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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO________.
COMMISSION FILE NO. 333-33397
NRG ENERGY, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1724239
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 373-5300
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicated by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. Yes X No
--- ---
As of March 30, 1998, there were 1,000 shares of common stock, $1.00 par
value, outstanding, all of which were owned by Northern States Power
Company. No other voting or non-voting common equity is held by
non-affiliates of the Registrant.
The Registrant meets the conditions set forth in General Instruction I (1)
(a) and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
Documents Incorporated by Reference: None
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INDEX
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PAGE NO.
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PART I
Item 1 Business 1
Item 2 Properties 14
Item 3 Legal Proceedings 19
Item 4 Submission of Matters to a Vote of Security Holders - -
Omitted per General Instruction I (2) (c)
PART II
Item 5 Market Price of & Dividends on the Registrant's
Common Equity and Related Stockholder Matters 20
Item 6 Selected Financial Data - Omitted per General
Instruction I(2)(a) -
Item 7 Management's Discussion and Analysis of Financial 21
Condition and Results of Operations
Item 8 Financial Statements and Supplementary Data 24
Item 9 Changes in & Disagreements with Accountants on 48
Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant -
Omitted per General Instruction I (2)(c)
Item 11 Executive Compensation - Omitted per General -
Instruction I (2)(c)
Item 12 Security Ownership of Certain Beneficial Owners and -
Management - Omitted per General Instruction I (2) (c)
Item 13 Certain Relationships and Related Transactions - Omitted -
per General Instruction I(2) (c)
PART IV
Item 14 Exhibits, Financial Statements Schedules and Reports 49
On Form 8-K
SIGNATURES 51
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PART I
ITEM 1 - BUSINESS
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GENERAL
NRG Energy, Inc., ("NRG") is one of the leading participants in the
independent power generation industry. Established in 1989 and wholly-owned by
Northern States Power Company ("NSP"), NRG is principally engaged in the
acquisition, development and operation of, and ownership of interests in,
independent power production and co-generation facilities, thermal energy
production and transmission facilities and resource recovery facilities. The
power generation facilities in which NRG currently has interests (including
those under construction) as of December 31, 1997 have a total design capacity
of 8,516 megawatts ("MW"), of which NRG has or will have total or shared
operational responsibility for 5,374 MW and net ownership of, or leasehold
interests in 2,650 MW. In addition, NRG has substantial interests in district
heating and cooling systems and steam generation and transmission operations. As
of December 31, 1997, these thermal businesses had a steam capacity of
approximately 3,550 million British thermal units ("mmBtus"). NRG's
refuse-derived fuel ("RDF") plants processed more than 800,000 tons of municipal
solid waste into approximately 650,000 tons of RDF during 1997.
NRG has experienced significant growth in the last year, expanding from
1,353 MW of net ownership interests in power generation facilities (including
those under construction) as of December 31, 1996 to 2,650 MW of net ownership
interests as of December 31, 1997. This growth resulted primarily from a number
of domestic and international investments and acquisitions. NRG's total
operating revenues and equity in earnings of projects changed from $104.5
million and $32.8 million in 1996 to $118.3 million and $26.2 million,
respectively, in 1997.
NRG's headquarters and principal executive offices are located at
1221 Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403. Its telephone
number is (612) 373-5300.
STRATEGY
NRG intends to continue to grow through a combination of acquisition
and greenfield development of power generation and thermal energy production and
transmission facilities and related assets in the United States and abroad. In
the United States, NRG's near-term focus will be primarily on the acquisition of
existing power generation capacity and thermal energy production and
transmission facilities, particularly in situations in which its expertise can
be applied to improve the operating and financial performance of the facilities.
In the international market, NRG will continue to pursue development and
acquisition opportunities in those countries in which it believes that the
legal, political and economic environment is conducive to increased foreign
investment.
SIGNIFICANT INVESTMENTS AND ACQUISITIONS IN 1997
On February 11, 1997, NRG purchased 7.2% (4.5 million shares) of the
common stock of Energy Developments Limited ("EDL"), an Australian Company, for
AUS$9.9 million (US$7.9 million on that date). EDL is engaged in independent
power generation from landfill gas, coal seam methane, and natural gas and owns
approximately 184 MW of operating projects primarily in Australia. On September
24, 1997, NRG purchased an additional 10.1 million shares of common stock of EDL
for an aggregate purchase price of AUS$22.2 million (US$16.1 million on that
date), bringing NRG's ownership level to 19.97% of the outstanding shares of
EDL. EDL's common stock is listed on the Australian Stock Exchange. Its share
price as of December 31, 1997 was AUS$2.77 (US$2.08). In addition, NRG was
granted an option to acquire 16.8 million convertible non-voting preference
shares of EDL at AUS$2.20 per share. The preference shares do not become
convertible into EDL's common stock unless a takeover bid is made
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for EDL by a person who is not an affiliate of the owner of the preference
shares and such person is, or becomes, entitled to purchase more than 35% of
EDL's outstanding common stock. In such event, if EDL fails to comply with an
obligation to appoint directors nominated by the owner of the preference shares,
the preference shares convert at the option of the owner to common shares of EDL
on a share-for-share basis. NRG expects to exercise its option and acquire 16.8
million preference shares of EDL during the second quarter of 1998.
In May 1997, NRG consummated the largest acquisition in its history,
acquiring a 25.37% interest in the assets of a 2,000 MW brown coal fired thermal
power station and adjacent coal mine located in Victoria, Australia and known as
Loy Yang A ("Loy Yang"). The State of Victoria sold Loy Yang as part of its
privatization program to a partnership formed by affiliates of NRG and of CMS
Generation (a wholly-owned subsidiary of CMS Enterprises), together with Horizon
Energy Investment Limited (an investment vehicle of Macquarie Bank), for a total
price of approximately AUS$4.7 billion (or US$3.7 billion as of May 12, 1997).
While most of the purchase price was raised through project-financed loans and
leveraged leases that are non-recourse to the sponsors, NRG's equity investment
was approximately US$257 million.
In June 1997, NRG purchased the San Diego Power & Cooling Company
("SDPC"). The purchase price was $6.7 million, including a note to the seller
for $2.7 million, payable over 72 months. The remaining amount, with the
exception of a $50,000 contingency, was paid in cash. SDPC serves the cooling
needs of thirteen major customers in the downtown San Diego central business
district through an underground piping system. SDPC's chilled water capacity is
5,250 tons/hour.
In June 1997, NRG and its partners closed the financing for the
refurbishment and expansion of the Energy Center Kladno plant in Kladno, The
Czech Republic. NRG owns a 34% interest in the existing 28 MW coal-fired
project, which also supplies thermal energy. Non-recourse project financing was
provided by a consortium of Czech banks, the International Finance Corporation,
Nisshi Iwai and ABB. This financing will fund the refurbishment of the existing
facility as well as the construction of a new 354 MW expansion project. NRG
currently holds a 57.85% interest in the expansion project, and El Paso Energy
International and Stredoceska Energeticka ("STE"), the regional Czech electric
distribution company, hold the balance. NRG's total equity commitment in this
project is approximately $46 million.(See "Item 2 - Properties for details on
ownership.")
On November 4, 1997, NRG acquired 100% of the outstanding shares of
Pacific Generation Company ("PGC"), which was a wholly-owned indirect subsidiary
of PacifiCorp, for a cash purchase price of approximately $148.8 million. PGC
has ownership interests in 11 projects with a total capacity of 737 MW, of which
PGC has operational responsibility for 312 MW and net ownership interest of 166
MW. In addition, PGC owns limited partnership interests in Energy Investors
Funds, through which it owns an allocated share equal to 39MW of additional
ownership interests. One of PGC's projects is located in Canada and the other
ten are broadly distributed throughout the United States.
On December 12, 1997, NRG and its partner, Indeck Energy Services
(Europe), obtained financing commitments for the Enfield Energy Centre, a 396 MW
gas-fired power project under construction in the North London borough of
Enfield in the United Kingdom. NRG has a 50% interest in the project, which is
planned to begin commercial operations at the end of 1999. NRG's total equity
commitment to this project is approximately $28 million.
In December 1997, through a consensual Chapter 11 bankruptcy, NRG
acquired the assets of Mid-Continent Power Company, Inc. ("MCPC") in exchange
for forgiveness of debt. The project is a gas-fired cogeneration plant with a
rated capacity of 120 MW, located in Pryor, Oklahoma. Concurrently, with the
asset acquisition, NRG reduced its interest in the project to 50% with Decker
Energy International ("Decker") and its affiliate owning the remaining 50%. On
December 31, 1997, NRG and Decker agreed to sell the facility to its major
customer, Oklahoma Gas & Electric Company ("OG&E"), in order to settle
outstanding disputes with OG&E relating to OG&E's obligation to purchase power
from the facility. The sale price to OG&E is
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approximately $25.4 million. The sale has been approved by the Oklahoma
Corporation Commission and is now awaiting approval from the Federal Energy
Regulatory Commission. In January 1998, NRG received notice from its affiliate,
NRG Generating (U.S.) Inc. ("NRGG"), that NRGG believed that it was entitled to
purchase the MCPC facility under the terms of the Co-Investment Agreement
between NRG and NRGG. (See "Significant Equity Investments - NRG Generating
(U.S.) Inc." for a description of the Co-Investment Agreement). NRG and NRGG
have submitted this issue to arbitration in accordance with the terms of the
Co-Investment Agreement. (See "Item 3 - Legal Proceedings".)
SIGNIFICANT EQUITY INVESTMENTS
LOY YANG POWER
Loy Yang owns and operates a 2,000 MW brown coal fired thermal power
station (the "Power Station") and the adjacent Loy Yang coal mine (the "Mine")
located in the Latrobe Valley, Victoria, Australia. The Power Station has four
generating units, each with a 500 MW boiler and turbo generator, which commenced
commercial operation between July 1984 and December 1988. In addition, Loy Yang
manages the common infrastructure facilities which are located on the Loy Yang
site, which services not only the Power Station, but also the adjacent Loy Yang
B 1000 MW power station ("Loy Yang B"), a pulverized dried brown coal plant,
and several other nearby power stations.
Loy Yang is required by law to sell its entire output of electricity
(subject to certain narrow exemptions) through the competitive wholesale
market for electricity operated and administered by the Victorian Power
Exchange (the "Pool"). There are two components to the wholesale electricity
market in Victoria. The first is the Pool. The second is the price hedging
contracts, known as Contracts for Differences ("CFDs"), that are entered
into between electricity sellers and buyers in lieu of traditional power
purchase agreements, which are not available in Victoria because of the Pool
system.
Under the Victorian regulatory system, all electricity generated in
Victoria must be sold and purchased through the Pool. All licensed generators
and suppliers, including Loy Yang, are signatories to a pooling and settlement
agreement, which governs the constitution and operation of the Pool and the
calculation of payments due to and from generators and suppliers. The Pool also
provides centralized settlement of accounts and clearing. Prices for electricity
are set by the Pool daily for each half-hour of the following day based on the
bids of the generators and a complex set of calculations matching supply and
demand and taking account of system stability, security and other costs. Under a
new national electricity market, the grid in Victoria has been interconnected
with that of New South Wales and limited trading is already taking place between
those states. Over the long term, there are plans for the interconnection of the
eastern seaboard states to establish what will be known as a national power
pool.
In a Pool system, it is not possible for a generator such as Loy Yang
to enter into traditional power purchase agreements. In order to provide a hedge
against Pool price volatility and also to support their financings, most of the
Victorian generators have entered into CFDs with the Victorian distribution
companies, Victorian government entities and industrial users ("customers").
These CFDs are financial hedging instruments which have the effect of fixing the
price for a specified quantity of electricity for a particular seller and
purchaser over a defined period. They establish a "strike price" for a certain
volume of electricity purchased by the user during a specified period;
differences between that "strike price" and the actual price set by the Pool
give rise to "difference payments" between the parties at the end of the period.
Even if Loy Yang is producing less than its contracted quantity it will still be
required to make and will be entitled to receive difference payments for the
amounts set forth in its CFDs.
Loy Yang's current CFDs with the Victorian distribution companies and
other Victorian government entities in respect of regulated customer load (which
are called its "vesting contracts") cover approximately 73% of Loy Yang's
forecast revenue from generation for the fiscal year ending June 30, 1998.
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Loy Yang also enters into CFDs with its unregulated or "contestable" customers;
these CFDs are known as "hedging contracts" and, together with the vesting
contracts with the regulated customers, they cover approximately 93% of Loy
Yang's forecast load through June 30, 1998. Each of the vesting contracts
expires at the end of the franchise period (December 31, 2000), by which time
all retail customers will have become "contestable customers" by operation of
law. Loy Yang's hedging contracts are generally for a term of one to two
years, and the volume of load covered by these contracts will increase as
retail customers progressively become contestable. Loy Yang's goal is to cover
85% of its forecast load with hedging contracts.
Loy Yang and the State Electricity Commission of Victoria (the "SECV")
have been issued with a joint mining license for the Mine. Under the terms of
the privatization, Loy Yang is required to mine coal to supply not only its own
Power Station but also the neighboring Loy Yang B and an additional future
power station that could be developed on a nearby site. This requirement
extends to 2027, but may be extended for an additional 30 years at the SECV's
option. Loy Yang receives a fixed capacity charge and a variable energy charge
for these services, coupled with a system of initiatives and penalties. Loy
Yang has over 70 years of economically viable coal supply at current usage
rates within its mine license area, even assuming that it is required to
continue supplying coal to the other parties beyond 2026.
GLADSTONE POWER STATION
The Gladstone Power Station ("Gladstone") is a 1,680 MW coal-fired
power generation facility located in Gladstone, Australia. NRG acquired a 37.5%
ownership interest in Gladstone when the facility was privatized in March 1994.
The other participants in this acquisition are subsidiaries or affiliates of
Comalco Limited, Marubeni Corporation, Sumitomo Corporation and Sumitomo Light
Metal Industries, Mitsubishi Corporation and Mitsubishi Materials Corporation,
and Yoshida Kogyo (the "Participants"). NRG Gladstone Operating Services Pty.
Ltd., a wholly-owned subsidiary of NRG ("NRG Gladstone"), operates Gladstone
under an operations and maintenance agreement expiring in 2011.
Gladstone sells electricity to the Queensland Transmission and Supply
Corporation ("QTSC") and also to Boyne Smelters Limited located at Boyne Island,
Queensland ("the Smelter"). Pursuant to an Interconnection and Power Pooling
Agreement (the "IPPA"), the Participants have the right to interconnect
Gladstone to the QTSC system and QTSC is obligated to accept all electricity
generated by the facility (subject to merit order dispatch), for an initial term
of 35 years. QTSC also has agreed under the IPPA to permit the Smelter to
interconnect to the QTSC system and to provide sufficient generating capacity on
its system in order to provide an uninterrupted supply of power to the Smelter
in most circumstances. The Participants are obligated to maintain a 35% reserve
margin for the Smelter design load, but the QTSC is obligated to provide
capacity support to the Participants to make up any shortfall between the
available capacity from Gladstone and the Smelter demand at any given time.
The QTSC also entered into a 35-year Capacity Purchase Agreement (a
"CPA") with each of the Participants for its percentage of the capacity of
Gladstone, excluding that sold directly to the Smelter. Under the CPAs, the
Participants are paid both a capacity and an energy charge by the QTSC. The
capacity charge is designed to cover the projected fixed costs allocable to the
QTSC, including debt service and an equity return, and is adjusted to reflect
variations in interest rates. A capacity bonus is also available if the
Equivalent Availability Factor exceeds 88% on a rolling average basis, and
damages are payable by the Participants if it is less than 82% on that same
basis. As of December 31, 1997, the two-year average Equivalent Availability
Factor was 89.6%. The QTSC also pays an energy charge, which is intended to
cover fuel costs.
The owners of the Smelter ("BSL") have also entered into a Block A PPA
and Block B PPA with each Participant, providing for the sale and purchase of
such Participant's percentage share of capacity allocated to the existing
Smelter. The term of each of these PPAs is 35 years. BSL is obligated to pay to
each Participant a demand charge that is intended to cover the fixed costs of
supplying capacity to the existing Smelter and the Smelter expansion, including
debt service and return on equity. BSL also is obligated to pay an energy charge
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based on the fuel cost associated with the production of energy from the
facility. NRG anticipates that the Smelter expansion will result in an increase
in Gladstone capacity utilization from approximately 41% in 1994 to an estimated
60% in 1998 and 70% in 1999.
NRG Gladstone is responsible for operation and maintenance of Gladstone
pursuant to a 17-year Operation and Maintenance Agreement that commenced in
1994. NRG Gladstone is entitled to a base fee of AUS$1.25 million per year
indexed in accordance with Australian CPI (approximately $.942 million, based on
exchange rates and ACPI in effect at December 31, 1997), and an annual bonus
based on the capacity bonuses to which the Participants are entitled under the
CPAs. NRG Gladstone is obligated to pay liquidated damages for shortfalls in
availability in an amount calculated by reference to the liquidated damages
payable by the Participants under the CPAs and the PPAs. NRG Gladstone's
obligations under the Operation and Maintenance Agreement are unconditionally
guaranteed by NRG, subject to an aggregate liability cap of AUS$25 million
indexed in accordance with ACPI (approximately $18.7 million, based on exchange
rates and ACPI in effect at December 31, 1997).
COLLINSVILLE POWER STATION
The Collinsville Power Station ("Collinsville") is a 189 MW coal-fired
power generation facility located in Collinsville, Australia. In March 1996, NRG
acquired a 50% ownership interest in Collinsville when it was privatized by the
Queensland State government. NRG's partner in this acquisition is Transfield
Holdings Pty Ltd ("Transfield"), an Australian infrastructure contractor, with
which NRG formed an unincorporated joint venture to refurbish this plant. The
joint venture contracted with an affiliate of Transfield to complete the
refurbishment of the facility under a turn-key contract. The operation and
maintenance of the facility will be undertaken by Collinsville Operations Pty
Ltd, a 50% owned subsidiary of NRG which has entered into a technical services
agreement with NRG for some staffing and assistance with certain operational and
maintenance functions.
The Collinsville facility failed to achieve its scheduled commercial
operation date of March 1, 1998. NRG expects the commercial operation date to
occur in May 1998. The joint venture is liable to QTSC under the PPA for
liquidated damages of approximately AUS $27,000 per day until the facility
achieves commercial operation. In addition, the joint venture is liable for
further liquidated damages if the capacity of the refurbished plant is less than
177.25 MW. Total liquidated damages which NRG and Transfield can be required to
pay to QTSC under the power purchase agreement with QTSC (the "Collinsville
PPA") are limited to AUS $5 million (indexed in April 1995 dollars). In
addition, the QTSC will have the right to terminate the Collinsville PPA if,
among other things, the tested capacity of the facility is not at least 160 MW
by September 1, 1998. The joint venture's remedies under the turn-key
refurbishment contract with Transfield include a reduction in the contract price
of AUS $110,000 per day from and after March 1, 1998, until the facility
achieves a tested capacity of 160 MW. Transfield has indicated to NRG that it
intends to dispute the price reduction. No assurance can be given with respect
to the outcome of such dispute.
SCHKOPAU POWER STATION
In 1993, NRG and PowerGen plc of the United Kingdom each acquired a 50%
interest in a German limited liability company, Saale Energie GmbH ("Saale").
Saale then acquired a 41.1% interest in a 960 MW coal-fired power plant that was
under construction in the city of Schkopau, which is located in the former East
Germany. A German energy company, VEBA Kraftwerke Ruhr AG ("VKR"), owns the
remaining 58.9% interest in Schkopau and operates the plant. The partnership of
Saale and VKR that owns the plant is called Kraftwerk Schkopau GbR ("KS").
The first 425 MW unit of the Schkopau plant began operation in January
1996, the 110 MW turbine went into commercial operation in February 1996, and
the second 425 MW unit came on line in July 1996. Acceptance testing of all of
the individual pieces of equipment has been completed.
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VKR operates and maintains the Schkopau facility under an operation and
maintenance contract with Kraftwerk Schkopau Betriebsgesellschaft mbH, a German
limited liability company ("KSB"), in which Saale and VKR hold interests of
44.4% and 55.6%, respectively, and which is responsible for the operation and
maintenance of the facility pursuant to certain agreements with each of Saale
and VKR. VKR is paid a management fee for such services made up of several
variable components that will be adjusted according to changes in, among other
things, labor costs, producer prices for light fuel oil and prices for
electricity. Pursuant to the KSB partnership agreement between Saale and VKR and
the Saale shareholders agreement between NRG and PowerGen, NRG has the right to
participate in the oversight of facility operations and in the approval and
oversight of facility budgets and policies. The plant is fueled by brown coal
(lignite) which will be provided under a long-term contract by MIBRAG's Profen
lignite mine.
Pursuant to the KS partnership agreement between Saale and VKR, each
partner has been allocated a share of capacity and energy generated by the
facility. Saale sells its allocated 400 MW portion of the plant's capacity under
a 25-year contract with VEAG, a major German utility which controls the
high-voltage transmission of electricity in the former East Germany. VEAG pays a
price that is made up of three components, the first of which is designed to
recover installation and capital costs, the second to recover operating and
other variable costs, and the third to cover fuel supply and transportation
costs. NRG receives 50% of the net profits from these VEAG payments through its
ownership interest in Saale.
MIBRAG
NRG owns an indirect 33-1/3% interest in the equity of Mitteldeutsche
Braunkohlengesellschaft mbH ("MIBRAG") which owns coal mining, power generation
and associated operations, all of which are located south of Leipzig, Germany.
MIBRAG is a corporation formed by the German government following the
reunification of East and West Germany, to hold two open-cast brown coal
(lignite) mining operations, a lease on an additional mine, three lignite-fired
industrial cogeneration facilities and briquette manufacturing and coal dust
plants, all located in the former East Germany. In connection with the
acquisition, NRG and its partners agreed to invest (from cash flow from MIBRAG
operations) in excess of DM 1 billion (US$556 million based on the exchange rate
as of December 31, 1997) by December 31, 2004 to modernize the existing mines
and power generation facilities and to develop new open-pit mines. The German
government is obligated to provide certain guarantees of bank loans to MIBRAG
relating to capital improvements to the Schleenhain mine. MIBRAG also agreed to
operate the three power generation facilities until 2005, to operate the
briquette plants in accordance with market demand until 2005, and to operate the
lignite mines until continued operation of the mines is no longer economically
justifiable. In addition, MIBRAG has made certain employee retention commitments
until 2000. Under the provisions of the sale and purchase agreement, NRG and its
partners agreed to make a deferred payment of DM 40 million to the German
government in the year 2009. This obligation will be reduced by certain costs
incurred by MIBRAG. The remaining obligation at December 31, 1997 was DM 15.7
million (or US$8.7 million based on the exchange rate on December 31, 1997). NRG
expects the entire obligation will be offset by ongoing costs prior to the year
2009.
MIBRAG's cogeneration operations consist of the 100 MW Mumsdorf
facility, the 60 MW Deuben facility and the 40 MW Wahlitz facility. These
facilities provide power and thermal energy for MIBRAG's coal mining operations
and its briquette manufacturing plants. All power not consumed by MIBRAG's
internal operations is sold under an eight-year power purchase agreement with
Westsachsische Energie Aktiengesellschaft ("WESAG"), a recently privatized
German electric utility. NRG and PowerGen jointly, through Saale, provide
consulting services for a fee for the operation of the MIBRAG steam and power
generation facilities, the associated electrical and thermal transmission and
distribution system and the briquette manufacturing plants, under a power
consultancy agreement with MIBRAG for the life of the facilities. After some
retrofitting was completed by MIBRAG, NRG believes that all three of these
cogeneration facilities now satisfy the current European Union environmental
regulations. MIBRAG leases these cogeneration facilities under a 13-year lease
pursuant to which MIBRAG has operating control of, and a 1% interest in, the
facilities.
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MIBRAG's lignite mine operations include Profen, Zwenkau and
Schleenhain (which is under construction but has not yet commenced operations),
with total estimated reserves of 776 million metric tons. Morrison Knudsen, an
international mining company, provides consulting services to mines under a
consultancy agreement with MIBRAG for the life of the mines. In addition to
providing approximately 3 million tons of lignite per year for MIBRAG's three
cogeneration facilities and one briquette facility, output from these mines
supplies lignite to the Schkopau power station and other facilities. The total
output of the new Schleenhain mine will be dedicated to the new 1600 MW
Lippendorf power station. MIBRAG is currently supplying coal for the existing
Lippendorf and Thierbach power generation facilities, but they are expected to
close in 1999 when the new Lippendorf facility is scheduled to commence
operations.
COBEE
In December 1996, NRG acquired an interest in Compania Boliviana de
Energia Electrica S.A.-Bolivian Power Company Limited ("COBEE"), the second
largest generator of electricity in Bolivia. The acquisition was consummated
through a Netherlands corporation, Tosli Investments B.V. ("Tosli"), which is
50% owned by subsidiaries of NRG and Vattenfall AB of Sweden ("Vattenfall"). On
December 19, 1996, Tosli completed a successful tender offer for the shares of
COBEE, which were listed on the New York Stock Exchange, acquiring 96.6% of
COBEE's outstanding common shares for a total purchase price of $175 million.
COBEE shares were delisted in January 1997. The COBEE board of directors
consists of three designees of NRG, three designees of Vattenfall and three
directors appointed jointly by NRG and Vattenfall. In addition, in December
1996, the Chief Executive Officer of NRG was elected as chairman of the board of
directors of COBEE.
COBEE has entered into an Electricity Supply Contract with Electricidad
de La Paz S.A., a Bolivian distribution company ("Electropaz"), which provides
that COBEE shall supply Electropaz with all of the electricity that COBEE can
supply, up to the maximum amount of electricity required by Electropaz to supply
the requirements of its distribution concession. This Electricity Supply
Contract expires in December 2008. COBEE has entered into a substantially
similar contract with Empresa de Luz Fuerza Electricade Oruro, S.A., another
Bolivian distribution company, ("ELF"). Electropaz and ELF are both wholly-owned
subsidiaries of Ibedrola S.A., a Spanish utility company. All payments by
Electropaz and ELF are in local currency, tied to the value of the U.S. dollar.
COBEE operates its electric generation business under a 40-year
Concession granted by the Government of Bolivia in 1990, as most recently
amended in March 1995. Under this Concession, COBEE is entitled to earn a return
of 9% after all operating expenses, depreciation, taxes and interest expense,
calculated on its U.S. dollar rate base, consisting of net fixed assets at
historical cost in U.S. dollars and working capital and materials up to certain
limits. The Bolivian Electricity Code also provides for the adjustment of rates
to compensate COBEE for any shortfall or to recapture any excess in COBEE's
actual rate of return during the previous year. COBEE periodically applies to
the Superintendent of Electricity for rate increases sufficient to provide its
9% rate of return based on COBEE's current operating results and its projection
of future revenues and expenses.
NRG GENERATING (U.S.) INC.
On January 18, 1996, the U.S. Bankruptcy Court for the District of New
Jersey awarded NRG the right to acquire a 41.86% equity interest in O'Brien
Environmental Energy, Inc. ("O'Brien"), which emerged from bankruptcy on April
30, 1996 and was renamed "NRG Generating (U.S.) Inc." ("NRGG"). NRG currently
holds 45.21% of the common stock of NRGG. The remaining 54.79% of the common
stock is held publicly. NRGG has interests in four domestic operating projects
with an aggregate capacity of approximately 346 MW. NRGG's principal operating
projects include: (a) the 52 MW Newark Boxboard Project (which is owned 100% by
a wholly-owned project subsidiary of NRGG), a gas-fired cogeneration facility
that sells electricity to Jersey Central Power & Light Company ("JCP&L") and
steam to Newark Group Industries, Inc.; (b) the 122 MW E.I. du Pont Parlin
Project (which is owned 100% by a wholly-owned project subsidiary of NRGG), a
gas-fired cogeneration facility that sells
7
<PAGE> 10
electricity to JCP&L and steam to E.I. du Pont de Nemours and Company; (c) an
83% interest in a 22 MW standby/peak sharing facility which provides electricity
and standby capabilities for the Philadelphia Municipal Authority; and (d) a
33.33% interest in the 150 MW Grays Ferry project, a gas-fired cogeneration
project located in Philadelphia, which sells electricity to PECO Energy Company
("PECO"). PECO recently attempted to terminate the PPA with respect to the
Grays Ferry project. The Grays Ferry partnership in turn commenced litigation
claiming there is not basis for termination of such agreement. (See "Item 3 -
Legal Proceedings.")
NRG provides NRGG with administrative services in connection with
day-to-day operations. NRG employees serve as NRG's designees on the board of
directors of NRGG. NRG and NRGG also entered into a "Co-Investment Agreement,"
pursuant to which NRG granted NRGG a right of first offer until May, 2003 to
acquire from NRG each energy development project first developed or acquired by
NRG for which a co-investor is required because of federal or state regulatory
restrictions on NRG's ownership. In addition, NRG has agreed that, prior to May
1, 1999, a minimum of one or more such projects, having an aggregate equity
value of at least $60 million or a minimum power generation capacity of 150 MW,
will be so offered. To facilitate NRGG's ability to acquire projects under the
Co-Investment Agreement, NRG is obligated to provide financing to NRGG (on
commercially competitive terms) to the extent that NRGG is unable to obtain
funds on comparable terms from other sources.
Pursuant to the Co-Investment Agreement, NRGG acquired from NRG 100% of
the membership interests in NRG (Morris) Cogen, LLC on December 30, 1997. NRG
(Morris) Cogen has the exclusive right to build a 117 MW cogeneration plant that
is presently under construction on the site of the Equistar Chemicals, LP
manufacturing facility in Morris, Illinois. NRG has committed to finance the
acquisition price pursuant to a loan agreement between NRG and NRGG. NRG has
guaranteed the obligation of NRGG to invest equity into the project company to
the lenders to the project company, for which The Chase Manhattan Bank is agent.
NRG has also agreed to certain provisions designed to protect the
rights of the holders of the equity in NRGG that is not owned by NRG. These
provisions include super-majority voting requirements with respect to a merger
or sale of all or substantially all of NRGG's assets and certain additional
issuances of NRGG stock, the creation of an independent committee of the board
of directors of NRGG with authority to, among other things, determine whether
NRGG will exercise its right of first offer under the Co-Investment Agreement
and a commitment that, for a seven-year period following NRG's investment in
NRGG, NRG will not remove or vote against the re-election to NRGG's board of
directors of any of the three directors who constitute the independent directors
committee.
NRGG and NRG have entered into various loan agreements. At December 31,
1997, the loan balance due to NRG was $2,624,204 with a maturity date of April
30, 2001.
NRGG's shares are traded on The NASDAQ National Market under the symbol
"NRGG". NRGG's closing share price as of December 31, 1997 was $19.875.
SUNNYSIDE
In 1994, NRG, through a wholly-owned subsidiary, purchased a 50 percent
ownership interest in Sunnyside Cogeneration Associates, a Utah joint venture,
which owns and operates a 58 MW waste coal plant in Utah. The waste coal plant
is currently being operated by a partnership that is 50 percent owned by an NRG
affiliate. As of year-end 1997, NRG and its partner's effort to restructure the
debt of the Sunnyside project was not successful. Due to the lack of progress in
restructuring the debt, NRG recorded a nonrecurring expense, as of December 31,
1997, of $8.9 million to write down its investment in the Sunnyside project.
8
<PAGE> 11
SIGNIFICANT WHOLLY-OWNED OPERATIONS
MINNEAPOLIS ENERGY CENTER ("MEC")
MEC provides steam and chilled water to customers in downtown
Minneapolis, Minnesota. MEC currently provides 90 customers with 1.6 billion
pounds of steam per year and 34 customers with 39.1 million ton hours of chilled
water per year. NRG acquired MEC in August 1993 for approximately $110 million.
MEC's assets include two combined steam and chilled water plants, three chilled
water plants, two steam plants, six miles of steam and two miles of chilled
water distribution lines. The MEC plants have a combined steam capacity of 1,323
mmBtus per hour (388 MWt) and cooling capacity of 35,550 tons per hour.
MEC provides steam and chilled water to its customers pursuant to
energy supply agreements which expire at varying dates from December 1998 to
March 2018. Historically, MEC has renewed its energy supply agreements as they
near expiration. With minor exceptions, these agreements are standard form
contracts providing for a uniform rate structure consisting of three components:
a demand charge designed to recover MEC's fixed capital costs, a consumption
charge designed to provide a per unit margin, and an operating charge designed
to pass through to customers all fuel, labor, maintenance, electricity and other
operating costs. The demand and consumption charges are adjusted in accordance
with the Consumer Price Index every five years.
ROCK-TENN
Rock-Tenn process steam operation, which is owned and operated by NRG,
consists of a five-mile closed-loop steam/condensate line that delivers steam to
the Rock-Tenn Company (formerly Waldorf Corporation), a paper manufacturer in
St. Paul, Minnesota, and has a peak steam capacity of 430 mmBtus per hour (126
MWt). As a result of the settlement of a 1987 dispute between Waldorf and
NORENCO Corporation (a predecessor of NRG), Waldorf prepaid revenues for future
steam service. As of December 31, 1997, deferred revenues remaining were $4.7
million. Rock-Tenn's corrugated medium operations are on 24-hour a day, 7-day a
week schedule. The corrugated medium operations represent approximately 40% of
normal steam sales.
NRG delivers steam to Rock-Tenn pursuant to a steam sales agreement
which expires in 2007. Under the agreement Rock-Tenn is obligated to purchase
its total energy needs for its St. Paul, Minnesota facility through June 30,
2007. The agreement does not obligate Rock-Tenn to purchase a minimum quantity
of energy. Instead, Rock-Tenn's failure to acquire a certain quantity of energy
during a given contract year triggers an NRG right to terminate the agreement,
unless Rock-Tenn elects to compensate NRG for the deficit energy usage amount.
NEO CORPORATION
NEO is a wholly-owned project subsidiary of NRG that was formed to
develop small power generation facilities, ranging in size from 1 to 50 MW, in
the United States. NEO is currently focusing on the development and acquisition
of landfill gas projects and the acquisition of hydroelectric projects.
Through the investment vehicle Northbrook Energy, L.L.C.
("Northbrook"), NEO has a 50% interest in eighteen small operating hydroelectric
projects, ranging in size from 1 MW to 6 MW and having a total capacity of 39.3
MW. As of December 31, 1997, NEO's total investment in these projects was $3.9
million. NEO also loaned $3.7 million to Omega Energy Partners, L.L.C. ("Omega")
to fund Omega's 50% equity interest in Northbrook.
NEO has a 50% interest in fourteen operating landfill gas projects, as
of December 31, 1997, ranging in size from 1 MW to 10 MW. As of December 31,
1997, NEO's equity investment in these projects totaled $1.0 million and loans
to fund development, construction and start-up amounted to $55 million. In
addition, NEO has six landfill gas projects under construction. NEO expects its
total funding requirements to be approximately $60 million, and total capacity
of the portfolio is expected to reach 73 MW in 1998.
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<PAGE> 12
On September 24, 1997, certain affiliates of NEO entered into a
Construction, Acquisition and Term Loan Agreement with Lyon Credit Corporation
("Lyon") for $92 million to fund the construction of the landfill gas collection
systems and generation facilities for certain NEO landfill gas projects in
development. The construction loan for each project will convert to a term loan
containing a maximum maturity date of ten (10) years. NRG has agreed to provide
Lyon with a guarantee during the construction loan period. In addition, NRG has
agreed to guarantee the monetization and use of the Section 29 tax credits
generated from the landfill gas projects financed by Lyon through the year 2007.
An important factor in the after tax return of the landfill gas
projects is the eligibility of these projects for Section 29 tax credits. The
Section 29 tax credit is available only to projects that produce gas from
biomass or synthetic fuels from coal. Landfill gas is produced from biomass for
purposes of the Section 29 credit. To qualify for the credit, the facility for
producing gas must be placed in service no later than June 30, 1998.
RESOURCE RECOVERY FACILITIES
NRG's Newport resource recovery facility, located in Newport,
Minnesota, can process over 1,500 tons of municipal solid waste, ("MSW") per
day, 92% of which is recovered as RDF or other recycleables and reused in power
generation facilities in Red Wing and Mankato, Minnesota. The Newport facility,
which was originally constructed and operated by NSP, was transferred to NRG in
1994. NRG owns 100% of, and operates and maintains, the Newport facility.
Pursuant to service agreements with Ramsey and Washington Counties
(the "Counties") which expire in 2007, NRG processes a minimum of 280,800 tons
of MSW per year at the Newport facility and receives service fees based on the
amount of waste processed, pass-through costs and certain other factors. NRG is
also entitled to an operation and maintenance fee, which is designed to recover
fixed costs and to provide NRG a guaranteed amount for operating and maintaining
the Newport facility for the processing of 750 tons per day of MSW, whether or
not the Counties deliver such waste for processing.
Since 1989, NRG has operated the Elk River resource recovery facility
located in Elk River, Minnesota, which can process over 1,500 tons of MSW per
day, 90% of which is recovered as RDF or other recyclables and reused in power
generation facilities in Elk River and Mankato, Minnesota. NSP owns 85% of the
Elk River facility, and United Power Association owns the remaining 15%.
Pursuant to service agreements between NSP and each of Anoka County,
Hennepin County, Sherburne County in Minnesota and the Tri-County Solid Waste
Management Commission in Minnesota (the "NSP Service Counties"), all of which
expire in 2009, NSP is obligated to process a maximum of 450,000 tons of MSW per
year and is entitled to receive service fees based on the amount of waste
processed, pass-through costs, revenues credited to the NSP Service Counties and
certain other factors. NSP is also entitled to an operation and maintenance fee,
which is designed to recover fixed costs and to provide NSP a guaranteed amount
for operating and maintaining the facility for the processing of 214,900 tons of
waste, whether or not the NSP Service Counties deliver such waste for
processing.
NRG also provides ash storage and disposal for the Elk River facility
at NSP's Becker ash disposal facility, an approved ash deposit site adjacent to
NSP's Sherburne County generating facility near Becker, Minnesota. NRG operates
the Becker facility on behalf of NSP. Pursuant to an ash management services
agreement between NSP and the NSP Service Counties, the NSP Service Counties pay
an ash disposal fee based on the amount of ash disposal, pass-through costs and
certain other factors.
RDF projects, such as NRG's Newport facility and NSP's Elk River
facility, historically were assured adequate supply of waste through state and
local flow control legislation, which directed that waste be disposed of in
certain facilities. In May 1994, the United States Supreme Court held that such
waste was a commodity in
10
<PAGE> 13
interstate commerce and, accordingly, that flow control legislation which
prohibited shipment of waste out of state was unconstitutional. Since this
ruling, the RDF facilities owned or operated by NRG have faced increased
competition from landfills.
SIGNIFICANT PENDING ACQUISITIONS AND PROJECTS UNDER DEVELOPMENT
WEST JAVA
A joint venture among NRG, Ansaldo Energia SpA, a major Italian
industrial company ("Ansaldo"), and P.T. Kiani Metra, an Indonesian industrial
company ("PTKM"), is developing a 400 MW coal-fired power generation facility in
West Java Indonesia through P.T. Dayalistrik Pratama ("PTDP"), a limited
liability company created by the joint venturers. Each of NRG and Ansaldo has an
ownership interest of 45% in PTDP and PTKM has an ownership interest of 10%.
On November 13, 1996, PTDP signed a Power Purchase Agreement (the "West
Java PPA") with P.T. PLN (Persero) ("P.T. PLN"), an instrumentality of the
Government of Indonesia. Under the terms of the existing West Java PPA, PTDP was
to have drawn and closed on construction financing for the project no later than
January 12, 1998. However, the government of Indonesia issued Decree No. 39/1997
in September, 1997 which placed the West Java project on a list of Indonesian
infrastructure projects to be halted and reviewed by the government before being
allowed to proceed. There have been no communications from the Indonesian
government regarding when the project may be reviewed or allowed to continue
towards financial close and construction and operation. In addition, the
significant decline of the Indonesian currency has placed the viability of the
project and its related PPA in serious question.
In February 1998, P.T. PLN announced that payments under existing and
operating PPAs would be made in local currency terms (the rupiah) rather than
the U.S. dollar terms dictated in the PPAs (including the West Java PPA). The
payment has been fixed at the rate of 2450 rupiah to the dollar, which
approximates the currency exchange rate in place at the time P.T. PLN signed
most of the PPAs. However, since the October Asian crisis, the rupiah has
severely devalued causing an average economic loss of 75% of the revenues under
the PPAs.
On January 9, 1998, PTDP filed a Notice of Force Majeure with the PLN
informing them that due to the application of Decree No. 39/1997, PTDP has been
prevented from satisfying certain of its obligations under the PPA, including
the obligation to achieve the financing date by January 12, 1998. NRG believes
that the filing of the Notice of Force Majeure preserves PTDP's rights under the
West Java PPA.
All development efforts on the project are temporarily halted until the
economic issues of Indonesia are stabilized and the West Java project is allowed
to proceed. As of December 31, 1997, NRG had infused $5.6 million of capital
into the project (of which $3.8 million was used to acquire land) and had an
additional $3.9 million of capitalized development costs. In addition, NRG has
an interest rate hedge in place for a portion of the equity commitment to PTDP
at December 31, 1997. The mark-to-market on the hedge if it were to be settled
at December 31, 1997 would have been $4.3 million. As of March 30, 1998 the
mark-to-market on the hedge was $4.0 million. If the project is not allowed to
go forward, NRG will be required to write-off the majority of these costs.
ESTONIA
On December 20, 1996, representatives of the Estonian Government, the
state-owned utility Eesti Energia ("EE"), and NRG signed a Development and
Cooperation Agreement ("DCA"). The DCA defines the terms under which the
parties are to establish a plan to develop and refurbish the Balti and Eesti
Power Plants. Pursuant to the DCA, a business plan for the joint project was
submitted in June 1997. NRG has stated its willingness to invest up to $67.25
million of equity into the project and to assist the joint project in obtaining
non-recourse debt in an
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<PAGE> 14
amount necessary to fund the required capital improvements to the Balti and
Eesti Power Plants. Recently the Estonian government announced that it had
rejected the business plan of NRG and EE. Early in 1998 the Estonian government
and EE offered to work on a new plan with NRG. NRG has a policy of expensing all
costs until there is a signed contract and Board of Directors approval. All such
costs with respect to Estonia have been expensed. Discussions are continuing
with the Estonian government as management continues to evaluate the Estonian
situation as well as other opportunities around the world.
CAJUN
NRG, together with two other parties and the Chapter 11 trustees, have
filed a plan with the United States Bankruptcy Court for the Middle District of
Louisiana to acquire the fossil generating assets of Cajun Electric Power
Cooperative of Baton Rouge, Louisiana ("Cajun") for approximately $1.1 billion.
The NRG consortium has the support of the Chapter 11 trustee and Cajun's secured
creditors. The Court has also received two other competing plans of
reorganization for Cajun. All three plans of reorganization are the subject of a
confirmation hearing which began in December, 1996. NRG expects the confirmation
process to conclude in the second quarter of 1998. Under the plan filed with the
Court, NRG would hold a 30% equity interest in Louisiana Generating LLC, which
would acquire Cajun's 1706 MW, excluding nuclear generating assets.
EL SEGUNDO
On November 21, 1997, NRG signed an Asset Purchase Agreement to acquire
a 50% interest in the El Segundo Generating Station, a 1,020 MW natural
gas-fired project, from Southern California Edison Company ("SCE"). NRG and its
partner Destec Energy, Inc. ("Destec"), a subsidiary of NGC Corporation ("NGC"),
are jointly and severally liable under the agreement for the payment of the
$87.75 million purchase price. Consummation of the transaction is expected to
occur on or before March 31, 1998, but it is contingent on receipt of regulatory
approvals and consents from a number of governmental and private parties. NRG
will be the lead party on operations and Destec's parent, NGC, will be the lead
party on fuel procurement and power marketing. SCE will provide operations and
maintenance services for the first two years, in accordance with bid protocol
and California regulation.
LONG BEACH
In January, 1998 NRG and Destec, signed an agreement with SCE to
acquire SCE's Long Beach plant for approximately $29.8 million. The gas-fired
plant has a summer capacity rating of 530 MW. The acquisition is contingent upon
regulatory approval by the California Public Utility Commission and the Federal
Trade Commission. NRG and Destec will each hold 50% ownership in the Long Beach
plant. NRG will be the lead party on operations and NGC will be the lead party
on fuel procurement and power marketing. SCE will provide operations and
maintenance services for the first two years, in accordance with bid protocol
and California regulation.
Because of the many complexities inherent in the acquisition,
development and financing of projects, there can be no assurance that any of
NRG's pending acquisitions and projects under development, including those
described above, will be consummated.
PROJECT AGREEMENTS
In the past, virtually all of NRG's operating power generation
facilities have sold electricity under long-term power purchase agreements. A
facility's revenue from a power purchase agreement usually consists of two
components: energy payments and capacity payments. Energy payments, which are
intended to cover the variable costs of electric generation (such as fuel costs
and variable operation and maintenance expense), are normally based on a
facility's net electrical output measured in kilowatt hours, with payment rates
either fixed or indexed to
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<PAGE> 15
the fuel costs of the power purchaser. Capacity payments, which are generally
intended to provide funds for the fixed costs incurred by the project subsidiary
or project affiliate (such as debt service on the project financing and the
equity return), are normally calculated based on the net electrical output or
the declared capacity of a facility and its availability.
A number of the more recent projects in which NRG has acquired or is
acquiring an interest do not have long-term power purchase agreements. For
example, Loy Yang does not have such agreements because under the new Australian
regulatory scheme, all generators must sell their output to a grid, where the
price is established by a neutral regulator based on the market prices during
each defined period. The same will be true of Enfield, since the United Kingdom
has adopted a similar regulatory scheme. Similarly, the El Segundo and Long
Beach projects will be merchant plants, selling power through a newly
established independent system operator. In the case of the Kladno project,
where there is a long-term agreement, the energy price is tied to the market
price of electricity rather than to the costs incurred by the project, so the
contract does not provide the traditional level of certainty and protection.
While these "merchant" projects introduce new risks and uncertainties and
require careful advance analysis of the local power markets, NRG believes that
they are becoming increasingly common in the independent power market.
REGULATION
NRG is subject to a broad range of federal, state and local energy and
environmental laws and regulations applicable to the development, ownership and
operation of its United States and international projects. These laws and
regulations generally require that a wide variety of permits and other approvals
be obtained before construction or operation of a power plant commences and
that, after completion, the facility operate in compliance with their
requirements. NRG strives to comply with the terms of all such laws,
regulations, permits and licenses and believes that all of its operating plants
are in material compliance with all such applicable requirements. No assurance
can be given, however, that in the future all necessary permits and approvals
will be obtained and all applicable statutes and regulations complied with. In
addition, regulatory compliance for the construction of new facilities is a
costly and time-consuming process, and intricate and rapidly changing
environmental regulations may require major expenditures for permitting and
create the risk of expensive delays or material impairment of project value if
projects cannot function as planned due to changing regulatory requirements or
local opposition. Furthermore, there can be no assurance that existing
regulations will not be revised or that new regulations will not be adopted or
become applicable to NRG which would have an adverse impact on its operations.
EMPLOYEES
At December 31, 1997, NRG employed 603 people, approximately 320 of
whom are employed directly by NRG and approximately 283 of whom are employed by
its wholly-owned subsidiaries.
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<PAGE> 16
ITEM 2 - PROPERTIES
- ------------------------------------------------------------------------------
Set forth in the two tables and the text below are descriptions of NRG's
interests in facilities, operations or projects under construction as of
December 31, 1997.
INDEPENDENT POWER PRODUCTION AND COGENERATION FACILITIES (1)
<TABLE>
<CAPTION>
NAME AND LOCATION OF FACILITY LATER OF DATE OF DESIGN NRG'S POWER
ACQUISITION OR DATE CAPACITY PERCENTAGE PURCHASER
OF COMMERCIAL (MW)(2) OWNERSHIP
OPERATION INTEREST
<S> <C> <C> <C> <C>
INTERNATIONAL PROJECTS:
Loy Yang Power (3), Australia 1997 2000 25.37 Victorian Pool
Gladstone Power Station, Australia 1994 1680 37.50 QTSC; BSL
Collinsville, Australia 1998 189 50.00 QTSC
Energy Developments Limited, Australia 1997 237 19.97 Various
Kladno Czech Republic, existing project 1994 28 34.00 STE/Industrials
Kladno Czech Republic, expansion project 1999 354 (4) STE
Schkopau Power Station, Germany 1996 960 20.55 VEAG
MIBRAG mbH(3), (Mumsdorf) Germany 1994 100 33.33 WESAG
MIBRAG mbH(3), (Deuben) Germany 1994 60 33.33 WESAG
MIBRAG mbH(3), (Wahlitz) Germany 1994 40 33.33 WESAG
COBEE, Bolivia 1996 218 (5) 48.30 Electropaz/ELF
Latin Power (Mamonal), Colombia 1994 100 6.45 Proelectrica
Latin Power (Termovalle), Colombia 1998 199 4.88 EPSA
Latin Power (ELCOSA), Honduras 1994 80 7.65 Empresa Nacional de
Energia Electrica
Latin Power (Dr. Bird), Jamaica 1995 74 8.78 Jamaica Public Service
Company, Ltd.
Latin Power (Aguaytia), Peru 1998 155 3.28 Central Peruvian
Electricity Grid
Enfield (London) UK 1999 396 50.00 U.K. Electricity Grid
DOMESTIC PROJECTS:
Pacific Generation Company (6) 1997 737
Camas Power 1997 25 (7) 100.00 Steam Purchase by
Fort James Corporation
Crockett Cogeneration 1997 240 24.87 PG&E
Curtis-Palmer Hydro 1997 58 8.50 NIMO
Kingston Cogeneration 1997 110 25.00 Ontario Hydro
Maine Energy Recovery 1997 22 16.25 CMP
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
NAME AND LOCATION OF FACILITY LATER OF DATE OF DESIGN NRG'S POWER
ACQUISITION OR DATE CAPACITY PERCENTAGE PURCHASER
OF COMMERCIAL (MW)(2) OWNERSHIP
OPERATION INTEREST
<S> <C> <C> <C> <C>
Penobscot Energy Recovery 1997 22 28.70 Bangor
Hydroelectric
Company
Mt. Poso Cogeneration 1997 50 21.90 PG&E (8)
PowerSmith Cogeneration 1997 110 8.75 Oklahoma Gas
& Electric
WindPower Partners 1987 1997 50 17.00 PG&E
WindPower Partners 1988 1997 30 18.54 PG&E
Turners Falls 1997 20 8.9 Unitil Power
Company(8)
NRGG (Parlin), New Jersey 1996 122 45.21 Jersey Central
Power & Light
Company
NRGG (Newark), New Jersey 1996 52 45.21 Jersey Central
Power & Light
Company
NRGG (Grays Ferry), Pennsylvania 1998 150 15.07 PECO
Energy
Company
NRGG (Philadelphia Cogen), Pennsylvania 1996 22 37.52 Philadelphia
Municipal
Authority
NRGG (Millennium), Illinois 1998 117 45.21 Millennium Petro
Chemicals, Inc.
San Joaquin Valley (Madera), 1992 23 45.00 NA(9)(10)
California
San Joaquin Valley (Chowchilla II), 1992 10 45.00 NA(9) (10)
California
San Joaquin Valley (El Nido), California 1992 10 45.00 NA(9) (10)
Jackson Valley Energy Partners, California(11) 1991 16 50.00 PG&E
Sunnyside Cogeneration Associates, Utah 1994 58 50.00 PacifiCorp
Artesia, California 1996 34 2.96 Southern
California
Cadillac Renewable Energy, Michigan 1997 34 50.00 Consumers
Energy
Mid-Continent Power Company 1997 120 50.00 Oklahoma Gas & Electric
</TABLE>
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<PAGE> 18
1. Does not include the small hydroelectric and landfill gas-fired power
generation facilities owned by NEO with an aggregate capacity of 72 MW, of
which NEO has net ownership of 35 MW. In addition, NEO has landfill gas
projects under construction with an aggregate capacity of 23.5 MW, of which
NEO has net ownership of 11.8 MW.
2. Design capacity is without deduction for internally consumed power.
3. Each of Loy Yang and MIBRAG also owns coal mines which sell coal both to
its respective power plant and to third parties.
4. The expansion project is held separately through ECK Generating ("ECKG"), a
Czech limited liability company of which 89% is owned by a Netherlands
company called Matra Powerplant Holding B.V. ("Matra") and 11% is owned by
STE. NRG owns 65% of Matra and El Paso owns the remaining 35%. As a result,
NRG has net temporary ownership interest in the expansion plant of 57.85%.
Each of NRG and El Paso has granted Nations Energy (a subsidiary of Tucson
Electric) an option to acquire 15% of Matra at any time before May 1998. On
February 17, 1998, NRG received a letter of intent from Nations Energy to
exercise its option to acquire the 15% of Matra. In addition, on February
19, 1998, NRG and El Paso signed an agreement pursuant to which El Paso
committed that if Nations Energy does not exercise its option to purchase
15% of Matra, El Paso would purchase the additional 15%. In such case NRG
and El Paso would each own 50% of Matra and 44.5% of the expansion project.
5. Includes the Zongo 65 MW expansion which will be fully operational in 1999.
6. In addition to the projects listed, PGC owns limited partnership interests
in Energy Investors Funds through which it owns an allocated share equal to
another 39 MW.
7. The project does not generate electricity but its steam sales are the
equivalent of 25 MW of electric power.
8. Operations of the project are currently suspended pursuant to an agreement
with this power purchaser.
9. Operations suspended following buy-out of power purchase contracts and
pending negotiation of new power purchase agreements or sale of such
facilities.
10. PG&E has agreed to a buy-out of related power purchase agreements, but
retains a right of first refusal with respect to output of facilities.
11. Operations were suspended during 1995 and 1996 pursuant to a restructuring
of the power purchase agreement. Operations restarted on May 1, 1997.
16
<PAGE> 19
THERMAL ENERGY PRODUCTION AND TRANSMISSION FACILITIES
AND RESOURCE RECOVERY FACILITIES
<TABLE>
<CAPTION>
NAME AND LOCATION DATE OF DESIGN NRG'S PERCENTAGE THERMAL ENERGY
OF FACILITY ACQUISITION CAPACITY(1) OWNERSHIP INTEREST PURCHASER/MSW
SUPPLIER
<S> <C> <C> <C> <C>
THERMAL ENERGY PRODUCTION AND TRANSMISSION
FACILITIES
Minneapolis Energy Center 1993 Steam: 1,323 100.00 Approximately 90 steam
(MEC), Minnesota mmBtu/hr. customers and 34
(388 MWt) chilled water
Chilled water: customers
35,550 tons/hr.
North American Thermal Systems (NATS), 1995 Pittsburgh: steam- 49.40 Approximately 24
Pennsylvania & California (2) 240 mmBtu/hr. customers
(70 MWt) chilled in Pittsburgh and 210
water - 10,180 customers in San
tons/hr. Francisco
San Francisco:
steam- 490
mmBtu/hr.
(144 MWt)
San Diego Power & Cooling, California 1997 Chilled Water: 5,250 100.00 Approximately 14
tons/hr. customers
Rock-Tenn, Minnesota 1992 Steam: 100.00 Rock-Tenn Company
430 mmBtu/hr.
(126 MWt)
Washco, Minnesota 1992 160 mmBtu/hr. 100.00 Andersen Corporation
(47 MWt) Minnesota Correctional
Facility
Grand Forks Air Force Base, North Dakota 1992 105 mmBtu/hr. 100.00 Grand Forks Air Force
(31 MWt) Base
Energy Center Kladno, Czech Republic(3) 1994 512 mmBtu/hr. 34.00 City of Kladno
(150 MWt)
RESOURCE RECOVERY FACILITIES
Newport, Minnesota 1993 MSW: 1,500 tons/day 100.00 Ramsey and Washington
Counties
Elk River, Minnesota (4) MSW: 1,500 tons/day 0.00 Anoka, Hennepin, and
Sherburne Counties;
Tri-County Solid Waste
Management Commission
</TABLE>
(1) Thermal production and transmission capacity is based on 1,000 Btus per
pound of steam production or transmission capacity. The unit mmBtu is equal
to one million Btus.
(2) Includes 0.5% general partnership interests in each of PTLP and SFTLP.
(3) Kladno also is included in the Independent Power Production and
Cogeneration Facilities table on the preceding page. (4) NRG operates the
Elk River resource recovery facility on behalf of NSP.
17
<PAGE> 20
(4) NRG operates the Elk River resource recovery facility on behalf of NSP.
OTHER PROPERTIES
In addition to the above, NRG leases its offices at 1221 Nicollet Mall,
Suite 700, Minneapolis, Minnesota 55403, under a five-year lease that expires in
June 2002.
18
<PAGE> 21
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no material legal proceedings pending, other than
ordinary routine litigation incidental to NRG's business, to which NRG
is a party, except as discussed below. There are no material legal
proceedings to which an officer or director is a party or has a
material interest adverse to NRG or its subsidiaries. There are no
material administrative or judicial proceedings arising under
environmental quality or civil rights statutes pending or known to be
contemplated by governmental agencies to which NRG is or would be a
party.
The Grays Ferry partnership, along with subsidiaries of NRGG
and Trigen Energy Corporation (which are two of its partners), recently
commenced litigation, in federal court in Pennsylvania, seeking to
enjoin PECO from terminating its power purchase agreements with the
partnership and to compel PECO to pay the rates set forth in the
existing agreements. Plaintiffs' position is that the actions of PECO,
in unilaterally terminating the power purchase agreements with the
Grays Ferry partnership, are without merit and that those agreements
should be enforced. On March 19, the Federal Court in Pennsylvania
dismissed Grays Ferry partnership's action for lack of jurisdiction.
The Grays Ferry partnership is reviewing its options, which includes
re-filing the action in State court in Pennsylvania.
On January 30, 1998, NRGG gave notice that it intended to seek
arbitration of its claim that NRG sold the MCPC facility to Oklahoma Gas
& Electric in violation of its obligations to offer certain project
investments to NRGG under the Co-Investment Agreement between NRG and
NRGG. (See "Item 1 - Significant Investments and Acquisition in 1997 -
NRG Generating (U.S.) Inc.") An arbitration panel is being formed to
hear the proceedings. NRGG is seeking a ruling from the arbitration
panel that NRG must sell the MCPC facility to NRGG. NRG believes that it
had no obligation to offer the MCPC facility to NRGG.
19
<PAGE> 22
PART II
ITEM 5 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
This is not applicable as the Company is a wholly owned subsidiary.
20
<PAGE> 23
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations is omitted per conditions as set forth in General Instructions I
(1) (a) and (b) of Form 10-K for wholly owned subsidiaries. It is replaced with
management's narrative analysis of the results of operations set forth in
General Instructions I (2) (a) of Form 10-K for wholly-owned subsidiaries
(reduced disclosure format). This analysis will primarily compare NRG's revenue
and expense items for the year ended December 31, 1997 with the year ended
December 31, 1996.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net income for the year ended December 31, 1997, was $22.0 million, an
increase of $2.0 million or 10%, compared to net income of $20.0 million in the
same period in 1996. This increase was due to the factors described below.
REVENUES
For the year ended December 31, 1997, NRG had total revenues of $118.3
million, compared to $104.5 million for the year ended December 31, 1996, an
increase of 13%. NRG's operating revenues from wholly-owned operations for the
period ended December 31, 1997 were $92.1 million, an increase of $20.4 million,
or 28%, over the same period in 1996. The increase was primarily attributable to
increases in MEC sales volume, rates charged to customers and pass-through fuel
costs, management fee and cost reimbursement revenues from NRG's wholly-owned
service subsidiaries, and technical service fees. Revenues from the RDF business
increased $4.0 million, due to increases in MSW deliveries at the Newport
Facility. For the year ended December 31, 1997, revenues from wholly-owned
operations consisted primarily of revenue from district heating and cooling
(37%), resource recovery activities (30%), other thermal projects (17%),
technical service fees (6%), management fees (8%), and NEO (2%).
EQUITY INCOME
Equity in earnings of unconsolidated project affiliates was $26.2
million for the year ended December 31, 1997 compared to $32.8 million for the
year ended December 31, 1996, a decline of 20.1%. Lower earnings in MIBRAG,
Gladstone, Latin Power, and Kladno offset the new revenue sources for Loy Yang,
PacGen, and COBEE.
OPERATING COSTS AND EXPENSES
Cost of wholly-owned operations was $46.7 million for the year ended
December 31, 1997, an increase of $10.1 million, or 28%, over the same period in
1996. The increase is due primarily to increased MEC sales volume, service labor
costs and fuel costs. Cost of operations as a percentage of revenues from
wholly-owned operations was 51% which is approximately equal to the same period
in 1996.
General, administrative and development costs were $43.1 million for
the year ended December 31, 1997, compared to $39.2 million for the year ended
December 31, 1996. The $3.9 million increase is due primarily to increased
business development, associated legal, technical, and accounting expenses,
headcount and equipment resulting from expanded operations. General,
administrative and development costs as a percent of revenues from wholly-owned
operations declined from 55% to 47%.
OTHER INCOME (EXPENSE)
Other expense was $19.6 million for the year ended December 31, 1997
compared with $5.9 million for the year ended December 31, 1996. The increase is
primarily due to interest expense which increased by $15.6 million, from $15.4
million in 1996 to $31.0 million in 1997. This increase was due to the issuance
of the $250 million Senior
21
<PAGE> 24
Notes at the end of June 1997, bridge financing prior to issuance of the Senior
Notes and $1.8 million of interest on the Company's $175 million revolving line
of credit.
Also, 1997 includes a $8.9 million charge for the write-down of the
Company's investment in the Sunnyside project and gains of $8.7 million on the
sale of certain project investments.
INCOME TAX
NRG has recognized an income tax benefit due to tax losses from
domestic operations and due to the recognition of certain tax credits. The net
income tax benefit for the year ended December 31, 1997 increased by $17.8
million as compared to the benefit for the year ended December 31, 1996 due to
increased tax credits as shown in Note 9 to the financial statements, and higher
interest expense.
YEAR 2000
NRG is in the process of examining the year 2000 issue. NRG plans to
update and/or replace all corporate systems where there is a year 2000 computing
issue. In addition, NRG is evaluating the affect that the year 2000 may have on
project systems.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report contains statements that are forward-looking, such as statements
relating to business development activities as well as other capital spending
and financing sources. Such forward-looking information involves important
risks and uncertainties that could significantly affect anticipated results in
the future and, accordingly, such results may differ from those expressed in
any forward-looking statements made by or on behalf of NRG. In addition to any
assumptions and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause NRG's actual results to
differ materially from those contemplated in any forward-looking statements
include, among others, the following:
- Economic conditions including inflation rates and monetary
fluctuations;
- Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas
where NRG has a financial interest;
- Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their
products and services;
- Financial or regulatory accounting principles or policies imposed by
the Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission and similar
entities with regulatory oversight;
- Availability or cost of capital such as changes in: interest rates;
market perceptions of the power generation industry, NRG or any of its
subsidiaries; or security ratings;
- Factors affecting power generation operations such as unusual weather
conditions; catastrophic weather-related damage; unscheduled generation
outages, maintenance or repairs; unanticipated changes to fossil fuel,
or gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; environmental incidents;
or electric transmission or gas pipeline system constraints;
- Employee workforce factors including loss or retirement of key
executives, collective bargaining agreements with union employees, or
work stoppages;
- Increased competition in the power generation industry;
- Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
- Factors associated with various investments including conditions of
final legal closing, foreign government actions, foreign economic and
currency risks, political instability in foreign countries, partnership
actions, competition, operating risks, dependence on certain suppliers
and customers, domestic and foreign environmental and energy
regulations;
- Limitations on NRG's ability to control the development or operation of
projects in which NRG has less than 100% interest;
22
<PAGE> 25
- Other business or investment considerations that may be disclosed from
time to time in NRG's Securities and Exchange Commission filings or in
other publicly disseminated written documents, including NRG's
Registration Statement No. 333-33397, as amended.
NRG undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The foregoing review of factors should not be construed as exhaustive.
23
<PAGE> 26
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
PAGE NO.
Report of Independent Accountant 25
Consolidated Statement of Income 26
Consolidated Statement of Cash Flows 27
Consolidated Balance Sheet 28
Consolidated Statement of Stockholders' Equity 30
Notes to Consolidated Financial Statements 31
24
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholder
of NRG Energy, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of NRG Energy,
Inc (a wholly-owned subsidiary of Northern States Power Company) and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
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,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Minneapolis, Minnesota
March 19, 1998
25
<PAGE> 28
NRG ENERGY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
(Thousands of Dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations $ 92,052 $ 71,649 $ 64,180
Equity in earnings of unconsolidated affiliates 26,200 32,815 23,639
- ----------------------------------------------------------------------------------------------------
Total operating revenues 118,252 104,464 87,819
- ----------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of wholly-owned operations 46,717 36,562 32,535
Depreciation and amortization 10,310 8,378 8,283
General, administrative and development 43,116 39,248 34,647
- ----------------------------------------------------------------------------------------------------
Total operating costs and expenses 100,143 84,188 75,465
- ----------------------------------------------------------------------------------------------------
OPERATING INCOME 18,109 20,276 12,354
- ----------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Minority interest in earnings of consolidated subsidiary (131) -- --
Write-off of investment (8,964) -- --
Equity in gain on project termination settlement -- -- 29,850
Gain on sale of interest in projects 8,702 -- --
Other income, net 11,764 9,477 4,896
Interest expense (30,989) (15,430) (7,089)
- ----------------------------------------------------------------------------------------------------
Total other income (expense) (19,618) (5,953) 27,657
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,509) 14,323 40,011
- ----------------------------------------------------------------------------------------------------
INCOME TAX (BENEFIT) EXPENSE (23,491) (5,655) 8,810
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 21,982 $ 19,978 $ 31,201
====================================================================================================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 29
NRG ENERGY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
(Thousands of Dollars) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 21,982 $ 19,978 $ 31,201
Adjustments to reconcile net income
to net cash provided (used) by operating activities
Undistributed equity in earnings of unconsolidated affiliates 6,481 (17,827) (20,074)
Depreciation and amortization 10,310 8,378 8,283
Deferred income taxes and investment tax credits 3,107 (776) (2,608)
Cash provided (used) by changes in certain working capital
Items, net of acquisition effects
Accounts receivable (2,859) (2,728) 1,102
Accounts receivable-affiliates (19,963) (2,068) (2,889)
Other current assets (2) (3,401) (678)
Accounts payable 7,791 917 (2,028)
Accrued salaries, benefits and related costs 3,826 1,381 2,427
Accrued interest 1,215 3,902 553
Accrued income taxes 1,762 (5,436) 9,808
Other current liabilities 7,729 3,110 698
Cash used by changes in other assets and liabilities (7,155) (1,284) (1,004)
Equity in gain from project termination settlement -- -- (29,850)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 34,224 4,146 (5,059)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects (317,887) (140,590) (25,776)
Acquisition, net of liabilities assumed (148,830) -- --
Increase in notes receivable (37,431) (36,617) (35,411)
Capital expenditures (26,936) (24,588) (11,036)
Cash distribution from project termination settlement -- 15,671 14,179
Cash from sale of project investment 19,158 -- --
Decrease (increase) in restricted cash 16,100 (7,915) 4,044
Other, net 10,114 (4,486) (3,104)
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (485,712) (198,525) (57,104)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving line of credit 122,000 -- --
Capital contributions from parent 80,900 80,000 55,000
Proceeds from issuance of long-term debt 254,061 122,671 --
Principal payments on long-term debt (5,925) (2,893) (3,305)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 451,036 199,778 51,695
- ---------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (452) 5,399 (10,468)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,438 7,039 17,507
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,986 $ 12,438 $ 7,039
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid (net of amount capitalized) $ 30,890 $ 11,527 $ 6,536
Income taxes paid (benefits received), net (24,577) 1,164 1,447
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 30
NRG ENERGY, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
(Thousands of Dollars) 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,986 $ 12,438
Restricted cash 1,588 17,688
Accounts receivable-trade, less allowance
For doubtful accounts of $100 and $143 15,520 12,061
Accounts receivable-affiliates 29,162 6,708
Current portion of notes receivable - affiliates 48,816 3,601
Current portion of notes receivable 3,729 5,985
Inventory 2,619 2,312
Prepayments and other current assets 5,002 4,644
- ----------------------------------------------------------------------------------------------------------
Total current assets 118,422 65,437
- ----------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
In service 255,433 176,072
Under construction 9,758 24,683
- ----------------------------------------------------------------------------------------------------------
265,191 200,755
Less accumulated depreciation (79,300) (71,106)
- ----------------------------------------------------------------------------------------------------------
Net property, plant and equipment 185,891 129,649
- ----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Investments in projects 694,655 365,749
Capitalized project costs 17,791 9,267
Notes receivable, less current portion - affiliates 71,759 58,169
Notes receivable, less current portion 4,624 9,309
Intangible assets, net of accumulated amortization of $2,012 and $2,036 21,414 11,987
Debt issuance costs, net of accumulated amortization of $779 and $338 6,569 2,753
Other assets, net of accumulated amortization of $4,782 and $3,611 46,977 28,489
- ----------------------------------------------------------------------------------------------------------
Total other assets 863,789 485,723
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,168,102 $ 680,809
==========================================================================================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 31
NRG ENERGY, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
(Thousands of Dollars) 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 7,676 $ 4,848
Revolving line of credit 122,000 --
Accounts payable-trade 16,101 4,443
Note payable -- 3,867
Accrued income taxes 3,692 1,930
Accrued property and sales taxes 3,804 2,159
Accrued salaries, benefits and related costs 10,998 6,559
Accrued interest 6,310 4,726
Other current liabilities 10,508 4,424
- ---------------------------------------------------------------------------------------
Total current liabilities 181,089 32,956
MINORITY INTEREST 19,818 --
LONG-TERM DEBT, LESS CURRENT PORTION 491,179 207,293
DEFERRED REVENUES 9,577 6,340
DEFERRED INCOME TAXES 11,968 8,606
DEFERRED INVESTMENT TAX CREDITS 1,598 1,853
DEFERRED COMPENSATION 2,175 1,847
- ---------------------------------------------------------------------------------------
Total liabilities 717,404 258,895
- ---------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
Common stock; $1 par value; 1,000 shares authorized;
1,000 shares issued and outstanding 1 1
Additional paid-in capital 431,913 351,013
Retained earnings 88,283 66,301
Currency translation adjustments (69,499) 4,599
- ---------------------------------------------------------------------------------------
Total Stockholder's Equity 450,698 421,914
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,168,102 $ 680,809
=======================================================================================
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 32
NRG ENERGY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDER'S
(Thousands of Dollars) STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994 $ 1 $ 216,013 $ 15,122 $ 3,586 $ 234,722
Net Income 31,201 31,201
Capital contributions from parent 55,000 55,000
Currency translation adjustments (1,159) (1,159)
- ----------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 1 271,013 46,323 2,427 319,764
Net Income 19,978 19,978
Capital contributions from parent 80,000 80,000
Currency translation adjustments 2,172 2,172
- ----------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 1 351,013 66,301 4,599 421,914
Net Income 21,982 21,982
Capital contributions from parent 80,900 80,900
Currency translation adjustments (74,098) (74,098)
- ----------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 $ 1 $ 431,913 $ 88,283 $ (69,499) $ 450,698
- ----------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 33
NRG ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
NOTE 1-ORGANIZATION
NRG Energy, Inc. (the Company), a Delaware Corporation, was incorporated on May
29, 1992, as a wholly-owned subsidiary of Northern States Power Company (NSP).
Beginning in 1989, the Company was doing business through its predecessor
companies, NRG Energy, Inc. and NRG Group, Inc., Minnesota corporations which
were merged into the Company subsequent to its incorporation. The Company and
its subsidiaries and affiliates develop, build, acquire, own and operate
non-regulated energy-related businesses.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries (referred to collectively herein as NRG). All significant
intercompany transactions and balances have been eliminated in consolidation. As
discussed in Note 5, NRG has investments in partnerships, joint ventures and
projects for which the equity method of accounting is applied. Earnings from
equity in international investments are recorded net of foreign income taxes.
CASH EQUIVALENTS
Cash equivalents include highly liquid investments (primarily commercial paper)
with a remaining maturity of three months or less at the time of purchase.
RESTRICTED CASH
Restricted cash consists primarily of cash collateral for letters of credit
issued in relation to project development activities.
INVENTORY
Inventory is valued at the lower of average cost or market and consists
principally of spare parts and raw materials used to generate steam.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at original cost. Significant
additions or improvements extending asset lives are capitalized, while repairs
and maintenance are charged to expense as incurred. Depreciation is computed
using the straight-line method over the following estimated useful lives:
Facilities and improvements 20-45 years
Machinery and equipment 7-30 years
Office furnishings and equipment 3-5 years
CAPITALIZED INTEREST
Interest incurred on funds borrowed to finance projects expected to require more
than three months to complete is capitalized. Capitalization of interest is
discontinued when the project is completed and considered operational.
Capitalized interest is amortized using the straight line method over the useful
life of the related project. Capitalized interest was $98,000 and $364,000 in
1997 and 1996, respectively.
31
<PAGE> 34
NRG ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEVELOPMENT COSTS AND CAPITALIZED PROJECT COSTS
These costs include professional services, dedicated employee salaries, permits,
and other costs which are incurred incidental to a particular project. Such
costs are expensed as incurred until a sales agreement or letter of intent is
signed, and the project has been approved by NRG's Board of Directors.
Additional costs incurred after this point are capitalized. When project
operations begin, previously capitalized project costs are reclassified to
investment in projects and amortized on a straight-line basis over the lesser of
the life of the project's related assets or revenue contract period.
DEBT ISSUANCE COSTS
Costs to issue long-term debt have been capitalized and are being amortized over
the terms of the related debt.
INTANGIBLES
Intangibles consist principally of the excess of the cost of investment in
subsidiaries over the underlying fair value of the net assets acquired and are
being amortized using the straight-line method over 10 to 40 years. The Company
periodically evaluates the recovery of goodwill and other intangibles based on
an analysis of estimated undiscounted future cash flows.
OTHER LONG TERM ASSETS
Other long-term assets consist primarily of service agreements and operating
contracts. These assets are being amortized over the remaining terms of the
individual contracts, which range from seven to twenty-eight years.
INCOME TAXES
The Company is included in the consolidated tax returns of NSP. NRG calculates
its income tax provision on a separate return basis under a tax sharing
agreement with NSP as discussed in Note 9. Current federal and state income
taxes are payable to or receivable from NSP. NRG records income taxes using the
liability method. Income taxes are deferred on all temporary differences between
pretax financial and taxable income and between the book and tax bases of assets
and liabilities. Deferred taxes are recorded using the tax rates scheduled by
law to be in effect when the temporary differences reverse. Investment tax
credits are deferred and amortized over the estimated lives of the related
property. NRG's policy for income taxes related to international operations is
discussed in Note 9.
REVENUE RECOGNITION
Under fixed-price contracts, revenues are recognized as deliveries of products
or services are made. Revenues and related costs under cost reimbursable
contract provisions are recorded as costs are incurred. Anticipated future
losses on contracts are charged against income when identified.
FOREIGN CURRENCY TRANSLATION
The local currencies are generally the functional currency of NRG's foreign
operations. Foreign currency denominated assets and liabilities are translated
at end-of-period rates of exchange. The resulting currency adjustments are
accumulated and reported as a separate component of stockholder's equity.
Income, expense, and cash flows are translated at weighted-average rates of
exchange for the period.
USE OF ESTIMATES
In recording transactions and balances resulting from business operations, NRG
uses estimates based on the best information available. Estimates are used for
such items as plant depreciable lives, tax provisions, uncollectible accounts
and actuarially determined benefit costs. As better information becomes
available (or actual amounts are determinable), the recorded estimates are
revised. Consequently, operating results can be affected by revisions to prior
accounting estimates.
32
<PAGE> 35
NRG ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements to
conform to the 1997 presentation. These reclassifications had no effect on net
income or stockholder's equity as previously reported.
NOTE 3-BUSINESS ACQUISITIONS
In February 1997, NRG made an initial purchase of 7.2% of Energy Developments
Limited (EDL). In September, 1997, NRG purchased additional common stock of
EDL, bringing its ownership level to 19.97%. EDL, a publicly held Australian
company, is engaged in independent power generation from landfill gas, coal
seam methane, and natural gas. EDL, currently owns approximately 184 MW of
operating projects and operates over 243 MW of generation capacity across five
states and territories of Australia.
In May 1997, NRG acquired a 25.37% interest in the assets of Loy Yang A, a 2,000
MW brown coal thermal power station and adjacent coal mine located in Victoria,
Australia. NRG's initial equity investment in this project was $257 million.
NRG purchased the San Diego Power & Cooling Company ("SDPC") in June 1997. SDPC
serves the cooling needs of thirteen major customers in the downtown San Diego
central business district through an underground piping system with chilled
water capacity of 5,250 tons/hour.
In July 1997, NRG, together with its partner, Decker Energy International, Inc.,
acquired a 34 MW wood-fired steam turbine power plant, located in Cadillac,
Michigan. NRG assumed on-going operation of the plant.
In November 1997, NRG acquired 100% of the outstanding shares of Pacific
Generation Company ("PGC") a, wholly-owned subsidiary of PacifiCorp for $148.8
million. PGC has ownership interest in 11 projects with a total capacity of 737
MW, with operational responsibility for 312 MW and net ownership interest of 166
MW. The projects, which are located throughout the United States and Canada, are
powered by natural gas, hydro, refuse-derived fuel, coal and wind.
The total acquisition investments in these projects through December 31, 1997,
was approximately $437.8 million. The projects acquired in 1997 contributed $3.8
million to NRG's 1997 earnings.
NOTE 4-PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Facilities and equipment, including construction work
in progress of $9,758 and $24,683 $ 250,358 $ 187,014
Land and improvements 10,397 10,397
Office furnishings and equipment 4,436 3,344
--------- ---------
Total property, plant and equipment 265,191 200,755
Accumulated depreciation (79,300) (71,106)
--------- ---------
Net property, plant and equipment $ 185,891 $ 129,649
========= =========
</TABLE>
33
<PAGE> 36
NRG ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
NRG has investments in various international and domestic energy projects. The
equity method of accounting is applied to such investments in affiliates, which
include joint ventures and partnerships, because the ownership structure
prevents NRG from exercising a controlling influence over operating and
financial policies of the projects. Under this method, equity in pretax income
or losses of domestic partnerships and in the net income or losses of
international projects are reflected as equity in earnings of unconsolidated
affiliates.
A summary of NRG's significant equity-method investments which were in operation
at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC ECONOMIC PURCHASED OR PLACED
NAME AREA INTEREST IN SERVICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Various Independent Power USA 45%-50% July 1991-
Production Facilities December 1997
- -----------------------------------------------------------------------------------------------------------
Loy Yang A Australia 25.37% May 1997
- -----------------------------------------------------------------------------------------------------------
Energy Developments Limited Australia 19.97% February and
September 1997
- -----------------------------------------------------------------------------------------------------------
Energy Center Kladno Czech Republic 34.0% December 1994
- -----------------------------------------------------------------------------------------------------------
Pacific Generation Company Projects USA/Canada 8.5% - 28.7% November 1997
- -----------------------------------------------------------------------------------------------------------
MIBRAG mbH Germany 33.3% January 1994
- -----------------------------------------------------------------------------------------------------------
Gladstone Power Station Australia 37.5% March 1994
- -----------------------------------------------------------------------------------------------------------
Schkopau Power Station Germany 20.6% January and July 1996
- -----------------------------------------------------------------------------------------------------------
Scudder Latin American Power Projects Latin America 25.0% June 1993
- -----------------------------------------------------------------------------------------------------------
Bolivian Power Company (Cobee) Bolivia 48.3% December 1996
- -----------------------------------------------------------------------------------------------------------
NRG Generating (U.S.) Inc. (NRGG) USA 45.2% April 1996
- -----------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 37
NRG ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information for investments in unconsolidated affiliates
accounted for under the equity method as of and for the year ended December 31,
is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenues $1,612,897 $ 886,947 $ 776,612
Costs and expenses 1,522,727 794,255 615,696
- -------------------------------------------------------------------------
Net income $ 90,170 $ 92,692 $ 160,916
- -------------------------------------------------------------------------
Current assets $ 713,390 $ 647,213 757,124
Noncurrent assets 7,733,886 3,420,950 2,557,992
- -------------------------------------------------------------------------
Total assets $8,447,276 $4,068,163 $3,315,116
- -------------------------------------------------------------------------
Current liabilities $ 472,980 $ 365,905 $ 290,805
Noncurrent liabilities 6,042,102 2,732,922 2,236,919
Equity 1,932,194 969,336 787,392
- -------------------------------------------------------------------------
Total liabilities and equity $8,447,276 $4,068,163 $3,315,116
- -------------------------------------------------------------------------
NRG's share of equity $ 694,655 $ 365,749 $ 221,129
NRG's share of income $ 26,200 $ 32,815 $ 23,639
</TABLE>
In accordance with Financial Accounting Standards No. 121 "Accounting
for Impairment of Long-Lived Assets to be Disposed of," (SFAS 121), the Company
reviews long lived assets, investments and certain intangibles for impairment
whenever events or circumstances indicate the carrying amounts of an asset may
not be recoverable. In December 1997, the Company reviewed the carrying amount
of a project that failed to restructure its debt and recorded a charge of $8.9
million. The charge represents the difference between the carrying amount of the
investment and the fair value of the asset. This charge is presented in Other
Income (Expense) and is not part of the above information.
NOTE 6-RELATED PARTY TRANSACTIONS
SALE TO AFFILIATE
In December 1997, NRG sold its interest in the Millenium facility, a 117 MW
cogeneration plant under construction near Morris, Illinois to NRG Generating
(U.S.) Inc. for $4 million.
OPERATING AGREEMENTS
NRG has two agreements with NSP for the purchase of thermal energy. Under the
terms of the agreements, NSP charges NRG for certain costs (fuel, labor, plant
maintenance, and auxiliary power) incurred by NSP to produce the thermal energy.
NRG paid NSP $4.6 million in 1997 and $6.0 million in 1996 under these
agreements.
NRG has a renewable 10-year agreement with NSP, expiring on December 31, 2001,
whereby NSP agrees to purchase refuse-derived fuel for use in certain of its
boilers and NRG agrees to pay NSP a burn incentive. NRG has an agreement
expiring in 2006 to sell wood by-products obtained from a Thermal customer to
NSP for use as fuel. Under these two agreements, NRG received $1.3 million and
$1.5 million from NSP, and paid $2.8 million and $2.2 million to NSP in 1997 and
1996, respectively.
ADMINISTRATIVE SERVICES AND OTHER COSTS
NRG and NSP have entered into an agreement to provide for the reimbursement of
actual administrative services provided to each other, an allocation of NSP
administrative costs and a working capital fee. Services provided by NSP to NRG
are principally cash management, legal, accounting, employee relations, benefits
administration and engineering support. In addition, NRG employees participate
in
35
<PAGE> 38
NRG ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
certain employee benefit plans of NSP as discussed in Note 10. During 1997
and 1996, NRG paid NSP $.7 million and $3.2 million, respectively, as
reimbursement under this agreement.
In 1996, NRG and NSP entered into an agreement for NRG to provide operations and
maintenance services for NSP's Elk River resource recovery facility and Becker
ash landfill. During 1997 and 1996, NSP paid NRG $1.1 million and $1.5 million,
respectively, as compensation under this agreement.
NOTE 7 - NOTES RECEIVABLE
Notes receivable consists primarily of fixed and variable rate notes secured by
equity interests in partnerships and joint ventures. The notes receivable at
December 31, are as follows:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996
---- ----
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
NEO notes to various affiliates due primarily 1999, prime +2% to 12.5% $ 49,921 $ 20,648
SMMPA note receivable due 2003, 7% 1,709 1,869
Various secured notes due 1999 and later, non-interest bearing 724 720
TVI note due 1998, 11% 1,500 --
Mid-Continent Power Notes., various notes due 1998, 12% 18,820 9,309
NRG Generating US, Inc., note due 2001, 9.5% 2,624 14,932
Grays Ferry note due 2005, LIBOR plus 4.0% 1,900 --
Tosli, various notes due 1998, LIBOR plus 4.0% 31,088 --
NRGenerating International BV notes to various affiliates,
non-interest bearing (7.5% in 1996) 6,713 29,586
Pacific Generation, various notes due from 1998 to 2013, Prime +2% to 14% 13,929 --
- -----------------------------------------------------------------------------------------------
Total Notes Receivable (Current and Long-Term) $128,928 $ 77,064
===============================================================================================
</TABLE>
36
<PAGE> 39
NRG ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8-LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---- ----
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NRG Energy Center, Inc. senior secured notes
due June 15, 2013, 7.31% $74,481 $76,986
Note payable to NSP, due December 1, 1995-2006
5.40%-6.75% 7,811 8,405
NRG Sunnyside, Inc. note payable, due December 31, 1997
10.00% -- 1,750
NRG Energy senior notes, due February 1, 2006
7.625% 125,000 125,000
NRG Energy senior notes, due June 15, 2007
7.50% 250,000 --
NRG San Diego, Inc. promissory note, due June 25, 2003
8.0% 2,521 --
NEO Landfill Gas, Inc. term loan, due October 30, 2007
9.35% 2,636 --
NEO Landfill Gas Inc. construction loan due October 30, 2007
6.887% 2,982 --
Pacific Generation Co. senior secured notes, due December 31, 2000
9.93% 2,636 --
Pacific Generation Co. revenue bonds, due August 1, 2007
4.65% 11,855 --
Pacific Generation Co. unsecured term loan, due June 30, 2007
7.65% 18,933 --
- -------------------------------------------------------------------------------------------------------------------
498,855 212,141
Less current maturities (7,676) (4,848)
- -------------------------------------------------------------------------------------------------------------------
Total $491,179 $207,293
===================================================================================================================
</TABLE>
The NRG Energy Center, Inc. notes are secured principally by long-term assets of
the Minneapolis Energy Center (MEC). In accordance with the terms of the note
agreement, MEC is required to maintain compliance with certain financial
covenants primarily related to incurring debt, disposing of MEC assets, and
affiliate transactions. MEC was in compliance with these covenants at December
31, 1997.
The note payable to NSP relates to long-term debt assumed by the Company in
connection with the transfer of ownership of an RDF processing plant by NSP to
the Company in 1993.
The NRG Energy $125 million and $250 million senior notes are unsecured and are
used to support equity requirements for projects acquired and in development.
The interest is paid semi-annually and the ten-year senior notes mature in
February 2006 and June 2007.
The NRG San Diego, Inc. promissory note is secured principally by long-term
assets of the San Diego Power & Cooling Company.
The NEO Landfill Gas, Inc. notes are term and construction loans. The loans are
secured principally by long-term assets of NEO Landfill Gas collection system.
NEO Landfill Gas is required to maintain compliance with certain covenants
primarily related to incurring debt, disposing of the NEO Landfill Gas
37
<PAGE> 40
NRG ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets, and affiliate transactions. NEO Landfill Gas was in compliance with
these covenants at December 31, 1997.
The PGC notes are secured principally by long-term assets of certain PGC
affiliates. In accordance with the terms of the note agreements, PGC is required
to maintain compliance with certain financial covenants primarily related to
incurring debt, disposing of PGC assets, and affiliate transactions. PGC was in
compliance with these covenants at December 31, 1997.
Annual maturities of long-term debt for the years ending after December 31, 1997
are as follows:
<TABLE>
<CAPTION>
(Thousands of dollars)
- --------------------------------------------------------------------------------
<S> <C>
1998 $ 7,676
1999 7,682
2000 7,977
2001 7,931
2002 8,478
Thereafter 459,111
- --------------------------------------------------------------------------------
Total $498,855
- --------------------------------------------------------------------------------
</TABLE>
The Company has a credit agreement for $175 million of which $122 million was
outstanding at December 31, 1997. In addition, the Company has credit lines for
issuance of letters of credit which may not exceed $57.5 million. There were
$48.4 million and $18.4 million outstanding letters of credit under the credit
lines at December 31, 1997 and 1996, respectively.
On March 17, 1998 NRG amended its existing 3-year, $175 million Revolving Credit
facility to allow NRG additional borrowing capacity under its covenant ratios.
Also on that date, NRG entered into an additional $75 million, 364-day facility
with its existing bank group with ABN-AMRO as agent. The new facility will be
used for general corporate purposes and for funding future growth opportunities.
(See Exhibits 10.15 and 10.16)
NOTE 9-INCOME TAXES
NRG and its parent, NSP, have entered into a federal and state income tax
sharing agreement relative to the filing of consolidated federal and state
income tax returns. The agreement provides, among other things, that (1) if NRG,
along with its subsidiaries, is in a taxable income position, NRG will be
currently charged with an amount equivalent to its federal and state income tax
computed as if the group had actually filed separate federal and state returns,
and (2) if NRG, along with its subsidiaries, is in a tax loss position, NRG will
be currently reimbursed to the extent its combined losses are utilized in a
consolidated return, and (3) if NRG, along with its subsidiaries, generates tax
credits, NRG will be currently reimbursed to the extent its tax credits are
utilized in a consolidated return.
38
<PAGE> 41
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996 1995
---- ---- ----
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ (8,516) $ 633 $ 9,965
State (1,274) 253 3,268
Foreign 236 616 233
- ----------------------------------------------------------------------------
(9,554) 1,502 13,466
Deferred
Foreign (2,703) -- --
Federal (958) (3,655) (1,592)
State (439) (1,498) (1,012)
- ----------------------------------------------------------------------------
(4,100) (5,153) (2,604)
Tax credits recognized (9,837) (2,004) (2,052)
- ----------------------------------------------------------------------------
Total income tax (benefit) expense $(23,491) $ (5,655) $ 8,810
============================================================================
Effective tax rate (1,557%) (39.5%) 22.0%
</TABLE>
- ----------------------------------------------------------------------------
The components of the net deferred income tax liability at December 31 were:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---- ----
- --------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Differences between book and tax bases of property $16,999 $16,606
Investments in projects 11,574 2,988
Goodwill 915 2,974
Other 5,396 2,646
- --------------------------------------------------------------------------------------
Total deferred tax liabilities 34,884 25,214
Deferred tax assets
Deferred revenue 1,963 3,043
Deferred compensation, accrued vacation and other reserves 4,638 1,536
Development costs 9,588 5,581
Deferred investment tax credits 661 766
Steam capacity rights 976 1,043
Other 5,090 4,639
- --------------------------------------------------------------------------------------
Total deferred tax assets 22,916 16,608
- --------------------------------------------------------------------------------------
Net deferred tax liability $11,968 $ 8,606
======================================================================================
</TABLE>
The effective income tax rate for the years 1997, 1996 and 1995 differs from the
statutory federal income tax rate of 35% primarily due to income and expenses
from foreign operations not subject to U.S. taxes (as discussed below) and due
to state tax, foreign tax, and tax credits as shown above.
Income before income taxes includes equity in net foreign investment income of
$27 million, $28 million and $32.0 million in 1997, 1996, and 1995 respectively.
NRG's management intends to reinvest the earnings of foreign operations
indefinitely. Accordingly, U.S. income taxes and foreign withholding taxes have
not been provided on the earnings of foreign subsidiary companies. The
cumulative amount of undistributed earnings of foreign subsidiaries upon which
no U.S. income taxes or foreign withholding taxes have been provided is
approximately $112 million at December 31, 1997. The additional U.S.
39
<PAGE> 42
income tax and foreign withholding tax on the unremitted foreign earnings, if
repatriated, would be offset in whole or in part by foreign tax credits. Thus,
it is impracticable to estimated the amount of tax that might be payable.
NOTE 10-BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS
PENSION BENEFITS
NRG participates in NSP's noncontributory, defined benefit pension plan that
covers substantially all employees. Benefits are based on a combination of years
of service, the employee's highest average pay for 48 consecutive months, and
Social Security benefits. Net annual periodic pension cost includes the
following components:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996 1995
---- ---- ----
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 1,127 $ 1,115 $ 688
Interest cost on projected benefit obligation 1,187 1,013 525
Actual return on assets (3,756) (1,983) (1,542)
Net amortization and deferral 2,729 1,258 1,147
- -----------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 1,287 $ 1,403 $ 818
===========================================================================================================
</TABLE>
NRG's funding policy is to contribute to NSP the full actuarial pension cost
accrued, less future tax benefits to be realized from such costs. Plan assets
consist principally of common stock of public companies, corporate bonds and
U.S. government securities. The funded status of the pension plan in which NRG
employees participate is as follows at December 31:
<TABLE>
<CAPTION>
NSP PLAN--1997
(THOUSANDS OF DOLLARS) Total NRG Portion
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation
Vested $ 701,219 $ 7,976
Non-vested 165,004 4,265
- -------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $ 866,223 $ 12,241
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation $1,048,251 $ 17,410
Plan assets at fair value 1,978,538 18,795
- -------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation (930,287) (1,385)
Unrecognized prior service cost (18,663) (81)
Unrecognized net actuarial gain 953,825 3,243
Unrecognized net transitional asset 463 -
- -------------------------------------------------------------------------------------------------------------
Net pension liability recorded $ 5,338 $ 1,777
=============================================================================================================
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
NSP PLAN--1996
--------------
(THOUSANDS OF DOLLARS) Total NRG Portion
- ---------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation
Vested $ 660,920 $ 6,464
Nonvested 147,278 3,422
- ---------------------------------------------------------------------------
Accumulated benefit obligation $ 808,198 $ 9,886
- ---------------------------------------------------------------------------
Projected benefit obligation $ 993,821 $ 14,253
Plan assets at fair value 1,634,696 12,986
- ---------------------------------------------------------------------------
Plan assets (in excess of)
less than projected benefit obligation (640,875) 1,267
Unrecognized prior service cost (19,734) (86)
Unrecognized net actuarial gain 651,368 256
Unrecognized net transitional asset 539 --
- ---------------------------------------------------------------------------
Net pension (asset) liability recorded $ (8,702) $ 1,437
===========================================================================
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7% for December 31, 1997 and 7.5%
for December 31, 1996. The rate of increase in future compensation levels used
in determining the actuarial present value of the projected obligation was 5% in
1997 and 1996. The assumed long-term rate of return on assets used for cost
determinations was 9% for 1997, 1996 and 1995. Assumption changes had an
immaterial impact on benefit costs for the periods presented.
POSTRETIREMENT HEALTH CARE
NRG participates in NSP's contributory health and welfare benefit plan that
provides health care and death benefits to substantially all employees after
their retirement. The plan is intended to provide for sharing of costs of
retiree health care between NRG and retirees. For employees retiring after
January 1, 1994, a six-year cost-sharing strategy was implemented with retirees
paying 15% of the total cost of health care in 1994, increasing to a total of
40% in 1999.
Postretirement health care benefits for NRG are determined and recorded under
the provisions of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 106 requires the actuarially determined
obligation for postretirement health care and death benefits to be fully accrued
by the date employees attain full eligibility for such benefits, which is
generally when they reach retirement age. In conjunction with the adoption of
SFAS No. 106 in 1993, NRG elected to amortize on a straight-line basis over 20
years the unrecognized accumulated postretirement benefit obligation (APBO) of
$1.4 million for current and future retirees.
Plan assets as of December 31, 1997 consisted of investments in equity mutual
funds and cash equivalents. NRG's funding policy is to contribute to NSP
benefits actually paid under the plan. The following table sets forth the funded
status of the health care plan in which NRG employees participate at December
31:
41
<PAGE> 44
<TABLE>
<CAPTION>
NSP PLAN--1997
-------------------------
(THOUSANDS OF DOLLARS) TOTAL NRG PORTION
- ------------------------------------------------------------------
<S> <C> <C>
APBO
Retirees $ 149,081 $ 346
Fully eligible plan participants 21,245 746
Other active plan participants 108,904 2,801
- ------------------------------------------------------------------
Total APBO 279,230 3,893
Plan assets at fair value 19,784 --
- ------------------------------------------------------------------
APBO in excess of plan assets 259,446 3,893
Unrecognized net actuarial loss (14,408) (579)
Unrecognized net transition obligation (161,700) (1,063)
- ------------------------------------------------------------------
Net benefit obligation recorded $ 83,338 $ 2,251
==================================================================
</TABLE>
<TABLE>
<CAPTION>
NSP PLAN--1996
--------------
(THOUSANDS OF DOLLARS) TOTAL NRG PORTION
- -------------------------------------------------------------------
<S> <C> <C>
APBO
Retirees $ 144,180 $ 323
Fully eligible plan participants 23,438 619
Other active plan participants 101,065 2,269
- -------------------------------------------------------------------
Total APBO 268,683 3,211
Plan assets at fair value 15,514 --
- -------------------------------------------------------------------
APBO in excess of plan assets 253,169 3,211
Unrecognized net actuarial loss (12,467) (366)
Unrecognized net transition obligation (172,480) (1,133)
- -------------------------------------------------------------------
Net benefit obligation recorded $ 68,222 $ 1,712
===================================================================
</TABLE>
The assumed health care cost trend rates used in measuring the APBO at December
31, 1997 and 1996, were 9.2% and 9.8% for those under age 65, and 6.8 % and 7.1%
for those over age 65, respectively. The assumed cost trends are expected to
decrease each year until they reach 5.5% for both age groups in the year 2004,
after which they are assumed to remain constant. A one percent increase in the
assumed health care cost trend rate for each year would increase the APBO by
approximately 14.5% as of December 31, 1997. Service and interest cost
components of the net periodic postretirement cost would increase by
approximately 15.4% with a similar one percent increase in the assumed health
care cost trend rate. The assumed discount rate used in determining the APBO was
7% for December 31, 1997 and 7.5% for December 31, 1996, compounded annually.
The assumed long-term rate of return on assets used for cost determinations
under SFAS No. 106 was 8% for 1997, 1996 and 1995. Changes in actuarial
assumptions had an immaterial impact on benefit costs.
The net annual periodic postretirement benefit cost recorded for 1997 and 1996
consists of the following components:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996 1995
---- ---- ----
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $223 $257 $171
Interest cost on APBO 246 233 171
Amortization of transition obligation 70 70 70
- -------------------------------------------------------------------------
Net amortization and deferral -- 26 --
- -------------------------------------------------------------------------
Net periodic postretirement health care cost $539 $586 $412
=========================================================================
</TABLE>
42
<PAGE> 45
NRG EQUITY PLAN
Employees are eligible to participate in the NRG Equity Plan (the Plan). The
Plan grants phantom equity units to employees based upon performance and job
grade. NRG's equity units are valued based upon NRG's growth and financial
performance. The primary financial measures used in determining the equity
units' value are revenue growth, return on investment and cash flow from
operations. The units are awarded to employees annually at the respective year's
calculated share price (grant price). The Plan provides employees with a cash
payout for the unit's appreciation in value over the vesting period. The Plan
has a seven year vesting schedule with actual payments beginning after the end
of the third year and continuing at 20% each year for the subsequent five years.
The Plan includes a change of control provision, which allow all shares to vest
if the ownership of NRG were to change.
DEFERRED COMPENSATION
Certain employees of NRG are eligible to participate in a deferred compensation
program. The employee can elect to defer a portion of their compensation until
retirement. Earnings on the amounts deferred are equal to the return on the
Fixed Income Option of the NSP Retirement Savings Plan. Earnings will be
compounded annually and credited monthly. Payouts begin upon retirement with
payments made over 180 equal monthly installments (or a minimum of $500 per
month until the account balance is zero).
NOTE 11-SALES TO SIGNIFICANT CUSTOMERS
NRG and the Ramsey/Washington Resource Recovery Project have a service agreement
for waste disposal which expires in 2006. Approximately 23.9% in 1997 and 29.1%
in 1996 of NRG's operating revenues were recognized under this contract. In
addition, sales to one thermal customer amounted to 9.9% of operating revenues
in 1997 and 14.1% of operating revenues in 1996.
43
<PAGE> 46
NOTE 12-FINANCIAL INSTRUMENTS
The estimated December 31 fair values of NRG's recorded financial instruments
are as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------
Carrying Fair Carrying Fair
(THOUSANDS OF DOLLARS) Amount Value Amount Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 11,986 $ 11,986 $ 12,438 $ 12,438
Restricted cash 1,588 1,588 17,688 17,688
Notes receivable, including current portion 129,687 129,687 77,064 77,064
Long-term debt, including current portion 498,855 489,332 212,141 200,875
</TABLE>
For cash, cash equivalents and restricted cash, the carrying amount approximates
fair value because of the short-term maturity of those instruments. The fair
value of notes receivable is based on expected future cash flows discounted at
market interest rates. The fair value of long-term debt is estimated based on
the quoted market prices for the same or similar issues.
DERIVATIVE FINANCIAL INSTRUMENTS
NRG's policy is to hedge known and anticipated foreign currency denominated cash
flows, where appropriate hedging instruments are available, to preserve their
U.S. dollar value. NRG has entered into currency hedging transactions through
the use of forward foreign currency exchange agreements with terms of less than
one to three years. Gains and losses on these agreements offset the effect of
foreign currency exchange rate fluctuations on NRG's underlying exposures. Gains
on agreements that hedge firm commitments of cash flows are deferred and
included in the measurement of the related foreign currency transaction in the
period the transaction occurs, and losses on these agreements are deferred in
the same manner unless it is estimated that deferral would lead to recognizing
losses in later periods. Gains and losses on agreements that hedge cash flows
not meeting the criteria of a firm commitment are recorded in the current period
in the statement of income. While NRG is not currently hedging foreign currency
denominated investments, NRG has and will hedge such investments in the future
when management believes that preserving the U.S. dollar value of the investment
is appropriate.
NRG has entered into forward foreign currency exchange contracts with
counterparties to hedge certain exposures to currency fluctuations. Pursuant to
these contracts, transactions have been executed that are designed to protect
the economic value in U.S. dollars of selected known and anticipated NRG cash
flows denominated in Australian dollars and German deutsche marks. As of
December 31, 1997, NRG had in place contracts with a notional value of $10
million to hedge foreign currency denominated known future cash flows. In
addition, NRG has in place forward foreign currency exchange contracts with a
net notional value of $8.6 million to hedge projected construction expenditures,
which do not qualify for hedge accounting and consequently result in currency
fluctuations that can affect earnings. The forward foreign currency exchange
contracts terminate in 1998. If all of the contracts had been terminated at
December 31, 1997, $1.0 million would have been payable by NRG for currency
exchange rate changes to date. Management believes NRG's exposure to credit risk
due to nonperformance by the counterparties to its forward exchange contracts is
not significant, based on the investment grade rating of the counterparties.
Where appropriate, NRG also uses interest rate hedging instruments to protect
against increases in the cost of borrowing at both the corporate and project
level. Gains and losses on interest rate hedging instruments are deferred and
included in the measurement of the underlying equity investment when made. NRG
also has two agreements in place, with a notional amount of $80 million, to fix
the interest rate (based on U.S. Treasury obligations) for known future
borrowings related to project investment commitments. If the
44
<PAGE> 47
agreements had been terminated at December 31, 1997, $4.3 million would have
been payable by NRG based on the underlying U.S. Treasury interest rate on that
date.
NOTE 13-COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
The Company leases certain of its facilities and equipment under operating
leases, some of which include escalation clauses, expiring on various dates
through 2010. Rental expense under these operating leases was $1.2 million in
1997 and $.7 million in 1996. Future minimum lease commitments under these
leases for the years ending after December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(Thousands of dollars)
- --------------------------------------------------------------------------------
<C> <C>
1998 $1,372
1999 1,254
2000 1,282
2001 1,215
2002 823
Thereafter 6,158
- --------------------------------------------------------------------------------
Total $12,104
================================================================================
</TABLE>
CAPITAL COMMITMENTS - INTERNATIONAL
NRG signed a Joint Development Agreement for the acquisition, upgrading,
expansion and development of Energy Center Kladno in Kladno, Czech Republic. The
acquisition of the existing facility is the first phase of a development project
that will include upgrading the existing plant and developing a new power
generation facility. NRG has made a $46 million commitment for the additional
facilities.
NRG together with its partners, signed a power contract with PT Perusahaan
Listrik Negara, the state-owned Indonesian Electric Company, to build, own and
operate a 400 MW, coal-fired power station in Cilegon, West Java, Indonesia. NRG
has a $65 million commitment for the facility. This project is currently on
hold.
NRG is contractually committed to additional equity investments of $8 million in
the Scudder Latin American Power I and $7 million to Scudder Latin American
Power II as of December 31, 1997.
NRG purchased a 50% equity interest in the Enfield Energy Centre, a 396 MW power
project under development in the North London Borough of Enfield, England. NRG's
has a $28 million outstanding commitment for the facility.
NRG and Transfield signed an agreement for the acquisition and refurbishment of
the 189 MW Collinsville coal-fired power generation facility in Queensland,
Australia. NRG has a $10 million commitment to the Collinsville project.
CAPITAL COMMITMENTS-DOMESTIC
In 1996, NRG provided a $10 million loan commitment to a wholly owned subsidiary
of NRG Generating (U.S.) Inc. (NRGG). The purpose of the loan was to allow NRGG
to fund its capital contribution to a cogeneration project that was under
construction. During 1997, NRG lent $10 million to NRGG and $1.9 million remains
outstanding as of December 31, 1997.
45
<PAGE> 48
Also in 1996, NRG entered into an agreement requiring that it provide NRGG power
generation investment opportunities in the United States over a period of seven
years. During the first three years of the seven-year term, NRG is obligated to
offer projects to NRGG having aggregate, equity value of at least $60 million or
a minimum power generation capacity of 150 net megawatts. In addition, NRG has
committed to finance these projects to the extent funds are not available to
NRGG on comparable terms from other sources. During 1997, NRG provided NRGG with
a 117 megawatt project and offered a 17 net MW project which NRGG did not
purchase.
NRG and Destec Energy Inc. (Destec) signed agreements with Southern California
Edison to acquire a 1020 MW facility in El Segundo, California and a 530 MW
facility in Long Beach, California for $87.75 million and $29.8 million,
respectively. NRG and Destec will each own a 50% interest in these facilities.
NRG has guaranteed the repayment of certain affiliate borrowings under a
construction loan facility. The facility, which terminates in October 1998, will
fund construction of landfill gas collection and electric generation projects.
The loan facility commitment is $74.0 million. Accounts outstanding under the
facility at December 31, 1997, which could be subject to the NRG guarantee if
unpaid by affiliate, were $4.8 million.
NRG has contractually agreed to the monetization of certain tax credits
generated from landfill gas sales through the year 2007.
Future capital commitments related to projects are as follows:
(Millions of dollars)
- ---------------------------------------------------------------------
1998 $ 111
1999 77
2000 32
2001 3
2002 2
- ---------------------------------------------------------------------
Total $ 225
=====================================================================
CLAIMS AND LITIGATION
In the normal course of business, NRG is a party to routine claims and
litigation arising from current and prior operations. NRG is actively defending
these matters and does not feel the outcome of such matters would materially
impact the results of operation.
NOTE 14-SEGMENT REPORTING
NRG conducts its business within one industry segment, independent power
generation. Operations in the United States include wholly-owned operations and
investments in various domestic energy projects. International operations
include investments in various international energy projects. See Note 5 for
significant equity method investments.
46
<PAGE> 49
<TABLE>
<CAPTION>
NORTH ASIA OTHER CORPORATE/
1997 AMERICA EUROPE PACIFIC AMERICAS OTHER TOTAL
---- ------- ------ ------- -------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from wholly-owned
operations $ 92,052 - - - - $ 92,052
Equity in earnings
(losses) of unconsolidated
affiliates (2,093) 15,266 9,745 2,348 934 26,200
---------- ---------- ---------- ---------- ---------- ----------
Total operating revenues 89,959 15,266 9,745 2,348 934 118,252
Net income $ 32,932 $ 15,266 $ 9,745 $ 2,348 $ (38,309)(1) $ 21,982
Assets reported on a
Consolidated basis $ 209,032 - - - $ 28,501 (2) $ 237,533
Equity investments and loans
to affiliates 384,864 116,729 317,660 111,316 - 930,569
---------- ---------- ---------- ---------- ---------- ----------
Total assets $ 593,896 $ 116,729 $ 317,660 $ 111,316 $ 28,501 $1,168,102
</TABLE>
<TABLE>
<CAPTION>
NORTH ASIA OTHER CORPORATE/
1996 AMERICA EUROPE PACIFIC AMERICAS OTHER TOTAL
---- ------- ------ ------- -------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from wholly-owned
operations $ 71,649 - - - - $ 71,649
Equity in earnings
(losses) of unconsolidated
affiliates 1,473 17,385 11,155 967 1,835 32,815
-------- -------- -------- -------- -------- --------
Total operating revenues 73,122 17,385 11,155 967 1,835 104,464
Net income $ 28,182 $ 17,385 $ 11,155 $ 967 $(37,711)(1) $ 19,978
Assets reported on a
consolidated basis $148,666 - - - $ 32,892 (2) $181,558
Equity investments and loans
to affiliates 178,230 132,693 96,049 92,279 - 499,251
-------- -------- -------- -------- -------- --------
Total assets $326,896 $132,693 $ 96,049 $ 92,279 $ 32,892 $680,809
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
NORTH ASIA OTHER CORPORATE/
1995 AMERICA EUROPE PACIFIC AMERICAS OTHER TOTAL
---- ------- ------ ------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from wholly-owned
operations $ 64,180 - - - - $ 64,180
Equity in earnings
(losses) of unconsolidated
affiliates (2,398) 22,143 11,451 29 (7,586) 23,639
--------- --------- --------- --------- --------- ---------
Total operating revenues 61,782 22,143 11,451 29 (7,586) 87,819
Net income $ 50,813 $ 22,143 $ 11,451 $ 29 $ (53,235)(1) $ 31,201
Assets reported on a
consolidated basis $ 124,807 - - - $ 4,034 (2) $ 128,841
Equity investments and loans
to affiliates 127,157 112,148 78,303 8,140 - 325,748
--------- --------- --------- --------- --------- ---------
Total assets $ 251,964 $ 112,148 $ 78,303 $ 8,140 $ 4,034 $ 454,589
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes all expenses not allocated to either consolidated operations or
equity investments. This includes general, administrative and development
expenses as well as other income (net), interest expense and taxes.
(2) Includes cash, debt issuance costs and other items not directly related to
specific asset groups.
ITEM 9- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
- --------------------------------------------------------------------------------
None.
48
<PAGE> 51
PART IV
- -------
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) Consolidated Financial Statements
Included in Part II.
(a)(2) Supplemental Financial Statement Schedules
Exhibit 99.1 contains the financial statements of
Mitteldeutsche Braunkohlengesellschaft mbH
("MIBRAG").
Exhibit 99.2 contains the financial statements of
Saale Energie GmbH ("Saale").
Exhibit 99.3 contains the financial statements of Sunshine
State Power BVI and Sunshine State Power BVII (the
"Sunshines").
All other financial statement schedules have been
omitted because either they are not required or the
information required to be set forth therein is
included in the Consolidated Financial Statements or
in the Notes thereto.
(a)(3) Exhibits
3.1 Certificate of Incorporation. (Incorporated herein by
reference to Exhibit 3.1 to the Registrants' Registration
Statement of Form S-1, as amended, File No. 333-33397.)
3.2 By-Laws. (Incorporated herein by reference to Exhibits 3.2
to the Registrants' Registration Statement on Form S-1, as
amended, File No. 333-33397.)
4.1 Indenture, dated as of June 1, 1997, between NRG and Norwest
Bank Minnesota, National Association. (Incorporated herein
by reference to Exhibit 4.1 to the Registrants' Registration
Statement on Form S-1, as amended, File No. 333-33397).
4.2 Form of Exchange Notes. (Incorporated herein by reference to
Exhibit 4.2 to the Registrants' Registration Statement on
Form S-1, as amended, File No. 333-33397).
10.1 Employment Contract, dated as of June 28, 1995, between NRG
and David H. Peterson. (Incorporated herein by reference to
Exhibit 10.1 to the Registrants' Registration Statement on
Form S-1, as amended, File No. 333-33397).
10.2 Indenture, dated as of January 31, 1996, between NRG and
Norwest Bank Minnesota, National Association, As Trustee.
(Incorporated herein by reference to Exhibit 10.2 to the
Registrants' Registration Statement on Form S-1, as amended,
File No. 333-33397).
10.3 Revolving Credit Agreement, dated as of March 17, 1997,
among NRG, the banks party thereto and ABN AMRO Bank, N.V.
as Agent. (Incorporated herein by reference to Exhibit 10.3
to the Registrants' Registration Statement on Form S-1, as
amended, File No. 333-33397).
10.4 Note Agreement, dated August 20, 1993, among NRG Energy
Center, Inc. and each of the purchasers named therein.
(Incorporated herein by reference to Exhibit 10.4 to the
Registrants' Registration Statement on Form S-1, as amended,
File No. 333-33397).
10.5 Master Shelf and Revolving Credit Agreement, dated August
20, 1993 among NRG Energy Center, Inc., The Prudential
Insurance Company of America and each Prudential
Affiliate which becomes party thereto. (Incorporated herein
by reference to Exhibit 10.5 to the Registrants'
Registration Statement on Form S-1, as amended, File No.
333-33397).
10.6 Energy Agreement, dated February 12, 1988 between NRG
(formerly known as Norenco Corporation) and Rock-Tenn Company
(formerly Waldorf Corporation) (the "Energy Agreement").
(Incorporated herein by reference to Exhibit 10.6 to the
Registrants' Registration Statement on Form S-1, as amended,
File No. 333-33397).
49
<PAGE> 52
10.7 First Amendment to the Energy Agreement, dated August 27,
1993. (Incorporated herein by reference to Exhibit 10.7 to
the Registrants' Registration Statement on Form S-1, as
amended, File No. 333-33397).
10.8 Second Amendment to the Energy Agreement, dated August 27,
1993. (Incorporated herein by reference to Exhibit 10.8 to
the Registrants' Registration Statement on Form S-1, as
amended, File No. 333-33397).
10.9 Third Amendment to the Energy Agreement, dated August 27,
1993. (Incorporated herein by reference to Exhibit 10.9 to
the Registrants' Registration Statement on Form S-1, as
amended, File No. 333-33397).
10.10 Construction, Acquisition, and Term Loan Agreement, dated
September 2, 1997 by and among NEO Landfill Gas, Inc , as
Borrower, the lenders named on the signature pages, Credit
Lyonnais New York Branch, as Construction/Acquisition Agent
and Lyon Credit Corporation as Term Agent. (Incorporated
herein by reference to Exhibit 10.10 to the Registrants'
Registration Statement on Form S-1, as amended, File No.
333-33397).
10.11 Guaranty, dated September 12, 1997 by NRG in favor of Credit
Lyonnais New York Branch as agent for the
Construction/Acquisition Lenders. (Incorporated herein by
reference to Exhibit 10.11 to the Registrants' Registration
Statement on Form S-1, as amended, File No. 333-33397).
10.12 Construction, Acquisition, and Term Loan Agreement, dated
September 2, 1997 by and among Minnesota Methane LLC, as
Borrower, the lenders named on the signature pages, Credit
Lyonnais New York Branch, as Construction/Acquisition Agent
and Lyon Credit Corporation as Term Agent. (Incorporated
herein by reference to Exhibit 10.12 to the Registrants'
Registration Statement on Form S-1, as amended, File No.
333-33397).
10.13 Guaranty, dated September 12, 1997 by NRG in favor of Credit
Lyonnais New York Branch as agent for the
Construction/Acquisition Lenders. (Incorporated herein by
reference to Exhibit 10.14 to the Registrants' Registration
Statement on Form S-1, as amended, File No. 333-33397).
10.14 Non Operating Interest Acquisition Agreement, dated as of
September 12, 1997, by and among NRG and NEO Corporation.
(Incorporated herein by reference to Exhibit 10.14 to the
Registrants' Registration Statement on Form S-1, as amended,
File No. 333-33397).
10.15 First Amendment to Revolving Credit Agreement, dated as of
March 17, 1998. (See 10.3 for detail)
10.16 364-Day Revolving Credit Agreement, dated as of March 17,
1998, among NRG, the Banks Party thereto and ABN
AMRO Bank N.V., as Agent.
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
99.1 Financial Statements of "MIBRAG"
99.2 Financial Statements of "Saale" (upon amendment)
99.3 Financial Statements of "Sunshines" (upon amendment)
(b) Reports on Form 8-K
The Registrant did not file any Current Reports on Form
8-K during the fourth quarter ended December 31, 1997.
50
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 30, 1998.
NRG ENERGY, INC.
By: /s/ Leonard A. Bluhm
----------------------------------
Leonard A. Bluhm
Executive Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and
appoints David H. Peterson and Leonard A. Bluhm, each or any of them,
such person's true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution for such person and in such
person's name, place and stead, in any and all capacities, to sign any
and all amendments to this report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents
and purposes as such person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them or his or their
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the Exchange Act, this report has been
signed by the following persons on behalf of the registrant in the
capacities indicated on March 30, 1998:
SIGNATURE TITLE
/s/ David H. Peterson Chairman of the Board, President and
------------------------------- Chief Executive Officer (Principal
David H. Peterson Executive Officer)
/s/ Leonard A. Bluhm Executive Vice President and Chief
------------------------------- Financial Officer
Leonard A. Bluhm (Principal Financial Officer)
/s/ David E. Ripka Controller (Principal Accounting Officer)
-------------------------------
David E. Ripka
51
<PAGE> 54
/s/ Gary R. Johnson Director
--------------------------------
Gary R. Johnson
/s/ Cynthia L. Lesher Director
--------------------------------
Cynthia L. Lesher
/s/ Edward J. McIntyre Director
--------------------------------
Edward J. McIntyre
/s/ John A. Noer Director
--------------------------------
John A. Noer
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15 (d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
An annual report will be sent to security holders and will be
supplementally filed with the Commission. Such annual report to
security holders shall not be deemed "filed" with the Commission or
otherwise subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934. No proxy material will be sent to security
holders.
52
<PAGE> 1
EXHIBIT 10.15
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
This First Amendment to Revolving Credit Agreement dated as of
March, 17 1998, by and among NRG Energy, Inc. (the "Borrower"), the banks from
time to time party to the Credit Agreement (as hereinafter defined) (each a
"Bank" and collectively the "Banks") and ABN AMRO Bank N.V. in its capacity as
agent for the Banks (in such capacity, the "Agent").
WITNESSETH THAT:
WHEREAS, the Borrower, the Banks and the Agent are party to that
certain Revolving Credit Agreement dated as of March 17, 1997 (together with all
exhibits, schedules, attachments, appendices and amendments thereof, the "Credit
Agreement"); and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended to, among other things, modify the definition of "Consolidated Tangible
Net Worth" and the Banks are agreeable to such request.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Borrower, the Banks and the
Agent hereby agree as follows:
1. The definitions of, "Consolidated Capitalization", "Consolidated Net
Income" and "Consolidated Tangible Net Worth" appearing in Section 1.1. of the
Credit Agreement are hereby deleted in their entirety and the following
definitions are hereby substituted therefor:
"Consolidated Capitalization" means Consolidated Net Worth plus
Indebtedness of the Borrower.
"Consolidated Net Income" means, for any period, the net income
(or net loss) of the Borrower for such period computed on a
consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means, as of the date of determination
thereof, the amount which would be reflected as stockholders'
equity upon a consolidated balance sheet of the Borrower
(determined in accordance with GAAP) prior to making any
adjustment thereto in connection with the account entitled
"currency translation account" on such balance sheet.
2. The definition of "Guaranty" appearing in Section 1.1. of the Credit
Agreement is hereby amended by inserting the following sentence at the end of
such definition:
Notwithstanding anything in this definition to the contrary, a
Person's support of its subsidiary's obligation to (a) make
equity contributions or (b) pay liquidated damages under an
operating and maintenance agreement should such subsidiary fail
to comply with the terms thereof shall not be considered a
"Guaranty" by such Person.
3. The definition of "Indebtedness" appearing in Section 1.1. of the Credit
Agreement is hereby amended by inserting the following at the end of such
definition:
<PAGE> 2
All calculations of the Indebtedness of any Person (and the
components thereof) shall be performed on a consolidated basis-
provided, that Indebtedness shall not include obligations which
are required by GAAP to be shown as liabilities on such Person's
balance sheet, but which are non-recourse to such Person.
4. The definition of "Minimum Consolidated Tangible Net Worth" appearing in
Section 1.1. of the Credit Agreement is hereby deleted in its entirety and the
following definition is hereby substituted therefor:
"Minimum Consolidated Net Worth" means an amount, as of any
determination thereof, equal to the sum of $175,000,000 plus 25%
of Consolidated Net Income for the period from and including
April 1, 1996 to such determination date but which amount shall
in no event be less than $175,000,000.
5. The following definitions are hereby inserted into Section 1.1. of the
Credit Agreement in proper alphabetical order:
"Material Subsidiary" means a Subsidiary of the Borrower whose
total assets represent at least 5% of the total assets of the
Borrower and its Subsidiaries determined based upon the most
recent financial statements delivered pursuant to Section 7.6 (as
determined in accordance with GAAP).
"364-Day Credit Agreement" means that certain 364-Day Revolving
Credit Agreement among NRG. Energy, Inc., ABN AMRO Bank N.V., as
Agent and the banks party thereto, as from time to time amended
or otherwise modified.
6. Section 2.1(a) of the Credit Agreement is hereby amended by deleting the
reference to "Section 11.12 or 11.13(iii)" in such section and replacing it with
a reference to "Section 3.2(b), 11.12 or 11.13(iii)".
7. Section 2.8 of the Credit Agreement is hereby amended by deleting the
last sentence of Section 2.8(b) thereof and inserting the following new
subsection (c) as follows:
(c) Each such prepayment shall be accompanied by a payment of all
accrued and unpaid interest on the Loans prepaid and shall be
subject to Section 2.11.
8. Section 3.2 of the Credit Agreement is hereby deleted and the following
Section 3.2 is hereby substituted therefor:
Section 3.2. Extension of Termination Date. (a) No later than
ninety (90) days before the second anniversary date of this
Agreement the Borrower may make a request for a one year
extension of the Termination Date in a written notice to the
Agent. The Agent will promptly inform the Banks of any such
request. Each Bank may, in its sole and absolute discretion,
determine whether to consent to such request and may by a
revocable written notice (a "Consent Notice") to the Agent and
the Borrower given
-2-
<PAGE> 3
no later than sixty (60) days prior to the second anniversary
date of this Agreement (the period from ninety (90) days prior to
such anniversary to and including sixty (60) days prior to such
anniversary being the "Consent Period") notify the Agent and the
Borrower of its determination to consent to such request. Failure
by any Bank to respond within the Consent Period shall be deemed
to be a denial of the Borrower's request by such Bank. Promptly
after the Consent Period the Agent shall notify the Banks and the
Borrower of which Banks have delivered a Consent Notice. Any Bank
may revoke its Consent Notice at any time after the date sixty
(60) days prior to the second anniversary date of this Agreement
to and including the date forty-five (45) days prior to such
anniversary (the "Revocation Period") by giving written notice to
the Agent and the Borrower of such revocation (a "Revocation
Notice"). If the Agent does not receive a Revocation Notice
within the Revocation Period from a Bank who has previously
delivered a Consent Notice, such Bank's Consent Notice shall
become irrevocable. If the Required Banks or the Agent in its
capacity as a Bank have not delivered Consent Notices which shall
have become irrevocable in accordance with the foregoing, the
Termination Date shall not be extended and the Agent shall
promptly notify the Banks and the Borrower of such circumstance.
If the Required Banks and the Agent in its capacity as a Bank
shall have delivered Consent Notices which shall have become
irrevocable in accordance with the foregoing, the Agent shall
promptly notify the Borrower of such circumstance and the
Borrower shall, no later than thirty (30) days prior to such
second anniversary date, notify the Agent if it still desires the
extension of the Termination Date. If the Borrower notifies the
Agent in writing no later than thirty (30) days prior to such
second anniversary date that it no longer desires the extension
of the Termination Date, then the Termination Date shall not be
extended and the Agent shall promptly notify the Banks and the
Borrower of such circumstance. If the Agent does not receive a
written notice from the Borrower no later than thirty (30) days
prior to the second anniversary date of this Agreement stating
that it no longer desires the extension of the Termination Date
or the Borrower delivers written notice by such date to the Agent
that it still desires the extension of the Termination Date,
then, subject to any conditions precedent that the Agent may
require in connection with such extension (e.g., the remaking of
representations and warranties, no Default or Event of Default
having occurred and the delivery of a legal opinion and other
appropriate documentation) and as to such consenting Banks only,
the Termination Date shall be so extended, such extension to be
effective as of the second anniversary date of this Agreement and
the Agent shall promptly notify the Banks and the Borrower of
such circumstance.
(b) In the event any Bank shall fail to agree to any extension
requested by the Borrower pursuant to Section 3.2(a) (each such
Bank a "Dissenting Bank"), the Borrower shall have the right to
arrange with one or more Banks acceptable to the Agent that have
consented to the extension of the Termination Date or other
lenders acceptable to the Agent to assume all or a part of such
Dissenting Bank's obligations under this Agreement. If the
Borrower shall arrange for such a Bank or
-3-
<PAGE> 4
lender to assume all or part of the obligations of any Dissenting
Bank, then such Dissenting Bank and such Bank or lender shall
execute and deliver to the Agent, for its acceptance and
recording, an assignment agreement along with the accompanying
documentation prescribed in Section 11.12 hereof. If the Borrower
can not arrange for such a Bank or lender to assume the
obligations of such Dissenting Bank, then (i) the Commitment of
such Dissenting Bank shall terminate on the Termination Date in
effect immediately before such extension, (ii) the Borrower shall
repay in full on such Termination Date all Obligations payable to
such Dissenting Bank under this Agreement (including all accrued
interest and fees) and (iii) such Dissenting Bank will not be
obligated to make any Loan or purchase a Participating Interest
in any Letter of Credit with a maturity date or expiration date
later than such Termination Date.
9. Section 5.2 of the Credit Agreement is hereby amended by deleting the
first sentence thereof in its entirety and substituting the following sentence
therefor:
Schedule 5.2 (as updated quarterly pursuant to Section 7.6(b)
hereof or otherwise from time to time in writing by the Borrower)
hereto identifies each Subsidiary and the jurisdiction of its
incorporation.
10. Section 5.4 of the Credit Agreement is hereby amended by deleting the
words "and its Subsidiaries" appearing in the second sentence thereof.
11. Section 5.5(a) and (b) of the Credit Agreement are hereby amended by
deleting the first parenthetical appearing in each such subsection in its
entirety and substituting the following parenthetical therefor:
(as updated quarterly pursuant to Section 7.6(b) hereof or
otherwise from time to time in writing by the Borrower)
12. Section 6.2(b) of the Credit Agreement is hereby amended by inserting
the following proviso at the end of such subsection:
, provided that solely for purposes of this Section 6.2(b) the
representations relating to the Borrower's Subsidiaries set forth
in Section 5.2 hereof shall be deemed representations relating
only to the Borrower's Material Subsidiaries.
13. Section 7.6(a) of the Credit Agreement is hereby amended by(i)
inserting the word "treasurer," after the words "chief financial officer,"
appearing in subsection (i)(B) and subsection (ii) thereof and (ii) inserting
the following language immediately prior to the semi-colon at the end of
subsection (ii)thereof (:
(subject to year end adjustments)
14. Section 7.6(b) of the Credit Agreement is hereby deleted in its
entirety and the following Section 7.6(b) is hereby substituted therefor:
(b) Each financial statement furnished to the Banks pursuant
to subsection (i) or (ii) of Section 7.6(a) shall be accompanied
by (A) a
-4-
<PAGE> 5
written certificate signed by the Borrower?s chief financial
officer, vice president of finance, corporate controller or
treasurer (i) to the effect that no Default or Event of Default
has occurred during the period covered by such statements or, if
any such Default or Event of Default has occurred during such
period, setting forth a description of such Default or Event of
Default and specifying the action, if any, taken by the Borrower
to remedy the same, (ii) to the effect that the representations
and warranties contained in Section 5 hereof are true and correct
in all material respects as though made on the date of such
certificate (other than those made solely as of an earlier date,
which need only remain true as of such date), taking into account
any amendments to such Section (including, without limitation,
any amendments to the Schedules referenced therein) made after
the date of this Agreement in accordance with its provisions and
except as otherwise described therein, (iii) notifying the Banks
(x) of any litigation or governmental proceeding of the type
described in Section 5.5 hereof or (y) of any change in the
information set forth on the Schedules hereto and (B) a
Compliance Certificate in the form of Exhibit C hereto showing
the Borrower's compliance with the covenants set forth in
Sections 7.9, 7.11, 7.12 and 7.13 hereof.
15. Section 7.6(c) of the Credit Agreement is hereby deleted in its
entirety and the following Section 7.6(c) is hereby substituted therefor:
(c) The Borrower will (i) promptly (and in any event within three
Business Days after an officer of the Borrower has knowledge
thereof) give notice to the Agent and each Bank (x) of the
occurrence of any Default or Event of Default or (y) of any
payment default or payment event of default aggregating
$20,000,000 or more under any Contractual Obligation of the
Borrower and (ii) promptly (and in any event within ten Business
Days after an officer of the Borrower has knowledge thereof) give
notice to the Agent and each Bank of any material adverse change
in the business, operations, Property or financial or other
condition of the Borrower and its Subsidiaries (individually or
in the aggregate).
16. Section 7.12 of the Credit Agreement is hereby deleted in its entirety
and the following Section 7.12 is hereby substituted therefor:
Section 7.12. Consolidated Net Worth. (a) The Borrower will at
all times maintain a ratio of Consolidated Net Worth to
Consolidated Capitalization of at least 0.32 to 1.00, and (b) the
Borrower will at all times cause its Consolidated Net Worth to be
equal to or greater than the Minimum Consolidated Net Worth.
17. Section 9.3(d) of the Credit Agreement is hereby amended by inserting
the following language to the end of the last sentence thereof:
and on the date of replacement, the Borrower shall pay all
accrued interest and fees to the Bank that is being replaced.
18. Section 11.13 of the Credit Agreement is hereby amended by: (i)
inserting the following language after the words "reduce the" appearing in
subsection (i)(B) thereof: "stated rate at which interest
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<PAGE> 6
or fees accrue or reduce the" and (ii) inserting the following language to the
end of the penultimate sentence of subsection (iii) thereof: "and all fees due
and owing on the date of replacement".
19. Section 11.12 of the Credit Agreement is hereby amended by deleting the
phrase "Section 11.13(iii) below" and replacing it with the phrase "Section
3.2(b) or 11.13(iii)".
20. Section 11.12. of the Credit Agreement is hereby further amended by
inserting the following sentence at the end of such section:
A Bank may not assign its Revolving Credit Commitment hereunder
unless it shall simultaneously assign the same percentage of its
commitment, if any, under the 364-Day Credit Agreement. If the
Borrower replaces a Dissenting Bank or Replaceable Bank with
another entity, it shall also cause the assignment of such
Dissenting Bank or Replaceable Bank's commitment, if any, under
the 364-Day Credit Agreement in accordance with the terms
thereof, and such Dissenting Bank or Replaceable Bank agrees to
cooperate in the making of such assignment.
21. Section 8.1 of the Credit Agreement is hereby amended by (i) deleting
the word "or" appearing at the end of clause (j) of such section, (ii) deleting
the period at the end of clause (k) of such section and replacing it with "; or"
and (iii) inserting the following clause (l) at the end of such section:
(l) an "event of default" occurs under the 364-Day Credit
Agreement.
22. Section 11.15 of the Credit Agreement is hereby amended by inserting
the word "Affiliates," after the words "their respective" appearing in the
second sentence thereof.
23. Schedule 1 of the Credit Agreement is hereby amended by inserting the
following language after the Pricing Grid appearing in such Schedule:
Any change in Rating (and in any fees or interest payable
hereunder based on Ratings) shall be effective as of the date on
which S&P or Moody's, as the case may be, announces the
applicable change in such Rating. In the event of a split rating,
the lower rating shall control.
24. Schedule C-1 to Exhibit C to the Credit Agreement is hereby deleted in
its entirety and Schedule C-1 attached hereto is hereby substituted therefor.
Except as expressly amended hereby, the Credit Agreement and
all other documents executed in connection therewith shall remain in full force
and effect in accordance with their respective terms. The Credit Agreement, as
amended hereby, and all rights and powers created thereby and thereunder or
under such other documents are in all respects ratified and confirmed. From and
after the date hereof, the Credit Agreement shall be deemed to be amended and
modified as herein provided, but, except as so amended and modified, the Credit
Agreement shall continue in full force and effect in accordance with its terms
and the Credit Agreement and this Amendment shall be read, taken and construed
as one and the same instrument. On and after the date hereof the term
"Agreement" as used in the Credit Agreement and all other references to the
Credit Agreement in the Credit Agreement, the other documents executed in
connection therewith and/or herewith or any other instrument, document or
writing executed by the Borrower or any other person or furnished to the Agent
and/or the Banks by the
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<PAGE> 7
Borrower, or any other person in connection herewith or therewith, shall be
deemed to be a reference to the Credit Agreement as hereby amended.
On and as of the date hereof, the Borrower represents and warrants to the
Banks that:
(a) The representations and warranties contained in this Amendment and
the Credit Agreement are true and correct in all material respects, in each
case as though made on and as of the date hereof, except to the extent such
representations and warranties relate solely to an earlier date (and then
as of such earlier date); and
(b) Both before and after giving effect to this Amendment, no Default
of Event of Default has occurred and is continuing or would result from the
execution and delivery of this Amendment; and
(c) The Borrower is, and will be, in full compliance with all of the
material terms, conditions and all other provisions of this Amendment and
the Credit Documents; and
(d) This Amendment has been duly authorized, executed and delivered on
its behalf, and both the Credit Agreement, both before being amended and
supplemented hereby and as amended and supplemented hereby, and this
Amendment constitutes its legal, valid and binding obligation enforceable
against it in accordance with its terms, except to the extent that a remedy
or default may be determined by a court of competent jurisdiction to
constitute a penalty and except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights or by general principles of
equity.
This Amendment shall be construed in accordance with and governed by the
internal laws of the State of New York.
This Amendment may be signed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Except as otherwise specified herein, this Amendment embodies the entire
agreement and understanding between the Borrower and the Banks with respect to
the subject matter hereof and supersedes all prior agreements, consents and
understandings relating to such subject matter.
This Amendment shall be binding upon and inure to the benefit of the Banks
and their successors and assigns and the Borrower and its permitted successors
and assigns.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their duly authorized officers as
of the day and year first above written.
BORROWER: NRG ENERGY, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
AGENT/BANK: ABN AMRO BANK N.V., in its individual capacity
as a Bank and as Agent
By:___________________________________
Name:_________________________________
Title:________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
OTHER BANKS: CIBC INC.
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE> 9
COMMERZBANK AG
By:___________________________________
Name:_________________________________
Title:________________________________
CREDIT LOCAL DE FRANCE,
NEW YORK AGENCY
By:___________________________________
Name:_________________________________
Title:________________________________
NATIONSBANK, N.A.
By:___________________________________
Name:_________________________________
Title:________________________________
SOCIETE GENERALE, CHICAGO BRANCH
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE> 10
THE CHASE MANHATTAN BANK
By:___________________________________
Name:_________________________________
Title:________________________________
UNION BANK OF SWITZERLAND
NEW YORK BRANCH
By:___________________________________
Name:_________________________________
Title:________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
WESTDEUTSCHE LANDERSBANK
GIROZENTRALE, NEW YORK
BRANCH
By:___________________________________
Name:_________________________________
Title:________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE> 11
Compliance Certificate
Schedule C-1
Compliance Calculations for Credit Agreement
Calculation as of ____________, 19_______
A. Liens (Section 7.9)
1. Total Liens $___________
2. Existing Liens $__________
3. Balance of Liens $______________ (Line A1 minus Line A2)
(Line A3 not to exceed 10% of Consolidated Net Tangible Assets)
B. Sale of Assets (Section 7.11)
1. Net book value of assets sold
during this fiscal year $_______________
(Line B1 not to exceed 10% of Consolidated Net Tangible
Assets)
C. Consolidated Net Worth (Section 7.12)
1. Consolidated stockholders' equity $____________
2. Less currency translation account $____________
3. Consolidated Net Worth
(Line C1 minus Line C2) $____________
D. Consolidated Capitalization
1. Consolidated Net Worth (Line C3) $____________
2. Indebtedness of the Borrower $____________
3. Consolidated Capitalization
(Sum of line D1 and D2) $____________
E. Ratio of Consolidated Net Worth to Consolidated Capitalization
___ to ___
(ratio must be at least 0.32 to 1.00)
<PAGE> 1
EXHIBIT 10.16
================================================================================
364-DAY REVOLVING CREDIT AGREEMENT
DATED AS OF
MARCH 17, 1998
AMONG
NRG ENERGY, INC.
THE BANKS PARTY HERETO,
AND
ABN AMRO BANK N.V.
AS AGENT
================================================================================
<PAGE> 2
364-DAY REVOLVING CREDIT AGREEMENT
364-DAY REVOLVING CREDIT AGREEMENT, dated as of March 17, 1998 among NRG
Energy, Inc., a Delaware corporation (the "Borrower"), the banks from time to
time party hereto (each a "Bank," and collectively the "Banks") and ABN AMRO
Bank N.V. in its capacity as agent for the Banks hereunder (in such capacity,
the "Agent").
WITNESSETH THAT:
WHEREAS, the Borrower desires to obtain the several commitments of the
Banks to make available a revolving credit for loans (the "Revolving Credit"),
as described herein; and
WHEREAS, the Banks are willing to extend such commitments subject to all of
the terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth;
NOW, THEREFORE, in consideration of the recitals set forth above and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
Section 1.1 Definitions. The following terms when used herein have the
following meanings:
"Adjusted LIBOR" is defined in Section 2.3(b) hereof.
"Affiliate" means, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled
by, such Person. As used in this definition, "control" (including, with
their correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of power to direct or
cause the direction of management or policies of a Person (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise), provided that, in any event for purposes of this
definition: (i) any Person which owns directly or indirectly 5% or more of
the securities having ordinary voting power for the election of directors
or other governing body of a corporation or 5% or more of the partnership
or other ownership interests of any other Person (other than as a limited
partner of such other Person) will be deemed to control such corporation or
other Person; and (ii) each director and executive officer of the Borrower
or any Subsidiary shall be deemed an Affiliate of the Borrower and each
Subsidiary.
"Agent" is defined in the first paragraph of this Agreement and
includes any successor Agent pursuant to Section 10.7 hereof.
"Agreement" means this 364-Day Revolving Credit Agreement, including
all Exhibits and Schedules hereto, as it may be amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"Applicable Margin" means, at any time (i) with respect to Base Rate
Loans, the Base Rate Margin and (ii) with respect to Eurocurrency Loans,
the Eurocurrency Margin.
<PAGE> 3
"Applicable Telerate Page" is defined in Section 2.3(b) hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Borrower pursuant to Section 6.1(e) hereof, or on
any updated such list provided by the Borrower to the Agent, or any further
or different officer of the Borrower so named by any Authorized
Representative of the Borrower in a written notice to the Agent.
"Bank" is defined in the first paragraph of this Agreement.
"Base Rate" is defined in Section 2.3(a) hereof.
"Base Rate Loan" means a Loan bearing interest prior to maturity at a
rate specified in Section 2.3(a) hereof.
"Base Rate Margin" means the percentage set forth in Schedule 1 hereto
beside the then applicable Rating.
"Borrower" is defined in the first paragraph of this Agreement.
"Borrowing" means the total of Loans of a single type advanced,
continued for an additional Interest Period, or converted from a different
type into such type by the Banks on a single date and for a single Interest
Period. Borrowings of Loans are made and maintained ratably from each of
the Banks according to their Percentages. A Borrowing is "advanced" on the
day Banks advance funds comprising such Borrowing to the Borrower, is
"continued" on the date a new Interest Period for the same type of Loan
commences for such Borrowing, and is "converted" when such Borrowing is
changed from one type of Loan to the other, all as requested by the
Borrower pursuant to Section 2.5(a).
"Business Day" means any day other than a Saturday or Sunday on which
Banks are not authorized or required to close in Chicago, Illinois and, if
the applicable Business Day relates to the borrowing or payment of a
Eurocurrency Loan, on which dealings in U.S. Dollars may be carried on by
the Agent in the interbank eurodollar market.
"Capital Lease" means at any date any lease of Property which, in
accordance with GAAP, would be required to be capitalized on the balance
sheet of the lessee.
"Capitalized Lease Obligations" means, for any Person, the amount of
such Person's liabilities under Capital Leases determined at any date in
accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitments" means the Revolving Credit Commitments.
"Compliance Certificate" means a certificate in the form of Exhibit B
hereto.
"Consolidated Capitalization" means Consolidated Net Worth plus
Indebtedness of the Borrower.
"Consolidated Current Liabilities" mean such liabilities of the
Borrower on a consolidated basis as shall be determined in accordance with
GAAP to constitute current liabilities.
2
<PAGE> 4
"Consolidated Net Income" means, for any period, the net income (or
net loss) of the Borrower for such period computed on a consolidated basis
in accordance with GAAP.
"Consolidated Net Tangible Assets" means, as of the date of
determination thereof, Consolidated Total Assets as of such date less the
sum of (i) Consolidated Current Liabilities and (ii) Intangible Assets.
"Consolidated Net Worth" means, as of the date of determination
thereof, the amount which would be reflected as stockholders' equity upon a
consolidated balance sheet of the Borrower (determined in accordance with
GAAP) prior to making any adjustment thereto in connection with the account
entitled "currency translation account" on such balance sheet.
"Consolidated Total Assets" means, as of the date of determination
thereof, the total amount of all assets of the Borrower determined on a
consolidated basis in accordance with GAAP.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Controlled Group" means all members of a controlled group of
corporations and all trades and businesses (whether or not incorporated)
under common control that, together with the Borrower or any of its
Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Credit Documents" means this Agreement, the Notes and the Fee Letter.
"Credit Event" means the advancing of any Loan or the continuation of
or conversion into a Eurocurrency Loan.
"Debt" means, for any Person, any Indebtedness of such Person only of
the types described in clauses (i) through (vi) of the definition of such
term.
"Default" means any event or condition the occurrence of which would,
with the passage of time or the giving of notice, or both, constitute an
Event of Default.
"Effective Date" means the date on which the Agent has received signed
counterpart signature pages of this Agreement from each of the signatories
(or, in the case of a Bank, confirmation that such Bank has executed such a
counterpart and dispatched it for delivery to the Agent) and the documents
required by Section 6.1 hereof.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1802 et seq., the
Toxic Substances Control Act, 15 .S.C. Section 2601 et seq., the Federal
Water Pollution Control Act, 33 U.S.C. Section 1252 et seq., the Clean
Water Act, 33 U.S.C. Section 1321 et seq., the Clean Air Act, 42 U.S.C.
Section 7401 et seq., and any other federal, state, county, municipal,
local or other statute, law, ordinance or regulation which may relate to or
deal with human health or the environment, all as may be from time to time
amended.
"ERISA" is defined in Section 5.8 hereof.
3
<PAGE> 5
"Eurocurrency Loan" means a Loan bearing interest prior to maturity at
the rate specified in Section 2.3(b) hereof.
"Eurocurrency Margin" means the percentage set forth in Schedule 1
hereto beside the then applicable Rating.
"Eurocurrency Reserve Percentage" is defined in Section 2.3(b) hereof.
"Event of Default" means any of the events or circumstances specified
in Section 8.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Facility Fee Rate" means the percentage set forth in Schedule 1
hereto beside the then applicable Rating.
"Federal Funds Rate" means the fluctuating interest rate per annum
described in part (x) of clause (ii) of the definition of Base Rate set
forth in Section 2.3(a) hereof.
"Fee Letter" means that certain letter between the Agent and the
Borrower dated as of the date hereof pertaining to fees to be paid by the
Borrower to the Agent for the Agent's sole account and benefit.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time, applied by the Borrower and its
Subsidiaries on a basis consistent with the preparation of the Borrower's
financial statements furnished to the Banks.
"Guaranty" by any Person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation (including,
without limitation, limited or full recourse obligations in connection with
sales of receivables or any other Property) of any other Person (the
"primary obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through an
agreement, contingent or otherwise, by such Person: (i) to purchase such
Indebtedness or obligation or any Property or assets constituting security
therefor, (ii) to advance or supply funds (x) for the purchase or payment
of such Indebtedness or obligation, or (y) to maintain working capital or
other balance sheet condition, or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation, or
(iii) to lease property or to purchase Securities or other property or
services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make
payment of the Indebtedness or obligation, or (iv) otherwise to assure the
owner of the Indebtedness or obligation of the primary obligor against loss
in respect thereof. For the purpose of all computations made under this
Agreement, the amount of a Guaranty in respect of any obligation shall be
deemed to be equal to the maximum aggregate amount of such obligation or,
if the Guaranty is limited to less than the full amount of such obligation,
the maximum aggregate potential liability under the terms of the Guaranty.
Notwithstanding anything in this definition to the contrary, a Person's
support of its subsidiary's obligation to (a) make equity contributions or
(b) pay liquidated damages under an operating and maintenance agreement
should such subsidiary fail to comply with the terms thereof shall not be
considered a "Guaranty" by such Person.
4
<PAGE> 6
"Hazardous Material" means any substance or material which is
hazardous or toxic, and includes, without limitation, (a) asbestos,
polychlorinated biphenyls, dioxins and petroleum or its by-products or
derivatives (including crude oil or any fraction thereof) and (b) any other
material or substance classified or regulated as "hazardous" or "toxic"
pursuant to any Environmental Law.
"Indebtedness" means and includes, for any Person, all obligations of
such Person, without duplication, which are required by GAAP to be shown as
liabilities on its balance sheet, and in any event shall include all of the
following whether or not so shown as liabilities (i) obligations of such
Person for borrowed money, (ii) obligations of such Person representing the
deferred purchase price of property or services, (iii) obligations of such
Person evidenced by notes, acceptances, or other instruments of such Person
or arising out of letters of credit issued for such Person's account, (iv)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from Property now or hereafter owned or acquired by
such Person, (v) Capitalized Lease Obligations of such Person and (vi)
obligations for which such Person is obligated pursuant to a Guaranty. All
calculations of the Indebtedness of any Person (and the components thereof)
shall be performed on a consolidated basis, provided, that Indebtedness
shall not include obligations which are required by GAAP to be shown as
liabilities on such Person's balance sheet, but which are non-recourse to
such Person.
"Interest Period" is defined in Section 2.6 hereof.
"Intangible Assets" means, as of the date of determination thereof,
all assets of the Borrower properly classified as intangible assets
determined on a consolidated basis in accordance with GAAP.
"Lending Office" is defined in Section 9.4 hereof.
"LIBOR" is defined in Section 2.3(b) hereof.
"LIBOR Index Rate" is defined in Section 2.3(b) hereof.
"Lien" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, including, but
not limited to, the security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale, security agreement or trust receipt,
or a lease, consignment or bailment for security purposes. The term "Lien"
shall also include reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purposes of this
definition, a Person shall be deemed to be the owner of any Property which
it has acquired or holds subject to a conditional sale agreement, Capital
Lease or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security purposes, and such
retention of title shall constitute a "Lien."
"Loan" is defined in Section 2.1(a) hereof and, as so defined,
includes a Base Rate Loan or Eurocurrency Loan, each of which is a "type"
of Loan hereunder.
"Long-Term Credit Agreement" means that certain Revolving Credit
Agreement dated as of March 17, 1997 among NRG Energy, Inc., ABN AMRO Bank
N.V., as agent and the banks from time to time party thereto, as amended or
otherwise modified from time to time.
5
<PAGE> 7
"Material Adverse Effect" means any material adverse change in, or any
adverse development which materially affects or could reasonably be
expected to affect, the business, financial position or results of
operations of the Borrower and its Subsidiaries, taken as a whole, or the
ability of the Borrower to perform its obligations under the Credit
Documents.
"Material Subsidiary" means a Subsidiary of the Borrower (i) whose
total assets represent at least 5% of the total assets of the Borrower and
its Subsidiaries determined based upon the most recent financial statements
delivered pursuant to Section 7.6 (as determined in accordance with GAAP.
"Minimum Consolidated Net Worth" means an amount, as of any
determination thereof, equal to the sum of $175,000,000 plus 25% of
Consolidated Net Income for the period from and including April 1, 1996 to
such determination date but which amount shall in no event be less than
$175,000,000.
"Note" is defined in Section 2.10(a) hereof.
"Obligations" means all fees payable hereunder, all obligations of the
Borrower to pay principal or interest on Loans and all other payment
obligations of the Borrower arising under or in relation to any Credit
Document.
"Original Dollar Amount" means the amount of any Loan.
"Percentage" means, for each Bank, the percentage of the Revolving
Credit Commitments represented by such Bank's Revolving Credit Commitment
or, if the Revolving Credit Commitments have been terminated, the
percentage held by such Bank of the aggregate principal amount of all
outstanding Obligations.
"Person" means an individual, partnership, corporation, association,
trust, unincorporated organization or any other entity or organization,
including a government or any agency or political subdivision thereof.
"Plan" means at any time an employee pension benefit plan covered by
Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Code that is either (i) maintained by a member of the Controlled
Group or (ii) maintained pursuant to a collective bargaining agreement or
any other arrangement under which more than one employer makes
contributions and to which a member of the Controlled Group is then making
or accruing an obligation to make contributions or has within the preceding
five plan years made contributions.
"PBGC" is defined in Section 5.9 hereof.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, whether now
owned or hereafter acquired.
"Rating" means the rating given to senior unsecured debt obligations
of the Borrower by Moody's Investors Service, Inc. and Standard & Poor's
Ratings Service, Inc., and any successors thereto.
"Reference Banks" means ABN AMRO Bank N.V., and one other
representative of the Banks. In the event that any of such Banks ceases to
be a "Bank" hereunder or fails to
6
<PAGE> 8
provide timely quotations of interests rates to the Agent as and when
required by this Agreement, then such Bank shall be replaced by a new
reference bank jointly designated by the Agent and the Borrower.
"Replaceable Bank" is defined in Section 11.13(iii).
"Replacement Bank" is defined in Section 11.13(iii).
"Required Banks" means, as of the date of determination thereof, Banks
holding at least 66-2/3% of the Percentages.
"Revolving Credit Commitment" is defined in Section 2.1 hereof.
"SEC" means the Securities and Exchange Commission.
"Security" has the same meaning as in Section 2(l) of the Securities
Act of 1933, as amended.
"Subsidiary" means, as to the Borrower, any active, domestic
corporation or other entity of which one hundred percent (100%) of the
outstanding stock or comparable equity interests having ordinary voting
power for the election of the Board of Directors of such corporation or
similar governing body in the case of a non corporation (irrespective of
whether or not, at the time, stock or other equity interest of any other
class or classes of such corporation or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the
time directly owned by the Borrower.
"Telerate Service" means the Dow Jones Telerate Service.
"Termination Date" means the date occurring 364 days from the date of
this Agreement, subject to any extension of such date pursuant to Section
3.2 hereof.
"Unfunded Vested Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all vested
nonforfeitable accrued benefits under such Plan exceeds (ii) the fair
market value of all Plan assets allocable to such benefits, all determined
as of the then most recent valuation date for such Plan, but only to the
extent that such excess represents a potential liability of a member of the
Controlled Group to the PBGC or the Plan under Title IV of ERISA.
"U.S. Dollars" and "$" each means the lawful currency of the United
States of America.
"Voting Stock" of any Person means capital stock of any class or
classes or other equity interests (however designated) having ordinary
voting power for the election of directors or similar governing body of
such Person.
"Welfare Plan" means a "welfare plan", as defined in Section 3(1) of
ERISA.
"Wholly-Owned" when used in connection with any Subsidiary of the
Borrower means a Subsidiary of which all of the issued and outstanding
shares of stock or other equity interests (other than directors? qualifying
shares as required by law) shall be owned by the Borrower and/or one or
more of its Wholly-Owned Subsidiaries.
7
<PAGE> 9
Section 1.2 Interpretation. The foregoing definitions shall be equally
applicable to both the singular and plural forms of the terms defined. All
references to times of day in this Agreement shall be references to
Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense
is required to be determined or any consolidation or other accounting
computation is required to be made for the purposes of this Agreement, the
same shall be done in accordance with GAAP, to the extent applicable,
except where such principles are inconsistent with the specific provisions
of this Agreement.
SECTION 2. THE REVOLVING CREDIT.
Section 2.1 The Loan Commitment. General Terms. Subject to the terms
and conditions hereof, each Bank, by its acceptance hereof, severally
agrees to make a loan or loans (individually a "Loan" and collectively
"Loans") to the Borrower from time to time on a revolving basis in U.S.
Dollars in an aggregate outstanding Original Dollar Amount up to the amount
of its revolving credit commitment set forth on the applicable signature
page hereof (such amount, as reduced pursuant to Section 2.1(b) or Section
2.12 or changed as a result of one or more assignments under Section 3.2,
11.12 or 11.13(iii), its "Revolving Credit Commitment" and, cumulatively
for all the Banks, the "Revolving Credit Commitments") before the
Termination Date. The sum of the aggregate Original Dollar Amount of Loans
at any time outstanding shall not exceed the Revolving Credit Commitments
in effect at such time. Each Borrowing of Loans shall be made ratably from
the Banks in proportion to their respective Percentages. As provided in
Section 2.5(a) hereof, the Borrower may elect that each Borrowing of Loans
be either Base Rate Loans or Eurocurrency Loans. Loans may be repaid and
the principal amount thereof reborrowed before the Termination Date,
subject to all the terms and conditions hereof.
Section 2.2 [Intentionally Omitted].
Section 2.3 Applicable Interest Rates.
(a) Base Rate Loans. Each Base Rate Loan made or maintained by a
Bank shall bear interest during each Interest Period it is outstanding
computed on the basis of a year of 365 or 366 days, as applicable, and
actual days elapsed on the unpaid principal amount thereof from the
date such Loan is advanced, continued or created by conversion from a
Eurocurrency Loan until maturity (whether by acceleration or
otherwise) at a rate per annum equal to the sum of the Applicable
Margin plus the Base Rate from time to time in effect, payable on the
last day of its Interest Period and at maturity (whether by
acceleration or otherwise).
"Base Rate" means for any day the greater of:
(i) the rate of interest announced by the Agent at its
offices in Chicago, Illinois, from time to time as its prime
rate, or equivalent, for U.S. Dollar loans as in effect on such
day, with any change in the Base Rate resulting from a change in
said prime rate to be effective as of the date of the relevant
change in said prime rate; and
(ii) the sum of (x) the rate determined by the Agent to be
the prevailing rate per annum (rounded upwards, if necessary, to
the nearest one hundred-thousandth of a percentage point) at
approximately 10:00 a.m. (New York time) (or as soon thereafter
as is practicable) on such day (or, if such day is
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not a Business Day, on the immediately preceding Business
Day) for the purchase at face value of overnight Federal funds,
as published by the Federal Reserve bank of New York, in an
amount comparable to the principal amount owed to the Agent for
which such rate is being determined, plus (y) 1/2 of 1% (0.50%).
(b) Eurocurrency Loans. Each Eurocurrency Loan made or
maintained by a Bank shall bear interest during each Interest
Period it is outstanding (computed on the basis of a year of 360
days and actual days elapsed) on the unpaid principal amount
thereof from the date such Loan is advanced, continued, or
created by conversion from a Base Rate Loan until maturity
(whether by acceleration or otherwise) at a rate per annum equal
to the sum of the Applicable Margin plus the Adjusted LIBOR
applicable for such Interest Period, payable on the last day of
the Interest Period and at maturity (whether by acceleration or
otherwise), and, if the applicable Interest Period is longer than
three months, on each day occurring every three months after the
commencement of such Interest Period. All payments of principal
and interest on a Loan (whether a Base Rate Loan or Eurocurrency
Loan) shall be made in U.S. Dollars.
"Adjusted LIBOR" means, for any Borrowing of Eurocurrency
Loans, a rate per annum determined in accordance with the
following formula:
Adjusted LIBOR = LIBOR
---------------------------------
1 - Eurocurrency Reserve Percentage
"LIBOR" means, for an Interest Period, (a) the LIBOR Index Rate for
such Interest Period as from time to time quoted by the Telerate Service,
if such rate is available, and (b) if the LIBOR Index Rate is not quoted by
the Telerate Service, the arithmetic average of the rates of interest per
annum (rounded upwards, if necessary, to the nearest one-sixteenth of one
percent) at which deposits in U.S. Dollars in immediately available funds
are offered to each Reference Bank at 11:00 a.m. (London, England time) two
(2) Business Days before the beginning of such Interest Period by major
banks in the interbank eurocurrency market for delivery on the first day of
and for a period equal to such Interest Period in an amount equal or
comparable to the principal amount of the Eurocurrency Loan scheduled to be
made by the Agent as part of such Borrowing.
"LIBOR Index Rate" means, for any Interest Period, the rate per annum
(rounded upwards, if necessary, to the next higher one-sixteenth of one
percent) for deposits in U.S. Dollars for delivery on the first day of and
for a period equal to such Interest Period in an amount equal or comparable
to the principal amount of the Loan scheduled to be made by the Agent as
part of such Borrowing, which appears on the Applicable Telerate Page, as
of 11:00 a.m. (London, England time) on the day two (2) Business Days
before the commencement of such Interest Period.
"Applicable Telerate Page" means the display page designated as "Page
3750" on the Telerate Service (or such other page as may replace such
pages, as appropriate, on that service or such other service as may be
nominated by the British Bankers' Association as the information vendor for
the purpose of displaying British Bankers' Association Interest Settlement
Rates for deposits in U.S. Dollars).
"Eurocurrency Reserve Percentage" means the daily average for the
applicable Interest Period of the maximum rate, expressed as a decimal, at
which reserves (including,
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without limitation, any supplemental, marginal and emergency reserves)
are imposed during such Interest Period by the Board of Governors of the
Federal Reserve System (or any successor) on "eurocurrency liabilities", as
defined in such Board's Regulation D (or in respect of any other category
of liabilities that includes deposits by reference to which the interest
rate is determined or any category of extensions of credit or other assets
that include loans by non-United States offices of any Bank to United
States residents), subject to any amendments of such reserve requirement by
such Board or its successor, taking into account any transitional
adjustments thereto. For purposes of this definition, the Eurocurrency
Loans shall be deemed to be "eurocurrency liabilities" as defined in
Regulation D without benefit or credit for any prorations, exemptions or
offsets under Regulation D.
(c) Rate Determinations. The Agent shall determine each interest
rate applicable to Obligations and the Original Dollar Amount of
Loans, and a determination thereof by the Agent shall be conclusive
and binding except in the case of manifest error.
Section 2.4 Minimum Borrowing Amounts. Each Borrowing of Base Rate
Loans and Eurocurrency Loans denominated in U.S. Dollars shall be in an
amount not less than $1,000,000 and in integral multiples of $1,000,000.
Section 2.5 Manner of Borrowing Loans and Designating Interest Rates
Applicable to Loans.
(a) Notice to the Agent. The Borrower shall give written notice
to the Agent by no later than 10:00 a.m. (Chicago time) (i) at least
three (3) Business Days before the date on which the Borrower requests
the Banks to advance a Borrowing of Eurocurrency Loans and (ii) on the
date the Borrower requests the Banks to advance a Borrowing of Base
Rate Loans. The Loans included in each Borrowing shall bear interest
initially at the type of rate specified in such notice of a new
Borrowing. Thereafter, the Borrower may from time to time elect to
change or continue the type of interest rate borne by each Borrowing
or, subject to Section 2.4's minimum amount requirement for each
outstanding Borrowing, a portion thereof, as follows: (i) if such
Borrowing is of Eurocurrency Loans, on the last day of the Interest
Period applicable thereto, the Borrower may continue part or all of
such Borrowing as Eurocurrency Loans for an Interest Period or
Interest Periods specified by the Borrower or convert part or all of
such Borrowing into Base Rate Loans, (ii) if such Borrowing is of Base
Rate Loans, on any Business Day, the Borrower may convert all or part
of such Borrowing into Eurocurrency Loans for an Interest Period or
Interest Periods specified by the Borrower. The Borrower shall give
all such notices requesting the advance, continuation, or conversion
of a Borrowing to the Agent by telephone or telecopy (which notice
shall be irrevocable once given and, if by telephone, shall be
promptly confirmed in writing). Notices of the continuation of a
Borrowing of Eurocurrency Loans for an additional Interest Period or
of the conversion of part or all of a Borrowing of Eurocurrency Loans
into Base Rate Loans or of Base Rate Loans into Eurocurrency Loans
must be given by no later than 10:00 a.m. (Chicago time) at least
three (3) Business Days before the date of the requested continuation
or conversion. All such notices concerning the advance, continuation,
or conversion of a Borrowing shall specify the date of the requested
advance, continuation or conversion of a Borrowing (which shall be a
Business Day), the amount of the requested Borrowing to be advanced,
continued, or converted, the type of Loans to comprise such new,
continued or converted Borrowing and, if such Borrowing is to be
comprised of Eurocurrency Loans, the Interest Period applicable
thereto. The Borrower agrees that the Agent may rely on any such
telephonic or telecopy notice given by any
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person it in good faith believes is an Authorized Representative
without the necessity of independent investigation, and in the event any
such notice by telephone conflicts with any written confirmation, such
telephonic notice shall govern if the Agent has acted in reliance thereon.
There may be no more than five different Interest Periods in effect at any
one time.
(b) Notice to the Banks. The Agent shall give prompt telephonic or
telecopy notice to each Bank of any notice from the Borrower received
pursuant to Section 2.5.(a) above. The Agent shall give notice to the
Borrower and each Bank by like means of the interest rate applicable to
each Borrowing of Eurocurrency Loans and the Original Dollar amount
thereof.
(c) Borrower's Failure to Notify. Any outstanding Borrowing of Base
Rate Loans shall, subject to Section 6.2 hereof, automatically be continued
for an additional Interest Period on the last day of its then current
Interest Period unless the Borrower has notified the Agent within the
period required by Section 2.5(a) that it intends to convert such Borrowing
into a Borrowing of Eurocurrency Loans or notifies the Agent within the
period required by Section 2.8(a) that it intends to prepay such Borrowing.
If the Borrower fails to give notice pursuant to Section 2.5(a) above of
the continuation or conversion of any outstanding principal amount of a
Borrowing of Eurocurrency Loans before the last day of its then current
Interest Period within the period required by Section 2.5(a) and has not
notified the Agent within the period required by Section 2.8(a) that it
intends to prepay such Borrowing, such Borrowing shall automatically be
converted into a Borrowing of Base Rate Loans, subject to Section 6.2
hereof.
(d) Disbursement of Loans. Not later than 11:00 a.m. (Chicago time) on
the date of any requested advance of a new Borrowing of Eurocurrency Loans,
and not later than 12:00 noon (Chicago time) on the date of any requested
advance of a new Borrowing of Base Rate Loans, subject to Section 6 hereof,
each Bank shall make available its Loan comprising part of such Borrowing
in funds immediately available at the principal office of the Agent in
Chicago, Illinois. The Agent shall make available to the Borrower Loans at
the Agent's principal office in Chicago, Illinois or such other office as
the Agent has previously agreed to, in writing, with the Borrower.
(e) Agent Reliance on Bank Funding. Unless the Agent shall have been
notified by a Bank before the date on which such Bank is scheduled to make
payment to the Agent of the proceeds of a Loan (which notice shall be
effective upon receipt) that such Bank does not intend to make such
payment, the Agent may assume that such Bank has made such payment when due
and the Agent may in reliance upon such assumption (but shall not be
required to) make available to the Borrower the proceeds of the Loan to be
made by such Bank and, if any Bank has not in fact made such payment to the
Agent, such Bank shall, on demand, pay to the Agent the amount made
available to the Borrower attributable to such Bank together with interest
thereon in respect of each day during the period commencing on the date
such amount was made available to the Borrower and ending on (but
excluding) the date such Bank pays such amount to the Agent at a rate per
annum equal to the Federal Funds Rate. If such amount is not received from
such Bank by the Agent immediately upon demand, the Borrower will, on
demand, repay to the Agent the proceeds of the Loan attributable to such
Bank with interest thereon at a rate per annum equal to the interest rate
applicable to the relevant Loan.
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Section 2.6 Interest Periods. As provided in Section 2.5(a) hereof, at
the time of each request to advance, continue, or create by conversion a
Borrowing of Eurocurrency Loans, the Borrower shall select an Interest
Period applicable to such Loans from among the available options. The term
"Interest Period" means the period commencing on the date a Borrowing of
Loans is advanced, continued, or created by conversion and ending: (a) in
the case of Base Rate Loans, on the last Business Day of the calendar
quarter in which such Borrowing is advanced, continued, or created by
conversion (or on the last day of the following calendar quarter if such
Loan is advanced, continued or created by conversion on the last Business
Day of a calendar quarter), and (b) in the case of Eurocurrency Loans, 1,
2, 3, or 6 months thereafter; provided, however, that:
(a) any Interest Period for a Borrowing of Base Rate Loans that
otherwise would end after the Termination Date shall end on the
Termination Date;
(b) for any Borrowing of Eurocurrency Loans, the Borrower may not
select an Interest Period that extends beyond the Termination Date;
(c) whenever the last day of any Interest Period would otherwise
be a day that is not a Business Day, the last day of such Interest
Period shall be extended to the next succeeding Business Day, provided
that, if such extension would cause the last day of an Interest Period
for a Borrowing of Eurocurrency Loans to occur in the following
calendar month, the last day of such Interest Period shall be the
immediately preceding Business Day; and
(d) for purposes of determining an Interest Period for a
Borrowing of Eurocurrency Loans, a month means a period starting on
one day in a calendar month and ending on the numerically
corresponding day in the next calendar month; provided, however, that
if there is no numerically corresponding day in the month in which
such an Interest Period is to end or if such an Interest Period begins
on the last Business Day of a calendar month, then such Interest
Period shall end on the last Business Day of the calendar month in
which such Interest Period is to end.
Section 2.7 Maturity of Loans. Unless an earlier maturity is provided
for hereunder (whether by acceleration or otherwise), each Loan shall
mature and become due and payable by the Borrower on the Termination Date.
Section 2.8 Prepayments.
(a) The Borrower may prepay without premium or penalty and in
whole or in part (but, if in part, then: (i) if such Borrowing is of
Base Rate Loans, in an amount not less than $1,000,000, (ii) if such
Borrowing is of Eurocurrency Loans in an amount not less than
$1,000,000, and (iii) in an amount such that the minimum amount
required for a Borrowing pursuant to Section 2.4 hereof remains
outstanding) any Borrowing of Eurocurrency Loans upon three Business
Days prior notice to the Agent or, in the case of a Borrowing of Base
Rate Loans, notice delivered to the Agent no later than 10:00 a.m.
(Chicago time) on the date of prepayment, such prepayment to be made
by the payment of the principal amount to be prepaid and accrued
interest thereon to the date fixed for prepayment. In the case of
Eurocurrency Loans, such prepayment may only be made on the last day
of the Interest Period then applicable to such Loans. The Agent will
promptly advise each Bank of any such prepayment notice it receives
from the Borrower.
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Any amount paid or prepaid before the Termination Date may, subject
to the terms and conditions of this Agreement, be borrowed, repaid
and borrowed again.
(b) If the aggregate principal amount of outstanding Loans shall
at any time for any reason exceed the Revolving Credit Commitments
then in effect, the Borrower shall, immediately and without notice or
demand, pay the amount of such excess to the Agent for the ratable
benefit of the Banks as a prepayment of the Loans. Immediately upon
determining the need to make any such prepayment the Borrower shall
notify the Agent of such required prepayment.
(c) Each such prepayment shall be accompanied by a payment of all
accrued and unpaid interest on the Loans prepaid and shall be subject
to Section 2.11.
Section 2.9 Default Rate. If any payment of principal on any Loan is
not made when due (whether by acceleration or otherwise), such Loan shall
bear interest, computed on the basis of a year of 360 days and actual days
elapsed (except for Loans based on the rate described in clause (i) of the
definition of Base Rate, in which case such Loan shall bear interest
computed on the basis of a year of 365 or 366 days, as applicable, and the
actual number of days elapsed) from the date such payment was due until
paid in full, payable on demand, at a rate per annum equal to:
(a) for any Base Rate Loan, the sum of two percent (2%) plus the
Applicable Margin plus the Base Rate from time to time in effect; and
(b) for any Eurocurrency Loan, the sum of two percent (2%) plus
the rate of interest in effect thereon at the time of such default
until the end of the Interest Period applicable thereto and,
thereafter, at a rate per annum equal to the sum of two percent (2%)
plus the Applicable Margin plus the Base Rate from time to time in
effect.
Section 2.10 The Notes.
(a) The Loans made to the Borrower by a Bank shall be evidenced
by a single promissory note of the Borrower issued to such Bank in the
form of Exhibit A hereto. Each such promissory note is hereinafter
referred to as a "Note" and collectively such promissory notes are
referred to as the "Notes."
(b) Each Bank shall record on its books and records or on a
schedule to its Note the amount of each Loan advanced, continued, or
converted by it, all payments of principal and interest and the
principal balance from time to time outstanding thereon, the type of
such Loan, and, for any Eurocurrency Loan, the Interest Period and the
interest rate applicable thereto. The record thereof, whether shown on
such books and records of a Bank or on a schedule to any Note, shall
be prima facie evidence as to all such matters; provided, however,
that the failure of any Bank to record any of the foregoing or any
error in any such record shall not limit or otherwise affect the
obligation of the Borrower to repay all Loans made to it hereunder
together with accrued interest thereon. At the request of any Bank and
upon such Bank tendering to the Borrower the Note to be replaced, the
Borrower shall furnish a new Note to such Bank to replace any
outstanding Note, and at such time the first notation appearing on a
schedule on the reverse side of, or attached to, such Note shall set
forth the aggregate unpaid principal amount of all Loans, if any, then
outstanding thereon.
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Section 2.11 Funding Indemnity. If any Bank shall incur any loss, cost
or expense (including, without limitation, any loss of profit, and any
loss, cost or expense incurred by reason of the liquidation or
re-employment of deposits or other funds acquired by such Bank to fund or
maintain any Eurocurrency Loan or the relending or reinvesting of such
deposits or amounts paid or prepaid to such Bank) as a result of:
(a) any payment (whether by acceleration or otherwise),
prepayment or conversion of a Eurocurrency Loan on a date other than
the last day of its Interest Period,
(b) any failure (because of a failure to meet the conditions of
Section 6 or otherwise) by the Borrower to borrow or continue a
Eurocurrency Loan, or to convert a Base Rate Loan into a Eurocurrency
Loan, on the date specified in a notice given pursuant to Section
2.5(a) or established pursuant to Section 2.5(c) hereof,
(c) any failure by the Borrower to make any payment of principal
on any Eurocurrency Loan when due (whether by acceleration or
otherwise), or
(d) any acceleration of the maturity of a Eurocurrency Loan as a
result of the occurrence of any Event of Default hereunder, then, upon
the demand of such Bank, the Borrower shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost or expense. If
any Bank makes such a claim for compensation, it shall provide to the
Borrower, with a copy to the Agent, a certificate executed by an
officer of such Bank setting forth the amount of such loss, cost or
expense in reasonable detail (including an explanation of the basis
for and the computation of such loss, cost or expense) and the amounts
shown on such certificate if reasonably calculated shall be conclusive
absent manifest error.
Section 2.12 Commitment Terminations. The Borrower shall have the
right at any time and from time to time, upon five (5) Business Days prior
written notice to the Agent, to terminate the Revolving Credit Commitments
without premium or penalty, in whole or in part, any partial termination to
be (i) in an amount not less than $5,000,000, and (ii) allocated ratably
among the Banks in proportion to their respective Percentages, provided
that the Revolving Credit Commitments may not be reduced to an amount less
than the sum of the Original Dollar Amount of all Loans then outstanding.
The Agent shall give prompt notice to each Bank of any such termination of
Commitments. Any termination of Revolving Credit Commitments pursuant to
this Section 2.12 may not be reinstated.
SECTION 3. FEES AND EXTENSIONS.
Section 3.1 Fees.
(a) Certain Fees. The Borrower shall pay, or cause to be paid, to
the Agent certain fees set forth in the Fee Letter at the time
specified in the Fee Letter for payment of such amounts.
(b) Facility Fee. For the period from the Effective Date to and
including the Termination Date, the Borrower shall pay to the Agent
for the ratable account of the Banks in accordance with their
Percentages a facility fee accruing at a rate per annum equal to the
Facility Fee Rate on the average daily amount of the Commitments
(whether used or unused), or if the Commitments have expired or
terminated, on the principal amount of Loans. Such facility fee is
payable in arrears on the last Business Day of each
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calendar quarter quarterly and on the Termination Date,
unless the Revolving Credit Commitments are terminated in whole on an
earlier date, in which event the fee for the period to but not
including the date of such termination shall be paid in whole on the
date of such termination.
(c) Fee Calculations. All fees payable under this Agreement shall
be payable in U.S. Dollars and shall be computed on the basis of a
year of 360 days, for the actual number of days elapsed. All
determinations of the amount of fees owing hereunder (and the
components thereof) shall be made by the Agent and shall be conclusive
absent manifest error.
Section 3.2 Extension of Termination Date
(a) No later than sixty (60) days before the Termination Date the
Borrower may make a request for a one year extension of the
Termination Date in a written notice to the Agent. The Agent will
promptly inform the Banks of any such request. Each Bank may, in its
sole and absolute discretion, determine whether to consent to such
request and may by a revocable written notice (a "Consent Notice") to
the Agent and the Borrower given no later than forty (40) days prior
to the Termination Date (the period from sixty (60) days prior to such
Termination Date to and including forty (40) days prior to the
Termination Date being the "Consent Period") notify the Agent and the
Borrower of its determination to consent to such request. Failure by
any Bank to respond within the Consent Period shall be deemed to be a
denial of the Borrower's request by such Bank. Promptly after the
Consent Period the Agent shall notify the Banks and the Borrower of
which Banks have delivered a Consent Notice. Any Bank may revoke its
Consent Notice at any time after the date forty (40) days prior to the
Termination Date to and including the date thirty (30) days prior to
the Termination Date (the "Revocation Period") by giving written
notice to the Agent and the Borrower of such revocation (a "Revocation
Notice"). If the Agent does not receive a Revocation Notice within the
Revocation Period from a Bank who has previously delivered a Consent
Notice, such Bank's Consent Notice shall become irrevocable. If the
Required Banks or the Agent in its capacity as a Bank have not
delivered Consent Notices which shall have become irrevocable in
accordance with the foregoing, the Termination Date shall not be
extended and the Agent shall promptly notify the Banks and the
Borrower of such circumstance. If the Required Banks and the Agent in
its capacity as a Bank shall have delivered Consent Notices which
shall have become irrevocable in accordance with the foregoing, the
Agent shall promptly notify the Borrower of such circumstance and the
Borrower shall, no later than twenty (20) days prior to the
Termination Date, notify the Agent if it still desires the extension
of the Termination Date. If the Borrower notifies the Agent in writing
no later than twenty (20) days prior to the Termination Date that it
no longer desires the extension of the Termination Date, then the
Termination Date shall not be extended and the Agent shall promptly
notify the Banks and the Borrower of such circumstance. If the Agent
does not receive a written notice from the Borrower no later than
twenty (20) days prior to the Termination Date stating that it no
longer desires the extension of the Termination Date or the Borrower
delivers written notice by such date to the Agent that it still
desires the extension of the Termination Date, then, subject to any
conditions precedent that the Agent may require in connection with
such extension (e.g., the remaking of representations and warranties,
no Default or Event of Default having occurred and the delivery of a
legal opinion and other appropriate documentation) and as to such
consenting Banks only, the Termination Date shall be so extended, such
extension to be
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effective as of the Termination Date and the Agent shall promptly
notify the Banks and the Borrower of such circumstance.
(b) In the event any Bank shall fail to agree to any extension
requested by the Borrower pursuant to Section 3.2(a) (each such Bank a
"Dissenting Bank"), the Borrower shall have the right to arrange with
one or more Banks acceptable to the Agent that have consented to the
extension of the Termination Date or other lenders acceptable to the
Agent to assume all or a part of such Dissenting Bank's obligations
under this Agreement. If the Borrower shall arrange for such a Bank or
lender to assume all or part of the obligations of any Dissenting
Bank, then such Dissenting Bank and such Bank or lender shall execute
and deliver to the Agent, for its acceptance and recording, an
assignment agreement along with the accompanying documentation
prescribed in Section 11.12 hereof. If the Borrower can not arrange
for such a Bank or lender to assume the obligations of such Dissenting
Bank, then (i) the Commitment of such Dissenting Bank shall terminate
on the Termination Date in effect immediately before such extension,
(ii) the Borrower shall repay in full on such Termination Date all
Obligations payable to such Dissenting Bank under this Agreement
(including all accrued interest and fees) and (iii) such Dissenting
Bank will not be obligated to make any Loan with a maturity date later
than such Termination Date.
SECTION 4. PLACE AND APPLICATION OF PAYMENTS.
Section 4.1 Place and Application of Payments. All payments of
principal of and interest on the Loans, and of all other amounts payable by
the Borrower under this Agreement, shall be made by the Borrower to the
Agent by no later than 12:00 Noon (Chicago time) on the due date thereof at
the principal office of the Agent in Chicago, Illinois (or such other
location in the United States as the Agent may designate to the Borrower).
Any payments received after such time shall be deemed to have been received
by the Agent on the next Business Day. All such payments shall be made free
and clear of, and without deduction for, any set-off, counterclaim, levy,
withholding or any other deduction of any kind in U.S. Dollars, in
immediately available funds at the place of payment. The Agent will
promptly thereafter cause to be distributed like funds relating to the
payment of principal or interest on Loans or applicable fees ratably to the
Banks and like funds relating to the payment of any other amount payable to
any Person to such Person, in each case to be applied in accordance with
the terms of this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to each Bank as to
itself and, where the following representations and warranties apply to
Subsidiaries, as to each of its Subsidiaries, as follows:
Section 5.1 Corporate Organization and Authority. The Borrower and
each of its Subsidiaries is, and at the Closing Date will be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, except where such failure to be in good
standing would not, individually or in the aggregate, have a Material
Adverse Effect. Each is duly qualified to transact business in each
jurisdiction in which such qualification is required, whether by reason of
ownership or leasing of property or the conduct of business or otherwise,
except where failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. Each has the power and authority
required to own, lease and operate its properties and to conduct its
business as currently conducted, except where failure to have such power
and authority would not, individually or in the aggregate, have a Material
Adverse Effect.
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Section 5.2 Subsidiaries. Schedule 5.2 (as updated quarterly pursuant
to Section 7.6(b) hereof or otherwise from time to time in writing by the
Borrower) hereto identifies each Subsidiary and the jurisdiction of its
incorporation. All of the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and outstanding and fully paid and
nonassessable except as set forth on Schedule 5.2 hereto. All such shares
owned by the Borrower are owned beneficially, and of record, free of any
Lien.
Section 5.3 Corporate Authority and Validity of Obligations. The
Borrower has full right and authority to enter into this Agreement and the
other Credit Documents to which it is a party, to make the borrowings
herein provided for, to issue its Notes in evidence thereof, and to perform
all of its obligations under the Credit Documents to which it is a party.
Each Credit Document to which it is a party has been duly authorized,
executed and delivered by the Borrower and constitutes valid and binding
obligations of the Borrower enforceable in accordance with its terms. No
Credit Document, nor the performance or observance by the Borrower of any
of the matters or things therein provided for, contravenes any provision of
law or any charter or by-law provision of the Borrower or any material
Contractual Obligation of or affecting the Borrower or any of its
Properties or results in or requires the creation or imposition of any Lien
on any of the Properties or revenues of the Borrower.
Section 5.4 Financial Statements. All financial statements heretofore
delivered to the Banks showing historical performance of the Borrower for
each of the Borrower's fiscal years ending on or before December 31, 1996,
and for the Borrower's quarter ended September 30, 1997 have been prepared
in accordance with generally accepted accounting principles applied on a
basis consistent, except as otherwise noted therein, with that of the
previous fiscal year. Each of such financial statements fairly presents on
a consolidated basis the financial condition of the Borrower as of the
dates thereof and the results of operations for the periods covered
thereby. The Borrower and its Subsidiaries have no material contingent
liabilities other than those disclosed in such financial statements
referred to in this Section 5.4 or in comments or footnotes thereto, or in
any report supplementary thereto, heretofore furnished to the Banks. Since
December 31, 1996, there has been no material adverse change in the
business, operations, Property or financial or other condition, or business
prospects, of the Borrower or any of its Subsidiaries.
Section 5.5 No Litigation; No Labor Controversies.
(a) Except as set forth on Schedule 5.5 (as updated quarterly
pursuant to Section 7.6(b) hereof or as otherwise from time to time in
writing by the Borrower), there is no litigation or governmental
proceeding pending, or to the knowledge of the Borrower, threatened,
against the Borrower or any Subsidiary which, if adversely determined,
could (individually or in the aggregate) have a Material Adverse
Effect.
(b) Except as set forth on Schedule 5.5 (as updated quarterly
pursuant to Section 7.6(b) hereof or as otherwise from time to time in
writing by the Borrower), there are no labor controversies pending or,
to the best knowledge of the Borrower, threatened against the Borrower
or any Subsidiary which could have a Material Adverse Effect.
Section 5.6 Taxes. The Borrower and its Subsidiaries have filed all
United States federal tax returns, and all other tax returns, required to
be filed and have paid all taxes due pursuant to such returns or pursuant
to any assessment received by the Borrower or any Subsidiary, except such
taxes, if any, as are being contested in good faith and for which adequate
reserves have been provided. No notices of tax liens have been filed and no
claims are being
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asserted concerning any such taxes, which liens or claims are material
to the financial condition of the Borrower or any of its Subsidiaries
(individually or in the aggregate). The charges, accruals and reserves on
the books of the Borrower and its Subsidiaries for any taxes or other
governmental charges are adequate.
Section 5.7 Approvals. Except as contemplated by Section 7.14, no
authorization, consent, license, exemption, filing or registration with any
court or governmental department, agency or instrumentality, nor any
approval or consent of the stockholders of the Borrower or any Subsidiary
or from any other Person, is necessary to the valid execution, delivery or
performance by the Borrower or any Subsidiary of any Credit Document to
which it is a party.
Section 5.8 Validity of Notes. When executed, authenticated and
delivered pursuant to the provisions of this Agreement against payment of
the consideration therefor, the Notes will be duly issued and will
constitute legal, valid and binding obligations of the Borrower,
enforceable in accordance with their terms, except for the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally, and will rank
pari passu with all other outstanding unsecured indebtedness of the
Borrower.
Section 5.9 ERISA. With respect to each Plan, the Borrower and each
other member of the Controlled Group has fulfilled its obligations under
the minimum funding standards of and is in compliance in all material
respects with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and with the Code to the extent applicable to it and has
not incurred any liability to the Pension Benefit Guaranty Corporation
("PBGC") or a Plan under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA. The Borrower does not have
any contingent liabilities for any post-retirement benefits under a Welfare
Plan, other than liability for continuation coverage described in Part 6 of
Title I of ERISA.
Section 5.10 Government Regulation. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 5.11 Margin Stock; Use of Proceeds. Neither the Borrower nor
any Subsidiary is engaged principally, or as one of its primary activities,
in the business of extending credit for the purpose of purchasing or
carrying margin stock ("margin stock" to have the same meaning herein as in
Regulation U of the Board of Governors of the Federal Reserve System). The
proceeds of the Loans are to be used solely for the purposes set forth in
and permitted by Section 7.10. The Borrower will not use the proceeds of
any Loan in a manner that violates any provision of Regulation U or X of
the Board of Governors of the Federal Reserve System.
Section 5.12 Licenses and Authorizations; Compliance Laws. The
Borrower and each of its Subsidiaries has all necessary licenses, permits
and governmental authorizations to own and operate its Properties and to
carry on its business as currently conducted and contemplated. The Borrower
and each of its Subsidiaries is in compliance with all applicable laws,
regulations, ordinances and orders of any governmental or judicial
authorities except for any such law, regulation, ordinance or order which,
the failure to comply therewith, could not reasonably expected to have a
Material Adverse Effect.
Section 5.13 Ownership of Property; Liens. The Borrower and each
Subsidiary has good title to or valid leasehold interests in all its
Property. None of the Borrower's Property is subject to any Lien, except as
permitted in Section 7.9.
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Section 5.14 No Burdensome Restrictions; Compliance with Agreements.
Neither the Borrower nor any Subsidiary is (a) party or subject to any law,
regulation, rule or order, or any Contractual Obligation that (individually
or in the aggregate) could have a Material Adverse Effect or (b) in default
in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in, nor has any event occurred (and is
continuing) that constitutes or would (whether or not with the giving of
notice and/or with the passage of time and/or the fulfillment of any other
requirement) constitute, to the knowledge of the Borrower, a default or any
breach or failure to perform by the Borrower under any indenture, mortgage,
loan agreement lease or other agreement or instrument to which it is a
party, which default could have a Material Adverse Effect.
Section 5.15 Full Disclosure. All information heretofore furnished by
the Borrower to the Agent or any Bank for purposes of or in connection with
the Credit Documents or any transaction contemplated thereby is, and all
such information hereafter furnished by the Borrower to the Agent or any
Bank will be, true and accurate in all material respects and not misleading
on the date as of which such information is stated or certified.
SECTION 6. CONDITIONS PRECEDENT.
The obligation of each Bank to advance, continue, or convert
any Loan shall be subject to the following conditions precedent:
Section 6.1 Initial Credit Event. Before or concurrently with the
initial Credit Event:
(a) The Agent shall have received for each Bank the favorable
written opinion of counsel to the Borrower in substantially the form
attached hereto as Exhibit C hereto;
(b) The Agent shall have received for each Bank copies of (i) the
Articles of Incorporation, together with all amendments, and a
certificate of good standing, for the Borrower, both certified as of a
date not earlier than 20 days prior to the date hereof by the
appropriate governmental officer of the Borrower's jurisdiction of
incorporation and (ii) the Borrower's bylaws (or comparable
constituent documents) and any amendments thereto, certified in each
instance by its Secretary or an Assistant Secretary;
(c) The Agent shall have received for each Bank copies of
resolutions of the Borrower's Board of Directors authorizing the
execution and delivery of the Credit Documents and the consummation of
the transactions contemplated thereby together with specimen
signatures of the persons authorized to execute such documents on the
Borrower's behalf, all certified in each instance by its Secretary or
Assistant Secretary;
(d) The Agent shall have received for each Bank such Bank's duly
executed Note of the Borrower dated the date hereof and otherwise in
compliance with the provisions of Section 2.10(a) hereof;
(e) The Agent shall have received for each Bank a list of the
Borrower's Authorized Representatives and such other documents as any
Bank may reasonably request;
(f) All legal matters incident to the execution and delivery of
the Credit Documents shall be satisfactory to the Banks; and
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(g) The Agent shall have received a certificate by the chief
financial officer, treasurer, vice president of finance or corporate
controller of the Borrower, stating that on the date of such initial
Credit Event no Default or Event of Default has occurred and is
continuing.
Section 6.2 All Credit Events. As of the time of each Credit Event
hereunder (including the initial Credit Event):
(a) The Agent shall have received the notice required by Section
2.5 hereof;
(b) Each of the representations and warranties set forth in
Section 5 hereof shall be and remain true and correct in all material
respects as of said time, taking into account any amendments to such
Section (including, without limitation, any amendments to the
Schedules referenced therein) made after the date of this Agreement in
accordance with its provisions, except that if any such representation
or warranty relates solely to an earlier date it need only remain true
as of such date, provided that solely for purposes of this Section
6.2(b) the representations relating to the Borrower's Subsidiaries set
forth in Section 5.2 hereof shall be deemed representations relating
only to the Borrower's Material Subsidiaries;
(c) The Borrower shall be in full compliance with all of the
terms and conditions hereof, and no Default or Event of Default shall
have occurred and be continuing or would occur as a result of such
Credit Event;
(d) No event of default by the Borrower has been declared and is
continuing under any existing debt agreements; and
(e) Such Credit Event shall not violate any order, judgment or
decree of any court or other authority or any provision of law or
regulation applicable to any Bank (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System).
Each request for a Borrowing hereunder shall
be deemed to be a representation and warranty by the Borrower
on the date of such Credit Event as to the facts specified in
paragraphs (b) and (c) of this Section 6.2, provided, that
solely in the case of a Credit Event which is a continuation
of a previous Borrowing, the Borrower shall not be deemed to
have made any representation or warranty with regard to the
matters set forth in Section 5.5(a) and (b) hereof.
SECTION 7. COVENANTS.
The Borrower covenants and agrees that, so long as any Loan is
outstanding hereunder, or any Commitment is available to or in use by the
Borrower hereunder, except to the extent compliance in any case is waived in
writing by the Required Banks:
Section 7.1 Corporate Existence; Subsidiaries. The Borrower shall, and
shall cause each of its Subsidiaries to, preserve and maintain its
corporate existence, subject to the provisions of Section 7.11 hereof.
Section 7.2 Maintenance. The Borrower will maintain, preserve and keep
its plants, Properties and equipment necessary to the proper conduct of its
business in reasonably good
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repair, working order and condition and will from time to time make
all reasonably necessary repairs, renewals, replacements, additions and
betterments thereto so that at all times such plants, Properties and
equipment shall be reasonably preserved and maintained, and the Borrower
will cause each of its Subsidiaries to do so in respect of Property owned
or used by it; provided, however, that nothing in this Section 7.2 shall
prevent the Borrower or a Subsidiary from discontinuing the operation or
maintenance of any such Properties if such discontinuance is not
disadvantageous to the Banks or the holders of the Notes, and is, in the
judgment of the Borrower, desirable in the conduct of its business or the
business of its Subsidiary.
Section 7.3 Taxes. The Borrower will duly pay and discharge, and will
cause each of its Subsidiaries duly to pay and discharge, all taxes, rates,
assessments, fees and governmental charges upon or against it or against
its Properties, in each case before the same becomes delinquent and before
penalties accrue thereon, unless and to the extent that the same is being
contested in good faith by appropriate proceedings and reserves in
conformity with GAAP have been provided therefor on the books of the
Borrower.
Section 7.4 ERISA. The Borrower will promptly pay and discharge all
obligations and liabilities arising under ERISA of a character which if
unpaid or unperformed might result in the imposition of a Lien against any
of its properties or assets and will promptly notify the Agent of (i) the
occurrence of any reportable event (as defined in ERISA) affecting a Plan,
other than any such event of which the PBGC has waived notice by
regulation, (ii) receipt of any notice from PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor, (iii) its
intention to terminate or withdraw from any Plan, and (iv) the occurrence
of any event affecting any Plan which could result in the incurrence by the
Borrower of any material liability, fine or penalty, or any material
increase in the contingent liability of the Borrower under any
post-retirement Welfare Plan benefit. The Agent will promptly distribute to
each Bank any notice it receives from the Borrower pursuant to this Section
7.4.
Section 7.5 Insurance. The Borrower will insure, and keep insured, and
will cause each of its Subsidiaries to insure, and keep insured, with good
and responsible insurance companies, all insurable Property owned by it of
a character usually insured by companies similarly situated and operating
like Property. To the extent usually insured (subject to self-insured
retentions) by companies similarly situated and conducting similar
businesses, the Borrower will also insure, and cause each of its
Subsidiaries to insure, employers and public and product liability risks
with good and responsible insurance companies. The Borrower will upon
request of the Agent furnish to the Agent a summary setting forth the
nature and extent of the insurance maintained pursuant to this Section 7.5.
Section 7.6 Financial Reports and Other Information.
(a) The Borrower will maintain a system of accounting in
accordance with GAAP and will furnish to the Banks and their
respective duly authorized representatives such information respecting
the business and financial condition of the Borrower and its
subsidiaries as any Bank may reasonably request; and without any
request, the Borrower will furnish each of the following to each Bank:
(i) within 120 days after the end of each fiscal year of the
Borrower, (A) a copy of the Borrower's audited financial
statements for such fiscal year, including the consolidated
balance sheet of the Borrower for such year and the related
statement of income and statement of cash flow, as certified by
independent public accountants of recognized national standing
selected by the
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Borrower in accordance with GAAP with such accountants'
unqualified opinion to the effect that the financial statements
have been prepared in accordance with GAAP and present fairly in
all material respects in accordance with GAAP the consolidated
financial position of the Borrower and its subsidiaries as of the
close of such fiscal year and the results of their operations and
cash flows for the fiscal year then ended and that an examination
of such accounts in connection with such financial statements has
been made in accordance with generally accepted auditing
standards and, accordingly, such examination included such tests
of the accounting records and such other auditing procedures as
were considered necessary in the circumstances; (B) a copy of the
Borrower's unaudited consolidating financials for such fiscal
year, including a consolidating unaudited balance sheet of the
Borrower, and the related statement of income and shall use its
best efforts to provide a statement of cash flow in a format
acceptable to the Agent; all of the foregoing prepared by the
Borrower in reasonable detail in accordance with GAAP and
certified by the Borrower's chief financial officer, treasurer,
vice president of finance or corporate controller as fairly
presenting the financial condition as at the dates thereof and
the results of operations for the periods covered thereby;
(ii) within 60 days after the end of each of the first three
quarterly fiscal periods of the Borrower, a condensed
consolidated unaudited balance sheet of the Borrower, and the
related statement of income and statement of cash flow, as of the
close of such period, all of the foregoing prepared by the
Borrower in reasonable detail in accordance with GAAP and
certified by the Borrower's chief financial officer, treasurer,
vice president of finance or corporate controller as fairly
presenting the financial condition as at the dates thereof and
the results of operations for the periods covered thereby
(subject to year end adjustments);
(iii) within the period provided in subsection (i) above,
the written statement of the accountants who certified the audit
report thereby required that in the course of their audit they
have obtained no knowledge of any Default or Event of Default,
or, if such accountants have obtained knowledge of any such
Default or Event of Default, they shall disclose in such
statement the nature and period of the existence thereof;
(iv) promptly after the sending or filing thereof, copies of
all proxy statements, financial statements and reports the
Borrower sends to its shareholders, and copies of all other
regular, periodic and special reports and all registration
statements the Borrower files with the SEC or any successor
thereto, or with any national securities exchanges.
(b) Each financial statement furnished to the Banks pursuant to
subsection (i) or (ii) of Section 7.6(a) shall be accompanied by (A) a
written certificate signed by the Borrower's chief financial officer,
vice president of finance, corporate controller or treasurer (i) to
the effect that no Default or Event of Default has occurred during the
period covered by such statements or, if any such Default or Event of
Default has occurred during such period, setting forth a description
of such Default or Event of Default and specifying the action, if any,
taken by the Borrower to remedy the same, (ii) to the effect that the
representations and warranties contained in Section 5 hereof are true
and correct in all material respects as though made on the date of
such certificate (other than those made solely as of an earlier date,
which need only remain true as of such date),
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taking into account any amendments to such Section (including,
without limitation, any amendments to the Schedules referenced
therein) made after the date of this Agreement in accordance wit its
provisions and except as otherwise described therein, (iii) notifying
the Banks (x) of any litigation or governmental proceeding of the type
described in Section 5.5 hereof or (y) of any change in the
information set forth on the Schedules hereto and (B) a Compliance
Certificate in the form of Exhibit B hereto showing the Borrower's
compliance with the covenants set forth in Sections 7.9, 7.11, 7.12
and 7.13 hereof.
(c) The Borrower will (i) promptly (and in any event within three
Business Days after an officer of the Borrower has knowledge thereof)
give notice to the Agent and each Bank (x) of the occurrence of any
Default or Event of Default or (y) of any payment default or payment
event of default aggregating $20,000,000 or more under any Contractual
Obligation of the Borrower and (ii) promptly (and in any event within
ten Business Days after an officer of the Borrower has knowledge
thereof) give notice to the Agent and each Bank of any material
adverse change in the business, operations, Property or financial or
other condition of the Borrower and its Subsidiaries (individually or
in the aggregate).
Section 7.7 Bank Inspection Rights. Upon reasonable notice from any
Bank, the Borrower will, at the Borrower's expense, (such expenses to be
reasonably incurred) permit such Bank (and such Persons as any Bank may
designate) during normal business hours to visit and inspect, under the
Borrower's guidance, any of the properties of the Borrower or any of its
Subsidiaries, to examine all of their books of account, records, reports
and other papers, to make copies and extracts therefrom, and to discuss
their respective affairs, finances and accounts with their respective
officers, employees and with their independent public accountants (and by
this provision the Borrower authorizes such accountants to discuss with the
Banks (and such Persons as any Bank may designate subject to
confidentiality agreements reasonably acceptable to the Borrower) the
finances and affairs of the Borrower and its Subsidiaries) all at such
reasonable times and as often as may be reasonably requested; provided,
however, that except upon the occurrence and during the continuation of any
Default or Event of Default, not more than one such set of visits and
inspections may be conducted each calendar quarter.
Section 7.8 Conduct of Business. The Borrower will not engage in any
line of business other than business associated with or related to energy
generation, transmission and distribution or other infrastructure lines of
business.
Section 7.9 Liens. The Borrower will not create, incur, permit to
exist or to be incurred any Lien of any kind on any Property owned by the
Borrower; provided, however, that this Section 7.9 shall not apply to nor
operate to prevent:
(a) Liens upon any Property acquired by the Borrower to secure
any Indebtedness of the Borrower incurred at the time of the
acquisition of such Property to finance the purchase price of such
Property, provided that any such Lien shall apply only to the Property
that was so acquired and the aggregate principal amount of
Indebtedness secured by such Liens shall not exceed the cost or value
of the acquired Property;
(b) Liens existing on the date of the Long-Term Credit Agreement
and listed on Schedule 7.9 hereto which were in existence as of the
date of issue of the Borrower's 7.625% senior notes due 2006;
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(c) Other liens not to exceed 10% of Consolidated Net Tangible
Assets; and
(d) Any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in part of any Lien
referred to in the foregoing paragraphs (a) through (c), inclusive.
Section 7.10 Use of Proceeds; Regulation U. The proceeds of each
Borrowing will be used by the Borrower for working capital and general
corporate purposes. The Borrower will not use any part of the proceeds of
any of the Borrowings directly or indirectly to purchase or carry any
margin stock (as defined in Section 5.11 hereof) or to extend credit to
others for the purpose of purchasing or carrying any such margin stock.
Section 7.11 Mergers, Consolidations and Sales of Assets.
(a) The Borrower will not consolidate with or merge into any
other Person or sell, convey, transfer or lease its properties and
assets substantially as an entirety to any Person, and the Borrower
shall not permit any Person to consolidate with or merge into the
Borrower, unless: (i) immediately prior to and immediately following
such consolidation, merger, sale or lease, and after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing; and (ii) the Borrower is the surviving or continuing
corporation, or the surviving or continuing corporation that acquires
by sale, conveyance, transfer or lease is incorporated in the United
States or Canada and expressly assumes the payment and performance of
all Obligations of the Borrower under the Credit Documents.
(b) Except for the sale of the properties and assets of the
Borrower substantially as an entirety pursuant to subsection (a)
above, and other than assets required to be sold to conform with
governmental regulations, the Borrower shall not sell or otherwise
dispose of any assets (other than short-term, readily marketable
investments purchased for cash management purposes with funds not
representing the proceeds of other asset sales) if on a pro forma
basis, the aggregate net book value of all such sales during the most
recent 12-month period would exceed 10 percent of Consolidated Net
Tangible Assets computed as of the end of the most recent fiscal
quarter preceding such sale; provided, however, that any such sales
shall be disregarded for purposes of this 10 percent limitation if
the proceeds are invested in assets in similar or related lines of
business of the Borrower and, provided further, that the Borrower may
sell or otherwise dispose of assets in excess of such 10 percent if
the proceeds from such sales or dispositions, which are not reinvested
as provided above, are retained by the Borrower as cash or cash
equivalents.
Section 7.12 Consolidated Net Worth. (a) The Borrower will at all
times maintain a ratio of Consolidated Net Worth to Consolidated
Capitalization of at least 0.32 to 1.00, and (b) the Borrower will at all
times cause its Consolidated Net Worth to be equal to or greater than the
Minimum Consolidated Net Worth.
Section 7.13 Compliance with Laws. Without limiting any of the other
covenants of the Borrower in this Section 7, the Borrower will conduct its
business, and otherwise be, in compliance with all applicable laws,
regulations, ordinances, writs, judgments, injunctions, decrees, awards and
orders of any governmental or judicial authorities; provided, however, that
the Borrower shall not be required to comply with any such law, rule,
regulation, ordinance, writ,
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judgments, injunction, decree, award or order if the failure to comply
therewith could not reasonably be expected to have a Material Adverse
Effect.
Section 7.14 PUHCA. The Borrower will obtain, or cause to be obtained,
all necessary approvals, if any, under the Public Utility Holding Company
Act of 1935, as amended, in connection with the Borrower's performance
under the Credit Documents.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
Section 8.1 Events of Default. Any one or more of the following shall
constitute an Event of Default:
(a) The Borrower shall (i) fail to make when due any payment of
principal on the Notes, or (ii) fail to make when due, and continuance
of such failure for three or more Business Days, payment of interest
on the Notes or any fee or other amount required to be made to the
Agent pursuant to the Credit Documents;
(b) Any representation or warranty made or deemed to have been
made by or on behalf of the Borrower in the Credit Documents or on
behalf of the Borrower in any certificate, statement, report or other
writing furnished by or on behalf of the Borrower to the Agent
pursuant to the Credit Documents or any other instrument, document or
agreement shall prove to have been false or misleading in any material
respect on the date as of which the facts set forth are stated or
certified or deemed to have been stated or certified;
(c) The Borrower shall fail to comply with Section 7 hereof and
such failure to comply shall continue for 30 calendar days after
notice thereof to the Borrower by the Agent;
(d) The Borrower shall fail to comply with any agreement,
covenant, condition, provision or term contained in the Credit
Documents (and such failure shall not constitute an Event of Default
under any of the other provisions of this Section 8) and such failure
to comply shall continue for 30 calendar days after notice thereof to
the Borrower by the Agent;
(e) The Borrower shall become insolvent or shall generally not
pay its debts as they mature or shall apply for, shall consent to, or
shall acquiesce in the appointment of a custodian, trustee or receiver
of the Borrower or for a substantial part of the property thereof or,
in the absence of such application, consent or acquiescence, a
custodian, trustee or receiver shall be appointed for the Borrower or
for a substantial part of the property thereof and shall not be
discharged within 90 days;
(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted
by or against the Borrower, and, if instituted against the Borrower,
shall have been consented to or acquiesced in by the Borrower, or
shall remain undismissed for 90 days, or an order for relief shall
have been entered against the Borrower, or the Borrower shall take any
corporate action to approve institution of, or acquiescence in, such a
proceeding;
(g) Any dissolution or liquidation proceeding shall be instituted
by or against the Borrower and, if instituted against the Borrower,
shall be consented to or acquiesced in
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by the Borrower or shall remain for 90 days undismissed, or the
Borrower shall take any corporate action to approve institution of, or
acquiescence in, such a proceeding;
(h) A judgment or judgments, decrees or orders of any court,
tribunal, arbitrator, administrative or other governmental body or
entity for the payment of money in excess of the sum of $20,000,000 in
the aggregate shall be rendered against the Borrower (excluding the
amount thereof covered by insurance) or any of the Borrower's
properties and such judgment, decree or order shall remain unvacated
and undischarged and unstayed for 90 consecutive days, except while
being contested in good faith by appropriate proceedings;
(i) The institution by the Borrower of steps to terminate any
Plan if in order to effectuate such termination, the Borrower would be
required to make a contribution to such Plan, or would incur a
liability or obligation to such Plan, in excess of $20,000,000, or the
institution by the PBGC of steps to terminate any Plan;
(j) A default in payment of any principal of or any interest
aggregating $20,000,000 or more on any bond, debenture, note or other
evidence of indebtedness of the Borrower or under any indenture or
other instrument under which any such evidence of indebtedness has
been issued or by which it is governed that has resulted in the
acceleration of such indebtedness;
(k) if at any time Northern States Power Company, a Minnesota
corporation, or its successors, ceases to own a majority of the
outstanding Voting Stock of the Borrower; or
(l) an "event of default" occurs under the Long-Term Credit
Agreement.
Section 8.2 Non-Bankruptcy Defaults. When any Event of Default other
than those described in subsections (e) or (f) of Section 8.1 hereof has
occurred and is continuing, the Agent shall, by written notice to the
Borrower: (a) if so directed by the Required Banks, terminate the remaining
Commitments and all other obligations of the Banks hereunder on the date
stated in such notice (which may be the date thereof); and (b) if so
directed by the Required Banks, declare the principal of and the accrued
interest on all outstanding Notes to be forthwith due and payable and
thereupon all outstanding Notes, including both principal and interest
thereon, shall be and become immediately due and payable together with all
other amounts payable under the Credit Documents without further demand,
presentment, protest or notice of any kind. The Agent, after giving notice
to the Borrower pursuant to Section 8.1(c), 8.1(d) or this Section 8.2,
shall also promptly send a copy of such notice to the other Banks, but the
failure to do so shall not impair or annul the effect of such notice.
Section 8.3 Bankruptcy Defaults. When any Event of Default described
in subsections (e) or (f) of Section 8.1 hereof has occurred and is
continuing, then all outstanding Notes shall immediately become due and
payable together with all other amounts payable under the Credit Documents
without presentment, demand, protest or notice of any kind and the
obligation of the Banks to extend further credit pursuant to any of the
terms hereof shall immediately terminate.
Section 8.4 [Intentionally Omitted]
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Section 8.5 Notice of Default. The Agent shall give notice to the
Borrower under Section 8.1(c) or 8.1(d) hereof promptly upon being
requested to do so by any Bank and shall thereupon notify all the Banks
thereof.
Section 8.6 Expenses. The Borrower agrees to pay to the Agent and each
Bank, and any other holder of any Note outstanding hereunder, all
reasonable costs and expenses incurred or paid by the Agent or such Bank or
any such holder, including attorneys? fees and court costs, in connection
with any Default or Event of Default by the Borrower hereunder or in
connection with the enforcement of any of the Credit Documents.
SECTION 9. CHANGE IN CIRCUMSTANCES.
Section 9.1 Change of Law. Notwithstanding any other provisions of
this Agreement or any Note if at any time after the date hereof any change
in applicable law or regulation or in the interpretation thereof makes it
unlawful for any Bank to make or continue to maintain Eurocurrency Loans or
to perform its obligations as contemplated hereby, such Bank shall promptly
give notice thereof to the Borrower and such Bank's obligations to make or
maintain Eurocurrency Loans under this Agreement shall terminate until it
is no longer unlawful for such Bank to make or maintain Eurocurrency Loans.
The Borrower shall prepay on demand the outstanding principal amount of any
such affected Eurocurrency Loans, together with all interest accrued
thereon at a rate per annum equal to the interest rate applicable to such
Loan; provided, however, subject to all of the terms and conditions of this
Agreement, the Borrower may then elect to borrow the principal amount of
the affected Eurocurrency Loans from such Bank by means of Base Rate Loans
from such Bank, which Base Rate Loans shall not be made ratably by the
Banks but only from such affected Bank.
Section 9.2 Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of, LIBOR. If on or prior to the first day of any Interest
Period for any Borrowing of Eurocurrency Loans:
(a) the Agent determines that deposits in U.S. Dollars (in the
applicable amounts) are not being offered to it in the eurocurrency
interbank market for such Interest Period, or that by reason of
circumstances affecting the interbank eurocurrency market adequate and
reasonable means do not exist for ascertaining the applicable LIBOR;
or
(b) Banks having 25% or more of the aggregate amount of the
Revolving Credit Commitments reasonably determine and so advise the
Agent that LIBOR as reasonably determined by the Agent will not
adequately and fairly reflect the cost to such Banks or Bank of
funding their or its Eurocurrency Loans or Loan for such Interest
Period; then the Agent shall forthwith give notice thereof to the
Borrower and the Banks, whereupon until the Agent notifies the
Borrower that the circumstances giving rise to such suspension no
longer exist, the obligations of the Banks or of the relevant Bank to
make Eurocurrency Loans in the currency so affected shall be
suspended.
Section 9.3 Increased Cost and Reduced Return.
(a) If, on or after the date hereof, the adoption of any
applicable law, rule or regulation, or any change therein, or any
change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any
Bank (or its Lending Office) with any request or directive (whether or
not having the force of law but, if not
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having the force of law, compliance with which is customary in
the relevant jurisdiction) of any such authority, central bank or
comparable agency:
(i) shall subject any Bank (or its Lending Office) to any
tax, duty or other charge with respect to its Eurocurrency Loans,
its Notes, or its obligation to make Eurocurrency Loans, or shall
change the basis of taxation of payments to any Bank (or its
Lending Office) of the principal of or interest on its
Eurocurrency Loans, or any other amounts due under this Agreement
in respect of its Eurocurrency Loans or its obligation to make
Eurocurrency Loans, (except for changes in the rate of tax on the
overall net income or profits of such Bank or its Lending Office
imposed by the jurisdiction in which such Bank or its lending
office is incorporated in which such Bank's principal executive
office or Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding with
respect to any Eurocurrency Loans any such requirement included
in an applicable Eurocurrency Reserve Percentage) against assets
of, deposits with or for the account of, or credit extended by,
any Bank (or its Lending Office) or shall impose on any Bank (or
its Lending Office) or on the interbank market any other
condition affecting its Eurocurrency Loans, its Notes, or its
obligation to make Eurocurrency Loans; and the result of any of
the foregoing is to increase the cost to such Bank (or its
Lending Office) of making or maintaining any Eurocurrency Loan,
or to reduce the amount of any sum received or receivable by such
Bank (or its Lending Office) under this Agreement or under its
Notes with respect thereto, by an amount deemed by such Bank to
be material, then, within fifteen (15) days after demand by such
Bank (with a copy to the Agent), the Borrower shall be obligated
to pay to such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction. In the
event any law, rule, regulation or interpretation described above
is revoked, declared invalid or inapplicable or is otherwise
rescinded, and as a result thereof a Bank is determined to be
entitled to a refund from the applicable authority for any amount
or amounts which were paid or reimbursed by Borrower to such Bank
hereunder, such Bank shall refund such amount or amounts to
Borrower without interest.
(b) If, after the date hereof, any Bank or the Agent shall have
determined that the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein (including, without
limitation, any revision in the Final Risk-Based Capital Guidelines of
the Board of Governors of the Federal Reserve System (12 CFR Part 208,
Appendix A; 12 CFR Part 225, Appendix A) or of the Office of the
Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any
other applicable capital rules heretofore adopted and issued by any
governmental authority), or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Lending Office) with any
request or directive regarding capital adequacy (whether or not having
the force of law but, if not having the force of law, compliance with
which is customary in the applicable jurisdiction) of any such
authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital, or on
the capital of any corporation controlling
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such Bank, as a consequence of its obligations hereunder to a
level below that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration such Bank's
policies with respect to capital adequacy) by an amount deemed by such
Bank to be material, then from time to time, within fifteen (15) days
after demand by such Bank (with a copy to the Agent), the Borrower
shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such reduction.
(c) Each Bank that determines to seek compensation under this
Section 9.3 shall notify the Borrower and the Agent of the
circumstances that entitle the Bank to such compensation pursuant to
this Section 9.3 and will designate a different Lending Office if such
designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole judgment of such Bank, be
otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section 9.3 and setting forth the
additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. In determining such
amount, such Bank may use any reasonable averaging and attribution
methods.
(d) If any Bank (other than ABN AMRO Bank N.V.) has demanded
compensation or given notice of its intention to demand compensation
under this Section 9.3 or the Borrower is required to pay any
additional amount to any Bank under Section 9.3, the Borrower shall
have the right, with the assistance of the Agent, to seek a substitute
Bank or Banks reasonably satisfactory to the Agent (which may be one
or more of the Banks) to replace such Bank under this Agreement and on
the date of replacement, the Borrower shall pay all accrued interest
and fees to the Bank being replaced. The Bank to be so replaced shall
cooperate with the Borrower and substitute Bank to accomplish such
substitution, provided that all of such Bank's Loan Commitment is
replaced.
Section 9.4 Lending Offices. Each Bank may, at its option, elect to
make its Loans hereunder at the branch, office or affiliate specified on
the appropriate signature page hereof or in the assignment agreement which
any assignee bank executes pursuant to Section 11.12 hereof (each a
"Lending Office") for each type of Loan available hereunder or at such
other of its branches, offices or affiliates as it may from time to time
elect and designate in a written notice to the Borrower and the Agent.
Section 9.5 Discretion of Bank as to Manner of Funding.
Notwithstanding any other provision of this Agreement, each Bank shall be
entitled to fund and maintain its funding of all or any part of its Loans
in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if
each Bank had actually funded and maintained each Eurocurrency Loan through
the purchase of deposits of U.S. Dollars in the eurocurrency interbank
market having a maturity corresponding to such Loan's Interest Period and
bearing an interest rate equal to LIBOR for such Interest Period.
SECTION 10. THE AGENT.
Section 10.1 Appointment and Authorization of Agent. Each Bank hereby
appoints ABN AMRO Bank N.V. as the Agent under the Credit Documents and
hereby authorizes the agent to take such action as Agent on its behalf and
to exercise such powers under the Credit Documents as are delegated to the
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto. The relationship between the Agent and the Banks is and
shall be
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that of agent and principal only, and nothing contained in this
Agreement or any other Credit Document shall be construed to constitute the
Agent as a trustee or fiduciary for any Bank or the Borrower.
Section 10.2 Agent and its Affiliates. The Agent shall have the same
rights and powers under this Agreement and the other Credit Documents as
any other Bank and may exercise or refrain from exercising the same as
though it were not the Agent, and the Agent and its affiliates may accept
deposits from, lend money to, and generally engage in any kind of business
with the Borrower or any Affiliate of the Borrower as if it were not the
Agent under the Credit Documents. The term "Bank" as used herein and in all
other Credit Documents, unless the context otherwise clearly requires,
includes the Agent in its individual capacity as a Bank. References in
Section 2 hereof to the Agent's Loans, or to the amount owing to the Agent
for which an interest rate is being determined, refer to the Agent in its
individual capacity as a Bank.
Section 10.3 Action by Agent. If the Agent receives from the Borrower
a written notice of an Event of Default pursuant to Section 7.6(c)(i)
hereof, the Agent shall promptly give each of the Banks written notice
thereof. The obligations of the Agent under the Credit Documents are only
those expressly set forth therein. Without limiting the generality of the
foregoing, the Agent shall not be required to take any action hereunder
with respect to any Default or Event of Default, except as expressly
provided in Sections 8.2 and 8.5. In no event, however, shall the Agent be
required to take any action in violation of applicable law or of any
provision of any Credit Document, and the Agent shall in all cases be fully
justified in failing or refusing to act hereunder or under any other Credit
Document unless it shall be first indemnified to its reasonable
satisfaction by the Banks against any and all costs, expense, and liability
which may be incurred by it by reason of taking or continuing to take any
such action. The Agent shall be entitled to assume that no Default or Event
of Default exists unless notified to the contrary by a Bank or the
Borrower. In all cases in which this Agreement and the other Credit
Documents do not require the Agent to take certain actions, the Agent shall
be fully justified in using its discretion in failing to take or in taking
any action hereunder and thereunder.
Section 10.4 Consultation with Experts. The Agent may consult with
legal counsel, independent public accountants and other experts selected by
it and shall not be liable for any action taken or omitted to be taken by
it in good faith in accordance with the advice of such counsel, accountants
or experts.
Section 10.5 Liability of Agent; Credit Decision. Neither the Agent
nor any of its directors, officers, agents, or employees shall be liable
for any action taken or not taken by it in connection with the Credit
Documents (i) with the consent or at the request of the Required Banks or
(ii) in the absence of its own gross negligence or willful misconduct.
Neither the Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into or
verify: (i) any statement, warranty or representation made in connection
with this Agreement, any other Credit Document or any Credit Event; (ii)
the performance or observance of any of the covenants or agreements of the
Borrower or any other party contained herein or in any other Credit
Document; (iii) the satisfaction of any condition specified in Section 6
hereof, except receipt of items required to be delivered to the Agent; or
(iv) the validity, effectiveness, genuineness, enforceability, perfection,
value, worth or collectability hereof or of any other Credit Document or of
any other documents or writing furnished in connection with any Credit
Document; and the Agent makes no representation of any kind or character
with respect to any such matter mentioned in this sentence. The Agent may
execute any of its duties under any of the Credit Documents by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Banks, the Borrower, or any other Person for the default or
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misconduct of any such agents or attorneys-in-fact selected with
reasonable care. The Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, other document or statement
(whether written or oral) believed by it to be genuine or to be sent by the
proper party or parties. In particular and without limiting any of the
foregoing, the Agent shall have no responsibility for confirming the
accuracy of any Compliance Certificate or other document or instrument
received by it under the Credit Documents. The Agent may treat the payee of
any Note as the holder thereof until written notice of transfer shall have
been filed with the Agent signed by such payee in form satisfactory to the
Agent. Each Bank acknowledges that it has independently and without
reliance on the Agent or any other Bank, and based upon such information,
investigations and inquiries as it deems appropriate, made its own credit
analysis and decision to extend credit to the Borrower in the manner set
forth in the Credit Documents. It shall be the responsibility of each Bank
to keep itself informed as to the creditworthiness of the Borrower and any
other relevant Person, and the Agent shall have no liability to any Bank
with respect thereto.
Section 10.6 Indemnity. The Banks shall ratably, in accordance with
their respective Percentages, indemnify and hold the Agent, and its
directors, officers, employees, agents and representatives harmless from
and against any liabilities, losses, costs or expenses suffered or incurred
by it under any Credit Document or in connection with the transactions
contemplated thereby, regardless of when asserted or arising, except to the
extent they are promptly reimbursed for the same by the Borrower and except
to the extent that any event giving rise to a claim was caused by the gross
negligence or willful misconduct of the party seeking to be indemnified.
The obligations of the Banks under this Section 10.6 shall survive
termination of this Agreement.
Section 10.7 Resignation of Agent and Successor Agent. The Agent may
resign at any time by giving written notice thereof to the Banks and the
Borrower. Upon any such resignation of the Agent, the Required Banks shall
have the right to appoint a successor Agent with the consent of the
Borrower. If no successor Agent shall have been so appointed by the
Required Banks, and shall have accepted such appointment, within thirty
(30) days after the retiring Agent's giving of notice of resignation, then
the retiring Agent may, on behalf of the Banks, with the consent of the
Borrower, appoint a successor Agent, which shall be any Bank hereunder or
any commercial bank organized under the laws of the United States of
America or of any State thereof and having a combined capital and surplus
of at least $200,000,000. Upon the acceptance of its appointment as the
Agent hereunder, such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring or removed Agent
under the Credit Documents, and the retiring Agent shall be discharged from
its duties and obligations thereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Section 10 and all
protective provisions of the other Credit Documents shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent.
SECTION 11. MISCELLANEOUS.
Section 11.1 Withholding Taxes.
(a) Payments Free of Withholding. Subject to Section 11.1(b)
hereof, each payment by the Borrower under this Agreement or the other
Credit Documents shall be made without withholding for or on account
of any present or future taxes (other than overall net income taxes on
the recipient). If any such withholding is so required, the Borrower
shall make the withholding, pay the amount withheld to the appropriate
governmental authority before penalties attach thereto or interest
accrues thereon and forthwith pay such additional amount as may be
necessary to ensure that the net amount
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actually received by each Bank and the Agent free and clear of
such taxes (including such taxes on such additional amount) is equal
to the amount which that Bank or the Agent (as the case may be) would
have received had such withholding not been made. If the Agent or any
Bank pays any amount in respect of any such taxes, penalties or
interest the Borrower shall reimburse the Agent or that Bank for that
payment on demand in the currency in which such payment was made. If
the Borrower pays any such taxes, penalties or interest, it shall
deliver official tax receipts evidencing that payment or certified
copies thereof to the Bank or Agent on whose account such withholding
was made (with a copy to the Agent if not the recipient of the
original) on or before the thirtieth day after payment. If any Bank or
the Agent determines it has received or been granted a credit against
or relief or remission for, or repayment of, any taxes paid or payable
by it because of any taxes, penalties or interest paid by the Borrower
and evidenced by such a tax receipt, such Bank or Agent shall, to the
extent it can do so without prejudice to the retention of the amount
of such credit, relief, remission or repayment, pay to the Borrower
such amount as such Bank or Agent determines is attributable to such
deduction or withholding and which will leave such Bank or Agent
(after such payment) in no better or worse position than it would have
been in if the Borrower had not been required to make such deduction
or withholding. Nothing in this Agreement shall interfere with the
right of each Bank and the Agent to arrange its tax affairs in
whatever manner it thinks fit nor oblige any Bank or the Agent to
disclose any information relating to its tax affairs or any
computations in connection with such taxes.
(b) U.S. Withholding Tax Exemptions. Each Bank that is not a
United States person (as such term is defined in Section 7701(a)(30)
of the Code) shall submit to the Borrower and the Agent on or before
the earlier of the date the initial Borrowing is made hereunder and
thirty (30) days after the date hereof, two duly completed and signed
copies of either Form 1001 (relating to such Bank and entitling it to
a complete exemption from withholding under the Code on all amounts to
be received by such Bank, including fees, pursuant to the Credit
Documents and the Loans) or Form 4224 (relating to all amounts to be
received by such Bank, including fees, pursuant to the Credit
Documents and the Loans) of the United States Internal Revenue
Service. Thereafter and from time to time, each Bank shall submit to
the Borrower and the Agent such additional duly completed and signed
copies of one or the other of such Forms (or such successor forms as
shall be adopted from time to time by the relevant United States
taxing authorities) as may be (i) requested by the Borrower in a
written notice, directly or through the Agent, to such Bank and (ii)
required under then-current United States law or regulations to avoid
or reduce United States withholding taxes on payments in respect of
all amounts to be received by such Bank, including fees, pursuant to
the Credit Documents or the Loans.
(c) Inability of Bank to Submit Forms. If any Bank determines, as
a result of any change in applicable law, regulation or treaty, or in
any official application or interpretation thereof, that it is unable
to submit to the Borrower or Agent any form or certificate that such
Bank is obligated to submit pursuant to subsection (b) of this Section
11.1. or that such Bank is required to withdraw or cancel any such
form or certificate previously submitted or any such form or
certificate otherwise becomes ineffective or inaccurate, such Bank
shall promptly notify the Borrower and Agent of such fact and the Bank
shall to that extent not be obligated to provide any such form or
certificate and will be entitled to withdraw or cancel any affected
form or certificate, as applicable.
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Section 11.2 No Waiver of Rights. No delay or failure on the part of
the Agent or any Bank or on the part of the holder or holders of any Note
in the exercise of any power or right under any Credit Document shall
operate as a waiver thereof, nor as an acquiescence in any default, nor
shall any single or partial exercise thereof preclude any other or further
exercise of any other power or right, and the rights and remedies hereunder
of the Agent, the Banks and the holder or holders of any Notes are
cumulative to, and not exclusive of, any rights or remedies which any of
them would otherwise have.
Section 11.3 Non-Business Day. If any payment of principal or interest
on any Loan or of any other Obligation shall fall due on a day which is not
a Business Day, interest or fees (as applicable) at the rate, if any, such
Loan or other Obligation bears for the period prior to maturity shall
continue to accrue on such Obligation from the stated due date thereof to
and including the next succeeding Business Day, on which the same shall be
payable.
Section 11.4 Documentary Taxes. The Borrower agrees that it will pay
any documentary, stamp or similar taxes payable in respect to any Credit
Document, including interest and penalties, in the event any such taxes are
assessed, irrespective of when such assessment is made and whether or not
any credit is then in use or available hereunder.
Section 11.5 Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall
survive the execution and delivery of this Agreement and the other Credit
Documents, and shall continue in full force and effect with respect to the
date as of which they were made as long as any credit is in use or
available hereunder.
Section 11.6 Survival of Indemnities. All indemnities and all other
provisions relative to reimbursement to the Banks of amounts sufficient to
protect the yield of the Banks with respect to the Loans, including, but
not limited to, Section 2.11, Section 9.3 and Section 11.15 hereof, shall
survive the termination of this Agreement and the other Credit Documents
and the payment of the Loans and all other Obligations.
Section 11.7 Set-Off.
(a) In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon
the occurrence of any Event of Default, each Bank and each subsequent
holder of any Note is hereby authorized by the Borrower at any time or
from time to time, without notice to the Borrower or to any other
Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special,
including, but not limited to, Indebtedness evidenced by certificates
of deposit, whether matured or unmatured, and in whatever currency
denominated) and any other Indebtedness at any time held or owing by
that Bank or that subsequent holder to or for the credit or the
account of the Borrower, whether or not matured, against and on
account of the obligations and liabilities of the Borrower to that
Bank or that subsequent holder under the Credit Documents, including,
but not limited to, all claims of any nature or description arising
out of or connected with the Credit Documents, irrespective of whether
or not (a) that Bank or that subsequent holder shall have made any
demand hereunder or (b) the principal of or the interest on the Loans
or Notes and other amounts due hereunder shall have become due and
payable pursuant to Section 8 and although said obligations and
liabilities, or any of them, may be contingent or unmatured.
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(b) Each Bank agrees with each other Bank a party hereto that if
such Bank shall receive and retain any payment, whether by set-off or
application of deposit balances or otherwise, on any of the Loans in
excess of its ratable share of payments on all such obligations then
outstanding to the Banks, then such Bank shall purchase for cash at
face value, but without recourse, ratably from each of the other Banks
such amount of the Loans, or participations therein, held by each such
other Banks (or interest therein) as shall be necessary to cause such
Bank to share such excess payment ratably with all the other Banks;
provided, however, that if any such purchase is made by any Bank, and
if such excess payment or part thereof is thereafter recovered from
such purchasing Bank, the related purchases from the other Banks shall
be rescinded ratably and the purchase price restored as to the portion
of such excess payment so recovered, but without interest.
Section 11.8 Notices. Except as otherwise specified herein, all
notices under the Credit Documents shall be in writing (including telecopy
or other electronic communication) and shall be given to a party hereunder
at its address or telecopier number set forth below or such other address
or telecopier number as such party may hereafter specify by notice to the
Agent and the Borrower, given by courier, by United States certified or
registered mail, or by other telecommunication device capable of creating a
written record of such notice and its receipt. Notices under the Credit
Documents to the Banks shall be addressed to their respective addresses,
telecopier or telephone numbers set forth on the signature pages hereof or
in the assignment agreement which any assignee bank executes pursuant to
Section 11.12 hereof, and to the Borrower and to the Agent to:
If to the Borrower:
NRG Energy, Inc.
1221 Nicollet Mall
Suite 700
Minneapolis, MN 55403-2445
Attention: Treasurer
Facsimile: (612) 373-5341
Telephone: (612) 373-5306
If to the Agent:
ABN AMRO Bank
Agency Services
1325 Avenue of the Americas
9th Floor
New York, New York 10019
Attention: Linda Boardman
Facsimile: (212) 314-1712
Telephone: (212) 314-1724
With copies to:
ABN AMRO Bank
135 South LaSalle Street
Suite 711
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Chicago, Illinois 60603
Attention: David B. Bryant/Kevin McFadden
Facsimile: (312) 904-6217
Telephone: (312) 904-2799/904-2131
ABN AMRO Bank
135 South LaSalle Street
Suite 625
Chicago, Illinois 60603
Attention: Novona Dillard
Facsimile: (312) 904-8840
Telephone: (312) 904-2676
Each such notice, request or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to the
telecopier number specified in this Section 11.8 or on the signature pages
hereof and a confirmation of receipt of such telecopy has been received by
the sender, (ii) if given by courier, when delivered, (iii) if given by
mail, three business days after such communication is deposited in the
mail, registered with return receipt requested, addressed as aforesaid or
(iv) if given by any other means, when delivered at the addresses specified
in this Section 11.8; provided that any notice given pursuant to Section 2
hereof shall be effective only upon receipt.
Section 11.9 Counterparts. This Agreement may be executed in any
number of counterpart signature pages, and by the different parties on
different counterparts, each of which when executed shall be deemed an
original but all such counterparts taken together shall constitute one and
the same instrument.
Section 11.10 Successors and Assigns. This Agreement shall be binding
upon the Borrower and its successors and assigns, and shall inure to the
benefit of each of the Banks and the benefit of their respective successors
and assigns, including any subsequent holder of any Note. The Borrower may
not assign any of its rights or obligations under any Credit Document
without the written consent of all of the Banks.
Section 11.11 Participants and Note Assignees. Each Bank shall have
the right at its own cost to grant participations (to be evidenced by one
or more agreements or certificates of participation) in the Loans made
and/or Revolving Credit Commitments held by such Bank at any time and from
time to time, and to assign its rights under such Loans or the Note
evidencing such Loans to a federal reserve bank; provided that (i) no such
participation or assignment shall relieve any Bank of any of its
obligations under this Agreement, (ii) no such assignee or participant
shall have any rights under this Agreement except as provided in this
Section 11.11, and (iii) the Agent shall have no obligation or
responsibility to such participant or assignee, except that nothing herein
is intended to affect the rights of an assignee of a Note to enforce the
Note assigned. Any party to which such a participation or assignment has
been granted shall have the benefits of Section 2.11 and Section 9.3, but
shall not be entitled to receive any greater payment under either such
Section than the Bank granting such participation would have been entitled
to receive in connection with the rights transferred. Any agreement
pursuant to which any Bank may grant such a participating interest shall
provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder, including, without
limitation, the right to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such participation agreement
may provide that such Bank will not agree to any modification, amendment or
waiver of this Agreement that would (A) increase any Revolving
35
<PAGE> 37
Credit Commitment of such Bank if such increase would also increase
the participant's obligations, (B) forgive any amount of or postpone the
date for payment of any principal of or interest on any Loan or of any fee
payable hereunder in which such participant has an interest or (C) reduce
the stated rate at which interest or fees in which such participant has an
interest accrue hereunder.
Section 11.12 Assignment of Commitments by Banks. Each Bank shall have
the right at any time, with the written consent of the Borrower and Agent
(which consent shall not be unreasonably withheld), to assign all or any
part of its Revolving Credit Commitment (including the same percentage of
its Note and outstanding Loans) to one or more other Persons; provided that
such assignment is in an amount of at least $10,000,000 or the entire
Revolving Credit Commitment of such Bank, and if such assignment is not for
such Bank's entire Revolving Credit Commitment then such Bank's Revolving
Credit Commitment after giving effect to such assignment shall not be less
than $10,000,000; and provided further that neither the consent of the
Borrower nor of the Agent shall be required for any Bank to assign all or
part of its Revolving Credit Commitment to any Affiliate of the assigning
Bank. Each such assignment shall set forth the assignees address for
notices to be given under Section 11.8 hereof hereunder and its designated
Lending Office pursuant to Section 9.4 hereof. Upon any such assignment,
delivery to the Agent of an executed copy of such assignment agreement and
the forms referred to in Section 11.1 hereof, if applicable, and the
payment of a $3,500 recordation fee to the Agent, the assignee shall become
a Bank hereunder, all Loans and the Revolving Credit Commitment it thereby
holds shall be governed by all the terms and conditions hereof and the Bank
granting such assignment shall have its Revolving Credit Commitment, and
its obligations and rights in connection therewith, reduced by the amount
of such assignment; provided, however, in the event a Bank assigns all of
its Revolving Credit Commitment at the request of the Borrower, pursuant to
Section 3.2(b) or 11.13(iii), no recordation fee shall be required
hereunder. A Bank may not assign its Revolving Credit Commitment hereunder
unless it shall simultaneously assign the same percentage of its
commitment, if any, under the Long-Term Credit Agreement in accordance with
the terms thereof. If the Borrower replaces a Dissenting Bank or
Replaceable Bank with another entity, it shall also cause the assignment of
such Dissenting Bank or Replaceable Bank's commitment, if any, under the
Long-Term Credit Agreement in accordance with the terms thereof, and such
Dissenting Bank or Replaceable Bank agrees to cooperate in the making of
such assignment.
Section 11.13 Amendments. Any provision of the Credit Documents may be
amended or waived if, but only if, such amendment or waiver is in writing
and is signed by (a) the Borrower, (b) the Required Banks, and (c) if the
rights or duties of the Agent are affected thereby, the Agent; provided
that:
(i) no amendment or waiver pursuant to this Section 11.13
shall (A) increase any Commitment of any Bank without the consent
of such Bank or (B) reduce the stated rate at which interest or
fees accrue or reduce the amount of or postpone any fixed date
for payment of any principal of or interest on any Loan or of any
fee payable hereunder without the consent of each Bank; and
(ii) no amendment or waiver pursuant to this Section 11.13
shall, unless signed by each Bank, change this Section 11.13, or
the definition of Required Banks, or affect the number of Banks
required to take any action under the Credit Documents.
36
<PAGE> 38
(iii) if the Borrower requests an amendment to this
Agreement which requires the approval of all of the Banks and one
of the Banks (a "Replaceable Bank") does not approve it, the
Borrower may propose that another bank which is reasonably
acceptable to the Agent (a "Replacement Bank") be substituted for
and replace the Replaceable Bank for purposes of this Agreement.
If a Replacement Bank is so substituted for the Replaceable Bank,
the Replaceable Bank shall enter into an assignment agreement
with the Replacement Bank, the Borrower and the Agent to assign
and transfer to the Replacement Bank, the Replaceable Bank's
Commitment hereunder; provided, however, if a Replacement Bank
can't be found, then the Borrower may elect to take out the
Replaceable Bank and reduce the facility accordingly by making a
prepayment in the amount of such Replaceable Bank's Commitment
(including the same percentage of its Note and outstanding Loans)
plus all accrued and unpaid interest thereon and all fees due and
owing on the date of replacement. Notwithstanding anything to the
contrary contained herein, in no event shall the Agent be a
Replaceable Bank.
Section 11.14 Headings. Section headings used in this Agreement are
for reference only and shall not affect the construction of this Agreement.
Section 11.15 Legal Fees, Other Costs and Indemnification. The
Borrower agrees to pay all reasonable costs and expenses of the Agent in
connection with the preparation and negotiation of the Credit Documents,
including, without limitation, the reasonable fees and disbursements of
Foley & Lardner, counsel to the Agent, in connection with the preparation
and execution of the Credit Documents and any amendment, waiver or consent
related hereto, whether or not the transactions contemplated herein are
consummated. The Borrower further agrees to indemnify each Bank, the Agent,
and their respective Affiliates, directors, agents, officers and employees,
against all losses, claims, damages, penalties, judgments, liabilities and
expenses (including, without limitation, all expenses of litigation or
preparation therefor, whether or not the indemnified Person is a party
thereto) which any of them may incur or reasonably pay arising out of or
relating to any Credit Document or any of the transactions contemplated
thereby or the direct or indirect application or proposed application of
the proceeds of any Loan other than those which arise from the gross
negligence or willful misconduct of the party claiming indemnification. The
Borrower, upon demand by the Agent or a Bank at any time, shall reimburse
the Agent or Bank for any reasonable legal or other expenses incurred in
connection with investigating or defending against any of the foregoing
except if the same is directly due to the gross negligence or willful
misconduct of the party to be indemnified.
Section 11.16 Entire Agreement. The Credit Documents constitute the
entire understanding of the parties thereto with respect to the subject
matter thereof and any prior or contemporaneous agreements, whether written
or oral, with respect thereto are superseded thereby.
Section 11.17 Construction. The parties hereto acknowledge and agree
that neither this Agreement nor the other Credit Documents shall be
construed more favorably in favor of one than the other based upon which
party drafted the same, it being acknowledged that all parties hereto
contributed substantially to the negotiation of this Agreement and the
other Credit Documents.
37
<PAGE> 39
Section 11.18 Governing Law. This Agreement and the other Credit
Documents, and the rights and duties of the parties hereto, shall be
construed and determined in accordance with the internal laws of the State
of New York.
Section 11.19 Submission to Jurisdiction; Waiver of Jury Trial. THE
BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW
YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED THEREBY.
38
<PAGE> 40
In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago, Illinois by their duly authorized
officers as of the day and year first above written.
NRG ENERGY, INC.
By:__________________________________
Name: ______________________________
Title:_______________________________
39
<PAGE> 41
Commitment: $20,000,000 ABN AMRO BANK N.V., in its individual
capacity as a Bank and as Agent
By:__________________________________
Name: ______________________________
Title:_______________________________
By:__________________________________
Name: ______________________________
Title:_______________________________
Address for notices:
ABN AMRO Bank N.V.
135 South LaSalle Street
Suite 711
Chicago, Illinois 60603
Attention: David B. Bryant\Kevin McFadden
Facsimile: (312) 904-6217
Telephone: (312) 904-2799\904-2131
With copy to:
ABN AMRO Bank N.V.
135 South LaSalle Street
Suite 625
Chicago, Illinois 60603
Attention: Novona Dillard
Facsimile: (312) 606-8435
Telephone: (312) 904-2676
Lending Offices:
Base Rate Loans:
135 South LaSalle Street
Suite 625
Chicago, Illinois 60603
Attention: Loan Administration
Eurocurrency Loans:
135 South LaSalle Street
Suite 625
Chicago, Illinois 60603
Attention: Loan Administration
40
<PAGE> 42
Commitment: $15,000,000 NATIONSBANK, N.A.
By:__________________________________
Name: ______________________________
Title:_______________________________
Address for notices:
Lending Offices:
Base Rate Loans:
Eurocurrency Loans:
41
<PAGE> 43
Commitment: $15,000,000 SOCIETE GENERALE, CHICAGO BRANCH
By:__________________________________
Name: ______________________________
Title:_______________________________
Address for notices:
Lending Offices:
Base Rate Loans:
Eurocurrency Loans:
42
<PAGE> 44
Commitment: $5,000,000 CIBC INC.
By:__________________________________
Name: ______________________________
Title:_______________________________
Address for notices:
Lending Offices:
Base Rate Loans:
Eurocurrency Loans:
43
<PAGE> 45
Commitment: $10,000,000 THE CHASE MANHATTAN BANK
By:__________________________________
Name: ______________________________
Title:_______________________________
Address for notices:
Lending Offices:
Base Rate Loans:
Eurocurrency Loans:
44
<PAGE> 46
Commitment: $10,000,000 WESTDEUTSCHE LANDERSBANK
GIROZENTRALE, NEW YORK BRANCH
By:__________________________________
Name: ______________________________
Title:_______________________________
Address for notices: By:__________________________________
Name: ______________________________
Title:_______________________________
Lending Offices:
Base Rate Loans:
Eurocurrency Loans:
45
<PAGE> 47
EXHIBIT A
NOTE
________________, 19___
For Value Received, the undersigned, NRG Energy, Inc., a Delaware
corporation (the "Borrower"), promises to pay to the order of
________________________________ (the "Bank") on the Termination Date of the
hereinafter defined Credit Agreement, at the principal office of ABN AMRO Bank
N.V., Chicago Branch, in Chicago, Illinois, in U.S. Dollars, the aggregate
unpaid principal amount of all Loans made by the Bank to the Borrower pursuant
to the Credit Agreement, together with interest on the principal amount of each
Loan from time to time outstanding hereunder at the rates, and payable in the
manner and on the dates, specified in the Credit Agreement.
The Bank shall record on its books or records or on a schedule attached
to this Note, which is a part hereof, each Loan made by it pursuant to the
Credit Agreement, together with all payments of principal and interest and the
principal balances from time to time outstanding hereon, whether the Loan is a
Base Rate Loan or a Eurocurrency Loan, the interest rate and Interest Period
applicable thereto, provided that prior to the transfer of this Note all such
amounts shall be recorded on a schedule attached to this Note. The record
thereof, whether shown on such books or records or on a schedule to this Note,
shall be prima facie evidence of the same, provided, however, that the failure
of the Bank to record any of the foregoing or any error in any such record shall
not limit or otherwise affect the obligation of the Borrower to repay all Loans
made to it pursuant to the Credit Agreement together with accrued interest
thereon.
This Note is one of the Notes referred to in the 364-Day Revolving
Credit Agreement dated as of March 17, 1998, among the Borrower, ABN AMRO Bank
N.V., as Agent, and the Banks party thereto (the "Credit Agreement"), and this
Note and the holder hereof are entitled to all the benefits provided for thereby
or referred to therein, to which Credit Agreement reference is hereby made for a
statement thereof. All defined terms used in this Note, except terms otherwise
defined herein, shall have the same meaning as in the Credit Agreement. This
Note shall be governed by and construed in accordance with the internal laws of
the State of New York.
Prepayments may be made hereon and this Note may be declared due prior
to the expressed maturity hereof, all in the events, on the terms and in the
manner as provided for in the Credit Agreement.
The Borrower hereby waives demand, presentment, protest or notice of
any kind hereunder.
NRG Energy, Inc.
By:____________________________
Its: ____________________________
<PAGE> 48
EXHIBIT B
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished to ABN AMRO Bank N.V., as
Agent pursuant to the 364-Day Revolving Credit Agreement (the "Credit
Agreement") dated as of March 17, 1998, by and among NRG Energy, Inc., the Banks
from time to time party thereto and ABN AMRO Bank N.V., as Agent. Unless
otherwise defined herein, the terms used in this Compliance Certificate have the
meanings ascribed thereto in the Credit Agreement.
The undersigned hereby certifies that:
1. I am the duly elected or appointed ________________ of
NRG Energy, Inc.;
2. I have reviewed the terms of the Credit Agreement and I have
made, or have caused to be made under my supervision, a detailed
review of the transactions and conditions of NRG Energy, Inc. and
its Subsidiaries during the accounting period covered by the
attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event
which constitutes a Default or an Event of Default during or at
the end of the accounting period covered by the attached financial
statements or as of the date of this Compliance Certificate,
except as set forth below; and
4. Schedule B-1 attached hereto sets forth financial data and
computations evidencing compliance with certain covenants of the
Credit Agreement, all of which data and computations are true,
complete and correct. All computations are made in accordance with
the terms of the Credit Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
2
<PAGE> 49
The foregoing certifications, together with the computations set forth
in Schedule 1 hereto and the financial statements delivered with this Compliance
Certificate in support hereof, are made and delivered this __________ day of
_____________, 19___.
_____________________________
3
<PAGE> 50
COMPLIANCE CERTIFICATE
SCHEDULE B-1
COMPLIANCE CALCULATIONS FOR CREDIT AGREEMENT
CALCULATION AS OF ____________, 19_______
A. Liens (Section 7.9)
1. Total Liens $___________
2. Existing Liens $__________
3. Balance of Liens $______________ (Line A1 minus Line A2) (Line A3
not to exceed 10% of Consolidated Net Tangible Assets)
B. Sale of Assets (Section 7.11)
1. Net book value of assets sold
during this fiscal year $_______________
(Line B1 not to exceed 10% of Consolidated Net Tangible Assets)
C. Consolidated Net Worth (Section 7.12)
1. Consolidated stockholders' equity $____________
2. Less currency translation account $____________
3. Consolidated Net Worth
(Line C1 minus Line C2) $____________
D. Consolidated Capitalization
1. Consolidated Net Worth (Line C3) $____________
2. Indebtedness of the Borrower $____________
3. Consolidated Capitalization (Sum of line D1 and D2) $____________
E. ___ to ___
(ratio must be at least 0.32 to 1.00)
4
<PAGE> 51
EXHIBIT C
FORM OF LEGAL OPINION OF COUNSEL TO THE BORROWER
MARCH 17, 1998
ABN AMRO Bank N.V.,
in its individual capacity as
a Bank and as Agent
135 South LaSalle Street
Suite 711
Chicago, Illinois 60603
Ladies and Gentlemen:
I am Vice President and General Counsel of NRG Energy, Inc., a Delaware
corporation ("Borrower"), and have represented the Borrower in connection with
the transactions to be effected pursuant to the terms and conditions of that
certain 364-Day Revolving Credit Agreement dated as of the date hereof among the
Borrower, the Banks party thereto and ABN AMRO Bank, N.V., individually as a
Bank and as Agent (the "Credit Agreement").
This opinion is delivered to you pursuant to Section 6.1(a) of the
Credit Agreement. Capitalized terms used in this opinion and not otherwise
defined herein shall have the meanings ascribed thereto in the Credit Agreement.
In connection with this opinion I have examined:
A. the Credit Agreement;
B. the Notes; and
C. the Fee Letter.
The foregoing documents, together with the other documents executed and
delivered by the Borrower to the Agent in connection with the Credit Agreement,
are sometimes referred to herein as the "Loan Documents."
I have also examined such corporate documents and records of the
Borrower and such certificates of public officials and officers of the Borrower
as I have deemed necessary or appropriate for purposes of rendering this
opinion. In stating my opinion, I have assumed the genuineness of all signatures
(except the Borrower), the authority of persons signing the Loan Documents on
behalf of all parties thereto (except the Borrower), the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies.
Based on the foregoing, and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
2. The Borrower has the corporate power and authority to execute,
deliver and perform the
<PAGE> 52
Loan Documents and all corporate action necessary to authorize the execution,
delivery and performance of the Loan Documents has been taken.
3. The Loan Documents have been duly executed and delivered on behalf
of the Borrower and constitute valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms,
except as limited by applicable bankruptcy, insolvency, moratorium or other
similar laws affecting the rights of creditors or the application of general
principles of equity (whether considered in a proceeding in equity or at law).
4. The Execution, delivery and performance by the Borrower of the Loan
Documents do not: (i) result in a breach or other violation of any of the terms,
conditions or provisions of any indenture, loan or credit agreement or any other
agreement, lease or instrument to which the Borrower is a party or by which it
or any of its properties may be bound; (ii) result in a breach or other
violation of any of the terms, conditions or provisions of any order, writ,
injunction or decree of any court or other governmental authority or
instrumentality to which the Borrower is subject; or (iii) result in the
creation or imposition of any lien, charge, security interest or encumbrance
upon any property of the Borrower under any indenture, loan or credit agreement
or any other material agreement, lease, instrument, order, writ, injunction or
decree referred to in clauses (i) and (ii) above; where any such breach,
violation or lien could have a Material Adverse Effect. The execution, delivery
and performance by the Borrower of the Loan Documents and the transactions
contemplated thereby do not result in a breach or other violation of any of the
terms, conditions or provisions of any applicable federal, or Delaware statute
or regulation where such breach or violation could have a Material Adverse
Effect.
5. Except as set forth on Schedule 5.5 to the Credit Agreement, no
judgments are outstanding against the Borrower, nor is there pending or, to the
best of our knowledge, threatened, any litigation, investigation, contested
claim or governmental proceeding by or against the Borrower which could have a
Material Adverse Effect.
6. The extension, arranging and obtaining of the credit represented by
the Credit Agreement do not result in any violation of Regulation G. T, U or X
of the Board of Governors of the Federal Reserve System.
7. Neither the Borrower nor any Subsidiary is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended. No
approvals by the SEC under the Public Utility Holding Company Act of 1935, as
amended ("PUHCA") are required in connection with the execution by the Borrower
of the Loan Documents or the performance by the Borrower of any of the
transactions contemplated thereby.
8. No authorization, consent, license, order or approval of, or other
action by, any governmental authority is required to be obtained or made in
connection with the due execution, delivery and performance of the Loan
Documents.
9. I am a member of the bar of the State of Minnesota, and I am not
licensed to practice in the States of Delaware or New York. I express no opinion
on the law of any other jurisdiction other than the State of Minnesota and the
provisions of the Delaware General Corporation Law and the federal laws of the
United States applicable therein or thereto. The opinions expressed herein are
based upon the law and circumstances as they are in effect or exist on the date
hereof, and I assume no obligation to revise or supplement this letter in the
event of future changes in the law or interpretations thereof with respect to
circumstances or events that may occur subsequent to the date hereof. I express
no opinion as to the effect of the laws of any other jurisdiction.
For purposes of the opinion rendered in paragraph 3, I have assumed
that the laws of the State of New York are substantially the same as the laws of
the State of Minnesota.
2
<PAGE> 53
Minnesota Statutes ss.290.371, Subd. 4, provides that any corporation
required to file a Notice of Business Activities Report does not have a cause of
action upon which it may bring suit under Minnesota law unless the corporation
has filed a Notice of Business Activities Report and provides that the use of
the courts of the State of Minnesota for all contracts executed and all causes
of action that arose before the end of any period for which a corporation failed
to file a required report is precluded. Insofar as our opinion may relate to the
valid, binding and enforceable character of any agreement under Minnesota law or
in a Minnesota court, we have assumed that any party seeking to enforce such
agreement has at all times been, and will continue at all times to be, exempt
from the requirement of filing a Notice of Business Activities Report or, if not
exempt, has duly filed, and will continue to duly file, all Notice of Business
Activities Report or, if not exempt, has duly filed, and will continue to duly
file, all Notice of Business Activities Reports.
This opinion is furnished by me as General Counsel of the Borrower to
you pursuant to the Agreement. This opinion is solely for your benefit and may
not be relied upon by any other person or by you in any other context. This
opinion may not be quoted, in whole or in part, or copies hereof furnished, to
any other person without my prior express written consent.
Very truly yours,
3
<PAGE> 54
SCHEDULE 1
PRICING GRID
<TABLE>
<CAPTION>
IF THE BORROWER'S THE
SENIOR UNSECURED DEBT RATING ANNUAL
IS (MOODY'S\STANDARD AND FACILITY
POOR'S, RESPECTIVELY) FEE IS THE THE BASE
EUROCURRENCY RATE
LEVEL MARGIN IS MARGIN IS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I Greater than or equal to 0.125% 0.250% 0.000%
Baa2/BBB
- ----------------------------------------------------------------------------------------------------------------
II Below Level I, but greater 0.175% 0.275% 0.000%
than or equal to Baa3/BBB-
- ----------------------------------------------------------------------------------------------------------------
III Below Level II, but greater 0.325% 0.550% 0.000%
than or equal to Bal/BB+
- ----------------------------------------------------------------------------------------------------------------
IV Below Level III 0.450% 1.050% 0.550%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Any change in Rating (and in any fees or interest payable hereunder based
on Ratings) shall be effective as of the date on which S&P or Moody's, as the
case may be, announces the applicable change in such Rating. In the event of a
split rating, the lower rating shall prevail.
<PAGE> 55
SCHEDULE 5.2
SUBSIDIARIES
SUBSIDIARY STATE OF INCORPORATION
------------------------------------------- -----------------------
Cobee Holdings Inc. Delaware
Elk River Resource Recovery, Inc. Minnesota
Fresh Kills Cogen Inc. Delaware
Graystone Corporation Minnesota
NEO Corporation (NEO) Minnesota
NRG Asia-Pacific, Ltd. Delaware
NRG Cadillac Inc. Delaware
NRG del Corondo Inc. Delaware
NRG El Segundo Inc. Delaware
NRG Energy Center, Inc. Minnesota
NRG Energy Jackson Valley I, Inc. California
NRG Energy Jackson Valley II, Inc. California
NRG International, Inc. Delaware
NRG International Services Company Delaware
NRG Latin America Inc. Delaware
NRG Long Beach Inc. Delaware
NRG Operating Services, Inc. Delaware
NRG PacGen Inc. Delaware
NRG Parlin Inc. Delaware
NRG Power Marketing Inc. Delaware
NRG San Diego Inc. Delaware
NRG Services Corporation Delaware
NRG Sunnyside Inc. Delaware
NRG Sunnyside Operations GP Inc. Delaware
NRG Sunnyside Operations LP Inc. Delaware
NRG Pittsburgh Thermal Inc. Delaware
New Roads Generating, LLC Delaware
O'Brien Cogeneration, Inc. II Delaware
Okeechobee Power I, Inc. Delaware
Okeechobee Power II, Inc. Delaware
Okeechobee Power III, Inc. Delaware
Oklahoma Loan Acquisition Corporation Delaware
Power Operations, Inc. Delaware
San Joaquin Valley Energy I, Inc. California
San Joaquin Valley Energy IV, Inc. California
Scoria Incorporated Minnesota
Updated 3/16/1998
<PAGE> 56
SCHEDULE 5.5
LITIGATION SUMMARY
Sunnyside
NRG Energy, Inc. (the "Company") and its subsidiary NRG Sunnyside, Inc., along
with certain other parties, are plaintiffs in an action filed on May 2, 1996 in
the Seventh District Court for Carbon County, Utah, against Environmental Power
Corporation, Sunnyside Power Corporation, Kaiser Systems, Inc. and Kaiser Power
of Sunnyside, Inc. in connection with a Purchase and Sale Agreement by and among
the plaintiffs and defendants. The plaintiffs are seeking damages for breach of
certain representations and warranties and indemnification obligations included
in the Purchase and Sale Agreement, as well as a declaration that the related
Promissory Note executed by NRG Sunnyside, Inc. is subject to NRG Sunnyside,
Inc.'s defenses and/or setoffs for any and all claims arising under or in
connection with the Purchase and Sale Agreement, thereby reducing the principal
amount due under said note to zero.
The defendants have filed an answer denying liability and asserting
counterclaims against plaintiffs, seeking an award of unspecified compensatory
and punitive damages and the entry of a preliminary permanent injunction
requiring the plaintiffs to pay the entire balance of the Promissory Note
($1,750,000) plus interest at a rate of 13 percent. The plaintiffs deny the
defendants' counterclaims and intend to prosecute their action and contest the
case vigorously.
NRG Generating (U.S.), Inc. ("NRGG")
NRGG has commenced arbitration with the Company regarding a dispute arising out
of a Co-Investment Agreement dated April 30, 1996, executed by the Company and
NRGG. NRGG asserts, in that arbitration, that the Company violated its
obligations under the Co-Investment Agreement by entering into a Stock Purchase
Agreement with OGE Energy Corp. ("OGE", the parent of Oklahoma Gas & Electric
Company), pursuant to which the Company has agreed to sell its interest in the
Mid-Continent Power Company project ("MCPC") to OGE. NRGG asserts that, under
the Co-Investment Agreement, NRG has a right of first refusal with respect to
any sale of MCPC. NRGG is seeking to enjoin the sale of MCPC to OGE and has
claimed unspecified damages. The Company vigorously disputes NRGG's claims. The
arbitration hearing is scheduled for May 1998, and the Company expects the
arbitration to be completed before the sale of MCPC to OGE is consummated.
LABOR DISPUTE SUMMARY
None.
<PAGE> 57
SCHEDULE 7.9
EXISTING LIENS
MARCH 17, 1998
<TABLE>
<CAPTION>
TOTAL LIENS AMOUNT $
- ----------- --------
<S> <C>
Norwest Bank Minnesota, N.A. Certificate of Deposit
Held by Lumbermans Insurance Underwriters 150,000
U.S. Treasury Bills
Collateral for foreign exchange forward contracts with
Salomon Brothers 0
TOTAL LIEN BALANCE 150,000
EXISTING LIENS AT 2/1/96
Norwest Bank Minnesota, N.A. Certificate of Deposit 150,000
U.S. Treasury Bills- 3% of Notional Value of Contracts 3,665,745
---------
TOTAL EXISTING LIENS 3,815,745
BALANCE OF LIENS (3,665,745)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,986
<SECURITIES> 0
<RECEIVABLES> 19,349
<ALLOWANCES> 100
<INVENTORY> 2,619
<CURRENT-ASSETS> 118,422
<PP&E> 265,191
<DEPRECIATION> 79,300
<TOTAL-ASSETS> 1,168,102
<CURRENT-LIABILITIES> 181,089
<BONDS> 491,179
0
0
<COMMON> 1
<OTHER-SE> 450,697
<TOTAL-LIABILITY-AND-EQUITY> 1,168,102
<SALES> 92,052
<TOTAL-REVENUES> 118,252
<CGS> 46,717
<TOTAL-COSTS> 100,143
<OTHER-EXPENSES> 19,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,989
<INCOME-PRETAX> (1,509)
<INCOME-TAX> (23,491)
<INCOME-CONTINUING> 21,982
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,982
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1 Financial statements of Mitteldeutsche
Braunkohlengesellschaft mbH ("MIBRAG")
<PAGE> 2
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors 1
Consolidated Financial Statements
Consolidated Statements of Income for the years
ended December 31, 1997, 1996, 1995 2
Consolidated Balance Sheets at December 31, 1997, 1996 3
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, 1995 4
Consolidated Statements of Shareholder's Equity for the years
ended December 31, 1997, 1996, 1995 5
Notes to the Consolidated Financial Statements 6
</TABLE>
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
MIBRAG mbH
Theissen, Germany
We have audited the accompanying consolidated balance sheets of
Mitteldeutsche Braunkohlengesellschaft mbH and its subsidiaries (MIBRAG or
Group) as of December 31, 1997 and 1996, and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Group'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 Germany and the United States of America. Those standards require
that we plan and perform the 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MIBRAG
as of December 31, 1997 and 1996, and the consolidated results of its operations
and cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with accounting principles generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain significant
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected the results of operations for each of the
years in the three-year period ended December 31, 1997 and shareholders' equity
as of December 31, 1997, 1996, and 1995 to the extent summarized in Note C to
the consolidated financial statements.
Halle, Germany
February 26, 1998
/s/ DELOITTE & TOUCHE GmbH
---------------------------------------
DELOITTE & TOUCHE GmbH
Wirtschaftsprufungsgesellschaft
<PAGE> 4
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales revenue 533,025 621,439 650,705
Changes in inventories 23,826 -3,719 -9,462
Capitalized own services 11,046 4,249 6,143
Other operating income 49,520 84,904 76,900
------- -------- --------
Total performance 617,417 706,873 724,286
------- -------- --------
Cost of materials 125,266 138,468 133,670
Personnel expenses 227,632 249,437 251,509
Depreciation on intangible
and tangible fixed assets 166,949 201,362 317,457
Other operating expenses 169,557 264,998 229,235
------- -------- --------
Total operating expenses 689,404 854,265 931,871
------- -------- --------
Operating result -71,987 -147,392 -207,585
Income from associated company
and from companies in which
participations are held 10,046 5,224 1,252
Income from financial assets 8,392 7,035 --
Interest expense (income) net -1,405 3,906 15,607
------- -------- --------
Net loss from ordinary activities -54,954 -131,227 -190,726
Property tax 1,086 825 1,612
------- -------- --------
Net loss -56,040 -132,052 -192,338
======= ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements,
2
<PAGE> 5
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
At December 31,
Note 1997 1996
ASSETS ------ --------- --------
<S> <C> <C> <C>
Non-current assets
Intangible assets
Concessions, trade marks, patents and licenses B, E 20,722 18,368
Property, plant and equipment
1. Land B, E 67,837 63,482
2. Buildings B, E 104,676 116,051
3. Strip mines B, E 47,154 47,955
4. Technical equipment and machinery B, E 289,378 367,327
5. Factory and office equipment B, E 38,974 59,566
6. Payments on account and assets under construction 96,734 40,132
--------- ---------
644,753 694,513
Financial assets
1. Participations (including associated company) B, F 26,276 28,973
2. Loans granted to participation B, G 16,133 16,867
3. Long-term investments B, H 20,010 20,260
4. Other loans B, I 80,400 94,500
--------- ---------
142,819 160,600
Total non-current assets 808,294 873,481
Overburden B, J 327,001 304,911
Current assets
Inventories
1. Raw materials and supplies B 10,105 8,359
2. Unfinished services B - 170
3. Finished and trade goods B 3,743 1,837
--------- ---------
13,848 10,366
Receivables and other assets
1. Trade receivables B, K 72,994 74,397
2. Receivables from enterprises in which participations B 4,669 5,513
3. Other assets B 38,589 62,731
--------- ---------
116,252 142,641
Investments
Other investments B, L 218,550 210,289
Cash B 103,579 183,690
Total current assets 452,229 546,986
Prepaid expenses B 6,781 6,528
--------- ---------
TOTAL ASSETS 1,594,305 1,731,906
========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
Note 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' Equity
Subscribed capital 60,000 60,000
Capital reserve 689,649 730,208
Balance sheet profit DM 5,000,000 each year 50 -
thereof distributed: DM 4,950,000 in 1997;
DM 5,000,000 in 1996 and in 1995
Minority interest -63,213 -19,007
Total Shareholders' Equity 686,486 771,201
Special item for investment subsidies and incentives B 45,115 45,013
Provisions
1. Accruals for pensions and similar obligations M 5,277 3,621
2. Taxation accruals N 2,761 2,600
3. Environmental ("Altlasten") and mining provisions B, O 378,836 392,056
4. Other accruals P 38,912 39,148
--------- ---------
425,786 437,425
Liabilities
1. Liabilities to banks B, Q, R 345,277 325,307
2. Downpayments received B, R - 140
3. Trade payables B, R 42,499 75,737
4. Payables to participations B, R 1,984 8,615
5. Other payables B, R 47,142 68,467
--------- ---------
436,902 478,266
Deferred income 16 1
--------- ---------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 1,594,305 1,731,906
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 6
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
-------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss for the year -56,040 -132,052 -192,338
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization intangible and tangible assets 166,949 201,362 317,457
Planned release of the special item for investment subsidies
and incentives -10,439 -8,979 -8,181
Loss on disposal of non-current assets 770 1,997 13,701
Change in assets and liabilities:
Overburden -22,090 3,488 11,533
Inventories -3,482 -1,186 -2,379
Receivables and other assets 26,697 8,209 -26,572
Accruals -11,640 -612 23,112
Liabilities -61,331 -1,432 31,626
Other prepaid and deferred items -547 -78 -330
-------- -------- --------
CASH PROVIDED BY OPERATING ACTIVITIES 28,847 70,717 167,629
-------- -------- --------
Cash flows from investing activities:
Capital expenditures -124,190 -219,444 -362,534
Additions to the special item for investment subsidies and
incentives 10,540 13,499 20,569
Proceeds from disposal of non-current assets 41,668 12,451 35,666
Increase in long-term and other investments -28,272 -230,549 -
-------- -------- --------
Cash used for investing activities -100,254 -424,043 -306,299
-------- -------- --------
Cash flows from financing activities:
Change in equity:
Distributions -4,950 -5,000 -5,000
Investors capital contribution - 43,674 172,689
Withdrawal by MI KG investors -23,775 -18,259 -
Capital contribution 50 15,942 -
Increase in loans 34,523 110,792 91,310
Redemption of loans -14,552 -16,018 -2,236
-------- -------- --------
CASH USED FOR/PROVIDED BY FINANCING ACTIVITIES -8,704 131,131 256,763
-------- -------- --------
NET DECREASE (1995: INCREASE) IN CASH -80,111 -222,195 118,093
CASH AT BEGINNING OF YEAR 183,690 405,885 287,792
-------- -------- --------
CASH AT YEAR-END 103,579 183,690 405,885
======== ======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 7
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
Subscribed Capital Balance Minority
capital reserve sheet profit interest Total
---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1995 60,000 831,547 0 -2 891,545
Net loss 1995 -48,377 -143,961 -192,338
Transfer from capital reserve -53,377 53,377 0
Distributions -5,000 -5,000
Contributions by minority shareholders 172,689 172,689
------ ------- ------- -------- --------
BALANCE AS OF DECEMBER 31, 1995 60,000 778,170 0 28,726 866,896
Net loss 1996 -58,904 -73,148 -132,052
Transfer from capital reserve -63,904 63,904 0
Distributions -5,000 -5,000
Contributions by minority shareholders 43,674 43,674
Withdrawals by minority shareholders -18,259 -18,259
Capital contribution - settlement
agreement 15,942 15,942
------ ------- ------- -------- --------
BALANCE AS OF DECEMBER 31, 1996 60,000 730,208 0 -19,007 771,201
Net loss 1997 -35,609 -20,431 -56,040
Transfer from capital reserve -40,609 40,609 0
Distributions -4,950 -4,950
Contributions 50 50
Withdrawals by minority shareholders -23,775 -23,775
------ ------- ------- -------- --------
BALANCE AS OF DECEMBER 31, 1997 60,000 689,649 50 -63,213 686,486
====== ======= ======= ======== ========
</TABLE>
See accompanying Notes to the Financial Statements
5
<PAGE> 8
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE A ORIGINATION AND NATURE OF BUSINESS
ORIGINATION: Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG" or "MIBRAG
mbH") was created from split-up of MIBRAG AG, previously owned by the
Treuhandanstalt (the German government privatization agency), into three
separate entities. Effective January 1, 1994 a consortium comprised of NRG
Energy, Inc., Morrison Knudsen Corporation, and PowerGen plc. jointly acquired
99% of the active mining, power generation and related assets and liabilities
from the Treuhandanstalt through its Dutch holding company, MIBRAG B.V.. The
remaining 1% was transferred on December 18, 1996 from the German government
privatization agency to Lambique Beheer B.V., Amsterdam, a subsidiary of NRG
Energy, Inc., Morrison Knudsen B.V., Amsterdam, and PowerGen Netherlands B.V.,
Amsterdam in equal portions (1/3%) for each partner.
NATURE OF BUSINESS: The operations of MIBRAG mbH include two open-cast brown
coal mines in Profen and Schleenhain, a lease on a third mine in Zwenkau, and
rights to future mining reserves. The operations also include over 200 MW of
power generation and one coal briquetting plant. A significant portion of the
sales of MIBRAG is made pursuant to long-term coal and energy supply contracts.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Mitteldeutsche Braunkohlengesellschaft
mbH and subsidiaries have been prepared in accordance with the German Commercial
Code, which represents accounting principles generally accepted in Germany
("German GAAP"). German GAAP varies in certain significant respects from
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). Application of U.S. GAAP would have affected the results of operations
for each of the years in the three-year period ended December 31, 1997 and
stockholders' equity as of December 31, 1997 and 1996 to the extent summarized
in note C to the consolidated financial statements. All amounts herein are shown
in thousands of Deutsche Mark ("DM") unless otherwise noted.
PRINCIPLES OF CONSOLIDATION: All material companies in which MIBRAG has legal or
effective control are fully consolidated. In 1997, MIBRAG consolidated 5 (1996:
5, 1995: 4) domestic subsidiaries.
One significant investment, MUEG, in which MIBRAG has an ownership interest of
50% is accounted for in accordance with the equity method. This investment is
referred to as an associated company in these financial statements.
6
<PAGE> 9
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
All other investments in which MIBRAG has an ownership in the range of 20% to
50% are either not considered to be significant for the presentation of the
consolidated financial statements of MIBRAG or MIBRAG does not have significant
influence in these companies. These companies are included at cost and referred
to as participations in these financial statements.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles necessarily 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 balance
sheet dates and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from those estimates.
TOTAL COST METHOD: The income statement has been presented according to the
total cost (or type of expenditure) format as commonly used in Germany.
According to this format, production and all other expenses incurred during the
period are classified by type of expenses.
REVENUE RECOGNITION: Revenue is recognized when title passes or services are
rendered, net of discounts, customer bonuses and rebates granted.
INTANGIBLE ASSETS: Intangible assets are valued at acquisition cost and are
amortized over their respective useful lives (5 to 15 years).
PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment acquired is
recorded on the basis of acquisition or manufacturing cost, including
capitalized mine development costs and subsequently reduced by scheduled
depreciation charges over the assets' useful lives as follows: buildings - 3 to
25 years, technical facilities and machinery - 4 to 33 years; and facilities,
factory and office equipment - 5 to 10 years. Maintenance and repair costs are
expensed as incurred. Depreciation is computed principally by the straight-line
method over the expected useful lives of the assets. The amortization of mine
development costs is provided on the basis of tonnage mined in relation to total
estimated recoverable tonnage. Depreciation on additions during the first or the
second half of the year are estimated using full-year or half-year rates,
respectively. Low value items are expensed in the year of acquisition.
Opportunities for special tax deductible depreciation are utilized for both book
and tax purposes.
INVESTMENTS: The long-term loans and investments are recorded at cost.
7
<PAGE> 10
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
OVERBURDEN: Overburden represents the costs of removing the surface above a coal
field subsequent to the initial opening of the field to the extent that the
removal exceeds what is needed for the current years coal extraction. These are
costs incurred in advance in respect of future coal production. The overburden
of the individual mines on the balance sheet dates were consolidated and valued
on an average cost basis.
LONG LIVED ASSETS: The Company reviews long lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the asset may not be recoverable. If impairment is indicated, the carrying
amount is reduced to its fair value.
INVENTORY: Inventories are carried at the lower of average cost or market.
Obsolescence provisions are made to the extent that inventory risks are
determinable.
RECEIVABLES AND OTHER ASSETS: All receivables are valued at cost, taking into
account all known risks. A lump-sum allowance for doubtful accounts is deducted
from the receivables in recognition of the general risk inherent in the
receivables.
CASH: Cash includes cash-on-hand, checks, bank accounts and time deposits.
INVESTMENT GRANTS: To support the acquisition of certain tangible assets,
investment allowances and subsidies were granted by the federal government and
the German states of Saxony and Saxony-Anhalt. The application, conditions and
payments of investment grants are ruled by German law and several regulations
and statements. Investment allowances and subsidies received and formally
claimed are credited to the special item account. The special item is amortized
into income over the normal operating useful lives of the underlying assets to
which the allowances and subsidies relate.
ENVIRONMENTAL AND MINING PROVISIONS: Accruals for environmental and
mining-related matters are recorded when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated, based
on current law and existing technologies. These accruals are adjusted
periodically as assessment and remediation efforts progress or as additional
technical or legal information becomes available.
LIABILITIES: Liabilities are shown at their repayment amounts.
SUPPLEMENTARY CASH FLOW INFORMATION: The company paid no income taxes in 1997,
1996 and 1995. Interest paid amounted to DM 17,350, DM 14,178 and DM 4,556 in
1997, 1996 and 1995, respectively.
PER SHARE AMOUNTS: Per share amounts are not disclosed in the financial
statements. MIBRAG is a nonpublic enterprise.
PRIOR YEARS RECLASSIFICATION: Certain amounts of prior years were reclassified
to conform with the current year presentation.
8
<PAGE> 11
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE C SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The MIBRAG consolidated financial statements comply with German GAAP, which
differs in certain significant respects from U.S. GAAP. The significant
differences that affect the consolidated net income and stockholders' equity of
MIBRAG are set out below.
I. APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING
As of December 31, 1993 the predecessor of MIBRAG, MIBRAG AG, was split into
three legal entities:
MIBRAG mbH
MBV GmbH and
Romonta GmbH.
The assets and liabilities of the predecessor company were allocated to the
three newly founded companies according to a split-up plan, which is required
under the applicable German split-up law. Under German GAAP the assets and
liabilities of MIBRAG AG were transferred at book value to the financial
statements of the three successor companies. The transaction resulted in an
shareholders' equity of DM 887.7 million in MIBRAG's opening balance sheet as of
January 1, 1994 according to German GAAP.
The acquisition of 99% of the shares in MIBRAG mbH on January 1, 1994 by MIBRAG
B.V. was accounted for using the purchase method of accounting and the purchase
price adjustments to the historical cost basis have been pushed down to the
MIBRAG mbH for purposes of the reconciliation to U.S. GAAP. According to the
purchase agreement the purchase price for 99% of the shares consists of two
components - a fixed and a variable portion. The variable portion is a charge on
future coal mined and briquettes sold.
The excess (DM 757.3 million) of the fair value of the net assets acquired over
the purchase price was proportionally allocated to reduce the value assigned to
noncurrent assets, excluding long-term investments.
II. SUBSEQUENT ADJUSTMENT OF THE U.S. GAAP OPENING BALANCE
The MIBRAG purchase agreement states that the amount payable by MIBRAG B.V. to
the successor of the Treuhandanstalt (THA), the Bundesanstalt fur
vereinigungsbedingte Sonderaufgaben (BvS), is to be reduced by the amount of
certain incremental transportation costs incurred by MIBRAG for lignite
transportation to one of its major customers. For U.S. GAAP purposes, this
liability is reflected as a liability of MIBRAG mbH and results in a reduction
of MIBRAG equity and an increase in liabilities.
9
<PAGE> 12
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
III. NOTES TO SIGNIFICANT U.S. GAAP ADJUSTMENTS
1. Fixed assets other than financial investments
These adjustments are caused by different book values of fixed assets in German
and U.S. GAAP financial statements. There are four primary reasons for
differences in book values:
- - In the U.S. opening balance sheet as of January 1, 1994, according to
purchase accounting, fixed asset balances, other than financial assets, were
adjusted to their fair market values. Related unamortized investment
subsidies were also included in these adjustments as of January 1, 1994.
- - As of January 1, 1994, the assets were reduced by the allocation of the
difference between the net acquisition costs for the MIBRAG shares and the
net fair market value of MIBRAG's assets and liabilities.
- - Special accelerated depreciation for tax purposes is recorded in the German
financial statements.
- - The depreciation period of long term assets are based upon lives acceptable
for German tax purposes, which differ from the useful lives for U.S.
accounting purposes.
Upon disposal, the above differences also resulted in differing gains or losses
on disposition.
Financial investment in MUEG
For German GAAP purposes, MIBRAG accounted for the investment in MUEG as of
January 1, 1994 using the cost method. Under U.S. GAAP the book value was
increased to account for the equity earnings that were not distributed to MIBRAG
as of that date.
2. Relocation accruals
At January 1, 1994, MIBRAG had made a commitment to relocate the villages of
Grossgrimma, Heuersdorf, Schwerzau and Breunsdorf at a total estimated cost
of DM 273 million. Such amounts were provided for at January 1, 1994. Deferred
costs, which are amortized in accordance with quantities of coal extracted, were
recorded at the same amount.
The German GAAP balance as of January 1, 1994 included provisions for DM 56
million of this total. In accordance with German accounting principles such
reserves and accruals for the relocation of villages can not be accrued earlier
than 2 years prior to the relocation, and some of the relocation costs are to be
expensed as incurred.
10
<PAGE> 13
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
3. Investment in power plants
In 1995 and 1996, third party investors paid in DM 216 million into a MIBRAG
subsidiary, MIBRAG Industriekraftwerke GmbH & Co. KG ("MI"). MI runs three
lignite-fired power plants. The investment is structured such that the third
party investors obtain the accelerated depreciation opportunities for tax
purposes while retaining a put option to sell their investments back to MIBRAG
at predetermined prices. The third party investments are considered additions to
equity as minority interests for German GAAP, while these arrangements are
accounted for as a financing in accordance with U.S. GAAP.
4. Schkopau transportation credits
The liability to BvS as described in item II above is reduced by the amount of
excess incremental transportation costs, incurred by MIBRAG for certain lignite
shipments. The transportation cost credits are not reflected in MIBRAG's German
financial statements, but reduce the liability to BvS in the U.S. GAAP balance
sheet.
5. Interest capitalization
Interest is expensed in the German financial statements, however interest
expense related to qualified assets is capitalized for U.S. GAAP purposes.
6. Accrued liabilities
Certain mining and other accruals, which were provided for at January 1, 1994 in
accordance with U.S. GAAP purchase accounting, were recorded in the German
financial statements in 1994.
7. Receivables/payables at non-market interest rates
Certain accounts receivables or loans payable are recorded in the German GAAP
financial statements at their nominal values. Because these carry non-market
interest rates, such receivables and payables were adjusted to their market
values
11
<PAGE> 14
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
8. Overburden
Overburden in the German financial statements includes capitalized depreciation
based upon the historical costs. Because of the purchase accounting adjustments,
a different amount of depreciation is capitalized in overburden in the U.S. GAAP
financial statements. In addition, purchase accounting adjustments as of January
1, 1994 included the write-down of overburden on a mine to be closed.
9. Other
Certain costs and income in the German financial statements are capitalized or
deferred for U.S. GAAP purposes, respectively.
10. Unrealized security gains
Not realized security gains on available-for-sale securities are not accounted
for under German GAAP, but would be recorded in a separate component of equity
for U.S. GAAP purposes.
11. Deferred taxes
The differences noted above would generally result in temporary differences to
the balances recognized for tax purposes. Such temporary differences and net
operating loss carryforwards would result in a net deferred tax asset of DM
309,600 and DM 299,900 at December 31, 1997 and 1996, respectively. Because of
available negative evidence, a 100 % valuation allowance would have been
recorded at each year end. Because no net deferred taxes would be recorded for
German or U.S. GAAP purposes, no adjustment to net income or shareholders equity
are listed in the following reconciliations.
12
<PAGE> 15
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
RECONCILIATION TO U.S. GAAP
The following is a summary of the significant adjustments to net income for the
years 1995, 1996 and 1997 and to shareholders' equity at December 31, 1996 and
1997, which would be required if U.S. GAAP had been applied instead of German
GAAP.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
NOTE 1997 1996 1995
--------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income as reported in the consolidated
income statement under German GAAP -56,040 -132,052 -192,338
Adjustments required to conform with
U.S. GAAP:
Long-term asset valuation (1) 111,854 143,280 301,385
Relocation of villages (2) 12,044 46,803 21,258
Investment in power plants (3) -8,330 7,208 0
Schkopau transportation credits (4) 14,052 12,367 0
Interest capitalization (5) -359 4,549 -52
Receivable / payables at
non-market interest rate (7) -7,497 -8,728 -9,628
Overburden (8) -2,582 -15,201 -1,253
Other (9) 5,273 -2,012 -29,417
------- ------- -------
NET INCOME IN ACCORDANCE WITH U.S. GAAP 68,415 56,214 89,955
======= ======= =======
</TABLE>
13
<PAGE> 16
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
NOTE 1997 1996
--------- --------------------- ---------------------
<S> <C> <C> <C>
Shareholder's equity as in the
consolidated balance sheet
under German GAAP 686,486 771,201
Adjustments required to conform with
U.S. GAAP:
Long-term asset valuation (1) 146,793 34,939
Relocation of villages (2) -28,289 -40,333
Investment in power plants (3) -175,451 -190,896
Payable to THA / BvS (4) -13,581 -27,633
Interest capitalization (5) 5,680 6,039
Accrued liabilities (6) -30,153 -30,153
Receivable / payables at
non-market interest rate (7) 5,001 12,498
Overburden (8) -214,573 -211,991
Other (9) 1,816 -3,457
Net unrealized security gains
(net of income tax effects) (10) 4,363 5,853
-------- --------
SHAREHOLDERS' EQUITY IN ACCORDANCE
WITH U.S. GAAP 388,092 326,067
-------- --------
</TABLE>
14
<PAGE> 17
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE D CONCENTRATION OF CREDIT RISK AND LONG-TERM COAL SALES AGREEMENTS
MIBRAG MBH markets its coal principally to electric utilities in Germany. As of
December 31, 1997 and 1996 accounts receivable from electric utilities totaled
DM 72,994 and DM 74,397, respectively. Credit is extended based on an evaluation
of the customer's financial condition, and collateral is not generally required.
Credit losses are provided for in the financial statements and consistently have
been minimal.
MIBRAG mbH is committed under several long-term contracts to supply raw brown
coal and whirl fine coal to the Schkopau power station and the Lippendorf power
station. Under the terms of the Schkopau Agreement closed with VEBA Kraftwerke
Ruhr AG (VKR), Gelsenkirchen, MIBRAG mbH may deliver annually up to 5.8 million
tons of coal commencing 1995. The agreement will be in effect until 2010 with an
option for VKR to extend the agreement for another 10 years. The price to be
paid by the Schkopau power station is a fixed price adjusted by an annual
escalation rate.
The Lippendorf Agreements provide for deliveries of up to 10 million tons per
year from 1999 through 2040 with an option for the MIBRAG customers to extend
for an additional 3 year period. These Agreements were closed with Vereinigte
Energiewerke AG (VEAG), Berlin, and Bayernwerk AG, Munich, and replace the
agreements on deliveries to the old power station at Lippendorf. The price to be
paid by the Lippendorf power station is a base-price with escalation and
adjustment based on quality of the coal delivered. The new Lippendorf power
station is still under construction.
A substantial portion of the Company's remaining coal reserves is dedicated to
the production of coal for such agreements.
Sales to the two largest customers comprise, as a percentage of total sales, 53
%, 58% and 55 % in 1997, 1996 and 1995, respectively. Sales to the five largest
customers comprise, as a percentage of total sale, 90 %, 86 % and 74 % in 1997,
1996 and 1995, respectively.
NOTE E INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT
The group depreciation charges are as follows: DM 166,949 (1997), DM 201,362
(1996), and DM 317,457 (1995), including normal depreciation, unplanned
depreciation and special tax depreciation in terms of section 4 of the German
tax law, "Fordergebietsgesetz". According to that law certain tangible assets
can be depreciated up to 50 % of the historical costs in the first five years of
acquisition in addition to the normal depreciation.
15
<PAGE> 18
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT MBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
<TABLE>
<CAPTION>
Composition: 1997
- ------------ ----
Normal Special tax Unplanned Total
depreciation depreciation depreciation
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
a) Intangible assets
Concessions, trade marks, patents
and licenses 2,140 - - 2,140
b) Property, plant and equipment
Buildings 19,528 6,674 400 26,602
Strip-mines 801 - - 801
Technical equipment and machinery 67,655 36,333 - 103,0988
Factory and office equipment 15,916 17,502 - 33,418
---------- ---------- ---------- --------
106,040 60,509 400 166,949
========== ========== ========== ========
</TABLE>
The unplanned depreciation (DM 400) refers to a building of the closed briquette
plant Deuben.
<TABLE>
<CAPTION>
1996
----
Normal Special tax Unplanned Total
depreciation depreciation depreciation
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
a) Intangible assets
Concessions, trade marks, patents
and licenses 2,085 - - 2,085
b) Property, plant and equipment
Buildings 14,810 13,090 1,701 29,601
Strip-mines 985 - - 985
Technical equipment and machinery 63,576 76,765 3,289 143,630
Factory and office equipment 16,627 8,143 291 25,061
---------- ---------- ---------- ---------
98,083 97,998 5,281 201,362
========== ========== ========== =========
</TABLE>
The unplanned depreciation (DM 5,281) refers to the closed briquette plant
Deuben (DM 4,281), to the former residence Holzberg (DM 556) and to the repair
shop Naunhof (DM 179), which has been replaced by the repair shop Profen in
1996. Other assets from different locations were unplanned depreciated to the
lower market value as of December 31, 1996 (DM 265).
16
<PAGE> 19
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE F INVESTMENTS IN OTHER GROUP COMPANIES
MIBRAG mbH holds 20 % or more of the voting rights in 8 companies.
One of these companies - MUEG Mitteldeutsche Umwelt- und Entsorgungs GmbH,
Braunsbedra, ("MUEG") - has been accounted for using the equity method. MUEG was
founded in 1990 and coordinates the waste disposal activities in the Central
German brown coal area. The equity value as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
DM
-----------
<S> <C>
Cost and contributions 12,387
+ Net profit share 1994-1997 10,009
./. Distributed profits share 1994-1996 9,965
./. Proportionate elimination of intercompany profit 1,089
-----------
= Carrying amount "at equity" as of 12/31/1997 11,342
===========
</TABLE>
NOTE G LOAN TO FERNWAERME HOHENMOELSEN GMBH
In 1995, MIBRAG sold its district heating network assets to the Fernwarme
Hohenmolsen GmbH at a net sales price of DM 19 million. After deducting a down
payment of DM 1.4 million in 1995, the balance will be repaid in equal
installments over a period of 25 years at an interest rate of 5 per cent, fixed
until 1999. After 1999, the interest rate will be adjusted to the market rate at
that time.
The fair market value of the loan was DM 16,133 and DM 16,867 at December 31,
1997 and 1996, respectively.
NOTE H LONG-TERM INVESTMENTS
At year-end of 1997, marketable debt securities with a face value of DM 20
million were disclosed. These securities are carried at cost. The acquisition
cost approximates the fair value for this category of securities based on quoted
market prices as of December 31, 1997. The securities will not be sold before
1999. Gains due to the accrual of interest of TDM 680 in 1997 are included in
interest income. The maturity date will be in the period within one year through
five years.
17
<PAGE> 20
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE I OTHER LOANS
The other loans refer to loans granted to the third party investors in a
subsidiary of MIBRAG mbH. In accordance with the first additional clause of the
loan contract dated April 3, 1995 between KfW (Kreditanstalt fur Wiederaufbau)
and MIBRAG mbH, KfW grant MIBRAG mbH a loan of DM 103,000 to December 30, 2005
at fixed interest rates between 6.26 % and 6.82 %. After redemptions in 1996 (DM
8,500) and 1997 (DM 14,100) the balance of the loan as of December 31, 1997
amounted to DM 80,400.
The loans to the new investors of the subsidiary of MIBRAG mbH were granted at
the same conditions as those applicable to the loan between MIBRAG mbH and KfW.
18
<PAGE> 21
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE J OVERBURDEN
The reconciliation of the overburden costs is as follows (in million DM):
<TABLE>
<CAPTION>
Dec.31,1997 Dec.31, 1996
tonnage value tonnage value
metric tons DM metric tons DM
----------- -- ----------- --
<S> <C> <C> <C> <C>
Profen 16.7 126.2 12.7 113.6
Schleenhain 15.2 140.7 15.2 140.7
Zwenkau 6.8 60.1 5.8 50.6
-------- ------- -------- -------
38.7 327.0 33.7 304.9
======== ======= ======== =======
</TABLE>
The basis for the determination of the overburden is the total quantity of
partially exposed raw brown coal.
NOTE K TRADE RECEIVABLES
Trade receivables were disclosed in the balance sheet, net of allowances, as
follows:
<TABLE>
<CAPTION>
Dec. 31,1997 Dec. 31, 1996
---------------- ------------------
<S> <C> <C>
Trade receivables 74,017 75,351
Less allowances (1,023) (954)
-------------- ---------------
72,994 74,397
============== ===============
</TABLE>
19
<PAGE> 22
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE L OTHER INVESTMENTS
At December 31, 1997 marketable debt securities were disclosed at an amount of
DM 218.6 million. MIBRAG mbH acquired these securities in 1996 at costs of DM
210.3 million. The increase in 1997 is due to the reinvestment of dividends
distributed. The securities were set up to reinvest the additional liquidity
resulting from the entry of new investors of a subsidiary of MIBRAG mbH in 1996.
Realized gains of DM 10.1 million were disclosed in interest income. The
maturity dates of the securities vary from one year to five years.
NOTE M ACCRUALS FOR PENSIONS AND SIMILAR OBLIGATIONS
The provision was mainly raised for briquette benefit claims of active employees
on the basis of the collective agreement of November 9, 1993 in respect to
allowances in kind. Employees entitled must be employees of the company at the
date of retirement. The entitlement elapses with early ending of the working
relationship or on receipt of social plan benefits.
The calculation is based on an actuarial valuation dated December 5, 1997.
The valuation took into account the entitlement to the redemption value of DM
185.00 per metric ton of briquettes as specified in the collective agreement
and the employees entitled to benefits as of June 30, 1997.
In addition, pension obligations for the compensation of pension credits
and warrants granted to non-tariff employees were accrued. These amounts have
also been calculated on the basis of actuarial valuations.
NOTE N TAXATION ACCRUALS
MIBRAG did not accrue for income taxes under German GAAP, because of net
operating losses in 1995 through 1997. Deferred tax assets and liabilities have
not been recorded because there are no significant differences between the
German GAAP financial statement and tax bases of the assets and liabilities.
The German corporation income tax rate on undistributed income is 45%. Trade
taxes on income are assessed at a rate of 14.9%. The company has an effective
tax rate of 0% because the company has no taxable income and the recording of
a deferred tax benefit for net loss carryforwards is prohibited under German
GAAP.
20
<PAGE> 23
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
Since 1991, land taxation payments have been made in advance based on 0.2% of
the DM-opening balance sheet values until the land tax values have been
determined. As the total strip mining and surrounding land have been valued at
0.00 DM/sqm, land tax has only been paid where specific assessments have been
made. New assessments have been made for the outstanding payments from 1991
until 1996 taking into account the special tax authorities regulation
"Einheitsbewertung des Grubengelandes bei Braunkohlenbergbau" (dated January 11,
1995), decrees of the new Federal States to the same topic (dated May 21, 1993)
and the current tax authorities assessments.
At December 31, 1997 the Company had DM 342 million net operating loss
carry-forwards, which do not expire and may be applied against future taxable
income.
21
<PAGE> 24
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE O ENVIRONMENTAL AND MINING PROVISIONS
The following is a summary of environmental and mining provisions (in DM):
<TABLE>
<CAPTION>
Balance as of Balance as of
Dec. 31,1997 Dec. 31,1996
-------------------------- --------------------------
<C> <C> <C>
1) End-lake provision 291,492 287,262
2) Provision for environmental pollution 9,975 9,975
3) Landscaping 14,040 19,420
4) Planting 11,656 12,776
5) Relocation of villages 51,673 62,623
-------------------------- --------------------------
378,836 392,056
========================== ==========================
</TABLE>
1) End-lake provision
The duty of reclaiming mining fields can be derived from the obligation
specified in section 2 of the Bundesberggesetz (BBergG) - Federal Mining Law. In
terms thereof, a mine closure plan must be prepared (section 53 BBergG) for
termination of surface mining. In this plan the actions must be described to
protect third parties from dangers caused by the mining operation and to ensure
the reusefulness of the earth surface (section 51 BBergG).
The duty of reclaiming of the mining fields applies to MIBRAG in respect to the
mines Profen and Schleenhain. In terms of section 4 (3) of the operating lease
agreement dated December 17, 1993 with MBV, a state-owned company responsible
for reclamation of closed mines in the east German region, MIBRAG is exempted
from this duty in respect to the Zwenkau mine.
The mining field reclamation of the Profen and Schleenhain mines after the
ceasing of production is planned for 2029-2046 and 2041-2073, respectively. A
legally binding closure plan laying down the principles for action plans in
accordance with the BBergG is normally approved two years in advance to the
commencement of production by the relevant mining authorities. The liability to
reclaim the area exists from the start of mining activities. The calculation of
the total cost for reclaiming mining fields has been made on the basis of an
expert opinion and estimations on the basis of current prices. During 1997 the
costs for reclaiming of mining fields were recalculated.
22
<PAGE> 25
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
The total restructuring costs consist mainly of cost for reconstruction bank
reinforcement, dewatering and watering.
2) Provision for Environmental Pollution ("Altlasten")This provision for the
clean-up/safeguarding of "Altlasten" is determined in respect to disposals sites
and old locations of MIBRAG mbH in refinement and mining areas on which waste
deposits can be found.
The duty for clean-up results from the waste disposal laws of Saxony and
Saxony-Anhalt, in terms of which the subsequent use of the mine area must be
possible without problems. The obligation to avoid danger results from the
general applicable law of Germany and the individual states. A danger in terms
of definitions established by police authorities exists when a danger affects
the surrounding area. The company has listed areas that are suspect to
contamination in a land register.
The obligation at the accrued amount is derived from article 19.3 of the
purchase and sales agreement. Qualifying costs that exceed the provision are to
be reimbursed by BvS.
3) Landscaping
This provision includes costs for reclaiming disposal areas and leveling the
area outside the embankments. These costs relate solely to continuous
landscaping, while cost for closing down landscaping are included in the
end-lake provision.
The duty results from the ,,Bundesberggesetz", which states that land must be
made reusable during production and after production has ended (sections 55, 2,
4 BBergG).
The provision for landscaping has been recalculated as of December 31, 1997 and
1996, based on the special strategic plans, recultivation plans for Profen and
Schleenhain, the strategic plan for the Zwenkau mine, internal budget
documentation as well as documentations prepared by the cost accounting
department.
The strategic plans categorize the disposal areas according to future usage
plans, e.g. agricultural or foresting uses and special uses (roads, flood areas,
recreation etc.). The cost estimation has been prepared by the recultivation
department based on use, technology, period of recultivation and expenses for
material, personnel and equipment utilizing generally used market prices.
23
<PAGE> 26
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
4) Planting
In this account, provision is made for costs in connection with temporary
planting as of December 31, 1996 and 1997.
The duty for planting results from the environmental protection clauses
contained in the general and mine closure strategic plans. Legal basis are the
"Bundesberggesetz" (sections 55 and 66) and the "Bundesimmissionsschutzgesetz"
(Federal Emission Law). The "Bundesberggesetz" determines that preventative
measures must also be taken at the time of mining and the
"Bundesimmissionsschutzgesetz" determines that mines have to be operated in such
a way that harmful environmental effects are avoided, if prevention is
technologically practicable.
The quantification results from the surveyed areas that have been used for
disposal purposes and that have not been finally planted and the border
embankments that have not been planted. Open cast areas have to be planted at
the difference between actual and technically required areas. Temporary planting
reduces dust pollution and earth erosion.
5) Relocation of villages
The provision for relocation of villages is in respect to the relocation of the
municipalities of Schwerzau, Gro(beta)grimma, Breunsdorf and Heuersdorf, which
is necessary for the expansion of the Profen and Schleenhain mines.
The obligation is determined by agreements that have been reached with the
relevant municipalities. In addition the company has expressed through its
appearance in the public that the relocations will take place at a specified
date, which has created a factual obligation to fulfill.
The calculation of the provision is based on a method that has been accepted by
the taxation authorities in western Germany for the Rhine brown coal area. This
method takes into account the cost for project planning, infrastructural
development, cemetery relocation, demolition and landmark preservation. The
provision is built up in equal annual amounts, commencing two years before the
relocation starts and ending in the middle of the relocation year.
For the almost completed village relocations in Schwerzau and Breunsdorf
provisions still exist for liabilities that will become payable in the period
from 1998 through 2000 (namely for landmark protection and for demolition
costs).
24
<PAGE> 27
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE P OTHER ACCRUALS
Accrued liabilities are as follows (in DM):
<TABLE>
<CAPTION>
Dec.31,1997 Dec.31,1996
----------- ------------
<S> <C> <C>
1) Severance payments 25,700 20,875
---------- -----------
2) Personnel expenses
- Employment anniversaries 2,188 2,712
- Vacation and contractually agreed free
shifts outstanding 417 377
- Equalization amount in terms of the
Act on Handicapped Persons 211 217
---------- -----------
2,816 3,306
---------- -----------
3) Remaining accruals 10,395 14,967
========== ===========
38,911 39,148
========== ===========
</TABLE>
1) Severance payments
Basis for the provisions are the social plan framework agreements in which the
measures for the personnel adjustments are defined. For the period from January
1, 1998 to January 1, 2002, the planned personnel reductions according to the
latest estimates will come up to 466 employees, which will be partly covered by
early retirement programs.
The employees are entitled to a one-time severance payment if the company
initiates termination or in the case of retrenchments. The severance payments
are limited to DM 50 per person. Employees participating in early retirement
programs are additionally entitled to further compensations, mainly for
statutory pension credits they will lose due to early retirement.
25
<PAGE> 28
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
2) Personnel expenses
MIBRAG mbH grants awards in recognition of long service in the company, based on
the collective bargaining agreement dated January 1, 1992 and the company
agreement dated October 1, 1995. The employees are entitled to financial awards,
which increase in proportion to their employment periods. The valuations of the
benefits were based on actuarial valuations taking into account commercial
principles. Since a reduction in the personnel force is anticipated, the
obligation has only been accrued for if the person has been employed by MIBRAG
mbH for at least 10 years.
The liability for vacation and contractually agreed free shifts arises from the
days and shifts outstanding at balance sheet dates, which have been determined
for each employee.3) Remaining provisionsComposition (in DM):
<TABLE>
<CAPTION>
Dec. 31, 1997 Dec. 31, 1996
------------- --------------
<S> <C> <C>
Mine damages 3,500 -
Outstanding invoices 2,459 5,651
Water usage fees 2,271 1,710
Inventory fees 64 149
Briquette sales returns 20 510
Consulting fees - 781
Others 2,081 6,166
------------ ------------
10,395 14,967
============ ============
</TABLE>
26
<PAGE> 29
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE Q LONG-TERM DEBT
Long-term debt consists of the following (in DM):
<TABLE>
<CAPTION>
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
<S> <C> <C>
KfW- loans 339,630 323,730
Deutsche Bank AG 3,910 -
Norddeutsche Landesbank (Nord LB) 1,737 1,577
------------- ------------
345,277 325,307
============= ============
</TABLE>
Liabilities to KfW-loans refer to three loans from the Kreditanstalt fur
Wiederaufbau, Frankfurt/Main:
- - The first loan was granted by contract, dated December 9, 1992, for the
construction of a raw brown coal powered industrial power station with a
circulating ,,Wirbelschicht" power source in Wahlitz of DM 139,230. The
interest rate has been fixed at 7 % p.a. until December 9, 2002, 5 % thereof
is borne by the Federal Department of Environmental Affairs for the first 5
years. The redemption period is 20 years. The repayments in 40 equal amounts
commence from June 30, 1998.
- - On April 3, 1995 MIBRAG mbH closed a loan agreement with Kreditanstalt fur
Wiederaufbau (KfW). MIBRAG entered into the loan agreement to partially
finance the limited partner capital contribution of the new investors in one
subsidiary. The determination of the final loan amount (DM 103,000) was
documented by the amendments, dated December 21, 1995 and January 15, 1996.
The redemption period is 13 years. In 1996 the loan was fully called up by
MIBRAG mbH, DM 8,500 were redeemed in December 1996 and DM 14,100 in
December 1997, so that the balance as of December 31,1997 amounts to DM
80,400. The interest rates are as follows:
27
<PAGE> 30
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
<TABLE>
<CAPTION>
Amount Interest rate Fixed until
DM % year
---------------------- ---------------------- ----------------------
<S> <C> <C>
64,170 6.67 2005
9,221 6.82 2005
4,172 6.26 2005
2,837 6.76 2005
---------------------- ---------------------- ----------------------
80,400
======================
</TABLE>
The interest rates after 2005 will be adjusted to the market rate at that
time.
- - The third loan contract, which has also been closed on April 3, 1995 was
granted to partially finance the modernization and reshaping of both
industrial power plants in Deuben and Mumsdorf, especially for the
construction of the flue gas desulferization plants. The total available
credit is DM 134,000, of which DM 120,000 had been utilized at December 31,
1997. The redemption period is 13 years with the following interest rates:
<TABLE>
<CAPTION>
Amount Interest rate Fixed until
DM % date
---------------------- ---------------------- ----------------------
<S> <C> <C>
70,000 6.80 January 12, 2006
20,000 6.18 January 30, 2007
20,000 6.25 January 20, 2007
10,000 6.04 December 30, 2007
---------------------- ---------------------- ----------------------
120,000
======================
</TABLE>
Interest expense for the three loans amounted to DM 17.4 million, DM 14.1
million and DM 2.8 million in 1997, 1996, and 1995, respectively.
The liabilities to Deutsche Bank AG refer to a long-term loan granted for home
construction purposes in Hohenmoelsen. A 10 % annual redemption and an annual
interest rate of 5.6 % have been agreed on.
The loans from the Norddeutsche LB granted for construction purposes in
Draschwitz relate to the relocation of Schwerzau. A 1 % annual redemption has
been agreed on. The loan is interest free until 2010. After that the interest
rate amounts to 8 % p.a.
28
<PAGE> 31
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE R MATURITY PERIODS OF LIABILITIES
The maturity periods of liabilities are as follows:
<TABLE>
<CAPTION>
Liabilities Trade Payables Other Downpay- Total
to payables to payables ments
banks *) partici- received
pations
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance as of Dec. 31, 1996 325,307 75,737 8,615 68,467 140 478,266
thereof: maturity period
- up to 1 year 14,118 73,628 8,615 58,152 140 154,653
- 1-5 years 82,910 2,109 - 2,420 - 87,439
- more than 5 years 228,279 - - 7,895 - 236,174
Balance as of Dec. 31, 1997 345,277 42,499 1,984 47,142 - 436,902
thereof: maturity period
- up to 1 year 21,345 38,325 1,984 39,157 - 100,811
- 1-5 years 98,178 4,174 - 4,355 - 106,707
- more than 5 years 225,754 - - 3,630 - 229,384
</TABLE>
*) Liabilities to banks are fully secured by mortgages
NOTE S COMMITMENTS AND CONTINGENCIES
<TABLE>
<CAPTION>
(in DM) At December 31,
-----------------------------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Guarantees for indebtedness of
others 61,946 86,430
Other contractual obligations 304,300 163,200
</TABLE>
The other contractual obligations refer to long term investment projects in the
mines Profen and Schleenhain.
MIBRAG leases office equipment and railway-carriages, expiring at various dates.
Rental and lease expenses amounted to DM 2,355 and DM 2,502 in the years ended
December 31, 1996 and 1997, respectively. The future minimum lease payments
under operating leases are as follows: 1998: DM 1,298; 1999: DM 944; 2000 DM 821
and no obligations thereafter.
29
<PAGE> 32
MITTELDEUTSCHE BRAUNKOHLENGESELLSCHAFT mbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
NOTE T RELATED PARTY TRANSACTIONS
Between MIBRAG and two subsidiaries of the common parent companies NRG Energy
Inc., Morrison-Knudsen Corp. and PowerGen plc., agreements for consulting and
management services were closed in respect to the mining operations and the
refinement facilities.
These contracts determine certain consultancy services to be provided by the two
subsidiaries Morrison-Knudsen Deutschland GmbH (MKD) and Saale Energie Services
GmbH (SES) to MIBRAG or its subsidiaries.
MIBRAG is obliged to determine and pay the cost-related remuneration for these
services. Expenditures for MIBRAG were as DM 20,225, DM 26,290 and DM 26,254 for
1997, 1996 and 1995, respectively.
NOTE U SETTLEMENT AGREEMENT
MIBRAG B.V., MIBRAG mbH and BvS, as the former shareholder of the MIBRAG AG,
entered into a settlement agreement which resulted in the payment of DM 15,942
by BvS to MIBRAG mbH for the undercapitalization of one of the power plants,
which was included in the split-up to MIBRAG on December 31, 1993. The
undercapitalization claim was raised by MIBRAG B.V. as the purchaser of the
shares in MIBRAG mbH, because a loan for power plant financing was called up
early in 1993, not in accordance with the loan contract.
The settlement of the claim by MIBRAG B.V. to BvS was accounted for as a 1996
capital contribution from MIBRAG B.V. to MIBRAG mbH, which resulted in an
increase in the additional paid-in capital by DM 15.942 million.
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