Free Motion to Compel - District Court of Federal Claims - federal

Case 1:06-cv-00305-MBH

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EXHIBIT C-l

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Date: November 20. 1997
To:

Robert Stelben
Hyman Schoenblum

From:

Brian DePlautt
Consolidated Edison Development. Inc~ EZH Lease

He:

The following is an update regarding certain accounting and tax aspects of the EZH transaction.
(1) Tax Risk Letter

Shearman & Sterling is finalizing the Tax Risk Letter. which wil outlne ,the major tax risks in the 467 structure, and hopes to have it to us by Thursday, November

20. or Friday November 21.
The critical path on this item is: (a): the completion and turnaround of the tax partner's final comments to the existing draft letter.
(2) Tax Change Letter
Shearman & Sterting is finalizing the Tax Change Letter, which wil'

outlne the

retroactive or prospective nature of historical changes in leveraged lease tax regulations, and hopes to have it to us by Thursday, November 20, or Friday~

November 21.
The critical paths on this item are: (a) the completion of the legislative history research on one of the 'changes and (b) the completion and turnaround of the tax partnets comments to the existinQ draft letter.

Shearman has indicated that they would like to reserve the right to delay delivery to us of one of these two letters beyond the target delivery dates in the event they are required to fight fires on other fronts.
, (3) Arthur Ande'rson Accounting Letter

Arthur Anderson rAAft) has prepared a draft'accunting letter and is the process , of drafting an added paragraph to the letter. The added paragraph is said to address what the accounting treatment would be, starting in year 21, in'the event that EZH did not exercise its Fixed Purchase Option ("FPO") in year 20.

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The critical paths on this item are: (a) AA:s review of the clarifcations of the transaction structure provided to it last night. (b) the drafting by the partner of the added paragraph that deals with what happens in the event EZH does not exercise the FPO and (c ) the conceptualization of the specific accounting e,~tries that would be required in the event the proposed phase two treatment were to be

implemented. --' _. -- '

AA has indicated that it wil seek to provide us with verbal direction with respect
to the resolution of these issues on Thursday November 20, subject to ti,me constraints at the parter level, with a letter to follow as soon, as possible. We Gontinue to reiterate to AA the immediate urgency of our desire for the resolution of these issues and the receipt of their letter.

cc: MJ McCartney J. Freilch C. Muoio

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EXHIBIT C-2

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Date: November 21, 1997

To: Mary Jane McCartney
From:

Brian DePlautt
Consolidated Edison Development, Inc. EZH Lease Status Update

Re:

The following is the current status on some of the issues on the EZH Lease:
(1) Accounting

We anticipate receiving the latest draft of the Arthur Andersen accunting letter Monday morning and will distribute it to PW and internally when we receive it.
We have delivered writte~ responses to all of PW's questions and are awaiting

their questions.
We have requested Jim Dewey to contact Leo Naughton of PW. Leo is a former tax partner at Shearman & Sterling and employee of the US Treasury who is heading up ,8 lease advisory business at PW which represents Lessors in 467 lease in I lease out. transactions. Leo and his team recently make a proposals to CEO to either: (a) represent lessors bringing 467 lease in ¡lease out transactions to CEO to invest in, or (b) to provide CEO with buy side lease advisory services

in support of CEO's pursuit ofthese transactions. '
To the extent that Leo's group is actively involved on both the buy and sell side of these transactions it is' possible that he may be able to provide some insight to the audit side of PW regarding the way in which the partcipants in the 467 lease market account for these transactions. ,Leo is awaiting Jlms' call.
(2) Internal Legal

We have retained Can Edison's legal departent to read the project documents

and to help prepare the legal deliva-rabies. on the transaction such as
was a tax specialist. prior to joining Con' Edison. We

available project agreements to' him as well as the Project Briefing

Memorandum. '

Incumbency Certficates etc. The primary point of contact is Andrew Scher who have dèlivered all of the

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(3) Tax History Letter

Shearman & Sterling has delivered their tax history letter to us which reviews the

history of tax law and code changes relating to leveraged leases.,. The, letter covers research for the period 1985 to the present and is available for
distribution to any interested parties. We have distributed this letter to the Can Edison attorney who is helping us with Legal Services.
(4 ) Tax Risk Letter

Shearman & Sterling has delivered their tax risk letter to us and it is in
conformance with the conversations and meetings we have had with them in the past. We have distributed this letter to the Con Edison attorney who is helping

us with Legal Services.

cc: J. Freilich

R. Stelben H. Schoenblum C. Muoio

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EXHIBIT C-3

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13. RISK ANALYSIS
RISK
MITGA nON
ESTIMATED REMAINING RISK LEVEL

Poliical and Regulatory
Expropriation

(a) AA rated Country

Low

(b) Equity exposure defeased by (i) AA Bank UC and (ii)
Political Violence

Treasury securities (a) AA rated Country
(b )Equity' exposure defeased by (i) AA Bank UC and (ii)
Treasury securites

Low

Change in Law

(a) AA rated Countr
(b) Equity exposure defeased

Low
(ii)

by (i) M Bank LC and
change in law risk

Treasury securities (c) EZH takes all focal country

Currency
InconvertibilityfT ransfer

(a) AM rated Country
(b) Currently fully convertible (c) No negative history (a) All payments payable in US Dollars (b) Sublease payments

Low

Devaluation

Low

supported by (i) AA Bank UC and defeased by (ii) Treasury
securities. both denominated in US Dollars

Financing
Debt Availability

Bank debt will close on the
same day the Head Lease and
Sublease close (together the
.Closing Date").

Low

Interest Rate Changes

Interest rates will be fixed on . the Closing Date

Low

Technology
Existing Plant

(1) Newly constructed plant

low

(2) Over 500 units of the Frame
E installed.

(3) Satisfactory engineering report from Duke Engineering to
be received prior to closing.

47

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New Plants Stranded Assets

Not applicable

-

Upcoing regulations (Dutch Electricity Act, and EU Directive
on open border competition in electicity) could expose EZH to competitive pressures from EDF, VEBA and others selling at be/ow fully loaded costs.
Mitigations of this risk are (a)

Low

consolidation

of

the

Dutch

Genco's in a larger, stronger
firm, (b) fully defeased nature of EZH Obligations which transfer credit risk from EZH to M
Banks and Treasury secrities.

Construction Risk
EPC Contractor Guarantees
Plant is complete and operating

nla
Low

Use of proven technologies -CT

GE E Frame family (7E and 9E)

has an installed fleet of over
500 units worldwide.

Use of proven technologies
STG

-

Use of proven tecnologies HRSG
Use of proven

ABB condensing steam turbine is standard technology. Stork Ketels waste heat boiler is standard technology

Low

low
Open

technologies -

Stor Ketels C02 boiler is an
open item. This technology, and the design, construction and operation needs to be
reviewed in the due dilgence

C02 boiler

process.
Fixed price EPC contract Heat Rate
Plant is complete and operating Risk is held by EZH

nla
Low

Plant Operations
Operations & Maintenance
Force Majeure

Risk is held by EZH
Risk is he/d by EZH

Low

low

Fuel
Availability

Risk is held by EZH

low

48

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Price Fluctuations

Risk is held by EZH

Low

EZH Performance

Sublease Rent - Project Debt (8)
Portion

Secured by Ihe Debl Defeasance Deposit, invested

Low

in M Bank deposit, pledged to
Sublease Rent - Equity Portion

Fixed Price Option Payment

lender bank. (a) Secured by the Investor Defeasance Deposit, invested in Treasury securities. (a) Secured by the Investor Defeasance Deposit, invested in Treasury securities
(a) Secured by the combination

Low

Low

Early Termination Amounts

of (b) M Bank UC and (b)
Investor Defeasance Deposit,
invested in Treasury secrities,

low

Dutch taxes
Change in Dutch tax law
Full indemnity from EZH
Low

US taes

Headlease Is not a true lease, Legal opinion is expected to be
and Sublease is a true lease,

Low

a .should" ( 60 - 90%)

hence CEO is deemed purchaser of the asset, and
plant straight line over 47 yrs

the

CEO is forced to depreiate the

Headlease is a true lease, and

Legal opinion is expected to be
a .should" (80 -90% )

Sublease is not a tre lease,

low

hence equity investment deemed 8 loan, and

is

CED is not allowed to deduct Headlease rent, and is deemed,
to receive interest income from

Sublessee

Headlease Is a disqualified Legal opinion is expected to be leaseback, a "reason~d should" (80 - 85%)

Low

hence, Constant rental accruals
required on headlease. and deductions are back loaded

49

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disregarded, both leases are
considered one lease,

Sublease

put

renewal

is Legal opinion is expected to be
a .should" ( 80 - 90%)

Low

hence, Sublease rentleiielization required. and

ceo

is forced to frontload Sublease rental income.

467 Regs are finalized prior to close and transaction fails to close

EZH

pays

all

third

part

Medium

transaction costs.

Accounting Headlease will not pass the (a) Industry practice survey FASB 13 test for leveraged from Cornerstone indicates the leases. following firms consistently
close trnsactions similar to the EZH transaction including (1) PSRC, (2) Ouquense (3) Nynex, (4) Ameritech, (5) Banc
One. and (6) Bank of New York.

Low

Environmental
Existing Plant
'(1 )

New Plant

Tauw Mileu b.v. Netherlands engineer report. (2) Full Indemnity from EZH Tauw Milieu b.II.. (1 ) Netherlands engineer report (2) Full Indemnity from EZH

Low

Low

labor
Inadequate Skils

Unrest
Worst Case Scenario
Total Project Collapse

Risk is held by EZH Risk is held by EZH

low
Low

Project structure collapses and
Trust draws on Bank UC. Debt

Low

Defeasance and Treasury securites for payment of
outs

landing debt and equity

50

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EXHIBIT C-4

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leasing White Paper

Executive Summary
One element of a diversified investment portolio for Con Edison is the relatively low risk and attractive return profie of leases. This paper describes sale-Ieasebacks, identifies major risks and benefis, and details a recmmended investment.

loaded earnings, and

Investments of this type would be accunted for as leveraged leases, allowing for frontgenerate after tax yields of between 15% and 25% over their lives,

after taking accunt of typical capital strcture and debt costs.
The earnings come from a combination of lease payments and tax deductions. Con Edison, with its high tax rate and large taxable income position. is in a particularly favorable position
to take advantage of such a program.

What is a sale-leaseback?
In its most basic form, a sale-Ieaseba~ is ,the purchase of an asset and the subsequent leaseback of that asset to the seller under a long term lease agreement. Under a so-clled .Ie~eraged lease", the investor uses non-recourse debt to reduce the equity needed to purchase the asset.
Since its inception in 196, the leveraged leasing market has continually developed new
variations on this basic theme to accmmodate increasingly complex accunting and tax

laws and regulations. The latest of these variations are the .Iease-Ieaseback. structures in
which an asset is leased (instead of purchased) and the leaseho,ld rights derived from that lease are then leased back to the initial owner of the facility. Lease-leaseback structures have been developed to optimize the benefis that can be derived by the utiity and the

investor in these transactions.
What kind of lease structures wil be considered?
Under the proposed investment program, investments wil be considered in both saleleasebacks and lease-Ieasebacks, depending on prevailng market conditions.
Because the specific transaction currently under consideration by CEO is a lease-leaseback

we wil use this type of structure in our example of a typical transaction.
How would a typical transaction work?
In a typicallease-leaseback transaction, a special purpose subsidiary owned by an investor, in this case CEO,would establish a trst. On the closing date, CEO would invest equity in the trust and the trust would borrow non-recourse debt for the project. Concurrently the trust would enter into a lease agreement with a utility under which the trust would lease an asset,

for example a power plant, from the utilty for 44 years. The trust would, at the same time,
lease the plant back to the utilty for 20 years, after which the trust would have a number of

options, described below. The initial 20 year term of the leaseback has been chosen to

CE 012018

qptimize the benefits aVøiiable to both the utilty and the investor. A 44 year leaseback

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would not qualif for the tax treatment that CED and the foreign utility seek.
On the closing date of the lease, the utility would establish, for the benefi of CEO, (a) a trust accunt containing U.S. Treasury securities and (b) an irrevocable bank letter of credit from a bank rated AA or better, both in amounts that, when combined, fully secure the obligations

of the utilty to CED. In the event the utilty were to fail to make the payments due to CED
under the lease, CEO could take the U.S. Treasury securities and draw on the letter of credit to satisfy any shortalls.

At the end of the initial 20 year lease, the utiity would have the option to purchase the plant

at a pre-agreed fixed price. If the utiliy did purchase the plant at this time, the transaction would be completed. If the utility did not purchase the plant at the end of year 20, the trust
would have the option to either (a) lease the plant to a third party for the remaining 24 years of the lease, (b) use the plant itself, or (c ) require the utilty to re-lease the plant for an additional 17 years at prices that would assure CEO of its expected return,

Responsibility for the condition of the plant would rest with the utilty during the initial tem of
the lease, and with the third party during a subsequent lease. During the remaining seven years under the lease, CEO could either use the plant itself or lease the plant to third parties and in doing so obtain additional revenue. The base case economics assume no revenue for this period. At the end of the 44 year lease CEO would be required to return the plant to the utility.

How would CEO derive its return under a sale-leaseback?
Under a typical lease-leaseback structure an investots earnings are generated by applying a constant rate of return to a declining investment balance accrding to lease aCcunting

rules established by the Financial Accunting Standards Board. As the investment balance
declines so do'the eamings and hence the earnings are front-loaded.
The following c1art de,tails the earnings profile for the first 10 years of a typical

leaseback

lease-

Year
(U.S$)

Investment
43,047,734

Eam!ngs

1997 1998 1999 2000 2001 2002

353,054 4,154,042 3,961,165
,3,748,210-

,2003
2004 200.5, 2000

3,512,950 3,252,891 2,965,245
-2,646~897

2,294,361 1,903,735

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The following graph details the earnings for a typicallease-Ieas,eback.
NET INCME FROM LEASING

7,00,00

6,00,00 5,00,00

::
0)

.,00,00
3,00,00
2,00,00
1 ,00,00
o

~ ~ ~ ~ m~ ~ ~ ~ ~ N ~ ~ ~ ~ ~ ~ ~ ~ ~ ; ~ ~
YEAR

llil\ l.Mi I

The transactions conternplated will be structured in such a way that CEO will obtain the same yields and rates of return regardless of whether the utiity exercises its purchase option at the end of year 20 or is required to re-lease the plant for an additional 17 years.

Do we have a specifc trnsaction in mind?

CEO's strategy wil be ,to invest in transactions in conjunction with experienced market participants, to concentrate on assets familar to Can Edison and to deal with utilties in

countries with high credit ratings.
CEO is currently pursuing the potential investrnent of $43 milion in a recently commissioned the RoCa3 plant, located near the city of Rotterdam in the Netherlands. The plaRt. owned by EZH. one of the four regulated generation utilties in the Netherlands, is currently undergoing engineering, environmental, and valuation reviews
gas-fired combined cycle power plant,

by our consultants, and has, recently been inspected by internal personneL.

We are pursuing this investment opportunity in conjunction with an experienced and

knowledgeable lease investor, Bank One Leasing Inc. Bank One and CEO have retained
Shearman & Sterling for tax and legal advice, and, among others, Duke Engineering for engineering reviews, Tauw Mileu, a well-respected Dutch environmental firm, for an environmental assessment and Deloitte & Touche for valuation assessments of the plant.

The transaction is anticipated to generate over $4 milion in earnings during 1998 and is
expected to' generate an after tax yield of 19.7%, assuming that CEO's investment is 50%

equity/50% debt.

CE 012020

Case 1:06-cv-00305-MBH Document 21-5 Filed 04/03/2007 , What are major benefits frorn these transactions to the investor?
(1) Highly Predictable Earnings

Page 16 of 52

The earnings from these transactions are highly predictable because each of the cash inflows and outfows to the transaction is contractually agreed to on the closing date and because the utility's lease obligations are fully secured by the U.S. Treasuries and the bank letter of credit.
(2) Front Loaded Earnings

Because the transactions wil be afforded leveraged lease accunting treatment under
Financial Accunting Standards Board rules, the earnings profie for these transactions is "front-loaded' and hence provides more earnings in the early years of the transaction than in the latter years of the transaction.
(3) Good to Excellent Investment Yields

After tax yields on leasing projects are anticipated to range from a good 15% to an excellent 25% depending on the type of lease structure utilized and the leverage applied. For
example, under the initial

relatively conservative leverage rate of 50%. Measurement of after tax yields, assuming a theoretical case in which the corporation has no debt (the so called Kall equity return-) range from 9.0% to 12.3%.
(4) Economic Value

lease investment contemplated the return of 19.7% assumes a

Because of the utilty payment protection structures and the low probabilty of losses derived from adverse tax actions, the risk adjusted rates of return exceed the required rates of return for these investments.
(5) Strategic Value ,of Leasing

Participation in these transactions affords CED the opportunity to more fully understand the legal, regulatory, comrnercial and tax environment of the countries in which the leased assets are located. This in~epth understanding can provide the basis for better informed

decisions regarding potential investrnent and partnering opportunities as the utilty
infrastructures in these highly developed countries are opened to investments from external

sources.
What are major benefits from these transactions to the utilty?

In entering into these transactions, the utilty is able, at I!ttle or no perceived risk to itself, to obtain (a) up to 1.00% long term financing for a plant, (b) interest rates that may be lower

than those available from domestic credit sources and (c) front-ed loaded funding benefis, while maintaining operating control of the plant. In the case of the, investment contemplated
by

CEO, the benefit to the utility is about 6.9% of the asset value. or $10.3 milion.

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What are the major risks from these transactions to the investor?
(1) Utiity Credit Risks

Perhaps the greatest risk to the trust is the risk that the utilty wil default on its obligation to pay rent during the lease tenn, In order to minimize this risk the trust wil require that the

utilitys lease obligations be fully secured by a combination of U.S. Treasury securities and
letters of credit issued by banks with S&P ratings of AA or above. In the event the utilty fails

to make the lease rent payments due, the investor can use the Treasuries and the proceeds
from the letter of credit to return its capital and to provide it with its expected yield.
(2) Foreign Country Tax Risks

Another major risk implicit in the transaction is the risk that the tax laws or regulations of the
country in which the asset is located change in a way that would result in lower returns to the
trust, and hence the investor. Investments under the proposed program would be structured

so that the risks associated with foreign country tax law changes would be fully borne by the utility,

(3) Pending U.S. Tax Regulations

Pending tax regulations, if enacted, could significantly reduce the tax benefit to be derived
by investors in lease-leaseback transactions such as the investment under consideration by

CEO, as described above.

If. the pending regulations are published prior to the closing date, CED wil defer the

contemplated iiivestment pending a restructuring of the transaction.
(4) U.S. Tax Audits
It is anticipate,d thc;t,' the transactions will be

to the structure' by the IRS under 'current re ulations diffcult to su ort or Iiti a e

strctured in ways that will make any challenges

ur tax counsel, is very advising on leveraged iease transactions.

In the worst casè tax scenario, a Claim would be liigated and won in tax court by the IRS. In this case, financial analysis indicates a 100% return of CEO's capital and a return on capital of 2.4% over the lease term.

CE 012022

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. .,' ,"'. ' (5)

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Country Risks

The proposed investrnent program wil target investments in developed anq highly rated countries. The initial proposed investment under the program will be in the AM-rated Netherlands. Potential downstream opportunities include transactions in the Netherlands, Switzerland, Australia, Germany and the United States.' The contemplated transactions will

be fully denominated in U.S. dollars and wil have no foreign exchange risks.
(6) ,Limited liquidity

' ,

Investments in the assets contemplated under the proposed investment program are

designed to generate earnings and cash flow over extended periods of time. While these
investments do not cany the liqUidity of publicly-traded securities, they can be sold if

necessary, although most likely at a discount to then-crrent book value. The economics of
these investment structures typically drive most investors to continue to maintain the investments on their books through their scheduled terms. The proposed investment

program contemplates holding these investments accrdingly.

Is anyone else doing these transactions?
Leasing investment programs form an integral part of the earnings and investment profies of
a wide range of companies, inclUding electric and gas utilities and holding companies such as Public Service Enterprise Group, Duquesne light, Edison International, Southern Company, Cilcorp, and Southern Indiana Gas; telephone companies such as A TT, NynexlBellAtlantic, Ameritech, and US West; banks such as, Bank of New York, First

Chicago, Nationsbank, Bank One, and First Chicago; various insurance companies, as well
as industrial corporations such as Philp Morris, Pitney Bowes, Chrysler Corporation, Dana Corporation and General Electric.

What

are we

requesting approval to do?

Approval is requested to initiate a leasing investment program and

'to make such investments as are deemed reasonable by the Board of Directors of CEO, within the capital allocations made to CEO from time to time by the Board of Direcors of the hOlding company.
One of the requirements the market

the order of $190 millon. To provide for the necessary'net worth requirement as well as to provide for funds tornake'the equity investments, management also requests that'it be given
the authority to make additional investments in CED sufcient to satis'fy the net worth

,imposes is that investors haye a substantial net worth, in

requirements.

CE 012023

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EXHIBIT C-5

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From: Windows/admin/Brian Sent: 2/9/1998 6:46:48 PM (Eastern Time) To: 'Mary Jane McCartney'

CC: 'Chuck Muoio'
Attachments: ENECO WHITE PAPER 4.DOC
Subj ect: ENECO Whi te Paper
The following is the ENE CO White Paper with the changes requested. At the end of this White Paper is an attachment of the White Paper which should show the

graph.
Leasing Whi te Paper

(ENECO 4)

OVerview
This Leasing Whi te Paper will provide the reader with the following information: (1) a swnary review of a recent lease investment made by Consolidated Edison Development, Inc. (UCED'), (2) a swnary review of a new lease investment CEO is pursuing, and (3) a general background on leasing.

(1) Sumary Review of Recent Lease Investment

CED has participated in one lease-leaseback transaction to date. In Decemer 1997 CED invested $43. 5mm for a $150mm undivided interest in the EZH RoCa3 combined cycle power plant located in the Netherlands. The following is a

sumary of that transaction:

Country Credit Rating: AM

Project Name: EZH RoCa3 Project Country: The Netherlands

Project Assets: 220MW gas-fired combined cycle power plant Project Location; Rotterda, the Netherlands Total Project Cost: $316mm CEO Portion of Total Cost: $15Om

CEO Equi ty Amount: $43. Smm

Co-investor: Banc One Leasing Corpration
Security for CEO Equity: US Treasury securities plus Letter of credit from AA rated bank CEO Yield to term: 18+% (assuming a 50%/50% debt/equity)
(2) Sumary Review of a Potential New Lease Investment
CED is currently pursuing the potential investment of approximately $43 million in a portion of the natural gas and hot water distribution network pre~ently owned and operated by N. V. ENECO. ENECO is a regulated electric, gas and therml distribution utility with a service territory which includes the cities

of Rotterda and The Hague in the southern portion of the Netherlands. ENECO
is rated AA with a "stable" outlook by Standard & Poors.
CEO's market entry strategy is to invest in transactions in conjunction wi th experienced market participants, to concentrate on assets familiar to Con Edison and to deal with utilities in countries with high credit ratings. CEO is pursuing this investment opportunity in conjunction with two experienced and

CE 011957

recommended investmen t .

--- ~- - -- - -------.--, -.._.. -........'" """JV'" ....Ol\i: ciIiU ut:ne.i i l:S, ana aei;aiis a

Investments of this type would be accounted for as leveraged leases, allowing for front-loaded earnings, and generate after tax yields of between 10% and 25% over their lives, after taking account of typical capital structure and debt

costs.

The earnings in these transactions come from a combination of lease payments and tax deductions. Con Edison, wi th its high tax rate and large taxable income position, is in a particularly favorable position to take advntage of such a program.
What is a sale-leaseback?

In its most basic form, a sale-leaseback is the purchase of an asset and the subsequent leaseback of that asset to the seller under a long term lease

I'r: ".I oII1U!O

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agreement. Under a so-called "leveraged lease," the investor uses non-recourse debt to reduce the equi ty needed to purchase the asset.
Since its inception in 1964, the leveraged leasing market has continually developed new variations on this basic theme to accommodate increasingly complex accounting and tax laws and regulations. The latest of these variations are the "lease-leaseback" structures in which an asset is leased (instead of purchased) and the leasehold rights derived from that lease are then leased back to the ini tial owner of the facility. Lease-leaseback structures have been developed to optimize the benefits that can be derived by the utility (lessee) and the investor in these transactions. What kind of lease structures will be considered?

Under the proposed investment program, investments will be considered in both

sale-leasebacks and lease-leasebacks, depending on prevailing market condi tions.
Because the specific transaction currently under consideration by CEO is a lease-leaseback we will use this type of structure in our example of a typical

transaction.

How would a typical transaction work?

In a typical lease-leaseback transaction, a special purpse subsidiary owned by an investor, in this case CEO, would establish a trust. On the closing date, CEO would invest eqity in the trust and the trust would borrow non-recourse det for the transaction. Concurrently the trust would enter into a lease agreement with a utility under which the trust would lease an asset, for example a gas and hot water distribution system, from the utility for 42 years. The trust would, at the same time, lease the system back to the utili ty

for 23 years, after which the trust would have a numr of options, described

below. The initial 23 year term of the leaseback has been chosen to optimize the benefits available to both the utility and the investor. A 42-year leaseback would qualify for the tax treatment that CEO and the foreign utility

seek.
On the closing date of the lease, the utility would establish, for the benefit of CEO, (a) a trust account containing U. S Treasury securi ties and (b) an irrevocable bank letter of credit from a bank rated AA or better, both in amounts that, when combined, fully secure the obligations of the utility to CEO. In the event the utility were to fail to make the payments due to CEO

under the lease, CEO could take the U. S. Treasury securi ties and draw on the
letter of credit to satisfy any shortfalls.

At the end of the initial 23 year lease, the utility would have the option to purchase the system at a pre-agreed fixed price ~ If the utility did purchase the system at this time, the transaction would be completed. If the utility did not purchase the system at the end of year 23, the trust would have the option to either (a) lease the system to a third party for the remining 19 years of the lease, (b) use the system itself, or (c) require the utility to re-lease the system for an additional 12 years at prices that would assure CEO of its expected return.

during the initial term of the lease, and with the third party or the utili ty
CE 011959

Responsibility for the condition of the system would rest with the utility

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during a subsequent lease. During the remining 7 years under the lease, CEO could either use the system itself, return the system to the utility or lease the system to third parties and in doing so obtain addi tional revenue. The base case economics assume no revenue for this period. At the end of the 42-year lease CEO would be required to return the system to the utility.
How would CEO derive its return under a lease-leaseback?

Under a typical lease-leasebck structure an investor's earnings are generated by applying a constant rate of return to a declining investment balance according to lease accounting rules established by the Financial Accounting

Standards Board. As the investment balance declines so do the earnings and
Year Investment
1998 42.9 2.3 1999 2.4 2000 2.3 2001 2.2 2002 2.1 2003 2.0 2004 1. 8 2005 1. 7 2006 1.6 2007 1.4
The following chart details the earnings for a typical lease-leaseback
($MM) Earnings ($MM)

hence the earnings are front-loaded. The following schedule details the earnings profile for the first 10 years of a typical lease-leaseback

It is anticipated that transactions will be structured such that CEO will obtain approximately the same earnings regardless of whether the utility exercises its purchase option or not.

What are major benefits from these transactions to the investor?

1. Highly Predictale Earnings
The earnings from these transactions are highly predictable because each of the cash inflows and outflows to the transaction are contractually agreed to on the closing date and because, in the event of a utility payment default, the trust

can take the U. S. Treasuries and draw on the bank letter of credi t .
2. Fron t Loaded Earnings

Because the transactions will be afforded leveraged lease accounting treatment under Financial Accounting Standards Board rules, the earnings profile for these transactions is "front-loaded' and hence provides more earnings in the early years of the transaction than in the latter years of the transaction.

3. Good to Excellent Investment Yields
After tax yields on leasing projects are anticipated to range from a good 10%
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to an excellent 25% depending on the type of lease structure utilized and the leverage applied. For example, under the initial lease investment contemplated the return of 12.5% assumes a relatively conservative leverage rate of 50%. Measurement of after tax yields, assuming a theoretical case in which the corporation has no debt (the so called ~all equity return") typically range
from 8. 5% to 12.5%.

4. Economic Value

Because of the utility payment protection structures and the relatively low probabili ty of losses derived from adverse tax actions, the risk adjusted rates of return exceed the required rates of return for these investments.

5. strategic Value of Leasing
Participation in these transactions affords CEO the opportunity to more fully understand the legal, regulatory, commercial and tax environment of the countries in which the leased assets are located. This in-depth understanding can provide the basis for better informed decisions regarding potential investment and partnering opportunities as the utility infrastructures in these highly developed countries are opened to investments from external sources.

What are major benefi ts from these transactions to the utility?

In entering into these transactions, the utility is able, at Ii ttle or no
perceived risk to itself, to obtain (a) up to 100% long term financing for a system, (b) interest rates that may be lower than those available from domestic credit sources and (c) front-end loaded funding benefits, while maintaining operating control of the system. In the case of the investment contemplated by CEO, the net cash benefit to the utility is approximately 3% of the value of the leased asset, or approximately $8.5 million.

What are the major risks from these transactions to the' investor?
1. Utility Credit Risks
Perhaps the greatest risk to the trust is the risk that the utility will defaùlt on its obligation to pay rent during the lease term. In order to minimize this risk the trust will require that the utility's lease obligations be fully secured by a combination of U. S. Treasury securities and letters of credt issued by banks with S&P ratings of AA or above. In the event the utili ty fails to make the lease rent payments due, the investor can use the Treasuries and the proceeds from the letter of credit to return its capital and to provide it wi th its expected yield.

2. Foreign Country Tax Risks
Another major risk implicit in the transaction is the risk that the tax laws or regulations of the country in which the asset is located change in a way that would result in lower returns to the trust, and hence the investor. Investments under the proposed program would be structured so that the risks associated with foreign country tax law changes would be fully borne by the

utility.

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3. Pending U. S. Tax Regulations

Pending tax regulations, if enacted, could significantly reduce the tax benefit to be derived by investors in lease-leaseback transactions such as the

investment under consideration by CED, as described abve.

i _ ---------==//~ I ~ J~
4. U. S. Tax Audi ts
II rl'fiCU1~ to sU(!rt or litigate by the IRS.

If the pending regulations are published prior to the closing date, CED will defer the contemplated investment pending a restructuring of the transaction.

It is anticipated that the transactions will be structured in ways that will make any challenges to the structure by the IRS under current regulations

counsel is very exprienced in negotiating and advising on l~rag~~e;:

transactions. In a downside tax scenario a claim would be li tigated and won in tax court by
the IRS. In this case, financial analysis indicates a return of CEO's capital with a return on CEO's capital of 2.4% over the lease term.
5. Country Risks

The proposed investment program will target investments in developed and highly rated countries. The initial proposed investment under the program will be in the AA-rated Netherlands. Potential downstream opportunities incl de

transactions in the Netherlands, Switzerland, Australia,' Germny an the United
States. The contemplated transactions will be fully denominated in U.S.

dollars.

6 . Limi ted Liquidi ty

are designed to generate earnings and cash flow over extended periods of time.
While these investments do not carry the liquidity of publicly-traded securities, they can be sold if necessary, although most likely at a discount to then-current book value. The economics of these investment structures typically drive most investors to continue to maintain the investments on their books through their scheduled terms. The proposed investment program contemplates holding these investments accordingly.
Is anyone else doing these transactions?
Leasing investment programs form' an integral part of the earnings and investment profiles of a wide range of companies, including affiliates of electric and gas utili ties and holding companies such as Public Service Electric and Gas, Duquesne Light, Edison International, Southern Company, CE 011962

Investments in the assets contemplated under the proposed investment program

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Cilcorp, and Sou thern Indiana Gas; telephone companies such as ATT, Nyex/Sell Atiantic, Ameritech, and US West; banks such as Bank of New York, First Chicago, Nationsbank, Bank One, and First Chicago; various insurance companies, as well as industrial corporations such as Philip Morris, Pitney Bowes, Chrysier Corporation, Dana Corporation and Generai Eiectric.

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EXHIBIT C-6

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""

,-Æ. ii~ì-; ~JPT'~fr"L,.~;t1 .it.tr-jJ;0S1;1t,';..a.";',;¡,.~~.'" ::~\ \ 0''!"7't\'~'.fl~t"'' It ~r~~ ~'i:r';J"''')'ï. i.t-r'!.'~)i.~¡;;t":~i:,t",l"A', ¡ r.1.'~.~'('i~ \', ~;:"" ''''__~ '~hi:f."'\i~ l~I,~i,t:_t.lh~~¡:.~ r l r;. r.~.l. ê: ~ ,'r ~,~~. ~ .i." /~\ü'~I~\1").1 :d.'~\-~ ~:l: ~_.",l, "0''' .E~,ì\~:;;('~-:r!(~";.~r~~.:':f¡i...t;..:Jf~'t~ _tr"t:',y.i.":~1i\t"t;.7;r!~ \"t:i"J,~;,q-~::;;.i.l;

From: Brian DePlautt
Sent: Friday. December 12,19979:31 PM To: 'Mary Jane McCartney'
Cc: 'Joan Freilich'; 'Paul Kinkel'; 'Robert Stelben'; 'H SCHOEN

BLUM'; 'Chuck Muoio'; 'Peter

Irwin'; 'John Perkins'; 'James Tam': 'Andy Scher' --- ' ... -- , Subject: EZH LEASE UPDATE

The following is a status update on the EZH lease transaction.

(1) Rumors continue to circulate in the market that final' 467 Regulations may be

issued sometime next week. The proposed Regulations state that the

Regulations would be final on the day following the day in which the Regulations were published in the Federal Register. Hence if the Regulations were published in the Federal Register on Monday December 15, lease agreements entered into

on Tuesday Oecember 16 would be subject to the, new regulations, but lease
agreements entered into on Monday December 15 would not be subject to the Regulations.
(2) The parties working on the EZH transaction, including EZH, Bank One, Can

Edison, White & Case, Shearman & Sterling, Capstar and Cornerstone have
to achieve a closing, if necessary, sometime during the evening of Monday

agreed to attempt to accelerate the original closing schedule, which envisioned a closing on' Thursday December 18. The parties are now attempting to be ready

December 15. It is not yet certain that this accelerated closing date can be
achieved.
(3) Meetings are scheduled for this weekend to attempt to ,resolve the open
transaction issues and to document the resolution of those issues.

the sublease loan structure, wil be taking place over the weekend and on Monday Oècember 15. It is possible that changing prlcíng parameters, including changing market interest rates, may continue to put pressure on the economics of the transaction and could require CEL to increase its lease investment amount in order to maintain its target yield of 12.25%. Any investment increases would
have the effect of earning 12.25%' (unlevered) on a larger base. Preliminary

(4) Revisions to the current version of the pricing proforma, which now includes

pricing indications are that potential increases in the lease investment amount could range from $.5mm to $1.5mm. The ceo Board approval allows for an additional investment of up to $4.3mm.

(5) Consolidated Edison Leasing, Inc. ("CEL") was established on Thursday December 11, 1997 and a board meeting was held on Friday December 12 in which Chl,ck Muoio, Brian OePlautt and Mike Madia were named as directors,

Andy Scher was named as corporät~ secrtary and corporate resolutions

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~

authorizing the EZH Lease Investment, the establishment of bank accounts and

associated actions were passed.
(6) On Friday December 12 GEL signed a Trust Agreement with Wilmington Trust Company for the establishment of ROCA FACILITY TRUST. .NO. 2.
Wilmington Trust Company is attempting to have bank accounts established for the this trust by Monday December 15. The purpose of these bank accunts is to receive the eEL investment transfer scheduled for Monday December 15.
(7) It is anticipated that the lease investment amount wil be transferred to the

ROCA FACILITY TRUST NO.2. bank accunt on Monday December 15. It has been determined that the transaction expenses wil be paid directly by GEL to ' the invoicing parties in the weeks following the closing date

(8) GEL is working with Citibank to establish a bank accunt by Monday Oecember 15 in order to include this bank account name and number in the
closing documents.

(9) eEL has advised Treasury of the Monday December 15 closing target and has requested that they make available for transfer the investment funds on that date. Treasury is standing by to make the transfer, ~ubject to their receipt of a
valid GOI and the bank accunt'information (scheduled to be received from

Wilmington Trust Company on Monday December 15).

(10) On Monday December 15, a GOI request wil be circulated requesting that
the required investment amount be transferred to the newly established ROCA TRUST NO.2 bank accunt at Wilmington Trust. This GOI wil be supported by copies of the CEI, CEO and eEL Board of Directors resolutions. On Monday eEL will need to determine who is the appropriate part to sign this GOI.

J

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EXHIBIT C-7

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leasing White Paper (ENECO 4)

Overview

This Leasing White Paper wil provide the reader with the following information: (1) a summary review of a recent lease investment made by
Consolidated Edison Development, Inc. ("CEO'), (2) a summary review of a new lease investment CEO is pursuing, and (3) a general background on leasing.
(1) Summary Review of Recent Lease Investment

CED has participated in one lease-leaseback transaction to date. In
December of 1997 CED invested $43.5mm for a $150mm undivided interest in the EZH RoCa3 combined cycle power plant located in the Netherlands. The following is a summary of that transaction:

Project Name:
Project Country:

EZH RoCa3

The Netherlands

Country Credit Rating: Project Assets:
Project Location;

AA
220MW gas-fired combined cycle power plant Rotterdam, the Netherlands $316mm $150mm

Total Project Cost: CEO Portion of Total Cost:
CEO Equity Amount:

$43.5mm
Banc One Leasing Corporation US Treasury securities plus Letter of credit from AA rated bank 18+% (assuming a 50%/50% debUequity)

Co-investor:
Security for CEO Equity:

CEO Yield to term:

(2) Summary Review of a Potential New Lease Investment
CED is currently pursuing the potential investment of approximately $43 millon in a portion of the natural gas and hot water distribution network presently owned and operated by N.V. ENECO. ENECO is a regulated electric, gas and thermal distribution utility with a service territory which includes the cities of
Rotterdam and The Hague in the southern portion of the Netherlands. ENECO
is rated AA with a "stable" outlook

by Standard & Poors.

CEO's market entry strategy is to invest in transactions in conjunction with
experienced market participants, to concentrate on assets familiar to Con Edison

and to deal with utilities in countries with high credit ratings. CEO is pursuing

this investment opportunity in conjunction with two experienced and
knowledgeable lease investors, Banc One Leasing Corporation ("Banc One")

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and Public Service Resources Corporation ("PSRC"), an affiliate of Public
Service Electric and Gas. Banc One, PSRC and CEO have retained Hunton &
Williams for tax and legal advice, and, among others, Duke Engineering for

engineering reviews, Tauw Milieu, a well-respected Dutch environmental firm, for an environmental assessment and Deloitte & Touche for a valuation assessment

of the system.
The transaction is anticipated to generate approximately $2.3 millon in

earnings during 1998 and is expected to generate an after tax yield of
approximately 12,5% assuming that CEO's investment is 50% equity/50% debt.

CEO is currently performing due diligence on this potential transaction and is negotiating with ENECO in an attempt to reach agreement on the terms
and conditions of the various contracts required for the investment. Preliminary indications are that this process could conclude with a go/no-go investment decision by CEO as early as late February 1998.

Project Name:
Project Country:

ENECO

The Netherlands

Country Credit Rating:
Project Assets: Project Location:

AM
Natural gas and hot water distribution network Rotterdam and The Hague, the Netherlands

Total Project Cost: CEO Portion of Total Cost:
CED Equity Amount:

$810mm $285mm $43.5mm
Banc One Leasing Corporation Public Service Resource Corporation US Treasury securities plus Letter of credit from AA rated bank 12.5+% (assuming a 50%/50% debUequily)

Co-investors:
Security for CEO Equity:

CEO Yield to term:

(3~ General Background on Leasing

Executive Summary
One element of a diversified investment portolio for Can Edison is the relatively

low risk and attractive return profile of leases. This paper describes saleleasebacks, identifies major risks and benefits, and details a recommended
investment.

Investments of this type would be accounted for as leveraged leases,
allowing for front-loaded earnings, and generate after tax yields of between 10%

over their lives, after taking account of typical capital structure and debt costs.
and 25%

2

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The earnings in these transactions come from a combination of lease payments and tax deductions. Con Edison, with its high tax rate and large taxable income position, is in a particularly favorable position to take advantage of such a program. "
What is a sale-leaseback?
In its most basic form, a sale-leaseback is the purchase of an asset and the subsequent leaseback of that asset to the seller under a long term lease

agreement. Under a so-clled "leveraged lease," the investor uses nonrecourse debt to reduce the equity needed to purchase the asset.
Since its inception in 1964, the leveraged leasing market has continually developed new variations on this basic theme to accommodate increasingly

complex accunting and tax laws and regulations, The latest of these variations
are the "lease-leaseback" structures in which an asset is leased (instead of

purchased) and the leasehold rights derived from that lease are then leased back to the initial owner of the facilty. Lease-leaseback structures have been
developed to optimize the benefits that can be derived by the utilty (lessee) and
the investor in these transactions.

What kind of lease structures wil be considered?
Under the proposed investment program, investments will be considered in both sale-Ieasebacks and lease-Ieasebacks, depending on prevailng market conditions.
Because the specific transaction currently under consideration by CEO is a lease-leaseback we will use this type of structure in our example of a typical

transaction,
How would a typical trnsaction work?
In a typical lease-leaseback transaction, a special purpose subsidiary

owned by an investor, in this case CEO, would establish a trust. On the closing

date, CED would invest equity in the trust and the trust would borrow nonrecourse debt for the transaction. Concurrently the trust would enter into a lease agreement with a utility under which the trust would lease an asset, for example a gas and hot water distribution system, from the utility for 42 years. The trust would, at the same time, lease the system back to the utiity for 23 years, after which the trust would have a number of options, deSCioed below. The initial 23 year term of the leaseback has been chosen to optimize the benefits available to both the utility and the investor. A 42-year leaseback would qualify for the tax treatment that CEO and the foreign utility seek.

3

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On the closing date of the lease, the utility would establish, for the benefit
of CEO, (a) a trust accunt containing U.S Treasury securities and (b) an

irrevocble bank letter of credit from a bank rated AA or better, both in amounts that, when combined, fully secure the obligations of the utilty to CEO. In the event the utility were to fail to make the payments due to CEO under the lease,
CEO could take the U.S. Treasury securities and draw on the letter of credit to satisfy any shortalls.
At the end of the initial 23 year lease, the utility would have the option to purchase the system at a pre-agreed fixed price, If the utilty did purchase the system at this time, the transaction would be completed. If the utility did not purchase the system at the end of year 23, the trust would have the option to either (a) lease the system to a third party for the remaining 19 years of the lease, (b) use the system itself, or (c) require the utility to re-lease the system for
an additional 12 years at prices that would assure CEO of its expected return.

Responsibility for the condition of the system would rest with the utility during the initial term of the lease, and with the third party or the utility during a subsequent lease. During the remaining 7 years under the lease, CEO could either use the system itself, return the system to the utility or lease the system to

third parties and in doing so obtain additional revenue, The base case economics assume no revenue for this period. At the end of the 42-year lease
CEO would be required to return the system to the utility,

How would ceo derive its return under a lease-leaseback?

Under a typical lease-leaseback structure an investor's earnings are
generated by applying a constant rate of return to a declining investment

balance accrding to lease accounting rules established by the Financial

Accunting Standards Board. As the investment balance declines so do the
earnings and hence the earnings are front-loaded. The following schedule
details the earnings profile for the first 10 years of a typical

lease-leaseback
($MM)

Year
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Investment
($MM)

Earnings
2.3 2.4 2.3 2.2
2.1

42.9

2.0 1.8
1.7 1.6 1.4

4-

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The following chart details the earnings for a typical

lease-leaseback

GAAP EARNINGS PROFILE
4,00,000 ~~~~ ~~m-~t!!l~m~;.:~~~f.r:a ~r'~:~:~î,mmT. t "¡',-I'i ...... .... '~1i!""-'.f"l tHL-'~" ~..~
.. 2,000,000

1i';~~...t .~~'~:TIË~~ ::::-~::~~rfr::::~~; tf~~~~~
: j ~:;; .~i;"'. . '1~:.:'.'1: 1.. ..:~;l~:E'.. : '~i' i n.,: '!:' l.l1
. i I ' I' I '1'-)j"",.'~I!~u.-' i I -lë'","':t.j

,i Ill: i i .1..; 1'1' .1 c .. ,...);j¡;' , 'I 'L'.....".¡;í

°

~ID~W~ID~W~ ~"-NN('('V
YEAR

i: . i I : . ~ I ~ 'l\~l'tt~1!iH'" i : I' I f~~~

It is anticipated that transactions wil be structured such that CEO will obtain approximately the same earnings regardless of whether the utilty exercises its purchase option or not.

What are major benefits from these transactions to the investor?
1 , Hiohlv Predictable Earninos

The earnings from these transactions are highly predictable because
each of the cash inflows and outflows to the transaction are contractually

agreed to on the closing date and because, in the event of a utility
payment default, the trust can take the U.S. Treasuries and draw on the bank letter of credit.
2. Front Loaded Earninos

Because the transactions will be aforded leveraged lease accunting treatment under Financial Accunting Standards Board rules, the
earnings profile for these transactions is "front-loaded' and hence provides more earnings in the early years of the transaction than in the
latter years of the transaction.
3. Good to Excellent Investment Yields

After tax yields on leasing projects are anticipated to range from a good
10% to an excellent 25% depending on the type of lease structure utilized lease investment and the leverage applied. For example, under the initial

5

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contemplated the return of 12.5% assumes a relatively conservative leverage rate of 50%. Measurement of after tax yields, assuming a theoretical case in which the corporation has no debt (the so called "all equity return") typically range 'from 8.5% to 12.5%.
4. Economic Value

Because of the utility payment protection structures and the relatively low

probability of losses derived from adverse tax actions, the risk adjusted
rates of return exced the required rates of return for these investments.
5. StrateQic Value of LeasinQ

Participation in these transactions affords CEO the opportunity to more fully understand the legal, regulatory, commercial and tax environment of
the countries in which the leased assets are located. This in-depth understanding can provide the basis for better informed decisions

regarding potential investment and partnering opportunities as the utilty infrastructures in these highly developed countries are opened to
investments from external sources.

What are major benefits frm these transactions to the utilty?

In entering into these transactions, the utility is able, at little or no
perceived risk to itself, to obtain (a) up to 100% long term financing for a system, (b) interest rates that may be lower than those available from domestic credit
sources and (c) front-end loaded funding benefits, while maintaining operating control of the system. In the case of the investment contemplated by CEO, the net cash benefit to the utility is approximately 3% of the value of the leased asset, or approximately $8.5 million.

What are the major risks from these transactions to the investor?
1, Utilitv Credit Risks

Perhaps the greatest risk to the trust is the risk that the utility will default
on its obligation to pay rent during the lease term. In order to minimize
this risk the trust wil require that the utility's lease obligations be fully,

secured by a combination of U.S. Treasury securities and letters of crdit
issued by banks with S&P ratings of AA or above. In the event the utility

fails to make the lease rent payments due, the investor can use the
Treasunes and the proceeds from the letter of credit to return its capital and to provide it with its expected yield.

6

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2. ForeiQn Country Tax Risks

Another major risk implicit in the transaction is the risk that the tax raws or regulations of the country in which the asset is located change in a way

that would result in lower returns to the trust, and hence the investor.
Investments under the proposed program would be structured so that the risks associated with foreign country tax law changes would be fully borne

by the utilty,
3. PendinCl U.S, Tax ReQulations

Pending tax regulations, if enacted, could significantly reduce the tax
benefit to be derived by investors in lease-leaseback transactions such as

the investment under consideration by CEO, as described above.
:-'~'7C:':::::.':'" .... -.. ..-. -. _. -. -... -. --. -... -. -. -. -. - ... -. -. -., -. -. -." -. -, -. -_. -. --.-. - ... -.- --:___d;¡",:,: -... --~

_-.....-_..:. .'Â. I ",\..

/ '.;

, .'

_--i."-:."_-._-, _.___' _. _._ _ __ _. _. _. _._. _. _. _ _ _. _._. _. _._, _. _._ _ _. _._. _. _._. __ _ _~ _ _. _._. _. _._. _. _._. _. _._ _ _. _. _. _. _ .__ _._._ __~ ~~~~ ~~ ::~.;=-;~~::! _. - ._~ j

If the pending regulations are published prior to the closing date, CEO will

defer the contemplated investment pending a restructuring of the transaction.
4, U.S. Tax Audits

It is anticipated that the transactions will be structured in ways that wil make any challenges to the structure by tl'~lRS under current regulations
difficult to support or litigate by the IRS. :_..~_____~__~__:.-~.~_~-.-m..m.--._-~-~.~-~~~__~__::~:~:;:c:,-~

;~""~"_-"_-_'_-_'_-:_-:_-"_-"_-.'_- '_--:" - ._. _. - ._. _. - ._. _"___. _. - ._. _. - "_" _"_ ._. _. - ~~~ ~~~ ~-:: ::."' .::-: ':.:::-.:.J"-~-1 .~. -"_ _;. _...~ '-_._ _' -' I

I -._-.-_-.._-.._-._.....-_..-_..-_._-- i
;-.,"~ c, '" c,~:~:~: ~~ ~-,:~ ~~ _~..., _. _. __ _,.,.. _ "r' _ __... _..,..., _ ~~~~~. ~~ ~ ~~:~,~:~ 'c"" ,"_._l.~:~ ------....u.. -., _ __ ... _ __... _..... _..,.,..., ~..... _..:~: ~~ ccc,_:

Our tax counsel is very experienced in negotiating and advising on

leveraged lease transactions.
In a downside tax scenario a

claim would be litigated and won in tax court

by the IRS. In this case, financial analysis indicates a return of CEO's
capital with a return on CEO's capital of 2.4% over the lease term.
5, Country Risks

The proposed investment program will target investments in developed
and highly rated countries. The initial proposed investment under the

program wil be in the AM-rated Netherlands. Potential downstream opportunities include transactions in the Netherlands, Swtzerland,

7

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Australia, Germany and the United States. The contemplated

transactions wil be fully denominated in U.S. dollars.
6. limited liquidity

Investments in the assets contemplated under the proposed investment program are designed to generate earnings and cash flow over extended

periods of time. While these investments do not carr the liquidity of publicly-traded securities, they can be sold if necessary, although most

likely at a discount to then-crrent book value. The economics of these investment structures typically drive most investors to continue to maintain the investments on their books through their scheduled terms. The proposed investment program contemplates holding these
investments accordingly.

Is anyone else doing these transactions?
Leasing investment programs form an integral part of the earnings and investment profiles of a wide range of companies, including affliates of electric and gas utilties and holding companies such as Public Service Electric and Gas, Duquesne Light, Edison International, Southern Company, Cilcorp, and Southern Indiana Gas; telephone companies such as A IT, NynexlBell Atlantic, Ameritech, and US West; banks such as Bank of New York, First Chicago,

Nationsbank, Bank One, and First Chicago; various insurance companies, as
well as industrial corporations such as Philp Morris, Pitney Bowes, Chrysler
Corporation, Dana Corporation and General Electric.

8

CE 011972

PF008272

Case 1:06-cv-00305-MBH

Document 21-5

Filed 04/03/2007

Page 38 of 52

EXHIBIT C-8

Case 1:06-cv-00305-MBH
" :~. .:' '..' ';r' ~,

Document 21-5

Filed 04/03/2007

Page 39 of 52

ID,l~bti~:';.~:~,:¡~;: :!/to,~~(!.:~:r~:~~'):~;:~.:~ ;;i;.' ;~:k;'l.~ t1 ''';,::'~~-;\ ~;:~ , '.~:'~¡":'~' .\.¡:~t'~'~~'~r::.r~: -,~;i ~::~"~, :. c~(_ :.".:, '~.~;:1

From: Brian DePlautt
Sent: Fnday, December 12,19979:42 AM To: 'McCartey, Mary Jane'

Cc: Charles Muoio
Subject: RE: Meeting with John Hancock Investment Offcers

YES.

MONDAY HAS BEEN ESTABLISHED BY THE LAWYERSA-NQTtil:)~.nylaQRS_~s-iJ:!i;_
TENTf:TIYE_ uAC_CELEHlIED_CLOSE~TARGET DATE. _' _ _ -- _-_--_-_-_-_ -__~'__:_:-,-_:"" c:-c:.:-:,--::,: c~o-,-,

'._-, ,,.".-: -.::". - - - - -, _. _. _. - - - - _. -, - - ~- -. _. _. _. - - -. _. _. _. - - _. _. -.- -_. _. _. - - ~. _. _. _. -.- --, -, _. _. - - _. _. _. _. - - -. _. - ._. _. _. - - _. _. _. _. --"~--'-~:_-.'--.,_..

(1) WE ARE WORKING WITH TREASURY TO ARRANGE A $43 MM TRANSFER FOR MONDAY (2) WE HAVE BACK BURNERED GETTING THE AUDITED FINANCIALS AND WE ARE WORKING WITH THE LAWYERS AND ADVISORS TO, AS A RESULT OF THE ACCELERATED CLOSE TO REACH AGREEMENT ON DELIVERING AUDITED FINANCIALS AFTER THE CLOSING DATE

1~,f~_ES)1R__ClV§llEl"~.1-Sent: Friday, December 12,19976:39 AM '
To: 'bdeplautt(QgdLinter-web.com'

Subject: FW: Meeting with John Hancock Investment Offcers
Are you working with Treasury to expedite the transfer, audited financial statements, etc. to get this done?

;: --Original Message----;: From: Irwin, Peter ;: Sent: Thursday, December 11,19979:06 PM

;: To: McCartney, Mary Jane
;: Subject: RE: Mèeting with John Hancock Investment Offcers

;:

;: Mary Jane - I heard only late this afternoon that the tax regs may
;: come out on Monday and they are trying to see if they can close the

;: EZH lease this weekend. I assume you are up to speed on this
;: ç1evelopment?
;:
, ' ..,

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CE 016587

PF008570

Case 1:06-cv-00305-MBH
I,

Document 21-5

Filed 04/03/2007

Page 40 of 52

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CE 016588

_. --_._._. _. - -- .~~

PF008571

Case 1:06-cv-00305-MBH
:...
II -!.. .c ~~

Document 21-5

Filed 04/03/2007

Page 41 of 52

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CE 016589

PF008572

Case 1:06-cv-00305-MBH

Document 21-5

Filed 04/03/2007

Page 42 of 52

EXHIBIT C-9

Case 1:06-cv-00305-MBH
t'

Document 21-5

Filed 04/03/2007

Page 43 of 52

DRA

Dember U' 199

VIA MAIL
(Conslidate Edisn ~in, In.) 111 Broad way

8th Floor

New York, NY 100

Facilitv ~

EZH RoC 3

Geem:
We have acte as speia col tq (Consolidated Edisn Leg, Inc., a
Deware) corpration (the "Investor") in connecon with the ircuons contepla by the Paricipation Agreeent, date as of Deem~r (_), 1997 (the "Parcipaon Agreement"), among N.V. Elecciteitsbejf Zld-HoUan, a public limite liabilty
company incorprated uner th laws of The Neùla (th "Lesor" an "Sules"), th
Invesor. (Investor Guarantor, if any), WilmingtoG Trot Company. not

in itS inivi

capacity, excet as othis expresly provided in th Parcipation Agrment, but solely

as Tru