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US$175,000,000

EGE Haina Finance Company

(an exempted company incorporated under the laws of the Cayman Islands)

9.50% Senior Notes due 2017

Unconditionally and Irrevocably Guaranteed by

EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S.A. (a corporation (sociedad anonima) π organized under the laws of the Dominican Republic) The 9.50% Senior Notes due 2017, or the Notes, are being offered, or the offering, by EGE Haina Finance Company, an exempted company incorporated with limited liability under the laws of the Cayman Islands, or Haina Finance, a newly formed entity incorporated solely to issue the Notes and a wholly owned subsidiary of Empresa Generadora de Electricidad Haina, S.A., or EGE Haina, a corporation (sociedad anonima) π organized under the laws of the Dominican Republic. Haina Finance will not engage in any business activity other than complying with its obligations under the Notes. EGE Haina will unconditionally and irrevocably guarantee the Notes, referred to herein as the Guaranty. The Notes will be the senior obligations of Haina Finance and the Guaranty will be the unsecured, senior obligation of EGE Haina. EGE Haina is sometimes referred to in this offering memorandum as the Guarantor. Haina Finance will establish with Deutsche Bank Trust Company Americas, the trustee for the Notes, or the Trustee, an interest reserve account, or the Interest Reserve Account, as security for the Notes. Haina Finance will be required to maintain at all times an amount on deposit in the Interest Reserve Account (or letters of credit or certain temporary cash investments having an aggregate face amount) equal to the interest payable on the Notes on the immediately following interest payment date for the Notes. It is a condition to the issuance of the Notes that the Notes be rated at least ""B (stable outlook)'' by Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc., or S&P, and ""B¿ (stable outlook)'' by Fitch, Inc., or Fitch. A rating is not a recommendation to buy, sell or hold a Note and is subject to revision or withdrawal in the future by S&P or Fitch. Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and to trade them on the Euro MTF Market of such exchange. Notes eligible for resale under Rule 144A of the U.S. Securities Act of 1933, as amended, or the Securities Act, are expected to be designated for trading in the PORTAL Market of the National Association of Securities Dealers, Inc.

Investing in the Notes involves risks. See ""Risk Factors'' beginning on page 13 for a description of specified factors relating to an investment in the Notes. Neither the Notes nor the Guaranty have been or will be registered under the Securities Act or any state securities laws. The Notes are being offered and sold (i) in the United States of America only to qualified institutional buyers in reliance on Rule 144A of the Securities Act and (ii) outside of the United States of America in reliance on Regulation S of the Securities Act. See ""Notice to Investors.'' Price: 100% plus accrued interest, if any, from April 26, 2007. The Notes are being offered for sale by Barclays Capital Inc. and Deutsche Bank Securities, Inc., or together, the Initial Purchasers, subject to their acceptance and right to reject orders in whole or in part. It is expected that delivery of the Notes will be made in book-entry form only through the facilities of The Depository Trust Company, or DTC, in New York, New York, including for the account of Euroclear Bank S.A./N.V., as operator of the Euroclear System, or Euroclear, and Clearstream Banking, societ π eπ anonyme, or Clearstream Luxembourg, on April 26, 2007.

April 19, 2007


TABLE OF CONTENTS ENFORCEMENT OF FOREIGN JUDGMENTSÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ FORWARD-LOOKING STATEMENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION ÏÏÏÏÏÏÏÏÏÏÏÏÏ STATISTICAL INFORMATIONÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ TECHNICAL AND REGULATORY TERMS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ OFFERING MEMORANDUM SUMMARYÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ RISK FACTORS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ USE OF PROCEEDS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ EXCHANGE RATES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ CAPITALIZATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ SELECTED FINANCIAL AND OPERATING INFORMATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ THE ELECTRICAL INDUSTRY IN THE DOMINICAN REPUBLIC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ BUSINESS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ MANAGEMENT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ PRINCIPAL SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ DESCRIPTION OF THE TRANSACTION DOCUMENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ CERTAIN ERISA CONSIDERATIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ TAX CONSIDERATIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ NOTICE TO INVESTORS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ PLAN OF DISTRIBUTION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ LEGAL MATTERS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ INDEPENDENT AUDITORS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ WHERE YOU CAN FIND MORE INFORMATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ LISTING AND GENERAL INFORMATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ INDEX TO FINANCIAL STATEMENTSÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

iv v v vi vi 1 13 24 25 27 28 31 49 64 78 82 86 128 130 136 138 141 141 141 141 F-1

You should rely only on the information contained in this offering memorandum. EGE Haina has not authorized anyone to provide you with different information. None of EGE Haina and the Initial Purchasers is making an offer of the Notes in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this offering memorandum is accurate as of any date other than the date on the front of this offering memorandum. This offering memorandum has been prepared by EGE Haina solely for use in connection with the proposed offering of the Notes described in this offering memorandum. This offering memorandum is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Notes. Distribution of this offering memorandum to any person other than the prospective investor and any person retained to advise such prospective investor with respect to its purchase is unauthorized, and any disclosure or any of its contents, without EGE Haina's our prior written consent is prohibited. Each prospective investor, by accepting delivery of this offering memorandum, agrees to the foregoing and to make no photocopies of this offering memorandum or any documents referred to in this offering memorandum. The Initial Purchasers make no representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this offering memorandum. Nothing contained in this offering


memorandum is, or shall be relied upon as, a promise or representation by the Initial Purchasers as to the past or future. We have furnished the information contained in this offering memorandum. Neither the U.S. Securities and Exchange Commission, or the SEC, any state securities commission nor any other regulatory authority, has approved or disapproved the Notes nor have any of the foregoing authorities passed upon or endorsed the merits of this offering or the accuracy or adequacy of this offering memorandum. Any representation to the contrary is a criminal offense. The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act and applicable state securities laws pursuant to registration or exemption therefrom. As a prospective purchaser, you should be aware that you may be required to bear the financial risks of this investment for an indefinite period of time. See ""Plan of Distribution'' and ""Notice to Investors.'' The Luxembourg Stock Exchange takes no responsibility for the contents of this offering memorandum, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this offering memorandum. In making an investment decision, prospective investors must rely on their own examination of the company and the terms of the offering, including the merits and risks involved. Prospective investors should not construe anything in this offering memorandum, as legal, business or tax advice. Each prospective investor should consult its own advisors as needed to make its investment decision and to determine whether it is legally permitted to purchase the notes under applicable legal investment or similar laws or regulations. This offering memorandum contains summaries believed to be accurate with respect to certain documents, but reference is made to the actual documents for complete information. All such summaries are qualified in their entirety by such reference. Copies of documents referred to herein will be made available to prospective investors upon request to EGE Haina or the Initial Purchasers.

NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATION OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO MEMBERS OF THE PUBLIC OF THE CAYMAN ISLANDS SECTION 194 OF THE COMPANIES LAW (2004 REVISION) OF THE CAYMAN ISLANDS PROVIDES THAT AN EXEMPTED COMPANY (SUCH AS HAINA FINANCE) THAT IS NOT LISTED ON THE CAYMAN ISLANDS STOCK EXCHANGE IS PROHIBITED FROM MAKING ANY INVITATION TO THE PUBLIC IN THE CAYMAN ISLANDS TO SUBSCRIBE FOR ANY OF ITS NOTES. EACH PURCHASER OF THE NOTES AGREES THAT NO INVITATION MAY BE MADE TO THE PUBLIC IN THE CAYMAN ISLANDS TO SUBSCRIBE FOR THE NOTES. ii


NOTICE TO RESIDENTS IN THE DOMINICAN REPUBLIC THE NOTES HAVE NOT BEEN, AND WILL NOT BE REGISTERED WITH THE SUPERINTENDENCE OF SECURITIES OF THE DOMINICAN REPUBLIC (SUPERINTENDENCIA DE VALORES), THE DOMINICAN SECURITIES AUTHORITY. CONSEQUENTLY, THE NOTES MAY NOT BE OFFERED OR SOLD IN THE DOMINICAN REPUBLIC.

UNITED STATES INTERNAL REVENUE SERVICE CIRCULAR 230 DISCLOSURE PURSUANT TO UNITED STATES INTERNAL REVENUE SERVICE CIRCULAR 230, WE HEREBY INFORM YOU THAT THE DESCRIPTION SET FORTH IN THIS OFFERING MEMORANDUM WITH RESPECT TO UNITED STATES FEDERAL TAX ISSUES WAS NOT INTENDED OR WRITTEN TO BE USED, AND SUCH DESCRIPTION CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER UNDER THE UNITED STATES INTERNAL REVENUE CODE. SUCH DESCRIPTION WAS WRITTEN TO SUPPORT THE MARKETING OF THE NOTES. THE DESCRIPTION SET FORTH IN THIS OFFERING MEMORANDUM IS LIMITED TO THE UNITED STATES FEDERAL TAX ISSUES DESCRIBED HEREIN. TAXPAYERS SHOULD SEEK ADVICE BASED ON EACH TAXPAYER'S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

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ENFORCEMENT OF FOREIGN JUDGMENTS Enforceability in the Dominican Republic The enforceability of foreign judgments brought in Dominican courts of liabilities predicated on United States laws would require compliance with certain procedures, including the validation by Dominican courts of decisions rendered by United States courts. Compliance with such procedures could take a substantial amount of time, and local defendants could assert defenses to enforcement based on noncompliance with such procedures. In addition, Dominican judges have, in certain cases, exercised their discretion to review the merits of the foreign judgment the enforcement of which is being sought. One of the directors of EGE Haina, one of the directors of Haina Finance and certain advisors of Haina Finance and EGE Haina reside outside the United States. Substantially all of the assets of Haina Finance and EGE Haina and the assets of these persons are located outside the United States. As a result, it may not be possible for holders of the Notes to effect service of process within the United States upon Haina Finance and EGE Haina or these other persons to enforce judgments obtained against them in United States courts predicated upon the civil liability provisions of the United States federal securities laws, other federal laws of the United States or laws of the several states of the United States. No treaty currently exists between the United States and the Dominican Republic providing for reciprocal enforcement of foreign judgments. Haina Finance and the Guarantor have been advised by their Dominican counsel, Pereyra & Associados, that it is possible: ‚ pursuant to Article 15 of the Dominican Civil Code, for a plaintiff to bring an original action in a Dominican court which is predicated solely upon the United States federal securities laws, other federal laws of the United States or laws of the several states of the United States, as long as and only if a valid choice of said laws has been agreed to between the parties, and said laws do not contravene public policy of the Dominican Republic; and ‚ to enforce in Dominican courts judgments of United States courts obtained in actions predicated upon the civil liability provisions of the United States federal securities laws, other federal laws of the United States or laws of the several states of the United States, after the validation thereof is obtained before a Dominican court. Access to the courts of the Dominican Republic will not be subject to any conditions that are not applicable to residents, citizens or companies incorporated under the laws of the Dominican Republic. However, a foreign plaintiff may be required to present a litigation bond according to that which is established in article 16 of the Dominican Civil Code and articles 166 and 167 of the Dominican Civil Procedure Code. The Dominican legal system is based upon civil law principles according to which judges decide both the facts and legal issues of a case, and they are not bound by legal precedents. As a result, judges have broader discretion in reaching decisions than do judges in the United States. Enforceability in the Cayman Islands There is no statutory enforcement in the Cayman Islands of judgments obtained in New York or the Dominican Republic. However, the courts of the Cayman Islands will recognize, apply and uphold a foreign judgment as the basis for a claim at common law in the Cayman Islands provided such judgment is rendered by a competent foreign court, imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been rendered, is final and specifically pleaded, is not in respect of taxes, a fine or a penalty and was not obtained in a manner and is not of a kind the enforcement of which is contrary to the public policy of the Cayman Islands. iv


FORWARD-LOOKING STATEMENTS Certain matters discussed in this offering memorandum contain forward-looking statements, estimates, assumptions and statements of intention by Haina Finance and EGE Haina, or of the current views of Haina Finance or EGE Haina, which are inherently subject to significant uncertainties, many of which are beyond the control of Haina Finance or EGE Haina, including, among other things: ‚ political and economic conditions in the Dominican Republic; ‚ the effects of internal and external shocks on the Dominican financial sector and to the Dominican economy generally; ‚ the willingness of multilateral financing institutions to support the Dominican Republic; ‚ the impact of any unavailability of EGE Haina's generation units; ‚ disruptions caused by hurricanes or other natural disasters; ‚ the ability of EGE Haina to meet its obligations under its power purchase agreements; ‚ the cost and availability of raw materials, particularly fuel; ‚ the regulatory scheme and regulatory burdens in the Dominican Republic; ‚ EGE Haina's relationship with its regulators and the relationship among EGE Haina's shareholders; ‚ the financial soundness of EGE Haina's customers and these customers' ability to collect from end consumers of electricity; and ‚ access to the capital markets or other financial markets on favorable terms. Such forward-looking statements are principally contained in the sections ""Offering Memorandum Summary,'' ""Risk Factors,'' ""Management's Discussion and Analysis of Financial Condition and Results of Operations,'' ""Business'' and ""Selected Financial and Operating Information'' and include the expectations of Haina Finance and EGE Haina with respect to their businesses following the completion of the offering. In addition, in these and other sections of this offering memorandum, the words ""anticipates,'' ""believes,'' ""estimates,'' ""expects,'' ""plans,'' ""intends'' and similar expressions as they relate to Haina Finance and/or EGE Haina are intended to specifically identify forward-looking statements. None of Haina Finance, EGE Haina, the Trustee or the Initial Purchasers can assure prospective purchasers of the Notes that these forward-looking statements, estimates, assumptions or intentions will prove to be correct or that the information, interpretations and understandings on which they are based will prove to be valid. None of Haina Finance, EGE Haina, the Trustee or the Initial Purchasers undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of the risks and uncertainties underlying the forward-looking statements, there can be no assurances that the events described or implied in the forward-looking statements contained in this offering memorandum will in fact transpire. Accordingly, readers are cautioned not to place undue reliance on the forward-looking statements. PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION In this offering memorandum, references to ""dollars,'' ""U.S. dollars'' and ""US$'' are to the currency of the United States of America and references to ""Dominican pesos,'' ""pesos'' and ""RD$'' are to the currency of the Dominican Republic. EGE Haina prepares its financial statements in dollars in conformity with generally accepted accounting principles in the United States, as of any date of determination, or U.S. GAAP. v


Certain numbers included in this offering memorandum have been subject to rounding adjustments. Accordingly, numbers shown as totals in certain tables may not be an arithmetic aggregation of the numbers that precede them. STATISTICAL INFORMATION Statistical information contained in this offering memorandum regarding the economy of, and energy industry in, the Dominican Republic, and regarding EGE Haina's competitors, is based on materials obtained from public sources, including publications and materials from participants in the energy industry and from government entities, such as the Coordinating Body (Organismo Coordinador), or the OC, the Central Bank of the Dominican Republic (Banco Central de la Republica π Dominicana), or the Central Bank, and the National Statistical Office of the Dominican Republic (Oficina Nacional de Estad stica), π or the ONE, among others. Haina Finance and EGE Haina believe such statistical information is accurate, but none of Haina Finance, EGE Haina, the Trustee or the Initial Purchaser has independently verified it. TECHNICAL AND REGULATORY TERMS In this offering memorandum, references to: ‚ ""availability factor'' are to the percentage of hours a power generation unit is available for generation of electricity in the relevant period, whether or not the unit is actually dispatched or used for generating power; ‚ ""CDE'' are to Corporacion π Dominicana de Electricidad, or the Dominican Electricity Corporation, a state-owned entity that between 1955 and 1999 provided electricity services to both the public and private sector, covering electricity generation, transmission, distribution and commercialization; ‚ ""CDEEE'' are to Corporacion π Dominicana de Empresas Electricas π Estatales, or the Dominican Corporation of State Electric Businesses, the state-owned utility created by Article 138 of the General Electricity Law No. 125-01, or the General Electricity Law, in 2001, whose functions consist of leading and coordinating the state-owned electricity sector companies, in carrying out the programs of the Dominican Government relating to rural and suburban electrification in the communities of limited economic resources, as well as the administration and enforcement of contracts to provide electricity from the IPPs; ‚ ""co-generators'' are to entities that produce electricity and other related products, such as steam or heat, for their own consumption; ‚ ""CNE'' are to the Comision π Nacional de Energ a, π the National Energy Commission of the Dominican Republic, which is vested with authority to propose and adopt policies and regulations for the energy sector; to elaborate indicative plans relating to the operation and development of the energy sector, and to propose them to the executive branch of the Dominican Government to ensure their fulfillment; to promote the investment decisions consistent with these plans and to advise the executive branch of the Dominican Government in all matters related to the sector; ‚ ""EDE-Este'' are to Empresa Distribuidora de Electricidad del Este, S.A., the distributor of electricity in the eastern region of the Dominican Republic; ‚ ""EDE-Norte'' are to Empresa Distribuidora de Electricidad del Norte, S.A., the distributor of electricity in the northern region of the Dominican Republic; ‚ ""EDE-Sur'' are to Empresa Distribuidora de Electricidad del Sur, S.A., the distributor of electricity in the southern region of the Dominican Republic; ‚ ""effective capacity'' are, as of any date of determination, to the available capacity for generation of a unit or the amount of MW that a power generation unit can reliably generate as of such date; vi


‚ ""ETED'' are to Empresa de Transmision π del Estado Dominicano, S.A., a transmission company; ‚ ""firm capacity'' are to the amount of capacity that the OC recognizes and remunerates to each power generation unit for being available to cover the demand in peak hours; ‚ ""GW'' and ""GWh'' are to gigawatts and gigawatt-hours, respectively; ‚ ""IPPs'' are independent power producers; ‚ ""installed capacity'' are to the amount of MW a turbine is designed to produce upon installment (name-plate capacity); ‚ ""isolated systems'' are to electrical systems which are not integrated or part of the SENI. ‚ ""km'' are to kilometers; ‚ ""kV'' are to kilovolts; ‚ ""kW'' and ""kWh'' are to kilowatts and kilowatt-hours, respectively; ‚ ""MW'' and ""MWh'' are to megawatts and megawatt-hours, respectively; ‚ ""OC'' are to the Organismo Coordinador, or Coordinating Body, whose function is to plan and coordinate the operations of the power providers with those of the transmission, distribution and commercialization systems that form the SENI; ‚ ""PPA'' are to a power purchase agreement; and ‚ ""self-generators'' are to entities that produce electricity for their own consumption; ‚ ""SENI'' are to the Sistema Electrico π Nacional Interconectado, or the National Interconnected Electrical System; ‚ ""SIE'' are to Superintendencia de Electricidad, or the Superintendency of Electricity of the Dominican Republic, which is responsible for coordinating and regulating the activities of the Dominican electricity sector following the privatization process completed in 1999; establishing, enforcing compliance with and systematically analyzing the price levels for electricity and their structure; setting by resolution all tariffs and tolls that are subject to regulation; supervising and enforcing compliance with legal and regulatory provisions; and precluding manipulative practices from occurring in the sector; and ‚ ""Tons'' are to metric tons. Unless otherwise indicated, statistics provided throughout this offering memorandum with respect to power generation units are expressed in MW, in the case of the installed capacity of such power generation units, and in GWh, in the case of the aggregate electricity production of such power generation units. One GWh is equal to 1,000 MWh and one MWh is equal to 1,000 kWh. Statistics relating to aggregate annual electricity production are expressed in GWh and are based on a year of 8,760 hours.

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OFFERING MEMORANDUM SUMMARY This summary highlights information contained elsewhere in this offering memorandum. It does not contain all the information that you may consider important in making your investment decision. Therefore, you should read the entire offering memorandum carefully, including in particular the ""Risk Factors'' section and the consolidated financial statements and the related notes thereto appearing elsewhere in this offering memorandum. Introduction Haina Finance, a wholly owned subsidiary of EGE Haina, is a newly incorporated exempted company incorporated with limited liability in the Cayman Islands solely to issue the Notes. Prior to the issuance of the Notes Haina Finance has not engaged in any business activity and after the issuance of the Notes Haina Finance will not engage in any business activity other than complying with its obligations under the Notes and the Transaction Documents to which it is a party. Overview of EGE Haina EGE Haina is the largest generator of electricity in the Dominican Republic based on installed capacity and effective capacity, and currently operates 13 generation units at six plants. At December 31, 2006, EGE Haina had an aggregate installed capacity of 666.7 MW and an aggregate effective capacity of 600.5 MW, which represent approximately 21.0% of the total installed capacity and 20.3% of the total effective capacity in the interconnected system in the Dominican Republic. EGE Haina's 666.7 MW of installed capacity consist of a coal-fired steam turbine generation unit, six fuel-oil fired steam turbine generation units, three diesel generation units and three gas turbine generation units. EGE Haina discontinued the operations of two of its gas turbine generation units as of December 31, 2006. During the year ended December 31, 2006, EGE Haina generated 1,754.9 GWh of energy, representing 16.4% of the Dominican Republic's interconnected system energy requirements. For the year ended December 31, 2006, EGE Haina had total revenues of US$309.6 million, operating income of US$34.0 million and net income of US$20.9 million. As of December 31, 2006, EGE Haina had total assets of US$437.9 million, total liabilities of US$176.0 million and total shareholders' equity of US$261.9 million. EGE Haina's generation plants are located throughout the Dominican Republic. The Barahona and Pedernales plants are located in the southwest region of the Dominican Republic. The Haina plant is located in the south-central region of the Dominican Republic The Puerto Plata plant is located in the northern region of the Dominican Republic. The San Pedro and Sultana del Este plants are located in the eastern region of the Dominican Republic. EGE Haina has contracted 350 MW of capacity and associated energy through PPAs with EDE-Este, EDE-Norte and EDE-Sur, the three electricity distribution companies in the Dominican Republic. Approximately 98% of EGE Haina's total sales in 2006 were made under these PPAs. Aggregate sales of energy under these PPAs were 1,690 GWh, 1,974 GWh and 2,065 GWh during 2004, 2005 and 2006, respectively. EGE Haina's commitments to sell capacity under these PPAs have been roughly equal to its allocations of firm capacity for the past three fiscal years. EGE Haina also has a PPA with Megacentro, the largest retail shopping center in the Dominican Republic. On January 15, 2007, EGE Haina entered into an agreement in Term Sheet form with its affiliate Consorcio Energπetico Punta Cana-Macao S.A., or CEPM, setting forth the principal terms of a PPA to be entered into between EGE Haina and CEPM following the completion of a 120 km transmission line at 138kV that CEPM is constructing to connect its distribution system with the Sultana del Este plant. CEPM is a privately owned utility company engaged in the business of generating, transmitting, and distributing electricity through an isolated system in the Punta Cana-Bavaro π region, one of the principal tourist destinations in the Dominican Republic, and Bayahibe, another popular tourist destination in the eastern region of Dominican Republic. 1


Pursuant to the expected PPA, EGE Haina would supply a minimum of 50MW to CEPM beginning in 2008 and would grant an option to CEPM to increase the volume of energy up to the maximum available capacity of the Sultana del Este plant. EGE Haina anticipates that this option will be exercised in 2010 or 2011, based on the demand growth projected by CEPM. The PPA is expected to have a term of 15 years. If entered into on the terms currently contemplated, this PPA will be the largest PPA in terms of capacity entered into by any generation company with an isolated system and will result in EGE Haina having the most diverse revenue base of any Dominican power generator. EGE Haina expects that this PPA, if and when fully implemented, will represent 18% of EGE Haina's variable margin, and will increase the stability to EGE Haina's operating margin. EGE Haina can offer no assurance (1) that CEPM's transmission line will be completed as scheduled, or at all, (2) that the PPA between EGE Haina and CEPM will be entered into on the terms set forth in the Term Sheet, or at all, (3) when CEPM will exercise the option to increase the volume of energy to 100 MW, if at all, (4) that the percentage of EGE Haina's variable margin represented by this PPA will not be lower than EGE Haina's expectations, or (5) that this PPA will have the expected effects on the stability of EGE Haina's operating margins. EGE Haina purchases fuel oil for its generation plants from Glencore, Ltd., or Glencore, one of the largest fuel brokers in the world. The price that EGE Haina pays Glencore for fuel oil is based on (i) the daily published price of fuel oil in Platts US Market Scan and (ii) a delivery fee. The delivery fee has fluctuated between US$2.50 per barrel to US$3.50 per barrel during the three-year period ended December 31, 2006. From time to time, EGE Haina purchases fuel oil from other sources such as the Dominican Refinery and Vitol, Inc., another international fuel broker. In early 2006, EGE Haina entered into a contract with Glencore International AG, or Glencore International, in which Glencore International agreed to supply EGE Haina with coal sufficient to meet the Barahona plant's requirements for a period of two years. The contract price for coal under this agreement is US$56.80 per ton plus a delivery fee. History EGE Haina was incorporated in the Dominican Republic on August 17, 1999 under Law No. 141-97 of June 24, 1997 ĂŒ Ley General de Reforma de la Empresa Publica Ď€ (General Law of Reform of State-owned Companies), referred to herein as the ""Reform Law.'' The Reform Law provides that formerly statecontrolled companies be established with equal participation by the government and the private sector. Haina Investment Company, Ltd., or HIC, made the winning bid of US$144.5 million in an international bidding process conducted by the Dominican government for the capitalization of EGE Haina and acquired a 50% equity interest in EGE Haina on October 28, 1999. On the same date, CDE transferred property, plant and equipment and inventory to EGE Haina in exchange for a 49.994% equity interest in EGE Haina and EGE Haina assumed certain liabilities of CDE. This process is referred to as the ""capitalization.'' The initial shareholders of HIC were CDC Haina, Ltd., Hart Energy (BVI) Inc., Basic Energy (BVI) Ltd., or Basic Energy, Caribbean Energy Company, or Caribbean Energy, Seaboard Corporation and Enron Caribe Ltd. In separate transactions in 2002 and 2006, CDC Haina, Ltd., Hart Energy (BVI) Inc., Seaboard Corporation and Enron Caribe Ltd. sold their interests in HIC to other shareholders of HIC and their affiliates. As a result, HIC is now indirectly owned by Basic Energy, Caribe Energy, Ltd., or Caribe Energy, Caribbean Basin Power Fund, Ltd., or CBPF, Caribbean Energy and Astro Desarrollo Financiero, S.A., or Astro. Overview of the Dominican Electric Power Industry Following the privatization of the Dominican power sector in late 1999, competition in the generation of electricity has increased. Investments in new power generation units and significant upgrades to, and conversions of, existing power generation units from 2000 to 2003 resulted in a 57% increase in the aggregate effective capacity of the thermal units of the Dominican electricity market. As of December 31, 2006, SENI's total installed capacity in the Dominican Republic was 3,166.3 MW, of which 2,952.1 MW represented effective capacity. Electricity generation in the Dominican Republic is 2


highly dependent on thermal production, which as of December 31, 2006 represented 85.2% of total installed capacity and 84.7% of effective capacity, while hydroelectric generation represented the remaining 14.8% of total installed capacity and 15.3% of the total effective capacity. Following the economic crisis during 2003 and the first half of 2004, the Dominican economy has experienced improvements. As a result, energy demand increased by 9.0% in 2006, reaching approximately 10,708 GWh, compared to 2005 and increased by 10.8% in 2005 compared to 2004. Prior to the economic crisis, demand had been increasing by an average annual rate of 7.6% from 1994 to 2002. See ""The Electrical Industry in the Dominican Republic Ì The Dominican Electricity Market.'' Business Strategy The following are key elements of our strategy: ‚ Make capital investments in our existing plants that will lower our production costs and increase our operating margins. EGE Haina's San Pedro and Haina plants give the company flexibility with respect to the types of fuel that it chooses to utilize to generate electricity. These plants may be converted from using fuel oil to using natural gas or coal. EGE Haina has commissioned engineering and economic feasibility studies for the San Pedro and Haina plants. The implementation of these projects will depend on the overall development of the SENI and the financial condition of the distribution companies. ‚ Improve our operating efficiency to lower our production costs and increase our operating margins. EGE Haina is in the process of reforming the manner in which it obtains fuel and spare parts. EGE Haina plans to develop a program with other market participants, whereby acquisition of fuel and spare parts would be coordinated among market participants so that they purchase fuel and spare parts at better prices and on better commercial terms from suppliers. ‚ Improve our financial and administrative efficiency. EGE Haina plans to improve its financial and administrative efficiency through the implementation of new systems and processes designed to reduce costs and increase productivity. ‚ Invest in new generation projects with low marginal production costs. As EGE Haina expects the demand for electricity in the Dominican Republic to continue to grow in the future, it is pursing the development of new efficient generation projects. If EGE Haina develops new generation units, it expects that these units will be completed between 2010 and 2015. The development of new generation units will enable EGE Haina to provide the distribution companies with the additional energy and associated capacity necessary to accommodate future increases in electricity demand. ‚ Assist EDE-Este, EDE-Norte and EDE-Sur with the strengthening of their collection processes in order that they may make timely payments of our invoices. EGE Haina plans to continue to undertake projects jointly with the distribution companies in order to improve their operational and financial performance. As more than 98% of EGE Haina's revenue is derived from these customers and EGE Haina is committed to deliver 350 MW of capacity and the related electricity to these customers under its PPAs, it is in EGE Haina's best interest to assist the distribution companies in ensuring their financial viability. ‚ Stabilize and strengthen commercial margins by entering into PPAs with unregulated customers and customers that operate isolated power systems. These customers have high load factors and stable financial performance. They seek reliable and dependable power supply. EGE Haina seeks to provide full power service to theses customers, including power supply from existing power units and incremental back-up supply. EGE Haina's anticipated PPA with CEPM is an example of its efforts to further strengthen and diversify its revenue stream. 3


Competitive Strengths ‚ EGE Haina is currently the largest electricity generator in the Dominican Republic, in terms of capacity and contract sales. For the year ended December 31, 2006, EGE Haina's sales accounted for 25.8% of capacity sales and 21.0% of contracted energy sales in the Dominican Republic, and sales under EGE Haina's PPAs represent between 19% and 24% of the aggregate purchases of EDE-Norte, EDE-Sur and EDE-Este under private PPAs. ‚ EGE Haina's Sultana del Este and Barahona I units are frequently among the four generation units with the lowest marginal costs in the SENI. ‚ EGE Haina supplies electricity directly to the principal load center of the Dominican Republic through the Haina plant. The Haina plant is critical for the stability of the system because of the reactive power generated by this plant. ‚ The PPAs with the distribution companies are denominated in U.S. dollars and expire in July 2016. The PPAs permit stable sales over the long term. ‚ EGE Haina is financially in position to capitalize on future load growth. EGE Haina has relatively low financial leverage, permitting EGE Haina to maintain ample coverage of existing obligations while having the capacity to develop new projects. ‚ EGE Haina has obtained additional collateral from EDE-Este securing the payment of accounts receivable due from EDE-Este by entering into an agreement that provides for collection directly from end consumers. This agreement provides EGE Haina a security interest in the collection of at least US$65 million per year from the principal costumers of EDE-Este and its credit card collections. ‚ EGE Haina's shareholders have informed us that they have a long-term perspective and that their business strategy is focused on improving earnings and our making future investments. Principal Shareholders HIC owns 50.00% of EGE Haina's outstanding capital stock and the Dominican government, acting through the CDE, owns 49.994% of EGE Haina's outstanding capital stock. Shares representing less than 0.01% of the capital stock of EGE Haina are owned by 104 former employees of the CDE. See ""Principal Shareholders and Related Party Transactions Ì Principal Shareholders.'' HIC is indirectly owned by Basic Energy, Caribe Energy, CBPF, Caribbean Energy and Astro through their interests in Haina Group Holdings, Ltd. Dominican Holdings, Ltd. and Haina Subscriber Holding, Ltd. Basic Energy, which indirectly owns a 65.7% beneficial interest in HIC, is controlled by a group of Dominican investors that pioneered the development of independent power producers in the Dominican Republic. Mr. Rolando Gonzalez-Bunster, a prominent individual in the Dominican power industry, heads the investor group. In addition to its interest in EGE Haina, Basic Energy owns (1) a controlling interest in Caribe Energy, a joint venture between Basic Energy and CEPM, and (2) a controlling interest in Compa¿nia de Electricidad de San Pedro de Macorπ s, which owns and operates a 300 MW combined cycle plant in the Dominican Republic. Astro, which indirectly owns a 12.9% beneficial interest in HIC, is an affiliate of Caribbean Energy. Caribbean Energy, which indirectly owns an 11.5% beneficial interest in HIC, is a subsidiary of Grupo Financiero Nacional, a Dominican holding company. CBPF, which indirectly owns a 9.9% beneficial interest in HIC, is a fund organized to finance power plants in Central America and the Caribbean that is managed by Energy Investors Funds Group, LLC. On October 20, 1999, the direct and indirect shareholders of HIC entered into a shareholders agreement, or the HIC Shareholders Agreement. Under the HIC Shareholders Agreement, certain matters specified therein must be approved by the directors of HIC representing shareholders of HIC that hold at least 81% of HIC's shares, and other matters specified therein must be approved by the directors of HIC representing shareholders of HIC that hold at least 70% of HIC's shares. See ""Principal Shareholders And Related Party Transactions Ì HIC Shareholders Agreement.'' 4


THE OFFERING The following summary is qualified in its entirety by reference to detailed information appearing elsewhere in this offering memorandum. See ""Description of the Transaction Documents.'' Issuer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ EGE Haina Finance Company. Guarantor ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Notes will be unconditionally and irrevocably guaranteed by Empresa Generadora de Electricidad Haina, S.A. Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ US$175,000,000 9.50% senior notes due 2017. Closing Date ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ April 26, 2007 (the ""Closing Date''). Maturity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ April 26, 2017 (the ""Maturity Date''). InterestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Interest will accrue on the Notes at the rate of 9.50% per annum. Interest will be payable in arrears on each April 26 and October 26, commencing on October 26, 2007 until the Maturity Date. Interest on the Notes will be calculated on the basis of a 360-day year of twelve 30-day months and, in the case of an incomplete month, the number of days elapsed but not more than 30 days in a month. Principal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The principal amount of the Notes will be paid on the Maturity Date. Interest Reserve Account ÏÏÏÏÏÏÏÏÏÏÏÏ On or prior to the Closing Date, as security for the Notes, Haina Finance will establish a U.S. dollar-denominated account (the ""Interest Reserve Account'') with the Trustee in New York City and will Fully Fund (as defined below) the Interest Reserve (as defined below) on the date of issuance of the Notes by either: (i) delivering to the Trustee one or more direct-pay irrevocable 180-day or 364-day letters of credit in favor of the Trustee from a bank rated A¿ or higher by S&P or A¿ or higher by Fitch (each, a ""Letter of Credit''), in an amount sufficient, when combined with any amounts credited to or deposits made into the Interest Reserve Account as described below, to Fully Fund the Interest Reserve; and/or (ii) depositing into the Interest Reserve Account cash (and/or temporary cash investments in the name of the Trustee maturing on or before the next succeeding interest payment date under the Notes) in an amount, when combined with any Letters of Credit delivered as provided above, sufficient to Fully Fund the Interest Reserve. The amount of funds available for drawing under the Letters of Credit, if any, and/or the cash or temporary cash investments, if any, in the Interest Reserve Account constitute the ""Interest Reserve.'' The Interest Reserve shall be deemed to be ""Fully Funded'' so long as, at any time, the funds on deposit therein (including the funds available for drawing under the Letters of Credit and the aggregate principal outstanding of the temporary cash investments held by the Trustee at such time) are in an amount sufficient to provide for the payment in full of the next succeeding scheduled interest payment on the Notes. The term ""Fully Fund,'' when used as a verb, has a correlative meaning. 5


At least two Business Days prior to any interest payment date under the Notes, Haina Finance may either: (i) deposit with the Trustee from funds otherwise available to Haina Finance cash sufficient to pay the interest scheduled to be paid on such date; or (ii) direct the Trustee to draw on Letters of Credit or release funds from the Interest Reserve Account, in each case in an amount sufficient to pay the interest scheduled to be paid on such date. Security ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ On the Closing Date, the Notes will be secured by a first priority security interest on (i) 100% of the outstanding Capital Stock of Haina Finance, (ii) all rights, title and interest in a participation agreement to be entered into by Haina Finance and Barclays Bank PLC, or the Participation Agreement, and (iii) all cash and Temporary Cash Investments on deposit in the Interest Reserve Account. Form and Denomination ÏÏÏÏÏÏÏÏÏÏÏÏ The Notes will be issued in the form of two global notes in registered form without coupons (""Global Notes''). Any Notes sold outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act will be in fully registered form without interest coupons attached and only in denominations of US$100,000 and in integral multiples of US$1,000 in excess thereof. Any Notes sold pursuant to Rule 144A under the Securities Act will be issued in fully registered form in denominations of US$100,000 and integral multiples of US$1,000 in excess thereof. Use of Proceeds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The gross proceeds from the sale of the Notes will be US$175.0 million. Pursuant to the Participation Agreement, Haina Finance will use the proceeds from the offering to purchase a participation in a loan to be made by Barclays Bank PLC to EGE Haina for the amount of US$175.0 million under a loan agreement to be entered into between EGE Haina and Barclays Bank PLC or the Loan Agreement. From the proceeds of the Loan Agreement, EGE Haina will pay the initial purchasers' discounts and commissions and the fees and expenses of the offering in an amount estimated at approximately US$4.8 million and will Fully Fund the Interest Reserve Account in an amount of approximately US$8.3 million. See ""Description of the Transaction Documents Ì The Loan Agreement and the Participation Agreement.'' Immediately after disbursement of the funds under the Loan Agreement, EGE Haina will use US$102.2 million of the proceeds from the Loan Agreement to repurchase the aggregate amount outstanding under the 10% Senior Secured Notes due 2010 and will use US$13.5 million of the proceeds of the Loan Agreement to pay amounts payable under the management agreement between EGE Haina and HIC, or the Management Agreement, that accrued during the three-year period ended December 31, 2005. EGE Haina intends to use the remaining proceeds from the Loan Agreement for working capital and general corporate purposes. Ranking ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Notes will be the senior obligations of Haina Finance, ranking pari passu in right of payment with all other unsecured senior 6


obligations of Haina Finance (other than obligations preferred by statute or operation of law) and senior in right of payment to all existing and future obligations of Haina Finance expressly subordinated in right of payment to the Notes. The obligations of the Guarantor under the Guaranty will rank pari passu in right of payment with all other unsecured and senior obligations of the Guarantor, other than obligations granted preferential treatment pursuant to the laws of the Dominican Republic. Restrictive Covenants of Haina Finance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Haina Finance is a newly formed entity incorporated solely to issue the Notes, and will not engage in any business activity other than complying with its obligations under the Transaction Documents (as defined in ""Description of the Transaction Documents''). See ""Description of the Transaction Documents Ì Covenants of Haina Finance.'' Restrictive Covenants of EGE HainaÏÏ The indenture governing the Notes will contain certain covenants relating to EGE Haina, including, but not limited to, the following: ‚ Limitation on Indebtedness; ‚ Limitation on Restricted Payments; ‚ Limitation on Sale of Assets; ‚ Limitation on Liens; ‚ Limitation on Affiliate Transactions; ‚ Limitation on Mergers; ‚ Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries; and ‚ Limitation on Sale and Lease-Back Transactions. These covenants are subject to a number of important qualifications and exceptions. See ""Description of the Transaction Documents Ì Covenants of EGE Haina.'' Payment of Additional Amounts ÏÏÏÏÏ Subject to certain limited exceptions, all payments in respect of the Notes and all other payments under the Transaction Documents, whether in respect of principal, interest, premiums, fees or otherwise, will be made without deduction or withholding for any current or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by (or on behalf of) the Cayman Islands, the Dominican Republic, the United Kingdom or any jurisdiction from which payments on the Notes are made (collectively, ""Taxes''), unless such Taxes are required by any such taxing authority to be deducted or withheld. See ""Tax Considerations.'' See ""Description of the Transaction Documents Ì Additional Amounts.'' Repurchases at the Option of the Holders of the Notes Upon a Change of Control ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ If a Change of Control occurs, each holder of Notes will have the right to require Haina Finance to repurchase all or any part (in 7


minimum amounts of US$100,000 or an integral multiple of US$1,000) of that holder's Notes pursuant to a Change of Control Offer (as defined in ""Description of the Transaction Documents Ì Repurchases at the Option of the Holders of the Notes Upon Change of Control'') on the terms set forth in the Indenture. In the Change of Control Offer, Haina Finance will offer a ""Change of Control Payment'' in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest and additional amounts, if any, on the Notes repurchased, to the date of purchase (subject to the right of the holders of record on the relevant record date to receive interest and additional amounts, if any, on the relevant interest payment date). See ""Description of the Transaction Documents Ì Repurchases at the Option of the Holders of the Notes Upon Change of Control.'' Optional Redemption ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Notes will be redeemable, at the option of Haina Finance: (i) in whole (but not in part), at any time prior to April 26, 2012, at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest and additional amounts (if any) on the Notes to be redeemed, discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable treasury rate plus 75 basis points, in each case plus accrued and unpaid interest on the principal amount being redeemed to the redemption date; provided that concurrently with such redemption, Haina Finance may prepay in full any other outstanding senior indebtedness; or (ii) in whole or in part, at any time on or after April 26, 2012, at the redemption prices set forth under ""Description of the Transaction Documents Ì Optional Redemption,'' plus accrued and unpaid interest and additional amounts, if any, to the date of redemption. See ""Description of the Transaction Documents Ì Optional Redemption.'' Redemption for Tax Reasons ÏÏÏÏÏÏÏÏ In the event of certain changes affecting Dominican Republic, Cayman Islands or United Kingdom taxes, pursuant to which: (i) Haina Finance is or will become obligated to pay additional amounts on the Notes; or (ii) the Guarantor is or will become obligated to pay any additional amounts on the Guarantee or the Notes; (iii) Barclays Bank PLC or any successor is or will become obligated to make any withholding or deduction for or on account of any present or future Taxes on payments under the Participation Agreement, or (iv) the Guarantor will become obligated to pay additional amounts on the Loan Agreement at a rate of withholding or deduction in excess of 10%, the Notes are redeemable at the option of Haina Finance, in whole, but not in part, at their principal amount plus accrued interest through the date of redemption and any additional amounts due thereon. For more information see ""Description of the Transaction Documents Ì Optional Tax Redemption.'' 8


Transfer Restrictions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Notes have not been, and will not be, registered under the Securities Act or under any state securities laws and are subject to certain restrictions on transfer and resale. There is currently no public market for the Notes and there can be no assurance as to the development or liquidity of an active trading market for the Notes. See ""Notice to Investors.'' Governing Law ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ State of New York. RatingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ It is a condition to the issuance of the Notes that S&P will rate the notes at least ""B (stable outlook)'' and Fitch will rate the Notes at least ""B¿ (stable outlook).'' Initial Purchasers ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Barclays Capital Inc. and Deutsche Bank Securities, Inc. Listing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Application has been made to list the Notes on the Euro MTF Market of the Luxembourg Stock Exchange. PORTAL ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Notes that are sold pursuant to Rule 144A are expected to be eligible for trading in the PORTAL Market. Trustee, Registrar and Paying AgentÏÏ Deutsche Bank Trust Company Americas Luxembourg Listing Agent ÏÏÏÏÏÏÏÏÏÏ Deutsche Bank Luxembourg S.A. Risk Factors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ For a discussion of certain considerations relevant to an investment in the Notes, see ""Risk Factors.''

9


SUMMARY FINANCIAL AND OPERATING DATA The following summary financial information has been derived from EGE Haina's financial statements. The summary financial information of EGE Haina as of December 31, 2006 and 2005 and for the three years ended December 31, 2006 has been derived from the audited financial statements of EGE Haina prepared in accordance with U.S. GAAP included in this offering memorandum. The summary financial information of EGE Haina as of December 31, 2004, 2003 and 2002 and for the two years ended December 31, 2003 has been derived, except as reclassified as described in note (1) below, from audited financial statements of EGE Haina prepared in accordance with U.S. GAAP that are not included in this offering memorandum. The summary financial information should be read in conjunction with ""Presentation of Certain Financial and Other Information,'' ""Management's Discussion and Analysis of Financial Condition and Results of Operations,'' the financial statements of EGE Haina and the notes thereto included elsewhere in this offering memorandum. 2002

Statement of Operations Data: Revenues: Energy ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Capacity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Operating costs: Fuel costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Transmission costs ÏÏÏÏÏÏÏÏÏ Purchased power ÏÏÏÏÏÏÏÏÏÏÏ Frequency regulator ÏÏÏÏÏÏÏÏ Operating and maintenance(1)ÏÏÏÏÏÏÏÏÏÏ Administrative and general expenses(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏ Depreciation and amortization Operating income ÏÏÏÏÏÏÏÏÏÏÏÏ Financial (expense), net(1) ÏÏÏ Foreign exchange gain (loss)(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other (expenses) income, net(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Income (loss) before income taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Income taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏ

Year Ended December 31, 2003 2004 2005 (Thousands of U.S. dollars except where otherwise indicated)

2006

US$179,505 39,038

US$198,436 33,702

US$142,813 33,502

US$217,774 32,066

US$276,331 33,274

218,543

232,137

176,316

249,839

309,605

(120,656) (11,046) (182) Ì

(104,346) (12,561) (33,324) (2,240)

(62,577) (10,554) (39,301) (465)

(113,310) (11,325) (33,323) (666)

(128,374) (17,644) (41,611) (2,247)

(16,747)

(18,383)

(19,697)

(22,786)

(30,003)

(20,987) (14,302)

(21,664) (17,423)

(15,711) (18,642)

(20,779) (18,595)

(28,612) (27,106)

34,623 (6,568)

22,195 (17,545)

9,370 (23,042)

29,056 (14,529)

34,007 (7,657)

(3,624)

(9,842)

(11,037)

(5,351)

(5,173)

(8,928)

(3,293)

19,081 (5,047)

(10,365) 1,996

(33,637) Ì

12,062 Ì

US$ 14,034

828

US$ (8,368) US$(33,637) US$ 12,062

10

(391) 62 26,021 (5,080) US$ 20,941


2002

Balance Sheet Data: Assets: Cash and cash at banks ÏÏÏÏÏÏÏÏÏ Accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏ Long-term receivables ÏÏÏÏÏÏÏÏÏÏ Property, plant and equipment, net Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Liabilities: Short-term debt, including current portion of long-term debt ÏÏÏÏÏÏ Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Current liabilities payable to related parties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Shareholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏ

At December 31, 2003 2004 2005 (Thousands of U.S. dollars except where otherwise indicated)

US$ 22,482 62,518 Ì 329,587 460,521

US$

3,116 87,495 8,534 332,298 477,263

US$

446 94,887 Ì 313,809 448,864

US$

4,929 57,912 41,700 297,292 453,399

2006

US$

7,423 71,361 41,901 273,220 437,913

90,040 11,636

53,198 14,385

38,788 27,776

21,856 26,237

18,275 17,489

4,739 69,126 273,906

31,526 101,188 262,576

26,506 93,036 228,938

26,809 92,015 241,000

20,406 88,713 261,942

2002

At and For the Year Ended December 31, 2003 2004 2005 (Thousands of U.S. dollars except where otherwise indicated)

Other Operating Data: EBITDA(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ US$ 48,926 US$ 39,618 US$ Ratio of earnings to fixed charges(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.5x (0.4)x Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏ US$ 6,888 US$(16,300) US$ Installed capacity (MW) ÏÏÏÏÏÏÏÏ 666.8 668.5 Effective capacity (MW)ÏÏÏÏÏÏÏÏ 597.8 600.5 Availability (%) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 88 92 Energy generated (GWh)(4) ÏÏÏÏ 2,955 2,208 Energy sold under PPAs (GWh)(5)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,319 2,317 Employees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 310 316

28,012

US$ 47,650

(1.6)x (3,195) US$ 668.5 600.5 96 1,331 1,788 245

2006

US$ 61,113

0.7x 1.5x (1,039) US$ (1,050) 666.6 666.7 600.5 600.5 94 92 1,766 1,755 2,083 240

2,103 377

(1) The amounts for the year ended December 31, 2002 include certain reclassifications from previously issued financial statements to conform that year to the audited financial statements included in the Offering Memorandum in the captions: a) Other (expenses) income, net, including inventory surpluses, interest gains and foreign exchange gains that were reclassified to Operating and maintenance, Financial expenses and Foreign exchange gain (loss); and b) Administrative and general expenses, including taxes paid on behalf of suppliers that were reclassified to Other (expenses) income, net. (2) EGE Haina presents earnings before interest, taxes, depreciation and amortization, or EBITDA, as a supplemental measure of performance. EGE Haina calculates EBITDA as its net income (loss), plus income tax, financial income (expense), net, foreign exchange gain (loss), other (expenses) income, net, and depreciation and amortization. The management of EGE Haina believes that EBITDA is useful to investors because it is commonly used as an analytical indicator with EGE Haina's industry, to allocate resources and measure leverage capacity and debt service ability. EBITDA is not a measure under U.S. GAAP, and the items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA should not be considered as an alternative to net income (loss) as an indicator of our operating performance, as an alternative to cash flow from operations as an indicator of liquidity, or as a substitute 11


for other measures of operating performance or liquidity determined in accordance with U.S. GAAP. Because not all companies use identical calculations of EBITDA, EGE Haina's presentation of EBITDA may not be comparable to other similarly titled measures of other companies. EBITDA is not intended to represent funds available for dividends or other discretionary uses by EGE Haina because those funds are required for debt service, capital expenditures, working capital and other commitments and contingencies. The following table reconciles EBITDA, as presented above, to net income (loss) as reflected in our financial statements and in accordance with U.S. GAAP. 2002

Net income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2003

Year ended December 31, 2004 2005 (Thousands of U.S. dollars)

US$14,034 US$(8,368) US$(33,637)

2006

US$12,062

US$20,941

Ì

Ì

5,080

14,529

7,657

Plus: Income tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

5,047

(1,996)

Financial expense, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6,568

17,545

23,042

Foreign exchange gain (loss)ÏÏÏÏÏÏÏÏÏ

3,624

9,842

11,037

(829)

391

Other income (expenses) ÏÏÏÏÏÏÏÏÏÏÏÏ

5,351

5,173

8,928

3,293

Depreciation and amortization ÏÏÏÏÏÏÏÏ

14,302

17,423

18,642

18,595

27,106

US$48,926 US$39,619 US$ 28,012

US$47,650

US$61,113

EBITDA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(62)

(3) Fixed charges represent the total of financial expenses, debt amortization payments and amortization of debt issuance costs. Earnings represents net income (loss). (4) Excludes own consumption. (5) Includes sales in the Pedernales isolated system and under the Megacentro PPA.

12


RISK FACTORS Prior to making an investment decision, prospective purchasers of the Notes should carefully read this offering memorandum and should consider carefully, in light of their own financial circumstances and investment objectives, all the information set forth in this offering memorandum and, in particular, certain matters relating to Haina Finance and EGE Haina and other matters associated with investments in securities of issuers in countries that do not have highly developed capital markets, including, without limitation, the risk factors set forth below. Additional risks not presently known to Haina Finance and EGE Haina or that Haina Finance and EGE Haina currently deem immaterial may also impair the business and operations of Haina Finance and EGE Haina. Haina Finance's and EGE Haina's respective businesses, financial condition, results of operations and ability to satisfy their respective obligations under the Notes, including Haina Finance's obligation to repay the Notes, and EGE Haina's obligations under the Guaranty, could be materially adversely affected by any of these risks. The trading price of the Notes could decline due to these risks. Risk Factors Relating to the Dominican Republic EGE Haina is substantially dependent on the economic conditions prevailing in the Dominican Republic, which went through an economic crisis that deepened in 2003 and the first half of 2004. If the economic conditions in the Dominican Republic again deteriorate, EGE Haina's financial condition or results of operations could be adversely affected. From 2001 to 2002, the Dominican economy experienced a series of external shocks, including the September 11, 2001 terrorist attacks in the United States, the economic slowdown in the United States and the member countries of the European Union, and the increase in oil prices caused by tensions in the Middle East and the threat of a war in Iraq. These external shocks led to a 10% reduction in the tourism industry from late 2000 to late 2002, and a reduced demand for Free Trade Zone (maquilas) goods, resulting in a 12% decrease in production in 2002 compared to 2001. In 2003, the Dominican economy experienced several setbacks that led to a broad-ranging crisis. The crisis was precipitated by the weakened economy coupled with allegations of mishandling of funds at one of the largest Dominican private banks, which eventually led to its collapse. With public confidence in the banking system severely eroded, many depositors withdrew their Dominican peso deposits from banks and exchanged them for U.S. dollars. The Central Bank intervened by providing certain local banks with more than US$2 billion in financial support (equivalent to approximately 12.4% of the Dominican gross domestic product, or GDP, for 2003), by guaranteeing deposits and by honoring interbank liabilities domestically and abroad. This support of the banking system resulted in a substantial increase in the money supply, a decrease in the international net reserves of the Central Bank and a general restriction on public finance due to an increasing fiscal deficit. This deterioration of the Dominican government's and Central Bank's fiscal position led to increases in the rate of inflation, a 53% devaluation of the Dominican peso against the U.S. dollar from the second quarter of 2003 until the second quarter of 2004 and an increase in domestic interest rates. GDP decreased by 1.9% in 2003 as compared to 2002 and increased by 2% in 2004 as compared to 2003, but all of the growth occurred in the second half of that year. The devaluation of the Dominican peso, in turn, resulted in deterioration in the quality of the foreign currency-denominated loan portfolio of several Dominican financial institutions. It also caused the ratio of Dominican public sector debt to GDP to rise to 34.2% as of December 31, 2004, compared to 20.9% as of December 31, 2003. In 2003, the Dominican Republic went into arrears on its public sector external debt owed to multilateral institutions, bilateral creditors, commercial banks and suppliers. After a change in government in August 2004, the Dominican peso appreciated rapidly, there was a substantial return of capital, inflation rapidly decreased and interest rates dropped. In February 2005, the International Monetary Fund, or IMF, approved a stand-by arrangement with the Dominican Republic, or the IMF Stand-by Arrangement. Also in 2005, the Dominican Republic successfully restructured most of its public sector external debt. Real GDP growth in 2005 was substantially higher than anticipated reaching 13


9.3%, and inflation for 2005 was 7.4%, well below the 11% target. Real GDP growth in 2006 was 5.5%, and inflation for the year was 5.0%. Haina Finance does not own any assets except for its interest in the Participation Agreement and substantially all of the assets of EGE Haina are located in the Dominican Republic, where it conducts its business. Although the Dominican economy has improved during the second half of 2004 and in 2005 and 2006, EGE Haina's financial condition or results of operations may be adversely affected by any further deterioration of the Dominican economy, international developments affecting the Dominican Republic including oil price increases, or future Dominican government action, including foreign investment policy, domestic real interest rates, foreign exchange or taxation. Any such deterioration, developments or actions may adversely affect the business, financial condition and results of operations of EGE Haina and the ability of Haina Finance and EGE Haina to satisfy their obligations under the Notes and the Guaranty. The Dominican Republic is currently dependent on assistance provided by international lending agencies and multilateral institutions, including the IMF, the London Club and the Paris Club; if the Dominican Republic is unable to comply with the terms of its agreements with those agencies and institutions, that assistance may be reduced or terminated, which may adversely impact the Dominican electricity sector in general and EGE Haina in particular. In January 2005, the Dominican government and the IMF entered into a letter of intent, or the Letter of Intent, which describes the policies the Dominican Republic intends to implement in the context of its request for financial support from the IMF. The Letter of Intent provided, among other things, for a series of steps to be taken by the Dominican government to reform the electricity sector and improve the collection rates of the distribution companies from their customers. See ""The Electrical Industry in the Dominican Republic ĂŒ Economic Crisis and Its Impact on the Electricity Sector ĂŒ Electricity Sector Sustainability Plan.'' On February 1, 2005, the IMF approved the IMF Stand-by Arrangement, which provided for loans to the Dominican Republic of up to approximately US$665.2 million. A failure by the Dominican Republic to meet the fiscal and technical targets agreed with the IMF pursuant to the IMF Stand-by Arrangement, including reform of the electricity sector, may preclude the future availability of funds under the IMF StandBy Arrangement. In April 2006, the Dominican government sent a letter to the IMF describing the progress being made in meeting the performance criteria under the IMF Stand-by Arrangement and requesting seven waivers related to incomplete fulfillment of the structural performance criteria. In May 2006, the IMF's Executive Board completed the third and fourth reviews and financing assurances review under the IMF Stand-by Arrangement and granted the Dominican Republic's request for the waivers. The IMF stated that ""action is needed to contain the deficit of the electricity sector, including by raising the cash recovery indices of electricity distributors. Allowing electricity prices to adjust in response to changes in costs, while improving services, will contribute to reducing government transfers, establish a sound commercial basis for the operation of the sector, and spur greatly needed capital investments.'' In August 2006, an IMF staff mission visited the Dominican Republic in connection with the fifth review under the IMF Stand-by Arrangement and issued a press release stating that the mission urged the Dominican Republic authorities to ""move swiftly and forcefully to accelerate and deepen the reform in the electricity sector in order to reduce in a durable way its need for government financial support and to improve service provision.'' In February 2007, the IMF agreed to extend the IMF Stand-by Arrangement until January 2008. Although the IMF noted that the Dominican electricity sector was still an area of concern, the IMF also agreed to disburse US$57.5 million under the IMF Stand-by Arrangement. Certain measures to reform the electricity sector may be difficult to implement and there is no assurance that the Dominican government will be successful in taking such measures as provided by its Letter of Intent and subsequent letters. In April 2004, the Dominican Republic reached an agreement with the Paris Club that conditionally restructured US$193 million of indebtedness owed to the Paris Club member countries. The debt relief granted by the Paris Club was conditioned on the Dominican Republic achieving comparable relief from its other creditors, a condition that is broadly referred to as comparability of treatment. In May 2005, the Dominican Republic completed a debt exchange offer with its existing private bondholders. In October 2005, 14


the Dominican Republic concluded an agreement with the Paris Club whereby US$137 million of debt due in 2005 was rescheduled, effectively reducing the country's debt service payments due to the Paris Club members in 2005 from US$357 million to US$222 million. The rescheduled debt is payable within 12 years, including a five-year grace period. In June 2005, the Dominican Republic also reached an agreement to restructure its London Club debt with private bank creditors totaling US$198 million. There is no assurance that the multilateral institutions that are currently providing assistance to the Dominican Republic will continue to do so, or that current plans to reform the electricity sector will be supported in the future by these institutions. A reduction or termination of the assistance provided by the multilateral institutions to the Dominican government may adversely impact the Dominican economy and the electricity sector in general, including EGE Haina, which in turn may adversely affect the ability of Haina Finance and EGE Haina to satisfy their obligations under the Notes and the Guaranty. The Dominican economy and its financial sector remain vulnerable to external shocks, which could threaten the Dominican financial system and have a material adverse effect on economic growth in the Dominican Republic; such shocks could adversely affect the financial condition of Haina Finance and EGE Haina, including Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. External shocks can adversely affect the Dominican economy. For instance, the significant weakening of the Dominican economy from 2001 to 2002 was principally the result of external factors impacting the Dominican economy, which continues to be vulnerable to external shocks. A significant decline in the economic growth of any of the Dominican Republic's major trading partners, especially the United States, could have a material adverse effect on the Dominican Republic's balance of trade and economic growth. In addition, remittances from Dominicans living abroad, which totaled approximately US$3.0 billion in 2006, decrease when the economic situation of those Dominicans declines. In addition, because international investors' reactions to the events occurring in one emerging market economy sometimes appear to demonstrate a ""contagion'' effect, in which an entire region or class of investments is out of favor with international investors, the Dominican Republic could be adversely affected by negative economic or financial developments in other emerging market countries. In the event of a future external shock, there is no assurance that the Dominican government would choose, or be able to, effectively intervene to prevent a collapse of the Dominican financial system. We also cannot assure you that the Dominican economy and public finances would not be adversely affected by economic declines in other countries or further increases in oil prices. Any of these events could have an adverse effect on the Dominican economy, which could in turn adversely affect the business, financial condition and results of operations of Haina Finance and EGE Haina, and Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. The Dominican Republic may impose exchange controls or currency restrictions, which may limit Haina Finance's and EGE Haina's ability to make payments on amounts owed under the Notes and the Guaranty. Substantially all of EGE Haina's revenues are derived from sales of capacity and associated energy to EDE-Este, EDE-Norte and EDE-Sur, pursuant to PPAs with each of them. EGE Haina invoices the distribution companies in U.S. dollars; however, payments under each PPA may be made in Dominican pesos or, if the parties to each PPA so agree, in U.S. dollars. In the past, EDE-Este, EDE-Norte and EDE-Sur have often settled their obligations under their PPAs with EGE Haina in Dominican pesos and it is likely that they will continue to do so in the future as they receive most of their revenues in Dominican pesos. If the Dominican Republic were to impose a different exchange rate system with the result that the Dominican peso ceased to be freely convertible or transferable abroad or that the Dominican peso were significantly depreciated relative to the U.S. dollar, then the ability of EGE Haina to purchase U.S. dollars may be adversely affected and EGE Haina might be forced to hold Dominican pesos or accept an unfavorable 15


exchange rate. This, in turn, may limit Haina Finance's and EGE Haina's ability to obtain the necessary amount of U.S. dollars to make the payments due under the Notes and the Guaranty. Likewise, if the Dominican government were to reduce or eliminate the ability of EGE Haina to remit money outside of the Dominican Republic, Haina Finance and EGE Haina may be limited in their ability, or unable, to meet their obligations under the Notes and the Guaranty. Risk Factors Relating to EGE Haina and the Dominican Electricity Sector EGE Haina is dependent on the financial condition and stability of its three primary customers, which were adversely affected by the Dominican economic crisis and have not always made timely payments, and the business, financial condition and results of operations of EGE Haina may continue to be adversely affected by developments in the Dominican economy and the electricity sector that affect the liquidity of these distribution companies. Substantially all of EGE Haina's revenues are derived from sales of capacity and electricity to EDE-Este, EDE-Sur and EDE-Norte. In 2003, in an effort to reduce electricity prices in response to the Dominican economic crisis, the Dominican government no longer permitted distribution companies to increase their tariffs to recover increased costs resulting from fuel costs, changes in the Dominican peso/U.S. dollar exchange rate and changes in the U.S. CPI. Simultaneously, the Dominican government created a system of subsidies under which the Dominican government committed to pay to the distribution companies the difference between the price at which the electricity was sold to customers of the distribution companies, or the actual tariff, and the tariff which the distribution companies were legally entitled to receive, or the legal tariff. As the crisis unfolded, the Dominican government could no longer pay the subsidies and, therefore, collections by the distribution companies significantly decreased, causing a weakening of their financial condition. In September 2003, EDE-Sur and EDE-Norte, which had been privatized in 1999, were reacquired by the Dominican government due to the severe financial and operating difficulties they were experiencing, and the Dominican government assumed management of these distribution companies. In addition to the liquidity problems caused by the failure of the Dominican government to make timely payments of these subsidies, the financial condition of the distribution companies was also adversely affected by: ‚ the high rate of non-technical losses (i.e., theft of electricity) historically experienced by the distribution companies, the financial effects of which were exacerbated as electricity costs increased due to the pass through by the generation companies of escalating fuel prices; and ‚ the relatively low rate of collection of accounts receivable from the distribution companies' customers. The financial difficulties of the distribution companies resulted in their inability to meet their payment obligations with generators, including EGE Haina. The financial problems that beset the electricity generators and distributors resulted in frequent blackouts, widespread public protests and temporary shutdowns of some power generation units. As part of the effort to combat the economic crisis, on January 14, 2005, the Dominican government and the IMF entered into a Letter of Intent, which provided for a series of steps to be taken by the Dominican government to reform the Dominican electricity sector. See ""The Electrical Industry in the Dominican Republic Ì Economic Crisis and Its Impact on the Electricity Sector Ì Electricity Sector Sustainability Plan.'' In furtherance of the plan outlined in the Letter of Intent, the Dominican Government entered into sector agreements with participants in the Dominican electricity sector in March 2005 and February 2006. See ""The Electrical Industry in the Dominican Republic Ì Economic Crisis and Its Impact on the Electricity Sector Ì Electricity Sector Agreements.'' 16


Pursuant to the sector agreements, the Dominican Government was required to use public funds to ensure that all distributors pay the generators in full for the electricity supplied by the generators during 2005 and 2006. In addition: ‚ EGE Haina has negotiated a number of agreements with the Dominican government under which EGE Haina has offset receivables owed to EGE Haina by EDE-Sur and EDE-Norte against obligations owed by EGE Haina to various government entities and agencies and under which the Dominican government has assumed some of EGE Haina's obligations to other private generators; and ‚ EGE Haina has negotiated a payment plan with EDE-Este to provide for the payment of the outstanding past due accounts receivable from EDE-Este over six years. The CDEEE has circulated a draft sector agreement for 2007 on similar terms and conditions as the Sector Agreements that have terminated and there have been several meetings among industry participants to discuss this draft. However, there can be no assurance that there will be a new sector agreement for 2007. The Dominican government's deficit for the electricity sector, consisting primarily of the operating deficit of EDE-Sur and EDE-Norte and the subsidy obligations to EDE-Este, reached approximately US$620 million in 2005 and US$530 million in 2006. Although the IMF approved a Stand-by Arrangement in February 2005, which provides for loans to the Dominican Republic of up to approximately US$665.2 million, funding of the Stand-by Arrangement is conditioned on the fulfillment of structural performance criteria, principally related to the electricity sector. In April 2006, the Dominican government requested seven waivers related to incomplete fulfillment of the structural performance criteria, which were granted in May 2006. There is no assurance that all of the steps outlined in the Letter of Intent will be implemented or that the implementation of these steps will ensure that the distribution companies attain adequate liquidity to make timely payments to the generators. There is no assurance that the Dominican government will continue to have the financial resources to fund the electricity sector operating deficit or will continue to commit to do so. Default by any of the distribution companies under its respective PPA or the failure of any of them to pay material amounts owing to the EGE Haina in a timely manner, may adversely affect the business, financial condition and results of operations of the EGE Haina and, consequently, Haina Finance's and EGE Haina's ability to make payments under the Notes and the Guaranty. A significant portion of EGE Haina's revenues is derived from long-term PPAs with EDE-Este, EDE-Norte and EDE-Sur, and there is no assurance that if EGE Haina is required to renegotiate these PPAs it will be able to do so on favorable terms or at all or that EGE Haina will be able to enter into similar PPAs upon the termination of its existing PPAs. For the year ended December 31, 2006, EGE Haina derived approximately 98% of its operating revenues from long-term PPAs with EDE-Este, EDE-Norte and EDE-Sur. These PPAs were entered into at the market prices prevailing at the time of their execution; however, given their long-term nature, their value may deviate over time from the market price of electricity. On November 14, 2005, the Dominican Government issued Decree No. 621/05 pursuant to which it appointed a commission to renegotiate certain PPAs between the generators and EDE-Este, EDE-Sur and EDE-Norte, to arrive at an ""agreement necessary to guarantee corrections and distortions that affect both the cited contracts and the Madrid Agreement.'' See ""The Electrical Industry in the Dominican Republic Ì Economic Crisis and Its Impact on the Electricity Sector Ì Electricity Sector Sustainability Plan.'' In September 2006, CDEEE, CNE and SIE made public a plan for the period 2006-2012 known as the Plan Integral del Sector Electrico π de la Republica π Dominicana, or the Electricity Sector Integral Plan, which concluded, among other things, that energy prices for electricity distribution companies are too high when compared to energy prices in the region, that the terms of the PPAs between generating and distribution companies are generally too long and sets forth as a priority for the Dominican electricity sector, among others, the renegotiation of the PPAs with the electricity generators. The Dominican Government has invited market participants to comment on the Electricity Sector Integral Plan but has not taken further steps 17


towards its implementation. See ""The Electrical Industry in the Dominican Republic Ì Economic Crisis and Its Impact on the Electricity Sector Ì Electricity Sector Integral Plan.'' There can be no assurance that EGE Haina will not be required to renegotiate its PPAs. If the Dominican Government attempts or forces a renegotiation of EGE Haina's PPAs with EDE-Este, EDENorte and EDE-Sur and, as a result, these PPAs are amended on terms not favorable to EGE Haina, EGE Haina's business, financial condition and results of operations would be adversely affected which in turn could adversely affect Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. In addition, EGE Haina's PPAs with the three distribution companies expire in 2016. EGE Haina cannot predict whether the distribution companies will request bids for replacement PPAs or whether, if such bids are requested, EGE Haina would bid or be a successful bidder in the bidding process. In the absence of replacement PPAs, EGE Haina could seek to sell its excess capacity and energy through the spot market. EGE Haina cannot predict whether there would be sufficient demand to permit it to sell its excess capacity at an advantageous price or at all. If EGE Haina is successful in bidding for replacement PPAs following the termination of its existing PPAs and the terms of the replacement PPAs are not as favorable to EGE Haina as its existing PPAs, EGE Haina's business, financial condition and results of operations would be adversely affected which in turn could adversely affect Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. If EGE Haina does not enter into replacement PPAs following the termination of its existing PPAs and the prices at which it is able to sell its excess capacity and energy on the spot market are not as favorable to EGE Haina as the prices it receives under its existing PPAs, EGE Haina's business, financial condition and results of operations would be adversely affected which in turn could adversely affect Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. If for any reason EGE Haina's power generation units are not available to generate enough energy, EGE Haina may be required to purchase energy in the spot market in order to fulfill its PPA obligations. The operation of generation plants is subject to many risks, including the risk of breakdown, failure or underperformance of equipment, actions of employees, and damage to or the destruction of the generation plants as a result of acts of God, such as hurricanes, earthquakes and other natural disasters. EGE Haina may experience operational difficulties that could affect its ability to generate electricity. These difficulties may affect its generation equipment, electromechanical components and, in general, any asset comprising its power generation units. EGE Haina's revenues are dependent upon its ability to reliably provide agreed amounts of electricity to the distribution companies and sell excess capacity on the spot market. Under its PPAs, EGE Haina is committed to supply fixed amounts of electricity. If EGE Haina has operational difficulties, its power generation units may not be available and, as a result, EGE Haina may need to make spot market energy purchases potentially at a price above what it is being paid under its PPAs with EDE-Este, EDE-Sur and EDE-Norte to comply with its obligations under its PPAs. This may result in a substantial impairment of EGE Haina's margins which would have an adverse effect on the financial condition and results of operations of EGE Haina and, consequently, on Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. Problems relating to operations may also raise EGE Haina's cost of operating and maintaining its generation plants and reduce EGE Haina's net income and, therefore, the level of cash flows available to make payments under the Notes and the Guaranty. EGE Haina is subject to extensive governmental legislation and regulation, which, if changed in a way that is harmful to its business, will affect its business, financial condition and results of operations. As a regulated electricity generator, EGE Haina is subject to extensive regulation of various aspects of its business. The current regulatory framework governing electricity utility businesses has been in existence in the Dominican Republic since the reform of the electricity sector in 1997. See ""The Electrical Industry in the Dominican Republic Ì Regulatory Framework of the Dominican Electricity Sector.'' EGE Haina is also 18


subject to environmental regulations, which, among other things, require EGE Haina to perform environmental impact assessments of future projects and obtain and maintain regulatory permits. Despite the reorganization and privatization process of the electricity sector that began in 1997, the Dominican government has retained its oversight and regulatory functions as well as the control and ownership of transmission and hydroelectric power generation units. In addition, the Dominican Republic has retained ownership interests in the distribution companies and the thermal generation companies, including EGE Haina (in which it currently has a 50.00% ownership interest). Furthermore, as a result of the Dominican government's reacquisition of the interests of Union π Fenosa S.A., or Union π Fenosa, in EDE-Norte and EDESur in September 2003, the Dominican government is currently the sole owner of these distribution companies. The Dominican government's oversight responsibilities over the electricity sector are carried out by the CNE and the SIE. There is no assurance that the laws and regulations in the Dominican Republic will not change, or be interpreted, in a manner that could adversely affect EGE Haina, or that any required environmental permits will be granted by the Dominican government. No assurance can be given that the Dominican government will not in the future increase or change the extent to which it regulates electricity utility businesses, and that such regulation will not adversely affect EGE Haina's business, financial condition and results of operations and consequently Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. The interests of HIC may be different than yours. HIC owns 50.0% of EGE Haina's outstanding capital stock. Pursuant to the organizational documents of EGE Haina, HIC has the right to appoint four of EGE Haina's five directors, and the remaining director is appointed by the Dominican government. See "" Management Ì EGE Haina's Board of Directors.'' Haina Finance, in turn, is a wholly owned subsidiary of EGE Haina whose directors, Pastor Sanjurjo, Alberto Triulzi and Nurys Pe¿na, also serve as executive officers of EGE Haina. In circumstances involving a conflict of interest between EGE Haina and the holders of the Notes, HIC may exercise the rights arising from its right to appoint those directors in a manner that would benefit HIC to the detriment of the holders of the Notes. In addition, HIC provides management services to Haina pursuant to the Management Agreement. In circumstances involving a conflict of interest between HIC, as the company providing management services to Haina under the Management Agreement, and the holders of the Notes, HIC may exercise its rights under the Management Agreement in a manner that would benefit HIC to the detriment of the holders of the Notes. The Dominican government's interest as a shareholder of EGE Haina may conflict with the interest of HIC or with other interests that it may have. The Dominican government owns 49.994% of EGE Haina. Although the Dominican government may only nominate one of the five members of EGE Haina's Board of Directors, EGE Haina's bylaws provide that EGE Haina may not take certain actions without the unanimous approval of its Board of Directors. See ""Management Ì EGE Haina's Board of Directors.'' As a result, the rights of the Dominican government as shareholder of EGE Haina may limit the flexibility of EGE Haina to respond to market developments or to engage in certain transactions or to otherwise make changes to its business and operations, and may subject EGE Haina to public or political pressure, all of which may affect EGE Haina's business, financial condition and results of operations and consequently Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. The business, financial condition and results of operations of EGE Haina can be adversely affected by foreign exchange fluctuations. A significant portion of EGE Haina's indebtedness is denominated in U.S. dollars and all of its purchases of fuel are denominated in U.S. dollars. Although substantially all its revenues are derived from its PPAs with EDE-Este, EDE-Norte and EDE-Sur and invoiced in U.S. dollars, under the terms of its PPAs, the 19


distribution companies may, at their election, pay EGE Haina in Dominican pesos at the rate of exchange published by the Central Bank on the date of such payment. Fluctuations in the currency rates during the period between EGE Haina's receipt of payment from the distribution companies in Dominican pesos and the conversion of these funds to U.S. dollars may decrease or increase the amount of U.S. dollars it actually receives. A significant decrease in the amount of U.S. dollars available to EGE Haina as a result of a decline in the value of the Dominican peso may have a material adverse effect on Haina Finance's and EGE Haina's ability to meet their obligations denominated in U.S. dollars, including the Notes and the Guaranty. The U.S. dollar is the functional currency of EGE Haina under U.S. GAAP due to its prevailing use in most of EGE Haina's transactions, such as the pricing of the PPAs, purchase of raw materials and spare parts and borrowings. Therefore, fluctuations in the U.S. dollar/Dominican peso exchange rate will generate either gains or losses on monetary assets and liabilities denominated in Dominican pesos. For instance, the sharp appreciation of the Dominican peso during the second half of 2004 increased EGE Haina's spot market purchase liabilities significantly as measured in U.S. dollars. In addition, the economic crisis that took place in 2003 and the first half of 2004 led to high interest rates on local currency obligations that also negatively affected the results of EGE Haina when accrued on those spot market payables. Also, tax liabilities are calculated in Dominican pesos and an appreciation in the Dominican currency could result in higher tax liabilities when measured in U.S. dollars. EGE Haina may incur significant costs and liabilities related to environmental and safety matters, including more stringent enforcement of such laws. EGE Haina's operations are subject to a wide range of environmental laws and regulations. These laws and regulations could have an unexpected impact on EGE Haina's operations. EGE Haina's operations are subject to certain environmental risks that are inherent in the power generation industry which may arise unexpectedly and result in material adverse effects on EGE Haina's financial condition and results of operations. Furthermore, laws and regulations adopted in the future aimed at strengthening environmental regulation may result in the need to make substantial capital expenditures, thereby impacting negatively EGE Haina's business, financial condition and results of operations and consequently Haina Finance's and EGE Haina's ability to meet their obligations under the Notes and the Guaranty. There is no assurance that EGE Haina's insurance would be adequate in the event of a total or significant loss. EGE Haina maintains comprehensive insurance with respect to its power generation units, including general liability insurance and other insurance policies customary in the power industry. There can be no assurance that such insurance coverage will be available in the future at commercially reasonable costs or that the amounts for which EGE Haina is insured or amounts which EGE Haina receives under such insurance coverage will cover all of EGE Haina's losses. In the event there is a total or significant loss at EGE Haina's power generation units or other facilities, no assurance can be given that the insurance proceeds will be sufficient to satisfy all of Haina Finance's and EGE Haina's indebtedness, including the Notes and the Guaranty. Risk Factors Related to the Notes If EGE Haina does not generate positive cash flows, Haina Finance and EGE Haina may be unable to pay principal and interest on the Notes and the Guaranty. Haina Finance's ability to pay principal and interest on the Notes depends on EGE Haina's future operating performance and its ability to collect from clients. EGE Haina's future operating performance is subject to market conditions and business factors that are beyond EGE Haina's control. Consequently, there is no assurance that EGE Haina will have sufficient cash flows to allow Haina Finance to pay the principal, premium, if any, and interest on the Notes. If the cash flows and capital resources of EGE Haina are insufficient to allow them to make scheduled payments on their debt, EGE Haina may have to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance their debt. If Haina 20


Finance cannot make scheduled payments on the Notes and EGE Haina cannot make scheduled payments on its debt, they will be in default and, as a result: ‚ creditors could declare all outstanding principal and interest to be due and payable; ‚ creditors could commence foreclosure proceedings against EGE Haina's assets; and ‚ creditors could force Haina Finance and EGE Haina into bankruptcy or liquidation. Restrictions in the Indenture may limit EGE Haina's abilities to operate its business. The terms of the Indenture contain covenants that limit the discretion of EGE Haina's management over various business matters. For example, the covenants significantly restrict Haina Finance's and EGE Haina's ability to incur additional indebtedness, create liens or other encumbrances, sell or dispose of assets, merge or consolidate with another entity, or prepay or redeem subordinated indebtedness. These restrictions could materially adversely affect EGE Haina's ability to finance their future operations or capital needs or to engage in other business activities that EGE Haina's management may deem in the best interest of EGE Haina. See ""Description of the Transaction Documents Ì Covenants of EGE Haina.'' Haina Finance may not be able to obtain the funds required to repurchase the Notes upon a change of control. Under the Indenture, Haina Finance is required to offer to purchase the Notes at a price equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, plus certain other amounts, to the date of purchase in the event of a change of control of Haina Finance or EGE Haina. The occurrence of a change of control is outside the control of Haina Finance and EGE Haina. If a change of control were to occur, Haina Finance or EGE Haina may not have sufficient funds available, or may not be able to obtain the funds needed, to pay the purchase price for all the Notes tendered by holders deciding to accept the repurchase offer. See ""Description of the Transaction Documents Ì Repurchases at the Option of the Holders of the Notes Upon Change of Control.'' There is no public market for the Notes, and transferability of the Notes may be limited by the absence of an active trading market and restrictions on transfers under applicable securities laws. The Notes will be a new issue of securities for which there is currently no active trading market. Haina Finance will apply and use its reasonable best efforts to obtain approval to list the Notes on the Official List of the Luxembourg Stock Exchange and to trade them on the Euro MTF Market of such exchange. If any European or national legislation is adopted and is implemented or takes effect in Luxembourg in a manner that would require Haina Finance to publish or produce financial statements according to accounting principles or standards that are different from U.S. GAAP, or that would otherwise impose requirements on Haina Finance that Haina Finance, in its discretion, determines are impracticable or unduly burdensome, Haina Finance may apply to delist the Notes. If the Notes are not listed on the Luxembourg Stock Exchange or any other exchange, it is unlikely that an active trading market will develop for the Notes. The Notes have not been registered under the Securities Act or the securities laws of any state or any other jurisdiction and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any applicable securities laws of any state or any other jurisdiction. See ""Plan of Distribution'' and ""Notice to Investors.'' If the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities and other factors, including general economic conditions and Haina Finance's and EGE Haina's financial condition, performance and prospects. As a result, neither EGE Haina nor Haina Finance can be sure that an active trading market will develop for the Notes. 21


The market value of the Notes may depend on economic conditions outside of the Dominican Republic, including elsewhere in Latin America, over which Haina Finance and EGE Haina have no control. The market value of securities of Dominican companies, including EGE Haina, is affected to varying degrees by economic and market conditions in other countries, including elsewhere in Latin America. Although economic conditions in such countries may differ significantly from economic conditions in the Dominican Republic, investors' reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Dominican companies. International financial markets have experienced volatility in the past-due to a combination of international political and economic events. There can be no assurance that any future negative political and/or economic development in other countries will not adversely affect the market value of the Notes. It may be difficult to enforce civil liabilities against Haina Finance and EGE Haina or their respective directors, officers and controlling persons. EGE Haina is a corporation (sociedad anonima) π organized under the laws of the Dominican Republic, and Haina Finance is an exempted company incorporated with limited liability under the laws of the Cayman Islands. One of the directors of EGE Haina and one of the directors of Haina Finance reside outside the United States. All of Haina Finance's and EGE Haina's executive officers named in this offering memorandum reside in the Dominican Republic. In addition, all or a substantial portion of the assets of these persons and all of the assets of Haina Finance and EGE Haina are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons, or to enforce against them in U.S. courts judgments predicated upon the civil liability provisions of the federal securities laws of the United States or otherwise obtained in U.S. courts. See ""Enforcement of Foreign Judgments.'' It may be difficult to enforce your rights if EGE Haina entered into a bankruptcy, liquidation or similar proceeding in the Dominican Republic. The insolvency laws of the Dominican Republic may be less favorable to your interest than the bankruptcy laws of the United States, which laws affect the priority of creditors (secured or unsecured), the ability to obtain post-petition interest and the duration of insolvency proceedings. Thus, your ability to recover payments due on the Notes may be more limited than would be the case under U.S. bankruptcy law. Because EGE Haina conducts substantially all of its business in the Dominican Republic, under Dominican laws the Dominican courts would be vested with jurisdiction in any insolvency proceedings involving EGE Haina and would apply the laws of the Dominican Republic in any such insolvency proceeding. Bankruptcy in the Dominican Republic is governed by certain provisions of the Dominican Republic's Commercial Code (Articles 437 to 614 of the Codigo π de Comercio de la Republica π Dominicana and by Law No. 4582). Other than in connection with the amicable settlement process described below, Dominican bankruptcy law does not provide for reorganization similar to that provided in Chapter 11 of the U.S. Bankruptcy Code or for an automatic stay on collection or foreclosure efforts by secured creditors. In general, the bankruptcy laws of the Dominican Republic contemplate a three-stage process: ‚ a proceeding administered by the Ministry of State for Industry and Commerce (Secretaria de Estado de Industria y Comercio) in which the debtor and its creditors attempt to reach an amicable settlement; ‚ in the event that no amicable settlement is reached, a bankruptcy proceeding before the Court of First Instance (Tribunal de Primera Instancia) in which such court determines whether to issue a bankruptcy order declaring the debtor bankrupt; and ‚ in the event that a bankruptcy order is issued, the management and/or liquidation of the business of the debtor and the resolution of creditor claims by up to three receivers. 22


Under Dominican bankruptcy law, bankruptcy proceedings may be initiated by: ‚ a debtor that consistently fails to pay its debts as they become due; ‚ any creditor, by means of a bankruptcy petition demonstrating that the debtor has failed to meet one or more of its obligations to such creditor or to creditors generally and that the creditor has complied with the amicable settlement process and has failed to reach an amicable settlement; or ‚ the Court of First Instance, in the absence of any petition. Liquidation under Dominican bankruptcy laws could result in holders of Notes receiving distributions from such liquidation in Dominican pesos, thus subjecting such holders to the currency risks associated with converting Dominican pesos into U.S. dollars. Amicable settlement and bankruptcy proceedings in the Dominican Republic may be time consuming and subject to significant delays and incidental litigation. Under Dominican law, if EGE Haina becomes bound by the Guaranty and is subsequently subject to an insolvency proceeding in the Dominican Republic, EGE Haina's creditors may seek to obtain a judgment voiding EGE Haina's obligations under the Guaranty. Dominican bankruptcy law is unclear and undeveloped with respect to avoidance and similar powers of bankruptcy courts, and no assurances can be given that EGE Haina's obligations under the Guaranty will not be challenged or avoided.

23


USE OF PROCEEDS The gross proceeds from the sale of the Notes will be US$175.0 million. Pursuant to the Participation Agreement, Haina Finance will use the proceeds from the offering to purchase a participation in the Loan Agreement under which a loan in the amount of US$175.0 million is to be made by Barclays Bank PLC to EGE Haina. EGE Haina will use a portion of the proceeds of the Loan Agreement to: ‚ pay the initial purchasers' discounts and commissions and the fees and expenses of the offering in an amount estimated at approximately US$4.8 million; ‚ Fully Fund the Interest Reserve Account in an amount of approximately US$8.3 million; ‚ repurchase its outstanding 10% Senior Secured Notes due 2010 for US$102.2 million; and ‚ pay US$13.5 million in respect of amounts payable under the Management Agreement that accrued during the three-year period ended December 31, 2005. EGE Haina intends to use the remaining proceeds from the Loan Agreement for working capital and general corporate purposes. See ""Description of the Transaction Documents Ì The Loan Agreement and the Participation Agreement.''

24


EXCHANGE RATES When the Dominican peso came into existence in 1947, the Dominican Government had a fixed exchange rate system with an exchange rate of RD$1.00 per U.S. dollar. In the early 1960s, after the death of President Trujillo, pressures on fiscal accounts resulted in current account deficits. The refusal to devalue the currency stimulated the creation of a parallel unregulated foreign exchange market and the gradual transfer of foreign exchange transactions from the official market to the parallel market. In 1985, the exchange rates of both markets were aligned. Under this foreign exchange regime the devaluation rate followed closely the inflation differential between the Dominican Republic and the United States. The exchange rate system operated in two segmented markets, an official foreign exchange market operated by the Central Bank and a free market operated by commercial and exchange banks. As of September 2002, approximately 90.3% of all foreign exchange transactions were made on the free foreign exchange market. In December 2002, the parallel foreign exchange market was eliminated with the enactment of the Monetary and Financial Law No. 183-02, or the Monetary Law. The Monetary Law introduced the principle of currency exchange freedom to the Dominican Republic, eliminating all administrative restrictions to the exchange of the Dominican peso for other currencies. This law also eliminates all restrictions to contract in foreign currency. Under the Monetary Law, the exchange rate for the Dominican peso to other currencies is freely determined by the demand for and supply of foreign currency. Companies, national or foreign, may freely convert Dominican pesos into foreign currency, and vice versa, through any entity that is authorized to operate in the foreign exchange market by the Monetary Board of the Dominican Republic. The terrorist attacks of September 11, 2001 in the United States and their effects on the United States and global economies negatively affected the Dominican peso. In response, the Central Bank tightened its monetary policy and sold foreign currency reserves in an effort to reduce the depreciation of the Dominican peso. However, during the first nine months of 2002, the Dominican peso depreciated by 11% with respect to the U.S. dollar. During the last three months of 2002, the Central Bank implemented a less restrictive monetary policy and significantly reduced the sale of its foreign currency reserves, which caused the Dominican peso to depreciate an additional 9.2% with respect to the U.S. dollar. In 2002, the cumulative depreciation of the Dominican peso totaled 21% with respect to the U.S. dollar. The Dominican peso further depreciated from RD$35.06 per U.S. dollar as of December 31, 2003 to RD$47.21 per U.S. dollar as of June 30, 2004. Not only did the Dominican peso depreciate but there was significant volatility of the exchange rates. The reasons for this devaluation and volatility were the crisis of the Dominican financial sector, increases in fuel prices, the decrease of free trade zones exports and the lingering negative effects on tourism caused by the terrorist attacks of September 11, 2001. The market also lacked confidence in the ability of the monetary authorities to stop devaluation during this period. After the change of the Dominican Government in August 2004, the new monetary authorities established an economic stabilization program which caused the Dominican peso to appreciate from RD$47.21 per U.S. dollar as of June 30, 2004 to RD$31.05 per U.S. dollar as of December 31, 2004 and RD$34.50 per U.S. dollar as of December 31, 2005. The Dominican currency has remained relatively stable, and stood at RD$33.78 per U.S. dollar as of December 31, 2006. The Monetary Board of the Dominican Republic is permitted to set temporary limits on the entry of short-term foreign capital in the Dominican Republic, provided that these limits are equitable, nondiscriminatory and in good faith. Haina Finance and EGE Haina make no representation that the peso or dollar amounts shown in this offering memorandum could have been or could be converted into dollars or pesos at the rates shown in this offering memorandum or at any other rate. The Federal Reserve Bank of New York does not report a noon buying rate for Dominican pesos. The translation of amounts expressed in Dominican pesos as of a specified 25


date at the then prevailing exchange rate may result in the presentation of dollar amounts that differ from dollar amounts that would have been obtained by translating Dominican pesos as of another specified date. For reference purposes only, the Central Bank publishes, on a monthly basis, currency purchase and sale rates, based on the rates used daily by the duly authorized exchange agents. The following table sets forth purchase rates for the periods indicated. High

Year 2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2006ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Month Ended October 31, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ November 30, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ December 31, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ January 31, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ February 28, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ March 31, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Purchase Rates Low Average Period End (Dominican pesos per U.S. dollar)

RD$17.76 43.82 55.42 34.50 35.06

RD$16.97 17.76 28.17 28.07 32.19

RD$17.59 29.37 41.93 30.28 33.30

RD$17.76 35.06 31.05 34.50 33.78

33.80 33.81 33.78 34.55 33.69 33.41

33.53 33.47 32.89 33.65 33.42 32.48

33.66 33.69 33.30 33.90 33.51 32.91

33.76 33.51 33.78 33.71 33.46 32.48

Source: Central Bank.

26


CAPITALIZATION The following table sets forth the capitalization of EGE Haina on an actual basis based on EGE Haina's financial statements as of December 31, 2006, and on an adjusted basis to give effect to EGE Haina's receipt of the proceeds of the Loan Agreement and the application thereof as if these transactions had occurred on December 31, 2006. See ""Use of Proceeds.'' This table should be read in conjunction with EGE Haina's financial statements included elsewhere in this offering memorandum and ""Management's Discussion and Analysis of Financial Condition and Results of Operations.'' As of December 31, 2006 Actual As Adjusted (Thousands of U.S. dollars)

Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$ 13,905

US$ 13,905

Long-term debt: 10% Senior Secured Notes due 2010(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Loan Agreement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ KfW loan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$ 91,079 Ì 2,003

US$ Ì 175,000 2,003

Total long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Shareholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

93,082 261,942

177,003 261,942

Total capitalization (long-term debt and shareholders' equity) ÏÏÏÏ

US$355,024

US$438,945

(1) To be repaid with the proceeds of this offering.

27


SELECTED FINANCIAL AND OPERATING INFORMATION The following selected financial information has been derived from EGE Haina's financial statements. The selected financial information of EGE Haina as of December 31, 2006 and 2005 and for the three years ended December 31, 2006 has been derived from the audited financial statements of EGE Haina prepared in accordance with U.S. GAAP included in this offering memorandum. The selected financial information of EGE Haina as of December 31, 2004, 2003 and 2002 and for the two years ended December 31, 2003 has been derived, except as reclassified as described in note (1) below, from audited financial statements of EGE Haina prepared in accordance with U.S. GAAP that are not included in this offering memorandum. The selected financial information should be read in conjunction with ""Presentation of Certain Financial and Other Information,'' ""Management's Discussion and Analysis of Financial Condition and Results of Operations,'' the financial statements of EGE Haina and the notes thereto included elsewhere in this offering memorandum. 2002

Statement of Operations Data: Revenues: Energy ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Capacity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Operating costs: Fuel costs ÏÏÏÏÏÏÏÏÏÏÏÏÏ Transmission costs ÏÏÏÏÏ Purchased power ÏÏÏÏÏÏÏ Frequency regulator ÏÏÏÏ Operating and maintenance(1)ÏÏÏÏÏÏ Administrative and general expenses(1) ÏÏ Depreciation and amortizationÏÏÏÏÏÏÏÏÏ Operating income ÏÏÏÏÏÏÏÏ Financial (expense), net(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Foreign exchange gain (loss)(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏ Other (expenses) income, net(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Income (loss) before income tax ÏÏÏÏÏÏÏÏÏÏÏÏ Income taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net income (loss) ÏÏÏÏÏÏÏ

Year Ended December 31, 2003 2004 2005 (Thousands of U.S. dollars except where otherwise indicated)

2006

US$179,505 39,038

US$198,436 33,702

US$142,813 33,502

US$217,774 32,066

US$276,331 33,274

218,543

232,137

176,316

249,839

309,605

(120,656) (11,046) (182) Ì

(104,346) (12,561) (33,324) (2,240)

(62,577) (10,554) (39,301) (465)

(113,310) (11,325) (33,323) (666)

(128,374) (17,644) (41,611) (2,247)

(16,747)

(18,383)

(19,697)

(22,786)

(30,003)

(20,987)

(21,664)

(15,711)

(20,779)

(28,612)

(14,302)

(17,423)

(18,642)

(18,595)

(27,106)

34,623

22,195

9,370

29,056

34,007

(6,568)

(17,545)

(23,042)

(14,529)

(7,657)

(3,624)

(9,842)

(11,037)

(5,351)

(5,173)

(8,928)

(3,293)

19,081 (5,047)

(10,365) 1,996

(33,637) Ì

12,062 Ì

US$ (8,368)

US$(33,637)

US$ 12,062

US$ 14,034

28

828

(391) 62 26,021 (5,080) US$ 20,941


2002

Balance Sheet Data: Assets: Cash and cash at banks ÏÏÏÏÏÏÏÏÏ Accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏ Long-term receivables ÏÏÏÏÏÏÏÏÏÏ Property, plant and equipment, net Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$ 22,482 62,518 Ì 329,587 460,521

Liabilities: Short-term debt, including current portion of long-term debt ÏÏÏÏÏÏ Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Current liabilities payable to related parties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Shareholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏ 2002

US$

3,116 87,495 8,534 332,298 477,263

US$

446 94,887 Ì 313,809 448,864

US$

4,929 57,912 41,700 297,292 453,399

2006

US$

7,423 71,361 41,901 273,220 437,913

90,040 11,636

53,198 14,385

38,788 27,776

21,856 26,237

18,275 17,489

4,739 69,126 273,906

31,526 101,188 262,576

26,506 93,036 228,938

26,809 92,015 241,000

20,406 88,713 261,942

At and For the Year Ended December 31, 2003 2004 2005 (Thousands of U.S. dollars except where otherwise indicated)

Other Operating Data: EBITDA(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ US$ 48,926 Ratio of earnings to fixed charges (3) ÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.5x Capital expenditures ÏÏÏÏÏÏÏÏ US$ 6,888 Installed capacity (MW) ÏÏÏÏ 666.8 Effective capacity (MW)ÏÏÏÏ 597.8 Availability (%) ÏÏÏÏÏÏÏÏÏÏÏ 88 Energy generated (GWh)(4) 2,955 Energy sold under PPAs (GWh)(5)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,319 Employees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 310 (1)

At December 31, 2003 2004 2005 (Thousands of U.S. dollars except where otherwise indicated)

US$ 39,618

US$ 28,012

US$ 47,650

(0.4)x (1.6)x 0.7x US$(16,300) US$ (3,195) US$ (1,039) 668.5 668.5 666.6 600.5 600.5 600.5 92 96 94 2,208 1,331 1,766 2,317 316

1,788 245

2,083 240

2006

US$ 61,113 1.5x US$ (1,050) 666.7 600.5 92 1,755 2,103 377

The amounts for the year ended December 31, 2002 include certain reclassifications from previously issued financial statements to conform that year to the audited financial statements included in the Offering Memorandum in the captions: a) Other (expenses) income, net, including inventory surpluses, interest gains and foreign exchange gains that were reclassified to Operating and maintenance, Financial expenses and Foreign exchange gain (loss); and b) Administrative and general expenses, including taxes paid on behalf of suppliers that were reclassified to Other (expenses) income, net.

(2) EGE Haina presents earnings before interest, taxes, depreciation and amortization, or EBITDA, as a supplemental measure of performance. EGE Haina calculates EBITDA as its net income (loss), plus income tax, financial income (expense), net, foreign exchange gain (loss), other (expenses) income, net, and depreciation and amortization. The management of EGE Haina believes that EBITDA is useful to investors because it is commonly used as an analytical indicator with EGE Haina's industry, to allocate resources and measure leverage capacity and debt service ability. EBITDA is not a measure under U.S. GAAP, and the items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA should not be considered as an alternative to net income (loss) as an indicator of our operating performance, as an alternative to cash flow from operations as an indicator of liquidity, or as a substitute 29


for other measures of operating performance or liquidity determined in accordance with U.S. GAAP. Because not all companies use identical calculations of EBITDA, EGE Haina's presentation of EBITDA may not be comparable to other similarly titled measures of other companies. EBITDA is not intended to represent funds available for dividends or other discretionary uses by EGE Haina because those funds are required for debt service, capital expenditures, working capital and other commitments and contingencies. The following table reconciles EBITDA, as presented above, to net income (loss) as reflected in our financial statements and in accordance with U.S. GAAP. Year ended December 31, 2003 2004 2005 (Thousands of U.S. dollars)

2002

Net income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$14,034

US$(8,368) US$(33,637)

2006

US$12,062

US$20,941

Ì

Ì

5,080

14,529

7,657

Plus: Income tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

5,047

(1,996)

Financial expense, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6,568

17,545

23,042

Foreign exchange gain (loss)ÏÏÏÏÏÏÏÏ

3,624

9,842

11,037

(829)

391

Other income (expenses) ÏÏÏÏÏÏÏÏÏÏÏ

5,351

5,173

8,928

3,293

Depreciation and amortization ÏÏÏÏÏÏÏ

14,302

17,423

18,642

18,595

27,106

(62)

EBITDA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$48,926

US$39,619 US$ 28,012

US$47,650

US$61,113

(3) Fixed charges represent the total of financial expenses, debt amortization payments and amortization of debt issuance costs. Earnings represents net income (loss). (4) Excludes own consumption. (5) Includes sales in the Pedernales isolated system and under the Megacentro PPA.

30


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The accompanying management's discussion and analysis of financial condition and results of operations should be read in conjunction with EGE Haina's audited annual financial statements and the related notes thereto as well as the information presented under ""Presentation of Certain Financial and Other Information'' and ""Selected Financial and Operating Information.'' The financial statements referred to above have been prepared in accordance with U.S. GAAP. The following discussion contains forward-looking statements that involve risks and uncertainties. The actual results of EGE Haina may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in ""Forward-Looking Statements'' and ""Risk Factors.'' Principal Factors Affecting Results of Operations All of EGE Haina's operations are conducted in the Dominican Republic and all of its revenues are generated in the Dominican Republic. EGE Haina derives 98% of its revenues from the sale of capacity and associated energy through its PPAs with EDE-Este, EDE-Norte and EDE-Sur. These revenues, as well as EGE Haina's margins, are primarily driven by general macroeconomic conditions in the Dominican Republic, energy demand and energy demand growth, the availability of its generation units, the condition and performance of the Dominican electricity sector, and fuel prices. Macroeconomic Conditions, Demand Growth and Electricity Sector As a company with all of its operations in the Dominican Republic, the performance of EGE Haina is impacted by general economic conditions in the Dominican Republic. In particular, the general performance of the Dominican economy affects demand for electricity, and inflation affects the costs and margins of EGE Haina. In 2003, the Dominican economy experienced several setbacks that led to a broad-ranging crisis. The crisis was precipitated by the weakened economy coupled with allegations of mishandling of funds at one of the largest Dominican banks, which eventually led to a financial crisis. The Central Bank intervened by providing certain local banks with more than $2 billion in financial support (equivalent to approximately 12.4% of the Dominican GDP for 2003), by guaranteeing deposits and by honoring interbank liabilities domestically and abroad. This support of the banking system resulted in a substantial increase in the money supply, a decrease in the international net reserves of the Central Bank and a general restriction in public finance due to an increasing fiscal deficit. This deterioration of the Dominican Government's and Central Bank's fiscal position led to increases in the rate of inflation, a 53% devaluation of the Dominican peso against the U.S. dollar from the second quarter of 2003 until the second quarter of 2004 and an increase in domestic interest rates. GDP decreased by 1.9% in 2003 and increased by 2% in 2004, but all of the growth occurred in the second half of that year. On February 1, 2005, the IMF approved the IMF Stand-By Arrangement with the Dominican Republic. The IMF Stand-By Arrangement includes measures aimed at improving government expenditures and debt management and at strengthening the financial and electricity sectors. It also provided for US$655.2 million in disbursements from the IMF over the two-year period ended on February 1, 2007, although funding of the Stand-by Arrangement was conditioned on the fulfillment of structural performance criteria, principally related to the electricity sector. In October 2005, the IMF Executive Board approved the review of the first six months of the IMF Stand-By Agreement and in November 2005 the IMF disbursed US$139.2 million under this Agreement. In October 2005, the Paris Club announced the restructuring of US$137 million worth of maturities falling due in 2005. In April 2006, the Dominican Government sent a letter to the IMF describing the progress made towards meeting the performance criteria under the IMF Stand-by Arrangement and requesting seven waivers related to incomplete fulfillment of the structural performance criteria. In May 2006, the IMF's Executive 31


Board completed the third and fourth reviews and financing assurances review under the IMF Stand-by Arrangement and granted the Dominican Republic's request for the waivers. In February 2007, the IMF agreed to extend the IMF Stand-by Arrangement until January 2008. Although the IMF noted that the Dominican electricity sector was still an area of concern, the IMF also agreed to disburse US$57.5 million under the IMF Stand-by Arrangement. These factors led to a recovery of the major Dominican economic indices from December 31, 2004 to December 31, 2006 as set forth in the table below. GDP Ì Last 12 Months Ending (% Change Year Over Year)

December 31, 2006 ÏÏÏÏÏÏÏÏÏ December 31, 2005 ÏÏÏÏÏÏÏÏÏ December 31, 2004 ÏÏÏÏÏÏÏÏÏ

5.5% 9.3% 1.95%

Exchange Rate Ì End of Period (RD$/1.0 US$)

Inflation Ì Last 12 Months Ending (% Change Year Over Year)

RD$33.78 RD$34.50 RD$31.05

5.0% 7.44% 28.74%

Loan Interest Rates (Yearly Average)

8.44% 9.86% 34.01%

CD Interest Rate (Yearly Average)

3.01% 3.35% 18.89%

Source: Central Bank. In addition to affecting energy demand, macroeconomic conditions affect foreign exchange, domestic interest rates and inflation. These key economic variables have an effect on financial and operating costs. Spot market transactions, as well as other operating costs like payroll, among others, representing approximately 28% of EGE Haina's total operating, maintenance and selling, general and administrative expenses, are denominated in Dominican pesos. However, the U.S. dollar is the functional currency of EGE Haina under U.S. GAAP due to its use in most of its transactions, such as the pricing of the PPAs, purchase of raw materials and spare parts. Therefore, fluctuations in the Dominican peso/U.S. dollar exchange rate will generate either gains or losses on monetary assets and liabilities denominated in Dominican pesos. For instance, the sharp appreciation of the domestic currency during the second half of 2004 increased the spot market purchase liabilities significantly as measured in U.S. dollars. In addition, the economic crisis of 2003 and the first half of 2004 led to high interest rates for local currency obligations that also negatively affected the results of EGE Haina when accrued on those spot market payables. Finally, inflation increases labor costs and other local expenses of EGE Haina that are not passed to EGE Haina's customers through the PPAs. Allocations of Firm Capacity and Spot Market Prices for Capacity Under EGE Haina's PPAs, EDE-Este, EDE-Norte and EDE-Sur have agreed to purchase from EGE Haina 100 MW, 112 MW and 138 MW, respectively, until July 31, 2016. Pursuant to the PPAs with EDE Este, EDE Norte and EDE Sur, EGE Haina may arrange with third parties to provide the contracted capacity and associated energy. Under each of these PPAs, the price for contracted capacity is calculated using (i) a base purchase price in dollars which is adjusted over time for increases or decreases in the U.S. CPI, with a maximum annual change of 2%, and (ii) the transmission costs incurred by EGE Haina. The regulatory framework in the Dominican electricity market establishes a methodology for allocating firm capacity to each generation unit. To the extent that EGE Haina is not allocated sufficient firm capacity to cover its commitments under its PPAs, EGE Haina must purchase firm capacity from generators that have been allocated firm capacity in excess of the amounts necessary to cover their commitments under their PPAs and generators with no commitments under PPAs. To the extent that EGE Haina is allocated firm capacity in excess of the amount necessary to cover its commitments under its PPAs, it may sell its excess firm capacity. See ""The Electrical Industry in the Dominican Republic Ì The Dominican Electricity Market Ì Transactions in Power and Electricity.'' 32


The following table sets forth the firm capacity allocated by the OC to EGE Haina's generation units for the periods presented. Year Ended December 31,

Haina Plant

Sultana del Este Plant

Barahona Plant (MW)

Other Plants

Total

2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2006(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

125.1 112.8 108.2 110.5 103.6

138.5 138.5 141.5 150.3 150.1

30.2 26.2 34.1 38.1 40.3

74.2 58.2 53.6 50.9 44.9

368.0 335.7 337.5 349.7 338.8

Source: OC. (1) Preliminary. Energy Sales and Spot Market Energy Transactions Under EGE Haina's PPAs, EDE-Este, EDE-Norte and EDE-Sur have agreed to purchase from EGE Haina the energy associated with the capacity purchases of these distributors. Energy sales are based on actual customer demand. Pursuant to the PPAs with EDE Este, EDE Norte and EDE Sur, EGE Haina supplies the contracted capacity and energy through its own generation, through spot market purchases or through arrangements with third parties to provide the contracted capacity and associated energy. Under each of these PPAs, the price for energy sold is calculated using a base energy price in dollars that is adjusted over time for (i) increases or decreases in the U.S. CPI and (ii) increases or decreases in price of Platt's Fuel Oil #6. The Dominican power market is a marginal cost system. The OC determines which generation units are to be dispatched on an hourly basis with the final goal of minimizing the cost of energy supplied. This system makes it possible for EGE Haina to cover its commitments under its PPAs through its own energy generation, through purchases of energy in the spot market or through contracts with third parties. EGE Haina's Sultana del Este and Barahona I units are among the first generation units to be dispatched after the hydroelectric plants as a result of being among the lowest-cost thermal generation units in the Dominican Republic. Consequently, ensuring that the Sultana del Este and Barahona I units are available to be dispatched is key to positioning EGE Haina to capture the benefits of marginal cost dispatch and therefore to maximize its margins. EGE Haina's other generation units are not generally high in the merit order and are generally only dispatched to meet peak demand. Under the OC methodology, availability is a condition to dispatch. When the Sultana del Este unit was available, its dispatch was 50.6%, 67.9% and 82.5% of total potential energy generation for the years ended December 31, 2004, 2005 and 2006, respectively. When the Barahona I unit was available, its dispatch was 79.8%, 77.7% and 68.6% of total potential energy generation for the years ended December 31, 2004, 2005 and 2006, respectively. To the extent that the Sultana del Este and Barahona I units are not available or EGE Haina's obligations to deliver energy exceed the energy dispatched from its own generation units at any particular time, EGE Haina purchases energy in the spot market to satisfy its obligations under the PPAs, and there is a risk that the price of such energy may be higher than the price for energy EGE Haina receives under its PPAs. To the extent that EGE Haina's plants are dispatched in a manner that results in EGE Haina generating more energy than is required to satisfy its obligations under its PPAs, EGE Haina may sell the excess energy in the spot market.

33


The following table sets forth the amount of energy sold by EGE Haina under its PPAs and in the spot market, and the amount of energy generated and purchased by EGE Haina, for the periods presented. Year Ended December 31,

2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Sales Under PPAs(1)

Sales in Energy Spot Market Generated(2) (GWh)

2,319.2 2,316.6 1,788.3 2,082.7 2,103.0

635.4 Ì Ì Ì Ì

2,954.6 2,208.1 1,330.8 1,766.4 1,754.9

Energy Purchased

Ì 108.5 457.5 316.3 348.1

Source: OC. (1) Includes sales in the Pedernales isolated system and under the Megacentro PPA. (2) Excludes own consumption. Fuel Prices Fuel consumption accounted for approximately 67.6% of EGE Haina's cost of electricity production for the year ended December 31, 2006. EGE Haina's cost for fuel oil and coal consumption was US$128.4 million in 2006, US$113.3 million in 2005 and US$62.6 million in 2004. EGE Haina purchases fuel oil based on spot market prices. EGE Haina has a coal supply agreement under which the price of coal is US$56.80 per ton at base specification plus a delivery fee to cover freight costs. Prices are adjusted to actual delivery specification. The delivery fee varies in accordance with the cost of bulk shipping between the supply point and the Barahona plant. This agreement expires in April 2008. Although the price of electricity under EGE Haina's PPAs is partially indexed to the cost of fuel oil, rising prices affect the Dominican political landscape, and may lead to regulation by the Dominican government to shift costs away from the electricity consumer. Purchased Power and Energy and Setoffs of Accounts Receivable In addition to generating electricity for sale under its PPAs, EGE Haina also purchases electricity in the spot market to satisfy its obligations under its PPAs, in some instances because the electricity dispatched from its generating plants is not sufficient to meet its obligations and in other instances as part of its strategy to manage its financial liquidity. Purchase of power and energy for resale represented 13.4% of EGE Haina's revenue for the year ended December 31, 2006. EGE Haina's purchases of power and energy for resale were US$41.6 million in 2006, US$33.3 million in 2005 and US$39.3 million in 2004. Fluctuations in the price of fuel oil, coal and natural gas affect the relative marginal price at which generators in the Dominican Republic are able to produce energy. The ranking of EGE Haina's generation units on the OC's merit order is affected by these fluctuations. To the extent that some of EGE Haina's generation units are not dispatched because of their relatively higher marginal cost, EGE Haina will be required to purchase energy in the spot market in order to fulfill its obligations under its PPAs. In general, based on the system dispatch under such circumstances, the purchase price of energy would be lower than EGE Haina's own generation cost. In 2003, the Dominican Government created a system of subsidies to ensure lower retail prices for electricity. These subsidies were intended to cover the difference between the price at which the electricity was sold to end consumers, or the actual tariff, and the tariff which the distribution companies were legally entitled to receive, or the legal tariff. As the economic crisis in the Dominican Republic unfolded, the Dominican Government could no longer pay the subsidies, and therefore collections significantly decreased, causing a weakening of the financial condition of the distribution companies. This in turn resulted in the failure of the distribution companies to make full payment on amounts owed to generators, including EGE Haina. The Dominican government's deficit for the electricity sector, consisting primarily of the operating 34


deficit of EDE-Sur and EDE-Norte and the subsidy obligations to EDE-Este, was approximately US$620 million in 2005 and US$530 million in 2006, primarily due to poor performance by the distribution companies, increase in the supply of electricity and higher fuel prices. During some periods, particularly during the Dominican Republic's economic crisis, EGE Haina has followed a strategy of reducing its own generation and purchasing electricity in the spot market to manage its financial liquidity. Generation of electricity by EGE Haina requires significant amount of fuel for which it must make payment in cash upon delivery. As a result of the irregular payment performance of the distribution companies, EGE Haina may reduce the amount of capacity that it declares available for dispatch to avoid the negative effect on its cash position that would result from the payment for fuel during periods in which the distribution companies fall behind in their payment of invoices. During periods in which EGE Haina reduces the amount of capacity that it declares available for dispatch, EGE Haina increases its purchases of electricity in the spot market to meet its obligations under its PPA. The single largest supplier of electricity in the spot market is the CDEEE and as a result of the increase of EGE Haina's purchases in the spot market, EGE Haina increases its accounts payable to the CDEEE. Periodically, EGE Haina and the CDEEE negotiate setoff agreement under which EGE Haina sets off accounts receivable from EDE-Norte and EDE-Sur, which are owned by an affiliate of the CDEEE, against accounts payable to the CDEEE. EGE Haina has set off accounts receivable of EDE-Norte, EDE-Sur and EDE-Este in the aggregate amount of US$40.3 million (representing 13.0% of EGE Haina's revenue)in 2006, US$22.1 million (representing 8.8% of EGE Haina's revenue) in 2005 and US$40.9 million (representing 23.1% of EGE Haina's revenue) in 2004 against accounts payable to the CDEEE, most of which were incurred as a result of spot market purchases by EGE Haina. Through the use of this strategy, EGE Haina has been able to reduce its cash requirements and the level of its outstanding short-term debt. Critical Accounting Policies and Estimates EGE Haina's discussion and analysis of its financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of those financial statements and related disclosures in compliance with U.S. GAAP requires the application of technical accounting rules and guidance as well as the use of estimates. A critical accounting policy is one that is both important to the presentation of EGE Haina's financial condition and results of operations and requires management to make difficult, subjective or complex accounting estimates. An accounting estimate is an approximation made by management of a financial statement element, item or account in the financial statements. Accounting estimates in EGE Haina's historical financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require the management of EGE Haina to make assumptions about matters that are uncertain at the time the estimate is made. Additionally, different estimates that management of EGE Haina could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of their financial condition or results of operations. The circumstances that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about future events and their effects cannot be predicted with certainty. EGE Haina bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as EGE Haina's operating environment changes. Management believes the following accounting policies involve the application of critical accounting estimates. Revenue Recognition. Staff Accounting Bulletin No. 104 (Revenue Recognition) (""SAB 104'') is the predominant guidance for revenue recognition under U.S. GAAP. SAB 104 states that revenue should not be 35


recognized until it is realized or realizable and earned. Revenue is generally realized or realizable and earned when all of the following criteria are met: ‚ persuasive evidence of an arrangement exists; ‚ delivery has occurred or services have been rendered; ‚ the seller's price to the buyer is fixed or determinable; and ‚ collectibility is reasonably assured. Management has exercised its judgment that collectibility is reasonably assured. Although from time to time, the distribution companies have been delinquent in their payments and EGE Haina has entered into several arrangements with the CDEEE that have resulted in the collection of accounts receivable through the setoff of other payables, EGE Haina believes that collectibility is reasonably assured. In addition to the setoff arrangements, EGE Haina setoff certain receivables against an up-front discount for future purchases under its PPAs in connection with the renegotiation of its PPAs in 2001. EGE Haina, since its inception, has not incurred a collectibility loss on receivables from the distribution companies. EGE Haina believes it has taken appropriate measures with EDE-Este, which is not wholly owned by the CDEEE and where collectibility is reasonably assured through a collateral arrangement whereby EGE Haina maintains a security interest in EDE-Este's customer receivable collections. If EDE-Este's financial condition significantly deteriorates or EGE Haina's collateral arrangement with EDE-Este fails to produce the collection of current amounts due, then EGE Haina would revisit its revenue recognition policy and consider when collection is reasonably assured. This may result in EGE Haina recognizing revenue more slowly than under its current practice. Long-lived assets. In accordance with SFAS No. 144, management evaluates its long-lived assets for impairment whenever indicators of impairment exist. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets or group of assets to the future net cash flows expected to be generated by the asset or group of assets, through considering project-specific assumptions for long-term electricity prices, escalated future project operating costs and expected plant operations. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or group of assets exceeds its fair value. Property, plant and equipment's depreciation. EGE Haina applies judgment in assessing its assets estimated useful lives. Depreciation is calculated using the straight-line method, based on the estimated useful lives of the assets, as follows: Useful Life (Years)

Buildings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Generating plants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Transportation equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Furniture and office equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

50 25 5 4-5 4-5 5

During the first quarter of 2006, EGE Haina reviewed its estimation of the useful life of two of its gas turbine generation units as a result of the decision to discontinue their operation after 2006. These generating units were fully depreciated during 2006 and, as a result of this change, depreciation for 2006 increased by US$7.9 million and depreciation in future years will decrease by US$0.4 million. Income tax. EGE Haina's income tax provision requires judgment and is based on calculations and assumptions that are subject to the examination of the taxing authority. EGE Haina assesses the potential outcome of the taxing authority's review when determining the adequacy of its provision for income taxes. While EGE Haina believes that the amount of its tax estimates is reasonable, it is possible that the ultimate outcome of current or future examinations may exceed current reserves in amounts that could be material. A 36


range of these amounts cannot be reasonably estimated at December 31, 2006, as they are primarily unasserted claims. The tax authorities have not reviewed the years ending December 31, 2006, 2005, 2004, 2003 or 2002. Management is currently evaluating the impact of these unasserted claims and its tax estimates in light of the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, effective for fiscal years beginning after December 15, 2006. Management believes that the adoption of this statement is unlikely to have a material effect on EGE Haina's financial statements. Deferred tax. EGE Haina's deferred income tax provision requires judgment. Deferred income taxes are accounted for under the asset and liability method. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. In 2004 and 2005, EGE Haina did not record any deferred income tax expense as a result of management's judgment that it was more likely than not that EGE Haina would not realize the tax benefit of its deferred tax assets. In 2006, management reconsidered this judgment and, as a result, recorded a deferred tax expense of US$5.1 million. EGE Haina forecast its estimated future taxable income in order to assess the realizability of its deferred tax assets. It is reasonably possible that adjustments in EGE Haina's assessment of the realizability of its deferred tax assets could occur in the short term in amounts that could be material to its results of operations. Allowance for doubtful accounts. The electricity distribution companies, EDE-Este, EDE-Norte and EDE-Sur, are EGE Haina's main customers. Accordingly, EGE Haina's accounts receivable are exposed to potential credit losses of those entities. These customers represented an aggregate of 98.6% and 98.9% of EGE Haina's outstanding accounts receivable as of December 31, 2006 and 2005, respectively. These customers are large and normally pay within extended timeframes. The amount of historical experience is limited, and local political and economic factors often played a part in these customers' ability or willingness to pay. Management monitors accounts receivable for collectibility on a monthly basis and has not recorded an allowance for doubtful accounts as of December 31, 2006 and 2005. Results of Operations General Gross margin is an important measure of profitability for EGE Haina. Gross margin is essentially comprised of capacity and energy margins. Capacity and energy margins can, in turn, be split into contractual margin and spot margin. The spot energy margin is determined by the difference between the spot price and EGE Haina's variable cost of generation per hour multiplied by the energy generated during each hour. This margin depends directly on the relative efficiency and fuel cost of the generation unit. The more efficient the unit or the lower the cost of fuel, the larger the margin and the quantity of energy produced. The spot capacity margin is determined by the firm capacity assigned by the OC. See ""The Electrical Industry in the Dominican Republic ĂŒ The Dominican Electricity Market ĂŒ Transactions in Power and Electricity ĂŒ Firm Capacity Allocations and Capacity Transactions.'' The contractual energy margin is the difference between the contract energy price and the spot energy price in each hour, multiplied by the quantity of energy sold pursuant to a contract, which in turn depends on user demand. The PPAs in the Dominican wholesale market generally limit damages resulting from a generator's failure to deliver contracted energy to the price of such energy as determined by the SIE. If a generator does not generate sufficient energy to supply the contracted energy every hour or if the spot price for energy is cheaper than a generator's variable cost, such generator will likely buy the difference in the spot market or through contracts with other generators, whichever is more advantageous. The contractual capacity margin is the difference between the contractual capacity price and the spot capacity price, multiplied by the quantity of capacity contracted. This payment is affected by price fluctuations rather than quantity, because the generators sell a fixed amount of capacity under their PPAs. 37


Results of Operations for the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005 Revenue Revenue increased by 23.9% to US$309.6 million in 2006 compared to US$249.8 million in 2005 as a result of a 26.9% increase in revenue from the sale of energy and a 3.8% increase in revenue from the sale of capacity. Revenue from the sale of energy increased as a result of: ‚ a 24.0% increase in the average price per GWh, primarily as a result of the effect of the increase in the average price of fuel oil to US$45.55 per barrel in 2006 from US$36.42 per barrel in 2005 and the application of the price indexation formula included in our PPAs; and ‚ a 1.0% increase in the amount of energy sold to 2,103.0 GWh in 2006 from 2,082.7 GWh in 2005, primarily as a result of an increase in demand by EDE-Norte and EDE-Este, the effects of which were partially offset be the expiration of our PPA with Parque Industrial Itabo, S.A. in December 2005 under which we sold 12 MW of capacity and the related energy. Revenue from the sale of capacity increased as a result of a 2.0% increase in the average price per MW, primarily as a result of the application of the price indexation formula included in our PPAs. Fuel Costs Fuel costs increased by 13.3% to US$128.4 million in 2006 from US$113.3 million in 2005, primarily as a result of: ‚ a 15.9% increase in the average cost of fuel oil consumed by EGE Haina to US$49.66 per barrel in 2006 from US$42.83 per barrel in 2005, primarily reflecting the increase in international spot market prices for fuel oil; and ‚ a 2.0% increase in the volume of fuel oil consumed to approximately 2,369 thousand barrels in 2006 from approximately 2,321 thousand barrels in 2005, reflecting the increase in electricity dispatched from our fuel oil fired generation units in 2006. The effects of these increases were partially offset by: ‚ a 17.3% decline in the average cost of coal consumed by EGE Haina to US$73.9 per ton in 2006 from US$89.45 per ton in 2005, primarily as a result of the lower average prices that EGE Haina pays under the coal supply agreement that it entered into in February 2006, and ‚ a 6.9% decline in EGE Haina's consumption of coal to approximately 137 thousand tons in 2006 from approximately 147 thousand tons in 2005, primarily due to an 11.9% decline in electricity dispatched from the Barahona I unit in 2006. Transmission Costs Transmission costs increased by 55.8% to US$17.6 million in 2006 from US$11.3 million in 2005, primarily as a result of: ‚ a 16.7% increase in the transmission tolls charged by Empresa de Transmision π del Estado Dominicano, S.A., or ETED, as a result of the application of formulas indexing transmission tolls to inflation and variations in the cost of fuel; and ‚ an additional assessment in 2006 of US$2.0 million in transmission tolls related to electricity sold in 2005 as a result of the recalculation by the OC of transmission toll payments for 2005. 38


Purchased Power and Energy Costs for purchased power and energy increased by 24.9% to US$41.6 million in 2006 from US$33.3 million in 2005, primarily as a result of: ‚ a 10.1% increase in the amount of energy purchased by EGE Haina to 348.1 GWh in 2006 from 316.3 GWh in 2005, principally as a result of an increase in demand for energy by the distribution companies; and ‚ a 17.3% increase in the average amount paid by EGE Haina for energy purchases to US$113.19 per MWh in 2006 from US$96.47 per MWh in 2005, principally as a result of the increased marginal cost of the electricity sold in the spot market due to increases in international prices for fuel. Compensation for Frequency Regulation Compensation for frequency regulation is related to purchases and sales of reactive energy to the system. The SENI requires that reactive energy is produced in order to maintain system stability. To the extent that a generator produces reactive energy, it suffers a net reduction in production of energy available for sale. Generators that supply reactive energy to the SENI in excess of their allocation are compensated for the net reduction of energy available for sale by generators that supply less reactive energy to the SENI than their allocations. Compensation for frequency regulation increased to US$2.2 million in 2006 from US$0.7 million in 2005, primarily as a result of the reduction of EGE Haina's contribution of reactive energy to the SENI. Operating and Maintenance Operating and maintenance expenses increased by 31.7% to US$30.0 million in 2006 compared to US$22.8 million in 2005, primarily as a result of: ‚ increased expenses under the operating and maintenance contract with Wartsila Dominicana, C. por A., or Wartsila, relating to the Sultana del Este plant, and ‚ maintenance expenses related to work performed on the turbine of our Haina IV plant during its annual scheduled maintenance shutdown. The operating and maintenance contract with Wartsila provided for payments based on a the number of MWh produced by the Sultana del Este plant and EGE Haina incurred increased costs under this contract as a result of a 10.7% increase in generation by this plant to 984.9 GWh in 2006 from 889.5 GWh in 2005. The operating and maintenance contract with Wartsila expired in November 2006 and EGE Haina assumed the operations and maintenance of this plant upon the expiration of this contract. As a percentage of revenue, operating and maintenance expenses increased to 9.7% of revenue in 2006 from 9.1% in 2005. General and Administrative Expenses General and administrative expenses increased by 37.7% to US$28.6 million in 2006 compared to US$20.8 million in 2005, primarily as a result of: ‚ increases in expenses that are calculated as a percentage of our revenues, including the management fee that we pay to HIC and assessments by the CNE and the SIE; ‚ the institution of an annual asset tax by the Dominican government beginning in 2006 in an amount equal to 1% of our total fixed assets, net of depreciation, which amount to US$1.5 million in 2006; and ‚ a 31% increase in office operational costs and professional services relating to (1) our pursuit of certain claims against Wartsila under our operating and maintenance contract resulting from damages to the mooring and transformer failures at the Sultana del Este plant, and (2) the negotiation of the Sector Agreements. 39


As a percentage of revenue, general and administrative expenses increased to 9.2% of revenue in 2006 from 8.3% in 2005. Depreciation and Amortization Depreciation and amortization increased by 45.8% to US$27.1 million in 2006 compared to US$18.6 million in 2005, primarily as a result of the accelerated depreciation of the remaining book value of the San Pedro GT and Barahona GT plants as of December 2006. Operating Income Operating income increased by 17.0% to US$34.0 million in 2006 compared to US$29.1 million in 2005. As a percentage of revenue, operating income decreased to 11.0% of revenue in 2006 from 11.6% in 2005. Financial Expense, Net Financial expense, net is comprised of interest received on investments, interest expense and fees paid with respect to notes payable and long-term debt instruments. Financial expense, net decreased by 47.3% to US$7.7 million in 2006 compared to US$14.5 million in 2005, primarily as a result of the lower average balance of outstanding short-term debt in 2006 and an increase in the average interest rate that we received on our cash balances. Foreign Exchange Gain (Loss) Foreign exchange loss was US$0.4 million in 2006 compared to foreign exchange gain of US$0.8 million in 2005. Other Income (Expense), Net Other income, net was approximately US$62,000 in 2006 compared to other expense, net of US$3.3 million in 2005. Other income, net in 2006 was primarily comprised of (1) the reversal of a US$5.4 million provision for interest on tax assessment as a result of EGE Haina's entering into a settlement with respect to the underlying past due taxes with the Dominican tax authorities during April 2006, (2) a US$1.6 million gain recognized as a result of EGE Haina's settlement of its claims against Wartsila under EGE Haina's operating and maintenance contract, the effects of which were partially offset by our incurrence of taxes on transfer to foreign suppliers and others of US$5.3 million. Other expense, net in 2005 was primarily comprised of (1) a provision of US$5.4 million for interest on past due tax assessments, and (2) our incurrence of taxes on transfer to foreign suppliers and others of US$4.6 million, the effects of which were partially offset by a US$7.3 million gain recognized in connection with some of the setoff agreements that EGE Haina entered into in 2005. Income Tax EGE Haina did not record a provision for current income taxes in 2006 as a result of the application of tax loss carry forwards which offset all of its taxable income. EGE Haina recorded a deferred tax expense of US$5.1 million in 2006, primarily as a result of temporary time differences between financial and tax depreciation rates, partially offset by management's reconsideration of the likelihood of the realization of its net deferred tax assets. EGE Haina did not record a provision for current income taxes in 2005 as a result of EGE Haina's incurrence of a taxable loss in 2005. EGE Haina did not record a provision for deferred taxes in 2005 as a result of management's judgment that it was more likely than not that it would not realize the tax benefit of its net deferred tax assets. See note 15 to our audited financial statements. Net Income Net income increased by 73.6% to US$20.9 million in 2006 compared to US$12.1 million in 2005. As a percentage of revenue, net income increased to 6.8% of revenue in 2006 from 4.8% in 2005. 40


Results of Operations for the Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004 Revenue Revenue increased by 41.7% to US$249.8 million in 2005 compared to US$176.3 million in 2004 as a result of a 52.5% increase in revenue from the sale of energy, the effects of which were partially offset by a 4.3% decline in revenue from the sale of capacity. Revenue from the sale of energy increased as a result of: ‚ a 16.5% increase in the amount of energy sold to 2,082.7 GWh in 2005 from 1,788.3 GWh in 2004, primarily as a result of an increase in demand for electricity under each of our PPAs, reflecting the recovery of the Dominican economy following the crisis in 2003 and 2004; and ‚ a 33.4% increase in the average price per GWh, primarily as a result of the effect of the increase in the average price of fuel oil to US$36.42 per barrel in 2005 from US$24.77 per barrel in 2004 on the application of the price indexation formula included in our PPAs. Fuel Costs Fuel costs increased by 81.1% to US$113.3 million in 2005 from US$62.6 million in 2004, primarily as a result of: ‚ a 34.6% increase in the volume of fuel oil consumed to approximately 2,321 thousand barrels in 2005 from approximately 1,725 thousand barrels in 2004 due to a 32.8% increase in the amount of energy generated by EGE Haina to 1,783.9 GWh in 2005 from 1,344.7 GWh in 2004 resulting from (1) the increase in demand for electricity by the distribution companies, and (2) the increase in the average amount of capacity that EGE Haina declared available for dispatch in response to the improvement in the payment of invoices by the distribution companies as a result of an improvement in the regularity of their receipt of subsidy payments from the Dominican government; ‚ a 44.4% increase in the average cost of fuel oil consumed by EGE Haina to US$42.83 per barrel in 2005 from US$29.65 per barrel in 2004, primarily reflecting the increase in international spot market prices for fuel oil; and ‚ a 16.8% increase in the average cost of coal consumed by EGE Haina to US$80.45 per ton in 2005 from US$68.9 per ton in 2004, primarily reflecting increases in the spot market price for coal and delivery costs. Transmission Costs Transmission costs increased by 7.3% to US$11.3 million in 2005 from US$10.6 million in 2004, primarily as a result of (1) EGE Haina's increased energy sales in 2005, and (2) a 6.6% increase in the transmission tolls charged by ETED as a result of the application of formulas indexing transmission tolls to inflation and variations in the cost of fuel. Purchased Power and Energy Costs for purchased power and energy decreased by 15.2% to US$33.3 million in 2005 from US$39.3 million in 2004, primarily as a result of a 27.1% increase in the average amount paid by EGE Haina for energy purchases to US$96.47 per MWh in 2005 from US$75.91 per MWh in 2004, principally as a result of the increased marginal cost of the electricity sold in the spot market due to increases in international prices for fuel oil. The effect of this increase was partially offset by a 30.9% decline in the amount of energy purchased by EGE Haina to 316.3 GWh in 2005 from 457.5 GWh in 2004, principally as a result of our strategic decision to increase our own generation of electricity in 2005 in response to the improvement in the payment of invoices by the distribution companies. 41


Compensation for Frequency Regulation Compensation for frequency regulation increased by 43.4% to US$0.7 million in 2005 from US$0.5 million in 2004, primarily as a result of the reduction of EGE Haina's contribution of energy to the frequency regulation system. Operating and Maintenance Operating and maintenance expenses increased by 15.7% to US$22.8 million in 2005 compared to US$19.7 million in 2004, primarily as a result of: ‚ increased expenses under the operating and maintenance contract with Wartsila relating to Sultana del Este as a result of a 34.7% increase in generation by this plant to 889.5 GWh in 2005 from 660.4 GWh in 2004; ‚ a US$0.9 million increase in the expense of performing annual maintenance of the Barahona I unit compared to 2004; and ‚ increased operating and maintenance expenses at the remainder of EGE Haina's plants as a result of a 30.7% increase in generation of electricity by these plants to 894.4 GWh in 2005 from 684.3 GWh in 2004. As a percentage of revenue, operating and maintenance expenses declined to 9.1% of revenue in 2005 from 11.2% in 2004. General and Administrative Expenses General and administrative expenses increased by 32.3% to US$20.8 million in 2005 compared to US$15.7 million in 2004, primarily as a result of increases in expenses that are calculated as a percentage of our revenues, including the management fee that we pay to HIC and assessments by the CNE and the SIE. As a percentage of revenue, general and administrative expenses declined to 8.3% of revenue in 2005 from 8.9% in 2004. Depreciation and Amortization Depreciation and amortization remained relatively constant at US$18.6 million in 2005 and 2004. Operating Income Operating income increased to US$29.1 million in 2005 compared to US$9.4 million in 2004. As a percentage of revenue, operating income increased to 11.6% of revenue in 2005 from 5.3% in 2004. Financial Expense, Net Financial expense, net decreased by 36.9% to US$14.5 million in 2005 compared to US$23.0 million in 2004, primarily as a result of the lower average balance of outstanding short-term debt in 2005 and a decrease in the average interest rate that we paid on our outstanding debt in 2005. Foreign Exchange Gain (Loss) Foreign exchange gain was US$0.8 million in 2005 compared to foreign exchange loss of US$11.0 million in 2004, primarily as a result of the relative stability of the Dominican peso/U.S. dollar exchange rate during 2005 compared to the volatility of the Dominican peso/U.S. dollar exchange rate in 2004. Other Expense, Net Other expense, net declined by 63.1% to US$3.3 million in 2005 compared to US$8.9 million in 2004. Other expense, net in 2005 was primarily comprised of (1) a provision of US$5.4 million for interest on past due tax assessments, and (2) our incurrence of taxes on transfer to foreign suppliers and others of 42


US$4.6 million, the effects of which were partially offset by a US$7.3 million gain recognized in connection with some of the setoff agreements that EGE Haina entered into in 2005. Other expense, net in 2004 was primarily comprised of (1) our incurrence of taxes on transfer to foreign suppliers and others of US$4.4 million, (2) our write-off of US$3.0 million of expenses primarily related to a planned acquisition which was not ultimately consummated, and (3) a US$1.9 million loss recognized in connection with some of the setoff agreements that EGE Haina entered into in 2004. Income Tax EGE Haina did not record a provision for current income taxes in 2005 or 2004 as a result of EGE Haina's incurrence of a taxable loss in each of those years. EGE Haina did not record a provision for deferred taxes in 2005 or 2004. See note 15 to our audited financial statements. Net Income (Loss) Net income was US$12.1 million in 2005 compared to net loss of US$33.6 million in 2004. As a percentage of revenue, net income was 4.8% of revenue in 2005 compared to (19.1)% in 2004. Liquidity and Capital Resources EGE Haina's principal sources of liquidity have been funds from its operations, bank lending and vendor financing, while its principal cash uses have been operating activities, debt service and capital expenditures. EGE Haina's primary uses of cash are for operating expenses, payment of debt service obligations, capital projects and payment of income and other taxes. EGE Haina does not have significant seasonal variations in its operational cash flows. Differences in liquidity during the year may arise depending on the pattern of payment of invoices by the distribution companies and the capital projects EGE Haina undertakes, which normally include taking a plant offline for refurbishing, overhaul or replacement. EGE Haina believes its cash generated by operations, current cash and borrowings is sufficient to fund its operational costs, debt service (principal and interest) and expected capital expenditures. However, EGE Haina receives a substantial portion of its revenues from the PPAs it has entered into with EDE Norte, EDE Sur and EDE Este. EGE Haina, like other participants in the Dominican energy sector, has had periodic difficulties in obtaining timely payment from these distribution companies. In 2006, EGE Haina and EDEEste agreed to refinance amounts owed by EDE-Este to EGE Haina in the aggregate amount of US$41.9 million in the form of a loan agreement. Under this agreement, EDE-Este pays monthly interest on the outstanding balance at the rate of 12% per annum and the balance under this agreement amortizes in four annual payments ending in 2012. In connection with this agreement, EDE-Este assigned the receivables to be invoiced to 42 of its large customers and credit card receivables in the amount of US$5.5 million per month as collateral to secure the payment of future invoices billed by EGE Haina. As of December 31, 2006, EGE Haina had past due accounts receivable from the distribution companies in an aggregate amount of US$30.8 million. In January 2007, the CDEEE assumed accounts payable that EGE Haina maintained with the CDEEE in the amount of US$15.0 million as consideration for the reduction of EGE Haina's accounts receivable from EDE-Norte and EDE-Sur by US$15.0 million. There can be no assurance that one or more of the distribution companies will not accrue significant past due receivables to EGE Haina in the future or that such an event will not have an adverse affect of EGE Haina's liquidity. Cash Flows Cash Flows from Operating Activities Net cash provided by operating activities was US$12.0 million in 2006, US$25.7 million in 2005 and US$17.7 million in 2004. 43


The most significant factors in EGE Haina's generation of cash flows from operating activities in 2006 were: ‚ its net income of US$20.9 million; and ‚ a US$23.4 million increase in accounts payable, primarily as a result of the increase in the cost of fuel oil in 2006 and the increase in purchases of electricity in the spot market. These positive factors contributing to EGE Haina's cash flows from operations were partially offset by the effects of: ‚ a US$54.0 million increase in accounts receivables, primarily as a result of the increase in the price of electricity during 2006; and ‚ a US$13.9 million decrease in other liabilities, primarily as a result of the payment of US$20.9 million in past due taxes in April 2006 under a settlement agreement that EGE Haina entered into with the Dominican tax authorities. The most significant factors in EGE Haina's generation of cash flows from operating activities in 2005 were: ‚ its net income of US$12.1 million; and ‚ a US$34.2 million increase in accounts payable, primarily as a result of the increase in the cost of energy purchased on the spot market. These positive factors contributing to EGE Haina's cash flows from operations were partially offset by the effects of: ‚ a US$32.1 million increase in accounts receivable, primarily as a result of the increase in the price of electricity during 2005, and ‚ a US$6.5 million increase in inventory, primarily as a result of the increase in the price of fuel oil during 2005. The most significant factors in EGE Haina's generation of cash flows from operating activities in 2004 were: ‚ a US$55.4 million increase in accounts payable, primarily as a result of an increase in purchases of electricity in the spot market; and ‚ a US$18.7 million increase in other liabilities, primarily as a result of the increase in withholding tax due and associated interest charges and advanced income tax liabilities. These positive factors contributing to EGE Haina's cash flows from operations were partially offset by the effects of: ‚ a US$45.9 million increase in accounts receivable, primarily as a result of the increase in the past due accounts receivables from the distribution companies, and ‚ EGE Haina's US$33.6 million net loss. Cash Flows Used in Investing Activities Investing activities used net cash of US$1.5 million during 2006, and provided net cash of US$1.7 million during 2005 and US$3.5 million during 2004. During 2006, investing activities that used cash primarily consisted of net additions to property, plant and equipment in the amount of US$1.0 million and net changes in deposits in banks of US$0.5 million. During 2005, investing activities that provided cash primarily consisted of net changes in deposits in banks of US$1.7 million. 44


During 2004, investing activities that provided cash primarily consisted of net changes in deposits in banks of US$4.0 million. In addition, net additions to property, plant and equipment provided US$0.4 million. Cash Flows from Financing Activities Financing activities used net cash of US$8.0 million during 2006, US$22.9 million during 2005 and US$23.9 million during 2004. During 2006, EGE Haina used cash: ‚ reduce its outstanding short-term debt by US$3.6 million; and ‚ to repay US$4.4 million outstanding under its 10% Senior debt due 2010 and its loan agreement with KfW. During 2005, EGE Haina used cash to: ‚ repay US$7.5 million outstanding under its 10% Senior Secured Notes due 2010 and its loan agreement with KfW; ‚ reduce its outstanding short-term debt by US$12.5 million; and ‚ pay US$2.9 million of debt issuance costs related to the registration of the first mortgage on the Sultana del Este plant. During 2004, EGE Haina used cash to: ‚ repay US$9.5 million outstanding under its 10% Senior Secured Notes due 2010 and its loan agreement with KfW; and ‚ reduce its outstanding short-term debt by US$14.4 million. Setoff Agreements During the past three years, EGE Haina has entered into several setoff agreements with EDE-Norte, EDE-Sur, EDE-Este and the CDEEE. Under these setoff agreements, the CDEEE assumed the accounts receivable owed to EGE Haina by EDE-Norte, EDE-Sur and EDE-Este, principally for amounts due under the PPAs, in exchange for the release of accounts payable of EGE Haina to the CDEEE, principally for amounts due for electricity purchased in the spot market, and to its affiliate ETED for transmission tolls. As described above under the caption ""Principal Factors Affecting Results of Operations Ì Purchased Power and Energy and Setoffs of Accounts Receivable,'' EGE Haina has developed a strategy to manage its financial liquidity under which it reduces the amount of capacity that it declares available for dispatch when the past due receivables from the distribution companies become excessive and generates accounts payable to the CDEEE related to purchases of electricity in the spot market as an alternative to increasing short-term indebtedness to finance purchases of fuel oil. EGE Haina set off accounts receivable in the amounts of US$40.3 million in 2006, US$22.1 million in 2005 and US$40.9 million in 2004 against accounts payable in those amounts owed to the CDEEE. Short-term Debt As of December 31, 2006, EGE Haina had approximately US$7.4 million in cash and short-term investments. In addition, EGE Haina maintains lines of credit with several international and domestic banks. EGE Haina's lines of credit bear fixed interest rates that are negotiated prior to each disbursement. As of December 31, 2006, EGE Haina had lines of credit available from a variety of banks in the aggregate amount of US$21.0 million and its outstanding balances on these lines of credit was US$13.9 million. EGE Haina's short-term debt, including current portion of long-term debt, was US$18.3 million at December 31 2006, all of which was denominated in U.S. dollars. EGE Haina has negotiated working capital lines of credit with several domestic and international banks. The principal utilization of the funds borrowed 45


under these lines of credit is the acquisition of fuel oil and coal. Disbursements under these lines of credit are due in 15 to 90 days and bear interest rates of rates between 9.00% per annum to 10.00% per annum. Long-term Debt As of December 31, 2006, EGE Haina's long-term debt, excluding current portion, amounted to US$88.7 million, consisting of US$86.7 million outstanding principal amount of its 10% senior secured notes due 2010 and US$2.0 million outstanding under a loan agreement with Kreditanstalt f ur Wiederaufbau, Frankfurt am Main, or KfW. EGE Haina intends to repurchase all of its outstanding 10% senior secured notes due 2010, which includes the current portion, with a portion of the proceeds of this offering. EGE Haina entered into a US$6 million loan agreement with KfW in July 2002. The loan bears interest at LIBOR plus 0.875% per annum, payable semi-annually in arrears. Principal on the loan is payable in 12 semi-annual installments beginning on May 31, 2003 with a final maturity date of November 30, 2008. Covenants in the Loan Agreement The Loan Agreement that EGE Haina will enter into with Barclays Bank PLC will include a covenant prohibiting EGE Haina from issuing, directly or indirectly, any debt (subject to certain exceptions) unless (1) EGE Haina's Consolidated Net Debt to Consolidated EBITDA Ratio is no greater than 3.5 to 1.0, and (2) EGE Haina's Consolidated Interest Coverage Ratio is no less than 2.5 to 1.0. The Loan Agreement defines Consolidated Net Debt to Consolidated EBITDA Ratio and Consolidated Interest Coverage Ratio in the same manner as the Notes. See ""Description of the Transaction Documents Ì Certain Defined Terms.'' As a result, subject to certain exceptions, EGE Haina will not be able to incur additional indebtedness, until the Loan Agreement is repaid if EGE Haina's EGE Haina's Consolidated Net Debt to Consolidated EBITDA Ratio is greater than 3.5 to 1.0 or EGE Haina's Consolidated Interest Coverage Ratio is less than 2.5 to 1.0 at the time that EGE Haina proposes to incur additional indebtedness. EGE Haina's compliance with this covenant could limit its flexibility in planning for, or reacting to changes in, its business by limiting the funds that it can seek to borrow or raise in the capital markets to pursue capital expenditures, acquisitions or other plans. If EGE Haina were to incur indebtedness in breach of this covenant it may result in an event of default under the Loan Agreement, enabling the lender under the Loan Agreement to accelerate the principal amount outstanding, making it due and payable immediately. EGE Haina has included a calculation of its EBITDA for the periods presented in accordance with the covenant under the Loan Agreement, as EGE Haina believes that (1) the Loan Agreement will be its most significant outstanding indebtedness, (2) this covenant is a material term of the Loan Agreement and (3) information about this covenant is important for investors to understand EGE Haina's liquidity. The table below sets forth EGE Haina's EBITDA for the periods presented, in each case calculated in accordance with the terms of the Loan Agreement. 2002

2003

Year ended December 31, 2004 2005 (Thousands of U.S. dollars)

Net income (loss) ÏÏÏÏÏ Plus: Income taxÏÏÏÏÏÏÏÏÏÏÏÏ Financial expense, net ÏÏ Foreign exchange gain (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other income (expenses) Depreciation and amortizationÏÏÏÏÏÏÏÏÏ

US$14,034

US$(8,368)

5,047 6,568

(1,996) 17,545

Ì 23,042

3,624 5,351

9,842 5,173

11,037 8,928

14,302

17,423

18,642

18,595

27,106

EBITDA ÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$48,926

US$39,619

US$ 28,012

US$47,650

US$61,113

46

US$(33,637)

2006

US$12,062

US$20,941

Ì 14,529

5,080 7,657

(829) 3,293

391 (62)


(1) Includes amortization of debt issuance costs related to EGE Haina's 10% Senior Secured Notes due 2010. EBITDA is not a measure under U.S. GAAP and should not be considered as a substitute for net income or loss, cash flow from operations or other measures of operating performance or liquidity determined in accordance with U.S. GAAP. EBITDA is not intended to represent funds available for dividends or other discretionary uses by EGE Haina because those funds are required for debt service, capital expenditures, working capital and other commitments and contingencies. The use of EBITDA has material limitations, including the following: ‚ EGE Haina has calculated EBITDA in accordance with a covenant in the Loan Agreement, which calculation may not be comparable to similarly titled measures of other companies. ‚ EBITDA does not include interest expense. Because EGE Haina has borrowed money to finance some of its operations, interest is a necessary and ongoing part of its costs and assists EGE Haina in generating revenue. ‚ EBITDA does not include taxes. The payment of taxes is a necessary and ongoing part of the operations of EGE Haina. ‚ EBITDA does not include depreciation. Because EGE Haina must utilize property, plant and equipment in order to generate revenues in its operations, depreciation is a necessary and ongoing part of EGE Haina's costs. In addition, the Loan Agreement contains other covenants that restrict, among other things, the ability of EGE Haina to: ‚ incur additional indebtedness; ‚ incur liens; ‚ issue guarantees; ‚ issue or sell capital stock of subsidiaries; ‚ pay dividends or make certain other restricted payments; ‚ consummate certain asset sales; ‚ enter into certain transactions with affiliates; or ‚ merge or consolidate with any other person or sell or otherwise dispose of all or substantially all of their assets. Off-Balance Sheet Arrangements EGE Haina does not currently have any transactions involving off-balance sheet arrangements. Contractual Commitments and Capital Expenditures Contractual Commitments The following table summarizes significant contractual obligations and commitments as of December 31, 2006 that have an impact on the liquidity of EGE Haina on a pro forma basis as of December 31, 2006, giving effect to EGE Haina's receipt of the net proceeds of the Loan Agreement and the application thereof as if these transactions had occurred on December 31, 2006. 47


Less Than One Year

Payments Due by Period One to Three Three to Five More Than Years Years Five Years (In millions of U.S. dollars)

Total

Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏ Management fee(1) ÏÏÏÏÏÏÏÏÏ Purchase obligations(2) ÏÏÏÏÏÏ

US$ 1.1 7.9 11.6

US$ Ì 38.7 2.8

US$ Ì 17.6 Ì

US$175.0 53.3 Ì

US$176.1 117.5 14.4

Total contractual obligations ÏÏ

US$20.6

US$41.5

US$17.6

US$228.3

US$308.0

(1) Represents obligations under the Management Agreement. Based on management's forecast of operating income during the remaining term of the Management Agreement. (2) Represents purchase commitments for fuel pursuant to binding obligations which include all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Based upon the applicable purchase prices as of December 31, 2006. Capital Expenditures EGE Haina incurred capital expenditures of US$1.1 million in 2006 related to the expansion of the Sultana del Este plant in 2006 in order to house the new mechanical repair shop. EGE Haina did not have any capital expenditures in 2005 or 2004. In addition, EGE Haina incurred expenses in 2006, 2005 and 2004 for routine and major maintenance of its generation units, the costs of which were expensed as incurred. EGE Haina has budgeted US$12.7 million in 2007 and US$24.4 million in 2008 for operational and maintenance costs. The budget contemplates the full 36,000-hour major maintenance for all nine engines of the Sultana del Este and annual major maintenance at the Haina IV and Barahona I units. These units have a maintenance program that contemplates inspecting, testing and repairing all operational equipment over a five-year cycle. In addition, EGE Haina has budgeted US$2.7 million in 2007 to acquire a precipitator and a landfill at the Barahona plant and to make environmental improvements at the Sultana del Este plant. Quantitative and Qualitative Disclosures about Market Risk EGE Haina is exposed to credit risk from its three primary customers and is also exposed to market risks from adverse changes in foreign exchange rates and interest rates. EGE Haina does not hold or issue financial instruments for trading purposes. Exposure to Credit Risk EGE Haina has only three primary customers, the electricity distribution companies EDE-Este, EDE-Norte and EDE-Sur. These distribution companies have not always made timely payments in the past, which has had an adverse effect on EGE Haina's financial condition and results of operations. EGE Haina's accounts receivable are exposed to the credit of EDE-Este, EDE-Norte and EDE-Sur. On a combined basis, these customers represented 98% of outstanding accounts receivable as of December 31, 2006 and 95% as of December 31, 2005. In addition, these customers accounted for 98% of total revenues in 2006, 95% in 2005 and 96% in 2004. EGE Haina is therefore exposed to the credit risk of EDE-Este, EDE-Norte and EDE-Sur and of the Dominican electricity sector. Exposure to Foreign Exchange Rates EGE Haina is exposed to exchange rate risk due to the exposure of Dominican peso-denominated assets and liabilities to fluctuations of the Dominican peso against the U.S. dollar. As of December 31, 2006, all of EGE Haina's debt was U.S. dollar-denominated. EGE Haina receives amounts under the PPAs in Dominican pesos at the exchange rate at the date of payment. EGE Haina then converts the Dominican pesos 48


into U.S. dollars in the open market. EGE Haina maintains a policy of converting all of its Dominican pesodenominated receipts into U.S. dollars, other than amounts used to pay salaries, tax obligations and other expenses denominated in Dominican pesos. EGE Haina's functional currency is the U.S. dollar and, as a result, it must translate the value of Dominican peso-denominated assets and liabilities into U.S. dollars when compiling its financial statements. This translation can create foreign exchange gains or losses depending upon fluctuations in the relative value of the Dominican peso against the U.S. dollar. EGE Haina does not hedge against this exposure. For the year ended December 31, 2006, EGE Haina recognized foreign exchange loss of US$0.4 million. As of December 31, 2005, EGE Haina's monetary exposure denominated in Dominican pesos was a net liability, principally comprised of notes payable, spot market payables, income tax and deferred taxes. Exposure to Interest Rates EGE Haina is exposed to risk resulting from changes in domestic and international interest rates, as a result of EGE Haina's variable-interest rate debt, as well as its accounts payable and receivable resulting from purchases of electricity in the spot market and sales of electricity to EDE-Este, EDE-Norte and EDE-Sur that bear interest at the current domestic lending interest rate for Dominican pesos. EGE Haina does not hedge against this exposure. Exposure to Costs of Fuel EGE Haina is exposed to risk resulting from changes in the cost of fuel oil. EGE Haina acquires fuel oil from international suppliers at prices based on international indexes plus a transportation charge. In general, EGE Haina's cost of fuel oil is determined by reference to the same index published by Platt's that is utilized in the indexation formulas that determine the price per kWh paid to EGE Haina under its PPAs. Because EGE Haina enjoys a natural hedge against fuel oil price increases as a result of the indexation formulas included in its PPAs, EGE Haina does not hedge against this exposure. EGE Haina is also exposed to risk resulting from changes in the cost of coal. EGE Haina currently acquires the coal required for the operation of its Barahona I unit from Glencore International at a fixed price per ton plus a delivery fee to cover freight costs under an agreement that expires in April 2008. EGE Haina expects that upon the expiration of this agreement, it will enter into a new long-term coal supply agreement at a price to be established based on market conditions at that time. The price that EGE Haina receives for electricity under its PPAs is not indexed to fluctuations in the price of coal. However, EGE Haina's management believes that, in general, the market price for coal fluctuates in tandem with the market price for fuel oil. THE ELECTRICAL INDUSTRY IN THE DOMINICAN REPUBLIC Reorganization and Capitalization In 1997, the Dominican Republic began to reorganize and privatize its electric utility industry along functional lines of thermal and hydroelectric generation, transmission and distribution. This reorganization and privatization process was instituted primarily to address chronic problems in the Dominican electricity sector, including chronic effective capacity deficits, poor service quality, political interference, mismanagement of public electricity utilities, insufficient tariffs and lack of capital investment in the public electricity sector. The reorganization and privatization process was formalized on June 24, 1997, with the enactment of the Reform Law. Prior to the commencement of the reorganization and privatization process, all of the commercial electricity generation, transmission and distribution assets in the Dominican Republic were owned by CDE, which was by law the only entity authorized to operate in the electricity sector. In the mid-1990s, CDE entered into several PPAs with IPPs, which effectively transferred control of some of the country's generation 49


capacity to private parties. During this period, the sector was regulated by a series of administrative resolutions issued by the Ministry of State for Industry and Commerce. In 1999, as part of the reorganization and privatization process, CDE was restructured into eight companies: ‚ CDE, a parent holding company; ‚ two thermal generation companies, EGE Haina and Empresa Generadora de Electricidad Itabo, S.A., or Itabo; ‚ three distribution companies, EDE-Norte, EDE-Sur, and EDE-Este; ‚ a hydroelectric company, Empresa de Generacion π Hidroelπectrica Dominicana, S.A; and ‚ a transmission company, ETED. Following this restructuring, the two thermal generation companies and the three distribution companies were privatized through the issuance and sale of a 50% ownership interest in each of these companies to private investors, which was referred to as the ""capitalization process.'' In the capitalization process, private investors were invited to bid for 50% ownership interests in each of the thermal generation companies and the distribution companies. The Dominican government retained a 50% ownership interest in the two thermal generation companies and approximately 49% of the ownership interests in the distribution companies, while approximately 1% of the ownership interest in the distribution companies was transferred to the employees of the distribution companies at the time of privatization. As a result of the capitalization process: ‚ 50% of the ownership interest in EGE Haina was acquired by HIC; ‚ 50% of the ownership interest in Itabo was acquired by Gener and the Coastal Power Company; ‚ 50% of the ownership interest in each of EDE-Norte and EDE-Sur was acquired by Union π Fenosa; and ‚ 50% of the ownership interest in EDE-Este was acquired by an affiliate of AES. The capitalization process resulted in the investment of more than US$1 billion in the electricity sector from the period 1999 through 2005. Under the Reform Law, most of the cash received by the thermal generation companies and the distribution companies was required to be used to refurbish and upgrade the assets of these companies. Organization of the Electricity Sector General The electricity sector in the Dominican Republic consists of generation companies, transmission companies and distribution companies that are connected through the SENI, as well as self-generators and smaller distribution companies that are not connected to the SENI. During the 1990s, many industries, retail businesses, hotel chains and households acquired generators to provide reliable sources of electricity during this period of chronic shortages. Most of these generators remain in use, either as a sole source of power or as a back-up to power provided through the SENI. Distribution companies have been established in certain areas of the Dominican Republic in which connection with the SENI has not proven to be economically feasible. Power is supplied to these distribution companies by local generation companies. For example, EGE Haina supplies power to the distribution company serving Pedernales from its Pedernales plant, and CEPM is engaged in the business of generating, transmitting, and distributing electricity through an isolated system in the Punta Cana-Bavaro π region and Bayahibe. 50


Distribution There are three distribution companies in the Dominican Republic that operate within the SENI: EDE-Este, EDE-Norte and EDE-Sur. These distribution companies were each incorporated in the Dominican Republic in 1999 as part of the reorganization and privatization process and were granted 40-year electricity distribution concessions over the East, North and South regions of the Dominican Republic, respectively. The map below details the concession areas of each of these distributors.

EDE-Este. EDE-Este is owned 50% indirectly by Trust Company of the West, or TCW, and almost 50% by the Dominican government. TCW is a U.S.-based asset management company with approximately US$120 billion under management. EDE-Este is managed by AES DR Services, Ltd., a subsidiary of AES, through a management contract with DR Energy Holding, Ltd., a TCW subsidiary. EDE-Este has a concession for exclusive distribution of electricity in an area comprising six provinces in the eastern part of the country and a portion of the national district (11,700 square kilometer concession area) containing approximately 31.0% of the country's population. In 2006, EDE-Este distributed 29% of the energy sold through the SENI. EDE-Norte. EDE-Norte is wholly owned by the Dominican government and managed by CDEEE. Prior to September 2003, Union π Fenosa owned 50% of EDE-Norte. EDE-Norte has a concession for exclusive distribution of electricity in an area comprising 14 provinces in the northern part of the country (a 19,061 square kilometer concession area) containing approximately 37.8% of the country's population. In 2006, EDE-Norte distributed 28.6% of the energy sold through the SENI. EDE-Sur. EDE-Sur is wholly owned by the Dominican government and managed by CDEEE. Prior to September 2003, Union π Fenosa owned 50% of EDE-Sur. EDE-Sur has a concession for exclusive distribution of electricity in an area comprising 10 provinces and a portion of the national district (a 17,942 square kilometer concession area) containing approximately 31.1% of the country's population. In 2006, EDE-Sur distributed 32.8% of the energy sold through the SENI.

51


Energy Sales The tables below set forth the number of customers served and the energy sold by each of EDE-Norte, EDE-Sur, and EDE-Este for the periods specified. Number of Customers EDE-Norte 2004 2005 2006

2004

EDE-Este 2005

2006

Residential ÏÏÏÏÏÏÏ Commercial ÏÏÏÏÏÏ Industrial ÏÏÏÏÏÏÏÏ Government Offices ÏÏÏÏÏÏÏÏ City Offices ÏÏÏÏÏÏ

254,379 34,221 3,021

286,144 40,657 2,573

284,344 39,838 2,989

350,173 21,010 2,509

313,710 19,422 2,558

1,794 175

1,729 Ì

3,016 Ì

2,465 493

Total ÏÏÏÏÏÏÏÏÏÏÏÏ

293,590

331,103

330,187

376,650

Type of Customer

2004

EDE-Sur 2005

2006

442,422 26,735 2,295

265,705 20,103 4,011

200,056 18,595 4,067

216,032 18,210 5,963

2,408 451

2,245 483

2,381 434

1,852 366

2,480 480

338,549

474,180

292,634

224,936

243,165

Source: SIE; EDE-Norte; EDE-Sur; EDE-Este.

Type of Customer

2004

EDE-Este 2005

2006

Energy Sold (GWh) EDE-Norte 2004 2005 2006

2004

EDE-Sur 2005

2006

Residential ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Commercial ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Industrial ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Government Offices ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ City Offices ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

733 236 734 231 11

671 248 537 170 0.1

690 211 492 233 Ì

971 166 609 160 87

736 107 424 109 71

901 141 443 129 72

1,250 196 892 210 62

1,064 150 751 179 44

1,122 146 838 199 46

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,945

1,626

1,626

1,993

1,447

1,686

2,610

2,188

2,351

Source: SIE; EDE-Norte; EDE-Sur; EDE-Este. Non-Technical Losses Historically, the electricity sector has experienced significant non-technical losses which generally exceeded 40% of total production in the period from 2002 to 2006. The distribution companies estimate that as many as one million users of the distribution companies' systems do so without having a legal connection to these systems and that the non-technical energy losses of the distribution systems totaled more than 4,000 GWh in 2006. Transmission The transmission grid of the SENI is owned and operated by ETED, which is wholly owned by the Dominican government. Operating on behalf of ETED, the generation companies collect transmission tolls from the distribution companies which the generation companies remit to ETED. The transmission tolls are fixed annually and are charged based on the quantity of energy transported. The transmission grid is comprised of transmission lines operating at 138 kV and 69 kV, transformer and connection substations, and some transmission lines operating at 34.5 kV and 12.5 kV in rural areas. The SENI is completely integrated, allowing electricity to flow between generators, distribution companies and unregulated users in the manner determined by the OC. The map below sets forth the transmission grid for the Dominican Republic.

52


NATIONAL TRANSMISSION GRID

Source: OC. There are approximately 1,799 km of 138 kV transmission lines in the Dominican Republic, which are referred to in this offering memorandum as the primary transmission system, and approximately 1,461 km of 69kV transmission lines, which are referred to in this offering memorandum as the secondary transmission system. The primary transmission system consists of a northern and southern backbone, each running east to west parallel to the coastline, a transmission line running north to south to connect these two backbones and a pair of ring systems in and around Santo Domingo. The secondary transmission system is connected to the primary main transmission system by means of step-down transformer substations. The secondary transmission system consists of transmission lines parallel to the primary transmission system along a substantial portion of its length, as well as radial lines to feed areas distant from the primary transmission lines and a ring system in and around Santo Domingo. If a power generation company constructs additional transmission lines as part of the SENI, it will be required, pursuant to Dominican law, to transfer such lines to the Dominican government in exchange for payments that will have to be negotiated and could take the form of tolling payments for use of the lines.

53


Generation A generator's capacity is measured in terms of installed capacity, which refers to MW installed, and effective capacity. The table below sets forth installed and effective capacity for generation companies in the Dominican Republic that operate within the SENI as of December 31, 2006: Company

Installed Capacity (MW)

Effective Capacity (MW)

Technology

EGE Haina(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

663.4

598.8

Itabo ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Empresa de Generacion π Hidroelectrica Dominicana ÏÏÏÏÏ AES Andres B.V ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Compa¿nia de Electricidad San Pedro de Macorπ s S.A. ÏÏÏÏÏÏÏÏ Dominican Power Partners ÏÏÏÏÏÏÏ Generadora Palamara-La Vega, S.A. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Prysma Energy ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Seaboard/Transcontinental Capital Corporation (Bermuda) Ltd. ÏÏÏ Monte Rio Power Corporation ÏÏÏÏ Compa¿nia de Electricidad de Puerto Plata S.A. ÏÏÏÏÏÏÏÏÏÏÏÏÏ Complejo Metalurgico π Dominicano, C. por AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ LAESA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

432.5

377.3

Steam Turbine, Gas Turbine and Diesel Engine Steam Turbine and Gas Turbine

469.3 319.0

452.3 281.3

Hydro Turbine Combined Cycle

300.0 236.0

294.3 236.0

Combined Cycle Gas Turbine

194.5 185.0

190.1 179.3

Diesel Engine Combined Cycle

116.3 100.0

109.5 96.6

Diesel Engine Diesel Engine

76.9

65.2

Diesel Engine

42.0 31.4

40.7 30.8

Diesel Engine Diesel Engine

3,166.3

2,952.1

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Source: OC.

(1) Does not include the installed capacity or effective capacity of the Pedernales plant which is not connected to the SENI.

54


The Dominican Electricity Market Demand The table below sets forth the yearly demand and annual growth rate for energy and peak capacity through the SENI for the period from 1991 to 2006. Year

Demand Energy Capacity (GWh) (MW)

Growth Rate Energy Capacity (%) (%)

1991ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1992ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1993ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1994ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1995ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1996ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1998ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1999ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2000ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2001ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2006ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

3,457 4,564 5,353 5,653 5,478 6,615 7,236 7,693 9,049 9,522 9,345 10,109 10,396 8,868 9,823 10,708

10.8 32.0 17.3 5.6 (3.1) 20.8 9.4 6.3 17.6 5.2 (1.9) 8.2 2.8 (14.7) 10.8 9.0

689 835 927 969 968 1,168 1,261 1,363 1,486 1,670 1,705 1,631 1,712 1,695 1,647 1,708

11.1 21.2 11.0 4.5 (0.1) 20.7 8.0 8.1 9.0 12.4 2.1 (4.3) 4.9 (1.0) (2.8) 3.7

Source: OC. As electricity demand is mainly driven by economic growth, the annual growth rate of energy demand averaged only 4.5% during the period from 2000 to 2003. The economic crisis in the Dominican Republic from early 2003 through 2004 adversely affected electricity demand in 2004. Peak capacity demand for the system declined from 1,712 MW in 2003 to 1,695 MW in 2004. Net energy demand decreased by 14.7% from 10,396 GWh in 2003 to 8,868 GWh in 2004. The Dominican economy improved in the second half of 2004 and in 2005 and 2006. Peak capacity demand for the system declined from 1,695 MW in 2004 to 1,647 MW in 2005, but recovered to 1,708 MW in 2006. Net energy demand increased by 10.8% from 8,868 GWh in 2004 to 9,823 GWh in 2005, and increased by 9.0% to 10,708 GWh in 2006. Supply As of December 31, 2006, the SENI's installed capacity in the Dominican Republic was 3,166.3 MW, with 2,952.1 MW of effective capacity. The generation of electricity delivered through the SENI is highly dependent on thermal generation, which for 2006 represented 83.4% of total energy, with the remaining 16.6% represented by hydroelectric generation. The table below sets forth the installed capacity in the SENI by technology and fuel type as of December 31, 2006.

55


Installed Capacity by Technology Capacity (in MW)

Technology

Steam Turbine ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Gas Turbine ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Fuel Oil No. 6 Diesel Engines ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Combined Cycle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Hydro ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

606.2 572.7 714.1 804.0 469.3

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

3,166.3

% of Total Installed Capacity by Technology

19.1 18.1 22.6 25.4 14.8 100%

Installed Capacity by Fuel Type

Capacity (in MW)

% of Total Installed Capacity by Fuel Type

Fuel Oil No. 6 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Fuel Oil No. 2 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Natural Gas ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Water ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Coal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,006.7 821.7 555.0 469.3 313.6

31.8 26.0 17.5 14.8 9.9

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

3,166.3

100%

Fuel Type

Source: OC. Transactions in Power and Electricity Contracts Sector participants such as distributors, generators and unregulated users may execute private contracts in which they agree to specific energy and capacity transactions. The contracts are governed by commercial law and can be long-term (five to twenty years) or short-term (typically one to two years). Negotiated terms include the term, price, payment schedules, guarantees and default provisions. The contracts between generators and distributors and/or unregulated users are normally in the form of PPAs and these agreements generally establish damages resulting from a generator's failure to deliver energy at the replacement price of such energy as determined by the SIE. All PPAs are registered with the OC. The distribution companies are permitted to enter into PPAs to provide for not more than 80% of their estimated energy requirements. In order for the distribution companies to be allowed to include the cost of energy purchased under their PPAs in their tariffs, the execution and delivery of such PPAs must be the result of a bidding process supervised by the SIE. Prior to the capitalization, several IPPs were established in order to meet the generation deficits of CDE. The CDE retained all the PPAs with the IPPs existing at the time of the capitalization. In connection with the capitalization, EGE Haina and Itabo each entered into PPAs with each of EDE-Sur, EDE-Norte and EDE-Este with terms of five years. In 2001, EGE Haina extended the term of each of its PPAs through 2016 as consideration for a reduction in the price of the energy sold under these PPAs. The financial settlement of energy purchases under PPAs is independent of the actual dispatch of any particular generator. There is no obligation to produce the electricity necessary to fulfill PPA commitments. Generators accrue receivables from the counterparties to their PPAs based on the contract price in their PPAs and the amount of energy delivered from the SENI. The OC dispatches generators in a manner designed to match the supply and demand for energy at any particular time. Within the settlement system of the OC, records are maintained for each generator of (1) the amount of energy delivered to the SENI and the spot 56


market price applicable at the time of delivery and (2) the amount of energy delivered by the SENI to the counterparties to each generator's PPAs and the spot market price applicable at the time of delivery. On a monthly basis, the OC reconciles the amounts of electricity dispatched and delivered and provides this reconciliation to each generator. Each generator then invoices distributors, generators and other market participants for the net receivable accrued by that generator during the prior month. Dispatch of Generation Units and Spot Market Transactions All generators in the Dominican electric system with generation units available for dispatch are put in order of merit for dispatch. Variable cost information is submitted weekly by the generators to the OC, which then determines the merit order for dispatch based on the variable costs declared by the generators. Generation units are dispatched in real time in order of merit beginning with the generation unit with the lowest declared variable cost until the demand for electricity by the system is satisfied. Supervisors of the OC make adjustments based on fluctuating demand requirements as necessary to optimize the dispatch. The variable cost of the last generation unit dispatched determines the price of electricity paid to all generators producing electricity for that hour, or the spot price. The OC publishes a weekly merit order list that it uses to coordinate the dispatch of the generation units. The merit order is effective for one week and is the same for the whole week. Dispatched variable cost is based on the price of fuel, the units' efficiency (heat rate), and the nodal factor (or transmission losses due to transportation from the generator to the principal connection point in the grid). The spot market in the Dominican Republic commenced operations in June 2000. Purchasers of energy in the spot market include generators that are not scheduled to dispatch sufficient energy to cover their commitments under their PPAs, distribution companies which are prohibited by law from contracting for more than 80% of their requirements through PPAs. Sellers of energy in the spot market include generators that are scheduled to dispatch energy in excess of the amounts necessary to cover their commitments under their PPAs and generators with no commitments under PPAs. On a monthly basis, the OC reconciles the amounts of electricity dispatched and delivered and provides this reconciliation to each generator. Each generator then invoices each other market participant for the net receivable accrued by that generator during the prior month. Transactions in the spot market are denominated in Dominican pesos. Payments for electricity sold on the spot market are due in approximately 21 days from the last day of the month in which the dispatch occurred. Invoices for spot market transactions not paid when due bear interest at the domestic lending interest rate (tasa activa) set by the Central Bank and are subject to penalties established under Dominican electricity regulations. Firm Capacity Allocations and Capacity Transactions Capacity transactions are regulated by the Reglamento de Aplicacion π a la Ley General de Electricidad (Rules for the Application of the General Electricity Law). These rules establish a methodology for allocating firm capacity to each generation unit. The OC estimates the total capacity necessary to operate the system based on yearly peak demand. The OC allocates a portion of this capacity to each generation unit based on factors specified in the regulatory framework, including the number of generation units connected to the SENI, the capacity of each of these generation units, the level of reliability required by the SENI and the availability rate of each generation unit. The portion of the total capacity allocated to a generation unit is referred to as that generation unit's firm capacity. The availability rate for each generation unit takes into account the ability to generate and is reduced by force majeure, lack of fuel supply, maintenance schedules, forced outages or other similar events. For generation units that have been in operation for less than 10 years, the availability rate of each generation unit is calculated using a weighted average formula that credits 60% of the generation unit's historical availability and 40% of the international reference availability for a generation unit with a similar technology, as published by the North American Electric Reliability Council. For generation units that have been in operation for 10 years or more, the availability rate is based solely on historical data. 57


As with energy purchases under PPAs, the financial settlement of capacity transactions under PPAs is independent of the actual allocation of capacity to any particular generation unit. There is no obligation to be allocated the capacity necessary to fulfill PPA commitments. Generators accrue receivables from the counterparties to their PPAs based on the contract price in their PPAs and the available capacity specified in their PPAs. The OC allocates capacity in a manner designed to match the supply and demand for peak capacity during any particular year. Generators that have not been allocated sufficient firm capacity to cover their commitments under their PPAs purchase firm capacity from generators that have been allocated firm capacity in excess of the amounts necessary to cover their commitments under their PPAs and generators with no commitments under PPAs. The OC calculates firm capacity for power generation units on a monthly basis based on estimates of the actual yearly peak demand and preliminary data for each generation unit. Once the definitive information is obtained at the end of each year, the OC makes the final calculation of firm capacity for that year and determines the differences from the preliminary calculations. This recalculation takes place during the first quarter of each of the following year. Net payments are made based upon the final calculations. Regulatory Framework of the Dominican Electricity Sector The General Electricity Law, which was enacted in July 2001, established a legal framework for the electricity sector governing: ‚ the generation, transmission, distribution and commercialization of electricity; ‚ the functioning of the energy market; and ‚ generation prices, capacity payments and other electricity sector charges. All entities that generate, transport or distribute electricity to third parties in the Dominican Republic, including self-generators and co-generators that sell their excess capacity and energy through the SENI, are regulated by the General Electricity Law. Among other things, the General Electricity Law permits participation in generation based on the principle of free entry. In addition, the General Electricity Law gives large energy consumers (currently, those with energy requirements in excess of 1.4 MW) the option to buy energy directly from the generators. Finally, the General Electricity Law establishes that private agents in the market can be penalized for unjustified blackouts. The CDEEE was created pursuant to the General Electricity Law. The CDEEE leads and coordinates the operations of the state-owned utilities in the Dominican electricity sector, implements the Dominican government's electricity programs and administers the various PPAs with IPPs. Although significant private investments were made in the Dominican electricity sector and independent bodies were created to regulate and coordinate the oversight of the electricity sector, the Dominican government retains ultimate oversight and regulatory functions. In addition, the Dominican government owns and controls EDE-Sur, EDE-Norte, the transmission grid and the hydroelectric facilities in the Dominican Republic, and has significant interests in EDE-Este, Itabo and our company. The Dominican government's oversight responsibilities for the electricity sector are carried out by the CNE and by the SIE. Regulatory Entities Pursuant to the General Electricity Law, the entities that primarily regulate and affect the generation companies are the CNE, the SIE and the OC. 58


The National Energy Commission (Comision π Nacional de Energ a) π The CNE is responsible for: ‚ preparing and proposing regulations and legislation for the energy sector; ‚ proposing and adopting rules and regulations governing the energy sector; ‚ preparing plans to ensure the efficient operation and development of the energy sector and proposing such plans to the executive branch of the Dominican government; ‚ overseeing compliance with any plans approved by the executive branch; ‚ promoting investment decisions that are consistent with these plans; and ‚ advising the executive branch on all matters related to the energy sector. The CNE is also responsible for exploration, construction, exportation, production, transmission, storage, distribution, importation, commercialization, preparation of studies and any other activities pertaining to electricity, coal, gas and petroleum and its by-products, including natural gas, as well as other kinds of energy. The Superintendency of Electricity (Superintendencia de Electricidad) On March 16, 1998, the executive branch of the Dominican government created the SIE as a division of the Ministry of State for Industry and Commerce with the responsibility of formulating the policies governing the electricity sector and otherwise coordinating and regulating the activities of the electricity sector. Pursuant to the General Electricity Law, the SIE has the power and responsibility to, among other things: ‚ create, enforce and systematically analyze the structure and pricing levels of electricity in the Dominican Republic and establish tariffs and fees charged to regulated customers; ‚ authorize the modification of the tariffs pursuant to indexation formulas; ‚ supervise participants' compliance with legal obligations and regulations, as well as with the technical rules relating to generation, transmission, distribution and commercialization of electricity; ‚ supervise the electricity market to prevent monopolistic practices; ‚ apply fines and penalties in case of violations of laws and regulations; ‚ award provisional concessions for generation and distribution of electricity; ‚ forward to the CNE its recommendations regarding applications for definitive concessions for generation and distribution; ‚ require from the electricity sector participants all the technical, financial and statistical information necessary to carry out its duties; ‚ enforce compliance by the electricity sector participants of all legal, regulatory and contractual obligations, assessing reprimands and fines, including the ability to temporarily assume control of the administration of the service on behalf of the electricity sector participants in the event of noncompliance with laws and regulations; ‚ handle claims by, between or against consumers and/or the electricity sector participants; and ‚ supervise the operations of the OC. The Coordinating Body (Organismo Coordinador) The General Electricity Law and certain resolutions of the Ministry of State for Industry and Commerce provide for the creation of the OC to coordinate all participants of the electricity sector with the objective of ensuring quality of service at the lowest possible cost. The OC is governed by a coordinating board, which is comprised of one representative serving on behalf of each of the SIE, the private generation companies, the 59


Dominican government-owned hydroelectric generation companies, the Dominican government-owned transmission companies, and the distribution companies. The representative of the SIE is the chairman of the coordinating board. The OC is responsible for: ‚ planning and coordinating the operation of the generation plants and transmission lines to assure a safe and reliable supply of electricity at the lowest possible cost; ‚ allocating the firm capacity of the power generation units of the system; ‚ calculating and valuing the transfers of electricity produced; ‚ assuring the delivery of information to the SIE; and ‚ promoting competition, transparency and equity in the electricity market. Laws and Regulations Governing Distribution Tariffs The General Electricity Law The General Electricity Law provides that the following tariffs and fees are subject to regulation: ‚ tariffs of distribution companies for the supply of electricity to all consumers, except large consumers (those consuming in excess of 200 kW per year) that are permitted to contract directly with electricity sector participants, or regulated consumers; ‚ tariffs for other services provided by the distribution companies to regulated consumers; and ‚ right-of-way fees for the use of transmission and distribution facilities. Resolutions On October 1998, the Ministry of State for Industry and Commerce enacted Resolution SEIC No. 237-1998, which established a regime for the distribution tariff applicable to the three distribution companies. The tariff is designed to reimburse distribution companies for the cost of the energy purchased and the transmission of that energy to their facilities and provide them with a distribution value added fee to reimburse their operating costs and allow them to generate a profit. Between September 2002 and June 2005, the SIE enacted resolutions that had the effect of altering the ability of the distribution companies to pass-through their energy costs. In September 2002, Resolution SIE 31-2002 introduced a new tariff regime under which the calculation of the energy component of the distribution tariffs would reflect changes in the price of fuel oil #6 (regardless of the fuel used for calculations in the indexation formulas of PPAs), the U.S. CPI, and the collection ratio of the affected distribution company. In March 2005, Resolution SIE 23-2005 revised the tariff regime to reflect changes in the price of coal and natural gas in the calculation of the energy component of the distribution tariffs. In June 2005, Resolution SIE-33-2005, established new indexation parameters for each fuel in the calculation of the distribution tariff. Economic Crisis and its Impact on the Electricity Sector Prior to the capitalization of the distribution and generation companies, the Dominican government institutions failed to pay for electricity services. During the period following the capitalization of the distribution and generation companies, the Dominican government institutions continued to accumulate arrears with private distributors, which, in turn, failed to make payments to CDE for transmission services and electricity purchased from CDE. In addition, especially during the transition period following the capitalization, the financial condition of the electricity sector was adversely affected by the inability of the distribution companies to improve collections and reduce non-technical losses. This situation resulted in sporadic blackouts throughout the country. 60


The economic crisis in the Dominican Republic, together with rising fuel prices, aggravated the problems in the Dominican electricity sector. Tariffs charged by the distribution companies, or the legal tariffs, which according to regulation were subject to monthly adjustments based on fuel costs, the Dominican peso/ U.S. dollar exchange rate and the U.S. CPI, were not adjusted by the SIE as scheduled. The SIE required the distribution companies to charge their regulated customers tariffs that were not adjusted, or the actual tariffs. Pursuant to Decree No. 302-03 the Dominican government, in turn, promised to pay the distribution companies the gap between the legal tariffs and the actual tariffs. The economic crisis and the gap between the legal tariffs and the actual tariffs resulted in a deterioration of the financial situation of the distribution companies. As a result, Union π Fenosa sold its interest in EDENorte and EDE-Sur to the Dominican government and AES sold its interest in EDE-Este to TCW. The financial weakness of the distribution companies and their inability to pay for the electricity supplied by generators, including EGE Haina, led to a financial crisis for electricity generators in the Dominican Republic. The financial strength of the distribution companies is measured by the Cash Recovery Index, or CRI. The CRI reflects the operational efficiency of a distribution company by combining the energy losses and the collection rate of the company in its concession area. Based on these two operational variables the CRI is calculated as follows: CRI • (EF/ED) * (C/F) where: ‚ EF is the total energy billed to clients; ‚ ED is the total energy purchased; ‚ C is the dollar amount of total collections; and ‚ F is the dollar amount billed. The table below sets forth the cash recovery index, the energy losses and the collection rate for each of the distribution companies during the periods indicated.

2004

Cash Recovery Index ÏÏÏÏÏÏÏ Energy Losses ÏÏÏÏÏÏÏÏÏÏÏÏÏ Collection Rate ÏÏÏÏÏÏÏÏÏÏÏÏ

EDE-Este 2005

CRI/Energy Losses/Collection Rate EDE-Norte 2006 2004 2005 2006 2004

EDE-Sur 2005

2006

55.6% 59.1% 57.6% 43.0% 42.6% 47.0% 57.5% 57.2% 58.4% 24.1% 30.8% 33.1% 48.1% 49.5% 45.9% 36.3% 36.7% 36.9% 71.3% 84.7% 86.2% 80.3% 83.6% 84.8% 88.8% 89.9% 91.8%

Source: CDEEE and EDE-Este. As a result of the crisis in the electricity industry, several plans have been proposed and several agreements have been entered into by industry participants as detailed below. Electricity Sector Sustainability Plan As part of the effort to combat the economic crisis, on January 14, 2005, the Dominican government and the IMF entered into a Letter of Intent, which provided for a series of steps to be taken by the Dominican government to reform the Dominican electricity sector. These steps included appointing a high-level commission to ensure the strict and timely implementation of the reforms. The Letter of Intent stated that the stabilization of the supply of electricity was a necessary condition to improve collection rates. To that end, the Dominican government agreed to aim to satisfy approximately 70% of the Dominican Republic's daily electricity demand. The elements of the short-term reform plan include: ‚ Improving the CRI of the distribution companies. The Dominican government agreed to improve the CRI of the distribution companies by reducing line losses to around 30% and improving collection rates to about 90% by the end of 2005, requiring improvements in the management of the distribution 61


companies and a decisive fight against fraud. In response, the distribution companies established 60% as the goal CRI by the end of 2006. ‚ Increasing the revenue of the distribution companies. The Dominican government agreed to increase the average revenue of the distribution companies by about 30% (in U.S. dollar terms) from revenue levels as of September 2004, to be achieved through better targeting of subsidies, focusing on those consumers who use less than 200 KWh per month and tariff adjustments for the rest of consumers. In August 2005, the executive branch of the Dominican government issued Decree No. 376-05, to implement this agreement and instructed the SIE to adjust the distribution tariffs accordingly. This adjustment is still pending implementation by the SIE. ‚ Improving the regulatory framework through tariff changes. The Dominican government agreed that (1) by February 2005, tariff regulations would ensure that fluctuations in the exchange rate and crude oil prices would be passed through automatically to the final consumer tariffs, with a lag of only one month, and (2) by March 2005, regulations would be issued to facilitate and expedite fraud detection and reduction. ‚ Rollover of arrears with private operators. The Dominican government agreed that it would remain current on the payment of interest on its debt with private parties in the electricity sector, with the expectation that the payment of the principal of its debts would be extended. In addition, the Dominican government agreed that it would remain current on the payment of its own electricity consumption. This commitment was memorialized in the Sector Agreements described below. ‚ Managing the rationing of power supply. The Dominican government agreed that power rationing would be handled by rewarding areas where distribution losses are lower and collections are higher, with a view to induce a better payment culture. In response, the distribution companies began establishing different zones within their concession areas in which programmed blackouts would occur based on the history of collection and non-technical losses of the particular zones. As the deficit of the electricity sector declines, average supply could increase above the 70% demand target. ‚ Reducing the cost of electricity generation. The Dominican government agreed to renegotiate some PPAs, which could result in a potential price reduction of about US$0.01 per KWh. A study was to be conducted to review the terms of the PPAs among the electricity sector participants to explore options to introduce more competition in the electricity generation market. On November 14, 2005, the executive branch of the Dominican government issued Decree No. 621/05 pursuant to which it appointed a commission to renegotiate certain PPAs in order to reach an agreement to correct alleged distortions that affect the PPAs. No assurance can be given that the Dominican government will not seek or force a renegotiation of EGE Haina's PPAs with EDE-Este, EDE-Norte and EDE-Sur. On February 1, 2005, the IMF approved the IMF Stand-by Arrangement, which provided for loans to the Dominican Republic of up to approximately US$665.2 million. In April 2006, the Dominican government sent a letter to the IMF describing the progress being made in meeting the performance criteria under the IMF Stand-by Arrangement and requesting seven waivers related to incomplete fulfillment of the structural performance criteria. In May 2006, the IMF's Executive Board completed the third and fourth reviews and financing assurances review under the IMF Stand-by Arrangement and granted the Dominican Republic's request for the waivers. The IMF stated that ""action is needed to contain the deficit of the electricity sector, including by raising the cash recovery indices of electricity distributors. Allowing electricity prices to adjust in response to changes in costs, while improving services, will contribute to reducing government transfers, establish a sound commercial basis for the operation of the sector, and spur greatly needed capital investments.'' In August 2006, an IMF staff mission visited the Dominican Republic in connection with the fifth review under the IMF Stand-by Arrangement and issued a press release stating that the mission urged the Dominican Republic authorities to ""move swiftly and forcefully to accelerate and deepen the reform in the electricity sector in order to reduce in a durable way its need for government financial support and to improve service provision.'' In February 2007, the IMF agreed to extend the IMF Stand-by Arrangement until January 2008. Although the IMF noted that the Dominican electricity sector was still an area of 62


concern, the IMF also agreed to disburse US$57.5 million under the IMF Stand-by Arrangement. Sector participants are working with the Dominican government to solve the problems of the electricity sector. Electricity Sector Agreements In furtherance of the plan outlined in the Letter of Intent, in March 2005, the Ministry of Finance, the CNE, the CDEEE, the generator companies and the distribution companies entered into a sector agreement, under which: ‚ the distribution companies agreed to pay in full and on time the monthly invoices to the electricity generators, including EGE Haina, issued during 2005; ‚ the generation companies committed to have their generation units available to be dispatched when required; ‚ the Dominican government committed to stay current with its energy bills and subsidies during 2005 and to use public funds to ensure that all of the distribution companies paid the electricity generators in full for the electricity supplied by the generators during 2005; and ‚ the outstanding receivables and payables among the different electricity sector participants were reconciled as of December 31, 2004 and the parties agreed not to seek payment of these amounts for the term of the Sector Agreement. A new sector agreement with similar terms was entered into by the same parties in February 2006 and remained in effect until December 31, 2006. The two sector agreements are collectively referred to in this offering memorandum as the ""Sector Agreement.'' The CDEEE has circulated a draft sector agreement for 2007 on similar terms and conditions as the Sector Agreements that have terminated and there have been several meetings among industry participants to discuss this draft. However, there can be no assurance that there will be a new sector agreement for 2007. Electricity Sector Integral Plan In September 2006, at the request of President Mr. Leonel Fernandez, π the CDEEE, the CNE and the SIE, with the advice of Adam Smith International, made public the Electricity Sector Integral Plan. The Electricity Sector Integral Plan's main objectives are to achieve the sustainability of the Dominican electricity sector, reduce the cost of energy to end consumers, improve the operating practices in the Dominican market, encourage a more efficient use of energy, preserve the environment, create a more conducive environment for investments and encourage competition. The Electricity Sector Integral Plan identifies, among others, the following weaknesses in the Dominican electricity sector: ‚ high losses by the distribution companies; ‚ energy prices paid by the distribution companies are too high relative to prices in the region; ‚ the terms of the PPAs between electricity generators and distribution companies are too long; and ‚ the system is largely dependent on thermal power generation units and subsidies from the Dominican government. In order to achieve its objectives, the Electricity Sector Integral Plan contains an action plan that includes, among others: ‚ renegotiating the PPAs between the distribution companies and the generators; ‚ eliminating the administrative and legal barriers that prevent the Dominican government from effectively reducing electricity theft; ‚ having the distribution companies invest US$72 million in measurement equipment and other technology to reduce non-technical losses; and ‚ creating a committee to monitor the electrical sector's performance under the integral plan. The Dominican government has invited market participants to comment on the Electricity Sector Integral Plan but has not taken further steps towards its implementation. 63


BUSINESS Overview of Haina Finance Haina Finance, a wholly owned subsidiary of EGE Haina, is a newly incorporated exempted company incorporated with limited liability in the Cayman Islands solely to issue the Notes. Prior to the issuance of the Notes Haina Finance has not engaged in any business activity and after the issuance of the Notes Haina Finance will not engage in any business activity other than complying with its obligations under the Notes and the Transaction Documents to which it is a party. Overview of EGE Haina EGE Haina is the largest generator of electricity in the Dominican Republic based on installed capacity and effective capacity, and currently operates 13 generation units at six plants. At December 31, 2006, EGE Haina had an aggregate installed capacity of 666.7 MW and an aggregate effective capacity of 600.5 MW, which represent approximately 21.0% of the total installed capacity and 20.3% of the total effective capacity in the SENI. EGE Haina's 666.7 MW of installed capacity consist of a coal-fired steam turbine generation unit, six fuel-oil fired steam turbine generation units, three diesel generation units and three gas turbine generation units. EGE Haina discontinued the operations of two of its gas turbine generation units as of December 31, 2006. During the year ended December 31, 2006, EGE Haina generated 1,754.9 GWh of energy, representing 16.4% of the Dominican Republic's interconnected system energy requirements. EGE Haina's generation plants are located throughout the Dominican Republic. The Barahona and Pedernales plants are located in the southwest region of the Dominican Republic. The Haina plant is located in the south-central region of the Dominican Republic The Puerto Plata plant is located in the northern region of the Dominican Republic. The San Pedro and Sultana del Este plants are located in the eastern region of the Dominican Republic.

EGE Haina has contracted 350 MW of capacity and associated energy through PPAs with EDE-Este, EDE-Norte and EDE-Sur, the three electricity distribution companies in the Dominican Republic. Approximately 98% of EGE Haina's total sales in 2006 were made under these PPAs. Aggregate sales of energy under these PPAs were 1,690 GWh, 1,974 GWh and 2,065 GWh during 2004, 2005 and 2006, 64


respectively. EGE Haina's commitments to sell capacity under these PPAs have been roughly equal to its allocations of firm capacity for the past three fiscal years. EGE Haina also has a PPA with Megacentro, the largest retail shopping center in the Dominican Republic. EGE Haina purchases fuel oil for its generation plants from Glencore, one of the largest fuel brokers in the world. The price that EGE Haina pays Glencore for fuel oil is based on (i) the daily published price of fuel oil in Platts US Market Scan and (ii) a delivery fee. The delivery fee has fluctuated between US$2.50 per barrel to US$3.50 per barrel during the three-year period ended December 31, 2006. From time to time, EGE Haina purchases fuel oil from other sources such as the Dominican Refinery and Vitol, Inc., another international fuel broker. In early 2006, EGE Haina entered into a contract with Glencore International in which Glencore International agreed to supply EGE Haina with coal sufficient to meet the Barahona plant's requirements for a period of two years. The contract price for coal under this agreement is US$56.80 per ton plus a delivery fee. For the year ended December 31, 2006, EGE Haina had total revenues of US$309.6 million, operating income of US$34.0 million and net income of US$20.9 million and as of December 31, 2006, EGE Haina had total assets of US$437.9 million. History EGE Haina was incorporated in the Dominican Republic on August 17, 1999 under the Reform Law. The Reform Law provides that formerly state-controlled companies be established with equal participation by the government and the private sector. HIC made the winning bid of US$144.5 million in an international bidding process conducted by the Dominican government for the capitalization of EGE Haina and acquired a 50% equity interest in EGE Haina on October 28, 1999. On the same date, CDE transferred property, plant and equipment and inventory to EGE Haina in exchange for a 49.994% equity interest in EGE Haina and EGE Haina assumed certain liabilities of CDE. The initial shareholders of HIC were CDC Haina, Ltd., Hart Energy (BVI) Inc., Basic Energy, Caribbean Energy, Seaboard Corporation and Enron Caribe Ltd. In separate transactions in 2002 and 2006, CDC Haina, Ltd., Hart Energy (BVI) Inc., Seaboard Corporation and Enron Caribe Ltd. sold their interests in HIC to other shareholders of HIC and their affiliates. As a result, HIC is now indirectly owned by Basic Energy, Caribe Energy, CBPF, Caribbean Energy and Astro. Following the capitalization, EGE Haina modernized its administrative and operating procedures to conform to standards of good practice in the utilities industry and undertook a capital expenditure program in 1999 through 2001 to repair and rehabilitate the generation assets contributed to EGE Haina by the CDE. Between 1999 and 2001, EGE Haina built the Barahona I plant with an installed capacity of 53.6 MW at a cost of US$47.1 million. In 2001, EGE Haina purchased the Sultana del Este plant with an installed capacity of 153.0 MW for US$120.9 million. EGE Haina's registered business address is Av. Winston Churchill 77, Edif. Comiresa 5to. Piso, Santo Domingo, Dominican Republic and its phone number is (809) 947-4000. Business Strategy The following are key elements of our strategy: ‚ Make capital investments in our existing plants that will lower our production costs and increase our operating margins. EGE Haina's San Pedro and Haina plants give the company flexibility with respect to the types of fuel that it chooses to utilize to generate electricity. These plants may be converted from using fuel oil to using natural gas or coal. EGE Haina has commissioned engineering and economic feasibility studies for the San Pedro and Haina plants. The implementation of these projects will depend on the overall development of the SENI and the financial condition of the distribution companies. 65


‚ Improve our operating efficiency to lower our production costs and increase our operating margins. EGE Haina is in the process of reforming the manner in which it obtains fuel and spare parts. EGE Haina plans to develop a program with other market participants, whereby acquisition of fuel and spare parts would be coordinated among market participants so that they purchase fuel and spare parts at better prices and on better commercial terms from suppliers. ‚ Improve our financial and administrative efficiency. EGE Haina plans to improve its financial and administrative efficiency through the implementation of new systems and processes designed to reduce costs and increase productivity. ‚ Invest in new generation projects with low marginal production costs. As EGE Haina expects the demand for electricity in the Dominican Republic to continue to grow in the future, it is pursing the development of new efficient generation projects. If EGE Haina develops new generation units, it expects that these units will be completed between 2010 and 2015. The development of new generation units will enable EGE Haina to provide the distribution companies with the additional energy and associated capacity necessary to accommodate future increases in electricity demand. ‚ Assist EDE-Este, EDE-Norte and EDE-Sur with the strengthening of their collection processes in order that they may make timely payments of our invoices. EGE Haina plans to continue to undertake projects jointly with the distribution companies in order to improve their operational and financial performance. As more than 98% of EGE Haina's revenue is derived from these customers and EGE Haina is committed to deliver 350 MW of capacity and the related electricity to these customers under its PPAs, it is in EGE Haina's best interest to assist the distribution companies in ensuring their financial viability. ‚ Stabilize and strengthen commercial margins by entering into PPAs with unregulated customers and customers that operate isolated power systems. These customers have high load factors and stable financial performance. They seek reliable and dependable power supply. EGE Haina seeks to provide full power service to theses customers, including power supply from existing power units and incremental back-up supply. EGE Haina's anticipated PPA with CEPM is an example of its efforts to further strengthen and diversify its revenue stream. Competitive Strengths ‚ EGE Haina is currently the largest electricity generator in the Dominican Republic, in terms of capacity and contract sales. For the year ended December 31, 2006, EGE Haina's sales accounted for 25.8% of capacity sales and 21.0% of contracted energy sales in the Dominican Republic, and sales under EGE Haina's PPAs represent between 19% and 24% of the aggregate purchases of EDE-Norte, EDE-Sur and EDE-Este under private PPAs. ‚ EGE Haina's Sultana del Este and Barahona I units are frequently among the four generation units with the lowest marginal costs in the SENI. ‚ EGE Haina supplies electricity directly to the principal load center of the Dominican Republic through the Haina plant. The Haina plant is critical for the stability of the system because of the reactive power generated by this plant. ‚ The PPAs with the distribution companies are denominated in U.S. dollars and expire in July 2016. The PPAs permit stable sales over the long term. ‚ EGE Haina is financially in position to capitalize on future load growth. EGE Haina has relatively low financial leverage, permitting EGE Haina to maintain ample coverage of existing obligations while having the capacity to develop new projects. ‚ EGE Haina has obtained additional collateral from EDE-Este securing the payment of accounts receivable due from EDE-Este by entering into an agreement that provides for collection directly from end consumers. This agreement provides EGE Haina a security interest in the collection of at least US$65 million per year from the principal costumers of EDE-Este and its credit card collections. 66


‚ EGE Haina's shareholders have informed us that they have a long-term perspective and that their business strategy is focused on improving earnings and our making future investments. Generation Plants The following table sets forth for each of EGE Haina's plants the generation units, generator types, generator manufacturers, installation dates, installed capacity and effective capacity at December 31, 2006. Units

Type

Manufacturer

Installation Date

Haina I Haina II Haina IV Haina GT Sultana del Este Barahona I Barahona GT Puerto Plata I Puerto Plata II San Pedro I San Pedro II Pedernales I Pedernales II

Steam Turbine Steam Turbine Steam Turbine Gas Turbine Diesel Steam Turbine Gas Turbine Steam Turbine Steam Turbine Steam Turbine Gas Turbine Diesel Diesel

General Electric General Electric General Electric Siemens Wartsila ABB Westinghouse General Electric Westinghouse Mitsubishi Westinghouse Caterpillar Hyundai

1968 1970 1976 1998 2001 2001 1989 1966 1982 1990 1974 1978 2003

Power Plant

Haina Plant ÏÏÏÏ

SultanaÏÏÏÏÏÏÏÏ Barahona ÏÏÏÏÏÏ Puerto Plata ÏÏÏ San Pedro ÏÏÏÏÏ Pedernales ÏÏÏÏÏ

Total

Installed Effective Capacity Capacity (MW)

54.0 54.0 84.9 100.0 153.0 53.6 32.1 27.6 39.0 33.0 32.1 1.7 1.7

46.3 47.5 67.7 99.8 150.3 42.4 25.5 23.5 37.8 31.4 26.6 1.7 Ì

666.7

600.5

Haina Plant The Haina plant is located in the municipality of Haina, San Cristobal π Province, adjacent to the southwest section of the city of Santo Domingo and to the coast. The plant is comprised of three steam turbine power generation units burning fuel oil #6, Haina I, Haina II and Haina IV, and one simple-cycle gas-fired steam turbine burning fuel oil #2, Haina GT. Haina I, Haina II and Haina IV have an installed capacity of 54.0 MW, 54.0 MW and 84.9 MW, respectively, and an effective capacity of 46.3 MW, 47.5 MW and 67.7 MW, respectively. They were constructed and commenced operations in 1968, 1970 and 1976, respectively. Each of Haina I, Haina II and Haina IV operate using fuel oil #6. The Haina GT unit has an installed capacity of 100.0 MW and an effective capacity of 99.8 MW. This unit was constructed and commenced operations in 1998. The Haina GT unit was designed to operate using fuel oil #2 or natural gas, but has been operated for the entirety of its operating cycle using fuel oil #2. Currently, the Haina-GT unit is used only during peak demand hours. The Haina plant has fuel storage tanks with a capacity of 184,100 barrels. Fuel oil reaches the storage tanks primarily by ship. The tanks may also be supplied by a pipeline from a refinery which is approximately 1 km to the east of the Haina plant. The Haina plant represents 9.3% of the total installed capacity in the SENI as of December 31, 2006. Following the capitalization of EGE Haina, all of the units at the Haina plant underwent a rehabilitation process between 1999 and 2002 at an aggregate cost of US$35.2 million. As a result of the rehabilitation, the effective capacity of the Haina plant increased from 204.9 MW to 285.5 MW. 67


Sultana del Este Plant The Sultana del Este plant is located approximately three miles from the city of San Pedro de Macorπ s, San Pedro de Macorπ s Province, and approximately 100 km east of Santo Domingo. The plant is comprised of a barge containing nine diesel generators burning fuel oil #6 that is moored on the bank of the Higuamo River near the Port of San Pedro de Macorπ s. The Sultana del Este plant has an installed capacity of 153.0 MW and an effective capacity of 150.3 MW, making it the largest barge-mounted generator in the world. The Sultana del Este plant was constructed in 2000-01 and commenced commercial operations in October 2001. Because the Sultana del Este plant has one of the highest availability rates and lowest heat rates in the Dominican Republic, this plant has consistently been one of the first few plants dispatched in the Coordinating Body's merit order. The Sultana del Este plant has fuel storage tanks with a capacity of approximately 176,000 barrels. Fuel oil reaches the storage tanks by pipeline from ships docked next to the barge. The Sultana del Este plant represents 4.8% of the total installed capacity in the SENI as of December 31, 2006. EGE Haina's capital expenditure to purchase the Sultana del Este plant was US$120.9 million. EGE Haina intends to produce all of the energy that it will sell to CEPM under the CEPM PPA at the Sultana del Este plant. Barahona Plant The Barahona plant is located in the city of Barahona, Barahona Province, adjacent to the coast and approximately 200 km west of Santo Domingo. The plant is comprised of one steam turbine power generation unit burning coal, Barahona I, and one simple cycle gas fired steam turbine burning fuel oil #2, Barahona GT. Following the capitalization of EGE Haina, EGE Haina completed the construction of Barahona I and rehabilitated Barahona GT at an aggregate cost of US$38.1 million. As a result, the effective capacity of the Barahona plant increased from 24.8 MW to 67.9 MW. Barahona I has an installed capacity of 53.6 MW and an effective capacity of 42.4 MW. Barahona I was constructed between 1999 and 2001 and commenced operations in 2001. Barahona I was designed to operate using bagasse coal. Because Barahona I has one of the highest availability rates and lowest running cost in the Dominican Republic, this unit has consistently been one of the first few units dispatched in the OC's merit order. The Barahona GT unit has an installed capacity of 32.1 MW and an effective capacity of 25.5 MW. This unit was constructed in 1989 and commenced operations in the same year. The Barahona GT unit operates using fuel oil #2. This unit is positioned near the end of the merit order and is seldom dispatched. EGE Haina discontinued the operations of this generation unit as of December 31, 2006 and this generation unit has been fully depreciated. The Barahona plant has a coal yard with a capacity of 50,000 tons. Coal reaches the coal yard by ship from the Barahona port which is next to the Barahona plant. Puerto Plata Plant The Puerto Plata plant is located in the city of Puerto Plata, Puerto Plata Province, adjacent to the northern coast of the Dominican Republic. The plant is comprised of two steam turbine power generation units burning fuel oil #6, Puerto Plata I and Puerto Plata II. Puerto Plata I and Puerto Plata II have an installed capacity of 27.6 MW and 39.0 MW, respectively, and an effective capacity of 23.5 MW and 37.8 MW, respectively. They commenced operations in 1966 and 1982, respectively. Both Puerto Plata I and Puerto Plata II operate using fuel oil #6. 68


The Puerto Plata plant has fuel storage tanks with a capacity of 56,000 barrels. Fuel oil reaches the storage tanks by pipeline from the Puerto Plata port which is approximately one km to the south of the Puerto Plata plant. Following the capitalization of EGE Haina, both of the units at the Puerto Plata plant underwent a rehabilitation process between 1999 and 2001 at an aggregate cost of US$6.9 million. As a result of the rehabilitation, the effective capacity of the Puerto Plata plant increased from 35.0 MW to 64.0 MW. San Pedro Plant The San Pedro plant is located approximately three miles from the city of San Pedro de Macorπ s, San Pedro de Macorπ s Province, approximately 100 km east of Santo Domingo and on property adjacent to the Sultana del Este plant. The plant is comprised of one steam turbine power generation unit burning fuel oil #6, San Pedro I, and one simple cycle gas fired steam turbine burning fuel oil #2, San Pedro II. San Pedro I has an installed capacity of 33.0 MW and an effective capacity of 31.4 MW. San Pedro I was constructed in 1990 and commenced operations in the same year. San Pedro I was designed to operate using either fuel oil #6 or coal, but has been operated for the entirety of its operating cycle using fuel oil #6. San Pedro II has an installed capacity of 32.1 MW and an effective capacity of 26.6 MW. This unit was constructed in 1974 and commenced operations in the same year. This unit is positioned near the end of the merit order and is seldom dispatched. EGE Haina discontinued the operations of this generation unit as of December 31, 2006 and this generation unit has been fully depreciated. The San Pedro plant has fuel storage tanks with a capacity of 48,700 barrels. Fuel oil reaches the storage tanks by pipeline from the Sultana del Este plant. Following the capitalization of EGE Haina, both of the units at the San Pedro plant underwent a rehabilitation process between 1999 and 2001 at an aggregate cost of US$2.0 million. As a result of the rehabilitation, the effective capacity of San Pedro I increased from 24.8 MW to 31.4 MW. Pedernales Plant The Pedernales plant is located in the city of Pedernales, Pedernales Province, on the border with Haiti. The plant is comprised of two diesel generators, Pedernales I and Pedernales II, which burn fuel oil #2 and fuel oil #6, respectively. Pedernales I and Pedernales II each have an installed capacity of 1.7 MW and Pedernales I has an effective capacity of 1.7 MW. Pedernales I was constructed and commenced operations in 1978. Pedernales II was constructed and commenced operations in 2003. The Pedernales plant is connected to an isolated electrical grid serving the municipality of Pedernales. EGE Haina is the only local energy provider in the community. The Pedernales plant has fuel storage tanks with a capacity of 596 barrels. Fuel oil reaches the storage tanks by trucks from the Haina plant, as well as other facilities operated by EGE Haina. Following the capitalization of EGE Haina, EGE Haina constructed Pedernales II and rehabilitated the Pedernales I unit between 1999 and 2002 at an aggregate cost of US$2.7 million. As a result, the installed capacity of the Pedernales plant increased from 1.7 MW to 3.4 MW. As one of the units at the Pedernales plant is reserved for back-up generation, the increase in the installed capacity of this plant did not affect its effective capacity. Power Purchase Agreements General PPAs permit stable sales over the long term. For more information on the role of PPAs, see ""Management's Discussion and Analysis of Financial Condition and Results of Operations Ì Principal Factors Affecting Results of Operations Ì Energy Sales and Spot Market Energy Transactions; and Ì 69


Purchased Power and Energy and Setoffs of Accounts Receivable'' and ""The Electrical Industry in the Dominican Republic Ì The Dominican Electricity Market Ì Transactions in Power and Electricity Ì Contracts.'' Principal PPAs In August 1999, CDE entered into a long-term PPA with each of EDE-Este, EDE-Norte and EDE-Sur, which the CDE later assigned to EGE Haina. In October 2001, EGE Haina entered into three separate agreements, effective as of August 2001, with EDE-Este, EDE-Norte and EDE-Sur to amend the PPAs. Each of these PPAs expires in July 2016. Under these PPAs, EDE-Este, EDE-Norte and EDE-Sur have agreed to purchase from EGE Haina 100 MW, 112 MW and 138 MW, respectively, until July 31, 2016. The PPAs with EDE-Este, EDE-Norte and EDE-Sur contemplate that upon the earlier of (i) the termination of the obligation of unregulated users to pay charges to the distribution companies pursuant to applicable Dominican law, and (ii) July 31, 2007, if EGE Haina, an affiliate of EGE Haina or any other entity with which EGE Haina has a management agreement or an energy supply agreement contracts directly with an unregulated client for the supply of energy, then EDE-Este, EDE-Norte or EDE-Sur, as applicable, will, subject to certain exceptions, reduce the total capacity and associated energy that it is required to purchase under its PPAs with EGE Haina in the same amount as the capacity and associated energy that such unregulated user agrees to purchase from EGE Haina, its affiliates or any such other entity. Pursuant to the PPAs with EDE Este, EDE Norte and EDE Sur, EGE Haina may arrange with third parties to provide the contracted capacity and associated energy. Pursuant to the PPAs, EDE Este, EDE Norte and EDE Sur pay EGE Haina for contracted capacity and associated energy. Under each of these PPAs, the price for contracted capacity is calculated using (i) a base purchase price which is adjusted over time for increases or decreases in the U.S. CPI, with a maximum annual change of 2%, and (ii) the transmission costs incurred by EGE Haina. As of December 31, 2006, the price for contracted capacity under these PPAs was US$7.83 per kW. Under each of these PPAs, the price for energy sold is calculated using a base energy price to be adjusted over time for (i) increases or decreases in the U.S. CPI and (ii) increases or decreases in price of Platt's Fuel Oil #6. As of December 31, 2006, the price for energy under these PPAs was US$0.10859/kWh (under the EDE Este PPA) and US$0.10855/kWh (under the EDE Norte and EDE Sur PPAs). The PPAs specify that amounts payable may be paid in Dominican pesos at the exchange rate published by the Central Bank at the time of payment or, if the parties so agree, in U.S. dollars. During 2006, EGE Haina provided EDE-Este, EDE-Norte and EDE-Sur with approximately 19.8%, 21.2% and 23.9% of their energy needs, respectively. For more information on the Dominican government's desire to renegotiate the PPAs, see ""The Electrical Industry in the Dominican Republic Ì Economic Crisis and its Impact on the Electricity Sector Ì Electricity Sector Integral Plan,'' and ""Risk Factors Ì Risk Factors Relating to EGE Haina and the Dominican Electricity Sector Ì A significant portion of EGE Haina's revenues is derived from long-term PPAs with EDE-Este, EDE-Norte and EDE-Sur, and there is no assurance that if EGE Haina is required to renegotiate these PPAs it will be able to do so on favorable terms or at all or that EGE Haina will be able to enter into similar PPAs upon the termination of its existing PPAs.'' For more information on how availability and dispatch relate to the PPAs, see ""The Electrical Industry in the Dominican Republic Ì The Dominican Electricity Market Ì Transactions in Power and Electricity.'' Megacentro PPA On April 15, 2002, EGE Haina entered into a long-term PPA with Centros del Caribe, S.A., or Megacentro. The PPA was amended on May 29, 2002. The initial term of the PPA is for a period of 15 years, after which the term becomes indefinite unless the PPA is terminated at the end of the initial term. Under this PPA, EGE Haina agreed to supply Megacentro with enough capacity and associated energy to satisfy its requirements and to allocate 6MW of generation capacity for emergencies. The base price for electricity specified in this PPA is adjusted over time for (i) increases or decreases in the U.S. CPI and (ii) increases or 70


decreases in the price of Platt's Fuel Oil #6. This PPA specifies that amounts payable may be paid in Dominican pesos at the exchange rate published by the Central Bank at the time of payment or in U.S. dollars. CEPM PPA On January 15, 2007, EGE Haina entered into an agreement in Term Sheet form with its affiliate CEPM setting forth the principal terms of a PPA to be entered into between EGE Haina and CEPM following the completion of a 120 km transmission line at 138kV that CEPM is constructing to connect its distribution system with the Sultana del Este plant. CEPM is a privately owned utility company engaged in the business of generating, transmitting, and distributing electricity through an isolated system in the Punta Cana-Bavaro π region, one of the principal tourist destinations in the Dominican Republic, and Bayahibe, another popular tourist destination in the eastern region of Dominican Republic. Pursuant to the expected PPA, EGE Haina would supply a minimum of 50MW to CEPM beginning in 2008 and would grant an option to CEPM to increase the volume of energy up to the maximum available capacity of the Sultana del Este plant. EGE Haina anticipates that this option will be exercised in 2010 or 2011, based on the demand growth projected by CEPM. The initial price for capacity set forth in the PPA will be adjusted monthly by the U.S. CPI and fluctuations in the exchange rate for dollars into euros. CEPM will provide the fuel necessary to generate the electricity delivered under this PPA and EGE Haina will receive a variable operating and maintenance fee which will be adjusted monthly by the U.S. CPI and fluctuations in the exchange rate for dollars into euros. The PPA is expected to have a term of 15 years. All amounts due under the PPA will be payable in dollars. If entered into on the terms currently contemplated, this PPA will be the largest PPA in terms of capacity entered into by any generation company with an isolated system and will result in EGE Haina having the most diverse revenue base of any Dominican power generator. EGE Haina expects that this PPA, if and when fully implemented, will represent 18% of EGE Haina's variable margin, and will increase the stability to EGE Haina's operating margin. EGE Haina can offer no assurance (1) that CEPM's transmission line will be completed as scheduled, or at all, (2) that the PPA between EGE Haina and CEPM will be entered into on the terms set forth in the Term Sheet, or at all, (3) when CEPM will exercise the option to increase the volume of energy to 100 MW, if at all, (4) that the percentage of EGE Haina's variable margin represented by this PPA will not be lower than EGE Haina's expectations, or (5) that this PPA will have the expected effects on the stability of EGE Haina's operating margins. Raw Materials and Supplies EGE Haina purchases fuel oil for its generation plants from Glencore, one of the largest fuel brokers in the world. The price that EGE Haina pays Glencore for fuel oil is based on (i) the daily published price of fuel oil in Platts US Market Scan and (ii) a delivery fee. The delivery fee has fluctuated between US$2.50 per barrel to US$3.50 per barrel during the three-year period ended December 31, 2006. From time to time, EGE Haina purchases fuel oil from other sources such as the Dominican Refinery and Vitol, Inc., another international fuel broker. In early 2006, EGE Haina entered into a contract with Glencore International in which Glencore International agreed to supply EGE Haina with coal sufficient to meet the Barahona plant's requirements for a period of two years. The contract price for coal under this agreement is US$56.80 per ton plus a delivery fee. Spare Parts General Electric, Siemens, ABB, Westinghouse, Mitsubishi, Caterpillar and Hundai are EGE Haina's principal suppliers of spare parts for turbines, generators and boilers. When possible, EGE Haina obtains spare parts for its power plants from original equipment manufacturers. Historically, EGE Haina has been able to obtain its supplies when needed and is current on its payment to Dominican and foreign suppliers. 71


From October 2001 through late 2006, Wartsila was contracted to operate and maintain the Sultana del Este plant. On November 11, 2006, EGE Haina began operating and maintaining the plant. As a result, EGE Haina is responsible for obtaining all of the spare parts, lubricants and other materials necessary to properly maintain the Sultana del Este plant. EGE Haina expects to acquire such parts and materials from original equipment manufacturers such as ABB Business and Turbochargers Inc., Wartsila Finland, Marine Motor Services, Fluids Mechanics Inc. Maintenance The maintenance program for each of EGE Haina's generation units provides for scheduled outages. Maintenance periodicity and the duration of outages depend on the type of generation unit (steam, diesel engine or gas turbine) and for steam turbines the type of fuel used (coal or fuel oil). Steam Turbine Generation Units The duration of a maintenance outage for EGE Haina's seven steam turbine generation units is mainly driven by boiler cleanliness and steam turbine condition. Boiler cleanliness depends on the type of fuel being used. EGE Haina usually must conduct an annual outage on each of its steam units to clean the boiler internal parts, which consists of water wall tubes, super heater tubes, combustion gases paths and ducts and air pre-heaters. This cleaning process is necessary to the plant efficiency since the accumulation of dust, ashes and deposits in the heat transfer surfaces diminishes the overall efficiency of the combustion cycle. During these annual outages, plant maintenance personnel perform repair and maintenance work in other plant components such as feed water pumps, heat exchangers, main condenser and condensate pumps. The duration of these outages depends on the amount of work to be performed. Steam turbine maintenance is the other important driver of the steam turbine generation unit outages. Steam turbine manufacturers recommend inspecting the steam admission valves every year and conducting a major overhaul every four years. Steam admission valve inspections consist of the complete disassembly of the valves to verify their condition and record critical clearances. These tasks are essential since the valves could stick and suffer substantial damage if not properly maintained. The duration of the valve inspection is approximately two weeks. The cost of these annual outages varies according to the extent or scope of the repairs and preventive activities conducted. For the years ended December 31, 2006, 2005 and 2004, Haina's aggregate expense for annual maintenance of its steam turbine generation units was US$4.6 million, US$3.0 million and US$1.9 million, respectively, excluding lost revenue. Steam turbine overhaul is a lengthy activity, mainly because the steam turbine casings are difficult to remove and install. The overhaul consists in the removal of outer and inner casings, the removal and inspection of turbine high and low pressure rotors including non-destructive testing, the inspection of turbine bearings, the removal and inspection of nozzle diaphragms and the inspection and replacement of gland steam seals. In this outage, the steam turbine auxiliary equipment is also inspected. This equipment consists of lube oil pumps, control oil pumps, oil filters, oil tanks, vapor extractor, lube oil coolers, gland steam condenser, gland steam condenser extractor and the instrumentation devices relating to this equipment. The generator is also inspected during this major overhaul, usually removing the rotor from the stator and conducting several electrical and integrity tests to the core and windings such as double test, hi-pot test, megger test, core imperfection detection and end bells non-destructive testing. Other equipment inspected includes the generator auxiliaries such as hydrogen seals station, hydrogen seals rings, exciter, exciter transformer, main bus ducts and high voltage insulators. A steam turbine overhaul may last up to eight to ten weeks. During this time, other equipment, such as the boiler and circulating and feed water pumps, is inspected.

72


The cost of a steam turbine overhaul varies according to the extent or scope of the repairs and preventive activities conducted and depends mainly on the repairs or reblading needed by the steam turbine. The table below sets forth the completion dates, duration and costs of the last major overhauls of each of EGE Haina's steam turbines. Units

Completion Date of Last Overhaul

Haina IÏÏÏÏÏÏÏÏÏÏÏÏÏ Haina II ÏÏÏÏÏÏÏÏÏÏÏÏ Haina IV ÏÏÏÏÏÏÏÏÏÏÏ Barahona I ÏÏÏÏÏÏÏÏÏÏ Puerto Plata I ÏÏÏÏÏÏÏ Puerto Plata II ÏÏÏÏÏÏ San Pedro I ÏÏÏÏÏÏÏÏÏ

September, 2005 June, 2004 October, 2006 October, 2006 June, 2003 August, 2003 April, 2001

Duration of Maintenance Outage

64 48 66 21 30 35 28

days days days days days days days

Cost of Overhaul(1) Date of Next Scheduled Overhaul (In thousands of US$)

995 1,000 1,755 895 523 750 1,663

July 2007 Unknown under October 2007 January 2008 Unknown under Unknown under Unknown under

Current Dispatch

Current Dispatch Current Dispatch Current Dispatch

(1) Excludes lost revenue. Diesel Generation Units The duration of a maintenance outage for EGE Haina's three diesel engine units is mainly driven by equivalent operating hours, or EOH, during which a diesel engine is in service. The Sultana del Este plant has nine diesel engines and each of Pedernales I and Pedernales II has one diesel engine. Programmed maintenance outages for each of these engines are scheduled after 3,000 EOH, 12,000 EOH, 24,000 EOH, and 36,000 EOH. Maintenance stoppages, according to their EOH, generally last as the following table describes: Maintenance Outage

EOH

12,000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24,000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36,000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

12 days 15 days 21 days

The cost of these outages varies according to the extent or scope of the repairs and preventive activities conducted. All maintenance costs of the Sultana del Este plant from the commencement of its operations through November 2006 were borne by Wartsila and passed through to EGE Haina as part of the fees paid under Wartsila's operating and maintenance contract. The spare part fee component of these fees were US$6.9 million in 2006, US$5.5 million in 2005 and US$3.6 million in 2004. Gas Turbine Generation Units The maintenance program for EGE Haina's three gas turbines varies depending on the amount of accumulated EOH for each unit. Haina GT unit, located at the Haina plant, is the only GT unit currently being dispatched and the only one expected to dispatch in the future. The last major maintenance performed on Haina GT unit ended March 2003 at a cost of US$8.1 million. The unit had accumulated a total of 29,000 EOH at the time of its last major maintenance and since then it has accumulated 2,100 EOH. Haina GT has not been dispatched since November 30, 2006, San Pedro GT has not been dispatched since June 5, 2003, and Barahona GT has not been dispatched since December 3, 2002. Because EGE Haina's gas turbine generation units consistently rank very low on the order of merit, and are seldom dispatched, maintenance is performed infrequently.

73


Operational Statistics EGE Haina has made significant improvements in its operating performance indicators since its capitalization in 1999. EGE Haina's effective capacity increased from 285 MW in 1999 to 364 MW in 2000 as a result of a capital expenditure program designed to restore the effective capacity at the Haina plant, the San Pedro plant and the Puerto Plata plant. Effective capacity increased to 594 MW in 2001 as a result of the acquisition of the Sultana del Este plant and the completion of the Barahona I plant. EGE Haina has been able to increase the operational efficiency of its plants, as measured by their heat rate, since its capitalization. Average heat rate measures the fuel efficiency of a power plant. It represents the amount of fuel, in BTUs, necessary to produce one kWh. As a result of EGE Haina's refurbishment program at the generation units existing at the time of the capitalization and the acquisition of the Sultana del Este plant, the average heat rate of EGE Haina's plants has decreased from 14,449 BTU/kWh in 1999 to 10,876 BTU/kWh in 2002. EGE Haina's refurbishment program included improvements to these units and an extensive overhaul of these units. The Sultana del Este plant has a heat rate of 7,800 BTU/kWh. Since the completion of EGE Haina's initial capital expenditure program, it has been able to continue to reduce its average heat rate as demonstrated in the bar graph below. The availability rate of EGE Haina's generation units has significantly increased and the rate of forced outages of EGE Haina's generation units has significantly declined since the capitalization, principally due to the overhauls of these units between 1999 and 2003 and EGE Haina's program of annual maintenances at each unit. The availability rate of a generation unit measures the numbers of hours the generation unit is available to generate electricity, regardless of whether the generation unit is dispatched. This measure consists in the ratio of hours the generation unit is available as a percentage of the total number of hours in a year. EGE Haina's availability ratio improved in each year between 1999 and 2004 as demonstrated in the bar graph below. After reaching its peak at 96% in 2004, EGE Haina's availability ratio has remained above 90% which is in line with industry expectations for well maintained generation units. The forced outage rate of a generation unit measures the numbers of hours the generation unit is unavailable to generate electricity as a result of operational failures. This measure consists in the ratio of hours the generation unit is unavailable as a result of operational failures as a percentage of the total number of hours in a year. EGE Haina's forced outage ratio improved in each year between 1999 and 2004 as demonstrated in the bar graph below. After reaching its nadir at 1% in 2004, EGE Haina's forced outage ratio has remained below 5% which is in line with industry expectations for well maintained generation units.

74


Note: 2004 forced outage value abnormally low due to low dispatch rate. Competition All of EGE Haina's generation plants, other than the Pedernales plants, are connected to the SENI. The aggregate amount of capacity and energy that generators connected to the SENI are able to sell is limited by the demand of this system. The SENI competes for demand for electric energy with self-generators and cogenerators that produce electricity, but are not part of the SENI. EGE Haina believes that as the reliability of the SENI improves, consumers will migrate towards connection with participants in the SENI for their energy needs. Generators that are part of the SENI compete for allocations of firm capacity. As of December 31, 2006, the total installed capacity of the SENI was 3,166.3 MW and the total effective capacity of the SENI was 2,952.1 MW. As of December 31, 2006, EGE Haina's power generation units represented, in the aggregate, 21.0% of the total installed capacity and 20.3% of the total effective capacity of the SENI. For the year ended December 31, 2006, the total firm capacity allocated to all generators by the OC was approximately 1,708.2 MW and EGE Haina's allocation of firm capacity was 338.8 MW. Generators compete for allocations of firm capacity based primarily on the reliability and availability of their generation units. For the years ended December 31, 2006, 2005 and 2004, EGE Haina's aggregate forced outage rate was 4%, 2% and 1%, respectively, and EGE Haina's aggregate availability rate was 93%, 94.5% and 96%, respectively. If the demand for peak capacity of the SENI were to rise, it is likely that EGE Haina's allocation of firm capacity would also increase. If additional effective generation capacity were added to the SENI, it is likely that EGE Haina's relative percentage of firm capacity allocations would fall. Generators that are part of the SENI compete for sales of energy through the SENI, primarily based on the placement of their generation units in the order of merit. Ranking in the weekly order of merit depends on the generator's declared variable cost for its generation units and is dependent on the cost to the generator of the fuel used in each generation unit and the thermal efficiency of those units as measured by the units' heat rate. Generally, the Government-owned hydroelectric facilities are the lowest-cost energy generators in the system and are dispatched first. However, these plants suffer from capacity limitations as the water available to operate these plants is often diverted towards the supply of potable and non-potable water for industry, commercial operation, residences and agriculture. Generally, following the hydroelectric facilities are Itabo's and EGE Haina's coal-fired units, followed by a number of diesel and gas generators including EGE Haina's Sultana del Este plant and AES's Andres plant. EGE Haina's other steam turbine generation units generally fall in the middle of the order of merit and EGE Haina's gas turbine generation units generally fall at the end of the order of merit. If the demand for energy from the SENI were to rise, it is likely that EGE Haina's oilfired steam turbine generation units would be dispatched more frequently and that the amount of energy dispatched by EGE Haina into the SENI would increase. If additional low variable cost generation capacity were added to the SENI, it is likely that EGE Haina's oil-fired steam turbine generation units, and 75


potentially its Barahona I and Sultana del Este plants, would be dispatched less frequently and that the amount of energy dispatched by EGE Haina into the SENI would decrease. The Dominican Government has announced its intention to build two 600 MW coal power generation facilities in the southern part of the country and is currently negotiating the terms of a financing and construction agreement with Sichuan Machinery Equipment Imp. Exp. Co. Ltd. If financing for the facilities is secured and the government's plan is implemented, these facilities would compete with EGE Haina as they would be assigned some of the firm capacity currently assigned to EGE Haina and other Dominican power generation facilities. In addition, these new units would be low cost generation units which could potentially be dispatched before or in the same order of priority as certain of EGE Haina's generation facilities. Employees EGE Haina's generation and other facilities are operated by employees of EGE Haina. The following table shows the number of our employees by category on the dates indicated. As of December 31, 2006 2005 2004

Senior management ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Middle managementÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Staff ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

7 17 353

5 17 218

5 17 223

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

377

240

245

The operating and maintenance contract with Wartsila relating to the Sultana del Este plant expired in November 2006 and EGE Haina assumed the operations and maintenance of this plant upon the expiration of this contract. Following the expiration of this contract, EGE Haina hired 86 employees to perform operations and maintenance at the Sultana del Este plant. In addition, EGE Haina hired 47 additional employees at its other plants in 2006 to perform the duties previously performed by independent contractors. All personnel are non-unionized, and there are no collective bargaining agreements. EGE Haina has not experienced any labor strikes since its capitalization in 1999. It is the opinion of EGE Haina's management that it has good relations with its employees. EGE Haina's compensation packages include a cash bonus based on performance, in addition to customary benefits in the Dominican labor market, such as medical and dental plans and other non-cash benefits that are required by Dominican law. The Dominican Republic's profit sharing regulations require EGE Haina to pay its employees an amount up to 10% of its income before taxes. An employee is qualified to receive up to the equivalent of 45 days of his or her daily pay if the employee has been at the company for no more than three years or up to the equivalent of 60 days of his or her daily salary if the employee has been at the company more than three years. Property EGE Haina's principal properties consist of land and improvements located at its generation plants. EGE Haina owns all of the real property on which its generation plants are located. In addition, EGE Haina leases 1,100 square meters of office space for its corporate headquarters in Santo Domingo. The net book value of EGE Haina's property, plant and equipment as of December 31, 2006 was US$273.2 million. EGE Haina's facilities are generally adequate for its present needs and suitable for their intended purposes. Insurance EGE Haina currently has an insurance policy covering physical damage, business interruptions, machine breakdowns and natural catastrophes. The maximum aggregate coverage limit under EGE Haina's policy is 76


US$100 million per occurrence. The most relevant sub-limit of EGE Haina's policy is for business interruptions, which is US$20 million per occurrence. The deductibles under EGE Haina's policy are US$2.0 million for any occurrence, other than with respect to windstorm and/or earthquakes, in which event the deductibles are 5% of the property value of the affected locations. EGE Haina's insurance policies are underwritten by Swiss Re, Alianz Global Risk, Tokyo Marine and others. Since 1999, EGE Haina's only claim under its insurance policies was for US$1.7 million in 2004 which was promptly paid. In addition, EGE Haina holds general liability and other insurance policies customary for its business. Environmental Compliance EGE Haina's power generation plants have obtained environmental certificates from the Dominican Government with respect to their compliance with environmental laws. All of EGE Haina's equipment and operations are in compliance or exceed Dominican environmental standards. EGE Haina has obtained all required environmental certifications from the Dominican Government relating to its compliance with environmental laws. EGE Haina is not currently subject to any environmental proceedings or disputes nor does it expect to be subject to any environmental disputes or proceedings the outcome of which would be prejudicial or have a material adverse effect on its business. Legal Proceedings EGE Haina is involved in certain legal proceedings from time to time that are incidental to the normal conduct of its business, none of which is expected to have a material adverse effect on EGE Haina's results of operations, financial position and cash flows.

77


MANAGEMENT EGE Haina's Board of Directors EGE Haina's by-laws provide for a Consejo de Administracion π (Board of Directors) of at least five members. The current EGE Haina Board of Directors consists of five members. EGE Haina's Board of Directors consists of a President, Vice President, Secretary and other directors, all of whose powers are set forth in EGE Haina's bylaws. EGE Haina's Board of Directors is a decision-making body responsible for, among other things, determining policies and guidelines for its business and its subsidiaries. The members of EGE Haina's Board of Directors are elected at general meetings of shareholders for one-year terms and are eligible for reelection. The holders of EGE Haina's Class A common stock have the right to elect one member of EGE Haina's Board of Directors, who acts as the Secretary of EGE Haina's Board of Directors. The holders of EGE Haina's Class B common stock have the right to elect the other four members of EGE Haina's Board of Directors, including the President and Vice President. Directors are elected by a simple majority. Members of EGE Haina's Board of Directors are subject to removal at any time with cause at a shareholders meeting. The members of EGE Haina's Board of Directors may be stockholders of EGE Haina. EGE Haina's Board of Directors is required to meet at least once every six months. Extraordinary meetings are called as necessary. Directors are not required to attend meetings in person. A quorum is established with the attendance of three directors. Decisions of EGE Haina's Board of Directors require a majority vote, except for decisions with respect to the following matters, which require the unanimous vote of EGE Haina's Board of Directors: ‚ granting encumbrances on EGE Haina's assets if the amount of the encumbrance exceeds 50% of the total value of EGE Haina's assets, unless such encumbrance is granted for the purpose of obtaining credit with financial institutions authorized by the Monetary Board in the Dominican Republic or international or financial entities with a rating by S&P of no less than ""BBB'' or an equivalent rating utilized by other rating companies with similar characteristics; ‚ disposing of assets that are essential to EGE Haina's operations through one or more transactions involving more than 50% of the total value of EGE Haina's assets; ‚ acquiring, assigning or transferring participations, shares, quotas or other similar instruments from subsidiaries, affiliates or controlling companies of EGE Haina's shareholders; ‚ entering into partnership, joint venture or other similar contracts with subsidiaries, affiliates or controlling companies of EGE Haina or EGE Haina's shareholders; and ‚ entering into contracts or operations with subsidiaries, affiliates or controlling companies of EGE Haina or EGE Haina's shareholders that cause EGE Haina to incur loans or payment obligations on assets or rights of EGE Haina. EGE Haina's Board of Directors may, upon the request of the directors elected by EGE Haina's Class B shareholders, designate a Chief Executive Officer whose functions are established by EGE Haina's Board of Directors. EGE Haina has also entered into a Management Agreement with HIC. For a description of the Management Agreement see ""Ì Management Agreement.'' The business address of all of EGE Haina's directors is EGE Haina's business address. The current members of EGE Haina's Board of Directors are as follows: Rolando Gonzalez-Bunster. π Mr. Gonzalez-Bunster has served as President of EGE Haina's Board of Directors since the company's inception. He is also the President of CEPM, Basic Energy, Ltd., Transcontinental Capital Corporation and CEB. Mr. Gonzalez is a member of the Board of International Initiatives of Georgetown University, a trustee of the William Jefferson Clinton Library and a member of the William Clinton Foundation. In addition, Mr. Gonzalez-Bunster serves as a director of Compa¿nia de Electricidad de Puerto Plata. Mr. Gonzalez-Bunster was appointed to the Board of Directors by HIC. 78


Pastor Sanjurjo. Mr. Sanjurjo has served as a director of EGE Haina and Vice President of its Board of Directors since December 2003 and has served EGE Haina's Chief Executive Officer since December 2005. Mr. Sanjurjo has served as Chief Executive Officer of CEPM since June 2006. Mr. Sanjurjo previously served as EGE Haina's Chief Executive Officer from May 2003 to December 2004. Prior to joining EGE Haina, Mr. Sanjurjo was the Director for Americas Mergers and Acquisitions of CDC Globeleq from 2002 to 2005, where he was responsible for the company's M&A activity throughout Latin America and the Caribbean. Prior to joining CDC Globeleq, Mr. Sanjurjo was the Vice President of Business Development for Reliant Energy Inc. in Latin America between 1996 and 2000. He was responsible for all business development efforts in Latin America including electric and gas distribution, generation privatization, and greenfield development. During this period, he completed the acquisition of seven electric distribution companies worth over US$2 billion. Mr. Sanjurjo has close to 30 years of experience in the energy industry; he began his career with The Southern Company where he spent 14 years in various positions. Other past positions include Executive Vice President of Unocal Latin America Ventures Ltd., General Manager and Chief Executive Officer of Edelnor S.A., General Manager of SEI Chile S.A and General Manager of SEI Mexico. Mr. Sanjurjo holds a degree in Engineering from the Georgia Institute of Technology and an MBA from Georgia State University. Mr. Sanjurjo was appointed to the Board of Directors by HIC. Eduardo Selman. Mr. Selman has served as Secretary and a director of EGE Haina since 2004. Mr. Selman is Secretary of State without portfolio in the current Fernandez Ď€ administration and is General Counsel of the Dominican Republic for New York City. Mr. Selman is a board member the board of directors of Grupo BHD and several of its subsidiaries. Mr. Selman was appointed to the Board of Directors by CDE. Michael Bax. Mr. Bax has served as a director of EGE Haina since July 2006. Mr. Bax has also served as a director of CEPM since 2000 and is currently the President of the Hispaniola Management Corporation. Mr. Bax was the general manager of EGE Haina from 2001 through 2003. Mr. Bax is qualified as a Chartered Accountant at Deloitte & Touche where he spent more than ten years working in Audit and Corporate Finance. Mr. Bax was appointed to the Board of Directors by HIC. Lucas Missong. Mr. Missong has served as a director of EGE Haina since July 2005. He is currently the Portfolio Manager for CBPF. Mr. Missong joined Energy Investors Funds in 2001 and is the Portfolio Manager for CBPF. From 1999 to 2001, Mr. Missong worked for a Latin American infrastructure fund sponsored by Dresdner Kleinwort Capital that focused on mezzanine infrastructure investments in the power, toll-road, telecommunications, and water sectors. From 1994 until 1999, Mr. Missong was a member of the Energy, Utility, and Infrastructure Department of Dresdner Kleinwort Benson in New York. From 1990 to 1992, Mr. Missong worked at KPMG Germany on privatization assignments relating to the former East German coal, electricity, and retail industries. Mr. Missong holds a B.A. in political science and economics from Webster University and an M.A. from The Fletcher School of Law and Diplomacy. Mr. Missong was appointed to the Board of Directors by HIC. EGE Haina's Executive Officers EGE Haina's Board of Directors elects EGE Haina's senior officers, including its Chief Executive Officer. The business address of all of EGE Haina's senior officers is EGE Haina's business address. The current senior officers of EGE Haina are as follows: Pastor Sanjurjo. Mr. Sanjurjo has served as EGE Haina's Chief Executive Officer since December 2005. For additional information about Mr. Sanjurjo's business background and activities and education, see ""ĂŒ EGE Haina's Board of Directors.'' Alberto Triulzi. Mr. Triulzi has been EGE Haina's Chief Finance and Administration Officer since June 2001. Prior to joining EGE Haina, Mr. Triulzi was the Chief Financial Officer at Edegel S.A., Peru's largest electrical generation company, from 1995 to 2001. Between 2000 and 2001, he served as a member of the board of directors of Central Termica San Isidro in Chile and EP Edegel, Inc. Mr. Triulzi has also served as a member of the board of directors of Central Costanera, Central Buenos 79


Aires, Edesur, S. A., Transener, S. A. and Chairman of Argelec, S.A. Other past positions include V.P. and Controller of Edesur, S.A., Project Development Manager for Entergy Corporation, and Executive Consultant for Stone and Webster Management Consultants. Mr. Triulzi holds a degree in Economics and an MBA in Finance from Loyola University. Mejico Angeles. Mr. Angeles has been the Chief Commercial Officer of EGE Haina since August 2004. Mr. Angeles joined EGE Haina in November 1999 as an Energy Market Analysis Manager. Prior to joining EGE Haina, Mr. Angeles was the Marketing Manager of Las Americas Industrial Free Zone from 1993 to 1997 and the Project Director of Falconbridge Foundation, Inc. from 1990 to 1993. Mr. Angeles is experienced in industrial development and has held a position as Investment Counselor in the Investment Promotion Council of the Dominican Republic. Mr. Angeles received a Masters Degree in Finance from the University of Lancaster in the United Kingdom. Jorge Mendez. Mr. Mendez has been EGE Haina's Chief Operations Officer since October 2000. Mr. Mendez has fifteen years experience in the construction, operation and maintenance of gas and steam turbines, as well as experience with combined cycle and diesel groups and staff selection, training and safety. Prior to joining EGE Haina, Mr. Mendez worked as Plant Manager for Pantanal Energia owned by Enron Corp. & Shell Oil Company) in Cuiaba, Brazil from 1998 to 2000. During this period, he was responsible for operations and maintenance, selection of personnel, ISO 9000/ISO 14000 implementation, and obtaining long-term service agreements for major maintenance. Mr. Mendez's previous experience also includes working as Superintendent of Operations and Maintenance for Energia del Sur, RIVADAVIA (owned by Amoco Power & Camuzzi) from 1996 to 1998 and working as Maintenance Supervisor for SADE Ingenieria y Construcciones from 1994 to 1996. Mr. Mendez holds a degree in Engineering from Universidad Nacional Mar de Plata, Argentina. Nurys Pena. ¿ Ms. Pe¿na has been EGE Haina's Vice President and General Counsel since February 2000. She is responsible for directing EGE Haina's legal activities as well as its inter-institutional relations. Prior to joining EGE Haina, she worked as an associate for the law firm of Russin, Vecchi & Heredia Bonetti. She is a member of the Dominican Attorneys Association and the Legal Commission of National Entrepreneurs Association. Ms. Pe¿na's practice is primarily concentrated in corporate matters as well as, structuring, documenting and negotiating transactions in the energy sector. Ms. Pe¿na received her JD, with honors from the Universidad Nacional Pedro Henrπ quez Ure¿na and a diploma on international corporate law from Harvard University Extension School. In 2006, she received her MS in Management from the University of Miami. Duane Schumacher. Mr. Schumacher has been EGE Haina's Vice President of Operations since December 2006. Mr. Schumacher has more than fourteen years of generation plant mobilizations and operations experience, throughout Latin America, Asia and Iraq. Mr. Schumacher was plant manager for the first combined cycle generation plant to be established in Brazil. Mr. Schumacher received a science degree from Regis College. Jose A. Rodriguez. Mr. Rodriguez has been EGE Haina's business development manager since September 2006. Prior to joining EGE Haina, Mr. Rodrπ guez was Regional Business Manager for Globeleq with responsibilities in Central America and Caribbean. He has served on the board of Compa¿nia de Electricidad de Puerto Plata, Compa¿nia de Electricidad de San Pedro de Macoris, and Jamaica Private Power Company. Mr. Rodrπ guez holds a B.S. degree in Electrical Engineering from the Miami University and an MBA from Universidad Catolica Madre y Maestra. Compensation of Executive Officers In 2006, the total amount of compensation paid to the members of our board of directors and our executive officers, including fringe benefits, was approximately US$1.7 million. For 2007, we expect that the total amount of compensation to be paid to our executive officers, including fringe benefits, will be approximately US$1.8 million. 80


Statutory Auditor Under EGE Haina's bylaws in accordance with Dominican Republic law, the holders of each class of common stock has the right to elect a statutory auditor (comisario) at EGE Haina's annual general meeting of shareholders and at least one statutory auditor must be named at such meeting. The statutory auditors are elected for one-year terms and are eligible for re-election. The statutory auditors must be public accountants. The primary role of the statutory auditor is to report to EGE Haina's stockholders at the annual general stockholders meeting regarding the accuracy of the financial information presented to the stockholders by EGE Haina's Board of Directors. In addition, the statutory auditor must present a report to EGE Haina's Board of Directors regarding the regularity of EGE Haina's operations at least every three months. On July 25, 2006, holders of EGE Haina's Class B common stock appointed Leo Hirschfield as statutory auditor and holders of EGE Haina's Class A common stock appointed Miguel Angel Sosa as statutory auditor. Management Agreement As part of the capitalization process, EGE Haina entered into a Management Agreement with HIC on October 28, 1999, which was amended on September 8, 2001. The Management Agreement expires in 2020. Under the Management Agreement, HIC's responsibilities for managing the day-to-day operations of EGE Haina are specified by EGE Haina's Board of Directors. The Management Agreement may be terminated if (a) the parties mutually agree to terminate the Management Agreement in accordance with Dominican law, (ii) HIC transfers EGE Haina's shares in accordance with EGE Haina's bylaws and Dominican law, or (iii) EGE Haina is dissolved. EGE Haina is required to pay HIC an annual management fee equal to 2.95% of its net sales. For the years ended December 31, 2006, 2005 and 2004, the management fees amounted to US$9.1 million, US$7.3 million and US$5.2 million, respectively. Employment Agreements On May 26, 2006, EGE Haina entered into an employment agreement with Pastor Sanjurjo under which Mr. Sanjurjo agreed to serve as EGE Haina's Chief Executive Officer for an indefinite period. Unless Mr. Sanjurjo's employment is terminated for causes set forth in the agreement, EGE Haina will be required to pay Mr. Sanjurjo the greater of (i) an amount equal to his annual base salary or (ii) an amount calculated pursuant to applicable Dominican law, upon EGE Haina's termination of his employment agreement. If Mr. Sanjurjo's employment is terminated after a change in the management of EGE Haina in which (1) the holders of EGE Haina's Class A common stock or their affiliates assume the management of EGE Haina, (2) the management of EGE Haina is assumed by a public institution, or (3) there is a material change in the composition of the holders of EGE Haina's Class B common stock, EGE Haina will be required to pay Mr. Sanjurjo an amount equal to his base salary for three years in addition to any other amounts owed to Mr. Sanjurjo by EGE Haina. EGE Haina has entered into employment agreements with each of its other senior officers under which they serve for indefinite periods. Each of these employment agreements provides for severance payments in varying amounts if the senior officer is terminated other than for breach of an exclusive employment clause. The employment agreements with Mr. Triulzi, Mr. Rodriguez and Ms. Pe多na also provide for additional severance payments in varying amounts in the event that there is a material change in the management of EGE Haina. Board of Directors and Management of Haina Finance Haina Finance's board of directors consists of three directors. Directors are elected by majority approval at the ordinary shareholders' meeting for one year or until such time as they are removed from office by an ordinary shareholders' resolution. The board of directors of Haina Finance consists of Pastor Sanjurjo, Alberto Triulzi and Nurys Pe多na, each of whom was appointed shortly after its incorporation. The directors' terms, the manner in which they are elected and other related issues are established in the articles of association of Haina Finance. The mailing address for communications to Haina Finance is c/o Appleby Trust (Cayman) Ltd., Clifton House, 75 Fort Street, George Town, Grand Cayman, Cayman Islands. 81


PRINCIPAL SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Principal Shareholders At April 10, 2007, EGE Haina had 22,975,500 outstanding shares of Class A common stock, par value US$6.29 per share, and 22,975,500 outstanding shares of Class B common stock, par value US$6.29 per share. At April 10, 2007, 22,972,500 shares of Class A common stock, or 49.994% of EGE Haina's outstanding common stock was owned by CDE and 22,975,500 shares of Class B common stock, or 50.00% of EGE Haina's outstanding common stock was owned by HIC. The remaining shares of Class A common stock are held by former employees of CDE that exercised options granted to them under the Reform Law. These shares will automatically be converted into shares of Class B common stock upon the sale of these shares. The holders of shares of Class A common stock are entitled to elect one member of EGE Haina's Board of Directors and the holders of shares of Class B common stock are entitled to elect four members of EGE Haina's board of directors. Each share of common stock confers upon the holder thereof the right to one vote at any shareholders' meeting. EGE Haina's principal shareholders have the same voting rights with respect to each class of its shares that they own as other holders of shares of that class. Shareholders of HIC At April 10, 2007, HIC had 144,500,000 outstanding shares of common stock. Each share of HIC common stock confers upon the holder thereof the right to one vote at any HIC shareholders meeting. The following chart sets forth information the proportional interest in HIC's common stock held directly and indirectly by the beneficial owners thereof as of April 10, 2007. Basic Energy

31.1%

Caribe Energy

34.6%

Carribean Energy

11.5%

CDEEE

49.994%

Astro

12.9%

HIC

50.0%

CBPF

9.9%

Others

*

EGE Haina

* Less than 0.1% HIC Shareholders Agreement On October 20, 1999, the direct and indirect shareholders of HIC entered into the HIC Shareholders Agreement. Under the HIC Shareholders Agreement, the following matters must be approved by the directors of HIC representing shareholders of HIC that hold at least 81% of HIC's shares: ‚ any proposal for EGE Haina to use experimental technology for its electric generation facilities or to consume an energy source other than (1) products classified as fuel oil No. 2 or fuel oil No. 6 by the American Society for Testing and Materials, (2) natural gas, (3) certain types of coal, (4) certain 82


pet coke blends and (5) certain mixtures of heavy crude oil, each of which, with the exception of certain types of coal, when burned result in emissions within applicable World Bank standards; ‚ any voluntary act of insolvency on the part of EGE Haina; and ‚ any merger, company reorganization, consolidation or similar action with respect to EGE Haina. Additionally, under the HIC Shareholders Agreement, the following matters must be approved by the directors of HIC representing shareholders of HIC that hold at least 70% of HIC's shares: ‚ any encumbrance, sale, lease or other disposition during any period of 12 months, of assets of EGE Haina having a book value on a cumulative aggregate basis during such period in excess of US$10,000,000; ‚ any financing, guaranty or credit arrangement, contingent or otherwise, that would either (1) cause the aggregate outstanding debt of Haina Group Holdings, Ltd., Dominican Holdings, Ltd., Haina Subscriber Holdings, Ltd., HIC and EGE Haina to exceed US$2,000,000, other than any such financing or other transaction involving, in a single transaction or series of related transactions, less than US$250,000 or (2) extend for a period in excess of one year from the date first incurred; ‚ any entry by EGE Haina into a related-party transaction; ‚ any entry into, amendment of, termination of, or waiver of any material provision of EGE Haina's bylaws, ‚ any entry into, amendment of, termination of, or waiver of any material provision of any agreement from time to time in effect which directly relates to the development, financing, engineering, procurement, construction, operation, maintenance, transition or permanent management, fuel supply, power sales and management for EGE Haina, or any material prepayment of any indebtedness incurred thereunder, other than any agreement to implement matters within an approved budget which involve less than US$250,000 and do not extend beyond 12 months; ‚ any decision requiring the unanimous vote of EGE Haina's Board of Directors pursuant to EGE Haina's bylaws; ‚ any increase or reduction (including any redemption of shares) in equity capital or any authorization or issuance by EGE Haina of equity, debt securities convertible into equity, warrants, subscription rights or similar instruments; ‚ any settlement of any claim on behalf of EGE Haina in excess of US$100,000, or requiring any admission of criminal liability; ‚ any appointment, compensation or discharge of (1) any employee of EGE Haina earning or potentially earning in excess of US$75,000 or (2) any senior officer of EGE Haina; ‚ any establishment of any bonus or other incentive scheme or retirement benefits scheme for any director or employee of EGE Haina; and ‚ the approval of budgets and periodic business plans for EGE Haina. Related Party Transactions The following summarizes the material transactions that EGE Haina has engaged in with its principal shareholders and their affiliates since January 1, 2004. EGE Haina has engaged in transactions with its principal shareholders and their affiliates and expects to do so in the future. EGE Haina has commercial relationships with CDE and some of its affiliates and, as a result, records trade accounts receivable and current and long-term liabilities from purchases and sales of capacity and energy at prices and on terms equivalent to the average terms and prices of transactions that were entered into with third parties. 83


Management Agreement In October 1999, EGE Haina entered into a Management Agreement with HIC under which EGE Haina is obligated to pay management fees to HIC. See ""Management Ì Management Agreement.'' For the years ended December 31, 2006, 2005 and 2004, the management fees amounted to US$9.1 million, US$7.3 million and US$5.2 million, respectively. EGE Haina and HIC agreed to extend the payment dates for these management fees in order to conserve EGE Haina's cash balances during periods in which collection of its accounts receivables was irregular. As of December 31, 2006, EGE Haina owed HIC US$14.0 million in management fees. This past due balance bears interest at the rate of 8.0% per annum. EGE Haina intends to use a portion of the proceeds of this offering to repay the amounts outstanding under the Management Agreement. Power Purchase Agreements EGE Haina is a party to PPAs with EDE-Norte and EDE-Sur, each of which is controlled by the CDEEE, under which EGE Haina sells capacity and energy to these distribution companies. See ""Business Ì Power Purchase Agreements.'' For the years ended December 31, 2006, 2005 and 2004, the aggregate purchase price of the capacity and energy that EGE Haina sold to these distribution companies was US$204.1 million, US$161.9 million and US$109.2 million, respectively. At December 31, 2006, EGE Haina had outstanding accounts receivable from these distribution companies in the aggregate amount of US$19.7 million. In addition, on March 1, 2006, EGE Haina entered into an agreement in Term Sheet form with its affiliate CEPM setting forth the principal terms of a PPA to be entered into between EGE Haina and CEPM following the completion of a 120 km transmission line at 138kV that CEPM is constructing to connect its distribution system with the Sultana del Este plant. See ""Business Ì Power Purchase Agreements.'' Transmission Tolls and Purchased Power The transmission grid of the SENI is owned and operated by ETED, which is wholly owned by an affiliate of CDEEE. EGE Haina collects transmission tolls for ETED from its customers and remits these amounts to ETED. See ""The Electrical Industry in the Dominican Republic Ì Organization of the Electricity Sector Ì Transmission.'' For the years ended December 31, 2006, 2005 and 2004, the aggregate transmission tolls accrued by EGE Haina were US$17.6 million, US$11.3 million and US$10.6 million, respectively. CDEEE is the principal supplier of power for the spot market. See ""The Electrical Industry in the Dominican Republic Ì Organization of the Electricity Sector Ì Transmission.'' For the years ended December 31, 2006, 2005 and 2004, the aggregate amount of capacity and energy purchased by EGE Haina from CDEEE was US$32.1 million, US$25.8 million and US$27.5 million, respectively. At December 31, 2006, EGE Haina had outstanding accounts payable to CDEEE and ETED in the amount of US$20.4 million. Setoff Agreements EGE Haina has entered several agreements with the CDE under which EGE Haina has set off accounts payable to the CDE and its affiliates against accounts receivable from the CDE and its affiliates and under which the CDE and its affiliates have assumed accounts payable of EGE Haina to other participants in the electricity sector in consideration for accounts receivable owed to EGE Haina by the CDE and its affiliates, as detailed below: On July 6, 2004, the CDEEE offset accounts payable that EGE Haina maintained with the CDEEE in the amount of US$40.9 million as consideration for the reduction of EGE Haina's accounts receivable from EDE-Norte and EDE-Sur by US$40.9 million. 84


On March 15, 2005, CDEEE assumed accounts payable that EGE Haina maintained with other power generators in the amount of US$6.5 million as consideration for the increase of EGE Haina's account payable to the CDEEE by US$6.5 million. On March 15, 2005, the CDEEE assumed accounts payable that EGE Haina maintained with the CDEEE in the amount of US$22.1 million as consideration for the reduction of EGE Haina's accounts receivable from EDE-Norte and EDE-Sur by US$8.8 million and US$13.4 million, respectively. On February 10, 2006, the CDEEE assumed accounts payable that EGE Haina maintained with the CDEEE in the amount of US$16.9 million as consideration for the reduction of EGE Haina's accounts receivable from EDE-Norte and EDE-Sur by US$8.8 million and US$8.1 million, respectively. On February 24, 2006, the CDEEE assumed accounts payable that EGE Haina maintained with the CDEEE in the amount of US$5.5 million as consideration for the assignment by EGE Haina to the CDEEE of accounts receivable from EDE-Este in the amount of US$5.5 million. On November 3, 2006, the CDEEE offset accounts payable that EGE Haina maintained with the CDEEE in the amount of US$18.0 million as consideration for the reduction of EGE Haina's accounts receivable from EDE-Norte and EDE-Sur by US$8.3 million and US$8.3 million, respectively, and the assignment by EGE Haina to the CDEEE of accounts receivable from EDE-Este in the amount of US$1.4 million. In January 2007, the CDEEE assumed accounts payable that EGE Haina maintained with the CDEEE in the amount of US$15.4 million as consideration for the reduction of EGE Haina's accounts receivable from EDE-Norte and EDE-Sur by US$10.8 million and US$4.6 million, respectively. Sector Agreements In March 2005 and February 2006, EGE Haina entered into sector agreements with the Ministry of Finance, the CNE, the CDEEE, EDE-Este, EDE-Norte, EDE-Sur and other participants in the electricity sector. See ""The Electrical Industry in the Dominican Republic ĂŒ Economic Crisis and Its Impact on the Electricity Sector ĂŒ Electricity Sector Agreements.''

85


DESCRIPTION OF THE TRANSACTION DOCUMENTS The following summaries of certain provisions of the Indenture, the Notes, the Security Documents, the Loan Agreement and the Participation Agreement (together, the ""Transaction Documents'') do not purport to be complete and are qualified in their entirety by reference to the provisions of the applicable Transaction Documents. The Noteholders will be entitled to the benefits of, be bound by and be deemed to have notice of all of the provisions of the Indenture. Copies of the Indenture will be on file with the Trustee and the Initial Purchasers and may be inspected by prospective investors at the corporate trust office of the Trustee at 60 Wall Street, 27th Floor, New York, New York 10005, United States, Attn: Trust and Securities Services and at the offices of Barclays Capital at 200 Park Avenue or Deutsche Bank Securities Inc. at 60 Wall Street, 5th Floor, in New York, New York, United States. Certain terms used in this description are defined below under ""Ì Certain Defined Terms.'' The Notes and the Indenture Each of the Notes offered hereby and issued pursuant to the Indenture will represent the right of the applicable Noteholder to receive: (1) interest on such Note, payable semi-annually on each April 26 and October 26 (each, a ""Payment Date'') commencing on October 26, 2007, at the interest rate, (2) payment of the principal on the Notes at the Maturity Date, and (3) any Additional Amounts (as defined below) on any of the foregoing, in each case in U.S. dollars. The Notes constitute senior, unconditional and unsubordinated obligations of Haina Finance. The final payment of principal, interest and Additional Amounts (if any) is expected to be made on the Notes on the Maturity Date. The Notes will not be redeemable prior to the Maturity Date except as otherwise provided herein. Guaranty Through its execution and delivery of the Indenture, EGE Haina will unconditionally and irrevocably guarantee the due and punctual payment of the principal of, interest on, any Additional Amounts and all other amounts in respect of the Notes (the ""Guaranty''). The obligations of EGE Haina under the Guaranty will rank pari passu in right of payment with all other unsecured and senior obligations of EGE Haina, other than obligations granted preferential treatment pursuant to the laws of the Dominican Republic, such as social security and other labor obligations. Security On the Closing Date, the Notes will be secured by a first priority security interest on (i) 100% of the outstanding Capital Stock of Haina Finance, (ii) all right, title and interest in the Participation Agreement and (iii) all cash and Temporary Cash Investments on deposit in the Interest Reserve Account (as defined below), pursuant to the Pledge Agreement and the Control Agreement. Interest Reserve Account On or prior to the Closing Date, as security for the Notes, Haina Finance will establish a U.S. dollar denominated account (the ""Interest Reserve Account'') with the Trustee in the State of New York and will Fully Fund (as defined below) the Interest Reserve (as defined below) on the Closing Date by either: (1) delivering to the Trustee one or more direct-pay irrevocable 180-day or 364-day letters of credit in favor of the Trustee from a bank (the ""L/C Bank'') rated ""A¿'' or higher by S&P or ""A¿'' or higher by Fitch or a comparable rating by a comparable institution (each, a ""Letter of Credit''), in an amount 86


sufficient, when combined with any amounts credited to or deposits made into the Interest Reserve Account as described below, to Fully Fund the Interest Reserve; and/or (2) depositing into the Interest Reserve Account cash (and/or Temporary Cash Investments in the name of the Trustee, if necessary, maturing on or before the next succeeding interest payment date under the Notes) in an amount, when combined with any Letters of Credit delivered as provided above, sufficient to Fully Fund the Interest Reserve. The amount of funds available for drawing under the Letters of Credit, if any, and/or the cash or Temporary Cash Investments, if any, in the Interest Reserve Account constitute the ""Interest Reserve.'' The Interest Reserve will be deemed to be ""Fully Funded'' so long as, at any time, the funds on deposit therein (including the funds available for drawing under the Letters of Credit and the aggregate principal outstanding of the Temporary Cash Investments) are in an amount sufficient to provide for the payment in full of the next succeeding scheduled interest payment on the Notes. The term ""Fully Fund'' when used as a verb has a correlative meaning. At least two Business Days prior to any interest payment date under the Notes, Haina Finance may either: (1) deposit with the Trustee from funds otherwise available to Haina Finance cash sufficient to pay the interest scheduled to be paid on such date; or (2) direct the Trustee to draw on any Letter of Credit or release from the Interest Reserve Account an amount sufficient to pay the interest scheduled to be paid on such date. Additional Amounts All payments to be made by Haina Finance in respect of the Notes or EGE Haina in respect of the Guaranty and the Loan Agreement will be made free and clear of, and without deduction or withholding for or on account of, any present or future taxes, duties, assessments, fees or other governmental charges of whatever nature (and any fines, penalties or interest related thereto) (""Taxes'') imposed or levied by or on behalf of the Cayman Islands, the Dominican Republic, the United Kingdom or any jurisdiction from which payment is made or any political subdivision or authority thereof or therein having power to tax, except to the extent such Taxes are imposed by applicable law. In the event that such withholding or deduction is required by applicable law, Haina Finance or EGE Haina, as applicable, will make such deduction or withholding, timely make payment of the amount so withheld to the appropriate governmental authority, and pay such additional amounts to or for the benefit of the Noteholders (""Additional Amounts'') as may be necessary in order that every net payment made by Haina Finance or EGE Haina, as applicable, on each Note or in respect of the Guaranty or the Loan Agreement, after such withholding or deduction for or on account of such Taxes, is an amount equal to the amount that would have been received by the applicable recipient in respect of such payment had no such Taxes (including Taxes payable in respect of such Additional Amounts) been required to be so deducted or withheld. Furthermore, the amount of any Taxes required to be withheld or deducted from any payment made in respect of the Notes or otherwise under the Indenture, the Guarantee or the Loan Agreement will be withheld or deducted from such payment (as increased by any Additional Amounts) and paid to the taxing authority imposing such Taxes in accordance with Applicable Law. Notwithstanding the preceding sentences, no such Additional Amounts will be payable in respect of: (1) any Tax assessed or imposed by any taxing authority to the extent that such Tax would not have been assessed or imposed but for the applicable recipient or beneficial owner (or fiduciary, settlor, beneficiary, member, interestholder, or shareholder of such recipient or beneficial owner, if such recipient or beneficial owner is an estate, a trust, a partnership, a limited liability company or a corporation) of such payment having a present or former connection with the Cayman Islands, the Dominican Republic or the United Kingdom (including, without limitation, such recipient or beneficial owner (or fiduciary, settlor, beneficiary, member, interestholder, or shareholder of such recipient or beneficial owner, if such recipient or beneficial owner is an estate, a trust, a partnership, a limited liability company or a corporation) being or having been a citizen or resident thereof or having been engaged in a 87


trade or business or present therein or having, or having had, a permanent establishment therein), other than the mere receipt of such payment or the ownership, holding of such Note or Guaranty or the enforcement of rights with respect thereto; (2) any tax, assessment or other governmental charge which would not have been so imposed but for the presentation (where presentation is required) by such Noteholder for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later; (3) any estate, inheritance, gift, personal property, sales, use, transfer or other similar Tax; (4) any such Taxes that would not have been imposed but for the failure of the applicable recipient or beneficial owner of such payment to comply with any certification, identification, information, documentation or other reporting requirement to the extent (a) such compliance is required or imposed by applicable law or an applicable treaty as a precondition to exemption from, or reduction in the rate of deduction or withholding of, such Taxes that the applicable recipient or beneficial holder is eligible for the benefits of, (b) at least 30 days before the first Payment Date with respect to which the obligor with respect to a payment will apply this clause (4), such obligor will have notified such recipient in writing that such recipient will be required to comply with such requirement, and (c) such requirement is not materially more onerous (in form, in procedure or in the substance of information disclosed) than comparable information or other reporting requirements imposed under U.S. federal law, regulation and administrative practice (such as U.S. Internal Revenue Service Forms W-8BEN and W-9); (5) any Tax imposed on a payment on the Notes required to be made pursuant to Council Directive 2003/48/EC of the Council of the European Union on the taxation of savings income in the form of interest payments (or any European Union Directive otherwise implementing the conclusions of the ECOFIN Council Meeting of 26 and 27 November 2000) or any law implementing or complying with, or introduced in order to conform to, any such Directive, provided that a paying agent is maintained in a jurisdiction where no such European Union withholding is required; (6) any Tax imposed on overall net income and any branch profits tax; (7) any Tax required to be deducted or withheld by any paying agent from a payment on a Note, if such payment can be made without deduction or withholding by any other paying agent; or (8) any combination of the circumstances described in clauses (1) through (7), nor will any Additional Amounts be paid with respect to any payment to a recipient who is a fiduciary or partnership or other than the sole beneficial owner of such payment to the extent that such payment would be required to be included in the income, for tax purposes, of a beneficiary or settlor with respect to such fiduciary or a member of such partnership or a beneficial owner who would not have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner been in the place of such recipient. EGE Haina will also timely pay any present or future stamp, recording, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise in any jurisdiction from the execution, delivery, registration or the making of payments in respect of the Notes or the Loan Agreement, excluding any such taxes, charges or similar levies imposed by any jurisdiction outside of the Cayman Islands other than those resulting from, or required to be paid in connection with, the enforcement of the bonds following the occurrence of any Default or Event of Default. Any reference to ""principal'' and/or ""interest'' herein shall be deemed to include any Additional Amounts which may be payable hereunder. The obligation to pay Additional Amounts will survive the repayment of the Notes and the sale or transfer of the Notes (or beneficial interests therein) by any Noteholder. Haina Finance or EGE Haina, as applicable, will provide the Trustee with the official acknowledgment of the relevant taxing authority (or, if such acknowledgment is not available, a certified copy thereof) 88


evidencing any payment of Cayman Islands, Dominican or United Kingdom taxes in respect of which Haina Finance or EGE Haina, as applicable, has paid any Additional Amounts. Copies of such documentation will be made available to the applicable recipients, upon written request therefor to the Trustee. Optional Redemption Prior to April 26, 2012, Haina Finance may redeem the Notes in whole (but not in part) at any time, at its option, at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes to be redeemed, and (2) the sum of the present values of each remaining scheduled payment of principal and interest and Additional Amounts (if any) on the Notes to be redeemed discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus 75 basis points, in each case plus accrued and unpaid interest on the principal amount of the Notes being redeemed to the redemption date; provided that concurrently with such redemption, EGE Haina may prepay in full any other outstanding Senior Indebtedness. Notice of such redemption to each holder of Notes must be mailed and published in accordance with the provisions set out under ""ĂŒ Notices,'' not less than 30 days nor more than 60 days prior to the redemption date. For this purpose: ""Treasury Rate'' means, with respect to the redemption date, (1) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated ""H.15(519)'' or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under ""Treasury Constant Maturities,'' for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Remaining Life, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue will be determined and the Treasury Rate will be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the redemption date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield-to-maturity or interpolated maturity (on a day count basis) of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price on the redemption date. The Treasury Rate will be calculated on the third Business Day preceding the redemption date. ""Comparable Treasury Issue'' means the United States Treasury security selected by an independent investment banking institution of international standing appointed by Haina Finance as having an actual or interpolated maturity comparable to the remaining term (""Remaining Life'') of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. ""Comparable Treasury Price'' means, with respect to the redemption date, (1) the average of five Reference Treasury Dealer Quotations for the redemption date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (2) if the Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the average of all such quotations. ""Reference Treasury Dealer'' means a primary U.S. government securities dealer in New York City, New York designated by Haina Finance. ""Reference Treasury Dealer Quotations'' means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City, New York, time on the third Business Day preceding such redemption date. 89


The Notes will be subject to redemption at the option of Haina Finance, in whole or in part, during the 12-month periods beginning on April 26 of the years indicated below upon not less than 30 and not more than 60 days' notice given as provided herein under ""Ì Notices'' for a redemption price (expressed as percentages of principal amount) set forth below plus accrued but unpaid interest, if any, to the applicable redemption date and any Additional Amounts in respect thereto. Year

2012 2013 2014 2015

Percentage

ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ and thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

104.750% 103.167% 101.583% 100%

If Haina Finance redeems the Notes in part, the Trustee will select the Notes for redemption on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion deems fair and appropriate. Haina Finance will only redeem Notes in multiples of US$1,000 in original principal amount. If any Note is to be redeemed in part only, the notice of redemption will state the portion of the principal amount to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued upon the cancellation of the original Note. On the redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption. Optional Tax Redemption The Notes may be redeemed at the option of Haina Finance, in whole, but not in part, on any date prior to the Maturity Date, by the giving of notice as provided herein under ""Ì Notices,'' at a redemption price equal to 100% of the outstanding principal amount thereof, together with any Additional Amounts and accrued and unpaid interest to the redemption date, if (1) as a result of any change in, or amendment to, laws (or any regulation or rulings promulgated thereunder) of the Dominican Republic, the Cayman Islands or the United Kingdom, or any political subdivision or taxing authority thereof or therein or any change in the official application, administration or interpretation of such laws, regulations or rulings in such jurisdictions, (a) Haina Finance or any successor is or will become obligated to pay Additional Amounts on the Notes, (b) EGE Haina or any successor is or will become obligated to pay any Additional Amounts on the Guarantees or the Notes, (c) Barclays Bank PLC or any successor is or will become obligated to make any withholding or deduction for or on account of any present or future Taxes on payments under the Participation Agreement, or (d) EGE Haina or any successor is or will become obligated to pay Additional Amounts on the Loan Agreement at a rate of withholding or deduction in excess of 10%, (2) such change or amendment is announced on or after the Closing Date, and (3) such obligation cannot be avoided by taking commercially reasonable measures available to Haina Finance, EGE Haina or their respective successors; provided, however, that for this purpose commercially reasonable measures will not include any change in Haina Finance's, EGE Haina's or any of their respective successor's jurisdiction of incorporation or organization or the location of its principal executive office or registered office. No such notice of redemption will be given earlier than 60 days prior to the earliest date on which Haina Finance, EGE Haina, Barclays Bank PLC or any of their respective successors would be obligated to pay any amounts described under clauses (1)(a),(b),(c) or (d) above. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of the Notes to be redeemed. Prior to the giving of notice of redemption of such Notes pursuant to the Indenture, Haina Finance or any successor will deliver to the Trustee an Officer's Certificate and a written opinion of recognized Dominican, Cayman Islands or United Kingdom counsel independent of the Issuer and its Affiliates to the effect that all governmental approvals necessary for it to effect such redemption have been or at the time of redemption will be obtained and in full force and effect, and that Haina Finance is entitled to effect such a redemption pursuant to the Indenture, and setting forth, in reasonable detail, the circumstances giving rise to such right of redemption. The Trustee will accept this Officer's Certificate and opinion as sufficient evidence of the satisfaction of the conditions precedent set forth 90


in clauses (1), (2) and (3) above, in which event it will be conclusive and binding on the Noteholders. On the redemption date, interest will cease to accrue on the Notes that have been redeemed. Covenants of Haina Finance Haina Finance is a newly formed entity incorporated solely to issue the Notes and will not engage in any business activity other than complying with its obligations under the Transaction Documents. Pursuant to the Indenture, Haina Finance will agree to certain negative covenants relating to the conduct of its business, including agreements not to: (1) Incur Indebtedness (including any contingent obligations) or any other obligations or liabilities other than the Notes and any other obligations under or contemplated by the Indenture or the other Transaction Documents; (2) create or suffer to exist any Liens on any of its properties, except as specifically contemplated by the Transaction Documents; (3) sell, assign, lease, transfer or otherwise dispose of any interest in its properties, except as permitted by the Indenture; (4) create or acquire any Subsidiaries or make any Investment other than: (a) under the Participation Agreement, and (b) as specifically contemplated by the Indenture; (5) pay any dividends or make any other distribution to its member(s) or shareholders; (6) change its jurisdiction of organization, consolidate or merge with or into any other Person or sell, lease or otherwise transfer, directly or indirectly, all or any part of its properties to any other Person, in each case, other than with and into EGE Haina in a transaction permitted by the covenant described under ""ĂŒ Consolidation, Merger, Conveyance, Sale or Lease''; or (7) engage in any business activity other than as expressly permitted under the Transaction Documents. Covenants of EGE Haina Pursuant to the Indenture, EGE Haina will agree to certain restrictive covenants. Limitation on Indebtedness (1) EGE Haina will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that EGE Haina or any Restricted Subsidiary may Incur Indebtedness if (i) on the date of such Incurrence and after giving effect thereto and the application of proceeds therefrom, the Consolidated Interest Coverage Ratio would be no less than 2.5:1.0 and the Consolidated Net Debt to Consolidated EBITDA Ratio would be no greater than 3.5:1.0, (ii) no Default or Event of Default will have occurred and be continuing and (iii) the Interest Reserve is Fully Funded; and (2) Notwithstanding the foregoing clause (1), EGE Haina and its Restricted Subsidiaries may Incur the following Indebtedness: (a) Indebtedness of EGE Haina owed to and held by any Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by EGE Haina or any other Restricted Subsidiary; provided, however, that (i) any subsequent issuance or transfer of any Capital Stock of a Restricted Subsidiary or any other event that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary will be deemed to constitute the Incurrence of any Indebtedness owed to and held by that Restricted Subsidiary; 91


(ii) any subsequent transfer of any such Indebtedness (except to EGE Haina or a Restricted Subsidiary) will be deemed to constitute the Incurrence of such Indebtedness by Haina Finance thereof; and (iii) if EGE Haina is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the Loan Agreement and the Guarantee; (b) Indebtedness: (i) outstanding on the Closing Date; (ii) represented by the Indenture, the Notes, the Loan Agreement, or the Guaranty; or (iii) consisting of Guarantees of any Indebtedness permitted under subclause (a) or (b) of this clause (2); (c) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to the date on which such Restricted Subsidiary became a Subsidiary of, or was otherwise acquired by, EGE Haina or a Restricted Subsidiary (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, or otherwise in contemplation of, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Subsidiary of, or was otherwise acquired by, EGE Haina or a Restricted Subsidiary); provided, however, that on the date that such transaction is consummated, either (x) EGE Haina would have been able to Incur $1.00 of additional Indebtedness pursuant to clause (1) after giving pro forma effect to the Incurrence of such Indebtedness pursuant to this subclause (c) and the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Subsidiary of, or was otherwise acquired by, EGE Haina or a Restricted Subsidiary, or (y) the Consolidated Interest Coverage Ratio would be no less than the Consolidated Interest Coverage Ratio immediately prior to such transactions, and the Consolidated Net Debt to Consolidated EBITDA Ratio would be no greater than the Consolidated Net Debt to Consolidated EBITDA Ratio immediately prior to such transactions; (d) Indebtedness of another Person Incurred and outstanding on or prior to the date on which such Person merges with or into or consolidates with EGE Haina or a Restricted Subsidiary (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, or otherwise in contemplation of, the transaction or series of related transactions pursuant to which such Person merges with or into or consolidates with EGE Haina or a Restricted Subsidiary); provided, however, that on the date that such transaction is consummated, either (x) EGE Haina would have been able to Incur $1.00 of additional Indebtedness pursuant to clause (1) after giving pro forma effect to the Incurrence of such Indebtedness pursuant to this subclause (d) and such merger or consolidation, or (y) the Consolidated Interest Coverage Ratio would be no less than the Consolidated Interest Coverage Ratio immediately prior to such transactions, and the Consolidated Net Debt to Consolidated EBITDA Ratio would be no greater than the Consolidated Net Debt to Consolidated EBITDA Ratio immediately prior to such transactions; (e) Purchase Money Indebtedness in an aggregate principal amount not to exceed US$20 million at any time outstanding; (f) Indebtedness of EGE Haina as a result of (i) any Letter of Credit issued by a bank in favor of the Trustee in connection with Fully Funding the Interest Reserve and (ii) any Guarantee of any such Letter of Credit by any Restricted Subsidiary; (g) any Guarantee by EGE Haina or a Restricted Subsidiary of Indebtedness of EGE Haina or any Restricted Subsidiary so long as the Incurrence of such Indebtedness is permitted under the terms of the Indenture; 92


(h) Obligations in respect of bankers' acceptances, deposits, promissory notes, workers' compensation claims, self-insurance obligations, letters of credit and performance, surety, appeal or similar bonds and Guarantees provided by EGE Haina or any Restricted Subsidiary in the ordinary course of business; (i) Agreements providing for indemnification, adjustment of purchase price or similar obligations, in each case Incurred or assumed in connection with the disposition of a business, assets or Capital Stock of a Restricted Subsidiary; provided that, in the case of a disposition, the maximum aggregate liability in respect of such Indebtedness will at no time exceed the gross proceeds actually received by EGE Haina or any Restricted Subsidiary in connection with such disposition; (j) Hedging Obligations of EGE Haina or any Restricted Subsidiary for the purpose of fixing or hedging interest rate risk or currency fluctuations in the ordinary course of business or with respect to Indebtedness permitted to be Incurred by EGE Haina or any Restricted Subsidiary pursuant to the Indenture; provided, however, that no Hedging Obligation will increase the Indebtedness of EGE Haina and the Restricted Subsidiaries outstanding at any time other than as a result of fluctuations in foreign currency, exchange rates or interest rates; (k) Refinancing Indebtedness; (l) Indebtedness in addition to the foregoing in an aggregate principal amount not to exceed US$25 million; and (m) Indebtedness Incurred to defease the Notes as provided in ""ĂŒ Defeasance'' to the extent the proceeds therefrom are applied concurrently to defease the Notes. For purposes of determining the compliance with this covenant: (x) Indebtedness permitted by this covenant (including clause (1) above), need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this covenant permitting such Indebtedness; and (y) In the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in this covenant (including clause (1) above), EGE Haina, in its sole discretion, will classify (and from time to time may reclassify) such item of Indebtedness, in any manner that complies with this covenant. For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a currency other than U.S. dollars will be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of Indebtedness under a Revolving Credit Facility; provided that if such Indebtedness is Incurred to Refinance other Indebtedness denominated in a currency other than U.S. dollars, and such Refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such Refinancing, such U.S. dollar-denominated restriction will be deemed not to have been exceeded so long as the principal amount of such Refinancing Indebtedness does not exceed the principal amount of such Indebtedness being Refinanced. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that EGE Haina or any Restricted Subsidiary may Incur pursuant to this covenant will not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies. The principal amount of any Refinancing Indebtedness and the Indebtedness being refinanced, if denominated in different currencies, will be calculated based on U.S. dollar currency exchange rate applicable to the currencies in which such Indebtedness and Refinancing Indebtedness is denominated that is in effect on the date of such Refinancing. Accrual of interest, accretion or amortization of original issue discount will not be deemed to be an Incurrence of Indebtedness for purposes of the ""ĂŒ Limitation on Indebtedness'' covenant. Limitation on Liens EGE Haina will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness secured, directly or indirectly, by a Lien on any property, assets, income or profits of EGE Haina or any Restricted 93


Subsidiary without effectively providing that the Loan Agreement or the Notes, as applicable, (together with, if EGE Haina so determines, any other Indebtedness or obligation then existing or thereafter created ranking equally with the Notes or the Loan Agreement, as applicable) will be secured equally and ratably with (or prior to) such Indebtedness so long as such Indebtedness will be so secured, except that the foregoing provisions will not apply to: (1) Liens in existence on the Closing Date; (2) Liens that secure only Indebtedness owing by a Restricted Subsidiary to EGE Haina and/or one or more Restricted Subsidiaries or by EGE Haina to one or more Restricted Subsidiaries; (3) (a) any Liens on any property or assets of any Person that is merged with or into or consolidates with EGE Haina or any Restricted Subsidiary as permitted hereunder, or (b) any Liens on the property, capital stock, assets, income or profits of any Person, existing at the time such Person becomes a Restricted Subsidiary, and, in either such case, is not created as a result of or in connection with or in anticipation of any such transaction (unless such Lien was created to secure or provide for the payment of any part of the purchase price of such Person or was created in contemplation of such Person being merged with or into, or such Person becoming a Restricted Subsidiary of, either EGE Haina or any Restricted Subsidiary); provided, however, that such Liens may not extend to any other property, assets, income or profits of EGE Haina or any Restricted Subsidiary; (4) any Lien on any property or assets existing at the time of acquisition thereof and that is not created as a result of or in connection with or in anticipation of such acquisition (unless such Lien was created to secure or provide for the payment of any part of the purchase price of such property or assets); provided, however, that such Liens may not extend to any other property, assets, income or profits of EGE Haina or any Restricted Subsidiary; (5) any Lien on the Capital Stock of an Unrestricted Subsidiary; (6) Liens (including extensions and renewals) with respect to Indebtedness Incurred to finance the acquisition of real or personal property including capital stock acquired after the Closing Date; provided, however, that (a) such Lien is created solely for the purpose of securing the payment of Indebtedness Incurred pursuant to the covenant described under ""ĂŒ Limitation on Indebtedness'' to finance the cost (including the cost, other than internal costs of EGE Haina or any of its Subsidiaries, of design, development, acquisition, construction, installation, improvement, transportation or integration) of acquiring the item of property subject thereto, and such Lien is created prior to, at the time of or within 180 days after the later of the acquisition, the completion of construction or the commencement of the full operation of such property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of the cost (including the cost, other than internal costs of EGE Haina or any of its Subsidiaries, of design, development, acquisition, construction, installation, improvement, transportation or integration) of such property or assets, and (c) such Lien will not extend to cover any property, assets, income or profits of EGE Haina or any Restricted Subsidiary other than such items of property and any improvements on such items; (7) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens and other similar Liens, on the property or assets of EGE Haina or any Restricted Subsidiary arising in the ordinary course of business and securing payment of obligations that are not more than 60 days past-due or are being contested in good faith by appropriate proceedings; (8) any interest or title of a lessor under any Capitalized Lease Obligation; provided, however, that the Indebtedness is related to a Capitalized Lease Obligation that is permitted under ""ĂŒ Limitation on Indebtedness''; (9) Liens in addition to the foregoing that secure Indebtedness in an aggregate principal amount not in excess of US$20 million at any one time outstanding; (10) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses (1) through (9) or of any Indebtedness 94


secured thereby; provided that the principal amount of Indebtedness so secured thereby will not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement (plus accrued and unpaid interest and reasonable fees and expenses incurred in connection therewith), and that such extension, renewal or replacement Lien will be limited to all or part of the property that secured the Lien extended, renewed or replaced (plus improvements on or additions to such property); or (11) Liens on Indebtedness Incurred to Defease the Notes as permitted under ""ĂŒ Defeasance'' to the extent the proceeds therefrom are applied concurrently to defease the Notes. Liens or deposits required by any contract or statute or other regulatory requirements in order to permit EGE Haina or a Restricted Subsidiary to perform any contract or subcontract made by it with or at the request of a governmental entity or any department, agency or instrumentality thereof, or to secure partial progress, advance or any other payments to EGE Haina or any Restricted Subsidiary by a governmental entity or any department, agency or instrumentality thereof pursuant to the provisions of any contract or statute will not be deemed an Incurrence of or create Indebtedness secured by Liens. Restricted Payments (1) EGE Haina will not, and will not permit any Restricted Subsidiary, directly or indirectly, to: (a) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving EGE Haina or any Restricted Subsidiary) or similar payment to the direct or indirect holders of its Capital Stock, except for (i) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock or Preferred Stock), and (ii) dividends or distributions payable to EGE Haina or another Restricted Subsidiary (and, if such Restricted Subsidiary has shareholders other than EGE Haina or other Restricted Subsidiaries, to its other shareholders on a pro rata basis); (b) purchase, redeem, retire or otherwise acquire for value any Capital Stock of EGE Haina held by Persons other than EGE Haina or a Restricted Subsidiary (other than a purchase, redemption, retirement or other acquisition for value that would constitute a Permitted Investment); (c) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase, redemption, defeasance or other acquisition of Subordinated Obligations (x) purchased in anticipation of satisfying a sinking fund obligation, principal installment or a final maturity, in each case, due within one year of the date of such purchase, repurchase, redemption, defeasance or other acquisition or (y) owing to or held by EGE Haina or a Restricted Subsidiary); or (d) make any Investment (other than a Permitted Investment) in any Person; (the actions described in subclauses (a) through (d) above being herein referred to as ""Restricted Payments''), if at the time EGE Haina or such Restricted Subsidiary makes such Restricted Payment: (i) a Default or Event of Default has occurred and is continuing or would occur as a result thereof; (ii) EGE Haina could not Incur at least US$1.00 of additional Indebtedness under clause (1) of the covenant described under ""ĂŒ Limitation on Indebtedness'' after giving effect to the Restricted Payment; or (iii) the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors of EGE Haina or applicable Restricted Subsidiary, whose determination will be conclusive and evidenced by a resolution of the Board of Directors of EGE Haina or applicable Restricted Subsidiary) declared or made subsequent to the Closing Date would exceed the sum of, without duplication: (A) 100% of Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the first fiscal quarter following the Closing Date to the end of the 95


most recent fiscal quarter for which financial statements of EGE Haina have been delivered to the Trustee under the Indenture prior to the date of such Restricted Payment (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit); plus (B) the aggregate of the Net Cash Proceeds and the Fair Market Value of any property received by EGE Haina from the issue or sale of its Capital Stock (other than Disqualified Stock) or from any other capital contribution subsequent to the Closing Date (other than Net Cash Proceeds received from an issuance or sale of such Capital Stock to a Restricted Subsidiary); plus (C) (1) the amount of the Indebtedness Guaranteed by any Guarantee of EGE Haina or any Restricted Subsidiary upon the release of EGE Haina or such Restricted Subsidiary from such Guarantee if the Incurrence of such Guarantee was previously treated as a Restricted Payment; and (2) in the event that EGE Haina or any Restricted Subsidiary makes an Investment in a Person that, as a result of or in connection with such Investment, becomes a Restricted Subsidiary, an amount equal to EGE Haina's or such Restricted Subsidiary's Investment in such Person prior to such event; provided that any amount added pursuant to clauses (1) and (2) of this clause (C) will not exceed the amount treated as a Restricted Payment when such Indebtedness is Guaranteed or such Investment was made less the amount previously added with respect thereto pursuant to this clause (C); provided, however, that no amount will be included under this clause (C) to the extent that it is already included in Consolidated Net Income; plus (D) the amount by which Indebtedness of EGE Haina or any Restricted Subsidiary is reduced on the Consolidated balance sheet of EGE Haina upon the conversion or exchange subsequent to the Closing Date of any such Indebtedness (other than Subordinated Obligations) for Capital Stock (other than Disqualified Stock) of EGE Haina less the amount of any cash or the Fair Market Value of other property distributed by EGE Haina or any Restricted Subsidiary upon such conversion or exchange; plus (E) the amount equal to the net reduction of Investments (other than Permitted Investments) made by EGE Haina or any Restricted Subsidiary in any Person resulting from (I) repurchases or redemptions of such Investment by such Person, (II) proceeds realized upon the sale of such Investment, (III) repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to EGE Haina or any Restricted Subsidiary, or (IV) the Revocation of the Designation of a Subsidiary as an Unrestricted Subsidiary or the merger or consolidation of an Unrestricted Subsidiary into EGE Haina or a Restricted Subsidiary); provided, however, that no amount will be included under this clause (E) to the extent that it is already included in Consolidated Net Income; less (F) in the event that there is a Revocation of the Designation of any Subsidiary of EGE Haina as an Unrestricted Subsidiary, an amount (if positive) equal to (I) the amount of EGE Haina's Investment in such Subsidiary at the time of such Revocation less (II) an amount equal to the portion of the Fair Market Value of the net assets of such Subsidiary at the time of such Revocation that is proportionate to EGE Haina's direct and indirect equity interest in such Subsidiary at the time of such Revocation. (2) The provisions of the foregoing clause (1) will not prohibit: (a) any purchase, repurchase, retirement, defeasance or other acquisition or retirement for value of Capital Stock of EGE Haina or Subordinated Obligations made in exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of EGE Haina (other than Disqualified Stock or Capital Stock issued or sold to a Subsidiary of EGE Haina or an employee stock ownership plan or other trust established by EGE Haina or any of its Subsidiaries); (b) (I) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made in exchange for, or out of the proceeds of the substantially 96


concurrent sale of, Indebtedness that is permitted to be Incurred pursuant to clause (2) of the covenant described under ""ĂŒ Limitation on Indebtedness''; provided, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments pursuant to clause (1)(c) above; and (II) any purchase, repurchase, redemption or other acquisition or retirement for value of Disqualified Stock made in exchange for, or out of the proceeds of the substantially concurrent sale of Disqualified Stock; provided, however, that such purchase, repurchase, redemption or other acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments pursuant to clause (1)(c) above; (c) dividends paid in accordance with applicable law after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that the payment or declaration, but not both the payment and the declaration, of such dividend will be included in the calculation of the amount of Restricted Payments pursuant to clause (1)(a) above; (d) the payment of any Minimum Legally Required Dividends by EGE Haina or its Restricted Subsidiaries; (e) any Investment of cash and cash equivalents in a Project Finance Subsidiary, or any successor thereto; provided that such Investment does not exceed 50% of the Total Capitalization of such Project Finance Subsidiary at the Financial Close; provided further, that all such Investments will not exceed the greater of (x) US$25 million and (y) 5% of EGE Haina's total assets as reflected on EGE Haina's Consolidated balance sheet as of the end of the most recent fiscal quarter for which financial statements have been delivered to the Trustee under the Indenture prior to the date of such Investment; (f) repurchases of Capital Stock deemed to occur upon the exercise of stock options, warrants or other convertible or exchangeable securities to the extent such Capital Stock represents a portion of the exercise price thereof; or (g) dividends or any other distribution not exceeding US$15 million in any fiscal year of EGE Haina; provided, that EGE Haina will be entitled to make dividend payments or other distributions permitted during any fiscal year of EGE Haina pursuant to this clause (g) to the extent not actually made in any subsequent fiscal year of EGE Haina; provided, however, that the aggregate amount of dividends and distributions pursuant to this clause (g) will not exceed US$45 million. The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of such Restricted Payment, as determined by the management of EGE Haina acting in good faith, of the asset(s) or securities proposed to be paid, transferred, issued, purchased, repurchased, redeemed, retired, defeased or otherwise acquired by EGE Haina or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment. The amount of any cash Restricted Payment will be its face amount. Limitation on Sale of Assets (1) EGE Haina will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless: (a) EGE Haina or such Restricted Subsidiary receives consideration (including by way of relief from or by any other Person assuming responsibility for any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the Fair Market Value of the shares and/or assets subject to such Asset Disposition (for purposes of this subclause (a), all determinations of Fair Market Value will be made in good faith by the Board of Directors of EGE Haina or the relevant Restricted Subsidiary as certified by an Officer's Certificate delivered to the Trustee); (b) at least 75% of the consideration received by EGE Haina or such Restricted Subsidiary is in the form of cash or Temporary Cash Investments; provided that the following will be deemed to be cash for the purposes of this subclause (b): (i) the amount (without duplication) of any Indebtedness or other liabilities of EGE Haina or such Restricted Subsidiary (other than Subordinated Obligations) that is expressly assumed by the transferee in such Asset Disposition, and with respect to which EGE Haina or 97


such Restricted Subsidiary, as the case may be, is unconditionally released by the holder of such Indebtedness; (ii) Additional Assets; and (iii) securities, notes or other obligations that are converted into cash within 180 days of the acquisition thereof; and (c) within 270 days of the later of the date of such Asset Disposition and the receipt of any Net Available Cash from such Asset Disposition, EGE Haina, Haina Finance or a Restricted Subsidiary will apply an amount equal to 100% of such Net Available Cash from such Asset Disposition: (i) to invest, or to enter into a binding agreement to invest, in Additional Assets (including by means of an Investment in Additional Assets by any Restricted Subsidiary); (ii) to prepay, repay or purchase Senior Indebtedness (other than the Notes); provided, however, that, in connection with any prepayment, repayment or purchase of such other Indebtedness pursuant to this clause (ii), EGE Haina or such Restricted Subsidiary will retire such Indebtedness and, in the case of any such Senior Indebtedness which constitutes a Revolving Credit Facility, will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased; and/or (iii) to make an Offer (as defined in clause (2) below) to purchase Notes pursuant to and subject to the conditions set forth in clause (2) below. Following the application of Net Available Cash pursuant to clause (i), (ii) or (iii) above, the amount of Net Available Cash will be reset at zero and EGE Haina and the Restricted Subsidiaries will be entitled to use any remaining proceeds for any corporate purposes to the extent permitted under the Indenture. Notwithstanding the foregoing provisions of this covenant, EGE Haina and the Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with this covenant unless the aggregate Net Available Cash from all Asset Dispositions that has not been applied in accordance with this covenant exceeds $5 million (in which case EGE Haina, Haina Finance and/or the Restricted Subsidiary will be required to apply in accordance with this covenant all Net Available Cash that has not previously been applied in accordance with this covenant). (2) In the event that an offer to purchase the Notes is made pursuant to clause 1(c)(iii) above, EGE Haina will be required to offer or cause a Restricted Subsidiary to offer to purchase Notes tendered pursuant to an offer by EGE Haina or such Restricted Subsidiary for the Notes (an ""Offer'') at a purchase price of 100% of their principal amount plus accrued and unpaid interest (including Additional Amounts, if any) thereon, to the date of purchase. (3) The Person making the Offer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other applicable securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any applicable securities laws or regulations conflict with provisions of this covenant, EGE Haina will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof. Limitation on Sale and Lease-Back Transactions EGE Haina will not, and will not permit any Restricted Subsidiary to, enter into any Sale and LeaseBack Transaction unless either: (1) EGE Haina and the Restricted Subsidiaries would be entitled pursuant to the provisions of the covenant described above under ""ĂŒ Limitation on Indebtedness'' to Incur Indebtedness in a principal amount equal to or exceeding the Value of such Capitalized Lease Obligation; or (2) EGE Haina, during or immediately after the expiration of four months after the effective date of such Sale and Lease-Back Transaction (whether made by EGE Haina or a Restricted Subsidiary), will apply the Net Available Cash from the related Asset Disposition in accordance with the covenant described above under ""ĂŒ Limitation on Sale of Assets.'' 98


Limitations on Transactions with Affiliates EGE Haina will not, and will not permit any Restricted Subsidiary to, make any payment to, or sell, lease, transfer or otherwise dispose of any of their properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee, with, or for the benefit of, any Affiliate (each, an ""Affiliate Transaction''), unless: (1) The Affiliate Transaction is on terms that are no less favorable to EGE Haina or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm's-length transaction by EGE Haina or such Restricted Subsidiary with a Person that is not an Affiliate; (2) EGE Haina delivers to the Trustee with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of US$5 million, a resolution of the Board of Directors, set forth in an Officer's Certificate, stating that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the Board of Directors; and (3) with respect to any Affiliate Transaction or series or related Affiliate Transactions involving aggregate consideration in excess of US$10 million, an opinion as to the fairness to the holders of such Affiliate Transaction from a financial point of view issued by an investment banking firm of international standing. The foregoing provisions will not apply to the following: (a) transactions between EGE Haina and/or any of its Restricted Subsidiaries or between two or more Restricted Subsidiaries; (b) Permitted Investments or Restricted Payments not prohibited by the provisions of the Indenture described above under ""ĂŒ Restricted Payments''; (c) payments due by EGE Haina under the HIC Management Agreement as in effect on the date hereof; (d) any power purchase agreement entered into by EGE Haina with CEPM on substantially the terms set forth in the Terms Agreement, dated as of March 1, 2006, between EGE Haina and CEPM; (e) any lease of real property, any operating and maintenance agreement, any fuel purchase and/or transportation agreement and any agreement for related services related to the conversion of any of EGE Haina's existing plants or any plant acquired by EGE Haina to the use of natural gas as a fuel or the operation of such plants following such conversion; (f) the payment of compensation (including amounts paid pursuant to employee benefit plans), indemnification or reimbursement, the advancement of out-of-pocket expenses or the provisions of liability insurance to officers, directors and employees of EGE Haina, any Subsidiary of EGE Haina or any Affiliate of EGE Haina; provided that, to the extent any such payments exceed individually or in the aggregate US$1 million for any fiscal year of EGE Haina or Subsidiary thereof, the Board of Directors of EGE Haina or such Subsidiary of EGE Haina, as the case may be, in good faith will have approved the terms thereof and deemed the services theretofore or thereafter to be performed for such compensation to be fair consideration therefor; (g) payments or other actions taken under any agreement in effect as of the Closing Date or any amendment, supplement, restatement, replacement, renewal, extension, refinancing thereof or thereto (provided that the amended, supplemented, restated, replaced, renewed, extended or refinanced agreement, when taken as a whole, is not more disadvantageous to EGE Haina or such Restricted Subsidiary than the original agreement in effect on the Closing Date) or any transaction contemplated thereby; (h) sales of Capital Stock (other than Disqualified Stock) of EGE Haina; 99


(i) any transaction of EGE Haina or any Restricted Subsidiary with a Person that is not an Affiliate of EGE Haina and that is subsequently merged with or into or becomes a Subsidiary of EGE Haina or any Restricted Subsidiary or any Affiliate of EGE Haina or any Restricted Subsidiary, that is not entered into as a result of or in connection with or in anticipation of such merger or such Person becoming a Subsidiary of EGE Haina, any Restricted Subsidiary or any Affiliate of EGE Haina or any Restricted Subsidiary; and (j) transactions with customers, clients, suppliers, distributors, generators, transporters or purchasers or sellers of goods or services, in each case in the ordinary course of business and on an arm's-length basis, including entering into new power purchase agreements, or the amendment, modification or supplement of existing power purchase agreements, with EDE-Este, EDE-Norte, EDE-Sur and CDEEE, and any back-up power purchase agreements. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries EGE Haina will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by EGE Haina or any other Restricted Subsidiary; (2) pay any Indebtedness owed to EGE Haina or any other Restricted Subsidiary; (3) make loans or advances to EGE Haina or any other Restricted Subsidiary; or (4) transfer any of its property or assets to EGE Haina or any other Restricted Subsidiary, provided that this prohibition will not apply to any encumbrances or restrictions: (a) existing on the Closing Date, and any amendments, extensions, refinancings, renewals or replacements thereof; provided, however, that any such amendments, extensions, refinancings, renewals or replacements are no more restrictive in any material respect than those encumbrances or restrictions that are then in effect and that are being amended, extended, refinanced, renewed or replaced; (b) existing under or by reason of applicable law; (c) existing with respect to any Person or the property or assets of such Person acquired by EGE Haina or any Restricted Subsidiary at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired, and any amendments to such encumbrances or restrictions; provided, however, that any such amendments are no more restrictive in any material respect than those encumbrances or restrictions that are then in effect and that are being amended; (d) in the case of clause (4) above, (i) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset; or (ii) arising or agreed to in the ordinary course of business, not relating to Indebtedness, and that do not individually or in the aggregate detract from the value of the property or assets of EGE Haina and its Restricted Subsidiaries in any manner material to EGE Haina or any Restricted Subsidiary; or (iii) that exist by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of EGE Haina or any Restricted Subsidiary not otherwise prohibited by the Indenture; or 100


(iv) imposed by Purchase Money Indebtedness for property acquired in the ordinary course of business or by Capitalized Lease Obligations permitted under the Indenture on the property so acquired, but only to the extent that such encumbrances or restrictions restrict the transfer of the property; (e) by reason of Liens that secure Indebtedness otherwise permitted to be incurred under the provisions of the covenant described under ""ĂŒ Limitation on Liens'' above and that limit the right of the debtor to dispose of the assets subject to such Liens; (f) imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of EGE Haina or such Restricted Subsidiary pending the closing of such sale or disposition; provided that the sale or disposition is permitted under the Indenture; and (g) resulting from restrictions on cash or other deposits or other customary requirements imposed by customers or suppliers under contracts entered into in the ordinary course of business. Consolidation, Merger, Conveyance, Sale or Lease Nothing contained in the Indenture will prevent EGE Haina from merging with or into or consolidating with another corporation or conveying, transferring or leasing all or substantially all of EGE Haina's properties and assets to any Person; provided that: (1) the corporation formed by such consolidation or into which EGE Haina is merged or the Person that acquires by conveyance or transfer, or that leases, all or substantially all of EGE Haina's properties and assets is a corporation organized and existing under the laws of the Dominican Republic, the Cayman Islands, any other country that belongs to the Organization for Economic Cooperation and Development or the United States, and expressly assumes the obligations of EGE Haina in respect of the Indenture and the Guaranty and Guarantees the due and punctual payment of the principal of (and premium and Additional Amounts, if any) and interest, if any, on all the Notes; provided, however, that the principal place of business of the surviving corporation is the Dominican Republic or the United States; (2) immediately after giving effect to such transaction no Default or Event of Default will have occurred and be continuing; (3) immediately after giving effect to such transactions, the corporation with or into which EGE Haina is merged or that is formed by such consolidation or the Person that acquires by conveyance or transfer, or that leases, all or substantially all of EGE Haina's properties and assets, would be able to Incur at least an additional $1.00 of Indebtedness pursuant to clause (1) of the covenant described under ""ĂŒ Limitation on Indebtedness''; provided, however, that this clause (3) does not apply to a merger with or into or a consolidation with or sale to a Restricted Subsidiary or a merger or consolidation of Haina Finance with and into EGE Haina; (4) EGE Haina has delivered to the Trustee an Officer's Certificate and an opinion of counsel, each stating that such consolidation, merger, conveyance, transfer or lease complies with the Indenture and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture complies with the Indenture and that all conditions precedent therein provided for relating to such transaction have been complied with; and (5) EGE Haina has delivered to the Trustee an opinion of counsel to the effect that the holders of the Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such transaction and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred. Repurchases at the Option of the Holders of the Notes Upon Change of Control If a Change of Control occurs, each holder of Notes will have the right to require Haina Finance to repurchase all or any part (equal to $100,000 or an integral multiple of $1,000) of that holder's Notes pursuant 101


to a Change of Control Offer (as defined below) on the terms set forth in the Indenture. No such purchase in part will reduce the outstanding principal amount at maturity of the Notes held by any holder to below $100,000. In the Change of Control Offer, Haina Finance will offer a ""Change of Control Payment'' in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest and Additional Amounts, if any, on the Notes repurchased, to the date of purchase (subject to the right of the holders of record on the relevant Record Date to receive interest and Additional Amounts, if any, on the relevant interest payment date). Within 30 days following any Change of Control, Haina Finance will make a ""Change of Control Offer'' by giving notice to each Noteholder by mailing and publishing such notice in accordance with the provision set out under ""ĂŒ Notices'', describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in the notice (the ""Change of Control Payment Date''), which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedure required by the Indenture and described in such notice. Haina Finance will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other applicable securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any applicable securities laws or regulations conflict with provisions of this covenant, Haina Finance will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue of its compliance with such securities laws or regulations. On the Change of Control Payment Date, Haina Finance will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the Trustee the Notes properly accepted, together with an Officer's Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by Haina Finance. The paying agent under the Indenture will promptly mail each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new Note will be in a principal amount of $100,000 or an integral multiple of $1,000 in excess thereof. Haina Finance will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require the Issuer to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that Haina Finance repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. Haina Finance will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements, set forth in the Indenture, that are applicable to a Change of Control Offer made by Haina Finance and such third party purchases all Notes properly tendered and not withdrawn under the Change of Control Offer.

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Events of Default Events of Default with respect to the Notes in the Indenture means any one of the following events (each, an ""Event of Default''): (1) default by Haina Finance in the payment of any interest (or Additional Amounts, if any) on any Note when it becomes due and payable if such default continues unremedied for a period of 30 days; (2) default by Haina Finance in the payment of the principal of (or premium, if any, on) any Note when it becomes due and payable at its Stated Maturity, upon redemption or otherwise; (3) default by EGE Haina or Haina Finance in the performance, or breach, of any covenant, agreement or obligation of EGE Haina or Haina Finance contained in the Indenture, the Notes or any of the other Transaction Documents, and continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to Haina Finance and EGE Haina by the Trustee or to Haina Finance, EGE Haina and the Trustee by the Noteholders of at least 25% in aggregate principal amount of the outstanding Notes a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a ""Notice of Default'' hereunder; (4) any final judgment or order for the payment of money in excess of US$20 million or its equivalent in other currencies at the time of determination (to the extent not covered by insurance as acknowledged in writing by the insurer) is rendered against Haina Finance, EGE Haina or any Restricted Subsidiary and such judgment or order is not paid (whether in full or in installments in accordance with the terms of the judgment) or otherwise discharged and remains unstayed for a period of 60 days after such judgment becomes final and non-appealable; (5) the Guaranty, the Security Documents or any of the Liens purported to be created thereby fail to be in full force and effect, or is declared null and void, or any of the obligors thereunder denies in writing that it has any further liability under the Indenture, the Guaranty or the Security Documents, as the case may be, or the existence of the Liens purported to be created by the Security Documents, or gives written notice to such effect (other than by reason of the termination of the Indenture, the release of the Guaranty in accordance with the terms of the Indenture, or the release and termination of the Liens created pursuant to the Security Documents in accordance with the terms of the Security Documents); (6) if at any time the Interest Reserve is not Fully Funded and Haina Finance fails to cause the Interest Reserve to be Fully Funded within five Business Days after notice thereof has been given, by registered or certified mail, to Haina Finance and EGE Haina by the Trustee; (7) either: (a) Haina Finance, EGE Haina or any Restricted Subsidiary defaults (as principal or guarantor or other surety) on the payment of principal of any Indebtedness in the principal amount of at least US$20 million in the aggregate (or its equivalent in any other currency) and such default will have continued for more than any applicable grace period, or (b) Indebtedness of Haina Finance, EGE Haina or any Restricted Subsidiary is accelerated by the holders thereof because of a default, and the total amount of such accelerated Indebtedness exceeds US$20 million; and (8) certain events of bankruptcy, insolvency or other similar laws relating to Haina Finance, EGE Haina or any Restricted Subsidiary. Haina Finance and EGE Haina will be required to provide to the Trustee written notice, within ten Business Days of obtaining knowledge thereof, of any Default in performance of certain covenants in the Indenture. The Indenture provides that the Trustee may withhold notice to the Noteholders of any Default 103


(except on payment of principal of, or interest, if any, on the Notes) if the Trustee in good faith determines that it is in the interest of the holders of the Notes to do so. The Indenture provides that: (a) if any Event of Default (other than an Event of Default involving a bankruptcy, insolvency or similar event in respect of Haina Finance and EGE Haina) will have happened and be continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Notes may declare the principal amount of all the Notes to be due and payable immediately by a notice in writing to Haina Finance or EGE Haina, or to the Trustee if the notice is delivered by the holders, and upon any such declaration the principal amount of all the Notes will become due and payable immediately; and (b) if an Event of Default specified in clause (8) above will have happened, then the principal amount of all the Notes will be immediately due and payable without notice or any other act on the part of the Trustee or any Noteholder. However, if all Defaults are cured (other than the nonpayment of principal that has become due solely as a result of an acceleration) and certain other conditions are met, such declaration may be rescinded by the holders of not less than a majority in aggregate principal amount of the outstanding Notes. In addition, past Defaults with respect to the Notes (other than a Default in the payment of principal of (or premium, if any) or interest, if any, on any Note) may be waived by Noteholders of not less than a majority in aggregate principal amount of the outstanding Notes. A Noteholder will not have any right to institute any suit, action or proceeding for the enforcement of the Indenture or the Notes, or for the exercise of any other remedy under the Indenture or the Notes, unless (i) such Noteholder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Notes; (ii) Noteholders of more than 25% in aggregate principal amount of outstanding Notes will have made a written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee thereunder; (iii) such Noteholder or Noteholders have offered to the Trustee an indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; (iv) the Trustee during the 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (v) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by Noteholders of a majority in principal amount of the outstanding Notes; it being understood that no one or more Noteholders will have any right to affect, disturb or prejudice in any manner whatsoever the benefit of the Indenture afforded the Notes by its or their action, or to enforce, except in the manner provided in the Indenture, any remedy, right or power under the Indenture. Any suit, action or proceeding will be instituted and maintained in the manner provided in the Indenture for the benefit of the holders of all outstanding Notes. Defeasance Haina Finance or EGE Haina may, at its option, at any time elect to have one of the options described below applied to all outstanding Notes or the Guarantee, as applicable, upon compliance with the conditions provided for below. (1) Upon Haina Finance's or EGE Haina's election of the ""legal defeasance'' option, and subject to the satisfaction of the conditions set forth in clause (3) below, Haina Finance and EGE Haina, as applicable, will be discharged from any and all obligations in respect of the Notes or the Guaranty, as applicable (except in each case for certain obligations, including to register the transfer or exchange of Notes, replace stolen, lost or mutilated Notes, maintain paying agencies and hold monies for payment in trust). Subject to compliance with this section, Haina Finance or EGE Haina may exercise the legal defeasance option notwithstanding the prior exercise of the covenant defeasance option. 104


(2) Upon Haina Finance's or EGE Haina's election of the ""covenant defeasance'' option, and subject to the satisfaction of the conditions set forth in clause (3), Haina Finance or EGE Haina need not comply with certain covenants set forth in the Indenture, including the covenants described under ""ĂŒ Covenants of Haina Finance'' or ""ĂŒ Covenants of EGE Haina,'' as applicable. In addition, upon Haina Finance's or EGE Haina's exercise of the covenant defeasance option, subject to the satisfaction of the conditions set forth in clause (3), clauses (3), (4), (5), (6) and (7) under ""ĂŒ Events of Default'' will no longer constitute Events of Default. (3) In order to exercise the legal defeasance option or the covenant defeasance option, Haina Finance or EGE Haina, as applicable, must irrevocably deposit with the Trustee, in trust, money, U.S. Government Obligations, or a combination thereof, sufficient to pay and discharge the principal of, interest and Additional Amounts, if any, on, the outstanding Notes on the dates such payments are due, in accordance with the terms of the Notes; and no Event of Default (including by reason of such deposit) with respect to the Notes will have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date. The legal defeasance option or covenant defeasance option will become effective only if Haina Finance or EGE Haina, as the case may be, delivers to the Trustee: (a) an opinion of counsel of Haina Finance to the effect that: (i) under U.S. Cayman Islands and Dominican law, the Noteholders (other than Cayman Islands persons or Dominican persons) will not recognize income, gain or loss for U.S. Cayman Islands or Dominican tax purposes as a result of such deposit, defeasance and discharge of certain obligations; and (ii) the trust resulting from the deposit is not, or is not required to be registered as, an investment company under the U.S. Investment Company Act of 1940, as amended; (b) in the case of the legal defeasance option, Haina Finance or EGE Haina, as the case may be, has received from, or there has been published by, the U.S. Internal Revenue Service a ruling, or since the date of the Indenture there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, the Noteholders shall not recognize income, gain or loss for U.S. federal income tax purposes as a result of such deposit, defeasance and discharge; and (c) an opinion of counsel and an Officer's Certificate stating that all conditions precedent to the defeasance and discharge of the Notes provided for in the Indenture have been complied with. If Haina Finance has deposited or caused to be deposited money or U.S. Government Obligations to pay or discharge the principal of (and premium, if any) and interest, if any, on the outstanding Notes, as well as any fees due to the Trustee and the Paying Agent, to and including a redemption date on which all of the outstanding Notes are to be redeemed, such redemption date will be irrevocably designated by a board resolution delivered to the Trustee on or prior to the date of deposit of such money or U.S. Government Obligations, and such board resolution will be accompanied by an irrevocable request from Haina Finance that the Trustee give notice of such redemption in the name of and at expense of Haina Finance not less than 30 nor more than 60 days prior to such redemption date in accordance with the Indenture. Form, Denomination and Registration The Notes will be in fully registered form without coupons attached in amounts of US$100,000 and integral multiples of US$1,000 in excess thereof. Notes sold in offshore transactions in reliance on Regulation S will be represented by one or more permanent Global Notes in fully registered form without coupons deposited on or about the Closing Date with the Trustee as custodian for, and registered in the name of a nominee of, DTC for the accounts of Euroclear and Clearstream Luxembourg. Notes sold in reliance on Rule 144A will be represented by one or more permanent Global Notes in fully registered form without coupons deposited on or about the Closing Date with the Trustee as custodian for, and registered in the name of a nominee of, DTC. Notes represented by the 105


Global Notes will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such Notes will therefore settle in immediately available funds. There can be no assurance as to the effect, if any, of settlements in immediately available funds on trading activity in the Notes. Beneficial interests in the Global Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct and indirect participants, including Euroclear and Clearstream Luxembourg. Except in the limited circumstances described below under ""ĂŒ Definitive Notes,'' Noteholders holding beneficial interests in Global Notes will not be entitled to receive physical delivery of certificated Notes. The Notes are not, and will not be, issuable in bearer form. Title to the Notes will pass by registration in the register. The holder of any Note will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it, writing on, or theft or loss of, the definitive Note issued in respect of it) and no person will be liable for so treating the holder. Listing Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and to trade them on the Euro MTF Market of such exchange. The European Union has adopted a Directive (2004/109 (EC)), (the ""Transparency Directive'') on the harmonization of transparency requirements relating to financial information of issuers whose securities are admitted for trading on a regulated market in the European Union, such as the Luxembourg Stock Exchange. If any European or national legislation is adopted and is implemented or takes effect in Luxembourg in a manner that would require Haina Finance or EGE Haina to publish or produce financial statements according to accounting principles or standards that are different from U.S. GAAP, or that would otherwise impose requirements on Haina Finance or EGE Haina that Haina Finance or EGE Haina, in their discretion, determine are impracticable or unduly burdensome, Haina Finance may apply to delist the Notes. Haina Finance will use its reasonable best efforts to obtain an alternative admission to listing, trading and/or quotation for the Notes by another listing authority, exchange and/or system within or outside the European Union, as it may reasonably decide. If such an alternative admission for listing of the Notes is not available or is, in the reasonable opinion of Haina Finance, unduly burdensome, an alternative admission may not be obtained. Notice of any de-listing and/or alternative admission will be given as described under ""ĂŒ Notices.'' Global Notes The following description of the operations and procedures of DTC, Euroclear and Clearstream Luxembourg are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them from time to time. Haina Finance, EGE Haina, the Trustee and the Initial Purchaser take no responsibility for these operations and procedures and urge prospective investors to contact the applicable system or its participants directly to discuss these matters. After deposit of a Global Note with the Trustee (on behalf of DTC), DTC or its custodian will credit, on its internal system, the respective principal amount of the individual beneficial interest represented by such Global Note to the accounts of persons who have accounts with DTC. Such accounts initially will be designated by or on behalf of the Initial Purchaser. Ownership of beneficial interests in a Global Note will be limited to Persons who have accounts with DTC, including Euroclear and Clearstream Luxembourg (""DTC Participants''), or Persons holding through securities custody accounts maintained by direct or indirect DTC Participants. Ownership of beneficial interests in the Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to beneficial interests of DTC Participants) or the records of direct or indirect DTC Participants (with respect to beneficial interests of Persons other than DTC Participants). Euroclear and Clearstream Luxembourg will hold omnibus positions on behalf of their participants through customers' securities accounts for Euroclear and Clearstream Luxembourg on the books of their respective depositories, which in turn will hold such positions in such depositories' names in the records maintained by DTC or its nominee. 106


Investors that hold their interests in a Global Note through DTC will follow the settlement practice applicable to global note issues. Investors' securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date. As long as DTC or its nominee is the registered holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner and holder of the Notes represented by such Global Notes for all purposes under the Transaction Documents. Unless DTC notifies Haina Finance or EGE Haina that it (1) is unwilling or unable to continue as depository for a Global Note, or (2) ceases to be a ""clearing agency'' registered under the Exchange Act, and a successor depository is not appointed by Haina Finance within 90 days of such notice, Noteholders will not be entitled to have any portion of such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Notes in certificated form and will not be considered the owners or holders of the Global Note (or any Notes represented thereby) under the Transaction Documents. In addition, no Noteholder will be able to transfer that interest except in accordance with DTC's applicable procedures (in addition to those under the Indenture and, if applicable, those of Euroclear and Clearstream Luxembourg). All interests in a Global Note, including those held through Euroclear or Clearstream Luxembourg, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear and Clearstream Luxembourg may also be subject to the procedures and requirements of such systems. Payments of principal, interest, premium (if any) and Additional Amounts (if any) will be made to DTC or its nominee as the registered holder of the Global Notes. None of EGE Haina, Haina Finance or the Trustee, nor any of their respective agents, will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Haina Finance and EGE Haina expect that DTC or its nominee, upon receipt of any payment in respect of a Global Note held by it or its nominee, will promptly credit the appropriate DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of DTC or its nominee. The Issuer and EGE Haina also expect that payments by DTC Participants to owners of beneficial interests in such Global Notes held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of DTC and such DTC Participants. The laws of some jurisdictions may require that certain Persons take physical delivery of securities in certificated form. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons may be limited. Because DTC can act only on behalf of DTC Participants, which, in turn, act on behalf of indirect DTC Participants and certain banks, the ability of a Noteholder to pledge its beneficial interest in a Note to Persons that do not participate in the DTC system, or otherwise take actions in respect of such beneficial interest, may be affected by the lack of a physical certificate evidencing such interest. Transfers between DTC Participants will be effected in accordance with DTC's procedures and will be settled in same-day funds. Transfers between participants in Euroclear and Clearstream Luxembourg will be effected in the ordinary manner in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the Notes described under ""Notice to Investors,'' cross-market transfers between DTC Participants, on the one hand, and Euroclear participants or Clearstream Luxembourg participants, on the other hand, will be effected in DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream Luxembourg, as the case may be, by its respective depository; provided, that such cross-market transfers will require delivery of instructions to Euroclear or Clearstream Luxembourg, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream Luxembourg, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depository to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Notes in DTC, and by making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream 107


Luxembourg participants may not deliver instructions directly to the depositories for Euroclear or Clearstream Luxembourg. Because of time zone differences, the securities account of a participant with Euroclear or Clearstream Luxembourg purchasing a beneficial interest in a Global Note from a DTC Participant will be credited during the securities settlement processing day (which must be a business day for Euroclear or Clearstream Luxembourg, as applicable) immediately following the DTC settlement date, and such credit of any transaction in beneficial interests in a Global Note settled during such processing day will be reported to the relevant participant with Euroclear or Clearstream Luxembourg on such day. Cash received by Euroclear or Clearstream Luxembourg as a result of sales of beneficial interests in a Global Note by or through a Euroclear participant or Clearstream Luxembourg participant to a DTC Participant will be received for value on the DTC settlement date, but will be available in the relevant Euroclear or Clearstream Luxembourg cash account only as of the business day following settlement in DTC. DTC will take any action permitted to be taken by a Noteholder (including the presentation of Notes for exchange as described below) only at the direction of one or more DTC Participants to whose account or accounts with DTC interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes to which such DTC Participant(s) has/have given such direction. The giving of notices and other communications by DTC to DTC Participants, by DTC Participants to persons who hold accounts with them and by such persons to holders of beneficial interests in a Global Note will be governed by the arrangements between them, subject to any statutory or regulatory requirements as may exist from time to time. Although DTC, Euroclear and Clearstream Luxembourg have agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among DTC Participants, Euroclear participants and Clearstream Luxembourg participants, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of Haina Finance, EGE Haina, the Trustee nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear, Clearstream Luxembourg or their respective participants, indirect participants or account holders of their respective obligations under the rules and procedures governing their operations. Definitive Notes All Notes will be delivered in the form of the applicable Global Note. If DTC or any successor depository notifies Haina Finance or EGE Haina that it (1) is unwilling or unable to continue as depository for a Global Note, or (2) ceases to be a ""clearing agency'' registered under the Exchange Act, and a successor depository is not appointed by Haina Finance within 90 days of such notice, then Haina Finance will issue, and the Trustee will authenticate, Notes in definitive, fully registered, non-global form without interest coupons in exchange for the applicable Global Notes. In all cases, definitive registered Notes delivered in exchange for any Global Notes or beneficial interests therein will be registered in the names, and issued in any authorized denominations, requested by DTC or such successor depository. In the case of definitive registered Notes issued in exchange for the Rule 144A Note, such definitive Notes will bear the legend referred to under ""Notice to Investors'' (unless counsel to Haina Finance and the Trustee determine otherwise in accordance with applicable law), subject to the provisions of such legend. The holder of a definitive registered Note bearing the legend may transfer such Note, subject to compliance with the provisions of such legend, by surrendering it at the office or agency maintained by the Trustee for such purpose in New York City, New York. Upon the transfer, exchange or replacement of definitive registered Notes bearing the legend, or upon specific request for removal of the legend on a definitive registered Note, the Trustee will deliver only Notes that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the Trustee such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by Haina Finance and the Trustee that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act. Before any definitive registered Note may be transferred to a Person who takes delivery in the form of an 108


interest in any Global Note, the transferor will be required to provide the Trustee with a transfer certificate, forms of which are attached to the Indenture. So long as the Notes are listed on the Euro MTF Market of the Luxembourg Stock Exchange and the rules of such exchange so require, (1) payments of principal on definitive registered Notes may be made by presenting and surrendering such Notes at the office of the Luxembourg Paying Agent, and (2) transfers or exchange of definitive registered Notes may be made by presenting and surrendering such Notes at, and obtaining new definitive registered Notes from, the office of the Luxembourg Paying Agent. With respect to a partial transfer of a definitive registered Note, a new definitive registered Note in respect of the balance of the principal amount of the definitive registered Note that was not transferred will be delivered at the office of the Luxembourg Paying Agent. Haina Finance will maintain a Luxembourg Paying Agent so long as the Notes are listed on the Euro MTF Market of the Luxembourg Stock Exchange. Lost, Stolen and Mutilated Notes In case any Note will become mutilated, defaced, destroyed, lost or stolen, Haina Finance will execute and the Trustee will, upon direction by Haina Finance, authenticate, register and deliver a new definitive Note of like tenor (including the same date of issuance) and equal principal amount registered in the same manner, dated the date of its authentication and bearing interest from the date to which interest has been paid on such Note, in exchange and substitution for such Note (upon surrender and cancellation thereof in the case of mutilated or defaced notes) or in lieu of and in substitution for such Note. In case a Note is destroyed, lost or stolen, the applicant for a substitute Note will furnish Haina Finance and the Trustee (1) such security or indemnity as may be required by them to save each of them harmless, and (2) satisfactory evidence of the destruction, loss or theft of such Note and of the ownership thereof. Upon the issuance of any substituted Note, the Trustee may require the payment by the registered holder thereof of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any fees and expenses (including those of the Trustee) connected therewith. With respect to mutilated, defaced, destroyed, lost or stolen definitive Notes, a holder thereof may obtain new definitive registered Notes from the office of the Luxembourg Paying Agent so long as the Notes are listed on the Euro MTF Market of the Luxembourg Stock Exchange and the rules of such exchange so require. Registration of Transfer The Trustee will keep at its office a register in which, subject to such reasonable regulations as it may prescribe, the Trustee will provide for the registration of the Notes and registration of transfers and exchanges of the Notes. In the event of a partial transfer of a Note, new Notes will be obtainable at the office of the Trustee in connection with such transfer. Under certain circumstances described in the Indenture, Haina Finance may vary or terminate the appointment of the Trustee or appoint additional trustees or other such agents. Haina Finance will cause notice of any resignation, termination or appointment of the Trustee, and of any change in the office through which any such agent will act, to be provided to Noteholders in accordance with ""ĂŒ Notices'' below. No service charge will be made for any registration of transfer or exchange of Notes, but the Trustee may require payment of a sum sufficient to cover any Tax or other government charge payable in connection therewith. The Notes (or beneficial interests therein) may not be transferred unless the principal amount so transferred is in an authorized denomination. Notwithstanding any statement herein, Haina Finance, EGE Haina and the Trustee reserve the right to impose such transfer, certificate, exchange or other requirements, and to require such restrictive legends on Notes, as they may determine are necessary to ensure compliance with the securities laws of the United States and the states therein and any other applicable laws. 109


Payments Payments on the Notes will be made by the Trustee or the Paying Agent directly to the registered Noteholders in accordance with the procedures set forth in the Indenture. Payments of principal, interest and any other amounts that may be due on the registered Notes will be made on each Payment Date to the Noteholders in whose names the Notes were registered as of the preceding Record Date. Payments will be made by check mailed to the address of each such Noteholder as it appears on the registrar maintained by the Trustee or by electronic funds transfer to an account maintained by such Noteholder with a bank having electronic funds transfer capability. Unless such designation for payment by electronic funds transfer is revoked, any such designation made by such Noteholder with respect to such Note will remain in effect with respect to any future payments in respect of such Note. Haina Finance will pay any administrative costs that are imposed in connection with making payments by wire transfer. The final payment on any Note (including any Global Note registered in the name of the nominee of DTC), however, will be made only upon presentation and surrender of such Note at the office or agency of the Trustee specified in a notice provided by the Trustee to registered Noteholders prior to the applicable Payment Date. Any monies deposited with or paid to the Trustee for the payment of the principal, premium, interest or any other amount due with respect to the Notes and not applied but remaining unclaimed for three years (or such lesser time as the Trustee will be satisfied, after notice from Haina Finance, is one month before the escheat period provided under applicable law) after the date upon which such principal, premium, interest or other amount will have become due and payable, will (to the extent not required to escheat to any governmental authority) be repaid by the Trustee to or for the account of Haina Finance, and, to the extent permitted by applicable law, the Person claiming such money will thereafter look only to Haina Finance for any related payment that it may be entitled to receive, and all liability of the Trustee with respect to such monies will thereupon cease. Notices The Trustee will be responsible for transmitting notices to Noteholders and from Noteholders to Haina Finance (in each case as contemplated by the Indenture). For so long as Notes in global form are outstanding, notices to be given to holders will be sent to DTC or its nominees (or any successors), as the holders thereof, and DTC will communicate such notices to the DTC Participants in accordance with its applicable policies as in effect from time to time. If bonds are issued in individual definitive form, any notice or communication to a Noteholder will be deemed to have been duly given (1) upon the mailing of such notice by first class mail to such Noteholder at its registered address as recorded in the register not later than the latest date, and not earlier than the earliest date, prescribed in the Indenture for the giving of such notice, such notice being deemed validly given on the fourth Business Day following such mailing, and (ii) for so long as the Notes are listed on the Euro MTF Market of the Luxembourg Stock Exchange, upon publication via the website of the Luxembourg Stock Exchange at www.bourse.lu, such notices being deemed given on the date of such publication. Any requirement of notice hereunder may be waived by the Person entitled to such notice before or after such notice is required to be given, and such waivers will be filed with the Trustee. Modification of the Indenture The Indenture contains provisions permitting Haina Finance and the Trustee, with the consent of the holders of a majority in aggregate in principal amount of the outstanding Notes, to modify the Indenture, any supplemental indenture, or the rights of the Noteholders; provided that no such modification will, without the consent of the holder of each outstanding Note affected thereby: (1) reduce in any manner the amount of, delay the timing of or alter the priority of, any payments of principal or interest that are required to be made on any Note or reduce any premium and Additional Amounts in respect thereof, or change the place of payment where, or the coin or currency in which, any Note is payable, or impair any Noteholder's right to institute suit for the enforcement of any payment on or after the due dates therefor; 110


(2) reduce the percentage of the outstanding Notes the consent of which is required for any such amendment, or reduce such percentage required for any waiver or instruction provided for in the Indenture; (3) reduce the premium payable upon the redemption or repurchase of any Note or change the time at which any Note may or will be redeemed or repurchased in accordance with this Indenture; (4) release EGE Haina or its successors from any of its obligations under the Guaranty; or (5) release or terminate the Security Documents or any Lien purported to be created thereby. The Indenture provides that Notes (or beneficial interests therein) owned by Haina Finance, EGE Haina or any of their Affiliates will be disregarded and deemed not to be outstanding for, among other purposes, consenting to any such modification. The Noteholders will receive prior notice as described under ""ĂŒ Notices'' of any proposed amendment to the Notes or the Indenture described above. After an amendment described above becomes effective, Haina Finance is required to mail a notice to the Noteholders briefly describing such amendment. However, the failure to give such notice to all Noteholders, or any defect therein, will not impair or affect the validity of the amendment. The consent of the Noteholders is not necessary to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. The Indenture also contains provisions permitting Haina Finance and the Trustee to amend or supplement the Notes and the Indenture in certain circumstances without the consent of any Noteholders for the following purposes: (a) cure any ambiguity, omission, defect or inconsistency; (b) comply with the covenant described under ""ĂŒ Consolidation, Merger, Conveyance, Sale or Lease''; (c) add guarantees or collateral with respect to the Notes; (d) add to the covenants of Haina Finance or EGE Haina for the benefit of holders of the Notes; (e) surrender any right conferred upon Haina Finance or EGE Haina; (f) evidence and provide for the acceptance of an appointment by a successor Trustee; (g) comply with any requirements of the SEC in connection with any qualification of the Indenture under the U.S. Trust Indenture Act of 1939, as amended; (h) provide for the issuance of additional Notes; or (i) make any other change that does not materially and adversely affect the rights of any Noteholder. The Trustee Deutsche Bank Trust Company Americas will be the Trustee under the Indenture. The Trustee's corporate trust office is presently located at 60 Wall Street, 27th Floor, New York, New York 10005, Attn: Trust and Securities Services. Haina Finance, EGE Haina and their respective Affiliates may from time to time enter into normal banking and trustee relationships with the Trustee and its Affiliates. In addition, the Trustee may appoint co- or separate trustees to the extent required to meet the legal requirements of a particular jurisdiction. The Indenture contains provisions for the indemnification of the Trustee and for its relief from responsibility. The obligations of the Trustee to any Noteholder are subject to such immunities and rights as are set forth in the Indenture. Except during the continuance of an Event of Default, the Trustee need perform only those duties that are specifically set forth in the Indenture and no others, and no implied covenants or obligations will be read 111


into the Indenture against the Trustee. In case an Event of Default has occurred and is continuing, the Trustee will exercise those rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of the Indenture will require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties thereunder, or in the exercise of its rights or powers, unless it receives indemnity satisfactory to it against any loss, liability or expense. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction on any of the Noteholders, unless such Noteholders will have offered to the Trustee reasonable security or indemnity. Subject to such provision for indemnification, the holders of a majority in principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the Notes, provided that the Trustee will have the right to decline to follow any such direction if the Trustee will determine that the action so directed conflicts with any law or the provisions of the Indenture. Appointment to Fill Vacancy in Office of Trustee If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any reason, Haina Finance will promptly appoint a successor Trustee meeting certain eligibility requirements by notifying the Trustee in writing. Within one year after the successor Trustee takes office, Noteholders representing at least 50% of the aggregate principal amount of the Notes then outstanding may appoint a successor Trustee reasonably acceptable to Haina Finance to replace the successor Trustee appointed by Haina Finance. Each successor Trustee will execute, acknowledge and deliver to the Noteholders, Haina Finance and to its predecessor Trustee an instrument accepting such appointment and, upon the resignation or removal of the predecessor Trustee, such appointment will become effective and such successor Trustee, without any further act, deed or conveyance, will become vested with all the rights, powers, duties and obligations of its predecessor, with like effect as if originally named as Trustee; provided that the Trustee ceasing to act will execute and deliver an instrument transferring to such successor Trustee all the rights and powers of the Trustee so ceasing to act. Upon written request of any such successor Trustee, the Noteholders and Haina Finance will execute any and all instruments in writing for fully and certainly vesting in and confirming to such successor Trustee all such rights and powers. In the event of a change of Trustee, a notice regarding such a change will be published in Luxembourg as provided under ""ĂŒ Notices.'' No Personal Liability of Incorporators, Stockholders, Directors, Officers or Employees The Indenture provides that there will be no recourse against any incorporator, stockholder, officer, director, employee or controlling person of Haina Finance or EGE Haina for the payment of the principal of, premium, if any, or interest on the Notes or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of Haina Finance or EGE Haina in the Indenture or the Notes or because of the creation of any Indebtedness represented thereby. Each Noteholder, by accepting the Notes, waives and releases all such liability. Governing Law; Consent to Jurisdiction and Service of Process The Indenture, the Notes and the other Transaction Documents provide that they will be governed by, and construed in accordance with, the laws of the State of New York. Haina Finance and EGE Haina have consented to the jurisdiction of the courts of the State of New York and the United States District Court for the Southern District of New York (in either case sitting in Manhattan, New York City) for purposes of all legal actions and proceedings instituted in connection with the Transaction Documents, and have irrevocably appointed National Corporate Research, Ltd. at 225 West 34th Street, Suite 910, New York, New York, 10022 as their authorized agent upon which process may be served in any such action. 112


Prescription Claims against Haina Finance for the payment of principal or interest and Additional Amounts in respect of the Notes will be prescribed unless made within six years of the due date for payment of such principal or interest and Additional Amounts. The Loan Agreement and the Participation Agreement Barclays Bank PLC will make a loan to EGE Haina in the Dominican Republic pursuant to the Loan Agreement. EGE Haina will be required to make payments under the Loan Agreement on the same terms and conditions and at the same rate of interest as the payments required to be made by Haina Finance under the Notes. Haina Finance will acquire in exchange for the proceeds of the offering a sub-participation of the entirety of the loan from Barclays Bank PLC pursuant to the Participation Agreement. Certain Defined Terms The terms listed below have the following meanings when used herein: ""Additional Assets'' means (1) any property or assets (other than Indebtedness and Capital Stock) used or useful in a Related Business, (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by EGE Haina or another Restricted Subsidiary or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary. ""Affiliate'' of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under common control with such specified Person. For the purposes of this definition, ""control,'' when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms ""controlling'' and ""controlled'' have meanings correlative to the foregoing. For purposes of the covenant described under ""Ì Covenants of EGE Haina Ì Limitation on Transactions with Affiliates'', Affiliate (i) will not include the owner of any shares of Class A common stock of EGE Haina, and (ii) will also mean any other beneficial owner of shares representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of EGE Haina or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. ""Asset Disposition'' means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by EGE Haina or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a ""disposition'') of: (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than EGE Haina or a Restricted Subsidiary); (2) all or substantially all the assets of any division or line of business of EGE Haina or any Restricted Subsidiary; or (3) any other assets of EGE Haina or any Restricted Subsidiary outside of the ordinary course of business of EGE Haina or such Restricted Subsidiary; provided that the following will not constitute Asset Dispositions: (a) a disposition to EGE Haina or a Restricted Subsidiary; (b) a Permitted Investment or Restricted Payment not prohibited by the covenant described under ""Ì Covenants of EGE Haina Ì Restricted Payments''; (c) a disposition of assets with a Fair Market Value of less than US$1 million; 113


(d) a disposition of Temporary Cash Investments, goods held for sale in the ordinary course of business, or obsolete equipment or other obsolete assets not needed for the continued ordinary course of EGE Haina's or any Restricted Subsidiary's business; (e) a disposition of all or substantially all of the assets of EGE Haina in a manner permitted under the covenant described under ""Ì Consolidation, Merger, Conveyance, Sale or Lease''; (f) a lease, assignment or sublease of any real or personal property in the ordinary course of business; (g) a disposition of assets in a Sale Leaseback Transaction, if otherwise permitted pursuant to the covenant described under ""Ì Covenants of EGE Haina Ì Limitation on Sale Leaseback Transactions''; or (h) a disposition of assets as a result of the foreclosure on any Lien permitted by the covenant described under ""Ì Covenants of EGE Haina Ì Limitation on Liens. ""Average Life'' means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments. ""Barclays Bank PLC'' means Barclays Bank PLC, an English banking corporation. ""Board of Directors'' means, with respect to any Person, the Board of Directors or other equivalent body of such Person or any committee thereof duly authorized to act on behalf of the Board of Directors of such Person. ""Business Day'' means any day other than a Saturday, Sunday or other day on which banking institutions in New York City, New York, Santo Domingo, Dominican Republic, or Grand Cayman, Cayman Islands, are permitted or required by applicable law to remain closed. ""Capital Stock'' of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. ""Capitalized Lease Obligations'' means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with U.S. GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation determined in accordance with U.S. GAAP; and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. ""Change of Control'' means the occurrence of any of the following events: (1) HIC ceases to own, directly or indirectly, at least 50% of the outstanding Voting Stock of EGE Haina; or (2) HIC ceases to have, directly or indirectly, the power to elect, or will not have elected, a majority of the Board of Directors of Haina Finance and EGE Haina, provided, however, that the events described in clauses (1) or (2) above, as the case may be, will not be deemed to be a Change of Control unless either prior to such event or within 90 days after public notice of the occurrence of such event (which period will be extended so long as any rating is under publicly announced consideration of possible downgrade by any Rating Agency (as defined below)), any Rating Agency publicly announces that the corporate credit of Haina Finance or EGE Haina by such Rating Agency is withdrawn or downgraded to a rating below ""B (stable outlook)'' by S&P or ""B¿ (stable outlook)'' by Fitch (or their respective equivalents at such time). ""Rating Agency,'' for purposes of this definition of Change of Control, means S&P or Fitch. 114


""Closing Date'' means April 26, 2007. ""Consolidated EBITDA'' means, for any period, the sum of (1) the Consolidated operating income of EGE Haina, plus (2) the Consolidated depreciation and amortization expense of EGE Haina, plus (3) the Consolidated non-cash income and charges of EGE Haina during such period, in each case as determined in accordance with U.S. GAAP. ""Consolidated Interest Coverage Ratio'' means at any date, (i) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters for which financial statements of EGE Haina have been provided to the Trustee pursuant to the Indenture, divided by (ii) Consolidated Interest Expense, Net for such period; provided that: (1) if EGE Haina or any Restricted Subsidiary has (a) Incurred any Indebtedness since the beginning of such period that remains outstanding on the date of the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio or if the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense, Net for such period will be calculated on a pro forma basis as if such Indebtedness had been Incurred on the first day of such period, except that in making such computation, the amount of Indebtedness under any Revolving Credit Facility outstanding on the day of such calculation will be deemed to be: (i) the average daily balance of such Indebtedness during such period or such shorter period for which such facility was outstanding; or (ii) if such facility was created after the end of such period, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation); or (b) repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case, other than Indebtedness Incurred under any Revolving Credit Facility, unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio, Consolidated EBITDA and Consolidated Interest Expense, Net for such period will be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if EGE Haina or such Restricted Subsidiary had not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (2) if since the beginning of such period or on the date of the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio, EGE Haina or any Restricted Subsidiary has made or makes any Asset Disposition, then Consolidated EBITDA for such period will be calculated on a pro forma basis as if such Asset Disposition had occurred on the first day of such period; (3) if since the beginning of such period or on the date of the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio, EGE Haina or any Restricted Subsidiary (by merger or otherwise) made or makes (i) an Investment in any Person that on or prior to such date is merged with or into EGE Haina or any Restricted Subsidiary (or any Person that on or prior to such date becomes a Restricted Subsidiary), or (ii) an acquisition of assets, including any acquisition of assets occurring in connection with the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio, which constitutes all or substantially all of an operating unit of a business, then Consolidated EBITDA and Consolidated Interest Expense, Net for such period will be calculated on a pro forma basis as if such Investment or acquisition of assets had occurred on the first day of such period; 115


provided that any such pro forma calculation may include adjustments appropriate to reflect, without duplication: (a) any such Investment or acquisition of assets to the extent such adjustments may be reflected in the preparation of pro forma financial information in accordance with the requirements of U.S. GAAP and Article 11 of Regulation S-X under the Exchange Act; (b) the annualized amount of operating expense reductions reasonably expected to be realized in the six months following any Investment or acquisition of assets made during such period; and (c) the annualized amount of operating expense reductions reasonably expected to be realized in the six months following any such Investment or acquisition of assets made by EGE Haina during either of the two fiscal quarters immediately preceding such period; provided that in the case of adjustment made under subclause (b) or (c), such adjustments are set forth in an Officer's Certificate that states (i) the amount of such adjustment or adjustments, (ii) that such adjustment or adjustments are based on the reasonable good faith beliefs of the officers executing such Officer's Certificate at the time of such execution, and (iii) that any related Incurrence of Indebtedness is permitted pursuant to the Indenture; and (4) if since the beginning of such period, any Person that became a Restricted Subsidiary or was merged with or into EGE Haina or any Restricted Subsidiary since the beginning of such period made any Asset Disposition or any Investment or acquisition of assets prior to becoming a Restricted Subsidiary or merging with or into EGE Haina or any Restricted Subsidiary that would have required an adjustment pursuant to clause (2) or (3) above if made by EGE Haina or a Restricted Subsidiary during such period, then Consolidated EBITDA and Consolidated Interest Expense, Net for such period will be calculated on a pro forma basis as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever Consolidated Total Indebtedness or Consolidated EBITDA is to be calculated on a pro forma basis, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of EGE Haina. If any Indebtedness bears a floating rate of interest and the effects of such Indebtedness are to be calculated on a pro forma basis, the interest expense related to such Indebtedness will be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term as at the date of determination in excess of twelve months). ""Consolidated Interest Expense, Net'' means, for any period, the aggregate amount of Consolidated interest expense in respect of Indebtedness (including, but not limited to, any amount thereof capitalized), net of Consolidated interest income, of EGE Haina accrued during such period as determined in accordance with U.S. GAAP. ""Consolidated Net Debt to Consolidated EBITDA Ratio'' means at any date (1) Consolidated Total Indebtedness less Unrestricted Cash, Temporary Cash Investments, and amounts held in the Interest Reserve Account (whether in the form of cash or Letters of Credit), as of the last day of the most recently ended period of four consecutive fiscal quarters for which financial statements of EGE Haina have been provided to the Trustee pursuant to the Indenture, divided by (2) Consolidated EBITDA for such period; provided that: (1) if EGE Haina or any Restricted Subsidiary has (a) Incurred any Indebtedness since the beginning of such period that remains outstanding on the date of the transaction giving rise to the need to calculate the Consolidated Net Debt to Consolidated EBITDA Ratio or if the transaction giving rise to the need to calculate the Consolidated Net Debt to Consolidated EBITDA Ratio is an Incurrence of Indebtedness, Consolidated Total Indebtedness at the end of such period and Consolidated EBITDA and for such period will be calculated on a pro forma basis as if such Indebtedness had been Incurred on the first day 116


of such period, except that in making such computation, the amount of Indebtedness under any Revolving Credit Facility outstanding on the day of such calculation will be deemed to be: (i) the average daily balance of such Indebtedness during such period or such shorter period for which such facility was outstanding; or (ii) if such facility was created after the end of such period, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation; or (b) repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case, other than Indebtedness Incurred under any Revolving Credit Facility, unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Net Debt to Consolidated EBITDA Ratio, Consolidated Total Indebtedness at the end of such period and Consolidated EBITDA for such period will be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if EGE Haina or such Restricted Subsidiary had not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (2) if since the beginning of such period or on the date of the transaction giving rise to the need to calculate the Consolidated Net Debt to Consolidated EBITDA Ratio, EGE Haina or any Restricted Subsidiary has made or makes any Asset Disposition, then Consolidated EBITDA for such period will be calculated on a pro forma basis as if such Asset Disposition had occurred on the first day of such period; (3) if since the beginning of such period or on the date of the transaction giving rise to the need to calculate the Consolidated Net Debt to Consolidated EBITDA Ratio, EGE Haina or any Restricted Subsidiary (by merger or otherwise) made or makes (i) an Investment in any Person that on or prior to such date is merged with or into EGE Haina or any Restricted Subsidiary (or any Person that on or prior to such date becomes a Restricted Subsidiary), or (ii) an acquisition of assets, including any acquisition of assets occurring in connection with the transaction giving rise to the need to calculate the Consolidated Net Debt to Consolidated EBITDA Ratio, which constitutes all or substantially all of an operating unit of a business, then Consolidated Total Indebtedness at the end of such period and Consolidated EBITDA for such period will be calculated on a pro forma basis as if such Investment or acquisition of assets had occurred on the first day of such period; provided that any such pro forma calculation may include adjustments appropriate to reflect, without duplication: (a) any such acquisition to the extent such adjustments may be reflected in the preparation of pro forma financial information in accordance with the requirements of U.S. GAAP and Article 11 of Regulation S-X under the Exchange Act; (b) the annualized amount of operating expense reductions reasonably expected to be realized in the six months following any Investment or acquisition of assets made during such period; and (c) the annualized amount of operating expense reductions reasonably expected to be realized in the six months following any such Investment or acquisition of assets made by EGE Haina during either of the two fiscal quarters immediately preceding such period; provided that in the case of adjustment made under subclause (b) or (c), such adjustments are set forth in an Officer's Certificate that states (i) the amount of such adjustment or adjustments, (ii) that such adjustment or adjustments are based on the reasonable good faith beliefs of the officers executing such Officer's Certificate at the time of such execution, and (iii) that any related Incurrence of Indebtedness is permitted pursuant to the Indenture; and (4) if since the beginning of such period, any Person that became a Restricted Subsidiary or was merged with or into EGE Haina or any Restricted Subsidiary since the beginning of such period made any Asset Disposition or any Investment or acquisition of assets prior to becoming a Restricted 117


Subsidiary or merging with or into EGE Haina or any Restricted Subsidiary that would have required an adjustment pursuant to clause (2) or (3) above if made by EGE Haina or a Restricted Subsidiary during such period, then Consolidated Total Indebtedness at the end of such period and Consolidated EBITDA for such period will be calculated on a pro forma basis as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever Consolidated Total Indebtedness or Consolidated EBITDA is to be calculated on a pro forma basis, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of EGE Haina. ""Consolidated Net Income'' means, for any period, Consolidated net income of EGE Haina and its Restricted Subsidiaries for such period as determined in accordance with U.S. GAAP; provided, however, that there will not be included in such Consolidated Net Income: (1) any net income or net loss of any Person (other than EGE Haina) if such Person is not a Restricted Subsidiary (other than any cash dividends or distribution actually received by EGE Haina or any of its Restricted Subsidiaries), except that EGE Haina's portion of the net income of a Person in which it has an ownership interest lower than is required for such Person to be Consolidated for such period will be included, but only to the extent that such Person is not restricted in its ability to distribute EGE Haina's portion of such Person's net income to EGE Haina; (2) any net income or net loss of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions of its net income by such Restricted Subsidiary is not, at the date of determination, permitted without any prior governmental approval that has not been obtained or, directly or indirectly, by the operation of the terms of its charter, or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restrictions with respect to the payment of dividends or similar distributions have been legally waived; (3) any gain (or loss) realized upon the sale or other disposition of any asset of EGE Haina or any Restricted Subsidiary (including pursuant to any Sale and Lease-Back Transaction) that is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; (4) any extraordinary or otherwise nonrecurring gain or loss; (5) any gain or loss related to currency fluctuation; and (6) the cumulative effect of a change in accounting principles. ""Consolidated Total Indebtedness'' means, as of any date, the Consolidated Indebtedness of EGE Haina as of such date as determined in accordance with U.S. GAAP. ""Consolidation'' means the consolidation of the accounts of EGE Haina with those of its Restricted Subsidiaries in accordance with U.S. GAAP consistently applied; provided, however, that Consolidation will not include the consolidation of the accounts of any Unrestricted Subsidiary; provided, further, that the direct and indirect interests of EGE Haina in an Unrestricted Subsidiary will be accounted for under the equity method. The term ""Consolidated'' has a correlative meaning. ""Control Agreement'' means the Securities Account Control Agreement dated as of the Closing Date between Haina Finance, the Trustee and the deposit bank named therein, as the same may be amended, supplemented, restated or otherwise modified from time to time. ""Currency Agreement'' means, with respect to any Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement to which such Person is a party or of which it is a beneficiary. ""Default'' means any event that is, or after notice or passage of time or both would be, an Event of Default. 118


""Disqualified Stock'' means, with respect to any Person, any Capital Stock that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event: (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (2) is convertible or exchangeable for Indebtedness or Disqualified Stock; or (3) is redeemable at the option of the holder thereof, in whole or in part; in each case on or prior to the first anniversary of the Maturity Date; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an ""asset sale'' occurring prior to the first anniversary of the Maturity Date will not constitute Disqualified Stock if the ""asset sale'' provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions of the covenants described under ""ĂŒ Covenants of EGE Haina ĂŒ Limitation on Sale of Assets.'' ""Exchange Act'' means the United States Securities Exchange Act of 1934, as amended. ""Fair Market Value'' means, with respect to any asset, the price which could be negotiated in an arm'slength free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under compulsion to complete the transaction; provided that: (1) if such price is US$5 million or more and less than US$10 million, the Board of Directors of EGE Haina has determined such price in good faith, as evidenced by a resolution of such Board of Directors; or (2) if such price is US$10 million or more, the Board of Directors of EGE Haina has received an opinion as to the fairness of such price to the Noteholders from a financial point of view issued by an investment banking firm of international standing. ""Financial Close'' means, with respect to any Project Finance Subsidiary, the time at which initial financing (other than any financing provided by any Affiliate of such Project Finance Subsidiary or any bridge financing) is made available to such Project Finance Subsidiary to finance its project for the acquisition, construction, development or exploitation of any power plant, transmission facility, distribution facility, coal shipment receiving facility, gas shipment receiving facility, gas pipeline or other related facility. ""Guarantee'' means (1) any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person, and (2) any obligation, direct or indirect, contingent or otherwise, of any Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term ""Guarantee'' will not include endorsements for collection or deposit in the ordinary course of business. The term ""Guarantee'' used as a verb has a correlative meaning. ""HIC Management Agreement'' means the Management Agreement dated as of October 28, 2001, between EGE Haina and Haina Investment Company, Ltd., as amended. ""Hedging Obligations'' of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. ""Incur'' means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness of a Person existing at the time such Person is merged or consolidated with EGE Haina or becomes a Subsidiary of EGE Haina (whether by merger, consolidation, acquisition or otherwise) will be deemed to be Incurred by such Person at the time of such merger or consolidation or at the time it becomes a 119


Subsidiary of EGE Haina. The term ""Incurrence'' when used as a noun will have a correlative meaning. Neither the accretion of principal of a non-interest bearing or other discount security nor the capitalization of interest on Indebtedness will be deemed the Incurrence of Indebtedness. ""Indebtedness'' means, with respect to any Person on any date of determination (without duplication): (1) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money; (2) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (3) all reimbursement obligations of such Person in respect of the face amount of letters of credit or other similar instruments; (4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except trade payables and contingent obligations to pay earn-outs), which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (5) all Capitalized Lease Obligations of such Person; (6) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends); (7) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of Indebtedness of such Person will be the lesser of: (a) the Fair Market Value of such asset on the date on which the Lien was created, and (b) the amount of such Indebtedness of such other Persons; (8) to the extent not otherwise included in this definition, the aggregate net termination value of all Hedging Obligations of such Person; and (9) all obligations of the type referred to in clauses (1) through (8) above of other Persons Guaranteed by such Person or for which such Person is otherwise liable as obligor, guarantor or otherwise. The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. The following obligations will not be deemed to be Indebtedness for any purpose: (a) Obligations arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five Business Days of its Incurrence; or (b) Customer deposits and advance payments received from customers for the sale, lease or license of goods and services (including the supply of electricity) in the ordinary course of business. ""Interest Rate Agreement'' means, with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement to which such Person is a party or a beneficiary. ""Investment'' in any Person means (a) any direct or indirect advance, loan (other than advances to customers or suppliers in the ordinary course of business that are recorded as accounts receivable, pre-paid expenses or deposits on the Consolidated balance sheet of EGE Haina) or other extension of credit (including by way of Guarantee or similar arrangement) to, (b) any capital contribution to (by means of any transfer of cash or other property to such Person or any payment for property or services for the account or 120


use of such Person), or (c) any purchase or acquisition of Capital Stock of, or Indebtedness or other similar instruments issued by, such Person. For purposes of the covenant described under ""ĂŒ Covenants of EGE Haina ĂŒ Restricted Payments,'' the Designation of any Subsidiary of EGE Haina as an Unrestricted Subsidiary will be deemed to be an Investment by EGE Haina in such Unrestricted Subsidiary in an amount equal to the portion of the Fair Market Value of the net assets of such Subsidiary at the time of such Designation that is proportionate to EGE Haina's direct and indirect equity interest in such Subsidiary at the time of such Designation. ""Lien'' means any mortgage, deed of trust, lien, security interest, pledge, hypothecation, assignment, deposit arrangement 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, any designation of loss payees or beneficiaries, any right of set off or any similar arrangement under or with respect to any insurance policy or any preference of one creditor over another arising by operation of law or anything analogous to any of the foregoing under the laws of any jurisdiction. ""Loan Agreement'' means the Term Loan Agreement dated as of the Closing Date between EGE Haina and Barclays Bank PLC as the same may be amended, supplemented, restated or otherwise modified from time to time. ""Luxembourg Paying Agent'' means Deutsche Bank Luxembourg S.A. ""Minimum Legally Required Dividends'' means, for any Person, an amount equal to the minimum dividend required to be distributed under applicable Dominican or Cayman Islands law by such Person to holders of its Capital Stock. ""Moody's'' means Moody's Investors Service, Inc. or any successor thereto. ""Net Available Cash'' from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of: (1) all legal fees and expenses, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under U.S. GAAP, as a consequence of such Asset Disposition; (2) all payments, including any prepayment premiums or penalties, made on any Indebtedness that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Subsidiaries of EGE Haina or joint ventures as a result of such Asset Disposition; and (4) appropriate amounts to be provided by the seller as a reserve, in accordance with U.S. GAAP, against any liabilities associated with the property or other assets disposed of in such Asset Disposition and retained by EGE Haina or any Restricted Subsidiary after such Asset Disposition. ""Net Cash Proceeds'' with respect to any issuance or sale of Capital Stock means the cash proceeds of such issuance or sale, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts and commissions and brokerage, consultant and other fees and expenses actually incurred in connection with such issuance or sale, and net of taxes paid or payable as a result thereof. ""Officer's Certificate'' means with respect to Haina Finance, a certificate signed by two directors of Haina Finance, and with respect to EGE Haina or any other Restricted Subsidiary, a certificate signed by two 121


officers or by an officer and the Chief Financial Officer of EGE Haina or such Restricted Subsidiary, as the case may be. ""Participation Agreement'' means the Participation Agreement, dated as of the Closing Date, between Haina Finance and Barclays Bank PLC as the same may be amended, supplemented, restated or otherwise modified from time to time. ""Permitted Investment'' means: (1) the Participation Agreement; (2) an Investment by EGE Haina or any Restricted Subsidiary in EGE Haina, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (3) an Investment by EGE Haina or any Restricted Subsidiary in another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, EGE Haina or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (4) Temporary Cash Investments; (5) Receivables owing to EGE Haina or any Restricted Subsidiary if created or acquired in the ordinary course of business; (6) an Investment by EGE Haina or any Restricted Subsidiary in EDE-Este, EDE-Sur or EDENorte that is secured by existing or future accounts receivable of EDE-Este, EDE-Sur or EDE-Norte in an aggregate amount at least equal to the amount of such Investment; (7) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (8) stock, obligations or securities received in settlement of (or foreclosure with respect to) debts created in the ordinary course of business and owing to EGE Haina or any Restricted Subsidiary or in satisfaction of judgments; (9) an Investment by EGE Haina or any Restricted Subsidiary in any Person to the extent such Investment represents the non-cash or deemed cash portion of the consideration received for an Asset Disposition that was made pursuant to and in compliance with the covenant described under ""Ì Covenants of EGE Haina Ì Limitation on Sale of Assets''; (10) any Investment existing on the Closing Date; (11) Hedging Obligations permitted under clause (2)(j) of the covenant described under ""Ì Covenants of EGE Haina Ì Limitation on Indebtedness''; (12) Guarantees of Indebtedness permitted under the covenant described under ""Ì Covenants of EGE Haina Ì Limitation on Indebtedness''; (13) Investments that are made exclusively with Capital Stock of EGE Haina (other than Disqualified Stock); (14) Investments in the Notes; and (15) additional Investments having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (15) that are at the time outstanding, not to exceed US$10 million at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value). ""Person'' means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, other entity or governmental authority. 122


""Pledge Agreement'' means the Assignment and Pledge Agreement dated as of the Closing Date among EGE Haina, Haina Finance and the Trustee as the same may be amended, supplemented, restated or otherwise modified from time to time. ""Preferred Stock'' means any class or classes (however designated) of Capital Stock of any Person that is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. ""Project Finance Subsidiary'' means any Unrestricted Subsidiary that is a special purpose vehicle established to finance a project for the acquisition, construction, development and exploitation of any power plant, transmission facility, distribution facility, coal shipment receiving facility, gas shipment receiving facility, gas pipeline or other related facility. ""Purchase Money Indebtedness'' means: (1) Indebtedness Incurred to finance the development, engineering, purchase or construction of property, plant or equipment which will be treated as Consolidated capital expenditures of EGE Haina; provided that (a) any such Indebtedness does not exceed the value of the property, plant or equipment so purchased or constructed, (b) any Lien on the property, plant or equipment so purchased or constructed securing such Indebtedness will not extend to or cover assets of EGE Haina or any of its Restricted Subsidiaries other than (i) the property, plant or equipment so purchased or constructed, (ii) the real property, if any, on which the property so constructed or so purchased, is situated, and (iii) the accessions, attachments, replacements and improvements thereto, and (c) such Indebtedness is Incurred within 180 days of the purchase or construction of such property, plant or equipment; or (2) Indebtedness Incurred in connection with any lease financing transaction (whether such lease will be treated as an operating lease or a Capitalized Lease Obligation in accordance with U.S. GAAP). ""Receivables'' means all rights of EGE Haina or any Restricted Subsidiaries to payments (whether constituting accounts, chattel paper, instruments, general intangibles or otherwise, and including the right to payment of any interest or finance charges), which rights are identified in the accounting records of EGE Haina or such Restricted Subsidiary as accounts receivable. ""Record Date'' means, with respect to any payment of principal or interest on any Note, the fifteenth day prior to the due date for such payment (whether or not a Business Day). ""Refinance'' means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, replace, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. ""Refinanced'' and ""Refinancing'' will have correlative meanings. ""Refinancing Indebtedness'' means Indebtedness that is Incurred to Refinance any Indebtedness of EGE Haina or any Restricted Subsidiary existing on the Closing Date or Incurred in compliance with the Indenture (including Indebtedness that Refinances Refinancing Indebtedness); provided, however, that: (1) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced; (2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the then Average Life of the Indebtedness being refinanced; (3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) (net of Unrestricted Cash, Temporary Cash Investments, any debt service reserve and any Guarantee of a Person other than EGE Haina or any Restricted Subsidiary that is not taken into consideration for purposes of Consolidated Net Debt to Consolidated EBITDA Ratio) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being Refinanced plus the amount of accrued and unpaid interest thereon, any premium paid to the holders of the Indebtedness being refinanced and reasonable expenses Incurred in connection therewith; and 123


(4) if the Indebtedness being Refinanced is subordinated in right of payment to the Loan Agreement, such Refinancing Indebtedness is subordinated in right of payment to the Loan Agreement at least to the same extent as the Indebtedness being Refinanced. ""Related Business'' means the generation, transmission, distribution or commercialization of power or electric energy and any business related, ancillary or complementary to such businesses. ""Restricted Subsidiary(ies)'' means all Subsidiaries of EGE Haina other than Unrestricted Subsidiaries and Haina Finance. ""Revolving Credit Facility'' means any agreement or line of credit with any lending institution under which EGE Haina or any Restricted Subsidiary is permitted to borrow funds up to a specified credit limit on a revolving basis, regardless of whether such funds are committed and regardless of whether any evidence of indebtedness is required to be executed and delivered to the lending institution with respect to any specific borrowing under such agreement or line of credit. ""Sale and Lease-Back Transaction'' means any arrangement with any Person (other than EGE Haina or a Restricted Subsidiary), or to which any such Person is a party, providing for the leasing to EGE Haina or a Restricted Subsidiary for a period of more than three years of any property or assets that have been or are to be sold or transferred by EGE Haina or such Restricted Subsidiary to such Person or to any other Person (other than EGE Haina or a Restricted Subsidiary) to which funds have been or are to be advanced by such Person on the security of the leased property or assets. ""Security Documents'' means the Pledge Agreement and the Control Agreement and any other document that purports to create a security interest in favor or for the benefit of the holders of the Notes. ""Senior Indebtedness'' means all unsubordinated Indebtedness of EGE Haina or of any Restricted Subsidiary, whether outstanding on the Closing Date or Incurred thereafter. ""Stated Maturity'' means, with respect to any Indebtedness, the date specified in such Indebtedness as the fixed date on which the final payment of principal of such Indebtedness is due and payable, including, with respect to any principal amount that is then due and payable pursuant to any mandatory redemption or prepayment provision, the date specified for the payment thereof (but excluding any provision providing for the repurchase or prepayment of such Indebtedness at the option of the holder thereof upon the happening of any contingency beyond the control of the obligor thereunder unless such contingency has occurred). ""Subordinated Obligation'' means either Indebtedness of EGE Haina or any Restricted Subsidiary (whether outstanding on the Closing Date or thereafter Incurred) that is subordinate or junior in right of payment to the Notes or the Loan Agreement, as applicable, pursuant to a written agreement. ""Subsidiary'' means, with respect to any Person (the ""parent'') at any date, (1) any corporation, limited liability company, partnership, association or other entity the accounts of which would be Consolidated with those of the parent in the parent's Consolidated financial statements if such financial statements were prepared in accordance with U.S. GAAP as of such date, and (2) any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned by (a) the parent, (b) one or more Subsidiaries of the parent, or (c) the parent and one or more Subsidiaries of the parent. ""Temporary Cash Investments'' means any of the following: (1) Investments in direct obligations of the United States or any agency thereof or obligations Guaranteed by the United States or any agency thereof; (2) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 365 days of the date of deposit of cash or acquisition thereof issued by a bank or trust company that is organized under the laws of the United States, any state thereof or any foreign country recognized by the United States having capital, surplus and undivided profits aggregating in excess of US$50 million (or the foreign currency equivalent thereof) and whose long-term debt is rated ""A'' (or 124


such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in section 3(a)(62) of the Exchange Act); (3) Investments in repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) Investments in commercial paper maturing not more than 365 days after the date of acquisition thereof issued by a corporation (other than an Affiliate of EGE Haina) organized and in existence under the laws of the United States or any foreign country recognized by the United States with a rating at the time as of which any Investment therein is made of ""A1'' (or higher) by S&P or ""P1'' (or higher) by Moody's; (5) Investments in securities with maturities of six months or less from the date of acquisition thereof issued or fully Guaranteed by any state, commonwealth or territory of the United States, or by any political subdivision or taxing authority thereof, and rated at least ""A'' by S&P or ""A'' by Moody's; (6) Money market mutual funds with the highest rating from S&P and Moody's; and (7) (a) Investments in marketable direct obligations issued or unconditionally Guaranteed by the Dominican Republic and maturing within one year from the date of acquisition thereof; (b) Investments in time deposit accounts or certificates of deposit maturing not more than 365 days after the date of deposit of cash or acquisition thereof issued by a Dominican bank, the commercial paper or other short-term unsecured debt obligations of which (or in the case of a bank that is the principal subsidiary of a holding company, of the holding company) is rated the highest rating of any Dominican bank, but in no event less than the short term rating of ""A1'' by S&P or ""P1'' by Moody's; (c) Investments in repurchase obligations with a term of not more than 60 days for underlying securities of the types described in subclause (a) above entered into with a bank meeting the qualifications described in subclause (b) above, or (d) Investments in time deposit accounts, certificates of deposit and money market accounts maturing not more than 365 days after the date of deposit of cash or acquisition thereof issued by (i) any of the largest five banks (based on assets of the last December 31) organized under the laws of the Dominican Republic or (ii) any other bank organized under the laws of the Dominican Republic so long as the outstanding amount in any such bank does not exceed at any one time US$5 million (or the foreign currency equivalent thereof). ""Total Capitalization'' means, as to any Project Finance Subsidiary, the projected total cost of acquiring, constructing, developing and exploiting any power plant, transmission facility, distribution facility, or facility related to the processing, sale or distribution of coal or gas, or related facilities thereto as of the Financial Close relating thereto, as determined in good faith by the Board of Directors of EGE Haina on the basis of reasonable assumptions. ""Unrestricted Cash'' means, as of any date of determination, the cash or cash equivalents as set forth on the Consolidated balance sheet of EGE Haina minus, without duplication, the sum of cash or cash equivalents, which, either under U.S. GAAP or any contractual obligations of EGE Haina, may not be used for the payment of Indebtedness. ""Unrestricted Subsidiary'' means (1) any Subsidiary of EGE Haina (other than Haina Finance) that at the time of determination has been designated an Unrestricted Subsidiary by the Board of Directors of EGE Haina, and (2) any Subsidiary of an Unrestricted Subsidiary. 125


The Board of Directors of EGE Haina may designate any Subsidiary of EGE Haina (excluding Haina Finance, but including any newly acquired or newly formed Subsidiary) as an ""Unrestricted Subsidiary'' under the Indenture (a ""Designation'') only if: (a) at the time of such Designation, no creditor of such Subsidiary has recourse to EGE Haina or any Restricted Subsidiary and the documents with respect to any Indebtedness of such Subsidiary so provide; (b) no Default or Event of Default will have occurred and be continuing at the time of or after giving effect to such Designation; (c) at the time of such Designation, none of such Subsidiary or its Subsidiaries own Capital Stock or Indebtedness of, or holds any Lien on any property of, EGE Haina or any other Restricted Subsidiary; and (d) at the time of such Designation, such Subsidiary (i) has total consolidated assets of $1,000 or less, or (ii) EGE Haina would be permitted to make an Investment under the covenant described under ""Ì Covenants of EGE Haina Ì Restricted Payments'' at the time of Designation in an amount equal to the Fair Market Value of EGE Haina's direct and indirect equity interest in such Subsidiary on such date. Notwithstanding the definition of ""Fair Market Value,'' for purposes of this definition, the Fair Market Value of EGE Haina's direct and indirect equity interest in any Subsidiary of EGE Haina will be equal to the portion of the Fair Market Value of the net assets of such Subsidiary at the time of any Designation that is proportionate to EGE Haina's direct and indirect equity interest in such Subsidiary at the time of such Designation. The Board of Directors of EGE Haina may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a ""Revocation'') if: (i) no Default or Event of Default will have occurred and be continuing at the time of and after giving effect to such Revocation; (ii) all Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if Incurred at such time, have been permitted to be Incurred under clause the covenant described under ""Ì Covenants of EGE Haina Ì Limitation on Indebtedness;'' and (iii) all Liens securing Indebtedness of such Unrestricted Subsidiary immediately following such Revocation would, if such Indebtedness had been Incurred at such time, have been permitted to be Incurred under clause the covenant described under ""Ì Covenants of EGE Haina Ì Limitation on Liens. Any such Designation or Revocation will be evidenced by prompt delivery to the Trustee of a copy of the resolution of the Board of Directors of EGE Haina giving effect thereto accompanied by an Officer's Certificate as to compliance with the foregoing provisions. ""U.S. GAAP'' means the generally accepted accounting principles in the United States as in effect on any date of determination, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. ""U.S. Government Obligations'' means direct obligations (or certificates representing an ownership interest in such obligations) of the United States (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States is pledged and that are not callable or redeemable at Haina Finance's option. ""Value'' means, with respect to a Sale and Lease-Back Transaction, the amount equal to the greater of (1) the net proceeds from the sale or transfer of the property leased pursuant to such Sale and Lease-Back 126


Transaction, and (2) the fair value in the opinion of the Board of Directors of EGE Haina or the relevant Restricted Subsidiary of such property at the time of entering into such Sale and Lease-Back Transaction. ""Voting Stock'' of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

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CERTAIN ERISA CONSIDERATIONS General The United States Employee Retirement Income Security Act of 1974, as amended (""ERISA''), imposes certain requirements on employee benefit plans subject to Title I of ERISA and on entities that are deemed to hold the assets of such plans (""ERISA Plans''), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan's investments be made in accordance with the documents governing the plan. Section 406 of ERISA and Section 4975 of the United States Internal Revenue Code of 1986, as amended (the ""Code''), prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, ""Plans'')) and certain persons (referred to as ""parties in interest'' or ""disqualified persons'') having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code, and the transaction may have to be rescinded. Any Plan fiduciary which proposes to cause a Plan to purchase the Notes should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such purchase and holding will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA. Governmental plans, non-U.S. plans, certain church plans and other plans, while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to other federal, state and non-U.S. laws or regulations that are substantially similar to the foregoing provisions of ERISA and the Code (""Similar Law''). Fiduciaries of any such plans should consult with their counsel before purchasing the Notes to determine the need for, and the availability, if necessary, of any exemptive relief under any such laws or regulations before purchasing any Notes. Prohibited Transaction Exemptions The fiduciary of a Plan that proposes to purchase and hold any Notes should consider, among other things, whether such purchase and holding may involve (i) the direct or indirect extension of credit to a party in interest or a disqualified person, (ii) the sale or exchange of any property between a Plan and a party in interest or a disqualified person, or (iii) the transfer to, or use by or for the benefit of, a party in interest or disqualified person, of any Plan assets. Such parties in interest or disqualified persons could include, without limitation, EGE Haina, Haina Finance, the Trustee, the Initial Purchasers or any of their respective affiliates. Depending on the satisfaction of certain conditions which may include the identity of the Plan fiduciary making the decision to acquire or hold the Notes on behalf of a Plan, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code or Prohibited Transaction Class Exemption (""PTCE'') 84-14 (relating to transactions effected by a ""qualified professional asset manager''), PTCE 90-1 (relating to investments by insurance company pooled separate accounts, PTCE 91-38 (relating to investments by bank collective investment funds), PTCE 95-60 (relating to investments by an insurance company pooled separate accounts) or PTCE 96-23 (relating to transactions directed by an in-house asset manager) (collectively, the ""Class Exemptions'') could provide an exemption from the prohibited transaction provisions of ERISA and Section 4975 of the Code. However, there can be no assurance that any of these Class Exemptions or any other exemption will be available with respect to any particular transaction involving the Notes. 128


Each Plan fiduciary (and each fiduciary for governmental or church plans subject to Similar Law) should consult with its legal advisor concerning the potential consequences to the plan under ERISA, the Code or such Similar Laws of an investment in the Notes. By its acquisition of any Notes or interests in Notes, the purchaser thereof, and any transferee thereof, will be deemed to have represented and agreed (a) either that (1) it is not, and for so long as it holds the Notes or interests in Notes will not be, a Plan, an entity whose underlying assets include the assets of any Plan or a governmental plan, church plan or non-U.S. or other plan that is subject to any federal, state, local or non-U.S. law or regulation that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code or (2) its acquisition, holding or disposition of the Notes or interests in Notes will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of a governmental plan, church plan or non-U.S. or other plan, a violation of any substantially similar federal, state, local or non-U.S. law), and (b) it will not sell or otherwise transfer such Notes or any interest therein otherwise than to a purchaser or transferee that is deemed to represent and agree with respect to its purchase, holding and disposition of such Notes to the same effect as the purchaser's representation and agreement set forth in this sentence. The sale of any Notes, or any interest therein, to a Plan or a governmental, church or other plan that is subject to Similar Laws is in no respect a representation by EGE, Haina, Haina Finance, the Trustee, the Initial Purchasers, or any of their respective affiliates, that such an investment meets all relevant legal requirements with respect to investments by such plans generally or any particular such plan; that any prohibited transaction exemption would apply to such an investment by such plans in general or any particular such plan; or that such an investment is appropriate for such plans generally or any particular such plan. The discussion of ERISA and Section 4975 of the Code contained in this confidential preliminary offering memorandum, is, of necessity, general, and does not purport to be complete. Moreover, the provisions of ERISA and Section 4975 of the Code are subject to extensive and continuing administrative and judicial interpretation and review. Therefore, the matters discussed above may be affected by future regulations, rulings and court decisions, some of which may have retroactive application and effect.

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TAX CONSIDERATIONS The following discussion summarizes certain U.S. federal income, Cayman Islands and Dominican tax considerations that may be relevant to you if you invest in the Notes. This summary is based on laws, regulations, rulings and decisions now in effect in the United States and on laws and regulations in effect in the Cayman Islands and the Dominican Republic, in each case which may change. Any change could apply retroactively and could affect the continued validity of this summary. This summary does not describe all of the tax considerations that may be relevant to you or your situation, particularly if you are subject to special tax rules. You should consult your tax advisors about the tax consequences of holding the Notes, including the relevance to your particular situation of the considerations discussed below, as well as of state, local and other tax laws. Cayman Islands Tax Considerations The following discussion of certain Cayman Islands income tax consequences of an investment in the Notes is based on the advice of Appleby as to Cayman Islands law. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It assumes that Haina Finance will conduct its affairs in accordance with assumptions made by, and representations made to, counsel. It is not intended as tax advice, does not consider any investor's particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law. The following is a general summary of Cayman Islands taxation in relation to the Notes. Under existing Cayman Islands laws: (i) neither payments of principal and interest in respect of the Notes nor payments under the Guaranty will be subject to taxation in the Cayman Islands and no withholding will be required on such payments and gains derived from the sale of Notes will not be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax; and (ii) certificates evidencing the Notes, in registered form, to which title is not transferable by delivery, will not attract Cayman Islands stamp duty. However, an instrument transferring title to Notes, if brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty. Haina Finance has been incorporated under the laws of the Cayman Islands as an exempted company and, as such, shall apply for and expects to obtain an undertaking from the Governor in Cabinet of the Cayman Islands substantially in the following form: ""THE TAX CONCESSIONS LAW (1999 REVISION) UNDERTAKING AS TO TAX CONCESSIONS In accordance with Section 6 of the Tax Concessions Law (1999 Revision), the Governor in Cabinet undertakes with: EGE Haina Finance Company (the ""Company'') (a) that no Law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Company or its operations; and (b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty, or inheritance tax shall be payable (i) on or in respect of the shares, debentures or other obligations of the Company; or (ii) by way of the withholding in whole or in part of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (1999 Revision). 130


These concessions shall be for a period of TWENTY years from the

day of

, 2007.

GOVERNOR IN CABINET'' The Cayman Islands does not have an income tax treaty arrangement with the United States or any other country. The Cayman Islands has entered into an information exchange agreement with the United States. Dominican Republic Taxation The following summary of certain income tax considerations is based on the advice of Pereyra & Associados, with respect to Dominican Republic taxes. The summary contains a description of the principal Dominican Republic tax consequences of the purchase, ownership and disposition of the Notes. This summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase Notes and does not address all tax considerations that may be relevant to all categories of potential investors, some of whom may be subject to special rule. This summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the Dominican Republic. The information set forth below is a summary only, and Dominican Republic tax laws may change from time to time. This summary is based on the tax laws of the Dominican Republic as in effect on the date of this offering memorandum, as well as regulations, rulings and decisions of the Dominican Republic available on or before such date and now in effect. All of the foregoing is subject to change, which change could apply retroactively and could affect the continued validity of the summary. Prospective purchasers of the Notes should consult their own tax advisors as to the Dominican Republic or other tax consequences of the purchase, ownership and disposition of the Notes, including, in particular, the application to their particular situation of the tax considerations discussed below, as well as the application of state, local, foreign or other tax laws. Under Dominican law, in principle payments abroad are subject to a 29% withholding tax. Such withholding tax shall decrease in the up coming years until reaching 25% on the year 2009. If payments are made pursuant to a Loan contracted by a Dominican entity payment of interest (not capital) will be subject to either a 10% or 29% withholding tax, depending on whether such payments are made to either a Financial Entity or some other person, in each case located outside the Dominican Republic. Payments of interest made to a Financial Entity will have tax withheld at the rate of 10%. Payments of interest made to persons other than Financial Entities will have tax withheld at a rate of 29%; in the understanding that such rate shall decrease as provided with respect to the applicable rate to general payments abroad (25% in 20009). Tax is withheld at the time interest is paid. Payment of interest on the Notes will be subject to either the 10% or 29% withholding tax, as long as payments are made by EGE Haina to a financial entity abroad and depending on whether or not the transaction is characterized as payments of a loan. In either case EGE Haina would be required to withhold and pay to the tax authority the amount of tax withheld at the time interest is paid. Irrespective of whether the interest paid by Haina is subject to the 10% or the 29% withholding rate, EGE Haina will compensate the Noteholder for the amount of tax so withheld. See ""Description of the Notes ĂŒ Additional Amounts.'' Under the principles of territoriality underlying the Dominican constitution, gain from the sale or exchange of Notes by a foreign holder outside of the Dominican Republic would not be subject to taxation by the Dominican tax authority. The foregoing tax treatment assumes that the Notes will remain in the form of global bonds registered in the name of a nominee and will not be issued in definitive, certificated form. If EGE Haina were to issue certificated Notes directly to an investor, and such investor transfers such certificated Notes to a third party generating a capital gain, such capital gain shall be considered Dominican source income and will be subject to a tax rate of up to 29% depending on the party generating the gain (individual or corporate investor). The gain shall be the difference between the value of transfer of the Notes minus the cost of acquisition of such Notes adjusted by inflation. There is no income tax treaty in force between the Dominican Republic and the United States. 131


There are no Dominican inheritance, gift, or succession taxes applicable to the ownership, transfer or disposition of Notes by a foreign holder based on the principles of territoriality mentioned above. Nevertheless, such taxes will generally apply to the transfer at death or by gift of Notes by a foreign holder if it occurs within the Dominican Republic. There are no Dominican stamp, issue, registration or similar taxes or duties payable to holders of Notes. United States Federal Income Taxation Considerations General The following discussion is a summary of the principal U.S. federal income tax consequences of the acquisition, ownership, retirement and disposition of the Notes. This discussion applies only to beneficial owners of Notes that hold Notes as ""capital assets'' (generally, property held for investment) and who are initial investors that purchase the Notes at the ""issue price'' within the meaning of Section 1273 of the U.S. Internal Revenue Code of 1986, as amended, or the ""Code,'' final, temporary and proposed Treasury regulations, administrative pronouncements and judicial decisions, all as currently in effect and all of which are subject to change (possibly on a retroactive basis) and to different interpretations. This discussion does not purport to address all U.S. federal income tax considerations that may be relevant to a particular holder. For example, the discussion does not address the tax considerations that may be relevant to holders subject to special tax rules, such as: ‚ insurance companies; ‚ tax-exempt organizations; ‚ dealers or traders in securities or currencies; ‚ certain financial institutions; ‚ partnerships or other pass-through entities; ‚ holders whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; ‚ certain U.S. expatriates; ‚ real estate investment trusts; ‚ regulated investment companies; or ‚ holders that hold our Notes as part of a hedge, straddle or conversion transaction. This discussion does not address the alternative minimum tax or estate or gift tax consequences of holding the Notes, nor the state, local and non-U.S. tax consequences of acquiring, owning, disposing or retiring the Notes. Prospective purchasers should consult their tax advisors regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of purchasing, owning, and disposing of the Notes in the prospective purchaser's particular circumstances. For purposes of this summary, a ""U.S. Holder'' is a beneficial owner of Notes that is, for U.S. federal income tax purposes: ‚ an individual who is a citizen or resident of the United States; ‚ a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof, including the District of Columbia; ‚ an estate the income of which is subject to U.S. federal income taxation regardless of its source; or ‚ a trust (1) that validly elects to be treated as a United States person for U.S. federal income tax purposes or (2) (a) over the administration of which a U.S. court can exercise primary supervision and (b) of which one or more United States persons has the authority to control. 132


If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds the Notes, the tax treatment of the partnership and a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its consequences. A ""Non-U.S. Holder'' is a beneficial owner of Notes that is neither a U.S. Holder nor a partnership (or entity treated as a partnership for U.S. federal income tax purposes). U.S. Internal Revenue Service Circular 230 Disclosure Pursuant to U.S. Internal Revenue Service Circular 230, we hereby inform you that the description set forth herein with respect to U.S. federal tax issues was not intended or written to be used, and such description cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer under the U.S. Internal Revenue Code. Such description was written to support the marketing of the Notes. Each taxpayer should seek advice based on their particular circumstances from an independent tax advisor. Interest U.S. Holders. Interest paid to a U.S. Holder on a Note, including any Additional Amounts and any non-U.S. tax withheld, will be includible in gross income as ordinary interest income in accordance with the U.S. Holder's usual method of accounting for U.S. federal income tax purposes. In certain circumstances, a U.S. Holder may be able to claim a U.S. foreign tax credit for non-U.S. income taxes paid on behalf of the U.S. Holder. Interest on the Notes will be treated as foreign source income for purposes of the U.S. foreign tax credit. The limitation on foreign taxes eligible for the U.S. foreign tax credit is calculated separately with respect to specific categories of income. For this purpose, for taxable years beginning before January 1, 2007, interest income with respect to your Notes should generally constitute ""passive income,'' or in the case of certain U.S. Holders, ""financial services income,'' and, for taxable years beginning after December 31, 2006, such interest income should generally constitute ""passive category income,'' or in the case of certain U.S. Holders, ""general category income.'' The U.S. foreign tax credit rules are complex and subject to a number of limitations under the Code. Any holder who may be entitled to a U.S. foreign tax credit should consult their independent tax advisor. In lieu of claiming a U.S. foreign tax credit, U.S. Holders may elect to deduct (rather than credit) all foreign income taxes paid or accrued in computing their U.S. federal taxable income for the relevant taxable year. We may redeem all or part of the Notes at any time after April 26, 2012 by, in some cases, paying a specified premium (See ""Description the Transaction Documents ĂŒ Optional Redemption''). U.S. Treasury Regulations regarding notes issued with original issue discount (""OID'') contain special rules for determining the maturity date and the stated redemption price at maturity of a debt instrument where the issuer of such debt instrument has an unconditional option to make payments under such debt instrument under an alternative payment schedule. Under such rules, it is assumed that the issuer of such debt instrument will exercise an option to redeem a debt instrument if such exercise will lower the yield to maturity of such debt instrument. Since the terms of our option to redeem the Notes after April 26, 2012 by, in some cases, paying a specified premium would not lower the yield to maturity of the Notes, we will disregard this optional redemption provision in determining the amount or timing of any OID inclusions thereon. We may redeem all or part of the notes at any time prior to April 26, 2012 at a redemption price equal to 100% of the principal amount of Notes redeemed plus a make-whole amount (See ""Description the Transaction Documents ĂŒ Optional Redemption''). Under the U.S. Treasury Regulations regarding OID and contingent payment debt instruments, if based on all the facts and circumstances as of the date on which the notes are issued there is only a remote likelihood that a contingent redemption option will be exercised, it is assumed that such redemption will not occur. We believe that as of the expected issue date of the Notes, the likelihood of our right to redeem the Notes prior to April 26, 2012 is for this purpose remote. Similarly, with respect to a holder's option to require us to redeem the Notes in the event of a Change of Control (See ""Description of the Transaction Documents ĂŒ Repurchases at the Option of the Holders of the Notes Upon 133


Change of Control''), we believe that as of the expected issue date of the Notes, the likelihood of such events is for this purpose remote. In each case, our determination is not binding on the U.S. Internal Revenue Service, or the IRS, and if the IRS were to challenge this determination, U.S. Holders may be required to accrue income on Notes that you own in excess of stated interest, and to treat as ordinary income rather than capital gain any income realized on the taxable disposition of Notes before the resolution of the contingency. In the event that any of these contingencies were to occur, it could affect the amount, character and timing of the income that you recognize. U.S. Holders are urged to consult their own tax advisors regarding the potential application to the Notes of the contingent payment debt instrument rules and the consequences thereof. Non-U.S. Holders. Payments of interest to Non-U.S. Holders generally will not be subject to U.S. federal income tax unless the income is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States (and, if required under an applicable income tax treaty, is attributable to a permanent establishment maintained in the United States by the Non-U.S. Holder). Sale, Exchange or Retirement U.S. Holders. Upon the sale, exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or loss equal to the difference, if any, between the amounts realized on the sale, exchange or retirement, other than accrued but unpaid interest which will be taxable as such, and the U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally will equal the cost of the Note to the U.S. Holder. Any such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder has held the Note for more than one year. For U.S. foreign tax credit purposes, any gain or loss realized on the sale, exchange or retirement of a Note generally will be treated as U.S. source gain or loss, as the case may be. The ability of a U.S. Holder to offset or reduce U.S. source gain or loss with non-U.S. source gain or loss or foreign tax credits is subject to a number of limitations under the Code. Under certain circumstances as described under ""ĂŒ Dominican Republic Taxation'', you may be subject to Dominican Republic tax upon the disposition of your Notes. If any gain from the sale or exchange of Notes is subject to Dominican Republic tax or tax in any other non-U.S. jurisdiction, U.S. Holders may not be able to credit such taxes against their U.S. federal income tax liability under the U.S. foreign tax credit limitations of the Code, because such gain generally would be United States source income, unless such tax can be credited (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. The deductibility of capital losses is subject to limitations under the Code. Non-U.S. Holders. Subject to the discussion below under the caption ""U.S. Backup Withholding Tax and Information Reporting,'' gain realized by a Non-U.S. Holder upon the sale, exchange or retirement of a Note generally will not be subject to U.S. federal income tax, unless: ‚ the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States and, if required under an applicable income tax treaty, is attributable to a permanent establishment maintained in the United States by the Non-U.S. Holder, or ‚ in the case of an individual Non-U.S. Holder, the Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale, exchange or retirement and certain other conditions are met. U.S. Backup Withholding Tax and Information Reporting Backup withholding tax and information reporting requirements may apply to certain payments of principal of, and interest on, an obligation and to proceeds of the sale or redemption of an obligation to certain noncorporate holders of Notes that are United States persons. Information reporting generally will apply to payments of interest and to proceeds from the sale or redemption of Notes made within the United States (and, in some cases, outside of the United States) to a holder of Notes (other than an exempt recipient, including a corporation, a payee that is not a United States person who provides appropriate certification and certain other persons). The payor will be required to withhold backup withholding tax on payments made within the United States (and, in some cases, outside of the United States) on a Note to a holder of a Note 134


that is a United States person, other than an exempt recipient, such as a corporation, if the holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, the backup withholding requirements. Payments within the United States of principal and interest to a holder of a Note that is not a United States person generally will not be subject to backup withholding tax and information reporting requirements if an appropriate certification is provided by the holder to the payor and the payor does not have actual knowledge or a reason to know that the certificate is incorrect. The current rate of backup withholding tax rate is 28%. Backup withholding is not an additional tax. Any backup withholding tax generally will be allowed as a credit against the holder's U.S. federal income tax liability or, to the extent the withheld amount exceeds such liability, refunded upon the filing of a U.S. federal income tax return. European Union Savings Directive The European Union has adopted a Directive regarding the taxation of savings income. Member states of the European Union (""Member States'') are required to provide to the tax authorities of other Member States details of payments of interest and other similar income paid by a person to an individual in another Member State, except that Austria, Belgium and Luxembourg will instead impose a withholding system for a transitional period unless during such period they elect otherwise. The above description is not intended to constitute a complete analysis of all tax consequences relating to the ownership of Notes. Prospective purchasers of Notes should consult their own tax advisors concerning the tax consequences of their particular situations.

135


NOTICE TO INVESTORS The Notes have not been registered, and will not be registered, under the U.S. Securities Act or any other applicable securities laws, and the Notes may not be offered or sold except pursuant to an effective registration statement or pursuant to transactions exempt from, or not subject to, registration under the Securities Act. Accordingly, the Notes are being offered and sold only: ‚ in the United States to qualified institutional buyers (as defined in Rule 144A) in reliance on Rule 144A under the Securities Act; and ‚ outside of the United States, to certain persons, other than U.S. persons, in offshore transactions meeting the requirements of Rule 903 of Regulation S under the Securities Act. Each purchaser of Notes (other than the Initial Purchasers in connection with the initial issuance and sale of Notes) and each owner of any beneficial interest therein will be deemed, by its acceptance or purchase thereof, to have represented and agreed as follows: (1) It is purchasing the Notes for its own account or an account with respect to which it exercises sole investment discretion and it and any such account is either (a) a qualified institutional buyer and is aware that the sale to it is being made in reliance on Rule 144A or (b) a non-U.S. person that is outside the United States. (2) It acknowledges that the Notes have not been registered under the Securities Act or with any securities regulatory authority of any jurisdiction and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as set forth below. (3) It understands and agrees that Notes initially offered in the United States to qualified institutional buyers will be represented by one or more global notes and that Notes offered outside the United States in reliance on Regulation S will also be represented by one or more global notes. (4) (a) either (i) it is not, and for so long as it holds the Notes or interests in Notes will not be, a Plan, an entity whose underlying assets include the assets of any Plan or a governmental plan, church plan or non-U.S. or other plan that is subject to any federal, state, local or non-U.S. law or regulation that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code or (ii) its acquisition, holding or disposition of the Notes or interests in Notes will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of a governmental plan, church plan or non-U.S. or other plan, a violation of any substantially similar federal, state, local or non-U.S. law); and (b) will not sell or otherwise transfer any Notes, or any interest therein, otherwise than to a purchaser or transferee that is deemed to make these same representations and agreements with respect to its purchase, holding and disposition of such Notes. (5) It will not resell or otherwise transfer any of such notes except (a) to EGE Haina, (b) within the United States to a qualified institutional buyer in a transaction complying with Rule 144A under the Securities Act, (c) outside the United States in compliance with Rule 903 or 904 under the Securities Act, (d) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) or (e) pursuant to an effective registration statement under the Securities Act. (6) It agrees that it will give to each person to whom it transfers the Notes notice of any restrictions on transfer of such Notes. (7) It acknowledges that prior to any proposed transfer of Notes (other than pursuant to an effective registration statement or in respect of Notes sold or transferred either pursuant to (a) Rule 144A or (b) Regulation S and listed on the Luxembourg Stock Exchange) the holder of such notes may be required to provide certifications relating to the manner of such transfer as provided in the indenture. (8) It acknowledges that the trustee, registrar or transfer agent for the Notes will not be required to accept for registration transfer of any Notes acquired by it, except upon presentation of evidence 136


satisfactory to EGE Haina and the trustee, registrar or transfer agent that the restrictions set forth herein have been complied with. (9) It acknowledges that EGE Haina, the Initial Purchasers and other persons will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that if any of the acknowledgements, representations and agreements deemed to have been made by its purchase of the Notes are no longer accurate, it will promptly notify EGE Haina and the Initial Purchasers. If it is acquiring the Notes as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgements, representations, and agreements on behalf of each account. The following is the form of restrictive legend which will appear on the face of the Rule 144A global note, and which will be used to notify transferees of the foregoing restrictions on transfer: ""This Note has not been registered under the U.S. Securities Act of 1933, as amended (the ""Securities Act''), or any other securities laws. The holder hereof, by purchasing this Note, agrees that this Note or any interest or participation herein may be offered, resold, pledged or otherwise transferred only (1) to EGE Haina, S.A., (2) so long as this Note is eligible for resale pursuant to Rule 144A under the Securities Act (""Rule 144A''), to a person who the seller reasonably believes is a qualified institutional buyer (as defined in Rule 144A) in accordance with Rule 144A, (3) in an offshore transaction in accordance with Rule 903 or 904 of Regulation S under the Securities Act, (4) pursuant to an exemption from registration under the Securities Act afforded by Rule 144 under the Securities Act (if available) or (5) pursuant to an effective registration statement under the Securities Act, and in each of such cases in accordance with any applicable securities laws of any state of the United States or other applicable jurisdiction. The holder hereof, by purchasing this Note, represents and agrees that it will notify any purchaser of this Note from it of the resale restrictions referred to above. The foregoing legend may be removed from this Note on satisfaction of the conditions specified in the indenture referred to herein.'' The following is the form of restrictive legend which will appear on the face of the Regulation S Global Note and which will be used to notify transferees of the foregoing restrictions on transfer: ""This Note has not been registered under the U.S. Securities Act of 1933, as amended (the ""Securities Act''), or any other securities laws. The holder hereof, by purchasing this Note, agrees that neither this Note nor any interest or participation herein may be offered, resold, pledged or otherwise transferred in the absence of such registration unless such transaction is exempt from, or not subject to, such registration. The foregoing legend may be removed from this Note after 40 days beginning on and including the later of (a) the date on which the Notes are offered to persons other than distributors (as defined in Regulation S under the Securities Act) and (b) the original issue date of this Note.'' For further discussion of the requirements (including the presentation of transfer certificates) under the indenture to effect exchanges or transfers of interest in global notes and certificated notes, see the ""Description of the Transaction Documents ĂŒ Form, Denomination and Registration'', ""Description of the Transaction Documents ĂŒ Definitive Notes'' and ""Description of the Transaction Documents ĂŒ Global Notes.''

137


PLAN OF DISTRIBUTION Subject to the terms and conditions set forth in the purchase agreement dated the date hereof among EGE Haina, Haina Finance and the Initial Purchasers, each Initial Purchaser has severally agreed to purchase, and Haina Finance has agreed to sell to that Initial Purchaser, the principal amount of the notes set forth opposite the Initial Purchaser's name. Principal Amount of Notes to be Purchased

Initial Purchasers

Barclays Capital Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Deutsche Bank Securities Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$ 87,500,000 87,500,000

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$175,000,000

The purchase agreement provides that the obligation of the Initial Purchasers to pay for and accept delivery of the Notes is subject to certain conditions, including delivery of certain legal opinions by legal counsel. Subject to the terms and conditions of the purchase agreement, the Initial Purchasers are committed to take and pay for all of the notes if any are taken. If an Initial Purchaser defaults, the purchase agreement provides that the purchase commitments of the non-defaulting initial purchaser may be increased or the purchase agreement may be terminated. In the purchase agreement, subject to the conditions thereof, the Initial Purchasers have agreed to purchase the notes at a discount from the price indicated on the cover of this offering memorandum and to resell such notes initially at the price set forth on the cover page of this offering memorandum to purchasers as described in this offering memorandum under ""Notice to Investors.'' After the initial offering of the notes, the Initial Purchasers may from time to time vary the offering price and other selling terms. The purchase agreement provides that we will indemnify the Initial Purchasers against certain liabilities, including liabilities under the Securities Act, and will contribute to payments the Initial Purchasers may be required to make in respect thereof. We have been advised that the Initial Purchasers propose to resell the Notes initially to (1) qualified institutional buyers in reliance on Rule 144A under the Securities Act and (2) outside the United States to certain persons in reliance on Regulation S under the Securities Act. See ""Notice to Investors.'' Any offer or sale of the notes in reliance on Rule 144A will be made by broker-dealers who are registered as such under the Exchange Act. In connection with sales outside the United States, the Initial Purchasers have acknowledged and agreed that they will not offer, sell or deliver the notes to, or for the account of U.S. persons (1) as part of their distribution at any time or (2) otherwise until 40 days after the later of the commencement of the offering or the date the Notes were originally issued. The Initial Purchasers will send to each dealer to whom they sell the Notes in reliance on Regulation S during the 40-day distribution compliance period, a confirmation or other notice setting forth the restrictions on offers and sales of the notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings assigned to them in Regulation S under the Securities Act. In addition, until the expiration of the 40-day distribution compliance period referred to above, an offer or sale of the Notes within the United States by a dealer (whether or not participating in this offering) may violate the registration requirements of the Securities Act if such sale is made otherwise than in accordance with Rule 144A under the Securities Act or pursuant to another exemption from registration under the Securities Act. In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each initial purchaser has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, it has not made and will not make an offer of 138


Notes to the public in that Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, make an offer of Notes to the public in that Relevant Member State: (i) at any time to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; (ii) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 443 million; and (3) an annual net turnover of more than 450 million as shown in its last annual or consolidated accounts; or (iii) any time in any other circumstances which do not require the publication by EGE Haina or Haina Finance of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an ""offer of Notes to the public'' in relation to any Notes in any Relevant Member State means to communicate in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression ""Prospectus Directive'' means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. Each initial purchaser has represented and agreed that: (i) it has not offered or sold and, prior to the expiry of a period of six months from the Closing Date, will not offer or sell any Notes to persons in the United Kingdom, other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the United Kingdom Financial Services and Markets Act of 2000, or the FSMA, received by it in connection with the issue or sale of any Securities in circumstances in which Section 21(1) of the FSMA does not, or in the case of EGE Haina or Haina Finance, would not, if it was not an authorized institution, apply to EGE Haina or Haina Finance; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom. Each initial purchaser has represented and agreed that the contents of this offering memorandum have not been reviewed by any regulatory authority in Hong Kong nor has a copy of it been registered by the Registrar of Companies in Hong Kong. Accordingly, it has not offered or sold and will not offer or sell bonds in Hong Kong, other than to persons whose ordinary business involves buying or selling shares or debentures, whether as principal or agent or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32 of the Laws of Hong Kong SAR), and it has not issued or held for the purpose of issue in Hong Kong or elsewhere and will not issue or hold for the purpose of issue in Hong Kong this offering memorandum, any other offering material or any advertisement, invitation or document relating to the Bonds, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to ""professional investors'' within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong SAR) and any rules made thereunder. Each initial purchaser has represented and agreed that this offering memorandum or any other offering material distributed by them relating to the bonds has not been and will not be registered as a prospectus with the Monetary Authority of Singapore, and the bonds will be offered in Singapore pursuant to the exemptions under Section 274 and Section 275 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA. 139


Accordingly, this offering memorandum and any other document or material in connection with the offer or sale, or invitation for the subscription or purchase, of the bonds may not be circulated or distributed, nor may the bonds be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the SFA, (2) to a relevant person under Section 275(1) and/or any person under Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Each initial purchaser has represented and agreed that it has not made and will not offer or sell the Notes in the Dominican Republic. Each initial purchaser has represented and agreed that it has not made and will not make any invitation to the public in the Cayman Islands to subscribe for any of the Notes. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of a security to be higher than it might otherwise be in the absence of such purchases. Neither EGE Haina nor the Initial Purchasers make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes. In addition, neither EGE Haina nor the Initial Purchasers make any representation that anyone will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. The Initial Purchasers and their affiliates, directly or indirectly, from time to time have provided or in the future may provide certain investment banking and financial advisory services to EGE Haina or its affiliates, for which they have received customary fees and commissions and they expect to provide these services to us and others in the future, for which they expect to receive customary fees and commissions.

140


LEGAL MATTERS Certain legal matters with respect to U.S. law and New York law and the issuance of the Notes offered hereby will be passed upon for EGE Haina and Haina Finance by White & Case LLP as their U.S. legal counsel. Certain legal matters with respect to Dominican law will be passed upon for EGE Haina and Haina Finance by Pereyra & Associados as their Dominican legal counsel. Certain legal matters with respect to Cayman Islands law will be passed upon for EGE Haina and Haina Finance by Appleby as their Cayman Islands counsel. Certain legal matters with respect to U.S. law and New York law and the issuance of the Notes offered hereby will be passed upon for the Initial Purchasers by Shearman & Sterling LLP as their U.S. legal counsel. Certain legal matters with respect to Dominican law will be passed upon for the Initial Purchasers by Pellerano & Herrera as their Dominican legal counsel. Certain legal matters with respect to Cayman Islands law will be passed upon for the Initial Purchasers by Maples and Calder as their Cayman Islands counsel. INDEPENDENT AUDITORS The financial statements of EGE Haina as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 included in this offering memorandum have been audited by PricewaterhouseCoopers, independent auditors, as stated in their report appearing herein. WHERE YOU CAN FIND MORE INFORMATION Haina Finance will make available to the prospective holders of the Notes at the corporate trust office of the Trustee under the indenture governing the Notes, or the Indenture (which includes the Guaranty), and at the office of the Paying Agent in Luxembourg (i) copies of the Indenture and the agreements governing the security for the Notes described in this offering memorandum, (ii) the memorandum and articles of association of Haina Finance and the by-laws of the Guarantor, and (iii) the historical financial information of the Guarantor for each of the three financial years preceding the date of this offering memorandum as included in this offering memorandum. LISTING AND GENERAL INFORMATION 1. The Notes have been accepted for clearance through DTC, Euroclear and Clearstream. The CUSIP, Common Code and ISIN numbers for the Notes are as follows: CUSIP ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Common Code ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ ISIN ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Restricted Global Note

Regulation S Global Note

268466 AA7 029815267 US268466AA73

G29440 AA5 029814449 USG29440AA56

2. Copies of EGE Haina's latest audited annual financial statements and unaudited quarterly financial statements, if any, and copies of the estatuto social (by-laws) of EGE Haina, as well as the indenture (including forms of Notes), will be available for inspection at the offices of the principal paying agent and any other paying agent, including the Luxembourg paying agent. 3. Except as disclosed in this offering memorandum, there has been no material adverse change in EGE Haina's financial position since December 31, 2006, the date of the latest audited financial statements included in this offering memorandum. 4. Except as disclosed in this offering memorandum, neither Haina Finance nor EGE Haina is involved in any litigation or arbitration proceedings relating to claims or amounts that are material in the context of this offering, nor so far as Haina Finance or EGE Haina are aware is any such litigation or arbitration pending or threatened. 5. Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and to trade them on the Euro MTF Market of that exchange. 6. The issuance of the Notes was authorized by the Board of Directors of Haina Finance on April 19, 2007. 141


INDEX TO FINANCIAL STATEMENTS Page

Report of Independent Accountants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Balance Sheets as of December 31, 2006 and 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Statements of Income for the years ended December 31, 2006, 2005 and 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Statements of Changes in Shareholders' Equity for the years ended December 31, 2006, 2005 and 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Notes to Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

F-1

F-2 F-3 F-4 F-5 F-6 F-8


PricewaterhouseCoopers Ave. John F. Kennedy Edificio Banco Nova Scotia, 3er Piso Apartado Postal 1286 Santo Domingo, Rep. Dom. Telephone 809 567 7741 Facsimile 809 541 1210

Report of Independent Auditors To the Board of Directors and Shareholders of Empresa Generadora de Electricidad Haina, S. A. We have audited the accompanying balance sheets of Empresa Generadora de Electricidad Haina, S. A. (""the Company'') at December 31, 2006 and 2005, and the related statements of operations, of changes in shareholders' equity and of cash flows for the years ended December 31, 2006, 2005 and 2004, expressed in United States Dollars (U.S. dollars). 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 conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform our 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 financial statements referred to in the first paragraph above, expressed in U.S. dollars, present fairly, in all material respects, the financial position of Empresa Generadora de Electricidad Haina, S. A. at December 31, 2006 and 2005, and the results of its operations and its cash flows for the years ended December 31, 2006, 2005 and 2004 in conformity with accounting principles generally accepted in the United States of America. The electricity sector continues to be affected by the financial difficulties experienced by the local distribution companies. Following the acquisition by the Dominican government of the controlling interest of two major energy distributors in the second semester of 2003, Company's revenues are concentrated with Dominican government controlled distribution companies, representing 70% and 68% of revenues in 2006 and 2005, respectively.

April 13, 2007

F-2


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. BALANCE SHEETS December 31, 2006 and 2005 2006

ASSETS Current assets Cash and cash equivalents (including short-term deposits of US$1,010,953 at 4.6% at December 31, 2006)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ US$ 7,423,255 Accounts receivable (Note 4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 71,360,840 Inventories (Note 5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16,235,986 Prepaid expenses (Note 6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,944,356 Deferred income tax (Note 15) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,781,470 Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Deposits in banks, restricted (Note 10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Long-term receivables (Note 16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Property, plant and equipment, net (Note 7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Intangible assets, net (Note 8)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2005

US$ 4,929,046 57,912,397 16,555,934 8,144,025 2,179,041

99,745,907 11,944,824 41,901,033 273,219,801 10,804,799 296,702

89,720,443 11,407,737 41,700,000 297,292,052 12,918,431 359,907

US$437,913,066

US$453,398,570

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt (Note 9)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ US$ 13,905,062 Current portion of long-term debt (Note 10)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,370,140 Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17,489,203 Payables to related parties (Note 19) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,406,409 Other liabilities (Note 11) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,675,868

US$ 17,486,201 4,370,140 26,237,091 26,808,782 27,779,282

Total current liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Long-term debt (Note 10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Deferred income tax (Note 15) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other non-current liabilities, including amounts due to related parties of US$13,972,674 and US$13,839,621, respectively (Note 12) ÏÏÏÏÏÏÏÏÏÏ

Shareholders' equity (Note 14) Common stock, RD$100 value (US$6.29) Class A Ì 22,975,500 shares authorized, issued and outstandingÏÏÏÏÏ Class B Ì 22,975,500 shares authorized, issued and outstanding ÏÏÏÏÏ Legal reserveÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Accumulated deficit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Accumulated other comprehensive loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Total shareholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

64,846,682 88,712,645 7,861,016

102,681,496 92,015,445 2,179,041

14,551,056

15,522,202

175,971,399

212,398,184

144,500,000 144,500,000

144,500,000 144,500,000

289,000,000 6,799,577 (2,825,915) (31,031,995) 261,941,667

289,000,000 5,752,513 (22,720,132) (31,031,995) 241,000,386

US$437,913,066

The accompanying notes are an integral part of these financial statements. F-3

US$453,398,570


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. STATEMENTS OF OPERATIONS Years Ended December 31, 2006, 2005 and 2004 2006

2005

2004

US$276,331,099 33,274,286

US$217,773,521 32,065,666

US$ 142,813,440 33,502,241

309,605,385

249,839,187

176,315,681

(128,374,270) (17,644,394) (41,611,394) (2,247,425) (30,002,754)

(113,309,643) (11,324,827) (33,323,465) (666,265) (22,786,025)

(62,576,862) (10,553,952) (39,301,000) (464,652) (19,696,911)

(28,612,250) (27,106,051) (275,598,538)

(20,778,509) (18,594,752) (220,783,486)

(15,710,690) (18,641,906) (166,945,973)

34,006,847

29,055,701

9,369,708

Financial expense, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Foreign exchange (loss) gain ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other income (expenses) (Note 13) ÏÏÏÏÏÏÏÏÏ

(7,656,988) (391,409) 62,377

(14,529,161) 828,434 (3,292,852)

(23,042,054) (11,037,413) (8,927,676)

Income (loss) before income taxÏÏÏÏÏ Income tax (Note 15): Deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

26,020,827

12,062,122

(33,637,435)

Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US $ 20,941,281

US $ 12,062,122

US $(33,637,435)

Revenues Energy (Note 16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Capacity (Note 16)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Operating costs Fuel (Note 17) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Transmission (Note 19) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Purchased power (Note 17)ÏÏÏÏÏÏÏÏÏÏÏÏÏ Compensation for frequency regulation ÏÏÏÏ Operating and maintenance (Note 18)ÏÏÏÏ Administrative and general expenses (Note 15)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Depreciation and amortization (Note 7) ÏÏ Operating incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(5,079,546)

The accompanying notes are an integral part of these financial statements. F-4


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years Ended December 31, 2006, 2005 and 2004 Common Stock US$

Legal Reserve US$

Balance at December 31, 2003 ÏÏ Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

289,000,000

5,149,407

(541,713) (33,637,435)

(31,031,995)

262,575,699 (33,637,435)

Balance at December 31, 2004 ÏÏ

289,000,000

5,149,407

(34,179,148)

(31,031,995)

228,938,264

603,106

12,062,122 (603,106)

5,752,513

(22,720,132)

1,047,064

20,941,281 (1,047,064)

6,799,577

(2,825,915)

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Transfer to legal reserve ÏÏÏÏÏÏÏÏ Balance at December 31, 2005 ÏÏ

289,000,000

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Transfer to legal reserve ÏÏÏÏÏÏÏÏ Balance at December 31, 2006 ÏÏ

289,000,000

F-5

(Accumulated Deficit) US$

Accumulated Other Comprehensive Loss US$

Total US$

12,062,122 (31,031,995)

241,000,386 20,941,281

(31,031,995)

261,941,667


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. STATEMENTS OF CASH FLOWS Years Ended December 31, 2006, 2005 and 2004 Cash flows from operating activities Net income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Adjustments to reconcile net income (loss) to net cash provided by operating activities Loss on write off of accounts receivable with CDEEE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Gain from the settlement of accounts receivable with accounts payable with CDEEE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Gain from settlement with a supplier ÏÏÏÏÏÏÏÏ (Settlement on) provision for interest on tax assessment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Loss on fixed asset disposal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Deferred income tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏ Unrealized gain on interest rate swap ÏÏÏÏÏÏ Changes in Accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Prepaid expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2006

2005

US$20,941,281

US$12,062,122

2004

US$(33,637,435)

1,919,008

(7,332,820) 1,617,544 (5,382,552)

Net cash provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

5,382,552 149,641

5,079,546 27,106,051 (748,715)

18,594,752 (2,309,266)

18,641,920 (1,810,442)

(54,030,082) 1,711,948 6,199,669 63,205 23,364,720 (13,943,293)

(32,106,757) (6,518,593) (3,670,452) 45,759 34,228,018 7,209,089

(45,898,658) 131,220 2,453,594 1,812,345 55,377,282 18,730,880

11,979,322

25,734,045

17,719,714

Cash flows from investing activities Net changes in deposits in banks Ì restricted and unrestricted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Additions to property, plant and equipmentÏÏÏ

(537,087) (996,747)

1,658,846

3,972,890 (424,383)

Net cash (used in) provided by investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(1,533,834)

1,658,846

3,548,507

Cash flows from financing activities Debt issuance costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net change in short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏ Repayment of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(3,581,139) (4,370,140)

(2,858,008) (12,523,616) (7,528,036)

(14,409,692) (9,528,551)

Net cash used in financing activities ÏÏÏÏ

(7,951,279)

(22,909,660)

(23,938,243)

Net increase (decrease) in cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Cash and cash equivalents at beginning of year ÏÏÏ

2,494,209 4,929,046

4,483,231 445,815

(2,670,022) 3,115,837

Cash and cash equivalents at end of year ÏÏÏÏÏÏÏÏ

US $ 7,423,255

US $ 4,929,046

F-6

US $

445,815


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. STATEMENTS OF CASH FLOWS Ì (Continued) Years Ended December 31, 2006, 2005 and 2004 Supplemental cash flow information Interest paid during the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Income tax paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-cash activities Decrease in accounts receivable through the offset in accounts payable with CDEEEÏÏÏÏÏÏ Fixed assets set off against accounts payable with CDEEEÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Decrease in accounts receivable through the set off of accounts payable with other power generators ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Reclassification of accounts receivable from current to non current ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Fixed assets set off against other accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2006

2005

2004

US $11,644,538 3,687,667

US$16,030,991 3,381,031

US$20,006,529

40,380,606

27,381,053

38,997,499 (1,883,681)

(6,124,648) 201,033 (800,000)

F-7


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS December 31, 2006 and 2005 1.

Description of the Business

Empresa Generadora de Electricidad Haina, S. A. (the ""Company'' or ""EGE Haina'') was established on August 17, 1999 and incorporated on October 28, 1999 pursuant to the laws of the Dominican Republic, as part of the capitalization process of the Dominican electricity sector undertaken in 1999. EGE Haina is the largest generator of electricity in the country, currently operating 14 electric power generator units at seven plants, consisting of San Pedro, Sultana del Este Ì barge, Haina and Barahona in the southern part of the country, Puerto Plata in the northern and Pedernales in the western part of the country. The Company has approximately 98% and 95% of its contracted power to the three Dominican Republic distributors (""the distribution companies''), for 2006 and 2005 respectively. In connection with the capitalization of the Company, Corporacion π Dominicana de Empresas Elπectricas Estatales (CDEEE), a state-owned company, transferred plant assets, inventory and certain liabilities to the Company for its equity interest in the Company and Haina Investment Co., Ltd. (HIC), a private company located in Cayman Islands, contributed cash of US$144.5 million for its equity interest in the Company The Company's shareholders' are: (i) Haina Investment Co., Ltd. (HIC), a private company located in Cayman Islands, with a 50% equity interest in EGE Haina, (ii) Corporacion π Dominicana de Empresas Elπectricas Estatales (CDEEE), a state-owned company, that maintains the transmission lines and hydro generation plants, with a 49.994% equity interest and (iii) other shareholders which hold the remaining 0.006%. 2.

Basis of Presentation

The present financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Foreign Currency Transactions and Translation The Company's operations are conducted primarily in US dollar which is therefore its functional currency. Foreign exchange gains and losses arising from transactions denominated in a currency other than the US dollar are included in net income. Assets and liabilities denominated in currencies other than U.S. dollars are translated at year end exchange rates. At December 31, 2006 and 2005, exchanges rates were RD$33.80:US$1.00 and RD$34.91:US$1.00, respectively. Use of Estimates The preparation of financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for the allowance for doubtful accounts, depreciation and impairment of long-lived assets, income taxes and contingencies. Actual results could differ from those estimates. The Company's deferred tax asset reflects the tax benefit of US$19.2 million in loss carry forward net of a valuation allowance of US$7.2 million. The tax loss carry forwards expire between 2007 and 2010 and realization is dependent on generating sufficient taxable income prior to their expiration dates. Although realization is not assured, management believes it is more likely than not that US$12 million of benefits from the loss carry forward will be realized. The amounts of the deferred tax asset considered realizable, however, could vary in the near term if estimates of future taxable income during the carry forward period change. F-8


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 The Company has a long-term receivable from one of its major customers amounting to US$41.9 million (2005: US$41.7 million). The Company believes this balance is fully collectible since this Company is one of the three main distribution companies in the country and is partially owned by the Dominican Republic government. Deterioration in the economic situation of this company, however, could cause possible losses, which would affect operating results adversely. 3.

Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Company in the preparation of these financial statements: Revenue Recognition Revenues from energy sales, both contracted and spot, are recognized based on the energy produced during each calendar month. Each company in the Dominican Republic Interconnected System reports the end of month metering reading to the Organismo de Coordinacion π (OC), the entity in charge of the system transactions. The OC defines the amounts of energy sales made by contract and the amounts of energy sales made in the spot market. The energy sales made under contract are priced according to the respective contract and those sales made in the spot are priced according to the price defined by OC. Inventories Inventories consist of bulk fuel and spare parts. Bulk fuel is recorded at cost that does not exceed market since fuel generally has a very short turnover period. Spare parts are recorded at historical cost and written down when as a result of physical inventories it is determined that there are obsolete parts. These spare parts comprise a large number of individual items of small value each and management believes book values do not exceed market. Property, Plant and Equipment, Net Property, plant and equipment from initial capitalization was accounted for as a business combination and recorded at estimated fair market value, less allocated excess of the fair market value of assets purchased and liabilities assumed over the purchase price. Subsequent additions are recorded at cost. Depreciation expense has been determined using the straight-line method over the estimated useful lives of the related assets as specified below: Estimated Useful Life (Years)

Asset BuildingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Generation plants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Transportation equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Furniture and office equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

50 25 5 4-5 4-5 5

The cost of routine maintenance, repairs and replacements is charged to expense as incurred. The cost of significant overhauls, renewals and improvements, that increase the plants' capacity and/or efficiency and/or extend their useful lives, are added to the carrying amount of the respective assets. F-9


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS ĂŒ (Continued) December 31, 2006 and 2005 When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the results of the period. Intangible Assets, Net Intangible assets correspond to: (a) Costs in connection with the renegotiation of power contracts. These amounts are amortized on a straight-line basis over the term of the corresponding contracts. (b) Debt issuance costs related to the issuance of the secured fixed rate note described in Note 10. These deferred costs are amortized under the interest method over the term of the related financings. Deferred Income Taxes Deferred income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company adjusts the beginning-of-the-year balance of the valuation allowance because of changes in circumstances that cause a change in judgment about the realization of the related deferred tax asset in future years. Provisions for Allowances and Contingencies The Company establishes an allowance for doubtful accounts to provide for accounts receivable where, in management's judgment, it is not probable that such receivable will be fully collected. The level of the allowance for doubtful accounts is based on management's evaluation of various factors, including the credit risk of customers, historical trends and other information. While management uses the information available to make evaluations, adjustments to the allowance may be necessary should future economic conditions differ substantially from the assumptions used in making the evaluations. At December 31, 2006 and 2005, the Company did not provide for any allowance for accounts receivable, as management considered them as recoverable. Concentration of Credit Risk and Significant Customers Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of deposits in banks and accounts receivable. At December 31, 2006 and 2005, three customers accounted for 99% of gross accounts receivable and 98% of total revenues. Pension Information The Company does not maintain any pension plans. Dominican laws provide for pension benefits to be paid to retired employees from government pension plans and/or privately managed funds plans to which employers and employees make contributions. F-10


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS ĂŒ (Continued) December 31, 2006 and 2005 Impairment of Long-Lived Assets The Company evaluates the carrying value of its long-lived assets for impairment when events or circumstances indicate that the Company may not recover the carrying amounts of the assets. The carrying value of a long-lived asset, or group of assets, is considered impaired when the expected undiscounted cash flows from the use and eventual disposition of such asset, or group of assets is less than its carrying value. In that event, an impairment loss would be recognized generally based on the amount by which the carrying value of the asset or group of assets exceeds its fair market value. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent appraisals. Fair Value of Financial Instruments Fair value of financial instruments, consisting mainly of cash, current accounts receivable, accounts payable and other short-term liabilities, approximates their carrying values due to their short maturity or short time until realization. See Note 16 for the estimated fair value of long term accounts receivables. Dismissal Indemnity Dismissal indemnity that only should be paid in certain circumstances as required by the Dominican labor code is charged to expense when employees are dismissed. Cash and Cash Equivalents For cash flow purposes, the Company considers cash and cash at banks, as well as certificates of deposits and other highly liquid temporary investment with original maturities of three months or less, to be cash equivalents. Comprehensive Income SFAS No. 130, ""Reporting Comprehensive Income,'' requires a full set of general purpose financial statements to be expanded to include the reporting of ""comprehensive income''. Comprehensive income is comprised of two components, net income and other comprehensive income. At December 31, 2006 and 2005, the balance in ""Accumulated Other Comprehensive Loss'' of US$31,031,995 corresponds to prior years' foreign currency translation adjustments when the Company's functional currency was the Dominican Republic Peso. The Company occasionally enters into derivative financial instruments to manage its exposure to interest rate risk. The Company recognizes derivative financial instruments in the balance sheet at fair value. For the years ended December 31, 2006, 2005 and 2004, the Company had one interest rate swap outstanding. This derivative does not qualify for hedge accounting and therefore, changes in the fair value of the derivative instrument are included in other income in the accompanying statement of operations. New Accounting Standards FIN 48 In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation Number 48 (FIN 48), ""Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109''. FIN 48 requires an entity to evaluate its tax positions following a two-step process. The first step requires an entity to determine whether, based on the technical merits supporting a particular tax position, it is more likely than not (greater than a 50 percent chance) that the tax position will be sustained. This determination assumes that the relevant taxing authority will examine the tax position and is aware of all relevant facts F-11


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS ĂŒ (Continued) December 31, 2006 and 2005 surrounding the tax position. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The measurement of the benefit equals the largest amount of benefit that has a likelihood of realization, upon ultimate settlement, that exceeds 50 percent. If the more-likely-than-not threshold is unmet, it is inappropriate to recognize that the tax benefits associated with the tax position. FIN 48 also provides guidance on de-recognition of previously recognized tax benefits, classification, interest and penalties, accounting in interim periods, disclosure and transition. EGE Haina will adopt FIN- 48 effective January 1, 2007. Based on available information at the date of these financial statements, management does not anticipate a material effect on its financial statements in 2007. SFAS 155 In February 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) 155, ""Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140'' (SFAS 155). Among other things, SFAS 155 addresses certain accounting issues surrounding securitized financial assets and hybrid financial instruments with embedded derivatives that require bifurcation. EGE Haina adopted SFAS 155 effective January 1, 2007. The initial adoption did not have an impact on EGE Haina. SFAS 157 In September 2006, the FASB issued SFAS 157 ""Fair Value Measurements''. SFAS 157 provides a definition of fair value as well as a framework for measuring fair value. In addition, SFAS 157 expands the fair value measurement disclosure requirements of other accounting pronouncements to require, among other things, disclosure of the methods and assumptions used to measure fair value as well as the earnings impact of certain fair value measurement techniques. SFAS 157 does not expand the use of fair value in existing accounting pronouncements. EGE Haina will adopt SFAS 157 no later than January 1, 2008. The potential impact of adoption is not yet determinable. SFAS 159 In February 2007, the FASB issued SFAS 159 ""The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115''. SFAS 159 provides entities with an option to measure, upon adoption of this pronouncement and at specified election dates, certain financial assets and liabilities at fair value, including available-for-sale and held-to-maturity securities, as well as other eligible items. The fair value option (i) may be applied on an instrument by instrument basis, with a few exceptions, (ii) is irrevocable (unless a new election date occurs), and (iii) is applied to an entire instrument not to only specified risks, cash flows, or portions of that instrument. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between similar assets and liabilities measured using different attributes. Upon adoption of SFAS 159, an entity may elect the fair value option for eligible items that exist at that date, and shall report the effect of the first remeasurement to fair value as a cumulative-effect adjustment to the opening balance of retained earnings. EGE Haina will adopt SFAS 159 no later than January 1, 2008. The potential impact of adoption is not yet determinable. F-12


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 FSP AUG AIR-1, ""Accounting for Planned Major Maintenance Activities'' The principal source of guidance on the accounting for planned major maintenance activities is the AICPA's Airline Guide. The Airline Guide allows for four alternative methods of accounting for planned major maintenance activities. These methods include: direct expense, built-in overhaul, deferral, and accrual (accrue-in-advance). Those methods are widely used by other industries, including those involved in the electricity generation. This FSP prohibits the use of the ""accrue-in-advance method'' of accounting for planned major maintenance activities. It further states that an entity shall apply the same method of accounting for planned major maintenance activities in annual and interim financial reporting periods. This FSP is effective for the first fiscal year beginning after December 15, 2006. Earlier application is permitted as of the beginning of an entity's fiscal year. The Company does not believe that adoption of this FSP will have any effect on its financial statements. 4.

Accounts Receivable Accounts receivable consist of: Trade(*) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Advances to suppliers ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2006

2005

US$112,159,210 1,102,663

US$98,881,448 207 730,742

US$113,261,873

US$99,612,397

(*): At December 31, 2006 and 2005, US$41.9 million and US$41.7 million of trade receivables, respectively, are included in long-term receivable to Edeeste (See Note 16). 5.

Inventories Inventories consist of: 2006

2005

US$ 6,143,926 8,087,547 2,004,513

US$ 7,807,354 5,728,710 3,019,870

US$16,235,986

US$16,555,934

Fuel ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Parts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Inventories in transitÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6.

Prepaid Expenses Prepaid expenses consist of: Insurance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Prepaid taxes and tax advancesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

F-13

2006

2005

US$ 743,959 1,131,114 69,283

US$ 664,742 7,432,051 47,232

US$1,944,356

US$8,144,025


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 7.

Property, Plant and Equipment, Net Property, plant and equipment, net consist of: 2006

Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$

4,855,036

2005

US$

4,855,036

Buildings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Generation plants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Transportation equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Furniture and office equipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,008,716 359,831,334 1,472,112 1,198,426 3,472,089 171,564

1,008,716 361,579,334 511,925 1,107,987 3,472,089 171,564

Less: Accumulated depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

367,154,241 98,789,476

367,851,615 75,470,972

268,364,765

292,380,643

Construction in progressÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

56,373 US$273,219,801

US$297,292,052

During 2006, 2005 and 2004, the fixed asset depreciation was US$23,676,998, US$15,567,075 and US$15,811,970, respectively. During the first quarter of 2006, the Company reviewed the estimation of the useful life of two dieseloperated plants as a result of the decision of discontinuing their operation after 2006 due to efficiency reasons. These plants were fully depreciated during 2006 and, as a result of this change, depreciation of the year increased US$7.9 million and depreciation of future years will decrease in US$0.4 million. 8.

Intangible Assets, Net Intangible assets consist of: 2006

2005

Deferred costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Debt issuance costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$11,811,229 6,429,651

US$11,811,229 6,429,651

Less: Accumulated amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

18,240,880 7,436,081

18,240,880 5,322,449

US$10,804,799

US$12,918,431

During 2006, 2005 and 2004, the amortization charges of the deferred costs amounted to US$814,476 each year. The estimated future amortization is also US$814,476 for each of the next five years.

F-14


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 In 2006, 2005 and 2004, deferred issuance costs amortization was US$2,614,577, US$2,213,201 and US$2,015,460, respectively. The estimated future deferred issuance costs amortization through the end of its useful life is expected to be: Year

US$

2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9.

1,141,025 1,044,322 855,445 176,546

Short-Term Debt

Short-term debt consists of US$13,905,062 and US$17,486,201 at December 31, 2006 and December 31, 2005, respectively. These debts accrue interest at annual rates that range between 9.25% and 12% for U.S. dollars borrowings at December 31, 2006. The weighted average interest rate in 2006 was 9.73% and 10.93% in 2005. 10.

Long-Term Debt Long-term debt consists of: US$104 million of a 10% senior secured fixed rate bond maturing in March 2010. Interest is payable on a quarterly basis(a) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Kreditanstalt f ur Wiederaufbau, Frankfurt am Main (""KfW''), payable in 12 semi-annual installments of principal and interest, maturing November 30, 2008(b) Less: Current portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2006

2005

US$91,079,348

US$93,380,428

2,003,437

3,005,157

93,082,785 4,370,140

96,385,585 4,370,140

US$88,712,645

US$92,015,445

The fair value of the above debt approximates its book value. a. The fixed rate bond is collateralized by: (i) a first priority security interest in all existing fixed assets (excluding one diesel turbine pledged to a prior lender), including a first priority mortgage in all real properties and a ship mortgage on the Sultana del Este barge; (ii) a pledge of the capital stock of any proposed acquisition; (iii) amounts deposited in a reserve account at JPMorgan Chase Bank of US$11.9 million at December 31, 2006, and (iv) an assignment of all relevant insurance policies, including business interruption. This bond was issued at a discount of US$7.8 million, based on an imputed discount rate of 7.55% below par value. The unamortized portion amounting to US$3 million and US$4.1 million at December 31, 2006 and 2005, respectively, is shown as a deduction of the principal amount. Under the terms of the bond, the Company is required, among other conditions, to maintain ownership and keep free of liens all fixed assets, as long as the credit is outstanding, and to maintain certain financial ratios and other financial conditions and certain limits on a quarterly basis. Default on any warranty or F-15


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 covenant could, if not waived or corrected, accelerate the maturity of the bond under the agreement. At December 31, 2006, the Company was in compliance with the loan covenants. Originally this debt was payable in 19 equal quarterly installments of US$2,842,105 commencing in June 2005 and one balloon payment in of US$50 million in March 2010. In mid December 2005 the Company completed a negotiation of certain conditions to the original March 2003 indenture of the US$104 million bond that included a US$2 million quarterly principal payment deferment, starting December 2005 and for the following eight quarterly payments. The total principal deferment equaled US$18 million, is to be repaid by increasing the remaining quarterly payments and by increasing the final balloon payment by US$10 million. The remaining principal outstanding will be paid in nine equal quarterly payments of US$842,105 commencing in December 14, 2005, eight equal quarterly payments of US$3,842,105 commencing March 14, 2008 and one balloon payment of US$60 million in March 2010. b. The Company owes a loan obtained from KfW for partially financing the supply of an integrated package of parts, shop repairs and field services for the purpose of the major inspection of Haina TG unit, as per a contract signed between the Company and Siemens WestingHouse Service Company Ltd. The loan has a guarantee of the Federal Republic of Germany by Euler Hermes Kreditversicherung AG for 95% of the outstanding interest and capital payment and a negative pledge clause for the disposition of the unit for the period of the loan. This loan bears interest at six month LIBOR plus a margin of 0.875% per annum (6.25% at December 31, 2006). 11.

Other Current Liabilities Other current liabilities consist of: Income tax withholdings and otherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Assets tax payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Income tax payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Interests payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

12.

2006

2005

US$4,694,842 1,440,345

US$15,741,534

425,263 2,115,418

3,121,617 6,006,814 2,909,317

US$8,675,868

US$27,779,282

Other Non-Current Liabilities Other non-current liabilities consist of: Related party (Note 19.a)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Interest rate swap(*) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2006

2005

US$13,972,674 201,189 377,193

US$13,839,621 949,904 732,677

US$14,551,056

US$15,522,202

(*): The net payments from the interest rate swap during 2006, 2005 and 2004 were approximately US$0.2 million, US$1.4 million and US$2.6 million, respectively, and were recorded as part of financial expenses in the statements of operations. The value of the interest rate swap marked-to-market was F-16


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 US$0.2 million and US$0.9 million at December 31, 2006 and 2005, respectively. The interest rate swap was terminated in February 2007. 13.

Other Income (Expenses) 2006

Settlement on (provision for) interest on tax assessment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Gain from settlement with a supplier ÏÏÏÏÏÏÏÏÏÏÏÏÏ Cost for unconsummated acquisition costs ÏÏÏÏÏÏÏÏÏ Taxes on transfer to foreign suppliers and other ÏÏÏÏ Gain (loss) resulted from agreements with the distribution companies and CDEEE ÏÏÏÏÏÏÏÏÏÏÏÏ Adjustment to mark-to-market interest rate swap ÏÏÏ Tax assessment other than income tax ÏÏÏÏÏÏÏÏÏÏÏÏ Other income and expense, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$5,382,552 1,617,544

2004

US $(5,382,552)

US$ (2,998,503) (4,448,643)

(5,268,600)

(4,632,211)

523,715 (1,057,139) (1,135,695)

7,332,820 2,309,266 (1,141,514) (1,778,661)

(1,371,964)

US $(3,292,852)

US$(8,927,676)

US $ 62,377 14.

2005

(1,919,008) 1,810,442

Shareholders' Equity

Common Stock At December 31, 2006 and 2005, the common stock consisted of 45,951,000 common shares authorized and outstanding with a par value of US$6.29. The following is a detail of the activity in the Company's shares: Common Stock Shares Issued Par Value

CDEEE Shares issued for contribution in kind (less debt assumed by the Company) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ HIC Shares issued for cashÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other shareholdersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Balance at December 31, 2005 and 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

22,975,397

US$144,499,352

22,975,500 103

144,500,000 648

45,951,000

US$289,000,000

Legal Reserve The Dominican Commercial Code establishes that at least 5% of the annual net earnings be appropriated as a legal reserve of the Company until such appropriation equals 10% of the outstanding capital. This reserve may not be capitalized, returned to inappropriate retained earnings or used for payment of dividends. Remittance of Profits The Dominican Foreign Investment Law allows the repatriation of capital and remittance of profits in freely convertible currency. Dividends may be declared during each fiscal period up to the total amount of net profits, subject to a withholding tax of 25%, which can be set off with the income tax due by the Company. F-17


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 15.

Income Tax

Dominican Republic Tax Law (the Tax Law) requires companies to file their tax return denominated in Dominican pesos. Companies that use a functional currency other than the Dominican peso are required to keep their tax accounting records and official filing in Dominican pesos. In addition, Article 293 of the Tax Law allows the deduction/recognition of foreign exchange differences in the determination of the taxable income. The Tax Law also establishes that the Tax Bureau will annually indicate the exchange rate to be used for taxation purposes. Effective January 1, 2006, a new Tax Reform Law No. 557-05 is in place. The most significant changes introduced by this Law to the Dominican Tax Code are: ‚ The corporate Income Tax rate increased from 25% to 30% as from January 1, 2006. This rate will be reduced to 29% in 2007, 27% in 2008 and 25% for 2009. ‚ The tax loss carry forward can be compensated with earnings generated until the 5th period subsequent to the period in which the loss was incurred, with a maximum amortization of 20% of this loss and with limits of 80% and 70% of the taxable net income, for the 4th and 5th period, respectively. Ì As from 2006, the basis of the monthly tax advance payment will depend on the effective tax rate. Legal entities with an effective tax rate lower than 1.5% of gross income of the previous fiscal year will pay tax advances of 1.5% of such income. Legal entities with an effective tax rate higher than 1.5% will pay their tax advances based on the income tax of the previous fiscal year. ‚ An annual tax is established on the assets of the legal entities, with a rate of a 1% based on the balance of assets net of depreciation, amortization and allowance for bad debt accounts, and excluding stocks investments from the taxable basis. This tax is deductible from the income tax in case the current corporate income tax is higher. If contrary, the entity should complete the tax payment on the assets in two future installments. In this case, the income tax amount can be credited against Asset Tax. Power generation, transmission and distribution companies defined in the General Electric Law 125-01, dated July 26, 2001, shall pay this tax on the basis of the total fixed assets, net of depreciation, as they

F-18


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 are shown in the balance sheet. If the income tax does not exceed the 1% on total fixed assets, then this 1% becomes, in effect, a minimum tax. 2006

Tax effect of: Income before income taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$7,806,248

Permanent differences Release of provisions previously considered nondeductible ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Inflation adjustment of nonmonetary assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Taxes nondeductibleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other nontaxable incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Effects on changes in functional currency ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(1,673,197) (3,888,093) 1,115,885 (69,898) 4,294,362 (220,941)

Temporary differences Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Exchange rate differences ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(44,540) 203,087 8,350 166,897

Current tax expense before tax loss carry forward ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Application of tax loss carryforwardÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

7,752,204 (7,495,392)

Application of asset tax credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

256,812 (256,812)

Current income tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

US $

Ì

During 2006 income tax on the Company's taxable income did not exceed the 1% tax on total fixed assets; therefore, the Company's only commitment will be to pay 1% tax on total fixed assets amounting to approximately US$1.5 million at December 31, 2006. This amount is reflected within general and administrative expenses in the statement of operations. The Company has income tax loss carry forwards of approximately US$100 million (adjusted by inflation) as of December 31, 2006, which can be used to offset future taxable income, subject to the limitations expressed below. These losses will expire as follows: Amount US$ Million

Period

2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

25 25 25 25 25

Less: utilized in 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

125 (25) 100

F-19


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 The components of the deferred income tax asset/liability consist of the following: Balance at December 31, 2005 US$

Effect in Profit and Loss Accounts US$

Balance at December 31, 2006 US$

Current deferred income tax Tax loss carry forwardÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Exchange rate differencesÏÏÏÏÏÏÏÏÏÏÏÏ

6,381,776 (155,944)

(1,921,594) 155,944

4,460,182 Ì

Valuation allowanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6,225,832 (4,046,791)

(1,765,650) 2,368,079

4,460,182 (1,678,712)

2,179,041

602,429

2,781,470

Non current deferred income tax Tax loss carry forwardÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Fixed assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

25,016,416 (16,909,281)

(10,231,422) (171,989)

14,784,994 (17,081,270)

Valuation allowanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

8,107,135 (10,286,176)

(10,403,411) 4,721,436

(2,296,276) (5,564,740)

(2,179,401)

(5,681,975)

(7,861,016)

(5,079,546)

(5,079,546)

Deferred income tax Ì netÏÏÏÏÏÏÏÏÏÏÏÏÏ

Ì

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable earnings during the periods in which the temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. At December 31, 2005, based on the analysis of its historical taxable income on the projections for future taxable income over the periods that the deferred tax assets are deductible management believed it was not more likely than not that the Company would realize the benefits of their temporary differences. As a result, the Company recorded a full valuation allowance as of December 31, 2005. At December 31, 2006 management reduced the valuation allowance by US$7,089,515 after updating their future taxable income projections, including the reversal of their deferred tax liabilities over the utilization periods of the deferred tax assets which showed that a portion of the deferred tax asset is considered recoverable. During 2006, deferred tax assets were adjusted due to a change in the tax rate for US$5,658,152.

F-20


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 2005 and 2004 For the purpose of determining the ordinary income tax, the reconciliation of the financial and taxable income (loss) for the years ended December 31, 2005 and 2004 is as follows: 2005

Income (loss) before income tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Permanent differences Taxes nondeductible ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Inflation adjustment of nonmonetary assets ÏÏÏÏÏÏÏÏÏÏÏÏ Other non taxable income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Effects on changes in functional currency ÏÏÏÏÏÏÏÏÏÏÏÏÏ

US$ 12,062,113

16.

US$(33,637,435)

6,168,747 (15,966,023) (200,905) (2,086,616)

(16,878,098) (1,147,382) 40,356,377

(12,084,797)

22,330,897

(7,683,955) (1,049,314) 55,687

(10,359,318) (4,711,224) (1,573,480)

(8,677,582)

(16,644,022)

US $(8,700,265)

US$(27,950,560)

Temporary differences Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Exchange rates used for tax purposes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net tax loss before loss carry forwardÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004

Sale of Energy to Distribution Companies and Other Customers

a. The Company invoices the distribution companies, Empresa Distribuidora del Norte, S. A. (""Edenorte''), Empresa Distribuidora del Sur, S. A. (""Edesur'') and Empresa Distribuidora del Este, S. A. (""Edeeste''), for the service of energy, capacity and transmission toll, according to the existing agreements renegotiated in August 2001 (""the Power Supply Contract''). The terms and conditions for the sale of energy to distribution companies are as follows: Edenorte ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Edesur ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Edeeste ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Term of contractsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Indexation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

112mw 138mw 100mw 15 years 30% per CPI Ì USA 70% for fuel

The prices are stated in U.S dollars but can be paid in Dominican Pesos. The exchange rate index utilized tracks the market rate for the U.S. dollar based on daily foreign exchange trading by commercial banks published by the Dominican Republic Central Bank. b. At December 31, 2005, the Company had an outstanding account receivable balance with Edeeste of approximately US$55.7 million, including US$47.2 million corresponding to 2004 balances that remained frozen at December 31, 2005 as a result of the General Agreement of the Electrical Industry signed in March 2005 (see Note 19 c). In 2006 the Company offset US$5.5 million of amounts due to CDEEE against the 2004 frozen accounts receivable from Edeeste reducing the outstanding receivable to US$41.7 million. c. On August 3, 2006, the Company and Edeeste signed a financing agreement. The principal terms of this agreement stipulate that Edeeste will pay over six years the principal amount of US$41.9 million with F-21


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 interest payable at 12% per annum. The agreement provides for a two-year grace period for the principal repayment, 10% repayment in the third year and 30% repayments in the fourth, fifth and sixth year. In addition, the agreement grants the Company the direct monthly collections from Edeeste's principal customers and credit card receipts equal to a minimum amount of US$5.5 million per month. The estimated fair value of this long term receivable approximates its carrying value. 17.

Fuel Oil, Coal and Power Supply ‚ During 2004 to 2006, the Company had no fuel oil supply agreement in force. During these periods the Company purchased fuel oil on the spot market from diverse suppliers. During 2006 the Company purchased 2.3 million barrels at a cost of US$113.8 million (2005: 2.5 million barrels at a cost of US$103.6 million and for 2004, 2.0 million barrels at a cost of US$61.7 million). In addition, in 2006 and 2005 a vendor provided a credit facility equivalent to one fuel shipment, up to US$4 million. The Company used this credit facility at 2005 year end and during 2006. ‚ In the first quarter of 2006, EGE Haina entered into a contract with Glencore International AG, in which Glencore International AG agreed to supply EGE Haina with coal sufficient to meet the Barahona plant's requirements for a period of two years, from March 1, 2006 through April 30, 2008. The contract price for coal under this agreement is US$56.80 per metric ton indexed by qualities specifications (Btu), plus a delivery fee. Both parties agree to comply with a delivery of 294,000 metric tons within the period of the contract, except for extraordinary events or circumstances beyond the control of the parties that prevents one or both parties from fulfilling their obligations (force majeure). ‚ The Company participates in the Dominican power pool, as a seller or buyer. Due to the temporary inability of the distribution companies to pay their accounts payable, the Company restricted generation and fuel purchases, thus ending as a net purchaser of power on the Dominican power pool.

During 2006 the Company purchased the equivalent of US$41.6 million (2005: US$33.3 million and 2004: US$39.3 million). The Company purchased 348 GWH in 2006 (2005: 316 GWH and 2004: 457 GWH). 18.

Sultana Operation and Maintenance Contract

In August 2001 the Company signed five-year operation and maintenance (O&M) contract with Wartsila North America, Inc., who acts as parts supplier while Wartsila Dominicana, C. por A. serves as operator for the Sultana del Este plant. The contract establishes the payment of monthly service fees no less than EUR172,000, plus EUR1.55 per Mwh for operation, and EUR1.75 per Mwh for parts supply. Additionally, the Company is committed to pay an annual capacity bonus for every percentage point that the annual generation exceeds the guaranteed capacity factor of 85%. The total operation and maintenance costs under the contract were approximately US$10.6 million in 2006 (2005: US$10.2 million and 2004: US$7.0 million), and the annual bonus was approximately US$0.8 million and US$0.9 million for 2005 and 2004, respectively (during to 2006 no bonus was charged by the supplier). The contract expired in November 2006. The Company decided not to renew the agreement and assumed full operational and maintenance responsibilities for the La Sultana del Este plant. As a result of this final agreement, EGE Haina owed to Wartsila approximately US$1.2 million, after deducting a credit note issued by Wartsila for US$1.6 million, corresponding to payment for damages in the mooring and transformer failures of the Sultana plant. EGE Haina paid this debt in January 2007. F-22


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS Ì (Continued) December 31, 2006 and 2005 19.

Related Parties Transactions and Balances (a) Management Fee Ì HIC

As part of the capitalization process, the Company maintains an administration contract with HIC, expiring in 2020, to manage the day-to-day operations of the Company under the direction of the Company' Board of Directors. HIC charges the Company 2.95% of annual net sales that represented US$9.1 million and US$7.3 million for 2006 and 2005, respectively. At December 31, 2006 and 2005, the Company had an account payable balance to HIC of approximately US$14 million and US$13.8 million, respectively. Up until December 2006, these amounts bore interest at 8% annual. In December 2006 the Company agreed to remit payments quarterly beginning March 31, 2008. Interest accrues on the unpaid balance at 8% per annum. (b) Transmission Toll/Capacity and Energy Transaction Ì CDEEE CDEEE, a shareholder of EGE Haina, receives monthly connection toll rights paid by the Company for the utilization of the transmission facilities. The amounts accrued during 2006 and 2005, which are based on the capacity and energy made available on the system as determined by the Coordinating Body, were approximately US$17.6 million in 2006 (2005: US$11.3 million and 2004, US$10.6 million). In addition, during 2006, 2005 and 2004 the Company purchased capacity and energy from CDEEE through spot market transactions. (c) Compensation Agreements Ì CDEEE Agreement dated March 2005: In March 2005 the General Agreement of the Electrical Industry (""General Agreement'') was signed among CDEEE and other government entities, the generation companies including EGE Haina and the distribution companies, including other power generators. The term of this agreement was one year and covered aspects, such as: ‚ An agreement to settle the December 31, 2004 s accounts payable and receivable balances among the parties involved. These balances corresponded to purchases of energy, capacity, transmission tolls and other related concepts, including interest on past due accounts. ‚ Accounts receivable at December 31, 2004 were agreed to remain frozen during the term of this agreement and would be collectible beginning 2006. ‚ The distribution companies, Edenorte, Edesur and Edeeste, were committed to pay the monthly invoices corresponding to energy, capacity, transmission tolls and other related concepts as from January 2005 to December 2005 on a timely basis, as well as interest on past due accounts. In addition, in March 2005 subsequent to the General Agreement, the Company entered into several agreements that resulted in: ‚ Transfer of US$6.5 million of the Company's accounts payable to other power generators to CDEEE. ‚ A partial offset of accounts payable owed to CDEEE and other power generators, which were transferred to CDEEE, with approximately US$22 million of accounts receivable from Edenorte and Edesur. As a result of these agreements, the Company recognized a gain of approximately US$7.3 million in 2005, included in the caption other expenses, net in the accompanying Statements of Operations. Agreements dated February and November 2006 In February 2006, the Company entered into agreements with CDEEE, Edenorte and Edesur and with CDEEE and Edeeste, for the reconciling, recognition, transfer of accounts receivable and offsetting of the F-23


EMPRESA GENERADORA DE ELECTRICIDAD HAINA, S. A. NOTES TO FINANCIAL STATEMENTS ĂŒ (Continued) December 31, 2006 and 2005 Company's accounts receivable from Edenorte (US$8.8 million), Edesur (US$8.1 million) and Edeeste (US$5.5 million). In case of Edenorte and Edesur, this offset related to accounts receivable outstanding at December 31, 2005, including amounts that remained frozen as per the General Agreement of Electrical Industry signed in March 2005 and related accrued interest. In the case of Edeeste, these amounts partially offset the 2004 frozen accounts receivable outstanding at December 31, 2005. These agreements cleared all accounts payable to CDEEE related to transmission, purchase of energy and power and related interests and penalties up to December 31, 2005. On November 3, 2006, the Company and CDEEE agreed to offset US$18 million of the Company's accounts payable to CDEEE as consideration for the reduction of the Company's accounts receivable from Edenorte and Edesur by US$16.6 million and the assignment to CDEEE of US$1.4 million accounts receivable from Edeeste. (d) Sales Agreements with Distribution Companies The distribution companies Edesur, Edenorte and Edeeste are related parties. Edesur and Edenorte are wholly owned by CDEEE, while Edeeste is owned by CDEEE at 50% of its equity interest. Sales performed by the Company to these distribution companies are based in existing agreements which are more detailed in Note 16. 20.

Contingencies

The Company is involved in various litigations arising from the normal course of business. The total amounts involved are approximately US$27.2 million and US$22.4 million at December 31, 2006, and 2005, respectively. The Company did not record any provision to cover possible losses because management estimates, based on legal counsels' opinion, that the final outcome of these litigations would not have any adverse effects on the Company's financial position, operational performance and/or cash flows. 21.

Subsequent Events

In January 2007, CDEEE and the Company agreed to offset US$15.4 million of the Company's accounts payable to CDEEE against the same amount of accounts receivable from Edenorte and Edesur.

F-24


REGISTERED OFFICE OF EGE HAINA Av. Winston Churchill 77 Edif. Comiresa 5to. Piso Santo Domingo Dominican Republic REGISTERED OFFICE OF HAINA FINANCE EGE Haina Finance Company c/o Appleby Trust (Cayman) Ltd. P.O. Box 190; Clifton House 75 Fort Street George Town, Grand Cayman Cayman Islands TRUSTEE, REGISTRAR AND PAYING AGENT Deutsche Bank Trust Company Americas 60 Wall Street, 27th Floor New York, NY 10005 LUXEMBOURG LISTING AGENT Deutsche Bank Luxembourg S.A. 2 Boulevard Konrad Adenauer L-1115 Luxembourg

LUXEMBOURG PAYING AND TRANSFER AGENT Deutsche Bank Luxembourg S.A. 2 Boulevard Konrad Adenauer L-1115 Luxembourg

AUDITORS PricewaterhouseCoopers Scotia Bank Building, Third Floor Av. John F. Kennedy Santo Domingo Dominican Republic 1286 LEGAL ADVISORS U.S. counsel to Haina Finance and EGE Haina White & Case LLP 200 South Biscayne Boulevard Miami, Florida 33131 United States

U.S. counsel to the Initial Purchasers Shearman & Sterling LLP 599 Lexington Avenue New York, NY 10022 United States

Dominican counsel to Haina Finance and EGE Haina Pereyra & Associados Calle Mustafaπ Kemal Ataturk No. 52 Ensanche Naco Santo Domingo, Dominican Republic

Dominican counsel to the Initial Purchasers Pellerano & Herrera Av. John F. Kennedy No. 10 Edificio Pellerano & Herrera, Cuarto Piso Ensanche Miraflores Sano Domingo, Dominican Republic

Cayman Islands counsel to Haina Finance and EGE Haina Appleby PO Box 190, Clifton House 75 Fort Street Grand Cayman Cayman Islands

Cayman Islands counsel to the Initial Purchasers Maples and Calder PO Box 309GT, Ugland House South Church Street George Town, Grand Cayman Cayman Islands



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