical phrase in the fifth and sixth lines;
(b) in Clause 2.1, by replacing the amount "U.S.$350,000,000" with the
amount "U.S.$500,000,000" in the penultimate paragraph; and
(c) by replacing in its entirety, in relation to Notes issued on or after
the date hereof, the Seventh Schedule to the Trust Deed with the
Seventh Schedule set out in the Schedule to this Deed.
3. LAW AND JURISDICTION
3.01 GOVERNING LAW: This Deed is governed by, and shall be construed in
accordance with, English law.
<PAGE> 3
3.02 JURISDICTION: Clauses 17.2, 17.3 and 17.4 of the Trust Deed apply to
this Deed, mutatis mutandis, as if set out in full herein.
4. COUNTERPARTS
This Agreement may be signed in counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together shall
constitute a single agreement.
IN WITNESS WHEREOF this Further Supplemental Trust Deed has been executed as a
deed by the Issuer and the Trustee and is intended to be and is hereby
delivered on the date first above written.
<PAGE> 4
THE SEVENTH SCHEDULE
TERMS AND CONDITIONS OF THE NOTES
The following is the English text of the terms and conditions, which, subject
to completion and amendment and as supplemented or varied in accordance with
the provisions of the relevant Pricing Supplement, will be endorsed on the
Notes in definitive form (if any) issued in exchange for the Temporary Global
Note(s), Permanent Global Note(s) and Registered Global Note(s) representing
each Series, and attached to any such Note(s) in global form, details of the
relevant Series being shown on the face of the relevant Notes and in the
relevant Pricing Supplement:
The establishment of the programme was authorized by a resolution of the
shareholders of the Issuer passed on August 27, 1993, as amended by a
resolution of such shareholders passed on March 6, 1996 and by resolutions of
the board of directors of the Issuer passed on August 27, 1993, November 4,
1993, November 10, 1993, November 30, 1993 and amended by resolutions of the
Board of Directors, passed on July 4, 1995 and September 12, 1996. The Notes
are constituted under a trust deed (as amended, supplemented or replaced from
time to time, the "Trust Deed") dated December 14, 1993, between the Issuer and
Citicorp Trustee Company Limited (the "Trustee", which expression shall include
all persons for the time being the trustee or trustees under the Trust Deed) as
trustee for the holders of the Notes (the "Noteholders"). These Conditions
include summaries of, and are subject to, the detailed provisions of the Trust
Deed, which includes the form of the Notes and the coupons relating to them
(the "Coupon"). Copies of the Trust Deed, and of the agency agreement (as
amended, supplemented or replaced from time to time, the "Agency Agreement")
dated December 14, 1993, relating to the Notes, between the Issuer, the
Trustee, the paying agents named in it, Citibank N.A. acting through its Buenos
Aires office in its capacity as paying agent and registrar (the "Paying Agent
in Buenos Aires" and "Registrar", which expression shall include any successor
to Citibank, N.A. in its capacity as such) and the transfer agents named in it,
are available for inspection during usual business hours at the principal
office of the Trustee (presently at 336 Strand, London WC2R 1HB) and of the
Trustee's representative in Argentina and at the specified offices of the
paying agents (the "Paying Agents", which expression shall include the
Principal Paying Agent (as defined in the Agency Agreement and designated in
the relevant Pricing Supplement)), the Registrar and the transfer agents,
including Citibank N.A. acting through its specified office in New York City as
transfer agent (the "New York Transfer Agent") for the time being (the
"Transfer Agents"). The Trustee has appointed Citibank N.A. presently at
Bartolome Mitre 502, 1036-Buenos Aires as its agent in Buenos Aires to receive
notices on its behalf in Argentina from Noteholders and to act on the Trustee's
behalf as necessary The Noteholders and the holders of the Coupons (whether or
not attached to the relevant Notes) (the "Couponholders") are entitled to the
benefit of, are bound by, and are deemed to have notice of, all the provisions
of the Trust Deed and are deemed to have notice of those provisions applicable
to them of the Agency Agreement.
The Notes are issued in series (each a "Series" made up of one or more tranches
(each a "Tranche")), and each Series will be the subject of a pricing
supplement specifying the relevant issue details in relation to each Series and
supplementing or varying the terms hereof (each a "Pricing Supplement") a copy
of which will be available at the specified office of each of the Trustee and
the Issue Agent or, as the case may be, the New York Transfer Agent, and a copy
of which will, in the case of a Series in relation to which application has
been made for admission to the Official List of the Luxembourg Stock Exchange
(the
<PAGE> 5
"Luxembourg Stock Exchange"), be lodged with the Luxembourg Stock Exchange and
will be available without charge at the specified office of the Paying Agent in
Luxembourg.
For the purposes of these Conditions, references to "Notes" shall, as the
context may require, be deemed to be to the Temporary Global Notes, Permanent
Global Notes, Definitive Bearer Notes, Registered Global Notes or, as the case
may be, Definitive Registered Notes. References to "Noteholders" shall include
Couponholders, as the context may require.
1. FORM AND DENOMINATION
(a) FORM: The Notes are issued in bearer form or in registered form, as
specified in the relevant Pricing Supplement which is to be construed as
included herein, and issued in respect of each issue of Notes specifying the
relevant issue details in relation to each issue of Notes and supplementing or
varying the terms thereof.
(b) EXCHANGE OF NOTES IN GLOBAL FORM:
(i) Notes issued in bearer form ("Bearer Notes") will be
represented upon issue by a temporary global note (a
"Temporary Global Note") in substantially the form (subject to
amendment and completion) scheduled to the Trust Deed. On or
after the date (the "Exchange Date") which is 40 days after
the completion of the distribution of the Notes of the
relevant Tranche and provided certification as to the
beneficial ownership thereof as required by U.S. Treasury
regulations (substantially in the form set out in the
Temporary Global Note) has been received, interests in the
Temporary Global Note may be exchanged for:
(aa) interests in a permanent global note in bearer form
(a "Permanent Global Note") representing the Notes of
that Series and in substantially the form (subject to
amendment/and completion) scheduled to the Trust
Deed; or
(bb) if so specified in the relevant Pricing Supplement,
definitive Notes in bearer form ("Definitive Bearer
Notes") in substantially the forms (subject to
amendment and completion) scheduled to the Trust
Deed; or
(cc) if so specified in the relevant Pricing Supplement,
Notes in registered form ("Registered Notes") in the
form either of definitive Notes in registered form
("Definitive Registered Notes") or of interests in a
registered global note (a "Registered Global Note"),
in each case in substantially the forms (subject to
amendment and completion) scheduled to the Trust
Deed,
which interests or Notes, as the case may be, may be obtained
at any time, subject to the provisions of the relevant
Temporary Global Note.
(ii) Interests in a Permanent Global Note will, unless the contrary
is specified in the relevant Pricing Supplement, be
exchangeable in whole or in part, at the option of the Holders
of
<PAGE> 6
interests in such Permanent Global Note, for other Notes,
including Definitive Bearer Notes or interests in a Registered
Global Note.
(iii) Notes issued in either only registered form or in both
registered and bearer form will be represented on issue by
Notes in the following form:
(aa) Notes initially sold in an offshore transaction in
reliance on Regulation S under the United States
Securities Act of 1933, as amended (the "Securities
Act") may be represented by an unrestricted
Registered Global Note ("an Unrestricted Registered
Global Note") or a restricted Registered Global Note
(a "Restricted Registered Global Note") which would
be deposited with the New York Transfer Agent as
custodian for The Depository Trust Company ("DTC")
and registered in the name of a nominee of DTC or a
Temporary Global Note.
(bb) Notes initially sold within the United States in
reliance on Rule 144A under the Securities Act may be
represented by a Restricted Registered Global Note
which would be deposited with the New York Transfer
Agent as custodian for DTC and registered in the name
of a nominee of DTC.
An interest in a Registered Global Note may be
exchanged for a Definitive Registered Note and, if so
specified in the relevant Pricing Supplement, an
interest in another Registered Global Note. A
Definitive Registered Note may be exchanged for an
interest in a Registered Global Note or for another
Definitive Registered Note under certain
circumstances described in the Trust Deed.
(c) SURRENDER OF GLOBAL NOTES IN EXCHANGE FOR DEFINITIVE NOTES: In order
to exchange interests in a global Note for definitive Notes, a Holder must, not
less than 45 days before the date on which delivery of definitive Notes is
required, surrender or, as the case may be, present the relevant Temporary
Global Note or Permanent Global Note at the specified office of the Principal
Paying Agent or, as the case may be, present the relevant Registered Global
Note at the specified office of the New York Transfer Agent, together, in each
case, with a request in writing specifying the principal amount of such
Temporary Global Note or Permanent Global Note or, as the case may be,
Registered Global Note, to be exchanged. Any such definitive Notes shall be
issued within 45 days of the delivery of such notice to such office.
(d) SURRENDER OF DEFINITIVE NOTES IN EXCHANGE FOR OTHER DEFINITIVE NOTES:
Definitive Bearer Notes will, unless the contrary is specified in the relevant
Pricing Supplement, be exchangeable for Definitive Registered Notes. In order
to exercise such option, the Holder must, not less than 45 days before the date
on which delivery of the Definitive Registered Note is required, surrender the
Definitive Bearer Note at the specified office of any Paying Agent located
outside the United States and its possessions, together with a request in
writing specifying the name in which the Definitive Registered Note is to be
issued. Definitive Registered Notes will, unless the contrary is specified in
the relevant Pricing Supplement, be exchangeable in whole or in part for
another Definitive Registered Note. In order to exercise such option, the
Holder must, not less than 45 days before the date on which delivery of the
Definitive Registered Note is required, surrender the Definitive Registered
Note at the specified office of a Transfer Agent, together with a request in
writing specifying the name in which the new Definitive Registered Note is to
be issued.
<PAGE> 7
(e) COUPONS: Interest-bearing Definitive Bearer Notes will have attached
thereto at the time of their initial delivery Coupons, presentation of which
will be a prerequisite to the payment of interest in certain circumstances
specified below.
(f) EXCHANGE OF REGISTERED NOTES: Registered Notes will not be
exchangeable for Bearer Notes.
(g) DENOMINATION OF BEARER NOTES: Bearer Notes will be issued in
denominations of U.S.$10,000 and U.S.$100,000 or such other denominations
specified in the relevant Pricing Supplement. Bearer Notes of one denomination
will not be exchangeable after their initial delivery for Bearer Notes of any
other denomination.
(h) DENOMINATION OF REGISTERED NOTES: Registered Notes will be in the
denomination of U.S.$250,000 or higher multiples of U.S.$10,000 or, otherwise
as specified in the relevant Pricing Supplement.
(i) CURRENCY OF NOTES: Notes may be denominated in United States dollars
or any other currency except the European Currency Unit ("Ecu") subject to
compliance with all applicable Argentine and other legal or regulatory
requirements.
(j) THE DEPOSITORY TRUST COMPANY: Registered Notes denominated in United
States dollars will, if so specified in the relevant Pricing Supplement, be the
subject of an application by the Issuer to The Depository Trust Company ("DTC")
for the acceptance of such Registered Notes into DTC's book-entry settlement
system. If such application is accepted, one or more Registered Global Notes
(each a "DTC Note") in denominations equivalent in aggregate to the aggregate
principal amount of relevant Registered Notes which are to be held in such
system will be issued to DTC and registered in the name of Cede & Co., or such
other person as may be nominated by DTC for the purpose, as nominee for DTC.
Thereafter, such registered nominee will be the holder of record and entitled
to rights in respect of each DTC Note. Accordingly, each person having a
beneficial interest in a DTC Note must rely on the procedures of the
institutions having accounts with DTC to exercise any rights of such person.
So long as Registered Notes are traded through DTC's book-entry settlement
system, ownership of beneficial interest in the relevant DTC Note will (unless
otherwise required by applicable law) be shown on, and transfers of such
beneficial interest may be effected only through, records maintained by (i) DTC
or its registered nominee (as to DTC Participant-interests) or (ii)
institutions having accounts with DTC (including, without limitation, Morgan
Guaranty Trust Company of New York, Brussels office, as operator of Euroclear
System ("Euroclear") and Cedel Bank, sociJtJ anonyme ("Cedel")).
(k) SPANISH TEXT: The Notes contain a Spanish translation of the English
text.
2. TITLE
(a) TITLE TO BEARER NOTES: Title to Bearer Notes passes by delivery.
References herein to "Holders" of Bearer Notes or of Coupons signify the
bearers of such Bearer Notes or such Coupons.
<PAGE> 8
(b) TITLE TO REGISTERED NOTES: Title to Registered Notes passes by
registration in the register which is kept by the Registrar. References herein
to the "Holders" of Registered Notes signify the persons in whose names such
Notes are so registered.
(c) OWNERSHIP: The Holder of any Note or Coupon will (except as otherwise
required by law) be treated as its absolute owner for all purposes (whether or
not it is overdue and regardless of any notice of ownership, trust or any
interest in it, any writing on it, or its theft or loss) and no person shall be
liable for so treating the Holder.
(d) TRANSFER OF REGISTERED NOTES: A Registered Note may, upon the terms
and subject to the conditions set forth in the Agency Agreement, be transferred
in whole or in part only (provided that such part is, or is an integral
multiple of, the minimum denomination specified in the relevant Pricing
Supplement) upon the surrender of the Registered Note to be transferred,
together with such other documents as may be required, at the specified office
of a Transfer Agent. A new Registered Note will be issued to the transferee
and, in the case of a transfer of part only of a Registered Note, a new
Registered Note in respect of the balance not transferred will be issued to the
transferor.
(e) DELIVERY OF NEW REGISTERED NOTES: Each new Registered Note to be
issued upon the transfer of Registered Notes will, upon the effective receipt
of such other documents required by a Transfer Agent at its specified office,
be available for delivery at the specified office of such Transfer Agent. For
these purposes, documentation received by a Transfer Agent during the period of
15 Business Days ending on the due date for any payment on the relevant
Registered Notes shall be deemed not to be effectively received by such
Transfer Agent until the day following the due date for such payment.
(f) CHARGES ON TRANSFER: The issue of new Registered Notes on transfer
will be effected without charge by or on behalf of the Issuer, the Registrar or
the Transfer Agents, but upon payment by the applicant of (or the giving by the
applicant of such indemnity as the Registrar or the Transfer Agents may require
in respect of) any tax or other governmental charges which may be imposed in
relation thereto.
(g) PRIVATE PLACEMENT LEGEND: The Issuer covenants and agrees that it
will not acquire any beneficial interest, and will cause its "affiliates" (as
defined in paragraph (a)(1) of Rule 144 under the Securities Act) not to
acquire any beneficial interest, in any Registered Note bearing a restrictive
legend unless it notifies the New York Transfer Agent of such acquisition. The
Registrar, the New York Transfer Agent and all Holders of Notes shall be
entitled to rely without further investigation on any such notification (or
lack thereof).
(h) RULE 144A(d)(4): For so long as any of the Registered Notes bearing a
restrictive legend remain outstanding and are "restricted securities" within
the meaning of Rule 144(a)(3) under the Securities Act, the Issuer covenants
and agrees that it shall, during any period in which it is not subject to
Section 13 or 15(d) under the United States Securities Exchange Act of 1934 nor
exempt from reporting pursuant to Rule 12g3-2(b) under such Act, make available
to any Holder of such Notes in connection with any sale thereof and any
prospective purchaser of such Notes from such Holder, in each case upon
request, the information specified in, and meeting the requirements of, Rule
144A(d)(4) under the Securities Act.
<PAGE> 9
3. STATUS
The Notes constitute "Obligaciones Negociables" under Law No. 23,576 of
Argentina, as amended by Law No. 23,962 (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
above Law, in the event of a default by the Issuer in the payment of principal,
interest and any other amounts due under any Note, the holder of such Note will
be entitled to take summary judicial proceedings ("accion ejecutiva") to
recover payment of any such amount. Unless otherwise specified in the
applicable Pricing Supplement, the Notes and Coupons constitute direct,
unconditional and unsecured obligations of the Issuer and shall at all times
rank pari passu and without any preference among themselves. The payment
obligations of the Issuer under the Notes and Coupons shall, other than in the
case of obligations preferred by mandatory provisions of law and subject to
Condition 4, at all times rank at least equally with all its other present and
future unsecured and unsubordinated obligations.
4. NEGATIVE PLEDGE AND CERTAIN OTHER COVENANTS
(a) NEGATIVE PLEDGE:
(i) So long as any Note remains outstanding, the Issuer will not,
and the Issuer will procure that none of its Subsidiaries
will, create or permit to subsist any mortgage, charge,
pledge, lien or other form of encumbrance or security interest
("Lien") upon the whole or any part of its or, as the case may
be, any such Subsidiary's undertaking, assets or revenues
present or future to secure (a) any Indebtedness or (b) any
guarantee of or indemnity in respect of any Indebtedness
unless, at the same time or prior thereto, the Issuer's
obligations under the Notes and the Trust Deed (x) are secured
equally and rateably therewith or benefit from a guarantee or
indemnity in substantially identical terms thereto, as the
case may be, in each case to the satisfaction of the Trustee,
or (y) have the benefit of such other security, guarantee,
indemnity or other arrangement as shall be approved by an
Extraordinary Resolution of the Noteholders.
(ii) The following exceptions apply to the Issuer's obligations set
out in paragraph (i) above:
(aa) Liens existing on December 14, 1993;
(bb) any Lien created on any fixed asset securing
Indebtedness incurred or assumed solely for the
purpose of financing all or any part of the cost of
acquiring such fixed asset, which Lien attaches to
such fixed asset concurrently with or within 90 days
after the acquisition thereof;
(cc) any Lien created on any asset securing Indebtedness
incurred in relation to the construction or
development, as the case may be, in whole or in part,
of (a) assets used in, processing and/or distribution
and/or transportation of gas and (b) gas processing
plants and/or gas distribution facilities and/or gas
transportation facilities, where in either case such
Lien is created over such asset;
<PAGE> 10
(dd) any Lien created on any asset securing an extension,
renewal or refinancing of Indebtedness secured in
accordance with (aa), (bb) or (cc) of this paragraph
(ii) provided that (a) the Lien is created over the
original asset secured and (b) the principal amount
of Indebtedness secured by the Lien prior to such
extension, renewal or refinancing is not increased;
and
(ee) all Liens created on any asset securing Indebtedness,
other than Liens described in (aa), (bb), (cc) or
(dd) of this paragraph (ii) the aggregate amount of
which does not exceed U.S.$10,000,000.
(iii) In this Condition:
"Indebtedness" means any obligation present or future (actual
or contingent) for the payment or repayment of money which has
been borrowed or raised, including obligations for the payment
of the deferred purchase price of assets and obligations which
may arise under a guarantee or indemnity or other similar
obligation.
"Subsidiary" means (a) any corporation or other entity of
which the Issuer either (i) is a shareholder and controls the
composition of its Board of Directors, or (ii) holds 50% or
more in nominal value or par value of its equity share
capital, or (b) any corporation or other entity which is
itself a subsidiary of any corporation or other entity which
is a Subsidiary of the Issuer.
(b) FINANCIAL COVENANT: At each Interim Balance Sheet Date or Annual
Balance Sheet Date, as the case may be, and in accordance with Argentine
generally accepted accounting principles, Defined Debt divided by the aggregate
of Defined Debt and Common Stockholders' Equity, expressed as a percentage,
will not exceed 60% as reflected in the respective Interim Balance Sheet or, as
the case may be, Annual Balance Sheet as at such date.
In this Condition:
"Annual Balance Sheet" of a company means the balance sheet of such
company as of the end of the Issuer's fiscal year;
"Annual Balance Sheet Date" means the date on which the Issuer's
fiscal year ends;
"Annual Period" means the Issuer's fiscal year;
"Common Stockholder's Equity" means the sum of capital stock, retained
earnings and reserves of the Issuer;
"Defined Debt" means the aggregate of the total indebtedness for or in
respect of money borrowed or raised by the Issuer as reflected in the
latest unconsolidated Interim Balance Sheet of the Issuer or, as the
case may be, unconsolidated Annual Balance Sheet of the Issuer, and
the
<PAGE> 11
proportion of the total indebtedness for or in respect of money
borrowed or raised by any Subsidiary as disclosed in such Subsidiary's
consolidated Interim Balance Sheet or, as the case may be, Annual
Balance Sheet corresponding on a pro rata basis to the Issuer's
ownership in each such Subsidiary but excluding any indebtedness as
aforesaid between the Issuer and such Subsidiary.
For the purpose of this definition "Subsidiary" shall have the meaning
set out in Condition 4(a).
"Interim Balance Sheet" of a company means the balance sheet of such
company as of the end of each six monthly period in any Annual Period;
and
"Interim Balance Sheet Date" means the date on which each of the
Issuer's six monthly periods in any Annual Period ends.
5. INTEREST
(a) PRICING SUPPLEMENT: Notes may be interest-bearing or non-interest
bearing, as specified in the relevant Pricing Supplement. The Pricing
Supplement in relation to each Series of interest-bearing Notes shall specify
which one (and one only) of Condition 5(b) or 5(c) shall be applicable, save to
the extent that Condition 5(b) or 5(c) are inconsistent with the relevant
Pricing Supplement, in which case the relevant Pricing Supplement will prevail.
(b) INTEREST-FIXED RATE: Notes in relation to which this Condition 5(b)
is specified in the relevant Pricing Supplement as being applicable shall bear
interest from their date of issue at the rate specified in the relevant Pricing
Supplement. Such interest will be payable in arrears on such dates as are
specified in the relevant Pricing Supplement and on the date of final maturity
thereof. Such interest will be calculated on the basis of a 360-day year
consisting of 12 months of 30 days each (or such other basis set forth in the
Pricing Supplement) and, in the case of an incomplete month, the actual number
of days elapsed or on such other basis as may be specified in the relevant
Pricing Supplement.
(c) INTEREST-OTHER RATES: Notes in relation to which this Condition 5(c)
is specified in the relevant Pricing Supplement as being applicable shall bear
interest at the rates per annum or payable in the amounts and in the manner
determined in accordance with the relevant Pricing Supplement.
(d) INTEREST-SUPPLEMENTAL PROVISION: The determination by the Trustee,
the Principal Paying Agent or such other agent as is specified in the relevant
Pricing Supplement of all rates of interest and amounts of interest for the
purposes of this Condition 5 shall, in the absence of manifest error, be final
and binding on all parties.
6. REDEMPTION AND PURCHASE
(a) REDEMPTION AT MATURITY: Unless previously redeemed or purchased and
cancelled, Notes shall be redeemed at their principal amount (or such other
redemption amount as may be specified in the relevant Pricing Supplement) on
the date or dates specified in the relevant Pricing Supplement.
<PAGE> 12
(b) EARLY REDEMPTION FOR TAXATION REASONS: If, in relation to any Series
of Notes (i) as a result of any change in, or amendment to, the laws or
regulations of Argentina or of any political subdivision or authority or agency
thereof or any change in the application or official interpretation of any such
laws or regulations, which change or amendment becomes effective on or after
the date of issue of such Notes or any earlier date specified in the relevant
Pricing Supplement on the occasion of the next payment due in respect of such
Notes the Issuer would be required to pay Additional Amounts (as defined in
Condition 8); and (ii) such obligation cannot be avoided by the Issuer taking
reasonable measures available to it, the Issuer may, at its option and having
given no less than 30 nor more than 60 days' notice to the Holders in
accordance with Condition 15 (which notice shall be irrevocable) redeem all
(but not some only) of the outstanding Notes comprising the relevant Series at
their principal amount (or at such other early redemption amount as may be
specified in the relevant Pricing Supplement), together with accrued interest
(if any) thereon provided, however, that no such notice of redemption may be
given earlier than 90 days prior to the earliest date on which the Issuer would
be obliged to pay such Additional Amounts were a payment in respect of the
Notes then due. Prior to the publication of any notice of redemption pursuant
to this paragraph, the Issuer shall deliver to the Trustee (x) an opinion of
independent counsel of recognized standing addressed to the Trustee to the
effect that the Issuer has or will become obliged to pay the Additional Amounts
referred to in (i) above, and (y) a certificate signed by two Directors of the
Issuer stating that the obligation referred to in (ii) above cannot be avoided
by the Issuer taking reasonable measures available to it and the Trustee shall
be entitled to accept such opinion and certificate, respectively, as sufficient
evidence of the satisfaction of the respective conditions precedent set out in
(i) and (ii) above in which event such opinion and certificate, respectively,
shall be conclusive and binding on the Noteholders and the Couponholders.
(c) OPTIONAL EARLY REDEMPTION (CALL): If this Condition 6(c) is specified
in the relevant Pricing Supplement as being applicable, then the Issuer may,
upon the expiry of the appropriate notice and subject to such conditions as may
be specified in the relevant Pricing Supplement, redeem all (but not, unless
and to the extent that the relevant Pricing Supplement specifies otherwise,
some only), of the Notes of the relevant Series at their principal amount (or
such other redemption amount as may be specified in the relevant Pricing
Supplement), together with accrued interest (if any) thereon.
(d) CALL NOTICE: The appropriate notice referred to in Condition 6(c) is
a notice given by the Issuer to the Trustee, and the Principal Paying Agent,
the New York Transfer Agent (in the case of the Registered Notes) and the
Holders of the Notes of the Relevant Series, which notice shall be signed by
two Directors of the Issuer and shall specify:
(i) the Series of Notes subject to redemption;
(ii) whether such Series is to be redeemed in whole or in part only
and the aggregate principal amount of the Notes of the
relevant Series which are to be redeemed; and
(iii) the due date for such redemption, which shall be not less than
30 days (or such lesser period as may be specified in the
relevant Pricing Supplement) after the date on which such
notice is validly given.
<PAGE> 13
Any such notice shall be irrevocable, and the delivery thereof shall oblige the
Issuer to make the redemption therein specified.
(e) PARTIAL REDEMPTION: If only some of the Notes of a Series are to be
redeemed in part only on any date in accordance with Condition 6(c):
(i) in the case of the Bearer Notes, the Notes to be redeemed
shall be drawn by lot in such European city as the Trustee may
specify, or identified in such other manner or in such other
place as the Trustee may approve and deem appropriate and
fair, subject always to compliance with all applicable laws
and the requirements of any stock exchange on which the
relevant Notes may be listed; and
(ii) in the case of Registered Notes, the Notes shall be redeemed
pro rata to their principal amounts or by lot or by a method
the Trustee considers fair and appropriate, subject always as
aforesaid.
(f) OPTIONAL EARLY REDEMPTION (PUT): If this Condition 6(f) is specified
in the relevant Pricing Supplement as being applicable, then the Issuer shall,
upon the exercise of the relevant option by the Holder of any Note of the
relevant Series, redeem such Note on the date or the next of the dates
specified in the relevant Pricing Supplement at its principal amount (or such
other redemption amount as may be specified in the relevant Pricing
Supplement), together with accrued interest (if any) thereon. In order to
exercise such option the Holder must, not less than 45 days before the date so
specified (or such other period as may be specified in the relevant Pricing
Supplement), deposit the relevant Note (together, in the case of an
interest-bearing Definitive Bearer Note, with any unmatured Coupons
appertaining thereto) with, in the case of a Bearer Note, any Paying Agent
outside the United States or its possessions or, in the case of a Registered
Note, any Transfer Agent together with a duly completed letter of transmittal
in the form which is available from the specified office of any of the Paying
Agents or, as the case may be, any Transfer Agent.
(g) PURCHASE: The Issuer or any of its Subsidiaries may at any time
purchase Notes in the open market or otherwise at any price (provided that, in
the case of interest-bearing Definitive Bearer Notes, they are purchased
together with all unmatured Coupons relating to them) in accordance with
applicable legal and regulatory requirements. Any purchase by tender shall be
made available to all Noteholders alike. The Notes so purchased, while held by
or on behalf of the Issuer or such Subsidiary or Affiliate (as defined in the
Trust Deed), shall not entitle the holder to vote at any meetings of the
Noteholders and shall not be deemed to be outstanding for the purposes of
calculating quorums at meetings of the Noteholders or for the purposes of
Condition 12(a).
(h) CANCELLATION: All Notes bearing a restrictive legend so redeemed or
purchased will be cancelled and may not be re-issued or resold unless otherwise
specified in the Pricing Supplement.
<PAGE> 14
7. PAYMENTS
(a) PAYMENTS-GENERAL PROVISIONS: Payments of amounts due (whether in
respect of principal, interest or otherwise) in respect of any Note will be
made by cheque or transfer in the currency of such Note drawn on a bank in the
Relevant Financial Center in accordance with this Condition. Save as otherwise
specified herein, this Condition 7(a) is applicable to the Notes whether in
bearer or registered form.
(b) PAYMENTS-BEARER NOTES:
(i) This Condition 7(b) is applicable in relation to Notes
specified in the relevant Pricing Supplement as being in
bearer form;
(ii) Payment of amounts (including accrued interest) due on the
redemption of Bearer Notes will be made against presentation
and, save in the case of a partial redemption by reason of
insufficiency of funds, surrender of the relevant Bearer Notes
at the specified office outside the United States or its
possessions of any of the Paying Agents, by cheque or by
transfer to a designated account located outside the United
States or its possessions;
(iii) Payment of amounts due in respect of interest on Bearer Notes
will be made:
(aa) in the case of a Temporary Global Note, only in
circumstances where an exchange for an interest in a
Note in Global or definitive form has been improperly
withheld or refused;
(bb) in the case of a Permanent Global Note, against
presentation and endorsement of the relevant
Permanent Global Note at the specified office outside
the United States or its possessions of any of the
Paying Agents, through Euroclear and Cedel;
(cc) in the case of Bearer Notes without Coupons attached
thereto at the time of their initial delivery,
against presentation and endorsement of the relevant
Bearer Notes at the specified office outside the
United States or its possessions of any of the Paying
Agents, by cheque or by transfer to a designated
account located outside the United States or its
possessions;
(dd) in the case of Bearer Notes with Coupons attached
thereto at the time of their initial delivery,
against presentation of the relevant Coupons at the
specified office outside the United States or its
possessions of any of the Paying Agents, by cheque or
by transfer to a designated account located outside
the United States or its possessions.
(iv) If the due date for payment of any amount due (whether in
respect of principal, interest or otherwise) in respect of any
Bearer Notes is not a Business Day, then the Holder thereof
<PAGE> 15
will not be entitled to payment thereof until the next
following such Business Day and no further payment shall be
due in respect of such delay save in the event that there is a
subsequent failure to pay in accordance with these Conditions.
(v) Payments of interest and principal in respect of Bearer Notes
may only be made at the specified offices of Paying Agents
outside the United States of America, except that payments
denominated in U.S. dollars may be made at the specified
office of a Paying Agent in New York City if (i) the Issuer
shall have appointed Paying Agents with specified offices
outside the United States of America with the reasonable
expectation that such Paying Agents would be able to make
payment at such offices of the full amount of the interest and
principal of the Notes in U.S. dollars when due, (ii) payment
of the full amount of such interest and principal in U.S.
dollars at all specified offices of the Paying Agents outside
the United States of America is illegal or effectively
precluded by exchange controls or other similar restrictions,
and (iii) the relevant payment is permitted by applicable U.S.
law.
(vi) Each Definitive Bearer Note initially delivered with Coupons
attached thereto should be surrendered for final redemption
together with all unmatured Coupons appertaining thereto,
failing which the amount of all missing unmatured Coupons (or,
in the case of a partial payment of principal, that proportion
of the aggregate amount of the missing unmatured Coupons that
the principal paid bears to the principal due) will be
deducted from the amount otherwise payable on such final
redemption, the amount so deducted being payable against
surrender of the relevant Coupon at the specified office of
any of the Paying Agents outside the United States and its
possessions at any time prior to the third anniversary of the
due date of such final redemption.
(c) PAYMENTS-REGISTERED NOTES:
(i) This Condition 7(c) is applicable in relation to Notes
specified in the relevant Pricing Supplement as being in
registered form.
(ii) Payments of amounts (including accrued interest) due on the
final redemption of Registered Notes will be made against
presentation and, save in the case of partial redemption by
reason of insufficiency of funds, surrender of the relevant
Registered Notes at the specified office of a Transfer Agent.
If the due date for payment of the final redemption amount of
Registered Notes is not a Business Day, the Holder thereof
will not be entitled to payment thereof until the next
following Business Day and no further payment shall be due in
respect of such delay save in the event that there is a
subsequent failure to pay in accordance with these Conditions.
(iii) Payment of amounts (whether principal, interest or otherwise)
due (other than in respect of the final redemption amount of
Registered Notes) in respect of Registered Notes will be paid
to the Holders thereof as appearing in the register kept by
the Registrar as at opening of business (New York time) on the
fifteenth Business Day before the due date for such payment
(the "Record Date").
<PAGE> 16
(iv) Notwithstanding the provisions of Condition 7(c)(ii) payments
of principal, interest or otherwise due other than in respect
of a final redemption of Registered Notes will be made by a
cheque drawn on a bank in the Relevant Financial Center and
posted to the address (as recorded in the register held by the
Registrar) of the Holder thereof unless the Holder thereof has
applied to any Transfer Agent at least 15 days prior to the
relevant payment date and the New York Transfer Agent has
acknowledged such application for payment to be made to a
designated account.
For the purposes of these Conditions:
(A) "Business Day" means (unless varied or restated in the
relevant Pricing Supplement) a day on which commercial banks
and foreign exchange markets settle payments in the relevant
currency in London and, in the case of Registered Notes, New
York City and (x) which is a day on which commercial banks are
open and foreign exchange markets settle payments in the
relevant currency in the Relevant Financial Center, and (y) in
relation to payments due upon presentation and/or surrender of
any Notes or Coupons, in the relevant place of presentation
and/or surrender and (z) on which Cedel and Euroclear and, in
the case of Registered Notes, DTC are in operation; and
(B) "Relevant Financial Center" means (x) in relation to Notes
denominated in United States dollars, New York City, and (y)
in relation to Notes denominated in any other currency, such
financial center or centers as may be specified in relation to
the relevant currency and for the purposes of the definition
of "Business Day" in the 1991 ISDA Definitions (as amended and
updated from time to time), as published by the International
Swap Dealers Association, Inc.;
and, in all cases, as the same may be modified in the relevant Pricing
Supplement.
(d) PAYMENTS SUBJECT TO FISCAL LAWS: All payments are subject in all
cases to any applicable fiscal or other laws and regulations, but without
prejudice to the provisions of Condition 8. No commissions or expenses shall
be charged to the Noteholders or Couponholders in respect of such payments.
(e) PAYING AGENTS: The initial Paying Agents, Issue Agent, Transfer
Agents and Registrar and their initial specified offices are listed below. The
Issuer reserves the right at any time with the prior approval of the Trustee to
vary or terminate the appointment of any Paying Agent, Transfer Agent or the
Registrar and appoint additional or other Paying Agents, Transfer Agents or
Registrar provided that it will maintain (i) while Bearer Notes remain
outstanding, a Principal Paying Agent in a western European city; (ii) a
Registrar having a specified office in Buenos Aires so long as the Comision
Nacional de Valores (the "CNV") so requires; (iii) while Registered Notes
remain outstanding, a Paying Agent having a specified office in New York City;
(iv) a Paying Agent and a Transfer Agent having a specified office in
Luxembourg, so long as, in the case of the Paying Agent, Bearer Notes or
Registered Notes, or in the case of the Transfer Agent, Registered Notes of
such Series are listed on the Luxembourg Stock Exchange and the rules of such
exchange so requires; and (v) while Registered Notes remain outstanding, a
Transfer Agent having a specified office in New York City. The Paying Agents,
the Transfer Agents, the Issue
<PAGE> 17
Agent and the Registrar reserve the right at any time to change their
respective specified office to some other specified office in the same city.
Notice of any change in the Paying Agents, the Transfer Agents or the Registrar
or their specified offices will promptly be given to the Noteholders and the
Issuer will notify the CNV.
(f) REPAYMENT TO THE ISSUER: All monies paid by or on behalf of the
Issuer to the Principal Paying Agent for the payment of principal of, or
interest on, any Note which remains unclaimed at the end of the Prescription
Period (as defined in Condition 10) in relation to such monies will be repaid
to the Issuer upon the Issuer's written request therefor and the holder of such
Note will thereafter look only to the Issuer for payment. Upon such payment
all liability of the Principal Paying Agent with respect thereto shall
thereupon cease, without, however, limiting in any way the obligation of the
Issuer in respect of the amount so repaid.
(g) FOREIGN EXCHANGE RESTRICTIONS: Payments in respect of the Notes shall
be made in the currency of such Note as at the time of payment shall be legal
tender for the payment of public and private debts in that currency. In the
event that on any payment date in respect of the Notes any restrictions or
prohibition of access to the Argentine foreign exchange market exists, the
Issuer agrees to pay all amounts payable under the Notes in the currency of
such Notes either (i) by purchasing with Argentine pesos, any series of "Bonos
Externos de la Republica Argentina" (U.S. dollar-denominated Argentine
Government Bonds or "Bonex") or any other securities or public or private bonds
issued in Argentina, and transferring and selling such instruments outside
Argentina in exchange for the currency of such Notes; or (ii) by means of any
other legal procedure existing in Argentina, on any due date for payment under
the Notes, for the purchase of the currency of such Notes. All costs and taxes
payable in connection with the procedures referred to in (i) and (ii) above
shall be borne by the Issuer.
8. TAXATION
All amounts payable (whether in respect of principal, interest or otherwise) in
respect of the Notes and the Coupons shall be paid free and clear of, and
without withholding or deduction for, any taxes, duties, assessments or
governmental charges of whatever nature imposed, levied, collected, withheld or
assessed by or within Argentina or any authority or agency therein or thereof
having power to tax, unless such withholding or deduction is required by law.
In that event the Issuer shall pay such additional amounts ("Additional
Amounts") as will result in receipt by the Noteholders and the Couponholders of
such amounts as would have been received by them had no such withholding or
deduction been required, except that no such Additional Amounts shall be
payable in respect of any Note or Coupon:
(a) to a Holder (or third party on behalf of a Holder) where such
Holder is liable to such taxes, duties, assessments or
governmental charges in respect of such Note or Coupon by
reason of his having some connection with Argentina other than
the mere holding of the Note or Coupon; or
(b) presented for payment more than 30 days after the Relevant
Date except to the extent that the Holder of it would have
been entitled to such additional amounts on presenting such
Note or Coupon for payment on the last day of such period of
30 days.
<PAGE> 18
"Relevant Date" means in relation to any payment, whichever is the later of (i)
the date on which such payment first becomes due and (ii) if the full amount
payable has not been received by the Principal Paying Agent or the Trustee on
or prior to such due date, the date on which, the full amount having been so
received, prompt notice to that effect shall have been given to the Noteholders
by the Principal Paying Agent or the Trustee, in each case on behalf of the
Issuer. Any reference in these Conditions to principal and/or interest shall
be deemed to include any Additional Amounts which may be payable under this
Condition or any undertaking given in addition to or, pursuant to Condition
12(d), in substitution for it under the Trust Deed.
In the event that the Issuer pays any Personal Property Tax pursuant to the
Argentine Personal Property Tax Law No. 23,966, as amended from time to time
(the "Personal Property Tax Law"), and its implementing Decree No. 127/96, as
amended from time to time, in respect of any Notes or Coupons, the Issuer has
agreed to waive any right it may have under Argentine law to seek reimbursement
(by way of any legal means available to the Issuer, including, without
limitation, deduction from payments of principal or interest on any Note or
Coupon) from the Holder of any Note or Coupon or beneficial owner of any
interest therein.
The tax treatment applicable to the Notes under Argentine tax law is that set
forth in the Negotiable Obligations Law, in Decree No. 2,284/91, Decree No.
1,076/92, Decree No. 1,684/93, Decree No. 1,802/93 and other applicable
Argentine laws and regulations.
9. EVENTS OF DEFAULT
If any of the following events occurs the Trustee at its discretion may, and if
so requested by holders of at least one-fifth in principal amount of the Notes
then outstanding or if so directed by an Extraordinary Resolution shall, give
notice to the Issuer that the Notes of that Series are, and they shall
immediately become, due and payable at their principal amount together with
accrued interest:
(a) Non-payment: the Issuer fails to pay any interest on or
principal of any of the Notes when due; or
(b) Breach of other obligations: the Issuer does not perform or
comply with any one or more of its other obligations in the
Notes or the Trust Deed which default is incapable of remedy
or, if in the opinion of the Trustee capable of remedy, is not
in the opinion of the Trustee remedied within 30 days after
notice of such default shall have been given to the Issuer by
the Trustee; or
(c) Cross default: (i) any other present or future indebtedness
of the Issuer or any of its Subsidiaries for or in respect of
moneys borrowed or raised becomes (or becomes capable of being
declared) due and payable prior to its stated maturity
otherwise than at the option of the Issuer; or (ii) any such
indebtedness is not paid when due or, as the case may be,
within any applicable grace period; or (iii) the Issuer or any
of its Subsidiaries fails to pay when due any amount payable
by it under any present or future guarantee for, or indemnity
in respect of, any monies borrowed or raised; provided that
the
<PAGE> 19
aggregate amount of the relevant indebtedness, guarantees and
indemnities in respect of which one or more of the events
mentioned above in this paragraph (c) have occurred equals or
exceeds U.S.$8,000,000 or its equivalent (as reasonably
determined by the Trustee); or
(d) Enforcement proceedings: a distress, attachment, execution,
seizure before judgment or other legal process is levied,
enforced or sued out on or against any part of the property,
assets or revenues of the Issuer or any of its Subsidiaries
and (i) such distress, attachment, execution, seizure before
judgment or other legal process is not discharged or stayed
within 60 days of having been notified to the Issuer or any of
its Subsidiaries, as the case may be; or (ii) if such
distress, attachment, execution, seizure before judgment or
other legal process shall not have been discharged within such
60-day period, the Issuer or any of its Subsidiaries, as the
case may be, shall have within such 30-day period contested in
good faith by appropriate proceedings upon stay of execution
of the enforcement thereof or upon posting a bond in
connection therewith; provided, however, that in no event
shall the grace period provided by subclause (ii) of this
paragraph (d) extend beyond the 360th day after the
notification to the Issuer or any of its Subsidiaries, as the
case may be, of such proceedings; or
(e) Security enforced: any mortgage, charge, pledge, lien or
other encumbrance, present or future, created or assumed by
the Issuer or any of its Subsidiaries becomes enforceable and
any step is taken to enforce it (including the taking of
possession or the appointment of a receiver, administrative
receiver, manager or other similar Person); or
(f) Insolvency: the Issuer or any of its Subsidiaries is (or is,
or could be, deemed by law or a court to be) insolvent or
bankrupt or unable to pay its debts, stops, suspends or
threatens to stop or suspend payment of all or a material part
of (or of a particular type of) its debts, proposes or makes
any agreement for the deferral, rescheduling or other
readjustment of all of (or all of a particular type of) its
debts (or of any part which it will or might otherwise be
unable to pay when due), proposes or makes a general
assignment or an arrangement or composition with or for the
benefit of the relevant creditors in respect of any such debts
or a moratorium is agreed or declared in respect of or
affecting all or any part of (or of a particular type of) the
debts of the Issuer or any of its Subsidiaries; or
(g) Winding up: an order is made or an effective resolution
passed for the winding up or dissolution or administration of
the Issuer or any of its Subsidiaries, or the Issuer ceases or
threatens to cease to carry on all or a material part of its
business or operations, except for the purpose of and followed
by a reconstruction, amalgamation, reorganization, merger,
demerger or consolidation (i) on terms approved by the Trustee
or by an Extraordinary Resolution of the Noteholders; or (ii)
in the case of a Subsidiary, whereby the undertaking and the
assets of the Subsidiary are transferred to or otherwise
vested in the Issuer or another of its Subsidiaries; or
<PAGE> 20
(h) Authorizations and consents: any action, condition or thing
(including the obtaining or effecting of any necessary
consent, approval, authorization, exemption, filing, license,
order, recording or registration) at any time required to be
taken, fulfilled or done in order (i) to enable the Issuer
lawfully to enter into, exercise its rights and perform and
comply with its obligations under, the Notes and the Trust
Deed; (ii) to ensure that those obligations are legally
binding and enforceable; and (iii) to make the Notes and the
Trust Deed admissible in evidence in the courts of Argentina,
is not taken, fulfilled or done; or
(i) Illegality: it is or will become unlawful for the Issuer to
perform or comply with any one or more of its obligations
under any of the Notes or the Trust Deed; or
(j) Revocation of pipeline license: the Issuer's license to
operate the southern pipeline network is suspended or revoked;
or
(k) Analogous events: any event occurs which under the laws of
any relevant jurisdiction has an analogous effect to any of
the events referred to in any of the foregoing paragraphs;
provided that in the case of paragraphs (b), (d), (e), (h) and (k) and, in the
case of Subsidiaries only, paragraphs (f) and (g), the Trustee shall have
certified that in its opinion such event is materially prejudicial to the
interests of the Noteholders.
10. PRESCRIPTION
Claims in respect of principal and interest in respect of Notes will become
prescribed unless made as required by Condition 6 within a period (the
"Prescription Period") of three years from the appropriate Relevant Date.
11. REPLACEMENT OF NOTES AND COUPONS
If any Note or Coupon is lost, stolen, mutilated, defaced or destroyed it may
be replaced at the specified office of the Issue Agent (in the case of Bearer
Notes and Coupons) or of the New York Transfer Agent (in the case of Registered
Notes), subject to all applicable laws and stock exchange requirements,
including the laws and regulations of Argentina, upon payment by the claimant
of the expenses incurred in connection with such replacement and on such terms
as to evidence, security, indemnity and otherwise as the Issuer and the Issue
Agent or, as the case may be, the New York Transfer Agent may require.
Mutilated or defaced Notes or Coupons must be surrendered before replacements
will be issued. The Comision Nacional de Valores shall be notified by the
Issuer of any replacements made under this Condition.
<PAGE> 21
12. MEETINGS OF NOTEHOLDERS, MODIFICATION, WAIVER AND SUBSTITUTION
(a) MEETINGS OF NOTEHOLDERS: The Trust Deed contains provisions for
convening meetings of Noteholders of any Series in London and Buenos Aires to
consider matters affecting their interests, including the sanctioning by
Extraordinary Resolution of a modification of any of these Conditions or any
provisions of the Trust Deed. Such a meeting may be convened by Noteholders
holding not less than 5% in principal amount of the Notes of such Series for
the time being outstanding. The quorum for any meeting convened in London or
Buenos Aires to consider an Extraordinary Resolution will be, in the case of
any meeting in London, two or more persons or, in the case of any meeting in
Buenos Aires, one or more persons holding or representing not less than 60% of
the Notes of such Series for the time being outstanding, or at any adjourned
meeting, in the case of any meeting in London, two or more persons or, in the
case of any meeting in Buenos Aires, one or more persons holding or
representing not less than 30% of the Notes of such Series for the time being
outstanding. Any proposals to be considered at any meeting convened in London
or Buenos Aires which, inter alia, (i) postpone the maturity of the Notes of
any Series or the dates on which interest is payable in respect of the Notes of
any Series; (ii) reduce or cancel the principal amount of, or interest on, the
Notes of any Series; or (iii) change the currency of payment of the Notes or
the Coupons of any Series, must be passed by means of an Extraordinary
Resolution of Noteholders of such Series. Any proposals to be considered at
any meeting convened in London or Buenos Aires to (i) substitute the Issuer (or
any previous substitute) as the principal debtor under the Trust Deed and the
Notes, or (ii) modify the provisions concerning the quorum required at any
meeting of Noteholders or the majority required to pass an Extraordinary
Resolution, must be passed by means of an Extraordinary Resolution of
Noteholders of all outstanding Notes. Any resolution duly passed at a meeting
convened in London shall be binding on all Noteholders of the relevant Series
(whether or not they were present or represented at the meeting at which such
resolution was passed) and on all Couponholders, only upon ratification by a
meeting of Noteholders of the relevant Series held in Buenos Aires in
accordance with the provisions of the Negotiable Obligations Law which
provides, inter alia, that any resolution to ratify any of the proposals
mentioned above requires unanimous approval of those Noteholders, present or
represented and voting. The Trust Deed contains provisions for Noteholders
present or represented at meetings in London to appoint proxies at meetings of
Noteholders in Buenos Aires. Any resolution duly passed at a meeting convened
in Buenos Aires in accordance with the provisions of the Negotiable Obligations
Law shall be binding on all Noteholders of the relevant Series (whether or not
they were present or represented at such meeting, held in accordance with
Article 14 of the Negotiable Obligations Law, at which such resolution was
passed) and on all Couponholders.
(b) MODIFICATION AND WAIVER: The Trustee may agree, without the consent
of the Noteholders or Couponholders, to (i) any modification of any of the
provisions of the Trust Deed which is of a formal, minor or technical nature or
is made to correct a manifest error; and (ii) any other modification (except as
mentioned in the Trust Deed), and any waiver or authorization of any breach or
proposed breach, of any of the provisions of the Trust Deed which is in the
opinion of the Trustee not materially prejudicial to the interests of the
Noteholders. Any such modification, authorization or waiver shall be binding
on the Noteholders and the Couponholders and, if the Trustee so requires, such
modification shall be notified to the Noteholders as soon as practicable.
<PAGE> 22
(c) SUBSTITUTION: The Trust Deed contains provisions permitting the
Trustee to agree, subject to such amendment of the Trust Deed and such other
conditions as the Trustee may require, and upon obtaining the approval of the
Noteholders by way of an Extraordinary Resolution, to the substitution of any
other company in place of the Issuer, or of any previous substituted company,
as principal debtor under the Trust Deed and the Notes. The CNV shall be
notified by the Issuer of any substitution made under this Condition 12(c).
(d) ENTITLEMENT OF THE TRUSTEE: Without prejudice to Condition 8, in
connection with the exercise of its functions (including but not limited to
those referred to in this Condition) the Trustee shall have regard to the
interests of the Noteholders as a class and shall not have regard to the
consequences of such exercise for individual Noteholders or Couponholders and
the Trustee shall not be entitled to require, nor shall any Noteholder or
Couponholder be entitled to claim, from the Issuer any indemnification or
payment in respect of any tax consequence of any such exercise upon individual
Noteholders or Couponholders.
13. ENFORCEMENT
At any time after the Notes become due and payable, the Trustee may, at its
discretion and without further notice, institute such proceedings against the
Issuer as it may think fit to enforce the terms of the Trust Deed, the Notes
and the Coupons, but it need not take any such proceedings unless (i) it shall
have been so directed by an Extraordinary Resolution or so requested in writing
by Noteholders holding at least one-fifth in principal amount of the Notes
outstanding; and (ii) it shall have been indemnified to its satisfaction.
Notwithstanding the above, any Noteholder or Couponholder may institute
proceedings directly against the Issuer in accordance with the provisions of
the Negotiable Obligations Law; but the Trust Deed contains provisions
excluding in those circumstances the Notes or Coupons of such Noteholder or
Couponholder from the benefits of the trusts contained in the Trust Deed. No
Note or Coupon which has been the subject of proceedings under the Negotiable
Obligations Law may be presented to a Paying Agent for payment or to the Paying
or Transfer Agents for replacement but the Issuer has in the Trust Deed
covenanted to make separate arrangements for payment directly to the holder of
each such Note or Coupon. If any Noteholder or Couponholder, having instituted
proceedings directly against the Issuer in accordance with the provisions of
the Negotiable Obligations Law, subsequently disposes of the Note or Coupon
forming the subject matter of such proceedings, the cessation of the rights
under the trusts created by the Trust Deed occurring upon the institution of
such proceedings, shall enure in relation to the purchaser of such Note or
Coupon. Upon notification by the Issuer, the Trustee shall give notice to the
Paying and Transfer Agents of the certificate numbers of those Notes or Coupons
forming the subject matter of such proceedings and the Paying Agents, in
respect of Bearer Notes, and the Transfer Agents, in respect of Registered
Notes, shall make such certificate numbers available to any Noteholder or
potential Noteholder upon its request.
14. INDEMNIFICATION OF THE TRUSTEE
The Trust Deed contains provisions for the indemnification of the Trustee and
for its relief from responsibility. The Trustee and its parent, subsidiaries
and affiliates are entitled to enter into business transactions with the Issuer
and any entity related to the Issuer without accounting for any profit.
<PAGE> 23
15. NOTICES
(a) TO HOLDERS OF BEARER NOTES: Notices to Holders of Bearer Notes will,
save where another means of effective communication has been specified in the
relevant Pricing Supplement, be valid if published (a) in a leading newspaper
having general circulation in Buenos Aires (which is expected to be La Nacion)
and otherwise in accordance with the provisions of the Negotiable Obligations
Law, (b) in a leading newspaper having general circulation in London (which is
expected to be the Financial Times), and (c) (so long as the Notes are listed
on the Luxembourg Stock Exchange and the rules of such exchange so requires) in
a leading newspaper having general circulation in Luxembourg (which is expected
to be the Luxemburger Wort) or, if in the opinion of the Trustee such
publication shall not be practicable, in an English language newspaper of
general circulation in Europe approved by the Trustee or, in the case of a
Temporary Global Note or Permanent Global Note, if delivered to Euroclear and
Cedel for communication by them to the persons shown in their respective
records as having interests therein provided that, in the case of Notes listed
on the Luxembourg Stock Exchange, the requirements of that Stock Exchange shall
have been complied with. Any such notice shall be deemed to have been given on
the date of such publication or, if published more than once or on different
dates, on the first date on which publication is made or, as the case may be,
on the fourth Business Day after the date of such delivery. Couponholders will
be deemed for all purposes to have notice of the contents of any notice given
to the Holders of Bearer Notes in accordance with this Condition.
(b) TO HOLDERS OF REGISTERED NOTES: Notices to Holders of Registered
Notes will be deemed to be validly given if (i) sent by first class mail to
them (or, in the case of joint Holders, to the first-named in the Register kept
by the Registrar) at their respective addresses as recorded in the register
kept by the Registrar, and will be deemed to have been validly given on the
fourth Business Day after the date of such mailing; (ii) published as may be
required by applicable law or, to the extent there are Argentine Holders of
Registered Notes (a) in the Official Gazette of Argentina and (b) in a leading
newspaper having general circulation in Buenos Aires (which is expected to be
La Nacion); and (iii) in the case of Registered Notes listed on the Luxembourg
Stock Exchange, the requirements of such exchange shall have been complied
with.
16. GOVERNING LAW
(a) GOVERNING LAW: Argentine Negotiable Obligations Law No. 23,576, as
amended by Law No. 23,962, governs the requirements for the Notes to qualify as
Obligaciones Negociables thereunder while such law, together with the Argentine
Business Companies Law No. 19,550, as amended, and other applicable Argentine
law and regulations, govern the capacity and corporate authorizations of the
Issuer to execute and deliver the Notes and the authorization of the public
offering of the Notes by the CNV. Notwithstanding the foregoing, the Trust
Deed, the Notes and the Coupons are governed by and shall be construed in
accordance with English law.
(b) JURISDICTION: In relation to any legal action or proceedings arising
out of or in connection with the Notes and the Coupons ("Proceedings"), the
Issuer has in the Trust Deed irrevocably submitted to the jurisdiction of the
courts of England.
(c) AGENT FOR SERVICE OF PROCESS: The Issuer has in the Trust Deed
appointed an agent in England to receive service of process in any Proceedings
in England based on any of the Notes or the Coupons.
<PAGE> 24
EXECUTED as a deed by )
TRANSPORTADORA DE GAS DEL SUR S.A. )
acting by
JOSE J.C. CONFORTI )
ALEJANDRO BASSO )
THE COMMON SEAL of )
CITICORP TRUSTEE COMPANY LIMITED )
was affixed )
in the presence of: )
HUW REES Signature of director
- ----------------------------
Name of director
- ----------------------------
LEIGH COBB Signature of authorized signatory
- ----------------------------
Name of authorized signatory
- ----------------------------
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0
0
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