You're viewing Docket Item 57 from the case CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. & SUBSIDIARIES v. USA. View the full docket and case details.

Download this document:




Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 1 of 104

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC. & SUBSIDIARIES,

Plaintiff,

v.

THE UNITED STATES OF AMERICA,

Defendant.

)
)
)
)
)
)
)
)
)
)

Case No.: 06-305 T

Hon. Marian Blank Horn

STIPULATION REGARDING UNDISPUTED FACTS

Plaintiff, Consolidated Edison Company of New York, Inc. (“Con Edison NY”) and

Subsidiaries, and defendant, the United States of America, by their undersigned counsel, hereby

stipulate to the following statements. The parties acknowledge that the Court can and may make

factual findings premised on these stipulations and that these findings may have preclusive effect

beyond this litigation. For purposes of this stipulation, terms such as lease, sublease, rent, loan,

debt, proceeds, purchase, transfer and sale are used for the convenience of the Court, and does

not indicate that the form implied by those terms will be respected. Whether or not the form of

the below described transaction will be respected is one of the issues to be decided by the Court.

Similarly, for purposes of this stipulation, the term LILO is used for the convenience of the

Court. Use of this term does not indicate that the legal consequences that the IRS attaches to that

term (i.e., denial of certain tax benefits) will be applied to the transaction at issue; this is an issue

to be decided by the Court. Capitalized terms that are not defined in this Stipulation are defined

in Appendix A to the Participation Agreement dated as of December 15, 1997 among N.V.

Electriciteitsbedrijf Zuid-Holland (“EZH”), Consolidated Edison Leasing, Inc. (“CEL”), and the

other parties named therein (the “Participation Agreement”), unless otherwise indicated. The

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 2 of 104

parties agree that all exhibits identified in this Stipulation are accepted as authentic. All copies

shall be considered electronic reproductions of the original and shall be treated as if they were

originals as defined in Fed. R. Evid. 1001(4).

All evidentiary objections to the statements of facts and/or exhibits set out within this

Stipulation are waived unless expressly reserved. Headings have been provided for convenience

and reference. The headings are not stipulations of fact. Exhibits referenced herein appear in the

parties’ Joint Exhibit List.

I.

Con Edison NY

STIPULATION

1.

The transaction that is the subject of this dispute, defined in paragraph 58 below

and discussed throughout this Stipulation of Facts, was effected by the execution of the

transaction documents, including but not limited to the Operative Documents. The transaction

documents that were included in the transaction closing binders are attached as Exhibits 1-103,

corresponding to Tabs 1-103 in such binders. (bates 1-2867; see also Exhibit 104, Index of

Closing Documents, bates 2868-2876; Exhibit 105, Closing Memorandum, bates 2877-2890).

2.

In its 1997 annual report, Con Edison NY stated that it is one of the nation’s

largest publicly held energy companies (Exhibit 106, bates 2892), listing approximately $14.7

billion in assets on its consolidated balance sheet as of December 31, 1997. (Exhibit 106, bates

2922). It is a regulated public utility that was organized under the laws of the State of New York

on November 10, 1884. (Exhibit 106, bates 2892). In its 1997 annual report, Con Edison NY

stated that it transmitted and delivered electric service and delivered natural gas to customers in

New York City and most of Westchester County, New York, and supplies steam to

approximately 2,000 buildings in Manhattan. (Exhibit 106, bates 2892). The 1997 annual report

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 3 of 104

of Con Edison NY 1997 is attached as Exhibit 106, bates 2891-2946; Exhibit 107, bates 2947-

3002 (color).

3.

Prior to January 1, 1998, Con Edison NY was a widely held and publicly traded

company on the New York Stock Exchange. (Exhibit 106, bates 2892) Con Edison NY’s 1998

Annual Report provides that as a result of a reorganization on January 1, 1998, Con Edison NY

has since become a wholly-owned subsidiary of Consolidated Edison, Inc. (“CEI”). (Exhibit

108, bates 3029). Like Con Edison NY before it, CEI is widely held and publicly traded on the

New York Stock Exchange. The annual report of CEI for 1998 is attached as Exhibit 108.

(bates 3003; see also Exhibit 109, SEC Form U-3A-2, bates 3069).

4.

Prior to its deregulation, Con Edison NY offered electric service in a “bundled”

format, i.e., it owned and operated the generation plants that produced electricity as well as the

transmission and distribution systems that delivered the electricity to its customers. (See Exhibit

106, bates 2913; Exhibit 299, bates 5834). In its 1998 Annual Report CEI stated that, prior to its

deregulation, Con Edison NY owned gas-fired, oil-fired, and nuclear-powered plants with a total

electric-generating capacity of 8,300 megawatts (“MW”). (Exhibit 106, bates 3059).

II.

The Deregulation of Con Edison NY’s Energy Business

5.

The New York Public Service Commission (“PSC”) is responsible for regulating

the power industry in the State of New York. Prior to deregulating certain aspects of Con Edison

NY’s business, all of its operations were subject to regulation by the PSC.

6.

Beginning in March 1993, the PSC took a number of steps to develop a

competitive electric industry in the state of New York. (Exhibit 109, bates 5849). This process

commenced with the PSC’s initiation of a proceeding entitled “Proceeding On Motion Of The

Commission To Address Competitive Opportunities Available To Customers Of Electric And

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 4 of 104

Gas Service And Develop Criteria For Utility Responses” (the “Competitive Opportunities

Proceeding”). (Exhibit 109, bates 5920 n.2).

7.

The stated purpose of the Competitive Opportunities Proceeding was to evaluate

“ways the [electric service] industry could be restructured” due to the “increasing competitive

options” available to consumers. (Exhibit 109, bates 5849).

8.

The Competitive Opportunities Proceeding was divided into two phases. Phase I

was designed to discuss, investigate, and address the issues involved in moving toward a

competitive marketplace. The objective of Phase II, commencing in August 1994, was to

“identify regulatory and rate-making practices that will assist in the transition to a more

competitive industry while increasing efficiency and maintaining safety, environmental,

affordability, and service quality goals.” The PSC encouraged electric utilities and other

interested parties to “work collaboratively toward the development of a set of principles to guide

the transition toward a more competitive electric marketplace” noting that the “[i]ssues set for

examination include those related to the establishment of fully efficient wholesale markets for

electricity, as well as pricing reforms necessary to reflect those efficiencies in retail rates.” The

PSC’s August 1994 Order initiating Phase II is attached as Exhibit 110. (bates 3077-3081).

9.

Phase II of the process culminated with a May 1996 PSC Opinion stating the

PSC’s vision for the electric utility industry and ordering Con Edison and certain other major

electric utilities in New York State to file plans describing how they would restructure their

operations to bring about a competitive marketplace for, among other things, electric generation.

The Opinion “strongly encouraged” the utilities to sell their generating plants to unregulated

entities so as to facilitate the development of a competitive marketplace. The May 1996 PSC

Opinion also invited utilities to propose the corporate structures, including unregulated

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 5 of 104

subsidiaries, that would further the PSC’s restructuring goals. The May 1996 PSC Opinion is

attached as Exhibit 299. (bates 5834).

III.

Con Edison NY’s Response to Deregulation

A.

10.

The Planning and Environmental Committee

The Planning and Environmental Committee of the Board of Trustees of Con

Edison NY would review plans for Con Edison NY’s future actions, including Con Edison NY’s

response to the deregulation process, provide advice and consent to the management of Con

Edison NY regarding such plans, and submit recommendations to the Board of Trustees of Con

Edison NY regarding such plans.

11. Minutes of the Planning and Environmental Committee indicate that it studied the

deregulation process in other jurisdictions. (Exhibit 111, bates 3082, bates 3084)

12. Minutes of the Planning and Environmental Committee of the Board of Trustees

of Con Edison NY relating to the deregulation process and Con Edison NY’s plans in response

are attached as follows:

July 26, 1994
April 25, 1995
May 23, 1995
June 27, 1995
September 26, 1995
November 28, 1995
March 26, 1996
June 25, 1996
January 28, 1997
March 25, 1997
June 24, 1997

bates 3101
bates 3104
bates 3110
bates 3113
bates 3116
bates 3119
bates 3122
bates 3125
bates 3128
bates 3130
bates 3133

Exhibit 112
Exhibit 113
Exhibit 114
Exhibit 115
Exhibit 116
Exhibit 117
Exhibit 118
Exhibit 119
Exhibit 120
Exhibit 121
Exhibit 122

13.

Reports from the Planning and Environmental Committee to the Board of

Trustees of Con Edison NY dated August 23, 1994, May 23, 1995, July 25, 1995, October 24,

1995, December 19, 1995, April 23, 1996, July 23, 1996, January 28, 1997, April 22, 1997, and

July 22, 1997 are attached as Exhibits 123 through 132. (bates 3137, bates 3139, bates 3146,

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 6 of 104

bates 3147, bates 3150, bates 3153, bates 3156, bates 3128, bates 3166, bates 3169). The

minutes of the meetings of the Planning and Environmental Committee do not reflect discussions

of leasing transactions or leasing opportunities.

B.

14.

The Formation of Consolidated Edison Development, Inc.

A memorandum dated April 20, 1995, advising the Con Edison NY Board of

Trustees of management’s intention to petition the Public Service Commission for a blanket

authorization to invest funds in unregulated subsidiaries, which in turn would be authorized to

make investments in lower-tier subsidiaries is attached as Exhibit 133. (bates 3172)

15. Minutes of the May 23, 1995 Con Edison NY Board of Trustees meeting

discussing management’s intention to petition the PSC for an authorization to invest funds in

unregulated subsidiaries are attached as Exhibit 134. (bates 3175, bates 3188). The minutes do

not reflect a discussion of leasing transactions.

16.

On May 2, 1995, Con Edison NY requested permission from the PSC to invest up

to 5% (approximately $504 million) of its consolidated capital in unregulated subsidiaries

identified on Exhibit I to the May 2, 1995 Request. An incomplete copy of the May 2, 1995

request, without Exhibit I, is attached as Exhibit 135, bates 3192-3230.1 The request does not

include a discussion of leasing transactions.

17.

On July 12, 1996, the PSC issued an order (the “July 12, 1996 Order”) which

deferred action on Con Edison NY’s May 2, 1995 request, but granted Con Edison NY authority

to invest up to $50 million in unregulated subsidiaries which would invest in two of the three

requested projects: the investment and/or participation in energy infrastructure projects, and the

marketing of technical services. The PSC stated that “[t]he business opportunities that Con

1

Plaintiff has been unable to locate a copy of the document that included Exhibit I.

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 7 of 104

Edison is considering for the projects that are the subject of this Order are largely international.”

While the PSC noted that the energy infrastructure project investments “may be made through

development companies, investment funds, joint ventures and other vehicles” the PSC stated that

“Con Edison’s proposal to invest in international (domestic and foreign) energy infrastructure

projects would for the most part be as an investor through established funds.” In accordance

with the PSC’s plan to encourage divestiture of public utility-owned electric generation plants,

the PSC prohibited Con Edison NY from “having a controlling interest in any fund that owns

New York State energy projects, and from making direct investment in any New York State

energy project.” July 12, 1996 Order, Exhibit 137, bates 3317). The July 12, 1996 Order did not

address the specific Transaction at issue in this case.

18.

An internal Con Edison NY memorandum dated September 18, 1996, seeking

approval from the Con Edison NY Board of Trustees to form and to invest up to $50 million in a

wholly-owned subsidiary to invest in energy infrastructure development projects and to market

technical services worldwide is attached as Exhibit 138. (bates 3328). The memo did not

address the specific Transaction at issue in this case.

19.

On October 18, 1996, Con Edison NY formed a new subsidiary, Gramercy

Development, Inc., (“GDI”) to carry out the investments set forth in the September 18, 1996

memorandum. (Exhibit 141, Gramercy Board Minutes Oct 28, 1996, bates 3337; Exhibit 142,

Certificate of Incorporation, bates 3345). On September 24, 1997, GDI changed its name to

Consolidated Edison Development, Inc. (“CED”). (Exhibit 140, CED Board Minutes, bates

3333; Exhibit 139, Resolution re Name Change, bates 3332).

20.

As of December 15, 1997, Con Edison NY owned 100% of the outstanding stock

of CED. (Exhibit 109, SEC Form U-3A-2, bates 3069-3076, at bates 3071).

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 8 of 104

C.

21.

Con Edison NY’s Settlement with the PSC

On October 1, 1996, Con Edison NY filed a response to the PSC’s May 20, 1996

Order. This response included a rate and restructuring plan and also included a petition to adopt

a holding company structure. Con Edison NY’s restructuring plan proposed an approach to a

competitive electric generation market that included, among other things, divestiture of its

generating plants, a plan for retail competition, and a corporate reorganization into a holding

company structure. The proposed holding company structure would allow Con Edison to form

unregulated subsidiaries whose investment decisions would no longer require prior PSC

approval. (Exhibit 143, bates 3346; Exhibit 144, bates 3508). The restructuring plan does not

reflect a discussion of leasing transactions.

22.

In September 1997, the PSC and Con Edison NY ultimately agreed on a

restructuring plan that was embodied in an Amended and Restructured Agreement and

Settlement (Exhibit 145, bates 3698-3761). Upon approval of the Settlement, the July 12, 1996

Order (Exhibit 145, bates 3762-3771) no longer applied to Con Edison NY. The Settlement

included, among other things, (i) a new rate plan during the period of the transition to

competition, (ii) a commitment by Con Edison NY to divest at least 50% of its New York City

electric generating fossil fueled MW capacity plants by year end 2002 to unregulated third

parties so as to help implement a fully competitive market for electric generation, and (iii)

authorization for Con Edison NY to form a holding company whose subsidiaries would consist

of Con Edison NY and several unregulated subsidiaries, including Con Edison Development.

The Settlement did not address the specific Transaction at issue in this case.

23.

The Settlement permitted the new holding company to invest up to 5% of its

consolidated capital in unregulated subsidiaries. (Exhibit 145, bates 3754).

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 9 of 104

24.

The minutes of the December 12, 1997 joint meeting of the Board of Directors of

CEI and the Board of Trustees of Con Edison NY provide that the shareholders of Con Edison

NY approved the formation of CEI on December 12, 1997. The minutes are attached as Exhibit

357 (bates 7516-37). As part of the transition to a holding company structure, Con Edison NY

and CED, as well as several other unregulated subsidiaries of Con Edison NY, became

subsidiaries of CEI on January 1, 1998. (Exhibit 106, 1997 Annual Report, at bates 2894.)

25.

CEI’s 1998 Annual Report states that by March 2, 1999, pursuant to the

Settlement with the PSC, Con Edison NY had sold almost 6,300 MW of its approximately 8,300

MW of electric generation assets for an aggregate price of $1.8 billion, and that completion of

these sales will result in an estimated net after-tax gain of $384 million (Exhibit 108, 1998

Annual Report, at bates 3059). In 2000, Con Edison NY contracted to sell its nuclear-generating

facilities, with electric generating capacity of approximately 1000 MW, for an aggregate price of

$504.5 million, not including fuel and other adjustments, which transaction closed in 2001. (CEI

2002 10-K, Exhibit 148, bates 3800-4040, at bates 3964). In 2001, Con Edison NY sold

approximately 1,480 MW additional electric generating assets. (Exhibit 148 at bates 3964). The

remaining electric generating assets owned by Con Edison NY are held in connection with, and

are ancillary to, its steam generation business. (CEI notes to consolidated financial statements,

Exhibit 149, bates 4041-4087, at bates 4064).

D.

26.

Con Edison NY’s Other Unregulated Subsidiaries

Con Edison NY formed other unregulated subsidiaries in conjunction with its

decision to enter into unregulated businesses:

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 10 of 104

27.

Consolidated Edison Solutions, Inc., formerly ProMark Energy, Inc., was formed

to provide electricity and natural gas to commercial and residential customers in the Northeast.

(Exhibit 106, Annual Report 1997, bates 2891, bates 2912).

28.

Consolidated Edison Energy, Inc. was formed to market specialized energy

capacity and risk management services to wholesale customers in the Northeast and mid-Atlantic

states. (Exhibit 106, Annual Report 1997, bates 2891, bates 2907; Exhibit 150, ConEdison

Energy Business Plan Executive Overview Oct. 27, 1997, bates 4092).

29.

Consolidated Edison Communications, Inc. was formed to build and manage

communication networks. (Exhibit 151, SEC Form S-4 filed Oct. 1997, bates 4112, bates 4114).

IV.

CED’s Business Plans

30.

GDI’s initial business plan, for 1997, is attached hereto as Exhibit 136, bates

3232-3316. The Executive Summary of this Business Plan, which sets forth, among other things,

an overview of Objectives, Strategy and Projections is at pages 1 through 11 of the Business

Plan. (Exhibit 136, bates 3235-3245).

31.

The following minutes of meetings of the CED board of directors are identified:

10/28/1996
1/3/1997
1/30/1997
3/10/1997
5/22/1997
5/29/1997
6/20/1997
7/23/1997
8/27/1997
9/25/1997
10/20/1997
10/29/1997
11/24/1997
12/15/1997
12/18/1997
1/29/1998
2/26/1998

bates 3337-3344
bates 4173-4176
bates 4177-4180
bates 4181-4185
bates 4186-4187
bates 4188-4191
bates 4192
bates 4195-4197
bates 4198-4200
bates 3333-3336
bates 4255-4257
bates 4126-4127
bates 4128-4130
bates 4131-4133
bates 4134-4137
bates 4223-4226
bates 4138-4143

Exhibit 141
Exhibit 165
Exhibit 166
Exhibit 167
Exhibit 168
Exhibit 169
Exhibit 170
Exhibit 171
Exhibit 172
Exhibit 140
Exhibit 186
Exhibit 153
Exhibit 154
Exhibit 155
Exhibit 156
Exhibit 178
Exhibit 157

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 11 of 104

3/25/1998
4/30/1998
5/29/1998
7/1/1998
9/25/1998
10/29/1998
11/25/1998
12/15/1998 (unsigned)
12/16/1998
1/27/1999
3/3/1999
4/14/1999
5/12/1999
6/25/1999
7/14/1999
8/11/1999 (draft)
8/11/1999
9/15/1999
10/13/1999
11/17/1999
1/12/2000
2/9/2000
3/8/2000

bates 4144-4147
bates 4148-4152
bates 4153-4156
bates 4157-4160
bates 4161-4164
bates 4165-4168
bates 4169-4172
bates 4124-4125
bates 4207-4215
bates 4201-4203
bates 4204-4206
bates 4216-4219
bates 4220-4222
bates 8597-8601
bates 4258-4261
bates 4262-4266
bates 4245-4248
bates 4249-4251
bates 4252-4254
bates 4227-4230
bates 4241-4244
bates 4235-4240
bates 4231-4234

Exhibit 158
Exhibit 159
Exhibit 160
Exhibit 161
Exhibit 162
Exhibit 163
Exhibit 164
Exhibit 152
Exhibit 175
Exhibit 173
Exhibit 174
Exhibit 176
Exhibit 177
Exhibit 429
Exhibit 187
Exhibit 188
Exhibit 183
Exhibit 184
Exhibit 185
Exhibit 179
Exhibit 182
Exhibit 181
Exhibit 180

32.

The following reports to the CEI Board of Trustees are identified:

2/1998
3/1998
4/1998
5/1998
6/1998
7/1998
8/1998
9/1998
10/1998
11/1998
1/1999
2/1999
3/1999
4/1999
5/1999

bates 4273-4274
bates 4315-4317
bates 4327-4328
bates 4309-4314
bates 4303-4308
bates 4267-4272
bates 4284-4289
bates 4335-4342
bates 4329-4334
bates 4297-4302
bates 4275-4277
bates 4318-4320
bates 4321-4325
bates 4278-4283
bates 4290-4296

Exhibit 190
Exhibit 198
Exhibit 201
Exhibit 197
Exhibit 196
Exhibit 189
Exhibit 193
Exhibit 203
Exhibit 202
Exhibit 195
Exhibit 191
Exhibit 199
Exhibit 200
Exhibit 192
Exhibit 194

33.

The following weekly reports of CED are identified:

7/10/1998

bates 4440-4445

Exhibit 238

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 12 of 104

7/24/1998
7/31/1998
8/7/1998
8/27/1998
9/4/1998
9/11/1998
9/25/1998
10/2/1998
10/9/1998
10/16/1998
10/30/1998
11/7/1998
11/13/1998
12/11/1998
12/18/1998
12/31/1998
1/8/1999
1/9/1999
1/15/1999
1/29/1999
2/5/1999
2/12/1999
2/26/1999
3/5/1999
3/12/1999
3/26/1999
4/16/1999
4/30/1999
5/7/1999
5/28/1999
6/4/1999
6/11/1999
6/18/1999
6/22/1999
7/9/1999
7/19/1999

bates 4354-4358
bates 4413-4414
bates 4411-4412
bates 4352-4353
bates 4408-4410
bates 4350-4351
bates 4406-4407
bates 4400-4403
bates 4404-4405
bates 4398-4399
bates 4347-4349
bates 4451-4452
bates 4396-4397
bates 4368-4370
bates 4365-4367
bates 4361-4362
bates 4379-4381
bates 4376-4378
bates 4371-4372
bates 4373-4375
bates 4446-4450
bates 4424-4427
bates 4418-4419
bates 4433-4436
bates 4428-4432
bates 4389-4392
bates 4359-4360
bates 4420-4423
bates 4437-4439
bates 4393-4395
bates 4387-4388
bates 4382-4384
bates 4385-4386
bates 4415-4417
bates 4345-4346
bates 4343-4344

Exhibit 209
Exhibit 230
Exhibit 229
Exhibit 208
Exhibit 228
Exhibit 207
Exhibit 227
Exhibit 225
Exhibit 226
Exhibit 224
Exhibit 206
Exhibit 240
Exhibit 223
Exhibit 213
Exhibit 212
Exhibit 211
Exhibit 217
Exhibit 216
Exhibit 214
Exhibit 215
Exhibit 239
Exhibit 234
Exhibit 232
Exhibit 236
Exhibit 235
Exhibit 221
Exhibit 210
Exhibit 233
Exhibit 237
Exhibit 222
Exhibit 220
Exhibit 218
Exhibit 219
Exhibit 231
Exhibit 205
Exhibit 204

34.

Presentations, business plans, and other similar material describing CED’s

anticipated business plans during the 1997-1999 time period includes, but is not limited to, the

following documents:

bates 4453
bates 4470

Exhibit 241
Exhibit 242

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 13 of 104

bates 4473
bates 4507
bates 4528 (undated)
bates 4534
bates 4572
bates 4608
bates 4631
bates 4674
bates 4684
bates 4703
bates 4747
bates 4781
bates 4801 (unsigned)
bates 4804
bates 4807
bates 4859
bates 4893
bates 4948
bates 4927
bates 4966
bates 7051
bates 7426
bates 7577
bates 7719
bates 7741
bates 8003

Exhibit 243
Exhibit 244
Exhibit 245
Exhibit 246
Exhibit 247
Exhibit 248
Exhibit 249
Exhibit 250
Exhibit 251
Exhibit 252
Exhibit 253
Exhibit 254
Exhibit 255
Exhibit 256
Exhibit 257
Exhibit 258
Exhibit 259
Exhibit 261
Exhibit 260
Exhibit 262
Exhibit 327
Exhibit 348
Exhibit 360
Exhibit 374
Exhibit 375
Exhibit 387

35.

In March 1997, CED entered into an agreement with International Energy

Partners, L.P. (“IEP”). IEP had a portfolio of international energy infrastructure investment

opportunities that it was pursuing. Pursuant to this agreement, CED was given preferred rights

to participate in certain investment opportunities identified by IEP. The Limited Liability

Company Agreement of IEP Global Development, LLC, between CED and IEP is attached as

Exhibit 263. (bates 4986)

36.

The minutes of the June 20, 1997 meeting of the CED Board of Directors provide

that the CED Board authorized a capital commitment of $5 million in Project Finance Fund III,

LP, a fund sponsored by Energy Investors Fund (“EIF”). (Exhibit 170, 6/20/1997 GDI Board

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 14 of 104

Meeting Minutes, bates 4192-4194). Project Finance III utilized the funds received from CED

and other equity investors to invest in energy and infrastructure projects worldwide. (Exhibit

391, Project Finance Fund III, L.P. Limited Partnership Agreement (bates 8030-8103), § 1.03

(bates 8036), Schedule A (bates 8102)).

37.

An undated internal GDI presentation regarding IEP, including a list of potential

international projects, is attached as Exhibit 251. (bates 4684-4702).

38.

An early joint venture between CED and IEP was a minority ownership

investment in a relatively small power facility (40 MW) in Eastern Guatemala, generally known

as Generadora Electrica del Norte, Limitada (“GENOR”). CED indirectly acquired an

approximate 44% ownership interest in GENOR through its investment in Energy Finance

Partners of Central America, (“EFPCA”) with IEP and others; the remaining 51% was owned by

local investors. (Exhibit 265, GENOR Participation Agreement, bates 5160 to bates 5222;

Consolidated Edison Development Summary of Investments December 2000 (Exhibit 264, bates

5137-5159, see bates 5137-5140). According to a January 7, 1999 internal CED year in review

presentation, attached hereto as Exhibit 262, CED had both an ownership and management role

in the Genor facility. (bates 4966- 4985, at bates 4969).

39.

In 1997 and 1998, CED considered purchasing an ownership interest in Empresa

Electrica de Guatemala, S.A. (“EEGSA”), Guatemala’s largest distribution utility serving over

500,000 customers in Guatemala City and surrounding areas. A copy of the Briefing Paper dated

June 2, 1998 pertaining to the Privatization of Empresa Electrica de Guatemala, S.A., is attached

as Exhibit 266. (bates 5223) In connection with the privatization of EEGSA, CED requested

authorization to bid in a consortium with Enron and Union Fenosa for at least 80% of EEGSA’s

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 15 of 104

shares. A copy of Near-Term Investment Strategy and Privatization of Empresa Electrica de

Guatemala, S.A., July 21, 1998 is attached as Exhibit 267. (bates 5250, bates 5251).

40.

The January 7, 1999 year in review presentation also provided that CED was

forced to withdraw from the consortium when CEI would not approve CED’s participation in a

bid of over $400 million for EEGSA. (Exhibit 262, bates 4971-72).

41.

A June 18, 1997 presentation provides that GDI considered acquiring a portion of

EGASA-EGESUR’s generating assets, together with a consortium of other investors, in

connection with EGASA’s privatization. The presentation also provided that EGASA was a

Peruvian utility that could produce 305 MW of power. A copy of the presentation “Gramercy

Development Inc., June 18, 1997” is attached as Exhibit 259. (bates 4893, bates 4902).

42.

A June 6, 1997 memorandum provides that GDI, decided not to pursue the

EGASA-EGESUR bid because (a) the project may have required a larger equity investment than

GDI was prepared to commit to the project; (b) resources at IEP were being drawn away to the

detriment of other projects; (c) anticipated bid price higher than originally contemplated would

be necessary; and (d) EIF (see paragraph 36 above) resource constraints. (Exhibit 268, bates

5253 through 5255).

43.

In 1997, GDI considered making an investment in a cogeneration project at Arun

Aromatik in Indonesia through IEP. A memorandum provided to CED by IEP provides that the

capacity to serve the Aromatik complex did not exist. (Exhibit 251, Memo IEP provided to GDI,

bates 4684; Exhibit 253, CED presentation entitled 1998 Business Plan, dated October 1997,

bates 4747). The April 30, 1998 Minutes of the Board of Directors of CED provides that at some

IEP shifted its focus to projects in the Philippines due to problems with the Indonesian economy.

(Exhibit 159, April 30, 1999 CED Board Minutes, bates 4148, bates 4151).

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 16 of 104

44.

IEP shifted focus away from the project at Arun Aromatik in early 1998 due to

problems with the Indonesian economy. (Exhibit 159, April 30, 1999 CED Board Minutes, bates

4148, bates 4151).

45.

July 27, 1998 materials provided to the CED Board of Directors discussed an

investment in three industrial cogeneration projects that were in the advanced stages of

development by a Philippine engineering company, Integrated Utility Corporation (“IUC”). The

materials indicate that IUC had provided engineering services to Coca-Cola in the Philippines for

years, and had contracts to install cogeneration systems at a Coca-Cola plant, as well as similar

systems for Nissin Biscuits and Arcya Glass. The materials assumed that CED fund 60% of the

contracts for the installation. A copy of the Business Development Report on the proposed

transaction with IUC is attached as Exhibit 269. (bates 5256, bates 5267).

46.

As part of the Sale and Redemption Agreement entered into with IEP on February

26, 1999, CED assigned its interests in the IUC project to IEP. (Exhibit 270, bates 5280-5312).

47.

Volume I of a document entitled CEPALCO Investment Recommendation, dated

September 23, 1998 provides that, CED considered making an investment in Cagayan Electric

Power & Light Company (“CEPALCO”), an energy distribution company and the Philippines’

fourth largest electrical utility. CEPALCO was interested in raising $11 million to $12 million

by selling convertible preferred stock which would convert to a 25 percent ownership position in

CEPALCO. CED considered purchasing at least $6.8 million of these preferred shares

(convertible to 15 percent of CEPALCO). The Investment recommendation also provides that

this transaction could stand alone, as the first the first part of CED’s Anchor and Cluster strategy

in the Philippines. In addition, specific potential follow-on investments in the Philippines were

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 17 of 104

listed.. A copy of Volume I of the CEPALCO Investment Recommendation dated September

23, 1998 is attached as Exhibit 271. (bates 5313, at bates 5316).

48.

A CED year in review presentation for 1998 provides that the CEPALCO

acquisition was discontinued following the conclusion by CED that, although the project was a

viable investment, “the Asian Crisis presented too much risk for CED to invest in the

Philippines.” (Exhibit 262, bates 4966, bates 4974).

49.

A July 24, 1998 document included as part of the CED Board of Directors

Meeting materials dated July 30, 1998, provides that in 1998, CED participated in a project in

China named Jiangsu Transmission & Distribution Planning and that as part of this project, CED

consulted and trained local engineers in distribution reliability practices used by the Con Edison

group and identified energy losses on the distribution system. A copy of the CED Board of

Directors Meeting materials dated July 30, 1998 is attached as Exhibit 269. (bates 5256)

50.

A CED document dated September 3, 1998 indicates that the Jiangsu

Transmission & Distribution Planning project was completed in August 1998. (Exhibit 272,

bates 5332, bates 5334; Exhibit 273, bates 5384, bates 5387).

V.

CED’s Review of Leasing Investments

51.

CED began discussions with Cornerstone Financial Advisors L.P.

(“Cornerstone”) to provide advice concerning leasing investments in approximately May 1997.

(Exhibit 274, bates 5398).

52.

A document entitled “Cornerstone Financial Advisors Limited Partnership

Organization Description,” was provided to GDI. It is attached as Exhibit 275 (bates 5399-

5409).

53.

Cornerstone gave a presentation to GDI on May 21, 1997, concerning leasing. A

copy of the outline of that presentation is attached as Exhibit 276 (bates 5410-5414).

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 18 of 104

54.

The board minutes for the CED Board of Directors Meeting held May 29, 1997,

reflect that CED began to consider leasing investments on or before May 29, 1997. (Exhibit 169,

bates 4188-4192).

55.

CED retained Cornerstone to provide financial services in connection with the

Transaction. A copy of the October 21, 1997 fully executed engagement letter signed by Rob

Holzman of Cornerstone and Brian DePlautt of CED is attached as Exhibit 277 (bates 5415-16).

56.

CED also retained Cornerstone to provide financial services in connection with

CED’s review of other lease-leaseback transactions. These transactions included a lease-

leaseback transaction involving an electric generation facility in The Netherlands, referred to as

the EPON transaction (Exhibit 280, bates 5481-83); a lease-leaseback transaction involving gas

distribution assets in The Netherlands owned by ENECO (Exhibit 278, bates 5417); a lease-

leaseback transaction involving gas distribution assets in The Netherlands owned by MEGA

(Exhibit 279, bates 5477-78); and a lease-leaseback transaction involving gas distribution assets

in The Netherlands owned by NUON (Exhibit 281, bates 5485-86).

(a)

(b)

As of August 22, 1997, CED had prepared a briefing memorandum
pertaining to a potential lease-leaseback transaction with EPON involving
a gas fired, combined cycle power plant (Exhibit 300, Briefing
Memorandum, bates 5930-83; Exhibit 299, Aug. 27, 1997 CED Bd. Min.,
bates 4200) but in late 1997, CED decided to not pursue the EPON
transaction (Exhibit 154, Nov. 24, 1997 CED Bd. Minutes, bates 4130).

As of September 30, 1997, CED had prepared a draft briefing
memorandum on a potential lease-leaseback transaction with ENECO
involving natural gas distribution assets. (Exhibit 304, fax from DePlautt
to Cornerstone sending draft memorandum, bates 6116-70; Exhibit 306,
Summary of Transaction from Cornerstone to CED, bates 6182). CED
also prepared a White Paper pertaining to the ENECO transaction.
(Exhibit 307, White Paper, bates 6183) CED submitted a proposal on the
ENECO transaction, which was accepted on or about October 22, 1997.
(Exhibit 303, bates 6098-6115, commitment letter; Exhibit 305, bates
6171-6181, accepted proposal). CED ultimately withdrew from the
transaction in February 1998. (Exhibit 157, 2/26/98 CED Bd. Min., bates

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 19 of 104

(c)

(d)

4142) A CED memorandum discussing reasons for the withdrawal.
(Exhibit 302, bates 6096-97 and Exhibit 301, bates 6005).

As of September 19, 1998, CED had prepared a draft briefing
memorandum on a potential lease-leaseback transaction with MEGA
involving natural gas assets. (Exhibit 310, 9/10/98 draft briefing
memorandum bates 6259-6329; see Exhibit 309, 9/3/98 draft briefing
memorandum, bates 6192-6258). CED submitted a proposal to MEGA on
or about October 7, 1998. (Exhibit 311, bates 6330-37). CED’s proposal
was not accepted. (Exhibit 308, bates 6191).

CED prepared a briefing memorandum as well as other documents
pertaining to a potential lease-leaseback transaction with NUON involving
natural gas distribution assets. (Exhibit 316, bates 6685-6711 (vol. 1);
Exhibit 317, bates 6712-6807 (vol. 2); Exhibit 318, bates 6808-6980 (vol.
3); Exhibit 428, bates 8590-96, white paper; Exhibit 315, Investment
Recommendation, bates 6680). CED submitted a proposal, which was
accepted. (Exhibit 312, 10/27/98 Bid, bates 6338-51; Exhibit 319,
12/10/98 Updated Bid, bates 6981-83; Exhibit 314, 2/12/98 Acceptance,
bates 6666-79). CED closed the transaction with NUON pursuant to
documents dated as of May 18, 1999. (E.g., Exhibit 313, NUON
Participation Agreement, bates 6352-6665; Exhibit 320, CED February
2000 Business Plan, bates 6984, bates 6999).

VI.

EZH and the RoCa3 Facility

57.

On August 25, 1997 Cornerstone notified CED of the possibility of entering into a

leveraged lease with EZH of a new power generation facility (the “RoCa3 Facility”) located near

Rotterdam, The Netherlands. (Exhibit 282, Holzman notes, bates 5487-91 at bates 5490-91).

58.

CEL Trust and EZH entered into the transaction (the “Transaction”) that is the

subject of this action, pursuant to the documents identified in paragraph 1, on December 15,

1997. The Transaction involved a lease of an undivided interest in the RoCa3 Facility to CEL

Trust pursuant to a Lease Agreement and a shorter term sublease of this undivided interest in the

RoCa3 Facility from CEL Trust to EZH pursuant to a Sublease Agreement, among other

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 20 of 104

agreements, and therefore is sometimes referred to as a lease-in, lease-out or “LILO” transaction,

or lease/lease-back transaction.2

A.

59.

EZH’s Historical Business

N.V. Electriciteitsbedrijf Zuid-Holland (“EZH”) was, on December 15, 1997, an

energy company that owned, among other things, several energy generating facilities in The

Netherlands. Ex. 287, bates 5607 (EZH 1997 Annual Report).

60.

According to correspondence from EZH, the RoCa3 facility opened for

commercial operation in 1996, with commercial delivery of heat commencing on January 1,

1996, commercial delivery of electricity commencing on May 1, 1996 and supply of CO2

commencing on July 1, 1996 (Exhibit 283, bates 5492-94).

61.

An EZH document entitled “Innovation for the B Triangle” provides that EZH has

been responsible for the coordination and transport of electrical energy in the southern

Netherlands since 1941. The document also provides that in 1987, EZH began producing heat

and electricity, which EZH supplied to distribution companies which in turn delivered the

electricity and heat to the customers, and that the addition of the RoCa3 Facility in June 1996

allowed EZH to produce and provide carbon dioxide to horticulture operators. A copy of

“Innovation for the B Triangle” is attached as Exhibit 430, bates 8602-06, at bates 8606.

62.

A page from EZH’s corporate website entitled “EZH 24 Hours A Day” updated as

of August 4, 1997, provides that EZH was one of four national power generating companies in

The Netherlands. A copy of “EZH 24 Hours A Day” is attached as Exhibit 284, bates 5561-62.

Banc One Leasing Corp. (“Banc One”) and EZH also entered into a lease/lease-back,

2
involving the remaining undivided interest in the Facility as of December 15, 1997. See Exhibit
402 (bates 8143).

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 21 of 104

63.

Pursuant to section 7(a) of the Participation Agreement, EZH represented that as

of December 15, 1997, EZH was a public limited liability company with its registered seat in

The Hague, duly authorized to do business in The Netherlands. (Exhibit 1, bates 27).

64.

An online version of EZH’s 1996 Annual Report provides that the net generating

capacity of EZH’s power stations rose from 2,381 MW in 1995 to 2,601 MW in 1996. This

version of EZH’s 1996 Annual Report further provides that this 220 MW(e) increase was due to

the RoCa3 Facility coming into operation in June 1996. The RoCa3 Facility got its name

because it is located between Rotterdam and Capelle aan de IJssel and it is the third power

generating facility at this location. (Exhibit 285, bates 5568; Exhibit 286, bates 5575).

65.

EZH’s 1997 Annual Report states that the net generating capacity of EZH’s

power stations fell from 2,601 MW in 1996 to 2,281 MW in 1997. (Exhibit 287, EZH 1997

Annual Report, bates 5607, bates 5615).

66.

EZH’s 1997 Annual Report that in 1997, various municipalities owned the issued

capital stock of EZH as follows: Province of South Holland (15%), and the Municipalities of

Delft (9%), Dordrecht (16%), Leiden (12%), The Hague (15%), and Rotterdam (28%). The

remaining 5% was owned by EZH. A copy of the EZH 1997 Annual Report is attached as

Exhibit 287, bates 5607-35 at bates 5629.

67.

Internal EZH documents discussing the Transaction are attached as Exhibit 288,

bates 5636-5666 (Dutch, and English translation).

68.

Other documents regarding EZH not otherwise identified herein are attached as:

bates 5668-73
bates 5674-92
bates 5693-5720

Exhibit 289
Exhibit 290
Exhibit 291

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 22 of 104

B.

69.

EZH’s Ownership Changes

EZH’s 1999 Annual Report provides that on July 16, 1999 (after the transaction at

issue in this case closed), EZH shareholders entered into a stock purchase agreement with

PreussenElektra AG pursuant to which EZH shareholders agreed to sell their stock in EZH to

PreussenElektra AG. PreussenElektra AG was a German utility and a subsidiary of the German

VEBA group. A copy of EZH’s 1999 Annual Report is attached as Exhibit 292, bates 5721-787,

at bates 5733.

70.

On July 20, 1999 EZH sent a letter to CED stating that the EZH shareholders and

PreussenElektra had reached an agreement, in principle, for the purchase and sale of the EZH

shares. A copy of the July 20, 1999 letter from EZH to CED is attached as Exhibit 293. (bates

5788).

71.

By letter dated September 15, 2000, EZH advised CED that in January 2000,

PreussenElektra acquired 100 percent ownership of EZH. The letter also provided that in June

2000, VEBA AG and VIAG AG merged to form E.ON AG, a German company the shares of

which were listed on both the Frankfurt and New York stock exchanges, in 2000. The letter also

provided that E.ON Energie AG, a wholly-owned subsidiary of E.ON AG, acquired the shares of

EZH as part of the merger. A copy of a September 15, 2000 letter from EZH to CED is attached

as Exhibit 294. (bates 5789-90).

72.

By letter dated December 11, 2000, E.ON Benelux Generation N.V. informed

CED that EZH had changed its name to E.ON Benelux Generation N.V. A copy of a December

11, 2000 letter from E.ON Benelux Generation N.V. is attached as Exhibit 295. (bates 5791)

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 23 of 104

C.

73.

The RoCa3 Facility

The RoCa3 Facility is located in an industrial area in the southwestern region of

The Netherlands, on the border between Rotterdam and Capelle aan den IJssel, constituting the

third unit alongside two previously built units. (See Exhibit 430, “Innovation in the B Triangle,”

bates 8602). The generating unit at RoCa3 is a gas fired combined heat and power (“CHP”)

plant that supplies electrical and thermal energy and carbon dioxide (the “Unit”). (Exhibit 430,

bates 8602).

74.

A document provided by EZH (bates 5792-5822, Exhibit 296 hereto), and

included behind Schedule 7(t) of the Participation Agreement (Exhibit 1, bates 216-245)

provides that the RoCa3 Facility, including the Common Facilities and the Network, includes

among other things the electric-generating Unit, the Common Facilities, the Cooling Water

Station, the Cooling Water Channel, the Network, and the Facility Personal Property.

(a)

(b)

(c)

Appendix A of the Participation Agreement defines the Unit as the gas-
fired, electric generating unit known as RoCa3 having a rated capacity of
220 net MW, all as more fully described in Section 7(t) to the Participation
Agreement, and any and all Modifications thereto and Parts thereof.
(Exhibit 1, bates 171).

Appendix A and Schedule 7(t) of the Participation Agreement define the
Common Facilities as the gas receiving station, the pump room, the office
building, which includes the control room, and certain parking spaces.
(Exhibit 1, bates 122, bates 243).

Appendix A of the Participation Agreement defines the Cooling Water
Station as the cooling water station owned by EZH pursuant to the
Transfer Deed and described more fully in Schedule 7(t) to the
Participation Agreement, and any and all Modifications thereto and Parts
thereof. (Exhibit 1, bates 123). Documents provided by EZH in
correspondence to Shearman & Sterling indicate that the Cooling Water
Station is located at the River Hollandsche IJssel, noting that the inlet
station and pump station of the Cooling Water Station are utilized for
cooling. These same EZH documents indicate that the Cooling Water
Station is located about five kilometers from the Unit. (Exhibit 296, bates
5792-5822; Exhibit 1, Participation Agreement § 7(t), bates 242).

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 24 of 104

(d)

(e)

(f)

Appendix A and Schedule 7(t) of the Participation Agreement define the
Cooling Water Channel as the cooling water pipes leading from the
Cooling Water Station to the Unit and vice versa as well as from the
Cooling Water Station to the River Hollandsche IJssel and vice versa.
(Exhibit 1, bates 123, bates 242).

Appendix A of the Participation Agreement defines the Network as the
pipelines from and to the Unit for the delivery of heat and CO2 containing
gas to Energie Delfland NV including the control systems and
communication cables thereto, all as more fully described in Schedule 7(t)
to the Participation Agreement, and any and all Modifications thereto and
Parts thereof. (Exhibit 1, bates 143).

Appendix A of the Participation Agreement defines the Facility Personal
Property as all movable property which forms or will form part of the
Facility. (Exhibit 1, bates 131).

VII.

The EZH Transaction

75.

Cornerstone, on behalf of CED and Banc One Leasing Corp. (“Banc One”),

submitted a proposal to EZH to enter into a lease/lease-back of the RoCa3 Facility on September

26, 1997. This proposal letter is attached as Exhibit 297. (bates 5823). This proposal was not

executed by EZH.

76.

On October 21, 1997, CED sent a proposal directly to EZH to make an equity

investment in the lease/leaseback of the RoCa3 Facility. This proposal was accepted by EZH on

October 22, 1997. This fully executed proposal along with fax cover sheets transmitting the

proposal is attached as Exhibit 298. (bates 5826-33).

77.

CED’s October 21, 1997 proposal provided that it was subject to (a) participation

of lenders on terms acceptable to CED; (b) issuance of necessary approvals within CED; (c)

receipt of satisfactory opinions (including a tax opinion) and accounting determinations; (d)

satisfactory third-party expert letters and reports concerning (i) the reasonableness of the interest

rate on the third part non-recourse loan, the debt defeasance and related matters, (ii) insurance

matters, (iii) environmental matters, (iv) an engineering report, and (v) an appraisal report; and

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 25 of 104

(e) negotiation of documentation mutually acceptable to EZH and CED. (Exhibit 298, bates

5828, bates 5829).

78.

A.

79.

CED retained a number of consultants in connection with the RoCa3 Transaction.

Duke Engineering

A document entitled “EZH-RoCa CHP Power Station Unit No. 3 Due Diligence

Report, Revision 0” prepared by Duke Engineering & Services (“Duke Engineering”) addresses

several topics concerning an engineering review of the RoCa3 Facility. The document indicates

that Duke Engineering made site visits on October 16-17, 1997 and November 11, 1997 to

inspect the RoCa3 Facility, interview key plant personnel, and review plant documents. This

document indicates that the principal individuals from Duke Engineering involved in the matters

discussed in the document were Richard K. Radini, Gerald F. Foley, Luis C. Gonzalez and

Anthony DeCristofaro. (bates 1822). This document is attached as Exhibit 52 (bates 1801-2074,

at bates 1822).3

80.

Section 3(l) of the Participation Agreement provides that the closing of the EZH

transaction was contingent upon CED receiving a satisfactory report from Duke Engineering.

(Exhibit 1 at bates 14).

3
The parties do not agree whether this is the final Duke Engineering Report in connection
with the RoCa3 Facility or whether a final Duke Engineering Report was ever delivered to CED.

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 26 of 104

B.

81.

Tauw Milieu

A document entitled Due Diligence Environmental, Safety and Health Report4,

which was sent to CED by Tauw Milieu by letter dated January 14, 1998, addresses several

topics concerning an environmental, health, and safety assessment of the RoCa3 Facility.

According to section 2.3.2 of the document, Tauw performed on-site inspections on October 7,

1997 and October 23, 1997, interviewed EZH personnel, and reviewed applicable environmental

laws and regulations in conducting its review. (bates 2106). According to section 2.1 of the

document, Hans Nieuwenhuis was the project manager in connection with the production of this

document. This document is attached as Exhibit 53 (bates 2076-2341).

82.

Section 3(m) of the Participation Agreement provides that the closing of the EZH

transaction was contingent upon CED receiving a satisfactory report from Tauw Milieu. (Exhibit

1, bates 14).

C.

83.

Deloitte & Touche

A document entitled “Appraisal Report, RoCa3 Electric Generating Facility” (the

“Appraisal”), dated 12/15/97 and provided to CED by Deloitte & Touche LLP (“Deloitte”),

addresses an appraisal of the RoCa3 Facility and aspects of the Transaction. The Appraisal

indicates that the principal individuals from Deloitte & Touche on the engagement were Richard

K. Ellsworth, George P. Revock, and Steven Liu. (Exhibit 46, bates 1588-1596). A copy of the

Appraisal is attached as Exhibit 46. (bates 1501-1758).

4
The United States has not yet had an opportunity to depose Mr. Nieuwenhuis, but will be
allowed to do so prior to Mr. Nieuwenhuis testifying at trial. Therefore, the United States cannot
at this time stipulate to many of the facts surrounding Tauw’s involvement other than that the
document identified above was prepared and appears to reflect evaluations conducted by Tauw
in connection with the RoCa3 facility.

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 27 of 104

D.

84.

Accounting Matters

Cornerstone engaged Arthur Andersen, for the benefit of CED, to prepare a report

regarding the accounting treatment for a hypothetical lease transaction. Exhibit 321 is a copy of

the Arthur Andersen Report (bates 7007-12), and Exhibits 130, 322, 323 (bates 3159-65; bates

7014-19; bates 7020-26) are drafts thereof. Exhibit 324 (bates 7027-30) is a copy of the

hypothetical lease transaction.

85.

PriceWaterhouse prepared a report concerning the accounting treatment of the

Transaction. Exhibit 325 (bates 7031-34) is a copy of the PriceWaterhouse report.

E.

86.

Legal Matters

The law firm of Loeff Claeys Verbeke issued an opinion concerning, among other

things, the effect of the choice of law provisions contained in the Operative Documents, whether

a Dutch court would enforce the Operative Documents, and whether the security agreements

created valid and enforceable security rights under Dutch law in favor of the respective parties to

the Operative Documents. (Exhibit 326, Loeff Claeys Verbeke opinion dated 12/15/97, bates

7035-50).

87.

The law firm of Shearman & Sterling offered tax and other legal advice in

connection with the Transaction. Documents entitled “Cross-Border Equipment Leasing

Investor Tax Risks,” dated 11/20/97, bates 7062-69 (Exhibit 329) and “Amendments to the Code

and the Treasury Regulations Impact on Leveraged Lease Financing Transactions,” dated

11/20/97, bates 7054-61 (Exhibit 328). A copy of the final tax opinion from the law firm of

Shearman & Sterling pertaining to the Transaction, provided to CED on February 18, 1998, is

attached as Exhibit 86, bates 2754.

Case 1:06-cv-00305-MBH Document 57 Filed 10/03/2007 Page 28 of 104

F.

88.

Cornerstone Financial Advisors

Cornerstone prepared computerized pricing runs to reflect, among other things,

the anticipated cash flows and of the EZH Transaction. Cornerstone sent what it referred to as

the final versions of the pricing runs to CED on or about March 12-13, 1998. These pricing runs,

and a cover letter accompanying same, are attached as Exhibits 330, bates 7070; Exhibit 331,

bates 7154; Exhibit 332, bates 7155; Exhibit 333, bates 7240.

89.

Documents pertaining to Cornerstone’s role as advisor to CED include: Exhibit

335, bates 7320-22; Exhibit 336, bates 7323-26; Exhibit 341, bates 7351-53; Exhibit 342, bates

7354-82; Exhibit 343, bates 7383-85; Exhibit 344, bates 7386-89; Exhibit 345, bates 7390-94;

Exhibit 346, bates 7395-418.4; Exhibit 334, bates 7318-19; Exhibit 337, bates 7327-29; Exhibit

338, bates 7330; Exhibit 347, bates 7419-25; Exhibit 339, bates 7331-34; Exhibit 340, bates

7335-50.

90.

Cornerstone assisted CED in understanding how leveraged leases are treated for

financial accounting purposes. (e.g., Exhibit 282, bates 5487-91).

91.

Cornerstone, in connection with the Transaction, requested information regarding

EZH’s creditworthiness. Correspondence regarding EZH’s creditworthiness is attached as

Exhibits:

bates 7467-7467.1
bates 7468

Exhibit 349
Exhibit 350

92.

An October 30, 1997 memo from Rob Holzman states that