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S e c u r i n g a n d S t r u c t u r i n g

CEE Power 2004, Warsaw . S e c u r i n g a n d S t r u c t u r i n g F i n a n c i n g f o r t h e C z e c h E n e r g y S e c t o r. Dr. Ernst Giese Mgr.Slavomír M. Čauder. 18 June, 2004. CEE Power 2004, Warsaw. Contents. Firms Profile

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S e c u r i n g a n d S t r u c t u r i n g

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  1. CEE Power 2004, Warsaw S e c u r i n g a n d S t r u c t u r i n g F i n a n c i n g f o r t h e C z e c h E n e r g y S e c t o r Dr. Ernst Giese Mgr.Slavomír M. Čauder 18 June, 2004

  2. CEE Power 2004, Warsaw Contents • Firms Profile • Structuring M&A Transaction and its Financing • Structuring Project Financing Transaction in the Czech Republic • Parties to Project Financing • Securing Investment and Loans • Regulatory / Competition Legal Aspects and Implications • Risks and Challenges of Investment / Project Financing in the Czech Republic

  3. CEE Power 2004, Warsaw 1. Giese & Partner, v.o.s. • Found in 1997 • Partner office of Coudert Brothers / Schürmann & Partner • 18 lawyers: • German, US, Czech & Slovak • Specialty: • M&A, Financing, Construction & Energy Law • 90% cross-border business legal advisory • Languages: • English, German, Czech, Slovak, French, • Swedish& Norwegian

  4. CEE Power 2004, Warsaw 2. Structuring M&A + Financing in CZ Energy Sector A. Forms of Transaction • Share Deal • Asset Deal B. Measures • Documents • Steps

  5. CEE Power 2004, Warsaw A. Forms of Transactions 2. Structuring M&A + Financing in CZ Energy Sector 1. Share Deal • Transfer of Liabilities • Transfer of Labour • Large Amount of Representations and Warranties • Importance of Due Diligence • Registration of Acquisition of Shares with Security Centre • Exclusion of Transfer Tax for Real Estate • State or Seller´s Guarantee for Liabilities (tax, unrevealed debts,…)

  6. CEE Power 2004, Warsaw A. Forms of Transactions 2. Structuring M&A + Financing in CZ Energy Sector 2. Asset Deal • No Transfer of Delivery Contracts and Other Key Agreements • No Transfer of Licenses • Specification of Assets • Transfer of Liabilities (if the whole enterprise is acquired) • Hiring of Key Personnel (holder of licenses, executives, etc.) • Loss of Tax Benefits and Other Incentives

  7. CEE Power 2004, Warsaw B. Measures 2. Structuring M&A + Financing in CZ Energy Sector 1. Documents • Confidentiality Agreement • Letter of Intent • Preparation of Transfer Documents • Framework Agreement and Share Transfer Agreement (Share Deal) • Movables, Goodwill, Licenses and Immovables Transfer (Asset Deal) • Financing Documentation

  8. CEE Power 2004, Warsaw B. Measures 2. Structuring M&A + Financing in CZ Energy Sector 2. Steps • Tender • Due Diligence • Appraisal • Signing of Agreement • Closing • Registration of Transfer (CompanyRegister / Security Centre) • Anti-Trust Proceeding (Competition Authority)

  9. CEE Power 2004, Warsaw 2. Structuring M&A + Financing in CZ Energy Sector C. Financing • Equity • Loan • Grants

  10. CEE Power 2004, Warsaw 2. Structuring M&A + Financing in CZ Energy Sector C. Financing 1. Equity • Investors Cash Injection • Technology, Know-how • Contributions-in-Kind (e.g. Machinery) • Financial Investors • Strategic • Institutional • Bond Issues • GoingPublic (IPO)

  11. CEE Power 2004, Warsaw 2. Structuring M&A + Financing in CZ Energy Sector C. Financing 2. Loans • EBRD, KfW, EIB • Commercial Loans (Banks)

  12. CEE Power 2004, Warsaw 3. Structuring a Project Financing Transaction A. Legal Documentation • Letter of Intent/ Memorandum of Understanding / Letter of Information • Info on PC – the Project, Ownership Structure • Financial Projections • Licence (Concession) Contract • Loan Agreements • Standard: Amount, Interest rates, Term of Repayment, Representations & Warranties, Covenants and Events of Default • Special: Completion • Securities / Guarantees

  13. CEE Power 2004, Warsaw 3. Structuring a Project Financing Transaction A. Legal Documentation • Power Purchase Agreement (PPA) • Production Sharing Agreement (PSA) • Engineering, Procurement & Construction Agreement (EPC) • Operation & Maintenance Agreement (O&M) • Fuel Supply Agreement

  14. CEE Power 2004, Warsaw 3. Structuring a Project Financing Transaction B. Financial Assessment Process • Assessment • Calculation • Outcome

  15. CEE Power 2004, Warsaw 3. Structuring a Project Financing Transaction C. Financing Models • Project Financing – new or retrofit electricity generation • Limited recourse financing • Corporate financing • Project Financing -energy efficiency projects • Corporate financing • Add-on facilities

  16. Project Company Sponsors Constructor Operator Supplier Purchaser Lender CEE Power 2004, Warsaw 4. Parties to Project Financing • Private Equity & Venture Capital Funds • Multilateral Financing Organisation • Export Credit Agency (ECA) • Insurer • Experts • Host Government

  17. CEE Power 2004, Warsaw 5. Securing Investment and Loans A. Securities • Pledge of Shares of the Project Company (PC) • Pledge of all Real Estate of the PC • Pledge of Movables of the PC • Pledge of Intangibles of the PC • Pledge of Governmental Licence / Concession Contract • Assignment of Receivables • Subordination Agreements • Hedging Agreements (interest & currency exchange)

  18. CEE Power 2004, Warsaw 5. Securing Investment and Loans B. Guarantees • Governmental • Letter of Comfort • Third-party Guarantee

  19. PrimarySources – Integration Agreements SecondarySources: Directive 2003/54/EC – E-Directive Directive 2003/55/EC – G-Directive Regulation 1228/2003 Directive 2001/7/EC Directive 2004/8/EC CEE Power 2004, Warsaw 6. Regulatory / Competition Legal Aspects A. EU - Legislation

  20. Regulated Sectors: Electricity, Natural Gas, Heating Legislation: Primary Legislation: Energy Act No. 458/2000 Coll., Energy Management Act No. 406/2000 Coll. Secondary Legislation: Issued by Ministry of Industry & Trade Issued by Regulatory Body (ERU) CEE Power 2004, Warsaw 6. Regulatory / Competition Legal Aspects B. Czech Legislation

  21. Scope of Competence: Licencing Price Regulation Issuance of Legislative Regulations / Decrees Disputes Resolution Publishing of Energy Regulation Bulletin CEE Power 2004, Warsaw 6. Regulatory / Competition Legal Aspects C. Energy Regulatory Office

  22. Pre-completion Risks: Time Overrun Capital Cost Overrun Post-completion Risks: Technology Market Political & Legal Operation Fuel Financial CEE Power 2004, Warsaw 7. Risks and Challenges A. Risks

  23. Adverse, unforeseen events Cross-border Jurisdictional Issues Delays in Development, Construction or Operating Phase Failure of a Transaction´s Financing Collapse of Particular Sector of Economy CEE Power 2004, Warsaw 7. Risks and Challenges A. Risks

  24. For the Foreign Investor: Access to new markets Well developed infrastructure Favourable geographical position of Czech Republic Lower wages and ancillary wage costs High degree of education of Czech labour For the Czech Partner: Transfer of technology New investment Improvement of capital resources Better utilization of production capacity Strengthening of domestic market position Access to foreign markets CEE Power 2004, Warsaw 7. Risks and Challenges B. Incentives & Challenges

  25. SPV Shareholder Structure Sponsor 5 Sponsor 4 Sponsor 3 Sponsor 2 Sponsor 1 Intermediate Intermediate Intermediate Intermediate Intermediate Shareholder Entity 1 Shareholders Agreement Ordinary Shares and Shareholder Loans Government or Utility SPV Concession Agreement, PPA, etc. Project

  26. Typical Project Financing Structure Sponsor 5 Security Agent/ Trustee Sponsor 4 Sponsor 3 Sponsor 2 Intercreditor and Security Sharing Agreement Intermediate Intermediate Sponsor 1 Multilateral and Bilateral Lenders Intermediate Multilateral and Bilateral A & B Loans Intermediate Intermediate Shareholder Entity 1 Shareholders Agreement Commercial B Lenders Ordinary Shares and Shareholder Loans ECAs SPV ECA and ECA- guaranteed Loans Project

  27. Typical Project Financing Security Structure Sponsor 5 Sponsor 4 Sponsor 3 Sponsor 2 Intermediate Intermediate Sponsor 1 Multilateral and Bilateral Lenders Intermediate Intermediate Intermediate Shareholder Entity 1 Pledge of Shares of Project Company Shareholders Agreement Commercial B Lenders Ordinary Shares and Shareholder Loans SPV Security Documents Security Agent/ Trustee ECAs SPV Security Interest in SPV’s Assets Intercreditor and Security Sharing Agreement Project

  28. Dr. Ernst Giese Managing Partner Mgr. Slavomír M. Čauder Utilities Counsel Palác Myslbek Ovocný trh 8 117 19 Praha 1 Czech Republic Telephone: 00420 221 411 511 Fax: 00420 222 244 469 E-mail: giese@giese.cz, cauder@giese.cz CEE Power 2004, Warsaw Your contact at Giese & Partner, v.o.s. Thank you for your attention!

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