<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13584
ENRON GLOBAL POWER & PIPELINES L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 76-00456366
(STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ENRON BUILDING
333 CLAY STREET, SUITE 1800
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 853-6220
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<C> <S>
Common Shares New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the Common Shares held by non-affiliates of
the registrant, determined by using the per share closing prices on the New York
Stock Exchange Composite Tape of $28.75 on February 28, 1997, was approximately
$322,971,000. As of February 28, 1997, there were 24,404,752 Common Shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the registrant's
definitive Proxy Statement for the May 14, 1997 Annual Meeting of Shareholders
("Proxy Statement") are incorporated herein by reference in Part III of this
Form 10-K.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Business.................................................... 1
Overview.................................................... 1
Executive Officers.......................................... 2
Current Pipeline Operations................................. 2
Current Power Plant Operations.............................. 8
Purchase Right Agreement.................................... 16
Designated Development Projects; Future Projects............ 17
Relationship with Enron and Conflicts of Interest........... 20
Research and Development.................................... 20
Environmental Matters....................................... 20
Employees................................................... 21
Item 2. Properties.................................................. 21
Item 3. Legal Proceedings........................................... 21
Item 4. Submission of Matters to a Vote of Security Holders......... 21
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters....................................... 22
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Item 8. Financial Statements and Supplementary Data................. 33
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 33
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 34
Item 11. Executive Compensation...................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 34
Item 13. Certain Relationships and Related Transactions.............. 34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 35
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. BUSINESS
OVERVIEW
Enron Global Power & Pipelines L.L.C. ("EPP") is a Delaware limited
liability company organized in November 1994 to acquire, own and manage
operating power plants and natural gas pipelines throughout the world.
Approximately 52% of the outstanding limited liability company interests of EPP
(the "Common Shares") is owned by subsidiaries of Enron Corp., a Delaware
corporation and integrated natural gas company with headquarters in Houston,
Texas ("Enron").
EPP's business strategy is to generate long-term growth in earnings per
share, dividends and cash flow through the selective acquisition and efficient
management of operating power plants and natural gas pipelines throughout the
world. To further this strategy, EPP has entered into an agreement with Enron
(as amended, the "Purchase Right Agreement") whereby Enron is generally
obligated to offer to sell to EPP, at prices below those Enron may make
available to third parties, all of Enron's ownership interests in certain power
plant and natural gas pipeline projects. The projects that are subject to the
Purchase Right Agreement include those developed or acquired by Enron outside
the United States, Canada and Western Europe that commence commercial operations
prior to 2005. The offers to sell by Enron are subject to the evaluation and
approval of an Oversight Committee and the receipt of a fairness opinion from an
independent internationally recognized financial advisor. In addition to
evaluating projects under the Purchase Right Agreement, EPP actively seeks
opportunities to purchase power plants, pipelines and related assets from
parties other than Enron.
EPP considers a variety of factors when evaluating a potential acquisition
from Enron or a party other than Enron. These factors include prospective
incremental earnings and cash flow per share, internal rate of return, cost
competitiveness, contractual commitments and the degree of political, currency
and other risks associated with the project. EPP is unable to predict the number
of projects, if any, it will acquire from Enron (pursuant to the Purchase Right
Agreement or otherwise) or from parties other than Enron. With regard to the
projects that might become available through Enron, Enron has informed EPP that
it will continue to actively develop power plant and natural gas pipeline
projects; however, Enron is under no obligation to do so. To the extent Enron
does not, for whatever reason, present projects to EPP on acceptable terms, the
future growth of EPP could be materially and adversely affected.
EPP's current assets consist of two pipeline and four power plant projects.
Each of these projects is briefly described below. Also described below are
certain projects designated for sale by Enron to EPP pursuant to the Purchase
Right Agreement and other matters material to the business and operations of
EPP, including information related to business developments of EPP since
December 31, 1995. Certain financial information regarding EPP and its
operations is set forth in EPP's financial statements and the notes thereto
beginning at Page F-1 of this Annual Report on Form 10-K (this "Form 10-K").
Certain additional information that is required to be included in Item 1 is set
forth in the remaining Items of this Form 10-K.
Unless the context indicates otherwise, the term "EPP," as used in this
Form 10-K means Enron Global Power & Pipelines L.L.C. and its subsidiaries, and
the term "Enron" means Enron Corp. and its subsidiaries other than Enron Oil &
Gas Company, EPP and their respective subsidiaries. All references to "$" or
"U.S.$" in this Form 10-K mean United States Dollars. As used herein, the term
"km" means kilometers, the term "Btu/kwh" means British thermal units per
kilowatt hour, the term "Bm(3)" means billion cubic meters, the term "Bcf" means
billion cubic feet, the term "MMm(3)/d" means million cubic meters per day, the
term "MMcf/d" means million cubic feet per day and the term "MW" means
megawatts.
<PAGE> 4
EXECUTIVE OFFICERS
Set forth below are the names and backgrounds of each of the Executive
Officers of EPP.
Rodney L. Gray(44)............ Rodney L. Gray has been a Director and Chief
Executive Officer of EPP since October 1994,
and he has served as Chairman of the Board
since June 1995. In addition, Mr. Gray served
as President of EPP from October 1994 until
June 1995 and from November 1995 until February
1997. Mr. Gray also serves as Executive Vice
President of Enron International Inc. ("EI")
and has served as a Managing Director of both
Enron Development Corp. ("EDC") and of Enron
Capital & Trade Resources Corp. ("ECT"). EI,
EDC and ECT are all wholly owned subsidiaries
of Enron Corp. From October 1992 to June 1993,
Mr. Gray served as Senior Vice President,
Finance and Treasurer of Enron Corp. Mr. Gray
joined Enron Corp. in 1988 as Vice President
and Treasurer. Mr. Gray also is a director of
Harmon Industries, Inc.
Kurt S. Huneke(43)............ Kurt S. Huneke was elected President of EPP in
February 1997, having served as Senior Vice
President, Power Operations of EPP from
November 1996. In February 1997, Mr. Huneke was
elected Managing Director of EI. Mr. Huneke
served as Vice President, Finance and Treasurer
of Enron Corp. from July 1993 to September
1996. Prior to July 1993, Mr. Huneke held
several management positions within Enron. Mr.
Huneke joined Enron in 1977.
K. Wade Cline(34)............. K. Wade Cline has served as Vice President and
General Counsel of EPP since November 1995, and
Secretary since January 1996. Mr. Cline joined
Enron Corp. in March 1992 as Senior Counsel.
Prior to joining Enron Corp., Mr. Cline was an
attorney at the law firm of Hutcheson & Grundy
L.L.P. from September 1988 to February 1992.
Paula H. Rieker(42)........... Paula H. Rieker was elected Vice President and
Chief Financial Officer of EPP in November
1995. From July 1992 to October 1995, Ms.
Rieker served as Assistant Treasurer of Enron
Corp., and from June 1990 to June 1992 she was
Director, Investor Relations for Enron Corp.
Prior to joining Enron Corp. in 1990, Ms.
Rieker was employed by United Gas Pipeline
Company.
CURRENT PIPELINE OPERATIONS
Argentine Pipeline
General. EPP's Argentine pipeline operations are conducted through Enron
Pipeline Company -- Argentina S.A. ("EPCA"), an Argentine corporation and a
wholly owned subsidiary of EPP, which owns, directly and indirectly, 33 1/3% of
the common stock of Compania de Inversiones de Energia S.A. ("CIESA"). CIESA, in
turn, owns 70% of the common stock of Transportadora de Gas del Sur S.A.
("TGS"), an Argentine corporation which owns and operates a 6,604 km (4,104
mile) natural gas pipeline system in Argentina (the "Argentine Pipeline"). TGS
and Transportadora de Gas del Norte S.A. ("Norte"), the only natural gas
transportation companies currently operating in Argentina, were formed in
connection with the 1992 privatization of Gas del Estado S.E. ("Gas del
Estado"), a company owned and operated by the Argentine Government.
Operation of the Argentine Pipeline accounted for approximately 61% of
EPP's equity in earnings and technical assistance fees during 1996. Additional
information regarding the financial performance of EPP's pipeline operations is
set forth in "Item 7 -- Management's Discussion and Analysis of Financial
Condition
2
<PAGE> 5
and Results of Operations -- Pipeline Operations -- Results of Operations" and
EPP's financial statements and the notes thereto beginning at Page F-1 of this
Form 10-K.
Gas Transportation. TGS holds a license (the "TGS License") to exclusively
operate, through the Argentine Pipeline, the existing southern Argentine gas
transportation pipeline system. The TGS License expires in 2027 and is renewable
at the option of TGS for an additional ten-year term if certain conditions are
met. The Argentine Pipeline connects major gas fields in southern and western
Argentina with distributors of gas in those areas and in the greater Buenos
Aires area. Norte holds a similar license with respect to the northern Argentine
pipeline system, which also is capable of providing gas transportation services
to distributors in the greater Buenos Aires area. In the two instances where TGS
and Norte are both directly connected to a distribution system, TGS is the
principal supplier of gas transmission services.
Gas transportation accounted for approximately 88% of TGS's total revenues
during 1996. The provision of gas transportation services by TGS involves the
receipt of gas owned by a shipper (typically a gas distributor) at one or more
points on the pipeline system for transportation in the pipeline and delivery to
the shipper at specified delivery points along the system. TGS is not a merchant
of natural gas.
The total length of the Argentine Pipeline is 6,604 km (4,104 miles), of
which 6,294 km (3,912 miles) are large diameter, high pressure pipelines and 310
km (192 miles) are smaller diameter transfer pipelines. The average delivery
capacity in 1996 was 54.0 MMm(3)/d (1.9 Bcf/d), of which 98% was fully
subscribed under firm transportation contracts. TGS achieved an average daily
throughput of 42.5 MMm(3)/d (1.5 Bcf/d) during 1996, representing an 81% load
factor compared to average daily throughput of 40.8 MMm(3)/d (1.4 Bcf/d) during
1995, representing a 78% load factor.
Gas Processing. TGS also operates the General Cerri gas processing complex
and the associated Galvan loading and storage facility (collectively, the "Cerri
Complex") at which natural gas liquids are separated from gas transported
through the Argentine Pipeline and are sold or stored for delivery. The Cerri
Complex consists of an ethane extraction plant to recover ethane, propane,
butane and natural gasoline, together with a lean oil absorption plant to
recover propane, butane and gasoline. The Cerri Complex also includes
compression and power generation facilities.
During 1996, TGS began the initiation of the Cerri Complex major expansion,
which will consist of the construction of a new processing train of 13 MMm(3)/d
(459 MMcf/d) and a new refrigerated storage facility of 45,000 cubic meters (1.6
MMcf) at Puerto Galvan. The expansion is expected to initially generate
additional annual processing revenues of approximately $11 million, to be placed
in service by the second quarter of 1998. Required investment for this project
is estimated to be $60 million.
Market and Rates. TGS principally serves the greater Buenos Aires area in
eastern Argentina although it also serves the more rural provinces of western
and southern Argentina. TGS's service area contains approximately 4 million
residential, commercial, industrial and electric power generation end-users,
including approximately 2.9 million end-users in the greater Buenos Aires area.
Direct service to these end-users is provided by four gas distribution companies
in the area, all of which are connected to the Argentine Pipeline: MetroGas S.A.
("MetroGas"), Gas Natural BAN S.A. ("BAN"), Camuzzi Gas Pampeana S.A.
("Pampeana") and Camuzzi Gas del Sur S.A. ("Sur"). These distribution companies
constitute four of the eight distribution companies established upon the
privatization of Gas del Estado. The remaining four distribution companies are
located in and serve northern Argentina and are not connected directly to the
Argentine Pipeline.
Gas transportation companies in Argentina operate in an "open access,"
nondiscriminatory environment in which producers and certain third parties,
including distributors, are entitled to equal and open access to the
transportation pipeline systems. Rates for gas transportation services are
regulated by Ente Nacional Regulador del Gas ("ENARGAS"), the Argentine
regulatory agency created at the time of the Gas del Estado privatization to,
among other things, regulate TGS, Norte and the gas distribution companies.
TGS's initial rates were fixed at the time of the privatization of Gas del
Estado for a five-year period ending December 31, 1997, subject to semiannual
adjustments. Under Argentine Law No. 24,076 (the "Natural Gas Act"), the
regulations thereunder and the TGS License, ENARGAS is responsible for
determining the rates
3
<PAGE> 6
that are to be effective during each succeeding five-year period following the
initial five-year period ending December 31, 1997. This determination is to be
made on the basis of rules which ENARGAS was required to promulgate not later
than December 28, 1995.
ENARGAS issued a preliminary determination on such rules to all licensee
companies and, in July 1996, established the cost of capital for the calculation
of the investment and efficiency factors. Such cost of capital was set at 11.3%
per annum, and is a weighted average cost of capital, net of an estimated future
annual inflation rate of 1.9%. The rate review process began on August 13, 1996,
when TGS filed with ENARGAS an investment plan amounting to approximately $117
million expected for the second five-year period commencing December 29, 1997.
ENARGAS will issue its initial proposal on rate adjustments on March 17, 1997.
The licensee companies are then entitled to comment on such proposal until April
28, 1997. Thereafter, ENARGAS will propose its final rate adjustment factors on
or before June 28, 1997, allowing the licensee companies the opportunity to
appeal ENARGAS's determination. The adjusted rates will become effective
December 29, 1997.
EPCA provides technical assistance to TGS under the terms of an eight-year
Technical Assistance Agreement (the "Technical Assistance Agreement"), renewable
for additional eight-year terms upon agreement of the parties, in return for
which TGS pays EPCA an annual technical assistance fee equal to the greater of
(i) $3 million or (ii) 7% of the amount obtained after subtracting $3 million
from TGS's net income before financial income (expense) and holding gains
(losses) and income and assets taxes. In return for co-operation and assistance
in performing its obligations under the Technical Assistance Agreement, EPCA
shares a portion of this fee with the other owners of CIESA. The services
provided by EPCA to TGS under the Technical Assistance Agreement include, among
other things, assisting TGS in the following matters to the extent that they
arise in the ordinary course of business: (i) replacement, repair and renovation
of facilities and equipment; (ii) preparation of performance evaluations,
operating cost analyses and construction assessments; (iii) advice with respect
to safety, reliability and efficiency of the system; (iv) advice with respect to
compliance with applicable laws; (v) routine and preventive maintenance and (vi)
staff training.
CIESA. Prior to July 31, 1996, the interests in CIESA were held by Compania
de Inversiones en Transporte de Gas S.A. ("CITGAS") (25%), Perez Companc S.A.
("Perez Companc") (25%), Argentina Private Development Trust Company Limited
("APDT") (25%) and EPCA (25%). On July 31, 1996, EPCA and Perez Companc acquired
APDT's 25% interest in CIESA, with EPCA and Perez Companc each acquiring
12 1/2%. Pursuant to the Agreement Regarding CIESA Interest (the "CIESA
Agreement"), dated as of July 31, 1996, among Enron, Enron Holding Company
L.L.C. ("EHC"), EPP and EPCA, Enron financed EPCA's portion of such acquisition
by making a $117.5 million loan to EPCA (the "CIESA Acquisition Loan"). The
accompanying promissory note, which is guaranteed by EPP, bears interest at the
one month London Interbank Offering Rate ("LIBOR") plus 0.75%, with interest due
monthly and any accrued and unpaid interest, together with outstanding
principal, due on September 30, 1997. On August 23, 1996, EPCA sold 4 1/6% of
its newly acquired interest in CIESA to Enron for $39.2 million pursuant to the
terms of the CIESA Agreement. EPCA used the proceeds to repay debt.
In order to manage the capital structure of EPP resulting from the
acquisition of the CIESA interest, EPP granted to EHC on July 31, 1996, and EHC
subsequently assigned 100% thereof to Enron, an option (the "Option") to acquire
all or any portion of such number of Common Shares as have an aggregate
Conversion Market Price (as such term is defined in the CIESA Agreement) of $47
million on the date of exercise of the Option. The Option was ratified and the
issuance of Common Shares to Enron and to EHC upon the exercise of the Option
was approved by the shareholders of EPP. Enron exercised the Option on March 5,
1997, and, in connection therewith, approximately 1.6 million Common Shares were
issued to Enron. Proceeds from the issuance of Common Shares were used to repay
outstanding debt and for general corporate purposes.
In a separate transaction on August 8, 1996, Enron and Perez Companc
entered into a stock purchase agreement with CITGAS, whereby CITGAS transferred
all rights and obligations deriving from its 25% interest in CIESA equally to
subsidiaries of Enron and Perez Companc. The CITGAS transaction was approved by
ENARGAS on November 13, 1996, and the closing occurred on November 15, 1996. The
voting and economic rights associated with such interest of CITGAS in CIESA,
however, were transferred effective
4
<PAGE> 7
August 1, 1996. As a result of the sales by APDT and CITGAS of their respective
interests in CIESA, the ownership of CIESA is as follows: Perez Companc and its
subsidiary (50%), EPCA (33 1/3%) and Enron (16 2/3%), although voting rights in
CIESA are held by Perez Companc (50%) and EPCA (50%).
Dividend Policy. CIESA is required to vote its TGS shares to cause TGS, to
the extent it has cash available, to pay annual dividends equal to TGS's annual
net income (less the amounts required to fund certain required legal reserves).
In addition, CIESA is required to dividend to its shareholders all of its net
income to the extent allowable by law (less current principal repayments and
debt reserves).
In August 1994, TGS's Board of Directors approved a policy of paying
semiannual dividends, taking into account cash flow and future capital
requirements for expansion of the Argentine Pipeline, while maintaining adequate
credit risk quality and a strong financial position. For the amount of dividends
paid, see "Item 7 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources of EPP -- Primary
Sources of Cash."
Associated Debt. In May 1996, CIESA entered into a $220 million term loan
facility with Societe Generale, Banco Supervielle Societe Generale and Goldman,
Sachs, & Co. to refinance an existing $215 million loan with Morgan Guaranty
Trust Company of New York. The new credit facility matures on November 20, 1997,
and bears interest at the Eurodollar rate plus an annual spread of 2.40% for the
first six months, increasing up to 3.50% for the last three months. As of
December 31, 1996, the total principal amount outstanding under the new credit
facility was approximately $220 million.
In December 1996, CIESA approved the issuance of $220 million of debt
securities. Such debt securities qualify as Obligaciones Negociables under
Argentine law. Consequently, CIESA has requested the public offering and the
authorization of public trading of these debt securities on the Buenos Aires
Stock Exchange. Both requests are still pending; however, EPP expects that
approval will be obtained during the second quarter of 1997. Net proceeds from
this issuance will be used to retire the above mentioned $220 million term loan.
In March 1996, TGS filed with the U.S. Securities and Exchange Commission
(the "SEC") a shelf registration statement for the sale from time to time of up
to U.S. $350 million of debt securities. In April 1996, TGS issued $150 million
of debt securities under this registration statement, maturing April 2001 at a
price of 99.94%. The notes bear interest at an annual fixed rate of 10.25%,
payable semiannually.
At December 31, 1996, CIESA and TGS had an aggregate of $404 million in
short-term bank borrowings and $390 million in long-term bank borrowings, which
were used to finance working capital needs and capital expenditures.
Competition and Demand. TGS's gas transportation business faces no
substantial direct competition. Although there are no regulatory limitations on
entry into the business of providing gas transportation services in Argentina,
the construction of a competing pipeline system would require substantial
capital investment and the approval of ENARGAS. Moreover, as a practical matter,
a direct competitor would have to enter into agreements with distribution
companies or end-users to transport a sufficient quantity of gas to justify the
capital investment. In the longer term, the ability of new entrants to
successfully penetrate TGS's market would depend upon a favorable regulatory
climate, increasing demand for gas by end-users, and sufficient investment in
downstream facilities to accommodate increased delivery capacity from the
transportation systems.
On a day-to-day basis, TGS competes with Norte, to a limited extent, for
service to the distribution companies to which both TGS and Norte are either
directly or indirectly connected (Pampeana, MetroGas and BAN). Separately, TGS
and Norte compete directly for the transportation of gas from the Neuquen basin
to the greater Buenos Aires area. Because the current applicable rates for
transportation out of the Neuquen basin are the same for the two companies, the
relative volumes of such services will depend principally on the specific
arrangements between buyers and sellers of gas between such areas and the
perceived quality of service offered by the competing companies.
ENARGAS has issued rules establishing a system to govern the brokering of
excess capacity among the distribution companies and other transporters of
natural gas. The system, which will become effective in
5
<PAGE> 8
April 1997, is to be administered by TGS and Norte. To the extent that such
capacity brokerage results in more efficient use of contracted firm capacity,
the demand for interruptible transportation service by TGS and Norte customers
could decrease.
The cost of gas relative to competing fuels may also affect the demand for
transportation services in the long term. The delivered cost of gas to end-users
in Argentina, based on energy content, is currently lower than that of
alternative sources of fuel, except for hydroelectric power. Since the
generation of hydroelectricity is the lowest cost source of electricity in
Argentina, a substantial increase in the availability of hydroelectricity would
displace a significant amount of electricity generated by gas-fired power plants
in TGS's service territory, thereby causing a decrease in gas usage. This
decrease could (i) reduce demand for interruptible gas transportation and (ii)
prompt the exercise of step-down rights in firm contracted capacity by TGS's
customers.
Transportation companies should not be directly affected by changes in gas
prices resulting from deregulation, since they neither buy nor sell gas.
However, competition in gas markets may affect both TGS and Norte to the extent
that the gas basins which they service suffer a loss of demand as a result of
price competition with gas from other basins. This may affect the volume of gas
transported from particular gas producing regions.
Unlike its transportation business, TGS's gas processing business is not
subject to rate regulation. TGS believes it would be very difficult under
current market conditions for a potential competitor to build a competing gas
processing facility on an economic basis. However, YPF Sociedad Anonima ("YPF")
(which accounts for approximately 55% of TGS's current gas processing capacity)
has announced, together with Petroleos Brasileiros S.A., a plan to build and
operate a 36 MMm(3)/d (1,271 MMcf/d) processing plant. The project which may be
joined by other partners is estimated to start up operations in the third
quarter of 2000.
Employees and Labor Relations. As of March 7, 1997, TGS had 720 employees,
of whom 584 were operations personnel, 22 were marketing, tariff and legal,
regulatory and public affairs personnel, 96 were administration, audit and
internal consulting and finance personnel and 18 were other personnel.
Approximately 24% of TGS's employees are affiliated with a single union, the
Federacion de Empleados de Gas del Estado ("Federacion de Empleados"). Pursuant
to a collective labor agreement in place among Federacion de Empleados, TGS and
Norte, any employee strike which might affect the running of TGS is prohibited.
TGS believes that this agreement enhances its ability to manage its work force
effectively.
Legal Matters. TGS received and denied a request from Gas del Estado for
the reimbursement of approximately $23 million paid by Gas del Estado under
purchase orders issued for the construction of two compressor plants. Gas del
Estado submitted this matter for resolution to ENARGAS, but ENARGAS concluded
that it lacks jurisdiction to adjudicate the dispute. In April 1996, Gas del
Estado filed a legal action seeking reimbursement from TGS of the $23 million.
TGS has filed a claim against Gas del Estado 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 TGS License, to assume Gas del Estado'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.
In addition to the matters discussed above, TGS is a party to certain
lawsuits and administrative proceedings before various courts and governmental
agencies arising in the ordinary course of business. EPP believes that the final
outcome of such lawsuits and proceedings will not have a material adverse effect
on EPP's results of operations or financial condition.
6
<PAGE> 9
Colombian Pipeline
General. EPP's current pipeline operations in Colombia are conducted
through Centragas-Transportadora de Gas de la Region Central de Enron
Development & Cia., S.C.A. ("Centragas"), a Colombian limited partnership and
owner of a 575 km (357 mile) natural gas pipeline and related facilities (the
"Colombian Pipeline"). EPP holds a 49% limited partnership interest in
Centragas, which it acquired from affiliates of Enron on May 9, 1996. The
remaining interest in Centragas is owned by Promigas S.A., a Colombian
corporation owning a 25% limited partnership interest ("Promigas"), Tomen
Corporation, a Japanese corporation, owning a 25% limited partnership interest,
and EDC, an indirect wholly owned subsidiary of Enron owning the 1% general
partnership interest.
Operation of the Colombian Pipeline accounted for approximately 8% of EPP's
equity in earnings and technical assistance fees during 1996. Additional
information regarding the financial performance of EPP's pipeline operations is
set forth in "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Pipeline Operations -- Results of
Operations" and EPP's financial statements and the notes thereto beginning at
Page F-1 of this Form 10-K.
Gas Transportation. Centragas and Empresa Colombiana de Petroleos, the
state-owned oil company of Colombia ("Ecopetrol"), are parties to a
Transportation Services Contract dated May 12, 1994 (the "Centragas Services
Contract") pursuant to which Centragas will own the Colombian Pipeline and
transport natural gas for Ecopetrol through February 23, 2011. At the end of
this period, Centragas will transfer the Colombian Pipeline to Ecopetrol "as is"
for a payment equal to $500,000 plus 1% of the construction costs, subject to
certain adjustments. The Centragas Services Contract further provides that
Ecopetrol must pay two monthly tariffs to Centragas: (i) an availability tariff
generally designed to cover debt service, certain taxes and return of and on
equity for Centragas and (ii) a transportation tariff generally designed to
cover the operation and maintenance costs of the Colombian Pipeline. The full
amount of the tariffs are payable without regard to the amount of gas Ecopetrol
delivers to the Colombian Pipeline.
The Colombian Pipeline includes 21 lateral lines along its mainline which
connect with distribution networks, a dehydration facility and two metering
stations. The Colombian Pipeline has an initial design capacity of approximately
3.1 MMm(3)/d (110 MMcf/d) at an inlet pressure of 1,200 pounds per square inch,
without compression. Construction of the pipeline was completed and full
commercial operation was achieved on February 24, 1996, the date on which
Ecopetrol became obligated to pay full tariffs to Centragas pursuant to the
Centragas Services Contract.
Market and Rates. The Colombian Pipeline connects the La Guajira fields in
the Atlantic coastal region, a major natural gas producing region, with the
industrial center of Barrancabermja serving 31 municipalities along its route.
Ecopetrol's refinery in Barrancabermja is the largest consumer of the gas
transported through the Colombian Pipeline.
The permanent availability and transportation tariffs payable by Ecopetrol
are set forth in the Centragas Services Contract. The permanent availability
tariff deescalates 5% annually, and the transportation tariff is adjusted
monthly for inflation in the U.S. and Colombia. The tariffs are also subject to
adjustment in the event of any changes in laws or their interpretation which
impact Centragas.
Promigas. Promigas will operate and maintain the Colombian Pipeline through
February 23, 2011, pursuant to an Operations and Maintenance Contract between
Centragas and Promigas. Promigas is Colombia's largest natural gas pipeline
company, transporting approximately 70% of the natural gas consumed in Colombia
in 1996. Excluding the Colombian Pipeline, Promigas currently operates
approximately 910 km (565 miles) of gas pipelines in Colombia with a capacity in
its principal pipeline of approximately 9.1 MMm(3)/d (320 MMcf/d). On January
31, 1996, a wholly owned indirect subsidiary of Enron acquired Ecopetrol's
approximate 39% equity interest in Promigas, making such subsidiary of Enron the
largest shareholder of Promigas.
Dividend Policy. Centragas will pay, to the extent permitted by Colombian
law and the Centragas Notes described below, annual dividends to its partners.
Under Colombian law, dividends are restricted to 90% of annual net income until
certain required legal reserve levels are achieved. However, excess cash that
would
7
<PAGE> 10
otherwise be available for dividends may be loaned on a long-term basis to
partners. For the amount of dividends paid, see "Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources of EPP -- Primary Sources of
Cash."
Associated Debt. In December 1994, Centragas obtained project debt
financing in the amount of $172 million through the issuance of Senior Secured
Notes due 2010 (the "Centragas Notes"). The Centragas Notes bear an interest
rate of 10.65% per annum, payable quarterly commencing on March 1, 1995.
Principal is payable in quarterly installments commencing June 1, 1998. The
Centragas Notes are secured by substantially all of the assets of Centragas. As
of December 31, 1996, the outstanding balance of the Centragas Notes was $166
million.
Competition and Demand. Due to the Centragas Services Contract, Centragas'
gas transportation business faces no substantial direct competition. In
addition, there are regulatory limitations on entry into the business of
providing gas transportation services in Colombia, and the construction of a
competing pipeline system would require substantial capital investment.
Moreover, as a practical matter, a direct competitor would have to enter into
agreements to transport a sufficient quantity of gas to justify the capital
investment.
Employees and Labor Relations. As of March 7, 1997, Centragas had two
employees, which were commercial and administrative personnel.
Legal Matters. Under the terms of the Centragas Services Contract,
Ecopetrol is obligated to pay to Centragas an early completion bonus of
approximately $5.7 million 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. Such engineering firm has been
engaged, and Centragas anticipates a decision by 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.
In addition to the matters discussed above, Centragas is a party to certain
lawsuits and administrative proceedings before various courts and governmental
agencies arising in the ordinary course of business. EPP believes that the final
outcome of such lawsuits and proceedings will not have a material adverse effect
on EPP's results of operations or financial condition.
CURRENT POWER PLANT OPERATIONS
Subic Bay Plant
General. EPP owns 50% of a power plant located at the Subic Bay Freeport
complex on Luzon Island, the Philippines (the "Subic Bay Plant"). The Subic Bay
Plant, which commenced commercial operations in February 1994, consists of eight
Bunker C oil-fired diesel engine generator packages having a current net
power-generating contracted capacity of 116 MW. EPP holds its interest in the
Subic Bay Plant through its wholly owned subsidiary, Enron Power Philippines
Corp. ("EPPC"). EPPC, in turn, owns 50% of Subic Power Corp., the owner of the
Subic Bay Plant. The remaining 50% of Subic Power Corp. is owned by three
Philippine companies.
The Subic Bay Plant is located on approximately six acres of land which is
leased by Subic Power Corp. from National Power Corporation ("NPC"), the primary
electric power supplier in the Philippines. For the year ended December 31,
1996, the Subic Bay Plant operated at an average contract availability of 86%
and an average heat rate of 8,240 Btu/kwh. These levels permitted the Subic Bay
Plant to meet its contractual obligations to NPC and receive payment in full
from NPC under the Subic BOT Agreement (defined below).
Operations of the Subic Bay Plant accounted for approximately 11% of EPP's
equity in earnings and technical assistance fees during 1996. Additional
information regarding the financial performance of EPP's power plant operations
is set forth in "Item 7 -- Management's Discussion and Analysis of Financial
8
<PAGE> 11
Condition and Results of Operations -- Power Plant Operations -- Results of
Operations" and EPP's financial statements and the notes thereto beginning at
Page F-1 of this Form 10-K.
Plant Operation and Maintenance. Pursuant to the terms of the Second Fast
Track Build, Operate and Transfer Project Agreement between Enron Power
Development Corp. ("EPDC"), an indirect wholly owned subsidiary of Enron Corp.,
and NPC, dated January 7, 1993 (the "Subic BOT Agreement"), Subic Power Corp.
will operate, maintain and manage the Subic Bay Plant and produce electric power
for NPC until February 22, 2009. At the end of this contractual period, the
Subic Bay Plant will be transferred "as is" to NPC without the payment of any
compensation. Prior to this date, NPC may choose or be required to purchase
Subic Power Corp.'s interest in the Subic Bay Plant under the circumstances
specified in the Subic BOT Agreement.
The Subic BOT Agreement requires NPC to pay (i) capacity fees under a
formula related to the availability of the Subic Bay Plant which are designed to
cover the debt service on the project financing for the Subic Bay Plant,
periodic maintenance costs and other fixed expenses and to provide a return on
investment, (ii) fixed operation and maintenance fees under a formula related to
the availability of the Subic Bay Plant and (iii) energy fees based upon the
actual output of electric power from the Subic Bay Plant. In addition, the Subic
BOT Agreement provides for an annual bonus or penalty based upon the difference
between NPC's actual fuel costs for operating the Subic Bay Plant and the cost
of fuel at a specified heat rate.
NPC's payment obligations under the Subic BOT Agreement are the sole source
of revenues for the Subic Bay Plant. Because of Subic Power Corp.'s dependence
on NPC, any material failure of NPC to fulfill its obligations under the Subic
BOT Agreement could have a material adverse effect on Subic Power Corp. and,
consequently, EPP. The Republic of the Philippines, which owns NPC, has provided
a performance undertaking pursuant to which NPC's obligations under the Subic
BOT Agreement are guaranteed by the Republic of the Philippines under certain
circumstances.
Pursuant to the terms of a 15-year Operation and Maintenance Advisor
Agreement (the "Subic O&M Advisor Agreement") between Subic Power Corp. and
Enron Power Philippines Operating Company ("EPPOC"), an indirect wholly owned
subsidiary of Enron, EPPOC establishes policies, procedures, plans and budgets
for the operation and maintenance of the Subic Bay Plant. For its services,
EPPOC is paid a base fee equal to 2% of the gross revenues of the Subic Bay
Plant. The annual fee is subject to decrease for penalties or increase for
bonuses based on actual heat rate and plant availability achieved annually by
the Subic Bay Plant. The fee also is adjusted annually based on the rate at
which the fixed operation and maintenance fees charged under the Subic BOT
Agreement increase.
Under the terms of a 15-year Operation and Maintenance Supervision
Agreement between Subic Power Corp. and Enron Subic Power Corp. ("ESPC"), an
indirect wholly owned subsidiary of Enron, ESPC supervises and manages all
day-to-day operation and maintenance services for the Subic Bay Plant. ESPC is
reimbursed by Subic Power Corp. for expenses it incurs in providing the services
pursuant to an annual budget which is approved by Subic Power Corp.
Market and Rates. The electric power industry in the Philippines currently
consists of NPC, various independent power producers and distributors and
municipal and privately owned utilities. NPC is a state-owned entity that sells
electricity to industrial and other end-users and to distributors for
distribution to end-users. In recent years, the growth of electric power
consumption in the Philippines and deficiencies in operating plants have
resulted in serious shortages in the supply of electric power. Although recent
additions of significant amounts of new capacity have greatly improved the
situation, projected growth in demand for electricity in the Philippines remains
high.
Dividend Policy. Subic Power Corp. determines the amount of annual
dividends, if any, in a manner that would maximize the after-tax cash
distributions and earnings to its shareholders while taking into account its
working capital needs and debt service needs. The payment of dividends depends
on the financial performance of Subic Power Corp. and is subject to certain
restrictions contained in the Subic Indenture (defined below). For the amount of
dividends paid, see "Item 7 -- Management's Discussion and Analysis of Financial
9
<PAGE> 12
Condition and Results of Operations -- Liquidity and Capital Resources of
EPP -- Primary Sources of Cash."
Associated Debt. In December 1993, Subic Power Corp. issued $105 million in
senior secured notes (the "Subic Notes"), pursuant to an Indenture with
Citibank, N.A. (the "Subic Indenture") which mature December 28, 2008. Interest
accrues on the Subic Notes at a rate of 9.5% per annum, payable semiannually in
arrears. Principal on the Subic Notes is payable in equal semiannual
installments of approximately $3.6 million. The Subic Notes are secured by
substantially all of the assets of Subic Power Corp. and contain certain
restrictive covenants, including, among other things, a prohibition on
distributions to its shareholders other than in capital stock of Subic Power
Corp. if certain circumstances occur. As of December 31, 1996, the outstanding
balance on the Subic Notes was $91 million. Enron Corp. has guaranteed the next
principal and interest payment as it becomes due under the Subic Notes in the
event NPC fails to pay amounts due under the Subic BOT Agreement. EPP has agreed
to indemnify Enron against the liabilities incurred by Enron in performing its
obligations under the above guarantee. See Note 9 and Note 12 of EPP's financial
statements and the notes thereto beginning at Page F-1 of this Form 10-K.
Competition and Demand. Due to the Subic BOT Agreement, Subic Power Corp.'s
power-generating business faces no substantial direct competition. In addition,
there are regulatory limitations on entry into the business of providing
power-generating services in the Philippines and the construction of a competing
power plant would require substantial capital investment. Moreover, as a
practical matter, a direct competitor would have to enter into agreements with
customers to generate a sufficient quantity of electricity to justify the
capital investment.
Employees and Labor Relations. At March 7, 1997, Subic Power Corp. had 116
employees, of which 111 were operations personnel and 5 were administration and
finance personnel.
Legal Matters. Subic Power Corp. is a party to certain lawsuits and
administrative proceedings before various courts and governmental agencies
arising in the ordinary course of business. EPP believes that the final outcome
of such lawsuits and proceedings will not have a material adverse effect on
EPP's results of operations or financial condition.
Batangas Plant
General. EPP owns 50% of a power plant located in Pinamucan, Batangas, on
Luzon Island, approximately 160 km (100 miles) southeast of Manila (the
"Batangas Plant"). The Batangas Plant, which commenced commercial operations in
July 1993, consists of eight bunker oil-fired diesel engine generator packages
having a current net power-generating contracted capacity of 110 MW. EPP holds
its interest in the Batangas Plant through EPPC, which, in turn, owns 50% of
Batangas Power Corp., the owner of the Batangas Plant. The remaining 50% of
Batangas Power Corp. is owned by a Philippine company, one of Batangas Power
Corp.'s lenders and an affiliate of another of Batangas Power Corp.'s lenders.
The Batangas Plant is located on approximately 15 acres of land which is
leased by Batangas Power Corp. from Chemphil-LMB Incorporated, a Philippine
corporation. For the year ended December 31, 1996, the Batangas Plant operated
at an average contract availability of 88% and an average heat rate of 8,428
Btu/kwh. These levels permitted the Batangas Plant to meet its contractual
obligations to NPC and receive payment in full from NPC under the Batangas BOT
Agreement (defined below).
Operations of the Batangas Plant accounted for approximately 5% of EPP's
equity in earnings and technical assistance fees during 1996. Additional
information regarding the financial performance of EPP's power plant operations
is set forth in "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Power Plant Operations -- Results of
Operations" and EPP's financial statements and the notes thereto beginning at
Page F-1 of this Form 10-K.
Plant Operation and Maintenance. Pursuant to the terms of a Fast Track
Build, Operate and Transfer Project Agreement between EPDC and NPC, dated June
29, 1992 (the "Batangas BOT Agreement"), Batangas Power Corp. will operate and
maintain the Batangas Plant and produce electric power for NPC until July 15,
2003. At the end of this contractual period, the Batangas Plant will be
transferred "as is" to NPC
10
<PAGE> 13
without the payment of any compensation. Prior to this date, however, NPC may
choose or be required to purchase Batangas Power Corp.'s interest in the
Batangas Plant under the circumstances specified in the Batangas BOT Agreement.
The Batangas BOT Agreement requires NPC to make payments to Batangas Power
Corp. on a basis similar to those made to Subic Power Corp. under the Subic BOT
Agreement except that (i) there are no separately calculated energy fees and
(ii) the heat rate bonus/penalty is calculated against a higher base heat rate.
Similar to the Subic Bay Plant arrangement, NPC's payment obligations under
the Batangas BOT Agreement are the sole source of revenues for the Batangas
Plant. Consequently, any material failure of NPC to fulfill its obligations
under the Batangas BOT Agreement could have a material adverse effect on
Batangas Power Corp. and EPP. The Republic of the Philippines, which owns NPC,
has provided a performance undertaking guaranteeing NPC's obligations under the
Batangas BOT Agreement under certain circumstances.
Pursuant to the terms of a ten-year Operation and Maintenance Management
Agreement (the "Batangas O&M Agreement") between Batangas Power Corp. and Enron
Power Corp.-U.S. ("EPCUS"), an indirect wholly owned subsidiary of Enron, a
subsidiary of EPCUS establishes policies, procedures, plans and budgets for the
operation and maintenance of the Batangas Plant. EPCUS is paid a similar fee for
its services as that paid to EPPOC pursuant to the Subic O&M Advisor Agreement
described above.
Under the terms of a ten-year Operation and Maintenance Supervision
Agreement between Batangas Power Corp. and ESPC, ESPC supervises and manages the
operation and maintenance of the Batangas Plant. ESPC is reimbursed by Batangas
Power Corp. for expenses it incurs pursuant to an annual budget which is
approved by Batangas Power Corp.
Market. See discussion above in "Item 1 -- Business -- Current Power Plant
Operations -- Subic Bay Plant -- Market."
Dividend Policy. Batangas Power Corp. determines the amount of annual
dividends, if any, in a manner that would maximize the amount of after-tax cash
distributions to its shareholders while taking into consideration its working
capital needs and debt service needs. The payment of dividends depends on the
financial performance of Batangas Power Corp. and is subject to certain
restrictions contained in the Batangas Loans described below. For the amount of
dividends paid, see "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources of EPP --
Primary Sources of Cash."
Associated Debt. In 1994, Batangas Power Corp. borrowed an aggregate
principal amount of $95 million under term loan agreements with the Overseas
Private Investment Corporation ("OPIC") in the amount of $50 million (the "OPIC
Loan"), the Asian Development Bank ("ADB") in the amount of $26.5 million (the
"ADB Loan"), and Citibank, N.A., as agent ("Citibank") for Citibank, N.A. and
The First National Bank of Boston in the amount of $18.5 million (the "Citibank
Loan" and, together with the OPIC and ADB Loans, the "Batangas Loans"). The OPIC
and ADB Loans mature in 2003, and the Citibank Loan matures in 1999. Interest
accrues on the Batangas Loans at the rates of 9.12% per annum for the OPIC Loan,
10.25% per annum for the ADB Loan and 1.5% over the one month LIBOR per annum
for the Citibank Loan. The principal and interest on the Batangas Loans are
payable semiannually and, in the case of principal, payable in equal
installments over the life of each of the Batangas Loans. The Batangas Loans,
which are secured by substantially all of the assets of Batangas Power Corp.,
contain certain restrictive covenants, including, among other things, a
prohibition on distributions to its shareholders if certain circumstances arise.
As of December 31, 1996, the principal amounts outstanding on the OPIC, ADB and
Citibank Loans were $34.5 million, $18.5 million and $8.4 million, respectively.
Enron Corp. and Chemholding Corp., a Philippine corporation, have jointly
and severally guaranteed 25% of the outstanding principal and interest due under
the OPIC Loan in the event NPC fails to pay amounts due under the Batangas BOT
Agreement. EPP has agreed to indemnify Enron against the liabilities incurred by
Enron in performing its obligations under the above guarantee.
11
<PAGE> 14
Competition and Demand. Due to the Batangas BOT Agreement, Batangas Power
Corp.'s generating business faces no substantial direct competition. In
addition, there are regulatory limitations on entry into the business of
providing power-generating services in the Philippines, and the construction of
a competing power plant would require substantial capital investment. Moreover,
as a practical matter, a direct competitor would have to enter into agreements
with customers to generate a sufficient quantity of electricity to justify the
capital investment.
Employee and Labor Relations. As of March 7, 1997, Batangas Power Corp. had
110 employees, of which 108 were operations personnel and two were
administrative and finance personnel. Batangas Power Corp. is currently
negotiating a collective bargaining agreement with a union representing certain
of its employees. Although the outcome of such negotiations cannot be predicted,
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.
Legal Matters. Batangas Power Corp. is a party to certain lawsuits and
administrative proceedings before various courts and governmental agencies
arising in the ordinary course of business. EPP believes that the final outcome
of such lawsuits and proceedings will not have a material adverse effect on
EPP's results of operations or financial condition.
Puerto Quetzal Plant
General. EPP owns 50% of a power plant mounted on two movable barges,
flagged as U.S. vessels, which are moored in a protected slip in Puerto Quetzal,
the principal port facility on Guatemala's Pacific coast (the "Puerto Quetzal
Plant"). The current net power-generating contracted capacity of the Puerto
Quetzal Plant is 110 MW. The Puerto Quetzal Plant, which is the first privately
owned project financed power plant in Central America, commenced commercial
operations in February 1993. EPP holds its interest in the Puerto Quetzal Plant
through its 50% owned subsidiary, Puerto Quetzal Power Corp. ("PQPC"). The
remaining 50% of PQPC is owned by a local partner. The Puerto Quetzal Plant
commenced commercial operations in February 1993.
During the year ended December 31, 1996, the Puerto Quetzal Plant operated
at an average contract availability of 91.6% and an average heat rate of 9,382
Btu/kwh. In 1995 and 1996, PQPC modified the engines and improved operation and
maintenance procedures at the Puerto Quetzal Plant in an effort to reduce the
replacement rate of certain consumable parts and improve operating efficiency.
Operation of the Puerto Quetzal Plant accounted for approximately 6% of
EPP's equity in earnings and technical assistance fees during 1996. Additional
information regarding the financial performance of EPP's power plant operations
is set forth in "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Power Plant Operations -- Results of
Operations" and EPP's financial statements and the notes thereto beginning at
Page F-1 of this Form 10-K.
Plant Operation and Maintenance. PQPC has entered into an agreement (the
"Puerto Quetzal PPA"), with Empresa Electrica de Guatemala, S.A. ("EEGSA"), a
private company 92% owned by the Guatemalan government pursuant to which PQPC is
required to provide to EEGSA 90 to 110 MW of capacity and the corresponding
energy from the Puerto Quetzal Plant. In return, EEGSA is obligated to pay for
such capacity (not in excess of 110 MW) and also to pay for at least 50% of the
available energy output at the Puerto Quetzal Plant. Enron has guaranteed PQPC's
performance under the Puerto Quetzal PPA; and EPP has agreed to indemnify Enron
against liabilities incurred by Enron under this guarantee. The Puerto Quetzal
PPA terminates in February 2008.
PQPC and Electricidad Enron de Guatemala, S.A., an indirect wholly owned
subsidiary of Enron ("Enron-Guatemala"), are parties to an Operation and
Maintenance Agreement dated November 13, 1992 (the "Puerto Quetzal O&M
Agreement"). Pursuant to the terms of the Puerto Quetzal O&M Agreement,
Enron-Guatemala will operate and maintain the Puerto Quetzal Plant until the
termination of the contractual term, February 2008. Enron-Guatemala is entitled
to monthly fees for its services which collectively cannot exceed 1.8% of the
gross revenues of the Puerto Quetzal Plant. In addition, Enron-Guatemala is
eligible or
12
<PAGE> 15
liable, as the case may be, for a bonus or penalty based on the actual heat rate
and plant availability achieved each year by the Puerto Quetzal Plant compared
with the operating plan adopted for that year.
PQPC obtains its fuel pursuant to a Fuel Supply Agreement dated effective
December 31, 1995, with Enron Power Oil Supply Corp., an indirect wholly owned
subsidiary of Enron ("EPOS"). Under the terms of the Fuel Supply Agreement, EPOS
is obligated to supply all of PQPC's fuel requirements until December 31, 2007.
PQPC and Enron Global de Guatemala, S.A., an indirect wholly owned
subsidiary of Enron ("EGG"), are parties to an Administrative and Commercial
Support Agreement dated effective December 31, 1995 (the "Administrative and
Commercial Support Agreement"). Pursuant to the terms of the Administrative and
Commercial Support Agreement, EGG will render commercial, financial and
administrative services to PQPC until December 31, 2008. EGG is entitled to an
annual fee for its services plus reimbursable expenses.
Market. The electric power market in Guatemala is composed of power
generators, which include the government-owned and operated Instituto Nacional
de Electrificacion-INDE, EEGSA, a variety of independent power producers and the
Puerto Quetzal Plant. Approximately 25% of Guatemala's average daily energy
demand is supplied by the Puerto Quetzal Plant.
EEGSA is the primary supplier of thermoelectric power to Guatemala. EEGSA
sells electricity to end-users such as households, industries and commercial
establishments and is responsible for the distribution of approximately 75% of
the daily energy consumed in Guatemala nationwide.
In recent years, the demand for electric power has frequently exceeded
available capacity and output in Guatemala. Failure to maximize existing
capacity coupled with the growth of consumption and demand has led to power
shortages and blackouts. In an effort to address the electricity shortage, EEGSA
has entered into power purchase agreements with the private sector adding
approximately 200 MW of generating capacity (including the Puerto Quetzal Plant)
and is pursuing additional contracts with the private sector.
Dividend Policy. PQPC determines the amount of annual dividends, if any, in
a manner that would maximize the amount of after-tax cash distributions to its
stockholders while taking into consideration its working capital and debt
service needs. The payment of dividends depends on the financial performance of
PQPC and is subject to certain restrictions contained in the Puerto Quetzal
Loans (defined below). For the amount of dividends paid, see "Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources of EPP -- Primary Sources of
Cash."
Associated Debt. In 1993, PQPC borrowed $71 million under three term loans
(the "Puerto Quetzal Loans") with International Finance Corporation ("IFC"). The
"IFC A Loan," in the principal amount of $13.4 million, accrues interest at a
rate of 9.94% per annum. Principal on the IFC A Loan is payable in 35 quarterly
installments of $372,000 each and a final installment of $380,000. The "IFC B
Loan," in the principal amount of $51 million, accrues interest at a rate of
3.25% per annum above the one, two or three month LIBOR rate depending upon
which rate is closest to the duration of the relevant interest period. The LIBOR
portion of the interest rate on the IFC B Loan has been hedged under an interest
rate swap agreement since the fourth quarter of 1995 such that the total
interest rate on the IFC B Loan is fixed at 9.37% per annum from September 15,
1995, through September 15, 2001. Principal on the IFC B Loan is payable in 32
quarterly installments of approximately $1.6 million each. The "IFC C Loan," in
the principal amount of $6.6 million, accrues interest at a rate of 14% per
annum. Interest on the IFC C Loan is payable quarterly until the IFC C Loan
matures in 2003. Principal on the IFC C Loan is payable in 40 quarterly
installments of $165,000 each. The Puerto Quetzal Loans, which are secured by
substantially all of the assets of PQPC, contain certain restrictive covenants,
including, among other things, a prohibition on distributions to its
stockholders if certain circumstances arise. As of December 31, 1996, the
principal amounts outstanding on the IFC A, IFC B and IFC C Loans were $8.6
million, $30.2 million and $4.6 million, respectively.
Enron has provided two irrevocable standby letters of credit to the IFC,
each in the amount of $3 million, to cover current debt service requirements of
PQPC under the IFC Loans. EPP has agreed to indemnify Enron for calls against
one of the $3 million letters of credit.
13
<PAGE> 16
Competition and Demand. Due to the Puerto Quetzal PPA, PQPC's
power-generating business faces no substantial direct competition. In addition,
there are regulatory limitations on entry into the business of providing
power-generating services in Guatemala, and the construction of a competing
power plant would require substantial capital investment. Moreover, as a
practical matter, a direct competitor would have to enter into agreements with
customers to generate a sufficient quantity of power to justify the capital
investment.
Employees and Labor Relations. As of March 7, 1997, the Puerto Quetzal
Plant utilized approximately 133 operations and maintenance personnel.
Legal Matters. PQPC is a party to certain lawsuits and administrative
proceedings before various courts and governmental agencies arising in the
ordinary course of business. EPP believes that the final outcome of such
lawsuits and proceedings will not have a material adverse effect on EPP's
results of operations or financial condition.
Puerto Plata Plant
General. On June 18, 1996, EPP purchased 50% of a power plant mounted on
two barges, flagged as Panama vessels, grounded on pilings in a protected slip
on the north coast of the Dominican Republic at Puerto Plata (the "Puerto Plata
Plant"). The current net power-generating contracted capacity of the Puerto
Plata Plant is 185 MW. EPP owns its interest in the Puerto Plata Plant through
its 50% owned subsidiary, Smith/Enron Cogeneration Limited Partnership
("Smith/Enron"). Affiliates of Enron and Smith Cogeneration International, Inc.
("SCI"), a British Virgin Islands company in which EPP has no interest, own the
remaining 50% of Smith/Enron. The Puerto Plata Plant commenced commercial
operations on January 16, 1996.
The Puerto Plata Plant is operated and maintained by Smith/Enron O&M
Limited Partnership ("Smith/Enron O&M") which is owned 50% by EPP and 50% by
affiliates of SCI. During the year ended December 31, 1996, the Puerto Plata
Plant operated at an average contract availability of 92% and an average heat
rate of 10,400 Btu/kwh.
Operation of the Puerto Plata Plant accounted for approximately 9% of EPP's
equity in earnings and technical assistance fees during 1996. Additional
information regarding the financial performance of EPP's power plant operations
is set forth in "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Power Plant Operations -- Results of
Operations" and EPP's financial statements and the notes thereto beginning at
Page F-1 of this Form 10-K.
Plant Operation and Maintenance. Pursuant to the terms of the Electric
Energy Supply and Sales Contract dated July 26, 1993 (as amended, the "Puerto
Plata Energy Supply Contract"), among Smith/Enron, Corporacion Dominicana de
Electricidad ("CDE") and the Government of the Dominican Republic (the "DR
Government"), Smith/Enron will provide plant capacity and electricity to CDE
until January 16, 2015, with the option for CDE to extend for one year. The
Puerto Plata Energy Supply Contract requires CDE to make fixed capacity
payments, fixed and variable operation and maintenance payments and an energy
payment providing for a pass-through of the Puerto Plata Plant's fuel costs. The
capacity payments are designed to cover debt service and return on equity for
Smith/Enron, and the operations and maintenance payments are designed to cover
the operation and maintenance costs of the Puerto Plata Plant. The DR Government
has guaranteed the performance of CDE's obligations under the Puerto Plata
Energy Supply Contract.
Smith/Enron and Smith/Enron O&M are parties to an Administrative Services
and Operation and Maintenance Agreement dated March 1, 1994 (the "Puerto Plata
O&M Agreement"). Smith/Enron utilized the services of Smith/Enron O&M in the
start-up of the Puerto Plata Plant and will continue to use Smith/Enron O&M's
services in the operation and maintenance of the Puerto Plata Plant through
January 16, 2015. Pursuant to the terms of the Puerto Plata O&M Agreement,
Smith/Enron O&M is entitled to an initial fixed fee of (a) 2% of the Puerto
Plata Plant's gross revenue for each month of a simple cycle operations and (b)
$2.1 million for each operating year of combined cycle operations. In addition,
Smith/Enron O&M is eligible or liable, as the case may be, for a bonus or
penalty based on the actual heat rate and plant availability achieved each year
at the Puerto Plata Plant compared with the operating plan adopted for each
year.
14
<PAGE> 17
Smith/Enron obtains fuel pursuant to two Fuel Supply Agreements (the "Fuel
Supply Agreements") with Enron Fuels International, Inc., an indirect wholly
owned subsidiary of Enron ("EFI"). Under the terms of the Fuel Supply
Agreements, EFI is obligated to supply all of Smith/Enron's fuel requirements,
until January 16, 2015, subject to termination every four years commencing in
1998.
Market. Electricity in the Dominican Republic is provided by CDE,
independent power producers and self generators. CDE, the semi-autonomous agency
owned by the Dominican State, was created in 1955 as a result of the
nationalization of Compania Electrica de Santo Domingo, a subsidiary of the
Stone & Webster Corporation.
The energy sector infrastructure must support a population of approximately
7.7 million people. The population has increased 2.1% each year on the average
since 1984 and is projected to continue to increase through 2015. The Dominican
Republic is presently faced with a serious shortage of available capacity that
has caused blackouts and rationing, leading industrial, commercial and
residential consumers increasingly to depend upon self generation.
Dividend Policy. Smith/Enron determines the amount of annual dividends, if
any, in a manner that would maximize the after-tax cash distributions to its
partners while taking into account its working capital and debt service needs.
Smith/Enron must pay or make adequate reserve for operating and maintenance
costs, taxes and debt service prior to the distribution of any dividends. The
payment of dividends, which depends on the financial performance of Smith/Enron
and is subject to certain restrictions contained in the Smith/Enron Loans
(defined below). Smith/Enron did not declare or pay dividends in 1996.
Associated Debt. Smith/Enron has loans and debt obligations (collectively,
the "Smith/Enron Loans") with the IFC, Commonwealth Development Corporation,
Deutsche Investitions and Entwicklungs Gesellschaft MBH ("DEG") and the United
States of America. Smith/Enron has pledged as collateral for its obligations
under the Smith/Enron Loans all of its land, machinery and equipment and a $24
million letter of credit issued by the DR Government in favor of Smith/Enron.
In addition to the Smith/Enron Loans, Smith/Enron is a party to a currency
and interest rate swap agreement dated September 8, 1995, with the IFC, whereby
Smith/Enron has agreed to pay 12.02% on the outstanding principal of $10.1
million to the IFC, and the IFC has agreed to pay Smith/Enron's Deutsche Marks
15 million obligation to DEG at an interest rate of 11.10%.
Additionally, Smith/Enron procured certain cost overrun loans ("COLs") for
construction related items from Enron affiliates. In connection with the
purchase of the 50% interest in Smith/Enron, EPP purchased approximately $10.7
million face amount of COLs for approximately $8.5 million in exchange for
approximately 0.3 million Common Shares. All COLs bear interest at 13.5% with
interest and principal payable semiannually through December 2003. As of
December 31, 1996, Smith/Enron owed approximately $10.7 million and $1.0 million
in COLs to EPP and Enron affiliates, respectively.
As of December 31, 1996, the total approximate principal amount
outstanding, in the aggregate, on the Smith/Enron Loans and the COLs was $157
million.
On February 26, 1997, pursuant to the purchase arrangement between Enron
and EPP, Enron funded through EPP two additional COLs totaling approximately
$3.2 million at 13.5% interest, with interest and principal payable semiannually
through December 2004. See Note 2 and Note 13 to EPP's financial statements and
the notes thereto beginning at Page F-1 of this Form 10-K.
Competition and Demand. Due to the Puerto Plata Energy Supply Contract,
Smith/Enron's power-generating business faces no substantial direct competition.
In addition there are regulatory limitations on entry into the business of
providing power-generating services in the Dominican Republic, and the
construction of a competing power plant would require substantial capital
investment. Moreover, as a practical matter, a direct competitor would have to
enter into agreements with customers to generate a sufficient quantity of
electricity to justify the capital investment.
Employees and Labor Relations. As of March 7, 1997, the Puerto Plata Plant
employed approximately 47 operations and maintenance personnel.
15
<PAGE> 18
Legal Matters. Smith/Enron is currently involved in an International
Chamber of Commerce arbitration proceeding against CDE and the DR Government.
Smith/Enron has alleged that CDE owes approximately $23 million in past due
amounts under the Puerto Plata Energy Supply Contract, a claim which CDE
disputes as to $21.7 million. CDE has alleged that Smith/Enron owes
approximately $15.2 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 Smith/Enron from drawing on the letter of credit. In
the arbitration proceeding, Smith/Enron has denied the claims of CDE and the DR
Government and is defending against such claims. Smith/Enron's defense will
include the fact that the claim for delay damages was previously waived by CDE
and the DR Government in an earlier contractual undertaking. Smith/Enron
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. Smith/Enron anticipates a decision by the arbitration
panel by the end of 1997. 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, initiated an action against
Smith/Enron in the Dominican Republic. Hotelera has requested 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 Smith/Enron 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. An agreement
between the parties was reached and a settlement agreement was signed on
December 15, 1994 (the "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 Smith/Enron as agreed to in the
Settlement Agreement. Smith/Enron believes that it has complied with the World
Bank guidelines and intends to defend against such claims. While Enron 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 Smith/Enron. 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.
Smith/Enron, General Electric Company, Raytheon Engineers & Constructors,
Enron Power Construction Company 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 claims has been initiated and consent
of Smith/Enron's lenders is being sought for such settlement. While Enron has
agreed to indemnify EPP from any changes in the investment value due to the
potential financial impact of the settlement on the project, the settlement
could impact EPP's earnings from Smith/Enron. 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.
In addition to the matters discussed above, Smith/Enron is a party to
certain lawsuits and administrative proceedings before various courts and
governmental agencies arising in the ordinary course of business. EPP believes
that the final outcome of such lawsuits and proceedings will not have a material
adverse effect on EPP's results of operations or financial condition.
PURCHASE RIGHT AGREEMENT
The Purchase Right Agreement, a copy of which has been filed as an exhibit
to this Form 10-K, requires that Enron offer to EPP all of its ownership
interests in certain power plant and natural gas pipeline projects (the
"Eligible Projects"). Eligible Projects generally include (i) the Designated
Development Projects (defined below) and (ii) subject to certain exceptions, any
other power plant or natural gas pipeline project
16
<PAGE> 19
developed by Enron, or developed by others and acquired by Enron, that is
located outside the United States, Canada and Western Europe and that begins
commercial operations prior to January 1, 2005. The Designated Development
Projects presently include three identified development stage projects (power
plants in each of China, India and Turkey) and an additional project to be
designated by Enron. As of the date of this Form 10-K, the additional project
has not yet been designated, although Enron and EPP are in discussions about
such designation.
With certain exceptions, Enron is required to offer all of its ownership
interest in each Eligible Project to EPP within one year after commencement of
its commercial operations. Enron has informed EPP that it generally expects to
offer to EPP an ownership interest which either represents 50% of an underlying
Eligible Project or, if smaller than 50%, is as large as or larger than that of
any other single equity holder in the project. In general, Enron may determine
the sale price at which it offers its ownership interests in the Eligible
Projects. However, Enron is required to offer interests in each of the
Designated Development Projects at a price (i) that is projected to result in
positive average incremental earnings per share and net cash flow per share for
the five calendar years commencing with the calendar year of the proposed
purchase and (ii) which reflects an internal rate of return of no lower than 14%
and no higher than 35% based on the proposed price, net working capital on the
closing date and the project's projected net cash flows for the life of the
project after local taxes but before U.S. federal income taxes. The interests in
projects other than Designated Development Projects may be offered at any price
determined by Enron, as long as Enron's offer complies with the terms of the
Purchase Right Agreement. However, the Purchase Right Agreement provides that
Enron will have complied with its obligation to offer its interest in the
project if Enron's offer is (i) commercially reasonable and (ii) within a range
that a reasonable offeree that is knowledgeable in the industry could reasonably
accept both as determined in Enron's sole judgment at the time the offer is made
and taking into consideration the terms, conditions and price of its offer.
Notwithstanding the above, Enron is not required to offer its interest in any
project at a price that is below Enron's book value (under U.S. generally
accepted accounting principles ("U.S. GAAP")) for such interest.
The Amended and Restated Limited Liability Company Agreement of EPP (the
"Company Agreement") provides for the establishment of an oversight committee
(the "Oversight Committee") composed solely of outside directors. The Oversight
Committee has the sole authority to determine whether EPP should accept or
reject projects offered by Enron pursuant to the Purchase Right Agreement. The
Oversight Committee, however, cannot accept an offer from Enron under the
Purchase Right Agreement unless it obtains an opinion from an internationally
recognized independent financial advisor that the proposed purchase
consideration to be paid by EPP is fair, from a financial point of view, to EPP.
In the event an offer is approved, the consideration paid by EPP will consist
solely of Common Shares unless Enron and EPP otherwise agree.
In addition to the foregoing, the Oversight Committee may, and in certain
circumstances is required to, review the terms of acquisitions from Enron
outside the Purchase Right Agreement. The Oversight Committee may also consider
and resolve matters involving conflicts of interest between EPP and Enron.
DESIGNATED DEVELOPMENT PROJECTS; FUTURE PROJECTS
The following is a brief description of the Designated Development Projects
which EPP expects to have the opportunity to purchase from Enron. These projects
are in various stages of development or operations; thus the information set
forth below is subject to change. In addition, these projects are, to varying
degrees, subject to all of the risks associated with project development,
construction and financing in foreign countries, including, without limitation,
the receipt of permits and consents, the successful resolution of any
litigation, political risk and the availability of project financing on
acceptable terms. There can be no assurance that any of these projects will
commence commercial operations or, if they do, that EPP will purchase any of
these projects from Enron.
Hainan Island. Hainan Meinan Power Company CJV ("HMPC"), a Sino-American
cooperative joint venture, was formed to construct and operate a 154 MW diesel
combined cycle power plant (the "Hainan Plant") in Hainan Province, People's
Republic of China ("PRC"). Each of Enron and Singapore Power
17
<PAGE> 20
International Pte. Ltd. ("Singapore Power") indirectly owns a 50% indirect
interest in HMPC. The Hainan Plant is currently operated and maintained by an
affiliate of Enron.
The Hainan Plant sells its electric power pursuant to the terms of a Power
Purchase Contract dated September 8, 1994 (the "Hainan PPC") among Wenchang
Power C.V., a Netherlands limited partnership indirectly owned by Singapore
Power and affiliates of Enron, HMPC and Hainan Electric Power Corporation
("HEPCO"). HEPCO is the Chinese power company formed by the Hainan Electric
Power Bureau, an arm of the provincial government, to own and operate power
plants and transmission facilities within Hainan Province. The Hainan PPC
requires HMPC to provide electricity to HEPCO for a period of 12 years from
December 15, 1995, the date simple cycle operations commenced at the Hainan
Plant. At the end of this 12-year period, HMPC is required to transfer the
Hainan Plant to HEPCO for nominal consideration. During the term of the Hainan
PPC, HEPCO must make fixed and variable capacity payments and an energy payment
to HMPC. The fixed capacity payment is designed to cover debt service, fixed and
variable operation and maintenance costs, taxes and return on equity.
HEPCO and HMPC are currently renegotiating the Hainan PPC to provide for a
lower guaranteed capacity payment in the early years and a higher guaranteed
payment in the later years, resulting in a neutral impact on the Hainan Plant's
net present value of expected cash flows. Enron anticipates that it will not
offer its interest in the project to EPP prior to the conclusion of such
renegotiations and prior to increased utilization of the plant by HEPCO.
Dabhol Plant. Dabhol Power Company ("DPC") is a private unlimited liability
company formed under the laws of India in April 1993 to construct and operate a
power plant, fuel facilities and related ancillary facilities (the "Dabhol
Plant") near Dabhol in the State of Maharashtra, India, approximately 170 km
south of Bombay. DPC is owned jointly by affiliates of Enron (80%), Bechtel
Enterprises (10%) and General Electric Company (10%).
DPC entered into a Power Purchase Agreement on December 8, 1993 (the
"Initial Dabhol PPA") with the Maharashtra State Electricity Board ("MSEB"), the
largest generator and distributor of power in the State of Maharashtra. The
power plant contemplated by the Initial Dabhol PPA was to produce 695 MW
(exportable capacity; 781 MW gross electrical output at International Standards
Organization conditions ("ISO Output")) with potential expansion of up to 2,015
MW (exportable capacity; 2,265 MW ISO Output). In August 1995, after a new
governing coalition was elected in the State of Maharashtra, the state
government of Maharashtra (the "GOM") attempted to stop construction on the
Dabhol Plant and cancel the project. During 1996, after DPC had initiated
arbitration proceedings, DPC, GOM and MSEB reached an agreement to go forward
with an expanded project. The Dabhol Plant will now have an initial capacity of
826 MW (ISO Output; 740 MW exportable capacity) ("Phase I"), with potential
expansion up to 2,450 MW (ISO Output; 2,184 MW exportable capacity). The Initial
Dabhol PPA has been amended to include, among other things, the expanded
capacity (the Initial Dabhol PPA, as amended, is referred to herein as the
"Dabhol PPA"). Phase I is expected to begin commercial operations in December
1998.
Pursuant to the Dabhol PPA, DPC is required to use reasonable efforts to
expand the Dabhol Plant by constructing additional capacity of 1,624 MW (ISO
Output) ("Phase II"). It is the current expectation that Phase II would involve
the transformation of the entire project to a facility fueled by natural gas
converted from imported liquefied natural gas. DPC has taken, and is taking,
certain steps to pursue the possibility of Phase II. DPC may, however, seek to
pursue less than the full expansion of the power station and provide additional
capacity of less than 1,624 MW (ISO Output).
Also pursuant to the Dabhol PPA, MSEB has agreed to make payments to DPC
for the availability of generating capacity for energy delivered once the Dabhol
Plant has satisfied certain minimum operating requirements. The capacity
payments are designed to cover periodic maintenance costs, debt service, fixed
operating costs, taxes and return on equity. Energy payments are set at a level
intended to cover the Dabhol Plant's variable costs of generating power,
including the cost of fuel. The GOM has provided DPC a written guarantee of
MSEB's payment obligations under the Dabhol PPA. In addition, the Government of
India has provided to DPC a written limited guarantee of GOM's obligations
pursuant to its guarantee.
18
<PAGE> 21
Enron affiliates have been appointed under separate agreements to act in
the following capacities with regard to the Dabhol Plant: (i) DPC's
representative in monitoring the activities of the construction of Phase I, (ii)
the operator of the Dabhol Plant and (iii) the coordinator of the fuel supplies.
DPC has obtained approximately $643 million in project debt financing for Phase
I, secured by the Phase I assets, which subjects DPC to certain dividend payment
restrictions. Enron anticipates offering the Dabhol Plant to EPP in 1999.
Marmara Plant. Trakya Elektrik Uretim ve Ticaret A.S. ("Trakya") is a joint
stock company incorporated under the laws of Turkey to construct and operate a
478 MW power plant in Marmara, Turkey (the "Marmara Plant"). Marmara is located
on the northern coast of the Sea of Marmara near Istanbul. Trakya's shareholders
are Enron Power Holdings C.V. owning a 50% interest, Midlands Generation
(Overseas) Limited owning a 31% interest, Gama Endustri Tesisleri Imalat ve
Montaj A.S. ("Gama") owning an 8% interest, Wing International, Ltd. owning a 9%
interest and Gama Pazarlama A.S. owning a 2% interest.
Trakya entered into an Implementation Contract with the Ministry of Energy
and Natural Resources of the Republic of Turkey on May 28, 1993, which
authorizes Trakya to construct and operate the Marmara Plant. The Marmara Plant
will be constructed by a consortium consisting of affiliates of Enron and Gama.
The Marmara Plant will be operated and maintained by affiliates of Enron.
Turkiye Elektrik Uretim, Iletim A.S. ("TEAS"), the Turkish national
electricity company, and Trakya entered into an Energy Sales Agreement (the
"ESA") for an initial term of 20 years commencing upon the completion of
construction of the Marmara Plant. Pursuant to the ESA, TEAS is obligated to
purchase on a "take-or-pay" basis minimum quantities of electricity made
available by Trakya. The payments required by TEAS under the ESA incorporate
both a capacity and an energy charge designed to meet all of Trakya's capital
and operating costs.
Fuel for the Marmara Plant will be supplied by Boru Hatlari Ile Petrol
Tasima A.S., the Turkish national gas company ("BOTAS"). BOTAS has executed a
Gas Sales Agreement (the "GSA") with Trakya for an initial term expiring in
2014. Pursuant to the GSA, BOTAS is obligated to supply the necessary quantities
of natural gas for the operation of the Marmara Plant. The price of natural gas
under the GSA is recovered through the gas energy charge under the ESA, provided
that certain levels of efficiency are attained.
In addition to the foregoing, Trakya has entered into a Fund Payment
Agreement (the "FPA") with the Electrical Energy Fund (the "Energy Fund"). The
Energy Fund was created by the Government of the Republic of Turkey to mitigate
force majeure risk for private power generation projects in Turkey. The FPA
provides for certain payments to be made under defined events of force majeure.
All payment obligations of TEAS, BOTAS and the Energy Fund are guaranteed by the
Republic of Turkey.
In October 1996, project financing in the aggregate principal amount of
$455 million was obtained, and construction of the Marmara Plant began. Enron
anticipates offering the Marmara Plant to EPP in 1999.
Subsequent Designated Development Project. As indicated above, the Purchase
Right Agreement required Enron to designate by December 31, 1996, an additional
project as a Designated Development Project. While such designation has not been
made to date, Enron and EPP are in discussions about such designation.
Future Projects. In addition to the Designated Development Projects, Enron
has a number of power and natural gas pipeline projects in varying stages of
development, including projects in Bolivia, Brazil and Indonesia. In addition,
although Enron is under no obligation to offer its interest in projects not
covered by the Purchase Right Agreement, Enron is developing significant power
projects in Puerto Rico, Italy and Guam and a gas processing facility in
Vietnam. These projects are subject to all of the risks associated with project
development, construction and financing in foreign countries, including without
limitation, the negotiation of satisfactory power purchase, fuel supply,
transportation or other contracts, the receipt of permits and consents, the
successful resolution of any litigation and the availability of project
financing on acceptable terms. There can be no assurance that any of these
projects will commence commercial operations or, if they do, that Enron will
offer them to EPP or EPP will purchase them from Enron.
19
<PAGE> 22
RELATIONSHIP WITH ENRON AND CONFLICTS OF INTEREST
As a result of the extensive relationships between EPP and Enron, the
holder of approximately 52% of the outstanding Common Shares, certain conflicts
of interest exist and are likely to continue in the future. Holders of Common
Shares are deemed, pursuant to the terms of the Company Agreement, to have
consented to certain of these conflicts. A brief description of material
relationships between Enron and its affiliates and EPP is set forth below.
Through the Purchase Right Agreement, Enron will serve as a primary source
of acquisitions of new projects by EPP, although EPP is actively seeking third
party acquisitions. EPP expects to receive substantial benefits from the
relationship with Enron, although the potential for conflict does exist.
Pursuant to an Administrative Services Agreement (the "Administrative
Services Agreement") and a Benefit and Compensation Agreement between Enron and
EPP, Enron provides EPP with various services, such as those relating to certain
employee benefit plans, investor relations, securities laws compliance and
reporting, telecommunications, computer systems, office space, purchasing,
technical consulting and certain other corporate staff and support services. In
addition, Enron continues to provide services to EPP's projects pursuant to
separate agreements with the companies that own such projects. Such services
include, among other things: (i) day-to-day commercial management, operation and
maintenance of the projects, (ii) advice regarding policies, procedures, plans
and budgets to allow the operation and maintenance of the project to be
performed in accordance with good utility practice, the operating agreements and
other material agreements, as well as applicable law, (iii) auditing services,
(iv) development of appropriate information systems, (v) technical consulting
and (vi) certain legal services.
Pursuant to a Contribution Agreement among EPP, Enron and certain of their
affiliates (the "Contribution Agreement"), Enron has agreed to maintain certain
guarantees, letters of credit, support obligations and other covenants for the
benefit of certain of EPP's subsidiaries. In most instances, EPP has agreed to
indemnify Enron against liabilities incurred under such guarantees, letters of
credit, support obligations and other covenants to the extent Enron does not
otherwise have a contractual right to be reimbursed for such liabilities.
Substantially all of such indemnity obligations of EPP to Enron reflect EPP's
pro rata share of preexisting obligations of the subsidiaries. Although these
indemnity obligations could result in certain otherwise nonrecourse liabilities
becoming recourse to EPP, EPP believes the events which would trigger liability
are unlikely to occur and, therefore, does not expect these obligations to
create any additional liability to EPP.
EPP entered into a Cost Sharing Agreement with ECT (the "Cost Sharing
Agreement") pursuant to which ECT provided certain accounting, commercial,
administrative and other services related to the management of the projects to
EPP. This agreement was entered into effective as of July 1, 1995, and extended
through December 31, 1996. EPP anticipates entering into a Cost Sharing
Agreement with EI pursuant to which EI will provide certain accounting,
commercial, administrative and other services related to the management of the
projects to EPP. The terms of the agreement have not been finalized.
RESEARCH AND DEVELOPMENT
EPP does not presently conduct or maintain, nor has it conducted or
maintained during the past three fiscal years, any company-sponsored or
customer-sponsored research and development activities relating to the
development of new products, services or techniques or the improvement of
existing products, services or techniques.
ENVIRONMENTAL MATTERS
EPP's operations are subject to the jurisdiction of numerous governmental
agencies in the countries in which the projects are located with respect to
environmental and other regulatory matters. Generally, many of the countries in
which EPP does and will do business have recently developed or are in the
process of developing new regulatory and legal structures to accommodate private
and foreign-owned businesses. These regulatory and legal structures and the
interpretation thereof by administrative agencies are relatively new and
20
<PAGE> 23
sometimes limited. Many detailed rules and procedures are yet to be issued. The
interpretation of existing rules can also be expected to evolve over time.
Although EPP believes that its operations are in compliance in all material
respects with all applicable environmental laws and regulations in the
jurisdictions in which it operates, EPP also believes that the operations of its
projects eventually may be required to meet standards that are comparable in
many respects to those in effect in the United States and in countries within
the European Community. In addition, as EPP acquires additional projects in
various countries, it will be affected by the environmental and other regulatory
restrictions of such countries. Therefore, compliance with applicable
environmental laws and regulations in the future may have a material effect upon
the capital expenditures, earnings and competitive position of EPP and its
subsidiaries.
EPP is not aware of any situation that might require a material estimated
capital expenditure for environmental matters for the remainder of its current
fiscal year, its succeeding fiscal year or for any period in the foreseeable
future. See Note 13 to EPP's financial statements and the notes thereto
beginning at Page F-1 of this Form 10-K.
EMPLOYEES
EPP currently has approximately 50 employees. Certain of such employees
serve on a part time basis as employees of EPP, with their remaining time spent
as part time employees of Enron. Information regarding the employees of each of
EPP's subsidiaries is set forth in "Item 1 -- Business" of this Form 10-K.
ITEM 2. PROPERTIES
Information regarding EPP's properties is set forth in "Item 1 -- Business"
of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
As of March 7, 1997, there were no legal proceedings to which EPP was a
party or to which any of EPP's property was subject. In addition, no such
proceedings, to the knowledge of EPP, are contemplated by any governmental
authority.
EPP's subsidiaries are parties to various legal proceedings in the ordinary
course of business. Although no assurances can be given, EPP believes, based on
its experience to date and after considering appropriate reserves that have been
established by such subsidiaries, that the ultimate resolution of the underlying
claims, individually or in the aggregate, will not have a materially adverse
impact on EPP's financial position or results of operations. Discussions of the
pending legal proceedings involving EPP's subsidiaries are set forth in "Item
1 -- Business" and in Note 13 to EPP's financial statements and the notes
thereto beginning at Page F-1 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 18, 1996, EPP solicited the consents of the holders of the
Common Shares to ratify the Option and to approve the issuance of Common Shares
upon the exercise thereof. On December 9, 1996, the deadline for submitting
consents to such items, 76.8% of the outstanding holders of Common Shares
entitled to vote had issued their consent. This percentage was more than that
required to approve such items. Additional information regarding the consent
solicitation is set forth in "Item 1 -- Business -- Current Pipeline
Operations -- Argentine Pipeline" of this Form 10-K.
21
<PAGE> 24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The following table sets forth the high and low sale prices of the Common
Shares for each quarterly period during the last two fiscal years. The prices
indicated are those reported on the New York Stock Exchange Composite Tape. The
Common Shares are traded on the New York Stock Exchange under the symbol "EPP."
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
- ----
First Quarter.......................................... $24 1/4 $20
Second Quarter......................................... 27 22 5/8
Third Quarter.......................................... 24 21
Fourth Quarter......................................... 25 3/8 22 7/8
1996
- ----
First Quarter.......................................... $27 $23 3/4
Second Quarter......................................... 27 23 3/8
Third Quarter.......................................... 25 3/8 23 1/4
Fourth Quarter......................................... 29 24
</TABLE>
EPP paid dividends of $0.205 per Common Share for each quarter during 1995,
totaling $0.82 per Common Share during that year. EPP paid quarterly dividends
of $0.22 per Common Share for the first three quarters of 1996 and $0.25 per
Common Share for the fourth quarter of 1996, totaling $0.91 per Common Share
during 1996. On February 18, 1997, the Board of Directors of EPP declared a
quarterly dividend of $0.25 per Common Share payable on March 14, 1997, to
holders of record of Common Shares on February 28, 1997. The payment of
dividends on the Common Shares is subject to the discretion of the Board of
Directors of EPP and the requirements of Delaware law. Such payment will also
depend upon general business conditions, the financial performance of EPP and
the availability of dividends from EPP's subsidiaries. EPP relies almost
exclusively on dividends from its subsidiaries for the payment of dividends to
the holders of Common Shares.
At January 31, 1997, there were approximately 59 holders of record of
Common Shares. Also as of such date, there were an estimated 3,500 beneficial
owners holding their Common Shares in street name.
22
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" of this Form 10-K and the consolidated financial
statements of EPP and the notes thereto beginning at Page F-1 of this Form 10-K.
<TABLE>
<CAPTION>
PREDECESSOR PERIODS ENDED
YEARS ENDED PRO FORMA ---------------------------
DECEMBER 31, YEAR ENDED PERIOD ENDED
----------------- DECEMBER 31, DECEMBER 31, NOVEMBER 21, DECEMBER 31,
1996 1995 1994(1) 1994 1994 1993
------- ------- ------------ ------------ ------------ ------------
(40 DAYS) (325 DAYS) (YEAR)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Technical Assistance Fees............ $11,258 $10,033 $ 8,674 $ 599 $ 8,075 $ 7,438
Equity in Earnings of
Unconsolidated Subsidiaries
Pipeline Operations................ 29,767 22,154 22,965 1,706 21,259 20,721
Power Operations................... 16,348 11,274 8,177 1,209 6,968 4,218
------- ------- ------- ------ ------- -------
Equity in Earnings and Technical
Assistance Fees...................... 57,373 43,461 39,816 3,514 36,302 32,377
General and Administrative Expenses.... (5,707) (6,036) (6,382) (397) (4,289) (3,486)
Taxes Other Than Income................ (672) (600) (489) (41) (448) (503)
Interest Expense....................... (1,834) (96) -- -- -- --
Other Income, Net...................... 1,370 1,869 1,151 93 1,058 (128)
------- ------- ------- ------ ------- -------
Income Before Income Taxes............. 50,530 38,598 34,096 3,169 32,623 28,260
Income Taxes........................... 4,535 3,571 3,802 358 3,444 2,281
------- ------- ------- ------ ------- -------
Net Income............................. $45,995 $35,027 $30,294 $2,811 $29,179 $25,979
======= ======= ======= ====== ======= =======
Net Income per Common Share............ $ 1.90 $ 1.68 $ 1.45 $ 0.13
======= ======= ======= ======
Average Number of Common Shares Used in
Computation.......................... 24,202 20,842 20,840 20,840
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994 1993
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Investments in and Advances to Unconsolidated
Subsidiaries...................................... $298,530 $159,621 $152,112 $203,494
Total Assets........................................ 343,843 187,713 163,100 230,217
Shareholders' Equity................................ 265,444 177,352 158,968 223,070
</TABLE>
- ---------------
(1) Reflects adjustments for increased general and administrative expenses
resulting from increased costs associated with a publicly-owned company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Primary Assets and Sources of Earnings and Cash
EPP's primary assets are its interests in 50% or less owned operating
companies (the "Project Companies") which it holds directly or indirectly
through its 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. Earnings from the
Project Companies are EPP's primary source of earnings. However, EPP also
receives technical and administrative assistance fees paid by certain of the
Project Companies to certain of its subsidiaries (primarily by TGS to 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
board of directors of each 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.
23
<PAGE> 26
Risks Associated with International Operations
Political and Economic Risks. General political and economic conditions in
the countries in which EPP operates, or may have operations in the future
(collectively, the "Project Countries"), could significantly affect the
financial prospects of EPP. The economies of many Project Countries are less
developed and differ significantly in many respects from the economies of more
developed countries, such as the United States, Canada and most Western European
countries. These differences include structure, levels of capital investment,
growth rate, government involvement, resource allocation, self-sufficiency, rate
of inflation and balance of payments position. The success of EPP in
implementing its strategy requires a political and economic environment in
Project Countries that will foster development. Governments in such countries
often retain significant influence over their economies. Accordingly, future
government actions concerning their economies or the operation and regulation of
nationally important facilities, such as power plants and pipelines, could have
a significant adverse effect on EPP's operations.
Further, certain Project Countries do not have well-developed legal systems
and lack a well-developed, consolidated body of laws governing foreign
investment enterprises. The uncertainty of the legal environment in these
countries could render it difficult for EPP to enforce its rights, or those of
its Project Companies, under agreements relating to its projects. In addition,
the administration of laws and regulations by governmental agencies in such
countries may be subject to considerable discretion. As these legal systems
develop, foreign investors may be adversely affected by new laws and changes to
existing laws or interpretations thereof.
EPP's operations are also subject to other political and economic
uncertainties, including risks of war, expropriation, nationalization,
renegotiation or nullification of existing contracts, changes in rates and
methods of taxation and foreign exchange controls and governmental restrictions
on the repatriation of hard currency. EPP does not purchase insurance coverage
for these risks.
Foreign Exchange Risks. Because EPP's current and future operations will be
conducted primarily in foreign countries, EPP may be exposed, directly or
indirectly, to restrictions on foreign currency convertibility, remittance and
exchange rate risks associated with foreign operations. If realized, these risks
could adversely affect the ability of one or more of the Project Companies to
pay dividends to EPP, which, in turn, could adversely affect the ability of EPP
to pay dividends on the Common Shares. There are currently no restrictions on
foreign currency convertibility or remittance which would materially affect EPP
in any of the Project Countries in which EPP currently operates.
Payments to TGS from its customers are based on tariff rates which are
denominated in U.S. dollars, indexed semiannually to the U.S. Producer Price
Index ("PPI"), and paid in Argentine pesos at the official exchange rate at the
time of billing. Foreign exchange risks of the Project Companies, other than
TGS, are primarily managed by payment terms in the major contracts. Revenues are
generally structured such that local currency is received to pay local expenses
and U.S. dollars are received to make dollar-denominated payments. Additionally,
for local purposes, Centragas may be required to recognize foreign exchange
gains or losses due to both the effects of inflation on its net nonmonetary peso
denominated assets and the effects of changes in the peso value on its net
dollar denominated liabilities. In-country tax expense or benefits may be
assessed on such foreign exchange gains or losses. However, for U.S. GAAP
purposes, the foreign exchange gains or losses are eliminated, but the
accompanying tax expense or benefit is reflected in the financial statements of
Centragas. EPP expects that the material revenue producing contracts of foreign
projects in which it invests will generally continue to require that payments to
the Project Company be made either in U.S. dollars, highly liquid foreign
currencies or in local currency at the then current exchange rate for U.S.
dollars.
Foreign exchange risks of the Project Companies, which are not mitigated by
contract payments or other terms, may be separately managed by EPP. EPP uses
financial instruments such as forward contracts to manage such identified
exchange rate risks pursuant to a policy approved by its Board of Directors.
During 1996, EPP recognized a gain of approximately $0.8 million on such
transactions, which is recorded in other income, net. In February 1997, EPP
entered into forward contracts on foreign currency on approximately $14.8
million notional U.S. dollars expiring in late 1997 and early 1998 to manage a
portion of identified risks. See Note 14 to EPP's financial statements and the
notes thereto beginning at Page F-1 of this Form 10-K.
24
<PAGE> 27
RESULTS OF OPERATIONS OF EPP
General
On November 22, 1994, EPP closed the initial public offering of the Common
Shares and commenced operations in its current form. The results of operations
for periods prior to that date are presented on a special-purpose combined
basis, as if Enron had contributed its ownership of EPCA, EPPC and PQPC to EPP
as of the date such companies began operations.
For the year ended December 31, 1996, EPP's equity in earnings and
technical assistance fees from its Argentine and Philippine operations
constituted approximately 61% and 16%, respectively, of EPP's equity in earnings
and technical assistance fees. As of December 31, 1996, the Argentine and the
Philippine operations accounted for approximately 52% and 19%, respectively, of
EPP's assets. Therefore, if Argentine or Philippine operations were materially
and adversely affected, EPP's financial condition and results of operations
could be materially and adversely affected. Also, revenues from four
transportation customers and one producer represented approximately 98% of TGS's
transportation revenues in 1996 and NPC is the sole customer for EPP's
operations in the Philippines. As a result, a material failure of any one of
these four TGS customers, the producer or NPC to fulfill its obligations to the
Project Companies could have a material adverse effect on the financial
condition and results of operations of EPP. For the results of operations of
EPP's unconsolidated subsidiaries, see "-- Pipeline Operations -- Results of
Operations" and "-- Power Operations -- Results of Operations" below.
Equity in Earnings and Technical Assistance Fees. Equity in earnings and
technical assistance fees increased $13.9 million (32%) from 1995 to 1996. The
increase in equity earnings ($12.7 million, 38%) was primarily attributable to
the acquisitions of Centragas ($4.7 million), Smith/Enron and Smith/Enron O&M
($4.5 million) and the increase in equity earnings from EPCA ($2.9 million). The
increase in equity earnings from EPCA was primarily due to the acquisition of
the additional 8 1/3% interest in CIESA, net of the decrease in earnings in
Argentina as a result of the retroactive increase in income tax rates from 30%
to 33% effective January 1, 1996. The increase in technical assistance fees
($1.2 million, 12%) resulted from the increase in technical assistance fees at
EPCA ($0.8 million), attributable to the increase in TGS's operating income and
EPP's increased ownership in CIESA, and fees received in exchange for guarantees
in the Dominican Republic in 1996 ($0.4 million).
Equity in earnings and technical assistance fees increased $3.6 million
(9%) from 1994 to 1995. The increase in equity earnings ($2.3 million, 7%) was
primarily due to a $3.1 million (38%) increase in equity earnings from power
operations. This increase from power operations resulted from improved
efficiency, higher contracted capacity and lower operating expenses, partially
offset by the decrease in equity earnings from CIESA ($0.8 million) primarily
due to increased interest expense. The increase in technical assistance fees
($1.4 million, 16%) from 1994 to 1995 was primarily due to the increase in TGS's
operating income, which is the basis for determining the technical assistance
fees that EPCA earns.
General and Administrative Expenses. General and administrative expenses
generally include the costs attributable to EPP's corporate functions and the
management of the Project Companies. General and administrative expenses
decreased $0.3 million (5%) from 1995 to 1996 and $0.3 million (5%) from 1994 to
1995.
Interest Expense. Interest expense increased $1.7 million from 1995 to 1996
primarily due to interest expense associated with the debt incurred in obtaining
an additional ownership interest in CIESA ($1.8 million). Interest expense was
immaterial in 1995 and 1994.
Other Income, Net. Other income, net decreased $0.5 million (27%) from 1995
to 1996 primarily due to the acquisition costs associated with Centragas,
Smith/Enron and Smith/Enron O&M in 1996 ($1.9 million), partially offset by
increased interest income at EPP ($1.0 million) and EPPC ($0.4 million) due to
increased notes receivable and cash balances during 1996.
25
<PAGE> 28
Other income, net increased $0.7 million (62%) from 1994 to 1995 primarily
due to increased interest income at EPPC and EPCA as a result of increased cash
balances during 1995.
Income Taxes. The income of EPP is not taxable to EPP; however, EPCA and
EPPC 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. EPCA is subject to Argentine taxes
(currently 33%) primarily on the technical assistance fees it receives from TGS,
net of interest expense. Dividends paid to EPP from EPPC and Centragas are
subject to certain withholding taxes at 15% and 7%, respectively, which have
been accrued as of December 31, 1996.
Income taxes increased $1.0 million (27%) from 1995 to 1996 primarily due
to the increase in Philippine withholding taxes ($0.7 million) and Colombian
withholding taxes ($0.3 million). Income taxes decreased $0.2 million (6%) from
1994 to 1995 primarily due to the reversal of certain 1994 tax accruals that
are, in the opinion of EPP management, no longer needed. This decrease was
partially offset by higher technical assistance fees in Argentina and higher
equity earnings in the Philippines.
LIQUIDITY AND CAPITAL RESOURCES OF EPP
Primary Cash Requirements
The primary cash requirements of EPP are 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. 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 the Contribution
Agreement. Pursuant to the terms of the Contribution Agreement, Enron maintains
certain commitments on behalf of EPP for the benefit of certain Project
Companies, as required by project lenders and 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 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. For a description of certain of the commitments maintained by
Enron, see "Item 1. Business -- Current Power Plant Operations -- Subic Bay
Plant -- Associated Debt," " -- Batangas Plant -- Associated Debt" and
"-- Puerto Quetzal Plant -- Associated Debt."
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 the 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.
26
<PAGE> 29
During 1996, EPP declared and paid $21.0 million of dividends. During 1996,
TGS declared two semiannual dividends totaling $0.195 per share, of which EPCA
received $29.1 million. During 1996, Subic Power Corp. and Batangas Power Corp.
paid $4.1 million and $13.0 million in dividends, respectively, of which EPPC
received approximately $2.1 million and $6.5 million, respectively. During 1996,
Centragas paid dividends totaling approximately $1.4 million, of which EPP
received approximately $0.4 million. In January 1997, PQPC declared a dividend
of $3.0 million, of which EPP received $1.5 million. In February 1997, Subic
Power Corp. and Batangas Power Corp. declared $3.0 million and $9.0 million in
dividends, respectively, of which EPP anticipates receiving $1.5 million and
$4.5 million, respectively, in March 1997. For a description of the dividend
policies at the Project Companies, see "Item 1 Business -- Current Pipeline
Operations" and "-- Current Power Plant Operations."
On October 10, 1996, EPCA borrowed $24.8 million from Centragas at the one
month LIBOR with principal due October 2011. The proceeds were used to repay a
portion of EPCA's debt with Enron. The loans were made from funds that cannot
currently legally be dividended from Centragas, but can be loaned on a long-term
basis pursuant to the terms of a cash management agreement with Centragas.
Long-Term Financing Policy
EPP's business strategy is to generate long-term growth in earnings,
dividends and cash flow per share by acquiring interests in additional power and
natural gas pipeline projects from Enron and third parties. EPP currently
expects to fund any such acquisitions with Common Shares, cash or debt. EPP
believes that it will have sufficient cash to meet its obligations for the
foreseeable future.
PIPELINE OPERATIONS -- RESULTS OF OPERATIONS
Equity in earnings of the pipeline operations represents EPP's 33 1/3%
interest in CIESA (increased from 25% on July 31, 1996) and EPP's 49% interest
in Centragas (acquired in May 1996). The information in this section should be
read in conjunction with the consolidated financial statements of EPP and the
notes thereto beginning at Page F-1 and CIESA and Controlled Company (the "CIESA
Financials") beginning at Page F-31 of this Form 10-K. The CIESA Financials have
been prepared in accordance with GAAP in Argentina. Argentine GAAP requires a
restatement for the effects of inflation through August 31, 1995, provided that
the annual inflation in the general level wholesale price index does not exceed
8% per annum. Accordingly, all data in the CIESA Financials reflects the
restatement in constant Argentine pesos through August 31, 1995. Additional
information regarding the pipeline operations is set forth in "Item 1 --
Business -- Current Pipeline Operations" and EPP's financial statements and the
notes thereto beginning at Page F-1 of this Form 10-K.
Note 12 to the CIESA Financials provides a reconciliation of CIESA's net
income from Argentine GAAP to U.S. GAAP, both in constant Argentine pesos. EPP
excludes the effects of inflation in its equity in earnings of pipeline
operations. EPP's equity in earnings of CIESA includes amortization of $0.4
million in 1996 related to the $42.3 million difference between the acquisition
price and proportionate share of the underlying U.S. GAAP equity of CIESA, which
is being amortized over 40 years (the approximate remaining term of the TGS
License).
Presented below is information for the combined pipeline operations of
CIESA, consolidated with TGS, and Centragas on a historical U.S. dollar, 100%
ownership basis, including adjustments to reconcile net income to U.S. GAAP, for
the years ended December 31, 1996, 1995 and 1994. Certain reclassifications have
been made to prior period amounts to conform with the current year presentation.
The exchange rate between
27
<PAGE> 30
the Argentine peso and the U.S. dollar was approximately 1:1 for all periods
presented. The exchange rate between the Colombian peso and the U.S. dollar
ranged from 995:1 to 1,073:1 during 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Gas transportation revenues............................... $414,882 $ 348,604 $ 317,934
Gas processing revenues................................... 47,890 40,987 36,045
-------- --------- ---------
Total Revenues.................................. 462,772 389,591 353,979
Operating, administrative and selling expense............. (135,517) (123,506) (119,776)
Interest income........................................... 7,033 6,745 4,705
Interest expense, net of capitalized interest............. (86,425) (63,580) (35,890)
Other income (expense).................................... (5,448) (173) 10
-------- --------- ---------
Income Before Minority Interest and Income
Taxes......................................... 242,415 209,077 203,028
Minority interest......................................... (48,624) (46,681) (44,269)
Income tax expense........................................ (93,261) (73,780) (60,899)
-------- --------- ---------
Net Income...................................... 100,530 88,616 97,860
Preferred stock dividends................................. -- -- (5,999)
-------- --------- ---------
Earnings on Common Stock........................ $100,530 $ 88,616 $ 91,861
======== ========= =========
EPP's Equity in Earnings of Pipeline Operations........... $ 29,767 $ 22,154 $ 22,965
======== ========= =========
</TABLE>
Earnings on Common Stock. The earnings on common stock from the combined
pipeline operations increased $11.9 million (13%) from 1995 to 1996 primarily
due to the operations of Centragas ($9.7 million) and a $2.2 million increase in
CIESA earnings. The increased CIESA earnings were attributable to higher
revenues at TGS and lower operating and administrative costs, partially offset
by higher income tax expense due to the increase in the income tax rate in
Argentina from 30% to 33% effective January 1, 1996.
Earnings on common stock decreased $3.2 million (4%) from 1994 to 1995
primarily due to higher interest expense at TGS and CIESA and a $4.9 million one
time income tax payment made during 1995 under a tax amnesty program. The
increase was partially offset by higher revenues at TGS as a result of the
pipeline expansions undertaken by TGS and a 5.3% effective tariff rate increase.
Gas Transportation Revenues. Firm transportation revenues increased $66.3
million (19%) from 1995 to 1996 primarily due to the operations of Centragas
($60.6 million), which included an early completion bonus of $5.7 million,
certain aspects of which are in dispute (See Note 13 to EPP's financial
statements and the notes thereto beginning at Page F-1 of this Form 10-K).
CIESA's firm transportation revenues increased $5.7 million primarily due to an
approximate 1.5% increase in tariff rates effective July 1, 1996, and higher
revenues from reallocation of capacity within certain distribution companies.
These increases were partially offset by a tariff reduction to reflect lower
payroll taxes and by a decrease in revenues due to certain step-down rights
exercised by BAN. Gas transportation revenues represented approximately 88%, 90%
and 90% of CIESA's total net revenues for 1996, 1995 and 1994, respectively.
Firm transportation revenues increased $38.8 million (13%) during 1995 as
compared to 1994 primarily due to an increase in firm contracted capacity
resulting from certain pipeline expansions. The Neuba II pipeline expansion,
which was completed in July 1994, increased transportation capacity by 264.6
MMcf/d from the Neuquen basin to Buenos Aires. Additionally, the General San
Martin pipeline expansion, with a commercial start-up on June 1, 1995, added
45.9 MMcf/d of capacity. Also during 1995, transportation rates increased 2.0%
as of January 1, 1995, and an additional 3.2% as of July 1, 1995, as a result of
changes in the PPI, which is the basis for semiannual rate adjustments. The
increase in firm transportation revenues was partially offset by a decrease of
$8.1 million (53%) in interruptible transportation revenues principally due to a
new firm transportation agreement with YPF for 42.4 MMcf/d for three years and
more efficient use of higher contracted capacity by distribution companies.
28
<PAGE> 31
Gas Processing Revenues. Gas processing revenues represented approximately
12%, 10% and 10% of total revenues in 1996, 1995 and 1994, respectively. Gas
processing revenues increased $6.9 million (17%) from 1995 to 1996 primarily due
to increased volumes and increased average prices for propane and butane in
Argentina. Centragas does not generate any processing revenues.
Gas processing revenues increased $4.9 million (14%) from 1994 to 1995
primarily due to a plant shutdown in 1994 and increased throughput at the Cerri
Complex due to the General San Martin pipeline expansion.
Operating, Administrative and Selling Expenses. Operating expenses
increased $14.0 million (14%) from 1995 to 1996 primarily due to the operations
of Centragas ($16.7 million). The increase provided by Centragas was partially
offset by the decrease in operating expenses in Argentina ($2.7 million), which
was primarily attributable to a decrease in labor costs ($4.6 million),
partially offset by the increase in depreciation related to plant asset
additions.
Operating expenses increased $6.2 million (6%) from 1994 to 1995 primarily
due to $3.2 million higher depreciation of property, plant and equipment
resulting from capital expenditures for expansion and mandatory investment
projects and $2.7 million higher labor costs resulting from severance payments
in 1995.
Administrative and selling expenses decreased $2.0 million (10%) from 1995
to 1996 primarily due to lower payroll taxes ($2.7 million), partially offset by
the increase attributable to the operations of Centragas ($0.7 million).
Administrative and selling expenses declined $2.5 million (11%) from 1994
to 1995 primarily due to a final payment made in 1994 for social security
contributions assumed under the transfer agreement and expenses incurred in 1994
in connection with the initial public offering of TGS.
Interest Income. Interest income increased $0.3 million (4%) from 1995 to
1996 primarily due to the operations of Centragas ($1.3 million), partially
offset by lower interest from short-term investments in Argentina due to lower
interest rates.
Interest income increased $2.0 million (43%) from 1994 to 1995 as a result
of higher average short-term investments and higher average interest rates
earned on investments at TGS.
Interest Expense, Net of Capitalized Interest. Interest expense, net of
capitalized interest, increased $22.8 million (36%) from 1995 to 1996 primarily
due to the operations of Centragas ($17.0 million) and increased interest
expense in Argentina ($5.8 million). The increased interest expense in Argentina
resulted from higher outstanding debt at TGS and higher cost of debt at CIESA.
Capitalized interest decreased $0.7 million (18%) from 1995 to 1996 primarily
due to lower capital expenditures.
Interest expense, net of capitalized interest, increased $27.7 million
(77%) from 1994 to 1995 primarily due to the increase in average indebtedness
and higher interest rates during 1995 versus 1994. The increased indebtedness
resulted from the $215 million loan that CIESA entered into in November 1994 to
redeem outstanding preferred stock and the 22% increase in TGS average
indebtedness related to expansions. Capitalized interest decreased $0.8 million
from 1994 to 1995 due to lower capital expenditures.
Other Income (Expense). Other income (expense) represented an expense for
both 1995 and 1996, increasing $5.3 million primarily due to the operations of
Centragas ($5.3 million). The expenses for the Centragas operations resulted
from contributions made to universities in lieu of income taxes ($3.0 million).
Other income (expense) remained relatively unchanged from 1994 to 1995.
Income Tax Expense. Income tax expense increased $19.5 million (26%) from
1995 to 1996 primarily due to the operations of Centragas ($12.5 million) and
the increase in Argentina ($7.0 million). The increased income taxes in
Argentina resulted from the retroactive tax change in Argentina and increased
income before minority interest and taxes at TGS.
Income tax expense increased $12.9 million (21%) from 1994 to 1995
partially due to a one time payment of $4.9 million during 1995 under a tax
amnesty program offered by the Argentine tax authority to
29
<PAGE> 32
settle certain income tax issues. The remaining increase was mainly attributable
to increased TGS net income before tax.
Preferred Stock Dividends. There were no preferred stock dividends in 1995
or 1996.
Preferred stock dividends on CIESA's preferred stock were $6.0 million in
1994. A portion of the CIESA preferred stock was converted into CIESA common
stock in February 1994 and the remaining preferred stock was redeemed in
November 1994.
LIQUIDITY AND CAPITAL RESOURCES OF PIPELINE OPERATIONS
Future Capital Requirements and Current Financings
TGS expects capital expenditures to be approximately $177.4 million, $50.5
million and $35.9 million during 1997, 1998 and 1999, respectively. Included in
1997 is approximately $57.0 million related to the Cerri Complex expansion
(expected to commence operations in April 1998) and approximately $58.4 million
related to investments in transportation capacity expansion per agreements with
customers.
Additional expenditures of up to $375.0 million are possible over the
1997-1999 period to acquire or develop field transmission, gathering and gas
treating facilities and to expand transportation and processing systems within
Argentina and bordering countries. The actual amount of such expenditures will
depend on a variety of factors and could be significantly less than the
estimated figures. These factors include growth in gas demand, the ability to
identify and successfully execute specific projects, the presence of competing
projects, applicable Argentine and foreign regulations, general economic
conditions and the availability of funding on acceptable terms.
In accordance with the TGS License, the five-year mandatory investment plan
requires TGS to invest in the Argentine Pipeline a total of $153.0 million
representing $30.6 million per year beginning in 1993. The amount invested from
1993 through 1996 totaled $148.4 million. TGS submitted its 1997 mandatory
investment program (estimated at $17.8 million) to ENARGAS for its approval. The
1997 investment is lower than the $30.6 million per annum as stipulated in the
TGS License because TGS invested more than the required amounts in prior years.
The 1997 investment program and mandatory investments completed in 1996 are
still pending ENARGAS approval.
The aggregate annual maturities of CIESA's long-term debt outstanding,
consolidated with TGS, at December 31, 1996, are $403.8 million, $221.9 million,
$14.9 million, $2.5 million and $150.4 million for 1997 through 2001,
respectively.
As of December 31, 1996, 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 addition to the capital resources described above, TGS has additional
financing available through credit facilities with commercial banks. TGS could
use these proceeds to meet scheduled debt repayments of approximately $179
million and $222 million in 1997 and 1998, respectively.
TGS believes that cash flow from operations supplemented with accessible
external debt financing, as discussed above, will provide sufficient liquidity
to fund its capital expenditures and dividends, cover its debt service and
provide sufficient working capital. See "Item 1. Business -- Current Pipeline
Operations -- Argentine Pipeline -- Associated Debt" and "Liquidity and Capital
Resources of EPP" above.
As of December 31, 1996, CIESA's total capitalization amounted to $1,435.3
million. Total capitalization was comprised of debt totaling $793.5 million,
shareholders' equity of $370.8 million and minority interest of $271.0 million.
Debt as a percentage of total capitalization remained relatively unchanged at
approximately 55% from December 31, 1995, to December 31, 1996.
30
<PAGE> 33
Future capital expenditures for Centragas are expected to be minimal.
Centragas expects to meet cash requirements for liquidity using cash flows from
operations.
POWER OPERATIONS -- RESULTS OF OPERATIONS
Equity in earnings of the power operations represent EPP's 50% interest in
Subic Power Corp., Batangas Power Corp., PQPC, Smith/Enron and Smith/Enron O&M.
The information in this section should be read in conjunction with the
consolidated financial statements of EPP and the notes thereto beginning at Page
F-1 of this Form 10-K. EPP's equity in earnings of Smith/Enron includes
amortization of $0.4 million in 1996 related to the $7.5 million difference
between the investment in Smith/Enron and Smith/Enron O&M and 50% of the
underlying equity of Smith/Enron and Smith/Enron O&M, which is being amortized
over 19 years (the term of the Puerto Plata Energy Supply Contract). Additional
information regarding the power operations is set forth in "Item
1 -- Business -- Current Power Plant Operations" and EPP's financial statements
and the notes thereto beginning at Page F-1 of this Form 10-K.
The following is a summary of income statement information for the combined
power operations of Subic Power Corp., Batangas Power Corp., PQPC, Smith/Enron
and Smith/Enron O&M on a U.S. dollar, 100% ownership basis, including
adjustments to reconcile net income to U.S. GAAP for the years ended December
31, 1996, 1995 and 1994. Certain reclassifications have been made to prior
period amounts to conform with the current year presentation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Capacity revenues........................................ $130,157 $ 92,437 $ 88,854
Variable revenues........................................ 81,366 31,876 30,831
-------- -------- --------
Total Revenues...................................... 211,523 124,313 119,685
Fuel cost................................................ 61,030 18,034 17,660
Operating and administrative expenses.................... 40,967 30,055 34,827
Depreciation and amortization expense.................... 33,671 27,819 25,878
-------- -------- --------
Net Operating Income................................ 75,855 48,405 41,320
Interest expense, net.................................... 39,104 23,541 23,417
Other income, net........................................ 338 286 535
-------- -------- --------
Income Before Income Taxes.......................... 37,089 25,150 18,438
Income tax expense....................................... 3,718 2,603 2,085
-------- -------- --------
Net Income.......................................... $ 33,371 $ 22,547 $ 16,353
======== ======== ========
EPP's Equity in Earnings of Power Operations............. $ 16,348 $ 11,274 $ 8,177
======== ======== ========
</TABLE>
Net Income. Net income from power operations increased $10.8 million (48%)
from 1995 to 1996 primarily due to the operations of the Puerto Plata Plant
($9.6 million) in 1996 and the increased net income from the Puerto Quetzal
Plant ($2.6 million). The increase in net income from power operations was
partially offset by the decrease in net income at the Batangas Plant ($0.9
million) and the Subic Bay Plant ($0.5 million). The increase in net income at
the Puerto Quetzal Plant was primarily attributable to improved fuel cost
recovery in 1996. The decrease in net income at the Subic Bay Plant was
primarily attributable to increased maintenance in preserving the condition of
capital spares. The decrease in net income at the Batangas Plant was primarily
the result of higher insurance expense during 1996.
Net income from power operations increased $6.2 million (38%) from 1994 to
1995 primarily due to improved efficiency, higher capacity and lower operating
expenses.
Revenues. A significant portion of each Project Company's revenue is
attributable to payments tied to the capacity of the respective plant, whether
based on annual availability (the Subic Bay and Batangas Plants) or an annual
capacity test (the Puerto Quetzal and Puerto Plata Plants). Capacity revenues
accounted for 62%,
31
<PAGE> 34
74% and 74% of the total revenues of the power plants in 1996, 1995 and 1994,
respectively. Capacity revenues increased $37.8 million (41%) from 1995 to 1996
primarily due to the operations of the Puerto Plata Plant ($36.0 million) and
the increase in the Subic Bay Plant ($1.2 million), which resulted from an early
capacity fee settlement and settlement of a business interruption claim.
Capacity revenues increased $3.6 million (4%) from 1994 to 1995 primarily due to
more efficient operation of the Subic Bay and Batangas Plants. See Note 13 to
EPP's financial statements beginning at Page F-1 of this Form 10-K for further
discussion of certain receivables being disputed at the Puerto Plata Plant
(Dominican Republic).
The second type of payment, an energy fee, varies directly with actual
output and, under the current cost structures of the power plants, is designed
to cover variable costs. Variable revenues accounted for 38%, 26% and 26% of the
total power plant revenues in 1996, 1995 and 1994, respectively. Variable
revenues increased $49.5 million (155%) from 1995 to 1996 primarily due to the
operations of the Puerto Plata Plant ($47.7 million) and an increase at the
Puerto Quetzal Plant ($1.9 million), which was attributable to improved fuel
cost recovery. Variable revenues increased $1.0 million (3%) from 1994 to 1995.
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 the Puerto
Quetzal and Puerto Plata Plants at market based rates. Total fuel cost increased
$43.0 million (238%) from 1995 to 1996 primarily due to the operations of the
Puerto Plata Plant ($42.7 million) and the increase in fuel prices at the Puerto
Quetzal Plant ($0.3 million). Total fuel cost at the Puerto Quetzal Plant
increased $0.4 million (2%) from 1994 to 1995. Fuel is provided to the Subic Bay
and Batangas Plants by its customer, NPC, at no cost.
Operating and Administrative Expenses. Operating and administrative
expenses consist primarily of expenses associated with the operations and
maintenance of the power plants. Operating and administrative expenses increased
$10.9 million (36%) from 1995 to 1996 primarily due to the operations at the
Puerto Plata Plant ($9.8 million) and increases at the Subic Bay Plant ($1.4
million) and the Batangas Plant ($0.3 million), partially offset by a decrease
at the Puerto Quetzal Plant ($0.6 million). The increase at the Subic Bay Plant
from 1995 to 1996 was primarily attributable to increased maintenance in
preserving capital spares during 1996 and the reversal of certain reserves in
1995 as discussed below. The increase at the Batangas Plant from 1995 to 1996
was attributable to increased insurance premiums. The decrease at the Puerto
Quetzal Plant from 1995 to 1996 was primarily due to the reduction in the fixed
fee set forth in the Puerto Quetzal O&M Agreement. See "Item
1 -- Business -- Current Power Plant Operations -- Puerto Quetzal Plant -- Plant
Operation and Maintenance."
Operating and administrative expenses decreased $4.8 million (14%) from
1994 to 1995 primarily due to the reversal of certain reserves for disputed
billings at the Subic Bay and Batangas Plants that were recorded in 1994 as a
result of the favorable resolution of a portion of these disputes in 1995.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $5.9 million (21%) from 1995 to 1996 primarily due to the
operations of the Puerto Plata Plant ($5.4 million) and an increase at the
Batangas Plant ($0.6 million) related to capital spare additions.
Depreciation and amortization expense increased $1.9 million (8%) from 1994
to 1995 primarily due to a full year of depreciation at the Subic Bay Plant in
1995 compared to ten months in 1994 and depreciation of increased plant assets
at the Subic Bay and Batangas Plants.
Interest Expense, Net. Interest expense, net increased $15.6 million (66%)
from 1995 to 1996 primarily due to the operations of the Puerto Plata Plant
($18.0 million), partially offset by decreases at the Batangas Plant ($1.1
million), the Subic Bay Plant ($0.5 million) and the Puerto Quetzal Plant ($0.8
million). The decreases at the Batangas, Subic and Puerto Quetzal Plants were
primarily attributable to a reduction in debt outstanding. Interest expense, net
decreased $0.1 million (1%) from 1994 to 1995 primarily due to a reduction of
the loan balance at the Batangas Plant.
Other Income, Net. Other income, net is immaterial and remained relatively
unchanged for all years presented.
32
<PAGE> 35
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 Bay and Batangas Plants is less than the statutory rate due
to the Subic Bay 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. At December 31, 1996, there were no significant differences
between PQPC's effective tax rate and the U.S. statutory rate. The Puerto Plata
Plant has been granted a tax holiday for the life of the project. Income tax
expense increased $1.1 million (43%) from 1995 to 1996 primarily due to the
increase in income taxes at the Puerto Quetzal Plant ($1.1 million). Income tax
expense increased $0.5 million (25%) from 1994 to 1995 primarily due to an
increase in the tax rate from 35% to 38.75% in Guatemala and an increase in
pretax net income from PQPC.
LIQUIDITY AND CAPITAL RESOURCES OF POWER OPERATIONS
The Subic Notes were funded in 1993 and the Batangas Loans were funded in
1994. The Subic Notes of $105 million bear interest at 9.5% and mature in 2008.
The Batangas Loans of $95 million bear interest at fixed interest rates of 9.12%
and 10.25% and a variable interest rate of one month LIBOR plus 1.5%; all
Batangas loans mature from 1999 to 2003. The Puerto Quetzal Loans were funded in
1993 for a total of $71 million at interest rates ranging from 9.94% to 14% and
with maturity dates ranging from 2001 to 2003. In September 1995, PQPC entered
into an interest rate swap agreement which effectively converted approximately
$51 million of the indebtedness from a floating rate to a fixed rate of 9.37%.
The Puerto Plata Plant has project financing totaling $153 million at interest
rates ranging from 6.72% to 16% with maturity dates ranging from 2004 through
2008. The debt is collateralized by substantially all of the assets of the
Puerto Plata Plant. In addition, the Puerto Plata Plant has certain construction
cost overrun loans ("COLs") from EPP and Enron affiliates totaling approximately
$11.7 million at December 31, 1996. All COLs bear interest at 13.5% with
principal and interest payable semiannually through 2003. On February 26, 1997,
EPP funded two additional COLs totaling approximately $3.2 million at 13.5%
interest, with interest and principal payable semiannually through December
2004. For a description of the Subic Notes, Batangas Loans, Puerto Quetzal Loans
and Puerto Plata Loans, see "Item 1 -- Business -- Current Power Plant
Operations -- Subic Bay Plant -- Associated Debt," "-- Batangas
Plant -- Associated Debt," "-- Puerto Quetzal Plant -- Associated Debt" and
"-- Puerto Plata Plant -- Associated Debt."
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 flow 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 Form 10-K 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 (the "Exchange Act"). 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is set forth in EPP's
financial statements and the notes thereto beginning at Page F-1 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
33
<PAGE> 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Form 10-K relating to (i) directors
who are nominees for election as directors at EPP's Annual Meeting of
Shareholders to be held on May 14, 1997 (the "Annual Meeting"), and (ii)
compliance by directors and executive officers with Section 16(a) of the
Exchange Act is set forth, respectively, under the captions entitled "Election
of Directors" and "Compensation of Directors and Executive
Officers -- Compensation Committee Interlocks and Insider Participation" and
"-- Section 16 Matters" in EPP's Proxy Statement for the Annual Meeting (the
"Proxy Statement"), and is incorporated herein by reference.
The information required by Item 10 of Form 10-K with respect to executive
officers is set forth in Part I of this Form 10-K under the heading "Executive
Officers." There are no family relationships among the officers listed, and
there are no arrangements or understandings pursuant to which any of them were
elected as officers. Officers are appointed or elected annually by the Board of
Directors at its first meeting following the Annual Meeting, each to hold office
until the corresponding meeting of the Board of Directors in the next year or
until a successor shall have been elected, appointed or shall have qualified.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K relating to executive
compensation is set forth in the Proxy Statement under the captions
"Compensation of Directors and Executive Officers -- Director Compensation;
Executive Compensation; Share Option Grants During 1996; Aggregated Share
Option/SAR Exercises During 1996 and Share Option/SAR Values as of December 31,
1996; Retirement and Severance Plans; Compensation and Employment Agreements,"
and "-- Compensation Committee Interlocks and Insider Participation," and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The information required by Item 12 of Form 10-K relating to security
ownership of certain beneficial owners is set forth in the Proxy
Statement under the caption "Election of Directors -- Share Ownership of
Certain Beneficial Owners," and is incorporated herein by reference.
(b) Security Ownership of Management
The information required by Item 12 of Form 10-K relating to security
ownership of management is set forth in the Proxy Statement under the
caption "Election of Directors -- Share Ownership of the Board of
Directors and Management," and is incorporated herein by reference.
(c) Changes in control
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions is
set forth in the Proxy Statement under the caption "Compensation of Directors
and Executive Officers -- Compensation Committee Interlocks and Insider
Participation," and is incorporated herein by reference.
34
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
A list of the financial statements and financial statement schedules
required to be filed herewith is set forth in the "Index to Financial
Statements" at Page F-1 of this Form 10-K.
LIST OF EXHIBITS.
A list of the exhibits required to be filed herewith is set forth below.
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
3.1 -- Certificate of Formation of EPP (incorporated by
reference to exhibit 3.1 to EPP's Registration Statement
on Form S-1, Registration Statement No. 33-85246).
3.2 -- Amended and Restated Limited Liability Company Agreement
of EPP dated as of November 15, 1994 (incorporated by
reference to exhibit 3.2 to EPP's Annual Report on Form
10-K for year ended December 31, 1994).
4.1+ -- U.S.$220,000,000 Term Loan Agreement and First Amendment
to Term Loan Agreement dated as of May 15, 1996, among
CIESA, the Initial Lenders named therein, Societe
Generale, Banco Supervielle Societe Generale and Goldman,
Sachs & Co., as Arrangers, the Managing Agents named
therein and the Administrative Agent named therein.
10.1 -- Purchase Right Agreement dated as of November 15, 1994,
between EPP and Enron Corp. (incorporated by reference to
exhibit 10.1 to EPP's Annual Report on Form 10-K for year
ended December 31, 1994).
10.2 -- Amendment No. 1 to Purchase Right Agreement dated as of
September 29, 1995, between Enron Corp. and EPP
(incorporated by reference to exhibit 10.4 to EPP's
Quarterly Report on Form 10-Q for quarterly period ended
September 30, 1995).
10.3 -- Administrative Services Agreement dated as of November
22, 1994, between Enron Corp. and EPP (incorporated by
reference to exhibit 10.2 to EPP's Annual Report on Form
10-K for year ended December 31, 1994).
10.4 -- Master Contribution Agreement dated as of November 15,
1994, among Enron Corp., EPP, EDC, Enron Power Corp.,
Electricidad Enron de Guatemala Sociedad Anonima, EPCA
and EPPC (incorporated by reference to exhibit 10.3 to
EPP's Annual Report on Form 10-K for year ended December
31, 1994).
10.5 -- Waiver to Master Contribution Agreement dated as of
September 29, 1995, between Enron Corp. and EPP
(incorporated by reference to exhibit 10.3 to EPP's
Quarterly Report on Form 10-Q for quarterly period ended
September 30, 1995).
10.6* -- Enron Global Power & Pipelines L.L.C. 1994 Share Option
Plan and First Amendment to Enron Global Power &
Pipelines L.L.C. 1994 Share Option Plan dated February
13, 1996 (incorporated by reference to exhibit 10.2 to
EPP's Quarterly Report on Form 10-Q for quarterly period
ended June 30, 1996).
10.7* -- Enron Global Power & Pipelines L.L.C. 1994 Annual
Incentive Plan (incorporated by reference to exhibit 10.5
to EPP's Registration Statement on Form S-1, Registration
Statement No. 33-85246).
10.8* -- Enron Corp. Supplemental Retirement Plan (incorporated by
reference to exhibit 10.6 to EPP's Registration Statement
on Form S-1, Registration Statement No. 33-85246).
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.9* -- Enron Executive Supplemental Survivor Benefits Plan
(incorporated by reference to exhibit 10.7 to EPP's
Registration Statement on Form S-1, Registration
Statement No. 33-85246).
10.10* -- Pension Program for Enron Corp. Deferral Plan
Participants (incorporated by reference to exhibit 10.8
to EPP's Registration Statement on Form S-1, Registration
Statement No. 33-85246).
10.11* -- Enron Corp. 1994 Deferral Plan (incorporated by reference
to exhibit 10.9 to EPP's Registration Statement on Form
S-1, Registration Statement No. 33-85246).
10.12 -- License Agreement dated December 28, 1992, between TGS
and the Government of Argentina together with the English
Translation (incorporated by reference to exhibit 10.10
to EPP's Registration Statement on Form S-1, Registration
Statement No. 33-85246).
10.13 -- Owners Agreement dated as of November 12, 1992, among
EPCA, Citicorp Equity Investments S.A., Compana Naviera
Perez Companc S.A.C.F.I.M.F.A. and Argentina Private
Development Trust Company Limited, as amended by
Amendment No. 1 to Bid Agreement, Owners Agreement and
Shareholders Agreement, dated November 13, 1992,
Amendment No. 2 to Owners Agreement, dated as of December
28, 1992, Amendment No. 3 to Owners Agreement, dated as
of December 28, 1992 and Amendment No. 4 to Owners
Agreement, dated as of December 28, 1992 (incorporated by
reference to exhibit 10.11 to EPP's Registration
Statement on Form S-1, Registration Statement No.
33-85246).
10.14 -- Shareholders Agreement dated as of November 13, 1992,
among EPCA, Citicorp Equity Investments S.A. and Compana
Naviera Perez Companc S.A.C.F.I.M.F.A., as amended by
Amendment No. 1 to Bid Agreement, Owners Agreement and
Shareholders Agreement, dated as of November 13, 1992,
and Amendment No. 2 to Bid Agreement and Shareholders
Agreement, dated as of December 28, 1992 (incorporated by
reference to exhibit 10.12 to EPP's Registration
Statement on Form S-1, Registration Statement No.
33-85246).
10.15 -- Technical Assistance Agreement dated as of December 28,
1992, between TGS and EPCA together with the English
Translation (incorporated by reference to exhibit 10.13
to EPP's Registration Statement on Form S-1, Registration
Statement No. 33-85246).
10.16 -- Firm Transportation Agreement No. S-01, between TGS and
Distribuidora de Gas Metropolitana S.A. commencing
December 21, 1992 (incorporated by reference to exhibit
10.14 to EPP's Registration Statement on Form S-1,
Registration Statement No. 33-85246).
10.17 -- Firm Transportation Agreement No. S-02, between TGS and
Distribuidora de Gas Buenos Aires Norte S.A. commencing
December 21, 1992 (incorporated by reference to exhibit
10.15 to EPP's Registration Statement on Form S-1,
Registration Statement No. 33-85246).
10.18 -- Firm Transportation Agreement TF-31, between TGS and
MetroGas commencing January 23, 1996, with English
translation (incorporated by reference to exhibit 10.18
to EPP's Annual Report on Form 10-K/A for year ended
December 31, 1995).
10.19 -- Firm Transportation Agreement TF-06, between TGS and
Distribuidora de Gas Pampeana S.A. commencing May 1, 1994
(incorporated by reference to exhibit 10.17 to EPP's
Registration Statement on Form S-1, Registration
Statement No. 33-85246).
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.20 -- Firm Transportation Agreement TF-20, between TGS and
Pampeana commencing January 1, 1996, with English
translation (incorporated by reference to exhibit 10.20
to EPP's Annual Report on Form 10-K/A for year ended
December 31, 1995).
10.21 -- Firm Transportation Agreement TF-30, between TGS and Sur
commencing March 1, 1994 (incorporated by reference to
exhibit 10.21 to EPP's Registration Statement on Form
S-1, Registration Statement No. 33-85246).
10.22 -- Firm Transportation Agreement TF-25, between TGS and BAN
commencing January 1, 1996, with English translation
(incorporated by reference to exhibit 10.22 to EPP's
Annual Report on Form 10-K/A for year ended December 31,
1995).
10.23 -- Form of Note dated December 28, 1992, from TGS in favor
of YPF together with the English Translation
(incorporated by reference to exhibit 10.22 to EPP's
Registration Statement on Form S-1, Registration
Statement No. 33-85246).
10.24 -- Trust Deed relating to U.S. $350,000,000 Euro Medium-Term
Notes Programme, dated December 14, 1993, between TGS and
Citicorp Trustee Company Limited (incorporated by
reference to exhibit 10.23 to EPP's Registration
Statement on Form S-1, Registration Statement No.
33-85246).
10.25* -- Benefit and Compensation Agreement dated effective as of
January 1, 1995, between Enron Corp. and EPP
(incorporated by reference to exhibit 10.24 to EPP's
Annual Report on Form 10-K for year ended December 31,
1994).
10.26* -- Form of Indemnification Agreement between EPP and its
officers and directors (incorporated by reference to
exhibit 10.27 to EPP's Registration Statement on Form
S-1, Registration Statement No. 33-85246).
10.27* -- Enron Corp. 1991 Stock Plan, as amended and restated
effective May 1, 1992; and Enron Corp. 1994 Stock Plan
(pursuant to which EPP employees will receive benefits
under the Enron All-Employee Stock Option Program)
(incorporated by reference to exhibit 10.28 to EPP's
Registration Statement on Form S-1, Registration
Statement No. 33-85246).
10.28 -- Compensation Agreement dated March 17, 1995, among EPP,
ECT and Rodney L. Gray (incorporated by reference to
exhibit 10.28 to EPP's Annual Report on Form 10-K for
year ended December 31, 1994).
10.29 -- First Amendment to Compensation Agreement dated effective
as of May 1, 1995, among ECT, EDC, EPP and Rodney L. Gray
(incorporated by reference to exhibit 10.1 to EPP's
Quarterly Report on Form 10-Q for quarterly period ended
September 30, 1995).
10.30+ -- Second Amendment to Compensation Agreement dated
effective as of February 14, 1997, among EI, EPP and
Rodney L. Gray.
10.31 -- Purchase Agreement dated as of April 15, 1996, among EHC,
EEC, EDC and EPP (incorporated by reference to exhibit
10.1 to EPP's Quarterly Report on Form 10-Q for quarterly
period ended March 31, 1996).
10.32 -- Indemnity Agreements dated as of May 15, 1996, between
EPP and Thomas C. Theobald, George S. Slocum and Brent
Scowcroft, individually (incorporated by reference to
exhibit 10.1 of EPP's Quarterly Report on Form 10-Q for
quarterly period ended June 30, 1996).
10.33 -- Stock Purchase Agreement dated July 30, 1996, among APDT,
EPCA and Maipu (incorporated by reference to exhibit 10.3
of EPP's Quarterly Report on Form 10-Q for quarterly
period ended June 30, 1996).
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.34 -- Agreement Regarding CIESA Interest dated July 31, 1996,
among Enron Corp., EHC, EPCA and EPP (incorporated by
reference to exhibit 10.4 of EPP's Quarterly Report on
Form 10-Q for quarterly period ended June 30, 1996).
10.35 -- Purchase Agreement dated as of June 17, 1996, among EI,
EHC and EPP (incorporated by reference to exhibit 10.1 of
EPP's Current Report on Form 8-K filed July 3, 1996).
21.1+ -- List of subsidiaries of EPP.
23.1+ -- Consent of Arthur Andersen LLP.
23.2+ -- Consent of Pistrelli, Diaz y Asociados.
24.1+ -- Powers of Attorney.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(d) of Form 10-K.
+ Filed herewith.
REPORTS ON FORM 8-K
None.
38
<PAGE> 41
ENRON GLOBAL POWER & PIPELINES L.L.C.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enron Global Power & Pipelines L.L.C.
Report of Independent Public Accountants............... F-2
Consolidated Statements of Income -- for the Years
Ended December 31, 1996 and 1995, Pro Forma for the
Year Ended December 31, 1994 (Unaudited), the 40-Day
Period Ended December 31, 1994 and the 325-Day Period
Ended November 21, 1994 (Predecessor)................. F-3
Consolidated Balance Sheets -- as of December 31, 1996
and 1995.............................................. F-4
Consolidated Statements of Cash Flows -- for the Years
Ended December 31, 1996 and 1995, the 40-Day Period
Ended December 31, 1994 and the 325-Day Period Ended
November 21, 1994 (Predecessor)....................... F-5
Consolidated Statements of Shareholders' Equity -- for
the Years Ended December 31, 1996 and 1995, and the
40-Day Period Ended December 31, 1994 and Equity of
Parent for the 325-Day Period Ended November 21, 1994
(Predecessor)......................................... F-6
Notes to Consolidated Financial Statements............. F-7
Compania de Inversiones de Energia S.A. and Controlled
Company Report of Independent Public Accountants.......... F-32
Consolidated Balance Sheets -- as of December 31, 1996
and 1995.............................................. F-33
Consolidated Statements of Income -- for the Years
Ended December 31, 1996, 1995 and 1994................ F-34
Consolidated Statements of Cash Flows -- for the Years
Ended December 31, 1996, 1995 and 1994................ F-35
Consolidated Statements of Changes in Shareholders'
Equity -- for the Years Ended December 31, 1996, 1995
and 1994.............................................. F-36
Notes to Consolidated Financial Statements............. F-38
</TABLE>
F-1
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ENRON GLOBAL POWER & PIPELINES L.L.C.:
We have audited the accompanying consolidated balance sheets of Enron
Global Power & Pipelines L.L.C. (a Delaware limited liability company) and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, cash flows and shareholders' equity for the years ended
December 31, 1996 and 1995 and the 40-day period ended December 31, 1994. We
have also audited the accompanying special-purpose combined statements of
income, cash flows and equity of parent of the Company's predecessor (as
described in Note 3) for the 325-day period ended November 21, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Smith/Enron
Cogeneration Limited Partnership, the investment in which is reflected in the
accompanying financial statements using the equity method of accounting. The
investment in Smith/Enron Cogeneration Limited Partnership represents 10 percent
of total assets as of December 31, 1996 and the equity in its net income
represents 10 percent of net income for the year then ended. The statements of
Smith/Enron Cogeneration Limited Partnership were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
the amounts included for Smith/Enron Cogeneration Limited Partnership, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Enron Global Power & Pipelines L.L.C. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995 and the 40-day period ended December 31,
1994, and the results of operations and cash flows of the Company's predecessor
for the 325-day period ended November 21, 1994, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 13, 1997
F-2
<PAGE> 43
ENRON GLOBAL POWER & PIPELINES L.L.C.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED PRO FORMA PREDECESSOR
DECEMBER 31, YEAR ENDED PERIOD ENDED PERIOD ENDED
------------------ DECEMBER 31, DECEMBER 31, NOVEMBER 21,
1996 1995 1994 1994 1994
------- ------- ------------ ------------ ------------
(UNAUDITED) (40 DAYS) (325 DAYS)
<S> <C> <C> <C> <C> <C>
Technical Assistance Fees................ $11,258 $10,033 $ 8,674 $ 599 $ 8,075
Equity in Earnings of Unconsolidated
Subsidiaries
Pipeline Operations................. 29,767 22,154 22,965 1,706 21,259
Power Operations.................... 16,348 11,274 8,177 1,209 6,968
------- ------- ------- ------- -------
Equity in Earnings and Technical
Assistance Fees........................ 57,373 43,461 39,816 3,514 36,302
General and Administrative Expenses...... (5,707) (6,036) (6,382) (397) (4,289)
Taxes Other Than Income.................. (672) (600) (489) (41) (448)
Interest Expense......................... (1,834) (96) -- -- --
Other Income, Net........................ 1,370 1,869 1,151 93 1,058
------- ------- ------- ------- -------
Income Before Income Taxes............... 50,530 38,598 34,096 3,169 32,623
Income Taxes............................. 4,535 3,571 3,802 358 3,444
------- ------- ------- ------- -------
Net Income............................... $45,995 $35,027 $30,294 $ 2,811 $29,179
======= ======= ======= ======= =======
Net Income Per Common Share.............. $ 1.90 $ 1.68 $ 1.45 $ 0.13
Average Number of Common Shares Used in
Computation............................ 24,202 20,842 20,840 20,840
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 44
ENRON GLOBAL POWER & PIPELINES L.L.C.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 24,582 $ 23,364
Accounts receivable....................................... 6,301 3,538
Current portion of notes receivable....................... 1,394 --
Other current assets...................................... 404 240
-------- --------
Total Current Assets.............................. $ 32,681 $ 27,142
-------- --------
Investments in and Advances to Unconsolidated
Subsidiaries.............................................. 298,530 159,621
Notes Receivable............................................ 12,111 --
Other....................................................... 521 950
-------- --------
Total Assets................................. $343,843 $187,713
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 11,277 $ 5,341
Accrued taxes............................................. 1,488 2,481
Current portion of note payable........................... 36,583 --
-------- --------
Total Current Liabilities......................... 49,348 7,822
-------- --------
Deferred Income Taxes....................................... 4,301 2,539
Note Payable................................................ 24,750 --
Commitments and Contingencies (Note 13)
Shareholders' Equity
Common Shares, no par value, 200,000,000 shares authorized
and 24,392,352 and 20,858,750 shares issued and
outstanding at December 31, 1996 and 1995,
respectively........................................... 219,816 156,607
Retained Earnings......................................... 45,628 20,745
-------- --------
Total Shareholders' Equity........................ 265,444 177,352
-------- --------
Total Liabilities and Shareholders' Equity... $343,843 $187,713
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 45
ENRON GLOBAL POWER & PIPELINES L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
YEARS ENDED DECEMBER 31, PERIOD ENDED PERIOD ENDED
------------------------ DECEMBER 31, NOVEMBER 21,
1996 1995 1994 1994
----------- ---------- ------------ ------------
(40 DAYS) (325 DAYS)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Reconciliation of net income to net cash
flows from operating activities:
Net income................................... $ 45,995 $ 35,027 $ 2,811 $ 29,179
Equity in earnings of unconsolidated
subsidiaries............................ (46,115) (33,428) (2,915) (28,227)
Distributions from unconsolidated
subsidiaries............................ 38,114 30,373 -- 16,611
Deferred income taxes...................... 1,762 1,183 152 919
Changes in components of working capital
Accounts receivable..................... (1,700) (90) (451) (5)
Accounts payable........................ 5,896 3,225 624 (2,931)
Accrued taxes........................... (993) 1,821 (214) (1,565)
Other, net................................. 623 (220) 418 (280)
--------- -------- --------- --------
Net Cash Flows from Operating Activities..... $ 43,582 $ 37,891 $ 425 $ 13,701
========= ======== ========= ========
Cash Flows from Investing Activities:
Note receivable............................ -- -- -- (46,725)
Repayment of note receivable............... -- -- -- 46,725
Net investments in and advances (to) from
unconsolidated subsidiaries............. (117,500) (4,454) 3,482 62,431
Proceeds from sale of unconsolidated
subsidiary.............................. 39,167 -- -- --
Purchase of note receivable................ (5,065) -- -- --
--------- -------- --------- --------
Net Cash Flows (Used in) Provided by
Investing Activities....................... $ (83,398) $ (4,454) $ 3,482 $ 62,431
========= ======== ========= ========
Cash Flows from Financing Activities:
Initial capitalization..................... -- -- 1 --
Common Shares issued....................... 687 450 106,314 --
Proceeds from long-term debt............... 117,500 -- -- --
Repayment of long-term debt................ (56,167) -- -- --
Repayment of long-term debt assumed........ -- -- (101,500) --
Repurchase of 1% equity interest........... -- -- (4,681) --
Dividends paid............................. (20,986) (17,093) (17,800) --
Net advances to parent..................... -- -- -- (78,426)
Contribution from parent................... -- -- 20,329 --
--------- -------- --------- --------
Net Cash Flows Provided by (Used in)
Financing Activities....................... $ 41,034 $(16,643) $ 2,663 $(78,426)
========= ======== ========= ========
Increase (Decrease) in Cash and
Cash Equivalents........................... 1,218 16,794 6,570 (2,294)
Cash and Cash Equivalents, Beginning of
Period..................................... 23,364 6,570 -- 22,623
--------- -------- --------- --------
Cash and Cash Equivalents, End of Period..... $ 24,582 $ 23,364 $ 6,570 $ 20,329
========= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 46
ENRON GLOBAL POWER & PIPELINES L.L.C.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY AND EQUITY OF PARENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
EQUITY ------------------------------------------
OF COMMON RETAINED
PARENT SHARES AMOUNT EARNINGS TOTAL
------------- ------ ------ -------- -----
(PREDECESSOR)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993....... $ 223,070 -- $ -- $ -- $ --
Net income for the period ended
November 21, 1994 (325
days)......................... 29,179 -- -- -- --
Net advances to parent........... (78,426) -- -- -- --
Effective November 22, 1994:
Initial capitalization........... -- -- 1 -- 1
Dividend......................... (17,800) -- -- -- --
Assumption of debt from parent... (101,500) -- -- -- --
Exchange of Common Shares for
equity of parent.............. (54,523) 16,140 54,523 -- 54,523
Issuance of Common Shares in
initial public offering....... -- 4,700 106,314 -- 106,314
Redemption of 1% equity interest
owned by a subsidiary of
parent........................ -- -- (4,681) -- (4,681)
Net Income for the period ended
December 31, 1994 (40 days)... -- -- -- 2,811 2,811
--------- ------ -------- -------- --------
Balance at December 31, 1994....... -- 20,840 156,157 2,811 158,968
Net Income....................... -- -- -- 35,027 35,027
Dividends........................ -- -- -- (17,093) (17,093)
Issuance of Common Shares........ -- 19 450 -- 450
--------- ------ -------- -------- --------
Balance at December 31, 1995....... -- 20,859 156,607 20,745 177,352
Net income....................... -- -- -- 45,995 45,995
Dividends........................ -- -- -- (20,986) (20,986)
Exercise of stock options........ -- 28 687 -- 687
Project acquisitions:
Issuances of Common Shares for
acquisitions................ -- 3,505 91,513 (126) 91,387
Excess of fair value of assets
acquired over affiliate's
basis....................... -- -- (28,991) -- (28,991)
--------- ------ -------- -------- --------
Balance at December 31, 1996....... $ -- 24,392 $219,816 $ 45,628 $265,444
========= ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 47
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND FORMATION
Enron Global Power & Pipelines L.L.C., a Delaware limited liability
company, and its wholly owned subsidiaries (EPP), initially owned interests in a
natural gas pipeline system in Argentina, two power plants in the Philippines
and a power plant in Guatemala. EPP's pipeline operations in Argentina are
conducted through its wholly owned subsidiary, Enron Pipeline
Company -- Argentina S.A. (EPCA). EPCA initially acquired 25% 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 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. (Subic) and Batangas Power Corp. (Batangas), 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. (PQPC).
Enron Corp. and its subsidiaries other than EPP (collectively, Enron)
previously owned the interests described above and contributed its ownership in
these projects to EPP in exchange for 16.1 million common shares representing
limited liability company interests in EPP (Common Shares) and EPP's assumption
of approximately $101.5 million of indebtedness from Enron (the Assumed
Indebtedness). On November 22, 1994, EPP sold 4.7 million Common Shares (equal
to an approximate 22% interest in EPP) through a public offering (the Offering).
Net proceeds to EPP were approximately $106.3 million which were used to pay the
Assumed Indebtedness and redeem a 1% equity interest in EPP owned by Enron. In
connection with the Offering, Enron sold 5.3 million of its 16.1 million Common
Shares. EPP did not receive any proceeds from the sale of Common Shares by
Enron. Subsequent to the Offering, Enron owned approximately 52% of the Common
Shares.
2. ACQUISITIONS
Centragas
On May 9, 1996, EPP acquired an indirect 49% limited partnership interest
in Centragas -- Transportadora de Gas de la Region Central de Enron Development
& Cia., S.C.A. (Centragas) from a wholly owned subsidiary of Enron in exchange
for approximately 1.6 million Common Shares. Centragas is a Colombian limited
partnership, formed to build, own and operate, for a 15-year period, a 357 mile,
18-inch natural gas pipeline and related facilities (the Colombian Pipeline)
from Ballena on the northern coast of Colombia to Barrancabermeja in the central
region of the country. In addition to EPP's interest, Tomen Corporation, a
Japanese corporation, and Promigas S.A. (Promigas), a Colombian corporation and
the operator of the Colombian Pipeline, each own a 25% limited partnership
interest in Centragas. Enron Development Corp., a wholly owned indirect
subsidiary of Enron, owns the 1% general partner interest in Centragas.
Construction of the pipeline was completed and full commercial operation was
achieved on February 24, 1996.
The Colombian Pipeline was developed under the terms of the Transportation
Services Contract dated May 12, 1994 (the Centragas Services Contract) between
Centragas and Empresa Colombiana de Petroleos (Ecopetrol), the state-owned oil
company of Colombia. Pursuant to the Centragas Services Contract, Centragas
built and will own and operate the Colombian Pipeline and transport natural gas
for Ecopetrol for a period of 15 years from the commencement of commercial
operations (February 24, 1996) and, at the end of this 15-year period, will
transfer the Colombian Pipeline to Ecopetrol "as is" for a payment equal to
$500,000 plus 1% of the construction costs of the Colombian Pipeline, subject to
adjustment in certain cases. The Centragas Services Contract provides that
Ecopetrol will pay two monthly tariffs, an availability tariff generally
designed to cover debt service, certain taxes and return on equity for Centragas
and a transportation tariff generally designed to cover the operation and
maintenance costs of the Colombian Pipeline. The full amount of the tariffs are
payable without regard to the amount of gas Ecopetrol delivers to the Colombian
Pipeline. The tariffs are payable in Colombian pesos but the majority of the
tariffs are denominated in
F-7
<PAGE> 48
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. dollars. Ecopetrol is obligated to indemnify Centragas against all losses,
costs and expenses resulting from conversion or devaluation of the Colombian
peso in connection with the U.S. dollar-denominated portion of the tariffs.
Ecopetrol became obligated, as of February 24, 1996, to pay full tariffs to
Centragas.
Promigas, pursuant to an Operations and Maintenance Contract between
Centragas and Promigas, will operate and maintain the Colombian Pipeline for the
15-year operational period in accordance with the requirements of the Centragas
Services Contract. Promigas is Colombia's largest natural gas pipeline company,
transporting approximately 70% of the natural gas consumed in Colombia during
1996. On January 31, 1996, a wholly owned indirect subsidiary of Enron acquired
Ecopetrol's approximate 39% equity interest in Promigas, making the subsidiary
of Enron the largest shareholder of Promigas.
Centragas obtained project debt financing of $172 million through the
issuance in the international capital markets of Senior Secured Notes due 2010
(the Notes). The Notes have a 16-year maturity and bear interest at the rate of
10.65% per year. The Notes are collateralized by substantially all of the assets
of Centragas. As of December 31, 1996, Centragas owed approximately $166 million
under the project debt financing. Centragas is subject to certain dividend
payment restrictions in connection with the project financing. Payment of
dividends, allowing for restrictions under the project financing, is currently
restricted by Colombian law to 90% of its annual net income until certain
required legal reserve levels are achieved. During 1996, Centragas paid
dividends of approximately $1.4 million, of which EPP received approximately
$0.4 million.
Smith/Enron Cogeneration Limited Partnership and Smith/Enron O&M Limited
Partnership
On June 18, 1996, EPP acquired an indirect 50% limited partnership interest
in Smith/Enron Cogeneration Limited Partnership (SECLP) and Smith/Enron O&M
Limited Partnership (SEOM), both Turks and Caicos limited partnerships, which
own and provide services to, respectively, a 185 megawatt (MW) power project in
Puerto Plata, Dominican Republic (the Puerto Plata Plant), from a wholly owned
subsidiary of Enron in exchange for approximately 1.6 million Common Shares.
Affiliates of Enron and Smith Cogeneration International, Inc. own 50% of SECLP;
affiliates of Smith Cogeneration International, Inc. own 50% of SEOM.
The Puerto Plata Plant was developed under the terms of the Electric Energy
Supply and Sales Contract dated July 26, 1993, as amended (the Puerto Plata
Energy Supply Contract), with Corporacion Dominicana de Electricidad (CDE), the
government agency which provides electric services to the Dominican Republic,
and the Government of the Dominican Republic (the DR Government). Pursuant to
the Puerto Plata Energy Supply Contract, SECLP will own and SEOM will operate
the Puerto Plata Plant and will provide plant capacity and electricity to CDE
for a period of 19 years from the date combined cycle commercial operation began
(January 16, 1996), with the option for CDE to extend for one year. The Puerto
Plata Energy Supply Contract provides that CDE will pay fixed capacity payments
(subject to reduction if availability falls below 90% or if capacity is less
than 185 MW based on an annual performance test), fixed and variable operation
and maintenance payments and an energy payment providing for a pass-through of
the Puerto Plata Plant's fuel costs with such pass-through being subject to
certain limitations. Fixed payments increase over the first 15 years at a stated
rate and decrease over the last four years. SECLP accounts for the fixed
payments at the lower of amounts billable for the current period or the amount
calculated by applying the average estimated rate per MW produced over the life
of the project. The capacity payments are designed to cover debt service and
return of, and on, equity for SECLP, and the operations and maintenance payments
are designed to cover the operation and maintenance costs of the Puerto Plata
Plant. CDE has the option of paying its obligations under the Puerto Plata
Energy Supply Contract in U.S. dollars or an equivalent amount of Dominican
Republic pesos based on the prevailing rate of exchange in the Dominican
Republic banking exchange market. SECLP has arranged to convert the Dominican
Republic pesos into U.S. dollars through short-term agreements with commercial
banks. The Puerto Plata Energy Supply Contract provides that CDE must
F-8
<PAGE> 49
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indemnify SECLP for any losses incurred by SECLP as a result of the inability to
convert or delay in converting Dominican Republic pesos to U.S. dollars.
SECLP has arranged a total of $153 million in project debt financing for
the Puerto Plata Plant at interest rates ranging from 6.72% to 16% and final
maturity dates ranging from 2004 to 2008. The debt is collateralized by
substantially all of the assets of the Puerto Plata Plant. As of December 31,
1996, SECLP owed approximately $145.5 million under the project debt financing.
SECLP is subject to certain dividend payment restrictions in connection with the
project financing. Payment of dividends is not currently restricted and is not
expected to be restricted by Dominican Republic law.
SECLP also procured certain cost overrun loans (COLs) for
construction-related items from Enron affiliates. In connection with the
purchase of the 50% interest in SECLP, EPP purchased approximately $10.7 million
face amount of COLs for approximately $8.5 million in exchange for approximately
0.3 million Common Shares. As of December 31, 1996, SECLP owed approximately
$10.7 million and $1.0 million in COLs to EPP and Enron affiliates,
respectively. All COLs bear interest at 13.5% with interest and principal
payable semiannually through December 2003 (See Note 9 and Note 13).
CIESA
EPCA is an Argentine corporation formed in October 1992 for the purpose of
owning a 25% interest in CIESA. CIESA is an Argentine corporation formed in
December 1992 for the purpose of acquiring 70% of the common stock of TGS in
December 1992. The remaining 75% of CIESA was initially owned 25% each by Perez
Companc S.A. C.F.I.M.F.A. (Perez Companc), Compania de Inversiones en Transporte
de Gas S.A. (CITGAS) and the Argentina Private Development Trust Company Limited
(APDT). TGS is one of ten business units formed in the privatization of Gas del
Estado S.E. (GdE) in accordance with the privatization program carried out by
the Argentine Government. Local and foreign investors and an employee stock
purchase program own 27% and 3%, respectively, of TGS.
Effective July 31, 1996, EPCA and Perez Companc, through its subsidiary,
equally acquired APDT's 25% interest in CIESA for $117.5 million each (See Note
10). Additionally, EPCA granted to Enron the right to acquire a 4 1/6% interest
in CIESA for approximately $39.2 million. On August 8, 1996, Enron and Perez
Companc entered into a stock purchase agreement with CITGAS which transferred
all rights and obligations deriving from CITGAS's 25% interest in CIESA equally
to subsidiaries of Enron and Perez Companc. The CITGAS transaction closed on
November 15, 1996. However, the respective voting and economic rights were
transferred effective August 1, 1996.
On August 23, 1996, Enron exercised its right to acquire the 4 1/6%
interest in CIESA from EPCA. As a result of the APDT and CITGAS transactions,
Perez Companc and its subsidiary own 50% of CIESA, EPCA owns 33 1/3% and Enron
owns 16 2/3%; however, voting rights are owned 50% by Perez Companc and 50% by
EPCA. Enron is obligated to offer to EPP its interests in CIESA between July 31,
1997, and January 27, 1998.
Detailed below are summarized pro forma results of operations for EPP as
though the acquisition of CIESA had occurred on January 1, 1995.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
YEARS ENDED
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Equity in earnings and technical assistance fees........ $61,727 $50,086
Net income.............................................. 48,352 37,823
Net income per common share............................. $ 2.00 $ 1.81
</TABLE>
F-9
<PAGE> 50
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
General
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. The consolidated statement
of income for the year ended December 31, 1996, reflects (i) $4.5 million of
equity in earnings from SECLP/SEOM (See Note 13) and (ii) $4.7 million of equity
in earnings from Centragas (approximately $2.8 million which relate to an early
completion bonus, certain aspects of which are being contested by Ecopetrol)
(See Note 13). In addition, the consolidated statement of income for the year
ended December 31, 1996, reflects expenses of approximately $1.9 million
associated with the acquisitions of Centragas and SECLP/SEOM, included in other
income, net, and $0.3 million of accrued withholding taxes in Colombia.
3. BASIS OF PRESENTATION
The financial statements and related notes include all periods prior to the
closing date of the Offering (Predecessor Periods). The Predecessor Periods are
presented on a special-purpose combined basis as if Enron had contributed its
ownership of EPCA, EPPC and PQPC to EPP in exchange for Common Shares as of
October 27, 1992, and assumes the ownership percentages that existed at November
22, 1994, were constant throughout the Predecessor Periods. The Predecessor
Periods include the accounts of all majority owned subsidiaries and the equity
investments in unconsolidated subsidiaries contributed. The excess of assets
over liabilities for the Predecessor Periods are reflected as equity of parent.
Changes in equity of parent which are not attributable to net income in any
period represent net advances from (to) parent. The financial statements of EPP
and predecessor are hereinafter collectively referred to as the consolidated
financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. See Note 13
for certain significant contingencies.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes thereto of CIESA and
Controlled Company included in the annual report on Form 10-K of EPP for the
year ended December 31, 1996 (Form 10-K).
All monetary amounts presented in tables herein are expressed in thousands,
except per share amounts.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
4. PRO FORMA (UNAUDITED)
The pro forma consolidated statement of income for the year ended December
31, 1994, includes the results of EPP's predecessor companies and reflects
estimated incremental general and administrative expenses of approximately $1.7
million associated with the operations of EPP as a public entity.
5. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of EPP, all
majority owned subsidiaries and equity investments in unconsolidated
subsidiaries. Investments in more than 20% owned but less than majority owned
companies are accounted for by the equity method.
F-10
<PAGE> 51
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
EPP records as cash equivalents all highly liquid short-term investments
with original maturities of three months or less. EPP, from time to time,
invests excess funds with Enron affiliates under promissory notes payable on
demand at market responsive rates. At December 31, 1996 and 1995, approximately
$19.6 million and $19.1 million, respectively, were invested with Enron
affiliates using notes bearing interest at the one month London Interbank
Offering Rate (LIBOR) plus 25 basis points. Such amounts are classified as cash
equivalents.
Foreign Currency Accounting
For all Predecessor Periods, the Argentine peso (Ps) was the functional
currency of EPCA. Assets and liabilities of EPCA were translated at the exchange
rate in effect at period-end and the statements of income were translated at the
average exchange rates during the appropriate period. Unrealized gains or losses
from translating foreign currency financial statements into U.S. dollars,
referred to as translation adjustments, have been immaterial because the
exchange rate between the Ps and U.S. dollar was approximately 1:1 for all
Predecessor Periods. EPP management determined that the U.S. dollar should be
the functional currency of EPCA and has made such change effective November 22,
1994. Due to the approximate historic 1:1 exchange ratio, the effect of this
change was not material.
The U.S. dollar is the functional currency of EPPC, PQPC, Centragas and
SECLP/SEOM. Accordingly, their financial statements have been remeasured into
U.S. dollars with monetary assets and liabilities translated using the current
exchange rate as of the balance sheet date, nonmonetary assets and shareholders'
equity translated using the historical exchange rate and income and expense
accounts translated using the average exchange rate for the appropriate period.
Resulting gains or losses are recognized in income in the period of
remeasurement and were immaterial for all periods presented.
Income Taxes
EPP is treated as a partnership for U.S. federal income tax purposes.
Accordingly, no provision for U.S. federal income taxes related to the
operations of EPP is included in the consolidated financial statements. A U.S.
holder of Common Shares will be subject to U.S. federal income tax on his
allocable share of EPP taxable income, regardless of the amount of cash
dividends received by such holder. The underlying consolidated entities, EPCA
and EPPC, are taxable entities in their respective local jurisdictions.
Accordingly, income taxes primarily represent Argentine income taxes at a
statutory rate of 33% (increased from 30% effective January 1, 1996) on the net
income of EPCA, Philippine withholding taxes of 15% on the net income of EPPC,
which includes equity in earnings of Subic and Batangas, and Colombia
withholding taxes of 7% on the net income of Centragas.
EPP's wholly owned subsidiaries account for income taxes under the
provisions of Statement of Financial Accounting Standards (SFAS) No.
109 -- "Accounting for Income Taxes." SFAS No. 109 requires the asset and
liability approach for accounting for income taxes. Under this approach,
deferred tax assets and liabilities are recognized based on anticipated future
tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax basis. The
primary difference between the book and tax basis of assets relates to the
undistributed earnings of Philippine and Colombian operations which are taxed
upon distribution of those earnings outside of the Philippines and Colombia,
respectively.
F-11
<PAGE> 52
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest are as follows:
<TABLE>
<CAPTION>
YEARS ENDED PREDECESSOR
DECEMBER 31, PERIOD ENDED PERIOD ENDED
---------------------- DECEMBER 31, NOVEMBER 21,
1996 1995 1994 1994
-------- -------- ------------ ------------
(40 DAYS) (325 DAYS)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income taxes....................... $3,496 $737 $160 $2,842
Interest........................... 1,548 96 -- --
</TABLE>
During 1996, noncash investing activities included the issuance of
approximately 3.5 million Common Shares in exchange for assets with a carryover
basis totaling $62.5 million related to the Centragas, SECLP and SEOM
acquisitions (See Note 2). There were no noncash investing or financing
activities in 1995. Noncash investing and financing activities in 1994 included
the assumption of $101.5 million of indebtedness from Enron in connection with
Enron's contribution of certain interests to EPP in exchange for 16.1 million
Common Shares (See Note 1). Enron's ownership interests contributed are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Cash........................................................ $ 20,329
Noncash assets.............................................. 160,173
Liabilities................................................. (24,479)
Long-term debt.............................................. (101,500)
--------
Net Enron interest contributed.............................. $ 54,523
========
</TABLE>
7. OTHER INCOME
Other income includes $3.0 million, $1.8 million and $0.7 million of
interest income for the years ended December 31, 1996, 1995 and 1994,
respectively.
8. SHAREHOLDERS' EQUITY
EPP is authorized to issue up to 200 million Common Shares for such
consideration and on such terms and conditions as shall be established by the
Board of Directors in its sole discretion without the approval of any holders of
Common Shares. Except as set forth below with respect to restricted common
shares (Restricted Common Shares) and special restricted common shares (Special
Restricted Common Shares), each Common Share shall be identical in all respects
with each other Common Share. To ensure that EPP is classified as a partnership
for U.S. federal income tax purposes, the Common Shares include Restricted
Common Shares (representing 21% of the outstanding Common Shares), including
Special Restricted Common Shares (representing 1% of the outstanding Common
Shares). The Restricted Common Shares are identical in all respects to other
Common Shares except that they may not be transferred without the prior consent
of the holders of a majority of the voting power of all equity securities of
EPP, excluding the Restricted Common Shares. The Special Restricted Common
Shares are identical in all respects to the other Restricted Common Shares
except that (i) the owner thereof, by virtue of such ownership, will be liable
for the debts and obligations of EPP (other than obligations that, by their
terms, are nonrecourse to EPP) to the extent EPP's assets are insufficient to
satisfy such debts and obligations and (ii) they may not be transferred other
than to a single transferee that after such transfer will have a net worth
(exclusive of all equity securities of EPP owned by such transferee) equal to at
least 10% of the total capital contributions to EPP. The Restricted Common
Shares and the Special Restricted Common Shares are all held by Enron.
F-12
<PAGE> 53
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 18, 1997, EPP declared a quarterly dividend of $0.25 per Common
Share payable on March 14, 1997, to holders of record as of February 28, 1997.
During 1996, EPP declared and paid $21.0 million of dividends at an annual rate
of $0.88 for the first three quarters and $1.00 for the fourth quarter. During
1995, EPP declared and paid $17.1 million of dividends at an annual rate of $.82
per Common Share.
In connection with the financing of the acquisition of the additional
interest in CIESA, Enron was granted, and on March 5, 1997, exercised, an option
to purchase $47.0 million of 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 Common Shares). A portion of the proceeds
were used to repay the entire $36.6 million debt with Enron (See Note 10).
EPP has a share option plan (the Plan) under which options for 1.5 million
Common Shares have been authorized to be granted to officers and employees of
EPP, members of the EPP Board of Directors unaffiliated with Enron and employees
of Enron that provide direct services to EPP. Under the Plan, options are
granted at not less than the fair market value of the Common Shares at the time
of grant. The Plan permits the granting of share options, restricted shares and
share appreciation rights, any of which may be granted separately or together.
Options granted under the Plan have maximum terms not to exceed ten years. No
options were granted or outstanding for any periods prior to November 15, 1994.
Summarized information for the Plan is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- -------- -------- ------- --------
(40 DAYS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period........................ 609,150 $24.01 708,980 $24.00 633,980 $24.00
Granted(1).................... 178,920 26.65 170,750 24.01 75,000 24.00
Exercised..................... (28,616) 24.00 (18,750) 24.00 -- --
Forfeited..................... (36,800) 24.00 (251,830) 23.99 -- --
------- ------ -------- ------ ------- ------
Outstanding, end of year........ 722,654 $24.66 609,150 $24.01 708,980 $24.00
------- ------ -------- ------ ------- ------
Exercisable, end of year........ 265,894 $24.37 141,280 $23.99 --
Available for grant, end of
year.......................... 729,980 872,100 791,020
Weighted average fair value of
options granted............... $8.28 $7.28
</TABLE>
- ---------------
(1) Includes 5,920 options granted on December 31, 1996, under all-employee
stock option grants for the years 1997 through 2000.
F-13
<PAGE> 54
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
--------------- ------------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$23.13 to $28.50........................... 722,654 8.4 years $24.66 265,894 $24.37
</TABLE>
Options outstanding at December 31, 1996, vest as follows subject to certain
restrictions:
<TABLE>
<CAPTION>
NUMBER
OF
YEAR SHARES
---- -------
<S> <C>
1997........................................................ 130,511
1998........................................................ 149,260
1999........................................................ 66,760
2000........................................................ 110,229
</TABLE>
EPP applies Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for the Plan. In accordance with APB Opinion 25,
there was no compensation expense charged against income for 1996 or 1995 under
the Plan. Had compensation cost for the Plan been determined based on the fair
value at the grant dates for awards under the Plan consistent with the methods
described in SFAS No. 123 -- "Accounting for Stock-Based Compensation," EPP's
pro forma net income and earnings per share would have been $45.1 million and
$1.86 in 1996, and $34.7 million and $1.66 in 1995, respectively. As allowed
under SFAS No. 123, EPP will continue to account for the Plan under APB Opinion
25.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of the pro forma amounts to be expected in future
years.
For purposes of the SFAS No. 123 pro forma disclosure, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with weighted-average assumptions for grants in 1996 and
1995, respectively, of: (i) dividend yield of 0.9% and 0.9%, (ii) expected
volatility of 20.3% and 20.3%, (iii) risk-free interest rates of 6.2% and 6.5%
and (iv) expected lives of 5.0 years and 4.7 years.
F-14
<PAGE> 55
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
EPP's investments in and advances to its unconsolidated subsidiaries and
the changes in such balances are as follows:
<TABLE>
<CAPTION>
PIPELINE POWER TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1993................................ $ 68,709 $134,785 $203,494
Contributions and Advances.................................. 21,871 5,781 27,652
Repayment of Advances....................................... -- (90,083) (90,083)
Distributions............................................... (14,711) (1,900) (16,611)
Equity in Earnings.......................................... 21,259 6,968 28,227
-------- -------- --------
Balance at November 21, 1994................................ 97,128 55,551 152,679
Repayment of Advances....................................... -- (3,482) (3,482)
Equity in Earnings.......................................... 1,706 1,209 2,915
-------- -------- --------
Balance at December 31, 1994................................ 98,834 53,278 152,112
Contributions and Advances.................................. -- 6,000 6,000
Repayment of Advances....................................... -- (1,546) (1,546)
Distributions............................................... (23,379) (6,994) (30,373)
Equity in Earnings.......................................... 22,154 11,274 33,428
-------- -------- --------
Balance at December 31, 1995................................ 97,609 62,012 159,621
Contributions, Advances and Acquisitions.................... 100,368 30,540 130,908
Distributions............................................... (29,540) (8,574) (38,114)
Equity in Earnings.......................................... 29,767 16,348 46,115
-------- -------- --------
Balance at December 31, 1996................................ $198,204 $100,326 $298,530
======== ======== ========
</TABLE>
At December 31, 1996, EPP's share of undistributed earnings of its pipeline
and power subsidiaries totaled approximately $10.3 million and $21.6 million,
respectively.
During 1996, EPP received $29.1 million and $0.4 million in dividends from
its Argentine and Colombian pipeline operations, respectively, and $8.6 million
in dividends from its Philippine power operations.
Equity in earnings are net of amortization of excess investment.
Amortization of excess investment is related to (i) the amortization of $0.4
million in 1996 related to the $7.5 million difference between the investment in
SECLP/SEOM and 50% of the underlying equity of SECLP/SEOM, which is being
amortized over 19 years (the term of the Puerto Plata Energy Supply Contract)
and (ii) the amortization of $0.4 million in 1996 related to the $42.3 million
difference between the acquisition price and proportionate share of the
underlying U.S. generally accepted accounting principles (GAAP) equity of CIESA,
over 40 years (the approximate remaining term of the License as defined below).
For the year ended December 31, 1996, EPP's equity in earnings and
technical assistance fees from its Argentine and Philippine operations
constituted approximately 61% and 16%, respectively, of EPP's total equity in
earnings and technical assistance fees. As of December 31, 1996, the Argentine
and Philippine operations accounted for approximately 52% and 19%, respectively,
of EPP's assets. As a result, if the Argentine or Philippine operations were
materially and adversely affected, EPP's financial condition and results of
operations could be materially and adversely affected. Revenues from four
transportation customers and one producer represent approximately 98% of TGS's
transportation revenues in 1996, and the National Power Corporation (NPC), a
corporation owned by the Philippine Government, is the sole customer for EPP's
operations in the Philippines. As a result, a material failure of any one of
these four TGS customers, the
F-15
<PAGE> 56
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
producer or NPC to fulfill its obligations could have a material adverse effect
on the financial condition and results of operations of EPP.
Pipeline Operations
The following condensed balance sheet and income statement information for
the combined pipeline operations of CIESA, including consolidated amounts for
TGS, and Centragas have been prepared in accordance with U.S. GAAP on a U.S.
dollar, 100% ownership basis. For further information regarding CIESA, including
the principal differences between Argentine and U.S. GAAP, reference is made to
the consolidated financial statements of CIESA included in the Form 10-K.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Condensed Balance Sheet Data
Current Assets........................................... $ 160,286 $ 125,700
Noncurrent Assets........................................ 1,620,040 1,401,100
Current Liabilities...................................... 509,395 535,761
Noncurrent Liabilities................................... 574,781 342,145
Minority Interest........................................ 271,012 267,612
Shareholders' Equity..................................... 425,138 381,282
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Condensed Income Statement Data
Net Revenues..................................... $462,772 $389,591 $353,979
Operating Costs.................................. 116,602 102,565 96,369
Net Income Attributable to Common Shares......... 100,530 88,616 91,861
</TABLE>
Argentina
The following financial information for CIESA is presented in accordance
with U.S. GAAP and stated in historical U.S. dollars:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Total Assets(1)............................................ $1,540,285 $1,526,800
Shareholders' Equity(1).................................... 370,790 381,282
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Income Attributable to Common Shares(1)........... $90,840 $88,616 $91,861
</TABLE>
- ---------------
(1) For an explanation of the principal differences between U.S. and Argentine
GAAP, as they relate to CIESA consolidated financial information, see Note
12 of the consolidated financial statements of CIESA and Controlled Company
included in the Form 10-K. In addition to differences noted, the effects of
inflation in Argentina through August 31, 1995, the date that inflation
adjustments ceased in Argentina, have been removed in arriving at these
amounts.
F-16
<PAGE> 57
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TGS owns and operates a 4,104 mile natural gas pipeline system which runs
through southern and western Argentina and currently has a delivery capacity of
1.9 billion cubic feet per day. Additionally, TGS owns and operates related gas
processing and storage facilities. TGS was granted an exclusive license in
December 1992 to transport natural gas through the southern Argentina gas
pipeline system (the License). The License has a term of 35 years with an
optional ten-year extension if the commitments under the License have been
substantially met. At the end of the term, the License will be offered for
competitive bid and TGS will transfer the assets to the winning bidder and
receive the lower of net book value of essential assets (as defined by the
License) or the net proceeds from the bid. If TGS submits a bid in an amount at
least equal to the appraised value, however, it may match a higher bid by any
third party. If TGS is the awardee, it will only be required to pay an amount
equal to the excess, if any, of its offer over the appraised value. TGS has
long-term firm transportation arrangements with four Argentine distribution
companies and one producer which represented approximately 98% of TGS's
transportation revenues for the year ended December 31, 1996. TGS's outstanding
firm transportation contracts have a weighted average life of approximately 13
years. The Ente Nacional Regulador del Gas (ENARGAS), the Argentine federal gas
regulatory entity, sets the basis for tariff calculations which determine
transportation rates charged by TGS (See Note 13).
In December 1992, TGS assumed $395 million of debt pursuant to a transfer
agreement. This amount included $175 million payable to the Argentine Federal
Treasury and $220 million payable to YPF S.A. (YPF). Using the proceeds of $160
million in bridge financings, together with other short-term financing and
internally generated funds, TGS repaid (i) the $175 million debt to the
Argentine Federal Treasury and (ii) $66 million of the YPF debt in 1993. As of
December 31, 1996, the debt with YPF was $44 million. The YPF debt bears
interest at a rate equal to LIBOR plus 0.4% per month, payable in arrears on
each principal payment date.
In December 1993, TGS commenced a global program for short and medium-term
notes to access the international capital markets. The program provides for an
aggregate amount of $500 million (or the equivalent in other currencies)
outstanding at any time. A first tranche of $200 million of fixed rate medium-
term notes was issued in December 1993 primarily to refinance the interim
floating rate bridge financings and other short-term borrowings, which had been
incurred to repay the initial debt assumed in connection with the acquisition of
TGS. These medium-term notes bear interest at a fixed annual rate of 7.75% and
are due on December 23, 1998. During 1996, TGS approved a new global program for
the issuance of short and medium-term notes up to a maximum outstanding amount
of $350 million. In April 1996, TGS issued $150 million of debt securities under
this program, maturing April 2001, at a price of 99.94%. The notes bear interest
at an annual fixed rate of 10.25%, payable semiannually. Loan covenants under
these medium-term notes restrict TGS's assets and require that debt assumed by
TGS not exceed 60% of total debt plus shareholders' equity.
In May 1996, CIESA entered into a $220 million term loan facility with
Societe Generale, Banco Supervielle Societe Generale and Goldman, Sachs, & Co.
to refinance a $215 million loan with Morgan Guaranty Trust Company of New York.
The new credit facility loan matures on November 20, 1997, or earlier with the
proceeds of any future capital markets transaction before such date, and bears
interest at the Eurodollar rate plus an annual spread of 2.40% for the first six
months, increasing up to 3.50% for the last three months.
In December 1996, CIESA shareholders approved the issuance of debt
securities of up to $220 million. Such debt securities qualify as Obligaciones
Negociables under Argentine law. Consequently, CIESA has requested the public
offering and the authorization of public trading of these debt securities on the
Buenos Aires Stock Exchange. Both requests are still pending; however,
management expects that approval will be obtained during the second quarter of
1997. Net proceeds from this issuance will be used to retire the above mentioned
$220 million term loan.
F-17
<PAGE> 58
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the outstanding debt of CIESA, consolidated
with TGS, as of December 31, 1996 and 1995, in accordance with U.S. GAAP and
stated in U.S. dollars:
<TABLE>
<CAPTION>
INTEREST RATES(1) 1996 1995
----------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
YPF................................................ 10.67% $ 44,000 $ 66,000
Societe Generale................................... 8.25% 220,000 --
Morgan Guaranty Trust Company of New York.......... -- -- 215,000
Bankers Trust Company.............................. -- -- 100,000
Euro Commercial Paper.............................. -- -- 45,429
Other bank borrowings.............................. 5.90% - 8.75% 139,789 45,509
-------- --------
Total...................................... $403,789 $471,938
======== ========
Long-Term
YPF................................................ -- $ -- $ 44,000
1996 Global Program -- First Issuance.............. 10.25% 150,000 --
Euro Medium-Term Notes............................. 7.75% 200,000 200,000
Other bank borrowings.............................. 5.99% - 8.50% 39,673 67,328
-------- --------
Total...................................... $389,673 $311,328
======== ========
</TABLE>
- ---------------
(1) Effective as of December 31, 1996.
The annual principal repayments of CIESA's debt, consolidated with TGS, are
$403.8 million, $221.9 million, $14.9 million, $2.5 million and $150.4 million
for 1997 through 2001, respectively.
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.
As of December 31, 1996, TGS had outstanding interest rate swap agreements
with major financial institutions which effectively converted $108 million of
LIBOR based debt to fixed rate debt (ranging from 5.78% to 6.06%) of which $44
million related to the YPF debt and approximately $64 million related to other
bank borrowings. Additionally, at December 31, 1996, TGS had a $50 million
interest rate swap agreement related to a bank loan which was prepaid. This $50
million swap agreement will be applied to future variable rate borrowings. The
fair value of this swap agreement was immaterial at December 31, 1996.
During 1996, in contemplation of a debt issuance, TGS entered into swap
agreements which effectively locked in an average rate of 5.39% on a notional
amount of $150 million versus the five-year U.S. Treasury Bond rate. These
Treasury lock agreements were executed upon the issuance of the medium-term
notes on April 25, 1996, generating approximately $6 million in gains which were
deferred and are being amortized over the five-year term of these agreements.
Under Argentine law, 5% of TGS, CIESA and EPCA's annual net income must be
used to establish a legal reserve until such reserve equals 20% of its capital
stock. Accordingly, dividends or distributions from retained earnings are
restricted by these amounts. TGS paid dividends of $151.0 million and $154.9
million during 1996 and 1995, respectively. In February 1997, TGS's Board of
Directors paid cash dividends of approximately $0.10 per share. CIESA received
approximately $55.6 million of this dividend, of which EPCA received
approximately $14.2 million in February 1997. Based on shareholder agreements
among the CIESA shareholders, CIESA will, to the extent allowable by law,
distribute all of its net income less interest expense and legal reserves as
dividends and may borrow funds in order to facilitate the payment of these
dividends.
F-18
<PAGE> 59
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the License, the five-year mandatory investment plan
requires TGS to invest in the Argentine Pipeline a total of $153.0 million,
representing $30.6 million per year beginning in 1993. The amount invested from
1993 through 1996 totaled $148.4 million. TGS submitted its 1997 mandatory
investment program (estimated at $17.8 million) to ENARGAS for its approval. The
1997 investment is lower than the $30.6 million per annum as stipulated in the
TGS License because TGS invested more than the required amounts in prior years.
The 1997 investment program and mandatory investments completed in 1996 are
still pending ENARGAS approval.
Certain restrictions exist on the ability of EPCA and the other owners to
dispose of CIESA capital stock without the prior authorization of ENARGAS.
Likewise, certain restrictions exist on CIESA's ability to dispose of TGS
capital stock without prior approval from ENARGAS. A substantial portion of the
assets transferred to TGS by GdE have been defined in the License as essential
assets for the transportation of gas. Therefore, TGS is required to segregate
and maintain these assets, together with any future improvements thereon, in
accordance with certain standards defined in the TGS License. TGS may not
dispose of, encumber, lease, sublease or lend its essential assets for purposes
other than providing the licensed service without ENARGAS's prior authorization.
Any new extensions and improvements that TGS makes to the Argentine Pipeline may
only be encumbered to secure long-term financing for such extensions and
improvements.
Centragas
Centragas is a limited partnership formed in Colombia to build, own and
operate, for a 15-year period, a 357 mile, 18-inch natural gas pipeline and
related facilities from Ballena on the northern coast of Colombia to
Barrancabermeja in the central region of the country. Centragas is owned 49% by
EPP, 1% by Enron Development Corp. (as general partner), 25% by Tomen
Corporation, a Japanese corporation, and 25% by Promigas, of which a wholly
owned indirect subsidiary of Enron owns an approximate 39% interest.
Construction of the pipeline was completed and full commercial operation was
achieved on February 24, 1996.
Centragas obtained project debt financing of $172 million through the
issuance in the international capital markets of the Notes. The Notes have a
16-year maturity and bear interest at the rate of 10.65% per year. The Notes are
collateralized by substantially all of the assets of Centragas. As of December
31, 1996, Centragas owed approximately $166 million under the Notes. Centragas
is subject to certain dividend payment restrictions in connection with the Notes
and under Colombian law (See Note 2).
F-19
<PAGE> 60
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Power Plant Operations
The following condensed balance sheet and income statement information for
the combined power plant operations of Subic, Batangas, PQPC and SECLP/SEOM have
been prepared in accordance with U.S. GAAP on a U.S. dollar, 100% ownership
basis:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Condensed Balance Sheet Data
Current Assets............................................ $ 98,191 $ 42,008
Noncurrent Assets......................................... 506,451 336,413
Current Liabilities....................................... 79,170 34,688
Noncurrent Liabilities.................................... 334,733 219,094
Equity.................................................... 190,739 124,639
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Condensed Income Statement Data
Operating Revenues................................ $211,523 $124,313 $119,685
Operating Expenses................................ 135,668 75,908 78,365
Net Income........................................ 33,371 22,547 16,353
</TABLE>
Included in current assets at December 31, 1996 and 1995, are $1.1 million
and $1.7 million, respectively, owed from various Enron affiliates.
Included in current liabilities at December 31, 1996 and 1995, are $24.5
million and $6.5 million, respectively, owed to various Enron affiliates.
Included in noncurrent liabilities at December 31, 1996 and 1995, are $9.4
million and $9.6 million, respectively, owed to various Enron affiliates.
Included in operating expenses for the years ended December 31, 1996, 1995
and 1994, are $4.6 million, $6.1 million and $8.5 million, respectively, related
to various contractual arrangements between PQPC, Subic, Batangas and SECLP/SEOM
and various Enron affiliates, exclusive of amounts related to direct
reimbursement of charges incurred by the affiliates from third parties, as more
fully described below.
Philippines -- Subic
Subic is a Philippine corporation formed in January 1993 to own and operate
a 116 MW diesel power plant located within the Subic Bay Freeport, Olongapo
City, Philippines (the Subic Bay Plant). Subic is owned 50% by EPPC, and the
remaining 50% is owned by Rizal Commercial Banking Corporation (24%), EEI
Corporation (20%) and Pan Malayan Management and Investment Company (6%). The
Subic Bay Plant began commercial operations in February 1994.
Subic has a 15-year contract (the Subic BOT Agreement) which provides for
the sale of electric power to NPC, the primary electric power supplier in the
Philippines. The Subic BOT Agreement expires in February 2009 at which time
Subic is required to transfer ownership of the Subic Bay Plant to NPC without
payment or compensation. Revenues earned by Subic under the Subic BOT Agreement
are denominated primarily in U.S. dollars and are based on fixed capacity fees,
operation and maintenance fees and actual output. NPC provides all fuel
requirements of the facility at no charge to Subic. Additionally, Subic leases
the facility site from NPC under an operating lease over a term consistent with
the term of the Subic BOT Agreement.
F-20
<PAGE> 61
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subic obtained fixed rate financing in December 1993 in the amount of $105
million, 9.5% senior secured notes maturing in 2008 (the Subic Notes). The Subic
Notes are secured by substantially all of the assets of Subic. Subic's ability
to make distributions to its shareholders is subject to certain loan covenants,
the most restrictive of which is the maintenance of a debt service coverage
ratio of 1.2:1. As of December 31, 1996, Subic owed approximately $90.5 million
under the Subic Notes. Subic paid dividends totaling $4.1 million for the year
ended December 31, 1996. On February 18, 1997, Subic declared a $3.0 million
dividend which EPP anticipates receiving in March 1997.
Enron has guaranteed the next principal and interest payment as it becomes
due in the event NPC fails to pay amounts due under the Subic BOT Agreement and,
as a result, Subic is unable to pay the Subic Notes. Pursuant to a master
contribution agreement among EPP, Enron and certain of their affiliates (the
Contribution Agreement), to the extent Enron does not otherwise have a
contractual right to be reimbursed, EPP has agreed to indemnify Enron against
the liabilities incurred by Enron in performing its obligations under the
guarantee.
Pursuant to the turnkey construction contract for the Subic Bay Plant,
Subic gave Enron a $6.2 million note in satisfaction of certain performance
tests set forth therein. Such note is subordinated to the Subic Notes, is
payable over a 15-year period and accrues interest at a rate of 9% per annum.
Subic has entered into an agreement with Enron Subic Power Corp. (ESPC), an
Enron affiliate, whereby ESPC provides supervisory and management services, for
which it is reimbursed for costs incurred on behalf of Subic. In addition, Subic
has entered into an agreement with EPPC to provide various commercial,
administrative and financial services for which Subic is charged a base fee of
$250,000 per year, escalating at 7% each year. Subic has also entered into an
agreement with an Enron affiliate for administrative and advisory services
related to the operation and maintenance of the facility. The affiliate receives
payment for reimbursable expenses and a fee of 2% of (i) estimated gross
revenues for each of the first two years after commencement of commercial
operations and (ii) the prior year's gross revenues thereafter, escalating
annually after the second year based on the rate at which the fixed operation
and maintenance fees charged under the power sales agreement with NPC escalate,
not to exceed 15% of gross revenues.
Philippines -- Batangas
Batangas is a Philippine corporation formed in September 1992 to own and
operate a 110 MW diesel power plant located in Batangas, Philippines (the
Batangas Plant). Batangas is owned 50% by EPPC, and the remaining 50% is owned
by New Saga Power Corporation (39.5%), Asian Development Bank (8.7%) and
Portfolio Holdings, Inc., a subsidiary of Citibank Overseas Investment Corp.
(1.8%). The Batangas Plant began commercial operations in July 1993. Batangas
entered into a contract with NPC (the Batangas BOT Agreement), which provides
for the sale of electric power to NPC for a period of ten years from
commencement of commercial operations. Upon expiration of the ten-year period
(July 15, 2003), Batangas will transfer the Batangas Plant to NPC without
payment or compensation. Revenues earned by Batangas under the Batangas BOT
Agreement are denominated primarily in U.S. dollars and are based on fixed
capacity fees, operation and maintenance fees and actual output. NPC provides
all fuel requirements of the facility at no charge to Batangas. Batangas leases
the facility site under an operating lease over a term consistent with the
Batangas BOT Agreement.
Batangas obtained financing in March 1994, based on term loan agreements
executed in December 1993, in the amount of $95 million at fixed interest rates
of 9.12% and 10.25% and a variable interest rate of one month LIBOR plus 1.5%
(the Batangas Loans). The Batangas Loans mature from 1999 through 2003. The
Batangas Loans are secured by substantially all of the assets of Batangas. As of
December 31, 1996, Batangas owed approximately $61.4 million under these
agreements. The ability of Batangas to make distributions to its shareholders is
restricted by loan covenants, the most restrictive of which require the
maintenance of a debt to equity ratio not to exceed 1.86:1 and maintenance of a
debt service ratio of at least 1.45:1. Batangas paid
F-21
<PAGE> 62
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividends totaling $13.0 million for the year ended December 31, 1996. On
February 18, 1997, Batangas declared a $9.0 million dividend which EPP
anticipates receiving in March 1997.
Enron and Chemholdings Corporation (Chemholdings), a Philippine
corporation, have jointly and severally guaranteed payment of 25% of the
outstanding principal and interest due under the Overseas Private Investment
Corporation (OPIC) loan, the balance of which was $34.4 million as of December
31, 1996 (the Guarantee). Payments under the Guarantee are only triggered if NPC
fails to pay (in U.S. dollars) amounts due under the Batangas BOT Agreement and,
as a result, Batangas fails to make payments to OPIC. Enron also obtained a $10
million letter of credit for a required engine reserve account (the Engine
Reserve Letter of Credit), a letter of credit in the amount of $3.0 million for
cash reserve and a letter of credit in the amount of $8.5 million for debt
reserve. These letters of credit are in favor of First Trust of New York, for
the benefit of Asian Development Bank, OPIC and Citibank, N.A. The Engine
Reserve Letter of Credit can be drawn upon if any of the engines in the Batangas
Plant are not functioning properly and Batangas has insufficient funds to
correct such malfunction. Chemholdings has indemnified and agreed to pay Enron
its share of any payments required to be made by Enron under the Guarantee or
for any drawing made on the Engine Reserve Letter of Credit. As a result of this
Chemholdings indemnity, Enron's current net liability on the Guarantee is $4.8
million, and $5.6 million on the Engine Reserve Letter of Credit. Pursuant to
the Contribution Agreement, to the extent Enron does not otherwise have a
contractual right to be reimbursed, EPP has agreed to indemnify Enron against
the liabilities incurred by Enron in performing its obligations under the
Guarantee, or any of the above letters of credit.
Pursuant to the turnkey construction contract for the Batangas Plant,
Batangas gave Enron a $6.0 million note in satisfaction of certain performance
tests set forth therein. Such note is subordinated to the Batangas Loans, is
payable over a ten-year period and accrues interest at a rate of 12% per annum.
This note has been purchased by EPP (See Note 12).
Batangas has entered into an agreement whereby ESPC provides supervisory
and management services, for which it is reimbursed for costs incurred on behalf
of Batangas. In addition, Batangas has entered into an agreement with EPPC to
provide various commercial, administrative and financial services for which
Batangas is charged a base fee of $300,000 per year, escalating at 7% each year.
Batangas has also entered into an agreement with an Enron affiliate for
administrative and advisory services related to the operation and maintenance of
the facility. The affiliate receives payment for reimbursable expenses and a fee
of 2% of (i) estimated gross revenues for each of the first two years after
commencement of commercial operations and (ii) the prior year's gross revenues
thereafter, escalating annually after the second year based on the rate at which
the fixed operation and maintenance fees charged under the power sales agreement
with NPC escalate, not to exceed 15% of gross revenues.
Guatemala
PQPC is a Delaware corporation formed in September 1992 and is currently
owned 50% by EPP and 50% by a local partner. PQPC owns a 110 MW barge mounted
diesel power plant in Puerto Quetzal, Guatemala (the Puerto Quetzal Plant). The
Puerto Quetzal Plant began commercial operations in February 1993. PQPC sells
power and associated energy to Empresa Electrica de Guatemala, S.A. (EEGSA), a
Guatemala electric generation and distribution utility owned 92% by the
Guatemalan Government, under a 15-year contract expiring in the year 2008.
Revenues earned by PQPC under its power sale agreement with EEGSA are
denominated in U.S. dollars and are based on fixed capacity payments and
variable energy payments. EEGSA is required to pay for energy representing at
least 50% of the facility's capacity. An Enron affiliate supplies fuel to the
Puerto Quetzal Plant, for which PQPC pays a market-based price. PQPC's
receivables from EEGSA are partially secured by EEGSA's irrevocable letter of
credit over the term of the agreement.
F-22
<PAGE> 63
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PQPC obtained fixed and variable rate financing from the International
Finance Corporation (IFC) in April 1993 in the amount of $71.0 million comprised
of three loans with interest rates ranging from 9.94% to 14% and with maturity
dates ranging from 2001 through 2003. In September 1995, PQPC entered into an
interest rate swap agreement which effectively converted approximately $51.0
million of the indebtedness from a floating rate to a fixed rate of 9.37%. The
loans are secured by substantially all of the assets of PQPC. As of December 31,
1996, PQPC owed approximately $43.4 million under these loan agreements. Enron,
on behalf of the PQPC stockholders, has obtained two irrevocable standby letters
of credit in favor of IFC each in the amount of $3.0 million to cover current
debt service requirements. PQPC's ability to make distributions to its
stockholders is limited by provisions of a stockholders' agreement and
restricted by loan covenants, the most restrictive of which requires maintenance
of a minimum cash balance of $0.5 million and a debt service coverage ratio of
1.2:1. PQPC paid dividends totaling $3.8 million for the year ended December 31,
1994. During 1996 and 1995, PQPC did not pay dividends. In January 1997, PQPC
declared a dividend of $3.0 million, of which EPP received $1.5 million.
PQPC received a reimbursable interest free advance from EEGSA of $7.25
million in February 1993 which is to be repaid beginning in 1999 in ten
semiannual installments. This deposit was advanced to an Enron affiliate which
will repay the advance to PQPC concurrently with the payments PQPC makes to
EEGSA.
PQPC has entered into an agreement (the Puerto Quetzal PPA), with EEGSA
pursuant to which PQPC is required to provide to EEGSA 90 to 110 MW of capacity
and the corresponding energy from the Puerto Quetzal Plant. In return, EEGSA is
obligated to pay for such capacity (not in excess of 110 MW) and also to pay for
at least 50% of the available energy output at the Puerto Quetzal Plant. Enron
has guaranteed PQPC's performance under the Puerto Quetzal PPA; EPP has agreed
to indemnify Enron against liabilities incurred by Enron under this guaranty.
The Puerto Quetzal PPA terminates in February 2008.
PQPC and Electricidad Enron de Guatemala, S.A., an indirect wholly owned
subsidiary of Enron (Enron-Guatemala), are parties to an Operation and
Maintenance Agreement dated November 13, 1992 (the Puerto Quetzal O&M
Agreement). Pursuant to the terms of the Puerto Quetzal O&M Agreement, Enron-
Guatemala will operate and maintain the Puerto Quetzal Plant until the
termination of the contractual term, February 2008. Enron-Guatemala is entitled
to monthly fees for its services which collectively cannot exceed 1.8% of the
gross revenues of the Puerto Quetzal Plant. In addition, Enron-Guatemala is
eligible or liable, as the case may be, for a bonus or penalty based on the
actual heat rate and plant availability achieved each year by the Puerto Quetzal
Plant compared with the operating plan adopted for that year.
PQPC obtains its fuel pursuant to a Fuel Supply Agreement dated effective
December 31, 1995, with Enron Power Oil Supply Corp., an indirect wholly owned
subsidiary of Enron (EPOS). Under the terms of the Fuel Supply Agreement, EPOS
is obligated to supply all of PQPC's fuel requirements until December 31, 2007.
PQPC and Enron Global de Guatemala, S.A., an indirect wholly owned
subsidiary of Enron (EGG), are parties to an Administrative and Commercial
Support Agreement dated effective December 31, 1995 (the Administrative and
Commercial Support Agreement). Pursuant to the terms of the Administrative and
Commercial Support Agreement, EGG will render commercial, financial and
administrative services to PQPC until December 31, 2008. EGG is entitled to an
annual fee for its services plus reimbursable expenses.
Dominican Republic
SECLP and SEOM are Turks and Caicos limited partnerships, which own and
provide services to, respectively, a 185 MW power project in Puerto Plata,
Dominican Republic (the Puerto Plata Plant). SECLP is owned 50% by EPP and 50%
by affiliates of Enron and Smith Cogeneration International, Inc. SEOM is owned
50% by EPP and 50% by affiliates of Smith Cogeneration International, Inc. The
Puerto Plata Plant
F-23
<PAGE> 64
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
began commercial operations in January 1996. SECLP sells power to CDE under a
19-year contract expiring in 2015.
SECLP and SEOM are parties to an Administrative Services and Operation and
Maintenance Agreement dated March 1, 1994 (Puerto Plata O&M Agreement). SECLP
utilized the services of SEOM in the start-up of the Puerto Plata Plant and will
continue to use SEOM's services in the operation and maintenance of the Puerto
Plata Plant through January 2015. Pursuant to the terms of the Puerto Plata O&M
Agreement, SEOM is entitled to an initial fixed fee of (i) 2% of the Puerto
Plata Plant's gross revenue for each month of simple cycle operations and (ii)
$2.1 million for each operating year of combined cycle operations escalating at
5% annually. In addition, SEOM is eligible or liable, as the case may be, for a
bonus or penalty based on the actual heat rate and plant availability achieved
each year at the Puerto Plata Plant compared with the operating plan adopted for
each year.
SECLP obtains fuel pursuant to two fuel supply agreements (Fuel Supply
Agreements) with Enron Fuels International, Inc., an indirect wholly owned
subsidiary of Enron (EFI). Under the terms of the Fuel Supply Agreements, EFI is
obligated to supply all of SECLP's fuel requirements until January 2015, subject
to termination every four years commencing in 1998.
During 1994, SECLP entered into a Technical Services Agreement (TSA) with
Enron Power Operating Company (EPOC), a subsidiary of Enron, and SEOM. Under the
terms of the TSA, EPOC operates and maintains the power plant, oversees the
performance of periodic overhauls and scheduled maintenance for the power plant
and provides consulting services with respect to legal, safety, environmental
and regulatory matters.
Additionally, SECLP has foreign exchange currency service contracts with
four banks that guarantee the availability of U.S. dollars for the conversion of
Dominican pesos up to $6 million per month. The contracts will expire in twelve
years, and can be extended upon agreement by both parties.
SECLP has arranged a total of $153 million in project debt financing for
the Puerto Plata Plant at interest rates ranging from 6.72% to 16% and final
maturity dates ranging from 2004 to 2008. The debt is collateralized by
substantially all of the assets of the Puerto Plata Plant. As of December 31,
1996, SECLP owed approximately $145.5 million under the project debt financing.
SECLP is subject to certain dividend payment restrictions in connection with the
project financing. Payment of dividends, allowing for restrictions under the
project financing, is not currently restricted and is not expected to be
restricted by Dominican Republic law.
During 1995, SECLP entered into a loan agreement with a German bank for
Deutsche Marks (DM) 15 million, with interest payable at 11.10% semiannually
through June 15, 2005. As of December 31, 1996, the entire balance remained
outstanding and the exchange rate between the DM and the U.S. dollar was 1.54:1.
Additionally, SECLP entered into a currency and interest rate swap
agreement dated September 8, 1995, with IFC whereby SECLP agreed to pay 12.02%
on the outstanding principal of $10.1 million to IFC and IFC agreed to pay
SECLP's DM 15 million obligation to the German bank at 11.10%.
SECLP has pledged as collateral for its obligations all of its land,
machinery, equipment and a $24 million letter of credit issued by the DR
Government in favor of SECLP.
SECLP also procured certain COLs for construction-related items from Enron
affiliates. In connection with the purchase of the 50% interest in SECLP, EPP
purchased approximately $10.7 million face amount of COLs for approximately $8.5
million in exchange for approximately 0.3 million Common Shares. As of December
31, 1996, SECLP owed approximately $10.7 million and $1.0 million in COLs to EPP
and Enron affiliates, respectively. All COLs bear interest at 13.5% with
interest and principal payable semiannually through December 2003. On February
26, 1997, pursuant to the purchase arrangement between Enron and EPP, Enron
funded through EPP two additional COLs totaling approximately $3.2 million at
13.5% interest, with interest and principal payable semiannually through
December 2004 (See Note 2 and Note 13).
F-24
<PAGE> 65
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. NOTE PAYABLE
On July 31, 1996, EPCA borrowed $117.5 million from Enron to purchase an
additional 12 1/2% interest in CIESA (See Note 2). The note bears interest at
the one month LIBOR plus 0.75% with interest due monthly and principal due
September 30, 1997. EPCA sold a 4 1/6% interest in CIESA to Enron on August 23,
1996, for $39.2 million and used the proceeds to repay a portion of the $117.5
million debt. As of December 31, 1996, the note balance was $36.6 million (See
Note 8).
On October 10, 1996, EPCA borrowed $24.8 million from Centragas at the one
month LIBOR with principal due October 2011. The proceeds were used to repay a
portion of the debt with Enron. The loans were made from funds that currently
cannot be dividended from Centragas, but can be loaned long-term pursuant to the
terms of a cash management agreement with Centragas. As of December 31, 1996,
the note balance was $24.8 million.
11. EMPLOYEE BENEFIT PLANS
Certain employees of EPP participate in various Enron benefit plans. Enron
maintains a retirement plan (the Enron Plan) which is a noncontributory defined
benefit plan covering substantially all employees in the United States and
certain employees in foreign countries.
Through December 31, 1994, participants in the Enron Plan with five years
or more of service were entitled to retirement benefits based on a formula that
uses a percentage of final average pay and years of service. In connection with
a change to the retirement benefit formula, Enron amended the Enron Plan
providing, among other things, that all employees become fully vested in
retirement benefits earned through December 31, 1994. The formula in place prior
to January 1, 1995, was suspended and replaced with a benefit accrual of 5% of
the annual base pay beginning January 1, 1996. Pension expenses charged to EPP
by Enron were immaterial for all periods presented.
Enron maintains a noncontributory employee stock ownership plan (ESOP)
which covers all eligible employees. Allocations to individual employees'
retirement accounts within the ESOP offset a portion of benefits earned under
the Enron Plan. At December 31, 1996, all shares included in the ESOP had been
allocated to the employee accounts.
As of September 30, 1996, the most recent valuation date, the plan assets
for the Enron Plan, in which the employees of EPP participate, were greater than
the actuarial present value of projected plan benefit obligations by
approximately $5 million. The assumed discount rate and rate of return on plan
assets used in determining the actuarial present value of projected plan
benefits were 7.5% and 10.5%, respectively. The assumed rate of increase in
wages was 4%.
In addition to providing pension benefits, Enron also provides certain
health care and life insurance benefits to eligible employees and their eligible
dependents. Benefits are provided under the provisions of contributory defined
dollar benefit plans.
EPP accrues the cost of these postretirement benefits over the service
lives of the employees expected to be eligible to receive such benefits. EPP's
net periodic postretirement benefit costs charged by Enron were immaterial for
all years presented.
12. OTHER RELATED PARTY TRANSACTIONS
In connection with the formation of EPP and the contribution to it of
Enron's interests in EPCA, EPPC and PQPC, Enron and EPP entered into the
Contribution Agreement which provides, among other things, that Enron shall
maintain certain guarantees, letters of credit, support obligations and other
covenants and shareholder commitments on behalf of EPP for the benefit of
certain 50% or less owned operating companies (the Project Companies) as
required by their lenders and certain other third parties. In most instances,
EPP
F-25
<PAGE> 66
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreed to indemnify Enron against liabilities that may be incurred under such
guarantees, letters of credit, support obligations and other covenants and
shareholder commitments to the extent Enron does not otherwise have a
contractual right to be reimbursed for such liabilities. Substantially all of
such indemnity obligations of EPP to Enron reflect EPP's pro rata share of
pre-existing obligations of the Project Companies. As of December 31, 1996,
EPP's total indemnity obligations related to letters of credit and debt
guarantees totaled approximately $28.8 million (See Note 13).
EPP issued to Enron options to purchase an aggregate of 1.5 million Common
Shares at the Offering price of $24 per share (subject to adjustment in the
event of share dividends, share splits and other contingencies). Provided the
vesting conditions are met, 50% of the share options will vest on January 1,
1998, and the balance will vest on January 1, 2000. One-half of Enron's share
options will vest only if the earnings per share of EPP is at least $2.25 for
the year ended December 31, 1997. The other half will vest only if the earnings
per share of EPP is at least $2.98 for the year ended December 31, 1999. Enron
is not permitted to transfer its share options prior to vesting.
As of December 31, 1996, EPCA had approximately $4.6 million of short-term
investments with Enron affiliates.
As of December 31, 1996 and 1995, EPCA had amounts due to Enron affiliates
of $1.0 million and $1.1 million, respectively, and as of December 31, 1996 and
1995, EPCA had amounts due from Enron affiliates of $0.1 million and $0.5
million, respectively.
As of December 31, 1996, EPCA had a noncurrent note payable for
approximately $24.8 million due to Centragas (See Note 10).
As of December 31, 1996 and 1995, EPCA had amounts due from TGS of $2.1
million and $2.0 million, respectively. EPCA provides technical assistance to
TGS under the terms of an eight-year, renewable for additional eight-year terms,
technical assistance agreement. TGS pays EPCA an annual technical assistance fee
equal to the greater of (i) $3.0 million or (ii) 7% of the amount obtained after
subtracting $3.0 million from TGS's net income before financial income (expense)
and holding gains (losses) and income and assets tax expense.
As of December 31, 1996 and 1995, EPPC had amounts due to Enron affiliates
of $0 and $0.1 million, respectively, and as of December 31, 1996 and 1995, EPPC
had amounts due from Enron affiliates of $0.5 million and $0.7 million,
respectively.
As of December 31, 1996, EPP had COLs receivables of approximately $8.5
million from SECLP and SEOM (See Note 2).
During October 1996, EPPC purchased a note receivable, payable from
Batangas to Enron Power Operating Corp., for approximately $5.2 million. The
note had a balance of approximately $5.1 million at December 31, 1996, yields
interest of 9.8% and matures on July 11, 2003.
EPP is allocated costs incurred by Enron in connection with EPP's
operations. Such allocation totaled $1.7 million, $1.7 million and $2.8 million
for the years ended December 31, 1996, 1995 and 1994, respectively. The
allocated costs include general corporate overhead, human resources, legal,
finance and accounting. Effective November 22, 1994, EPP and Enron entered into
an Administrative Services Agreement regarding certain services to be provided
by Enron and the consideration to be paid for those services. EPP management
believes the allocations and consideration paid to Enron for services provided
are reasonable. As of December 31, 1996 and 1995, EPP had amounts due to Enron
affiliates of $4.1 million and $2.8 million, respectively, and as of December
31, 1996 and 1995, EPP had amounts due from Enron affiliates of $3.0 million and
$1.0 million, respectively.
F-26
<PAGE> 67
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPP entered into a Cost Sharing Agreement with Enron Capital & Trade
Resources Corp. (ECT) pursuant to which ECT provided certain accounting,
commercial, administrative and other services related to the management of the
projects to EPP. This agreement was entered into effective as of July 1, 1995,
and extended through December 31, 1996. EPP anticipates entering into a Cost
Sharing Agreement with Enron International Inc. (EI) pursuant to which EI will
provide certain accounting, commercial, administrative and other services
related to the management of the projects to EPP. The terms of the agreement
have not been finalized.
EPP and Enron have entered into a Purchase Right Agreement, pursuant to
which Enron is required to offer to sell to EPP, at prices lower than those that
Enron may make available to third parties, all of Enron's ownership interests in
any power plant and natural gas pipeline projects developed or acquired by Enron
outside the United States, Canada and Western Europe, but only those that
commence commercial operations prior to 2005, subject to certain exceptions.
Projects that are being developed by Enron are in various stages of
development. No assurances can be given, however, regarding the timing of any
offers by Enron to EPP to acquire such projects or whether such offers will be
accepted by EPP.
13. 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 GdE 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 ENARGAS, 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 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.
Colombia
During 1996, EPP recorded approximately $4.7 million of equity in earnings
from Centragas, approximately $2.8 million of which relate to an early
completion bonus, certain aspects of which are being contested by Ecopetrol. In
accordance with the Centragas Services Contract, 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. Such
F-27
<PAGE> 68
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
engineering firm has been engaged, and Centragas anticipates a decision by 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 CDE and the DR Government. SECLP has alleged that
CDE owes approximately $23 million in past due amounts under the Puerto Plata
Energy Supply Contract, a claim which CDE disputes as to $21.7 million. CDE has
alleged that SECLP owes approximately $15.2 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 will
include 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.
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, initiated an action against SECLP
in the Dominican Republic. Hotelera has requested 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. An agreement between the
parties was reached and a settlement agreement was signed on December 15, 1994
(the 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 believes that it has complied with the World Bank guidelines and intends
to defend against such claims. While Enron 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, Raytheon Engineers & Constructors, Enron
Power Construction Company 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 claims has been initiated and consent of
SECLP's lenders is being sought for such settlement. While Enron has agreed to
indemnify EPP from any changes in the investment value due to the potential
financial impact of the settlement on the project, the settlement could 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.
Enron is obligated to fund certain amounts to SECLP associated with
construction-related and other issues. Pursuant to the purchase arrangement
regarding SECLP between Enron and EPP, if required to fund such amounts, Enron
will loan funds as COLs to SECLP through EPP.
F-28
<PAGE> 69
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Common Shares or cash (See Note 2).
EPP does not believe that these contingencies will have a material impact on
EPP's financial statements.
Batangas
At December 31, 1996, 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 (BIR), 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.
Environmental Regulation
EPP's Project Companies are subject to a number of statutes and regulations
pertaining to environmental protection requirements, including standards
relating to the discharge of air and water pollutants. Failure to comply with
any such statutes or regulations could prevent the operation of a project,
require expenditure of significant funds to bring a project into compliance,
involve imposition of cleanup liens and fines, and give rise to civil or
criminal liability. Although EPP believes that its operations are in compliance
in all material respects with all applicable environmental laws and regulations,
it also believes that its operations eventually may be required to meet
standards that are comparable in many respects to those in effect in the United
States and in countries within the European Community. Compliance with such
standards may be costly and may adversely impact the profitability of the
Project Companies and EPP as a whole.
In 1993, a new environmental regulation (Regulation AO-14) setting
stringent standards for sulfur content of fuels and for air emissions of sulfur
oxides, nitrogen oxides and particulate matter was issued by the Philippine
Department of Environment and Natural Resources (DENR). In 1994, however, the
DENR issued a Memorandum Circular which exempts power plants that meet certain
operating conditions, which exemption is valid pending rationalization of
emission standards. Management believes that its Philippine power plants meet
such conditions; however, if this rationalization does not result in the
exemption becoming permanent, EPP's Philippine power plants could be required to
meet the stringent Regulation AO-14 standards. The plants, as currently
configured, could not meet such standards without incurring capital expenditures
that would be so large (potentially tens of millions of dollars per plant) as to
be uneconomic.
Management believes the impact on other coal or oil-fired power plants in
the Philippines would be as severe as, or more severe than, the impact on EPP's
plants. NPC has informed Subic that Regulation AO-14 is considered a change of
law under a provision contained in the Subic BOT Agreement (which provision is
the same as that contained in the Batangas BOT Agreement) providing the Project
Company with the right to cause NPC to purchase the Project Company's interests
in the plant. Management believes that the contractual terms of such purchase
would result in a gain on EPP's net investment in such projects; however, EPP
knows of no precedent for such a situation and the outcome of such a set of
circumstances is not possible to predict. The failure of EPP to obtain the
contractual relief described above could result in the loss of EPP's investment
in the plants, which loss would have a material adverse effect on EPP.
Regulatory Matters
EPP's Project Companies are subject to the jurisdiction of numerous foreign
governmental agencies with respect to safety and other regulatory matters.
Generally, many of the countries in which EPP does and will do business have
recently privatized certain essential public services. The regulatory frameworks
of such privatizations and their interpretation by administrative agencies is
relatively new and sometimes limited.
F-29
<PAGE> 70
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Many detailed rules and procedures are yet to be issued. The interpretation of
existing rules can also be expected to evolve over time.
Rates for gas transportation services are regulated by ENARGAS. TGS's
initial rates were fixed at the time of privatization of GdE for a five-year
period ending December 28, 1997, subject to semiannual adjustments as a result
of changes in the U.S. Producer Price Index. TGS's rates, which are expressed in
U.S. dollars, are to be adjusted every five years thereafter, pursuant to rules
to be promulgated by ENARGAS. ENARGAS issued a preliminary determination on such
rules to all license companies and, in July 1996, established the cost of
capital for the calculation of the investment and efficiency factors. Such cost
of capital was set at 11.3% per annum and is a weighted average cost of capital,
net of an estimated future annual inflation rate of 1.9%. The rate review
process began on August 13, 1996, when TGS filed with ENARGAS an investment plan
amounting to approximately US $117 million for the second five-year period
commencing December 29, 1997. ENARGAS will release its initial proposal on rate
adjustments on March 17, 1997. The license companies are entitled to comment on
such proposal until April 28, 1997. However, ENARGAS should set the final
investment and efficiency factors before June 28, 1997.
TGS's transportation operations are affected by ENARGAS's interpretation
and application of regulations that apply to TGS. There can be no assurance that
the future developments in the establishment of applicable regulations to the
gas transportation industry or in the interpretation of such regulations or the
License, including the rates to be established for gas transportation effective
December 29, 1997, will be favorable to TGS. There can also be no assurance that
there will not be decisions affecting, or changes made to the regulatory regime
which will adversely affect the financial condition or result of operations of
TGS.
Foreign Political and Economic Conditions
EPP's operations are also subject to other political and economic
uncertainties, including risks of war, expropriation, nationalization,
renegotiation or nullification of existing contracts, changes in rates and
methods of taxation, currency exchange restrictions and currency exchange rate
fluctuations. EPP does not carry insurance against these risks. EPP's
operations, however, have been, and are expected to continue to be, structured
to minimize these risks.
14. DERIVATIVE FINANCIAL INSTRUMENTS
During the fourth quarter of 1996 EPP entered into forward purchase
contracts on Colombian pesos with a notional value of $68.5 million. EPP entered
into these contracts to partially offset the lower equity earnings from
Centragas resulting from a stronger peso than was anticipated. The stronger peso
resulted in lower than anticipated tax benefits due to foreign exchange losses
from the revaluation of the net dollar-dominated liabilities of Centragas for
local tax purposes. The forward contracts were settled as of December 31, 1996,
and resulted in an approximate $0.8 million gain, which is classified as other
income, net. 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.
F-30
<PAGE> 71
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
TECHNICAL
ASSISTANCE FEES
AND EQUITY IN INCOME BEFORE EARNINGS
EARNINGS INCOME TAXES NET INCOME PER SHARE
--------------- ------------- ---------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
First Quarter.............................. $14,885 $12,733 $11,521 $ .48
Second Quarter............................. 14,609 12,676 11,575 .48
Third Quarter.............................. 13,015 12,035 10,885 .45
Fourth Quarter............................. 14,864 13,086 12,014 .49
1995
First Quarter.............................. $ 9,872 $ 8,856 $ 7,876 $ .38
Second Quarter............................. 10,820 9,249 8,282 .40
Third Quarter.............................. 11,646 10,247 8,965 .43
Fourth Quarter............................. 11,123 10,246 9,904 .47
</TABLE>
F-31
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors of
COMPANIA DE INVERSIONES DE ENERGIA S.A.
We have audited the accompanying consolidated balance sheets of COMPANIA DE
INVERSIONES DE ENERGIA S.A. and its controlled company TRANSPORTADORA DE GAS DEL
SUR S.A. (both Argentine Corporations) as of December 31, 1996 and 1995, and the
related consolidated statements of income, cash flows and changes in
shareholders' equity for the years ended December 31, 1996, 1995 and 1994, all
expressed in Argentine pesos as described in Note 2.a) to the consolidated
financial statements. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Argentina, which are in substantial agreement with those in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
COMPANIA DE INVERSIONES DE ENERGIA S.A. and its controlled company
TRANSPORTADORA DE GAS DEL SUR S.A. as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles applicable to consolidated financial statements in
Argentina.
Certain accounting practices used by the Company in preparing the
accompanying consolidated financial statements conform with generally accepted
accounting principles in Argentina, but do not conform with accounting
principles generally accepted in the United States of America. A description of
these significant differences and a partial reconciliation, as permitted by the
Securities and Exchange Commission of the United States of America, of
shareholders' equity as of December 31, 1996 and 1995 and consolidated net
income for the years ended December 31, 1996, 1995 and 1994 is set forth in Note
12 to the consolidated financial statements.
PISTRELLI, DIAZ Y ASOCIADOS
C.P.C.E.C.F. Vol. 1 -- F degrees 8
ENRIQUE C. GROTZ
Partner
Certified Public Accountant
Buenos Aires University
C.P.C.E.C.F. Vol. 136 -- F degrees
149
Buenos Aires,
February 12, 1997
F-32
<PAGE> 73
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(STATED IN THOUSANDS OF ARGENTINE PESOS AS DESCRIBED IN NOTE 2.A)
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash........................................................ $ 3,456 $ 5,004
Investments (Note 11.c)..................................... 49,717 70,728
Trade receivables (Note 3).................................. 45,241 39,877
Other receivables........................................... 7,217 11,076
Inventories................................................. 1,878 1,394
---------- ----------
Total current assets................................... 107,509 128,079
---------- ----------
Investments (Note 11.c)..................................... 2,300 6,700
Property, plant and equipment, net (Note 11.a).............. 1,578,316 1,544,509
Intangible assets, net (Note 11.b).......................... 29,172 30,239
---------- ----------
Total noncurrent assets................................ 1,609,788 1,581,448
---------- ----------
Total............................................. $1,717,297 $1,709,527
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Initial debt assumed under the Transfer Contract (Note
5.a)...................................................... $ 61,226 $ 80,498
Accounts payable............................................ 15,770 15,894
Loans (Note 5.b)............................................ 365,265 409,263
Payroll and social security taxes........................... 1,162 1,428
Taxes payable (Note 2.1).................................... 40,424 31,982
Other liabilities........................................... 3,917 5,525
---------- ----------
Total current liabilities.............................. 487,764 544,590
---------- ----------
Initial debt assumed under the Transfer Contract (Note
5.a)...................................................... -- 56,599
Loans (Note 5.b)............................................ 391,485 266,971
---------- ----------
Total noncurrent liabilities........................... 391,485 323,570
---------- ----------
Total liabilities...................................... 879,249 868,160
Minority interest........................................... 319,191 315,340
Shareholders' equity........................................ 518,857 526,027
---------- ----------
Total............................................. $1,717,297 $1,709,527
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 74
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(STATED IN THOUSANDS OF ARGENTINE PESOS AS DESCRIBED IN NOTE 2.A),
EXCEPT FOR PER SHARE AND SHARES AMOUNTS )
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
NET REVENUES (Note 3).................................... $ 402,191 $ 393,525 $ 383,598
OPERATING COSTS (Note 11.e).............................. (104,556) (107,585) (106,548)
--------- --------- ---------
Gross operating profit................................. 297,635 285,940 277,050
ADMINISTRATIVE EXPENSES (Note 11.e)...................... (16,572) (19,020) (22,308)
SELLING EXPENSES (Note 11.e)............................. (1,703) (2,176) (2,981)
--------- --------- ---------
Operating income....................................... 279,360 264,744 251,761
OTHER EXPENSES, NET...................................... (493) (297) (363)
NET FINANCIAL EXPENSE (Note 2.n)......................... (63,700) (27,829) (3,283)
--------- --------- ---------
Net income before income tax........................... 215,167 236,618 248,115
INCOME TAX EXPENSE (Note 2.1)............................ (72,800) (64,471) (56,602)
MINORITY INTEREST........................................ (49,137) (54,311) (57,014)
--------- --------- ---------
Net income............................................. 93,230 117,836 134,499
PREFERRED STOCK DIVIDENDS................................ -- -- (6,428)
--------- --------- ---------
Net income attributable to common stock................ 93,230 117,836 128,071
========= ========= =========
Earnings per common share (Note 2.g)................... 0.25 0.31 0.36
Average number of common shares........................ 374,122,880 374,122,880 359,522,880
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 75
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(STATED IN THOUSANDS OF ARGENTINE PESOS AS DESCRIBED IN NOTE 2.A)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 93,230 $ 117,836 $ 134,499
Reconciliation of net income to cash flows from
operating activities
Depreciation of property, plant and equipment........ 44,264 40,331 36,825
Amortization of intangible assets.................... 1,554 1,407 1,839
Consumption of materials............................. 4,997 6,379 4,750
Minority interest.................................... 49,137 54,311 57,014
Changes in assets and liabilities
Trade receivables.................................... (5,364) 4,361 (6,116)
Other receivables.................................... 3,859 (3,157) (5,017)
Inventories.......................................... (484) (152) 482
Accounts payable..................................... (537) 1,869 3,026
Payroll and social security taxes.................... (266) (240) (342)
Taxes payable........................................ 8,442 5,152 (33,300)
Other liabilities.................................... (1,608) 1,216 (8,786)
Interests payable and others......................... (4,237) (32,682) (18,201)
--------- --------- ---------
Cash flows from operating activities............ 192,987 196,631 166,673
--------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to property, plant and equipment.............. (83,054) (110,972) (185,083)
Acquisition of investment............................... -- (10,050) --
Cash from investment amortization....................... 3,300 -- --
--------- --------- ---------
Cash flows used in investing activities......... (79,754) (121,022) (185,083)
--------- --------- ---------
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES
Proceeds from loans..................................... 522,826 191,356 395,235
Payment of loans........................................ (464,969) (84,884) (55,540)
Cash from Treasury lock contracts settlement............ 5,968 -- --
Net increase (decrease) in short term debt(1)........... 10,969 (25,708) (5,388)
Payment of initial debt assumed under the Transfer
Contract............................................. (66,000) (22,087) (23,614)
Common dividends paid................................... (145,686) (142,711) (92,503)
Preferred dividends paid................................ -- -- (16,933)
Preferred shares redeemed............................... -- -- (150,368)
--------- --------- ---------
Cash flows (used in) from financing
activities.................................... (136,892) (84,034) 50,889
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......... (23,659) (8,425) 32,479
Cash and cash equivalents at the beginning of
year.......................................... 72,432 80,857 48,378
--------- --------- ---------
Cash and cash equivalents at the end of year.... $ 48,773 $ 72,432 $ 80,857
========= ========= =========
</TABLE>
- ---------------
(1) Less than three months maturity
For supplemental information on cash flows, see Note 4.
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 76
COMPANIA DE INVERSIONES DE ENERGIA S.A. AND CONTROLLED COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(STATED IN THOUSANDS OF ARGENTINE PESOS AS DESCRIBED IN NOTE 2.A), EXCEPT FOR
PER SHARE AMOUNTS IN PESOS)
<TABLE>
<CAPTION>
SHAREHOLDERS' CONTRIBUTIONS
-------------------------------------------------------------------------------------------------------
COMMON SHARES PREFERRED SHARES
------------------------------------ -----------------------------------
ADJUSTMENT
EFFECT OF TO CAPITAL IRREVOCABLE
ADJUSTMENT ADJUSTMENT ADJUSTMENT STOCK AT CONTRIBUTION
NOMINAL TO CAPITAL TO PREFERRED NOMINAL TO CAPITAL REDEMPTION AGAINST FUTURE
VALUE STOCK STOCK VALUE STOCK VALUE SUBSCRIPTION SUBTOTAL
-------- ---------- ------------ --------- ---------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER
31, 1993............... $286,523 $28,968 $ (736) $ 204,846 $ 22,638 $ 736 $ -- $ 542,975
Irrevocable capital
contribution........... -- -- -- -- -- -- 24,298 24,298
Resolution of the
Extraordinary
Shareholders' Meeting
held on February 24,
1994
Capitalization of
irrevocable
contribution......... 21,900 2,398 -- -- -- -- (24,298) --
Conversion of preferred
shares into common
shares............... 65,700 7,192 -- (65,700) (7,192) -- -- --
Resolution of the General
Ordinary Shareholders'
Meeting held on March
30, 1994, of the
Directors' Meeting held
on August 30, 1994, and
of the Extraordinary
Shareholders' Meeting
held on November 21,
1994 Appropriation to
legal reserve.......... -- -- -- -- -- -- -- --
Cash dividends (0.02,
0.13 and 0.02 per
share for each
payment, based on
374,122,880 common
shares outstanding
(Note 2.g)........... -- -- -- -- -- -- -- --
Changes in the redemption
value of preferred
shares below the
general price level.... -- -- 4,960 -- -- (4,960) -- --
Resolution of the
Extraordinary
Shareholders' Meeting
held on November 16,
1994
Preferred shares
redemption........... -- 4,224 (4,224) (139,146) (15,446) 4,224 -- (150,368)
Net income............... -- -- -- -- -- -- -- --
Preferred dividends...... -- -- -- -- -- -- -- --
-------- ------- ------- --------- -------- ------- -------- ---------
BALANCE AS OF DECEMBER
31, 1994............... $374,123 $42,782 $ -- $ -- $ -- $ -- $ -- $ 416,905
======== ======= ======= ========= ======== ======= ======== =========
<CAPTION>
RETAINED EARNINGS
-------------------------
LEGAL UNAPPROPRIATED
RESERVE EARNINGS TOTAL
-------- -------------- ---------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER
31, 1993............... $ -- $ 21,874 $ 564,849
Irrevocable capital
contribution........... -- -- 24,298
Resolution of the
Extraordinary
Shareholders' Meeting
held on February 24,
1994
Capitalization of
irrevocable
contribution......... -- -- --
Conversion of preferred
shares into common
shares............... -- -- --
Resolution of the General
Ordinary Shareholders'
Meeting held on March
30, 1994, of the
Directors' Meeting held
on August 30, 1994, and
of the Extraordinary
Shareholders' Meeting
held on November 21,
1994 Appropriation to
legal reserve.......... 5,412 (5,412) --
Cash dividends (0.02,
0.13 and 0.02 per
share for each
payment, based on
374,122,880 common
shares outstanding
(Note 2.g)........... -- (63,317) (63,317)
Changes in the redemption
value of preferred
shares below the
general price level.... -- -- --
Resolution of the
Extraordinary
Shareholders' Meeting
held on November 16,
1994
Preferred shares
redemption........... -- -- (150,368)
Net income............... -- 134,499 134,499
Preferred dividends...... -- (6,428) (6,428)
-------- --------- ---------
BALANCE AS OF DECEMBER
31, 1994............... $ 5,412 $ 81,216 $ 503,533
======== ========= =========
</TABLE>
F-36
<PAGE> 77
COMPANIA DE INVERSIONES DE ENERGIA S.A. AND CONTROLLED COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(STATED IN THOUSANDS OF ARGENTINE PESOS AS DESCRIBED IN NOTE 2.A), EXCEPT FOR
PER SHARE AMOUNTS IN PESOS)
<TABLE>
<CAPTION>
SHAREHOLDERS' CONTRIBUTIONS
-------------------------------------------------------------------------------------------------------
COMMON SHARES PREFERRED SHARES
------------------------------------ -----------------------------------
ADJUSTMENT
EFFECT OF TO CAPITAL IRREVOCABLE
ADJUSTMENT ADJUSTMENT ADJUSTMENT STOCK AT CONTRIBUTION
NOMINAL TO CAPITAL TO PREFERRED NOMINAL TO CAPITAL REDEMPTION AGAINST FUTURE
VALUE STOCK STOCK VALUE STOCK VALUE SUBSCRIPTION SUBTOTAL
-------- ---------- ------------ --------- ---------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Resolution of the
Extraordinary
Shareholders' Meeting
held on March 24, 1995,
and of the Directors'
Meeting held on July
27, 1995
Cash dividends (0.14
and 0.12 per share,
for each payment,
based on 374,122,880
common shares
outstanding (Note
2.g)................. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Appropriation to legal
reserve.............. -- -- -- -- -- -- -- --
Net income............... -- -- -- -- -- -- -- --
-------- ------- ------- --------- -------- ------- -------- ---------
BALANCE AS OF DECEMBER
31, 1995............... $374,123 $42,782 $ -- $ -- $ -- $ -- $ -- $ 416,905
======== ======= ======= ========= ======== ======= ======== =========
Resolution of the General
Ordinary Shareholders'
Meeting held on March
7, 1996, of the
Extraordinary
Shareholders' Meeting
held on June 7, 1996
and of the Directors'
Meeting held on August
21, 1996
Appropriation to legal
reserve.............. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Cash dividends (0.11,
0.03 and 0.13 per
share, for each
payment, based on
374,122,880 common
shares outstanding
(Note 2.g)........... -- -- -- -- -- -- -- --
Net income............... -- -- -- -- -- -- -- --
-------- ------- ------- --------- -------- ------- -------- ---------
BALANCE AS OF DECEMBER
31, 1996............... $374,123 $42,782 $ -- $ -- $ -- $ -- $ -- $ 416,905
======== ======= ======= ========= ======== ======= ======== =========
<CAPTION>
RETAINED EARNINGS
-------------------------
LEGAL UNAPPROPRIATED
RESERVE EARNINGS TOTAL
-------- -------------- ---------
<S> <C> <C> <C>
Resolution of the
Extraordinary
Shareholders' Meeting
held on March 24, 1995,
and of the Directors'
Meeting held on July
27, 1995
Cash dividends (0.14
and 0.12 per share,
for each payment,
based on 374,122,880
common shares
outstanding (Note
2.g)................. $ -- $ (95,342) $ (95,342)
Appropriation to legal
reserve.............. 6,640 (6,640) --
Net income............... -- 117,836 117,836
-------- --------- ---------
BALANCE AS OF DECEMBER
31, 1995............... $ 12,052 $ 97,070 $ 526,027
======== ========= =========
Resolution of the General
Ordinary Shareholders'
Meeting held on March
7, 1996, of the
Extraordinary
Shareholders' Meeting
held on June 7, 1996
and of the Directors'
Meeting held on August
21, 1996
Appropriation to legal
reserve.............. $ 5,892 $ (5,892) $ --
Cash dividends (0.11,
0.03 and 0.13 per
share, for each
payment, based on
374,122,880 common
shares outstanding
(Note 2.g)........... -- (100,400) (100,400)
Net income............... -- 93,230 93,230
-------- --------- ---------
BALANCE AS OF DECEMBER
31, 1996............... $ 17,944 $ 84,008 $ 518,857
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 78
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS STATED IN THOUSANDS OF ARGENTINE PESOS AS MENTIONED IN NOTE 2.A),
EXCEPT FOR PER SHARE AMOUNTS IN PESOS OR WHERE OTHERWISE INDICATED)
1. ORGANIZATION AND START-UP OF THE COMPANY
Compania de Inversiones de Energia S.A. ("CIESA" or the "Company") was
incorporated in Buenos Aires, Argentina, on December 14, 1992, and was owned 25%
equally by Enron Pipeline Company -- Argentina S.A. ("EPCA"), Perez Companc S.A.
("PC"), Compania de Inversiones en Transporte de Gas S.A. ("CITGAS") and
Argentina Private Development Trust Company Limited ("APDT").
Effective July 31, 1996, Enron Global Power & Pipelines L.L.C. ("EPP"), the
parent company of EPCA, together with PC acquired through their respective
subsidiaries APDT's 25% interest in CIESA. In addition, on November 15, 1996,
CITGAS transferred its 25% shareholding in CIESA to subsidiaries of Enron Corp.
("Enron"), parent company of EPP, and PC, respectively. Voting and all other
economic rights derived from the 25% shareholding in CIESA were transferred
effective August 1, 1996. As a result of the APDT and CITGAS transactions, PC
and its subsidiary have 50% ownership in CIESA while EPCA and Enron, through
their subsidiaries, have 33 1/3% and 16 2/3% shareholdings, respectively.
CIESA holds 70% of Transportadora de Gas del Sur S.A.'s ("TGS" or the
"Controlled Company") capital stock. TGS is one of the companies created as a
consequence of the privatization of Gas del Estado S.E. ("GdE"), the former
integrated state-owned gas company, and is engaged in the transportation and
processing of natural gas in Argentina. TGS's pipeline system connects major gas
fields in southern and western Argentina with distributors of gas in those areas
and in the greater Buenos Aires area. The gas transportation license ("the
License") was exclusively granted for a period of thirty-five years with an
extension of ten years, provided that TGS has essentially met certain
conditions. The General Cerri Gas Processing Complex, where TGS processes
natural gas by extracting natural gas liquids, was transferred together with the
gas transmission assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with generally accepted accounting principles in Argentina
("Argentine GAAP") and current Argentine legislation, the presentation of the
parent company's individual financial statements is required. Consolidated
financial statements need only be included as supplementary. For the purpose of
this filing, a complete set of individual financial statements have been omitted
since it is not required for Securities and Exchange Commission ("SEC")
reporting purposes. Even though, CIESA's condensed individual financial
statements are disclosed in Note 11.g). The consolidated financial statements of
the Company have been prepared in accordance with Argentine GAAP applicable to
consolidated financial statements taking into consideration the regulations of
the Argentine Securities Commission (Comision Nacional de Valores -- "CNV").
They also include certain additional disclosures in order to conform more
closely to the form and content required by the SEC.
General Resolution No. 284, issued by CNV in August 1996, provides for the
application of Technical Resolution ("TR") No. 10 and TR No. 12 of the Argentine
Federation of Professional Councils in Economic Sciences ("Argentine
Federation"). TR No. 10 is applicable in all aspects, except for technical
reappraisals, capitalization of interest on equity and the accounting of gain
contingencies. TR No. 12 amends certain valuation policies contained in TR No.
10 as well as includes additional disclosure requirements. The application of
the new valuation policies has not materially affected the results of the
period. The additional disclosure requirements are included in Note 11.f).
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets
F-38
<PAGE> 79
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
(a) Presentation of financial statements in constant Argentine pesos
The Company's consolidated financial statements include the effects of
inflation up through August 31, 1995, utilizing the inflation restatement
methodology established in TR No. 6 of the Argentine Federation. Effective
September 1, 1995, as provided by General Resolution No. 272 of the CNV, the
Company discontinued the restatement methodology, maintaining the effects of
inflation accounted for in prior periods.
The discontinuance of inflation accounting is in compliance with Argentine
GAAP, provided that the annual variation in the general level wholesale price
index ("GLWPI") does not exceed 8% per annum. Inflation for each of the years
ended from September 1, 1995 was lower than 8%. Therefore, the criteria adopted
by the Company is in compliance with Argentine GAAP.
The inflation rates measured by the GLWPI were 4.8% for the year ended
December 31, 1995 (as measured through August 31, 1995) and 5.9% for the year
ended December 31, 1994. The conversion factor used to restate the consolidated
financial statements in constant pesos from December 31, 1994 through August 31,
1995 was 1.05. This restatement simply updates the 1994 consolidated financial
statements amounts to constant pesos and does not otherwise change such
financial statements.
(b) Basis of consolidation
The consolidated financial statements for the years ended December 31,
1996, 1995 and 1994, include the accounts of CIESA and its controlled company
and have been consolidated following the methodology established in TR No. 4 of
the Argentine Federation. The accounting policies used by TGS are consistent
with those applied by CIESA. All significant intercompany transactions have been
eliminated in consolidation.
(c) Financial instruments
CIESA and TGS have used derivatives to mitigate the exposure of a portion
of their debts to fluctuations in variable rates through the use of interest
rate swap agreements as described in Note 5.d). None of the companies have used
derivative financial instruments for trading purposes. The differences paid or
received under such interest rate swap agreements are charged or credited to
interest expense. Gains or losses resulting from swap agreements for the
purposes of hedging anticipated transactions are deferred and recognized at the
same time as the hedged item.
(d) Argentine legal requirements
Certain disclosures related to formal legal requirements for reporting in
Argentina have been omitted for purposes of these consolidated financial
statements, since they are not required for SEC reporting purposes.
(e) Amounts in foreign currencies
Such amounts have been valued at the relevant exchange rates in effect as
of the end of each year, including accrued interest, if applicable. The
respective detail is disclosed in Note 11.d).
F-39
<PAGE> 80
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Government obligations
These are debt securities issued by the Argentine Government ("Argentina
Bond"), valued at cost plus accrued interest through the end of each year. The
Company's management intends to hold this investment until its final maturity.
(g) Earnings and dividends per common share
Earnings and dividends per common share have been calculated based on the
average number of common shares and common share equivalents outstanding for
each period presented.
For purposes of determining per share amounts for 1994, the "Irrevocable
contribution against future subscription" has been considered as a common share
equivalent.
Dividends per share have been calculated based upon the common shares and
common share equivalents outstanding at the time of the corresponding
resolutions of the shareholders.
(h) Revenue recognition
Firm transportation revenues are recognized based on the contracted
capacity reserved regardless of actual usage. For interruptible transportation
services and for certain gas processing contracts, revenues are recognized upon
the delivery of natural gas or gas liquids to customers, respectively. For other
gas processing contracts, revenues are recognized when processing services are
rendered.
(i) Inventories
They refer to natural gas in the pipeline system owned by TGS in excess of
line pack, which is classified as property, plant and equipment, valued at
replacement cost of the transported gas at the end of each year. The carrying
value of inventories does not exceed its recoverable value.
(j) Property, plant and equipment, net
- Assets transferred from GdE: the value for the transferred assets at
December 29, 1992 ("Takeover date") was determined based on the price
paid for the 70% of TGS's capital stock which amounted to US$561.2
million. This price was the basis to determine TGS's total capital stock
of US$801.7 million, which when added to the Initial Debt assumed under
the Transfer Contract of US$395 million resulted in a total value for
property, plant and equipment of US$1,196.7 million. Such value,
converted at the exchange rate in effect as of the date of the Transfer
Contract, has been restated for the effects of inflation as described in
Note 2.a).
- Line pack: represents the natural gas in the transportation system
estimated necessary to keep the system at operating capacity, valued at
acquisition cost and restated for the effects of inflation as described
in Note 2.a).
- Additions: valued at acquisition cost restated as described in Note 2.a).
In accordance with TGS's depreciation method, additions are assigned the
average useful life applicable to the group of assets into which they are
incorporated. TGS capitalizes the net cost of external financing of work
in progress until such assets are placed in service. TGS capitalizes all
the investments prescribed as mandatory in the License during the first
five-year period, in order to achieve system integrity and public safety
equal to those required by international standards. Such investments
include, among others, the costs of survey programs related to internal
and external pipeline inspection, cathodic protection and pipeline
replacement and recoating. Repairs and maintenance costs are expensed in
the period in which they are incurred.
F-40
<PAGE> 81
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- Depreciation: TGS uses the straight-line method with a composite or group
depreciation rate for all assets allocated to transportation service and
to the processing of natural gas. According to estimates of independent
engineering experts, the average useful life for the essential and other
assets allocated to the transportation service is forty-five years
(considering the life of the License and the ten-year extension right
mentioned in Note 1), and twenty years for the assets related to the gas
processing operation.
Under the composite method of depreciation, periodic evaluation of the
average useful life is required and, upon retirement of assets, the
original cost is charged against the related accumulated depreciation.
The cost of replacement is charged to maintenance expense unless it
increases capacity or efficiency or extends the useful life, in which
case such cost is capitalized. However, for unusual retirements the gain
or loss related to those retirements is charged or credited to income in
the period when incurred.
For depreciation of all other property, plant and equipment, TGS uses the
straight-line method at the rates disclosed in Note 11.a), recording the
loss or gain on retirement of the assets in income of the period when
incurred.
The recorded value of property, plant and equipment, taken as a whole, does
not exceed its recoverable value.
(k) Intangible assets, net
Intangible assets are valued at historical cost, restated as described in
Note 2.a), less related accumulated amortization calculated over a deferral
period of thirty-five years for organization and pre-operating costs,
cancellation costs of commitments assumed under the Transfer Contract and other
costs; and a deferral period of five years for the costs of the establishment of
the 1993 Global Program and the first issuance of Medium Term Notes thereunder.
(l) Income tax
Income tax of the Controlled Company was accrued at the statutory rate then
in effect on each fiscal year's estimated taxable income. Recently, the
statutory income tax rate increased from 30% to 33%, as part of an important
amendment to the tax legislation. Such increase in the income tax rate is
effective for fiscal years ending subsequent to September 28, 1996. Income tax
expense for 1995 includes the payment of 5,071 made by TGS to the Argentine Tax
Authority ("DGI") in April 1995 under the benefits of a tax amnesty program,
since the DGI had questioned the interpretation of certain income tax
regulations. As of December 31, 1996 and 1995 accrued income tax, net of
advanced payments, amounted to 36,685 and 27,603, respectively.
For the years ended December 31, 1996, 1995 and 1994, CIESA has not accrued
income nor assets tax expense since the investment in TGS provides the only
significant income for CIESA, which is not taxable
F-41
<PAGE> 82
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under income and assets tax regulations. At December 31, 1996, CIESA had an
unutilized tax loss carryforward to offset future taxable income of
approximately 49,342 in accordance to the following table:
<TABLE>
<CAPTION>
YEAR OF AMOUNT OF THE
EXPIRATION CARRYFORWARD
- ---------- -------------
<S> <C>
1997....................................................... 1,750
1998....................................................... 3,384
1999....................................................... 4,213
2000....................................................... 18,573
2001....................................................... 21,422
------
49,342
------
</TABLE>
(m) Shareholders' equity accounts
These accounts have been restated for the effects of inflation as described
in Note 2.a), except for "Common Shares -- Nominal Value" and "Preferred
Shares -- Nominal Value" accounts which have been kept at their original values.
The adjustment derived from the restatement of these accounts as described in
Note 2.a) is disclosed in the respective "Adjustment to capital stock" accounts.
The "Adjustment to capital stock at redemption value" represents the difference
between the restated value as described in Note 2.a) of the preferred shares and
their redemption value denominated in US dollars and converted at the exchange
rate in effect at the end of each year, which represents a redistribution of the
Company's total capital stock among its common and preferred shareholders.
Consequently, this amount has been charged to the "Common Shares -- Effect of
adjustment to preferred stock" account.
(n) Income statement accounts
Monetary transactions for the eight-month period from January 1, 1995 to
August 31, 1995 were restated for the effects of inflation from the end of the
month in which they were originally recorded through August 31, 1995. Expenses
related to depreciation and amortization of nonmonetary assets have been
restated for the effects of inflation as described in Note 2.a).
Monetary assets and liabilities represent a claim to receive or an
obligation to pay a fixed sum without reference to future prices of specific
goods and services. Examples of monetary assets and liabilities include cash,
accounts receivables, accounts payable, accrued expenses and loans. Examples of
nonmonetary assets include inventories, property, plant and equipment and
intangible assets. In an inflationary environment, losses are generated by
holding monetary assets and gains are generated by holding monetary liabilities.
In a deflationary environment losses are generated by holding monetary
liabilities and gains are generated by holding monetary assets.
Net financial expense includes the effects of inflation for the years ended
December 31, 1995 (calculated up through August 31, 1995) and 1994.
F-42
<PAGE> 83
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The breakdown of "Net financial expense" separated between those generated
on assets and on liabilities, for each of the years ended December 31, 1996,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(LOSS) GAIN GENERATED ON
----------------------------------------------------------
ASSETS LIABILITIES
------------------------ -------------------------------
1996 1995 1994 1996 1995 1994
---- -------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest and other................. 5,775 6,630 5,078 (69,475)(1) (64,354)(1) (39,460)(1)
(Loss) gain on exposure to
inflation........................ -- (10,085) (7,620) -- 39,980 38,719
---- -------- ------ ------- ------- -------
5,775 (3,455) (2,542) (69,475) (24,374) (741)
==== ======== ====== ======= ======= =======
</TABLE>
- ---------------
(1) Net of 3,249, 3,958 and 5,070 capitalized interest on property, plant and
equipment for the years ended December 31, 1996, 1995 and 1994,
respectively.
3. BUSINESS SEGMENT INFORMATION
TGS's principal business is to provide natural gas transportation services
through its pipeline system. Also, TGS processes natural gas at the General
Cerri Gas Complex.
Operating income consists of net revenues less operating expenses. In the
calculation of operating income, the following items have not been included:
other expenses, net, net financial expense and income tax expense.
Assets identifiable with each segment are those used by TGS to develop each
business. Assets that cannot be identified with a specific segment have been
grouped under "Corporate" and include short and long term investments, among
others.
There are no sales between the business segments.
<TABLE>
<CAPTION>
GAS GAS
AT DECEMBER 31, 1996 TRANSPORTATION PROCESSING CORPORATE TOTAL
-------------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues....................................... 354,282 47,909 -- 402,191
Operating income (loss)............................ 263,807 30,925 (15,372) 279,360
Depreciation of property, plant and equipment...... 36,426 6,365 1,473 44,264
Additions to property, plant and equipment
(includes work in progress)...................... 77,662 4,931 874 83,467
Identifiable assets................................ 1,513,460 119,048 84,789 1,717,297
AT DECEMBER 31, 1995
Net revenues....................................... 352,077 41,448 -- 393,525
Operating income (loss)............................ 259,127 23,425 (17,808) 264,744
Depreciation of property, plant and equipment...... 32,666 6,256 1,409 40,331
Additions to property, plant and equipment
(includes work in progress)...................... 104,062 2,278 1,449 107,789
Identifiable assets................................ 1,478,186 117,468 113,873 1,709,527
AT DECEMBER 31, 1994
Net revenues....................................... 344,514 39,084 -- 383,598
Operating income (loss)............................ 252,475 20,286 (21,000) 251,761
Depreciation of property, plant and equipment...... 29,126 6,929 770 36,825
Additions to property, plant and equipment
(includes work in progress)...................... 180,817 1,725 5,000 187,542
Identifiable assets(1)............................. 1,418,529 116,331 115,044 1,649,904
</TABLE>
- ---------------
(1) Amounts in the table above reflect certain reclassifications in 1994 for
comparative purposes with 1996 and 1995 amounts.
F-43
<PAGE> 84
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TGS provides credit in the normal course of business principally to gas
distribution companies and YPF S.A. ("YPF"). Concentration of credit and
principal customers gross revenues from gas transportation for the years ended
December 31, 1996, 1995 and 1994 are as follows:
GAS TRANSPORTATION:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
GROSS TRADE GROSS TRADE GROSS TRADE
REVENUES RECEIVABLES REVENUES RECEIVABLES REVENUES RECEIVABLES
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
MetroGas S.A.(1)................. 191,089 18,805 188,137 19,414 177,158 18,116
Camuzzi Gas Pampeana S.A.(2)..... 82,184 7,927 79,156 8,383 80,158 8,766
Gas Natural BAN S.A.............. 49,332 4,608 58,599 5,942 60,894 5,770
Camuzzi Gas del Sur S.A.(2)...... 23,270 2,143 24,173 2,910 26,077 2,426
YPF.............................. 15,457 1,498 10,609 1,303 7,735 9,238
</TABLE>
- ---------------
(1) Perez Companc S.A. has an indirect shareholding in this company.
(2) Citicorp Equity Investments, CITGAS's parent company, had an indirect
shareholding in this company.
The principal customer in the gas processing segment is YPF, with revenues
amounting to 24,395, 24,275 and 21,122 for the years ended December 31, 1996,
1995, and 1994, respectively. Related trade receivable balances amounted to
2,719 and 2,495 as of December 31, 1996 and 1995, respectively.
4. ADDITIONAL INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
In the preparation of the consolidated statements of cash flows, cash and
cash equivalents include investments with original maturities of three months or
less. The Company uses the indirect method which requires a series of
adjustments to the year's net income to obtain the cash flows generated by
operations.
Cash paid for income tax and interest expense during the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Income tax................................................. 63,541 61,831 86,691
Interest (net of amounts capitalized)...................... 73,154 62,733 30,679
</TABLE>
Noncash investing activities for the years ended December 31, 1996, 1995
and 1994 include fixed assets acquisitions amounting to 1,823, 1,410 and 4,595,
respectively, unpaid at each year end.
Noncash financing activities during the year ended December 31, 1994
included the extinguishment of the loan granted by Chase Manhattan Bank,
cancelled by EPCA through an irrevocable contribution of 24,298 and a loan of
50,123.
5. INITIAL DEBT ASSUMED UNDER THE TRANSFER CONTRACT AND LOANS
(a) Initial debt assumed under the transfer contract
Consists of notes payable to YPF originally due in ten equal installments
of $22 million. The remaining installments, due on June 30 and December 30,
1997, bear interest at the one month London Interbank Offering Rate (LIBOR) plus
0.4% per month payable in arrears. Interest is payable with each installment.
F-44
<PAGE> 85
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Loans:
<TABLE>
<CAPTION>
INTEREST
CURRENT RATES(1) 1996 1995
------- ---------------- ------- -------
<S> <C> <C> <C>
Syndicated loan..................................... 8.25% 218,794(4) --
Morgan Guaranty Trust Company of New York........... -- -- 214,813(2)
Bankers Trust Company............................... -- -- 100,000
1993 Global Program: Second Issuance................ -- -- 47,422(2)
Other bank borrowings............................... 5.90%-8.75% 139,789 45,509
Interest payable.................................... -- 6,682 1,519
------- -------
Total..................................... 365,265 409,263
======= =======
</TABLE>
<TABLE>
<CAPTION>
NON CURRENT
-----------
<S> <C> <C> <C>
1993 Global Program: First Issuance................. 7.75% 199,763(2) 199,643
1996 Global Program: First Issuance................. 10.25% 153,649(2)(3) --
Other bank borrowings............................... 5.99%-8.50% 38,073(4) 67,328
------- -------
Total..................................... 391,485 266,971
======= =======
</TABLE>
- ---------------
(1) Effective as of December 31, 1996.
(2) Net of issuance discounts.
(3) Includes effect of settlement of Treasury lock, mentioned in Note 5.d).
(4) Net of up front fees.
The detail of maturities of principal amounts of non current loans as of
December 31, 1996, is as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001
------- ------ ----- -------
<S> <C> <C> <C> <C>
1993 Global Program: First Issuance............... 200,000 -- -- --
1996 Global Program: First Issuance............... -- -- -- 150,000
Other bank borrowings............................. 21,904 14,945 2,502 425
------- ------ ----- -------
Total................................... 221,904 14,945 2,502 150,425
======= ====== ===== =======
</TABLE>
Detailed information on significant borrowings as of December 31, 1996, is
as follows:
- - SYNDICATED LOAN:
In May 1996, CIESA entered into a US$220 million loan with a group of banks
led by Societe Generale, Banco Supervielle Societe Generale and Goldman Sachs &
Co., maturing in 18 months or earlier with the proceeds of any future capital
market issuance. Interest is payable quarterly based on the Eurodolar rate for
deposits plus 2.40% for the first six months, increasing to a maximum of 3.50%
for the last three months.
The Shareholders' meeting of CIESA, held on December 13, 1996, approved the
issuance of debt securities up to a nominal value of US$220 million. Such debt
securities qualify as Obligaciones Negociables under the Argentine law.
Consequently, the Company has requested the public offering to the CNV and the
authorization for the public trading to the Buenos Aires Stock Exchange (Bolsa
de Comercio de Buenos Aires -- "BCBA"). As of the date of issuance of these
financial statements, both requests are pending of approval. Net proceeds from
this issuance will be used to cancel the above mentioned syndicated loan.
F-45
<PAGE> 86
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- - DEBT ISSUANCES UNDER GLOBAL PROGRAMS:
1993 Global Program
At the TGS Shareholders' meeting held on August 27, 1993, the establishment
of a Global Program for the issuance of short and medium Term Notes
(Eurocommercial Papers ("ECP") and Euro Medium Term Notes ("EMTN"),
respectively) was approved. The Program allows an aggregate notional outstanding
amount at any given time of US$350 million. At the TGS Shareholders' Meeting
held on March 6, 1996, the maximum amount of this Program was increased to
US$500 million. The Global Program has been registered with the BCBA and the
CNV.
The description of the outstanding issuance under this Global Program is as
follows:
First Issuance: Five-year EMTN due December 23, 1998 for an aggregate
amount of US$200 million bearing interest at annual fixed-rate of 7.75% payable
every six months. The notes are listed on the Luxembourg Stock Exchange and the
BCBA. Net proceeds from the placement were used to pay bridge loans and other
short term borrowings arising from the refinancing of the debt assumed under the
Transfer Contract.
1996 Global Program
At the TGS Shareholders' meeting held on March 6, 1996, the establishment
of a Global Program for the issuance of short and medium term notes up to a
maximum outstanding amount at any given time of US$350 million was approved.
This Global Program has been registered with the SEC for the purpose of issuing
publicly traded debt securities in the US capital markets. The CNV and BCBA have
authorized this Program. On April 25, 1996, TGS made its first issuance of debt
securities under this Program as described below:
First Issuance: Medium term (5 years) registered notes in an aggregate
principal amount of US$150 million, maturing on April 25, 2001, issued at a
price of 99.935%. The notes bear interest at an annual fixed rate of 10.25%,
payable semi-annually. The funds obtained from this issuance were used as
follows: (a) approximately US$100 million to pay or prepay short term debt, and
(b) the remaining for working capital needs. The BCBA has authorized the public
trading of this issuance.
The Board of Directors of TGS will submit for approval to the next
Shareholders' meeting to be held on February 17, 1997, the creation of a new
Global Program for the issuance of debt securities for a total maximum amount of
US$300 million.
- - OTHER NON CURRENT BANK BORROWINGS:
Includes a credit agreement with the Export Import Bank of USA ("Eximbank")
payable over five years in semi-annual installments accruing interest at 180-day
LIBOR plus 0.4% per annum. As of December 31, 1996 and 1995, the noncurrent
outstanding principal debt under such agreement was 18,024 and 22,147,
respectively. As of the date of issuance of these financial statements, the
remaining unused committed credit line is approximately US$8 million.
Also, includes two loans granted by Deutsche Bank for a total amount of
US$50 million with final maturity in March 1999, bearing interest at LIBOR plus
1% and 2.88% per annum for each loan, payable quarterly. Noncurrent outstanding
principal of both loans amounts to US$15 million.
F-46
<PAGE> 87
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Restrictive covenants under existing debt agreements:
CIESA and its Controlled Company must comply with certain restrictive
covenants contained in their debt agreements which include, among others, the
following:
i) Restrictions to create liens: as long as the syndicated loan
remains outstanding, the Company may not create liens to obtain
debt incurred after May 20, 1996, which in the aggregate exceeds
US$10 million, unless the Company finances, in full or in part,
the purchase or construction of the assets so encumbered. Also, as
long as any note under the Global Programs remains outstanding,
TGS may not encumber its assets or its present or future revenues,
on debt incurred after December 14, 1993, which in the aggregate
exceeds US$10 million, unless TGS finances, in full or in part,
the purchase or construction of the assets so encumbered.
ii) Restrictions on the level of indebtedness: as of the closing date
of annual and/or interim financial statements, consolidated debt
of CIESA and TGS may not exceed 60% of the sum of such total
consolidated debt plus the difference between the consolidated
assets and liabilities of CIESA and TGS.
iii) Interest coverage ratio: consolidated net income before interest
expense, income tax, depreciation and amortization, may not be
lower than 2.5 times consolidated interest and rental expenses.
iv) The Company must maintain a direct ownership of at least 51% of
the voting stock of TGS.
(d) Swap agreements:
As of December 31, 1996, TGS has outstanding interest rate swap agreements
with major financial institutions which effectively convert US$108 million of
floating LIBOR based debt to fixed rate debt (ranging from 5.78% to 6.06%) of
which US$44 million is related to the YPF debt, approximately US$24 million
covers the Eximbank credit facility and the remainder is related to other bank
borrowings. Also, TGS has a US$50 million outstanding swap agreement in
connection with a bank borrowing which was recently prepaid. Such swap agreement
will be applied to future variable rate borrowings.
As of December 31, 1996, amounts payable or receivable under the existing
swap agreements were not significant.
During 1996, in contemplation of a debt issuance, TGS entered into swap
agreements which effectively locked in the rate on the five-year US Treasury
Bond at an average rate of 5.39% covering US$150 million. Such Treasury lock
agreements were executed upon the issuance of the medium term notes on April 25,
1996 generating an approximate US$6 million gain which was deferred and is being
amortized over the five year term of this issuance.
CIESA had entered into interest rate swap agreements to mitigate
fluctuations in LIBOR. Such agreements were terminated during 1996.
(e) Assets pledged to secure loans:
TGS has delivered 1.2 million face value of the Argentina Bond as
collateral to secure a loan of approximately US$4.3 million to be extinguished
with the amortization of such bond. Also, TGS committed to increase such
collateral with additional bonds or other assets acceptable to the lender in the
event that the market value of the bonds decreases by more than 5 percentage
points from the initial discount of 8%.
F-47
<PAGE> 88
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. REGULATORY MATTERS
(a) General aspects
TGS's natural gas transportation business is regulated by Law No. 24,076,
and by regulations issued by ENARGAS. Among other things, ENARGAS sets the basis
for the calculation of tariffs, monitors and approves such tariffs. Current
transportation tariffs are calculated in US dollars and converted into Argentine
pesos as of the billing date pursuant to the Convertibility Law. The basic gas
transportation tariffs charged by TGS were established upon the privatization
and may be adjusted in the following cases: (i) semi-annually and automatically
to reflect changes in the US producer price index -- industrial commodities --
("PPI") and (ii) every five years by ENARGAS' review. Also, subject to ENARGAS
approval, tariffs may be adjusted to reflect non recurring circumstances or tax
changes, other than income tax.
Effective January 1, 1996, transportation rates decreased by 0.16% as a
result of a decline in the PPI. Effective July 1, 1996, PPI increased by 1.51%.
There was no adjustment to transportation rates in January 1997, since the PPI
remained unchanged.
In connection with the rate review process that will be effective during
each succeeding five-year period following the initial five-year period ending
December 28, 1997, ENARGAS has issued a preliminary determination on such rules,
and in July 1996 established the cost of capital for the calculation of the
investment and efficiency factors. Such cost of capital was set at 11.3% per
annum, and is a weighted average cost of capital, net of an estimated future
annual inflation rate of 1.9%. The rate review process began on August 13, 1996,
when TGS filed with ENARGAS an investment plan amounting to approximately US$117
million expected for the second five-year period commencing December 29, 1997.
ENARGAS will release its initial proposal on rate adjustments on March 17, 1997,
which will be submitted to the licensee companies for their consideration.
ENARGAS is scheduled to set the final investment and efficiency factors on or
before June 28, 1997.
The gas processing segment is not regulated by ENARGAS, and as provided in
the Transfer Contract, is organized as a division within TGS and maintains
separate accounting information.
The License stipulates, among other restrictions, that TGS may not assume
debts of CIESA, or grant credit, encumber its assets or grant any other benefit
to CIESA's creditors.
(b) Mandatory Investment Program:
As stipulated by the License, TGS is required to complete a mandatory,
five-year investment plan which began in 1993 on its natural gas pipeline system
totaling US$153 million, representing US$30.6 million per year. This mandatory
investment plan is related to the operational capability and public safety of
the pipeline system and includes, among others, cathodic protection, internal
inspection and pipeline replacement and recoating. ENARGAS may in its judgment
levy a fine equal to any amount not actually invested.
ENARGAS has approved mandatory investments made by TGS during 1993, 1994
and 1995 and has reimbursed the deposits that were required as a guarantee for
the completion of such investments, which were classified as "Other receivables"
as of December 31, 1995.
TGS' management believes it has fulfilled all the obligations related to
mandatory investments for 1996. However, such investments are subject to the
ENARGAS review and approval process, which is still pending as of the date of
the issuance of these financial statements.
F-48
<PAGE> 89
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Essential assets:
A substantial portion of the assets transferred by GdE has been defined as
essential for the performance of the gas transportation service. Therefore, TGS
is required to segregate and maintain these assets, together with any future
improvements, in accordance with certain standards defined in the License.
TGS may not, for any reason, dispose of, encumber, lease, sublease or loan
essential assets nor use such assets for purposes other than providing the
licensed service without ENARGAS' prior authorization. Any expansion and
improvement that TGS may make to the gas pipeline system after the takeover may
only be encumbered to secure loans that have a term of more than one year to
finance new expansions and improvements to the licensed service.
Upon expiration of the License, TGS will be required to transfer to the
Argentine Federal Government or its designee, the essential assets listed in the
updated inventory as of the expiration date, free of any debt, encumbrance or
attachment, receiving compensation equal to the lower of the following two
amounts:
a) The net book value of the essential assets determined on the basis
of the price paid by the acquiring joint venture, and the original
cost of subsequent investments carried in US dollars and adjusted
by the PPI, net of accumulated depreciation.
b) The net proceeds of a new competitive bidding.
7. CAPITAL STOCK AND DIVIDENDS
(a) Capital Stock, General
As of December 31, 1996, CIESA's stock subscribed, paid in and issued is
composed of:
<TABLE>
<CAPTION>
NUMBER OF SHARES
CLASSES OF STOCK SUBSCRIBED AND PAID IN
---------------- ----------------------
<S> <C>
Common shares, Ps. 1 nominal value, 1 vote per share
Class "A" shares............................................ 190,802,668
Class "B" shares............................................ 183,320,212
-----------
374,122,880
===========
</TABLE>
The Company was incorporated on December 14, 1992, with a capital of 12 and
was registered with the Public Registry of Commerce on December 21, 1992.
(b) Limitation of the Transfer of CIESA's Shares
The Bid Package stipulates that prior authorization of ENARGAS shall be
required in the following instances:
- Transfer of Class "A" shares representing 51% of the common stock unless
such transfer is made within companies belonging to the same economic
group.
- Sale of shares belonging to the technical operator reducing its holding
to below 10% before eight years have elapsed since the Takeover Date. Such
approval shall only be granted if the sale does not affect the quality of
the licensed service. If approval is granted, the new technical operator
shall comply with the minimum shareholding percentage in the Company.
- When any shareholder of the Company has qualified due to the
shareholders' equity, guarantee and/or technical background of its parent
company and the latter sells its shares to other shareholders, or the
current management is discontinued.
- Any other corporate action implying a reduction in ownership interest.
F-49
<PAGE> 90
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Limitation of the Transfer of TGS' Shares
During its first five years, TGS may not reduce its capital, redeem its
shares or distribute any part of its equity, except for the payment of dividends
in accordance with the provisions of the Business Associations Law (No. 19,550).
After this five-year period has elapsed, any reduction, redemption or
distribution will require the prior authorization of ENARGAS.
Prior approval of ENARGAS and the unanimous approval of CIESA's
shareholders under subscribed agreements among them must be obtained for the
transfer of TGS's common shares if such sale reduces CIESA's shareholding below
51% of TGS's capital stock. The Bid Package states that ENARGAS's approval will
be granted, provided that:
- The sale covers 51% of TGS's capital stock or, if the proposed
transaction is not a sale, the act of reducing the shareholding will
result in the acquisition of a shareholding of not less than 51% by
another investor company ("the applicant").
- The applicant provides evidence to the effect that the transaction will
not impair the operating quality of the licensed service.
- The existing technical operator, or a new technical operator approved by
ENARGAS, holds the minimum required 10% of the applicant's shares and a
technical assistance contract remains in force.
The breach of any of the restrictions mentioned above shall result in the
termination of the controlled company's License to operate as a carrier.
(d) Sale of the Argentine Government's Stock
The Argentine Government initially held a 27% shareholding in TGS
represented solely by Class "B" shares. 25% of this shareholding was sold in
1994 through a local and international public offering. Outside Argentina, the
shares were offered under the form of American Depositary Shares ("ADSs")
representing five shares each. The ADSs issued in the United States of America
are SEC registered and traded on the New York Stock Exchange ("NYSE"). The
Government's remaining Class "B" shares, representing a 2% shareholding in TGS,
were sold to local and foreign investors during 1996.
TGS is obligated to maintain the authorization to offer its capital stock
to the public and the corresponding authorization for the shares to be listed on
the Argentine Republic's securities markets for a minimum period of fifteen
years from the respective dates on which such authorizations were granted.
(e) Employee Stock Purchase Program (ESPP)
TGS's Class "C" shares, representing 3% of its capital stock, belong to the
ESPP. This program benefits former employees of GdE transferred to TGS who
remained employees of TGS as of the date the shares were transferred to them.
The Argentine Government provided the awarding of the Class "C" shares at a sale
price of 0.91 per share. The Class "C" shares may be converted to Class "B"
shares once the acquisition price is fully paid. While the ESPP remains
outstanding, neither the core business of TGS nor the proportions of the
respective classes of outstanding shares may be altered unless the requirements
set forth in this program are fully complied with.
In addition, TGS's By-laws provide for the issuance of Profit Sharing
Vouchers, as defined in Article 230 of Law No. 19,550, payable to all regular
employees so as to distribute 0.25% of the net income of each year among them.
An accrual for this expense has been recorded in "Other liabilities" account. Up
to 50% of the income accruing on the vouchers can be used to pay off any
outstanding debt, which has not been paid with the Class "C" shares' dividends
distributed by TGS, for the purchase of the Class "C" shares.
F-50
<PAGE> 91
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Dividend distributions
CIESA's Board of Directors will propose to the Shareholders' meeting an
annual cash dividend of 90,600 (0.24 per share) for fiscal year 1996, which
includes interim dividends of 48,000 (0.13 per share) distributed based on first
half of 1996 net income and approved by the Board of Directors on August 21,
1996.
(g) Restrictions on Retained Earnings
Under current Argentine legal requirements, 5% of net income per year has
to be appropriated into a legal reserve until such reserve equals 20% of capital
stock adjusted for inflation.
8. ENVIRONMENTAL MATTERS
TGS's management believes that TGS's current operations are in substantial
compliance with applicable laws and regulations relating to the protection of
the environment. TGS's environmental policy is designed to comply with Argentine
laws relating to hazardous waste and air quality. Under these laws, the
principal hazardous substances generated by TGS consist of discarded casing oil,
and those parts of the compressor station entry filters which are soaked in
hydrocarbons.
TGS has implemented a policy of reducing and treating hazardous substances.
Consequently, during 1995 TGS completed a study of all the emissions produced by
TGS, including gaseous, liquid and solid emissions, with a view toward
quantitative and qualitative evaluation. The study covered all the compressor
plants and maintenance bases, as well as the Cerri Complex, and extended along
nearly 6,000 km (3,728 miles) of gas pipeline. Based on the results of the
study, minor farm land remediation was required. Additionally, based on
recommendations included in the study, TGS has proposed an environmental
investment plan for the period 1997-2001 with a budget of approximately US$3
million.
9. LEGAL MATTERS
(a) In April 1996, GdE filed a legal action seeking reimbursement from
TGS of US$23 million paid by GdE under purchase orders issued in
connection with two compressor plants. TGS has recorded such
plants as property, plant and equipment valued at Ps. 4.8 million
based on the replacement costs of similar compressor equipment.
TGS has thoroughly answered the demand and is refusing the claim.
(b) As of the date of issuance of these consolidated financial
statements, GdE, directly or through ENARGAS, has not fulfilled
the obligations set forth in the Transfer Agreement and in the
License in connection with its responsibility for five years for
the registering of easements relating to the pipeline system which
have not been properly recorded and for related payments to
property owners of any required royalties or fees. In order to
fulfill its capital expenditures related to the system integrity
and public safety required by the License, TGS is partially
assuming such obligations and has filed a claim against GdE to
recover the amounts paid.
On October 7, 1996, the Executive Branch, through Decree No.
1,136/96, created a contribution fund, as provided for in the
License, to assume GdE 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 easements,
which are classified as "Other receivables" as of December 31,
1996 and 1995.
(c) In August 1994, the Tierra del Fuego Province increased the gross
receipts tax from 3% to 4.5% and reduced it to 3.5% in May 1996.
Also, effective July 1, 1996 the Neuquen Province increased the
gross receipts tax from 2% to 3%.
F-51
<PAGE> 92
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with procedures stipulated in the License, TGS
requested ENARGAS to provide a rate adjustment to recover the
increased taxes. Recently, ENARGAS approved such rate increase
which allows TGS to recover from its gas transportation customers
the increase in the gross receipts tax. As a result, TGS net
transportation revenues for the year ended December 31, 1996
include a Ps. 3.5 million increase reflecting such tariff
adjustment.
(d) In addition to the matters discussed above, TGS is a party to
certain lawsuits and administrative proceedings before various
courts and governmental agencies arising in the ordinary course of
business.
TGS's management believes that the final outcome of the lawsuits and
proceedings discussed above will not have a material adverse effect on TGS's
financial position and results of operations.
10. BALANCES AND TRANSACTIONS WITH RELATED COMPANIES
TGS's principal transactions with related parties are payments under the
technical assistance agreement entered into by TGS with the technical operator,
EPCA, in compliance with the provisions of the Bid Package and the Transfer
Contract, whereby EPCA is to provide technical advisory services which include
services related to, among others, the operation of the gas transportation
system, the gas processing facilities and related facilities and equipment, the
replacement and renovation of facilities to ensure that the performance of the
system is in conformity with international standards and compliance with the
environmental standards. For these services, TGS pays a monthly fee based on the
higher of a percentage of certain defined income of TGS or a specified fixed
annual amount. The term of the contract is for eight years from December 28,
1992, and may be renewed upon expiration for additional eight-year periods. Fees
to the technical operator amounted to 20,237, 19,217 and 20,138 for the years
ended December 31, 1996, 1995 and 1994, respectively. Also, EPCA billed TGS
2,170, 2,702 and 2,819 for salaries and expenses paid to personnel working for
TGS during the years ended December 31, 1996, 1995, and 1994, respectively.
Related accounts payable to EPCA amounted to 1,866 and 1,844 as of December 31,
1996 and 1995, respectively. Also, Com-Ing S.A., a PC subsidiary, billed 3,423
and 915 during the years ended December 31, 1996 and 1995 in connection with
telecommunications projects. Unpaid related amounts at such dates were 46 and
1,107, respectively. In addition, SADE Ingenieria y Construcciones S.A., a PC
subsidiary, provided services in connection with the construction of certain
facilities amounting to 5,862 and 11,220 during the years ended December 31,
1995 and 1994, respectively.
11. OTHER FINANCIAL STATEMENT INFORMATION
The following tables present additional financial statement disclosures
required under Argentine GAAP. This information is not required as part of the
basic financial statements under accounting principles generally accepted in the
United States of America ("US GAAP"); however, certain of these tables
substantially duplicate the schedule requirements of the SEC.
(a) Property, plant and equipment
(b) Intangible assets
(c) Investments
(d) Foreign currency assets and liabilities
(e) Expenses incurred
(f) Detail of maturities of cash investments, accounts receivables and
liabilities
In addition, section (g) provides condensed individual financial statements
of the parent company (CIESA) as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995 and 1994.
F-52
<PAGE> 93
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------------------------
ORIGINAL COST DEPRECIATION
------------------------------------------------------------- --------------------------
ACCUMULATED
BEGINNING END AT BEGINNING
MAIN ACCOUNT OF YEAR ADDITIONS RETIREMENT TRANSFERS OF YEAR OF YEAR RETIREMENTS
------------ ---------- --------- ----------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Real property........................... 52,472 -- 341 1,644 53,775 4,158 --
Assets related to the gas transportation
service................................ 1,385,781 13 1,599 43,531 1,427,726 67,781 1,599
Assets related to the gas processing
service................................ 110,444 7 -- 1,509 111,960 16,331 --
Vehicles................................ 17,572 99 1,308 1,575 17,938 5,129 1,250
Furniture, hardware, software and
industrial tools....................... 9,714 670 -- 7,912 18,296 2,769 --
---------- -------- ------- ------- ---------- ------- -------
Subtotal............................... 1,575,983 789 3,248 56,171 1,629,695 96,168 2,849
Line pack............................... 5,297 -- -- -- 5,297 352 --
Work in progress........................ 29,048 53,007(1) -- (38,335) 43,700 -- --
Materials............................... 30,701 29,671 4,997 (17,816) 37,559 -- --
---------- -------- ------- ------- ---------- ------- -------
Total 1996............................. 1,641,029 83,467 8,245 -- 1,716,251 96,520 2,849
========== ======== ======= ======= ========== ======= =======
Total 1995............................. 1,552,410 107,789 19,170 -- 1,641,029 67,625 11,436
========== ======== ======= ======= ========== ======= =======
Total 1994............................. 1,372,650 187,542 7,782 -- 1,552,410 33,831 3,031
========== ======== ======= ======= ========== ======= =======
<CAPTION>
1996 1995 1994
----------------------------------------------- ---------- ----------
DEPRECIATION
----------------------------------
EXPENSES FOR
THE YEAR ACCUMULATED
--------------------- AT THE END NET NET NET
MAIN ACCOUNT AMOUNT RATE% OF YEAR BOOK VALUE BOOK VALUE BOOK VALUE
------------ ------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real property........................... 1,516 2.2 and 5 5,674 48,101 48,314 47,129
Assets related to the gas transportation
service................................ 31,648 2.2 97,830 1,329,896 1,318,000 1,224,804
Assets related to the gas processing
service................................ 5,560 5 21,891 90,069 94,113 97,904
Vehicles................................ 2,399 6.7 to 50 6,278 11,660 12,443 13,351
Furniture, hardware, software and
industrial tools....................... 3,023 11.5 and 20 5,792 12,504 6,945 3,394
------- -------- ---------- ---------- ----------
Subtotal............................... 44,146 137,465 1,492,230 1,479,815 1,386,582
Line pack............................... 118 2.2 470 4,827 4,945 4,878
Work in progress........................ -- -- -- 43,700 29,048 64,902
Materials............................... -- -- -- 37,559 30,701 28,423
------- -------- ---------- ---------- ----------
Total 1996............................. 44,264 137,935 1,578,316
======= ======== ==========
Total 1995............................. 40,331 96,520 1,544,509
======= ======== ==========
Total 1994............................. 36,825 67,625 1,484,785
======= ======== ==========
</TABLE>
- ---------------
(1) Includes advances to suppliers for 1,444.
F-53
<PAGE> 94
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------------
ORIGINAL COST AMORTIZATION
--------------------------------------------- --------------------------
ACCUMULATED
BEGINNING END OF AT BEGINNING
MAIN ACCOUNT OF YEAR ADDITIONS RETIREMENTS YEAR OF YEAR RETIREMENTS
------------ --------- --------- ----------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Organization and pre-operating
costs, cancellation costs of
commitments assumed under the
Transfer Contract and other
costs(1)......................... $30,987 $487 $ -- $31,474 $2,566 $ --
Costs of setting up the 1993 Global
Program and the First issuance of
Medium Term Notes thereunder(2).. 2,993 -- -- 2,993 1,175 --
------- ---- ------- ------- ------ -----
Total 1996..................... $33,980 $487 $ -- $34,467 $3,741 $ --
======= ==== ======= ======= ====== =====
Total 1995..................... $33,197 $783 $ -- $33,980 $2,334 $ --
======= ==== ======= ======= ====== =====
Total 1994..................... $34,437 $807 $(2,047) $33,197 $1,010 $(515)
======= ==== ======= ======= ====== =====
<CAPTION>
1996 1995 1994
------------------------------------------ -------- --------
AMORTIZATION
-------------------------------
EXPENSES FOR
THE YEAR(3) ACCUMULATED
----------------- AT THE END NET BOOK NET BOOK NET BOOK
MAIN ACCOUNT AMOUNT RATE % OF YEAR VALUE VALUE VALUE
------------ ------- ------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Organization and pre-operating
costs, cancellation costs of
commitments assumed under the
Transfer Contract and other
costs(1)......................... $ 918 2.8 $3,484 $27,990 $28,421 $28,482
Costs of setting up the 1993 Global
Program and the First issuance of
Medium Term Notes thereunder(2).. 636 20 1,811 1,182 1,818 2,381
------ ------ ------- ------- -------
Total 1996..................... $1,554 $5,295 $29,172
====== ====== =======
Total 1995..................... $1,407 $3,741 $30,239
====== ====== =======
Total 1994..................... $1,839 $2,334 $30,863
====== ====== =======
</TABLE>
- ---------------
(1) Includes the cost of the Voluntary Retirement Program of 1993, accepted by
463 employees, for approximately 12,122.
(2) See Note 5.b).
(3) Included in Other income (expense) net.
F-54
<PAGE> 95
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) INVESTMENTS
<TABLE>
<CAPTION>
1996 1995
-------------------------- ----------
COST ADJUSTED
FOR
INFLATION BOOK VALUE BOOK VALUE
------------- ---------- ----------
<S> <C> <C> <C>
CURRENT INVESTMENTS
Bank deposits in local currency........................... 13,367 13,505 9,066
Bank deposits in foreign currency......................... 31,481 31,812 58,362
Argentina Bond............................................ 4,400 4,400 3,300
------ ------ ------
Total current investments....................... 49,248 49,717 70,728
------ ------ ------
NON CURRENT INVESTMENTS
Argentina Bond............................................ 2,300 2,300 6,700
------ ------ ------
Total noncurrent investments.................... 2,300 2,300 6,700
------ ------ ------
51,548 52,017 77,428
====== ====== ======
</TABLE>
F-55
<PAGE> 96
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) FOREIGN CURRENCY ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
1996 1995
------------------------------------ -------------------------
FOREIGN FOREIGN
CURRENCY AMOUNT CURRENCY AMOUNT
AND AMOUNT EXCHANGE IN LOCAL AND AMOUNT IN LOCAL
(IN THOUSANDS) RATE CURRENCY (IN THOUSANDS) CURRENCY
-------------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................ US$ 344 1.00 344 US$ 842 842
Investments......................... US$ 36,212 1.00 36,212 US$ 61,662 61,662
Trade receivables................... US$ 2,519 1.00 2,519 US$ 1,135 1,135
Other receivables................... US$ 24 1.00 24 US$ 5,925 5,925
------- -------
39,099 69,564
------- -------
NONCURRENT ASSETS
Property, plant and equipment --work
in progress
Advances to suppliers............ US$ 205 1.00 205 US$ 213 213
-- -- -- -- DM 342 238
Investments......................... US$ 2,300 1.00 2,300 US$ 6,700 6,700
------- -------
2,505 7,151
------- -------
41,604 76,715
======= =======
LIABILITIES
CURRENT LIABILITIES
Initial debt assumed under the
Transfer Contract................ US$ 61,226 1.00 61,226 US$ 80,498 80,498
Accounts payable.................... US$ 124 1.00 124 US$ 2,139 2,139
-- -- -- -- DM 27 19
Loans............................... US$ 363,563 1.00 363,563 US$ 408,056 408,056
Other liabilities................... US$ 43 1.00 43 --
------- -------
424,956 490,712
------- -------
NONCURRENT LIABILITIES
Initial debt assumed under the
Transfer Contract................ -- -- -- -- US$ 56,599 56,599
Loans............................ US$ 391,485 1.00 391,485 US$ 266,971 266,971
------- -------
391,485 323,570
------- -------
816,441 814,282
======= =======
</TABLE>
F-56
<PAGE> 97
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) EXPENSES INCURRED
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------- ------- -------
OPERATING ADMINISTRATIVE SELLING
ACCOUNT COSTS EXPENSES EXPENSES TOTAL TOTAL TOTAL
------- --------- -------------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Compensation to Directors and
Statutory Audit Committee... -- 167 -- 167 182 194
Salaries, wages and other
contributions............... 15,294 5,785 957 22,036 24,497 26,877
Social security taxes......... 7,335 3,220 338 10,893 13,891 13,929
Other employee benefits....... 2,563 1,138 89 3,790 6,499 6,424(1)
Depreciation of property,
plant and equipment......... 42,790 1,474 -- 44,264 40,331 36,825
Operating expenses, materials,
supplies and repairs........ 11,971 1,868 134 13,973 18,310 17,818(2)
Technical assistance,
licensee, and other fees.... 20,611 1,126 47 21,784 18,779 21,859
Insurance..................... 2,293 148 -- 2,441 3,342 4,063
Taxes and contributions....... 813 101 -- 914 687 918
General expenses.............. 886 1,545 138 2,569 2,263 2,930(1)
------- ------ ----- ------- ------- -------
Total 1996.................... 104,556 16,572 1,703 122,831
======= ====== ===== =======
Total 1995.................... 107,585 19,020 2,176 128,781
======= ====== ===== =======
Total 1994.................... 106,548 22,308 2,981 131,837
======= ====== ===== =======
</TABLE>
- ---------------
(1) Includes a reclassification of 2,190 from general expenses to other employee
benefits, for comparative purposes with 1996 and 1995 amounts.
(2) Includes the effect of the initial stock for the period of liquids in the
General Cerri Complex for 225.
F-57
<PAGE> 98
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) DETAIL OF MATURITIES OF CASH INVESTMENTS, ACCOUNTS RECEIVABLES AND
LIABILITIES (AS STIPULATED BY GENERAL RESOLUTION NO. 284 OF THE CNV)
<TABLE>
<CAPTION>
CASH ACCOUNTS OTHER
INVESTMENTS(1) RECEIVABLES(2) DEBT(3) LIABILITIES(4)
-------------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Without specified maturity................... -- 2,643 -- --
With specified maturity
* Past due
From 10-01-96 to 12-31-96............... -- 1,012 -- --
From 07-01-96 to 09-30-96............... -- -- -- --
From 04-01-96 to 06-30-96............... -- -- -- --
From 01-01-96 to 03-31-96............... -- 54 -- --
Until 12-31-95.......................... -- 153 -- --
------ ------ ------- ------
Total past due..................... -- 1,219 -- --
------ ------ ------- ------
* Non-due
From 01-01-97 to 03-31-97............... 45,317 48,596 19,198 41,138
From 04-01-97 to 06-30-97............... -- -- 39,503 20,135
From 07-01-97 to 09-30-97............... -- -- 106,724 --
From 10-01-97 to 12-31-97............... -- -- 265,026 --
During 1998............................. -- -- 221,904 --
During 1999............................. -- -- 14,945 --
During 2000............................. -- -- 2,502 --
During 2001............................. -- -- 150,425 --
------ ------ ------- ------
Total non-due...................... 45,317 48,596 820,227 61,273
------ ------ ------- ------
Total with specified maturity...... 45,317 49,815 820,227 61,273
------ ------ ------- ------
Total.............................. 45,317 52,458 820,227 61,273
====== ====== ======= ======
</TABLE>
- ---------------
(1) Bears fixed interest rate.
(2) Includes trade and other receivables. Non-due amounts bear no interest.
(3) Includes loans and initial debt assumed under the Transfer Contract, except
for debt issuance discounts, the cash received from the contract settlement
of the Treasury lock related to the First Issuance of debt notes under the
1996 Global Program and advanced interests and fees. Considering the swap
agreements (see note 5.d), approximately 68% of the outstanding principal
debt bears fixed interest rate.
(4) Includes liabilities other than debt, which bear no interest.
F-58
<PAGE> 99
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) CONDENSED INDIVIDUAL FINANCIAL STATEMENTS OF THE PARENT COMPANY
(CIESA)
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Equity in earnings of investee......................... 114,652 126,725 133,034
Administrative expenses................................ (321) (387) (264)
Other expenses......................................... -- -- (377)
Net financial (expense) income......................... (21,101) (8,502) 2,106
----------- ----------- -----------
Net income............................................. 93,230 117,836 134,499
Preferred stock dividends.............................. -- -- (6,428)
----------- ----------- -----------
Net income attributable to common stock................ 93,230 117,836 128,071
=========== =========== ===========
Earnings per common share (Note 2.g)................... 0.25 0.31 0.36
Average number of common shares........................ 374,122,880 374,122,880 359,522,880
</TABLE>
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
------- -------
<S> <C> <C>
Cash........................................................ 224 102
Investments................................................. -- 4,946
Other receivables........................................... 2 22
------- -------
Total current assets.............................. 226 5,070
------- -------
Investments (equity method)................................. 744,779 735,795
------- -------
Total noncurrent assets........................... 744,779 735,795
------- -------
Total assets...................................... 745,005 740,865
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans....................................................... 226,048 214,813
Other liabilities........................................... 100 25
------- -------
Total current liabilities......................... 226,148 214,838
------- -------
Total liabilities................................. 226,148 214,838
------- -------
Shareholders' equity........................................ 518,857 526,027
------- -------
Total liabilities and shareholders' equity........ 745,005 740,865
======= =======
</TABLE>
F-59
<PAGE> 100
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ 93,230 117,836 134,499
Reconciliation of net income to cash provided by operating
activities
Amortization of intangibles assets..................... -- -- 377
Equity in earnings of investee......................... (114,652) (126,725) (133,034)
Dividends from equity investment....................... 105,668 110,522 68,099
Changes in assets and liabilities
Other receivables...................................... 20 (22) --
Other liabilities...................................... 75 (113) (49)
Interest payable and others............................ 3,470 (8,706) (5,969)
-------- -------- --------
Cash flows from operating activities.............. 87,811 92,792 63,923
-------- -------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from loans....................................... 217,965 -- 224,149
Common dividends paid..................................... (100,400) (95,342) (63,317)
Preferred dividends paid.................................. -- -- (16,933)
Payments of loans......................................... (215,000) -- (50,123)
Net increase in short term debt(1)........................ 4,800 -- --
Preferred shares redemption............................... -- -- (150,368)
-------- -------- --------
Cash flows used in financing activities........... (92,635) (95,342) (56,592)
-------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (4,824) (2,550) 7,331
Cash and cash equivalents at beginning of year............ 5,048 7,598 267
-------- -------- --------
Cash and cash equivalents at end of year.................. 224 5,048 7,598
======== ======== ========
</TABLE>
(1) Less than three months maturity
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY
THE COMPANY AND US GAAP
The accompanying financial statements have been prepared in accordance with
Argentine GAAP which differs in certain respects from US GAAP.
The significant differences have been reflected in the financial
information provided below and principally relate to the following items:
(a) Restatements of Financial Statements for General Price-Level Changes
As described in Note 2.a) effective September 1, 1995, the restatement for
inflation methodology was discontinued, maintaining the effects of inflation
accounted for in prior periods. The discontinuance of inflation accounting is in
compliance with Argentine GAAP, provided that the annual variation in the GLWPI
does not exceed 8%.
Under US GAAP, account balances and transactions are stated in the units of
currency of the period when the transactions originated. This accounting model
is commonly known as the historical cost basis of
F-60
<PAGE> 101
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting. SEC rules establish that foreign private issuers that prepare their
financial statements in a reporting currency that comprehensively includes the
effects of price level changes are not required to eliminate such effects in the
reconciliation to US GAAP. Therefore, the US GAAP reconciliation of net income
and shareholders' equity shown in paragraph g) does not reflect the effect of
the general-price level restatement as a difference.
(b) Income Taxes
Argentine GAAP income tax expense is based upon the estimated current
income tax liability to the DGI. When income and expense recognition for income
tax purposes does not occur in the same period as income and expense recognition
for financial statement purposes, the recording of the resultant differences is
not a common practice among Argentine corporations. Under US GAAP, Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes"
requires the liability method be used to account for deferred taxes. Under this
method, deferred tax assets and liabilities are recorded based on anticipated
tax consequences attributable to differences between financial statements
carrying amounts of assets and liabilities and their respective tax bases. Under
current Argentine tax regulations, the effects of inflation are not included in
the determination of taxable income nor in the tax basis of assets or
liabilities. Accordingly, the net deferred tax liability included in the US GAAP
reconciliation includes the effects of inflation on nonmonetary assets.
(c) Intangible Assets
Under Argentine GAAP, costs such as organization and preoperating expenses,
costs associated with voluntary retirement programs and cancellation costs of
commitments assumed or incurred in the acquisition and start-up of a privatized
company, may be deferred an amortized over the resultant period of benefit. US
GAAP Accounting Principles Board Opinion No. 16 ("APB 16") "Business
Combinations," provides that, for the acquisition of stock or assets under the
purchase method, the cost of an acquired company should be allocated to the
assets acquired and liabilities assumed. The only difference between US and
Argentine GAAP related to qualifying liabilities assumed is that for Argentine
GAAP the offsetting purchase price is allocated to intangible assets and for US
GAAP the offsetting purchase price is allocated to the acquired assets which, in
this case, is property, plant and equipment.
Therefore, the US GAAP, reconciliation of net income and shareholders'
equity shown in paragraph (g) does not reflect any differences related to
assumed liabilities in the acquisition of the capital stock of TGS.
(d) Vacation Accrual
Under Argentine GAAP, there are no specific requirements governing the
recognition of the accrual for vacations. The acceptable practice in Argentina
is to charge vacations to expense when taken and to accrue only the amount of
vacation in excess of the normal remuneration. Under US GAAP, vacation expense
is fully accrued in the period the employee renders service to earn such
vacation.
(e) Valuation of Property, Plant and Equipment
Under Argentine GAAP transferred assets were valued as described in Note
2.j). Under US GAAP, APB 16 provides the guidance for the valuation of property,
plant and equipment in connection with an acquisition. As CIESA acquired 70% of
the capital stock of TGS, the fixed assets transferred should have been valued
at the price effectively paid for such 70%, plus the inflation adjusted
historical cost carried by GdE for the remaining 30%. The condition of GdE's
books and records (specifically that no separate financial statements or
financial information was kept with respect to transportation operations or the
operation of assets transferred to TGS) and the unavailability of any 1992 GdE
financial information made it impossible to
F-61
<PAGE> 102
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determine historical cost. Based on information maintained by the Argentine
Government Public Notary, TGS's management believes that the fair value of the
transferred assets recorded on its books was significantly below the 1991 GdE
historical book values brought forward to 1992 and restated in constant
Argentine pesos at the Transfer Date adjusted for applying purchase accounting
for the transaction under APB 16. Part of the acquisition price for the TGS's
capital stock included a fixed face value of bonds issued by the Argentine
Government. At the offer for bids in 1992, the Argentine Government fixed a
discount rate on such bonds in determining the total purchase price and as the
ultimate basis used in assigning the book values to the fixed assets. On the
date of payments the market value of such bonds were generally below the values
fixed by the Argentine Government. As required by US GAAP under APB 16, the cost
of an asset is the fair value of assets distributed. Accordingly, CIESA's
investment in TGS and CIESA's interest in the underlying assets have been
adjusted by the difference in the fixed versus fair value of such bonds.
Therefore no adjustment has been recorded in the US GAAP reconciliation related
to the valuation of property, plant and equipment except for the effects of
applying purchase accounting to CIESA in valuing the bonds, under APB 16 as
discussed above.
In addition, SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," establishes new accounting
standards for measuring the impairment of long-lived assets. For purposes of
such measurement, TGS's management believes that estimates of future cash flows
by group, based on reasonable assumptions that represent the best estimate of
the cash flows expected to result from their use, show that no impairment loss
has to be recognized.
(f) Regulatory Matters
As explained in Note 6, TGS provides the public service of natural gas
transportation through the southern gas pipeline system and is therefore subject
to the regulatory control of ENARGAS.
Argentine Law No. 24,076 (the Natural Gas Act) and its regulatory decree
(No. 1,738/92) state that TGS's tariffs shall provide an opportunity to collect
revenues sufficient to recover all proper operating costs reasonably applicable
to the service, taxes, depreciation and a reasonable rate of return, which shall
be similar to the return in businesses having equivalent or comparable risks,
and shall be related to the degree of efficiency and satisfactory performance of
the services.
The License states that the new maximum tariffs will be established every
five years calculated by applying the existing tariff to an investment factor
and efficiency factor. As described in Note 6.a) ENARGAS has not yet issued a
complete and definitive set of regulations related to the tariff revision
process, nor the criteria for determining the accounting rules to be followed by
TGS for regulatory purposes, including the rules on allocation of costs by
activity, area and type of consumers.
If applicable, SFAS No. 71 "Accounting for the Effects of Certain Types of
Regulation" ("SFAS No. 71") would allow a company to capitalize all or part of
incurred costs that would otherwise be charged to expense if it is probable that
future revenue will result from the inclusion of those costs in the rate-making
process, and will be provided to permit recovery of the incurred cost rather
than to provide for expected levels of similar future costs. Additionally, if
rates are based on allowable costs that include an allowance for the cost of
funds used during construction (consisting of an equity component and a debt
component), a company should capitalize and increase net income by the amount
used for rate-making purposes, rather than capitalizing interest in accordance
with SFAS No. 34 "Capitalization of Interest Cost".
However based on current discussions with ENARGAS, TGS's management
believes that the tariff adjustments would not be based on TGS's cost of
providing services. Consequently, SFAS No. 71 would not be applicable.
F-62
<PAGE> 103
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Partial Reconciliation of Consolidated Net Income and Shareholders' Equity
to US GAAP
The following is a partial reconciliation, as permitted by the SEC, of net
income for the years ended December 31, 1996, 1995 and 1994 and shareholders'
equity as of December 31, 1996 and 1995 which would be required if US GAAP had
been applied instead of Argentine GAAP in the accompanying financial statements.
These adjustments have been calculated based on financial information
restated to reflect changes in the Argentine general wholesale price index as
described in Note 2.a) and may not reflect the adjustments necessary to conform
with US GAAP under the historical cost basis of accounting required by the SEC
for US registrants.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net income in accordance with Argentine GAAP............ 93,230 117,836 128,071
US GAAP adjustments -- Increases (Decreases) due to:
Provision for vacation accrual........................ 504 -- --
Deferred income taxes................................. (12,851) (33,628) (39,556)
Change in minority interest........................... 2,450 7,257 8,369
Others, not individually significant.................. 1,031 1,031 1,031
----------- ----------- -----------
Approximate net income in accordance with US GAAP....... 84,364 92,496 97,915
=========== =========== ===========
Earnings per common share (Note 2.g):
Amounts per accompanying financial statements......... 0.25 0.31 0.36
Approximate amounts under US GAAP..................... 0.23 0.25 0.27
Average number of common shares....................... 374,122,880 374,122,880 359,522,880
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Shareholders' equity in accordance with Argentine GAAP...... 518,857 526,027
US GAAP adjustments -- (Decreases) Increases due to:
Adjustment for difference in market value and Government
parity of acquisition Bonds, net....................... (32,116) (33,147)
Provision for vacation accrual............................ (2,226) (2,730)
Deferred income taxes..................................... (92,833) (79,982)
Change in minority interest............................... 20,391 17,941
------- -------
Approximate shareholders' equity in accordance with US
GAAP...................................................... 412,073 428,109
======= =======
</TABLE>
F-63
<PAGE> 104
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Other significant US GAAP Disclosure Requirements
The following represents additional financial statement disclosures
required under US GAAP.
(1) DEFERRED INCOME TAXES:
The following table presents the components of the Company's deferred
income tax balances at year end.
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS
Adjustment for difference in market value and Government
parity of acquisition Bonds............................ 15,755 14,151
Vacation accrual.......................................... 735 819
CIESA's tax loss carryforward(*)....................... -- --
------- -------
16,490 14,970
======= =======
</TABLE>
(*) Tax loss carryforward is not recognized, since it is offset by a valuation
allowance of 16,283 and 8,376 for 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Difference between tax and accounting basis of property,
plant and equipment.................................... 56,217 48,705
Intangible assets for accounting purposes................. 9,237 8,526
Investment in TGS......................................... 27,087 22,905
Intangible assets and debt issuance costs................. 1,027 665
------- -------
93,568 80,801
------- -------
Net deferred tax liability........................ (77,078) (65,831)
======= =======
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Income tax at statutory tax rate on pretax income in
accordance with US GAAP.................................. 71,512 71,295 74,744
Assets tax................................................. -- -- (3,596)
Tax amnesty program........................................ -- 3,273 --
Change in statutory tax rate............................... 7,998 -- --
Book vs. tax basis difference of CIESA's investment in
TGS...................................................... 1,892 9,439 11,715
Restatement in constant money(*)........................... -- 10,381 13,801
CIESA's tax loss (valuation allowance)..................... 7,069 5,572 1,325
Others, not individually significant....................... (2,820) (1,861) (1,831)
------ ------ ------
Approximate income tax expense under US GAAP............. 85,651 98,099 96,158
====== ====== ======
</TABLE>
(*) Effect of differences due to price level adjustment for tax and financial
reporting purposes on net worth and minority interest captions.
F-64
<PAGE> 105
COMPANIA DE INVERSIONES DE ENERGIA S.A.
AND CONTROLLED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
US GAAP requires disclosure of the estimated fair value of financial
instruments. As of December 31, 1996 and 1995, the carrying amounts of certain
financial instruments used by CIESA and TGS including cash, cash equivalents,
receivables, payables and short term borrowings are representative of fair value
because of the short term maturity of these instruments.
The fair value of the derivatives financial instruments, which represents
the estimated net amount that TGS would pay to terminate the agreements at year
end as provided by the financial institutions which are the counterparties to
the swaps, is not significant. The estimated fair value of long term debt, which
is based on quoted market prices for the same or similar issues or on current
rates available to TGS for debt of the same remaining maturities, is
representative of its carrying amounts except for the EMTN and the first
issuance under the 1996 Global Program, as set forth below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(IN MILLIONS OF US$)
<S> <C> <C> <C> <C>
EMTN and first issuance under the 1996 Global Program....... 349.7 361.3 199.6 193.3
</TABLE>
Credit risk associated with interest rate swaps is related to the ability
of the counterparties to meet the term of the contracts. However, counterparties
are investment grade financial institutions and, accordingly, TGS does not
anticipate non-performance by third-parties.
F-65
<PAGE> 106
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 17th day of
March, 1997.
ENRON GLOBAL POWER & PIPELINES L.L.C.
By: /s/ PAULA H. RIEKER
------------------------------------
Paula H. Rieker
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 17, 1997 by the following persons on
behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ RODNEY L. GRAY Chairman and Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
Rodney L. Gray
/s/ PAULA H. RIEKER Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial and Accounting
Paula H. Rieker Officer)
JAMES V. DERRICK, JR.* Director
- ---------------------------------------------
James V. Derrick, Jr.*
REBECCA P. MARK* Director
- ---------------------------------------------
Rebecca P. Mark*
BRENT SCOWCROFT* Director
- ---------------------------------------------
Brent Scowcroft*
EDMUND P. SEGNER, III* Director
- ---------------------------------------------
Edmund P. Segner, III*
GEORGE S. SLOCUM* Director
- ---------------------------------------------
George S. Slocum*
THOMAS C. THEOBALD* Director
- ---------------------------------------------
Thomas C. Theobald*
*By: /s/ K. WADE CLINE
- ---------------------------------------------
K. Wade Cline
(Attorney-in-fact for persons indicated)
</TABLE>
<PAGE> 107
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1+ -- U.S.$220,000,000 Term Loan Agreement and First Amendment
to Term Loan Agreement dated as of May 15, 1996, among
CIESA, the Initial Lenders named therein, Societe
Generale, Banco Supervielle Societe Generale and Goldman,
Sachs & Co., as Arrangers, the Managing Agents named
therein and the Administrative Agent named therein.
10.30+ -- Second Amendment to Compensation Agreement dated
effective as of February 14, 1997, among EI, EPP and
Rodney L. Gray.
21.1+ -- List of subsidiaries of EPP.
23.1+ -- Consent of Arthur Andersen LLP.
23.2+ -- Consent of Pistrelli, Diaz y Asociados.
24.1+ -- Powers of Attorney.
</TABLE>
<PAGE> 1
EXECUTION COPY
US$220,000,000
TERM LOAN AGREEMENT
Dated as of May 15, 1996
Among
COMPANlA DE INVERSIONES DE ENERGIA S.A.,
as Borrower
and
THE INITIAL LENDERS NAMED HEREIN,
as Initial Lenders
and
SOCIETE GENERALE,
BANCO SUPERVIELLE SOCIETE GENERALE S.A.
and
GOLDMAN, SACHS & CO.,
as Arrangers
and
BANQUE EUROPEENNE POUR L'AMERIQUE LATINE (BEAL) S.A.
BANCO RIO DE LA PLATA S.A. - GRAND CAYMAN BRANCH
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
BANK OF MONTREAL
ING BARINGS
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
WEST MERCHANT BANK LIMITED,
As Managing Agents
and
SOCIETE GENERALE, SOUTHWEST AGENCY
as Administrative Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.03 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.02. Making the Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.03. Interest Period Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.04. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.05. Termination or Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.06. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.07. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.08. Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.09. Basis for Determining Interest Rate Inadequate or Unfair . . . . . . . . . . . . . . . . 14
SECTION 2.10. Mandatory Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.11. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.12. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.13. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.14. Substitution of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.15. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.16. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.17. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.18. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE III
CONDITIONS TO LENDING
SECTION 3.01. Conditions Precedent to Making the Advances . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.02. Acknowledgment of Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE> 3
ii
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.03. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.02. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII
THE ADMINISTRATIVE AGENT, THE ARRANGERS AND THE MANAGING AGENTS
SECTION 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.02. Administrative Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.03. Societe Generale and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.04. Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.06. Successor Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.07. Arrangers and Managing Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 8.04. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 8.05. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.06. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.07. Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.08. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.10. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.11. Submission to Jurisdiction; Service of Process . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.12. Waiver of Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.13. The Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.14. Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.15. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.16. Use of English Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
<PAGE> 4
iii
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 8.17. Titles and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.18. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
Schedules
- ---------
Schedule I - List of Lending Offices and Addresses for Notices
Schedule II - Approved Argentine Banks
Schedule 5.02(a) - Existing Liens
Exhibits
- --------
Exhibit A - Form of Promissory Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Opinion of Argentine Counsel for the Borrower
Exhibit E - Form of Opinion of New York Counsel for the Borrower
Exhibit F - Form of Opinion of Special Argentine Counsel for the Administrative
Agent
Exhibit G - Form of Opinion of Special New York Counsel for the Administrative
Agent
<PAGE> 5
TERM LOAN AGREEMENT
Dated as of May 15, 1996
COMPANIA DE INVERSIONES DE ENERGIA S.A., a sociedad anonima
organized under the laws of the Republic of Argentina (the "Borrower"), the
banks, financial institutions and other institutional lenders listed on the
signature pages hereof as "Initial Lenders" (the "Initial Lenders"), SOCIETE
GENERALE, BANCO SUPERVIELLE SOCIETE GENERALE S.A. and GOLDMAN, SACHS & CO., as
arrangers (the "Arrangers"), BANQUE EUROPEENNE POUR L'AMERIQUE LATINE (BEAL)
S.A., BANCO RIO DE LA PLATA S.A. - GRAND CAYMAN. BRANCH, BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, BANK OF MONTREAL, ING BARINGS, MORGAN
GUARANTY TRUST COMPANY OF NEW YORK and WEST MERCHANT BANK LIMITED, as Managing
Agents (the "Managing Agents"), and SOCIETE GENERALE, Southwest Agency, as
administrative agent (the "Administrative Agent") for the Lenders (as
hereinafter defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For purposes of this definition, the term "control"
(including the terms "controlling", "controlled by" and "under common control
with") of a Person means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise,
"Administrative Agent" has the meaning specified in the
introductory paragraph hereof.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent at Societe
Generale, New York Branch at 1221 Avenue of the Americas, New York, New York
10020, ABA No. 026004226 for credit to Account No. 9035699, Reference CIESA.
"Advance" means an advance by a Lender to the Borrower
pursuant to Article II.
"Argentine GAAP" has the meaning specified in Section 1.03.
"Arrangers" has the meaning specified in the introductory
paragraph hereof.
<PAGE> 6
2
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"Availability Period" means the period from and including the
Effective Time to and including the Termination Date.
"Bonex" has the meaning specified in Section 8.14(b).
"Borrower" has the meaning specified in the introductory
paragraph hereof.
"Borrowing" means the borrowing hereunder consisting of
Advances made to the Borrower on the Borrowing Date pursuant to Article II.
"Borrowing Date" means the Eurodollar Business Day within the
Availability Period specified in the Notice of Borrowing as the date upon which
the Borrower will make the Borrowing hereunder.
"Capital Markets Transaction" means any (i) Debt Sale or (ii)
Equity Sale.
"CNV" means Comision Nacional de Valores.
"Commitment" has the meaning specified in Section 2.01.
"Confidential Information" means information that the Borrower
furnishes to the Administrative Agent or any Arranger, Managing Agent or Lender
or to any agent or representative thereof in a writing designated as
confidential, but does not include any such information that is or becomes
generally available to the public or that is or becomes available to the
Administrative Agent or such Arranger, Managing Agent or Lender from a source
other than the Borrower or any Arranger, Managing Agent or Lender or another
Person that is subject to an obligation to keep such information confidential.
"Consolidated" refers to the consolidation of accounts in
accordance with Argentine GAAP.
"Court Days" means any day on which courts in the Republic are
open for working on ordinary matters, as provided by Article 152 of the
National Code of Civil and Commercial Proceedings and the regulations referred
to therein.
"Debt" of any Person means, without duplication, any
obligation (whether present or future, contingent or otherwise, as principal or
surety or otherwise) in respect of borrowed money.
"Debt Sale" means the incurrence by the Borrower of any
indebtedness for borrowed money other than any such indebtedness incurred (i)
hereunder or (ii) under
<PAGE> 7
3
any short-term bank loan or line of credit existing on the date hereof, or any
extension or renewal thereof or any replacement thereof with any other
short-term bank loan or line of credit.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.
"Dollars", "US$" and "$" means the lawful currency of the
United States.
"Domestic Business Day" means a day of the year on which banks
are not required or authorized by law to close in New York City.
"EBITDA" of any Person means, for any period, net income (or
net loss) (excluding extraordinary gains or losses) plus the sum of (a)
interest expense, (b) income and asset tax expense, (c) depreciation expense
and (d) amortization expense, in each case to the extent deducted in the
computation of such net income, all as determined in accordance with Frozen
Argentine GAAP.
"Effective Time" has the meaning specified in Section 8.06.
"Election Date" has the meaning specified in Section 2.03(a).
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; (iii) a commercial bank organized under the laws of any country that is
a member of the Organization for Economic Cooperation and Development or has
concluded special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow or of the Bahamas or the
Cayman Islands, or a political subdivision of any thereof, and having a
combined capital and surplus of at least US$100,000,000, or an Affiliate of
such a commercial bank; (iv) the central bank of any country that is a member
of the Organization for Economic Cooperation and Development; (v) a finance
company, insurance company or other financial institution or fund (whether a
corporation, partnership, trust or other entity) that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary course of
its business and having a combined capital and surplus of at least
US$100,000,000; provided, that any Person referred to in clause (iii), (iv) or
(v) above shall have been approved in writing by the Borrower, such approval
not to be unreasonably withheld or delayed; and (vi) any other Person approved,
by the Administrative Agent and the Borrower, such approval not to be
unreasonably withheld or delayed; provided, however, that neither the Borrower
nor an Affiliate of the Borrower shall qualify as an Eligible Assignee.
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of liability or
potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, Environmental Permit or
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment, including, without
<PAGE> 8
4
limitation, (a) by any governmental or regulatory authority for enforcement,
cleanup, removal, response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
available under Argentine law.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment, decree or
judicial or agency interpretation, policy or guidance relating to pollution or
protection of the environment, health, safety or natural resources, including,
without limitation, those relating to the use, handling, transportation,
treatment, storage, disposal, release or-discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under any
Environmental Law.
"Equity Sale" means the sale by the Borrower of any equity
securities of the Borrower or any of its Subsidiaries, other than a sale to the
Borrower or any of its Subsidiaries.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"Eurodollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
"Eurodollar Margin" means, as of any date, a percentage per
annum as set forth below:
<TABLE>
<CAPTION>
==================================================================================================
Period Eurodollar Margin
==================================================================================================
<S> <C>
From and including the Borrowing Date
to but excluding the first Interest Step-up 2.40%
Date
- --------------------------------------------------------------------------------------------------
From and including the first Interest
Step-up Date to but excluding the second 2.75%
Interest Step-up Date
- --------------------------------------------------------------------------------------------------
From and including the second Interest
Step-up Date to but excluding the third 3.20%
Interest Step-up Date
- --------------------------------------------------------------------------------------------------
From and including the third Interest
Step-up Date to but excluding the 3.50%
Maturity Date
==================================================================================================
</TABLE>
<PAGE> 9
5
"Eurodollar Rate" means, for any Interest Period, an interest
rate per annum equal to the rate per annum obtained by dividing (a) the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such
average is not such a multiple) of the rate per annum at which deposits in
Dollars are offered by the principal office of each of the Reference Lenders in
London, England to prime banks in the London interbank market at 11:00 A.M.
(London time) two Eurodollar Business Days before the first day of such
Interest Period in an amount substantially equal to the principal amount of
such Reference Lender's Advance for a period equal to such Interest Period by
(b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for
such Interest Period. The Eurodollar Rate for any Interest Period shall be
determined by the Administrative Agent on the basis of applicable rates
furnished to and received by the Administrative Agent from the Reference
Lenders two Eurodollar Business Days before the first day of such Interest
Period, subject, however, to the provisions of Section 2.08.
"Eurodollar Rate Reserve Percentage" for any Interest Period
means the reserve percentage applicable two Eurodollar Business Days before the
first day of such Interest Period under regulations issued from time to time by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for a member
bank of the Federal Reserve System in New York City with respect to liabilities
or assets consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Facility" means the Secured Promissory SMM Note in
the principal amount of US$215,000,000 dated November 21, 1994 executed by the
Borrower in favor of First Trust of New York, National Association.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Domestic Business Day for the next
preceding Domestic Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day that is a Domestic Business Day,
the average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Frozen Argentine GAAP" means the accounting principles
(including the procedure established by Technical Resolution No. 4 of the
Argentine Federation of Professional Councils of Economic Sciences relating to
line- by-line consolidation of financial statements of companies with those of
their controlled subsidiaries but excluding the restatement of assets and
liabilities into constant Argentine pesos as of the end of the period covered
by the relevant financial statements) applied in the preparation of the
<PAGE> 10
6
Borrower's financial statements as at and for the year ended December 31, 1995
heretofore delivered to the Lenders.
"Governmental Authority" means any government or any state,
department or other political subdivision thereof, or any governmental body,
agency, authority (including, without limitation, any central bank or taxing
authority) or instrumentality (including, without limitation, any court or
tribunal) exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any corporation,
partnership or other entity directly or indirectly owned by or subject to the
control of any of the foregoing.
"Hazardous Materials" means (a) petroleum and petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas and (b)
any other chemicals, materials or substances designated, classified or
regulated as hazardous or toxic or as a pollutant or contaminant under any
Environmental Law.
"Information Memorandum" means the information memorandum
dated April, 1996 used by the Arrangers in connection with the syndication
Commitments.
"Initial Lenders" has the meaning specified in the
introductory paragraph hereof.
"Interest Period" means the period commencing on the Borrowing
Date and ending on the last day of the period selected by the Borrower pursuant
to the provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on the
last day of the period selected by the Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be three or six months,
as the Borrower may, upon notice received by the Administrative Agent not later
than 12:00 Noon (New York City time) on the third Eurodollar Business Day prior
to the first day of such Interest Period, select; provided, however, that:
(i) the Borrower may not select any Interest Period that
begins before and ends after an Interest Step-up Date or the Maturity
Date;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Eurodollar Business Day, the
last day of such Interest Period shall be extended to occur on the
next succeeding Eurodollar Business Day, provided, however, that, if
such extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Eurodollar Business
Day; and
(iii) whenever the first day of any Interest Period occurs
on a day of a calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such calendar
month by the number of months equal
<PAGE> 11
7
to the number of months in such Interest Period, such Interest Period shall end
on the last Eurodollar Business Day of such succeeding calendar month.
"Interest Step-up Date" means the six-month, 12-month and
15-month anniversaries of the Borrowing Date; provided, however, that:
(i) whenever an Interest Step-up Date would otherwise
occur on a day other than a Eurodollar ,Business Day, such Interest
Step-up Date shall be extended to occur on the next succeeding
Eurodollar Business Day, provided, however, that, if such extension
would cause such Interest Step-up Date to occur in the next following
calendar month, such Interest Step-up Date shall occur on the next
preceding Eurodollar Business Day; and
(ii) if the Borrowing Date occurs on a day of a calendar
month for which there is no numerically corresponding day in the
calendar month that succeeds such calendar month by the number of
months specified above in respect of an Interest Step-up Date, such
Interest Step-up Date shall end on the last Eurodollar Business Day of
such succeeding calendar month.
"Investment" in any Person means any loan or advance to such
Person, any purchase or other acquisition of any capital stock, warrants,
rights, options, obligations or other securities or all or substantially all of
the assets of such Person, any capital contribution to such Person or any other
investment in such Person, including, without limitation, any arrangement
pursuant to which the investor incurs Debt of the types referred to in clauses
(h) and (i) of the definition of "Debt" in respect of such Person.
"Lenders" means the Initial Lenders and each Person that shall
become a party hereto pursuant to Section 8.07.
"Lending Office" means, with respect to any Lender, the office
of such Lender specified opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender, or such other
office of such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent; provided, that no Lending Office shall
be in the Republic unless the Borrower shall otherwise agree.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on title
to real property.
"Managing Agents" has the meaning specified in the
introductory paragraph hereof.
<PAGE> 12
8
"Material Adverse Change" means any material adverse change in
the financial condition, business, properties or results of operations of the
Borrower or the Borrower and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the financial condition, business, properties or results of operations of
the Borrower or the Borrower and its Subsidiaries taken as a whole which could
reasonably be expected to affect materially and adversely the Borrower's
ability to perform its obligations hereunder and under the Notes, including the
ability to pay in a timely manner or (b) the rights and remedies of the
Administrative Agent or any Lender under this Agreement or any Note.
"Maturity Date" means the 18-month anniversary of the
Borrowing Date.
"Net Cash Proceeds" means the aggregate mount of cash proceeds
received by the Borrower with respect to any Capital Markets Transaction, less
any expenses reasonably incurred by the Borrower in respect of such Capital
Markets Transaction.
"Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A hereto, evidencing
the indebtedness of the Borrower to such Lender resulting from the Advance made
by such Lender.
"Notice of Borrowing," has the meaning specified in Section
2.02.
"Notice of Interest Period Election" has the meaning specified
in Section 2.03(a).
"Other Taxes" has the meaning specified in Section 2.16.
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced which shall not have been stayed or dismissed within 30 Court
Days of the commencement thereof: (a) Liens for taxes, assessments and
governmental charges or levies to the extent not required to be paid under
Section 5.01(c) hereof; (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar Liens
arising in the ordinary course of business; (c) pledges or deposits to secure
obligations under workers' compensation laws or similar legislation or to
secure public or statutory obligations; and (d) easements,rights of way and
other encumbrances on title to real property that do not render title to the
property encumbered thereby unmarketable or materially adversely affect the use
of such property for its present purposes.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust, unincorporated
association, joint venture, limited liability company or other entity, or a
government or any political subdivision or agency thereof.
<PAGE> 13
9
"Reference Lenders" means the principal London offices of
Societe Generale, Bank of America National Trust and Savings Association and
Bank of Montreal.
"Register" has the meaning specified in Section 8.07(c).
"Republic" means the Republic of Argentina.
"Required Lenders" means at any time Lenders owed more than
50% of the then aggregate unpaid principal amount of the Advances owing to
Lenders, or, if no such principal amount is then outstanding, Lenders having
more than 50% of the Commitments.
"Significant Subsidiary" means a Subsidiary of the Borrower
having, as of the end of the most recent fiscal quarter of the Borrower, total
assets equal to or exceeding 20% of the total assets of the Borrower and its
Subsidiaries on a Consolidated basis or (ii) for the most recent fiscal year of
the Borrower (or, if shorter, for the period of time since the relevant Person
became a Subsidiary of the Borrower), net income equal to or exceeding 20% of
the net income of the Borrower and its Subsidiaries on a Consolidated basis, in
each case as evidenced by the Borrower's Consolidated financial statements
most recently delivered to the Lenders pursuant to Section 5.01(1) or, if no
such Consolidated financial statements shall have been delivered to the Lenders
pursuant to Section 5.01(1), by the Borrower's Consolidated financial
statements as at and for the quarter ended March 31, 1996.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or in
which) more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency), (b) the interest in the capital or profits of
such limited liability company, partnership or joint venture or (c) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more
of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Taxes" has the meaning specified in Section 2.16.
"Temporary Cash Investment" means any Dollar or Argentine peso
denominated Investment in (i) direct obligations of the United States, the
Republic or any agency of either of them, or obligations guaranteed by the
United States, the Republic or any agency of either of them, (ii) commercial
paper rated at least A-1 by Standard & Poor's Ratings Group and P-1 by Moody's
Investors Service, Inc., (iii) time deposits with (including certificates of
deposit issued by) any office located in the United States of any bank or trust
company which is organized under the laws of the United States or any state
thereof and has capital, surplus and undivided profits aggregating at least
$1,000,000,000, (iv) time deposits with (including certificates of deposit
issued by) any
<PAGE> 14
10
office located in the Republic of any bank or trust company listed on Schedule
II hereto or (v) repurchase agreements with respect to securities described in
clause (i) above entered into with an office of a bank or trust company meeting
the criteria specified in clause (iii) or (iv) above.
"Termination Date" means May 21, 1996.
"TGS" means Transportadora de Gas del Sur S.A.
"TGS License" means the 35-year license granted by the
Argentine Government to the Borrower to operate the southern gas transportation
network in the Republic.
"Total Capitalization" means at any date the sum of (i)
Consolidated Debt of the Borrower at such date and (ii) shareholders' equity of
the Borrower, all as determined in accordance with Frozen Argentine GAAP.
"Total Commitment" has the meaning specified in Section
2.04(a)(i).
"United States" means the United States of America, including
the states and the District of Columbia, but excluding its territories and
possessions.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each mean "to but excluding".
SECTION 1.03. Accounting Terms. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required
to be delivered hereunder shall be prepared in accordance with generally
accepted accounting principles as in effect from time to time in the Republic
but excluding the restatement of assets and liabilities into constant Argentine
pesos as of the end of the period covered by the relevant financial statements
("Argentine GAAP").
<PAGE> 15
11
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make an Advance to the
Borrower on the Borrowing Date in an amount not to exceed at any time
outstanding the amount set forth opposite such Lender's name on the signature
pages hereof or, if such Lender has entered into any Assignment and Acceptance,
set forth for such Lender in the Register maintained by the Administrative
Agent pursuant to Section 8.07(d), as such amount may be reduced pursuant to
Section 2.05 (such Lender's "Commitment"). Advances made by the Lenders
hereunder are not revolving and any amount repaid in respect thereof may not be
reborrowed under this Agreement. The Borrowing shall be in an aggregate amount
of US$10,000,000 or an integral multiple of US$1,000,000 in excess thereof and
shall consist of Advances made on the same day by the Lenders ratably according
to their respective Commitments.
SECTION 2.02. Making the Advances. (a) The Borrowing shall be
made on notice, given not later than 11:00 A.M. (New York City time) on the
third Eurodollar Business Day prior to the Borrowing Date by the Borrower to
the Administrative Agent, which shall give to each Lender prompt notice thereof
promptly (and in any event not later than one Eurodollar Business Day after
receipt by the Administrative Agent of such notice). Such notice of the
Borrowing (the "Notice of Borrowing") shall be in substantially the form of
Exhibit B hereto, specifying therein the requested (i) Borrowing Date, (ii)
aggregate amount of the Borrowing and (iii) initial Interest Period. Each
Lender shall, before 11:00 A.M. (New York City time) on the Borrowing Date, make
available for the account of its Lending Office to the Administrative Agent at
the Administrative Agent's Account in same day funds, such Lender's ratable
portion of the Borrowing. After the Administrative Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article
III, the Administrative Agent will make such funds available to the Borrower at
the Administrative Agent's address referred to in Section 8.02.
(b) The Notice of Borrowing shall be irrevocable and
binding on the Borrower. The Borrower shall indemnify each Lender against any
loss, cost or expense incurred by such Lender as a result of any failure to
fulfill on or before the Borrowing Date specified in the Notice of Borrowing
the applicable conditions set forth in Article III, including, without
limitation, any loss (but not including loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Lender to fund the Advance to be made by such
Lender as part of the Borrowing when such Advance, as a result of such failure,
is not made on such date.
(c) Unless the Administrative Agent shall have received
notice from a Lender prior to the Borrowing Date that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of the
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the Borrowing Date in
accordance with subsection (a) of this Section 2.02 and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding
<PAGE> 16
12
amount. If and to the extent that such Lender shall not have so made such
ramble portion available to the Administrative Agent, such Lender and the
Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent, at (i) in the case of the
Borrower, the interest rate applicable at the time to Advances and (ii) in the
case of such Lender, the Federal Funds Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such mount so repaid shall
constitute such Lender's Advance as part of the Borrowing for purposes of this
Agreement.
(d) The failure of any Lender to make the Advance to be made
by it as part of the Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of the Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on the date of the Borrowing.
SECTION 2.03. Interest Period Elections. (a) The initial
Interest Period shall be as specified in the Notice of Borrowing. Thereafter,
the Borrower may from time to time elect the duration of Interest Periods,
which election shall be effective on the last day of the then current Interest
Period (an "Election Date"). Each such election shall be made by the Borrower
by delivering a notice (a "Notice of Interest Period Election") to the
Administrative Agent not later than 12:00 Noon (New York City time) at least
three Eurodollar Business Days before the relevant Election Date. Each Notice
of Interest Period Election shall specify:
(i) such Election Date; and
(ii) the duration of the Interest Period that will
commence on such Election Date.
Each Interest Period specified in a Notice of Interest Period Election shall
comply with the provisions of the definition of Interest Period.
(b) Upon receipt of a Notice of Interest Period Election,
such notice shall not thereafter be revocable by the Borrower and the
Administrative Agent shall promptly (and in any event not later than one
Eurodollar Business Day after receipt by the Administrative Agent of such
notice) notify each Lender of the contents thereof.
(c) If the Borrower (i) fails to deliver a timely Notice
of Interest Period Election to the Administrative Agent electing an Interest
Period as provided in this Section 2.03 and (ii) has not theretofore delivered
a notice of prepayment relating to the full amount of all Advances outstanding,
then the Borrower shall be deemed to have given the Administrative Agent a
Notice of Interest Period Election electing an Interest Period of three months
(or, if such Interest Period would be shortened thereby, ending on the next
succeeding Interest Step-up Date), which Interest Period shall commence on the
last day of the then current Interest Period.
<PAGE> 17
13
SECTION 2.04. Fees. The Borrower agrees to pay to the
Administrative Agent for the accounts of the Arrangers and the Administrative
Agent such fees as they and the Borrower may separately agree.
SECTION 2.05. Termination or Reduction of the Commitments.
During the Availability Period, the Borrower shall have the right, upon at
least three Eurodollar Business Days' notice to the Administrative Agent, to
terminate in whole or reduce ratably in part the unused portions of the
respective Commitments of the Lenders, provided that each partial reduction
shall be in the aggregate amount of US$5,000,000 or an integral multiple of
US$5,000,000 in excess thereof.
SECTION 2.06. Repayment. The Borrower shall repay to the
Administrative Agent for the ratable account of the Lenders on the Maturity
Date the aggregate principal amount of the Advances then outstanding.
SECTION 2.07. Interest. (a) Scheduled Interest. Subject to
Section 2.07(b), the Borrower shall pay interest on the unpaid principal amount
of each Advance owing to each Lender from the date of such Advance until the
Maturity Date, at a rate per annum equal at all times during each Interest
Period to the sum of (x) the Eurodollar Rate for such Interest Period plus (y)
the Eurodollar Margin in effect from time to time. Such interest shall be
payable in arrears on the last day of each Interest Period and, if such
Interest Period has a duration of more than three months, on the three-month
anniversary of the first day of such Interest Period.
(b) Default Interest. Any principal of or overdue
interest on any Advance that is not paid when due shall bear interest from the
due date therefor (i) until the earlier of the Maturity Date and the date such
amount shall be paid in full at a rate per annum equal at all times to the sum
of (x) the Eurodollar Rate then in effect plus (y) the Eurodollar Margin then
in effect plus (z) 2% and (ii) on and after the Maturity Date until such amount
shall be paid in full at a rate per annum equal at all times to the sum of (A)
the Eurodollar Rate computed for the one-month period beginning with the
Maturity Date and for successive one-month periods as though each were an
Interest Period plus (B) 5.50%. Interest under this Section 2.07(b) shall be
payable on demand and on the date the relevant overdue amount shall be paid in
full.
SECTION 2.08. Interest Rate Determination. Each Reference
Lender agrees to furnish to the Administrative Agent timely information for
the purpose of determining each Eurodollar Rate. If any one or more of the
Reference Lenders shall not furnish such timely information to the
Administrative Agent for the purpose of determining any such Eurodollar Rate,
the Administrative Agent shall determine such Eurodollar Rate on the basis of
timely information furnished by the remaining Reference Lenders or if none of
such information is available on a timely basis, the provisions of Section 2.09
shall apply. If any Reference Lender shall not be, and shall not have any
Affiliate that is, a Lender hereunder, such Reference Lender may be replaced by
the Administrative Agent with a Lender hereunder or an Affiliate of a Lender
hereunder that is, in either case, acceptable to the Borrower. The
Administrative Agent shall give prompt notice to the Borrower and the Lenders
of the applicable Eurodollar Rate determined by the Administrative Agent, and
the rate, if any, furnished by each Reference Lender for the purpose of
determining the Eurodollar Rate under Section 2.07(a).
<PAGE> 18
14
SECTION 2.09. Basis for Determining Interest Rate Inadequate
or Unfair. If on or prior to the first day of any Interest Period:
(a) the Administrative Agent is advised by the Reference
Lenders that deposits in Dollars (in the applicable mounts) are not
being offered to the Reference Lenders in the London interbank market
for such Interest Period, or
(b) Required Lenders advise the Administrative Agent that
the Eurodollar Rate as determined by the Administrative Agent will not
adequately and fairly reflect the cost to such Lenders of funding or
maintaining their Advances for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower
and the Lenders. During the 30 days next succeeding the giving of such notice,
the Borrower and the Lenders shall negotiate in good faith in order to arrive
at a mutually satisfactory interest rate which shall be applicable during such
Interest Period to the Advances. If within such 30-day period, the Borrower and
the Required Lenders agree in writing upon an alternative interest rate, such
rate shall be effective from the commencement of such Interest Period. If the
Borrower and the Required Lenders fail to agree upon such an alternative
interest rate within such 30-day period, the interest rate during such Interest
Period applicable to each Lender's Advance effective from the commencement of
such Interest Period shall be such rate as such Lender shall determine (in a
certificate delivered by such Lender to the Administrative Agent setting forth
the basis of the computation of such mount, which certificate shall be
conclusive and binding for all purposes, absent manifest error) to be necessary
to compensate such Lender for its cost of obtaining (in good faith and using
commercially reasonable efforts to minimize the interest cost to the Borrower)
as of the commencement of such Interest Period funds for such Interest Period
in an amount equal to the principal amount of such Lender's Advance plus the
Eurodollar Margin. The Administrative Agent shall notify the Borrower of each
such determination as promptly as practicable.
SECTION 2.10. Mandatory Prepayment. Upon the receipt by the
Borrower of any Net Cash Proceeds in respect of any Capital Markets
Transaction, the Borrower shall prepay the Advances then outstanding in an
amount equal to 100% of such Net Cash Proceeds (or, if Net Cash Proceeds are
received in a currency other than Dollars, an amount equal to 100% of the mount
of Dollars the Borrower could have purchased with such other currency in
accordance with normal banking procedures on the day of such receipt). The
Borrower shall give the Administrative Agent at least three Eurodollar Business
Days' notice of each prepayment pursuant to this Section 2.10. Each prepayment
made by the Borrower pursuant to this Section 2.10 shall be applied to prepay
ratably the Advances of the Lenders.
SECTION 2.11. Optional Prepayments. The Borrower may, upon at
least three Eurodollar Business Days' notice to the Administrative Agent
stating the proposed date and aggregate principal amount of the prepayment, and
if such notice is given the Borrower shall, prepay the outstanding principal
amount of the Advances in whole or ratably in part, together with accrued
interest to the date of such prepayment on the principal amount prepaid;
provided, however, that each partial prepayment shall be in an aggregate
principal amount of US$10,000,000 or an integral multiple of US$1,000,000 in
excess thereof. Each prepayment
<PAGE> 19
15
made by the Borrower pursuant to this Section 2.11 shall be applied to prepay
ratably the Advances of the Lenders.
SECTION 2.12. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any
central bank or other governmental authority (whether or not having the force
of law), there shall be any increase in the cost to any Lender of agreeing to
make or making, funding or maintaining its Advance or a reduction in the
amount of any sum received or receivable by such Lender under this Agreement or
under its Note with respect thereto, by an amount deemed by such Lender to be
material, then the Borrower shall from time to time, upon demand by such Lender
(with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender additional amounts
sufficient to compensate such Lender for such increased cost or reduction from
and after the date of the notice specified in Section 2.12(c). A certificate as
to the amount of such increased cost or reduction, submitted to the Borrower
and the Administrative Agent by such Lender, shall be conclusive and binding
for all purposes, absent manifest error. Notwithstanding the foregoing, the
Borrower shall not be required to make any payment under this Section 2.12(a)
in respect of increased costs consisting of reserve requirements in respect of
Eurocurrency Liabilities or in respect of which the Borrower is required to
make a payment under Section 2.16.
(b) If any Lender determines that compliance with any law
or regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) (i) affects or
would affect the amount of capital required or expected to be maintained by
such Lender or any corporation controlling such Lender and that the amount of
such capital is increased by or based upon the existence of such Lender's
commitment to lend hereunder and other commitments of this type or (ii) has the
effect of reducing the rate of return on capital of such Lender or any
corporation controlling such Lender as a consequence of such Lender's
obligations hereunder to a level below that which such Lender or any
corporation controlling such Lender could have achieved but for compliance with
such law, regulation, guidance or request, then, upon demand by such Lender
(with a copy of such demand to the Administrative Agent), the Borrower shall
pay to the Administrative Agent for the account of such Lender, from time to
time as specified by such Lender, additional amounts sufficient to compensate
such Lender or such corporation in the light of such circumstances, to the
extent that such Lender reasonably determines such increase in capital or
reduction in rate of return to be allocable to the existence of such Lender's
commitment to lend hereunder. The amount of such compensation shall be
calculated with respect to increases in capital or reductions in rate of return
from the date of the notice specified in Section 2.12(c). A certificate as to
such amounts submitted to the Borrower and the Administrative Agent by such
Lender shall be conclusive and binding for all purposes, absent manifest error.
(c) Each Lender will use its reasonable efforts to notify
the Borrower and the Administrative Agent of any event of which it has
knowledge, occurring after the date hereof, which will entitle such Lender to
compensation pursuant to this Section 2.12.
(d) The Borrower shall not be required to increase the
amount of any payment due to a Lender as provided by subsection (a) or (b)
above if (i) the requirements which would
<PAGE> 20
16
otherwise give rise to such obligation to pay such additional amount arise
solely by reason of such Lender being organized under the laws of, or
maintaining its Lending Office in, the Republic or (ii) the cost or reduction
in respect of which such increase arises results solely from a requirement
which is applicable to the relevant Lender by reason of its financial condition
and which is not of general application to similar financial institutions in
similar circumstances in the same jurisdiction.
SECTION 2.13. Illegality. (a) If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Lending Office) with any request
or directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Lender (or its Lending Office) to make, maintain or fund its Advance and such
Lender shall so notify the Administrative Agent, the Administrative Agent shall
forthwith give notice thereof to the other Lenders and the Borrower, whereupon
until such Lender notifies the Borrower and the Administrative Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Lender to make its Advance shall be suspended. If such Lender shall
determine that it may not lawfully continue to maintain or fund its Advance to
maturity and shall so specify in such notice, the Borrower shall immediately
prepay in full the then outstanding principal amount of such Advance, together
with accrued interest thereon. If it is lawful for such Lender to maintain its
Advance through the last day of the Interest Period then applicable to such
Advance, such prepayment shall be due on such last day.
(b) Before giving any notice to the Administrative Agent
pursuant to this Section 2.13, such Lender shall designate a different Lending
Office if such designation will avoid the need for giving such notice and will
not, in the sole judgment of such Lender, be otherwise disadvantageous to such
Lender.
SECTION 2.14. Substitution of Lender. If (i) the obligation of
any Lender to make, maintain or fund its Advance has been suspended pursuant to
Section 2.13 or (ii) any Lender has demanded compensation under Section 2.12,
the Borrower shall have the right to require such Lender to assign, and such
Lender shall at the request of the Borrower assign, pursuant to an Assignment
and Acceptance to one or more substitute lenders (which may be one or more of
the Lenders), for a price of not less than the aggregate principal amount of
the Advance of such Lender then outstanding plus interest and other amounts
owing hereunder and under the Note of such Lender and accrued through the date
of purchase, the Note, the Advance and the Commitment (if any) of such Lender.
The Administrative Agent will, at the Borrower's request, assist the Borrower
in seeking a substitute lender or lenders.
SECTION 2.15. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes not later than 11:00 A.M.
(New York City time) on the day when due in Dollars to the Administrative Agent
at the Administrative Agent's Account in same day funds. The Administrative
Agent will promptly thereafter cause to be distributed like funds relating to
the payment of principal or interest (other than amounts payable
<PAGE> 21
17
pursuant to Section 2.12, 2.13, 2.16 or 8.04(c)) to the Lenders for the account
of their respective Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Lending Office, in each case, to be applied in accordance with the terms of
this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date specified in such Assignment
and Acceptance the Administrative Agent shall make all payments hereunder and
under the Note in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender, if and to
the extent payment owed to such Lender is not made when due hereunder or under
the Note held by such Lender, to charge from time to time against any or all of
the Borrower's accounts with such Lender any amount so due.
(c) All computations of interest shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable. Each determination
by the Administrative Agent of an interest rate hereunder shall be conclusive
and binding for all purposes, absent manifest error.
(d) Unless the Administrative Agent shall. have received
notice from the Borrower prior to the date on which any payment is due to the
Lenders hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such mount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
SECTION 2.16. Taxes. (a) For the purposes of this Section
2.16, the following terms have the following meanings:
"Taxes" means any and all present and future taxes, duties,
levies, imposts, deductions, charges or withholdings of any nature
with respect to any payment by the Borrower pursuant to this Agreement
or under any Note and all liabilities with respect thereto imposed by
the Republic or any political subdivision or taxing authority thereof
or therein.
"Other Taxes" means any present or future stamp or documentary
taxes and any other excise, property or value added taxes, or similar
charges or levies which arise from any payment made pursuant to this
Agreement or under any Note or from the execution,
<PAGE> 22
18
delivery, registration or enforcement of, or otherwise with respect
to, this Agreement or any Note imposed by the Republic or any
political subdivision or taxing authority thereof or therein.
(b) Any and all payments by the Borrower hereunder or
under the Notes shall be made, in accordance with Section 2.15, free and clear
of and without deduction or withholding for any Taxes or Other Taxes. If the
Borrower shall be required by law to deduct or withhold any Taxes or Other
Taxes from or in respect of any sum payable hereunder or under any Note, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions and withholdings (including deductions and withholdings
applicable to additional sums payable under this Section: 2.16), the
Administrative Agent receives an amount equal to the sum it would have received
had no such deductions or withholdings been made, (ii) the Borrower shall make
such deductions or withholdings and (iii) the Borrower shall pay the full
amount deducted or withheld to the relevant taxation authority or other
authority in accordance with applicable law.
(c) Subject to the compliance by each Lender, each
Arranger and the Administrative Agent with the covenant in Section 2.16(e), the
Borrower shall indemnify each Lender, each Arranger and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any taxes imposed by any jurisdiction on amounts payable under this
Section 2.16), whether or not correctly or legally imposed or asserted, imposed
on or paid by such Lender or Arranger or the Administrative Agent (as the case
may be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date such Lender or Arranger or the Administrative Agent (as the
case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes
or Other Taxes, the Borrower shall furnish to the Administrative Agent, at its
address referred to in Section 8.02, the original or a certified copy of a
receipt evidencing payment thereof.
(e) Each Lender, each Arranger and the Administrative
Agent shall, at the request of the Borrower, use reasonable efforts (consistent
with applicable legal and regulatory restrictions) to file any certificate or
document requested by the Borrower if the making of such a filing would
eliminate or reduce any additional amount payable to or for the account of any
Lender or Arranger or the Administrative Agent pursuant to this Section 2.16
that may thereafter accrue and would not, in the judgment of such Lender or
Arranger or the Administrative Agent, require such Lender or Arranger or the
Administrative Agent to disclose any confidential or proprietary information or
be otherwise disadvantageous to such Lender or Arranger or the Administrative
Agent.
SECTION 2.17. Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Advances owing to it (other
than pursuant to Section 2.12, 2.13, 2.16 or 8.04(c)) in excess of its ratable
share of payments on account of the Advances obtained by all the Lenders, such
Lender shall forthwith purchase from the other Lenders such participations in
the Advances owing to them as shall be necessary to cause such purchasing
<PAGE> 23
19
Lender to share the excess payment ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each Lender shall be
rescinded and such Lender shall repay to the purchasing .Lender the purchase
price to the extent of such recovery together with an amount equal to such
Lender's ratable share (according to the proportion of (i) the mount of such
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section may, to the fullest extent permitted by law, exercise
all its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
SECTION 2.18. Use of Proceeds. The proceeds of the Borrowing
shall be used by the Borrower to the extent necessary to repay all amounts
owing under the Existing Facility and the balance of the proceeds of the
Borrowing shall be used for general corporate purposes.
ARTICLE III
CONDITIONS TO LENDING
SECTION 3.01. Conditions Precedent to Making the Advances. The
obligation of each Lender to make its Advance on the occasion of the Borrowing
shall be subject to the satisfaction of the following conditions precedent:
(a) There shall exist no significant disruption in the
international financial markets or in the Argentine financial market which, in
the reasonable judgment of the Lenders, could be reasonably expected to
materially adversely affect the ability of the Borrower to meet its obligations
under this Agreement or the Notes in accordance with their terms.
(b) Nothing shall have come to the attention of the
Lenders during the course of their due diligence investigation to lead them to
believe that the Information Memorandum was or has become misleading, incorrect
or incomplete in any material respect; without limiting the generality of the
foregoing, the Leaders shall have been given such access to the management,
records, books of account, contracts and properties of the Borrower and its
Subsidiaries as they shall have requested.
(c) The representations and warranties contained in
Section 4.01 shall be correct on and as of the Borrowing Date as though made on
and as of such date, and the Administrative Agent shall have received for the
account of each Lender a certificate to such effect signed by a duly authorized
officer of the Borrower, dated the Borrowing Date.
(d) The Administrative Agent shall have received the
Notice of Borrowing as required by Section 2.02.
<PAGE> 24
20
(e) The Administrative Agent shall have received on or
before the Borrowing Date the following, each dated the Borrowing Date,
in form and substance satisfactory to the Administrative Agent and
(except for the Notes) in sufficient copies for each Lender:
(i) A Note for the account of each Lender, duly
executed by the Borrower in the amount: of such Lender's
Advance.
(ii) Certified copies of the resolutions of the
Board of Directors of the Borrower approving this Agreement
and the Notes, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with
respect to this Agreement and the Notes.
(iii) A certificate of the President or an
authorized officer of the Borrower certifying the names and
true signatures of the officers of the Borrower authorized to
sign this Agreement and the Notes and the other documents to
be delivered hereunder.
(iv) A favorable opinion of Eduardo Quintana
Ojeda, Director of Legal Affairs of the Borrower and/or a
favorable. opinion of Marvat, O'Farrell y Mairal, Argentine
counsel for the Borrower, which between them shall address the
matters set forth in Exhibit D hereto and such other matters
as any Lender through the Administrative Agent may reasonably
request.
(v) A favorable opinion of Sullivan & Cromwell,
New York counsel for the Borrower, substantially in the form
of Exhibit E hereto and as to such other matters as any Lender
through the Administrative Agent may reasonably request.
(vi) A favorable opinion of Baker & McKenzie,
special Argentine counsel for the Administrative Agent,
substantially in the form of Exhibit F hereto and as to such
other matters as any Lender though the Administrative Agent
may reasonably request.
(vii) A favorable opinion of Shearman & Sterling,
special New York counsel for the Administrative Agent,
substantially in the form of Exhibit G hereto and as to such
other matters as any Lender though the Administrative Agent
may reasonably request.
(viii) Written confirmation from the agent for
service of process named in Section 8.11 that it agrees to act
as such.
(ix) Such other documents relating to any of the
matters contemplated. herein as the Administrative Agent or
any Lender may reasonably request.
<PAGE> 25
21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Corporate Existence and Power. Each of the Borrower
and TGS is a corporation duly organized and validly existing under the
laws of the Republic, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted except for such licenses,
authorizations, consents and approvals the failure to have which in
the aggregate could not reasonably be expected to have a Material
Adverse Effect.
(b) Corporate Authorization; No Contravention. The
execution, delivery and performance by the Borrower of this Agreement
and the Notes are within the corporate power of the Borrower, have
been duly authorized by all necessary corporate action, and do not
contravene, or constitute a default under, any provision of applicable
law or regulation, of the charter, by-laws or other constitutive
documents of the Borrower, of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Borrower or of the
TGS License or result in the creation or imposition of any Lien on any
asset of the Borrower.
(c) Government Authorization. No authorization or
approval or other action by, and no notice to or filing with, any
Governmental Authority is required to be obtained or made by the
Borrower for the execution, delivery and performance by the Borrower
of this Agreement or the Notes, including, without limitation, any
governmental authorization, license, approval or consent required by
exchange control regulations to enable the Borrower punctually to pay
its obligations under this Agreement or the Notes in Dollars at the
office of the Administrative Agent specified pursuant to Section 8.02
other than any such authorization, approval, action, notice or filing
which has been obtained or made, as the case may be, prior to the
Borrowing Date and is in full force and effect on the Borrowing Date.
(d) Binding Effect. This Agreement constitutes a valid
and binding agreement of the Borrower and each Note, when executed and
delivered in accordance with this Agreement, will constitute a valid
and binding obligation of the Borrower, in each case, enforceable in
accordance with its terms, subject to bankruptcy, insolvency or other
similar laws affecting creditors' rights generally and by general
principles of equity.
(e) Filings. It is not necessary in order to ensure the
validity, enforceability priority or admissibility in evidence in
proceedings of this Agreement or the Notes in New York or any other
relevant jurisdiction that it or any other document be filed or
registered with any authority in the Republic or elsewhere or that any
tax be paid in respect thereof, with the exception of the judicial tax
in force in the Republic applicable to actions brought before
Argentine courts.
<PAGE> 26
22
(f) Financial Information. The consolidated financial
statements of the Borrower as at and for the year ended December 31,
1995 heretofore delivered to the Lenders were prepared in accordance
with Argentine GAAP except as stated therein and present fairly the
financial position of the Borrower as at the end of, and the results
of its operations for, the financial periods to which they relate; as
at December 31, 1995 the Borrower did not have any significant
liabilities (contingent or otherwise) or any unrealized or anticipated
losses which are not disclosed by or reserved against in such
financial statements; and there has been no Material Adverse Change
since December 31, 1995.
(g) Litigation. There is no action, suit or proceeding
pending or, to the knowledge of the Borrower threatened, against or
affecting the Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official in which there
is a likelihood of an adverse decision which could reasonably be
expected to have a Material Adverse Effect or which in any manner
draws into question the validity or enforceability of this Agreement
or the Notes.
(h) Defaults. Neither the Borrower nor any of its
Subsidiaries is in default under any law, regulation, judgment, order,
authorization, agreement or obligation applicable to it or any of its
assets or revenues, the consequences of which default could reasonably
be expected to have a Material Adverse Effect. No Event of Default or
Default has occurred and is continuing, nor will any Event of Default
or Default result from the making of any of the Advances or from any
other matter or thing contemplated to be done by the Borrower pursuant
hereto.
(i) Environmental Matters. In the ordinary course of its
business, the Borrower and/or its Subsidiaries conduct an ongoing
review of the effect of Environmental Laws on the business, operations
and properties of the Borrower and/or its Subsidiaries, in the course
of which it identifies and evaluates associated liabilities and costs
(including, without limitation, any capital or operating expenditures
required for clean-up or closure of properties presently or previously
owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by
law or as a condition of any license, permit or contract, any related
constraints on operating activities, including any periodic or
permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any costs or
liabilities in connection with off-site disposal of wastes or
Hazardous Substances, and any actual or potential liabilities to third
parties, including employees, and any related costs and expenses). On
the basis of this review, the Borrower has concluded that, as of the
date hereof, such associated liabilities and costs, including the
costs of compliance with Environmental Laws, could not reasonably be
expected to have a Material Adverse Effect.
(j) Taxes. (i) The Borrower has filed all income tax
returns and all other material tax returns which are required to be
filed by it and has paid all taxes shown to be due pursuant to such
returns or pursuant to any assessment received by the Borrower other
than any such taxes that (A) are being contested in good faith by an
appropriate
<PAGE> 27
23
proceeding and for which reserves have been established in accordance
with Argentine GAAP or (B) in the aggregate do not exceed
US$5,000,000. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of taxes or other
governmental charges, in the opinion of the Borrower, have been made
in accordance with Argentine GAAP.
(ii) The execution and delivery of this Agreement and the
Notes and the performance by the Borrower of its obligations hereunder
and under the Notes are exempt from all taxes, levies, imposts,
deductions, charges and withholdings imposed by any Governmental.
Authority of the Republic, except that (A) all payments of interest
under this Agreement and the Notes (x) to Lenders who are making or
maintaining their Advances through Lending Offices located outside of
the Republic are subject to a withholding tax at a rate of 4.5% and
(y) to Leaders who are making or maintaining their Advances through
Lending Offices located in the Republic are subject to value added tax
at a rate of 21%, and (B) fees are not subject to withholding taxes if
they are paid for services rendered outside of the Republic. The
Borrower is permitted under applicable Argentine law to pay any
additional amounts payable under Section 2.16.
(k) Regulatory Restrictions on Borrowing. The Borrower is
not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended, or
otherwise subject to any regulatory scheme which restricts its ability
to incur debt.
(l) Rank of Obligations. The obligations of the Borrower
under this Agreement and the Notes to pay the principal of and
interest on the Advances and any and all other amounts due hereunder
constitute direct and unconditional obligations of the Borrower and
will rank at all times at least pari passu in right of payment with all
other unsecured, unsubordinated Debt of the Borrower at any time
outstanding.
(m) No Immunity; Proper Legal Form. This Agreement and
the Notes are in proper legal form, under the laws of the Republic for
the enforcement thereof in accordance with their respective terms
against the Borrower under such laws in the courts of the Republic.
Neither the Borrower nor any of its revenues, assets or properties
have any right of immunity, on the ground of sovereignty or otherwise,
from service of process or the jurisdiction of any court in connection
with any suit, action or proceeding arising out of or relating to its
obligations under this Agreement or the Notes or from the execution or
enforcement of any judgment resulting therefrom, and if the Borrower
or any of its revenues, assets or properties should become entitled to
any such right of immunity, the Borrower has effectively waived such
right pursuant to Section 8.12. The obligations of the Borrower under
this Agreement and the Notes may be enforced by judgment and levy) in
accordance with their respective terms in a proceeding at law in any
competent court in the Republic at the suit of any Lender, provided,
however, that (i) if this Agreement is enforced before the courts of
the City of Buenos Aires, the payment of a court tax of 3% on the
amount of the claim is required, and (ii) an official Spanish
translation of this Agreement is required to bring an action thereon
in the courts
<PAGE> 28
24
of the Republic, and provided further that, pursuant to Law No. 24,573
and its regulatory decree No. 1021/95, as of April 25, 1996, certain
obligatory mediation procedures must be exhausted prior to the
initiation of lawsuits in the Republic, with the exception, among
others, of bankruptcy and executory proceedings, which executory
proceedings include the enforcement of foreign judgments, in which
case mediation procedures remain optional for the plaintiff. Subject
to the foregoing, any judgment against the Borrower of a state or
Federal court in the State of New York, United States, which satisfies
the requirements of Articles 517 through 519 of Law 17.454, as amended
by Law 22.434 (National Code of Civil and Commercial Procedures) is
capable of being enforced in the courts of the Republic.
(n) Full Disclosure. The information contained in the
Information Memorandum was true and accurate in all material respects
on the date as of which such information is stated and in light of the
circumstances under which such information was provided.
(o) Compliance with Laws. The Borrower and its
Subsidiaries are in compliance with all applicable laws, ordinances,
rules, regulations and Governmental Authorities (including without
limitation social security laws, retirement and pension fund laws,
Environmental Laws, and applicable gas industry rules and
regulations), noncompliance with which could reasonably be expected to
have a Material Adverse Effect.
(p) Subsidiaries. As of the date of this Agreement, the
Borrower's only Subsidiary is TGS.
Section 4.02. Acknowledgment of Reliance. The Borrower
acknowledges that each of the Lenders and the Administrative Agent has entered
into this Agreement in reliance upon the representations and warranties
contained in this Article IV.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower will:
(a) Payment of Principal, Interest and Fees. Pay, when or
before due, all principal, interest and fees to be paid hereunder and
under any Note.
(b) Compliance with Laws, Etc. Comply, and cause each of
its Subsidiaries to comply, in all material respects, with all
applicable laws, ordinances, rules, regulations, and requirements of
Governmental Authorities (including, without limitation, Environmental
Laws, social security laws, retirement and pension fund laws and the
rules and regulations thereunder) except where the necessity of
compliance therewith is being
<PAGE> 29
25
contested in good faith by appropriate proceedings or where
noncompliance therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(c) Payment of Taxes, Etc. Pay and discharge, and cause
each of its Subsidiaries to pay and discharge, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges
or levies imposed upon it or upon its property and (ii) all lawful
claims that, if unpaid, might by law become a Lien upon its property;
provided, however, that neither the Borrower nor any of its
Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim that (A) is being contested in good faith
and by proper proceedings and as to which appropriate reserves are
being maintained in accordance with Argentine GAAP, or (B) together
with all other unpaid taxes, assessments, charges and claims covered
within this clause (B) do not exceed US$5,000,000 unless and until any
Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors.
(d) Maintenance of Insurance. Cause each of its
Significant Subsidiaries to keep at all times all of its properties
which are of an insurable nature insured against loss or damage with
insurers believed by such Significant Subsidiary to be responsible to
the extent that property of similar characteristics is usually so
insured by actual gas transportation companies (whether within or
outside the Republic) in accordance with good business practice;
provided, however, that this covenant shall not in any event require a
Significant Subsidiary to maintain insurance on its pipeline assets to
the extent they do not pass under rivers or other bodies of water, and
provided, further, that the Board of Directors of such Significant
Subsidiary may in any event increase the amount of any deductible or
other retention of risk by such Significant Subsidiary or reduce the
level of insurance cover if it shall determine in good faith that such
actions are in the best interests of such Significant Subsidiary and
not materially adverse to the interests of the Lenders. Upon request
of the Administrative Agent, the Borrower will furnish to it for
distribution to the Lenders information in reasonable detail as to the
insurance so carried.
(e) Conduct of Business and Preservation of Corporate
Existence, Etc. Preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, its corporate existence, rights
(charter and statutory) and franchises; provided, however, that the
Borrower and its Subsidiaries may consummate any merger or
consolidation permitted under Section 5.02(b), and provided, further,
that neither the Borrower nor any of its Subsidiaries shah be required
to preserve any right or franchise if the Board of Directors of the
Borrower or such Subsidiary shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the
Borrower or such Subsidiary, as the case may be, and that the loss
thereof is not disadvantageous in any material respect to the
Borrower, such Subsidiary or the Lenders.
(f) Maintenance of Governmental Approvals. Maintain, and
cause its Subsidiaries to maintain, in full force and effect all such
authorizations as are referred to in Sections 4.01(a) and (c).
<PAGE> 30
26
(g) Visitation Rights. At any reasonable time and from
time to time, permit the Administrative Agent or any of the Lenders or
any agents or representatives thereof, to examine and make copies of
and abstracts from the records and books of account of, and visit the
properties of, the Borrower and any of its Subsidiaries, and to
discuss the affairs, finances and accounts of the Borrower and any of
its Subsidiaries with any of their officers or directors and with
their independent certified public accountants; provided that the
Borrower shall not be required by this Section 5.01(g) to discuss or
disclose information which would violate General Resolution 227 of the
CNV.
(h) Keeping of Books. Keep, and cause each of its
Subsidiaries to keep, proper books of record and account, in which
full and correct entries shall be made of all financial transactions
and the assets and business of the Borrower and each such Subsidiary
in accordance with Argentine GAAP.
(i) Maintenance of Properties, Etc. Maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve,
all of its tangible properties that are used or useful in the conduct
of its business in good condition, repair and working order and
supplied with all necessary equipment and cause to be made all
necessary repairs, renewals, replacements and improvements thereof,
all as in the judgment of the Borrower or such Subsidiary may be
necessary so that the business carried on in connection therewith may
be properly and advantageously conducted at all times, provided,
however, that covenants will not prevent the Borrower or such
Subsidiary from discontinuing the operation or maintenance of any of
such properties if such discontinuance is, as determined by the Board
of Directors of the Borrower or such Subsidiary in good faith,
desirable in the conduct of the business of the Borrower and its
Subsidiaries taken as a whole and not adverse in any material respect
to the Lenders.
(j) Transactions with Affiliates. Conduct, and cause each
of its Subsidiaries to conduct, any transaction otherwise permitted
under this Agreement with any stockholder of the Borrower or any
Affiliate of such stockholder which is not the Borrower or one of its
Subsidiaries on terms that are no less favorable to the Borrower or
such Subsidiary than it would obtain in a comparable arm's-length
transaction with a Person not such a stockholder or Affiliate.
(k) Maintenance of TGS Shares. Maintain the direct
ownership of at least 51% of the Voting Stock of TGS.
(1) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within
70 days after the end of each of the first three quarters of
each fiscal year of the Borrower, Consolidated balance sheets
of the Borrower and its Subsidiaries as of the end of such
quarter and Consolidated statements of income and cash flows
of the Borrower and its Subsidiaries for the period commencing
at the end of the previous fiscal year and ending with the end
of such quarter, duly certified (subject to year-end audit
adjustments) by the chief financial officer of the
<PAGE> 31
27
Borrower as having been prepared in accordance with Argentine
GAAP, and accompanied by a certificate of the chief financial
officer of the Borrower setting forth in reasonable detail the
calculations necessary to demonstrate compliance with Section
5.03, provided that in the event of any change in Argentine
GAAP used in the preparation of such financial statements
from Frozen Argentine GAAP, the Borrower shall also provide,
if necessary for the determination of compliance with Section
5.03, a statement of reconciliation conforming such financial
statements to Frozen Argentine GAAP;
(ii) as soon as available and in any event within
120 days after the end of each fiscal year of the Borrower, a
copy of the annual audit report for such year for the Borrower
and its Subsidiaries, containing Consolidated balance sheets
of the Borrower and its Subsidiaries as of the end of such
fiscal year and Consolidated statements of income and cash
flows of the Borrower and its Subsidiaries for such fiscal
year, in each case accompanied by an opinion of Pistrelli,
Diaz y Asociados or other independent public accountants of
recognized international standing, and accompanied by a
certificate of the chief financial officer of the Borrower
setting forth in reasonable detail the calculations necessary
to demonstrate compliance with Section 5.03, provided that in
the event of any change in Argentine GAAP used in the
preparation of such financial statements from Frozen Argentine
GAAP, the Borrower shall also provide, if necessary for the
determination of compliance with Section 5.03, a statement of
reconciliation conforming such financial statements to Frozen
Argentine GAAP;
(iii) as soon as possible and in any event within
five days after becoming aware of the occurrence of each
Default continuing on the date of such statement, a statement
of the chief financial officer of the Borrower setting forth
details of such Default and the action that the Borrower has
taken and proposes to take with respect thereto;
(iv) promptly after the commencement thereof,
notice of all material actions and proceedings before any
court, governmental agency or arbitrator affecting the
Borrower or any of its Subsidiaries of the type described in
Section 4.01(g); and
(v) such other information respecting the
Borrower or any of its Subsidiaries as any Lender through the
Administrative Agent may from time to time reasonably request
in writing.
SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will not:
(a) Negative Pledge. Create, assume or suffer to exist
any Lien upon the whole or any part of its properties, whether now
owned or hereafter acquired, to secure (i) any of its Debt or (ii) the
Debt of any other Person, without at the same time or prior thereto
extending to the Notes and the obligations of the Borrower hereunder
the same
<PAGE> 32
28
security equally and ratably therewith (or, at the option of the
Borrower, prior thereto) as long as such Lien shall remain in effect,
except for:
(A) purchase money Liens created or arising over
any property which is acquired, constructed or created by the
Borrower but only if (i) such Lien secures only principal
amounts (not exceeding the cost of such acquisition,
construction or creation) raised for the purposes of such
acquisition, construction or creation, together with any
costs, expenses, interest and fees incurred in relation
thereto, (ii) such Lien is created or arises on or before 90
days after the completion of such acquisition, construction
or creation and (iii) such Lien is confined solely to the
property so acquired, constructed or created;
(B) Liens over any property at the time of the
acquisition of such property by the Borrower, which Liens were
not created in connection with such acquisition;
(C) Liens in existence on the date of this
Agreement as set forth in Schedule 5.02(a);
(D) Liens described in paragraph (A), (B) or (C)
above and renewed or extended upon the renewal, extension,
refinancing or replacement of the Debt secured thereby,
provided that there is no increase in the principal amount of
the Debt secured thereby over the original principal amount
thereof or guaranteed thereby;
(E) Permitted Liens; or
(F) Liens not described in paragraphs (A) through
(E) above securing Debt as well as related costs, expenses,
interest and fees in relation to an aggregate principal or
face amount at any date which does not exceed US$10,000,000.
(b) Mergers, Etc. Merge or consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all
of its assets (whether now owned or hereafter acquired) to, any
Person, or permit any of its Subsidiaries to do so, except that any
Subsidiary of the Borrower may merge or consolidate with or into, or
dispose of assets to, any other Subsidiary of the Borrower, and except
that any Subsidiary of the Borrower may merge into or dispose of
assets to the Borrower, provided, in each case, that no Default shall
have occurred and be continuing at the time of such proposed
transaction or would result therefrom.
(c) Investments. Hold, make or acquire, or permit any of
its Subsidiaries to hold, make or acquire, any Investment in any
Person other than:
(i) Investments in Persons that are Subsidiaries;
<PAGE> 33
29
(ii) Temporary Cash Investments maturing within
one year from the date of acquisition thereof by the Borrower
or a Subsidiary of the Borrower;
(iii) any Investments not otherwise permitted by
the foregoing clauses of this Section if, immediately after
such Investment is made or acquired, the aggregate net book
value of all Investments permitted by this clause (iii) does
not exceed US$10,000,000 (or its equivalent in any other
currencies, each such equivalent to be determined at the time
of making such Investment and not to be affected by subsequent
changes in exchange rates); and
(iv) any purchase of the shares of the Borrower by
the Borrower or any of its Subsidiaries.
(d) Restricted Payments. Purchase or redeem any of its
issued shares or reduce its share capital, make a distribution of
assets or other capital distribution to its shareholders, declare or
pay any dividend or make any other distribution to its shareholders or
repay any shareholders' loans if immediately before becoming legally
obligated to take any such action an Event of Default exists or would
exist if such action were taken at such time.
(e) Change in Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature or scope of
its business as carried on at the date hereof.
SECTION 5.03. Financial Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower will:
(a) Leverage Ratio. Maintain a ratio of Consolidated Debt
of the Borrower to Total Capitalization not greater than 0.60 to 1.0.
(b) Fixed Charge Coverage Ratio. Maintain (A) a ratio of
Consolidated EBITDA of the Borrower for the four fiscal quarters
ending on the later of (i) June 30, 1996 and (ii) the date of the most
recent Consolidated balance sheet of the Borrower delivered to the
Lenders pursuant to Section 5.01(1) to (B) the sum of Consolidated
interest (including amortization of debt discount expense and
Consolidated rental expense of the Borrower deducted in the
computation of the Borrower's Consolidated net income for such four
fiscal quarters of not less than 2.5 to 1.0.
<PAGE> 34
30
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any
Advance when the same becomes due and payable; or the Borrower shall
fail to pay any interest on any Advance or make any other payment of
fees or other amounts payable under this Agreement or any Note within
three Domestic Business Days after the same becomes due and payable;
or
(b) Any representation or warranty made by the Borrower
herein or by the Borrower (or any of its officers) in writing in
connection with this Agreement shall prove to have been incorrect in
any material respect when made; or
(c) (i) The Borrower shall fail to perform or observe any
term, covenant or agreement contained in Section 5.01(k), 5.02 or
5.03, or (ii) the Borrower shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement (other than
Section 5.01(a)) on its part to be performed or observed if such
failure shall remain unremedied for 10 days after written notice
thereof shall have been given to the Borrower by the Administrative
Agent; or
(d) The Borrower or any of its Subsidiaries shall fail to
pay any principal of or premium or interest on any Debt that is
outstanding in a principal mount of at least US$10,000,000 in the
aggregate (but excluding Debt outstanding hereunder) of the Borrower
or such Subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any event shall occur or
condition shall exist under any agreement or instrument relating to
any such Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate the maturity of such Debt; or any
such Debt shall be declared to be due and payable, or required to be
prepaid or redeemed (other than by a regularly scheduled required
prepayment or redemption), purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Debt shall be required to be
made, in each case prior to the stated maturity thereof; or
(e) The Borrower or any of its Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit
in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower or any of its
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its
<PAGE> 35
31
debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order
for relief or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain
undismissed or unstayed for a period of 30 consecutive Court Days, or
any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall
occur; or the Borrower or any of its Subsidiaries shall take any
corporate action to authorize any of the actions set forth above in
this subsection (e) ; or
(f) Any judgment or order for the payment of money in
excess of US$10,000,000 shall be rendered against the Borrower or any
of its Subsidiaries and either (i) if no stay of enforcement of such
judgment or order, by reason of pending appeal, payment or otherwise
shall be in effect, enforcement proceedings shall have been commenced
by any creditor upon such judgment or order or (ii) there shall be any
period of 20 consecutive Court Days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal, payment or
otherwise, shall not be in effect; or
(g) The TGS License shall be revoked or suspended;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by written notice to the
Borrower, declare the obligation of each Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrower, declare the Notes, all interest thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, however,
that in case of Events of Default specified in clause (e) above with respect to
the Borrower, (A) the obligation of each Lender to make Advances shall
automatically be terminated and (B) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
SECTION 6.02. Notice of Default. The Administrative Agent
shall give notice to the Borrower under Section 6.01(c)(ii) promptly upon
being requested to do so by any Lender and shall thereupon notify all the
Lenders thereof.
<PAGE> 36
32
ARTICLE VII
THE ADMINISTRATIVE AGENT, THE ARRANGERS AND THE MANAGING AGENTS
SECTION 7.01. Authorization and Action. Each Lender hereby
appoints and authorizes the Administrative Agent to take such action as agent
on its behalf and to exercise such powers and discretion under this Agreement
as are delegated to the Administrative Agent by the terms hereof, together
with such powers and discretion as are reasonably incidental thereto. As to any
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes), the Administrative Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in
so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding upon all Lenders and all
holders of Notes; provided, however, that the Administrative Agent shall not be
required to take any action that exposes the Administrative Agent to personal
liability or that is contrary to this Agreement or applicable law. The
Administrative Agent agrees to give to each Lender prompt notice of each notice
given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither
the Administrative Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
them under or in connection with this Agreement, except for its or their own
gross negligence or. willful misconduct. Without limitation of the generality
of the foregoing, the Administrative Agent: (i) may treat the payee of any Note
as the holder thereof until the Administrative Agent receives and accepts an
Assignment and Acceptance entered into by the Lender that is the payee of such
Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 8.07; (ii) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith
by it in accordance with the advice of such counsel, accountants or experts;
(iii) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties or representations
(whether written or oral) made in or in connection with this Agreement; (iv)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement on
the part of the Borrower or to inspect the property (including the books and
records) of the Borrower; (v) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; and (vi) shall incur no liability under or in respect of this Agreement
by acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopier, telegram or telex) believed by it to be genuine
and signed or sent by the proper party or parties.
SECTION 7.03. Societe Generale and Affiliates. With respect to
its Commitment, the Advance made by it and the Note issued to it, Societe
Generale shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not the Administrative
Agent; and the term "Lender" or "Lenders" shall,
<PAGE> 37
33
unless otherwise expressly indicated, include Societe Generale in its
individual capacity. Societe Generale and its Affiliates may accept deposits
from, lend money to, act as trustee under indentures of, accept investment
banking engagements from and generally engage in any kind of business with, the
Borrower, any of its Subsidiaries and any Person who may do business with or
own securities of the Borrower or any such Subsidiary, all as if Societe
Generale were not the Administrative Agent and without any duty to account
therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon any Arranger or Managing
Agent, the Administrative Agent or any other Lender and based on the financial
statements referred to in Section 4.01 and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon any Arranger or Managing Agent, the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify
the Arrangers, the Managing Agents, the Administrative Agent and their
Affiliates (to the extent not reimbursed by the Borrower), ratably according to
the respective principal amounts of the Notes then held by each of them (or if
no Notes are at the time outstanding or if any Notes are held by Persons that
are not Lenders, ratably according to the respective amounts of their
Commitments), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by, or
asserted against any Arranger or Managing Agent or the Administrative Agent in
any way relating to or arising out of this Agreement or any action taken or
omitted by any Arranger or Managing Agent or the Administrative Agent under
this Agreement, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from any Arranger's or
Managing Agent's or the Administrative Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Arrangers, the Managing Agents and the Administrative Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Arrangers, the Managing Agents or the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that the
Arrangers, the Managing Agents or the Administrative Agent is not reimbursed
for such expenses by the Borrower.
SECTION 7.06. Successor Administrative Agent. The
Administrative Agent may resign at any time by giving written notice thereof to
the Lenders and the Borrower and may be removed at any time with or without
cause by the Required Lenders. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint a successor Administrative
Agent subject to the approval of the Borrower, such approval not to be
unreasonably withheld or delayed. If no successor Administrative Agent shall
have been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring
<PAGE> 38
34
Administrative Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lenders, appoint a successor Administrative Agent,
which shall be a commercial bank having a. combined capital and surplus of at
least US$1,000,000,000 and acting through a branch located in the United
States. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
discretion, privileges and duties of the retiring Administrative Agent, and the
retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of
this Article VII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Administrative Agent under this Agreement.
SECTION 7.07. Arrangers and Managing Agents. The Arrangers and
Managing Agents in such capacities shall have no duties or obligations under or
in connection with this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, do any of the following: (a)
waive any of the conditions specified in Section 3.01, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional
obligations, (c) reduce the principal of, or interest on, the Notes or any fees
or other amounts payable hereunder, (d) postpone any date fixed for any payment
of principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (e) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder or (f)
amend this Section 8.01; and provided further that no amendment, waiver or
consent shall, unless in writing and signed by the Administrative Agent, the
Arrangers or the Managing Agents in addition to the Lenders required above to
take such action, affect the rights or duties of the Administrative Agent, the
Arrangers or the Managing Agents, as the case may be, under this Agreement or
any Note.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic or telex communication) and mailed, telecopied,
telegraphed, telexed or delivered, if to the Borrower, at its address at Don
Bosco 3672, piso 5, Buenos Aires, Argentina, Telephone No. (541) 865-9076,
Telecopier No. (541) 865-7154, Attention: Jorge Garcia/Daniel Gonzalez; if to
any Initial Lender, at its address for notices specified opposite its name on
Schedule I hereto; if to any other Lender, at is
<PAGE> 39
35
address for notices specified in the Assignment and Acceptance pursuant to
which it became a Lender; and if to the Administrative Agent, at its address at
2001 Ross Avenue, Suite 4800, Dallas, Texas 75201, Telephone No. (214)
979-2767, Telecopier No. (214) 754-0171, Attention: Angela Aldridge; or, as to
the Borrower or the Administrative Agent, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrower and the Administrative Agent. All such notices
and communications shall, when mailed, telecopied, telegraphed or telexed, be
effective when deposited in the mail, telecopied, delivered to the telegraph
company or confirmed by telex answerback, respectively, except that notices and
communications to the Administrative Agent pursuant to Article II, III or VII
shall not be effective until received by the Administrative Agent. Delivery by
telecopier of an executed counterpart of any amendment or waiver of any
provision of this Agreement or the Notes or of any Exhibit hereto to be
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender or the Administrative Agent to exercise, and no delay in exercising,
any right hereunder or under any Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to
pay on demand all reasonable costs and expenses of the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of this Agreement, the Notes and the other documents
to be delivered hereunder, including, without limitation, (A) all reasonable
due diligence, syndication (including printing, distribution and bank
meetings), transportation, computer, duplication, appraisal, consultant, and
audit expenses and (B) the reasonable fees and expenses of counsel for the
Administrative Agent with respect thereto and with respect to advising the
Administrative Agent as to its rights and responsibilities under this
Agreement. The Borrower further agrees to pay on demand all reasonable costs
and expenses of the Administrative Agent and the Lenders, if any (including,
without limitation, reasonable counsel fees and expenses), in connection with
the enforcement (whether through negotiations, legal proceedings or otherwise)
of this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Administrative Agent and each Lender in connection with the enforcement of
rights under this Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless
the Administrative Agent, each Arranger, each Managing Agent and each Lender
and each of their Affiliates and their officers, directors, employees, agents
and advisors (each, an "Indemnified Party") from and against any and all
claims, damages, losses, liabilities and expenses (including, without
limitation, reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of, or in connection with the preparation
for a defense of, any investigation, litigation or proceeding arising out of,
related to, or in connection with (i) the Notes, this Agreement, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the
<PAGE> 40
36
Advances or (ii) the actual or alleged presence of Hazardous Materials on any
property of the Borrower or any of its Subsidiaries or any Environmental Action
relating in any way to the Borrower or any of its Subsidiaries, in each case
whether or not such investigation, litigation or proceeding is brought by the
Borrower, its directors, shareholders or creditors or an Indemnified Party or
any other Person or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated, except to
the extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct.
(c) If any payment of principal of any Advance is made by
the Borrower to or for the account of a Lender other than on the last day of
the Interest Period for such Advance as a result of a payment pursuant to
Section 2.11 or 2.13, acceleration of the maturity of the Notes pursuant to
Section 6.01 or for any other reason, the Borrower shall, upon demand by such
Lender (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including, without limitation,
any loss (but not including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in Sections 2.12, 2.16 and 8.04 shall survive the payment in
full of principal, interest and all other amounts payable hereunder and under
the Notes.
SECTION 8.05. Right of Set-off. Upon the occurrence and during
the continuance of any Event of Default and following the making of the request
or the granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted
by law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender or such Affiliate to or for the credit or the account
of the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement and the Note held by such Lender,
whether or not such Lender shall have made any demand under this Agreement or
such Note and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Lender and its Affiliates
under this Section 8.05 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that such Lender and
its Affiliates may have.
SECTION 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the
Administrative Agent and when the Administrative Agent shall have been notified
by each Arranger, Managing Agent and Initial Lender that such Arranger,
Managing Agent and Initial Lender has executed it (the "Effective
<PAGE> 41
37
Time") and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Administrative Agent, each Arranger, Managing Agent and Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights .hereunder or any interest herein without
the prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender
may assign to one or more banks or other institutions all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment or the Advance owing to it and the Note held by
it); provided, however, that (i) each such assignment shall be to an Eligible
Assignee and (ii) the parties to each such assignment shall execute and deliver
to the Administrative Agent, for its acceptance and recording in the Register,
an Assignment and Acceptance, together with the Note, if any, subject to such
assignment and a processing and recordation fee of US$2,500; and, provided
further, at no such assignment may be made if the Borrower shall be required by
virtue of laws and regulations in effect immediately after such assignment to
pay any additional amount under Section 2.12 or 2.16 that is greater than the
amount it would have been required to pay had such assignment not been made or
(ii) if the assignee shall have by virtue of such laws any right under Section
2.13 to suspend its obligation to make its Advance or to require that its
Advance be repaid which the assigning Lender would not have had such assignment
not been made. Upon such execution, delivery, acceptance and recording, from and
after the effective-date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
assigning Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the assignee thereunder confirm
to and agree with each other and the other parties hereto as follows: (i) other,
than as provided in such Assignment and Acceptance, such assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other instrument or
document furnished pursuant hereto; (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under this Agreement or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 4.01 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon any Arranger, any Managing Agent, the
Administrative Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
<PAGE> 42
38
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative Agent
to take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement as are delegated to the Administrative Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its
address referred to in Section 8.02 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitment of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time
to time upon reasonable prior notice.
(d) .Upon its receipt of a completed Assignment and
Acceptance executed by an assigning Lender and an assignee, together with the
Note, if any, subject to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Borrower.
Within five Domestic Business Days after its receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent in exchange for the surrendered Note a new Note to the order of such
Eligible Assignee in an amount equal to the amount of the relevant Advance
assigned to it pursuant to such Assignment and Acceptance and, if the assigning
Lender has not assigned all of such Advance pursuant to such Assignment and
Acceptance, a new Note to the order of the assigning Lender in an amount equal
to the amount of such Advance no so assigned. Such new Note or Notes shall be in
an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A
hereto.
(e) Each Lender may sell participations to one or more
banks or other entities (other than the Borrower or any of its Affiliates) in
or to all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advance
owing to it and the Note held by it); provided, however, that (i) such Lender's
obligations under this Agreement (including, without limitation, its Commitment
to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) such Lender shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of this Agreement or
any Note, or any consent to any departure by the Borrower therefrom, except to
the extent that such amendment, waiver or consent would reduce
<PAGE> 43
39
the principal of, or interest on, the Notes, in each case to the extent subject
to such participation, or postpone any date fixed for any payment of principal
of, or interest on, the Notes, in each case to the extent subject to such
participation.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any Confidential Information relating to the
Borrower received by it from such Lender.
(g) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advance owing to it and the Note held by it in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
SECTION 8.08. Confidentiality. Neither the Administrative
Agent nor any Arranger, Managing Agent or Lender shall disclose any
Confidential Information to any other Person without the consent of the
Borrower, other than (a) to the Administrative Agent's or such Arranger's,
Managing Agent's or Lender's Affiliates and their officers, directors,
employees, agents and advisors who have a need to know such information and, as
contemplated by Section 8.07(f), to actual or prospective assignees and
participants, and then only on a confidential basis, (b) as required. by any
law, rule or regulation or judicial process and (c) as requested or required by
any state, federal or foreign authority or examiner regulating banks or
banking; provided, however, that if the Administrative Agent or any Arranger,
Managing Agent or Lender is required to disclose any Confidential Information
pursuant to clause (b) or (c) above, it shall give notice thereof to the
Borrower prior to making such disclosure and shall use reasonable efforts to
cooperate with the Borrower (at the Borrower's expense) in the Borrower's
attempt to seek a protective order with respect to such disclosure or to limit
such required disclosure.
SECTION 8.09. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 8.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.11. Submission to Jurisdiction; Service of Process.
(a) The Borrower hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
State court sitting in New York City
<PAGE> 44
40
for purposes of all legal proceedings arising out of or relating to this
Agreement, the Notes or the transactions contemplated hereby. The Borrower
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum.
(b) The Borrower hereby irrevocably designates, appoints,
authorizes and empowers as its agent for service of process, CT Corporation
System at its offices. currently located at 1633 Broadway, New York, New York
10019 to accept and acknowledge for and on behalf of the Borrower service of
any and all process, notices or other documents that may be served in any suit,
action or proceeding relating hereto in any New York state or Federal court
sitting in the State of New York.
(c) In lieu of service upon its agent, the Borrower
consents to process being served in any suit, action or proceeding relating
hereto to the extent permitted by applicable law, by mailing a copy thereof by
registered or certified air mail, postage prepaid, return receipt requested, to
its address designated pursuant to Section 8.02. To the extent permitted by
applicable law, each party hereto agrees that such service (1) shall be deemed
in every respect effective service of process upon it in any such suit, action
or proceeding and (2) shall be taken and held to be valid personal service upon
and personal delivery to it.
(d) Nothing in this Section 8.11 shall affect the right
of any party hereto to serve process in any manner permitted by law, or limit
any right that any party hereto may have to bring proceedings against any other
party hereto in the courts of any jurisdiction or to enforce in any lawful
manner a judgment obtained in one jurisdiction in any other jurisdiction.
(e) The Borrower agrees that a final judgment against it
shall be final and conclusive and may be enforced in any other jurisdiction
other than any New York State court sitting in New York City or any United
States Federal District court in the Southern District of New York, and that a
certified or otherwise duly authenticated copy of the judgment shall be
conclusive evidence of the fact and amount of its indebtedness.
SECTION 8.12. Waiver of Sovereign Immunity. To the extent that
the Borrower has or hereafter may be entitled to claim or may acquire, for
itself or any of its assets, any immunity from suit, jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution, or otherwise) with respect to
itself or its property, it hereby irrevocably waives such immunity in respect
of its obligations hereunder and under the Notes to the fullest extent
permitted by applicable law and, without limiting the generality of the
foregoing, agrees that the waivers set forth in this Section shall be effective
to the fullest extent now or hereafter permitted under the Foreign Sovereign
Immunities Act of 1976 of the United States and are intended to be irrevocable
for purposes of such Act to the extent permitted thereby.
SECTION 8.13. The Notes. The Notes evidence the Advances and
are meant to act as a means of access to appropriate courts when the principal
of the Advances becomes due in accordance with the terms of this Agreement. Any
recovery or moneys collected through
<PAGE> 45
41
presentation or enforcement of the Notes shall be deemed to have been received
in respect of the Advances. No Lender shall, and the Administrative Agent shall
not, present any Note for payment or take due action to enforce such Note
unless the principal of such Note has become due in accordance with the terms
of this Agreement. The Borrower agrees not to assert any defense based on this
Agreement in any exclusive judicial proceeding in the Republic that is based
solely on the Notes. Upon payment in full of the Advances and any other
obligations of the Borrower hereunder, the Lenders shall forthwith return the
Notes to the Borrower.
SECTION 8.14. Judgment Currency. (a) If for the purposes of
enforcing the obligations of the Borrower hereunder it is necessary to convert
a sum due from the Borrower in Dollars into another currency, the parties
hereto agree, to the fullest extent permitted by applicable law, that the rate
of exchange used shall be that at which in accordance with normal banking
procedures the Lenders could purchase Dollars with such currency at or about
11:00 A.M. (New York City time) on the Domestic Business Day preceding that on
which final judgment is given. To the fullest extent permitted by applicable
law, the obligations in respect of any sum due to the Administrative Agent or
any Lender hereunder shall, notwithstanding any adjudication expressed in a
currency other than Dollars, be discharged only to the extent that on the
Domestic Business Day following receipt by the Administrative Agent or such
Lender of any sum adjudged to be so due in such other currency the
Administrative Agent or such Lender may in accordance with normal banking
procedures purchase Dollars with such other currency; if the amount of Dollars
so purchased is less than the sum originally due to the Administrative Agent or
such Lender in Dollars, the Borrower agrees, to the fullest extent permitted by
applicable law, as a separate obligation and notwithstanding any such
adjudication, to indemnify the Administrative Agent or such Lender against such
loss, and if the amount of Dollars so purchased exceeds the sum originally due
to the Administrative Agent or such Lender, the Administrative Agent or such
Lender shall remit such excess to the Borrower.
(b) All amounts due hereunder and under the Notes shall be
payable in Dollars. If due to exchange controls in the Republic or restrictions
on the transfer of foreign currency outside the Republic or for any other
reason the Borrower shall be prevented from paying when due in Dollars any
amount owing hereunder, the Borrower shall deliver to the Administrative Agent
External Bonds of the Republic denominated in Dollars ("Bonex") in an amount
sufficient for the Administrative Agent to acquire from the sale thereof in New
York City such amount of Dollars net of any commissions, fees or other costs.
The Administrative Agent shall sell such Bonex promptly after their delivery to
it and, in any extent, within 30 days after each such delivery, unless the
Borrower shall, at the Administrative Agent's request, otherwise agree in
writing. The Borrower's obligations hereunder and under the Notes shall be
discharged on account of any such delivery and sale only to the extent of the
net Dollars received by the Administrative Agent therefrom and only on the date
of such receipt.
SECTION 8.15. Waiver of Jury Trial. Each of the Borrower, the
Administrative Agent, the Arrangers, the Managing Agents and the Lenders hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the Notes or the actions of the Administrative
Agent or any Arranger, Managing Agent or Lender in the negotiation,
administration, performance or enforcement thereof.
<PAGE> 46
42
SECTION 8.16. Use of English Language. Any translation of this
Agreement or any Note into another language shall have no interpretive effect.
All documents or notices to be delivered pursuant to or in connection with this
Agreement shall be in the English language or, if any such document or notice
is not in the English language, accompanied by an English translation thereof,
and the English language version of any such document or notice shall control
for purposes hereof.
SECTION 8.17. Titles and Headings. The table of contents,
titles and headings of sections of this Agreement are intended for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Agreement.
SECTION 8.18. Further Assurances. At any time and from time to
time, upon the request of the Administrative Agent, the Borrower shall execute,
deliver and acknowledge or cause to be executed, delivered and acknowledged,
such further documents and instruments and do such other acts and things as the
Administrative Agent may reasonably request in order to fully effect the
purposes of this Agreement, and any other agreements, instruments and documents
delivered pursuant hereto or in connection with the Advances.
<PAGE> 47
43
IN WITNESS WHEREOF. the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duty
authorized, as of the date first above written.
Borrower
COMPANIA DE INVERSIONES DE ENERGIA
S.A.
By: /s/
--------------------------------
Title:
Administrative Agent
SOCIETE GENERALE, Southwest Agency,
as Administrative Agent
By: /s/
--------------------------------
Title:
Arrangers
---------
SOCIETE GENERALE
By: /s/
--------------------------------
Title:
BANCO SUPERVIELLE SOCIETE
GENERALE S.A.
By: /s/
--------------------------------
Title:
GOLDMAN, SACHS & CO.
By: /s/
--------------------------------
Title:
<PAGE> 48
44
Managing Agents
BANQUE EUROPEENNE POUR L'AMERIQUE
LATINE (BEAL) S.A.
By: /s/
--------------------------------
Title:
BANCO RIO DE LA PLATA S.A. -
GRAND CAYMAN BRANCH
By: /s/
--------------------------------
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/
--------------------------------
Title:
BANK OF MONTREAL
By: /s/
--------------------------------
Title:
ING BARINGS
By: /s/
--------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/
--------------------------------
Title:
<PAGE> 49
45
WEST MERCHANT BANK LIMITED
By: /s/
--------------------------------
Title:
<PAGE> 50
46
Initial Lenders
Commitment
US$10,000,000 BANQUE EUROPEENNE POUR L'AMERIQUE
LATINE (BEAL) S.A.
By: /s/
--------------------------------
Title:
US$7,000,000 BANCO FRANCES URUGUAY S.A.
By: /s/
--------------------------------
Title:
US$14,000,000 BANCO DE GALICIA Y BUENOS AIRES
(URUGUAY) S.A.I.F.E.
By: /s/
--------------------------------
Title:
US$5,000,000 BANCO DE LA NACION ARGENTINA
By: /s/
--------------------------------
Title:
US$40,000,000 BANCO RIO DE LA PLATA S.A. -
GRAND CAYMAN BRANCH
By: /s/
--------------------------------
Title:
<PAGE> 51
47
US$15,000,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/
--------------------------------
Title:
US$15,000,000 BANK OF MONTREAL
By: /s/
--------------------------------
Title:
US$10,000,000 CREDITANSTALT - BANKVEREIN
By: /s/
--------------------------------
Title:
US$15,000,000 PEARL STREET L.P.
By: /s/
--------------------------------
Title:
US$15,000,000 ING BANK N.V. CURACAO
By: /s/
--------------------------------
Title:
US$5,000,000 MIDLAND BANK PLC
By: /s/
--------------------------------
Title:
<PAGE> 52
48
US$15,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/
--------------------------------
Title:
US$14,000,000 SANTANDER INVESTMENT BANK LIMITED
By: /s/
--------------------------------
Title:
US$12,000,000 SOCIETE GENERALE (CANADA)
By: /s/
--------------------------------
Title:
US$8,000,000 SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/
--------------------------------
Title:
US$20,000,000 WEST MERCHANT BANK LIMITED
By: /s/
--------------------------------
Title:
US$220,000,000 Total of the Commitments
<PAGE> 53
SCHEDULE I
LENDING OFFICES
AND ADDRESSES
FOR NOTICES
<TABLE>
<CAPTION>
=================================================================================================
Name of Initial Lender Lending Office and Address for Notices
- -------------------------------------------------------------------------------------------------
<S> <C>
Banque Europeenne pour L'Amerique Latine LENDING OFFICE:
(BEAL) S.A. Rue de l'Association 59
B-1000 Brussels
Belgium
Attn: Jean Marie Koziol
Telephone No.: 011-322-229-2020
Telecopier No.: 011-322-229-2035
NOTICES:
Same as above and
Tte. Juan D. Peron, 338
(1038) Buenos Aires, Argentina
Attn: Diego Garcia del Rio
Telephone No.: 011-541-342-8666
Telecopier No.: 011-541-334-9174
- -------------------------------------------------------------------------------------------------
Banco Frances Uruguay S.A. LENDING OFFICE:
25 de Mayo 401
11000 Montevideo
URUGUAY
Attn: Carlos Glibbery
Telephone No.: 011-5982-96-2825/4986
Telecopier No.: 011-5982-96-0838
NOTICES: Same
- -------------------------------------------------------------------------------------------------
Banco de Galicia y Buenos Aires LENDING OFFICE:
(Uruguay) S.A.I.F.E. Rincon 487, 5o piso
Edificio Artigas, Montevideo
URUGUAY
Telephone No.: 011-598-96-0011
Telecopier No.: 011-598-96-2554
NOTICES:
Peron 407, 1o Piso
(1038) Buenos Aires, Argentina
Attn: Domingo Valentino/Roy Glass
Telephone No.: 011-541-329-6395/96
Telecopier No.: 011-541-329-6395/96
=================================================================================================
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
===============================================================================================
Name of Initial Lender Lending Office and Address for Notices
- -----------------------------------------------------------------------------------------------
<S> <C>
Banque de la Nacion Argentina LENDING OFFICE:
Succursale de Paris
29, Rue de Berri
75408 Paxis Cedex 08
FRANCE
Attn: Victor Gandini/Caxlos Vittori
Telephone No.: 011-331-53-83-77-99/82
Telecopier No.: 01l-331-45-63-67-69
NOTICES:
Same
- -----------------------------------------------------------------------------------------------
Banco Rio dela Plata S.A. - LENDING OFFICE:
Grand Cayman Branch P.O. Box 1109 - Midland Bank
Building, Fort St., George Town,
Grand Cayman, B.W.I.
Arm: Annabel Villar
Telephone No.: 011-5982-96-1416
NOTICES:
Bartolome Mitre 480, 7 degree Piso
1036 Buenos Aires, Argentina
Attn: Agustin Bullrich
Telephone No.: 011-541-340-1344/1189
Telecopier No.: 011-541-342-1164
- -----------------------------------------------------------------------------------------------
Bank of America National LENDING OFFICE:
Trust and Savings Association 500 Ellinwood Way, Suite 110
Pleasent Hill, CA 94523
UNITED STATES OF AMERICA
Telephone No.: (510) 603-3120
Telecopier No.: (510) 603-3142
NOTICES:
Attn: Ana Maria Carrier
25 de Mayo 555, 1 degree FL.
1002 Buenos Aires, Argentina
Telephone No.: 011-541-319-2689
Telecopier No.: 011-541-311-7294
===============================================================================================
</TABLE>
<PAGE> 55
3
<TABLE>
<CAPTION>
===============================================================================================
Name of Initial Lender Lending Office and Address for Notices
- -----------------------------------------------------------------------------------------------
<S> <C>
Bank of Montreal LENDING OFFICE:
700 Louisiana, Suite 4400
Houston, TX 77002
UNITED STATES OF AMERICA
Attn: Jane Wiley, Client Services
Telephone No.: (713) 546-9744
Telecopier No.: (713) 225-1845
NOTICES:
Same
- -----------------------------------------------------------------------------------------------
Creditanstalt- bankverein LENDING OFFICE:
125 London Wall
London EC 2Y 5DD
ENGLAND
Arm: Daryl Gayler
Telephone No.: 011-44-171-417-4863
Telecopier No.: 011-44-171-417-4803/4804
NOTICES:
Same
- -----------------------------------------------------------------------------------------------
Pearl Street L.P. LENDING OFFICE:
c/o Goldman, Sachs & Co.
85 Broad Street, 6th Floor
New York, NY 10004
UNITED STATES OF AMERICA
Attn: Kathy King
Telephone No.: (212) 902-1040
Telecopier No.: (212) 902-4597
NOTICES:
Same
===============================================================================================
</TABLE>
<PAGE> 56
4
<TABLE>
<CAPTION>
===============================================================================================
Name of Initial Lender Lending Office and Address for Notices
- -----------------------------------------------------------------------------------------------
<S> <C>
ING Bank N.V. Curacao LENDING OFFICE:
Curacao Branch
Zeelandia Office Park
Kaya S.F.G. (Jombi) Mensing 14
Willemstad
CURACAO
Attn: Harry Kampschoer
Telephone No.: 011-5999-700000
NOTICES:
c/o ING Bank N.V. Buenos Aires
Bartolome Mitre 760, 6o Fl.
(1036) Capital Federal
Buenos Aires, Argentina
Attn: German Ranftl/Norma Messina
Telephone No.: 011-541-334-0123
Telecopier No.: 011-541-342-0951
- -----------------------------------------------------------------------------------------------
Morgan Guaranty Trust Company of New York LENDING OFFICE:
International Banking Facility
New York, NY
UNITED STATES OF AMERICA
NOTICES:
Corrientes 411
1043 Buenos Aires, Argentina
Attn: Gabriel Micheletti (Business Matters)
Telephone No.: 011-541-348-7345
Telecopier No.: 011-541-348-7228
Eduardo Menutti (Administrative Matters)
Telephone No.: 011-541-348-7309
- -----------------------------------------------------------------------------------------------
Midland Bank plc LENDING OFFICE:
27/32 Poultry
London EC2P 2BX
ENGLAND
Attn: A.P. Wilkinson
Telephone No.: 011-44/171-260-4531
Telecopier No.: 011-44/171-260-5950
NOTICES:
Same
===============================================================================================
</TABLE>
<PAGE> 57
5
<TABLE>
<CAPTION>
===============================================================================================
Name of Initial Lender Lending Office and Address for Notices
- -----------------------------------------------------------------------------------------------
<S> <C>
Santanider Investment Bank Limited LENDING OFFICE:
Bahamas Financial Center, 3rd Floor
Shirley and Charlotte Streets
Nassau
BAHAMAS
NOTICES:
Paseo La Castellana No. 32
Madrid 28046
Spain
Attn: Pilar Zatarain
Telephone No.: 011-341-520-9580
Telecopier No.: 011-341-575-8297
- -----------------------------------------------------------------------------------------------
Societe Generale (Canada) LENDING OFFICE:
100 Yonge Street, Suite 1002
Toronto, Ontario M5C 2W1
CANADA
Telephone No.: (416) 364-2864
Telecopier No.: (416) 364-9996
Attn: Robert Sadokierski
NOTICES:
Same
- -----------------------------------------------------------------------------------------------
Societe Generale, Southwest Agency LENDING OFFICE:
2001 Ross Avenue
Suite 4800
Dallas, TX 75201
UNITED STATES OF AMERICA
Attn: Angela Aldridge
Telephone No.: (214) 979-2767
Telecopier No.: (214) 754-0171
NOTICES:
Same
===============================================================================================
</TABLE>
<PAGE> 58
6
<TABLE>
<CAPTION>
===============================================================================================
Name of Initial Lender Lending Office and Address for Notices
- -----------------------------------------------------------------------------------------------
<S> <C>
West Merchant Bank Limited LENDING OFFICE:
33/36 Gracechurch Street
London EC 3V 0AX
ENGLAND
Attn: Jean-Louis Dazin/David Pepper
Telephone No.: 011-44-171-220-8501/8305
Telecopier No.: 011-44-171-283-6871
Colin Hatherall
Telephone No.: 011-44-171-220-8336
Telecopier No.: 011-44-171-626-1610
NOTICES:
Same
===============================================================================================
</TABLE>
<PAGE> 59
SCHEDULE II
APPROVED ARGENTINE BANKS
Citibank, N.A., Buenos Aires
Banco de Boston S.A.
Banco Rio de la Plata S.A.
Banco de Galicia S.A.
Banco Frances S.A.
Deutsche Bank AG Suc. Buenos Aires
Lloyds Bank (BLSA) Ltd.
Banco Tornquist S.A.
Morgan Guaranty Trust Company
Banco Supervielle Societe Generale S.A.
Chemical Bank, Buenos Aires Branch (Chase Bank)
Banco de la Nacion Argentina
ABN-AMRO Bank
Banco Roberts S.A.
Banco Quilmes S.A.
Beal S.A. (West LB Group)
Banco Santarider
Banco General de Negocios S.A.
Bansud S.A.
Banque Nationale de Paris Suc. Buenos Aires
Banca Nazionale del Lavoro S.A.
Banco de la Provincia de Buenos Aires
Banco de Valores S.A.
Bank of America
ING Bank N.V. Buenos Aires
<PAGE> 60
SCHEDULE 5.02(a)
EXISTING LIENS
Lien in favor of Morgan Guaranty Trust Company of New York created in
connection with the obligations of the Borrower under the Secured Promissory
SMM Note in the principal amount of US$215,000,000 dated November 21, 1994
executed by the Borrower in favor of First Trust of New York, National
Association, as Trustee.
<PAGE> 61
EXHIBIT A - FORM OF
PROMISSORY NOTE
Form of Promissory Note
[Letterhead of CIESA]
PROMISSORY NOTE
<TABLE>
<S> <C>
Compania de Inversiones de Energia S .A., a Compania de Inversiones de Energia S.A., una sociedad
corporation existing under the laws of Argentina (the existente bajo las leyes de la Repcblica Argentina (el
"Borrower"), by this Promissory Note hereby promises to "Prestatario") por el presente Pagare se obliga a pagar, a la vista
pay at sight without protest, to the order of [ ] y sin protesto, a [---] (el "Prestamista") o a su orden, en la
(the "Lender"), at the office of the Administrative oficina del Agente Administrativo ubicada en 1221 Avenue of the
Agent at 1221 Avenue of the Americas, New York, New Americas, New York, New York, EE.UU., o en cualquier otro domicilio
York, USA or such other address as may be specified from que oportunamente se notifique, la suma de [--] Millones de Do1ares
time to time, the principal sum of [______] Million (U.S.$--.000.000) de capital, por igual valor recibido segcn
Dollars (U.S.$___,000,000), for value received under the Contrato de Prestamo de fecha 15 de Mayo de 1996 (el "Contrato de
Term Loan Agreement dated as of May 15, 1996 (the "Loan Prestamo") celebrado entre el Prestatario, las instituciones
Agreement") by and between the Borrower, the financial financieras alli enumeradas como Prestamistas, Ordenadores y
institutions listed therein as Lenders, Arrangers and Agentes de Gerencia, y Societe Generale, Southwest Agency, Dallas,
Managing Agents, and Societe Generale, Southwest Agency, Texas, EE.UU., como Agente Administrativo, con mas intereses sobre
Dallas, Texas, as Administrative Agent, and to pay el capital mencionado a una tasa anual igual a la Tasa Eurodollar
interest over the mentioned amount of principal, at the aplicable con mas el Margen Eurodollar.
applicable Eurodollar Rate plus the Eurodollar Margin.
1. "Eurodollar Business Day" mean any day of the year on 1. "Dia Laborable Eurodollar" significa cualquier dia del ano en el
which banks are not required or authorized by law to que los bancos no esten requeridos ni autorizados por ley a cerrar
close in New York City and on which commercial banks are en la ciudad Nueva York, y en el cual los bancos comerciales esten
open for international business abiertos para negocios internacionales (incluyendo
</TABLE>
<PAGE> 62
2
<TABLE>
<S> <C>
(including dealings in U.S. Dollar deposits) in London. transacciones de dep6sitos en D61ares Estadounidenses) en
Londres.
"Eurodollar Rate" means for any Interest Period (as "Tasa Eurodollar" significa, para cualquier Periodo de Interes
defined below) a rate per annum, as determined by the (segcn se define en este Pagare) una tasa anual, establecida por
Administrative Agent, equal to the rate per annum el Agente Administrativo, igual a la tasa anual obtenida de
obtained by dividing (i) the average (rounded upwards, dividir (i) el promedio (redondeado hacia arriba, de no ser
if not such a multiple, to the nearest whole multiple mcltiplo, hasta el mcltiplo entero mas cercano de 1/16 de 1% por
of 1/16 of 1% per annum) of the rate per annum at which ano) para depositos en Do1ares Estadounidenses ofrecidos por las
deposits in U.S. Dollars are offered by the principal oficinas principales en cada uno de Societe Generale, Bank of
office of each of Societe Generale, Bank of America America National Trust and Savings Association y Bank of
National Trust and Savings Association and Bank of Montreal (los "Bancos de Referencia") en Londres, Reino Unido
Montreal (the "Reference Lenders") in London, England to de la Gran Bretana, a bancos de primera en el Mercado
prime banks in the London interbank market at 11 a.m. Interbancario de Londres a las 11:00 hs (hora de Londres) dos
(London time) two Eurodollar Business Days before the Dias Laborables Eurodollar previos a dicho Periodo de Interes en
fast day of such Interest Period in an amount un monto sustancialmente similar al capital que cada uno de
substantially equal to the principal mount of such dichos Bancos de Referencia mantiene como credito bajo el
Reference Lender's outstanding credit under the Loan Contrato de Prestamo y por un periodo igual a dicho Periodo de
Agreement and for a period equal to such Interest Interes, por (ii) un porcentaje equivalente a 100% menos la Tasa
Period, by (ii) a percentage equal to 100% minus the Porcentual de Reserva Eurodollar para dicho Periodo de Interes.
Eurodollar Rate Reserve Percentage for such Interest
Period.
"Eurodollar Rate Reserve Percentage" means for any "Tasa Porcentual de Reserva Eurodollar" significa, para,
Interest Period the reserve percentage applicable two cualquier Periodo de Interes, el porcentaje de reserva aplicable
Eurodollar Business Days before the fast day of such dos Dias Laborables Eurodollar anteriores al primer dia de dicho
Interest Period under regulations issued from time to Periodo de Interes bajo regulaciones emanadas de tiempo en
time by the Board of Governors of the Federal Reserve tiempo por el Board of Governors of the. Federal Reserve System
System (or any successor) for determining the maximum (o su sucesor), para determinar el requerimiento maximo de
reserve requirement (including, without limitation, any reserva (incluyendo, sin por ello
emergency,
</TABLE>
<PAGE> 63
3
<TABLE>
<S> <C>
supplemental or other marginal reserve requirement) for limitarse a, cualquier requerimiento de reserva de emergencia,
a member bank of the Federal Reserve System in New York suplementario o marginal) para un miembro del Federal Reserve
City with respect to liabilities or assets consisting of System en la ciudad de Nueva York con respecto a deudas o
or including Eurocurrency Liabilities (as defined in activos consistentes en o incluyendo Pasivos en Eurodollares
Regulation D of the Board of Governors of the Federal. (segcn definicion contenida en la Regulacion D emitida por el
Reserve System) having a term equal to such Interest Board of Governors of the Federal Reserve System) con un
Period. termino igual a dicho Periodo de Interes.
"Eurodollar Margin" means a percentage per annum as "Margen Eurodollar" significa un porcentaje anual segcn la
follows: (a) from and including the date of issuance of siguiente escala: (a) desde e incluyendo la fecha de emision de
this Promissory Note (the "Issuance Date") to but este Pagare (la "Fecha de Emision") y hasta, pero excluyendo, la
excluding the first Interest Step-Up Date (as defined primera Fecha de Aumento de Interes (segcn la definicion
below): 2.40%: (b) from and including the first Interest contenida en este Pagare): 2.40%; (b) desde e incluyendo la
Step-Up Date to but excluding the second interest Step- primera Fecha de Aumento de Interes y hasta, pero excluyendo, la
Up Date: 2.75%; (c) from and including the second segunda Fecha de Aumento de Interes: 2.75%; (c) desde e
Interest Step-Up Date to but excluding the third incluyendo la segunda Fecha de Aumento de Interes y hasta, pero
Interest Step-Up Date: 3-20%; and (d) as from and excluyendo, la tercera Fecha de Aumento de Interes: 3.20% y
including the third Interest Step-Up Date to and (d) desde e incluyendo la tercera Fecha de Aumento de Interes y
including November __ 1997: 3.50%. hasta e incluyendo el ___ de Noviembre de 1997: 3.50%.
"Interest Period" means the period commencing on the "Periodo de Interes" significa el periodo que comienza en la
Issuance Date and ending on the last day of the period Fecha de Emision y termina en el cltimo dia del periodo
selected by the Borrower pursuant to the provisions seleccionado por el Prestatario segcn lo previsto en este Pagare
below and, thereafter, each subsequent period commencing y, de ahi en adelante, cada periodo subsiguiente que comience en
on the last day of the immediately preceding Interest el cltimo dia del Periodo de Interes inmediatamente anterior y
Period and ending on the last day of the period selected termine en el cltimo dia del periodo seleccionado por el
by the Bouower pursuant to the provisions below. The Prestatario, segcn lo previsto en este Pagare. La duracion de
duration of each such Interest Period shall be three or cada Periodo de Interes sera de tres o seis meses a
six months, as the Borrower may, upon
</TABLE>
<PAGE> 64
4
<TABLE>
<S> <C>
notice received by the Administrative Agent not later eleccion del Prestatario segcn notificacion
than 12:00 Noon (New York City time) on the third que debera ser recibida por el Agente
Eurodollar Business Day prior to the first day of such Administrativo hasta las 12 hs (hora de
Interest Period, select; provided, however that: Nueva York) del tercer Dia Laborable
Eurodollar previo al primer dia del
Periodo de Interes seleccionado;
previendose, sin embargo, que:
(i) the Borrower may not select any Interest Period (i) el Prestatario no podra seleccionar
that begins before and ends after an Interest un Periodo de Interes qua comience
Step-up Date or November __, 1997; antes y termine despues de una
Fecha de Aumento de Interes o el
____de Noviembre de 1997;
(ii) whenever the last day of any Interest Period (ii) cualquier Periodo de Interes que de
would otherwise occur on a day other than a otro modo terminaria en un Dia no-
Eurodollar Business Day, the last day of such Laborable Eurodollar terminara, en
Interest Period shall be extended to occur on cambio, en el siguiente Dia
the next succeeding Eurodollar Business Day, Laborable Eurodollar o, si ese Dia
provided, however, that, if such extension would Laborable Eurodollar se encuentra
cause the last day of such Interest Period to en otro mes calendario, en el Dia
occur in the next following calendar month, the Laborable Eurodollar
last day of such Interest Period shall occur on inmediatamente anterior; y
the next preceding Eurodollar Business Day; and
(iii) whenever the first day of any Interest Period (iii) cualquier Periodo de Interes que
occurs on a day of a calendar month for which comience en un mes calendario
there is no numerically corresponding day in the para el que no haya un dia que
calendar month that succeeds such calendar month corresponda numericamente en el
by the number of months equal to the number of mes calendario en el que ocurra el
months in such Interest Period, such Interest vencimiento de dicho Periodo de
Period shall end on the last Eurodollar Business Interes, terminara en el cltimo Dia
Day of such succeeding calendar month. Laborable Eurodollar de dicho mes
calendario del vencimiento.
</TABLE>
<PAGE> 65
5
<TABLE>
<S> <C>
"Interest Step-Up Date" means the 6-month, 12-month and "Fecha de Aumento de Interes" significa
15-month anniversaries of the Issuance Date; provided, los aniversarios de 6, 12 y 15 meses de la Fecha de Emision,
however, that: previendose, sin embargo, que:
(i) whenever an Interest Step-Up Date would (i) cuando una Fecha de Aumento de Interes terminase, de otro
otherwise occur on a day, other than a Eurodollar modo, en un Dia no-Laborable Eurodollar, dicha Fecha de
Business Day, such Interest.Step-Up Date shall be Aumento de Interes terminara, en cambio, en el siguiente
extended to occur on the next succeeding Dia Laborable Eurodollar o, si ese Dia Laborable Eurodollar
Eurodollar Business Day, provided, however, that, se encuentra en otro mes calendario, en el Dia Laborable
if such extension would cause such Interest Step- Eurodollar inmediatamente precedente; y
Up Date to occur in the next following calendar
mouth, such Interest Step-Up Date shall occur on
the next preceding Eurodollar Business Day; and
(ii) if the Issuance Date occurs on a day of a (ii) si la Fecha de Emision es un dia de un mes calendario pan
calendar month for which there is no numerically el que no haya un dia que corresponda numericamente en el
corresponding day in the calendar month that mes calendario en el que ocurra una Fecha de Aumento de
succeeds such calendar month by the number of Interes, la Fecha de Aumento de Interes sera el cltimo Dia
months specified above in respect of an Interest Laborable Eurodollar de dicho mes calendario.
Step-Up Date, such Interest Step-Up Date shall end
on the last Eurodollar Business Day of such
succeeding calendar month.
2. The agreed currency for payment under this Promissory 2. La moneda de pago acordada bajo este Pagare sera exclusivamente
Note shall be exclusively U.S. Dollars, and payments Do1ares Estadounidenses, y todos los pagos bajo el presente seran
hereunder shall be made without deduction for any tax, efectuados sin deduccion alguna por ningcn impuesto, tasa o
impost or contribution, present or future, whether contribucion existente o a crearse, sea Municipal, Provincial o
Municipal, Provincial or National of the Republic of Nacional de la Repcblica Argentina, los que seran
Argentina, all of which shall be exclusively paid by the pagados exclusivamente por el Prestatario.
Borrower.
</TABLE>
<PAGE> 66
6
<TABLE>
<S> <C>
3. Interest hereunder shall be payable in arrears on the 3. Los intereses de este Pagare deberan
last day of each Interest Period and, if such Interest ser pagados el (cltimo dia de cada Periodo de Interes y, si
Period has a duration of more than three months, on the dicho Periodo de Interes tiene una duracion de mas de tres
three-month anniversary of the first day of such meses,
Interest Period. en la fecha que corresponda al aniversario de tres meses del
primer dia de dicho Periodo de Interes.
4. If the day of the presentation of this Promissory 4. Si el dia de presentacion para el pago
Note for payment is not a Eurodollar Business Day, the de este Pagare no fuese Dia Laborable Eurodollar, el pago
respective payment shall be made on the next succeeding respectivo debera hacerse del Dia Laborable Eurodollar inmediato
Eurodollar Business Day. siguiente.
5. All payments hereunder shall be made in immediately 5. Todos los pagos bajo el presente
available funds by deposit to Societe Generale, New deberan efectuarse en fondos inmediatamente liquidables mediante
York, N.Y. (ABA #026004226) for credit to Account Number acreditacion en la cuenta Societe Generale, New York, N.Y. (ABA
9035699 ref: CIESA or such other account as may be # 026004226), por credito a cuenta ncmero 9035699, ref. CIESA
specified from time to time. S.A. o en cualquier otra cuenta
que oportunamente se especifique.
6. Any principal of or overdue interest on this 6. Cualquier monto de capital o intereses segcn este Pagare que
Promissory Note that is not paid when due shall bear no sea pagado a su vencimiento incurrira en mora automatica
interest from the due date therefor (i) until the y devengara intereses desde la fecha de mora (i) hasta la fecha
earlier of November __, 1997 and the date such amount de pago efectivo en su totalidad o el ___ de Noviembre de 1997,
shall be paid in full at a rate per annum equal at all lo que ocurra primero, a una tasa anual equivalente en todo
times to the sum of (x) the Eurodollar Rate then in momento a la suma de (x) la Tasa Eurodollar vigente
effect plus (y) the Eurodollar Margin then in effect para ese momento, mas (y) el Margen Eurodollar vigente para ese
plus (z) 2% and (ii) on and after November __, 1997 momento, mas (z) 2 %; y (ii) en y despues del ___ de Noviembre
until such amount shall be paid in full at a rate per de 1997 y hasta que dicho monto sea pagado en su totalidad, a
annum equal at all times to the sum of (A) the una tasa anual equivalente en todo momento a la suma de (A) la
Eurodollar Rate computed for the one-month period Tasa Eurodollar computada para el periodo de un mes que comienza
beginning with such date of default and for successive el ___ de Noviembre de 1997 y
one-month periods as though each were an Interest Period
plus (B) 5.50%. Interest under this Promissiory Note
shall be payable on
</TABLE>
<PAGE> 67
7
<TABLE>
<S> <C>
demand and on the date the relevant overdue amount por periodos sucesivos como si cada uno
shall be paid in full. de dichos periodos fuese un Periodo de Interes, mas (B) 5.50%.
Los intereses segcn este Pagare deberan ser pagados a la vista y
en la fecha en que el monto atrasado relevante sea pagado
en su totalidad.
7. This Promissory Note shall, in all respects, be 7. Este Pagare estara en todo respecto sujeto a e interpretado de
governed by and construed in accordance with the acuerdo con las leyes aplicables del Estado de New York, Estados
applicable law of the State of New York, United States Unidos de America, excluyendo sus normas sobre conflicto de
of America, excluding its conflicts of laws rules, leyes, previendose que, sin embargo, en relacion con cualquier
provided, however, that in connection with any legal accion o procedimiento legal (con excepcion de una accion para
action or proceeding (other than an action to enforce a exigir el cumplimiento de una sentencia obtenida en otra jurisdiccion)
judgment obtained in another jurisdiction) brought by entablado por el tenedor de este Pagare en los tribcnales
the holder of this Promissory Note in the competent competentes de la ciudad de Buenos Aires, Repcblica Argentina,
courts of the City of Buenos Aires, Republic of este Pagare, para dicho proposito solamente: (a) se considerara
Argentina, this Promissory Note, for such purpose only: un instrumento hecho de conformidad con las leyes aplicables de
(a) shall be deemed to be an instrmnent made under the la Repcblica Argentina, y para dicho efecto
applicable laws of the Republic of Argentina, and for se regira e interpretara de acuerdo con las leyes aplicables de
such purposes shall be governed by, and construed in la Repcblica Argentina; (b) la obligacion del Prestatario de
accordance with, the applicable laws of the Republic of pagar este Pagare, solo se tendra por cumplida por e1 pago en
Argentina; (b) the obligation of the Borrower to repay Do1ares Estadonnidenses en la Ciudad de New York, EE.UU.,
this Promissory Note shall be dischargeable only by debiendo devolverse al Prestatario el presente Documento dentro
payment in US Dollars in New York City, USA, and the de los 5 Dias Laborables Eurodollares de recibido el pago; (c) se
Promissory Note shall have to be returned to the renuncia expresamente a toda excepcion previa que no fuere pago
Borrower within 5 Eurodollar Business Days upon documentado incluyendo esta renuncia
repayment; (c) preliminary exceptions are waived, pero no limitandola a la misma a la excepcion de arraigo; y (d)
excluding documented payment, including such waiver, este Pagare podra ser presentado para su cobro en el
but not limited to the request of a litigation bond
(excepcion de arraigo); and (d) this Promissory Note
can be submitted for payment within a maximum
</TABLE>
<PAGE> 68
8
<TABLE>
<S> <C>
term of two years as from the Issuance Date. plazo maximo de dos anos a contar de la Fecha de Emision.
8. For the interpretation, execution, compliance and 8. Para la interpretacion, ejecucion, cumplimiento y
performance of this Promissory Note, the Borrower exigibilidad de este
expressly submits to the non-exclusive jurisdiction of Pagare, el Prestatario se somete expresamente a la jurisdiccion
(i) the United State District Court for the Southern no exclusiva de (i) la Corte del Distrito para el Distrito Sur de
District of New York and of any New York State court Nueva York y de cualquier corte competente del Estado de Nueva
sitting in New York City, USA and (ii) the Ordinary York, EE.UU., y (ii) los Tribunales Ordinarios
Courts of the Federal District, Republic of Argentina, de la Capital Federal, Repcblica
and by the execution and delivery of this Promissory Argentina, y mediante la suscripcion y entrega de este Pagare, el
Note, the Borrower hereby irrevocably submits to each Prestatario se somete irrevocablemente a cada una de dichas
of the stated jurisdictions at the election of holder jurisdicciones a eleccion del tenedor de este Pagare, renunciando
hereof, expressly waiving any other jurisdiction to expresamente a cualquier otro fuero al que el Prestatario
which the Borrower may now or in the future be entitled tenga derecho o llegue a tenerlo en el futuro, en virtud de cualquier
for any reason whatsoever. razon.
9. This Promissory Note is executed in both the 9. Este Pagare se suscribe en idioma
English and Spanish language, both of which shall bind Ingles y Espanol, y ambas versiones obligaran al Prestatario,
the Borrower, but both of which shall constitute one pero ambas constituiran un cnico y mismo
and the same instrument; provided, however, that in the instrumento; quedando establecido, sin embargo, que en caso de
case of doubt as to the proper interpretation or duda acerca de la correcta interpretacion de este Pagare,
construction of this Promissory Note, the English text prevalecera el texto en Ingles, excepto en
shall be controlling, except if any action or el caso de cualquier accion o
proceeding in respect of this Promissory Note is procedimiento que respecto de este Pagare sea iniciado en la
brought in the Republic of Argentina or any political Repcblica Argentina o
subdivision thereof, in which case, the Spanish text en cualquiera de sus subdivisiones politicas, caso en el que
shall be controlling. prevalecera el
texto en Espanol.
10. Nothing herein shall affect the right of the holder 10. Nada de lo aqui estipulado afectara
of this Promissory Note to (i) commence legal los derechos del tenedor de este Pagare de (i) iniciar
proceedings or otherwise proceed against the Borrower procedimientos legales o proceder de otra manera contra el
in any jurisdiction or to (ii) serve process in Prestatario en cualquier jurisdiccion o (ii)
</TABLE>
<PAGE> 69
9
<TABLE>
<S> <C>
any other manner permitted by the laws of such hacer notificaciones en cualquier otra manera permitida por las
jurisdiction. leyes de dicha jurisdiccion.
11. The Borrower agrees to pay all costs of collection 11. El Prestatario se obliga a pagar, en
and reasonable attorneys fees in the event default caso de incumplimiento, todos los gastos con motivo del cobro de
occurs in the payment of this Promissory Note. este Pagare, incluyendo honorarios razonables de abogados.
IN WITNESS WHEREOF, Compania de Inversiones de EN TESTIMONIO DE LO CUAL, Compania de Inversiones de
Energia S.A. has duly executed and delivered this Note Energia S.A. libra y entrega el presente Pagare en la Ciudad de
in the city of Buenos Aires, on May [__], 1996. Buenos Aires, el [--] de Mayo de 1996.
</TABLE>
Compania de Inversiones de Energia S.A.
Domicile/Domicilio
in New York: 1633 Broadway, New York, N.Y.
10019, USA (c/o CT Corporation System)
in Buenos Aires: Don Bosco 3672, piso 5
Buenos Aires, Argentina
- ------------------------------------ -------------------------------------
Name/Nombre: Name/Nombre:
------------------------ -------------------------
Title/Cargo: Title/Cargo:
------------------------ -------------------------
<PAGE> 70
EXHIBIT B - FORM OF
NOTICE OF BORROWING
Societe Generale, Southwest Agency,
as Administrative Agent
for the Lenders parties
to the Loan Agreement
referred to below
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201 [Date]
Attention: Angela Aldridge
Ladies and Gentlemen:
The undersigned, Compania de Inversiones de Energia S .A.,
refers to the Term Loan Agreement, dated as of May 15, 1996 (as mended or
modified from time to time, the "Loan Agreement", the terms defined therein
being used herein as therein defined), among the undersigned, certain
Arrangers, Managing Agents and Lenders parties thereto and Societe Generale,
Southwest Agency, as Administrative Agent for said Lenders, and hereby gives
you notice, irrevocably, pursuant to Section 2.02 of the Loan Agreement that
the undersigned hereby requests the Borrowing (the "Proposed Borrowing") under
the Loan Agreement, and in that connection sets forth below the information
relating to the Proposed Borrowing as required by Section 2.02(a) of the Loan
Agreement:
(i) The Eurodollar Business Day of the Proposed Borrowing is
_____________, 1996.
(ii) The aggregate amount of the Proposed Borrowing is $___________.
(iii) The initial Interest Period is __________ months and shall end
on __________, 1996.
The undersigned hereby certifies that the representations and
warranties contained in Section 4.01 of the Loan Agreement are correct on and
as of the date hereof as though made on and as of such date.
Very truly yours,
COMPANIA DE INVERSIONES DE ENERGIA
S.A.
By
----------------------------------
Title:
<PAGE> 71
EXHIBIT C - FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Term Loan Agreement dated as of May
15, 1996 (as amended or modified from time to time, the "Loan Agreement") among
Compania de Inversiones de Energia S.A., a sociedad anonima organized under the
laws of the Republic of Argentina (the "Borrower"), the Arrangers, Managing
Agents and Lenders (as defined in the Loan Agreement) and Societe Generale,
Southwest Agency, as administrative agent for the Lenders (the "Administrative
Agent"). Terms defined in the Loan Agreement are used herein with the same
meaning.
The "Assignor" and the "Assignee" referred to on Schedule I
hereto agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the
Assignor, an interest in and to the Assignor's rights and obligations
under the Loan Agreement as of the date hereof equal to the percentage
interest specified on Schedule 1 hereto of all outstanding rights and
obligations under the Loan Agreement. After giving effect to such sale
and assignment, the Assignee's Commitment and the amount of the
Advances owing to the Assignee will be as set forth on Schedule 1
hereto.
2. The Assignor (i) represents and warrants that it is
the legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse
claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement or any other instrument or
document furnished pursuant thereto; (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under the Loan Agreement or any
other instrument or document furnished pursuant thereto; and (iv)
attaches the Note held by the Assignor and requests that the
Administrative Agent exchange such Note for a new Note payable to the
order of the assignee in an amount equal to the principal amount of
the relevant Advance assigned to the Assignee pursuant hereto or new
Notes payable to the order of the Assignee in an amount equal to the
principal amount of the relevant Advance assigned to the Assignee
pursuant hereto and the Assignor in an amount equal to the balance of
such principal amount, as specified on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy
of the Loan Agreement, together with copies of the financial
statements referred to in Section 4.01 thereof and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and
Acceptance;
- --------------------
* Applicable only after the Borrowing Date.
<PAGE> 72
2
(ii) agrees that it will, independently and without reliance upon the
Administrative Agent, any Arranger, any Managing Agent or the Assignor
or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Agreement;
(iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under the Loan
Agreement as are delegated to the Administrative Agent by the terms
thereof, together with such powers and discretion as are reasonably
incidental thereto; and (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Loan
Agreement are required to be performed by it as a Lender.
4. Following the execution of this Assignment and
Acceptance, it will be delivered to the Administrative Agent for
acceptance and recording by the Administrative Agent. The effective
date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Administrative Agent, unless
otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the
Administrative Agent, as of the Effective Date, (i) the Assignee shall
be a party to the Loan Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Loan Agreement.
6. Upon such acceptance and recording by the
Administrative Agent, from and after the Effective Date, the
Administrative Agent shall make all payments under the Loan Agreement
and the Note in respect of the interest assigned hereby (including,
without limitation, all payments of principal and interest with
respect thereto) to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments under the Loan Agreement and
the Notes for periods prior to the Effective Date directly between
themselves.
7: This Assignment and Acceptance shall be governed by,
and construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of Schedule 1 to
this Assignment and Acceptance by telecopier shall be effective as
delivery of a manually executed counterpart of this Assignment and
Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.
<PAGE> 73
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _____%
Assignee's Commitment: $__________
Aggregate principal amount of Assignor's Advance: $__________
Aggregate principal amount of Assignor's Advance assigned: $__________
Aggregate principal amount of Assignor's Advance not assigned: $__________
Principal amount of Note payable to Assignee: $__________
Principal amount of Note payable to Assignor: $__________
Effective Date: , 199
------------------------ --
[NAME OF ASSIGNOR], as Assignor
By:
----------------------------
Title:
Dated: , 199
----------------- --
[NAME OF ASSIGNEE], as Assignee
By:
----------------------------
Title:
Lending Office:
[Address]
Address for Notices:
[Address]
Accepted [and Approved] this
day of , 199
- -------- --------------- --
SOCIETE GENERALE, Southwest Agency,
as Administrative Agent
By
---------------------
- -----------------------
* This date should be no earlier than five Business Days after the
delivery of this Assignment and Acceptance to the Administrative
Agent.
** Required if the Assignee is an Eligible Assignee under clause (vi) of
the definition of "Eligible Assignee."
<PAGE> 74
2
Title:
[Approved this______________ day
of _________________, 199__
[NAME OF BORROWER]
By
-----------------------
Title:
- ------------------
* Required if the Assignee is an Eligible Assignee under clause (iii),
(iv), (v) or (vi) of the definition of "Eligible Assignee".
<PAGE> 75
FIRST AMENDMENT TO TERM LOAN AGREEMENT
FIRST AMENDMENT TO TERM LOAN AGREEMENT (this "Amendment")
dated as of May 15, 1996 by and among Compania de Inversiones de Energia S.A.
(the "Borrower"), the financial institutions and other institutional lenders
listed on the signature pages hereof (the "Lenders") and the Administrative
Agent referred to below.
PRELIMINARY STATEMENTS:
(1) The Borrower entered into a Term Loan Agreement dated
as of May 15, 1996 (the "Loan Agreement") terms defined therein being used
herein as therein defined unless otherwise defined herein) with the Lenders and
Societe Generale, Banco Supervielle Societe Generale S.A. and Goldman Sachs &
Co., as Arrangers, and Banque Europeenne pour L'Amerique Latine (BEAL) S.A.,
Banco Rio de la Plata S.A. - Grand Cayman Branch, Bank of America National
Trust and Savings Association, Bank of Montreal, ING Barings, Morgan Guaranty
Trust Company of New York and West Merchant Bank Limited, as Managing Agents,
and Societe Generale, Southwest Agency, as Administrative Agent.
(2) The parties hereto have agreed to amend the Loan
Agreement as hereinafter set forth.
SECTION 1. Amendments to Loan Agreement. (a) The following
definition of "Consolidated Net Worth" is hereby added to Section 1.01 of the
Loan Agreement:
"Consolidated Net Worth" means at any date the difference
between total assets and total liabilities, as the same would appear
on a consolidated balance sheet of the Borrower and its Subsidiaries
at such date prepared in accordance with Frozen Argentine GAAP.
(b) The definition of "Total Capitalization" in Section
1.01 of the Loan Agreement is hereby amended in its entirety to read as
follows:
"Total Capitalization" means at any date the sum of (i)
Consolidated Debt of the Borrower at such date and (ii) Consolidated
Net Worth of the Borrower at such date, all as determined in
accordance with Frozen Argentine GAAP.
SECTION 2. Reference to and Effect on the Loan Agreement.
Upon the effectiveness of this Amendment, on and after the date hereof, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to
<PAGE> 76
2
the Loan Agreement shall mean and be a reference to the Loan Agreement, as
amended hereby. This Loan Agreement, as amended by this Amendment, is and
shall continue to be in full force and effect and is hereby ratified and
confirmed.
SECTION 3. Effectiveness of this Amendment. This Amendment
shall become effective as of the date first above written when and if
counterparts of this Amendment shall have been executed by the Borrower and the
Required Lenders. This Amendment is subject to the provisions of Section 8.01
of the Loan Agreement.
SECTION 4. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
SECTION 5. Governing Law. This Amendment and the rights and
obligations of the parties hereunder shall be governed by and construed and
interpreted in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly
authorized, as of the date first written above.
COMPANIA DE INVERSIONES DE ENERGIA S.A.
By: /s/
-----------------------------------------
Name:
Title:
BANQUE EUROPEENNEE POUR L'AMERIQUE
LATINE (BEAL) S.A.
By: /s/
-----------------------------------------
Title:
<PAGE> 1
EXHIBIT 10.30
SECOND AMENDMENT TO COMPENSATION AGREEMENT
This Agreement, entered into and made effective as of February 14,
1997, by and between Enron Development Corp. ("EDC" or "Company"), a Delaware
corporation having its headquarters at 1400 Smith Street, Houston, Texas 77002,
Enron Global Power & Pipelines L.L.C. ("EPP"), a Delaware limited liability
company, having its headquarters at 1400 Smith Street, Houston, Texas 77002,
Enron International Inc. ("EI") and Rodney L. Gray ("Employee"), an individual
residing in Houston, Texas, is an amendment to that certain Compensation
Agreement between the parties entered into and made effective as of March 17,
1995, as amended on May 1, 1995 (the "Compensation Agreement").
WHEREAS the parties desire to amend the Compensation Agreement to
provide for assignment of the Compensation Agreement by Company to, and the
assumption of the Compensation Agreement by EI;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, the parties agree as follows:
The Compensation Agreement is assigned by EDC to, and assumed by, EI.
Any reference to the "Company" in the Compensation Agreement shall mean EI.
Employee and EPP consent to such assignment and assumption, and release EDC
from every obligation under the Compensation Agreement. EI assumes every
obligation of EDC under the Compensation Agreement.
This Agreement is an amendment to the Compensation Agreement, and the
parties agree that all other terms, conditions and stipulations contained in
the Compensation Agreement shall remain in full force and effect and without
any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
RODNEY L. GRAY ENRON INTERNATIONAL INC.
/s/ RODNEY L. GRAY /s/ JOSEPH W. SUTTON
- ----------------------- ---------------------------------------
Name: Joseph W. Sutton
Title: President
ENRON DEVELOPMENT CORP. ENRON GLOBAL POWER & PIPELINES L.L.C.
/s/ JOSEPH W. SUTTON /s/ K. WADE CLINE
- ----------------------- ---------------------------------------
Name: Joseph W. Sutton Name: K. Wade Cline
Title: President & COO Title: Vice President, General Counsel
and Secretary
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF EPP
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
<S> <C>
Enron Power Philippines Corp. Philippines
Subic Power Corp. Philippines
Batangas Power Corp. Philippines
Puerto Quetzal Power Corp. Delaware
Electricidad del Pacifico, S.A. Guatemala
Enron Pipeline Company - Argentina, S.A. Argentina
EGPP Services Inc. Delaware
Western Caribbean Finance L.P. Texas
Compania de Inversiones de Energia S.A. Argentina
Transportadora de Gas del Sur S.A. Argentina
Enron Dominican Republic Ltd. Cayman Islands
Enron Dominican Republic Operations Ltd. Cayman Islands
Smith/Enron Cogeneration Limited Partnership Turks & Caicos
Smith/Enron O&M Limited Partnership Turks & Caicos
EPCA CIESA Holding L.L.C. Cayman Islands
EPCA CIESA Inveriones Ltd. Chile
Enron Commercial Finance Ltd. Cayman Islands
Enron Colombia Transportation Ltd. Cayman Islands
Enron Pipeline Colombia Limited Partnership Cayman Islands
Enron Colombia Investments Limited Partnership Cayman Islands
Centragas - Transportadora de Gas de la Region Central de Enron Colombia
Development & CIA., S.C.A.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our audit report dated March 13, 1997, included in this Form
10-K, into the Company's previously filed Registration Statement File No.
33-99384.
Houston, Texas ARTHUR ANDERSEN LLP
March 13, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our audit report dated February 12, 1997, included in this Form
10-K, into the Company's previously filed Registration Statement
File No 33-99384.
Buenos Aires, Argentina PISTRELLI, DIAZ Y ASOCIADOS
March 13, 1997 C.P.C.E.C.F. Vol. 1 -F Degree 8
/s/ ENRIQUE C. GROTZ
ENRIQUE C. GROTZ
Partner
Certified Public Accountant
Buenos Aires University
C.P.C.E.C.F. Vol. 136 - F Degree 149
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company
(the "Company"), of its Annual Report on Form 10-K for the year ended December
31, 1996 with the Securities and Exchange Commission, the undersigned officer
or director of the Company hereby constitutes and appoints Rodney L. Gray,
Paula H. Rieker and K. Wade Cline, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, for him and
on his behalf and in his name, place and stead, in any and all capacities, to
sign, execute and file such Annual Report on Form 10-K together with any
amendments or supplements thereto, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as the undersigned might or could fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all the said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of February, 1997.
/s/ JAMES V. DERRICK, Jr.
---------------------------------------
James V. Derrick, Jr.
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company
(the "Company"), of its Annual Report on Form 10-K for the year ended December
31, 1996 with the Securities and Exchange Commission, the undersigned officer
or director of the Company hereby constitutes and appoints Rodney L. Gray,
Paula H. Rieker and K. Wade Cline, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, for him and
on his behalf and in his name, place and stead, in any and all capacities, to
sign, execute and file such Annual Report on Form 10-K together with any
amendments or supplements thereto, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as the undersigned might or could fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all the said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of February, 1997.
/s/ RODNEY L. GRAY
---------------------------------------
Rodney L. Gray
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company
(the "Company"), of its Annual Report on Form 10-K for the year ended December
31, 1996 with the Securities and Exchange Commission, the undersigned officer
or director of the Company hereby constitutes and appoints Rodney L. Gray,
Paula H. Rieker and K. Wade Cline, and each of them (with full power to each of
them to act alone), hers true and lawful attorney-in-fact and agent, for her
and on her behalf and in her name, place and stead, in any and all capacities,
to sign, execute and file such Annual Report on Form 10-K together with any
amendments or supplements thereto, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as the undersigned might or could fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all the said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set her hand this 13th
day of February, 1997.
/s/ REBECCA P. MARK
-----------------------------------
Rebecca P. Mark
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company
(the "Company"), of its Annual Report on Form 10-K for the year ended December
31, 1996 with the Securities and Exchange Commission, the undersigned officer
or director of the Company hereby constitutes and appoints Rodney L. Gray,
Paula H. Rieker and K. Wade Cline, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, for him and
on his behalf and in his name, place and stead, in any and all capacities, to
sign, execute and file such Annual Report on Form 10-K together with any
amendments or supplements thereto, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as the undersigned might or could fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all the said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 22nd
day of February, 1997.
/s/ BRENT SCOWCROFT
-----------------------------------
Brent Scowcroft
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company
(the "Company"), of its Annual Report on Form 10-K for the year ended December
31, 1996 with the Securities and Exchange Commission, the undersigned officer
or director of the Company hereby constitutes and appoints Rodney L. Gray,
Paula H. Rieker and K. Wade Cline, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, for him and
on his behalf and in his name, place and stead, in any and all capacities, to
sign, execute and file such Annual Report on Form 10-K together with any
amendments or supplements thereto, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as the undersigned might or could fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all the said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of February, 1997.
/s/ EDMUND P. SEGNER
----------------------------------
Edmund P. Segner
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company
(the "Company"), of its Annual Report on Form 10-K for the year ended December
31, 1996 with the Securities and Exchange Commission, the undersigned officer
or director of the Company hereby constitutes and appoints Rodney L. Gray,
Paula H. Rieker and K. Wade Cline, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, for him and
on his behalf and in his name, place and stead, in any and all capacities, to
sign, execute and file such Annual Report on Form 10-K together with any
amendments or supplements thereto, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as the undersigned might or could fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all the said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 21st
day of February, 1997.
/s/ GEORGE S. SLOCUM
--------------------------------------
George S. Slocum
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company
(the "Company"), of its Annual Report on Form 10-K for the year ended December
31, 1996 with the Securities and Exchange Commission, the undersigned officer
or director of the Company hereby constitutes and appoints Rodney L. Gray,
Paula H. Rieker and K. Wade Cline, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, for him and
on his behalf and in his name, place and stead, in any and all capacities, to
sign, execute and file such Annual Report on Form 10-K together with any
amendments or supplements thereto, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as the undersigned might or could fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and confirming all the said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 20th
day of February, 1997.
/s/ THOMAS C. THEOBALD
----------------------------------
Thomas C. Theobald
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 24,582
<SECURITIES> 0
<RECEIVABLES> 7,695
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,681
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 343,843
<CURRENT-LIABILITIES> 49,348
<BONDS> 0
<COMMON> 219,816
0
0
<OTHER-SE> 45,628
<TOTAL-LIABILITY-AND-EQUITY> 343,843
<SALES> 0
<TOTAL-REVENUES> 57,373
<CGS> 0
<TOTAL-COSTS> 6,379
<OTHER-EXPENSES> (1,370)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,834
<INCOME-PRETAX> 50,530
<INCOME-TAX> 4,535
<INCOME-CONTINUING> 45,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,995
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.90
</TABLE>
