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Material confeccionado por el estudio RODRIGUEZ & LAPLACETTE

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1.1 BACKGROUND: GEOGRAPHY, HISTORY AND POLITICAL SYSTEM

The Republic of Argentina is comprised of 23 provinces and the federal capital of the autonomous City of Buenos Aires. Located at the extreme southeast of the South American continent, Argentina is the eighth largest country in the world and the second largest in Latin America, covering some 3.8 million square kilometers (1.5 million square miles). The length of Argentina in a northern to southern direction is about 3330 km (about 2070 miles); its maximum width is about 1384 km (about 860 miles). Argentina's last census (November 1991) showed a population of 32.6 million, approximately 10.9 million of which live in the city of Buenos Aires and the greater Buenos Aires area. Argentina's population growth rate on an annual basis averages 1.5 percent. The overall population density is about 12 persons per square kilometer.

Other important cities include Córdoba (population 1,134,086); Rosario (1,071,384); Mendoza (728,966); La Plata (644,155); San Miguel de Tucumán (626,143); Mar del Plata (523,178); Salta (265,632) and Neuquén (178,000).

1.1.2 The Constitutional and Political System

Argentina is organized as a federal republic with a democratic political system. The Argentine Constitution, established in 1853 as amended, provides for a tripartite system of government consisting of an executive branch headed by the President, a legislative branch and a judiciary.

The Constitution expressly provides for fundamental human rights such as equality before the law, freedom of speech, peaceful assembly, and the right to private property.

The executive branch has been the dominant branch at the federal level. The President is elected by direct vote and may serve a maximum of two consecutive, four-year terms. After the 1994 constitutional amendment a chief of cabinet is appointed by the President and can be removed by him or by Congress.

The Argentine Congress comprises two houses (a 72-seat Senate and a 257-seat Chamber of Deputies), which constitute the legislative branch. Senators are elected for six-year terms upon a staggered basis, with one-third of the Senate being elected every two years. Deputies are elected for four-year terms upon a staggered basis; one-half of the Chamber is subject to election every two years. Congress has exclusive power to enact laws concerning federal legislation, including international and interprovincial trade, immigration and citizenship, patents and trademarks. The Constitution entitles the Congress to enact the Codes concerning civil, commercial, criminal, mining, labor and social security matters, which are applicable throughout the country.

The judicial system is divided into federal and provincial Courts, and each system has lower courts, courts of appeal and supreme courts. The supreme judicial power of Argentina is vested in the Supreme Court of Justice, which has nine members who are nominated by the President with the consent of the Senate. Judges at all levels are appointed for life.

Each province enacts its own Constitution, elects its own governor and legislators, and appoints its own judges to the provincial courts.

1.2 THE FINANCIAL SETTING: INFORMATION FOR THE FOREIGN INVESTOR

1.2.1 Membership in Regional Economic Trade Groups and International Organisations

Argentina's relationship with the rest of Latin America has emphasized cooperation in trade and investment issues, most notably with the creation of the Mercosur Common Market ("Mercosur"), composed of Argentina, Brazil, Paraguay and Uruguay. Mercosur calls for a gradual elimination of all tariff barriers between its members and a common external tariff with the remainder of the world. This has resulted in a substantial increase in intra-Mercosur trade which in 1996 reached US$ 13.7 billion.

On a global scale, Argentina is a charter member of the United Nations and a founding member of the Organisation of American States.

1.2.2 A Summary of Key Economic Data

The Argentine GDP rose by 8.7% in 1992, 6.0% in 1993, 7.4% in 1994, but fell by 4.6% in 1995 partly as a consequence of the Mexican crisis. In 1996 however it rose by 4.4% and the provisional figure forecast for 1997 is 6.5%.

The annualized inflation rate based on the consumer price index ("CPI") for the twelve months ended 31 December 1993, 1994, 1995 and 1996 was respectively 7.4%, 3.9%, 1.6% and 0.1%. In most instances since March 1991, when the Convertibility Plan was introduced, the rate of increase in the WPI has been significantly below the rate of increase of the CPI. These low levels are a reflection of increased competition for goods partly as a result of the influx of cheaper imports.

The Argentine foreign exchange market was highly controlled until December 1989 when a free exchange rate was established for all foreign currency transactions. This free exchange policy continues in effect today.

During 1992 and the beginning of 1993, Argentina successfully completed negotiations for the rescheduling of its external debt which was estimated, at year-end 1992, at approximately US$ 69.5 billion including arrears.

In July of 1992, Argentina concluded negotiations with the Paris Club (bilateral official creditors) in order to reschedule the principal and interest payments which were not previously rescheduled. Argentina also reached an agreement with commercial banks under the so-called "Brady Plan" with respect to its medium and long-term debt, estimated, at that time, to be US$ 31 billion, including an estimated US$ 8 billion in arrears.

Presently, Argentina has an Extended Fund Facility ("EFF") with the International Monetary Fund ("IMF") in place. In addition, Argentina is not in default on any of its foreign currency denominated debt and has successfully returned to the international capital markets and is borrowing on a voluntary basis.

Argentina's Central Bank is in charge of the regulation, inspection and supervision of financial institutions. It is also responsible for the control of the money supply and serves as custodian of the nation's foreign currency and gold reserves.

The Argentine banking system has undertaken significant reforms in the past few years. The primary goals of these reforms have been to reduce regulation, lower interest rates and increase competition among banks, thereby lowering the cost of, and increasing access to credit. New laws have permitted the creation of certificates of deposit, savings accounts and checking accounts denominated in U.S. dollars.

1.3 THE FOREIGN INVESTMENT REGIME

Foreign investments in Argentina are regulated by a framework of international treaties and Argentine laws that establish the norms for choice of law and jurisdiction, legal treatment of foreign investors and monetary policy and foreign exchange.

1.3.1 Argentine Foreign Investment Regime

There are now no restrictions upon foreign investors wishing to invest in Argentina either by starting up new businesses or by acquiring existing businesses or companies. No prior government approval is needed. The few exceptions to this general rule are mentioned below.

Foreign investments are governed by Argentine Foreign Investments Law 21,382 enacted in 1976, which has subsequently been the subject of considerable amendment, with a view to liberalizing the regime applicable thereto.

Pursuant to the Foreign Investments Law foreign investment is understood to be the influx of resources originating abroad, in the form of direct investment or portfolio investments, in order to develop an economic activity in Argentina. Direct investment mechanisms include investments by multinational companies through the incorporation of a branch or local subsidiary, a partial or total acquisition of an existing company, the acquisition of assets, or the association with existing or newly formed companies. Indirect mechanisms include portfolio investments through the acquisition of quoted or non quoted shares in companies or other entities.

The law states, as a general principle, that foreign investors investing in economic activities in Argentina enjoy the same status and have the same rights that the Constitution affords local investors. Both are entitled to select any legal organisation permitted by law, and to have free access to domestic and international financing. Furthermore, foreign investors are subject to the same procedures as local investors with respect to those activities which require government licenses such as banking and insurance.

There are no limitations on profit remittances (including dividends paid to non-residents) nor upon capital repatriation. Therefore, all investors enjoy the right to repatriate profits and capital at any time. Furthermore, dividends, profit remittances and capital repatriation are not subject to any kind of withholding tax.

One of the only foreign investment sectors still restricted is broadcasting, however, the Investment Protection Treaty with the United States has been construed as repealing restrictions for U.S. investors. In addition, foreigners who wish to purchase land located in frontier and other security areas, or who have a controlling participation in a company owning such land, must obtain prior government approval, which is usually obtained.

1.3.2 Monetary Policy and Foreign Exchange

In order to control inflation and stabilize the economy, the government has taken unprecedented monetary reform measures in recent years, for example, exchange controls were lifted in 1989 after more than four decades of strict controls; foreign exchange may now be freely bought and sold, and transferred in and out of the country.

Additional regulations state that foreign currency deposits may be held in local financial entities (banks, etc.) which may not be forcefully seized or converted into local currency by the government. Exporters are no longer required to repatriate and exchange into local currency the proceeds arising from exports.

1.3.3 Investment Protection and Promotion

During 1989, Argentina implemented the 1958 treaty signed with the United States regarding the Overseas Private Investment Corporation ("OPIC"), which is an agency of the U.S. government that provides insurance to U.S. investments in developing countries. Later, in October 1990, Argentina became a member of the Multilateral Investment Guaranty Agency ("MIGA"), sponsored by the World Bank, which provides insurance coverage for foreign investments made by persons or legal entities established in member countries.

These agencies insure investments against political risks such as availability and right to transfer foreign currency, expropriations or similar measures, breach of contract by the government of the host country, war and civil unrest, among other risks. Both agencies require the prior approval of the lawfulness of the investment and insurance coverage by the government of the host country.

In addition, in recent years, Argentina has signed treaties for the promotion and protection of foreign investments with a number of countries such as the U.S., Germany, Switzerland, Italy, United Kingdom, Belgium, Japan, Canada, France, Chile, Spain, Sweden, Austria, Holland, Denmark, and China.

2.1 PRINCIPAL TYPES OF BUSINESS ORGANISATIONS

In order to conduct business in Argentina on a permanent basis, a foreign company may either (i) appoint a representative or set up a branch, or (ii) incorporate a local corporate entity (subsidiary).

The main types of investment vehicle utilised by non-resident individuals and foreign companies are the Sociedad Anónima ("SA") and the branch. Formation procedures for both vehicles are comparable, however, corporate governance procedures for an SA are more onerous than for a branch. In the past, branches were more heavily taxed than subsidiaries; currently, both branches and SAs are subject to income tax on net profits at the rate of 35%.

The Argentine Companies' Law also provides for another type of company that may be utilised as an investment vehicle: the Sociedad de Responsabilidad Limitada ("SRL"). Pursuant to a recent change in the law, SRLs are now subject to income tax in the same manner as SAs.

The basic characteristics of each type of business structure are detailed below.

2.1.1 Branch of a Foreign Entity

Any company duly organized and existing in accordance with the laws of its country of origin can set up a branch or a representative office in Argentina. In principle, no minimum capital is required.

Applications for registration of a branch must include the following information and documents, which must be duly notarized and legalized: articles of incorporation and by-laws of the foreign company; resolution of the board of directors authorizing the registration of a branch in Argentina; the appointment of a legal representative who is generally the manager; his power of attorney; a certificate of good standing evidencing that the parent company is validly existing according to the laws of the place of incorporation; and a power of attorney enabling attorneys to carry out the registration proceedings.

The branch must keep separate accounting records in Argentina and file annual financial statements with the "Inspección General de Justicia" (Superintendency of Corporations) which is the agency which supervises companies.

The parent corporation is liable for all the liabilities of the branch, as they are not considered to be separate entities. The manager of the branch is subject to the same liabilities as a corporate director under Argentine law.

2.1.2 Sociedad Anónima ("SA")

Capital and Shareholders At least two shareholders, which can be either corporate entities or individuals, are required to set up an SA. Minimum capital is 12,000 pesos. While the share capital must be fully subscribed upon incorporation only twenty five percent (25%) must be paid up on such shares, and the balance within two years thereafter. Contributions in kind of real estate, equipment or other non-monetary assets must be made in full at the time of subscription. Capital is divided into shares which must be in registered form and denominated in Argentine currency. Since there are no nationality or residence requirements, foreign individuals (whether resident in Argentina or not) or non-Argentine companies may hold up to one hundred per cent (100%) of the share capital. Shares must be of equal par value and have equal rights within the same class. However different classes of shares may be created. Transfers of shares are generally unrestricted, but restrictions may be included in the by-laws provided that they do not effectively prevent the transfer of shares.

Registration All SAs must be registered with the Superintendency of Corporations of the jurisdiction of incorporation (i.e. the City of Buenos Aires or any of the provinces). Furthermore, foreign companies must record their articles of incorporation and by-laws with the Superintendency of Corporations, in order to be shareholders of an SA. For this procedure, documents similar to those required to register a branch must be filed, with the exception of the power of attorney for the manager.

Management and representation The SA is administered by a board of directors elected at a shareholders' meeting. An SA whose capital is 2,100,000 pesos or more must have at least three directors. The directors and even the president of the company may be foreigners; however, the majority of the members of the board of directors must be Argentine residents. Directors need not be shareholders. The president, elected from amongst the members of the board, has full powers to act on behalf of the company and his authority in relation to third parties cannot be limited.

The board must meet at least once every three months and a majority of its members must be present for there to be a valid quorum for deliberations. The law requires that directors be physically present for the Board to meet validly; telephone conference meetings are not permitted. Resolutions are passed by a simple majority of the directors present at the meeting, unless a higher majority is required in the by-laws. In addition, board resolutions must be recorded in the appropriate corporate register book.

Shareholders Meetings A shareholders' meeting must be held at least once a year in order to consider the annual financial accounts, and customarily will determine the distribution of profits and appoint directors and statutory auditors. Such shareholders' meetings are called ordinary shareholders' meetings. In addition, extraordinary shareholders' meetings must be held when decisions on certain specific issues are necessary (such as increase of the corporate capital over a certain limit, redemptions of shares, mergers, spin-offs and dissolutions of companies, limits to the exercise of preemptive rights, issues of debentures or bonds, amendments to the bylaws).

In order to participate in a shareholders’ meeting the shareholders have to deposit their shares with the company (or obtain a holding certificate) at least three days in advance of the respective meeting.

All SAs must have corporate register books in which minutes of shareholders' meetings are transcribed.

Supervision An SA may be subject to the supervision of a statutory auditor (síndico) if provided in the by laws. A statutory auditor's responsibility is to protect shareholders' interests and to ensure that the corporation abides by the law in its day-to-day business. An SA whose capital is 2,100,000 pesos or more must appoint at least one statutory auditor. Furthermore, an SA subject to permanent control must appoint three or more (always an odd number) statutory auditors (surveillance committee) if it, inter alia, publicly offers its shares, operates public concessions or services, performs capitalization or savings operations or operations which in any way solicit money or securities from the public with the promise of future benefits ("companies subject to permanent control"). In the case of wholly-owned companies, members of an outside auditing firm are generally appointed as statutory auditors.

Promoters and directors liability during incorporation of an SA During the incorporation of an SA, promoters and directors are jointly and severally liable for all of the SA's liabilities. Directors are only authorized to carry out activities related to the incorporation process and activities related to the company's purpose if these are expressly authorized by the by-laws. Once a company is registered, it may assume all the liabilities incurred in its name and the promoters and directors will be released from responsibility to third parties, although they may still be held liable to the company.

Shareholders liability Shareholders who have fully paid shares are in general not liable for the company's obligations beyond their capital contributions. Shareholders with partly paid shares are required to pay any outstanding balance upon their shares within a maximum period of two years from the date of subscription.

Any shareholder with interests in conflict with those of the company has a duty to abstain from voting on any matter which relates to such conflict; if that shareholder does not comply with this provision, it will be responsible for any damages resulting from a final resolution of the matter in conflict, if, without such shareholder's vote, the majority vote necessary to adopt such resolution would never have existed. Further, all shareholders who vote in favor of a resolution which is subsequently declared null shall be jointly and severally liable for any consequences resulting therefrom.

Directors and managers liability All directors and managers of an SA are subject to a standard of loyalty and diligence; noncompliance with this standard results in an unlimited joint and several liability for damages arising therefrom.

Directors of a company have a duty: (1) to reveal any conflict of interest to the board of directors and statutory auditor; (2) to abstain from voting in any deliberation related to such conflict; and (3) to refrain from competition with the company. Directors are jointly and severally liable for the negligent performance of their duties, or for violations of the law or of the by-laws or regulations of the company. Directors who file written objections promptly, and give notice to the statutory auditors before the proceedings are initiated against acts of the board of directors, are exempt from any consequences arising therefrom.

Directors and managers may be exonerated from liability with respect to the company by a subsequent approval of the shareholders' meeting provided that they have not violated the law or the by-laws, and shareholders representing 5% or more of the company's capital do not object.

Shares Shares must be issued in registered form. They may be preferred or common and may grant a maximum of five votes per share. The issue of shares is subject to, inter alia, the following rules:

a) ordinary shares must have identical economic rights regardless of any differences in voting rights;

b) shareholders are entitled to preemptive rights with respect to the issuance of new shares. Such rights may be canceled in exceptional cases by a vote of a majority of the company's shareholders (mainly where shares are issued as payment in kind or by way of capitalization of the company's debt);

c) a company may not issue new shares with multiple votes once it has obtained a listing for its shares on a stock exchange;

d) non-voting shares may only be issued as preferred shares. A right to vote is automatically granted when the company is in arrears in its payment of preferential dividends, or if the company has been withdrawn or suspended from listing;

e) preferred shares cannot have the benefit of both multiple votes and economic preferences at the same time.

Minority Shareholders' Rights The rights granted to minority shareholders by the Companies Law are somewhat limited and consist of the following:

(i) in certain cases, the right to request that their shares be redeemed at the value reflected in the last balance sheet;

(ii) the right of shareholders with at least 5% (or any smaller percentage provided in the bylaws) of the company's stock to require the Board or the statutory auditors to convene shareholders meetings;

(iii) the right of shareholders with at least 2% of the company's stock to request information from the company's statutory auditors; and

(iv) the right to exercise special cumulative voting rights which permit minority shareholders to elect up to one third of the members of the board of directors.

2.1.3 Sociedad de Responsabilidad Limitada (Limited Liability Partnership)

Capital and partners A minimum of two and a maximum of 50 partners, who may be individuals or corporate entities (other than SAs or Argentine limited liability partnerships with share capital Sociedades en Comandita por Acciones), may set up an SRL. Foreign corporate entities have been admitted as partners of SRLs provided that they are empowered to participate in such partnerships according to the laws of their jurisdiction of incorporation.

Capital must be fully subscribed, denominated in Argentine currency and divided into quotas. One quarter (25%) of the capital must be paid up by the partners at the time the partnership is formed and any balance must be paid up within two years thereafter. Where quotas are issued in consideration for contributions in non-monetary assets they must be fully paid up.

Partnership quotas must be of equal par value (10 Pesos or multiples thereof) and entitle the holder to one vote each. Partners in an SRL are entitled to preemptive rights with respect to new issues of quotas. Transfers of quotas between the partners are not restricted by law, but may be restricted under the partnership agreement. Quotas may be transferred to third parties but existing partners may oppose the incorporation of such third parties as partners if they provide "just cause" as defined by law.

Registration All SRLs must be registered with the Superintendency of Corporations of the jurisdiction of incorporation (i.e. the City of Buenos Aires or any of the provinces). Furthermore, foreign companies must register their articles of incorporation and by-laws with the Superintendency of Corporations, in order to be partners in an SRL.

Management and representation The partners must appoint one or more managers to manage and represent the company. These managers have the same rights and duties as directors of SAs and their powers of representation may be individual or joint. Managers need not be partners themselves.

Partners' meetings The partnership contract normally contains the rules for adopting resolutions, however, if the partnership contract is silent in this respect, resolutions may be passed in writing without the need for holding a meeting. If the company's capital is 2,100,000 pesos or more, the partners must hold an annual meeting to consider the financial accounts of the previous year and in such case must follow the rules set out for shareholders' meetings of SAs.

Supervision The appointment of a statutory auditor or the creation of a surveillance committee is optional for SRLs unless their capital is 2,100,000 pesos or more in which case one or more statutory auditors or a surveillance committee must be appointed. When statutory auditors or a surveillance committee are appointed, the rules for SAs generally apply.

Partners and Managers Liabilities In general similar rules apply for SRLs as for SAs, however, where there is more than one manager, their liabilities will depend upon the provisions of the bylaws.

Minority Rights There are no specific minority holders rights for SRLs, however every partner has the right to (i) request any information they deem relevant, unless a statutory auditor or surveillance committee has been appointed, and (ii) request, in certain cases, early redemption of quotas.

2.1.4 2.1.4 Mergers and spin-offs

Mergers are regulated by the Argentine Companies Law. The law provides for two types of mergers:

a) mergers by consolidation, where two or more companies transfer their assets and liabilities to a new company which, as consideration, issues shares to the shareholders of the merged companies which are then dissolved; and

b) mergers by absorption, where one or more companies (the absorbed companies) transfer their assets and liabilities to an existing company which, as consideration, issues shares to the shareholders of the absorbed companies which are then dissolved.

The regulations provided by the Argentine Companies Law are applied in the same manner for both types of merger.

Preliminary Commitment to Merge The rules regarding merger procedures require that a preliminary agreement (the PCM) be entered into between all the companies involved in the merger. The PCM must contain:

(ii) special merger balance sheets for each company together with an auditor's report. If the company has a statutory auditor he must also prepare a report. These reports must be prepared upon a homogeneous basis and use identical valuation criteria;

(iii) the equity exchange ratio indicating the relevant equity (whether quotas or shares) which the merging companies' partners or shareholders will receive in the new or surviving company;

(iv) any management agreements and/or guarantees given to ensure performance of normal activities until the merger is duly registered at the public commercial registry at the Superintendency of Corporations.

The PCM and the special merger balance sheets must be approved by the organs of governance and by shareholders or partners of the merging companies.

Creditor's Rights In order to protect creditors' rights, a notice of merger must be published in the Official Bulletin of each company's jurisdiction and in a newspaper of nationwide circulation.

Creditors who oppose must file an opposition to the merger proposals within 15 days of the publication of all the relevant notices. The filing of an opposition does not prevent the prosecution of the merger but execution of the Final Merger Agreement (as defined below) must be suspended for a further period of 20 days after the initial period of 15 days has expired. This is to allow opposing creditors whose credits are not canceled or duly secured by the merging companies to obtain judicial liens. If creditors are not sufficiently secured or paid, a judicial claim may be filed by the creditor, utilizing the more expeditious summary proceedings.

Right of withdrawal Whenever shareholders of a company approve a merger in which their company is not the surviving company, any shareholder who voted against such action or did not attend the meeting at which such action was approved, may withdraw from the company and receive the value of its shares, determined on the basis of the company's most recent audited balance sheet (i.e. the merger balance sheet).

Withdrawal rights must be exercised within 5 days following the adjournment of the meeting at which the resolution was adopted in the event the dissenting shareholder voted against such resolution, or within 15 days following such adjournment if the dissenting shareholder did not attend such meeting.

The exercise of withdrawal rights will entail modifications to the balance sheet of the merger and may also alter exchange ratios.

Final Merger Agreement Once the 15 days period for opposition by creditors has elapsed and no opposition has been filed, or once creditors who have filed an opposition have been satisfied, the Final Merger Agreement ("FMA") may be executed. It must contain:

(ii) a list of the partners or shareholders who have exercised their right of withdrawal and the portion of capital they represent in each company;

(iii) a list of opposing creditors whose credits have been secured and who have obtained judicial liens; in both cases, details of the claims and any preliminary injunctions obtained must be included; there must also be a list of creditors whose credits have been canceled, together with a brief report of their impact on the special merger balance sheets.

1. INTRODUCTION