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 1.Firms Profile 2.Structuring M&A Transaction and its Financing 3.Structuring Project Financing Transaction in the Czech Republic 4.Parties to Project Financing 5.Securing Investment and Loans 6.Regulatory / Competition Legal Aspects and Implications 7.Risks and Challenges of Investment / Project Financing in the Czech Republic 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 CEE Power 2004, Warsaw

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

A. Forms of Transactions 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,…) CEE Power 2004, Warsaw 2. Structuring M&A + Financing in CZ Energy Sector

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 2. Asset Deal CEE Power 2004, Warsaw 2. Structuring M&A + Financing in CZ Energy Sector A. Forms of Transactions

B. Measures 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 CEE Power 2004, Warsaw 2. Structuring M&A + Financing in CZ Energy Sector

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

1.Equity 2.Loan 3.Grants CEE Power 2004, Warsaw 2. Structuring M&A + Financing in CZ Energy Sector C. Financing

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

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

3. Structuring a Project Financing Transaction CEE Power 2004, Warsaw 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 A. Legal Documentation

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 CEE Power 2004, Warsaw

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

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

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

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)

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

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

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) 6. Regulatory / Competition Legal Aspects CEE Power 2004, Warsaw B. Czech Legislation

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

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

7. Risks and Challenges CEE Power 2004, Warsaw 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 A. Risks

CEE Power 2004, Warsaw 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 7. Risks and Challenges B. Incentives & Challenges

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

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

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

Your contact at Giese & Partner, v.o.s. Dr. Ernst Giese Managing Partner Mgr. Slavomír M. Čauder Utilities Counsel Palác Myslbek Ovocný trh Praha 1 Czech Republic Telephone: Fax: Thank you for your attention! CEE Power 2004, Warsaw