As Filed with the Securities and Exchange Commission on August 11, 1997
Registration No. 333-29005
333-29005-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Panda Global Energy Company
(Exact name of Registrant as specified in its charter)
Cayman Islands 4900 Not Applicable
(State or other (Primary Standard (I.R.S. Employer
Jurisdication of Industrial Classification Identification No.)
incorporation or Code Number
organization)
Panda Global Holdings, Inc.
(Exact name of Co-Registrant (Guarantor) as specified in its charter)
Delaware 4900 75-2697755
(State or other (Primary Standard (I.R.S. Employer
Jurisdication of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
L. Stephen Rizzieri L. Stephen Rizzieri
Vice President and General Counsel Vice President and General Counsel
Panda Global Energy Company Panda Global Holdings, Inc.
4100 Spring Valley Road, Suite 1001 4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244 Dallas, Texas 75244
(972) 980-7159 (972) 980-7159
(Name, address, including zip code, (Name, address, including zip code,
and telephone, including area code, and telephone, including area code
of registrant's principal executive of guarantor's principal executive
offices and agent for service) offices and agent for service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. _x__
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ___
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ___
The Registrant and the Co-Registrant hereby amend this Registration Statement
on such date or dates as may be necessary to delay its effective date until the
Registrant and the Co-Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
PANDA GLOBAL ENERGY COMPANY
PANDA GLOBAL HOLDINGS, INC.
Cross Reference Sheet
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus Outside Front Cover Page of Prospectus;
Facing Pages
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges Prospectus Summary; Risk Factors;
Unaudited Consolidated Pro Forma
Financial Data of the Company; Selected
Financial Data of the Issuer; Selected
Financial Data of the Company
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Prospectus Summary; The Exchange Offer;
Plan of Distribution
9. Description of Securities to be
Registered Prospectus Summary; Description of the
Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral
Documents
10. Interests of Named Experts and
Counsel Legal Matters; Experts
11. Information with Respect to the
Registrant and the Co-Registrant Outside Front Cover Page of Prospectus;
Available Information; Prospectus
Summary; Risk Factors; Business of the
Issuer, the Company, Panda
International and Their Subsidiaries;
Use of Proceeds; Capitalization;
Unaudited Consolidated Pro Forma
Financial Data of the Company; Selected
Financial Data of the Issuer; Selected
Financial Data of the Company;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Issuer; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of
the Company; The Exchange Offer;
Certain Tax Considerations of the
Exchange Offer; Description of the
Projects; Management; Legal
Proceedings; Description of Other
Indebtedness; Description of the
Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral
Documents; Plan of Distribution; Legal
Matters; Experts; Index to Financial
Statements; Certain Defined Terms; The
Electric Power Industry and Regulation
in the PRC and the United States;
Consolidated Pro Forma Report; Luannan
Engineering Report; Luannan Coal
Consultant's Report; Ownership
Structure of the Issuer, the Company,
Panda International and Certain of
Their Subsidiaries.
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities *
* Not applicable
SUBJECT TO COMPLETION, AUGUST 11,1997
PROSPECTUS
OFFER TO EXCHANGE
12-1/2% Registered Senior Secured Notes due 2004
which have been registered under the Securities Act
for any and all outstanding
12-1/2% Senior Secured Notes due 2004 [LOGO]
of
PANDA GLOBAL ENERGY COMPANY
Fully and Unconditionally Guaranteed by
PANDA GLOBAL HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
Panda Global Energy Company, a Cayman Islands company (the "Issuer"), a
subsidiary of Panda Global Holdings, Inc., a Delaware corporation (the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (the
"Letter of Transmittal," which together with this Prospectus constitute the
"Exchange Offer"), to exchange up to $155,200,000 in aggregate principal amount
of its 12-1/2% Registered Senior Secured Notes, due 2004 (the "Exchange
Notes") for a like principal amount of its issued and outstanding 12-1/2%
Senior Secured Notes, due 2004 (the "Old Notes") that were issued and sold in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"). The terms of the Exchange Notes are
substantially identical to the terms of the Old Notes, except that the Exchange
Notes (i) have been registered under the Securities Act, and (ii) holders of
the Exchange Notes will not be entitled to certain rights of holders of the Old
Notes under the Registration Rights Agreement (as defined herein), which rights
will terminate upon the consummation of the Exchange Offer. Such rights will
also terminate as to holders of Old Notes who are eligible to tender their Old
Notes for exchange in the Exchange Offer and fail to do so. See "The Exchange
Offer -- Termination of Certain Rights." The Exchange Notes will evidence the
same debt as the Old Notes which they replace and will be issued under, and be
entitled to the benefits of, the indenture governing the Old Notes dated April
22, 1997 (the "Exchange Notes Indenture"). As of the date of this Prospectus,
$155,200,000 principal amount of Old Notes is outstanding. The Old Notes and
the Exchange Notes are sometimes referred to herein collectively as the
"Existing Notes."
The Exchange Notes will bear interest from the date of issuance, at the
rate per annum set forth above, payable semiannually in cash in arrears on
April 15 and October 15 of each year, commencing October 15, 1997. Interest on
the Old Notes accepted for exchange will accrue thereon to, but not including,
the date of issuance of the Exchange Notes and will be paid together with the
first interest payment on the Exchange Notes issued in exchange therefor. The
principal of the Exchange Notes is payable semiannually in installments as
described herein, commencing October 15, 2000. The Exchange Notes will mature
on April 15, 2004, and will be redeemable at the option of the Issuer, in whole
or in part, at any time on or after April 15, 2002, at the redemption prices
set forth herein, plus accrued and unpaid interest to the redemption date. In
addition, the Issuer is required to redeem the Exchange Notes upon the
occurrence of certain events as set forth herein. Payment of principal of, and
premium, if any, and interest on the Exchange Notes is fully and
unconditionally guaranteed by the Company (the "Company Guaranty"). See
"Prospectus Summary -- Terms of the Exchange Notes -- The Exchange Notes
Guarantee. See "Description of the Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the Shareholder Loans and the Collateral
Documents."
The Company is a holding company with no operations of its own; as a result,
its only current source of funding is from payments from its subsidiaries other
than the Issuer (none of which have guaranteed any payments in regard to the
Exchange Notes). As of March 31, 1997, the Company and its subsidiaries had
approximately $338.6 million of indebtedness and other liabilities which are
effectively senior to obligations of the Company under the Exchange Notes
Guarantee. See "Risk Factors -- Issuance of Additional Indebtedness by Issuer,
Company or Their Subsidiaries Could Reduce Cash Available to Make Payments on
Exchange Notes -- Effective Subordination of Exchange Notes and Exchange Notes
Guarantee to Obligations of Project Entities and Joint Ventures."
Subject to the terms and conditions of the Exchange Offer, the Issuer will
accept for exchange any and all Old Notes validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on , 1997, unless extended
by the Issuer in its sole discretion (the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is not conditioned upon any minimum aggregate principal amount of Old
Notes being tendered or accepted for exchange. However, the Exchange Offer is
subject to certain customary conditions. The Old Notes may be tendered only in
integral multiples of $1,000. See "The Exchange Offer -- Conditions of the
Exchange Offer."
Prior to the consummation of the Exchange Offer, there has been no public
market for the Exchange Notes. The Issuer does not intend to apply for the
listing of the Exchange Notes on any securities exchange or to seek approval
for quotation through any automated quotation system, and no active public
market for the Exchange Notes is currently anticipated. There can be no
assurance that an active public market for the Exchange Notes will develop.
(continued on next page)
See "Risk Factors" beginning on page 23 for a discussion of certain matters
that should be considered in connection with the Exchange Offer and an
investment in the Exchange Notes offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
(cover page continued)
The Old Notes were originally issued and sold on April 22, 1997 in a
transaction not registered under the Securities Act in reliance upon the
exemptions provided in Section 4(2) of the Securities Act, and Rule 144A
("Rule 144A") and Regulation S promulgated under the Securities Act.
Accordingly, the Old Notes may not be offered or sold, except pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. Based upon their view of
interpretations provided to third parties by the staff of the Securities
and Exchange Commission (the "Commission"), the Issuer and the Company
believe that the Exchange Notes issued pursuant to the Exchange Offer may
be offered for resale, resold and otherwise transferred by holders
thereof (other than any holder which (i) is an "affiliate" of the Company
or the Issuer within the meaning of Rule 405 promulgated under the
Securities Act (an "Affiliate"), (ii) is a broker-dealer which acquired
Old Notes directly from the Issuer, or (iii) is a broker-dealer which
acquired Old Notes as a result of market making or other trading
activities) without registration under the Securities Act, provided that
such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not engaged in, and do not intend to engage
in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange
Offer must notify the Company and the Issuer that it has acquired
Exchange Notes for its own account (which notification must be made in
the applicable location in the Letter of Transmittal that is delivered
by such broker-dealer along with such broker-dealer's Old Notes to be
exchanged pursuant to the terms of the Exchange Offer), and must
acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with
resales of Exchange Notes received for its own account in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market making activities or other trading activities. The
Company and the Issuer have agreed to make available for a period of up
to two hundred and seventy (270) consecutive days after consummation of
the Exchange Offer a prospectus meeting the requirements of the
Securities Act to any such broker-dealer for use in connection with any
such resale, subject to certain conditions in the Registration Rights
Agreement. A broker-dealer that delivers such a prospectus to a
purchaser in connection with such resales will be subject to certain of
the civil liability provisions under the Securities Act and will be bound
by the provisions of the Registration Rights Agreement (including certain
indemnification provisions). Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange
Notes, and any other holder that cannot rely upon such interpretations,
must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they
have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and the
conditions thereto have been met.
The Exchange Notes issued pursuant to the Exchange Offer will be
issued in the form of a fully registered global bond which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of its nominee. Beneficial interest in the global
bond representing the Exchange Notes will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. After the initial issuance of such global bond, Exchange
Notes in certificated form will be issued in exchange for the global bond
only as set forth in the Exchange Notes Indenture. See "Description of
the Exchange Notes, the Exchange Notes Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral Documents -- Book Entry; Delivery
and Form."
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION AS TO
WHETHER ANY HOLDER OF OLD NOTES SHOULD TENDER OLD NOTES PURSUANT TO THE
EXCHANGE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH
RECOMMENDATIONS, INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE ISSUER OR THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF
OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
IN THE AFFAIRS OF THE ISSUER OR THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES COVERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SUCH SECURITIES BY ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
ENFORCEMENT OF CIVIL LIABILITIES
The Issuer is an exempted company organized under the laws of the Cayman
Islands. Substantially all of the assets of the Issuer are located outside of
the United States. As a result, it may be difficult for investors to effect
service of process upon the Issuer within the United States or to enforce
against the Issuer in a U.S. court judgments obtained in U. S. courts,
including judgments predicated upon the civil liability provisions of the
federal securities laws of the United States ("Federal Securities Laws"). The
Issuer has designated CT Corporation System in New York City as its agent for
service of process in the United States with respect to the Exchange Notes (and
the Old Notes) and the indentures relating to the Exchange Notes (the
"Indentures") and the Collateral Documents (as defined below) in any United
States or New York State court located in the Borough of Manhattan, the City of
New York and the State of New York, and the Issuer has submitted to the
jurisdiction of such courts in connection with such matters.
The Issuer has been advised by its legal counsel in the Cayman Islands,
Maples & Calder, that a final judgment for the payment of money rendered by any
federal or state court in the United States based upon civil liability, whether
or not predicated solely upon the Federal Securities Laws, will be enforced in
the Cayman Islands without any re-examination on its merits, provided that (i)
enforcement of such judgment conforms to general principles of equity and (ii)
the performance of any obligation thereunder is not fraudulent or contrary to
public policy. The Issuer also has been advised by such legal counsel that the
courts in the Cayman Islands would not enforce, in original actions, liabilities
against the Issuer predicated solely upon Federal Securities Laws.
DEFINED TERMS
Unless otherwise specified, all references in this Prospectus to "U.S.
dollars," "dollars" or "$" are to United States dollars, and all references to
"Renminbi" or "RMB" are to Renminbi, which is the legal tender currency of the
People's Republic of China.
Unless otherwise specified, translation of amounts from Renminbi to U.S.
dollars for the convenience of the reader has been made in this Prospectus at
the noon buying rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate") on April 4, 1997 of $1.00 = RMB 8.3268. No representation
is made that the Renminbi amounts could have been, or could be, converted into
U.S. dollars at that rate or at any other rate. See "Risk Factors--
Considerations Relating to the PRC--Possible Inability to Convert Foreign
Currenty Due to Government Control of Currency Conversion" and "Foreign
Exchange System in the PRC and Exchange Rate Information."
All capitalized terms used in this Prospectus and not otherwise defined
herein have the meanings assigned in the glossary included as Appendix A
hereto, or in "Description of the Exchange Notes, the Exchange Notes Guarantee,
the Issuer Loan, the Shareholder Loans and the Collateral Documents -- Certain
Definitions." See also "Certain Technical Terms Commonly Used in the Utility
Industry" set forth in Part II of the Appendix A hereto.
AVAILABLE INFORMATION
The Company and the Issuer have filed with the Commission a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act
with respect to the Exchange Notes offered hereby and the Company Guaranty.
This Prospectus constitutes a part of the Registration Statement and does not
contain all of the information set forth in the Registration Statement or the
exhibits thereto, certain parts of which have been omitted in accordance with
the rules and regulations of the Commission. For further information
pertaining to the Company, the Issuer, the Exchange Notes and the Company
Guaranty, reference is made to the Registration Statement, including the
exhibits thereto. Statements made in this Prospectus concerning the provisions
of any documents to which reference is made are not necessarily complete and,
in the case of documents filed as exhibits to the Registration Statement,
reference is made to the copy of the documents so filed for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
As a result of this offering, the Company and the Issuer will be subject
to periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Registration
Statement and the exhibits thereto, as well as the periodic reports and other
information filed by the Company and the Issuer with the Commission, may be
inspected and copied at the public reference facility maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Certain such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
The Company's and the Issuer's obligations to file periodic reports with
the Commission pursuant to the Exchange Act may be suspended if the Exchange
Notes are held of record by fewer than 300 holders at the beginning of any
fiscal year of the Company or the Issuer, respectively, other than the fiscal
year in which the Registration Statement becomes effective. Pursuant to the
Indentures, the Company has agreed that the Company will furnish to the Trustees
copies of annual, quarterly and current reports that it would be required to
file under the Exchange Act whether or not it is subject to such reporting
requirements. In addition, subject to the limitations set forth in the
Indentures, upon the written request of a holder of Old Notes, the Issuer
or the Company will provide without charge to such holder or prospective
investor, a copy of such information as is required by Rule 144A to enable
resales of Old Notes to be made pursuant to Rule 144A. Any such request will
be subject to the confidentiality provisions set forth below. Written requests
for such information should be addressed to Panda Global Energy Company, or
Panda Global Holdings, Inc., c/o Panda Energy International, Inc.,
4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244, Attention:
General Counsel.
By requesting additional information relating to the offering of Exchange
Notes at a time when neither the Company nor the Issuer is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, each holder
and prospective investor agrees to keep confidential the various documents and
all written information which from time to time have been or will be disclosed
to it concerning the Issuer, the Company or any of their affiliates which is
not publicly available, and agrees not to disclose any portion of the same to
any person other than to its own consultants, except as may be required by
applicable law or in a legal proceeding involving the Company or the Issuer.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements." All statements
other than statements of historical fact included in this Prospectus,
including, without limitation, statements regarding financial position,
projects under development, construction or other budgets, information
contained in the Independent Engineers' and the Consultants' Reports and
plans and objectives for future operations, are forward-looking statements.
Although the Issuer and the Company believe that the expectations reflected in
such forward-looking statements are reasonable, they can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Issuer's and the Company's
expectations ("Cautionary Statements") are disclosed under "Risk Factors," in
the assumptions made by the Independent Engineers and Consultants and
contained in their reports, and elsewhere in this Prospectus. All subsequent
written and oral forward-looking statements attributable to the Issuer, the
Company or persons acting on their behalf are expressly qualified in their
entirety by the Cautionary Statements. See "Risk Factors -- Reliance upon
Projections and Underlying Assumptions Contained in Independent Consultant's
Reports; Actual Results May Vary From Such Projection."
In providing its conclusions set forth in the Independent Engineers' or
Consultants' Reports, each Independent Engineer or Consultant made certain
assumptions. Although the author of each report believes that the use of these
assumptions in its report is reasonable, assumptions are inherently subject to
significant uncertainties and, if actual conditions differ from those assumed,
actual results will differ from those projected, perhaps materially.
Accordingly, the conclusions and projections contained in the Independent
Engineers' and Consultants' Reports may not be indicative of future events.
Therefore, no representations are made, nor should any be inferred, with
respect to the likely existence of any particular future set of facts or
circumstances. If actual results are less favorable than the conclusions
presented in the Independent Engineers' or Consultants' Reports or if the
assumptions used in formulating the conclusions presented prove to be
incorrect, the ability of a direct or indirect Subsidiary of the Issuer to
repay its indebtedness to the Issuer and to make distributions to its equity
holders and thus ultimately to the Issuer, the Issuer's ability to make
payments of interest and principal on the Exchange Notes when due, and the
Company's ability to meet its obligations under the Exchange Notes Guarantee,
may be materially and adversely affected. See "Risk Factors--Reliance upon
Projections and Underlying Assumptions Contained in Independent Consultants'
Reports; Actual Results May Vary From Such Projections."
*****************************************************************************
Neither the Issuer, the Company nor any of their representatives makes any
recommendation to any holder of Old Notes as to whether to tender or refrain
from tendering Old Notes pursuant to the Exchange Offer. Neither the Issuer,
the Company nor any of their representatives makes any representation to any
offeree of the Exchange Notes offered hereby regarding the legality of any
investment by such offeree or purchaser under applicable legal investment or
similar laws. Each holder of Old Notes should consult with his or her own
advisors as to legal, tax, business, financial and related aspects of
participation in the Exchange Offer and must make his or her own decision with
respect to the Exchange Offer.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Issuer's and the
Company's financial data, including the notes thereto, appearing elsewhere in
this Prospectus. All references to the Company which pertain to events prior to
March 7, 1997 relate solely to the business and operations of certain
subsidiaries of Panda Energy International, Inc., which are now subsidiaries of
the Company. See "Business of the Issuer, the Company, Panda International and
Their Subsidiaries--The Issuer, the Company and Panda International." Investors
should carefully consider the information set forth under "Risk Factors" prior
to making any decision to invest in the Exchange Notes. For definitions of
certain terms used herein, see the glossary included as Appendix A to this
Prospectus, and "Description of the Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the Shareholder Loans on the Collateral Documents -
- - Certain Definitions."
The Issuer and the Company
Panda Global Energy Company (the "Issuer") is a wholly-owned subsidiary of
Panda Global Holdings, Inc. (the "Company"). The Issuer is a newly-formed
corporation formed primarily for the purpose of issuing the Old Notes and the
Exchange Notes, as well as other securities to finance additional Projects
which may be developed or acquired by subsidiary entities of the Issuer. The
Company is an independent power company principally engaged in the development,
acquisition, ownership and operation of power generation facilities and
activities related thereto ("Projects") in the United States and
internationally. The Company's principal business strategy is to use its and
its affiliates' experience to profitably develop, construct, finance and
manage Projects to provide low-cost electricity and electric generating
capacity particularly, in the case of international Projects, in areas of the
world where demand for power exceeds supply by a significant factor. The
Company believes there is and will continue to be significant demand for
new generating capacity worldwide and that much of this new capacity will
be provided by independent power developers such as the Company and its
affiliates, due to their low costs and development capabilities.
The Company's current portfolio of Projects is comprised of (i) 100%
indirect ownership of a 180 megawatt ("MW") natural gas-fired, combined-cycle
cogeneration facility located in Roanoke Rapids, North Carolina (the "Rosemary
Facility") which commenced commercial operations in December 1990 and (ii) 100%
indirect ownership of the lessee under a long-term leveraged lease of a 230 MW
natural gas-fired, combined-cycle cogeneration facility located in Brandywine,
Maryland, near Washington, D.C. (the "Brandywine Facility") which commenced
commercial operations in October 1996. The Company indirectly owns an
approximately 83% ownership interest in a 2x50 MW coal-fired cogeneration power
plant together with a steam and hot water generation and distribution facility
and other related facilities under construction in Luannan County, Tangshan
Municipality, Hebei Province, People's Republic of China (collectively, the
"Luannan Facility"). Preliminary construction work on the Luannan Facility
commenced in December 1996, and full construction activity commenced upon the
closing of the offering of the Old Notes on April 22, 1997 (the "Prior
Offering"). The Company is also actively developing several other domestic and
international Projects which may be added to its portfolio of Projects. See
"Risk Factors -- Issuance of Additional Indebtedness by Issuer, Company or Their
Subsidiaries Could Reduce Cash Available to Make Payments on Exchange Notes --
Effective Subordination of Exchange Notes and Exchange Notes Guarantee."
The Luannan Facility
The Luannan Facility will be comprised of two coal-fired steam/electric
generating units, each nominally rated at 50 MW but with nameplate capability
of up to 60 MW gross output under full condensing conditions. Electric power
generated by the Luannan Facility will be interconnected to the Beijing-Tianjin-
Tangshan Regional Power Network (the "Jing-Jin-Tang Grid") serving the Beijing-
Tianjin-Tangshan region, where the economy has witnessed significant growth in
recent years. In addition, steam will be extracted from the steam turbines for
distribution by pipeline to local commercial and industrial users and used for
local heating. Coal will be delivered by truck to the Luannan Facility from
nearby mines.
All electrical output of the Luannan Facility will be sold pursuant to a
20-year power purchase agreement (the "Luannan Power Purchase Agreement") to
North China Power Group Company ("North China Power Company"), the business arm
of the North China Power Group ("North China Power"). Certain components of the
power price are subject to contractual adjustment to reflect changes in coal
costs, local inflation, U.S. inflation, and foreign exchange rate fluctuations.
North China Power is one of the five interprovincial power groups in China and
is subject to the supervision of the Ministry of Electric Power of the PRC (the
"MOEP"). North China Power's service area includes Beijing and Tianjin, which
are among the largest and most economically developed cities in China, as well
as Hebei Province, Shanxi Province and western Inner Mongolia. The financial
statements of North China Power included in its 1995 annual report (prepared in
accordance with Chinese accounting principles) indicate total assets (excluding
assets in Inner Mongolia) of RMB 70.0 billion ($8.4 billion) as of December 31,
1995, and revenue of approximately RMB 27.2 billion ($3.3 billion) (excluding
revenue generated from Inner Mongolia) for 1995. North China Power also
reported that it was ranked as one of the top three government-owned industrial
enterprises (in terms of revenues) in China in 1995.
Preliminary construction work on the Luannan Facility commenced in
December 1996, and the Issuer and the Company believe that the commercial
operation date of the Luannan Facility will occur by August 1999. The Luannan
Facility is being constructed pursuant to a fixed-price, turnkey contract (the
"Luannan EPC Contract") with Harbin Power Engineering Company Limited (the
"Luannan EPC Contractor"). The Luannan EPC Contractor is a wholly-owned
subsidiary of Harbin Power Equipment Company, Ltd. ("Harbin Power"), which,
with its subsidiaries, is one of the largest manufacturers of power plant
equipment in China and is listed on the Hong Kong Stock Exchange. The
obligations of the Luannan EPC Contractor will be subject to a retainage of 10%
of the Luannan EPC Contract price. Liquidated damages, if any, are payable
under the Luannan EPC Contract up to a maximum of 35% of the Luannan EPC
Contract price and are guaranteed by the Export-Import Bank of China ("CHEXIM")
in this amount (the "CHEXIM Guarantee"). Senior unsecured debt of CHEXIM is
rated A3 by Moody's Investors Service, Inc. ("Moody's"). Harbin Power has
guaranteed the payment and performance obligations of the Luannan EPC
Contractor (the "Luannan EPC Guarantee"). The Luannan EPC Contractor has
significant experience, having constructed eight 50 MW cogeneration facilities
in China of similar design to the Luannan Facility and numerous additional
50 MW non-cogeneration units. In 1995, the annual designed production capacity
of the facilities constructed by the Luannan EPC Contractor and its affiliates
was 3,000 MW of thermal power and 1,000 MW of hydro power.
Operations and maintenance services for the Luannan Facility will be
provided by Duke/Fluor Daniel International Services (the "Luannan O&M
Contractor"). The Luannan O&M Contractor is actively engaged in the operation
and maintenance of electric generation facilities throughout the world.
The Issuer believes that the Luannan Facility will use approximately
450,000 metric tons of coal per year. The principal fuel supply for the
Luannan Facility will come from the Qianjiaying Mine, which is owned and
operated by Kailuan Coal Mining Administration ("Kailuan Coal"), a state-owned
mining company, and is located 30 kilometers from the Luannan Facility. The
Qianjiaying Mine produced approximately 3.67 million metric tons of coal in
1996. Kailuan Coal has contractually committed to supply up to 300,000 metric
tons per year of coal from the Qianjiaying Mine to the Luannan Facility for ten
years. The Luannan Facility has also entered into coal supply agreements with
five other local coal mines (collectively with Kailuan Coal, the "Luannan Coal
Suppliers") to secure up to an additional 310,000 metric tons per year of coal
for ten years. The Luannan Coal Suppliers are all located within a 50
kilometer radius of the location of the Luannan Facility, thereby minimizing
transportation costs. The coal will be transported by truck from the mines to
the Luannan Facility.
Transmission facilities will be constructed, owned and operated by North
China Power Company and will connect the Luannan Facility with the Jing-Jin-
Tang Grid (the "Luannan Transmission Facilities"). The Luannan Transmission
Facilities will be comprised of three newly constructed substations, upgrades
to an existing substation and switching station, and approximately 43
kilometers of new 110 kV transmission lines to interconnect the Luannan
Facility to the Jing-Jin-Tang Grid. North China Power Company has guaranteed it
will complete the construction of the Luannan Transmission Facilities to
receive the total electrical output of the Luannan Facility within 18 months of
receiving notice to proceed.
Ownership and Financing
The Luannan Facility will be owned and operated by four separate equity
joint venture companies (each singularly, a "Joint Venture," and collectively,
the "Joint Ventures"). The Company owns an approximately 83% indirect equity
interest in each of the Joint Ventures; entities owned by Luannan County (the
"County Partners") own an approximate 12% interest in each of the Joint
Ventures with the remaining 5% being owned indirectly by the Company's
strategic partners. The Company believes that all government approvals
required to date to form the Joint Ventures and develop the Luannan Facility
have been obtained based on the opinion of its Chinese counsel and advice from
the Hebei Provincial Planning Commission, the Commission of Foreign Trade and
Economic Cooperation of Hebei Province and the County Partners. The Luannan
Engineering Report (as defined below) concludes that there is no reason to
believe that other approvals required for construction of the Luannan Facility
will not be granted.
The Issuer and the Company believe the total cost of the Luannan Facility
will be approximately $118.8 million, of which (i) $71.3 million has been
funded from the proceeds of the offering of Old Notes consummated on April 22,
1997 (plus interest thereon and other income expected to be earned during
construction) in the form of loans to the Joint Ventures (the "Shareholder
Loans"), (ii) $41.8 million also has been funded from the proceeds of the
offering of Old Notes consummated on April 22, 1997 (plus interest thereon and
other income expected to be earned during construction) in the form of equity
contributions to the Joint Ventures (the "JV Equity Contributions"), and
(iii) $5.7 million has been funded by the County Partners in the form of equity
contributions to the Joint Ventures from the same amounts paid to such partners
by the Joint Ventures to acquire certain water and land use rights and water
wells from them.
The Old Notes were rated B2 by Moody's and B by Duff & Phelps Credit
Rating Co. ("Duff & Phelps"). There can be no assurance that these ratings
will be maintained.
The Rosemary Facility
The Rosemary Facility is a 180 MW combined-cycle cogeneration facility
located in Roanoke Rapids, North Carolina, which is indirectly wholly-owned by
the Company. The Rosemary Facility, in operation since 1990, uses natural gas
as its primary fuel to produce electricity and thermal energy in the form of
steam. The electric capacity of and electric energy produced by the Rosemary
Facility are sold to Virginia Electric and Power Company ("VEPCO") under a
power purchase agreement with 18 years remaining. Steam and chilled water
produced by the Rosemary Facility are sold to a textile mill adjacent to the
Rosemary Facility under a contract with 18 years remaining. A partnership of
wholly-owned subsidiaries of the Company which owns the Rosemary Facility (the
"Rosemary Partnership") has entered into agreements with Natural Gas
Clearinghouse for natural gas supply and fuel management services, with
Transcontinental Gas Pipe Line Corporation, Texas Gas Transmission Corporation
and CNG Transmission Corporation for firm and interruptible transportation of
natural gas and with certain other parties to provide pipeline operation, gas
balancing and interruptible transportation services. Panda Global Services,
Inc., an indirect wholly-owned subsidiary of Panda Energy International, Inc.
("Panda International") provides operations and maintenance services to the
Rosemary Facility.
In July 1996, Panda-Rosemary Funding Corporation, a wholly-owned Delaware
special purpose finance subsidiary of the Rosemary Partnership, consummated the
offering and sale of $111.4 million in aggregate principal amount of its 8 5/8%
First Mortgage Bonds due 2016 (the "Rosemary Bonds"). The Rosemary Bonds were
rated Baa3 by Moody's and BBB- by Duff & Phelps. See "Risk Factors --
Financial Risks -- Issuance of Additional Indebtedness by Issuer, Company or
Their Subsidiaries Could Reduce Cash Available to Make Payments on Exchange
Notes" and Risk Factors -- Financial Risks -- Effective Subordination of
Exchange Notes and Exchange Notes Guarantee".
The Brandywine Facility
The Brandywine Facility is a 230 MW combined-cycle cogeneration facility
located at Brandywine, Maryland, near Washington, D.C. The Brandywine Facility
is leased by an indirect wholly-owned subsidiary of the Company pursuant to a
lease which expires in December 2016 with General Electric Capital Corporation
("GE Capital"). The Brandywine Facility utilizes natural gas as its primary
fuel to produce electricity and thermal energy in the form of steam. The
electric capacity of and electric energy produced by the Brandywine Facility
are sold to Potomac Electric Power Company pursuant to a power purchase
agreement (the "Brandywine Power Purchase Agreement") which expires in October
2021. Thermal energy produced by the Brandywine Facility is sold to a distilled
water production facility owned by an indirect wholly-owned subsidiary of the
Company. The Brandywine Facility purchases firm and interruptible natural gas
supplies from Cogen Development Company, which are transported to the
Brandywine Facility on either a firm or interruptible basis through the
interstate pipeline facilities of Columbia Gas Transmission Corporation and
Cove Point LNG Limited Partnership and the local gas distribution facilities of
Washington Gas Light Company. The Brandywine Facility has contracted with Ogden
Brandywine Operations, Inc., a subsidiary of Ogden Corporation, to provide
operations and maintenance services to the Brandywine Facility. See "Risk
Factors -- Financial Risks -- Issuance of Additional Indebtedness by Issuer,
Company or Their Subsidiaries Could Reduce Cash Available to Make Payments on
Exchange Notes" and Risk Factors -- Financial Risks -- Effective Subordination
of Exchange Notes and Exchange Notes Guarantee to Obligations of Project
Entities and Joint Ventures".
Panda Interfunding Corporation
The Rosemary Facility and the Brandywine Facility are each indirectly
owned by Panda Interfunding Corporation, a Delaware corporation ("PIC"), an
indirect wholly-owned subsidiary of the Company. In July 1996, a wholly-owned
subsidiary of PIC, Panda Funding Corporation ("PFC"), issued $105.5 million in
bonds (the "Series A Bonds") which were rated Ba3 by Moody's and BB- by Duff &
Phelps. The Series A Bonds are fully and unconditionally guaranteed by PIC.
Additional Projects
In the future, Panda International and its affiliates (including the
Company) may develop additional Projects. Subject to certain conditions, Panda
International and its affiliates (including the Company) will be required to
transfer to PIC their interests in certain additional Projects, if any, for
which a power purchase agreement is entered into prior to July 31, 2001 and
which reach Financial Closing or achieve Commercial Operations (as such terms
are defined in the PIC Additional Projects Contract) prior to July 31, 2006.
Additional Projects, if any, which are not required to be transferred to PIC
may, at the option of Panda International and its affiliates, be transferred to
the Issuer or the Company, provided that, if additional indebtedness is to be
incurred by the Issuer or the Company in connection with any such additional
Project so transferred, certain conditions are satisfied. See "Risk Factors --
Financial Risks -- Issuance of Additional Indebtedness by Issuer, Company or
Their Subsidiaries Could Reduce Cash Available to Make Payments on Exchange
Notes, and "Risk Factors - Financial Risks -- Risk That Addition of Projects
to PIC Project Portfolio Performance and Thereby Reduce Cash Flow From PIC to
the Company."
Effective Subordination of Exchange Notes and Exchange Notes Guarantee to
Obligations of Project Entities and Joint Ventures; Collateral
The Exchange Notes and the Exchange Notes Guarantee will be the exclusive
obligations of the Issuer and the Company, respectively, and not of the Project
Entities which own or operate the Rosemary Facility or the Brandywine Facility,
the Joint Ventures or any other affiliate of the Issuer. The Project Entities
and the Joint Ventures are highly leveraged and their debt agreements restrict
their ability to pay dividends, make distributions or otherwise transfer funds,
through intermediate entities, to the Company. The restrictions in such
agreements generally require that, prior to the payment of dividends,
distributions or other transfers, Project Entities and the Joint Ventures
provide for the payment of other obligations, including operating expenses,
debt service and the funding of reserves. The Project Entities and the Joint
Ventures are separate and distinct legal entities and have no obligation to pay
any amounts due pursuant to the Exchange Notes or to make any funds available
therefor, whether by dividends, loans or other payments, and do not guarantee
the payment of the Exchange Notes. Thus, payments on the Exchange Notes are
effectively subordinated to the payment of all obligations of the Project
Entities and the Joint Ventures. In addition, the Company's right to receive
any assets of the Project Entities or the Joint Ventures upon their liquidation
or reorganization will be effectively subordinated to the claims of such
Project Entities' or Joint Ventures' creditors (including trade creditors and
holders of other debt issued by such Project Entity). As of March 31, 1997, the
Project Entities had approximately $338.6 million of indebtedness and other
liabilities (including payments on the long-term lease for the Brandywine
Facility), which is effectively senior to obligations of the Company under the
Exchange Notes Guarantee. See "Risk Factors--Financial Risks--Issuance
of Additional Indebtedness by Issuer, Company or Their Subsidiaries Could
Reduce Cash Available to Make Payments on Exchange Notes", "Description of
Other Indebtedness--The Rosemary Bonds" and "Description of Other
Indebtedness--The Rosemary Bonds" and Description of Other Indebtedness--The
Brandywine Financing".
Similarly, the Company is highly leveraged as a result of the issuance of
the Series A Bonds by PFC (an indirect wholly-owned subsidiary of the Company),
which are collateralized in part by all of the issued and outstanding shares of
PIC (also an indirect wholly-owned subsidiary of the Company). The PFC
Indenture restricts the ability of PIC to pay dividends, make distributions or
otherwise transfer funds, through PEC, to the Company. PIC and PFC are separate
and distinct legal entities and have no obligation to pay any amounts due
pursuant to the Exchange Notes or to make any funds available therefor, whether
by dividends, loans or other payments, and do not guarantee payment of the
Exchange Notes. Thus, payments on the Exchange Notes are also effectively
subordinated to the payment of all obligations of PFC. In addition, the
Company's right to receive any assets of PIC upon its liquidation or
reorganization will be effectively subordinated to the claims of PFC's
creditors (including holders of the Series A Bonds). As of March 31, 1997, PFC
had approximately $106.6 million of indebtedness and other liabilities, which
is effectively senior to the obligations of the Company under the Exchange
Notes Guarantee. See "Risk Factors--Financial Risks --Issuance of Additional
Indebtedness by the Issuer, Company or Their Subsidiaries Could Reduce Cash
Available to Make Payments on Exchange Notes" and "Description of Other
Indebtedness--The PFC Bonds."
The Exchange Notes are fully and unconditionally guaranteed by the Company
("Exchange Notes Guarantee"). The Exchange Notes Guarantee is secured by
pledges, or grants of security interests (i) by Panda International of 100%
of the Capital Stock of the Company; (ii) by the Company of 100% Capital
Stock of PEC; and (iii) by the Company, of and in its interest in
accounts, established in the Company's name with the Company Indenture
Trustee, into which certain distributions related to the Luannan Facility are
(or will be) deposited. The Exchange Notes are secured by pledges, or
grants of security interests (i) by the Issuer of at least 90% of the
Capital Stock of Pan-Sino; (ii) the Issuer Note issued by Pan-Western; (iii)
in the event that Pan-Sino is merged into Pan-Western, the Issuer will pledge
at least 99% of the Capital Stock of Pan-Western to the Senior Secured
Notes Trustee; (v) in the event that Pan-Sino is merged into the Issuer,
the Issuer will assume Pan-Sino's obligations under the Pan-Sino
Pledge Agreement; (v) by Pan-Western of the Luannan Facility Notes issued by
the Joint Ventures; and (vi) by the Company of 100% of the Capital Stock
of the Issuer. Individually, and in the aggregate, the pledges of the
Capital Stock of each of PEC, Pan-Sino and Pan-Western do not constitute a
"substantial portion" (as defined in Rule 3-10 of Regulation S-X promulgated
under the Securities Act) of the collateral securing the Exchange Notes and
the Exchange Notes Guarantee. Separate financial statements of each of
the PEC, Pan-Sino and Pan-Western are not presented in this Prospectus
because the Company and the Issuer believe that such disclosure is not
material to a prospective purchaser of the Exchange Notes.
Investors should consider carefully all the information set forth under
"Risk Factors" prior to making any decision to invest in the Exchange Notes.
The following chart details, in summary form, the corporate structure of
Panda International and its subsidiaries. See Appendix G, "Ownership Structure
of the Issuer, the Company, Panda International and Certain of Their
Subsidiaries."
[Panda International Organizational Subsidiary Chart here]
Notes: Intermediate entities with no significant assets or
liabilities have been excluded from the above chart except for the
entity mentioned in note (1).
(1) Panda Funding Corporation ("PFC"), a wholly-owned subsidiary
of Panda Interfunding Corporation ("PIC"), is the issuer of the
Series A Bonds. See "Description of Other Indebtedness -- The PFC
Bonds."
PRIOR OFFERING
On April 22, 1997 (the "Issue Date"), the Issuer issued $155,200,000
aggregate principal amount of its Old Notes in a private placement under
Section 4(2) of the Securities Act and Rule 144A and Regulation S promulgated
thereunder (the "Prior Offering"). The Old Notes were sold to Donaldson,
Lufkin & Jenrette. (the "Initial Purchaser") pursuant to the Purchase Agreement
and were placed by the Initial Purchaser with Qualified Institutional Buyers
and institutional Accredited Investors (as defined in Section 501(a) (1), (2),
(3) or (7) under the Securities Act). Pursuant to the Registration Rights
Agreement entered into between the Company, the Issuer and the Initial
Purchaser in connection with the Prior Offering, the Issuer and the Company
agreed to file a shelf registration statement covering the Old Notes (a "Shelf
Registration Statement") or to effect a registered exchange offer for the Old
Notes pursuant to which the holders of the Old Notes would be offered the
opportunity to exchange their Old Notes for registered Exchange Notes. The
Registration Rights Agreement provides that if such an exchange offer
registration statement (an "Exchange Offer Registration Statement") or a Shelf
Registration Statement is not declared effective within 150 days after the
Issue Date, the Issuer and the Company, jointly and severally, shall be liable
to pay liquidated damages, during the first 90-day period commencing on the
151st day following the Issue Date in an amount equal to $.05 per week per
$1,000 principal amount of Exchange Notes, with such amount increasing by an
additional $.05 per week per $1,000 principal amount of Exchange Notes for each
subsequent 90-day period, up to a maximum of $.50 per week per $1,000 principal
amount of Old Notes. The Registration Statement with respect to the Exchange
Offer was declared effective by the Commission on , 1997, thereby
avoiding the aforementioned Liquidated Damages.
THE EXCHANGE OFFER
The Issuer is making the following Exchange Offer to holders of all Old
Notes presently outstanding:
The Exchange Offer For each $1,000 principal amount of Old Notes
tendered, a holder will be entitled to receive $1,000
principal amount of Exchange Notes. As of the date of
this Prospectus, $155,200,000 principal amount of Old
Notes is outstanding. The terms of the Exchange
Notes are substantially identical to the terms of the
Old Notes, except that the Exchange Notes (i) will
have been registered under the Securities Act, and
(ii) holders of the Exchange Notes will not be
entitled to certain rights of holders of the Old
Notes under the Registration Rights Agreement, which
rights will terminate upon the consummation of the
Exchange Offer. Such rights will also terminate as
to holders of Old Notes who are eligible to tender
their Old Notes for exchange in the Exchange Offer
and fail to do so. See "The Exchange Offer --
Termination of Certain Rights" and "Description of
the Exchange Notes, the Exchange Notes Guarantee, the
Issuer Loan, the Shareholder Loans and the Collateral
Documents - Old Notes Registration Rights."
Expiration Date The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1997, unless extended
in the Issuer's sole discretion. See "The Exchange
Offer -- Expiration Date; Extensions; Termination;
Amendments."
Withdrawal of Tenders Tenders of Old Notes may be withdrawn at any
time prior to the Expiration Date. Thereafter, such
tenders are irrevocable. See "The Exchange Offer --
Withdrawal of Tenders."
Interest on the Exchange
Notes and Accrued
Interest on the Old
Notes The Exchange Notes will bear interest from the
date of their issuance. Interest on the Old Notes
accepted for exchange will accrue thereon to, but not
including, the date of issuance of the Exchange Notes
and will be paid together with the first interest
payment on the Exchange Notes issued in exchange
therefor.
Conditions of the
Exchange Offer The Exchange Offer is subject to certain
customary conditions, which may be waived by the
Issuer. The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Old Notes
being tendered or accepted for exchange. Old Notes
may be tendered only in integral multiples of $1,000.
See "The Exchange Offer -- Conditions of the Exchange
Offer."
Procedures for Tendering
Old Notes Each holder of Old Notes wishing to accept the
Exchange Offer must, prior to the Expiration Date,
either (i) complete and sign the Letter of
Transmittal, in accordance with the instructions
contained herein and therein, and deliver such Letter
of Transmittal, together with any signature
guarantees and any other documents required by the
Letter of Transmittal, to the Exchange Agent at its
address set forth on the back cover page of this
Prospectus and the tendered Old Notes must either be
(a) physically delivered to the Exchange Agent or (b)
transferred pursuant to the procedures for book-entry
transfer described herein and a confirmation of such
book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date, or (ii) comply
with the guaranteed delivery procedures set forth
herein. By executing the Letter of Transmittal, each
holder will represent that the Exchange Notes
acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the
person receiving such Exchange Notes (whether or not
such person is the registered holder of such Exchange
Notes), that neither the holder of such Exchange
Notes nor any such other person has an arrangement
with any person to participate in the distribution
(within the meaning of the Exchange Act) of such
Exchange Notes and that neither the holder of such
Exchange Notes or any such other person is an
Affiliate of the Issuer or the Company, or if it is
an Affiliate, it will comply with the registration
and prospectus delivery requirements of the
Securities Act to the extent applicable. See "The
Exchange Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Owners Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender Old Notes in the Exchange Offer
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. See "The Exchange Offer -
- Procedures for Tendering."
Guaranteed Delivery
Procedures Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes, the
Letter of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, may tender their Old
Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Acceptance of the Old
Notes and Delivery of
the Exchange Notes Upon satisfaction or waiver of the conditions of
the Exchange Offer, the Issuer will accept for
exchange any and all Old Notes which are properly
tendered and not withdrawn prior to the Expiration
Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered on the earliest
practicable date following the Expiration Date. See
"The Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of Exchange Notes."
Certain Federal Income
Tax Considerations For discussion of certain federal income tax
consequences of the exchange of the Old Notes, see
"Certain Income Tax Considerations of the Exchange
Offer."
Effect on Holders who
Retain Old Notes Holders of the Old Notes who do not tender their
Old Notes in the Exchange Offer will continue to hold
such Old Notes and will be entitled to all the rights
and benefits, and will be subject to all limitations
applicable thereto, under the Exchange Notes
Indenture. All Old Notes not exchanged in the
Exchange Offer will continue to be subject to the
restrictions on transfer provided for in the Old
Notes and the Exchange Notes Indenture. To the
extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market, if any, for
the Old Notes not so tendered could be adversely
affected. See "Risk Factors -- Consequences of
Failure to Exchange Old Notes."
Rights of Dissenting
Holders Holders of Old Notes do not have any appraisal rights.
See "The Exchange Offer - Terms of the Exchange Offer."
Exchange Agent Bankers Trust Company. See "The Exchange Offer
-- The Exchange Agent."
Terms of the Exchange Notes
The Exchange Offer applies to $155,200,000 aggregate principal amount of Old
Notes. The form and terms of the Exchange Notes are substantially identical to
the terms of the Old Notes, except that the Exchange Notes (i) have been
registered under the Securities Act, and therefore, will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii) holders of
the Exchange Notes will not be entitled to certain rights of holders of the Old
Notes under the Registration Rights Agreement, which rights will terminate upon
the consummation of the Exchange Offer. Such rights will also terminate as to
holders of Old Notes who are eligible to tender their Old Notes for exchange in
the Exchange Offer and fail to do so. See "Exchange Offer -- Termination of
Certain Rights." The Exchange Notes will evidence the same debt as the Old
Notes which they replace and will be issued under, and be entitled to the
benefits of, the Exchange Notes Indenture.
Issuer Panda Global Energy Company, a Cayman
Islands company (the "Issuer").
Guarantor Panda Global Holdings, Inc., a
Delaware corporation (the "Company").
Securities Offered $155,200,000 aggregate principal
amount of 12-1/2% Registered Senior
Secured Notes due 2004 (the "Exchange
Notes").
Maturity Date April 15, 2004.
Interest Rate Cash interest on the Exchange Notes
will accrue at a rate of
12-1/2% per annum and will be payable
semi-annually in arrears on each
April 15 and October 15, commencing
October 15, 1997.
Repayment of Principal Commencing on October 15, 2000 and
through the payment date of October
15, 2003, 15.4% of the aggregate
outstanding principal amount of the
Exchange Notes (assuming all
outstanding Old Notes are tendered
and accepted for exchange pursuant to
the Exchange Offer) will be repaid
semi-annually on the dates and in the
amounts indicated in the table set
forth below under "Description of the
Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral
Documents--Ranking, Maturity,
Interest and Principal of the
Exchange Notes."
Ranking The Exchange Notes will be senior
obligations of the Issuer ranking
senior in right of payment to all
subordinated Indebtedness of the
Issuer and pari passu with all other
Senior Indebtedness of the Issuer.
Exchange Notes The Exchange Notes will be secured by
Collateral the Exchange Notes Collateral (herein
so called). The Exchange Notes
Collateral consists of pledges and a
security interest in certain assets
of the Issuer and its Subsidiaries,
including, a pledge of (i) at least
90% of the Capital Stock of Pan-Sino,
(ii) 99% of the Capital Stock of Pan-
Western, (iii) the Issuer Note,
(iv) the Luannan Facility Notes and
the granting of a security interest
in certain funds of the Issuer and
its Subsidiaries maintained by the
Exchange Notes Trustee and (v)100% of
the Capital Stock of the Issuer.
The Exchange Notes The Company, as primary obligor and
Guarantee not merely as surety, will
irrevocably, fully and
unconditionally guarantee on a senior
secured basis the performance and
punctual payment when due, whether at
stated maturity, by acceleration or
otherwise, of all obligations of the
Issuer under the Exchange Notes
Indenture and the Exchange Notes,
whether for principal, premium, if
any, and interest (including
Liquidated Damages and Additional
Amounts, if any), on the Exchange
Notes, expenses, indemnification or
otherwise.
The Exchange Notes The Company's obligations under the
Guarantee Collateral Exchange Notes Guarantee will be
secured by the Exchange Notes
Guarantee Collateral (herein so
called). The Exchange Notes Guarantee
Collateral consists of a pledge of
100% of the Capital Stock of the
Company and of pledges and a security
interest in certain assets of the
Company and its Subsidiaries,
including: (i) a pledge of 100% of
the Capital Stock of PEC, which
indirectly owns (a) 100% of the
Rosemary Facility and (b) 100% of the
lessee under a long-term leveraged
lease of the Brandywine Facility, and
(ii) the granting of a security
interest in certain funds of the
Company established and maintained by
the Company Indenture Trustee.
Optional Redemption The Exchange Notes will be redeemable
at the option of the Issuer, in whole
or in part, at any time on or after
April 15, 2002, at the redemption
prices set forth below under
"Description of the Exchange Notes,
the Exchange Notes Guarantee, the
Issuer Loan, the Shareholder Loans
and the Collateral Documents--
Redemption." In addition, prior to
April 15, 2000, the Issuer may redeem
up to $51,733,000 of the originally
issued principal amount of Existing
Notes at the redemption price set
forth under "Description of the
Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral
Documents--Redemption" with the Net
Cash Proceeds of one or more Public
Equity Offerings by the Company,
Panda International or any direct or
indirect parent of the Company;
provided that (i) the proceeds of
such offering used for the purposes
of the optional redemption are
contributed as equity to the Issuer
and (ii) at least $103,467,000 of the
aggregate outstanding principal
amount of Existing Notes would remain
outstanding immediately after giving
effect to such redemption.
Mandatory Redemption Upon the occurrence of certain events
of loss or expropriation with respect
to the Luannan Facility described
below, the outstanding Existing Notes
(together with, under certain limited
circumstances, any additional Senior
Indebtedness of the Issuer
outstanding at the time) will be
redeemed pro rata, at the redemption
prices set forth below under
"Description of the Exchange Notes,
the Exchange Notes Guarantee, the
Issuer Loan, the Shareholder Loans
and the Collateral Documents--
Redemption."
Redemption at Option of Upon the occurrence of certain
Holders Indentures Events of Default relating
to Shareholder Loan events of
default, or if the Luannan Facility
Construction Cost is less than the
Projected Luannan Facility
Construction Cost by more than $1.0
million, the Issuer will be obligated
to make an offer to redeem pro rata a
portion of the outstanding Exchange
Notes (assuming all outstanding Old
Notes are tendered and accepted for
exchange pursuant to the Exchange
Offer) with certain amounts at the
redemption prices set forth below
under "Description of the Exchange
Notes, the Exchange Notes Guarantee,
the Issuer Loan, the Shareholder
Loans and the Collateral Documents--
Redemption," and "Description of the
Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral
Documents -- Certain Covenants --
Indentures Events of Default.."
Change of Control Upon a Change of Control, holders of
the Exchange Notes will have the
right to require the Issuer to
repurchase their Exchange Notes, in
whole or in part, at the purchase
price set forth below under
"Description of the Exchange Notes,
the Exchange Notes Guarantee, the
Issuer Loan, the Shareholder Loans
and the Collateral Documents--Change
of Control." The Series A-1 Bonds,
issued by Panda Funding Corporation,
an indirect subsidiary of the Company,
in the aggregate principal amount of
$105,525,000, contain similar change
of control provisions in both the
Series A-1Bonds and the Exchange
Notes, there is a substantial
likelihood that the mandatory offer to
repurchase obligations under each
series of indebtedness could not be
fulfilled simultaneously.
Asset Sale Proceeds The Company and the Issuer will be
obligated in certain circumstances,
to use a portion of the net cash
proceeds of certain sales or other
dispositions of assets, to make
offers to purchase Exchange Notes in
the amounts and at the redemption
prices set forth below under
"Description of the Exchange Notes,
the Exchange Notes Guarantee, the
Issuer Loan, the Shareholder Loans
and the Collateral Documents--Certain
Covenants--Disposition of Proceeds of
Asset Sales."
Principal Covenants The Indentures, with respect to the
Company and its Subsidiaries, will
contain certain restrictive
covenants, including, without
limitation, (i) limitations on
investments, loans and advances, (ii)
limitations on dividends and other
payments, (iii) limitations on
transactions with Affiliates, (iv)
limitations on additional
indebtedness, (v) limitations on
liens, (vi) limitations on agreements
restricting payments, (vii)
limitations on capital expenditures,
(viii) limitations on line of
business and Permitted Projects and
(ix) limitations on sale and
leaseback transactions. In addition,
the Indentures will limit the ability
of Company and the Issuer to
consolidate, merge or sell all or
substantially all of their assets.
Certain Accounts In accordance with the Exchange Notes
Indenture, certain funds, including
the Capitalized Interest Fund and the
Debt Service Reserve Fund, will be
established. The Issuer will have
limited rights of withdrawal under
the above funds in accordance with
terms and conditions set forth in the
Exchange Notes Indenture.
Capitalized Interest Upon the Issue Date, the Issuer
Fund deposited approximately $48.1 million
into the Capitalized Interest Fund.
Through the Capitalized Interest
Expiration Date (October 15, 1999),
interest payments on the Exchange
Notes will be provided from the
Capitalized Interest Fund.
Debt Service Reserve Upon the Issue Date, the Issuer
Fund deposited $9.7 million in the Debt
Service Reserve Fund as a reserve for
payments on the Exchange Notes.
Transfer of Exchange Based upon their view of
Notes interpretations provided to third
parties by the staff of the
Commission, the Issuer and the
Company believe that the Exchange
Notes issued pursuant to the Exchange
Offer may be offered for resale,
resold and otherwise transferred by
holders thereof (other than any
holder which is (i) an Affiliate of
the Company, or the Issuer, (ii) a
broker-dealer who acquired Old Notes
directly from the Issuer or (iii) a
broker-dealer who acquired Old Notes
as a result of market making or other
trading activities) without
registration under the Securities
Act, provided that such Exchange
Notes are acquired in the ordinary
course of such holders' business and
such holders are not engaged in, and
do not intend to engage in, and have
no arrangement or understanding with
any person to participate in, a
distribution (within the meaning of
the Securities Act) of such Exchange
Notes. Each broker-dealer who
receives Exchange Notes for its own
account pursuant to the Exchange
Offer must notify the Company and the
Issuer that it has acquired Exchange
Notes for its own account (which
notification must be made in the
applicable location in the Letter of
Transmittal that is delivered by such
broker-dealer along with such broker-
dealer's Old Notes to be exchanged
pursuant to the Exchange Offer), and
must acknowledge that it will deliver
a prospectus in connection with any
resale of such Exchange Notes. The
Letter of Transmittal states that by
so acknowledging and by delivering a
prospectus, a broker-dealer will not
be deemed to admit that it is an
"underwriter" within the meaning of
the Securities Act. This Prospectus,
as it may be amended or supplemented
from time to time, may be used by a
broker-dealer in connection with
resales of Exchange Notes received in
exchange for Old Notes where such Old
Notes were acquired by such broker-
dealer as a result of market making
activities or other trading
activities. The Company and the
Issuer have agreed, for a period of
270 consecutive days after the
consummation of the Exchange Offer,
to make available a prospectus
meeting the requirements of the
Securities Act to any such broker-
dealer for use in connection with any
such resale so long as they notify the
Issuer in writing within 30 business
days after the consummation of the
Exchange Offer that they have acquired
Exchange Notes for their own account.
A broker-dealer that delivers such
a prospectus to a purchaser in
connection with such resales will be
subject to certain of the civil
liability provisions under the
Securities Act and will be bound
by the provisions of the Registration
Rights Agreement (including certain
indemnification provisions). Any
holder who tenders in the Exchange
Offer for the purpose of
participating in a distribution of
the Exchange Notes and any other
holder that cannot rely upon such
interpretations, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction. In addition, to comply
with the securities laws of certain
jurisdictions, if applicable, the
Exchange Notes may not be offered or
sold unless they have been registered
or qualified for sale in such
jurisdictions or an exemption from
registration or qualification is
available and the conditions thereto
have been met. See "The Exchange
Offer -- Purpose and Effects of the
Exchange Offer" and "Plan of
Distribution"
Registration Rights The Exchange Offer is intended to
satisfy certain rights under the
Registration Rights Agreement, which
rights terminate upon the
consummation of the Exchange Offer.
Therefore, the holders of Exchange
Notes are not entitled to any
exchange or registration rights with
respect to the Exchange Notes. In
addition, such exchange and
registration rights will terminate as
to holders of Old Notes who are
eligible to tender their Old Notes
for exchange in the Exchange Offer
and fail to do so. See "The Exchange
Offer -- Termination of Certain
Rights" and "Description of the
Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral
Documents -- Old Notes Registration
Rights."
Use of Proceeds There will be no cash proceeds to the
Issuer or the Company from the
exchange of Exchange Notes for Old
Notes pursuant to the Exchange Offer.
Risk Factors
Investment in the Exchange Notes involves substantial risks including,
but not limited to:
- - Substantial Leverage of the Issuer, the Company and Their Subsidiaries.
- - Issuer's Ability to Make Payments on Exchange Notes is Dependent on
Financial Performance of, and Disbritutions From, Luannan Facility (When
Constructed), Rosemary Facility and Brandywine Facility.
- - Distrubitions From Rosemary Facility and Brandywine Facility Not
Sufficient by Themselves to Make Payments on Exchange Notes Guarantee.
- - Risk That Issuer May Not Have Sufficient Funds to Make Lump Sum Payment
Due April 15, 2004.
- - Effective Subordination of Exchange Notes and Exchange Notes Guarantee
to Obligations of Project Entities and Joint Ventures.
- - Risk of Default on Project-level Debt Resulting in Possible Termination
of Distributions From the Applicable Project Entity to the Company.
- - Reliance upon Projections and Underlying Assumptions Contained in Engineers'
and Consultants'Reports; Actual Results May Vary From Such Projections.
- - Project Risks.
- - Political and Economic Uncertainties in the PRC; Risk of Expropriation.
- - Possible Inability to Convert Foreign Currency Due to Governmental Control
of Currency Conversion.
- - U.S. Industry Conditions; Risks in Regard to Electric Utility Restructuring
and Deregulation and Utility Responses Thereto.
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA OF THE COMPANY
Presented below is summary historical consolidated financial data for the
Company as of and for each of the years in the three-year period ended December
31, 1996 and as of and for the three months ended March 31, 1996 and 1997, which
have been derived from the Company's financial statements. Also presented is
unaudited pro forma consolidated financial data as of March 31, 1997, for the
year ended December 31, 1996 and for the three months ended March 31, 1997. The
unaudited pro forma financial data give effect to (i) the issuance of $111.4
million in aggregate principal amount of the Rosemary Bonds and the application
of the net proceeds thereof to refinance Rosemary Partnership project debt and
to fund a portion of the acquisition of Ford Motor Credit Company's ("Ford
Credit") limited partner interest in the Rosemary Partnership and (ii) the
issuance of the Series A Bonds and the application of the net proceeds thereof
(a) to fund a capitalized interest fund, a debt service reserve fund and a
company expense fund relating to the Series A Bonds, (b) to fund the remaining
portion of the acquisition of Ford Credit's limited partner interest in the
Rosemary Partnership and (c) to make a distribution to the Company's parent.
These transactions are reflected in the historical balance sheet data as of
December 31, 1996 and March 31, 1997. The unaudited pro forma statement of
operations data reflect such adjustments as if the transactions had occurred as
of January 1, 1996. Additionally, the unaudited pro forma financial data give
effect to the issuance of $155.2 million par value of Old Notes (issued at a
discount for proceeds of $145.0 million) and the application of the proceeds
thereof to fund the Capitalized Interest Fund and the Debt Service Reserve Fund
established with respect to the Old Notes, to make shareholder loans and equity
contributions to the Joint Ventures and to pay the transaction fees, commissions
and expenses incurred in connection with the Prior Offering. The unaudited pro
forma balance sheet data reflect such adjustments as if the transactions
occurred as of March 31, 1997. The unaudited pro forma statement of operations
data reflect such adjustments as if the transactions had occurred as of January
1, 1996. As required by the Securities and Exchange Commission, the unaudited
pro forma statement of operations data do not reflect the extraordinary loss on
early extinguishment of debt. Such extraordinary loss is reflected in the
historical statement of operations data for the year ended December 31, 1996.
The unaudited pro forma financial data do not purport to be indicative of the
results of operations which would actually have occurred if the transactions
described had occurred as presented in such statements or which may be obtained
in the future. The information in this table should be read in conjunction with
the information contained under the captions "Capitalization," "Unaudited Pro
Forma Consolidated Financial Data of the Company" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of the Company"
and with the consolidated financial statements of the Company, including the
notes thereto, included elsewhere herein. Dollar amounts are presented in
thousands.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31
-------------------------------------------- --------------------------------
Pro Forma Pro Forma
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- -------- ------- -------- --------
(Unaudited) (Unaudited) (Unaudited)(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Electric capacity and energy sales .............. $ 30,664 $ 29,859 $ 32,274 $ 32,274 $ 8,015 $ 17,330 $ 17,330
Steam and chilled water sales ................... 650 473 502 502 122 130 130
Interest income ................................. 603 895 1,518 1,518 186 430 430
-------- -------- -------- -------- ------- -------- --------
Total revenue .............................. 31,917 31,227 34,294 34,294 8,323 17,890 17,890
Plant operating expenses ........................ 8,940 9,348 12,050 12,050 2,442 8,261 8,261
Development and administrative expenses ......... 1,779 2,550 5,187 5,187 803 2,395 2,395
Interest expense ................................ 11,018 11,716 19,414 46,055 3,185 10,802 15,911
Depreciation .................................... 4,208 4,210 5,532 5,421 1,053 2,949 2,949
Amortization - Debt issuance costs .............. 600 554 494 1,413 141 174 418
Amortization - Partnership formation costs ...... 533 533 533 533 133 -- --
-------- -------- -------- -------- ------- -------- --------
Total expenses ............................. 27,078 28,911 43,210 70,659 7,757 24,581 29,934
Income (loss) before minority interest .......... 4,839 2,316 (8,916) (36,365) 566 (6,691) (12,044)
Minority interest ............................... (5,700) (5,048) (2,405) 2,557 (1,719) -- 642
-------- -------- -------- -------- ------- -------- --------
Net loss before extraordinary item .............. (861) (2,732) (11,321) $(33,808) (1,153) (6,691) $(11,402)
======== ========
Extraordinary loss on early
extinguishment of debt ......................... -- -- (21,336) -- --
-------- -------- -------- ------- --------
Net loss ................................... $ (861) $ (2,732) $(32,657) $(1,153) $(6,691)
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31
------------------------------ ------------------------------
Pro Forma
1994 1995 1996 1996 1997 1997
-------- -------- -------- -------- -------- --------
(Unaudited) (Unaudited)(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash and other current assets .................... $ 15,639 $ 11,339 $ 36,626 $ 16,807 $ 32,665 $ 32,665
Power plant and equipment (net) .................. 96,136 220,145 268,725 242,466 269,532 269,532
Reserves and escrow deposits, and other
assets ........................................... 15,477 15,471 40,119 15,320 40,079 190,844
-------- -------- -------- -------- -------- --------
Total assets ................................ $127,252 $246,955 $345,470 $274,593 $342,276 $493,041
======== ======== ======== ======== ======== ========
Current liabilities .............................. $ 12,531 $ 18,457 $ 19,667 $ 22,823 $ 13,939 $ 13,939
Long-term debt (including capital
lease obligation) less current portion ..... 106,343 234,608 427,319 256,145 431,323 576,348
</TABLE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA OF THE ISSUER
The following table sets forth summary consolidated financial data of the
Issuer as of December 31, 1994, 1995 and 1996 and for the period from inception
(July 20, 1994) through December 31, 1994 and the years ended December 31, 1995
and 1996, and as of and for the three months ended March 31, 1996 and 1997.
Although the Issuer was formed on March 10, 1997, a subsidiary of the Issuer,
formed on July 20, 1994, is considered the Issuer's predecessor. The information
presented below, which reflects the operations of the predecessor, has been
derived from the Issuer's financial statements. Because the Issuer has been and
continues to be in the development stage since formation, it has no operating
revenues. The data should be read in conjunction with the Issuer's financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
See "Capitalization," "Unaudited Consolidated Pro Forma Financial Data of the
Company," "Selected Financial Data of the Issuer" and "Selected Financial Data
of the Company." Dollar amounts are presented in thousands.
<TABLE>
<CAPTION>
Period From
Inception Year Ended Three Months Ended
through December 31, March 31,
December 31, --------------------- ---------------------
1994 1995 1996 1996 1997
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (Unaudited)
General and administrative expenses ............................ $ 203 $ 444 $ 1,654 $ 266 $ 555
----- ------- ------- ------- -------
Net loss .............................................. $ 203 $ 444 $ 1,654 $ 266 $ 555
===== ======= ======= ======= =======
<CAPTION>
December 31, March 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (Unaudited)
Cash ......................................................... $ 101 $ 6 $ 506 $ 6 $ 6
Development costs ............................................ 428 1,059 3,292 1,550 6,614
----- ------- ------- ------- -------
Total assets .......................................... $ 529 $ 1,065 $ 3,798 $ 1,556 $ 6,620
===== ======= ======= ======= =======
Advances from Parent.......................................... $ 732 $ 1,712 $ 6,099 $ 2,468 $ 9,476
Accumulated deficit .......................................... (203) (647) (2,301) (912) (2,856)
----- ------- ------- ------- -------
Total shareholder's equity............................. $ 529 $ 1,065 $ 3,798 $ 1,556 $ 6,620
===== ======= ======= ======= =======
</TABLE>
Independent Engineers' and Consultants' Reports
The Independent Engineers' and Consultants' Reports, and the summaries
thereof, contained in this Prospectus contain forward-looking statements,
including projections, that involve risks and uncertainties. Actual results
may differ materially from those discussed in the forward-looking statements.
In providing its conclusions set forth in the Independent Engineers' or
Consultants' Reports, each Independent Engineer or Consultant made certain
assumptions (which are fully set forth in the text of each report). Although
the author of each Report believes that the use of these assumptions in its
report is reasonable, assumptions are inherently subject to significant
uncertainties and, if actual conditions differ from those assumed, actual
results will differ from those projected, perhaps materially. Accordingly,
the conclusions and projections contained in the Independent Engineers' and
Consultants' Reports may not be indicative of future events. Therefore, no
representations are made, nor should any be inferred, with respect to the
likely existence of any particular future set of facts or circumstances. If
actual results are less favorable than the conclusions presented in the
Independent Engineers' or Consultants' Reports or if the assumptions used in
formulating the conclusions presented prove to be incorrect, the Issuer's
ability to make payments on the Exchange Notes, may be materially and
adversely affected. Engineers' and Consultants' Reports not attached as
appendices to this Prospectus are exhibits to the Registration Statement of
which this Prospectus forms a part. All such reports should be read carefully
in conjunction with the summaries thereof in this Prospectus. See "Disclosure
Regarding Forward-Looking Statements" and "Risk Factors -- Reliance upon
Projections and Underlying Assumptions Contained in Engineers' and
Consultants' Reports; Actual Results May Vary From Such Projections."
All projections of future operations and the economic results thereof
included in the engineers' and consultants' reports have been reviewed and
accepted by the Issuer on the basis of present knowledge and assumptions
that the Issuer believes to be reasonable. Any projections of future
operations and economic results thereof contained in the Independent
Engineers' and Consultants' Reports have not been prepared in accordance
with published guidelines of the Securities and Exchange Commission, the
American Institute of Certified Public Accountants, any regulatory or
professional agency or body or generally accepted accounting principles.
Deloitte & Touche LLP, the Issuer's and the Company's independent accountants,
has neither examined nor compiled the projections and, accordingly, does not
express an opinion or any other form of assurance with respect thereto. See
"Risk Factors--Reliance upon Projections and Underlying Assumptions Contained
in Engineers' and Consultants' Reports; Actual Results May Vary From Such
Projections."
Consolidating Financial Analyst's Pro Forma Report
ICF Resources, Incorporated ("ICF") has prepared a report, dated April
11, 1997, and updated August 7, 1997 (as updated, the "Consolidated Pro
Forma Report"), that contains a summary consolidation of the pro forma
financial projections (the "Consolidated Pro Forma") for the Luannan
Facility, the Rosemary Facility and the Brandywine Facility contained in the
Luannan Engineering Report (as defined below), the Rosemary Engineering
Report and the Brandywine Pro Forma Report, respectively, each of which is
summarized herein. The Consolidated Pro Forma Report is attached hereto as
Appendix C and should be read in its entirety by all prospective investors.
In preparing the Consolidated Pro Forma, ICF relied on the pro forma
financial projections (the "Luannan Pro Forma") prepared by Parsons
Brinckerhoff Energy Services, Inc. ("Parsons Brinckerhoff"), which are
contained in the Luannan Engineering Report, the pro forma financial
projections (the "Rosemary Pro Forma") prepared by Burns & McDonnell
Engineering Company, Inc. ("Burns & McDonnell"), which are contained in the
Rosemary Engineering Report, and the pro forma financial projections (the
"Brandywine Pro Forma") prepared by ICF, which are contained in the
Brandywine Pro Forma Report.
Accordingly, the material assumptions of ICF in preparing the Consolidated
Pro Forma were that the pro forma financial projections contained in each of
the aforementioned reports were reasonable and accurate.
The Consolidated Pro Forma Report presents the "Company Debt Service
Coverage Ratio," which reflects the relationship between the total cash flow
available for Company debt service (i.e., cash flow from the Luannan
Facility, the Rosemary Facility and the Brandywine Facility after paying
Project-level operating expenses, rent and debt service and debt service on
the Series A Bonds (and the Series A-1 Bonds exchanged therefor), making
additions to reserves required for Project-level financings and the Series A
Bonds, providing distributions to third-party equity interest-holders and
providing for certain Company-level items) and Company debt service (i.e.,
the cash debt service on the Exchange Notes net of releases from the
Capitalized Interest Fund).
Consolidated Summary Projected Consolidated Financial Data
(Projections relating to the Luannan Facility are based on an exchange rate of
RMB 8.5 = $1.00)
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Capacity Revenue:
Rosemary $25,382 $25,382 $23,568 $23,568 $23,568 $23,568 $23,568 $23,568 $23,568 $18,123 $18,123
Brandywine 21,932 21,420 37,940 38,759 48,960 49,739 50,358 50,387 50,253 50,543 52,639
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Capacity 47,314 46,802 61,508 62,327 72,528 73,307 73,926 73,955 73,821 68,666 70,762
Revenue
Energy & Other Revenue:
Rosemary 3,850 5,768 7,734 10,010 12,462 13,872 15,692 17,793 20,571 20,283 20,004
Brandywine 23,495 25,141 26,057 27,092 30,647 33,340 31,954 30,419 33,464 35,545 35,763
Luannan - - 18,038 46,110 49,040 51,266 53,372 55,230 56,472 58,074 60,060
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Revenue 74,659 77,712 113,337 145,540 164,677 171,785 174,944 177,397 184,328 182,568 186,590
Cash Available for
Consolidated Debt 39,321 34,139 59,564 79,437 91,382 96,050 96,798 96,733 95,818 90,618 95,132
Service
Project & PFC Net Debt 34,956 30,593 46,768 45,890 55,441 57,433 58,224 57,645 57,454 51,576 56,811
Service
Cash Available for
Company Debt 5,697 221 9,494 28,856 29,883 33,702 34,849 36,434 37,646 30,550 26,961
Service
Senior Secured Notes
Cash Interest Payment 9,323 19,400 19,400 19,400 19,056 18,394 17,334 16,031 14,453 12,759 11,469
Principal Payment (1) - - - 1,650 4,400 8,000 9,900 12,000 14,500 10,700 9,200
Less: Capitalized (9,323) (19,400) (19,400) - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Interest Fund Release
Senior Secured Notes
Net Debt Service - - - 21,050 23,456 26,394 27,234 28,031 28,953 23,459 20,669
Balance Sheet Data:
Consolidated Cash and
Restricted Cash $81,207 $60,635 $55,795 $68,601 $81,381 $92,120 $101,603 $110,839 $117,544 $130,822 $145,679
Consolidated Long- 584,812 592,266 590,749 588,305 573,343 551,661 525,814 495,781 460,547 433,032 399,857
Term Debt (2)
Key Credit Statistics:
Company Debt Service (3) (3) (3) 1.37x 1.27x 1.28x 1.28x 1.30x 1.30x 1.30x 1.30x
Coverage Ratio
</TABLE>
Notes:
(1) Assumes outstanding balance of Senior Secured Notes is refinanced in
2004 at an equivalent coupon rate and repaid over nine years.
(2) Consolidated long-term debt includes Rosemary Bonds, Brandywine Facility
Lease, Series A Bonds and Senior Secured Notes.
(3) Effectively 1.0x Company Debt Service Coverage Ratio since Capitalized
Interest Fund Release equals Cash Interest Payment on Senior Secured
Notes.
Luannan Engineering Report
Parsons Brinckerhoff Energy Services, Inc. ("Parsons
Brinckerhoff") has prepared a report, dated April 11, 1997, and updated
August 7, 1997, evaluating the technical, environmental and economic
aspects of the Luannan Facility (the "Luannan Engineering Report").
The Luannan Engineering Report is attached hereto as Appendix D and
should be read in its entirety by all prospective investors.
Parsons Brinckerhoff has reviewed the engineering, cost, construction
schedule, approvals, contracts and financial performance estimates
for completion, technological risk, variations from practices typical
in the industry and the ability of the Luannan Facility to perform as
intended. Certain assumptions made in preparing the Luannan Engineering
Report are set forth in Chapter 12 thereof. The material assumptions made
by Parsons Brinckerhoff in developing the Luannan Engineering Report are
as follows:
- Agreements regarding operations at the Luannan Facility will be
fully enforceable in accordance with their terms and conditions and
all parties will comply with the provisions of their respective
agreements.
- Steam export for industrial and district use is as described in the
"Feasibility Study on Luannan Thermal Power Plant" by the Design
Institute.
- Environmental protection and control measure recommended by the
Environmental Impacts Assessment ("EIA") are implemented.
- Plant equipment and facilities will be adequately and properly
maintained and operated through the life of the Luannan Facility.
- Quality, quantity and availability of fuel at the Luannan Facility is
as described in the Luannan Coal Consultant's Report.
- Quality, quantity and availability of water is as described in the
"feasibility Study on Luannan Thermal Power Plant" by the Design
Institute.
- Performance, equipment and delivery guarantees provided by the EPC
Contractor comply with the peformance and design criteria contained
in the scope of work of the EPC Contract.
- The transmission system of the North China Power Company will have
adequate capacity to transmit the power from the Luannan Facility on
an uninterruptible basis.
- The EPC Contractor will closely monitor and carry out construction of
the Luannan Facility in accordance with the approved construction
schedule.
- A force majeure event that would delay construction of the Luannan
Facility in a timely manner does not occur.
- Outstanding approvals and construction permits will be obtained in a
timely manner and will not delay the construction schedule nor require
design changes.
The principal conclusions of Parsons Brinckerhoff include the following:
- The design of the thermal power plant of the Luannan Facility
(the "Plant") is based on current, proven technology and is in
conformance with engineering practice and industry standards in
the People's Republic of China. Specifically, the proposed Plant
will be similar in design to other thermal power plants designed
by Hebei Electric Power Design Institute which are presently
operating in China.
- The construction schedule is reasonable and achievable. The
Luannan EPC Contractor should be able to meet the agreed
construction schedule and pass all performance tests as
stipulated within 28 months. This schedule has been found
comparable to similar projects in China.
- The Luannan EPC Contractor is an established and reputable
construction company with both international and domestic
experience in manufacturing and installing equipment for similar
power generation projects. The Luannan EPC Contractor's boiler
manufacturing facility performs quality control to ISO standards
and has achieved ASME certification. The Luannan EPC Contractor's
list of achievements includes 16 coal fired power plants in China
plus five international power plant installations completed on a
turnkey basis.
- The budgeted costs of $118.8 million to develop and construct the
Luannan Facility are reasonable and represent a realistic and
attainable project cost. Most project costs are denominated in
U.S. dollars; however, for steam and heat network, land and water
use rights, and transmission line, which are denominated in RMB,
an exchange rate of RMB 8.30 to $1.00 was used.
- Based upon the proposed equipment and design criteria, the design
lives of the main components of the Plant are sufficient for the
intended modes of operation of the Luannan Facility and should
meet the expected Plant performance criteria. With proper design,
careful, periodic maintenance and operation of the Plant within
design parameters, a useful life of 20 years should be easily
achievable.
- Based on the review of the various government approvals, the
Joint Ventures have obtained the key approvals required from the
various governmental agencies which are required to commence
construction of the Plant. They have also identified the
necessary permits that will be required in due course during the
construction and operation. There is no reason to believe that
those licenses and consents not yet received will not be granted.
- Based on the review of the various business agreements and their
amendments, the major contracts, including the Luannan Power
Purchase Agreement, the Luannan EPC Contract, the Luannan O&M
Contract, the Luannan Transmission Facilities Construction
Agreement and the Luannan Coal Supply Agreements, are technically
reasonable and are consistent with each other and the assumptions
used in the financial analysis.
- The technical performance requirements, performance testing and
obligations of the parties identified in the Luannan EPC Contract
are reasonable and achievable. The Luannan EPC Contract has the
necessary protective terms and conditions and is comparable to
other turnkey projects in the United States. EPC contracts in
China are more rigorous than in the U.S. on government approvals,
design stages, and guarantee issues and less stringent on
environmental issues.
- This assessment has concluded that, from an environmental point
of view, the Plant is feasible and is capable of meeting the
relevant emissions and discharge limits required by the
applicable Chinese standards if all environmental protection and
control measures recommended by the Environmental Impacts
Assessment ("EIA") are implemented.
- The ash handling system uses appropriate environmental protection
measures and the ash disposal plan is reasonable and achievable
based on the expected quality of the coal and its expected ash
content as summarized in the Luannan Coal Consultant's Report.
The EIA indicates the effluent quality will comply with the
national environmental standard.
- The operation and maintenance contractor selected for the Luannan
Facility is Duke/Fluor Daniel. Duke/Fluor Daniel, a joint venture
between Duke Power and Fluor Daniel, has domestic and
international experience with coal-fired power plants and has the
necessary experience and capability to fulfill the Luannan O&M
Contract. The Luannan O&M Contract contains incentives and
penalties in the contract price adjustment clause which should
provide the Luannan O&M Contractor reasonable initiative toward
achieving excellence in Plant operational performance.
Requirements for developing operations plans are contained in
Section 2.10 of the Luannan O&M Contract. The Joint Ventures have
review and approval authority for all operations plans developed
by the Luannan O&M Contractor.
- The Luannan Facility can be expected to operate commercially
throughout the term of the Luannan Power Purchase Agreement.
There is a large number of coal-fired plants currently in
operation in the United States that have been in service for well
over 30 years.
- The Plant is capable of meeting the required performance and
availability levels while operating in the modes agreed in the
Luannan Power Purchase Agreement. The design of the Plant and the
net dependable capacity performance guaranteed by the Luannan EPC
Contractor of 102 MW insures that the contractual amount in the
Luannan Power Purchase Agreement can be met and exceeded during
the peak hours. Maximum Plant output of 106 MW will further
exceed the stipulated amount. The actual performance and
availability of the Plant will depend on the successful operation
and maintenance of the facility throughout the Plant's life.
- The projected dispatch targets for the Plant, as specified by the
Luannan Power Purchase Agreement, are achievable and consistent
with the design criteria and equipment for the Plant.
- The projected O&M costs and capital expenditures for major
maintenance are reasonable and representative of the planned
operations of the Luannan Facility. The Joint Ventures and the
Luannan O&M Contractor have the responsibility for establishing
the full-time manpower requirements of the Luannan Facility.
- Under the Luannan Power Purchase Agreement, North China Power
Company is obligated to purchase electricity for a period of 20
years beginning on the commercial operation date. The useful life
of the Luannan Facility will extend beyond this 20-year period.
- On the basis of the financial analyses presented in Chapter 12 of
the Luannan Engineering Report, Parsons Brinckerhoff is of the
opinion that, in the base case (as described in Section 12.7 of
the Luannan Engineering Report), the projected operating revenues
are adequate to pay the projected operating and maintenance
expenses, pay the local and federal taxes, provide a minimum of
2.02 and average of 2.19 annual debt service coverage for the
Shareholder Loans during the repayment period of 10 years, and
provide equity distributions to Pan-Western throughout the 20-
year term of the Luannan Power Purchase Agreement. For the
financial analysis and projections an exchange rate assumption of
$1.00=RMB 8.50 was used.
- Five sensitivity cases were developed to test the Luannan
Facility's performance under operating assumptions different from
the base case. As shown in Section 12.8 of the Luannan
Engineering Report, the selected changes did not yield debt
coverage ratios significantly different from that in the base
case.
Luannan Coal Consultant's Report
Marston & Marston, Inc. (the "Luannan Coal Consultant") has
prepared a report dated April 11, 1997, and updated August 7, 1997,
reviewing the availability of coal and arrangements for the transportation
of coal to the Luannan Facility (the "Luannan Coal Consultant's Report").
The Luannan Coal Consultant's Report is attached hereto as Appendix E
and should be read in its entirety by all prospective investors. The
material assumptions made by Marston & Marston in developing the Luannan
Coal Consultant's Report were as follows:
- The reserve estimates provided by the Kailuan Coal Mining
Administration to the Luannan Coal Consultant are reasonably
accurate.
- The reserve estimates provided by the Tangshan Coal Industry
Bureau are reasonably accurate.
- The coal qualitites specified in the Luannan Coal Supply
Agreements are reasonably attainable by the mines covered by
those agreements.
- The coal quantities specified in the Luannan Coal Supply
Agreements will be available from the mines cited in the
Luannan Coal Suppy Agreements, or from alternate coal mines.
- The coal mining from the remaining reserves in the Tangshan
Basin will allow the producers to make a reasonable profit
at local market prices.
- The local trucking contractors will be available to transport
the coal to the Luannan Facility at locally competitive prices.
- The Luannan County Government, which has an indirect ownership
interest in the Luannan Facility, will be able to ensure that the
Luannan Facility obtains the quantity and quality of coal needed
and at locally competitive prices.
Subject to the information contained and the assumptions made in the
Luannan Coal Consultant's Report, the Luannan Coal Consultant offers the
following conclusion:
- Although the Luannan Facility can not be assessed by the usual
Western standards because the data to do such an assessment is
not readily available, it is reasonable to believe that a coal
resource of the appropriate quality is available, at a locally
competitive price in sufficient quantity to operate the Luannan
Facility successfully, taking into consideration the local
environment. The fuel supply strategy, coal supply agreements
and the coal transportation agreement are appropriate for the
conditions and situation as it exists in China. Given that cost
of the fuel supply is a pass-through arrangement in the Luannan
Power Purchase Agreement, the risk exposure for the Luannan
Facility will be minimal in terms of the delivered fuel price.
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering Old Notes for the Exchange Notes offered hereby, holders of Old Notes
should consider carefully the following factors as well as the other matters
described in this Prospectus. The terms of the Exchange Notes are
substantially identical to the terms of the Old Notes, and the Exchange Notes
will evidence the same debt as the Old Notes which they replace. Accordingly,
the following factors may be generally applicable to the Old Notes as well as
to the Exchange Notes.
Consequences of Failure to Exchange Old Notes
Holders of Old Notes who do not exchange their Old Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as described in the legend thereon,
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act and
applicable state securities laws, or pursuant to an exemption therefrom.
Except under certain limited circumstances contained in the Registration Rights
Agreement, the Issuer does not intend to register the Old Notes under the
Securities Act. Upon consummation of the Exchange Offer, certain rights of
holders of Old Notes who are eligible to tender their Old Notes for exchange in
the Exchange Offer and fail to do so will terminate. To the extent Old Notes
are tendered and accepted in the Exchange Offer, the trading market, if any,
for the Old Notes not so tendered could be adversely affected. See "The
Exchange Offer -- Termination of Certain Rights" and "Description of the
Exchange Notes, the Exchange Notes Guarantee, the Issuer Loan, the Shareholder
Loans and the Collateral Documents -- Old Notes Registration Rights."
Financial Risks
Substantial Leverage of the Issuer, the Company and Their Subsidiaries
The Issuer, the Company and their subsidiaries are and will continue to be
highly leveraged. As of March 31, 1997, the Company's total consolidated long-
term indebtedness (including capital lease obligation) was $431.3 million, its
total consolidated assets were $342.3 million and its consolidated
shareholder's deficit was $103.0 million. As of such date, on a pro-forma
consolidated basis, after giving effect to the issuance of the Old Notes and
the application of the proceeds therefrom, the Company's total consolidated
long-term indebtedness would have been $576.3 million, its total consolidated
assets would have been $493.0 million and its consolidated shareholder's
deficit would have been $103.0 million.
Risk In Case of Foreclosure on Assets of Underlying Projects of the
Company or Equity Interests in Entities That Own or Lease Such Projects
The Company's Project-level indebtedness related to the Rosemary Facility
and the Brandywine Facility is collateralized by the assets of the underlying
Projects (including, in the case of the Brandywine Facility, obligations
relating to the long-term lease) and a pledge of the equity interests in
the entities which own or lease those facilities (such entities, together
with other entities which are directly or indirectly owned by PIC and which
directly or indirectly own a Project, collectively referred to as "Project
Entities" and individually as a "Project Entity"). If a lender were to
foreclose on a Project's assets (or, in the case of the Brandywine Facility,
if the lessor were to terminate the lease), there can be no assurance
that the related Project Entities would maintain any interest in the Project
or receive any compensation upon a sale of the related assets. In addition,
the Series A Bonds are collateralized, among other things, by the stock of
intermediate entities which, directly or indirectly, own the Project Entities
that own the Rosemary Facility and the lessee of the Brandywine Facility. If
a lender were to foreclose on its security interest in the equity interests
of a Project Entity or one of the intermediate entities, or if a lessor were
to terminate a lease, the value of the Company's interest in the affected
Project could be effectively eliminated.
Risk of Possible Inability of a Project Entity to Obtain Additional Financing
In addition to the foreclosure and lease termination risk, high
leverage and the lack of unencumbered collateral could adversely affect the
ability of a Project Entity, and the Company, to obtain additional financing
in the future for working capital, capital expenditures or other purposes.
Such adverse consequences could materially and adversely affect the financial
performance of the Issuer and its ability to make payments of interest and
principal on the Exchange Notes when due and the ability of the Company to
make payments under the Exchange Notes Guarantee when due. See "Capitalization,"
"Unaudited Pro Forma Consolidated Financial Data" and "Description of Other
Indebtedness."
Issuer's Ability to Make Payments on Exchange Notes is Dependent on Financial
Performance of, and Distributions From, Luannan Facility (When Constructed),
Rosemary Facility and Brandywine Facility
Neither the Issuer nor the Company has any independent operations. As a
result, the ability of the Issuer to make payments on the Exchange Notes and the
ability of the Company to make payments under the Exchange Notes Guarantee will
depend almost entirely upon the financial performance of the Luannan Facility,
when constructed and operational, as well as the financial performance of the
two Projects owned or leased by indirect wholly-owned subsidiaries of the
Company that are currently in operation, the Rosemary Facility and the
Brandywine Facility, and the ability of the intermediate entities that own or
lease such Projects to make distributions to the Issuer or the Company, as the
case may be. The failure of a Project to perform as expected or the inability
of one or more of the intermediate entities to make distributions to the Issuer
or the Company, as the case may be, could have a material and adverse effect on
the ability of the Issuer to make payments on the Exchange Notes or the ability
of the Company to perform under the Exchange Notes Guarantee, respectively.
Each of the Projects is subject to a number of financial, operating and
regulatory risks that could materially and adversely affect its performance,
and the ability of the intermediate entities to make distributions is subject
to a number of contractual and legal restrictions. For example, under Chinese
law, dividends may be paid by the Joint Ventures only from after-tax income
(determined according to Chinese accounting principles) and generally may be
paid only on an annual basis unless approval for more frequent distributions is
granted. See "--Considerations Relating to the PRC--Substantial Dependence on
Debt Service from Joint Ventures; Restrictions on Payment of Dividends by Joint
Ventures Under Chinese Law" below.
Distributions From Rosemary Facility and Brandywine Facility Not Sufficient
by Themselves to Make Payments on Exchange Notes Guarantee
Distributions which the Company may receive with respect to the Rosemary
Facility and the Brandywine Facility would not be sufficient by themselves to
enable the Company, through payments under the Exchange Notes Guarantee, to
provide sufficient funds to satisfy the Issuer's payment obligations under the
Exchange Notes. Therefore, unless the Luannan Facility is completed during the
time period currently anticipated by the Issuer, the ability of the Issuer to
meet its payment obligations under the Exchange Notes would be materially and
adversely affected.
Risk That Issuer May Not Have Sufficient Funds to Make Lump Sum Payment Due
April 15, 2004
A substantial percentage (84.6%) of the original aggregate principal
amount of the Exchange Notes will be due and payable on April 15, 2004 in a
lump sum. In order to be able to pay such amount when due, the Issuer will
have to obtain funds to make such payment from additional borrowings or other
sources. There can be no assurance that the Issuer will be able to obtain such
funds in amounts sufficient to pay such principal amount when due and on terms
and conditions that are satisfactory to the Issuer. See "Description of the
Exchange Notes, the Exchange Notes Guarantee, the Issuer Loan, the Shareholder
Loans and the Collateral Documents--Ranking, Maturity, Interest and Principal
of the Exchange Notes."
Risk That Minority Shareholder in Pan-Western May Prevent Sale of Pan-Western
Assets, or Payment of Dividends by Pan-Western, in Event of Foreclosure by
Exchange Notes Trustee on Pan-Western Shares Controlled by Issuer
Pursuant to (i) the articles of association of Pan-Western Energy
Corporation LLC, a Cayman Islands exempted company ("Pan-Western"), an indirect
subsidiary of the Issuer which owns an approximately 88% interest in each of
the Joint Ventures, and (ii) a shareholders agreement among Pan-Western and its
two shareholders, Pan-Sino Energy Development Company LLC, a Cayman Islands
exempted company ("Pan-Sino"), and Chinamac (Singapore) Pte Ltd, a Singapore
company ("Chinamac"), which is an affiliate of CMC (as described below), the
unanimous consent of both Pan-Sino and Chinamac is required for the taking of
various actions by Pan-Western, including any merger, consolidation or
dissolution involving Pan-Western, any sale, lease, transfer or other
disposition of all or a substantial part of Pan-Western's assets, any amendment
to the Pan-Western charter documents, any modification of the transfer
restrictions on Pan-Western shares and the declaration of dividends. Pan-Sino
is a 95.5%-owned subsidiary of the Issuer which, in turn, owns a 99% interest
in Pan-Western. Chinamac owns a 1% interest in Pan-Western. The Issuer has
requested that Chinamac agree to waive its rights to require unanimous consent
for the taking of any of the foregoing actions in the event of a default under
the Issuer Loan. While Chinamac has indicated its preliminary agreement to the
Issuer's request, there can be no assurance that Chinamac ultimately will give
its consent to waive such rights. In the event that Chinamac does not waive
such rights, if the Exchange Notes Trustee were to foreclose on the 99%
interest in Pan-Western which is pledged as part of the collateral for Exchange
Notes, the Exchange Notes Trustee, or any purchaser of the pledged interest in
Pan-Western pursuant to a foreclosure sale, would be unable to take various
actions that are subject to unanimous consent rights, including the sale of all
or a substantial part of Pan-Western's assets and the payment of dividends,
without the consent of Chinamac. See "--Considerations Relating to the PRC--
Risk of Need For Additional Governmental Approvals Regarding Level of Foreign
Investment in Luannan Facility" and "Business of the Issuer, the Company,
Panda International and Their Subsidiaries--The Issuer, the Company and Panda
International."
Issuance of Additional Indebtedness by Issuer, Company or Their Subsidiaries
Could Reduce Cash Available to Make Payments on Exchange Notes
The issuance of additional indebtedness by the Issuer, the Company, the Joint
Ventures, the Rosemary Partnership, PFC or any other subsidiary of the Issuer
or the Company would create additional potential claims against the issuers of
such debt and the assets which secure such debt, including interests in the
Luannan Facility, the Rosemary Facility and the Brandywine Facility, as the
case may be, and could result in a reduction in the cash available for
distribution by the entities that own interests in such Projects upstream, thus
reducing the cash available to make payments on the Exchange Notes and the
cash available to make payments under the Exchange Notes Guarantee. See
"Description of the Exchange Notes, the Exchange Notes Guarantee, the Issuer
Loan, the Shareholder Loans and the Collateral Documents--Certain Covenants
- --Limitations on Debt," "Description of Other Indebtedness--The PFC Bonds,"
and "Description of Other Indebtedness--The Rosemary Bonds."
Effective Subordination of Exchange Notes and Exchange Notes Guarantee to
Obligations of Project Entities and Joint Ventures
The Exchange Notes and the Exchange Notes Guarantee will be the exclusive
obligations of the Issuer and the Company, respectively, and not of the Project
Entities which own or operate the Rosemary Facility or the Brandywine Facility,
the Joint Ventures or any other affiliate of the Issuer. The Project Entities
and the Joint Ventures are highly leveraged and their debt agreements restrict
their ability to pay dividends, make distributions or otherwise transfer funds,
through intermediate entities, to the Company. The restrictions in such
agreements generally require that, prior to the payment of dividends,
distributions or other transfers, Project Entities and the Joint Ventures
provide for the payment of other obligations, including operating expenses,
debt service and the funding of reserves.
The Project Entities and the Joint Ventures are separate and distinct
legal entities and have no obligation to pay any amounts due pursuant to the
Exchange Notes or to make any funds available therefor, whether by dividends,
loans or other payments, and do not guarantee the payment of the Exchange
Notes. Thus, payments on the Exchange Notes are effectively subordinated to
the payment of all obligations of the Project Entities and the Joint
Ventures. In addition, the Company's right to receive any assets of the Project
Entities or the Joint Ventures upon their liquidation or reorganization will be
effectively subordinated to the claims of such Project Entities' or Joint
Ventures' creditors (including trade creditors and holders of other debt issued
by such Project Entity). As of March 31, 1997, the Project Entities had
approximately $338.6 million of indebtedness and other liabilities (including
payments on the long-term lease for the Brandywine Facility), which is
effectively senior to obligations of the Company under the Exchange Notes
Guarantee. See "Description of Other Indebtedness--The Rosemary Bonds" and
"Description of Other Indebtedness--The Brandywine Financing."
Similarly, the Company is highly leveraged as a result of the issuance of
the Series A Bonds by PFC, which are collateralized in part by all of the
issued and outstanding shares of PIC. The PFC Indenture restricts the ability
of PIC to pay dividends, make distributions or otherwise transfer funds,
through PEC, to the Company. PIC and PFC are separate and distinct legal
entities and have no obligation to pay any amounts due pursuant to the Exchange
Notes or to make any funds available therefor, whether by dividends, loans or
other payments, and do not guarantee payment of the Exchange Notes. Thus,
payments on the Exchange Notes are also effectively subordinated to the payment
of all obligations of PFC. In addition, the Company's right to receive any
assets of PIC upon its liquidation or reorganization will be effectively
subordinated to the claims of PFC's creditors (including holders of the Series
A Bonds). As of March 31, 1997, PFC had approximately $106.6 million of
indebtedness and other liabilities, which is effectively senior to the
obligations of the Company under the Exchange Notes Guarantee. See "Description
of Other Indebtedness--The PFC Bonds."
Risk of Default on Project-level Debt Resulting in Possible Termination of
Distributions From the Applicable Project Entity to the Company
If a Project Entity fails to generate cash flows sufficient to service its
debt, such Project Entity could default on its indebtedness or the payment of
its lease obligations or breach a related covenant. If a Project Entity were to
default in the payment of any such obligation or in the performance of any such
covenant, the obligees thereunder would be permitted to accelerate the maturity
of such indebtedness or terminate such lease, which could terminate
distributions to the Company from such Project Entity and adversely affect the
ability of the Company to perform under the Exchange Notes Guarantee. In such
circumstances, Holders of the Exchange Notes may be forced to accelerate the
maturity of the Exchange Notes to protect their interests at a time when it
would not otherwise have been in their interests to do so. Furthermore, such
defaults could delay or preclude payments on the Exchange Notes. See "Risk
Factors--Financial Risks--Substantial Leverage of the Issuer, the Company and
Their Subsidiaries," "Risk Ractors--Financial Risks--Risk in Case of Foreclosure
on Assets of Underlying Projects of the Company or Equity Interests in Equity
That Own or Lease Such Projects," "Risk Factors--Financial Risks--Risk of
Possible Inability of a Project Entity to Obtain Additional Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company."
Risk That Addition of Projects to PIC Project Portfolio May Weaken PIC Project
Portfolio Performance and Thereby Reduce Cash Flow From PIC to the Company
Pursuant to the PIC Additional Projects Contract, additional Projects, if
any, developed by Panda International or its affiliates will be transferred to
the PIC Project Portfolio if certain conditions are satisfied, and it is likely
that additional series of Pooled Project Bonds will be issued under the PFC
Indenture to finance debt or equity investments in such Projects, which
additional series will rank pari passu with the currently outstanding Series A
Bonds. If the Rosemary Facility or the Brandywine Facility (which already have
been transferred to the PIC Project Portfolio), or additional Projects, if any,
to be transferred to the PIC Project Portfolio in the future do not perform up
to expectations, their inclusion in the PIC Project Portfolio could weaken the
overall performance of the PIC Project Portfolio and reduce the cash flow
available from PIC to the Company, thereby impairing the ability of the Company
to perform under the Exchange Notes Guarantee. See "Description of Other
Indebtedness--The PFC Bonds."
Risk That Addition of Projects to the Issuer or the Company Might Weaken the
Overall Performance of the Issuer or the Company
Additional Projects, if any, developed by Panda International or its
affiliates which are not eligible for transfer to the PIC Project Portfolio
may, at the election of Panda International or its affiliates, be transferred
to the Issuer or the Company, provided that, if additional indebtedness is to
be issued by the Issuer or the Company with respect to any such additional
Project, certain conditions are satisfied. If any such Projects transferred in
the future to the Issuer or the Company do not perform up to expectations,
their inclusion in the Issuer or the Company, as the case may be, could weaken
the overall performance of the Issuer or the Company, thereby adversely
affecting the ability of the Issuer to make payments on the Exchange Notes or
impairing the ability of the Company to perform under the Exchange Notes
Guarantee.
Risk That Issuer Will Have Insufficient Funds in the Event of Mandatory Offer
to Repurchase Exchange Notes Upon a Change of Control
Upon the occurrence of a Change of Control, if certain minimum debt
service coverage ratios are not maintained, the Issuer must offer to purchase
all of the Exchange Notes outstanding at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any (including
Liquidated Damages and Additional Amounts, if any) to the date of purchase.
There can be no assurance that the Issuer will have available funds sufficient
to fund the purchase of the Exchange Notes upon a Change of Control. For
example, the Series A-1 Bonds, issued by Panda Funding Corporation, an indirect
subsidiary of the Company, in the aggregate principal amount of $105,525,000,
contain similar Change of Control provisions. In the event of an occurrence
which triggers the Change of Control provisions in both the Series A-1 and the
Exchange Notes, thee is a substantial likelihood that the mandatory offer to
repurchase obligations under each series of indebtedness could not be fulfilled
simultaneously. In the event a Change of Control occurs at a time when the
Issuer does not have available funds sufficient to pay for all of the Exchange
Notes delivered by Holders seeking to accept the Issuer's repurchase offer, an
event of default would occur under the Indentures. The definition of Change of
Control includes an event by which all or substantially all of the assets of
the Company, the Issuer or Panda International are sold, leased, exchanged or
otherwise transferred. There is little case law interpreting "all or
substantially all" in the context of an indenture. Because there is no
precise established definition of this phrase, there may be uncertainty as to
whether a Change of Control has occurred as a result of any particular sale,
lease, exchange or transfer of the assets by the Company, the Issuer or Panda
International. Any such uncertainty may adversely affect the enforceability of
the Change of Control provisions of the Exchange Notes Indenture. See
"Description of the Exchange Notes, the Exchange Notes Guarantee, the Issuer
Loan, the Shareholder Loans and the Collateral Documents--Change of Control."
Risk That Issuer Will Have Insufficient Funds in the Event of Mandatory
Redemption of Exchange Notes
Upon the occurrence of certain events (including but not limited to a
Luannan Expropriation Event, a Luannan Event of Loss, the payment of liquidated
damages under the Luannan EPC Contract, a Domestic Project Event which results
in Domestic Project Event Proceeds, or a Permitted Project Event that results
in Permitted Project Event Proceeds), the outstanding Exchange Notes will be
required to be redeemed by the Issuer at a price of 100% of the principal
amount thereof, together with accrued and unpaid interest, if any. There can
be no assurance that the Issuer will have available funds sufficient to make a
mandatory redemption. In such circumstance, an event of default would occur
under the Indentures. See "Description of the Exchange Notes, the Exchange
Notes Guarantee, the Issuer Loan, the Shareholder Loans and the Collateral
Documents -- Redemption."
Reliance upon Projections and Contained in Engineers' and Consultants'
Reports; Actual Results May Vary From Such Projections
The terms of the Exchange Notes have been structured on the basis of the
prospective financial information contained in such reports. For the purpose of
preparing the information contained in such reports, of necessity certain
assumptions have been made with respect to general business, financial and
economic conditions, the prices that will be paid for the electric generating
capacity of and the electric energy produced by the Luannan Facility, the
Rosemary Facility and the Brandywine Facility, the costs of obtaining fuel for
such facilities, the number of hours that the facilities will be dispatched,
the cost to complete, and anticipated completion date of, the Luannan Facility,
and other matters and contingencies that are not within the control of the
Issuer, the Company or their affiliates and the outcomes of which are difficult
to predict.
Projections are inherently inaccurate and actual results are likely to
vary from such projections, sometimes materially. Accordingly, the assumptions
made and the projections prepared by such engineering and consulting firms are
not necessarily indicative of future performance. No representation is made or
intended, nor should any be inferred, with respect to the likely existence of
any particular set of facts or circumstances. If actual results are less
favorable than those projected, or if the assumptions used in formulating the
projections contained in such reports prove to be incorrect, the ability of the
Issuer to make payments on the Exchange Notes and the ability of the Company to
meet its obligations under the Exchange Notes Guarantee could be materially and
adversely affected.
These projections have not been prepared in accordance with published
guidelines of the Securities and Exchange Commission, the American Institute of
Certified Public Accountants, any regulatory or professional agency or body or
generally accepted accounting principles. Deloitte & Touche LLP, the Issuer's
independent accountants, has neither examined nor compiled any projections
and, accordingly, does not express an opinion or any other form of assurance
with respect thereto. After the issuance of the Exchange Notes, no
engineer or other consultant will provide the Holders of the Exchange Notes
with revised projections or report any difference between the projections
and the actual operating results achieved by the Projects.
Project Risks
Possible Construction Risk Include Shortages of Equipment, Material and
Labor; Work Stoppages; Labor Disputes; Weather Interferences; Engineering,
Environmental and Geological Problems; Unanticipated Cost Overruns;
Difficulties in Obtaining Permits and Licenses; and Construction Delays
The construction of any Project, including the Luannan Facility, involves
many risks, including but not limited to shortages of equipment, material
and labor, work stoppages, labor disputes, weather interferences, unforeseen
engineering, environmental and geological problems and unanticipated cost
overruns. For example, Tangshan City, approximately 45 kilometers from where
the Luannan Facility will be located, experienced an earthquake with a force of
7.8 on the Richter scale in July 1976. Any of these events or other
unanticipated events could give rise to delays. Difficulties in obtaining
any requisite licenses or permits could adversely affect the design or increase
the cost of a Project. There is also a risk that construction delays will
be caused by events, such as events of force majeure, not covered by
liquidated damages or insurance. See "--Financial Risks--Issuance of
Additional Indebtedness by Issuer, Company or Their Subsidiaries Could Reduce
Cash Available to Make Payments on Exchange Notes", -- Financial Risks--Risk of
Default on Project-level Debt Resulting in Possible Termination of
Distributions From the Applicable Project Entity to the Company" above.
Possible Consequences of Construction Risks and Possible Inability of Issuer
to Recover Full Damages in Such Circumstances
None of the Issuer, the Company, Panda International or the Luannan
County Government is obligated to provide any additional funding to cover any
cost overrun. North China Power Company is not obligated to begin making
payments for electric energy deliveries under the Luannan Power Purchase
Agreement until the Luannan Facility is considered to be in commercial
operation for purposes of such agreement. As a result, there can be no
assurance that any cost overrun or delay in achieving commercial operation for
purposes of the Luannan Power Purchase Agreement will not have a material
adverse effect on the Joint Ventures and, therefore, on the Issuer and its
ability to meet its obligations to make payments of principal and interest on
the Exchange Notes when due. See "--Considerations Relating to the PRC--Risk of
Need for Additional Governmental Aprovals Regarding Level of Foreign Investment
in Luannan Facility" below. There can be no asurance that a contractor will
have the financial resources to satisfy its obligations under any liquidated
damages provisions. For example, there is no assurance that the amount of
liquidated damages under the EPC Contract will be sufficient to pay all costs
of the Joint Ventures resulting from the event giving rise to such damages
(such events being, among other things, certain delays in completion of the
Luannan Facility which are not excused by force majeure or if the Luannan
Facility fails to meet guaranteed performance levels). See "Description of
the Projects--The Luannan Facility--Engineering, Procurement and
Construction Contract" and "Description of Principal Documents Relating
to the Luannan Facility--Engineering, Procurement and Construction Contract--
Price and Payment; Security." Further, if North China Power Company fails to
complete the Luannan Transmission Facilities in time to receive electric power
from the Luannan Facility, North China Power Company is liable to the Joint
Ventures for any resulting loss or damage, but any recoveries (to the extent,
if any, awarded and collected) might not be sufficient to compensate the
Joint Ventures for all losses, including consequential damages. See
"--Considerations Relating to the PRC--Risk of Need For Additional Governmental
Approvals Regarding Level of Foreign Investment in Luannan Facility" below.
Insurance, Warranties and Performance Guaranties May Be Inadequate to Cover
Losses from Start-up Risks
The commencement of commercial operations of the Luannan Facility or
another newly constructed Project involves many risks, including start-up
problems, the breakdown or failure of equipment or processes and performance
below expected levels of output or efficiency. Generally, insurance is
maintained to protect against certain of these risks, warranties are obtained
relating to the construction of a Project and the equipment associated
therewith, and construction contractors and equipment suppliers are obligated
to meet certain performance levels. Such insurance, warranties or performance
guaranties, however, may not be adequate to cover lost revenues or increased
expenses. As a result, a Project may be unable to fund principal and interest
payments under its financing obligations. A default under such a financing
obligation could result in the Issuer or the Company losing its indirect
ownership interest in a Project. In addition, power purchase agreements, which
are typically entered into with a utility early in the development phase of a
Project, often enable the utility to terminate such agreement, or to retain
security posted by the developer as liquidated damages, if a Project fails to
commence commercial operations, to attain certain operating levels by specified
dates or to make certain specified payments. If such a termination right is
exercised, a Project may not produce revenues, the default provisions in a
financing agreement would likely be triggered (rendering the Project-level debt
immediately due and payable) and the Project would likely be rendered insolvent
as a result. See "--Financial Risks--Default on Project-Level Debt; Enforcement
of Rights" above.
Operating Risks Include Possible Breakdown of Equipment, Transmission Lines,
Pipelines or Other Equipment; Possible Inability to Obtain Adequate Fuel
Supplies; Possible Performance Below Expected Levels of Output; Possible
Lack of Supplies; Possible Operation Error; Possible Catastrophic Events; and
Possible Non-Compliance With Government Authorities
The operation of power generation facilities involves many risks,
including the breakdown or failure of power generation equipment, transmission
lines, pipelines or other equipment or processes, the inability to obtain
adequate fuel supplies and performance below expected levels of output or
efficiency (whether due to misuse, unexpected degradation or design or
manufacturing defects), failure to keep on hand adequate supplies of spare
parts, operation error, labor disputes, catastrophic events such as fires,
floods, earthquakes and other similar events and the need to comply with the
directions of the relevant government authority or utility. Although the
Rosemary Facility, the Brandywine Facility and the Luannan Facility contain or
will contain certain redundancies and back-up mechanisms, there can be no
assurance that any such breakdown or failure would not prevent the affected
facility from performing under applicable power and steam purchase agreements.
The Rosemary Power Purchase Agreement and the Brandywine Power Purchase
Agreement provide for a reduction in capacity payments in the event of an
outage or unavailability. North China Power Company will only be required to
pay for electric energy actually generated by the Luannan Facility and has no
obligation to pay for capacity or any electric energy not generated by the
Luannan Facility even if due to an event of force majeure declared by either
party under the Luannan Power Purchase Agreement or to increase subsequent
purchases from the Luannan Facility once an event of force majeure no longer
exists in order to make up for electricity not purchased during the
continuation of such event of force majeure. Moreover, during peak hours, the
Luannan Facility may be subject to penalties if certain minimum generation
requirements are not met. See "Description of Principal Documents Relating to
the Luannan Facility--Power Purchase Agreement." The occurrence or continuance
of any of the events described above could increase the cost of operating the
Rosemary Facility, the Brandywine Facility or the Luannan Facility, reduce the
payments due from the purchaser under the relevant power purchase agreement or
otherwise adversely affect the financial condition of any of such Projects.
Insurance and Warranties May Not Cover All Losses From Operating Risks
Although insurance is maintained to protect against certain of the
operating risks, the proceeds of such insurance may not be adequate to cover
lost revenues or increased expenses and, as a result, the Project Entities
owning or operating such Project might be unable to service the Project-level
obligations. A default under such Project-level obligations by the Project
Entities could result in the Company losing its indirect ownership or leasehold
interest in such Project. See "--Issuance of Additional Indebtedness by Issuer,
Company or Their Subsidiaries Could Reduce Cash Available to Make Payments on
Exchange Notes--Risk of Default on Project-Level Debt Resulting in Possible
Termination of Distributions From the Applicable Project Entity to the Company;
Enforcement of Rights" above. In the event of a major casualty or loss
involving a Project, casualty insurance proceeds, to the extent not applied to
repair such Project, would be applied first to satisfy Project-level
obligations, and it is unlikely (unless such Project-level obligations are less
than the maximum insurance proceeds payable) that any such insurance proceeds
would be available for mandatory redemption of the Exchange Notes. Furthermore,
there can be no assurance that any affected Project would continue to operate
at its design specifications after the expiration of the contractors' and
equipment suppliers' warranties.
The Luannan Facility does not have an operating history. The Joint
Ventures and the Brandywine Partnership have, respectively, obtained warranties
in limited amounts and for limited periods relating to the Luannan Facility and
its major equipment from the Luannan EPC Contractor and suppliers of such
equipment and relating to the Brandywine Facility and its major equipment from
Raytheon and suppliers of such equipment. However, there can be no assurance
that any of such warranties will be sufficient or effective under all
circumstances or that the issuer of the warranty will have adequate capital
resources to meet its warranty obligations. In addition, the warranties
generally are limited to an obligation to repair or replace defective equipment
and do not cover revenues lost while the equipment is out of service.
Dispatchability Risk-Power Purchasers Have Substantial Leeway as to What
Extent the Projects May be Dispatched
The power purchase agreements for the Projects may provide substantial
leeway to the power purchaser in determining when, and to what extent, a
facility is dispatched. For example, the Rosemary Power Purchase Agreement
provides VEPCO the contractual right to schedule the Rosemary Facility for
dispatch on a daily basis at full capacity, partial capacity or off-line. The
Rosemary Facility has been used by VEPCO primarily as a peaking plant and, as a
result, the number of hours for which the facility has been dispatched and the
quantity of electricity produced by the facility have fluctuated throughout the
facility's operating history. Similarly, the Brandywine Power Purchase
Agreement permits PEPCO to dispatch at its sole discretion a substantial
portion of the Brandywine Facility's capacity. While availability-based
capacity payments and other fixed payments under the power purchase agreements
relating to the Rosemary Facility and the Brandywine Facility are unaffected by
levels of dispatch, revenues would be adversely affected (due to a reduction in
energy payments thereunder) if these facilities were dispatched at levels
materially below the recent operating experience, in the case of the Rosemary
Facility, or the anticipated level, in the case of the Brandywine Facility. See
"Description of the Projects--The Rosemary Facility--Sale of Capacity and
Electricity" and "Description of the Projects--The Brandywine Facility--Sale of
Capacity, Electricity and Steam."
Under the Luannan Power Purchase Agreement, North China Power Company is
required to purchase and take all net electrical output delivered by the
Luannan Facility during specified peak hours without any dispatch limitations.
The levels of dispatch during other hours (and thus the revenues that the
Luannan Facility will receive for electric energy generated during such hours)
are specified in the Luannan Power Purchase Agreement and the related technical
details (i.e., ramp rates, seasonal adjustments, etc.) will be set forth in an
Interconnection Dispatch Agreement to be negotiated with the Tangshan Power
Supply Bureau of North China Power Company shortly prior to the commercial
operation date under the Luannan Power Purchase Agreement. Those negotiations
may result in changes to the dispatch rights under the Luannan Power Purchase
Agreement, and the levels of dispatch that were assumed in connection with the
preparation of the Luannan Engineering Report. There can be no assurance that
the Interconnection Dispatch Agreement as finally negotiated will not change
the provisions of the Luannan Power Purchase Agreement, including dispatch
rights and penalties relating thereto. See "Summary--Independent Engineers' and
Consultants' Reports--Luannan Engineering Report," "Description of the Projects-
- -The Luannan Facility--Sales of Power" and "Description of Principal Documents
Relating to the Luannan Facility--Power Purchase Agreement" and Appendix D
hereto.
Rosemary Facility and Brandywine Facility; Dependence on Fixed Capacity
Payments and Risk of Reduction Thereof
The Rosemary Facility and the Brandywine Facility are dependent on
capacity payments due from VEPCO and PEPCO, respectively, under their
respective power purchase agreements to meet their fixed obligations. In the
case of the Rosemary Facility, capacity payments are payable by VEPCO whether
or not the facility is dispatched, provided that the facility satisfies certain
seasonal capacity tests which may be required by VEPCO in its sole discretion
and meets certain minimum availability standards. If these minimum availability
standards are not met, then capacity payments otherwise due to the Rosemary
Partnership are subject to rebate or reduction and, in certain circumstances,
the Rosemary Partnership may be required to pay liquidated damages to VEPCO.
See "Description of the Projects--The Rosemary Facility--Sale of Capacity and
Electricity." In the case of the Brandywine Facility, capacity payments are
payable by PEPCO whether or not the facility is dispatched, provided that the
capacity payments will be reduced if the facility cannot maintain 88%
equivalent availability and may be reduced starting in 2006 depending on when
and whether PEPCO's system peak load exceeds 5,697 MW during 1997, 1998 or
1999. See "Description of the Projects--The Brandywine Facility--Sale of
Capacity, Electricity and Steam."
Luannan Facilty: Lack of Fixed Capacity Payments and Risk Therefrom
</R
Unlike the Rosemary Power Purchase Agreement and the Brandywine Power
Purchase Agreement, the Luannan Power Purchase Agreement does not require North
China Power Company to make any fixed capacity payments. Instead, the Luannan
Power Purchase Agreement provides that North China Power Company shall purchase
all electricity generated by the Luannan Facility and delivered at specified
levels during specified periods. If, after taking into account permitted
outages, the Luannan Facility does not deliver a specified minimum quantity of
electric energy during peak hours, certain of the Joint Ventures will have to
compensate North China Power Company and, in certain events, after the
expiration of applicable cure periods, North China Power Company may terminate
the Luannan Power Purchase Agreement. See "Description of the Projects--The
Luannan Facility--Sales of Power" and "Description of Principal Documents
Relating to the Luannan Facility--Power Purchase Agreement."
Risk That Fuel Compensation Components of Electric Energy Prices Paid Under
Brandywine and Rosemary Power Purchase Agreements May Differ From Actual
Costs For Such Fuel
Payments related to electric energy purchases by VEPCO and PEPCO under the
Rosemary Power Purchase Agreement and the Brandywine Power Purchase Agreement,
respectively, generally adjust upon the same or substantially equivalent fuel
indices or pricing mechanisms that govern adjustments to the base commodity
charges for natural gas under, respectively, the Rosemary Gas Supply Agreement
and the Brandywine Gas Agreement. Nevertheless, the Rosemary Facility and the
Brandywine Facility are subject to the risk that the fuel compensation
components of electric energy prices paid under their respective power purchase
agreements and their respective actual fuel costs may differ. Accordingly,
increases in fuel supply costs which are not matched by increases in electric
energy prices could have an adverse effect on the performance of these two
Projects. See "Description of the Projects--The Rosemary Facility--Sale of
Capacity and Electricity" and "--Gas Supply and Fuel Management" and "--The
Brandywine Facility--Sale of Capacity, Electricity and Steam" and "--Gas Supply
and Fuel Management."
Risk That Electricity Prices in Luannan Power Purchase Agreement Will Not
Reflect Actual Costs of Coal
The Luannan Facility will obtain the coal required for its operation from
the Luannan Coal Suppliers. The price paid by the Joint Ventures for such coal
will be determined periodically on the basis of market prices, which are
currently subject to partial government control and supervision. While the
Luannan Power Purchase Agreement provides for electricity prices based on the
recovery of the Joint Ventures' cost of obtaining coal, changing conditions in
the coal market could result in a substantial increase in the price the Joint
Ventures are required to pay for such coal. There can be no assurance that the
electricity tariffs will fully reflect any such increased coal prices. The Coal
Supply Agreement with Kailuan Coal does not contain any provision governing the
resolution of a dispute between the parties with respect to the price of coal.
See "Description of the Projects--The Luannan Facility--Coal Supply" and
"Description of Principal Documents Relating to the Luannan Facility--Coal
Supply Agreements."
Regulatory Disallowance Provision in Rosemary Power Purchase Agreement
Requires Rosemary Facility to Repay Any Charges Disallowed by Certain
Regulatory Authorities
The Rosemary Power Purchase Agreement contains a clause known as a
"regulatory disallowance" provision, which requires the Rosemary Facility to
repay to VEPCO or reduce any capacity charges in excess of $5.62 per kilowatt
per month (as adjusted by the Gross National Product Implicit Price Deflator
("GNPIPD") from 1987 dollars) that are disallowed by any regulatory authority
from recovery by VEPCO in its rate base (except where such disallowance is due
to VEPCO's failure to seek recovery or comply with procedural requirements
governing recovery of such costs). VEPCO cannot initiate such a disallowance
and must appeal such a disallowance, if practicable. If a disallowance occurs,
the cash flow of the Rosemary Partnership could be materially and adversely
affected and, consequently, the Company's ability to meet its obligations under
the Exchange Notes Guarantee could be materially and adversely affected. See
"Description of the Projects--The Rosemary Facility--Sale of Capacity and
Electricity." See also Appendix B, "The Electric Power Industry in the United
States and United States Regulation."
Interruptible Natural Gas Supplies for Rosemary and Brandywine Facility May
Create Risk of Unavailability for Dispatch
The Rosemary Partnership has contracted for most of its natural gas
supplies and transportation services on an interruptible basis because the
Rosemary Partnership has assumed that the Rosemary Facility will be dispatched
by VEPCO as a peaking plant, with the bulk of the facility's dispatch hours
occurring during the summer months when operational experience suggests that
gas typically will be available for purchase. The Brandywine Partnership has
similarly contracted for approximately one-half of its natural gas supply and
transportation on an interruptible basis. Interruptible gas supply and
transportation arrangements are subject to interruption or curtailment during
periods of peak demand for gas. If a power purchaser were to significantly
increase its dispatch of a facility, unless the facility were to arrange for
additional firm supply and transportation of natural gas or were to use
alternate fuel, the risk of potential curtailment in natural gas supply and
transportation, and thus that a facility would be unavailable for dispatch,
would be increased. See "--Dispatchability Risk--Power Purchasers Have
Substantial Leeway as to What Extent the Projects May be Dispatched" above,
"Description of the Projects--The Rosemary Facility--Gas Supply and Fuel
Management" and "--Gas Transportation," "--The Brandywine Facility--Gas
Supply and Fuel Management" and "--Gas Transportation."
Furthermore, future changes in market conditions or governmental
policy could adversely affect the ability of a facility to obtain economical
fuel oil supply (as a substitute for natural gas) when needed and, consequently,
adversely affect the availability of the facility for dispatch. See
"--Project Risks--Dispatchability Risk--Power Purchasers Have Substantial
Leeway as to What Extent the Projects May be Dispatched" above, "Description
of the Projects--The Rosemary Facility--Fuel Oil" and "--The Brandywine
Facility--Fuel Oil."
Risk That Rosemary Partnership's Natural Gas Pipeline May Be Required to be
Relocated
The Rosemary Partnership owns a 10.26 mile pipeline which is located
under, over and upon properties owned by private and governmental landowners
pursuant to easements and encroachment agreements. Several of the easements and
encroachment agreements contain provisions allowing the underlying interest
owner to cause the pipeline to be removed from its current location. Most of
such easements and encroachment agreements require the underlying interest
owner to provide an alternate location for the pipeline, and in some cases the
underlying interest owner must share the cost of relocating the pipeline.
However, two such easements allow the underlying interest owner to cause the
pipeline to be removed, but do not require such owner to provide an alternate
location or share the cost of relocating the pipeline. There can be no assurance
that the Rosemary Partnership could relocate the pipeline, if required to do
so, without incurring significant expenses or, if the pipeline could not be
relocated, that the Rosemary Partnership could make arrangements for the
delivery of a supply of fuel which would be adequate to assure the availability
of the Rosemary Facility for dispatch by VEPCO. See "Description of the
Projects--The Rosemary Facility--Rosemary Pipeline."
Risk That Certain Rosemary Fuel Supply Agreements May Not Be Extended
The Rosemary Gas Supply Agreement and the Rosemary Fuel Management
Agreement expire on November 30, 2005. The firm transportation contracts the
Rosemary Partnership has entered into with Transcontinental Gas Pipe Line
Corporation ("Transco"), Texas Gas Transmission Corporation ("Texas Gas") and
CNG Transmission Corporation ("CNG") expire on November 1, 2006. Certain other
contracts providing for interruptible transmission services for the Rosemary
Facility are on a month-to-month basis. There can be no assurance that the
terms of any of such contracts can be extended or, if they expire, that the
Rosemary Partnership will be able to enter into replacement contracts or fuel
transportation arrangements on terms no less favorable to the Rosemary
Partnership than those contained in the current agreements. The failure to
extend such terms or to enter into replacement contracts or fuel transportation
arrangements is an event of default under the Rosemary Indenture. See
"Description of the Projects--The Rosemary Facility--Gas Supply and Fuel
Management," "--The Rosemary Facility--Gas Transportation" and "Description of
Other Indebtedness--The Rosemary Financing."
Risk That PRC Natural Energy Policies May Require Termination of Certain
Luannan Coal Supply Agreements
The Luannan Coal Supply Agreement among two of the Joint Ventures and
Kailuan Coal, which is expected to supply up to 300,000 metric tons per year of
the projected 450,000 metric ton annual coal demand of the Luannan Facility,
provides that Kailuan Coal may terminate the agreement if the national energy
policies of the PRC change such that the rules governing the allocation of coal
restrict its ability to make sales of coal under terms and conditions similar
to those set forth in such agreement. While the Luannan Facility is located in
a region of the PRC that has numerous coal mines, in the event that the Luannan
Coal Supply Agreement with Kailuan Coal is terminated under such circumstances,
there can be no assurance that the Joint Ventures would be able to enter into
one or more replacement agreements on satisfactory terms. Moreover, there can be
no assurance that electricity tariffs will always be able to fully reflect any
increased prices for coal.
Dependence on Third Parties and Concentration of Customers and Risk
of Breach or Suspension of Payment Obligations by Such Third Parties or
Customers
The nature of the Projects is such that each facility generally relies on
one power purchase agreement with a single electric utility customer for
substantially all, if not all, of such facility's revenues over the life of the
Project. Furthermore, each power generation facility may depend on a single or
limited number of entities to purchase thermal energy, to supply or transport
natural gas or coal to such facility or to supply other goods and services
which constitute the principal inputs to such facility's operations. Any
material breach by any of these parties of its obligations under its respective
agreement with a facility, or any event or circumstance that reduces or
suspends the payment obligation of the other party to an agreement or affects
such party's ability or willingness to meet its obligations, could adversely
affect the Issuer's ability to make payments of interest and principal on the
Exchange Notes when due or the Company's ability to meet its obligations under
the Exchange Notes Guarantee, as the case may be. The other parties to each
Project agreement have the right to terminate or withhold payments or
performance under such agreements upon the occurrence of certain events of
default specified therein, which include the failure of any Project Entity that
is a party to such agreement to materially perform its obligations thereunder.
Additionally, if a party to a Project agreement were to undergo bankruptcy, the
trustee in the bankruptcy proceeding could disaffirm such agreement. If a
Project agreement were terminated due to nonperformance by a Project Entity,
disaffirmation in a bankruptcy proceeding or for any other reason, there can be
no assurance that the Project Entity would be able to enter into a substitute
agreement having terms and conditions substantially equivalent to those
contained in such terminated agreement.
In the case of the Luannan Facility, the primary source of revenues will
be payments for electricity by North China Power Company under the Luannan
Power Purchase Agreement and by the local industrial and commercial customers
under the contracts to supply steam and hot water (collectively, the "Luannan
Heat Supply Contracts"). In addition, one of the Joint Ventures will receive
revenues from the sale of heat, steam and hot water from the other Joint
Ventures, and another Joint Venture will receive revenues from the sale of
heat, steam and hot water, principal and interest payments paid by North China
Power Company on funds lent to it for construction of the Luannan Transmission
Facilities, and, as currently contemplated by the Joint Ventures, land rental
usage fees from the other Joint Ventures. Accordingly, the Joint Ventures'
operations and their ability to pay interest and principal on the Shareholder
Loans and to have sufficient earnings to pay dividends could be adversely
affected by any occurrence or circumstance that reduces or suspends payment
obligations of North China Power Company under the Luannan Transmission
Facilities Loan or the Luannan Power Purchase Agreement or interrupts purchases
of steam and hot water under the Luannan Heat Supply Contracts and certain
other contracts relating to the sale of heat and steam among the Joint Ventures
including one or more of the events described under "Operating Risks Include
Possible Breakdown of Equipment, Transmission Lines, Pipelines or Other
Equipment; Possible Inability to Obtain Adequate Fuel Supplies; Possible
Performance Below Expected Levels of Output; Possible Lack of Supplies;
Possible Operation Error; Possible Catastrophic Events; and Possible Non-
Compliance With Government Authorities" above, or otherwise affects such
purchasers' ability or willingness to meet their obligations under the Luannan
Power Purchase Agreement and the Luannan Heat Supply Contracts,
respectively. In addition, a breach by North China Power Company or such
steam or hot water purchasers of their obligations under the Luannan Power
Purchase Agreement or the Luannan Heat Supply Contracts, could also
adversely affect the Joint Ventures' ability to pay the Shareholder Loans
and have sufficient earnings to pay dividends. North China Power Company's or
such steam or hot water purchasers' ability to meet their obligations under the
Luannan Power Purchase Agreement or the Luannan Heat Supply Contracts,
respectively, will be dependent on their financial condition generally.
Considerations Relating to the PRC
Political and Economic Uncertainties in the PRC; Risk of Expropriation
The Luannan Facility is located in the People's Republic of China and is
subject to significant political, economic and social uncertainties. The
economy of the PRC has historically been a planned economy subject to five-year
and annual plans adopted by Central Government authorities. The PRC government
has implemented various policies from time to time to restrain the
rate of economic growth, control inflation and otherwise regulate economic
expansion. There can be no assurance that the PRC government will continue to
pursue a policy of economic reform, especially in the event of a change in
leadership or unforeseen circumstances causing social or political disruption.
Further austerity measures and credit restrictions or social or political
disruptions may adversely affect the business and prospects of the Joint
Ventures and their ability to perform their respective contractual obligations,
including the ability of the Joint Ventures to make payments of principal and
interest on the Shareholder Loans and their ability to pay dividends.
Impairment of the Joint Ventures' ability to make payments on the Shareholder
Loans or to distribute dividends could materially and adversely affect the
ability of the Issuer to meets its obligations to pay interest and principal on
the Exchange Notes when due.
In recent years, the PRC economy has experienced periods of rapid economic
expansion. This growth has also been accompanied by rising inflation, which
reached an annual rate of 21.7% in 1994. The PRC government has implemented
policies from time to time to restrain the rate of such economic growth and
control inflation in order to achieve coordinated economic development. In July
1993, the Central Government began implementation of a number of austerity
measures to control economic growth and curb inflation, including increasing
interest rates on bank loans and deposits and postponing certain planned price
reforms. There can be no assurance that such austerity measures will continue
or that, if continued, they will not result in future severe dislocations in the
PRC economy. Although certain components of the power rate calculation are
required to be adjusted annually, subject to the approval of the Pricing
Approval Authority (as hereinafter defined), to reflect local inflation in
order to mitigate the Luannan Facility's exposure to inflation risks, during
periods of high inflation governmental authorities could seek to restrain price
increases. High inflation thus could inhibit governmental approval of increases
in power rates.
The Luannan Facility is also exposed to political considerations in
respect of its majority ownership by foreign investment enterprises of an
important resource in the economy of the region. For instance, the Equity Joint
Venture Law of the PRC, provides that under certain circumstances involving
a national emergency, in order to meet public interest requirements, the PRC
government may expropriate a joint venture enterprise in accordance with legal
procedures, but appropriate compensation must be paid. There can be no assurance
that adequate compensation would be paid in such circumstances.
Possible Inability to Convert Currency Due to Governmental Control of
Currency Conversion
Each Joint Venture will receive all its revenues, and expects to pay the
major portion of its operating costs, in Renminbi ("RMB"). The Joint Ventures,
however, must convert a significant portion of their revenues into U.S. dollars
for the payment of amounts due under the Shareholder Loans, off-shore expenses
(if any), and distributions to Pan-Western. Recent foreign exchange regulations
of the PRC, which took effect on July 1, 1996, allow foreign investment
enterprises ("FIEs") (such as the Joint Ventures) to obtain their foreign
exchange directly from authorized banks and financial institutions which have
been given access by the People's Bank of China (the "PBOC") to the national
interbank foreign exchange market, the China Foreign Exchange Trading Center
("CFETC"). FIEs may also continue to obtain foreign exchange from official
foreign exchange adjustment centers ("Swap Centers") under the new regulations.
Under the new foreign exchange regulations, any remittance of foreign currency
funds for repayments of principal and interest on external borrowings of PEIs
is subject to verification by the State Administration of Foreign Exchange of
the PRC (the "SAFE"). No assurance can be given that an adequate amount of
foreign currency will be available in the Swap Centers or the CFETC at all
times in future periods or that SAFE will verify such repayments in a timely
manner. In the event of shortages of foreign currencies, the Joint Ventures
may be unable to convert sufficient Renminbi into foreign currencies to enable
them to make sufficient U.S. dollar-denominated payments and dividend
distributions to enable Pan-Western to meet its payment obligations with respect
to the Issuer Note (as defined below). The Joint Ventures are considering
the possibility of a hedging program to protect against exchange rate
fluctuations; however, because the applicable market currently is thinly traded,
the Isssuer and the Company are uncertain as to whether such a program is
currently feasible. See "Business of the Issuer, The Company, Panda
International and Their Subsidiaries--The Joint Ventures" and "Foreign Exchange
System in the PRC and Exchange Rate Information."
Risk That Exchange Rate Fluctuations May Cause an Inability to Satisfy
Shareholder Loan and Issuer Note Obligations
There can be no assurance that the relevant government agency will approve
any adjustments to the power rate calculation in the Luannan Power Purchase
Agreement, and as a result significant exchange rate fluctuations during the
period between adjustments may adversely affect the Joint Ventures' ability
to make U.S. dollar payments to Pan-Western with respect to interest and
principal on the Shareholder Loans and dividend distributions in an aggregate
amount sufficient to enable Pan-Western to meet its payment obligations with
respect to the Issuer Note. There can be no assurance that North China Power
Company will be able to obtain required approvals to repay the Luannan
Transmission Facilities Loan in U.S. dollars. If such approvals are not
obtained, the parties have agreed to permit North China Power Company to
borrow and repay the Luannan Transmission Facilities Loan in Renminbi; however,
there can be no assurance that any such repayment will be satisfactorily
negotiated. Thus, the Joint Ventures may bear all or a portion of the currency
exchange risk on the Luannan Transmission Facilities Loan.
There was a significant devaluation of the Renminbi on January 1, 1994 in
connection with the replacement of the official exchange rate with a new
managed floating rate foreign exchange system. Since then, the Renminbi has
from time to time appreciated against the U.S. dollar. A devaluation of the
Renminbi against the U.S. dollar after the commercial operation date for the
Luannan Facility may adversely affect the ability of the Joint Ventures to make
payments to Pan-Western sufficient for Pan-Western to satisfy its obligations
with respect to the Issuer Note, as more revenues would be needed by the Joint
Ventures to meet their payment obligations under the Shareholder Loan
Agreements and pay dividends and the Joint Ventures may not be able to increase
power rates sufficiently to offset such effects. See also "--Considerations
Relating to the PRC--Risk Regarding Changes to PRC and Local Laws, Policies and
Regulatory Authorities" below.
Risk of Need For Additional Governmental Approvals Regarding Level of Foreign
Investment in Luannan Facility.
The Joint Ventures have been formed to undertake separate aspects of the
Luannan Facility. Under PRC law and regulations, the development of a power
plant and the formation of a Sino-foreign joint venture require approvals of
certain governmental authorities in the province in which the power plant and
the joint venture are located and, if the total investment (including equity
contributions to the joint venture and expected borrowings of the joint
venture) exceeds certain thresholds (denominated in U.S. dollars), the approval
of certain Central Government authorities is required. Such thresholds vary by
province, municipality and special economic zone. In the case of Hebei
Province, where the Joint Ventures are located, provincial governmental
authorities have authority to approve the development of a power plant and the
establishment of any Sino-foreign joint venture entity the total investment in
which does not exceed $30.0 million, pursuant to a guideline issued by the
Central Government in 1988. HPPC and Hebei COFTEC, the provincial approval
authorities for the development of power plants and the establishment of Sino-
foreign joint ventures, respectively, have advised that the approval of the
formation of the Joint Ventures is within their respective approval authority
limits because the total investment (including equity contributions and
borrowings) of each Joint Venture is less than $30.0 million. As a result of
this $30.0 million approval limitation, a cost overrun might result in a
requirement for one or more of the Joint Ventures to seek additional
governmental approvals, including possibly Central Governmental approvals.
There is no assurance that any such additional approvals, if required, could be
obtained.
Chinese law governing the appropriate approval levels for foreign
investment in power plants is not fully developed and there can be no assurance
that Central Government authorities will agree with the foregoing position
concerning the appropriate approval authority for the formation of the Joint
Ventures and the Luannan Facility. Recently, the Central Government has
reiterated its policy against dividing large projects into several small
projects in order to keep within provincial approval limits. There can be no
assurance that the Central Government authorities will not characterize the
Luannan Facility as one project requiring Central Government approval. Projects
and joint ventures using foreign investment not approved in accordance with the
limits of authority set forth by the Central Government are null and void. Any
approvals or licenses issued in reliance on a project or joint venture approval
which is null and void (as well as any contracts signed by such a joint
venture) would not be legally effective, and approvals or licenses to be
obtained in the future with respect to such a project or joint venture would
not be processed. Furthermore, although authority for specific approvals
generally is vested in particular government organizations, as discussed above,
the approval process typically involves consultation with all relevant
government organizations, whose opinions are solicited before an approval is
issued. Therefore, additional government departments or their provincial
counterparts may also have opportunities to intervene in the approval process.
Risk of Not Obtaining Government Approvals for Full Construction Activity
of the Luannan Facility in a Yimely Manner
Additional governmental approvals will be required to commence full
construction activity upon the giving of notice to proceed, during the course
of construction and upon the commencement of operation of the Luannan Facility.
There can be no assurances that such approvals will be obtained in a timely
manner. Potential delay or inability to complete construction of the Luannan
Facility and operate the Luannan Facility when constructed could adversely and
materially affect the ability of the Issuer to meet required payments of
principal and interest on the Exchange Notes.
Each of the Joint Ventures holds a recently obtained permanent business
license from issued by the SAIC. Nonetheless, Cai, Zhang & Lan have advised the
Issuer that certain capital contributions required to be made to the Joint
Ventures under PRC administrative regulations were not made in a timely manner
and, as a result, the SAIC has administrative discretion to revoke the Joint
Ventures' business licenses. There can be no assurances that such revocation
would not occur.
Risk That Joint Venture Guarantees May Require Central Government Approval
Each of the Joint Ventures has guaranteed the obligations of the other
Joint Ventures with respect to their Shareholder Loans pursuant to the Joint
Venture Guarantees. The inapplicability of a regulation of a central
governmental authority requiring approval of certain guarantees of off-shore
financings is not free from doubt. If this regulation were deemed applicable,
the enforceability of the Joint Venture Guarantees would be subject to question
unless such approval was obtained. The Joint Venture Guarantees are payable in
Renminbi. See "Considerations Relating to the PRC--Possible Inability to
Convert Foreign Currency Due to Governmental Control of Currency Conversion."
Risk Regarding Changes to PRC and Local Laws, Policies and Regulatory
Authorities
In an attempt to separate the regulatory and commercial functions of the
electric power industry, the PRC State Council formally approved the
establishment of the State Power Corporation of China ("SP") in January 1997.
It has been reported that the MOEP itself will also be dissolved and its
regulatory function will be transferred to the China Electricity Council, the
SPC and the State Economic and Trade Commission. There can be no assurance as
to what impact this reform will have on the Luannan Facility.
As the PRC legal system continues to develop, changes to existing laws,
regulations and policies (or in the application thereof), the adoption of new
laws and the pre-emption of local regulations by national laws may adversely
affect the Joint Ventures. Although the PRC government has introduced new laws
and regulations since January 1, 1994 to modernize its securities, tax and
secured lending systems, China does not yet possess a comprehensive body of
business law. Furthermore, experience in the enforcement of contractual rights
by foreign parties through legal or arbitration proceedings in China is
developing. The Joint Ventures' activities in China are by law subject, in
certain cases, to administrative review and approval by various national and
local agencies of the PRC government. The Luannan Project Documents
(including the mechanism in a pricing document (the "Pricing Document" which
is separate from, but incorporated by reference in, the Luannan Power Purchase
Agreement) for setting the power sales tariff from time to time), are as yet
untested in the PRC legal system. There can be no assurance that any necessary
administrative approvals will be forthcoming when necessary or desirable.
In addition, while power rates for power utilized within a specific region
and produced by power plants not owned by MOEP currently are set on the basis
of discussions between the power plants and the relevant provincial price
bureau (the "Pricing Approval Authority"), there can be no assurance that the
Hebei Provincial Price Bureau wil not revoke the authority of the Pricing
Approval Authority if it is necessary for the consistency of the state's
electric tariff policy.
Risk That Future Price Applications to the Pricing Approval Authority May Not
Be Approved
Certain components of the power rate calculation in the Luannan Power
Purchase Agreement are subject to annual adjustment to reflect local and U.S.
inflation and foreign exchange rate fluctuations. The electricity price to be
paid under the Luannan Power Purchase Agreement is provided in the Pricing
Document, which, except for the pricing formula, has been approved by the
Pricing Approval Authority. The formula provided in the Pricing Document sets
forth the basis for future pricing adjustments and has been acknowledged by the
Pricing Approval Authority. However, such an acknowledgment does not constitute
a guarantee or promise by the Pricing Approval Authority to approve a price
application calculated in accordance with the formula, and there can be no
assurance that future price applications by any Joint Venture will be so
approved.
Neither the Issuer nor the Joint Ventures have any experience in applying for
electricity prices determined in accordance with the pricing formula
incorporated in the Pricing Document. Use of such a pricing formula to
establish electricity prices is a recent development in the Chinese
power industry. There can be no assurance that the Joint Ventures
will be able to charge rates that will generate sufficient revenues
to enable the Joint Ventures to meet their obligations to pay principal
of and interest on the Shareholder Loans when due and make distributions
to Pan-Western sufficient in the aggregate to enable Pan-Western
to satisfy its obligations with respect to the Issuer Note and to make
distributions to the Issuer which are in turn sufficient for the Issuer to
pay interest and principal on the Exchange Notes, when due, or that any
application for an increase in the power rate will be approved by the Pricing
Approval Authority.
Risk That Power Price Formula Cannot Be Modified in the Case of a Significant
Devaluation of the Renminbi Against the Dollar
The power price formula in the Luannan Power Purchase Agreement acknowledged
by the Pricing Approval Authority provides for adjustment of the annual
depreciation amount according to changes in a Chinese price index. A
significant devaluation of the Renminbi against the U.S. dolar (unless offset
by inflation in China) would result in a lower electric price (in U.S. dollar
terms) unless the power price formula is modified so that depreciation is
adjusted according to changes in these exchange rates.
Risk of Expanded Central Government Regulation of Power Rates
The Law of Electric Power (the "Power Law") of the PRC, which was adopted
by the NPC in late 1995 and which took effect on April 1, 1996, provides that
the proper approval authority for certain tariffs relating to inter-provincial
grids (such as the Jing-Jin-Tang Grid) is the relevant price department of the
SPC. No implementing regulations under this provision have been adopted. It is
therefore not possible to predict the extent, if any, to which the ministries
or bureaus of the Central Government, such as MOEP or the SPC, might seek to
assert authority over pricing approvals relating to the Luannan Facility. As a
result, there can be no assurance that Central Government authorities will not
take a different position than the Pricing Approval Authority in regard to the
Pricing Document.
The Accuracy of Certain Information in This Prospectus Has Not Been
Independently Verified by the Issuer or the Company
Certain information contained in this Prospectus concerning the PRC, Hebei
Province, Beijing, Tianjin and Tangshan municipalities, North China Power,
North China Power Company and the other Chinese parties described herein has
been obtained by the Issuer and the Company from various sources. Official
statistics in the PRC may also be produced on a basis different from that used
in other, more developed countries. The Issuer and the Company have not
independently verified the accuracy of this information.
Uncertain Enforcement of Contracts Against a Chinese Entity in the PRC,
Uncertain Enforcement of Money Judgments and Certain Arbitration Awards
in the PRC
Experience with respect to the implementation, interpretation and
enforcement of business law in the PRC is limited. More specifically, there has
been only a limited number of situations in which a foreign party has sought
judicial enforcement of contracts against a Chinese entity in a PRC court or
through arbitration proceedings in China. In addition, the means for
enforcement of monetary judgments in the PRC are not fully developed and may be
affected by a predilection to favor Chinese entities in disputes with foreign
parties.
The Joint Venture Agreements in respect of the Joint Ventures are
governed by PRC law and the parties thereto have submitted to arbitration in
China. Other Luannan Project Documents (including the Luannan Power Purchase
Agreement and the Luannan EPC Contract but excluding the Luannan Operations and
Maintenance Agreement) are also governed by PRC law. The parties to the Luannan
EPC Contract may agree to submit disputes thereunder to arbitration in China if
the amount of a dispute does not exceed $1.0 million; either party also may
submit a dispute to the International Court of Arbitration of the International
Chamber of Commerce ("ICC") for binding arbitration to be held in Singapore.
The Luannan Power Purchase Agreement similarly provides that disputes not
resolved by mutual discussion shall be settled by binding arbitration in
Singapore before the International Court of Arbitration of the ICC. It is
unclear whether an arbitration award resulting from an arbitration proceeding
between two Chinese legal persons conducted outside of China is enforceable in
China. Consequently, there can be no assurance that the Joint Ventures would be
able to obtain effective enforcement in a timely manner of the principal
Luannan Project Documents against any Chinese party or that Pan-Western would
be able to obtain enforcement, in a timely manner, of the obligations of the
Joint Ventures under the Shareholder Loan Agreements or the undertakings by
each Joint Venture to fully and unconditionally and irrevocably guarantee to
Pan-Western the prompt payment and performance by each other Joint Venture of
their individual obligations to Pan-Western pursuant to any debt obligation now
or hereafter due.
Substantial Dependence on Debt Service from Joint Ventures; Restrictions on
Payment of Dividends by Joint Ventures Under Chinese Law
The ability of the Issuer to make payments on the Exchange Notes will
depend substantially upon the financial performance of the Joint Ventures and
the ability of the Joint Ventures to make principal and interest payments under
the Shareholder Loans through bank accounts maintained in the PRC and to
distribute dividends.
Under Chinese law, the Joint Ventures may pay a dividend only from net
income after taxes. Dividend distributions to equity joint venture partners are
limited to the net income of the joint venture as determined according to
Chinese accounting principles. Accordingly, the Joint Ventures may be precluded
from paying a dividend to Pan-Western in a fiscal year even though they may
generate cash flow in that year, or have accumulated a surplus sufficient to
make such a payment. Generally, distributions are determined on an annual
basis; however, special permission may be granted for quarterly distributions
(with appropriate retention for applicable withholding) with an annual
reconciliation of actual amounts available for such distributions. The Joint
Ventures intend to request approval to make quarterly distributions; however,
there is no assurance that such approval will be granted. Even if an approval
is granted, it may be limited to a particular amount and may not permit
subsequent quarterly dividends without additional approvals. If the Joint
Ventures are unable to pay dividends because of the absence of net income after
taxes or if the payment of dividends is restricted by the annual limitation,
the ability of the Issuer to obtain the revenues that it requires to pay
interest and principal on the Exchange Notes when due may be impaired. See "--
Considerations Relating to the PRC--Possible Inability to Convert Foreign
Currenty Due to Governmental Control of Currency Conversion" above.
PRC Withholding Tax on Interest From Loans to Foreign Corporations
The PRC levies a withholding tax on payments of interest in respect of
foreign exchange loans, including bonds and notes, made to foreign
corporations; this withholding tax will apply to the payment of interest by the
Joint Ventures to Pan-Western on the Shareholder Loans. The current rate of
such withholding tax is 20% of the gross amount of the interest. However, the
withholding tax charged on interest paid by the Joint Ventures to Pan-Western
on the Shareholder Loans will be 10% pursuant to certain provisional
regulations intended to encourage foreign investments in coastal economic open
zones in the PRC. Due to the nature of these provisional regulations, there can
be no assurance that the reduction in the rate of the withholding tax will
continue through the term of the Shareholder Loans. A change in the rate of the
withholding tax to 20% would decrease the net amount of funds to be received by
Pan-Western from the Joint Ventures in repayment of the Shareholder Loans and
could have a material adverse effect on the ability of the Issuer to pay
interest and principal on the Exchange Notes when due. See "Business of the
Issuer, The Company, Panda International and Their Subsidiaries--The Issuer,
the Company and Panda International."
Amendment of Shareholder Loan Agreements May Not be Accepted by SAFE
The Issuer and the Joint Ventures intend that the terms of the Shareholder
Loan Agreements between Pan-Western and the Joint Ventures will be amended
after the closing of the Prior Offering to modify the interest rate and the
principal amortization schedule. The Issuer and the Joint Ventures intend to
file such amendments with the Tangshan branch of SAFE. There can be no
assurances that SAFE will accept for filing the amendments to the Shareholder
Loan Agreements, and the Shareholder Loan Agreements may not be amended without
such filing. If amendments are not accepted for filing, the interest rate
and principal amortization schedule would remain as in the existing Shareholder
Loan Agreements and the ability of the Issuer to obtain the revenues that it
requires to pay interest and principal on the Exchange Notes when due may be
impaired.
U.S. Industry Conditions
Risk in Regard to Electric Utility Restructuring and Deregulation and Utility
Responses Thereto
The Federal Energy Regulatory Commission (the "FERC") and many state
utility commissions, including the Virginia State Corporation Commission (the
"SCC"), are currently studying a number of proposals to restructure the
electric utility industry in the United States to permit utility customers to
choose their supplier in a competitive electric energy market. In April 1996
the FERC issued a rule requiring utilities to offer wholesale customers and
suppliers open access on their transmission lines on a basis that is comparable
to the utilities' own use of the lines. In addition, a number of bills have
been introduced in the United States Congress to promote electric utility
restructuring and deregulation of electric rates.
Many utilities fear that current captive customers may leave their system
to procure electricity from other electric power suppliers and that the
utilities may thereafter be unable to recover their fixed costs from their
remaining customers. These potential "stranded" or "transition" costs include
the cost of maintaining electric generating capacity under many QF contracts.
The restructuring proposals being considered by regulatory agencies and
Congress differ as to how, and to what extent, utilities' "stranded" or
"transition" costs would be recoverable if current captive customers leave the
utilities' systems. To minimize the risk that "stranded" or "transition" costs
may not be recovered by utilities if such restructuring proposals are enacted,
many utilities have implemented certain cost control strategies. Such
strategies include attempts to renegotiate, buy out or terminate existing power
purchase agreements containing prices that utilities believe will not be
competitive in a short-term marginal cost electric energy market. In addition,
some utilities have sought to rigorously enforce the terms of such agreements
and to exercise their contractual termination rights if the agreements'
provisions are not strictly observed. Some utilities have engaged in litigation
against Qualifying Facilities to achieve these ends.
Certain Specific Risks Regarding the Rosemary Facility
On November 12, 1996, the SCC issued an order that would require VEPCO to
file a report on its efforts to renegotiate its contracts with non-utility
generators, which includes the Rosemary Facility. Such report must be filed on
or before June 1, 1997 and quarterly thereafter. VEPCO has not yet responded to
that order but previously has filed comments with the SCC indicating that it
will aggressively pursue initiatives to restructure contracts with Qualifying
Facilities to minimize its costs. VEPCO has filed a request with the SCC for
permission to institute a formal QF monitoring program under which certain
facilities (including the Rosemary Facility) would be required to furnish
certain operational data to VEPCO on an annual basis. Under the proposed
monitoring program, if VEPCO believed, based on data provided by a facility and
any additional information, that a facility no longer satisfied the QF
criteria, VEPCO could institute proceedings with the FERC to revoke such
facility's QF status. On October 10, 1996, the SCC staff, pursuant to the SCC's
directive, filed a legal memorandum with the SCC discussing VEPCO's proposal in
which the staff argued that the SCC has the legal authority to implement a QF
monitoring program. On December 18, 1996, the SCC staff filed a report
recommending that the SCC adopt a QF monitoring program for all QFs that have a
power purchase agreement with VEPCO. The program would direct VEPCO to collect,
audit and analyze calendar year operating information, including actual annual
operating results and a copy of meter calibration results, to be submitted by
all such QFs by May 1 of the following year. VEPCO would report annually to the
SCC the results of its compliance evaluation. On December 30, 1996, VEPCO filed
a response in support of the Staff Report. See "U.S. Industry Conditions
- --Risks in the Event That Qualifying Facility Status of Rosemary Facility or
Brandywine Facility is Not Maintained" below.
VEPCO has been involved in several proceedings with parties with whom it
has entered into power purchase agreements, including several in which the
interpretation of the power purchase agreements is being disputed. Although
there is currently no dispute between the Rosemary Partnership and VEPCO, the
Rosemary Partnership anticipates that VEPCO will closely monitor the Rosemary
Partnership's compliance with the Rosemary Power Purchase Agreement and
vigorously enforce its rights thereunder. Because the capacity and energy
payments that the Rosemary Partnership receives from VEPCO under the Rosemary
Power Purchase Agreement constitute major sources of revenue for the Rosemary
Partnership, a termination of the Rosemary Power Purchase Agreement would, in
the absence of another source of funds, terminate the Rosemary Partnership's
ability to service its Project-level debt and to make distributions, through
intermediate entities, to the Company. Such termination could adversely affect
the ability of the Company to meet its obligations under the Exchange Notes
Guarantee. See Appendix B, "The Electric Power Industry in the United States
and United States Regulation--Federal Energy Regulation."
Risks in the Event That Qualifying Facility Status of Rosemary Facility or
Brandywine Facility is Not Maintained
PURPA and the regulations promulgated thereunder provide Qualifying
Facilities such as the Rosemary Facility and the Brandywine Facility with
certain exemptions from federal and state legislation and regulation, including
regulation of rates at which electricity can be sold. For a cogeneration
facility to maintain QF status, no more than 50% of the facility may be owned
by an electric utility, electric utility holding company or combination thereof
and the facility must produce both electricity and a related quantity of useful
thermal energy and satisfy certain operational and efficiency criteria. If for
any reason a Domestic Project failed to maintain its status as a Qualifying
Facility, or if there were a change in law or regulation that eliminated the
Project's status as a Qualifying Facility (or exemption from regulation granted
to Qualifying Facilities), the Project would be subject to additional
regulation and the revenues of the Rosemary Partnership and the Brandywine
Partnership could be materially and adversely affected. For discussions of the
steam sales arrangements that permit the Rosemary Facility and the Brandywine
Facility to maintain their QF status, see "Description of the Projects--The
Rosemary Facility--Steam and Chilled Water Sales" and "Description of the
Projects--The Brandywine Facility--Sale of Capacity, Electricity and Steam."
On February 18, 1997, The Bibb Company ("Bibb") announced that it would
sell the textile mill that purchases steam and chilled water from the Rosemary
Facility to WestPoint Stevens, Inc. ("WestPoint"). The closing of the sale was
reported in the news media on February 21, 1997, but the Rosemary Partnership
has not received formal notice of such sale from Bibb or WestPoint. The
contract pursuant to which the Rosemary Partnership has been selling steam and
chilled water to Bibb cannot be assigned by Bibb without the consent of the
Rosemary Partnership. The Rosemary Partnership has continued to sell steam and
chilled water to the purchaser in substantially the same amounts as it sold
prior to the announcement of the sale. While the Issuer expects that Bibb will
seek to assign the contract to WestPoint, there can be no assurance that it
will do so. Additionally, if WestPoint were to fail to purchase and use the
minimum quantity of steam necessary for the Rosemary Facility to satisfy the
Qualifying Facility criteria, the Rosemary Facility could continue to satisfy
the Qualifying Facility criteria if a distilled water facility or other thermal
operation were installed at the Rosemary Facility. The Rosemary Indenture
permits the borrowing of funds to make such enhancements or improvements to the
facility which are necessary to maintain the facility's Qualifying Facility
status. There can be no assurance, however, that the Rosemary Partnership would
have or be able to obtain the funds necessary to install such a facility. See
"Description of the Projects--The Rosemary Facility--Steam and Chilled Water
Sales" and Appendix B, "The Electric Power Industry in the United States and
United States Regulation--State Regulations."
Risks Concerning Environmental and Other Related Matters in the United States
and PRC
In operating any Project, the owner is generally required to comply with a
number of statutes and regulations relating to the safety and health of
personnel and the public, including the identification, generation, storage,
handling, transportation, disposal, recordkeeping, labeling, reporting of and
emergency response in connection with hazardous and toxic materials or
substances associated with the facility, limits on noise emissions from the
facility, safety and health standards, practices and procedures applicable to
construction and operation of the facility and environmental protection
requirements including standards and limitations relating to the discharge of
air and water pollutants and disposal of solid waste. Failure to comply with
any of such statutes and regulations could have adverse effects on a Project,
including the imposition of criminal or civil liability by regulatory agencies
or as a result of litigation by private parties, imposition of clean-up fines
or liens and the mandatory expenditure of funds to bring the Project into
compliance.
Pursuant to the various financing, lease, construction, easement and
encroachment agreements, and as is common practice in the independent power
industry, the Rosemary Partnership and the Brandywine Partnership have
indemnified third parties against the consequences of each Project's storage or
emission of hazardous and toxic materials. There can be no assurance that
environmental laws and regulations, whether now existing or adopted in the
future, will not impose significant constraints and increased costs on such
facilities' operations. The 1990 Amendments to the Federal Clean Air Act
require the State of North Carolina, the State of Maryland and the federal
government, at various times, to take regulatory actions that may affect the
Domestic Projects. There can be no assurance that each Domestic Project will or
can satisfy all requirements that may result from actions in response to the
1990 Amendments to the Federal Clean Air Act. See Appendix B, "The Electric
Power Industry in the United States and United States Regulation--Environmental
Regulation."
With respect to the Luannan Facility, the Joint Ventures are subject to
the environmental protection laws and regulations of the PRC and the government
of Hebei Province, which currently impose base-level discharge fees for various
polluting substances and graduated schedules of fees for the discharge of waste
substances in excess of applicable standards, require the payment of fines for
violations of laws, regulations or decrees and provide for the possible closure
of any facility which fails to comply with orders requiring it to cease or cure
certain activities causing environmental damage. There can be no assurance
that the Central Government or the government of Hebei Province will not
impose new, stricter regulations which would require additional expenditures
by the Joint Ventures for environmental protection or compliance.
Certain Other Regulatory Risks Relating to Projects in the United States
Numerous Federal, State and Local Regulatory Requirements and Risks of
Violations Thereof
Projects in the United States are subject to stringent energy and
environmental regulation by federal, state and local authorities. Power plants
in the United States are required to comply with numerous federal, state and
local statutory and regulatory requirements and the Domestic Projects are
required to obtain and maintain in effect numerous approvals relating to energy
and environmental laws. There can be no assurance that existing regulations
will not be revised, that new laws and regulations will not be adopted or
become applicable to the Projects or that the Company's business and financial
condition will not be materially and adversely affected by such future changes
in laws and regulations (including the possible loss of exemptions from
regulations). See Appendix B, "The Electric Power Industry in the United States
and United States Regulation."
Gas Transportation Regulation - Risks of Increased Costs and of Action by
Transporters to Terminate or Reduce Amount of Gas Transported
The various gas transportation agreements for the Projects contemplate the
use of interstate natural gas pipelines and services. These gas transportation
arrangements, including pipeline facilities and the rates charged for
transportation services, are subject to the jurisdiction of the FERC. In
exercising such jurisdiction, the FERC maintains or may maintain authority to
modify aspects of the rates, terms and conditions that govern the gas
transportation services provided. It is possible that such a modification could
materially increase the gas transportation costs of each Domestic Project. In
addition, certain provisions of the gas transportation agreements and the
approved tariffs allow the transporter to terminate, suspend performance under
or reduce the amount of gas transported upon the occurrence of certain
conditions, such as the taking of an adverse action by a regulatory authority,
if the transporter, in its judgment, deems it necessary to make modifications
or repairs to its pipeline facilities or upon the occurrence of an event of
force majeure. Any failure by a transporter to provide gas transportation
services could have a material adverse effect on a Project's operations. See
"Description of the Projects--The Rosemary Facility--Gas Transportation" and "-
- -The Brandywine Facility--Gas Transportation." See also Appendix B, "The
Electric Power Industry in the United States and United States Regulation--
Natural Gas Regulation."
Risks of Failure to Obtain Applicable Permits
Each Project Entity is responsible for obtaining various permits and other
regulatory approvals required for the operation of its facility. Some of the
permits and other approvals that are obtained for a particular facility may
contain certain continuing conditions, including the obligation to renew or
extend the permit or approval by a certain date. Failure to satisfy any such
condition could prevent the operation of the Project or result in fines or
other additional costs. For example, if future levels of dispatch of the
Rosemary Facility exceed the levels allowed under the facility's existing
operating permits (which is projected to be the case; see the Rosemary
Engineering Report), additional equipment designed to control air emissions
would have to be installed in order for the facility to maintain compliance
with such permits. There can be no assurance that the Rosemary Partnership's
existing cash reserves will be sufficient to pay the actual cost of such
equipment if and when required to be installed. There can be no assurance that
in the future the U.S. Projects will operate within the limits established by
current or future permits or other approvals. Any particular Project could be
adversely affected if regulatory changes or new permit conditions were
implemented which impose more comprehensive or stringent requirements resulting
in increased compliance costs or which reduce certain benefits expected by the
Company.
Absence of Market for the Exchange Notes
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in April 1997 to a small number of investors
and are eligible for trading in the Private Offerings, Resale and Trading
through Automatic Linkages ("PORTAL") Market, although an active trading market
for the Old Notes has not developed to date.
There is currently no established market for the Exchange Notes and the
Exchange Notes will not be eligible for trading in the PORTAL Market. The
Issuer does not intend to list the Exchange Notes or the Old Notes on a
securities exchange or seek approval for quotation through any automated dealer
quotation system. There can be no assurance that a market for the Exchange
Notes will develop or as to the ability of holders of the Exchange Notes to
sell their Exchange Notes or the price at which such holders would be able to
sell their Exchange Notes. If a market for the Exchange Notes does not
develop, purchasers may be unable to resell the Exchange Notes for an extended
period of time, if at all. Consequently, a purchaser may not be able to
liquidate the investment readily, and the Exchange Notes may not be readily
accepted as collateral for loans. If a market for the Exchange Notes were to
develop, the Exchange Notes could trade at prices that may be lower than the
initial market values or at a discount from their face amount depending on many
factors, including prevailing interest rates, the markets for similar
securities, and the financial performance of the Issuer and its subsidiaries.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities and
other factors that are independent of the financial performance of, and
prospects for, the Issuer.
Control by Principal Stockholders
The Issuer is a wholly-owned indirect subsidiary of Panda International.
Robert and Janice Carter, members of their family and Carter family trusts
collectively own approximately 38.8% of the outstanding shares of common stock
of Panda International. In addition, W. M. Huffman (who is related to Mr.
Carter by marriage), members of Mr. Huffman's family and Huffman family trusts
and partnerships own approximately 18.5% of the outstanding shares of common
stock of Panda International. By virtue of their ownership share, the Carters
are in a position to influence the management and direction of Panda
International and, through Panda International, its subsidiaries, including the
Issuer and the Company. Moreover, the Carters and Huffmans, if they were to
act together in voting their shares, could control the vote for election of
directors, and consequently the management and direction, of Panda
International and its subsidiaries, including the Issuer and the Company. See
"Management -- Stock Ownership of Panda International."
Reliance of Key Employees
The Issuer and the Company are both dependent on the personal efforts and
abilities of their respective officers, who are key employees. In particular,
the Chief Executive Officer and Chairman of the Board of the Issuer and the
Company, Robert W. Carter, is instrumental for the overall planning and
management of both the Issuer and the Company. There can be no assurance, if
the services of Robert W. Carter were unavailable to the Issuer or the Company,
that the Issuer or the Company, as the case may be, would be able to employ
a qualified replacement on suitable terms. Neither the Issuer nor the Company
maintains key person life insurance on Mr. Carter.
Risks of Non-Compliance with Covenants in Indentures
The Indentures, with respect to the Company and its Subsidiaries, contain
certain restrictive covenants, including, without limitation, (i) limitations on
investments, loans and advnaces, (ii) limitations on dividends and other
payments (iii) limitations on transactions with Affiliates, (iv) limitations on
additional indebtedness, (v) limitations on liens, (vi) limitations on
agreements restricting payments, (vii) limitations on capital expenditures,
(viii) limitations on line of business and Permitted Projects and (ix)
limitations on sale and leaseback transactions. In addition, the Indentures
limit the ability of the Issuer and the Company to consolidate, merge or sell
all or substantially all of their respective assets. In the event that the
Issuer or the Company, as the case may be, fails to perform or observe any of
such covenants, an Indentures Event of Default would occur. In such instance,
upon the occurrence of certain additional specified conditions, the entire
principal amount of the outstanding Existing Notes, all interest accrued
and unpaid thereon, premium, if any, and all other amounts payable
thereunder could become immediately due and payable.
BUSINESS OF THE ISSUER, THE COMPANY, PANDA INTERNATIONAL AND THEIR SUBSIDIARIES
The Issuer, the Company and Panda International
The Issuer is a wholly-owned subsidiary of the Company, organized in the
Cayman Islands on March 10, 1997. The Company is a wholly-owned subsidiary of
Panda International, organized in Delaware on March 7, 1997. Each of the Issuer
and the Company has been organized for the purposes of (i) investing in and
holding direct and indirect interests in entities engaged in the development,
construction, ownership, operation and management of electric generating
facilities, sources of fuel, pipelines and other infrastructure projects, (ii)
the marketing of electric power, thermal energy and fuel, and (iii) the
financing of any of the above, including the entering into of indentures,
contracts and other agreements entered into in connection with the purposes
described in clauses (i) and (ii) above.
The Company and its affiliates are engaged in the development,
acquisition, construction, ownership and operation of electric power generation
facilities in the United States and internationally. Panda International was
formed as part of a corporate transaction that took place in October 1995 in
which all of the capital stock of PEC was exchanged for shares of Panda
International, with the result that PEC became a wholly-owned subsidiary of
Panda International. Upon the formation of the Company, PEC became a wholly-
owned subsidiary of the Company. PEC was organized in 1982 by Robert and Janice
Carter, who are the Chairman of the Board and Chief Executive Officer, and the
Executive Vice President, Treasurer and Secretary, respectively, of Panda
International and the Company. See "Management."
The principal business strategy of the Company and its affiliates is to
use their experience in developing, constructing, financing and managing
electric power generation facilities to provide low-cost electricity and
electric generating capacity. The Company and its affiliates expect to expand
their presence in the electric power industry by implementing this strategy in
the United States and certain other countries. The Company and its affiliates
have placed into commercial operation facilities with electric generating
capacity of approximately 410 MW, each of which is owned or leased under a long-
term lease. In addition, Panda International has executed power purchase
agreements relating to four potential Projects (including the Luannan Facility,
in which the Issuer indirectly owns approximately an 83% interest) with a
combined electric generating capacity of approximately 750 MW. See "Description
of the Projects." The Company and its affiliates generally hold their interests
in Projects that are being developed outside of the United States through
intermediate entities (such as the Issuer, Pan-Sino and Pan-Western) organized
in tax-favorable jurisdictions (such as the Cayman Islands), which in turn hold
interests in entities (such as the Joint Ventures) organized in the country
where the Projects will be located (such as China and as proposed in Nepal).
U.S. Projects are generally held in limited partnerships with general and
limited partners organized as Delaware corporations that are indirect
subsidiaries of the Company. For descriptions of the independent power industry
in the United States and the PRC, see Appendix B hereto. See also "Risk Factors-
- -Project Risks" and "Description of the Projects."
With 77 employees, Panda International has assembled a team of
professionals with expertise in business development, marketing, engineering,
design, construction management, fuel supply, transportation and exploration,
equipment procurement, utility practices, contract management, regulatory
policy and procedures, project operation and maintenance, environmental
matters, law and finance and accounting. The Company believes that this team's
scope of expertise allows it to compete effectively for cogeneration and
private power development and acquisition opportunities.
The Company is continually engaged in the evaluation of various
opportunities for the development and acquisition of additional electric power
generation facilities, both in the United States and internationally. China is
a strategic target market for the Company and its affiliates as they continue
to expand into international power generation. The Company's strategy in China
is fostered through its business alliance with CMC. The Company considers its
relationship with CMC to be an important factor in its dealings with agencies
of the central, provincial and local governments in the PRC.
The ownership structure of Panda International and certain of its
subsidiaries is shown in Appendix G.
There were 11,401,212 shares of Common Stock of Panda International
outstanding at March 31, 1997. Of this amount, 4,418,957 shares (38.8%) are
owned by Robert and Janice Carter and members of their family and family
trusts. See "Management." W.M. Huffman and members of his family and family
trusts and a family partnership own 2,134,443 of the outstanding shares
(18.7%). Other directors, officers and employees of Panda International own
less than 1% of the outstanding shares of Common Stock. At March 31, 1997:
(i) there were outstanding options to acquire 1,209,000 shares of Common Stock
of Panda International (options for 1,050,000 shares being fully vested and for
159,000 shares vesting over a six-year period) held by directors, officers and
employees of Panda International, and of this amount options for 250,000 shares
are held by Robert Carter and options for 25,000 shares are held by W.M.
Huffman; (ii) Trust Company of the West held warrants to purchase 1,004,000
shares of Common Stock of Panda International; and (iii) NNW, Inc. held rights
to acquire up to 181,500 shares of Common Stock of Panda International. See
"Description of the Projects -- The Panda-Rosemary Facility -- Cash Flow
Participation."
The principal executive offices of the Issuer, Panda International and the
Company are located at 4100 Spring Valley Road, Suite 1001, Dallas, Texas
75244. The telephone number at such offices is (972) 980-7159.
The Issuer owns 95.5% of the issued and outstanding stock of Pan-Sino. The
remaining interest in Pan-Sino is owned by National Development and Research
Corporation, a Texas corporation ("NDR"). Pursuant to a shareholder agreement,
NDR's ownership interest in Pan-Sino can increase from 4.5% to a maximum of 10%
(and the Issuer's equity interest therein can thereby be reduced to 90%) as a
result of the collective efforts of NDR, Panda International and its affiliates
to develop and achieve financial closing of additional Projects in the PRC. Any
such change in the equity interest held by the Issuer in Pan-Sino would
correspondingly affect the cash-flow interest of the Issuer in Pan-Sino with
respect to the payment of dividends by Pan-Sino. The right of the Issuer to
receive interest payments with respect to the Issuer Note would not be affected
by a reduction in the Issuer's equity interest in Pan-Sino, however, because
the Issuer Note represents direct obligations of Pan-Western to the Issuer and
has priority in right of payment to equity distributions.
Pan-Sino owns a 99% equity interest in Pan-Western. The remaining 1%
interest in Pan-Western is owned by Chinamac. Pan-Western owns an 87.92% equity
interest in each of four equity joint venture companies (individually, a "Joint
Venture" and collectively, the "Joint Ventures") organized under the laws of
the People's Republic of China (the "PRC" or "China"): Tangshan Panda Heat and
Power Co., Ltd. ("Tangshan Panda"), Tangshan Pan-Western Heat and Power Co.,
Ltd. ("Tangshan Pan-Western"), Tangshan Cayman Heat & Power Co., Ltd.
("Tangshan Cayman") and Tangshan Pan-Sino Heat Co., Ltd. ("Tangshan Pan-Sino").
Luannan County Heat and Power Plant ("Luannan Heat and Power"), Tangshan
Luanhua (Group) Co. ("Luanhua Co.") and Luannan County Heat Company ("Luannan
Heat Company") own the remaining interests in Tangshan Panda, Tangshan Pan-
Western and Tangshan Pan-Sino, respectively. Each of Luannan Heat and Power
and Luanhua Co. owns a 6.04% equity interest in Tangshan Cayman.
The Joint Ventures
The Joint Ventures have been formed to undertake separate aspects of the
Luannan Facility. Each Joint Venture has a total investment of less than $30.0
million. Under Chinese law, a Sino-foreign joint venture in Hebei province with
a total investment of less than $30.0 million does not require approval of the
Central Government. The Issuer has been advised by its Chinese counsel that
each Joint Venture will be treated as a separate project for approval purposes
and that Central Government approval is not required. Chinese law with respect
to the appropriate approval levels for foreign-invested power plants is
developing and there can be no assurance that Central Government authorities
will not seek to assert jurisdiction over some aspect of the Luannan Facility.
The Issuer, based on the opinion of its counsel and advice from Hebei COFTEC,
believes that all required government approvals to form the Joint Ventures and
develop the Luannan Facility have been obtained. See "Risk Factors--
Considerations Relating to the PRC--Risk of Need For Additional Governmental
Approvals Regarding Level of Foreign Investment in Luannan."
Tangshan Panda and Tangshan Pan-Western will each construct, own and
operate a 50 MW coal-fired cogeneration power unit. Tangshan Cayman will own
water rights, water wells, pipelines, production facilities and certain steam
production facilities from which it will sell heat, steam and hot water to
Tangshan Panda and Tangshan Pan-Western. In addition, Tangshan Cayman will sell
steam and hot water to Tangshan Pan-Sino on a wholesale basis. Tangshan Pan-
Sino will engage in retail distribution of steam and hot water to commercial
and industrial users and will own the land use rights, the Luannan Facility
buildings and certain off-site property, the majority of which will be leased
to the other Joint Ventures. In addition, Tangshan Pan-Sino will make certain
loans in connection with the construction of the Luannan Transmission
Facilities.
The proceeds from the sale of the Old Notes, less amounts to be deposited
in the Capitalized Interest Fund and the Debt Service Reserve Fund established
with respect to the Old Notes and net of transaction fees, commissions and
expenses incurred in connection with the Prior Offering, plus interest earnings
to be received by the Issuer, will be loaned by the Issuer to Pan-Western by
means of one or more loans, each evidenced by a promissory note from Pan-
Western to the Issuer (collectively, the "Issuer Note"). Pan-Western will use
such amount to make Shareholder Loans in the aggregate amount of $71.3 million
and JV Equity Contributions in the aggregate amount of $41.8 million to the
Joint Ventures. The Joint Ventures will also receive equity contributions from
the County Partners in the aggregate amount of $5.7 million, which corresponds
to the amount to be paid to the County Partners from the proceeds of the Prior
Offering for water and land use rights (including previously constructed wells)
with respect to property on which the Luannan Facility will be situated. The
funds from the Shareholder Loans and the JV Equity Contributions will be used
by the Joint Ventures to finance the development and construction of the
Luannan Facility. Through the Capitalized Interest Expiration Date, interest on
the Exchange Notes will be provided from the Capitalized Interest Fund funded
by the Issuer from a portion of the proceeds of the Prior Offering. After the
Capitalized Interest Expiration Date, pursuant to the Shareholder Loan
Agreements, the Joint Ventures will be required to make principal and interest
payments on the Shareholder Loans to Pan-Western. Pan-Western will be required
to make principal and interest payments on the Issuer Note and the Issuer, in
turn, will be required to make principal and interest payments on the Exchange
Notes. Immediately upon receiving each payment from the Joint Ventures, Pan-
Western will pay the full amount of such payment to the Issuer. The Issuer Note
represents a direct obligation of Pan-Western to the Issuer and has priority in
right of payment to equity distributions. Any dividends paid by the Joint
Ventures will be payable 87.92% to Pan-Western and 12.08% to the County
Partners in accordance with their respective equity ownership interests in the
Joint Ventures. Any dividends paid by Pan-Western will be payable 99% to Pan-
Sino and 1% to Chinamac in accordance with their respective equity ownership
interests in Pan-Western. Any dividends paid by Pan-Sino will be payable 95.5%
to the Issuer and 4.5% to NDR in accordance with their respective equity
ownership interests in Pan-Sino, which percentages are subject to change as
described above, subject to limitations on payment of dividends as provided in
the Indentures. See "Risk Factors--Considerations Relating to the PRC--
Substantial Dependence on Debt Service from Joint Ventures; Restrictions on
Payment of Dividends by Joint Ventures Under Chinese Law" and "Description of
the Exchange Notes, the Guarantors, the Issuer Loan, the Shareholder Loans and
the Collateral Documents--Certain Covenants--Limitation on Restricted Payments."
PEC, PIC, PIC Entities and Project Entities
In addition to its ownership interest in the Issuer, the Company owns all
of the issued and outstanding stock of PEC which, in turn, owns all of the
issued and outstanding stock of Panda Interfunding Corporation, a Delaware
corporation ("PIC") and 100% of the entities that own the Kathleen Facility,
which is currently in development and the subject of litigation in various
state and federal forums. The outcome of such litigation will determine whether
construction of the Kathleen Facility is initiated and completed. See
"Description of the Projects--Other Projects Under Development by Panda
International--The Kathleen Facility." Pursuant to arrangements with GE Capital
under the Brandywine Financing Documents, the Kathleen Facility will be
required to be transferred to the PIC Project Portfolio if the Kathleen
Facility reaches Financial Closing or Commercial Operations. See "Legal
Proceedings--Heard Proceedings."
PIC has direct wholly-owned subsidiaries ("PIC Entities"), including Panda
Interholding Corporation, a Delaware corporation ("Interholding"). Under the
terms of the indenture executed in connection with the issuance of the Series A
Bonds (the "PFC Indenture"), PIC Entities, with certain exceptions, cannot
incur debt, become liable in connection with guaranties or enter into Project
Agreements, and are subject to certain other restrictions, all for the purpose
of assuring that the PIC Entities' primary purpose is to hold Project Entities
and receive, and distribute to PIC, distributions from Project Entities. Other
PIC Entities may be established in the future and each will be directly wholly-
owned by PIC. Project Entities, on the other hand, are those entities that are
owned by PIC Entities and directly or indirectly own Projects or are obligated
under Project agreements. Under the terms of the PFC Indenture, Project
Entities are permitted to incur Project Debt, become liable in connection with
guaranties created, required or expressly permitted to exist under Project
agreements and enter into and amend project agreements, in each case subject to
certain restrictions.
Administrative and Development Services
Panda International provides various administrative, construction
management and operations and maintenance services to the Company and its
subsidiaries pursuant to an Administrative Services Agreement, which covers the
provision of such services to the Rosemary, Brandywine and Luannan Facilities
and to future Projects once they reach Financial Closing, and a Development
Services Agreement, which covers the provision of such services to Projects in
the development stage prior to Financial Closing. Such services are invoiced at
Panda International's reasonable cost, including a reasonable allocation of
related overhead expenses. Each agreement was entered into in April 1997 and
has a term which expires on March 31, 2007. Under the Development Services
Agreement, Panda International has the right to receive reimbursement for its
prior expenditures in connection with development of the Luannan Facility, its
proposed hydroelectric project in Nepal and other Projects in development, to
the extent of funds available in the Issuer Equity Distribution Fund, subject
to certain limitations. See "Description of the Projects--The Panda of Nepal
Facility" and "Description of the Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the Shareholder Loans and the Collateral Documents-
- -The Funds--The Issuer Funds."
USE OF PROCEEDS
There will be no cash proceeds to the Issuer or the Company resulting from
the Exchange Offer.
The proceeds from the sale of the Prior Offering were used by the Issuer:
(i) to make a deposit in the Capitalized Interest Fund in the approximate
amount of $48.1 million; (ii) to make a deposit in the Debt Service Reserve
Fund in the amount of $9.7 million; (iii) to pay transaction fees, commissions
and expenses incurred in connection with the Prior Offering estimated to be
approximately $6.8 million; and (iv) to make a deposit in the Luannan Facility
Construction Fund estimated to be in the amount of $80.4 million. This amount
has been used, and interest thereon and other income expected to be received by
the Issuer during construction, will be used, by the Issuer to make the Issuer
Loan to Pan-Western. Pan-Western has used and will use (in the case of interest
and other income expected to be received during construction) the proceeds of
the Issuer Loan to make the JV Equity Contributions and the Shareholder Loans
to each of the four Joint Ventures. The Joint Ventures will use the proceeds of
the JV Equity Contributions and Shareholder Loans, together with capital
contributions from the County Partners in the amount of $5.7 million, to
develop and construct the Luannan Facility.
CAPITALIZATION
The following table sets forth the capitalization of the Issuer and its
consolidated subsidiaries as of march 31, 1997, as adjusted to give pro forma
effect to the issuance of the Old Notes and the application of the estimated net
proceeds therefrom as described in "use of proceeds."
March 31, 1997
-------------------------
(in thousands)
ACTUAL AS ADJUSTED
------- ---------
Long-term debt:
Old Notes due 2004 .................... $ -- $ 145,025
------- ---------
Minority interest (1) .......................... -- 5,740
Shareholder's equity ........................... 6,620 6,620
------- ---------
Total capitalization .................. $ 6,620 $ 157,385
======= =========
The following table sets forth the capitalization of the
Company and its consolidated subsidiaries as of March 31, 1997, as adjusted to
give pro forma effect to the issuance of the Old Notes and the application of
the estimated net proceeds therefrom as described in "Use of Proceeds".
March 31, 1997
-----------------------
(in thousands)
Short-term debt and current portion of long-term debt: ACTUAL AS ADJUSTED
--------- ---------
Current portion of Rosemary Bonds due 2016 .. $ 5,502 $ 5,502
Long-term debt:
Old Notes due 2004 ................................. -- 145,025
Series A Bonds due 2012 ............................ 105,309 105,309
Brandywine capital lease obligation ................ 222,869 222,869
Rosemary Bonds due 2016, less current portion ...... 103,145 103,145
--------- ---------
Total long-term debt, including capital lease
obligation ....................................... 431,323 576,348
Minority interest (1) ................................ -- 5,740
Shareholder's deficit ................................ (102,986) (102,986)
--------- ---------
Total capitalization ............................... $ 333,839 $ 484,604
========= =========
- ------------------
NOTE:
(1) MINORITY INTEREST REFLECTS CAPITAL CONTRIBUTIONS BY THE COUNTY PARTNERS TO
THE JOINT VENTURES.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following unaudited pro forma consolidated financial data are derived
from the historical consolidated financial statements of the Company set forth
elsewhere herein. The unaudited pro forma consolidated financial data give
effect to the issuance of $111.4 million in aggregate principal amount of the
Rosemary Bonds and the application of the net proceeds thereof to refinance the
Rosemary Partnership's project debt and to fund a portion of the acquisition of
Ford Credit's limited partner interest in the Rosemary Partnership. In
addition, the unaudited pro forma consolidated financial data give effect to
the issuance of $105.5 million in aggregate principal amount of the Series A
Bonds and the application of the net proceeds thereof to (a) fund the PIC Debt
Service Reserve Fund, the PIC Capitalized Interest Fund and the PIC Company
Expense Fund, (b) to fund the remaining portion of the acquisition of Ford
Credit's limited partner interest in the Rosemary Partnership and (c) to make a
distribution to the Company's parent. As a result of the acquisition of Ford
Credit's limited partner interest, the Company owns 100% of the Rosemary
Partnership and accordingly, the acquisition was accounted for using the
purchase method of accounting. The excess of minority interest over the amount
paid to Ford Credit was allocated to plant and equipment. The above
transactions, which occurred on July 31, 1996, are reflected in the historical
consolidated balance sheets of the Company as of December 31, 1996 and March
31, 1997. The unaudited pro forma consolidated statement of operations data for
the year ended December 31, 1996 reflect such adjustments as if such
transactions had occurred as of January 1, 1996.
Additionally, the unaudited pro forma consolidated financial data give
effect to the issuance of $155.2 million par value of Old Notes (issued at a
discount for proceeds of $145.0 million) in the Prior Offering and the
application of the proceeds thereof to fund the Capitalized Interest Fund and
the Debt Service Reserve Fund established with respect to the Old Notes, to
make shareholder loans and equity contributions to the Joint Ventures and to
pay the transaction fees, commissions and expenses incurred in connection with
the Prior Offering. The unaudited pro forma consolidated balance sheet data
reflect such adjustments as if the transactions occurred as of March 31, 1997.
The unaudited pro forma consolidated statement of operations data reflect such
adjustments as if such transactions had occurred as of January 1, 1996.
As required by the Securities and Exchange Commission, the unaudited
pro forma consolidated statement of operations data do not reflect the
extraordinary loss on early extinguishment of debt. Such extraordinary loss is
reflected in the historical consolidated statement of operations of the Company
for the year ended December 31, 1996 presented elsewhere herein. The unaudited
pro forma consolidated financial data should be read in conjunction with the
notes thereto and the historical consolidated financial statements of the
Company, and the notes thereto, included elsewhere herein.
The unaudited pro forma consolidated financial data do not purport to be
indicative of the results of operations which would actually have occurred if
the transactions described had occurred as presented in such statements or
which may be obtained in the future.
Pro forma financial data have been presented only for the Company and its
subsidiaries (including the Issuer) on a consolidated basis. Management does
not believe that separate pro forma information for the Issuer is material to
an investor because the Issuer is a wholly-owned subsidiary of the Company,
whole guarantee of the Old Notes if full and unconditional. Also, the
capitalization table presents the pro forma capitalization of the issuer on a
separate basis. See "Capitalization".
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ROSEMARY PIC PRIOR PRO
HISTORICAL OFFERING OFFERING OFFERING FORMA
-------- ------- -------- -------- --------
Revenue:
<S> <C> <C> <C> <C> <C>
Electric capacity and energy sales ................. $ 32,274 $ -- $ -- $ -- $ 32,274
Steam and chilled water sales ...................... 502 -- -- -- 502
Interest income .................................... 1,518 -- -- -- 1,518
-------- ------- -------- -------- --------
Total revenue .................... 34,294 -- -- -- 34,294
EXPENSES:
Plant operating expenses ........................... 12,050 -- -- -- 12,050
Development and administrative expenses ............ 5,187 -- -- -- 5,187
Interest expense ................................... 19,414 749(A) 5,557 (C) 20,335(H) 46,055
Depreciation ....................................... 5,532 -- (111)(E) -- 5,421
Amortization - Debt issuance costs ................. 494 (164)(B) 108 (D) 975(I) 1,413
Amortization - Partnership formation costs ......... 533 -- -- -- 533
-------- ------- -------- -------- --------
Total expenses ................... 43,210 585 5,554 21,310 70,659
-------- ------- -------- -------- --------
Loss before minority interest ...................... (8,916) (585) (5,554) (21,310) (36,365)
Minority interest .................................. (2,405) -- 2,405 (F) -- --
-------- ------- -------- -------- --------
Net loss before extraordinary item $(11,321) $ (585) $ (3,149) $(18,753) $(33,808)
======== ======= ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRIOR
HISTORICAL OFFERING PRO FORMA
-------- ------- ---------
<S> <C> <C> <C>
REVENUE:
Electric capacity and energy sales ....... $ 17,330 $ -- $ 17,330
Steam and chilled water sales ............ 130 -- 130
Interest income .......................... 430 -- 439
-------- ------- --------
Total revenue .............. 17,890 -- 17,890
EXPENSES:
Plant operating expenses ................. 8,261 -- 8,261
Development and administrative expenses .. 2,395 -- 2,395
Interest expense ......................... 10,802 5,109(H) 15,911
Depreciation ............................. 2,949 -- 2,949
Amortization - Debt issuance costs ....... 174 244(I) 418
Amortization - Partnership formation costs -- -- --
-------- ------- --------
Total expenses ............. 24,581 5,353 29,934
-------- ------- --------
Loss before minority interest............. (6,691) (5,353) (12,044)
Minority interest -- 642(G) 642
-------- ------- --------
Net loss $ (6,691) $(4,711) $(11,402)
======== ======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(in thousands)
ASSETS
<TABLE>
<CAPTION>
Prior Pro
Historical Offering Forma
--------- -------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 1,198 $ -- $ 1,198
Restricted cash--current ................................ 15,115 -- 15,115
Accounts receivable ..................................... 9,220 -- 9,220
Fuel oil, spare parts and supplies ...................... 6,898 -- 6,898
Other current assets .................................... 234 -- 234
--------- -------- ---------
Total current assets ............................. 32,665 -- 32,665
Plant and equipment:
Electric generating facilities .......................... 289,097 -- 289,097
Furniture and fixtures .................................. 496 -- 496
Less: accumulated depreciation .......................... (29,488) -- (29,488)
Development costs ....................................... 9,427 -- 9,427
--------- -------- ---------
Total plant and equipment, net ................... 269,532 -- 269,532
Debt service reserves and escrow deposits .......................... 32,548 143,941(J) 176,489
Debt issuance costs, net ........................................... 7,531 6,824(K) 14,355
--------- -------- ---------
Total assets ..................................... $ 342,276 $150,765 $ 493,041
========= ======== =========
<CAPION>
LIABILITIES AND SHAREHOLDER'S DEFICIT
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ...................................... $ -- $ -- $ --
Interest and letter of credit fees ...................... 2,505 -- 2,505
Operating expenses and other ............................ 5,932 -- 5,932
Current portion of long-term debt .......................... 5,502 -- 5,502
---------- -------- ---------
Total current liabilities ........................... 13,939 -- 13,939
Long-term debt, less current portion .................................. 208,454 145,025(L) 353,479
Capital lease obligation .............................................. 222,869 -- 222,869
Minority interest ..................................................... -- 5,740(M) 5,740
Commitments and contingencies ......................................... -- -- --
Shareholder's deficit ................................................. (102,986) -- (102,986)
--------- -------- ---------
Total liabilities and
shareholder's deficit .......................... $ 342,276 $150,765 $ 493,041
========= ======== =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(A)The adjustment represents the net effect of (i) the inclusion of $5,605 of
interest expense related to the Rosemary Bonds at an interest rate of 8
5/8% and (ii) the elimination of actual interest expense of $4,856 related
to the Rosemary Partnership's project debt which was refinanced with the
Rosemary Bonds.
(B)The adjustment represents the net effect of (i) the inclusion of $115 of
amortization of debt issue costs related to the Rosemary Bonds and (ii) the
elimination of $279 of actual amortization of debt issue costs related to
the Rosemary Partnership's project debt which was refinanced with the
Rosemary Bonds.
(C)The adjustment represents the net effect of (i) the inclusion of $7,156 of
interest expense related to the Series A Bonds at an interest rate of
11 5/8%, and (ii) the elimination of actual interest expense of $1,599
related to the Trust Company of the West ("TCW") indebtedness which was
repaid with a portion of the proceeds from the Series A Bonds.
(D)The adjustment represents the net effect of (i) the inclusion of $158 of
amortization of debt issue costs related to the Series A Bonds and (ii) the
elimination of $50 of actual amortization of debt issue costs related to
the TCW indebtedness which was repaid with a portion of the proceeds from
the Series A Bonds.
(E)The adjustment represents the reduction in depreciation expense resulting
from the acquisition of Ford Credit's limited partnership interest in the
Rosemary Partnership. The acquisition was accounted for using the purchase
method of accounting. The excess of minority interest over the purchase
price (approximately $3,800) was allocated to plant and equipment.
Depreciation is recorded on a straight line basis and assumes a remaining
useful life of 20 years.
(F)The adjustment represents the removal of minority interest resulting from
the acquisition of Ford Credit's limited partnership interest in the
Rosemary Partnership.
(G)The adjustment represents the portion of the net loss allocable to the County
Partners in the Joint Ventures.
(H)The adjustment represents interest cost on $155,200 par value of Old Notes
(issued at a discount for proceeds of $145,025) at a yield of 14%.
(I)The adjustment represents amortization of estimated debt issue costs of
$6,824 from the issuance of the Old Notes.
(J)The adjustment represents the application of the net proceeds from the
issuance of the Old Notes (after payment of debt issue costs) and from the
capital contributions by the County Partners in the Joint Ventures to fund
the Capitalized Interest Fund and the Debt Service Reserve Fund and to make
shareholder loans and equity contributions to the Joint Ventures.
(K)The adjustment represents the debt issue costs estimated to be incurred in
connection with the issuance of the Old Notes.
(L)The adjustment represents the gross proceeds from issuance of the Old
Notes.
(M)The adjustment represents the capital contributions by the County Partners
in the Joint Ventures.
SELECTED FINANCIAL DATA OF THE ISSUER
The following table sets forth selected consolidated financial data of the
Issuer as of December 31, 1994, 1995 and 1996 and March 31, 1996 and 1997, and
for the period from inception (July 20, 1994) through December 31, 1994, the
years ended December 31, 1995 and 1996, the three months ended March 31, 1996
and 1997 and the period from inception through March 31, 1997. Although the
Issuer was formed on March 10, 1997, a subsidiary of the Issuer, formed on July
20, 1994, is considered the Issuer's predecessor. The information presented
below, which reflects the operations of the predecessor, has been derived from
the Issuer's financial statements. Because the Issuer has been and continues to
be in the development stage since formation, it has no operating revenues.
Because the Issuer has no fixed charges, presentation of the ratio of earnings
to fixed charges is not applicable. The data should be read in conjunction with
the Issuer's financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Dollar amounts are presented in thousands.
<TABLE>
<CAPTION>
Period From Period From
Inception Year Ended Three Months Ended Inception
through December 31, March 31, through
December 31, ------------------- ----------------- March 31,
1994 1995 1996 1996 1997 1997
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (Unaudited) (Unaudited)
General and administrative expenses .............. $203 $444 $1,654 $266 $555 $2,856
---- ---- ------ ---- ---- ------
Net loss ................................ $203 $444 $1,654 $266 $555 $2,856
==== ==== ====== ==== ==== ======
<CAPTION>
December 31, March 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (Unaudited)
Cash ......................................................... $ 101 $ 6 $ 506 $ 6 $ 6
Development costs ............................................ 428 1,059 3,292 1,550 6,614
----- ------- ------- ------- -------
Total assets .......................................... $ 529 $ 1,065 $ 3,798 $ 1,556 $ 6,620
===== ======= ======= ======= =======
Advances from parent.......................................... $ 732 $ 1,712 $ 6,099 $ 2,468 $ 9,476
Accumulated deficit .....,,................................... (203) (647) (2,301) (912) (2,856)
----- ------- ------- ------- -------
Total shareholder's equity............................. $ 529 $ 1,065 $ 3,798 $ 1,556 $ 6,620
===== ======= ======= ======= =======
</TABLE>
SELECTED FINANCIAL DATA OF THE COMPANY
(in thousands, except ratios)
Presented below are selected consolidated financial data for the Company as
of and for each of the years in the five-year period ended December 31, 1996,
and as of and for the three months ended March 31, 1996 and 1997, which have
been derived from the Company's financial statements. The selected financial
data should be read in conjunction with the information contained under the
captions "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company" and the consolidated
financial statements of the Company, including the notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31
------------------------------------------------------------ ----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue: (Unaudited) (Unaudited)
Electric capacity and energy sales: ...... $ 29,537 $ 29,856 $ 30,664 $ 29,859 $ 32,274 $ 8,015 $ 17,330
Steam and chilled water sales ............ 624 618 650 473 502 122 130
Interest income .......................... 562 365 603 895 1,518 186 430
--------- --------- --------- --------- --------- --------- ---------
Total revenue ................... 30,723 30,839 31,917 31,227 34,294 8,323 17,890
EXPENSES:
Plant operating expenses ................. 7,534 7,676 8,940 9,348 12,050 2,442 8,261
Development and administrative expenses .. 1,608 2,434 1,779 2,550 5,187 803 2,395
Interest expense ......................... 11,478 11,066 11,018 11,716 19,414 3,185 10,802
Depreciation ............................. 4,177 4,282 4,208 4,210 5,532 1,053 2,949
Amortization-- Debt issuance costs ....... 436 502 600 554 494 141 174
Amortization-- Partnership formation costs 533 533 533 533 533 133 --
--------- --------- --------- --------- --------- --------- ---------
Total expenses .................. 25,766 26,493 27,078 28,911 43,210 7,757 24,581
Income (loss) before taxes and minority
interest ............................ 4,957 4,346 4,839 2,316 (8,916) 566 (6,691)
Minority interest ........................ (5,249) (5,474) (5,700) (5,048) (2,405) (1,719) --
Provision for income taxes ............... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items . (292) (1,128) (861) (2,732) (11,321) (1,153) (6,691)
Extraordinary loss, net(1) ............... -- -- -- -- (21,336) -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss ........................ $ (292) $ (1,128) $ (861) $ (2,732) $ (32,657) $ (1,153) $ (6,691)
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
Ratio of earnings to fixed charges(2) .... 1.42x 1.38x 1.32x (2) (2) (2) (2)
<CAPTION>
DECEMBER 31, MARCH
------------------------------------------------------------ ----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data: (Unaudited) (Unaudited)
Cash and other current assets ............ $ 15,167 $ 14,084 $ 15,639 $ 11,339 $ 36,636 $ 16,807 $ 32,665
Power plant and equipment (net) .......... 96,529 93,815 96,136 220,145 268,725 242,466 269,532
Reserves and escrow deposits,
and other assets .................... 15,778 15,650 15,477 15,471 40,119 15,320 40,079
--------- --------- --------- --------- --------- --------- ---------
Total assets .................... $ 127,474 $ 123,549 $ 127,252 $ 246,955 $ 345,470 $ 274,593 $ 342,276
========= ========= ========= ========= ========= ========= =========
Current liabilities ...................... $ 9,735 $ 11,252 $ 12,531 $ 18,457 $ 19,667 22,823 $ 13,939
Long-term debt (including capital lease
obligation), less current portion ... 103,200 89,454 106,343 234,608 427,319 256,145 431,323
Minority interest ........................ 33,346 34,479 35,588 36,836 -- 38,233 --
Shareholder's deficit .................... (18,807) (20,636) (27,210) (42,946) (101,516) (42,608) (102,986)
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and
shareholder's deficit ........ $ 127,474 $ 123,549 $ 127,252 $ 246,955 $ 345,470 $ 274,593 $ 342,276
========= ========= ========= ========= ========= ========= =========
</TABLE>
Notes (in thousands):
(1) In 1996, there was an extraordinary loss from early extinguishment of debt
of $21,336.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income (loss) before minority interest, taxes and extraordinary
items plus fixed charges exclusive of capitalized interest. Fixed charges
consist of interest expense, capitalized interest and amortization of debt
issuance costs. Earnings were insufficient to cover fixed charges in 1995 by
$3,477, in 1996 by $19,971 and in the three months ended March 31, 1996 and
1997 by $2,271 and $6,691, respectively. In 1994, 1995 and 1996 and the
three months ended March 31, 1996, fixed charges included capitalized
interest of $803, $5,793, $11,055 and $2,837, respectively, related to the
Brandywine Facility. This capitalized interest was funded by additional
borrowings under the Brandywine construction loan facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE ISSUER
The Issuer's financial results of operations include no revenues and only
general and administrative expenses allocated from Panda International for
certain accounting, legal, insurance and consulting services. These expenses
increased in 1995 compared to the period in 1994 primarily due to twelve months
in 1995 versus less than six months in 1994 and the increased administrative
assistance in 1995 for performing these services. In addition, the increase in
these expenses for 1996 compared to 1995, and the increase for the three months
ended March 31, 1997 over the same period in 1996, is primarily due to the
increased administrative assistance consisting of legal and consulting services
performed to finalize certain agreements for the Luannan Facility.
Panda International also incurred development costs on behalf of the
Issuer. These development costs have been capitalized and primarily consist of
engineering, legal and other third-party costs directly related to the Luannan
Facility.
Because it is a development stage enterprise having no revenues, the Issuer
has historically depended on advances from its parent to fund its development
activities and its general and administrative expenses. Cumulative advances of
$6.1 million through December 31, 1996 were used to fund development costs of
3.3 million, general and administrative expenses of $2.3 million and to provide
a cash balance of $0.5 million. During the first quarter of 1997, the parent
advanced an additional $3.4 million to the Issuer. these additional advances,
plus the Issuer's beginning cash balance of $0.5 million. As of March 31, 1997,
the Issuer had no material cash balances and continued to be dependent on its
parent to satisfy its liquidity requirements. With the successful completion of
financing for the Luannan project, which occurred in April 1997, management
expects that advances from the parent will no longer be required to fund
development and construction activities for the Luannan project.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
(in thousands)
General
The Company operates two completed electric power generation facilities in
the United States: the Rosemary Facility, which began commercial operations in
December 1990 and is owned by an indirect subsidiary of the Company, and the
Brandywine Facility, which began commercial operations in October 1996 and is
leased under a long-term lease by an indirect subsidiary of the Company. The
Company also owns an approximately 83% indirect equity interest in the Luannan
Facility in China, for which preliminary construction activity commenced in
December 1996 and for which full construction activity commenced upon the
issuance of the Old Notes. The historical operating results of the Company
primarily represent the revenue and expenses of the Rosemary Facility. Certain
development expenses for the Rosemary Facility, the Brandywine Facility, the
Kathleen Facility and the Luannan Facility have been included in the operating
results of the Company and are discussed below as having arisen from
development activities of the Company. However, development expenses in respect
of Projects which may be transferred to the PIC Project Portfolio in the future
will not be included in the results of operations of the Company because future
development activities will be undertaken by Panda International and its
affiliates. Such Projects, if any, will be transferred to the PIC Project
Portfolio (at Panda International's historical cost) only upon reaching
Financial Closing or achieving Commercial Operations and meeting the other
conditions for transfer to the PIC Project Portfolio pursuant to the PIC
Additional Projects Contract.
The consolidated historical and pro forma financial statements of the
Company included in this Prospectus reflect the financial data of the entities
that held interests in the Rosemary Facility, the Brandywine Facility, the
Kathleen Facility and the Luannan Facility during the periods presented. In
March 1997, these interests were transferred to the Company by Panda
International and recorded at Panda International's historical cost. The
Company was incorporated on March 7, 1997 and was not in existence during these
historical periods; however, the entities that currently own such interests are
indirect subsidiaries of the Company. Such entities are collectively the
predecessor entities of the Company. Thus, references herein to historical and
pro forma financial data of the Company are for convenience of reference, and
it should be understood that all such references are to the historical and pro
forma information of the predecessor entities during the periods presented.
See "Description of the Projects," "Description of Other Indebtedness" and
Appendix B, "The Electric Power Industry in the PRC and the United States" for
a description of the Rosemary Facility, the Brandywine Facility and the Luannan
Facility and the various contracts, regulatory matters and financing
arrangements relating thereto.
Results of Operations
The Company's revenues from electric power generation are derived from
long-term contracts which include both a fixed capacity payment and a variable
energy payment. The capacity payments, which are based upon the specified power
generating capacity of a project, are designed to cover fixed costs and to
provide an acceptable return on equity. The energy payments, which are based on
actual electricity output, are designed to cover variable costs including fuel
costs and variable operating expenses incurred in connection with electricity
output. Accordingly, the impact of price fluctuations on the results of
operations is generally not material. The extent to which a facility is
dispatched (i.e., required to deliver electricity), and therefore the actual
electricity output for a given period, are subject to the discretion of the
power purchaser, with certain limitations. The capacity payments are the
predominant source of revenue for the Company. The Company believes that it can
meet its liquidity requirements solely from the capacity payments in the
unlikely event that its facilities are not dispatched at all. See "--Liquidity
and Capital Resources."
First Quarter 1997 compared to 1996
The Company recorded a net loss of $6,691 in the first quarter of 1997 on
revenues of $17,890 compared to net income before minority interest of $566 on
revenues of $8,323 during the same period in 1996. The increase in revenues in
the 1997 period was primarily caused by operations of the Brandywine Facility
(which commenced on October 31, 1996), partially offset by a decrease in
revenues at the Rosemary Facility, and by increased interest income. The 1997
period reflects operations of both the Rosemary and Brandywine facilities,
whereas the 1996 period includes only the Rosemary Facility. For the 1997 and
1996 periods, capacity revenues for the Rosemary Facility were $6,900 and
$7,418, respectively, reflecting a contractual decrease of $518. Energy
revenues for the Rosemary Facility for the 1997 and 1996 periods were $175 and
$597, respectively. The decrease in energy revenues for the Rosemary Facility
is attributable to lower dispatch hours at that facility compared to the 1996
period. During the first quarter of 1997, the Rosemary Facility was dispatched
42 hours as compared to 135 hours in the 1996 period. Capacity revenues and
energy revenues from Potomac Electric Power Company for the Brandywine Facility
for the first quarter of 1997 were $5,035 and $2,546, respectively. The
Brandywine Facility was dispatched 777 hours during this period. Additionally,
the Brandywine Facility had energy revenues of $2,674 from the sale of natural
gas and fuel oil to other purchasers. Plant operating expenses, which included
fuel cost, operation and maintenance expense, insurance and property taxes,
increased to $8,261 (46% of revenues) in the 1997 period from $2,442 (29% of
revenues) in 1996, primarily due to low margins obtained on the sale of natural
gas and fuel oil to other purchasers.
Project development and administrative expenses were $2,395 (13% of
revenues) and $803 (10% of revenues) for the 1997 and 1996 periods,
respectively. The increase in 1997 was primarily attributable to increased
development activity for the Luannan Project, additional administrative
activities related to the commencement of commercial operations at the
Brandywine Facility and higher administrative costs required to support the
increased size and complexity of the Company's operations.
Interest expense increased to $10,802 (60% of revenues) in the 1997
period from $3,185 (38% of revenues) in 1996 as a result of the increase in
outstanding indebtedness from the issuance of $111.4 million original principal
amount of first mortgage bonds for the Rosemary Facility (the "Rosemary
Bonds"), $105.5 million original principal amount of pooled project bonds
("Series A Bonds"), and the capital lease financing for the Brandywine
Facility. The impact of such new indebtedness was partially offset by the
refinancing of the taxable revenue bonds issued in 1989 for the Rosemary
Facility and the repayment of other term loan financing on July 31, 1996 from
portions of the proceeds of the Rosemary Bonds and the Series A Bonds.
Depreciation, amortization of debt issue costs and amortization of
partnership formation costs amounted to $3,122 (17% of revenues) in the 1997
period and $1,327 (16% of revenues) in 1996. The increase was primarily
attributable to depreciation for the Brandywine Facility in 1997.
For the 1996 period, minority interest in net income was $1,719. There is
no minority interest in 1997 due to the Company's acquisition on July 31, 1996
of the minority interest holder's limited partnership interest in Panda-
Rosemary. As a result of this acquisition, the Company owns 100% of Panda-
Rosemary.
As a result of the various factors discussed above, the Company recorded
net losses of $6,691 and $1,153 for the 1997 and 1996 periods, respectively.
1996 compared to 1995
The Company recorded a net loss before taxes, minority interest and
extraordinary item of $8,916 in 1996 on revenues of $34,294 compared to net
income before taxes and minority interest of $2,316 on revenues of $31,227 in
1995. The 10% increase in revenues was primarily caused by the commencement of
commercial operations at the Brandywine Facility on October 31, 1996 and by
increased interest income. For 1996 and 1995, capacity revenues were $27,204
in both periods and energy revenues were $5,070 and $2,655, respectively.
Capacity revenues for the Brandywine Facility commenced in January 1997;
accordingly, capacity revenues for 1996 and 1995 relate only to the Rosemary
Facility. The increase in energy revenues is attributable to operations of the
Brandywine Facility for the last two months of 1996, partially offset by a
decrease in energy revenues at the Rosemary Facility which resulted from lower
dispatch hours at that facility compared to 1995. During 1996, the Rosemary
Facility was dispatched 635 hours as compared to 2,224 hours in 1995, resulting
in a decrease in energy revenues from that facility of $644. (The number of
dispatched hours in 1995 was unusually high, as explained below.) Plant
operating expenses, which included fuel cost, operation and maintenance
expense, insurance and property taxes related to the Rosemary Facility (and the
Brandywine Facility commencing October 31, 1996), increased from $9,348 (30% of
revenues) in 1995 to $12,050 (35% of revenues) during the same period in 1996,
primarily due to the inclusion of the costs of operating the Brandywine
Facility for two months in 1996. Because the Brandywine Facility earned no
capacity revenues during its period of operation in 1996, plant operating
expenses (and all other categories of expenses) were higher than normal as a
percentage of revenues. Another significant cause of the increased plant
operating expenses was the insurance deductible and other non-covered costs of
approximately $700 relating to hurricane damage sustained in September 1996 at
the Rosemary Facility as discussed below. Other factors contributing to the
increase in plant operating expenses at the Rosemary Facility included
additional scheduled maintenance costs and the fuel cost increases relating to
increased operation of the auxiliary boiler for steam and chilled water
production.
Project development and administrative expenses were $2,550 (8% of
revenues) and $5,187 (15% of revenues) for 1995 and 1996, respectively. The
increase in 1996 was primarily attributable to increased development activity
on the Luannan Facility and the commencement of commercial operations at the
Brandywine Facility on October 31, 1996.
Interest expense increased from $11,716 (38% of revenues) in 1995 to
$19,414 (57% of revenues) in 1996 as a result of the increase in outstanding
indebtedness under the TCW term loan which was partially offset by the
scheduled reduction in outstanding indebtedness under the taxable revenue bonds
issued in 1989 for the Rosemary Facility, and as a result of the increase in
outstanding indebtedness from the issuance of the Rosemary Bonds and the Series
A Bonds on July 31, 1996. The impact of such new indebtedness was partially
offset by the refinancing of the taxable revenue bonds issued in 1989 for the
Rosemary Facility and the repayment of the TCW term loan on July 31, 1996.
Additionally, commencement of commercial operations at the Brandywine Facility
resulted in the recognition of interest expense on the related debt for the
last two months of 1996. Prior to commercial operations, interest on the
Brandywine debt was capitalized.
Depreciation, amortization of debt issue costs and amortization of
partnership formation costs increased from $5,297 (17% of revenues) in 1995 to
$6,559 (19% of revenues) in 1996. The increase was primarily attributable to
the commencement of commercial operations at the Brandywine Facility on October
31, 1996.
On September 6, 1996, a transformer and two switches at the Rosemary
Facility sustained damage from a hurricane. A substitute transformer was
temporarily installed pending repair of the damaged transformer, which was
substantially completed during the first quarter of 1997. The Company
estimates the total cost to repair the Rosemary Facility (including substitute
transformer rental costs) at approximately $2,450, all of which is covered by
insurance except for deductible and certain non-covered items in the amount of
approximately $700. The impact on revenues was not material. Management
believes that this event will not have a material adverse effect on the
Company's financial condition or results of operations.
For 1996 and 1995, minority interest in net income was $2,405 and $5,048,
respectively. The decrease in 1996 was due to lower net income (before
minority interest and extraordinary item) in the Rosemary Partnership and the
acquisition on July 31, 1996 of the minority interest holder's limited
partnership interest as discussed below.
In connection with the issuance of the Rosemary Bonds and the Series A
Bonds, the Company refinanced the taxable revenue bonds issued in 1989 for the
Rosemary Facility and repaid the TCW term loan. The Company incurred an
extraordinary loss of $21,336 on the early extinguishment of these obligations.
Additionally, the Company acquired the minority interest holder's limited
partnership interest in the Rosemary Partnership for a purchase price of
approximately $34,256. As a result of this acquisition, the Company owns 100%
of the Rosemary Partnership. The acquisition was accounted for using the
purchase method of accounting. The excess of minority interest over the
purchase price (approximately $3.8 million) was allocated to plant and
equipment. Additionally, the Company advanced approximately $34,779 to Panda
International for project development and general corporate purposes.
As a result of the various factors discussed above, the Company recorded
net losses of $32,657 and $2,732 for 1996 and 1995 respectively.
1995 compared to 1994
The Company recorded income before taxes and minority interest of $2,316
on revenues of $31,227 in 1995 compared to $4,839 on revenues of $31,917 in
1994. The decrease in revenues was primarily the result of a scheduled
contractual decrease in capacity payments of $1,526, which was partially offset
by additional income generated due to an increase in the number of hours the
Rosemary Facility was dispatched by VEPCO and an increase in interest income.
The Rosemary Facility was dispatched 2,224 hours in 1995 versus 764 hours in
1994, due primarily to forced outages at two VEPCO generating plants that are
not likely to be repeated. For 1995 and 1994, capacity revenues were $27,204
and $28,730 and energy revenues were $2,655 and $1,934, respectively. For
approximately 1,200 of the dispatch hours in 1995, the Rosemary Facility used
natural gas provided directly by VEPCO under a special fueling arrangement
provided for in the Rosemary Power Purchase Agreement. The Rosemary Facility's
margin on energy sales is lower when VEPCO supplies natural gas for the
Rosemary Facility than when the Rosemary Facility is dispatched under normal
energy pricing terms. However, overall margins at the Rosemary Facility are
increased in such circumstances (relative to not operating at all) by the
ability to provide steam and chilled water from the steam turbine offtake,
which reduces the operating costs of the auxiliary boilers.
Plant operating expenses, which included fuel cost, operations and
maintenance expense, insurance and property taxes related to the Rosemary
Facility, were $9,348 (30% of revenues) in 1995 as compared to $8,940 (28% of
revenues) in 1994, primarily due to additional maintenance expenses and fuel
related costs incurred due to the increase in the number of hours the Rosemary
Facility was dispatched by VEPCO. Project development and administrative
expense increased from $1,779 (6% of revenues) in 1994 to $2,550 (8% of
revenues) in 1995 primarily due to additional administrative expenses relating
to construction of the Brandywine Facility and development of the Luannan
Facility.
Interest expense was $11,716 (38% of revenues) in 1995 compared to $11,018
(35% of revenues) in 1994. The increase in 1995 was attributable to additional
borrowings. Depreciation, amortization of debt issue costs and amortization of
partnership formation costs were stable and collectively amounted to 17% of
revenues in 1995 and 1994.
In 1995, the Company recorded a net loss of $2,732 as compared to a net
loss of $861 in 1994. An allocation of $5,048 was made in 1995 for minority
interest, a decrease of $652 from 1994 as a result of the overall decrease in
net income of the Rosemary Partnership.
1994 compared to 1993
The Company's 1994 income before taxes and minority interest was $4,839 on
revenues of $31,917, compared to $4,346 on revenues of $30,839 in 1993. The
increase in revenues was primarily due to increased energy sales in 1994, as
compared to 1993, as a result of the Rosemary Facility being dispatched
approximately 764 hours in 1994 compared to 324 hours in 1993. For 1994 and
1993, capacity revenues were $28,730 and $28,888 and energy revenues were
$1,934 and $968, respectively. In addition, interest income increased slightly
in 1994 as short-term interest rates were higher than 1993 levels.
Plant operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes related to the Rosemary
Facility, increased to $8,940 (28% of revenues) in 1994 from $7,676 (25% of
revenues) in 1993. The increase was primarily a result of increased fuel and
maintenance costs related to the increase in the number of hours the Rosemary
Facility was dispatched by VEPCO and a $257 increase in tariff rates for firm
transportation on the Transco pipeline through which gas is transported to the
Rosemary Facility. The dispatch hours for 1994 were substantially greater than
in 1993 due primarily to the second amendment to the Rosemary Power Purchase
Agreement entered into in 1993, under which the formula used to calculate the
energy purchase price was amended to more closely match the fuel and variable
operation and maintenance costs of the Rosemary Facility. The amendment to the
formula resulted in lower energy margins in the spring, summer and fall
periods, when the Rosemary Facility primarily runs on natural gas, and better
cost recovery during the winter period when it runs primarily on fuel oil. The
reduction in the energy margin during the summer months, when most of the
dispatch hours were incurred, caused the increase in run hours to have little
overall impact on net income.
Project development and administrative expenses decreased from $2,434 (8%
of revenues) in 1993 to $1,779 (6% of revenues) in 1994. The higher level of
such expenses in 1993 was primarily due to preliminary development costs
incurred in connection with the Brandywine Facility.
Interest expense was $11,018 (35% of revenues) in 1994 compared to $11,066
(36% of revenues) in 1993. Depreciation, amortization of debt issue costs and
amortization of partnership formation costs were stable and collectively
amounted to 17% of revenues in 1994 and 1993.
The Company recorded a net loss of $861 in 1994 as compared to a net loss
of $1,128 in 1993. The allocation for minority interest in 1994 was $5,700, an
increase of $226 from 1993 as the Rosemary Partnership's net income increased
slightly.
Liquidity and Capital Resources
To date, the Company and its subsidiaries have obtained cash from
operations of the Rosemary Facility and the Brandywine Facility, borrowings
under non-recourse project debt of the Rosemary Partnership and the Brandywine
Partnership, and the proceeds from the sale of the Series A Bonds. The Company
and its subsidiaries utilized this cash to refinance and acquire a 100%
interest in the Rosemary Facility, fund development and construction of the
Brandywine Facility, service their debt obligations, make distributions to
Panda International to fund Project development efforts and for general and
administrative expenses.
The principal future cash requirements of PIC will be the payment of its
obligations under the PIC Notes, thus enabling the issuer of the Series A
Bonds, a subsidiary of PIC, to satisfy its obligations under the Series A Bonds
and any future series of PFC Bonds. Semi-annual principal and interest payments
on the PIC Note that was issued in connection with the issuance of the Series A
Bonds totaled $7.0 million on February 20, 1997 and are expected to total $6.1
million on each August 20 and February 20 through February 20, 1999, after
which time scheduled payments will increase as more significant principal
amortization begins. The amount of principal payments generally increases over
time. See "Description of Other Indebtedness--The PFC Bonds."
The principal future cash requirements of the Issuer will be the payment
of the Exchange Notes. The Issuer expects to receive income sufficient for it
to satisfy its obligations under the Exchange Notes from the repayment of the
loan of the net proceeds of the Exchange Notes to Pan-Western and from
dividends from PIC.
Because substantially all of the Issuer's and the Company's operations are
conducted through their Project subsidiaries, the Issuer and the Company should
have no significant direct operating or administrative expenses. Panda
International performs certain accounting, legal, insurance and consulting
services for the Issuer and the Company. The cost of these services is
allocated to the Issuer and the Company through an intercompany charge.
The Company will rely almost exclusively on distributions from the Issuer
and PIC to meet its cash requirements. The ability of the Issuer and PIC to
make such distributions will depend upon the financial performance of the
Luannan Facility, the Rosemary Facility, the Brandywine Facility and any other
Project that may be added in the future to the PIC Project Portfolio and will
be subject to a number of limitations on distributions contained in the Project-
level debt agreements, the indenture relating to the PFC Bonds and the
Indentures.
The Issuer and the Company own an indirect equity interest in the Luannan
Facility, which has commenced construction. The Issuer expects that, upon the
successful completion of the Luannan Facility, the funds the Issuer derives
from the repayment of the loan to Pan-Western will constitute the majority of
the funds available to the Issuer to satisfy its obligations under the Exchange
Notes.
The Company also owns indirect equity interests in two operating Projects,
the Rosemary Facility and the Brandywine Facility. The majority of the
distributions available from the Rosemary Partnership and the Brandywine
Partnership are required to be used to service the Rosemary Bonds, to pay rent
with respect to the lease financing of the Brandywine Project and to service
the Series A Bonds; any funds available after paying all of such obligations
then due will be required to be paid by PIC as distributions to PEC, which
will, in turn, be required to pay such amounts to the Company, and will be
available to the Company to pay its obligations on the Exchange Notes, if
necessary.
During 1996 and the first quarter of 1997, the Company maintained
unrestricted cash balances of approximately $1.2 million. As reflected in the
consolidated statements of cash flows, the Company's operating activities
consumed cash of $1.6 million during 1996 and $1.9 million during the first
quarter of 1997. During the first quarter of 1996, the Company's operating
activities generated $4.1 million. The Company's liquidity requirements
during 1996 were satisfied principally by the issuance of approximately $300
million of long-term debt. As disclosed elsewhere in the registration
statement and in the Company's consolidated financial statements, several
significant transactions occurred in 1996 which increased the Company's
liquidity requirements, including the completion of the Brandywine Facility,
the refinancing of the project-level debt of the Rosemary Facility, the
acquisition of the minority interest in the Panda-Rosemary partnership, and
advances to the Company's parent. Most of these significant transactions
occurred subsequent to the first quarter of 1996; that quarter's liquidity
requirements were met principally through the issuance of additional long-term
debt of aproximately $21.5 million relating to construction of the Brandywine
Facility. During the first quarter of 1997, the Company's liquidity requirements
were met principally by advances from its parent of $5.2 million which were used
primarily for development costs of the Luannan project and related general and
administrative activities. With the successful completion of financing for the
Luannan project, which occurred in April 1997, management expects that advances
from the Company's parent will no longer be required to fund development and
construction activities of the Luannan project.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS 121 is effective for financial statements for fiscal years beginning after
December 15, 1995 and requires the write-down to market value of certain long-
lived assets. The Company and the Issuer adopted SFAS 121 in 1996 and such
adoption did not have a material impact on their financial position or results
of operations.
Impact of Inflation
Inflationary increases in the Issuer's and the Company's costs, primarily
Project development costs, energy costs and capital costs, may be offset by
increases in revenue as provided in the various power purchase agreements,
although competition may limit the ability of the Issuer and its subsidiaries
to recover fully all such increases. The Issuer, the Company and their
affiliates attempt, where possible, to obtain provisions in their power
purchase agreements whereby certain revenue components, such as energy and
operations and maintenance, may be adjusted with inflationary increases. In
management's view, inflation will not have a material effect on the Issuer's or
the Company's financial position over the long-term.
THE EXCHANGE OFFER
Purpose and Effects of the Exchange Offer
The Old Notes were issued and sold by the Issuer on April 22, 1997 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently placed the Old Notes with Qualified Institutional Buyers and
institutional Accredited Investors in transactions exempt from the registration
requirements of the Securities Act. As a condition of the Purchase Agreement,
the Company, the Issuer and the Initial Purchaser entered into the Registration
Rights Agreement, pursuant to which the Company and the Issuer agreed (i) to
file with the Commission a registration statement under the Securities Act
relating to the Exchange Offer within 60 days after the Issue Date, (ii) to use
their best efforts to cause such registration statement to become effective no
later than 150 days after the Issue Date and (iii) upon effectiveness of such
registration statement to commence the Exchange Offer and offer to the holders
of Old Notes the opportunity to exchange their Old Notes for a like principal
amount of Exchange Notes. This Registration Statement is intended to satisfy
the foregoing obligations of the Company and the Issuer under the Registration
Rights Agreement. See "Description of the Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the Shareholder Loans and the Collateral Documents-
- -Old Notes Registration Rights."
Following the consummation of the Exchange Offer, any holder of Old Notes
(other than one not permitted by law or any policy of the Commission to
participate in the Exchange Offer) which has not exchanged its Old Notes
pursuant to the Exchange Offer will not have any further registration rights
under the Registration Rights Agreement and its Old Notes will continue to be
subject to certain restrictions on transfer. See "Termination of Certain
Rights" and "Transfer Restrictions on Old Notes" below and "Risk Factors --
Consequences of Failure to Exchange Old Notes." Accordingly, the liquidity of
the market, if any, for any Old Notes which remain outstanding could be
materially adversely affected.
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, the Issuer believes that Exchange Notes
issued in exchange for Old Notes pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by any holders thereof (other than
any such holder which is an Affiliate of the Company or the Issuer) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangements with any
person to participate in the distribution of such Exchange Notes. To comply
with the securities laws of certain jurisdictions, if applicable, the Exchange
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from registration or
qualification is available and the conditions thereto have been met. In
addition, each broker-dealer that received Exchange Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "--Resales of Exchange Notes" below and
"Plan of Distribution."
Terms of the Exchange Offer
The Issuer hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
principal amount of Exchange Notes for each $1,000 principal amount of
outstanding Old Notes. As of the date of this Prospectus, $155,200,000
principal amount of the Old Notes is outstanding. The Exchange Notes will bear
interest from the date of their issuance. Interest on the Old Notes accepted
for exchange will accrue thereon to, but not including, the date of issuance of
the Exchange Notes and will be paid together with the first interest payment on
the Exchange Notes issued in exchange therefor.
The form and terms of the Exchange Notes will be identical to the form and
terms of the Old Notes, except that (i) the Exchange Notes will have been
registered under the Securities Act, and therefore, will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii) the holders
of the Exchange Notes will not be entitled to certain rights of the holders of
Old Notes under the Registration Rights Agreement, which will terminate as to
Old Notes tendered pursuant to the Exchange Offer upon the consummation of the
Exchange Offer. Such rights will also terminate as to holders of Old Notes who
are eligible to tender their Old Notes for exchange in the Exchange Offer but
fail to do so. See "Termination of Certain Rights" below and "Description of
the Exchange Notes, the Exchange Notes Guarantee, the Issuer Loan, the the
Shareholder Loans and the Collateral Documents--Old Notes Registration Rights."
The Exchange Notes will evidence the same debt as the Old Notes which they
replace and will be issued under, and be entitled to the same benefits as the
Old Notes pursuant to, the Indenture. See "Description of the Exchange Notes,
the Exchange Notes Guarantee, the Issuer Loan, the Shareholder Loans and the
Collateral Documents".
The Exchange Offer will expire at 5:00 p.m. New York City time, on
________________, unless extended in the Issuer's sole discretion. Tendered
Old Notes may be withdrawn at any time prior to the Expiration Date. For a
description of the Issuer's right to extend the period of time during which the
Exchange Offer is open, and to delay, terminate or amend the Exchange Offer,
and of tendering holders' withdrawal rights, see "Expiration Date; Extensions;
Termination; Amendments" and "Withdrawal of Tenders" below.
The Issuer shall be deemed to have accepted validly tendered Old Notes in
the Exchange Offer when, as and if the Issuer has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of Old Notes for the purposes of receiving the Exchange Notes
from the Issuer. The Exchange Notes will be delivered as soon as practicable
after acceptance of the Old Notes, which is expected to occur on the Expiration
Date.
This Prospectus, together with the Letter of Transmittal and other
relevant materials, will be mailed by the Issuer to record holders of Old Notes
and will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Old Notes. Holders of Old Notes who tender
in the Exchange Offer will not be required to pay brokerage commissions or fees
or, subject to the instructions in the Letter of Transmittal, transfer taxes
with respect to the exchange of Old Notes pursuant to the Exchange Offer. The
Company and the Issuer will pay all charges and expenses, other than certain
applicable taxes, in connection with the Exchange Offer.
Although the Issuer has no plan or intention to do so, it reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date, and to the extent
permitted by applicable law, purchase Old Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Companies Law (Revised) of the Cayman Islands or the Exchange Note
Indenture in connection with the Exchange Offer.
Expiration Date; Extensions; Termination; Amendments
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on ___________________, unless the
Issuer in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Issuer, expires.
The Issuer reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date. The Issuer shall notify the
Exchange Agent of any extension by oral or written notice and shall make a
public announcement thereof prior to 5:00 p.m., New York City time, on the next
Business Day after the previously scheduled Expiration Date. Such announcement
may state that the Issuer is extending the Exchange Offer for a specified
period or on a daily basis. Without limiting the manner by which the Issuer
may choose to make such public announcement thereof, the Issuer currently
intends to make such announcements, if any, by issuing a release to the Dow
Jones News Service. During any extension of the Exchange Offer, all Old Notes
previously tendered pursuant to the Exchange Offer will remain subject to the
Exchange Offer.
The Issuer reserves the right (i) to extend the Exchange Offer, (ii) to
delay accepting any tendered Old Notes, (iii) if any of the events set forth
below under "Conditions of the Exchange Offer" shall have occurred and shall
not have been waived by the Issuer, terminate the Exchange Offer and not accept
any Old Notes, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, and (iv) to amend at any time, or from time
to time, the terms of the Exchange Offer in any manner, whether before or after
any tender of the Old Notes. Any amendment applicable to the Exchange Offer
will apply to all Old Notes tendered in the Exchange Offer, regardless of when
or in what order the Old Notes were tendered. Any delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by public announcement thereof in a manner set forth above. If the Exchange
Offer is amended (including by waiver of a condition to the Exchange Offer) in
a manner determined by the Issuer to constitute a material change, the Issuer
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of Old Notes of such amendment, and if the Exchange Offer
would otherwise expire during such period, the Issuer will extend the Exchange
Offer for a period which the Issuer in its discretion deems appropriate,
depending upon the significance of the amendment and the manner of disclosure
to the holders of Old Notes. All of the conditions to the Exchange Offer set
forth below under the caption "Conditions of the Exchange Offer" must be
satisfied or waived prior to the consummation of the Exchange Offer. The
rights reserved by the Issuer in this paragraph are in addition to the Issuer's
rights set forth below under the caption "Conditions of the Exchange Offer."
Conditions of the Exchange Offer
Notwithstanding any other term of the Exchange Offer, the Issuer shall not
be required to accept for exchange, or exchange the Exchange Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(i) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange
Offer which, in the sole judgment of the Issuer, may materially
impair the ability of the Issuer to proceed with the Exchange Offer
in accordance with the terms contained herein and in the Letter of
Transmittal or materially impair the contemplated benefits of the
Exchange Offer to the Issuer, or any material adverse development
has occurred in any existing action or proceeding with respect to
the Issuer or any of its subsidiaries or affiliates;
(ii) any change, or any development involving a prospective change, in
the business or financial affairs of the Issuer or any of its
subsidiaries has occurred which, in the sole judgment of the Issuer,
may materially impair the ability of the Issuer to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Issuer;
(iii) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of the Issuer, may materially
impair the ability of the Issuer to proceed with the Exchange Offer
or materially impair the contemplated benefits of the Exchange Offer
to the Issuer;
(iv) any governmental approval has not been obtained, which approval the
Issuer shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby;
(v) any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part
or qualification of the Indenture under the Trust Indenture Act of
1939, as amended; or
(vi) the Trustee shall have objected in any respect to, or taken any
action that could, in the sole judgment of the Issuer, adversely
affect the consummation of the Exchange Offer, or shall have taken
any action that challenges the validity or effectiveness of the
procedures used by the Issuer in making the Exchange Offer or the
acceptance of Old Notes in exchange for Exchange Notes.
The foregoing conditions to the Exchange Offer are for the sole benefit of
the Issuer and may be asserted by the Issuer in its sole discretion regardless
of the circumstances giving rise to any such condition (including any action or
inaction by the Company or the Issuer) and may be waived by the Issuer, in
whole or in part, at any time and from time to time in its sole discretion. All
of the foregoing conditions must be satisfied or waived prior to the
consummation of the Exchange Offer. The failure by the Issuer at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by the Issuer
concerning the events described in this section or the fulfillment or
nonfulfillment of any conditions shall be final and binding upon all persons.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered.
Procedures for Tendering
Only a registered holder of the Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must, prior to the
Expiration Date, either (i) complete and sign the Letter of Transmittal (or a
facsimile thereof), in accordance with the instructions contained herein and
therein, and deliver such Letter of Transmittal, together with any signature
guarantees and any other documents required by the Letter of Transmittal, to
the Exchange Agent at its address set forth on the back cover page of this
Prospectus and the tendered Old Notes must either be (a) physically delivered
to the Exchange Agent or (b) transferred pursuant to the procedures for book-
entry transfer described herein and a confirmation of such book-entry transfer
must be received by the Exchange Agent prior to the Expiration Date, or (ii)
comply with the guaranteed delivery procedures set forth herein. To be validly
tendered, the Old Notes, together with a properly completed Letter of
Transmittal (or facsimile thereof), executed by the holder of record thereof,
and any other documents required by the Letter of Transmittal, must be received
by the Exchange Agent at the address set forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date,
except as otherwise provided below under the caption "Guaranteed Delivery
Procedures."
The tender by a holder will constitute an agreement between such holder
and the Issuer in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF THE OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IF DELIVERY IS TO BE MADE BY MAIL, IT
IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR THE OLD NOTES SHOULD BE SENT TO
THE ISSUER OR THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder from Beneficial Owner" included with the
Letter of Transmittal.
Signatures on a Letter of Transmittal must be guaranteed unless the Old
Notes tendered pursuant thereto are (i) tendered by a registered holder of the
Old Notes who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) tendered for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal are required to be guaranteed, such guarantee must be by
a firm that is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the
United States, or by an entity that is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed by the registered holder or accompanied by a properly completed bond
power or other written instrument of transfer in form satisfactory to the
Issuer in its sole discretion, signed by such registered holder as such
registered holder's name appears on such Old Notes. If the Letter of
Transmittal is signed by the registered holder and (a) the entire principal
amount of the holder's Old Notes is tendered or (b) untendered Old Notes are to
be issued to the registered holder, then the registered holder need not endorse
any certificates for tendered Old Notes or provide a separate bond power. In
any other case, the registered holder must transmit a separate bond power with
the Letter of Transmittal.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to
the Issuer of their authority to so act must be submitted.
The Exchange Agent will establish accounts with respect to the Old Notes
at DTC for the purpose of the Exchange Offer, and any financial institution
that is a participant in DTC may make book-entry transfer of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account at
DTC. Although delivery of Old Notes may be effected through book-entry transfer
in the Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at its address set forth on the back cover of this Prospectus prior to
5:00 p.m., New York City time, on the Expiration Date, except as otherwise
provided under the caption "Guaranteed Delivery Procedures" below. DELIVERY OF
DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT. NOTWITHSTANDING COMPLIANCE WITH BOOK-ENTRY TENDER
DELIVERY PROCEDURES, FAILURE TO DELIVER TO THE EXCHANGE AGENT AN EXECUTED
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE MAY RESULT IN THE TENDERED OLD BONDS NOT
BEING ACCEPTED FOR EXCHANGE.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Issuer in its sole discretion, whose determination will be final and
binding. The Issuer reserves the absolute right to reject any or all tenders
that are not in proper form or the acceptance of which would, in the opinion of
the Issuer or counsel for the Issuer, be unlawful. The Issuer also reserves
the right to waive certain of the conditions to the Exchange Offer or any
irregularities or defects in the tender of Old Notes. The Issuer's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
persons. Unless waived, any irregularities in connection with tenders of Old
Notes must be cured within such time as the Issuer shall determine. Neither
the Company, the Issuer, the Exchange Agent nor any other person shall be under
any duty to give notifications of defects or irregularities in such tenders or
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until any defects with respect
to such tenders have been cured or waived.
By tendering, each registered holder of Old Notes will represent to the
Issuer that, among other things, (i) the Exchange Notes to be acquired by the
holder and any beneficial owner(s) of such Old Notes ("Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by the holder and such
Beneficial Owner(s) in the ordinary course of business of the holder and any
Beneficial Owner(s), (ii) the holder (other than a broker-dealer referred to in
the last sentence of this paragraph) and each Beneficial Owner are not
participating and do not intend to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes, (iii) the holder and each
Beneficial Owner have no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes, (iv) the holder and each Beneficial Owner acknowledge and
agree that any person participating in the Exchange Offer for the purpose of
distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in no-
action letters that are discussed herein under "Resale of Exchange Notes,"
below, (v) the holder and each Beneficial Owner understand that a secondary
resale transaction described in clause (iv) above should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Commission and (vi)
neither the holder nor any Beneficial Owner is an Affiliate of the Company or
the Issuer, or if it is an Affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable. In addition, each broker-dealer that receives Exchange Notes for
its own account in exchange for Old Notes, where such Old Notes were acquired
by such broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "--Resales of Exchange Notes"
below and "Plan of Distribution."
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of United States federal income tax, the
Exchange Agent will be required to withhold, and will withhold, 31% of the
gross proceeds otherwise payable to a holder pursuant to the Exchange Offer if
the holder does not provide its taxpayer identification number (social security
number or employer identification number, as applicable) and certify that such
number is correct. Each tendering holder should complete and sign the main
signature form and the Substitute Form W-9 included as part of the Letter of
Transmittal, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to the Issuer and the Exchange Agent.
Guaranteed Delivery Procedures
If a holder of Old Notes desires to tender such Old Notes and if the Old
Notes are not immediately available, or time will not permit such holder's Old
Notes or any other required documents to reach the Exchange Agent before 5:00
p.m., New York City time, on the Expiration Date, a tender for exchange may be
effected if:
(i) the tender for exchange is made by or through an Eligible
Institution;
(ii) prior to 5:00 p.m., New York City time, on the Expiration Date, the
Exchange Agent has received from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder of the Old Notes and the principal
amount of Old Notes tendered for exchange, stating that tender is
being made thereby and guaranteeing that, within three Business Days
after the Expiration Date, the duly executed Letter of Transmittal
(or facsimile thereof), properly completed and validly executed,
together with the Old Notes in proper form for transfer (or
confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account with DTC), and any other documents required
by the Letter of Transmittal and the instructions thereto, will be
deposited by the Eligible Institution with the Exchange Agent; and
(iii)such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's
account with DTC) and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five Business
Days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon the terms and subject to the conditions of the Exchange Offer, the
Issuer will accept on the Expiration Date all Old Notes properly tendered in
the Exchange Offer and not withdrawn and will issue the Exchange Notes as soon
as practicable after the acceptance of the Old Notes. The Exchange Notes will
be issued in the form of a fully registered global bond which will be deposited
with, or on behalf of, DTC and registered in the name of its nominee. Holders
tendering Old Notes represented by a certificate must provide the Exchange
Agent with a DTC account number for delivery of the Exchange Notes issued in
exchange therefor. For purposes of the Exchange Offer, the Issuer shall be
deemed to have accepted properly tendered Old Notes when, as and if the Issuer
has given oral or written notice thereof to the Exchange Agent. The Exchange
Agent will act as agent for the tendering holders of Old Notes for the purpose
of receiving the Exchange Notes from the Issuer and transmitting the Exchange
Notes to each holder exchanging Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein, the
withdrawal of tendered Old Notes under circumstances permitting such withdrawal
as described herein or otherwise, or if Old Notes are submitted for a greater
principal amount than the holder thereof desires to exchange, any such
unaccepted or non-exchanged Old Notes will be returned, without expense, to the
tendering holder thereof (or, in the case of the Old Notes tendered by book-
entry transfer, to an account maintained at DTC), as soon as practicable after
the expiration or termination of the Exchange Offer.
Withdrawal of Tenders
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date. Thereafter, such tenders are irrevocable. To withdraw a tender of Old
Notes in the Exchange Offer, a written notice of withdrawal, delivered by hand,
mail or facsimile transmission, must (i) be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date at the address
set forth on the back cover hereof, (ii) specify the name of and be signed by
the registered holder of such Old Notes in the same manner as the applicable
Letter of Transmittal (including any required signature guarantees) as set
forth above under "Procedures for Tendering," (iii) specify the name of the
person identified in the Letter of Transmittal as having tendered the Old Notes
to be withdrawn and (iv) specify the aggregate principal amount represented by
such withdrawn Old Notes. If Old Notes have been tendered pursuant to the
procedures for book-entry transfer as set forth herein, any notice of
withdrawal must also specify the name and number of the account at DTC to be
credited with the withdrawn Old Notes. Withdrawals of tenders of Old Notes may
not be rescinded, and any Old Notes withdrawn will thereafter be deemed not
validly tendered for purposes of the Exchange Offer; provided, however, that
withdrawn Old Notes may be re-tendered by again complying with the procedures
for tendering Old Notes described herein at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal will be determined by the Issuer, such
determination to be final and binding. None of the Company, the Issuer, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in any notice of withdrawal of Old Notes or
incur any liability for failure to give any such notification.
Lost or Missing Certificates
If a holder of Old Notes desires to tender Old Notes pursuant to the
Exchange Offer, but such Old Notes have been mutilated, lost, stolen or
destroyed, such holder should telephone the Trustee at (800) 735-7777 for
information concerning the procedures for obtaining replacement certificates
for such Old Notes, arranging for indemnification or any other matter that
requires handling by the Trustee.
Termination of Certain Rights
Holders of Old Notes have certain rights under the Registration Rights
Agreement that will terminate as a result of the consummation of the Exchange
Offer. The Exchange Offer shall be deemed to be "consummated" upon the issuance
and delivery of Exchange Notes in exchange for Old Notes validly tendered and
not withdrawn in the Exchange Offer in accordance with the terms of the
Registration Rights Agreement. Such rights will terminate for all holders
exchanging Old Notes in the Exchange Offer and all holders who are eligible to
participate in the Exchange Offer and fail to do so. See "Description of the
Exchange Notes, the Exchange Notes Guarantee, the Issuer Loan, the Shareholder
Loans and the Collateral Documents--Old Notes Registration Rights."
The Exchange Agent
The Exchange Agent for the Exchange Offer is Bankers Trust Company. All
deliveries, correspondence and questions sent or presented to the Exchange
Agent relating to the Exchange Offer should be directed to the following
address or telephone number (which are also set forth on the back cover of this
Prospectus):
Facsimile Transmission:
(615) 835-3701
Confirm by Telephone:
(615) 835-3572
By Overnight Courier
By Mail: By Hand Delivery: or Certified Mail:
BT Services Tennessee, Bankers Trust Company BT Services Tennessee,
Inc. Inc.
Reorganization Unit Corporate Trust & Agency Corporate Trust & Agency
Group Group
P.O. Box 292737 Receipt & Delivery Window Reorganization Unit
Nashville, TN 37229- 123 Washington Street, 1st 648 Grassmere Park Road
2737 Floor
New York, NY 10006 Nashville, TN 37211
For Information Call:
(800) 735-7777
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile number other than the one set forth herein, will
not constitute a valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company and the
Issuer. The principal solicitation is being made by mail; however, additional
solicitation may be made by facsimile, telephone or in person by officers and
representatives of the Issuer and its affiliates. The Issuer has not retained
any dealer-manager in connection with the Exchange Offer and will not make any
payments to brokers, dealers or others soliciting acceptance of the Exchange
Offer. The Issuer, however, will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for reasonable out-of-
pocket expenses incurred in connection therewith. The expenses to be incurred
in connection with the Exchange Offer will be paid by the Issuer and the
Company and are estimated in the aggregate to be approximately $260,000. Such
expenses include fees and expenses of the Exchange Agent and Trustee,
accounting and legal fees and independent engineers' and fuel consultants'
fees.
The Issuer will pay all transfer taxes, if any applicable, to the transfer
of Old Notes to it pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the transfer of Old Notes to the Issuer
pursuant to the Exchange Offer (including, without limitation, any transfer
taxes imposed as a result of the Exchange Notes or Old Notes not exchanged
being delivered to, or issued in the name of, any person other than the record
holder, or certificates being tendered that are recorded in the name of a
person other than the person signing the Letter of Transmittal), then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tending holder.
Accounting Treatment
The Exchange Notes will be recorded at the carrying value of the Old
Notes, as reflected in the Issuer's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized.
Transfer Restrictions on Old Notes
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain "restricted securities" (within the meaning of the
Securities Act). Accordingly, prior to the date that is three years after the
later of the Issue Date and the last date on which the Issuer or any Affiliate
of the Issuer was the owner thereof, such Old Notes may be resold only (i) to
the Issuer (upon redemption thereof or otherwise), (ii) so long as the Old
Notes are eligible for resale pursuant to Rule 144A, to a person whom the
seller reasonably believes is a Qualified Institutional Buyer, purchasing for
its own account or for the account of a Qualified Institutional Buyer to whom
notice is given that the resale, pledge or other transfer is being made in
reliance on Rule 144A, (iii) to an institutional Accredited Investor that is
purchasing for its own account or the account of an institutional Accredited
Investor, (iv) in an offshore transaction in accordance with Regulation S under
the Securities Act, (v) pursuant to another available exemption from
registration under the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act, subject in each of the
foregoing cases to compliance with applicable state securities laws.
Resales of Exchange Notes
With respect to resales of the Exchange Notes, based on an interpretation
by the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder (other than a person that is an
Affiliate of the Company, the Issuer or Panda Interholding) who exchanges Old
Notes for Exchange Notes will be allowed to resell the Exchange Notes acquired
in the Exchange Offer to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 thereof; provided that
(i) the Exchange Notes are acquired in the ordinary course of the holder's
business, (ii) the holder (other than a broker-dealer referred to in the next
sentence) is not participating and does not intend to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and (iii) the holder has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. In addition, each broker-dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market making activities or other
trading activities, must notify the Company and the Issuer that it has acquired
Exchange Notes for its own account (which notification must be made in the
applicable location in the Letter of Transmittal) and must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction, unless an exemption from registration is
otherwise available. In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Exchange Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdictions or
an exemption from registration or qualification is available and the conditions
thereto have been met. See "Plan of Distribution."
CERTAIN TAX CONSIDERATIONS OF THE EXCHANGE OFFER
United States Federal Income Taxation
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service will not take a contrary view, and no ruling
from the Internal Revenue Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any
such changes or interpretations may or may not be retroactive and could affect
the tax consequences to holders of the Old Notes. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States) may be subject to special rules not discussed below.
The exchange of the Exchange Notes for the Old Notes pursuant to the
Exchange Offer should not be treated as an "exchange" for United States federal
income tax purposes because the Exchange Notes should not be considered to
differ materially in kind or extent from the Old Notes. The Exchange Notes
received by a holder should be treated as a continuation of the Old Notes in
the hands of such holder. As a result, there should be no federal income tax
consequences to holders as a result of the exchange of the Old Notes for the
Exchange Notes pursuant to the Exchange Offer. If, however, the exchange of
the Old Notes for the Exchange Notes were treated as an "exchange" for federal
income tax purposes, such exchange should constitute a recapitalization for
federal income tax purposes. Holders exchanging the Old Notes pursuant to such
recapitalization should not recognize any gain or loss upon the exchange.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER OF OLD BONDS
SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF
HOLDING, EXCHANGING OR SELLING THE OLD BONDS, INCLUDING THE APPLICATION AND
EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN
APPLICABLE TAX LAWS.
Certain Cayman Islands Tax Considerations
On the basis of the current legislation in the Cayman Islands, there is no
income, corporation, profits, capital gains or other form of taxation that
would be applicable to any holder of Old Notes who exchange such Old Notes for
Exchange Notes pursuant to the Exchange Offer (provided such holder does not
engage in trade in the Cayman Islands).
Certain PRC Taxation Considerations
The Issuer has been advised by Cai, Zhang & Lan, PRC legal counsel to the
Issuer, that there is no liability on the part of a Non-PRC holder of Old Notes
who exchanges such Old Notes for Exchange Notes pursuant to the Exchange Offer
for any income or withholding tax owing to the PRC, any provincial government
or any subdivision thereof.
DESCRIPTION OF THE PROJECTS
The following discussion provides certain summary information concerning
the Luannan Facility, the Rosemary Facility and the Brandywine Facility.
The Luannan Facility
The Luannan Facility will be comprised of two steam/electric generating
units, each nominally rated at 50 MW but with nameplate capability of up to 60
MW gross output under full condensing conditions. Two pulverized coal-fired
boilers, each delivering steam to drive a three stage extraction/condensing
steam turbine electric generating unit, will be utilized. Coal will be
delivered by truck to the site of the Luannan Facility from nearby mines.
Electric power generated by the Luannan Facility will be interconnected to the
local electricity grid network at 110 kV. In addition, steam will be extracted
from the steam turbines for distribution by pipeline to local industrial and
commercial users and also used to heat water for district heating use.
Electrostatic precipitators will be provided down stream of the boilers to
remove fly ash from the boiler flue gas. The fly ash will be mixed with water
and pumped by way of pipeline to an off-site dedicated ponding site for
disposal.
Sales of Power
The Luannan Facility will sell power to North China Power Company pursuant
to the Luannan Power Purchase Agreement. North China Power Company functions as
the commercial arm of North China Power while North China Power Administration
("NCPA") functions as the regulatory entity of the same group. North China
Power, which reports directly to MOEP, owns and operates the North China Power
Grid. The service area of North China Power encompasses four regions, including
the Beijing/Tianjin/Tangshan area. Beijing and Tianjin are among the largest
and most economically developed cities in China. The service area of North
China Power also includes Hebei Province, Shanxi Province and western Inner
Mongolia. North China Power owns most of the major power plants within its
service area and is reported to have had a total installed capacity of 25,140
MW in 1995 and to have generated power of 126.7 TWh in 1995. As both a
government and a commercial entity, North China Power regulates, manages and
owns the power assets in its territory including generation and distribution
facilities. The geographical extent of its service area makes North China Power
one of the largest power operating entities in China. The financial statements
of North China Power included in its 1995 annual report (which were prepared in
accordance with Chinese accounting principles) indicated total assets of North
China Power (excluding assets in Inner Mongolia) of RMB 70 billion ($8.4
billion) as of December 31, 1995, and revenue of approximately RMB 27.2 billion
($3.3 billion) (excluding its revenue generated from Inner Mongolia) for the
year then ended. North China Power also reported that it is ranked as one of
the top three government-owned enterprises (in terms of revenues) in China.
The Luannan Power Purchase Agreement is a 20-year agreement. The
electricity price is established through a formula provided in the Pricing
Document (which is separate from, but incorporated by reference in, the Luannan
Power Purchase Agreement). According to the formula contained in the Pricing
Document, the power price will be comprised of fixed and variable components
that may be adjusted, subject to the approval of the Pricing Approval Authority
to reflect changes in coal costs, depreciation of plant and equipment and
financing expenses. Certain components of the power price calculation may be
adjusted to reflect local and U.S. inflation and foreign exchange rate
fluctuation in order to mitigate the Luannan Facility's exposure to inflation
and currency risks. Although it is anticipated that the Luannan Facility will
apply annually for changes in rates, under the Luannan Power Purchase Agreement
it has the right to request a determination of a new power price whenever it
determines that changes in the price components require a new determination.
There are pass-through provisions in the pricing formula for increases or
decreases in the cost of coal against an index cost that is stipulated in the
Pricing Document, and the pricing formula also has provisions for pass-through
or make-whole calculations relating to certain construction capital cost items.
The tariff is paid in Renminbi and is required to be paid every 30 days by
North China Power Company. See "Risk Factors--Considerations Relating to the
PRC--Risk Regarding Changes to PRC and Local Laws, Policies and Regulatory
Authorities."
Sales of Steam
The Issuer and the Company believe that the Luannan Facility will sell
approximately 349,680 tons per year of steam for process and the equivalent of
approximately 362,518 GJ/year of steam for heating to certain Luannan County
enterprises and local industries under several Luannan Heat Supply Contracts.
The Issuer believes that the Luannan Facility will be the single largest,
centralized heat supplier in Luannan County.
Engineering, Procurement and Construction Contract
Through competitive bidding, Harbin Power Engineering Company Limited (the
"Luannan EPC Contractor") has been selected as the engineering, procurement and
construction contractor for the Luannan Facility. The Luannan EPC Contractor
has extensive engineering, procurement and construction experience in the power
industry in the PRC and other countries. Chinese-manufactured equipment and
materials and Chinese labor will be utilized to the maximum extent possible in
order to lower the costs of the Luannan Facility and the sale price of
electricity.
The Luannan EPC Contract provides for a retainage of 10% of the Luannan
EPC Contract price until the completion of punch list items and other
deficiencies in accordance with the Luannan EPC Contract. The Luannan EPC
Contract also provides for liquidated damages or termination payments in a
maximum amount of 35% of the original Luannan EPC Contract Price. The CHEXIM
Guarantee is required under the Luannan EPC Contract and has been provided by
CHEXIM in respect of the Luannan EPC Contractor's obligations under the Luannan
EPC Contract to pay liquidated damages or termination payments in a maximum
amount of 35% of the original Luannan EPC Contract Price. In addition, Harbin
Power Equipment Company, a PRC company ("Harbin Power"), the parent company of
the Luannan EPC Contractor, has provided the Luannan EPC Guarantee for the
benefit of two of the Joint Ventures guaranteeing the payment and performance
of the Luannan EPC Contractor under the Luannan EPC Contract.
The Luannan EPC Contractor is a wholly-owned subsidiary of Harbin Power.
Harbin Power, a PRC company listed on the Hong Kong Stock Exchange, was
established in October 1994 through the restructuring of Harbin Power Plant
Equipment Group Corporation. Harbin Power, together with its subsidiaries, is
one of the largest manufacturers of power plant equipment in China. In 1995,
the annual designed production capacity of the facilities constructed by the
Luannan EPC Contractor and its affiliates was 3,000 MW of thermal power and
1,000 MW of hydro power. Harbin Power and its subsidiaries also provide a range
of engineering services for power stations, including turnkey construction of
power plants and the provision of engineering and technical advisory services.
Harbin Power's products have been exported to Pakistan, the Philippines, Canada
and other countries.
Export-Import Bank of China
CHEXIM was established in April 1994 by the State Council with the
sponsorship of the Ministry of Finance, the People's Bank of China and the
Ministry of Foreign Trade and Economic Cooperation of the PRC ("MOFTEC") as one
of the three policy banks in China. The principal business of CHEXIM includes,
under the direction of the PRC government, providing export and import credit
(including sellers' and buyers' credits) for the export and import of all
machinery and equipment, electric power products and equipment, providing
export insurance, export guarantees and export and import insurance and
undertaking any business approved and entrusted to it by relevant government
authorities of the PRC. At the end of 1995, CHEXIM's owner's equity amounted to
approximately RMB 138.0 million. CHEXIM extended sellers' credit loans of RMB
5.6 billion in 1995. Although CHEXIM has received from its inception various
subsidies, capital infusions and other forms of support, including the
adjustment of interest rates charged on loans made by CHEXIM, CHEXIM has
attempted to implement systems to achieve financial independence. Such systems
include the provision of bad loan reserves and the charging of insurance
premiums on loans made. Senior unsecured debt of CHEXIM currently has a debt
rating of A3 by Moody's.
Heat Network Construction
Two of the Joint Ventures entered into a construction agreement (the "Heat
Network Construction Agreement") on June 20, 1996 under which Tangshan
Engineering will build the heat and steam network of Luannan Heat and Power
(the "Network"). Under this agreement, the cost for construction of the
Network, which will consist of 12.1 kilometers of hot water pipeline, 8.78
kilometers of steam pipeline, heat exchange stations, heat control equipment
and civil construction, is approximately RMB 24.2 million ($2.9 million),
subject to escalation by the Chinese State Statistic Bureau Price Index.
Transmission Facilities Construction
North China Power Company has entered into the Luannan Transmission
Facilities Construction Agreement with one of the Joint Ventures for the
design, construction, interconnection, operation and maintenance of the Luannan
Transmission Facilities. One of the Joint Ventures has agreed to provide the
Luannan Transmission Facilities Loan through a financial intermediary in the
PRC to finance the construction of the Luannan Transmission Facilities. The
amount of such funds, which was specified at the U.S. dollar equivalent of
RMB 78.2 million (which as of April 4, 1997, would have been approximately $9.4
million), will be adjusted to reflect inflation in the PRC from December 31,
1994 to the date of issuance of the notice to North China Power Company to
proceed with preliminary design in order for such funds to be sufficient to
cover the construction cost of the Luannan Transmission Facilities. The Luannan
Transmission Facilities will be comprised of three newly constructed
substations, upgrades to both an existing substation and an existing switching
station and approximately 43 kilometers of new 110 kV transmission lines to
interconnect the Luannan Facility to the Jing-Jin-Tang Grid. In accordance with
the Luannan Transmission Facilities Construction Agreement, North China Power
Company has guaranteed that it will complete the construction of the Luannan
Transmission Facilities to receive the total electrical output of the Luannan
Facility within 18 months of receiving its notice to proceed.
Operations and Maintenance
Pursuant to the Luannan O&M Contract, operations and maintenance services
for the Luannan Facility will be provided by the Luannan O&M Contractor,
Duke/Fluor Daniel International Services. The Luannan O&M Contract provides for
a recovery of costs by the Luannan O&M Contractor plus incentive payments based
upon the performance of the Luannan Facility. The Luannan O&M Contractor is a
general partnership formed in 1994 by affiliates of Duke Power Company and
Fluor Corporation for the purposes of providing services to the solid fuel
power generation market. The Luannan O&M Contractor is actively engaged in the
operation and maintenance of electric generation facilities throughout the
world. Pursuant to the Luannan O&M Contract, almost all of the personnel will
be trained PRC technicians who will work under close supervision of the O&M
committees of the Joint Ventures and the Luannan O&M Contractor's managers.
Coal Supply
The Issuer expects that the Luannan Facility will use approximately
450,000 metric tons of coal per year. The principal fuel supply for the Luannan
Facility will come from the Qianjiaying Mine, which is owned and operated by
Kailuan Coal and is located 30 kilometers from the Luannan Facility. Kailuan
Coal, a state-owned coal mining company, has 5.0 billion metric tons of coal
reserves in the Tangshan area and produces approximately 18 million metric tons
of coal per year. The Qianjiaying Mine produced 3.67 million metric tons of
coal in 1996. Kailuan Coal has committed to supply up to 300,000 metric tons
per year of coal from the Qianjiaying Mine to the Luannan Facility for ten
years. Two of the Joint Ventures have also entered into coal supply agreements
with five other local coal mines (collectively with Kailuan Coal Mining
Administration, the "Luannan Coal Suppliers") to secure up to an additional
310,000 metric tons of coal per year for ten years. The Issuer and the Joint
Ventures believe that the foregoing fuel supply arrangements, at the end of
such ten-year period, can be extended, renewed or replaced.
Environmental Matters
Similar to electric power generation facilities in other countries, the
Luannan Facility is generally required by PRC environmental laws and
regulations to comply with a number of regulations relating to the health and
safety of personnel and the public. An environmental assessment study has been
conducted by Hebei Provincial Metallurgy and Energy Environmental Protection
Research Institute in compliance with Chinese environmental protection
standards. Based on this study, the Joint Ventures believe that the equipment
installed and technology employed in the Luannan Facility will be in compliance
with the relevant PRC environmental laws and regulations.
Governmental Approvals
Cai, Zhang & Lan, Chinese counsel to the Issuer and the Joint Ventures,
has advised the Company that all required governmental approvals have been
obtained with respect to the formation of the Joint Ventures based on the
opinion of its Chinese counsel and advice from the Hebei Provincial Planning
Commission, the Commission of Foreign Trade and Economic Cooperation of Hebei
Province and its Joint Venture partners. See "Risk Factors--Considerations
Relating to the PRC--Risk of Need For Additional Governmental Approvals
Regarding Level of Foreign Investment in Luannan Facility."
The Issuer believes that all other governmental approvals required for the
construction of the Luannan Facility that can be obtained at this stage of
development have been obtained based on the opinion of its Chinese counsel and
advice from the Hebei Provincial Planning Commission, the Commission of Foreign
Trade and Economic Cooperation of Hebei Province and its Joint Venture
partners. A construction permit will have to be obtained by the Luannan EPC
Contractor prior to the commencement of full construction activity with respect
to the Luannan Facility; however, the Issuer and the Joint Ventures believe
that the issuance of such a permit will be a matter of procedure rather than a
discretionary matter because the design criteria for the Luannan Facility has
already been approved. The Issuer believes that the support of the Hebei
Provincial Government, Hebei COFTEC, North China Power, the Luannan County
Government and China National Machinery Import & Export Corporation, a
state-owned PRC trading company ("CMC") which, through an affiliate, owns a 1%
interest in Pan-Western, will benefit the operation of the Joint Ventures in
connection with administrative review and the receipt of any approvals which
may be required in the future. See "Risk Factors--Considerations Relating to
the PRC--Risk of Need For Additional Governmental Approvals Regarding Level
of Foreign Investment in Luannan Facility."
Litigation
None of the Joint Ventures is currently involved in any litigation or
legal proceeding that could be expected to have a material adverse impact on
the Joint Ventures or their operations, or the Issuer or the Company.
Insurance
The Joint Ventures will provide and maintain a comprehensive insurance
program designed on a project-specific basis. The owner-controlled insurance
program will provide coverages for both property and casualty risks inherent in
the construction of a facility such as the Luannan Facility. The coverages and
their respective limits during the construction period will be:
Comprehensive third-party liability insurance $20.00 million
Construction and erection "all risk property,"
including flood and earthquake $90.00 million
Delay in start-up/advance loss of profits $38.25 million
Permanent insurance coverage will be arranged in amounts and limits as deemed
sufficient by the Independent Insurance Consultant for the Joint Ventures. The
Joint Ventures will be insured parties for third-party liability, property
damage and business interruption insurance, and the trustees under the
Indentures will be the loss payees for the property damage and business
interruption insurance.
The Rosemary Facility
The Rosemary Facility is a combined-cycle cogeneration facility located in
Roanoke Rapids, North Carolina, with a total electric generating capacity of
approximately 180 MW. The Rosemary Facility uses natural gas as its primary
fuel input to produce electric energy for sale to VEPCO and to produce useful
thermal energy in the form of steam for sale to WestPoint. The Rosemary
Facility uses No. 2 fuel oil as an alternate fuel in the event gas supplies or
transportation are curtailed. The Rosemary Facility was designed and
constructed by Hawker Siddeley and began commercial operations in December
1990. The Rosemary Facility is certified as a Qualifying Facility under PURPA
and thus is exempt from rate regulation as an electric utility under federal
and state law, provided that it continues to meet the applicable requirements
of PURPA. See Appendix B, "United States Regulation--Federal Energy Regulation-
- -PURPA."
The Rosemary Facility is designed to be operated in a combined-cycle mode.
It uses natural gas or fuel oil to power two General Electric combustion
turbine generators, a GE Frame 6 and a GE Frame 7, each fitted with a heat
recovery steam generator ("HRSG"). The HRSGs use the reject heat from the
combustion turbines that might otherwise dissipate to produce steam which
drives a steam turbine generator. The combustion and steam turbines generate
electric energy for sale to VEPCO. When the Rosemary Facility is being
dispatched, some of the steam produced by the HRSGs is sold to WestPoint and
some is used in two absorption chillers to supply chilled water for WestPoint.
When the facility is not being dispatched, two auxiliary boilers are available
to be used to produce steam for WestPoint and to direct steam to the absorption
chillers to supply chilled water for WestPoint. The design of the Rosemary
Facility permits flexible operation, including the production of both
electricity and a sufficient amount of steam to meet QF requirements, using
either one or both of the combustion turbine generators.
See "Description of Other Indebtedness--The Rosemary Bonds" for a
description of the financing agreements relating to the Rosemary Facility.
Sale of Capacity and Electricity
The Rosemary Partnership sells electric capacity and energy to VEPCO
pursuant to a Power Purchase and Operating Agreement (the "Rosemary Power
Purchase Agreement"). The Rosemary Power Purchase Agreement has an initial term
ending December 26, 2015, and may be extended for periods of up to five years
if the parties so agree.
VEPCO has the right to dispatch the Rosemary Facility (i.e., require the
Rosemary Facility to deliver electricity) on a daily basis within certain
guidelines and the design limits (which specify load levels, start-up and
shutdown times and minimum run times consistent with prudent utility practice).
VEPCO must dispatch all facilities obligated to deliver electricity to VEPCO
based upon economic factors and without regard to the facilities' ownership.
The Rosemary Power Purchase Agreement provides for two types of payments:
a capacity payment and an energy payment. The capacity payment is a fixed
charge required to be paid regardless of whether the Rosemary Facility is
dispatched, subject to reductions under certain circumstances as described
below. Energy payments are calculated based on the actual electrical output
transmitted to VEPCO and are designed to compensate the Rosemary Partnership
for its cost of fuel and its variable operations and maintenance expense.
Monthly capacity payments throughout the term of the Rosemary Power
Purchase Agreement are calculated by multiplying the Rosemary Facility's
"Dependable Capacity" by the following rates: $12.488 per kilowatt per month
through December 1996; $11.654 per kilowatt per month through December 1998;
$10.821 per kilowatt per month through December 2005; and $8.321 per kilowatt
per month through December 2015. The Rosemary Facility's Dependable Capacity
was most recently determined to be 165 MW for the summer period and 198 MW for
the winter period, which are the maximum Dependable Capacity levels for which
capacity payments must be made under the Rosemary Power Purchase Agreement.
Dependable Capacity is determined by semi-annual tests which may be requested
by VEPCO.
Capacity payments may be reduced if any of the following events or
circumstances occur:
(i) if the Rosemary Facility fails to meet required dispatch levels
within a tolerance of 5%, the operating level (as adjusted for
ambient weather conditions) does not exceed Dependable Capacity
and such failure is not the result of a forced outage, then
VEPCO has the right to decrease the capacity payment in respect
of the then-current billing month by 10% per occurrence;
(ii) if, as a result of a performance test, the Rosemary Facility's
Dependable Capacity is set at less than 90% of the initial
Dependable Capacity as set forth in the Rosemary Power Purchase
Agreement (150 MW for the first summer period and 180 MW for the
first winter period), then the Rosemary Partnership is obligated
to pay VEPCO liquidated damages for the deficiency in an amount
equal to the product of $21.60 per kilowatt, in 1987 dollars as
escalated annually by the GNPIPD, multiplied by the Dependable
Capacity shortfall;
(iii) if a forced outage is designated by the Rosemary Partnership as
having resulted from an event of force majeure, then beginning
the day after the Rosemary Partnership makes such designation,
capacity payments are suspended and prorated daily until the
Rosemary Partnership notifies VEPCO that the condition of force
majeure has ended; and
(iv) if the number of forced outage days in a given capacity test
period exceeds the number of permitted forced outage days, then
within 60 days after the end of the capacity test period, the
Rosemary Partnership is obligated to reimburse VEPCO an amount
equal to 4% of the capacity payments paid during the capacity
test period for each forced outage day in excess of the
permitted number; the Rosemary Partnership is entitled to the
greater of 25 forced outage days per capacity test period (the
period from December 1 through November 30) and 10% of the
number of days that the Rosemary Facility is dispatched during
such period, without any loss of capacity payments for such
period.
During the period December 1, 1995 through November 30, 1996, the number
of forced outage days was 16, including 13 forced outage days attributable to
the damage caused by the hurricane in September 1996. From December 1, 1996
through March 26, 1997, the Rosemary Facility incurred no forced outage days.
The Rosemary Partnership is required to maintain the Rosemary Facility as
a QF. VEPCO may terminate the Rosemary Power Purchase Agreement within one year
after the loss of QF certification if the Rosemary Partnership has not obtained
all necessary governmental or regulatory approvals for the Rosemary Power
Purchase Agreement to remain in effect and for electricity to continue to be
sold to VEPCO.
The Rosemary Power Purchase Agreement also contains a provision known as a
"regulatory disallowance" provision, which requires the Rosemary Partnership to
repay or reduce any capacity charges in excess of $5.62 per kilowatt per month,
as adjusted by the GNPIPD from 1987 dollars, that are disallowed by any
regulatory authority from recovery by VEPCO in its rate base (except where such
disallowance is due to VEPCO's failure to properly seek such recovery). VEPCO
cannot initiate such a disallowance, and must appeal such a disallowance, if
practicable. If such a disallowance were to occur prior to December 27, 2006,
beginning on such date up to 75% of the capacity payments could be withheld by
VEPCO to make up for any disallowance, plus interest, until the sooner of
December 27, 2007 or the date on which such disallowance, plus interest, was
recouped by VEPCO. If such disallowance, plus interest, were not fully recouped
by December 27, 2007, the Rosemary Partnership would be obligated to pay the
remaining balance, plus interest, by January 24, 2008. If any disallowance were
to occur for capacity payments after December 27, 2006, future capacity
payments would be reduced to the amount of the capacity payment unaffected by
the disallowance. In addition, the Rosemary Partnership would be required to
repay the amount of previously received capacity payments which are affected by
the disallowance, plus interest, by the later of one year from the date of the
disallowance or December 27, 2007. The amount upon which a possible reduction
in, or repayment of, capacity charges by the Rosemary Partnership would be
calculated if a disallowance occurred was $7.24 per kilowatt per month as of
December 1995. Assuming a GNPIPD of 3.0% per year throughout the initial term
of the Rosemary Power Purchase Agreement, this amount would increase to $10.02
per kilowatt per month in 2006 and $13.07 per kilowatt per month upon the
expiration of the initial term. The monthly capacity payments due from VEPCO
under the Rosemary Power Purchase Agreement are calculated based on Dependable
Capacity at the following rates: $12.488 per kilowatt per month through
December 1996; $11.654 per kilowatt per month through December 1998; $10.821
per kilowatt per month through December 2005; and $8.321 per kilowatt per month
through December 2015. Thus, assuming a GNPIPD of 3.0% per year from 1996
through 2015, the risk that the Rosemary Partnership may be required to reduce
or repay capacity charges under the "regulatory disallowance" provision would
exist through 2005. See Appendix B, "The Electric Power Industry in the United
States and United States Regulation--Federal Energy Regulation--PURPA."
Steam and Chilled Water Sales
The Rosemary Partnership has been selling steam and chilled water to Bibb
for use in its textile manufacturing facility, located adjacent to the Rosemary
Facility, pursuant to a Cogeneration Energy Supply Agreement (the "Rosemary
Steam Agreement"). The Rosemary Steam Agreement has an initial term that
expires on December 26, 2015. On February 18, 1997, Bibb announced that it
would sell the textile facility to WestPoint. The closing of the sale was
reported in the news media on February 21, 1997, and the Rosemary Partnership
has not subsequent written formal notice of such sale. The Rosemary Steam
Agreement cannot be assigned without the Rosemary Partnership's consent.
Although the Rosemary Partnership has engaged in some communication with
WestPoint, no such consent has been given. The Rosemary Partnership has
continued to sell steam and chilled water to Bibb in substantially the same
amounts as it sold prior to the announcement of the sale. The following
discussion of the Rosemary Steam Agreement and the Rosemary Site Lease
assumes that the sale of the textile facility has closed and that
WestPoint is the purchasing party under the Rosemary Steam Agreement and
the lessor under the Rosemary Site Lease.
Although Bibb is not required to purchase a minimum quantity of steam
or chilled water, Bibb has an irrevocable obligation to purchase all of
its steam and chilled water requirements from the Rosemary Facility to the
extent that the Rosemary Facility is able to supply such requirements. The
Rosemary Steam Agreement requires that the Rosemary Facility have the capacity
to produce an annual average of 65,000 pounds of steam per hour at 150 psi and
2,000 tons of 45F chilled water for up to 8,000 hours per year. This
requirement is not currently met because the Rosemary Facility's actual
capacity to produce chilled water does not exceed 1,600 tons per year of
chilled water. However, because Bibb's chilled water requirements never
exceeded 1,500 tons per year and, in most cases, were approximately 1,200 tons
per year, the Rosemary Facility never failed to satisfy Bibb's chilled water
requirements. Furthermore, the Rosemary Steam Agreement allows the Rosemary
Partnership to utilize, at its own expense, back-up electric chillers located
at Bibb's textile mill to supply chilled water to meet Bibb's demands.
Finally, if Bibb's requirements were to exceed the Rosemary Facility's
current capacity to produce chilled water, the Rosemary Partnership could
expand the capacity of its absorption chillers to reach the required level by
purchasing a new chiller at a cost currently estimated to be between $700,000
and $800,000.
For these reasons, the Issuer does not believe that the current capacity
limitations of the absorption chillers will adversely affect the Rosemary
Partnership's rights under the Rosemary Steam Agreement. See "Risk Factors--
U.S. Industry Conditions--Risks in the Event That Qualifying Facility Status
of Rosemary Facility or Brandywine Facility Is Not Maintained."
Site Lease
The 4.83 acre site on which the Rosemary Facility is located is leased to
the Rosemary Partnership by WestPoint pursuant to a Real Property Lease and
Easement Agreement (the "Rosemary Site Lease") in exchange for a nominal yearly
rental payment. The initial term of the Rosemary Site Lease expires on December
31, 2015. The payment of the Rosemary Bonds is secured by, among other things,
a lien on the Rosemary Partnership's leasehold interest in the Rosemary
Facility site. See "Description of Other Indebtedness--The Rosemary Bonds."
Gas Supply and Fuel Management
The Rosemary Partnership purchases certain quantities of natural gas on a
firm basis from Natural Gas Clearinghouse ("NGC") pursuant to a Gas Purchase
Contract (the "Rosemary Gas Supply Agreement"). The Rosemary Gas Supply
Agreement is effective through November 30, 2005, and thereafter from month-to-
month until terminated by either NGC or the Rosemary Partnership. The Rosemary
Indenture provides that with certain limited exceptions the Rosemary
Partnership will not be permitted to make distributions to its partners if the
Rosemary Gas Supply Agreement is not extended or replaced on or before the end
of its term. See "Description of Other Indebtedness--The Rosemary Bonds--
Partnership Distributions." NGC has agreed to deliver natural gas on a firm
basis to the Rosemary Partnership, at pipeline points near the Gulf of Mexico
or (at the Rosemary Partnership's request and using the Rosemary Partnership's
firm transportation arrangements) to the Rosemary Pipeline (as defined below),
up to the total contract quantity under the Firm Gas Transportation Agreements
(as defined below), which is currently the thermal equivalent of 3,075 Mcf of
natural gas per day. The firm natural gas supplied under the Rosemary Gas
Supply Agreement enables the Rosemary Partnership to have adequate natural gas
supplies available to meet its estimate of Bibb's requirements for steam
and chilled water.
The price paid by the Rosemary Partnership for gas delivered by NGC is
generally equal to an indexed price (based upon monthly market-price indices
determined by reference to the receipt points where NGC delivers gas to the
Rosemary Partnership) plus $0.04 per MMBtu. If gas is required in daily volumes
that are greater than those included in monthly estimates delivered to NGC, the
price for the excess volume required is equal to NGC's actual cost incurred in
acquiring such excess plus $0.04 per MMBtu. If the Rosemary Partnership fails
to purchase the amount included in monthly estimates delivered to NGC, and such
failure is not excused by force majeure, the Rosemary Partnership must pay NGC,
as liquidated damages for such failure, $0.14 for each MMBtu of gas not
purchased below the monthly estimates delivered.
The Rosemary Partnership receives certain fuel supply management services
from NGC pursuant to a Fuel Supply Management Agreement, (the "Rosemary Fuel
Management Agreement"). The Rosemary Fuel Management Agreement is effective
through the expiration date of the Rosemary Gas Supply Agreement, which is
November 30, 2005, unless extended.
NGC's responsibilities under the Rosemary Fuel Management Agreement
include advising the Rosemary Partnership with respect to the negotiation of
natural gas and fuel oil purchase and transportation arrangements, arranging
for the delivery to the Rosemary Facility of natural gas or fuel oil,
endeavoring to make such arrangements on a "best cost" basis, managing the
communications among the Rosemary Facility and the Rosemary Partnership's
pipeline transporters and natural gas and fuel oil suppliers and advising and
assisting the Rosemary Partnership with respect to fuel oil inventory hedging
arrangements.
The Rosemary Partnership pays NGC a management fee based on fuel supply
arranged by NGC. The management fee is composed as follows: (i) $0.04 per MMBtu
of natural gas purchased and transported to the Rosemary Facility pursuant to
arrangements made by NGC; (ii) $0.03 per MMBtu of natural gas reserves owned by
the Rosemary Partnership and transported to the Rosemary Facility pursuant to
arrangements made by NGC; (iii) $0.01 per MMBtu of natural gas purchased from
North Carolina Natural Gas Corporation ("NCNG") and transported to the Rosemary
Facility pursuant to arrangements made by NGC; (iv) $0.002 per gallon of fuel
oil purchased and delivered to the Rosemary Facility pursuant to arrangements
made by NGC; and (v) $0.005 per MMBtu of natural gas and $0.05 per barrel of
No. 2 fuel oil as a transaction fee for fuel hedging transactions executed by
NGC as approved by the Rosemary Partnership. The Rosemary Partnership must also
reimburse NGC for the cost of any letter of credit NGC must provide to purchase
gas pursuant to the Rosemary Fuel Management Agreement. If in a given month NGC
arranges for natural gas supplies at a delivered price less than the benchmark
delivered price for such month, the Rosemary Partnership pays NGC an additional
amount equal to 60% of the difference in such prices.
Gas Transportation
The Rosemary Indenture provides that with certain limited exceptions the
Rosemary Partnership will not be permitted to make distributions to its
partners if the Firm Gas Transportation Agreements are not extended or replaced
on or before the end of their terms. See "Description of Other Indebtedness--
The Rosemary Bonds--Partnership Distributions."
The Rosemary Partnership has entered into firm gas transportation
contracts with each of Texas Gas Transmission Corporation ("Texas Gas") (the
"Texas Gas FT Agreement"), CNG Transmission Corporation ("CNG") (the "CNG FT
Agreement") and Transcontinental Gas Pipe Line Corporation ("Transco") (the
"Transco FT Agreement") each of which enables the Rosemary Partnership to have
delivered to the Rosemary Facility, on a firm basis, the thermal equivalent of
3,075 Mcf of gas per day from gas production areas near the Gulf of Mexico. The
term of each of the Texas Gas FT Agreement, the CNG FT Agreement and the
Transco FT Agreement continue through October 31, 2006. The rates paid for
natural gas under the Texas Gas FT Agreement, the CNG FT Agreement and the
Transco FT Agreement are 3.620%, 4.500% and 2.220% of the existing price per
McF of natural gas, respectively. The principal condition to transportation of
natural gas under each of these agreements is the payment of the monthly
reservation costs thereunder, being $32,713, $31,725 and $24,846, respectively.
The Rosemary Partnership also has the right to receive interruptible gas
transportation service from Columbia Gas Transmission Company and Columbia Gulf
Transmission Company under the Columbia Gas IT Agreement and the Columbia Gulf
IT Agreement, respectively. Under the Columbia Gas IT Agreement, the Rosemary
Partnership may request up to 36,000 Dth per day of interruptible
transportation service from an interconnection between the facilities of
Columbia Gas and Columbia Gulf near Leach, Kentucky to an interconnection
between Columbia Gas's facilities and the Rosemary Pipeline. Under the Columbia
Gulf IT Agreement, the Rosemary Partnership may request up to 39,000 Dth per
day of interruptible transportation service from various available receipt
points on Columbia Gulf's system to an interconnection between the facilities
of Columbia Gas and Columbia Gulf near Leach, Kentucky. The terms of both the
Columbia Gas IT Agreement and the Columbia Gulf IT Agreement are month-to-month
until terminated by either party to the respective agreements.
The rates and most of the significant terms and conditions of service
under the Firm Gas Transportation Agreements, the Columbia Gas IT Agreement and
the Columbia Gulf IT Agreement are set forth in the respective pipeline's
effective FERC gas tariff. These rates, terms and conditions are subject to
review, approval and modification by FERC.
Rosemary Pipeline
The Rosemary Partnership owns, and NCNG operates and maintains for the
Rosemary Partnership, a pipeline which runs for 10.26 miles through portions of
Halifax and Northampton counties, North Carolina (the "Rosemary Pipeline"). The
Rosemary Pipeline is located under, over and upon properties owned, in certain
instances, by private landowners and, in others, by the State of North Carolina
or the City of Roanoke Rapids, pursuant to easement agreements or encroachment
agreements.
The Rosemary Partnership has entered into a Pipeline Operating Agreement
with NCNG (the "Pipeline Operating Agreement"), pursuant to which NCNG has
agreed to operate the Rosemary Pipeline and provide certain natural gas
balancing services for the Rosemary Partnership's gas supplies. The term of the
Pipeline Operating Agreement continues until December 27, 2005, and may be
extended for two additional periods of five years each upon the agreement of
the parties.
Several of the easements and encroachment agreements, pursuant to which
the Rosemary Partnership is granted the right to locate the Rosemary Pipeline,
contain provisions allowing the underlying interest owner to cause the Rosemary
Pipeline to be removed from its current location. Most of such easements and
encroachment agreements require the underlying interest owner to provide an
alternate location for the pipeline, and in some cases the underlying interest
owner must share the cost of relocating the pipeline. However, two such
easements allow the underlying interest owner to cause the Rosemary Pipeline to
be removed, but do not require such owner to provide an alternate location or
share the cost of relocating the pipeline. The Issuer does not expect that the
Rosemary Pipeline will be required to be removed pursuant to these easements
or, if it were required to be removed, that relocating the Rosemary Pipeline
from these two easement tracts would significantly interfere with the supply of
natural gas to the Rosemary Facility for an extended period of time or, given
the ability of the Rosemary Facility to operate utilizing fuel oil,
significantly limit the availability of the Rosemary Facility for dispatch by
VEPCO. See "Risk Factors--Project Risks--Interruptibel Natural Gas Supplies for
Rosemary Facility and Brandywine Facility May Create Risk of Unavailability for
Dispatch."
Fuel Oil
If natural gas supply or transportation is not available to the Rosemary
Facility, such facility has the capability to operate on No. 2 fuel oil and is
designed to change fuel sources from natural gas to fuel oil and back without
interrupting the generation of electricity. The Rosemary Facility currently has
on-site storage for approximately 2.0 million gallons of fuel oil, a supply
sufficient to operate the Rosemary Facility at full load for approximately 168
hours. As a result of current market conditions, the Rosemary Partnership
purchases fuel oil on a spot-market basis. See "Risk Factors--Project Risks--
Interruptible Natural Gas Supplies for Rosemary Facility and Brandywine
Facility May Create Risk of Unavailability for Dispatch."
Operations and Maintenance
The Rosemary Partnership purchases operations and maintenance services for
the Rosemary Facility from Panda Global Services pursuant to an operations and
maintenance agreement (the "Panda Global Rosemary O&M Agreement") under which
Panda Global Services will provide operations and maintenance services to the
Rosemary Facility through December 31, 2003. The Panda Global Rosemary O&M
Agreement provides for payment to Panda Global Services of a fixed monthly fee
of $130,000 per month during 1997, with annual adjustments based on changes in
the consumer price index for subsequent years. In addition, the agreement
includes bonus and penalty provisions.
Panda Global Services commenced performing operations and maintenance
services for the Rosemary Facility on January 1, 1997. Such services previously
were performed by University Technical Services, all of whose operations and
maintenance personnel at the Rosemary Facility remain as employees of Panda
Global Services.
Operating History
The following table contains a summary of certain levels of operating
performance achieved by the Rosemary Facility since the beginning of 1991:
1991 1992 1993 1994 1995 1996
Summer Dependable Capacity (MW) 161 161 165 165 165 165
Winter Dependable Capacity (MW) 192 198 198 198 198 198
Hours Under VEPCO Dispatch 1,174 377 324 764 2,224 635
Electric Energy Production 129.0 44.8 31.9 76.7 234.9 64.5
(GWH)
Steam Production (MM Lbs) 330.8 377.9 429.9 364.8 291.2 294.6
Chilled Water Production N/A 4.0 3.7 4.1 4.1 3.3
(MM Ton-hours)
Forced Outage Days* 12 1 16 12 18 16
________________________________
* Data for forced outage days for 1991 through 1996 is for the 12-month period
starting on December 1 of the prior year and ending on November 30 of the
year indicated.
The Rosemary Facility was dispatched for 1,174 hours in 1991. Dispatch was
reduced to 377 hours in 1992 and 324 hours in 1993 due to several new coal-
fired, non-utility generation plants becoming available for dispatch by VEPCO.
The increases in dispatch hours to 764 in 1994 and 2,224 in 1995 were partially
due to the effect of the second amendment to the Rosemary Power Purchase
Agreement entered into in 1993, under which the formula used to calculate the
energy payment was amended to more closely match the fuel and variable
operation and maintenance costs incurred by the Rosemary Partnership.
During 1995, the Rosemary Facility was dispatched for 2,224 hours. The
significant increase in dispatch hours from 1994 to 1995 was primarily due to
the fact that, during much of the 1995 summer months, two of VEPCO's gas-fired
plants suffered forced outages that are not likely to be repeated and, under
the terms of the Rosemary Power Purchase Agreement, VEPCO was allowed to
redirect to the Rosemary Facility the gas that would otherwise have been
transported to these unavailable plants. For approximately 1,200 of the 2,224
hours, the Rosemary Facility used natural gas provided directly by VEPCO under
this fueling arrangement. The Rosemary Partnership's profit margin on the
energy payment from VEPCO is lower for this type of dispatch compared to its
energy margins under normal dispatch conditions under which the Rosemary
Partnership provides the fuel.
During 1996, the Rosemary Facility was dispatched a total of 635 hours.
This number reflects a more normal level of operation than the unusually high
1995 number. The number of dispatch hours for 1996 also reflects the
unavailability of the Rosemary Facility for 15 forced outage days during
September 1996 due to hurricane damage and cooler-than-normal weather in the
VEPCO service territory during the summer of 1996.
Recent Hurricane Damage Sustained
On September 6, 1996, a transformer and two switches at the Rosemary
Facility sustained damage from a hurricane. A substitute transformer was
temporarily installed pending repair of the damaged transformer, which was
substantially completed during the first quarter of 1997. The Company estimates
the total cost to repair the Rosemary Facility (including substitute
transformer rental costs) at approximately $2.45 million all of which is
covered by insurance except for deductible and certain non-covered items, which
the Company currently estimates to be in the aggregate amount of approximately
$650,000 to $725,000. The Company believes that this event will not have a
material adverse effect on the financial condition or operating results of the
Rosemary Partnership or its ability to make distributions to the Company
through the PIC Entities and PIC.
Cash Flow Participation
NNW, Inc., formerly known as Nova Northwest, Inc., an Oregon corporation
("NNW"), has a cash flow participation (the "NNW Cash Flow Participation") in
the Rosemary Partnership arising out of a Credit, Term Loan and Security
Agreement (the "NNW Credit Agreement") entered into by PEC, PR Corp. and PRC II
(collectively, the "Rosemary Borrowers") and NNW in August 1993 under which NNW
made a loan to the Rosemary Borrowers which has since been repaid. The NNW
Credit Agreement provides that NNW, in addition to repayment of debt, is to
receive a cash flow participation equal to 4.33% of certain distributions from
the Rosemary Partnership to the Rosemary Borrowers.
At the time the NNW Credit Agreement was entered into the aggregate equity
interest of PR Corp. and PRC II in the Rosemary Partnership was 10%. Following
the redemption of a 90% limited partner interest in the Rosemary Partnership
with a portion of the proceeds of the Rosemary Offering and the Series A
Offering, PR Corp. and PRC II, collectively, now own 100% of the equity
interest in the Rosemary Partnership.
The NNW Credit Agreement states that the parties intend that any financial
restructuring of the Rosemary Facility shall not materially affect the NNW Cash
Flow Participation, positively or negatively. The NNW Credit Agreement also
provides that, in the case of any such financial restructuring, the calculation
of the amount of distributions to be paid to NNW shall continue to be based on
the scheduled principal and interest amounts of the then-existing indebtedness
of the Rosemary Partnership under the Second Amended and Restated Letter of
Credit and Reimbursement Agreement dated as of January 6, 1992 among the
Rosemary Partnership, The Fuji Bank, Limited, and certain other banks party
thereto (the "Reimbursement Agreement"). Accordingly, it is the position of
Panda International and the Company that the NNW Cash Flow Participation
remained the same following the closing of the offering of the Rosemary Bonds
(as if the Reimbursement Agreement had remained in place with the letter of
credit and bonds relating thereto and as if the redemption of Ford Credit's 90%
limited partner interest and the issuance of the Rosemary Bonds had never
occurred). Based on the position of Panda International and the Company, the
NNW Cash Flow Participation is equal to 0.433% of distributions to the Rosemary
Borrowers and would increase to 1.732% after 2008 based on projected
distributions. NNW has disputed the position of Panda International and the
Company with respect to the redemption of the 90% limited partner interest. NNW
claims that it is entitled to receive 4.33% of distributions to the Rosemary
Borrowers following redemption of the limited partner interest. PEC has, as a
result, filed a petition against NNW to have the amount of the NNW Cash Flow
Partnership determined. See "Legal Proceedings--NNW, Inc. Proceeding." Because
the debt structure existing prior to the closing date of the issuance of the
Rosemary Bonds would have resulted in cash flow distributions during the early
years after such date that are lower than the cash flow distribution under the
new debt structure, an NNW Cash Flow Participation at the percentage claimed by
NNW, if NNW were to prevail in this dispute, would not have a material adverse
impact on the Company or its financial condition. If NNW prevails in this
dispute and the NNW Cash Flow Participation is not converted into Panda
International common stock or cash (as described below), the reduction in total
cash flows to be received by PIC through 2012 would be approximately $2.0
million on a net present value basis and the reduction in annual cash flows to
be received by PIC would be (i) approximately $231,000 during 1997, decreasing
to approximately $191,000 in 2004; (ii) in the range of approximately $451,000
to $465,000 per year during the years 2005 to 2008; and (iii) approximately
$447,000 in 2009, declining thereafter to approximately $369,000 in 2012. See
Appendix C, Consolidated Pro Forma Report.
Independent Engineers' and Consultants' Reports
The Rosemary Engineering Report and the Rosemary Fuel Consultant's Report,
and the following summaries thereof, contain forward-looking statements,
including projections, that involve risks and uncertainties. Actual results may
differ materially from those discussed in the forward-looking statements. See
"Disclosure Regarding Forward-Looking Statements" and "Risk Factors--Reliance
upon Projections and Underlying Assumptions Contained in Engineers' and
Consultants' Reports; Actual Results May Vary From Such Projections."
Rosemary Engineering Report. Burns & McDonnell has prepared a report,
dated April 11, 1997 and updated August 7, 1997 (the "Rosemary Engineering
Report"), concerning certain technical, environmental and economic aspects of
the Rosemary Facility. Burns & McDonnell provides a variety of professional and
technical services in the fields of engineering, architecture, planning,
economics and environmental sciences. Burns & McDonnell's project work includes
studies, design, planning, construction and construction management for
electric power generation and transmission facilities, as well as for waste
management, water treatment, airport and other transportation infrastructure
facilities. Burns & McDonnell has been involved with the Rosemary Facility
since 1989. The Rosemary Engineering Report includes, among other things, a
review and assessment of the Rosemary Facility's equipment and operating
condition, a review of its operating history and projections of revenues,
expenses and debt service coverage for the Project during the period that the
Rosemary Bonds are scheduled to be outstanding (i.e., through February 15,
2016).
Burns & McDonnell has relied upon projections of the Rosemary Facility's
dispatch profile and fuel costs over the term of the Rosemary Power Purchase
Agreement prepared by ICF. Based on ICF's experience in undertaking similar
analyses, Burns & McDonnell believes that the use of ICF's dispatch profile and
fuel cost projections is reasonable for the purposes of the Rosemary
Engineering Report. Burns & McDonnell also has relied upon certain other
information provided to it by sources it believes to be reliable. Burns &
McDonnell believes that the use of such information is reasonable for the
purposes of the Rosemary Engineering Report.
In preparing the Rosemary Engineering Report, Burns & McDonnell made
various assumptions regarding the validity and performance of contracts, the
operation and maintenance of the Rosemary Facility and, the effectiveness of
permits. These assumptions and the other assumptions contained in the Rosemary
Engineering Report are inherently subject to significant uncertainties and, if
actual conditions differ from those assumed, actual results will differ from
those projected, perhaps materially. The material assumptions made by Burns
& MCDonnell in developing the pro forma operating operating projections
contained in the Rosemary Engineering Report are as follows:
- Fuel costs will be set forth in the updated projections by ICF (which
have been determined by Benjamin Schlesinger and Associates, Inc., the
independent fuel consultant for the Panda-Rosemary Facility, to employ
reasonably conservative assumptions).
- The Rosemary Facility will be dispatched as set forth in the updated
projections by ICF, except that ICF's dispatch projections have been
increased by 400 hours per year in 1997, 500 hours per year in 1998
through 1998 through 2002 and 600 hours per year in 2003 through 2015
to reflect hours that the Rosemary Facility will be dispatched using
gas supplied by VEPCO, which increases ICF has determined to be
reasonable.
- - Thermal energy in the form of steam and chilled water will be exported
from the Rosemary Facility, operating in the cogeneration mode, to Bibb's
facility such that the production and sale of useful thermal energy, as
defined under the Public Utility Regulatory Policies Act of 1978, as
amended ("PURPA"), and the regulations promulgated theeunder, will be
sufficient to maintain the Rosemary Facility's QF status. The Rosemary
Partnership will continue to absorb an annual operating loss on the sale
of steam and chilled water over the life of the Rosemary Facility.
- - Steam and chilled water sales to Bibb will remain constant at 50,000
pounds per hour for 7,800 hours per year and 1,010 tons per hour for
4,000 hours per year, respectively.
- - Operating costs, including fuel transportation, operating and maintenance
and other administrative costs, will equal thos estimated by the Rosemary
Partnership, most of which are assumed to increase at a rate of 3% per
year.
- - The debt service reserve fund maintained pursuant to the Rosemary Indenture
will be maintained at adequate levels throughout the Rosemary bonds'
repayment period, and such fund will earn interest at a rate of 5.0% per
year.
Subject to the studies, analyses and investigations of the Rosemary
Facility they performed and the assumptions made in the Rosemary Engineering
Report, Burns & McDonnell offered the following conclusions:
- The technology incorporated in the Rosemary Facility is a sound,
proven method of generating electric and thermal energy and
incorporates commercially proven technology. The design, operation
and maintenance of the Rosemary Facility implemented by the Rosemary
Partnership and Panda Global Services were developed and have been
implemented in accordance with good engineering practices and
generally accepted industry practices and have taken into
consideration existing and proposed environmental and permit
requirements applicable to the Rosemary Facility. Burns & McDonnell
knows of no significant technical problems relating to the Rosemary
Facility that should be of concern to potential investors.
- The Rosemary Facility is in good condition and has a competent,
conscientious operation and maintenance staff that has developed a
long-term facility maintenance program that is consistent with the
manufacturers' recommendations and generally-accepted practices
within the electric power generation industry. The recent change from
U-TECH to Panda Global Services as the operator should not have any
effect on the future operations and maintenance of the Rosemary
Facility because all the staff transferred to Panda Global Services.
- The Rosemary Facility will have an expected operating service life
well beyond the term of the Rosemary Power Purchase Agreement if
properly operated and maintained, consistent with current practices.
- The Rosemary Partnership has obtained and maintained in full force
and effect the key environmental permits and approvals required from
the various federal, state and local agencies that are currently
necessary to operate the Rosemary Facility.
- The basis for the Rosemary Partnership's estimates of the cost of
operating and maintaining the Rosemary Facility is reasonable. The
expense projections prepared by the Rosemary Partnership and based on
projected levels of dispatch appear adequate to account for the
variable operation and maintenance expenses. The 1997 budgeted
allowance for overhauls of $276 per fired hour is appropriate.
- The Rosemary Facility's heat rate will average 9,100 Btu/kWh (HHV)
over the remaining initial term of the Rosemary Power Purchase
Agreement.
- Table I-1 of the Rosemary Engineering Report summarizes the projected
revenues and expenditures and debt coverage ratios of the Rosemary
Facility based upon the amortization schedule for the outstanding
Rosemary Bonds submitted to Burns & McDonnell by the Rosemary
Partnership. Projected revenues from the sale of thermal energy and
electricity and other income are adequate to pay annual operations
and maintenance expenses (including provision for major maintenance),
fuel costs, and other operating expenses and provide a minimum annual
debt service coverage on the Rosemary Bonds of 1.37:1 and an average
debt service coverage over the outstanding term of the Rosemary Bonds
of 1.58:1.
Rosemary Fuel Consultant's Report. Benjamin Schlesinger and Associates,
Inc. ("Schlesinger") has prepared a report, dated September 20, 1996, as
updated on April 11, 1997 and August 7, 1997 (as updated, the "Rosemary Fuel
Consultant's Report"), concerning the sufficiency of the fuel supply and
transportation arrangements entered into by the Rosemary Partnership with
respect to the Rosemary Facility. Schlesinger is a Bethesda, Maryland-based
management consulting firm that specializes in the natural gas industry,
including economic and regulatory analysis, market research, energy supply and
demand forecasting, gas rate development and related economic, technical and
environmental analyses. The Rosemary Fuel Consultant's Report includes, among
other things, a review and assessment of the fuel supply and delivery
arrangements for the Rosemary Facility with respect to both natural gas and
fuel oil, focusing on the appropriateness of the existing fuel arrangements and
the historical reliability of fuel supplies to the Rosemary Facility.
Schlesinger has used and relied upon certain information provided to it by
sources it believes to be reliable. Schlesinger believes that the use of such
information is reasonable for the purposes of the Rosemary Fuel Consultant's
Report. Schlesinger also believes that the assumptions contained in the
Rosemary Fuel Consultant's Report are reasonable, but assumptions are
inherently subject to significant uncertainties and, if actual conditions
differ from those assumed, actual results will differ from those projected. The
material assumption in the Rosemary Fuel Consultant's Report are as follows:
- - The fuel supply plan provided by the Issuer to Schlesinger is
reasonable and accurate.
- - Parties to applicable gas supply, gas transportation and gas marketing
services contracts will each perform in good faith according to their
contractual commitments and regulatory requirements, as appropriate,
including Natural Gas Clearinghouse ("NCG"), Transcontinental Pipe
Line Corporation, North Carolina Natural Gas ("NCNG"), and applicable
affiliates of the Issuer.
- - North American gas reserve and resource base estimates of the U.S.
Energy Information Administration, the U.S. Geological Survey, and
Canadian National Energy Board are reasonable and accurate.
- - Supplies of natural gas will be available where they are purchased for
use in the Rosemary Facility by applicable affiliates of the Issuer, NGC,
NCNG, or others on behalf of the Rosemary Facility.
- - Supplies of distillate fuel oil will be available in the vicinity of the
Rosemary Facility in the required volumes and at the required quality
levels when needed by the Rosemary Facility.
- - VEPCO will dispatch the Rosemary Facility fairly, and in a manner
consistent with sound economics, outstanding contractual commitments and
prevailing regulatory requirements.
- - The conclusions in the Rosemary Engineering Report prepared by Burns &
McDonnell are reasonable.
- - All gas pipelines, storage and delivery facilities used by the Rosemary
Facility in obtaining its fuel supplies will operate safely and reliably
throughout the life of the Rosemary Facility.
Subject to the information contained and the assumptions made in the
Rosemary Fuel Consultant's Report, Schlesinger offers the following
conclusions:
- The projections developed by Burns & McDonnell in the Rosemary
Engineering Report employ reasonably conservative assumptions with
respect to the Rosemary Partnership's fixed gas transportation costs
and the relationship of the Rosemary Partnership's variable fuel
costs to the energy price under the Rosemary Power Purchase
Agreement, and the Rosemary Engineering Report contains reasonable
assumptions concerning the revenue that the Rosemary Partnership may
receive by reselling transportation capacity that is excess to the
Rosemary Facility's average daily capacity utilization and/or
reselling gas using its excess transportation capacity.
- The Rosemary Facility's overall fuel supply plan remains reasonable
and appropriate given the Rosemary Facility's record of operation and
its energy payment structure. The Rosemary Partnership's contract
with Natural Gas Clearinghouse ("NGC") for fuel management services
lies at the heart of the Rosemary Facility's fuel supply plan. NGC
sells and delivers gas on a firm basis to satisfy the Rosemary
Facility's baseload fuel requirements to produce steam and chilled
water for sale to Bibb. Additionally, NGC buys and delivers gas and
low sulfur distillate fuel oil ("DFO") on a best efforts basis to
satisfy the Rosemary Facility's variable daily fuel requirements
related to VEPCO's electric dispatch requests. The fuel plan includes
direct access to two interstate pipeline systems, monthly balancing
and backup gas sales service from NCNG, and sufficient on-site DFO
storage and permit authorization to burn DFO whenever gas deliveries
to the Rosemary Facility are insufficient to satisfy its total fuel
requirements on a daily basis. Provided VEPCO continues to dispatch
the Rosemary Facility principally as a summer peaker, the additional
fixed costs required to increase the Rosemary Facility's gas supply
or delivery reliability are not warranted from an economic or fuel
reliability perspective.
- The Rosemary Facility's energy revenues under its power sales
agreement reflect the Rosemary Facility's fuel plan. During the
months of January and February, when the Rosemary Facility is most
likely to be forced to burn DFO due to spot gas curtailments, the
energy payments are based on delivered DFO prices, while during the
rest of the year the energy payments are based on the delivered price
of Gulf Coast spot gas in the summer months and Appalachia spot gas
in the winter months. While the Rosemary Facility's actual fuel
consumed for dispatch operations has generally followed the seasonal
fuel availability structure assumed in the energy payment mechanism,
the energy payments and actual fuel costs are not directly linked,
i.e., the Rosemary Facility's energy payment margins are at some risk
for a mismatch between energy payments and fuel costs to produce
electricity. Specifically, given that delivered DFO prices
historically have exceeded delivered gas prices, the Rosemary
Facility benefits if it is able to burn gas in January and February,
but could experience reduced margins on its energy payments if forced
to burn DFO in lieu of spot gas to satisfy dispatch requests in any
other month. This risk, however, is largely mitigated by a start-up
fee payable by VEPCO each time the Rosemary Facility is dispatched in
November, December and March, the months other than January and
February during which the Rosemary Facility is most likely to be
forced burn DFO. Although Schlesinger believes the existing fuel plan
to be reasonable and appropriate, Schlesinger recommends that the
Rosemary Partnership continue to monitor on an annual basis the
Rosemary Facility's actual and projected dispatch and gas and DFO
pricing for the months of November, December and March to assess the
need for modifications in the existing fuel plan.
- Although the Rosemary Facility buys firm gas supply and delivery
services to satisfy only its baseload fuel requirements, the Rosemary
Facility has always had enough fuel to satisfy VEPCO's dispatch
requests. Moreover, from the start of commercial operations through
the end of 1995, the Rosemary Facility has been able to secure gas
sufficient to satisfy in excess of 90% of its total dispatch fuel
requirements, a record attributable to relatively low levels of
winter dispatch as well as the flexibility of its gas arrangements.
Schlesinger concludes that the Rosemary Facility's existing gas
supply and delivery arrangements provide an appropriate degree of gas
reliability for an electric peaking facility. In addition,
Schlesinger concludes that the Rosemary Facility's two million gallon
on-site DFO storage capacity, ready access to oil terminals in four
nearby locations, and operational DFO resupply procedures with NGC
that have proven to be effective to provide an appropriate degree of
backup DFO supply reliability, i.e., no additional DFO supply or
delivery contracts are necessary. However, the Rosemary Facility may
not be able to sustain a 90% gas reliability level in the future
under a scenario of significantly higher levels of dispatch in the
months of November, December and March and the Rosemary Partnership
should continue to monitor projected dispatch for these months as
described above. Schlesinger reviewed the fuel supply and
transportation pricing projections used by Burns & McDonnell in the
Rosemary Engineering Report. Schlesinger concluded from its review
that the Rosemary Engineering Report employs reasonably conservative
assumptions for the costs of the Rosemary Facility's various gas
supply and transportation services, i.e., based on Schlesinger's
assessment of the fuel contracts and the cost of gas supply and
transportation services, Schlesinger believes that fuel delivered to
the Rosemary Facility is likely to cost less than the estimates
contained in the Rosemary Engineering Report.
- The Rosemary Facility's fuel supply and transportation contracts have
original terms of approximately 15 years and thus will need to be
extended or replaced. The Rosemary Facility should have little
difficulty extending the existing fuel arrangements or, if necessary,
replacing the current fuel contracts with alternate service
arrangements that offer comparable price, credit support and
reliability provisions. Schlesinger notes that the Rosemary
Engineering Report projects fuel costs through the year 2015 on the
basis of the existing fuel contracts and, based on the foregoing
conclusion, Schlesinger believes such projection to be reasonable.
The Brandywine Facility
The Brandywine Facility is a combined-cycle cogeneration facility located
in Brandywine, Maryland (near Washington, D.C.), with a total electric
generating capacity of 230 MW. The Brandywine Facility uses natural gas as its
primary fuel input and No. 2 fuel oil as an alternative fuel in the event that
gas supplies or transportation are curtailed. The Brandywine Facility was
constructed by Raytheon Engineers and Constructors, Inc. ("Raytheon"). Raytheon
has met its performance guarantees and the requirements for commercial
operations and substantial completion under the Brandywine EPC Agreement.
Pursuant to a power purchase agreement entered into in 1991 and amended in
1994, the Brandywine Partnership sells the capacity of, and energy produced by,
the Brandywine Facility to Potomac Electric Power Company ("PEPCO"), a utility
that serves the District of Columbia and parts of Maryland. The Brandywine
Facility commenced commercial operations under the Brandywine Power Purchase
Agreement on October 31, 1996. A merger of PEPCO and Baltimore Gas & Electric
Company ("BG&E"), a utility that serves other parts of Maryland, has been
publicly announced and is anticipated to close sometime in 1997. The term of
the Brandywine Power Purchase Agreement will expire on October 30, 2021.
The Brandywine Facility is currently leased by the Brandywine Partnership
pursuant to the Brandywine Facility Lease. The initial term of the Brandywine
Facility Lease is 20 years. At the end of the initial lease term, so long as no
default or event of default shall have occurred and be continuing under the
Brandywine Facility Lease, the Brandywine Partnership may renew the Brandywine
Facility Lease for two consecutive five-year terms. Alternatively, the
Brandywine Partnership may purchase the Brandywine Facility at fair sales
market value at the end of the initial lease term or any renewal term. If the
Brandywine Partnership does not renew the Brandywine Facility Lease or purchase
the Brandywine Facility, it must surrender possession of the Brandywine
Facility. See "Description of Other Indebtedness--The Brandywine Financing--
Brandywine Facility Lease."
The Brandywine Facility is certified as a Qualifying Facility under PURPA
and thus is exempt from rate regulation as an electric utility under federal
and state law, provided that, upon and during commercial operations, it
continues to meet the applicable requirements of PURPA. See Appendix B, "The
Electric Power Industry in the United States and United States Regulation--
Federal Energy Regulation--PURPA."
Operations and Maintenance
The Brandywine Partnership purchases operations and maintenance services
from Ogden Brandywine Operations, Inc. ("Ogden Brandywine"), a subsidiary of
Ogden Corporation, pursuant to an Operation and Maintenance Agreement (the
"Brandywine O&M Agreement"). The Brandywine O&M Agreement is effective until
October 31, 1999, and may be extended thereafter by agreement of the parties.
In exchange for such services, Ogden Brandywine is paid a fixed fee of $117,750
per month, with bonus and penalty provisions based on maintenance of dependable
capacity levels and availability of the Brandywine Facility for dispatch.
Sale of Capacity, Electricity and Steam
The Brandywine Partnership sells electric capacity and energy to PEPCO
pursuant to a Power Purchase Agreement (as amended by a first amendment ("First
Amendment") thereto, the "Brandywine Power Purchase Agreement"). The Brandywine
Power Purchase Agreement has an initial term that expires in October 2021, 25
years from the commercial operations date, and may be extended by agreement of
the parties. The Maryland Public Service Commission has approved the Brandywine
Power Purchase Agreement (including the First Amendment). The District of
Columbia Public Service Commission has issued orders indicating its approval of
the Brandywine Power Purchase Agreement as in the public interest and the First
Amendment as a reasonable modification thereof. The District of Columbia Public
Service Commission also has made certain findings of fact and conclusions of
law that were conditions precedent to the effectiveness of the First Amendment
according to its terms.
PEPCO has the right to dispatch the Brandywine Facility on a daily basis
within certain guidelines and design limits. The design limits specify load
levels, start-up and shutdown times and minimum run times, specifically
adhering to Prudent Utility Practices. The guidelines require PEPCO to dispatch
all facilities obligated to deliver electricity to PEPCO based on economic
factors and without regard to the ownership of such facilities. PEPCO is
required to dispatch 99 MW of the Brandywine Facility's dependable capacity for
no fewer than 60 hours per week (Monday through Friday). The remaining portion
of the Brandywine Facility can be dispatched by PEPCO under the guidelines
described above.
The Brandywine Power Purchase Agreement provides for two payments: a
capacity payment and an energy payment. The capacity payment is a fixed charge
to be paid regardless of whether the Brandywine Facility is dispatched, subject
to reduction in certain circumstances described below. Monthly capacity
payments throughout the term of the Brandywine Power Purchase Agreement are
based on the Brandywine Facility's dependable capacity, the capacity rate and
other factors. Under the Brandywine Power Purchase Agreement, the Brandywine
Facility is required to establish a dependable capacity of 230 MW in summer
ambient conditions (defined as 92 degrees F and 50% humidity). The dependable
capacity will be determined by semi-annual tests and PEPCO has the right to
require the Brandywine Partnership to revalidate the dependable capacity.
The capacity rate, stated in $/kW/month, is a fixed schedule of payments for
each of the 25 years of the initial term of the Brandywine Power Purchase
Agreement, ranging from $13.74 in 1997 to $23.63 in 2014. The capacity
payment is subject to specified downward adjustments in contract years one,
two and four, and to specified upward adjustments in the fifth and 11th
through the 25th contract years. Capacity payments will be reduced if the
Brandywine Facility cannot maintain 88% equivalent availability, and will be
increased if it exceeds 92% equivalent availability. Capacity payments may also
be decreased commencing in 2006 depending on whether PEPCO's system peak load
exceeds 5,697 MW during 1997, 1998 or 1999 or later. Calculation of capacity
payments pursuant to these provisions of the Brandywine Power Purchase
Agreement is the subject of a dispute between the Brandywine Partnership and
PEPCO, as discussed below.
The energy payment is determined in accordance with a series of formulas
that reflect specified heat rates, hours of synchronization and operation and a
combination of fixed and market prices for natural gas. The Brandywine Power
Purchase Agreement provides that the energy price will be increased to
compensate the Brandywine Partnership for its variable costs of fuel oil if the
gas supply is interrupted. In such event, the Brandywine Power Purchase
Agreement specifies a base cost of oil, which is escalated at the annual rate
of change according to an oil index described therein.
The Brandywine Partnership has constructed a seven-mile long electric
transmission line to connect the Brandywine Facility and the transmission
facilities of PEPCO. Consolidated Rail Corporation entered into an agreement
with the Brandywine Partnership to provide transmission line easements for a
portion of the transmission line. The Brandywine Partnership transferred
ownership of the transmission line to PEPCO on October 30, 1996.
The Brandywine Partnership sells steam to the Brandywine Water Company
pursuant to a Steam Sales Agreement dated March 30, 1995 (the "Brandywine Steam
Agreement"). Brandywine Water Company is an indirect wholly-owned subsidiary of
the Company. The production and sale of thermal energy allows the Brandywine
Facility to achieve QF status. The Brandywine Steam Agreement continues until
October 31, 2021 and may be extended by agreement of the parties for additional
terms of five years. Brandywine Water Company fully and unconditionally agrees
to purchase all of the thermal energy produced by the Brandywine Facility and
has entered into a contract with the United States Navy to sell it distilled
water for heating and other industrial uses in a naval facility. The contract
is for a one-year term that commenced on October 1, 1996. Prior to the
expiration of the term of the Navy contract, Brandywine Water Company will have
to extend the contract or find one or more other customers to purchase the
distilled water. If Brandywine Water Company is unable to extend its contract
to sell distilled water to the United States Navy or to find one or more
replacement contracts for the sale of such water, there is no assurance that
the Brandywine Facility will be able to remain a Qualifying Facility. PEPCO may
terminate the Brandywine Power Purchase Agreement, and it may be a default
under the Brandywine Financing Documents, under certain circumstances if the
Brandywine Facility ceases to be a QF, unless the Brandywine Partnership
receives all governmental and regulatory approvals necessary to continue
operating the Brandywine Facility without QF certification. See "Risk Factors--
U.S. Industry Conditions--Risks in the Event That Qualifying Facility Status of
Rosemary Facility or Brandywine Facility is Not Maintained."
Disagreement With PEPCO Over Calculation of Capacity Payment
In late August 1996, the Brandywine Partnership and PEPCO commenced
discussions concerning commercial operation requirements of the Brandywine
Facility and conversion of the construction loan to long-term financing. During
these discussions, two disagreements arose between the Brandywine Partnership
and PEPCO as to how capacity payments should be calculated under the Brandywine
Power Purchase Agreement. PEPCO and the Brandywine Partnership are presently
attempting to resolve these disagreements but there are no assurances that such
efforts will be successful.
The Brandywine Partnership and PEPCO disagree as to the date on which the
yield to maturity on United States Treasury Bonds with a maturity of 12 years
("12-year T-Bonds") should be determined under a provision in the Brandywine
Power Purchase Agreement that requires capacity payments to be reduced if such
interest rate is less than 8%. Such provision states that the interest rate of
12-year T-Bonds is to be determined, and adjustments to capacity payments made,
as of the date that the interest rate for permanent financing for the
Brandywine Facility is designated pursuant to an executed commitment for such
financing. On October 6, 1994, the Brandywine Partnership entered into a
written commitment with GE Capital with respect to permanent financing for the
Brandywine Facility, which commitment designated an interest rate for such
financing. Accordingly, the Brandywine Partnership takes the position that
October 6, 1994 should be the date used to determine the interest rate of 12-
year T-Bonds under the Brandywine Power Purchase Agreement. The interest rate
for 12-year T-Bonds on such date was 7.94% per annum. PEPCO, on the other hand,
takes the position that since the interest rate designated in such commitment
was a floating rate, the date to be used for determining the interest rate of
12-year T-Bonds is the closing date of the conversion of the Brandywine
Construction Loan Facility to long-term financing in the form of a leveraged
lease, which occurred on December 30, 1996. The interest rate for 12-year T-
Bonds on such date was 6.36%.
To the extent that PEPCO's position with respect to the PEPCO interest
rate disagreement does not prevail, PEPCO claims that it is entitled to a
reduction in capacity payments under another provision of the Brandywine Power
Purchase Agreement that requires PEPCO to share equally in any "refinancing or
new or revised lease arrangements" savings. The Brandywine Partnership takes
the position that all transactions to be entered into at or near closing of the
Brandywine Financing Conversion were provided for under the Brandywine
Financing Documents and do not constitute a refinancing or new or revised lease
arrangements. In the event that the capacity payments were reduced pursuant to
this provision, the reduction would be significantly less than the reduction
claimed by PEPCO in connection with the PEPCO interest rate disagreement.
PEPCO and the Brandywine Partnership also disagree as to the determination
of PEPCO's system peak load which is the basis for reductions in capacity
payments under the Brandywine Power Purchase Agreement. Under such provision,
capacity payments are to be reduced, commencing in 2006, if PEPCO's system peak
load does not exceed 5,697 MW prior to 1998, and are reduced by a greater
amount if PEPCO's system peak load does not exceed such amount prior to 1999.
PEPCO and BG&E have announced their intention to merge during 1997 into a new
entity to be known as Constellation Energy Corporation ("Constellation"), and
PEPCO has asked the Brandywine Partnership to agree that peak load under the
Brandywine Power Purchase Agreement would be calculated on the basis of the pre-
merger PEPCO system and not the post-merger Constellation system. Peak load
based on the Constellation system would greatly exceed 5,679 MW during 1997.
However, PEPCO's position is that the parties intended to use the current PEPCO
system in calculating peak load and that the merger with BG&E should be
disregarded for such purpose. The Brandywine Partnership disagrees with such
position. The Brandywine Power Purchase Agreement does not contain any
provision requiring adjustments due to mergers or reorganizations. It is the
Brandywine Partnership's position that Constellation, as the successor of
PEPCO, would be substituted for PEPCO under the Brandywine Power Purchase
Agreement and the Constellation system should be used to calculate peak load.
The Brandywine Pro Forma and the Consolidated Pro Forma are prepared under
the assumption that PEPCO's system peak load (based on the pre-merger PEPCO
system) exceeds 5,697 MW during 1999 or thereafter, and accordingly, there is
the maximum reduction in capacity payments under this provision. ICF believes
that such assumption represents the most conservative presentation and is not
dependent upon the outcome of the current disagreement between Brandywine
Partnership and PEPCO regarding the basis for the determination of PEPCO's
system peak load. The Brandywine Pro Forma and the Consolidated Pro Forma are
also prepared under the assumption that the interest rate to be used for
purposes of the capacity payment adjustment is 6.36%, which represents PEPCO's
position. ICF believes that this assumption represents the most conservative
presentation of the disagreement. See "Prospectus Summary--Independent
Engineers' and Consultants' Reports--Consolidating Financial Analyst's Pro
Forma Report" and "--Independent Engineers' and Consultants' Reports--
Brandywine Pro Forma Report" below.
Gas Supply and Fuel Management
The Brandywine Partnership purchases both firm and interruptible natural
gas supply from CDC pursuant to the Gas Sales Agreement, dated March 30, 1995,
between the Brandywine Partnership and CDC (the "Brandywine Gas Agreement").
MCN Corporation ("MCN"), the parent corporation of CDC, has fully and
unconditionally guaranteed the payment and performance obligations of CDC under
the Brandywine Gas Agreement. The Brandywine Gas Agreement commenced October
31, 1996 and continues until October 31, 2011, and thereafter is automatically
renewed for an additional two-year term unless terminated by either party upon
nine months' written notice.
CDC is obligated to sell and deliver to the Brandywine Partnership, at
receipt points along the pipeline system of Columbia Gas, up to 24,240 MMBtu of
gas per day on a firm basis and up to 24,240 MMBtu of gas per day on an
interruptible basis. Gas delivered by CDC within the firm basis limit falls
within one of the three following categories: "Limited Dispatch Gas,"
"Scheduled Dispatch Gas" or "Dispatchable Gas" (each as defined in the
Brandywine Gas Agreement).
The price for the gas delivered by CDC is dependent upon the category of
the gas delivered. The price for Limited Dispatch Gas consists of a monthly
demand charge, a commodity charge and a charge relating to costs incurred by
CDC for firm transportation CDC receives from ANR Pipeline Company. The
commodity charge escalates annually while the demand charge and the ANR-related
charge increase after the fifth year of the initial term of the Brandywine Gas
Agreement. The price for Scheduled Dispatch Gas consists of a commodity charge
based on the monthly New York Mercantile Exchange settlement price for natural
gas futures contracts plus a margin which increases after year five of the
Brandywine Gas Agreement. The price for Scheduled Dispatch Gas is capped based
on three monthly natural gas price indices. The price for Dispatchable Gas is a
negotiated price or, if a negotiated price cannot be reached, is based on a
daily natural gas price index. In addition, the Brandywine Partnership receives
a price credit from CDC for each MMBtu of gas delivered by CDC during a month
not to exceed the demand charge for Limited Dispatch Gas.
The Brandywine Partnership must annually take or pay for no less than
2,299,500 MMBtu (or 2,305,800 MMBtu during a leap year) of Limited Dispatch
Gas, which amount is reduced by 7,000 MMBtu for each day of regularly scheduled
outage at the Brandywine Facility. In addition, the Brandywine Partnership must
take or pay for a quantity of Scheduled Dispatch Gas each month that is no less
than 80% of the Scheduled Dispatch Gas that was scheduled for delivery during
such month. If the Brandywine Partnership pays for but fails to take the
minimum quantities of Limited Dispatch Gas or Scheduled Dispatch Gas, the
Brandywine Partnership has the opportunity later to receive the quantities of
gas paid for but not taken.
The Brandywine Partnership also purchases fuel management services from
CDC pursuant to the Fuel Supply Management Agreement between CDC and the
Brandywine Partnership (the "Brandywine Fuel Management Agreement"). CDC's fuel
management responsibilities under the Brandywine Fuel Management Agreement
include advising the Brandywine Partnership with respect to the negotiation of
natural gas and fuel oil supply and transportation arrangements, arranging for
the delivery to the Brandywine Facility of natural gas or fuel oil, endeavoring
to make such arrangements on "best efforts" and "best competitive offer" basis
and advising the Brandywine Partnership with respect to fuel hedging
arrangements. MCN Investment Corp. (an affiliate of MCN and CDC) has guaranteed
CDC's payment and performance obligations under the Brandywine Fuel Management
Agreement.
Gas Transportation
The Brandywine Partnership and Columbia Gas have entered into a Precedent
Agreement (the "Columbia Precedent Agreement"), pursuant to which Columbia Gas
has constructed new pipeline facilities to expand its existing interstate
pipeline and provide the Brandywine Partnership with firm gas transportation
service. As of December 31, 1996, the Brandywine Partnership contributed
$6,772,590, plus applicable tax gross-up, toward the construction of Columbia
Gas' pipeline facilities.
The Brandywine Partnership purchases firm gas transportation service from
Columbia Gas pursuant to an Amended and Restated FTS Service Agreement (the
"Columbia Gas FT Agreement"). Service under the Columbia Gas FT Agreement
commenced on November 1, 1996 and continues until October 31, 2021, and year-to-
year thereafter unless terminated by either party upon six months' notice.
The Brandywine Partnership purchases from Cove Point LNG Limited
Partnership ("Cove Point") firm gas transportation service to transport gas
delivered by Columbia Gas to the facilities of Cove Point pursuant to a FTS
Service Agreement (the "Cove Point FT Agreement"). The Cove Point FT Agreement
continues until October 31, 2021. Cove Point is obligated to provide the
Brandywine Partnership with up to 24,000 Dth per day of firm gas transportation
service from an interconnection between the facilities of Cove Point and
Columbia Gas in Loudoun, Virginia to an interconnection between the facilities
of Cove Point and Washington Gas Light Company ("WGL") in Charles County,
Maryland. Cove Point provides the firm transportation service pursuant to the
Cove Point FT Agreement, the Rate Schedule FTS and the general terms and
conditions of its effective FERC gas tariff. In addition to the firm
transportation agreements, the Brandywine Partnership has entered into
interruptible transportation agreements with Columbia Gas and Cove Point under
which the Brandywine Partnership will receive 24,240 Dth per day and 30,000 Dth
per day, respectively, of interruptible transportation service on a month-to-
month basis.
The Brandywine Partnership purchases from WGL gas transportation, gas
sales and gas balancing service pursuant to a Gas Transportation and Supply
Agreement (the "WGL Agreement"). The WGL Agreement continues until October 31,
2021, and thereafter will continue year-to-year unless terminated by either
party upon six months' written notice. WGL is obligated to provide the
Brandywine Partnership with firm transportation service, up to the quantity of
gas nominated for such service on a given day, from an interconnection between
the facilities of Cove Point and WGL in Charles County, Maryland to the
interconnection between the WGL facilities and the Brandywine Facility,
provided that WGL only must use its best efforts to deliver transportation gas
to the Brandywine Facility when the pressure on the Cove Point pipeline is less
than 500 psig. During the months of January, February and December of any
calendar year, WGL may, under certain circumstances, request that the
Brandywine Partnership release to WGL for its system use a quantity of gas
purchased by the Brandywine Partnership under the Brandywine Gas Agreement and
transported to the WGL system. Additionally, WGL sells and delivers gas to the
Brandywine Facility on an as-available basis from November through March and on
a best efforts basis from April through October, at a price to be agreed by the
parties.
Fuel Oil
If natural gas supply or transportation is not available to the Brandywine
Facility, such facility has the capability to operate on No. 2 fuel oil and has
the ability to change fuel sources from natural gas to fuel oil and back
without interrupting the generation of electricity. The Brandywine Facility
has on-site storage for approximately two million gallons of fuel oil, a
supply sufficient to operate the Brandywine Facility at full load for
approximately six days.
Under the fuel management plan, the Brandywine Partnership will endeavor
to enter into fuel oil supply and transporation agreements by October 10 of each
year that will provide it with access to adequate fuel oil supplies for the
immediately succeeding winter season (November through March). See "Risk
Factors --Project Risks--Interruptible Natural Gas Supplies For Rosemary
Facility and Brandywine Facilty May Create Risk of Unavilability For Dispatch."
Construction Contract
Pursuant to the Brandywine EPC Agreement, Raytheon agreed to construct the
Brandywine Facility (including the distilled water plant) for approximately
$122.0 million (including change orders). Because Raytheon provided a letter of
credit, initially equal to 10% of the contract price, no retainage is withheld.
The amount of this letter of credit was reduced as of the commencement of
commercial operations to 5% of the aggregate amount paid by the Brandywine
Partnership to Raytheon through that date, and thereafter the letter of credit
must be maintained at a level which is twice the cost of completing punch list
items remaining at final acceptance of the Brandywine Facility. Raytheon
Company, a Delaware corporation and the parent corporation of Raytheon, has
provided a guaranty covering all obligations of Raytheon under the Brandywine
EPC Agreement.
A dispute exists between the Brandywine Partnership and Raytheon as to the
specific date on which commercial operations for purposes of the Brandywine EPC
Agreement occurred and the amount of the early completion bonus to which
Raytheon is entitled. In addition, the Brandywine Partnership and Raytheon
disagree as to the number of force majeure days to which Raytheon is entitled
as a result of a January 1996 snowstorm during which construction work could
not be carried on, and as to the validity and number of owner-caused delay
days. Even in the event that an agreement on the number of such days is
reached, the Brandywine Partnership and Raytheon further disagree as to the
affect, if any, such delays would have on the amount of the bonus payable under
the Brandywine EPC Agreement for early completion of the facility.
Taking into account all of the foregoing issues with Raytheon, the
Brandywine Partnership believes that the total amount in dispute between the
Brandywine Partnership and Raytheon is less than $1.0 million. The bonus for
early achievement of the commercial operations date discussed above, if
ultimately determined to be owed, would be payable over time and funded from
cash flows from the operation of the Brandywine Facility which may otherwise
have been available for distributions.
Independent Engineers' and Consultants' Reports
The Brandywine Pro Forma Report, the Brandywine Engineering Report and the
Brandywine Fuel Consultant's Report, and the following summaries thereof,
contain forward-looking statements, including projections, that involve risks
and uncertainties. Actual results may differ materially from those discussed in
the forward-looking statements. See "Risk Factors--Reliance upon Projections
and Underlying Assumptions Contained in Engineers' and Consultants' Reports;
Actual Results May Vary From Such Projections."
Brandywine Pro Forma Report. ICF has prepared a report, dated April 11,
1997 and updated August 7, 1997 (the "Brandywine Pro Forma Report"), presenting
its independent pro forma operating projections (the "Brandywine Pro Forma")
for the Brandywine Facility. In developing its projections, ICF reviewed the
Brandywine Facility's fuel supply and transportation contracts, the Brandywine
Facility Lease and the Brandywine Power Purchase Agreement, as well as the
Brandywine Engineering Report and the Brandywine Fuel Consultant's Report.
In preparing the Brandywine Pro Forma, ICF used and relied on the Brandywine
Engineering Report and the Brandywine Fuel Consultant's Report as well as on
certain other information provided to it by sources it believes to be reliable,
including a report by ICF providing its dispatch projections for the Brandywine
Facility. ICF believes that the use of such information is reasonable for the
purposes of the Brandywine Pro Forma. In preparing the Brandywine Pro Forma and
the conclusions contained therein, ICF made assumptions with respect to the
validity and performance of contracts, the operation and maintenance of the
Brandywine Facility, the effectiveness of permits and the maintenance of QF
status. Although ICF believes that the use of these assumptions and the others
contained in the Brandywine Pro Forma Report in developing the Brandywine Pro
Forma is reasonable, assumptions are inherently subject to significant
uncertainties and, if actual conditions differ from those assumed, actual
results will differ from those projected. The material assumptions made by ICF
in developing the Brandywine Pro Forma include the following:
- - Raytheon has constructed and Ogden Brandywine will operate the Brandywine
Facility as required under their respective contracts with the Brandywine
Partnership, which contracts have been reviewed by PEC. ICF further
assumes that PES's conclusions as to those agreements are accurate.
- - The Brandywine Facility's design will enable it to perform at a level
consistent with that anticipated in the Brandywine Pro Forma.
- - The fuel supply arrangements entered into by the Brandywine Partnership
fulfill the contractual requirements of the Brandywine Power Purchase
Agreement, and variable fuel-related costs will be less than the energy
payments to be received from PEPCO, as confirmed by C.C. Pace in the
Brandywine Fuel Consultant's Report.
- - PEPCO's system peak loan will exceed 5,697 MW during 1997.
Subject to the studies, analyses and investigations of the Brandywine
Facility performed by ICF, and the assumptions made in the Brandywine Pro
Forma, ICF offers the following conclusions:
- The financial projections in the Brandywine Pro Forma provide a
reasonable reflection of the Brandywine Facility's expected costs,
revenues and cash flows.
- The energy and capacity revenue calculations contained in the
Brandywine Pro Forma are appropriate and consistent with the
Brandywine Power Purchase Agreement. Expectations for capacity
payment adjustments under the Brandywine Power Purchase Agreement in
regard to the interest rate adjustment and the peak adjustment are
presented at the most conservative positions.
- Over the 20-year initial term of the Brandywine Facility Lease, the
Brandywine Facility's cash flow available for lease payments will
average approximately $46.5 million per year, reflecting a range of
$18.1 million in 1998 to $58.9 million in 2020.
- The estimated lease obligation coverage ratios (i.e., the ratio of
earnings before income taxes to lease payments) are presented in
Table ES-1 to the Brandywine Pro Forma Report. During the 20-year
term of the Brandywine Facility Lease, the Brandywine Facility's
lease coverage will range from 1.35:1 in 2012 to 1.75:1 in 2004, with
an average coverage ratio of 1.59:1.
Brandywine Engineering Report. Pacific Energy Services, Inc. ("PES") has
prepared a report, dated July 22, 1996, and updated April 11, 1997 and August
7, 1997 (as updated, the "Brandywine Engineering Report"), evaluating the
design, construction and expected operation of the Brandywine Facility. PES has
provided engineering services to approximately fifty power plants within the
last seven years. Such services include technical review, construction
monitoring, performance testing and certification and O&M audits. Approximately
one-half of these plants utilize combined-cycle combustion turbine technology
with cogeneration, as does the Brandywine Facility. PES has been involved with
the Brandywine Facility since it performed a due diligence review for GE
Capital in connection with the closing of the Brandywine Facility's
construction loan in April 1995 and has monitored construction of the
Brandywine Facility since that date.
PES's review and assessment is based, among other things, on due diligence
work previously completed, construction monitoring of the Brandywine Facility
and a review of significant project agreements. In providing its conclusions
set forth in the Brandywine Engineering Report, PES made certain assumptions.
The assumptions are inherently subject to significant uncertainties and, if
actual conditions differ from those assumed, actual results will differ from
those projected, perhaps materially. The material assumption made by PES in
preparing the Brandywine Engineering Report was that the various test reports
and calculations upon which PEs based its conclusions were accurate and
reasonable.
PES has independently reviewed the project engineering, cost, construction
schedule, permits, contracts, O&M and performance estimates for completeness,
risk, variation from practices typical in the industry and the ability of the
Brandywine Facility to perform as intended. PES offers the following
conclusions:
- The Brandywine Facility is substantially complete, capable of meeting
all commercial operating requirements under the Brandywine Power
Purchase Agreement and the Brandywine Steam Agreement, and has
received or is expected to receive all necessary operating permits.
There is no reason to believe that any necessary operation permit not
yet received will not be obtained.
- The Brandywine Facility meets or exceeds all guarantees or design
conditions based on the information supplied during testing by
Raytheon, GE Power Systems, and others. Provided future operation and
maintenance are performed according to standard industry practices,
PES can find no technical constraints to prevent the Brandywine
Facility from being able to perform at a level consistent with that
anticipated in the Brandywine Pro Forma.
Brandywine Fuel Consultant's Report. C.C. Pace has prepared a report,
dated July 2, 1996, and updated April 11, 1997 and August 7, 1997 (as updated,
the "Brandywine Fuel Consultant's Report"), reviewing the sufficiency of the
fuel supply and transportation arrangements for the Brandywine Facility. C.C.
Pace is an energy consulting firm based in Fairfax, Virginia, that specializes
in analyzing fuel supply and transportation arrangements for independent power
projects. The Brandywine Fuel Consultant's Report reviews whether the
Brandywine Partnership has contracted for adequate fuel supply and
transportation services to meet its obligations under the Brandywine Power
Purchase Agreement and the relationship between the energy payments under the
Brandywine Power Purchase Agreement and the fuel and transportation costs the
Brandywine Partnership is likely to incur.
The Brandywine Fuel Consultant's Report is based upon certain assumptions
regarding the availability and future pricing of fuel. The assumptions are
inherently subject to significant uncertainties and, if actual conditions
differ from those assumed, actual results will differ from those projected.
The material assumptions made by C.C. Pace in developing the Brandywine
Fuel Consultant's Report are as follows:
- - Fuel supply and electric power purchase contracts provided by the
Brandywine Partnership are accurate and complete.
- - Fuel supplier contracts are enforceable.
- - The Brandywine Partnership will prudently perform its material contract
obligations and management responsibilties in regard to the Brandywine
Facility.
- - The Brandywine Partnership will adhere to the provisions of the Brandywine
Faciilty's Fuel Management Plan.
- - PEPCO will follow standard utility practices in dispatching the Brandywine
Facility.
- - The reliability of gas transportation services will continue in accordance
with historic practice.
Subject to the information contained and the assumptions made in the
Brandywine Fuel Consultant's Report, C.C. Pace offers the following
conclusions:
- All pipeline construction has been completed and all of the firm
natural gas transportation contracts of the Brandywine Partnership
are in effect.
- The Brandywine Facility's Fuel Management Plan is sufficient, if
followed, to assure that the Brandywine Facility will operate in a
manner to meet PEPCO electric dispatch orders while maintaining
compliance with all fuel supply contract and tariff obligations.
- PEPCO has approved the Brandywine Facility's Fuel Management Plan.
- The Brandywine Partnership has developed sufficient fuel oil
procurement procedures which are included in the Fuel Management
Plan.
- The Brandywine Partnership should be able to meet all oil needs at
the Brandywine Facility for the 1996-1997 winter heating season.
- CDC, an experienced gas supplier with reserves sufficient to support
the fixed-price portion of the Brandywine Gas Agreement, is required
annually under the Brandywine Gas Agreement to ensure that its
reserves continue to be adequate to meet that obligation, and has
ongoing gas marketing operations more than sufficient to support the
remaining contractual obligations with the Brandywine Partnership.
MCN also has substantial assets backing its corporate warranty of
CDC's gas supply obligations.
- The market-based pricing provided under the Brandywine Power Purchase
Agreement corresponds to the pricing at which gas supplies are
generally available, and is similar to the pricing at which gas
supplies are available from CDC.
- Gas transportation arrangements are in place for firm transportation
for 100% of the fuel supply requirements for Unit 1 for the term of
the Brandywine Power Purchase Agreement, subject to the obligation of
the Brandywine Partnership under limited circumstances to release to
WGL all of its firm gas supply. The regulatory approvals for these
arrangements have been received.
- There is a strong linkage between changes in the Brandywine
Facility's expected variable fuel-related costs and revenues. Several
potential delinkages are mitigated by significant initial positive
margins in energy payment components.
- The gas supply and transportation operational requirements are
flexible enough to satisfy electric dispatch operational
requirements, provided sound fuel management is employed. CDC and
its affiliates have fuel management experience, and CDC's fuel
management performance is backed by a corporate warranty from MCN
Investment Corp.
- The backup fuel plan provides the Brandywine Partnership the
capability to meet dispatch requirements, assuming firm fuel oil
supply and transportation contracts are in place before each heating
season and the Brandywine Facility's air permit allows use of fuel
oil.
- The pro forma modeling of the Brandywine Facility contained in the
Brandywine Pro Forma Report reflects the Brandywine Facility's fuel
supply arrangements using the gas and oil price projections of ICF.
ICF is a recognized forecaster of gas and oil prices. As a
consequence of the expected dispatch of the Brandywine Facility also
projected by ICF, such pro forma modeling reflects significant
benefits of certain pipeline balancing provisions under the
assumption that these provisions will continue over the term of
Brandywine Power Purchase Agreement. These balancing provisions are
not contractual rights and there is no guarantee that these
provisions will continue over the entire pro forma modeling term.
Other Projects under Development by Panda International
The following are additional Projects that Panda International is
developing and that could become eligible for transfer to the PIC Project
Portfolio if the conditions for transfer set forth in the PIC Additional
Projects Contract are satisfied. Such Projects, if not required to be
transferred to the PIC Project Portfolio, may, at the election of Panda
International, be transferred to the Issuer or the Company if certain
conditions for transfer set forth in the Indentures are satisfied. There can be
no assurance that any Project under development will reach Financial Closing or
achieve Commercial Operations.
The Lapanga Facility
In August 1994, an affiliate of Panda International acquired from another
independent power developer a 90% interest in a Project company that had
entered into a power purchase agreement with the Orissa State Electricity Board
for a proposed 500 MW coal-fired power project to be located in the State of
Orissa, India. Certain of the Central Governmental approvals for the Project
have been obtained. Although Panda International believes that the power
purchase agreement is valid and enforceable, the State of Orissa has given a
notice of cancellation of such agreement to Panda International, as well as to
several other third parties with respect to their respective power purchase
agreements. Panda International has objected to such notice and is presently
conducting discussions with the government of the State of Orissa. Development
efforts have been delayed pending resolution of this dispute.
The Kathleen Facility
The Kathleen Facility is planned to be a combined-cycle, natural gas-
fired, intermediate-load cogeneration facility to be located on a 7.5-acre site
owned by a wholly-owned indirect subsidiary of the Company (the "Kathleen
Partnership") in an industrial park near Lakeland, Florida. The Kathleen
Partnership entered into a power purchase agreement with Florida Power
Corporation ("Florida Power") in 1991.
The Kathleen Partnership and Florida Power are engaged in litigation
before state and federal forums in Florida over the interpretation of the
Kathleen power purchase agreement, including whether the size of the Kathleen
Facility as designed by Panda International conforms with the power purchase
agreement. See "Legal Proceedings--Florida Power Proceedings." The outcome of
this litigation will determine whether construction of the Kathleen Facility is
initiated and completed. Pursuant to arrangements with GE Capital under the
documents relating to the financing of the Brandywine Facility, the entities
which are partners of the Kathleen Partnership must remain as subsidiaries of
PEC but will be required to be transferred to PIC, in which case the Kathleen
Facility would become part of the PIC Project Portfolio if, and within 180 days
after, the Kathleen Facility reaches the earlier of Financial Closing or
Commercial Operations.
Panda of Nepal Facility Under Development by the Issuer
Certain of the information in this Section has been derived from
various government and private publications and obtained in communications
with various agencies of His Majesty's Government of Nepal ("HMGN") and has
not been independently verified by the Issuer or the Company.
A subsidiary of the Issuer has an ownership interest (expected to be
75% following completion of financing) in a joint venture with a major
hydroelectric engineering company and a local Nepalese party to build a 36
MW hydroelectric facility on the upper Bhote Koshi River in Nepal. The
Government of Nepal issued a Certificate of Registration to the joint
venture in June 1996. A power purchase agreement with the Nepal
Electricity Authority ("NEA") and a project agreement with the Government
of Nepal obligating the Government of Nepal to guarantee NEA's payment
obligations and provide certain other support and incentives were signed in
July 1996. A fixed price turnkey engineering, procurement and construction
contract for the Project was signed with China Gezhouba Construction Group
Corporation in October 1996 and amended and restated in December 1996.
Panda International has received various commitment letters from
multilateral agencies to provide for some of the financing for this Project
and is currently negotiating the documents governing such financing, as
well as seeking the requisite additional financing for this Project. In
order to assist in the funding of this Project, Panda International
recently transferred ownership of the applicable affiliate to the Issuer;
however, there can be no assurance that such funding will be obtained.
Thus, there can be no assurance that this Project will reach Financial
Closing or achieve Commercial Operations.
The Nepalese Power Market
According to published documents of the NEA, Nepal faces a critical
shortage in its electricity supply. Annual per capita consumption of
electricity, according to the NEA, is between 34 kWh and 41kWh, which is
one of the lowest consumption averages in the world and the lowest in Asia.
While demand for power grows, capacity additions have not kept pace.
Consequently, HMGN expects to face a widening shortage until new power
plants can be brought on line. Fossil-fuel plants, however, are not an
attractive option for Nepal, which does not produce oil or gas and has to
import such fuels at a high cost through India. According to the NEA,
Nepal had an aggregate installed electric power generation capacity,
including private projects, of approximately 301 MW in 1996. Hydropower
comprised about 254 MW of this capacity. With Nepal's many rivers and
steep mountain flows, the World Bank estimates the country's hydroelectric
potential to be about 83,000 MW-some 2.5% of the world's capacity. About
44,000 MW of that potential is considered economically exploitable.
HMGN considers the development of hydroelectric potential to be a key
component of the country's economic strategy under the Hydro-Power
Development Policy of 1992, which encourages national and foreign private
investment in industry and hydroelectric development. In view of the rapid
deforestation of Nepal's only indigenous fuel source, the government has
commenced efforts to harness the power of its rivers. Nonetheless,
according to NEA documents, there will be continued and severe shortages of
electric power supply through at least 2003, as none of the projects
nearing completion will meet the anticipated demand of the country.
The volume of electricity sales in Nepal has grown at an average
annual rate of about 10% over the last decade. This growth rate was
achieved despite load curtailment due to insufficient supply, particularly
during the dry months of February to April.
Except for the 101 MW Kulekhani projects, which have two reservoirs,
all other hydroelectric plants are run-of-the-river, whereby their
generating capacity is at a maximum during the flood months (July to
November) when the rivers are high, and then falls to a minimum during the
dry months (February to April). This fluctuation, coupled with
transmission and distribution losses, translates into insufficient capacity
to meet the growing demand for power, especially during the dry season.
Regulation of Electric Power Industry; Foreign Exchange
The regulatory framework for private sector power generation in Nepal
primarily is based on legislation enacted by its Parliament in 1992 and
1993. The legislation provides for the licensing of private parties to
construct, own, and operate hydroelectric power projects for a time period
of up to 50 years. Projects that are more than 50% owned by foreign
companies will be automatically transferred, without compensation, to HMGN
after the expiration of the license.
Nepal's electric power industry is primarily regulated by the Ministry
of Water Resources ("MOWR") in conjunction with the NEA. NEA was
established in 1985 as a commercial entity with responsibilities for
generation, transmission and distribution of electricity throughout Nepal.
Decisions regarding the operation and management of the NEA were made,
historically, without taking into account considerations such as efficiency
and profitability. However, NEA's overall operating performance and
financial position recently have improved following tariff increases and
technical assistance from various multinational institutions, including the
World Bank.
Tariff rates are subject to regulation. In August 1994, a newly
implemented Tariff Fixation Committee (TFC), which includes representatives
from HMGN and consumers and which is responsible for setting electricity
tariffs in accordance with certain financial covenants, became operational.
Nepal has increased its foreign exchange reserves from about US$ 270
million in the early 1980s to approximately US$ 600 million in 1996. The
Nepalese rupee exchange rate is pegged against the Indian rupee - a
reflection of the high degree of integration between the two economies.
The exchange rate has gradually depreciated over the years, broadly in line
with the Indian rupee, moving from NRs 21.6: US$ 1 in 1987 to about NRs
57: US$ 1 in early 1997.
The Site
The Bhote Koshi River is a perennial stream fed by glaciers, snow melt
and monsoons. The river drains an area of 2,132 square km, mostly in
China. The mean annual flow at the proposed site was 66.4 cubic meters per
second m3/s. A flow of 3,300 m3/s was recorded following a rare glacier
lake outburst flood in 1981, causing significant damage to a highway and
the Sunkoshi Hydroelectric Project downstream from the Project site.
The Project would be located in the Sindhupalchok zone of central
Nepal, close to the China-Nepal border and 110 kilometers from Nepal's
capital and main load center of Kathmandu. The Bhote Koshi River rises to
an elevation of 5,800 meters at Tang Pu and flows south with a drop of
4,300 meters before reaching the Project site. At the site, the river's
slope is about 10 percent.
Existing Agreements
A Power Purchase Agreement between NEA and Bhote Koshi Power Company
Private Limited ("BKPC"), an indirect subsidiary of the Issuer, (the "NEA
Power Purchase Agreement"), sets out the rights and obligations of NEA and
BKPC relating to, among other things, the development, construction,
operation and maintenance of the facility; early completion bonus and late
completion penalty; the setting of production output and energy purchase
requirements; risk allocation in the event of force majeure and changes in
the legal environment; events of default; rights of termination and the
consequences thereof; assignment and transfer of interest thereunder; and
dispute resolution. The NEA Power Purchase Agreement has a term of 40
years from the commercial operation date defined therein; and after 25 years,
one-half of BKPC's interest therin will be transferred to NEA. A Project
Agreement exists between HMGN and BKPC, which outlines HMGN's involvement
and obligations in the construction and operation of the Project. An
Amended and Restated Engineering, Procurement and Construction Contract
between China Gezhouba Construction Group Corporation ("CGGC") and BKPC
generally provides that CGGC will provide design; engineering; equipment
and material procurement; support; construction; start-up; performance
testing and guarantee; and other services in order to make the Project
fully operational on a fixed price, turnkey basis. An Amended and Restated
Services Agreement between Harza Engineering Company International L.P.
("Harza") and BKPC sets forth the terms of the technical engineering
consulting services to be provided by Harza in regard to the development
and construction of the Project. An Operations and Maintenance Agreement
between Harza and BKPC establishes the pre-commercial and commercial
operation and maintenance services to be provided by Harza at the Project,
including but not limited to staffing; testing facilities; maintenance and
repair of tools and equipment; implementation of safety plans and
procedures; operating and administrative services and environmental
compliance. There can be no assurance that the Project will reach
Financial Closing or achieve Commercial Operations, notwithstanding the
existence of these agreements.
FOREIGN EXCHANGE SYSTEM IN THE PRC AND EXCHANGE RATE INFORMATION
General
The PRC imposes control over its foreign currency reserves in part through
direct regulation of the conversion of Renminbi into foreign exchange and in
part through restrictions on foreign imports. The SAFE, under the supervision
of the PBOC, is responsible for matters relating to foreign exchange
administration and remittance of foreign exchange abroad. The Foreign Exchange
Control Regulations of the People's Republic of China, which took effect on
April 1, 1996, and which replaced the interim foreign exchange regulations
adopted in 1980, provide the basis for regulating foreign exchange transactions
in China. Other rules, regulations and implementation measures have also been
issued which further establish the legal framework for foreign exchange control
in China consistent with the PRC economic reform program.
The Administrative Regulations for the Settlement, Sale and Payment of
Foreign Exchange which took effect on July 1, 1996, allow FIEs (such as the
Joint Ventures) to obtain their foreign exchange through transactions either at
the Swap Centers or through the China Foreign Exchange Trading Center (the
"CFETC"), an inter-bank foreign exchange trading market. Swap Centers were
first established pursuant to the Provisions of the State Council for the
Encouragement of Foreign Investment, promulgated in October 1986, and were
designed to provide a controlled setting under which Renminbi could be
exchanged for foreign currencies at rates approaching market levels. In April
1994, the CFETC was created in Shanghai to coordinate foreign exchange
transactions nationwide among domestic enterprises according to standardized
rules and to replace the two-tier exchange rate system that consisted of the
official rate and the swap center rates. The CFETC and the Swap Centers are
regulated by government policies and are administered by the SAFE. It has been
indicated that Swap Centers will be unified with the CFETC in the future.
Under the new system, a distinction is made between current account items
such as interest payments on foreign loans and profit distributions to foreign
parties to a FIE and capital account items such as principal of foreign loans
and payment under guarantees. Chinese enterprises (including FIEs) are
permitted to buy foreign exchange from State-designated banks for interest
payments on foreign loans upon verification by SAFE of its authenticity and for
profit distributions on presentation of board resolutions regarding such
distributions. Purchase of foreign exchange from State-designated banks for
repayment of principal of foreign loans requires (i) the presentation of a
certificate of registration for foreign loans which can be obtained from SAFE,
the loan contract and notice of repayment from the creditor and (ii) an
application to SAFE for verification for such purchase. Chinese authorities
have termed the current system as one that allows free convertibility of
Renminbi for purposes of current account items.
Historical Exchange Rates
During the nine-year period from 1985 through the end of 1993, there was a
gradual but significant devaluation of the Renminbi against the U.S. dollar.
The official Renminbi to U.S. dollar exchange rate changed from an average of
RMB 3.20 to $1.00 in 1985, to RMB 5.81 to $1.00 at the end of 1993. Effective
January 1, 1994, a new unitary, managed floating-rate system was introduced in
China. As a result of the adoption of the new system, on January 1, 1994, the
official exchange rate for Renminbi was revalued from approximately RMB 5.8 to
$1.00 to approximately RMB 8.7 to $1.00. Since then, the exchange rate has
remained relatively stable (see table below).
Until December 31, 1993, the Noon Buying Rate (as defined in note 1 to the
table below) was closely related to the official rate, but varied significantly
from the rate available at Swap Centers. After January 1, 1994, and the
unification of the foreign currency exchange system, there has not been a
significant difference between the Noon Buying Rate and the PBOC Rate.
Currently, the PBOC sets and publishes daily a base exchange rate (the "PBOC
Rate") with reference primarily to the supply and demand of Renminbi against
the U.S. dollar on the CFETC during the prior day. The PBOC also takes into
account other factors such as the general conditions in the international
foreign exchange markets. Authorized banks and financial institutions are
allowed to quote buy and sell rates for Renminbi within a specified range
around the daily PBOC Rate. Currently, the PBOC allows Renminbi trading within
a range of 0.25% above and below the daily PBOC Rate. As of April 4, 1997, the
Noon Buying Rate was RMB 8.3268 to $1.00. As of April 4, 1997, the PBOC Rate
was RMB 8.2969 to $1.00.
The following table sets forth certain information concerning exchange
rates between Renminbi and U.S. dollars for the periods indicated:
Noon Buying Rate(1)
Period Period Average(2) High Low
End
(expressed in RMB per $)
1993 5.8145 5.7776 5.8245 5.7076
1994 8.6044 8.6402 8.7128 8.5999
1995 8.3374 8.3685 8.4600 8.2916
1996
First Quarter 8.3538 8.3407 8.3549 8.3292
Second Quarter 8.3421 8.3437 8.3542 8.3403
Third Quarter 8.3317 8.3363 8.3452 8.3330
Fourth Quarter 8.3284 8.3293 8.3317 8.3267
__________________________
Source: Federal Reserve Statistical Release, The Federal Reserve.
Notes:
(1) The Noon Buying Rate is the Noon Buying Rate in New York for cable
transfers payable in foreign currencies as certified for customs purposes
by the Federal Reserve Bank of New York.
(2) Determined by averaging the rates on the last business day of each month
during the years 1993 through 1995 and, with respect to each quarter of
1996, by averaging the rates on each Friday of the quarter, or if Friday
was not a day upon which a rate was available, then the next preceding day
upon which a rate was available.
Treatment of Domestic Enterprises and FIEs
Historically, purely domestic enterprises and FIEs (such as Sino-foreign
joint ventures and wholly foreign-owned companies) were subject to
substantially different treatment with respect to foreign exchange matters.
Recently, many of these distinctions have been eliminated.
In general, the PRC Foreign Exchange Control Regulations, which took
effect on April 1, 1996, require that domestic enterprises operating in the PRC
must price and sell their goods and services in the PRC in Renminbi. Any
foreign exchange revenues received by such enterprises must be sold to
authorized foreign exchange banks in the PRC. Under the new system, domestic
enterprises and institutions are permitted to buy foreign exchange from State-
designated banks at designated times on presentation of appropriate
documentation establishing the existence of import contracts or payment notes
from overseas financial institutions. Such enterprises also are permitted to
purchase foreign exchange for the import of certain products subject to quotas,
import permits and registration controls. FIEs are permitted to apply to
purchase foreign exchange for the payment of dividends that have been
authorized as payable in foreign currency. Conversion and payment are to be
effected on the basis of a written resolution on profit distribution passed by
the enterprise's board of directors and evidence that the enterprise has paid
all required PRC taxes.
On June 20, 1996, the PBOC issued a notice allowing all FIEs to use both
Swap Centers and designated foreign exchange banks to convert currencies.
Pursuant to this notice, which took effect on July 1, 1996, FIEs may open
foreign exchange accounts for current as well as capital transactions. The
capital transactions, however, remain subject to SAFE registration approval.
The SAFE has authority to establish ceilings on the total amount of foreign
currency amount that a FIE may maintain in its account for current
transactions. Such ceilings are to be set by reference to the level of foreign
capital actually invested in the enterprise and the foreign currency cash flow
needs of the enterprise.
If foreign debts of FIEs are properly filed for record with the SAFE or
its local branches, and a Foreign Debt Registration Certificate is obtained,
future repayment of principal and interest are subject to verification
processing by the SAFE or its local branches upon producing the Foreign Debt
Registration Certificate, the loan agreement and a lender's repayment notice. A
verification paper is then issued for conversion and purchase of foreign
exchange at authorized banks or the FIE may use its own foreign exchange to
make the payment. For interest payments, once the SAFE has verified that the
interest payment transaction is legitimate, the FIE may use its own foreign
exchange or may purchase foreign exchange at authorized banks to make the
payment.
DESCRIPTION OF PRINCIPAL DOCUMENTS RELATING TO THE LUANNAN FACILITY
The following is a description of the material provisions of the material
agreements relating to the Luannan Facility and should not be considered to be
a full statement of the terms and provisions of such agreements.
Power Purchase Agreement
An Electric Energy Purchase and Sales Agreement (the "Energy Purchase
Agreement") and an Interconnection Agreement (the "Interconnection Agreement")
among Tangshan Panda, Tangshan Pan-Western and North China Power Company were
each executed in September 1995 and amended by a Supplemental Agreement for
Interconnection Agreement and Electric Energy Purchase and Sales Agreement,
dated February 10, 1996 (the "Supplemental Agreement," collectively with the
Energy Purchase Agreement and Interconnection Agreement, the "Luannan Power
Purchase Agreement"), among Tangshan Panda, Tangshan Pan-Western and North
China Power Company. Tangshan Panda and Tangshan Pan-Western are jointly and
severally liable for the obligations of the seller under the Luannan Power
Purchase Agreement. The Luannan Power Purchase Agreement sets out the rights
and obligations of Tangshan Panda, Tangshan Pan-Western and North China Power
Company relating to, among other things, the development, construction,
operation and maintenance of the Luannan Facility; the setting of production
output and energy purchase requirements; risk allocation in the event of force
majeure and changes in the regulatory environment; events of default; rights of
termination and the consequences thereof; assignment and transfer of interest
thereunder; and dispute resolution.
Term. The Luannan Power Purchase Agreement has a term of 20 years from the
Luannan Commercial Operation Date.
Power Purchase. The Luannan Power Purchase Agreement divides each 24 hour
period into three eight-hour (which are not required to be consecutive hours)
delivery periods, Peak Hours, Non-Peak Hours and Trough Hours. Commencing on
the Luannan Commercial Operation Date, subject to the limitations on gross
generation amount during Non--Peak Hours and Trough Hours listed below,
Tangshan Panda and Tangshan Pan-Western agree to sell, and North China Power
Company agrees to purchase and take, all electric energy delivered to North
China Power Company from the Luannan Facility. Tangshan Panda and Tangshan Pan-
Western may not sell any electric energy directly to third parties without the
consent of North China Power Company. Unless otherwise requested by North China
Power Company, during Non-Peak Hours and Trough Hours, the Luannan Facility
will not operate beyond the gross generation amounts specified below on an
average basis for the entire eight-hour period (exceeding these limitations
during a period is permitted as long as the overall average gross generation
amount during the eight-hour period does not exceed these limitations). No
limitation on gross generation amount produced by the Luannan Facility will be
imposed during Peak Hours and the amount set forth below for Peak Hours is a
minimum, not a maximum, gross generation amount for the Luannan Facility. The
gross generation amounts for different periods are as follows, subject to
adjustments agreed by both parties:
As the first unit starts generation at the Luannan Commercial Operation
Date:
During Peak Hours (minimum) 400,000 kWh
During Non-Peak Hours (maximum) 260,000 kWh
During Trough Hours (maximum) 240,000 kWh
and as the second unit starts generation at the Luannan Commercial
Operation Date:
During Peak Hours (minimum) 800,000 kWh
During Non-Peak Hours (maximum) 520,000 kWh
During Trough Hours (maximum) 480,000 kWh
Peak Hours, Non-Peak Hours and Trough Hours in a particular day will be
determined by the dispatch department of North China Power.
Tangshan Panda and Tangshan Pan-Western are required to negotiate an
Interconnection Dispatch Agreement (the "Interconnection Dispatch Agreement")
with the Tangshan Power Supply Bureau of North China Power Company shortly
prior to the Luannan Commercial Operation Date. This Interconnection Dispatch
Agreement is expected to set out the specific details as to the dispatch of the
Luannan Facility and will be a part of the Luannan Power Purchase Agreement.
The provisions described above only set forth the basis for dispatch of the
Luannan Facility. The Issuer believes that the Interconnection Dispatch
Agreement will provide for the Luannan Facility to be dispatched at levels
represented by the maximums specified in the Luannan Power Purchase Agreement
for Non-Peak Hours and Trough Hours, and the Luannan Engineering Report was
prepared on this basis. North China Power Company is required to take all net
electrical output delivered by the Luannan Facility during Peak Hours without
any dispatch limitations. There are, however, no assurances that the
Interconnection Dispatch Agreement as finally negotiated will not make changes
to the provisions of the Luannan Power Purchase Agreement described herein
including dispatch rights and penalties relating thereto.
North China Power Company will not be required to pay Tangshan Panda and
Tangshan Pan-Western for any electric energy generated by the Luannan Facility
during Non-Peak Hours and Trough Hours that exceeds the generation amount
(based on the overall average gross generation amount during the eight hour
period) dispatched in Non-Peak Hours and Trough Hours, respectively, as
instructed by Tangshan Power Supply Bureau for such periods consistent with the
requirements of the Luannan Power Purchase Agreement and the Interconnection
Dispatch Agreement.
If the electric energy load delivered during Trough Hours exceeds the
maximum limitations set forth above, Tangshan Panda and Tangshan Pan-Western
will, unless such additional electric energy is required by North China Power
Company, compensate North China Power Company by paying North China Power
Company a peak adjustment compensation fee equivalent to five times the
applicable power price of the excess amount.
If the Luannan Facility does not deliver, during Peak Hours, the minimum
quantity of electric energy stipulated in the Luannan Power Purchase Agreement,
Tangshan Panda and Tangshan Pan-Western will compensate North China Power
Company, at five times the applicable power price, for the shortfall between
the actual amount of electric energy produced and the required electric energy
production. In addition, if North China Power Company's actions or inactions
cause the Luannan Facility to fail to deliver the required electric energy,
North China Power Company will pay to Tangshan Panda and Tangshan Pan-Western a
compensation fee to be calculated in accordance with the following formula:
(amount of required power to be delivered less actual power delivered) x
applicable power price.
Power Tariff. The electricity price to be charged under the Luannan Power
Purchase Agreement is provided in the Pricing Document, which is separate from,
but incorporated by reference in, the Luannan Power Purchase Agreement. The
electricity price is comprised of fixed and variable components that are
required to be adjusted according to an approved pricing formula to reflect
changes in the capital and operating costs of the Luannan Facility. Certain
components of the power price calculation may be adjusted to reflect either
Chinese or U.S. inflation, based upon specified indices. Adjustments are also
provided for foreign exchange rate fluctuation in order to mitigate the Luannan
Facility's exposure to currency risks. Since the Luannan Power Purchase
Agreement was executed, the Chinese price index has changed by a greater amount
than the change in the exchange rates, resulting in an electric price slightly
higher than would have been the case if depreciation were adjusted according to
changes in these exchange rates. The Joint Ventures have requested a
modification of the power price formula, to adjust for possible devaluation of
the Renminbi against the U.S. dollar, and believe such modification will be
implemented. There are pass-through provisions in the Pricing Document for
increases or decreases in the cost of coal against a coal market index set
forth in the Pricing Document, and the Pricing Document also has provisions
for pass-through or make-whole calculations relating to certain construction
capital cost items. Under the Pricing Document, the Joint Ventures have the
right to request a determination of a new power price whenever they determine
that changes in the price components require a new determination;
however, it is anticipated that they will generally apply annually for
changes in rates. Although paid in Renminbi, certain components (foreign
site managers' salaries, operating, maintenance, engineering and training
services, certain foreign travel expense and insurance costs, certain
financing expenses and equipment engineering services) of the tariffs are
calculated in U.S. dollars as a result of the currency rate adjustments.
Tariffs are required to be paid every 30 days by North China Power
Company. North China Power Company is obligated to pay by the 15th day of the
calendar month following the month for which such payment is being made.
Any failure by either party to make payments will entitle the other party
to receive accrued interest, to be paid with the next scheduled payment.
The interest rate applied for the delayed payment is 0.05% per day. See
"Risk Factors--Considerations Relating to the PRC--Risk ThatPower Price
Formula Cannot be Modified in the Case of a Significant Devaluation of the
Renminbi Against the Dollar."
The Issuer and the Joint Ventures have no experience in applying for
electricity prices determined in accordance with the pricing formula
incorporated in the Pricing Document. Use of such a pricing formula to
establish electricity prices is a recent development in the Chinese power
industry. Although the Issuer, based on discussions with the Pricing Approval
Authority, believes that the pricing formula will be applied to permit recovery
of all Luannan Facility costs and anticipated returns, there can be no
assurance that the Joint Ventures will be able to charge rates that will
generate sufficient revenues to enable the Joint Ventures to repay the
principal of and interest on the Shareholder Loans when and as due, or that any
application for an increase in the power rate will be approved by the Pricing
Approval Authority. See "Risk Factors--Considerations Relating to the PRC--
Risk Regarding Changes to PRC and Local Laws, Policies and Regulatory
Authorities."
Interconnection; Transmission Service. Commencing on the interconnection
date and continuing for the term of the Luannan Power Purchase Agreement, North
China Power Company's facilities will transmit electric energy delivered by the
Luannan Facility to the Jing-Jin-Tang Grid.
Commercial Operation of the Luannan Facility. In order to establish the
Luannan Commercial Operation Date, Tangshan Panda and Tangshan Pan-Western will
give North China Power Company ten days' prior written notice of their initial
72-hour test run of the Luannan Facility. To establish the Luannan Commercial
Operation Date, the Luannan Facility must generate electric power at full load
for a continuous 72 hour period. North China Power Company, Tangshan Panda and
Tangshan Pan-Western will sign a certificate establishing the Luannan
Commercial Operation Date on the day that the relevant test or additional test
of the Luannan Facility is successfully completed.
After the Luannan Commercial Operation Date, the Luannan Facility will be
normally dispatched by North China Power Company so as to allow the Luannan
Facility to operate in accordance with the Luannan Power Purchase Agreement.
Concurrently, North China Power Company agrees as follows: (a) the dispatch
load curve will provide for Non-Peak Hours of operation that permit the Luannan
Facility to have a ramp period such that the maximum capacity of the Luannan
Facility may be generated during all Peak Hour periods and (b) North China
Power Company will arrange frequency and voltage adjustments, but North China
Power Company may not dispatch the Luannan Facility's reactive power beyond the
capabilities of the Luannan Facility's equipment. The ramp rates of the
dispatched load curves of the Luannan Facility will not exceed the requirement
of the Jing-Jin-Tang Grid for generation units of the same type.
Outages; Maintenance of the Luannan Facility; Annual Overhaul. The
cumulative annual overhaul outage for the Luannan Facility will not exceed 55
days. Outages will be calculated on an actual time elapsed basis. The schedule
for such outages shall be set by North China Power Company in accordance with
the overall outage schedule for the Jing-Jin-Tang Grid. If the cumulative
maintenance down time for each electric generating unit of the Luannan Facility
exceeds 55 days in any year, Tangshan Panda and Tangshan Pan-Western will pay a
compensation fee to North China Power Company calculated as follows: (amount of
required power to be delivered per day after deduction of an internal usage
amount) x (maintenance time exceeding 55 days) x power price.
Responsibility for Breach of Contract. Failure by Tangshan Panda and
Tangshan Pan-Western to deliver the minimum amount of electric energy to North
China Power Company required by the Luannan Power Purchase Agreement will
entitle North China Power Company to declare a breach of contract. If, due to
North China Power Company's fault, Tangshan Panda and Tangshan Pan-Western are
not able to deliver power to North China Power Company as required under the
Luannan Power Purchase Agreement, Tangshan Panda and Tangshan Pan-Western will
have the right to declare a breach of contract. The defaulting party is
required to compensate the non-defaulting party for all of its actual direct
losses caused by such breach of contract. A delayed payment for power delivered
will be construed as a breach of contract if such delay has lasted more than 15
days. Late payments bear interest at the rate of 0.05% per day. The non-
defaulting party may elect to terminate the Luannan Power Purchase Agreement if
the defaulting party has neither taken action to cure 30 days after receipt of
written notice from the non-defaulting party of its declaration of breach of
contract (which cure may take a longer period as long as it is being pursued
with diligence) nor made any required payments (excluding amounts in good faith
dispute).
Force Majeure. Each party is excused from performance of its respective
obligations (except for payment obligations existing prior to the occurrence of
the force majeure event) under the Luannan Power Purchase Agreement if
performance of such obligations is adversely affected by an event of force
majeure, which includes any subsequent modifications or changes of laws,
regulations or rules made by the Central Government or any local government or
their agencies that directly or indirectly affects either party's performance
of such obligations. Each party is generally obligated to take reasonable steps
to restore its ability to perform, to limit the damage caused to the other
party and, under certain circumstances, to negotiate and execute an amendment
to the Luannan Power Purchase Agreement. Each party may unilaterally terminate
the Luannan Power Purchase Agreement if a force majeure is declared by the
other party and such party does not resume performance within 12 months of the
date of such declaration.
Termination. The parties may agree to terminate the Luannan Power Purchase
Agreement, provided such termination does not damage the PRC's and public
interests. Furthermore, the Luannan Power Purchase Agreement may be terminated
by North China Power Company if, prior to the Luannan Commercial Operation
Date, Tangshan Panda and Tangshan Pan-Western cease development of the Luannan
Facility for 12 consecutive months.
Governing Law and Dispute Resolution. The Luannan Power Purchase Agreement
is to be construed and governed by PRC law. Disputes arising under the Luannan
Power Purchase Agreement are to be attempted to be resolved by friendly
consultation between Tangshan Panda, Tangshan Pan-Western and North China Power
Company for a period of 30 days. In the event that the dispute cannot be
settled by mutual discussion within the 30 day period, the dispute shall be
settled by arbitration to be conducted in Singapore under the Rules of
Conciliation and Arbitration of the ICC. Each party to the arbitration will
appoint an arbitrator with the International Court of Arbitration of the ICC to
appoint a third. The decision rendered by the arbitral body will be final,
binding and unappealable. See "Risk Factors--Considerations Relating to the PRC-
- -Uncertain Enforcement of Contracts Against a Chinese Entity in the PRC;
Uncertain Enforcement of Money Judgments and Certain Arbitration Awards in the
PRC."
Waiver of Sovereign Immunity. Each party to the Luannan Power Purchase
Agreement waives any rights to immunity it may have with respect to its
obligations arising under the Luannan Power Purchase Agreement or relating
thereto.
Engineering, Procurement and Construction Contract
The Engineering, Procurement and Construction Contract, among the Luannan
EPC Contractor, Tangshan Panda and Tangshan Pan-Western, dated April 24, 1996,
as amended, provides that the Luannan EPC Contractor will provide design,
engineering, equipment and material procurement, support, construction, start-
up, performance testing and other services in order to make the Luannan
Facility fully operational on a fixed price, turnkey basis.
Basic Obligations. The Luannan EPC Contractor is responsible for
furnishing all equipment, services and materials for engineering, procurement,
construction, start-up and performance testing of the Luannan Facility. The
Luannan EPC Contractor is required to obtain the permits necessary to complete
its obligations and to conduct its activities in compliance with all applicable
approvals, laws and permits.
Tangshan Panda and Tangshan Pan-Western are responsible for, among other
things, providing the Luannan EPC Contractor with access to the site of the
Luannan Facility, providing any additional areas of land necessary to
accommodate the Luannan EPC Contractor, and supplying fuel oil and coal for
boiler fuel needed by the Luannan EPC Contractor to conduct performance testing
of the Luannan Facility. Tangshan Panda and Tangshan Pan-Western are
responsible for obtaining all spare parts required for the normal operation of
the Luannan Facility.
Price and Payment; Security. As payment for the performance of all of the
Luannan EPC Work, the Luannan EPC Contractor's other obligations under the
Luannan EPC Contract, and all costs in connection therewith, Tangshan Panda and
Tangshan Pan-Western have agreed to pay a purchase price of approximately $63.6
million which includes a contingency of approximately $3.0 million. Starting at
September 16, 1996, the price is increased at the pro-rated rate of 0.5% per
month through December 31, 1996. As of December 31, 1996, the price as so
increased was approximately $64.7 million. In December 1996, the Luannan EPC
Contract was amended to provide for the issuance of a limited notice to proceed
so that site work was commenced (upon payment of $2.0 million). An additional
$1.0 million was paid to the Luannan EPC Contractor before March 1, 1997 and an
additional $1.0 million was paid before March 31, 1997. The price as so
escalated is referred to herein as the "Luannan EPC Contract Price." The full
notice to proceed was given prior to May 1, 1997. No payment will be made for
the civil and installation portion of the Luannan EPC Work until the actual
completion of such portion exceeds the 10% down payment as described below. The
Luannan EPC Contractor will be entitled to payments on a monthly basis in
accordance with a milestone payment schedule, provided that, in the case of the
civil and installation portion of the Luannan EPC Work, payments will be made
for the Luannan EPC Work to be actually completed and, in the case of the
equipment portion of the Luannan EPC Work, payments will be made for the
percentage in such schedule of such equipment, and, provided further that the
Luannan EPC Contractor's invoice has not been disputed by Tangshan Panda and
Tangshan Pan-Western. Tangshan Panda and Tangshan Pan-Western will make a down
payment in an amount of 10% of the Luannan EPC Contract Price at the time of
giving the notice to proceed. Tangshan Panda and Tangshan Pan-Western, however,
will withhold 10% of such down payment and each progress payment made in
accordance with the Luannan EPC Contract as retainage (the "Retainage"). The
Luannan EPC Contractor will provide Tangshan Panda and Tangshan Pan-Western on
the Luannan Commercial Operation Dates of the first and second plants,
respectively, with a letter of credit each in the amount of 2.5% of the Luannan
EPC Contract Price to cover certain liabilities arising from warranties
provided under the Luannan EPC Contract. A portion of Retainage will be
returned by Tangshan Panda and Tangshan Pan-Western to the Luannan EPC
Contractor for the principal amount of such letters of credit. The remainder of
the Retainage will be held until completion of punch list items and other
deficiencies.
Schedule. The Luannan EPC Contractor is required to complete certain
milestones in accordance with a construction schedule (the "Construction
Schedule"). The Construction Schedule contemplates that the Luannan Facility
will be ready for commissioning 28 months following the issuance of a notice to
proceed (the "Guaranteed Commercial Operation Date"). If the Luannan EPC
Contractor fails to accomplish a milestone by the time contemplated in the
Construction Schedule and Tangshan Panda and Tangshan Pan-Western deliver
written notice of such failure to the Luannan EPC Contractor, the Luannan EPC
Contractor must either complete such milestone or provide Tangshan Panda and
Tangshan Pan-Western with a plan of recovery within 3 days after the receipt of
the notice setting forth how the Luannan EPC Contractor intends to achieve such
milestone within 15 days after the receipt of the notice. If the work necessary
to achieve such milestone cannot be achieved within such 15 days despite best
efforts by the Luannan EPC Contractor, its plan of recovery shall demonstrate
what special steps it will take to assure the earliest possible achievement of
such milestone (not to exceed 90 days).
If commercial operation of the Luannan Facility is not achieved by the
Guaranteed Commercial Operation Date, subject to any extension allowed under
the Luannan EPC Contract, the Luannan EPC Contractor shall pay Tangshan Panda
and Tangshan Pan-Western $50,000 per day for each subsequent day that
commercial operation is delayed after the Guaranteed Commercial Operation Date,
up to a maximum of $18.0 million. However, such penalties could well not be
sufficient to avoid a default on the Exchange Notes. See "Risk Factors -
Project Risks."
Early Completion Bonus. If the commercial operation of the Luannan
Facility occurs prior to the Guaranteed Commercial Operation Date, Tangshan
Panda and Tangshan Pan-Western shall pay the Luannan EPC Contractor, $12,500
per day as a bonus, for each day in the 15 day period preceding the Guaranteed
Commercial Operation Date in which commercial operation is achieved, and
$24,900 per day for each day in the next preceding 15 days in which commercial
operation is achieved. No additional early completion bonus shall be paid for
early completion more than 30 days prior to the Guaranteed Commercial Operation
Date.
Performance Guarantees. The Luannan EPC Contractor guarantees that (i) the
net dependable capacity ("Net Dependable Capacity") of the Luannan Facility
shall be (as corrected to design condition) at least 102,000 kW; (ii) the net
heat rate of the Luannan Facility operated at summer design conditions shall be
equal to, or less than 12,817 kJ/kWh (LHV); and (iii) the emission and noise
levels will meet the requirements of applicable laws and regulations. In the
event the Luannan EPC Contractor fails to meet any of the above guarantees, it
is required to pay liquidated damages as follows:
- $700/kW below 102,000 kW Net Dependable Capacity;
- $5,000 for each kJ/kWh in excess of the net heat rate guarantee if
such guaranteed heat rate is exceeded by more than 101%; and
- $700/kW where the Luannan Facility must operate at levels below
102,000 kW to meet certain emission requirements.
In the event of certain delays in completion of the Luannan Facility which
are not excused by force majeur, the Luannan EPC Contractor is obligated under
the terms of the Luannan EPC Contract to pay liquidated damages to the Joint
Ventures and the Joint Ventures are entitled to subtract the amount of such
damages from the 10% retainage of the Luannan EPC Contract Price and to collect
damage payments under certain guarantees. Liquidated damages, however, are
limited to 35% of the Luannan EPC Contract Price. See"Risk Factors--Project
Risks--Possible Consequences of Construction Risks and Possible Inability of
Issuer to Recover Full Damages in Such Circumstances."
The Luannan EPC Contractor will also be paid bonuses for exceeding certain
performance guarantees in an amount of: (i) $550 per kW by which the Net
Dependable Capacity of the Luannan Facility exceeds 102,000 kW (not to exceed
$1.0 million); and (ii) $1,165 per kJ/kWh by which the net heat rate of the
Luannan Facility is less than 99% of 12,817 kJ/kWh (LHV) (not to exceed $1.0
million).
Adjustments to the Luannan EPC Contract Price and/or Construction
Schedule. Although the Luannan EPC Contractor has agreed to perform the Luannan
EPC Work for the Luannan EPC Contract Price in accordance with certain warranty
obligations, there may be circumstances in which the Luannan EPC Contractor is
entitled to an increase in the Luannan EPC Contract Price, or an extension of
the Construction Schedule. These circumstances include a change in law or a
force majeure event (as described below), changes in the Luannan EPC Work
requested by Tangshan Panda and Tangshan Pan-Western that have been agreed to
by the Luannan EPC Contractor or changes requested by the Luannan EPC
Contractor that have been approved by Tangshan Panda and Tangshan Pan-Western
which, in all cases, would be subject to the change order process set forth in
the Luannan EPC Contract. In addition, the Luannan EPC Contractor may be
entitled to an equitable adjustment of the Luannan EPC Contract Price and/or
the Construction Schedule in certain other circumstances, including a delay or
failure by Tangshan Panda and Tangshan Pan-Western to perform their non-payment
obligations under the Luannan EPC Contract, suspension of Luannan EPC Work by
Tangshan Panda and Tangshan Pan-Western and events of force majeure.
Testing. The Luannan EPC Contractor is required to provide Tangshan Panda
and Tangshan Pan-Western and any institution providing financing for the
construction of the Luannan Facility a detailed performance test procedure for
review and acceptance at least 180 days before the expected test date.
Performance testing of the Luannan Facility will not begin until Tangshan Panda
and Tangshan Pan-Western and any institution providing financing for the
construction of the Luannan Facility have accepted the test procedures. The
Luannan EPC Contractor must give 45 days' written notice prior to the start of
the performance tests.
Once the Luannan EPC Contractor has completed performance testing with
respect to the first plant or both plants and the first plant or both plants,
as the case may be, are capable of being operated safely, the Luannan EPC
Contractor may submit the performance testing reports together with a written
notice of commercial operation, to Tangshan Panda and Tangshan Pan-Western.
Within 15 business days of the receipt of such notice, Tangshan Panda and
Tangshan Pan-Western will either confirm that the requirements for commercial
operation have been met, or specify to the Luannan EPC Contractor the manner in
which the requirements for commercial operation have not been met. The Luannan
EPC Contractor may take appropriate corrective action and repeat the
performance tests if it fails any part of the original test, unless one year
has passed since the Guaranteed Commercial Operation Date.
Materials and Workmanship Warranty. The Luannan EPC Contractor warrants
that all equipment and other items furnished under the Luannan EPC Contract
will be new and of good quality and will conform to the kind and quality
specified in the Luannan EPC Contract. The Luannan EPC Contractor is obligated
to correct any Luannan EPC Work performed under the Luannan EPC Contract that,
at any time for a period of one year after final acceptance of the Luannan
Facility by Tangshan Panda and Tangshan Pan-Western or, if applicable, after
the date of the repair, proves to be improper or defective with regard to the
provisions of the Luannan EPC Contract in design, material or workmanship.
Engineering and Design Warranty. The Luannan EPC Contractor guarantees
that it will perform all construction surveying, engineering and design
services as of the final acceptance of the Luannan Facility in accordance with
sound engineering practice and the requirements of the Luannan EPC Contract,
and that the Luannan Facility will be free of all defects and deficiencies and
will be operational in compliance with the Luannan EPC Contract, the Luannan
Power Purchase Agreement and all applicable permits and laws. The Luannan EPC
Contractor will obtain from its subcontractors or vendors, guarantees and
warranties with respect to Luannan EPC Work performed and equipment used and
installed under the Luannan EPC Contract, which guarantees and warranties will
equal or exceed those provided by the Luannan EPC Contractor and will be made
available and assignable to Tangshan Panda and Tangshan Pan-Western for a
period of at least one year after the Luannan Commercial Operation Date.
Force Majeure. Any party to the Luannan EPC Contract is excused from
performance of its obligations under the Luannan EPC Contract for a force
majeure event. A force majeure event under the Luannan EPC Contract includes
events, conditions or circumstances beyond the reasonable control of, and
without the fault or negligence of, the party affected, that despite all
reasonable efforts of the party affected to prevent it, cause a material and
adverse delay or disruption in the performance of the Luannan EPC Contract.
Examples of force majeure events are various natural disasters, fires, war,
civil disturbances, riots and certain actions of a court or other legal
authority. Force majeure events do not include failure or inability to make
payment or strikes or labor disputes of vendors and the subcontractors of the
Luannan EPC Contractor.
Event of Default. The events of default applicable to the Luannan EPC
Contractor include, without limitation, failure to perform in accordance with
the Luannan EPC Contract, breach of any of the Luannan EPC Contractor's
covenants, agreements, representations or warranties (if not remedied within 90
days, of notice to the Luannan EPC Contractor), and certain insolvency or
bankruptcy events relating to the Luannan EPC Contractor.
The Luannan EPC Contractor may terminate the Luannan EPC Contract in
certain instances if the Luannan Facility is damaged or destroyed during
construction, other than as a result of the Luannan EPC Contractor's actions or
failure to act, and Tangshan Panda and Tangshan Pan-Western notify the Luannan
EPC Contractor that neither insurance proceeds nor any other adequate source of
funds will be made available for the repair or restoration of such damage.
Indemnification. The Luannan EPC Contractor has agreed to indemnify
Tangshan Panda and Tangshan Pan-Western for all claims, damages, losses,
liabilities and expenses (including court costs and reasonable attorneys' fees)
indirectly or directly arising out of, or resulting from, a negligent act or
omission of the Luannan EPC Contractor, or any subcontractor or vendor or
anyone directly or indirectly employed by any of them, or anyone for whose acts
any of them may be liable. The Luannan EPC Contractor has also agreed to
indemnify Tangshan Panda and Tangshan Pan-Western for certain claims and
expenses arising from allegations that the Luannan EPC Contractor infringed
upon intellectual property rights in its performance of the EPC Work. Tangshan
Panda and Tangshan Pan-Western have agreed to indemnify the Luannan EPC
Contractor and its officers, directors, agents, servants and employees from any
claims, suits, damages and costs directly resulting from the negligence or
willful misconduct by Tangshan Panda and Tangshan Pan-Western that materially
and adversely affect the Luannan EPC Contract, with the understanding that
Tangshan Panda and Tangshan Pan-Western are entitled to control and direct the
defense of any such claim or litigation.
Governing Law and Disputes. The Luannan EPC Contract is governed by the
laws of the PRC, exclusive of conflicts of laws provisions. Any dispute will be
initially settled through friendly consultation. If the parties do not reach an
amicable resolution within 30 days, either party may submit the dispute to the
International Court of Arbitration of the ICC, as the exclusive forum, for
binding arbitration to be held in Singapore. For convenience purposes, the
parties may mutually agree to hold arbitration in Beijing, China for disputes
with a value below $1.0 million. In each case the Rules of Conciliation and
Arbitration of the ICC shall govern the proceedings. See "Risk Factors--
Considerations Relating to the PRC--Uncertain Enforcement of Contracts
Against a Chinese Entity in the PRC; Uncertain Enforcement of Money Judgments
and Certain Arbitration Awards in the PRC."
CHEXIM Guarantee. It is a requirement of the Luannan EPC Contract that
CHEXIM shall provide Tangshan Panda and Tangshan Pan-Western with the CHEXIM
Guarantee in an amount equal to 35% of the Luannan EPC Contract Price prior to
the closing of the Prior Offering. The amount of the CHEXIM Guarantee is
approximately $22.7 million. Tangshan Panda and Tangshan Pan-Western will have
the unconditional right to draw upon the CHEXIM Guarantee for payment of
liquidated damages or termination payments under the Luannan EPC Contract. The
CHEXIM Guarantee shall be a continuing guarantee of payment remaining in full
force and effect until six months after Tangshan Panda and Tangshan Pan-
Western's acceptance of the Luannan Commercial Operation Date.
Heat Network Construction Agreement
Tangshan Pan-Sino and Tangshan Engineering entered into the Heat Network
Construction Agreement on June 20, 1996 under which Tangshan Engineering will
build the Network. The cost for construction of the Network, which will consist
of 12.1 kilometers of hot water pipeline, 8.78 kilometers of steam pipeline,
heat exchange stations, heat control equipment and civil construction, is
approximately RMB 24.17 million ($2.9 million). The cost is subject to
escalation according to the Chinese State Statistic Bureau Price Index.
Transmission Facilities Construction Agreement
The Luannan Transmission Facilities Construction Agreement sets out the
rights and obligations of North China Power Company, as Luannan Transmission
Facilities Contractor, and Tangshan Pan-Sino, relating to, among other things,
price, the scope of work, the performance guarantees of the Luannan
Transmission Facilities Contractor and damages and remedies in connection
therewith.
Scope of Work. The Luannan Transmission Facilities Contractor is
responsible for the construction of the Luannan Transmission Facilities.
Total Construction Cost; Other Costs. Pursuant to separate contractual
arrangements, the Luannan Transmission Facilities Loan of RMB 78.2 million, to
be adjusted for inflation from December 31, 1994 to the date of issuance of the
notice to proceed with preliminary design (the "Total Transmission Facilities
Construction Cost"), will be made by Tangshan Pan-Sino to the Luannan
Transmission Facilities Contractor through a PRC financial institution, China
Information Trust and Investment Corp., for the construction cost of the
Luannan Transmission Facilities. As of March 10, 1997, the aggregate Total
Transmission Facilities Construction Cost was estimated to be approximately
RMB 83.7 million (approximately $10.1 million). The Total Transmission
Facilities Construction Cost will cover the cost of all work involved. The
Renminbi amount of the Total Transmission Facilities Construction Cost will be
converted into U.S. dollars on the date of the applicable loan advance at the
then-prevailing exchange rate as quoted by the SAFE. If North China Power
Company is not able to obtain approvals to borrow and repay the Luannan
Transmission Facilities Loan in U.S. dollars, it has the right to borrow and
repay the loan in Renminbi, in which event the parties have agreed to negotiate
an equitable allocation of the exchange rate risk. The Luannan Transmission
Facilities Loan will be made in accordance with the following schedule: 10%,
50% and 30% of the Total Transmission Facilities Construction Cost payable on
the date Tangshan Pan-Sino gives the Luannan Transmission Facilities Contractor
the notice to proceed with preliminary design under the Luannan Transmission
Facilities Construction Agreement and six months and 12 months after,
respectively, with the remainder payable upon completion of the Luannan
Facility. The loan will bear interest at the actual rate of interest charged by
international lenders to Tangshan Pan-Sino (excluding fees), but not to exceed
12% simple interest per annum. Principal and interest on all outstanding
amounts of the Transmission Facilities Loan will be amortized over a period of
ten years in 20 equal consecutive semi-annual payments commencing on the first
to occur of September 30th or March 31st immediately following the Luannan
Commercial Operation Date. Any amounts not paid when due shall bear default
interest from the date due at a rate of 18% per annum until paid. Pursuant to
the Luannan Transmission Facilities Construction Agreement, unless the scope of
work changes at the request of Tangshan Pan-Sino, or the Total Transmission
Facilities Construction Cost is adversely affected by an event of force majeure
provided thereunder, or a breach by Tangshan Pan-Sino of its obligations under
the Luannan Transmission Facilities Construction Agreement, no adjustment of
the Total Transmission Facilities Construction Cost shall be permitted
(excluding the index adjustment described above).
Performance Guarantees. The Luannan Transmission Facilities Contractor
guarantees that an adequate reverse supply of electric power to the Luannan
Facility will be supplied to satisfy the needs of the general contractor of the
Luannan Facility for test--runs of the Luannan Facility, that the work involved
will be completed in such a fashion that the Luannan Facility will be able to
transmit continuously and/or intermittently so as to meet the requirements of
the interconnecting system and that design, construction and installation of
the Luannan Transmission Facilities will be completed with new materials and in
a good and workmanlike manner in accordance with the standards for the same
category of transmission lines and substations adopted by North China Power.
Ownership; Maintenance. The Luannan Transmission Facilities Contractor
will own the Luannan Transmission Facilities after the completion of the
Luannan Transmission Facilities and, accordingly, perform all operations,
maintenance and repair of the Luannan Transmission Facilities during the term
of the Luannan Power Purchase Agreement
Damages. If Tangshan Pan-Sino breaches the Luannan Transmission Facilities
Construction Agreement, the Luannan Transmission Facilities Contractor will be
entitled to receive appropriate schedule relief required because of such
breach, and to any increased costs in performing the work involved resulting
from the breach.
If the Luannan Transmission Facilities Contractor fails to meet any of its
guarantees and the default has not been cured for 60 days, Tangshan Pan-Sino
may assume responsibility for completing all or any portion of the work
involved at the Luannan Transmission Facilities Contractor's expense, with
payments of expenses by Tangshan Pan-Sino for such work to be treated as loans
of a portion of the Total Transmission Facilities Construction Cost to the
Luannan Transmission Facilities Contractor. In the event that such expenses
exceed any balance not yet loaned on the Total Transmission Facilities
Construction Cost, the Luannan Transmission Facilities Contractor will promptly
pay or reimburse Tangshan Pan-Sino for such expenses.
In case of breach of contract, the breaching party shall be liable for
damages for loss to the other party. There are, however, no assurances that any
damages collected due to a breach by the Luannan Transmission Facilities
Contractor would be sufficient (or paid in time) to avoid a default on the
Shareholder Loans and, in turn, on the Issuer Note, and to enable the Issuer to
avoid a default on the Exchange Notes. See "Risk Factors - Project Risks."
Coal Supply Agreements
The Issuer expects that the Luannan Facility will use approximately
450,000 metric tons of coal per year. The principal fuel supplier for the
Luannan Facility is the Qianjiaying Mine, which is owned and operated by
Kailuan Coal, a state-owned coal mining company. The Qianjiaying Mine is
expected to supply up to 300,000 metric tons of coal per year. Tangshan Panda
and Tangshan Pan-Western will also purchase coal from the other local Luannan
Coal Suppliers to secure the remaining coal demand.
Each Luannan Coal Supplier will supply coal to Tangshan Panda and Tangshan
Pan-Western pursuant to its respective coal supply agreement (each, a "Luannan
Coal Supply Agreement" and collectively, the "Luannan Coal Supply Agreements").
The term of each Luannan Coal Supply Agreement is 10 years from the first
purchase of coal by Tangshan Panda and Tangshan Pan-Western. Each Luannan Coal
Supply Agreement sets out the rights and obligations of Tangshan Panda and
Tangshan Pan-Western and its respective Luannan Coal Supplier, relating to,
among other things, the quantity and quality of the supply of coal to Tangshan
Panda and Tangshan Pan-Western, the purchase price and termination.
Purchase and Sales of Coal. Tangshan Panda and Tangshan Pan-Western will
have the right to purchase up to 300,000 and 310,000 metric tons per year of
coal from, respectively, Kailuan Coal and the other Luannan Coal Suppliers.
Each Luannan Coal Supply Agreement sets forth the average quality of the coal
to be delivered to meet the specifications for total moisture, ash, sulfur,
heat value, coal size and fines. Tangshan Panda and Tangshan Pan-Western will
be entitled to reject any coal supplied by any Luannan Coal Supplier which does
not meet the pre-agreed acceptable limits or contains foreign substances.
Purchase Price. The price of coal sold by Kailuan Coal will be adjusted
yearly based on the average annual price in Renminbi per ton for coal sold by
Kailuan Coal for the preceding year under similar terms and conditions. The
price of coal sold by the other Luannan Coal Suppliers will be the average
monthly price in Renminbi per ton of coal sold by the mines regulated by the
Tangshan Municipal Coal Industry Bureau under similar terms and conditions.
With respect to the Luannan Coal Supply Agreement with Kailuan Coal, Tangshan
Panda and Tangshan Pan-Western will provide Kailuan Coal with an estimate of
its coal requirements. In emergency situations, either party may change
previously determined amounts upon at least 15 days' notice. The annually
adjusted price and the supply schedule will be reflected in the supply contract
to be entered into each year by the parties pursuant to such Luannan Coal
Supply Agreement. See "Risk Factors--Project Risks--Risk That PRC National
Energy Policies May Require Termination of Certain Luannan Coal Supply
Agreements."
Termination. Each Luannan Coal Supply Agreement may be terminated by each
party by notice to the other party if the other party materially breaches its
obligations and such breach is not cured within 60 days of receipt of notice of
such breach. The Luannan Coal Supply Agreement between Tangshan Panda, Tangshan
Pan-Western and Kailuan Coal provides that Kailuan Coal may terminate the
Luannan Coal Supply Agreement upon six months' notice if national energy
policies of the PRC change such that the rules governing the allocation of coal
restrict its ability to make sales of coal under terms and conditions similar
to those set forth in such Luannan Coal Supply Agreement.
Coal Transportation Agreement
The coal will be transported to the Site pursuant to a coal transportation
agreement (the "Luannan Coal Transportation Agreement"), among Tangshan Panda,
Tangshan Pan-Western and Luannan County State-Owned Transportation Company (the
"Carrier"), a PRC company owned and operated by Luannan County. The term of the
Luannan Coal Transportation Agreement is 10 years from the date of the first
truck delivery by the Carrier to the Luannan Facility. The Luannan Coal
Transportation Agreement sets out the rights and obligations of Tangshan Panda
and Tangshan Pan-Western and the Carrier, relating to, among other things, the
services and obligation of the Carrier and the payment obligations of Tangshan
Panda and Tangshan Pan-Western for such services.
Transportation of Coal. The Carrier will transport and deliver up to
500,000 tons of coal per year from the Luannan Coal Suppliers to Tangshan Panda
and Tangshan Pan-Western at the Luannan Facility. Unless a failure to deliver
coal results from a force majeure or breach by Tangshan Panda and Tangshan Pan-
Western, the Carrier will deliver all required coal shipments to Tangshan Panda
and Tangshan Pan-Western within 24 hours of the required scheduled delivery
date. If the Carrier fails to deliver coal within the time required, Tangshan
Panda and Tangshan Pan-Western may make alternate coal transportation
arrangements, and the Carrier will be responsible for any incremental costs
incurred by Tangshan Panda and Tangshan Pan-Western for such arrangements.
Price of Transportation. The price of transportation of coal shipped from
the Qianjiaying Mine to the Site by the Carrier will be RMB 15 per ton, subject
to annual adjustment based upon the market price for truck transportation
effective for the following year. If the parties cannot agree upon the adjusted
price, the average price of four truck carriers in the Tangshan region, two
selected by each party, shall be used. The price of transportation of coal
shipped from the Luannan Coal Suppliers other than the Qianjiaying Mine to
the Site also will be approximately RMB 15 per ton, subject to certain
adjustments.
Termination. The Luannan Coal Transportation Agreement may be terminated
by either party thereto by notice to the other party if the other party
materially breaches its obligations and such breach is not cured within 60 days
after receipt of notice of such breach.
Luannan Operations and Maintenance Agreement
The Joint Ventures and the Luannan O&M Contractor, Duke/Fluor Daniel
International Services, have entered into the Amended and Restated Luannan
Operations and Maintenance Agreement (the "Luannan Operations and Maintenance
Agreement") dated as of March 6, 1997. The Luannan Operations and Maintenance
Agreement has a ten-year term and provides, among other things, the
responsibilities and obligations of the Joint Ventures and the Luannan O&M
Contractor, including, among others, the scope of services, compensation,
payments of bonuses/penalties, termination and indemnity.
Scope of Services. The Luannan O&M Contractor will provide the operation,
maintenance and repair services necessary for the production and delivery of
electrical energy by the Luannan Facility in accordance with the requirements
of the Luannan Power Purchase Agreement including, without limitation,
developing a hiring schedule, preparing a list of recommended tools, spare
parts and equipment, providing maintenance and repair services and keeping
maintenance and operation records.
The responsibilities of the Luannan O&M Contractor prior to the Luannan
Commercial Operation Date will include, without limitation, reviewing and
consulting with the Joint Ventures regarding all plant design specifications,
assessing the available local labor force, developing plans for staffing and
training with respect to local labor, developing operating budgets, and
procuring tools, spare parts, chemicals and other materials. The Luannan O&M
Contractor will also provide operating personnel to assist in start-up and
testing of the Luannan Facility under the supervision of the Luannan EPC
Contractor. After the Luannan Commercial Operation Date, the Luannan O&M
Contractor will have complete on-site responsibility for the operations and
maintenance of the Luannan Facility. Among other things, the Luannan O&M
Contractor will (i) operate and maintain the Luannan Facility in accordance
with prudent utility practices, and as required by the Luannan Power Purchase
Agreement, and all applicable laws, permits, approvals, ordinances, rules,
regulations and orders, (ii) provide all management, administration,
supervision and staffing functions, (iii) procure materials, supplies,
consumables and outside services as per the approved budget and (iv) maintain
the Luannan Facility in good repair.
Service to be Performed by Joint Ventures. Among other things, the Joint
Ventures will monitor the operation of the Luannan Facility, provide office and
administrative space, provide and pay for all fuel and utilities, obtain
necessary permits and licenses, except those issued in the name of the Luannan
O&M Contractor or those the Luannan O&M Contractor is required to obtain,
provide and pay for all fuel required, and pay or reimburse the Luannan O&M
Contractor for all property or other taxes related to the Luannan Facility,
excluding income taxes of the Luannan O&M Contractor.
Insurance. The Luannan O&M Contractor will carry and maintain insurance
with specified minimums including worker's compensation and comprehensive
automobile liability insurance. The Joint Ventures will provide insurance with
specified minimums to cover general liability, builder's risk exposure and all
risk property insurance naming the Luannan O&M Contractor as an additional
insured and providing a waiver of subrogation in favor of the Luannan O&M
Contractor and designated subcontractors. The Joint Ventures will provide
coverage with a specified minimum for themselves and the Luannan O&M Contractor
against claims for third party bodily injury and death and third party property
damage.
Compensation. Prior to the Luannan Commercial Operation Date, the Luannan
O&M Contractor will be entitled to a fee of $250,000 per annum payable in
monthly installments and eligible for a start-up bonus of $500,000 based upon
mutually agreed-upon criteria.
After the Luannan Commercial Operation Date occurs, in addition to
reimbursements for the cost of the operation of the Luannan Facility, the
Luannan O&M Contractor will receive an annual operating fee of $500,000,
payable in equal monthly installments, adjusted annually in accordance with the
U.S. Consumer Price Index.
Bonuses/Penalties. The Luannan O&M Contractor's monthly installment of the
annual operating fee after the Luannan Commercial Operation Date may be
increased or decreased on the basis of several criteria, including certain
criteria designed to measure performance as illustrated by the following chart:
PEAK HOURS
BONUS PENALTY
$0.01 per kWh for amount of $0.05 per kWh for amount of
daily energy production daily energy production less
greater than 760,000 kWh of than 800,000 kWh of gross
net energy production. energy production.
NON-PEAK HOURS
BONUS PENALTY
$0.01 per kWh for amount of $0.01 per kWh for amount of
daily energy production daily energy production
greater than 504,000 kWh of greater than 560,000 kWh gross
gross energy production up to energy production.
a maximum of 16,000 kWh of
gross energy production.
TROUGH HOURS
BONUS PENALTY
$0.01 per kWh for amount of $0.05 per kWh for amount of
daily energy production above daily energy production above
464,000 kWh gross energy 480,000 kWh of gross energy
production up to a maximum of production.
16,000 kWh of gross energy
production.
The Luannan O&M Contractor's monthly installment of the annual operating
fee will also be adjusted based on the Luannan Facility's monthly heat rate as
follows: for each month the Luannan Facility's average heat rate is less than
base heat rate which is defined as an amount equal to 1.035 times the heat rate
(including process steam) of the final project test conducted by the Luannan
EPC Contractor averaged at 60 MW, 65 MW and full output of the Luannan
Facility, the Luannan O&M Contractor will receive an increase in the monthly
installment of the annual operation fee of $0.003/kWh times the net energy
produced for the month in kWh times the difference between the base heat rate
and the actual heat rate in Btu/kWh the quantity divided by the base heat rate.
For each month that the Luannan Facility's average heat rate is greater than
the base heat rate plus 400 Btu/kWh, the Luannan O&M Contractor will receive a
decrease in the monthly installment of the annual operation fee of $0.003/kWh
times the net energy produced for the month in kWh times the difference between
the actual heat rate in Btu/kWh and the base heat rate plus 400 Btu/kWh the
quantity divided by the base heat rate plus 400 Btu/kWh.
Termination. In addition to termination pursuant to the default of the
Luannan O&M Contractor, the Joint Ventures may terminate the contract for
convenience if the Luannan Power Purchase Agreement is terminated or if the
Luannan Facility is sold to a third party who intends to operate the Luannan
Facility. In the event of termination for convenience, in addition to payments
of all outstanding costs, reasonable costs in support of the termination and
reasonable severance costs, the Joint Ventures will also pay the Luannan O&M
Contractor $25,000 per month through the twenty-fourth month following the
Luannan Commercial Operation Date, $20,000 per month through the forty-eighth
month and $15,000 per month from the forty-ninth month through the original
term of the Luannan Operations and Maintenance Agreement. Either party may also
terminate the Luannan Operations and Maintenance Agreement for cause, in which
case no termination payment shall be made by the Joint Ventures.
Liability and Indemnity. Subject to certain specified insurance coverage
limits, the Joint Ventures bear the risk of physical loss or damage to the
Luannan Facility. The Luannan O&M Contractor and subcontractors have no
liability for loss or damage to property or the Luannan Facility. The Luannan
O&M Contractor agrees to defend and indemnify the Joint Ventures, any lenders
and North China Power Company and their respective directors, officers and
employees against, and hold them harmless from any claims resulting from or in
connection with Luannan O&M Contractor's performance, negligent performance, or
non-performance of its obligations hereunder except where such claims were
caused by the sole negligence or willful misconduct of the Joint Ventures, any
lenders or North China Power Company or any of their directors, officers and
employees respectively.
Subject to certain specified insurance coverage limits, the Joint Ventures
agree to defend and indemnify the Luannan O&M Contractor and its directors,
officers and employees against, and hold them harmless from (i) any claims
resulting from or in connection with the Joint Ventures' performance, negligent
performance, or non-performance of its obligations except where, such claims
were caused by the sole negligence or willful misconduct of the Luannan O&M
Contractor and its directors, officers and employees, and (ii) any claims
resulting from the Luannan O&M Contractor acting under the Luannan EPC
Contractor's supervision and direction, the Luannan EPC Contractor's
performance, negligent performance or non-performance of its obligations except
where such claims are caused by the Luannan O&M Contractor and its directors',
officers' and employees' failure to comply with directions of the Luannan EPC
Contractor and/or the sole negligence or willful misconduct of the Luannan O&M
Contractor and its directors, officers and employees.
Ownership of and legal responsibility and liability for any and all pre-
existing contamination shall remain with the Joint Ventures.
Force Majeure. Neither party shall be responsible or liable for, or
subjected to, any termination of the Luannan Operations and Maintenance
Agreement for, or deemed in breach of the Luannan Operations and Maintenance
Agreement as a result of, any delay or deficiency in the performance of its
obligations thereunder to the extent that such delay or deficiency is due to
circumstances beyond its reasonable control. "Force Majeure Event" is defined
under the Luannan Operations and Maintenance Agreement to mean any event that
is not foreseeable and for which the damages caused by the event are not
reasonably preventable by the party declaring force majeure and cannot be
overcome such that it adversely affects one party's performance of its
obligations under the Luannan Operations and Maintenance Agreement, including,
without limitation, unusually severe weather conditions, any natural disasters
such as fire or earthquakes, any labor difficulty not involving employees of
any parties thereto, war, inability to obtain fuel for the Luannan Facility,
riots, requirements, actions or failures to act on the part of governmental
authorities preventing performance, any modifications or changes in law or
regulations, inability despite due diligence to obtain required licenses or
approvals, and accident.
Governing Law/Disputes. The Luannan Operations and Maintenance Agreement
is governed by the law of the State of Texas, but any unresolved dispute
between the parties shall be settled by arbitration conducted in accordance
with the Commercial Rules of the American Arbitration Association in Dallas,
Texas.
Engineering and Design Contract
Tangshan Panda and Tangshan Pan-Western entered into an Engineering and
Design Contract (the "Engineering and Design Contract"), dated December 21,
1995, with Hebei Electric Power Survey and Design Institute (the "Design
Institute"). The Design Institute has agreed to perform all surveys, design and
engineering work including the preliminary design and construction drawings
(collectively, the "Services") necessary for Tangshan Panda and Tangshan Pan-
Western to obtain permits and construct the Luannan Facility in accordance with
PRC codes and regulations, and with the project design criteria detailed in the
Engineering and Design Contract (the "Project Design Criteria"). The
Engineering and Design Contract will be in effect until final acceptance of the
Luannan Facility by Tangshan Panda and Tangshan Pan-Western in accordance with
the Luannan EPC Contract. Tangshan Panda and Tangshan Pan-Western have assigned
their rights and benefits in, and delegated all of their obligations arising
under, the Engineering and Design Contract to the Luannan EPC Contractor.
Design Institute's Responsibilities. The Design Institute will accomplish
the preliminary design, construction drawings and their relevant government and
project approvals in accordance with current design codes and regulations in
China and in accordance with the Project Design Criteria. The Design Institute
will also be responsible for any modifications required by the relevant
government authorities after examination of the preliminary design. The Design
Institute will, subject to the allocation decisions made by the Luannan EPC
Contractor, provide on-site personnel on a 24 person/month basis to support the
construction efforts during the construction stage of the Luannan Facility. The
Design Institute will be responsible for paying any PRC taxes in connection
with the Services. The Design Institute guarantees that the preliminary design
and construction drawings will meet the requirements contained in the Project
Design Criteria and the Design Institute's feasibility study (including all
relevant government authorities' comments and approvals), with such changes
therein as Tangshan Panda and Tangshan Pan-Western and the Luannan EPC
Contractor may approve, for the design of the Luannan Facility, including power
output and thermal output, heat rate and emissions limits from such plants. If
there is any error or omission in the Services provided by the Design Institute
or any breach of guarantee described above, the Design Institute will perform
such additional Services and design work at its own expense, on request of
Tangshan Panda or Tangshan Pan-Western as may be deemed necessary to correct
such error or omission and the Design Institute will also be responsible for
the relevant loss/damage of Tangshan Panda and Tangshan Pan-Western.
Tangshan Panda's and Tangshan Pan-Western's Rights and Responsibilities.
Tangshan Panda and Tangshan Pan-Western will provide the Design Institute with
relevant information necessary to prepare and complete the preliminary design,
construction drawings and obtain relevant government approvals. If Tangshan
Panda and Tangshan Pan-Western fail to provide the Design Institute with the
required information in a timely manner, they will be responsible for the cost
of corrections to the preliminary design and the Luannan EPC Contractor will be
responsible for the cost of corrections to the construction drawings as
specified under the Engineering and Design Contract. Tangshan Panda and
Tangshan Pan-Western have the right to terminate the Engineering and Design
Contract in writing for any reason at any time.
Payments. Tangshan Panda and Tangshan Pan-Western will pay to the Luannan
EPC Contractor or to the Design Institute (with credit under the Luannan EPC
Contract) a lump sum price of RMB 7.0 million for the Services to be provided
by the Design Institute. Thirty percent of such lump sum price will be for the
preliminary design and the remainder for the construction drawings.
Contracts Between the Joint Ventures
Upon the closing of the Prior Offering, Tangshan Pan-Sino has commenced
action to acquire the rights to use all Luannan Facility land, the Luannan
Facility buildings and certain off-site property and will enter into leases to
permit the other Joint Ventures to use portions of such facilities.
Upon the closing of the Prior Offering, Tangshan Cayman has commenced
action to acquire water and land use rights and water wells. Tangshan Cayman
has entered into contracts with Tangshan Panda and Tangshan Pan-Western to sell
them heat, steam and hot water for use in their facilities. In addition,
Tangshan Cayman has entered into a contract to sell steam and hot water to
Tangshan Pan-Sino for further distribution to industrial users in Luannan
County.
MANAGEMENT
Director, Independent Director and Officers of the Issuer and the Company
The number of members of the Board of Directors of each of the Issuer and
the Company has been set at two, but the number may be increased or decreased
by the Board of Directors or the stockholders. Directors of the Issuer and the
Company are elected annually and each elected director holds office until a
successor is elected. Robert W. Carter and Brian G. Trueblood are the current
directors of each of the Issuer and the Company. Neither the Issuer nor the
Company has any employees.
The Articles of Association of the Issuer and the Certificate of
Incorporation and By-Laws of the Company provide that the Issuer and the
Company shall always have an individual serving as an "Independent Director"
who shall have the right to vote or consent only on, and whose affirmative vote
or consent shall be required with respect to, any decision by the Issuer or the
Company (as the case may be) or the Board of Directors of either of them to (i)
file a bankruptcy petition, make an assignment for the benefit of creditors,
apply for the appointment of a custodian, receiver or trustee for it or its
property, consent to the filing of such proceeding or admit in writing to its
inability to pay its debts generally as they become due; (ii) commence the
dissolution, liquidation, consolidation, merger or sale of all or substantially
all of its assets; (iii) amend the Articles of Association or Certificate of
Incorporation and By-Laws (as the case may be) to broaden the purposes of the
Issuer or the Company and in other respects; or (iv) authorize the Issuer or
the Company to engage in any activity other than those set forth in the
Articles of Association or Certificate of Incorporation and By-Laws (as the
case may be). The Articles of Association of the Issuer and the Certificate of
Incorporation and By-Laws of the Company provide that the Independent Director
shall be a person who is not and has not been, for the five years preceding his
election, (i) a direct or indirect legal or beneficial owner of the Company or
its affiliates (or a member of the immediate family of such owner), (ii) a
creditor, supplier, officer, director, promoter, underwriter, manager or
contractor of the Company or any of its affiliates (or a member of the
immediate family of any such officer or director) or (iii) a person (or a
member of the immediate family of a person) employed by the Company or any of
its affiliates or by any creditor, supplier, employee, stockholder, officer,
director, promoter, underwriter, manager or contractor thereof. The Independent
Director may, however, serve in such capacity for other subsidiaries of Panda
International. In March 1997, Brian G. Trueblood was elected as the Independent
Director of the Issuer and the Company. Mr. Trueblood also serves as the
Independent Director for PIC, Pan-Western and certain other subsidiaries of
Panda International.
The following table sets forth the names and ages of the directors and the
executive officers of the Issuer and the Company and their positions with the
Issuer and the Company. Since the formation of the Issuer and the Company, each
executive officer of the Issuer and the Company has held the same office(s)
with the Issuer and the Company that he or she has held with Panda
International, and each other corporation that is currently a direct or
indirect subsidiary of the Company.
Name Age Position with the Issuer and the
Company
Robert W. Carter 59 Director, Chairman of the Board and Chief
Executive Officer
Darol S. Lindloff 59 President
Janice Carter 55 Executive Vice President, Secretary and
Treasurer
William C. Nordlund 42 Executive Vice President, Finance
L. Stephen Rizzieri 42 Vice President and General Counsel
Brian G. Trueblood 36 Independent Director
Robert W. Carter has been the Chairman of the Board and Chief Executive
Officer of Panda International since January 1995. Mr. Carter has held similar
chief executive positions with PEC and its subsidiaries since he founded PEC in
1982. Mr. Carter also is President of Robert Carter Oil & Gas, Inc. (an oil and
gas exploration company), which he founded in 1980. From 1978 to 1980, Mr.
Carter was Vice President of oil and gas lease sales for Reserve Energy
Corporation (an oil and gas exploration company). From 1974 to 1978, he served
as a marketing consultant to Forward Products, Inc. (a petrochemical company).
Mr. Carter was Executive Vice President of Blasco Industries (a chemical and
textile manufacturer) from 1970 to 1974. He served as a sales representative
and sales manager for Olin Mathieson Chemical Corporation (a petrochemical,
pulp and paper company) from 1965 to 1970. From 1960 to 1965, he was a sales
representative for Inland, Mead Paper Company in Atlanta. Mr. Carter attended
the University of Georgia.
Darol S. Lindloff was appointed President of Panda International in
February 1997. Prior thereto, he served as Senior Vice President, Project
Development of Panda International from January 1996. He served as Vice
President of Panda International from January 1993 to January 1996 in the
capacities of Business Development, Technical Director and Project Development.
Mr. Lindloff served as Marketing Manager for PEC from October 1989 until
January 1993. From December 1987 to October 1989, Mr. Lindloff established a
regional office in Dallas for Southwest Research Institute (a research and
development company) and served as Regional Director. From January 1986 to
December 1987, Mr. Lindloff worked on the development of cogeneration
facilities for Hawker Siddeley Power Engineering, Inc. (a British engineering
company). During 1984 and 1985, he worked in the development of cogeneration
facilities for Central & Southwest Corporation's subsidiary, C&SW Energy, Inc.
(an energy company). Mr. Lindloff graduated from Southwestern University with a
Bachelor of Science degree in organic chemistry.
Janice Carter has been the Executive Vice President, Secretary, Treasurer
and a Director of Panda International since January 1995 and has served in such
capacities with PEC since its inception in 1982. From 1975 to 1980, Mrs. Carter
was office manager of Reserve Energy Corporation. From 1969 to 1972, Mrs.
Carter worked for University Computing, and from 1962 to 1968 she directed
administration for the engineering department of Otis Engineering, a division
of Halliburton International. Mrs. Carter also serves as Vice President and
Secretary/Treasurer of Robert Carter Oil & Gas, Inc. Mrs. Carter attended Texas
Tech University. Mrs. Carter is married to Robert W. Carter.
William C. Nordlund has served as Executive Vice President, Finance of
Panda International since February 1997. Prior thereto, he served as Senior
Vice President and General Counsel of Panda International since August 1996, as
Vice President and General Counsel of Panda International since January 1995
and of PEC since January 1994. Mr. Nordlund was General Counsel of PEC from
April 1993 to January 1994. He was Senior Vice President and General Counsel
from August 1992 to April 1993 and Vice President and General Counsel from
September 1991 to August 1992 for The Oxford Energy Company, a developer of
independent power facilities. From July 1990 to September 1991, Mr. Nordlund
was an attorney with Constellation Holdings, Inc., an affiliate of Baltimore
Gas & Electric Company which developed independent power facilities. Prior to
July 1990, he was a partner in the law firm of Winston & Strawn in Chicago. Mr.
Nordlund earned a Bachelor of Arts degree from Vanderbilt University, a Juris
Doctor degree from Duke University and a Master of Management degree from the
J.L. Kellogg Graduate School of Business at Northwestern University.
L. Stephen Rizzieri has served as Vice President and General Counsel of
Panda International since February 1997. Prior thereto, he served as Deputy
General Counsel since April 1996. From 1993 until he joined Panda
International, he was Assistant General Counsel of ENSERCH Development
Corporation, the independent power development affiliate of ENSERCH
Corporation. From 1985 to 1993, Mr. Rizzieri served in various capacities with
Sunshine Mining Company and its affiliated companies, most recently as
Assistant General Counsel and Secretary. From 1981 to 1985, he served in
various capacities with Woods Petroleum Corporation (which was purchased by
Sunshine Mining Company in 1985) and its affiliates, most recently as President
of Woods Securities Corporation. In 1980, Mr. Rizzieri served as Deputy General
Counsel - Enforcement Division, Oklahoma Securities Commission. Mr. Rizzieri
earned a Bachelor of Arts degree from the State University of New York at
Geneseo and a Juris Doctor degree from the University of Oklahoma.
Brian G. Trueblood became the Independent Director of the Issuer and the
Company in March 1997. He has served since February 1997, and also from
September 1989 through August 1994, as a senior partner in the Dallas office of
Lucas Associates (an Atlanta-based executive search firm). From August 1994 to
February 1997, Mr. Trueblood served as Vice President of TNS Partners, Inc. (a
Dallas-based retained executive search firm). Mr. Trueblood received a Bachelor
of Science degree in general engineering from the United States Military
Academy. Mr. Trueblood also serves as the Independent Director of various other
subsidiaries of Panda International.
Executive and Board Compensation and Benefits
No cash, stock options or other non-cash compensation has been paid or is
proposed to be paid in the current calendar year, or in the last completed
fiscal year, to any of the officers and directors listed under "Management"
for their services to the Issuer and the Company. Mr. Trueblood will be paid
$1,000 per year by each of the Issuer and the Company for serving as an
Independent Director thereof.
Stock Ownership of Panda International
There were 11,401,212 shares of common stock of Panda International
outstanding at March 31, 1997. Of this amount, 4,418,957 shares (38.8%) are
owned by Robert and Janice Carter and members of their family and family
trusts. W.M. Huffman and members of his family and family trusts and a family
partnership own 2,134,443 of the outstanding shares (18.7%). Other directors,
officers and employees of Panda International own less than 1% of the
outstanding shares of common stock. At March 31, 1997: (i) there were
outstanding options to acquire 1,209,000 shares of common stock of Panda
International (options for 1,050,000 shares being fully vested and for 159,000
shares vesting over a six-year period, held by directors, officers and
employees of Panda International, and of this amount options for 250,000 shares
are held by Robert Carter and options for 25,000 shares are held by W.M.
Huffman); (ii) Trust Company of the West held warrants to purchase 1,004,000
shares of common stock of Panda International; and (iii) NNW, Inc. held rights
to acquire up to approximately 181,500 shares of common stock of Panda
International. See "Description of the Projects--The Rosemary Facility--Cash
Flow Participation."
Certain Relationships and Related Transactions
Since the respective dates of incorporation of the Company and the Issuer,
there have been no transactions, and there currently are not any proposed
transactions, or series of similar transactions, to which the Company or the
Issuer (or any of their respective subsidiaries) was or is to be party, in which
the amount involved exceeds $60,000 and in which a director or executive officer
of the Company or the Issuer, respectively, has a material interest.
Additionally there are no business relationships that currently exist or
have existed since the respective dates of incorporation of the Company and
the Issuer, involving the Company or the Issuer, (or an affiliate thereof),
on the other hand. No director or executive officer of the Company or the
Issuer, has been indebted to the Company or the Issuer, respectively, since
the respective dates of incorporation of the Company and the Issuer.
LEGAL PROCEEDINGS
Neither the Issuer nor the Company is a party to any legal
proceedings. Affiliates of the Issuer and the Company are claimants or
defendants in various legal proceedings which have arisen in the ordinary
course of business. The Issuer and the Company believe such claims and legal
actions, individually or in the aggregate, will not have a material adverse
effect on the business or financial condition of the Issuer or the Company.
NNW, Inc. Proceeding
On July 12, 1996, PEC filed an action against NNW captioned Panda Energy
Corporation v. NNW, Inc. f/k/a Nova Northwest Inc. (No. 96--07151-C), in the
District Court of Dallas County, Texas (68th Judicial District). PEC's petition
seeks a declaratory judgment that the NNW Cash Flow Participation remains at
0.433% after the restructuring of the Rosemary Partnership interest pursuant to
the terms of the NNW Credit Agreement. Pursuant to the NNW Credit Agreement,
NNW received a cash flow participation interest in distributions from the
Rosemary Partnership in the amount of 4.33% of PEC's own participation
interest. At the time the NNW Credit Agreement was entered into, the aggregate
equity interest in the Rosemary Partnership held by PEC was 10%, making the NNW
Cash Flow Participation equal to 0.433%. As a result of the redemption of Ford
Credit's 90% limited partner interest in the Rosemary Partnership in July 1996,
PEC owns an indirect 100% interest in the Rosemary Partnership.
Pursuant to the NNW Credit Agreement, the NNW Cash Flow Participation is
not to be affected either positively or negatively by "any financial
restructuring." It is the opinion of Panda International, the Issuer and the
Company that the redemption of Ford Credit's limited partner interest
constituted a "financial restructuring" within the meaning of that term in the
NNW Credit Agreement and that, as a result, the NNW Cash Flow Participation
remains equal to 0.433% of total cash flow distributions by the Rosemary
Partnership (based on the current debt structure). NNW is disputing this
position and asserts that, upon the restructuring, it became entitled to 4.33%
of PEC's distributions from the Rosemary Partnership. The declaratory judgment
petition seeks a determination that the NNW Cash Flow Participation is equal to
0.433%. NNW, Inc. has filed a motion for summary judgment, to which PEC has
responded. The court has not ruled on the motion. The Issuer and the Company
believe that a resolution of this dispute and the declaratory judgment
proceeding adverse to PEC would not have a material adverse effect on
the business or operations of the Issuer or the Company. See "Description
of the Projects--The Rosemary Facility--Cash Flow Participation."
Heard Proceedings
PEC is a party to a lawsuit captioned Panda Energy Corporation, Plaintiff
v. Heard Energy Corporation, CLF Energia Y Electricidad, S.A., Robert A. Wolf,
Armin Alexander Budzinsky, Edward R. Gwynn, Donald L. Kinney, Morgan Stanley &
Co., Inc., Allstate Insurance Company, Allstate Life Insurance Company, Entergy
Corporation, Entergy Enterprises, Inc., Entergy Power, Inc., Entergy Power
Development Corporation, Anil Desai, Drs. IR. Poerwanto P., and PT Panca
Serodja Pradhana, Defendants, (No. 94--0672-J), District Court of Dallas
County, Texas (191st Judicial District). PEC initiated this litigation in April
1994 and alleges that defendants Wolf, Gwynn and Kinney, former PEC employees,
formed a competing company (Heard Energy Corporation) and misappropriated
certain of PEC's international power project opportunities. PEC alleges that
the other defendants knowingly participated, collaborated and/or conspired in
the misappropriation. PEC alleges causes of action for misappropriation,
conspiracy, fraud, breach of contract, breach of fiduciary duty and legal
malpractice against one or more of the defendants and alleges damages in an
unspecified amount.
Defendant Morgan Stanley filed a counterclaim on September 14, 1995
against PEC, alleging that it had performed services for PEC pursuant to an
engagement agreement relating to the Brandywine Project. PEC terminated the
engagement agreement on May 4, 1993. Morgan Stanley alleges that the services
it performed prior to such termination included assisting PEC in obtaining
certain regulatory approvals, preparing a draft solicitation booklet and
identifying potential project financing sources, including GE Capital. Morgan
Stanley further alleges that PEC obtained financing from GE Capital after
Morgan Stanley was terminated, and that Morgan Stanley is entitled to a
"transaction fee," either pursuant to the engagement agreement or based on the
value of the services it allegedly performed, in an amount of not less than
$4.3 million, plus attorneys' fees and interest.
Defendants Heard Energy Corporation, Wolf, Gwynn, Kinney and Budzinsky
(the "Heard Defendants") also filed a counterclaim during November 1994 against
PEC and a third-party claim against Robert Carter and Janice Carter, alleging
that PEC, Robert Carter and Janice Carter negligently made misrepresentations
of PEC's lack of a continued interest in developing international power
projects. The Heard Defendants allege that they would not have engaged in
allegedly competing international power project transactions but for these
misrepresentations and that they incurred damages in the amount of
approximately $5.0 million as a result of these misrepresentations, such
damages allegedly consisting of expenses incurred by Heard Energy Corporation,
certain portions of which allegedly are guaranteed by the individual Heard
Defendants. In both the counterclaim and the third-party claim, the Heard
Defendants further allege that PEC, Robert Carter and Janice Carter violated a
confidentiality order relating to certain documents produced by the Heard
Defendants during the discovery phase of this action by misappropriating
confidential information in these documents for the purpose of gaining a
competitive advantage over Heard Energy Corporation. The Heard Defendants seek
$5.0 million in damages as well as unspecified "exemplary" damages based on
this alleged violation. PEC believes that the Heard Defendants' discovery order
claim is not actionable as a claim for damages.
On March 15, 1996, all of the defendants filed motions for summary
judgment, and PEC filed motions for summary judgment with respect to Morgan
Stanley's counterclaim and the Heard Defendants' counterclaim and third-party
claim. By letter dated April 30, 1996, the court advised all counsel that it
intended to grant the defendants' motions for summary judgment, indicating that
PEC could not show legally sufficient evidence of damages to sustain its
claims. This order was entered on June 19, 1996.
PEC has appealed the court's ruling. In light of the court's ruling and
pending the appeal, Morgan Stanley and the Heard Defendants have dismissed
without prejudice their counterclaims and third-party claims, and PEC has
agreed that any applicable statutes of limitations or other time-based defenses
will be tolled during the pendency of the appeal.
The Issuer and the Company have been informed by PEC that PEC does not
believe that either the Morgan Stanley counterclaim or the Heard Defendants'
counterclaims and third-party claims will be refiled unless and until the
judgment dismissing PEC's claims against those parties is reversed and remanded
to the trial court by the appellate court. In any event, PEC does not believe
that these counterclaims or third-party claims, if reasserted, have any merit,
nor does PEC believe that these claims, if eventually decided adversely to PEC,
would have a material adverse effect on the business or operations of PEC, the
Issuer or the Company.
Brandywine Proceeding
On June 26, 1996, certain plaintiffs commenced a proceeding against the
Brandywine Partnership and one of its contractors (as well as other
subcontractors) captioned Jeannine McConnell, McConnell Pool Service, Inc. and
McConnell Fuel Oil, Inc. v. Panda-Brandywine, L.P. and Flippo Construction
(Case No. CV 96--1344) in the Circuit Court for Charles County, Maryland. In
this proceeding, plaintiffs allege that in connection with the construction of
an effluent water pipeline, a contractor for the Brandywine Partnership, Flippo
Construction ("Flippo") (and its subcontractors) and the Brandywine Partnership
left their easement and inadvertently trespassed on to plaintiffs' property.
While on plaintiffs' property, Flippo (and its subcontractors) and the
Brandywine Partnership allegedly dug a deep and wide hole which extended
onto the plaintiff's property to locate a buried pipe. Plaintiffs allege that
this trespass damaged the property, decreased its fair market value and
resulted in loss of use thereof. Plaintiffs claim damages in numerous counts
that aggregate to $3.25 million in actual damages against each defendant plus
punitive damages aggregating $3.0 million against all defendants.
The Brandywine Partnership intends to vigorously contest this proceeding.
Panda International, the Issuer and the Company do not believe that the outcome
of this proceeding will have any material adverse effect on the financial
position, results of operations and liquidity of the Issuer, the Company or the
Brandywine Partnership. In the opinion of Panda International, the Issuer
and the Company, the contract between the Brandywine Partnership and Flippo
requires Flippo to hold the Brandywine Partnership harmless for any activities
relating to the plaintiffs' property.
Florida Power Proceedings
In January 1995, Florida Power commenced a proceeding before the Florida
PSC against the Kathleen Partnership captioned In re: Petition for Declaratory
Statement Regarding Eligibility for Standard Offer Contract and Payment
Thereunder by Florida Power Corporation, Case No. 950110-EI. Florida Power's
petition sought a declaratory statement that the Kathleen Power Purchase
Agreement is not "available" to the Kathleen Partnership because the Kathleen
Partnership's proposed cogeneration facility allegedly is not in compliance
with the Florida PSC's rules (because it may be capable of exceeding 75 MW in
electric generating capacity). Additionally, if the contract is "available" to
the Kathleen Partnership, Florida Power sought a declaratory statement that it
is only obligated to pay capacity payments under the power purchase agreement
relating to the Kathleen Facility for a term of 20 years rather than for the
entire 30-year term of the power purchase agreement. The Kathleen Partnership
filed a cross-petition seeking a declaratory statement that the milestone dates
in the power purchase agreement must be extended due to Florida Power's
improper actions and as a result of the delays in developing the Kathleen
Facility caused by Florida Power's petition and the ensuing proceeding before
the Florida PSC. The Kathleen Partnership filed a motion to dismiss the
proceeding based on lack of jurisdiction, but that motion was denied by the
Florida PSC. In February of 1996, the Florida PSC held a one-day hearing.
On May 20, 1996, the Florida PSC issued a decision granting Florida
Power's petition, and holding that the power purchase agreement is not
available to the Kathleen Facility as proposed because it has an electric
generating capacity in excess of 75 MW and that Florida Power is only obligated
to make capacity payments under the power purchase agreement for 20 years. The
Florida PSC's decision also granted the Kathleen Partnership's cross-petition
insofar as it grants the Kathleen Partnership an 18-month extension to meet the
construction commencement milestone date and an 18-month extension to meet the
commercial operation milestone date. The Kathleen Partnership has appealed the
Florida PSC's order to the Florida Supreme Court. The parties' briefs have been
filed and oral argument in the case took place in February 1997. The parties
are presently awaiting the decision of the Florida Supreme Court.
There are two actions related to this matter pending before the Florida
Supreme Court and the United States District Court for the Middle District of
Florida.
DESCRIPTION OF OTHER INDEBTEDNESS
Series A Bonds
On July 31, 1996, Panda Funding Corporation, a Delaware corporation
("PFC"), which is an indirect wholly-owned subsidiary of the Company and a
direct wholly-owned subsidiary of PIC, consummated the offering and sale of a
series of Pooled Project Bonds (the "Series A Bonds") in the aggregate
principal amount of $105.5 million. The Series A Bonds were issued pursuant to
an indenture (the "PFC Indenture") among PFC, PIC and Bankers Trust Company, as
trustee. The proceeds of the sale of the Series A Bonds were used (a) to fund
deposits into certain reserve funds, (b) to redeem a limited partner interest
in the Rosemary Partnership formerly held by a third party, (c) to pay
transaction fees and expenses in connection with the offering of the Series A
Bonds and (d) to distribute approximately $61.2 million to Panda International,
of which approximately $26.4 million was used to prepay certain indebtedness
and the balance of which Panda International has used and intends to use for
the development of Projects and general corporate purposes. The following
description of the Series A Bonds and certain provisions of the PFC Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the PFC Indenture, a copy of which is included as an
exhibit to this Registration Statement.
PFC may issue additional series of Pooled Project Bonds pursuant to the
PFC Indenture, as supplemented by a supplemental indenture specific to such new
series of Pooled Project Bonds. Except for matters specific to each series of
Pooled Project Bonds, including principal amount, interest rate, permitted uses
of proceeds, payment frequency and amortization, each series of Pooled Project
Bonds will be governed by the same indenture provisions, and is secured by the
same collateral, as each other series of Pooled Project Bonds. In particular,
(i) each new series of Pooled Project Bonds will be subject to mandatory
redemption provisions comparable to the provisions applicable to the Series A
Bonds, (ii) each series of Pooled Project Bonds will rank on a parity with the
Series A Bonds, (iii) the payment of each series of Pooled Project Bonds will
be guaranteed by PIC pursuant to the PIC Guaranty, (iv) the security for each
new series of Pooled Project Bonds will consist of the same collateral that
secures the Series A Bonds and the rights of the holders of each series of
Pooled Project Bonds, as well as any other secured party, with respect to the
collateral are shared equally, and (v) each series of Pooled Project Bonds is
entitled to all of the benefits of the PFC Indenture, including the protection
afforded by the covenants contained therein.
Subject to certain conditions, including those set forth below, Panda
International and its affiliates (including the Issuer) are required by the PIC
Additional Projects Contract to transfer to PIC, or to certain wholly-owned
direct subsidiaries thereof, their interests in each Project for which a power
purchase agreement is entered into prior to July 31, 2001, and which has
reached Financial Closing or achieved Commercial Operations prior to July 31,
2006. Such additional transferred Projects will become part of the PIC Project
Portfolio and will serve as additional collateral security for the Pooled
Project Bonds. Panda International and its affiliates are required to transfer
their interests in a Project to the PIC Project Portfolio only if the principal
amount of additional series of Pooled Project Bonds that can be issued after
giving effect to the inclusion of the Project in the PIC Project Portfolio
equals or exceeds the amount of "Anticipated Additional Debt." Interests in a
Project will not be transferred if the Project has not reached Financial
Closing or achieved Commercial Operations. Additionally, except for the
Kathleen Project, which must be transferred to the PIC Project Portfolio if it
reaches Financial Closing, interests in a Project will not be transferred if:
(i) Panda International does not own a controlling interest in the Project;
(ii) the transfer would be prohibited under any Project-level financing, power
purchase or related agreement; or (iii) after giving effect to the issuance of
the additional series of Pooled Project Bonds in connection with the inclusion
of the Project in the PIC Project Portfolio (a) the rating of previously issued
Pooled Project Bonds is not reaffirmed by at least two rating agencies at a
rating equal to or higher than that in effect immediately prior to the issuance
of such additional series or (b) the projected PIC Debt Service Coverage Ratio
or the projected PIC Consolidated Debt Service Coverage Ratio (if then
applicable) would be less than 1.7:1 or 1.25:1, respectively, for (1) the
period beginning with the date of determination through December 31 of that
calendar year, (2) each period consisting of a calendar year thereafter through
the calendar year immediately prior to the calendar year in which the Final
Stated Maturity occurs and (3) the period thereafter beginning with January 1
and ending with such Final Stated Maturity (each such period, a "Future Ratio
Determination Period"). The PIC Additional Projects Contract requires Panda
International to use commercially reasonable efforts to cause each Project to
meet the conditions for transfer to the PIC Project Portfolio as of the date a
Project reaches Financial Closing or achieves Commercial Operations, whichever
occurs first, or within a 90-day period thereafter. If, however, the conditions
for such a transfer cannot be satisfied using commercially reasonable efforts,
Panda International will have no further obligation to PIC in respect of such
Project and may retain its interest in such Project or sell it to third
parties. The Luannan Facility is not currently eligible for transfer to the PIC
Project Portfolio.
"Anticipated Additional Debt," as that term is used in the PIC Additional
Projects Contract, means the original principal amount of an additional series
of Pooled Project Bonds proposed to be issued which is equal to the largest
principal amount of such series that will provide a projected PIC Debt Service
Coverage Ratio and a projected PIC Consolidated Debt Service Coverage Ratio (if
then applicable) of at least 1.7:1 and 1.25:1, respectively, for each PIC
Future Ratio Determination Period, as confirmed by the "Consolidating Engineer"
(as such term is used in the PIC Additional Projects Contract), assuming, in
respect of the additional series of Pooled Project Bonds proposed to be issued,
(i) a maximum maturity and average life generally available in the marketplace
for debt of a similar nature and (ii) a coupon rate then prevailing in the
market for debt of a similar nature, and taking into account (a) in the case of
the PIC Debt Service Coverage Ratio, PIC Cash Available for Distribution from
the PIC Project Portfolio and (b) in the case of the PIC Consolidated Debt
Service Coverage Ratio, PIC Cash Available from Operations (net of any reserve
requirements at both the Project and PIC debt levels) from the PIC Project
Portfolio (giving effect, in each case, to the transfer to the PIC Project
Portfolio of any Project in respect of which such additional series of Pooled
Project Bonds is proposed to be issued).
Other than through the issuance of additional series of Pooled Project
Bonds upon the addition of a Project to the PIC Project Portfolio, the PFC
Indenture prohibits PFC from incurring additional debt or becoming liable in
connection with a guaranty. PIC and its direct subsidiaries are prohibited from
incurring debt and becoming liable in connection with guaranties other than (i)
in the case of PIC, its guaranty and notes issued in connection with the Pooled
Project Bonds, (ii) in the case of PIC's direct subsidiaries, their guaranties
and notes issued in connection with the Pooled Project Bonds and certain
subordinated debt payable to PIC or another direct subsidiary of PIC, and (iii)
in the case of Project Entities, Project debt and certain guaranties.
In accordance with a registration rights agreement that was entered into
in connection with the Series A Offering, PFC, PIC and Interholding filed a
registration statement with the Securities and Exchange Commission with respect
to the exchange of Series A--1 Bonds for the Series A Bonds. The terms of the
Series A Bonds and the Series A-1 Bonds are substantially identical, except
that (i) the Series A-1 Bonds have been registered under the Securities Act and
(ii) holders of the Series A-1 Bonds are not entitled to certain rights of
holders of the Series A Bonds under the registration rights agreement, which
rights terminated upon the consummation of the exchange offer. Such rights also
terminated as to holders of Series A Bonds who are eligible to tender their
Series A Bonds for exchange in the exchange offer and failed to do so. The
registration statement became effective on February 14, 1997, and an offer to
exchange the Series A-1 Bonds for the Series A Bonds commenced thereafter.
Pursuant to such offer, Series A-1 Bonds were exchanged for Series A Bonds that
were validly tendered through March 20, 1997. All outstanding Series A Bonds
were tendered for exchange. All references in this Prospectus to the Series A
Bonds shall include the Series A--1 Bonds issued in exchange for Series A Bonds
in such exchange offer.
Interest and Principal Payments
The Series A Bonds bear interest at the rate of 11 5/8% per year from July
31, 1996, or from the most recent interest payment date to which interest has
been paid or provided for, payable semiannually on February 20 and August 20 of
each year, commencing February 20, 1997. Principal of the Series A Bonds is
payable in semiannual installments as follows:
Percentage of Percentage of
Payment Date Original Payment Date Original
Principal Principal
Amount Payable Amount Payable
February 20, 0.2045% February 20, 3.4687%
1997 2005
August 20, 0.0000% August 20, 3.5977%
1997 2005
February 20, 0.0000% February 20, 3.7820%
1998 2006
August 20, 0.0000% August 20, 2.8098%
1998 2006
February 20, 0.0000% February 20, 3.0076%
1999 2007
August 20, 0.5933% August 20, 4.8415%
1999 2007
February 20, 0.6129% February 20, 5.1145%
2000 2008
August 20, 0.0000% August 20, 5.0057%
2000 2008
February 20, 0.0000% February 20, 5.2949%
2001 2009
August 20, 1.3753% August 20, 5.5185%
2001 2009
February 20, 1.4691% February 20, 5.8300%
2002 2010
August 20, 2.2184% August 20, 5.7248%
2002 2010
February 20, 2.3565% February 20, 6.0590%
2003 2011
August 20, 2.9328% August 20, 6.4800%
2003 2011
February 20, 3.1031% February 20, 6.8808%
2004 2012
August 20, 3.2796% August 20, 8.4390%
2004 2012
PIC Guaranty; Collateral
All obligations of PFC with respect to the Series A Bonds and any future
additional series of Pooled Project Bonds are fully and unconditionally
guaranteed by PIC pursuant to the PIC Guaranty and guaranteed in a limited
amount by the PIC U.S. Entity. The obligations of PFC pursuant to the Pooled
Project Bonds, the obligations of PIC under the PIC Guaranty, and the
obligations of the PIC U.S. Entity under its guaranty are secured by (i) liens
on and security interests in substantially all of the assets of PIC and PFC,
(ii) pledges of all of the capital stock of PIC, PFC, the U.S. PIC Entity and
any future U.S. PIC Entity and (iii) a pledge of 60% of the capital stock of
the Non-U.S. PIC Entity and any future Non-U.S. PIC Entity. The rights of the
holders of the Series A Bonds and the rights of any holders of any future
additional series of Pooled Project Bonds with respect to the Pooled Project
Bond Collateral will be shared equally.
The source of payment for the Series A Bonds and all additional series of
Pooled Project Bonds, if any, will be the payments by PIC to PFC of principal,
premium, if any, and interest due under PIC Notes and payments, if any, by PIC
under the PIC Guaranty and by the PIC U.S. Entity under its guaranty. The
principal source of payments under PIC Notes is distributions to PIC through
the PIC Entities from the Project Entities that own Projects that are part of
the PIC Project Portfolio. Thus, the ability of PFC to make such payments
depends primarily upon the performance of the Projects in the PIC Project
Portfolio and the ability of the Project Entities to make distributions to the
PIC Entities and, ultimately, to PIC.
Ranking
The indebtedness evidenced by the Series A Bonds and any additional series
of Pooled Project Bonds constitute senior secured indebtedness of PFC. In order
for PFC to receive payments from PIC on the PIC Notes, the Projects in the PIC
Project Portfolio must generate sufficient operating cash flow to pay all
operating expenses, debt service and other reserve requirements and other
payment obligations to lenders and other Project creditors. Therefore, although
PFC and PIC have no secured indebtedness other than the Pooled Project Bonds,
the Exchange Notes are effectively subordinated to all liabilities of the
Project Entities incurred in respect of the Projects as well as to the
liabilities of PFC and PIC in respect of the Pooled Project Bonds. See "Risk
Factors--Financial Risks--Substantial Leverage of the Issuer, the Company and
Their Subsidiaries," "risk Factors--Financial Risks--Risk in Case of Foreclosure
on Assets of Underlying Projects of the Company or Equity Interest in Entities
That Own or Lease Such Projects," "Risk Factors--Financial Risks--Risk of
Possible Inability of a Project Entity to Obtain Additional Financing" and
"Risk Factors--Financial Risks--Effective Subordination of Exchange Notes
and Exchange Notes Guarantee to Obligations of Project Entities and Joint
Ventures" and "Description of the Exchange Notes, the Notes Guarantee, the
Issuer Loan, the Shareholder Loans and the Collateral Documents."
Certain Covenants
Limitations on Distributions. Subject to certain limited exceptions,
distributions may be made by PFC through to the guarantor only from, and to the
extent of, amounts then on deposit in the distribution funds established
pursuant to the PFC Indenture (the "PFC Distribution Funds"). Amounts may only
be deposited into the PFC Distribution Funds upon the satisfaction of the
following conditions: (i) amounts deposited in certain funds established
pursuant to the PFC Indenture shall be equal to or greater than the amount then
required to be deposited therein, including the debt service and debt service
reserve funds and (ii) no event or condition has occurred and is continuing
that constitutes a default of an event of default under the PFC Indenture,
(iii) PIC's debt service coverage ratio is equal to or greater than 1.4:1 for
the 12 months immediately preceding the month in which such distribution is to
occur and (iv) PIC's projected debt service coverage ratio is equal to or
greater than 1.4:1 for the 12 months immediately succeeding the month in which
such distribution is to occur.
Certain Other Covenants. The PFC Indenture contains numerous other
affirmative and negative covenants which restrict the activities of PFC and
PIC, including, but not limited to, the following:
(i) a prohibition against incurring debt (including guaranties of debt)
except as described above, and a prohibition against other
guaranties except certain permitted guaranties;
(ii) a prohibition against creating or suffering to exist liens on any of
their respective properties other than certain permitted liens;
(iii) a limitation on the permitted activities of PFC and PIC, including a
restriction against conducting any business other than business
conducted in connection with the issuance of Pooled Project Bonds, a
restriction against the creation, acquisition or purchase of any
subsidiary other than PIC Entities or any indirect subsidiary other
than the Project Entities and a restriction against merging or
consolidating with or into any person;
(iv) subject to certain exceptions, a covenant to maintain certain
minimum levels of ownership of the Projects in the PIC Project
Portfolio;
(v) a limitation on the ability of PIC and any PIC Entity to incur or
refinance Project-level debt, to enter into new project agreements
or to terminate, amend or modify certain project agreements unless
certain tests are satisfied;
(vi) a covenant to cause the Project Entities to distribute to the PIC
Entities and, ultimately, to PIC, all amounts that can be legally
distributed without contravention of any Project agreement;
(vii) a prohibition against selling, leasing or otherwise disposing of any
direct or indirect interests in Projects with a fair-market value in
excess of $2.0 million in the aggregate in any one year subject to
certain exceptions; and
(viii)covenants regarding compliance with laws, governmental regulations
and organizational documents, maintenance of existence and of
governmental approvals, pursuing rights to compensation upon the
occurrence of a casualty or condemnation, employee benefit plans,
affiliate transactions, payment of taxes, the preparation of various
reports and other matters.
Events of Default
Events of Default under the PFC Indenture include (i) the failure to pay
or cause to be paid principal of, premium, if any, or interest on any Pooled
Project Bond, (ii) any misrepresentation made by PFC or PIC under the PFC
Indenture that has resulted in a material adverse change, (iii) the breach by
Panda International, PIC, PFC or the PIC Entities of any covenant under the PFC
Indenture, (iv) certain events involving the bankruptcy, insolvency,
dissolution, receivership or reorganization of PIC, PFC or any PIC Entity; (v)
a final judgment or judgments for the payment of money in excess of $2.0
million against any of PIC, PFC or any PIC Entity; (vi) a default on certain
other debt of PIC, PFC or any PIC Entity and (vii) the cessation of liens on
certain collateral. Upon the occurrence of an event of default and after the
lapse of certain applicable cure periods, the trustee under the PFC Indenture
has the right, among other things, to accelerate the maturity of the Pooled
Project Bonds and to direct a collateral agent to realize upon the collateral
securing the payment of the Pooled Project Bonds and other secured obligations,
including the capital stock of PIC, PFC and the PIC Entities.
The Funds
The PFC Indenture established the following U.S. funds: (a) a debt service
fund, (b) a capitalized interest fund, (c) a debt service reserve fund, (d) a
company expense fund, (e) a distribution suspense fund, (f) a distribution
fund, (g) a mandatory redemption account, and (h) an extraordinary distribution
account. The PFC Indenture also established the following international funds:
(a) an international distribution suspense fund, (b) an international mandatory
redemption account, and (c) an international extraordinary distribution
account. All distributions or other amounts received by PIC, any PIC entity or
any person on behalf of PIC or any PIC Entity from or in connection with the
Projects that are in the PIC Project Portfolio, subject to certain exceptions,
are deposited in a locked account with the trustee (or, in the case of
distributions received from a PIC International Entity, in a separate locked
account with the International Collateral Agent) under the PFC Indenture.
Amounts in the locked account controlled by the trustee are distributed monthly
to the U.S. funds in the order listed above. Amounts in the locked account
controlled by the International Collateral Agent are distributed monthly to the
international funds in the order listed above.
Upon the issuance of the Series A Bonds, PFC deposited approximately $6.4
million into the U.S. debt service reserve fund, $0.3 million into the company
expense fund and $9.8 million into the capitalized interest fund established
under the PFC Indenture. The balances in those funds as of March 31, 1997, were
$7.1 million, $0.3 million and $9.2 million, respectively.
The U.S. debt service reserve fund may be drawn upon to pay principal of,
premium, if any, and interest on the Series A Bonds if funds otherwise
available for such payments are insufficient.
Rating
The Series A Bonds were rated Ba3 by Moody's. and BB- by Duff & Phelps.
There is no assurance that such ratings will be maintained.
The Rosemary Bonds
Concurrently with the closing of the offering of the Series A Bonds, Panda-
Rosemary Funding Corporation (the "Rosemary Issuer"), a wholly-owned subsidiary
of the Rosemary Partnership, consummated the offering and sale (the "Rosemary
Offering") of $111.4 million in aggregate principal amount of its 8 5/8% First
Mortgage Pooled Project Bonds due 2016 (the "Rosemary Bonds"). The Rosemary
Bonds were issued pursuant to an indenture (the "Rosemary Indenture") among the
Rosemary Partnership, the Rosemary Issuer and Fleet National Bank, as trustee.
The following description of the Rosemary Bonds and certain provisions of the
Rosemary Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Rosemary Indenture.
Interest and Principal Payments
The Rosemary Bonds bear interest at the rate of 8 5/8% per year from
July 31, 1996, the date of original issuance, or from the most recent interest
payment date to which interest has been paid or provided for, payable quarterly
on February 15, May 15, August 15 and November 15, commencing November 15,
1996. Principal of the Rosemary Bonds is payable in quarterly installments as
follows:
Percentage Percentage
of Original of Original
Principal Principal
Payment Date Amount Payable Payment Date Amount Payable
November 15, 1996 1.2356% August 15, 2006 0.9632%
February 15, 1997 1.2356% November 15, 2006 0.9632%
May 15, 1997 1.2344% February 15, 2007 0.9632%
August 15, 1997 1.2344% May 15, 2007 1.0081%
November 15, 1997 1.2344% August 15, 2007 1.0081%
February 15, 1998 1.2344% November 15, 2007 1.0081%
May 15, 1998 1.3291% February 15, 2008 1.0081%
August 15, 1998 1.3291% May 15, 2008 1.0558%
November 15, 1998 1.3291% August 15, 2008 1.0558%
February 15, 1999 1.3291% November 15, 2008 1.0558%
May 15, 1999 1.1429% February 15, 2009 1.0558%
August 15, 1999 1.1429% May 15, 2009 1.1039%
November 15, 1999 1.1429% August 15, 2009 1.1039%
February 15, 2000 1.1429% November 15, 2009 1.1039%
May 15, 2000 1.2282% February 15, 2010 1.1039%
August 15, 2000 1.2282% May 15, 2010 1.1541%
November 15, 2000 1.2282% August 15, 2010 1.1541%
February 15, 2001 1.2282% November 15, 2010 1.1541%
May 15, 2001 1.3196% February 15, 2011 1.1541%
August 15, 2001 1.3196% May 15, 2011 1.2168%
November 15, 2001 1.3196% August 15, 2011 1.2168%
February 15, 2002 1.3196% November 15, 2011 1.2168%
May 15, 2002 1.4124% February 15, 2012 1.2168%
August 15, 2002 1.4124% May 15, 2012 1.2772%
November 15, 2002 1.4124% August 15, 2012 1.2772%
February 15, 2003 1.4124% November 15, 2012 1.2772%
May 15, 2003 1.5119% February 15, 2013 1.2772%
August 15, 2003 1.5119% May 15, 2013 1.3359%
November 15, 2003 1.5119% August 15, 2013 1.3359%
February 15, 2004 1.5119% November 15, 2013 1.3359%
May 15, 2004 1.6192% February 15, 2014 1.3359%
August 15, 2004 1.6192% May 15, 2014 1.3888%
November 15, 2004 1.6192% August 15, 2014 1.3888%
February 15, 2005 1.6192% November 15, 2014 1.3888%
May 15, 2005 1.7273% February 15, 2015 1.3888%
August 15, 2005 1.7273% May 15, 2015 1.3534%
November 15, 2005 1.7273% August 15, 2015 1.3534%
February 15, 2006 1.7273% November 15, 2015 1.3534%
May 15, 2006 0.9632% February 15, 2016 1.3534%
Collateral
All obligations of the Rosemary Issuer with respect to the Rosemary Bonds
are fully and unconditionally guaranteed by the Rosemary Partnership. The
obligations of the Rosemary Partnership under the guaranty, as well as certain
other obligations, are secured by (i) liens on, and security interests in,
substantially all of the assets of the Rosemary Partnership, including the
Rosemary Facility, (ii) pledges by each of PR Corp. and PRC II, which are
wholly-owned indirect subsidiaries of the Company, of their respective
interests in the Rosemary Partnership and (iii) pledges of all of the capital
stock of the Rosemary Issuer and each of PR Corp. and PRC II.
Partnership Distributions
Subject to certain limited exceptions, distributions may be made by the
Rosemary Partnership to its partners only from, and to the extent of, amounts
then on deposit in the Rosemary Partnership distribution fund established
pursuant to the Rosemary Indenture. Such distributions may only be made upon
the satisfaction of the following conditions: (i) amounts deposited in certain
funds established pursuant to the Rosemary Indenture shall be equal to or
greater than the amount then required to be deposited therein, including the
debt service and debt service reserve funds; (ii) no event or condition has
occurred and is continuing that constitutes a default or an event of default
under the Rosemary Indenture; and (iii) if there has been a loss of QF status,
the Rosemary Facility has achieved a permitted alternative utility status. In
addition, except for certain limited exceptions, the Rosemary Partnership may
not make distributions unless (i) the average of the debt service coverage
ratios for the four quarterly payment periods on the Rosemary Bonds immediately
preceding the distribution date is at least 1.2:1 and (ii) after giving effect
to such distributions, the average of the projected debt service coverage
ratios for the current quarterly payment period and the next succeeding three
quarterly payment periods on the Rosemary Bonds is at least 1.2:1.
Notwithstanding the requirements of the immediately preceding sentence, the
Rosemary Partnership may make distributions to its partners solely for the
purpose of enabling the partners to pay their income tax liabilities if a lower
debt service coverage ratio (1.1:1) and projected debt service coverage ratio
(1.1:1) for certain periods exist. Except for certain limited exceptions set
forth in the Rosemary Indenture, the Rosemary Partnership will not be permitted
to make any distributions to its partners after November 30, 2005 unless (i)
the Rosemary Gas Supply Agreement and the Firm Gas Transportation Agreements
have been extended on substantially the same terms to have a termination date
no earlier than the longest stated maturity of the Rosemary Bonds, (ii) the
Rosemary Gas Supply Agreement and the Firm Gas Transportation Agreements, if
not so extended on substantially the same terms, have been otherwise extended
to have a termination date no earlier than the longest stated maturity of the
Rosemary Bonds and the rating agencies confirm that the then current rating of
the Rosemary Bonds will not be reduced as a result of such extension or (iii)
the Rosemary Gas Supply Agreement and the Firm Gas Transportation Agreements,
if not extended as described in clause (i) or (ii), are replaced with a new gas
supply agreement or gas transportation agreement (or with respect to a
transportation agreement, a gas transportation plan), provided that the effect
of the replacement agreement or plan would not reduce the average of the annual
projected debt service coverage ratios for the remaining term of the Rosemary
Bonds below 1.2:1 and the rating agencies confirm that the then current ratings
of the Rosemary Bonds will not be reduced as a result of such replacement.
Certain Other Covenants
The Rosemary Indenture contains numerous other affirmative and negative
covenants which restrict the activities of the Rosemary Issuer and the Rosemary
Partnership, including, but not limited to, the following:
(i) prohibition against incurring debt (including guaranties of debt)
except as described below, and a prohibition against other
guaranties except certain permitted guaranties;
(ii) a prohibition against creating or suffering to exist liens on any of
their respective properties other than certain permitted liens;
(iii) a prohibition against selling, leasing or otherwise disposing of any
property or assets except worn-out equipment and certain property
with a fair market value not in excess of $3.0 million in the
aggregate in any one year and, with respect to any single item of
property, a fair market value in excess of $1.0 million, and certain
other exceptions;
(iv) a limitation on the Rosemary Partnership's ability to enter into new
project agreements or to terminate, amend or modify certain project
agreements unless certain tests are satisfied;
(v) a limitation on the ability of the Rosemary Partnership and the
Rosemary Issuer to merge or consolidate with or into any person, or
acquire all or any substantial part of the assets or business of any
person, or form subsidiaries; and
(vi) covenants regarding compliance with laws and governmental
regulations, maintenance of government approvals, affiliate
transactions, payment of taxes, the preparation of various budgets
and reports, the maintenance of specified insurance coverages and
other matters.
The debt that the Rosemary Issuer is permitted to incur is limited to the
Rosemary Bonds and certain other indebtedness ranking pari passu or subordinate
to the Rosemary Bonds, the proceeds of which are loaned to the Rosemary
Partnership. The debt permitted by the Rosemary Indenture to be incurred by the
Rosemary Issuer or the Rosemary Partnership includes: (i) purchase money or
capitalized lease obligations not exceeding $1.0 million in the aggregate
outstanding at any time; (ii) trade accounts payable; (iii) working capital
loans or letter of credit reimbursement obligations if the minimum annual
projected debt service coverage ratios for the remaining term of the Rosemary
Bonds and the average of the annual projected debt service coverage ratios for
the remaining term of the Rosemary Bonds equal or exceed 1.5:1 and 1.75:1,
respectively; (iv) debt incurred to finance enhancements to or modifications of
the Rosemary Facility if, after giving effect to such debt, the same minimum
and average annual projected debt service coverage ratios are satisfied (or, if
the enhancement is required to maintain QF status, each of such debt service
coverage ratios described above is at least 1.2:1); (v) certain interest rate
protection agreements; (vi) guaranties arising in the ordinary course of
business not exceeding $1.0 million in the aggregate; and (vii) various
indemnities with respect to mechanics and other liens, obligations to
governmental authorities, surety bonds and guaranties, indemnities or similar
obligations provided under or required by a Rosemary Project agreement.
Events of Default
Events of default under the Rosemary Indenture include: (i) a default in
the payment of principal of, interest on or premium, if any, on any Rosemary
Bonds; (ii) any misrepresentation made by the Rosemary Partnership or the
Rosemary Issuer under the Rosemary Indenture which has resulted in a material
adverse change; (iii) the breach by the Rosemary Partnership or the Rosemary
Issuer of any covenant under the Rosemary Indenture or related collateral
documents; (iv) the bankruptcy or insolvency of the Rosemary Partnership or the
Rosemary Issuer; (v) a final judgment or judgments for the payment of money in
excess of $1.0 million rendered against either of the Rosemary Partnership or
the Rosemary Issuer unless covered by indemnity or insurance; (vi) a default on
certain other debt of the Rosemary Partnership or the Rosemary Issuer; (vii)
the termination or expiration of certain Project agreements to which the
Rosemary Partnership is a party (some of which are currently scheduled to
expire prior to the maturity date of the Rosemary Bonds; see "Partnership
Distributions" above); (viii) the cessation of liens or certain collateral;
(ix) a modification of certain Project agreements which results in a material
adverse change; (x) Panda International shall cease to own directly or
indirectly 51% of the capital stock of PR Corp. or PRC II; and (xi) PR Corp.
shall withdraw or be removed as general partner of the Rosemary Partnership.
Upon the occurrence of an event of default and after the lapse of certain
applicable cure periods, the trustee under the Rosemary Indenture has the
right, among other things, to accelerate the maturity of the Rosemary Bonds and
to direct a collateral agent to foreclose the mortgage on the Rosemary Facility
and otherwise realize upon the collateral securing the repayment of the
Rosemary Bonds and other secured obligations, including the capital stock of PR
Corp. and PRC II (through which the Company holds an indirect equity interest
in the Rosemary Partnership).
The Funds
The deposit and disbursement agreement entered into simultaneously with
the Rosemary Indenture establishes the following funds: (a) a project revenue
fund, (b) an operating fund, (c) a debt service fund, (d) a property tax fund,
(e) a debt service reserve fund, (f) an overhaul fund, (g) a pollution control
finance fund, (h) a restoration fund, (i) a partnership distribution fund, and
(j) an additional permitted debt fund. All project revenues received by the
Rosemary Partnership and all revenue received by the Rosemary Issuer are to be
deposited into the project revenue fund. Amounts in the project revenue fund
are used to pay operating expenses related to the Rosemary Facility and then
are distributed to the other funds established pursuant to the Rosemary
Indenture in the priority listed above.
Upon the issuance of the Rosemary Bonds, the Rosemary Partnership
deposited approximately $8.1 million into the debt service reserve fund
established under the Rosemary Indenture. The balances that must be maintained
in the debt service reserve fund generally decline over the life of the
Rosemary Bonds. In addition, the Rosemary Partnership is required to maintain
in the debt service reserve fund an amount equal to the maximum amount of debt
service due in respect of certain other debt permitted under the Rosemary
Indenture for any six-month period during the succeeding three-year period. The
debt service reserve fund may be drawn upon to pay principal of, premium, if
any, and interest on the Rosemary Bonds and certain debt permitted under the
Rosemary Indenture, to the extent of funds allocated within the debt service
reserve fund to such obligations, if funds otherwise available for such
payments are insufficient.
Rating
The Rosemary Bonds were rated Baa3 by Moody's Investors Service, Inc. and
BBB- by Duff & Phelps Rating Co. Inc. There is no assurance that such ratings
will be maintained.
The Brandywine Financing
The Brandywine Partnership, Panda Brandywine Corporation, the general
partner of the Brandywine Partnership ("PBC"), and GE Capital entered into the
Construction Loan Agreement and Lease Commitment dated as of March 30, 1995
(the "Brandywine Loan Agreement"), pursuant to which GE Capital agreed, either
directly or indirectly through an owner trustee, to (i) provide construction
financing for the Brandywine Facility, (ii) issue letters of credit as security
for certain obligations of the Brandywine Partnership under the Brandywine
Power Purchase Agreement, (iii) lease the Brandywine Facility site from, and
immediately thereafter sublease the site to, the Brandywine Partnership, (iv)
upon substantial completion of the construction of the Brandywine Facility,
purchase the Brandywine Facility from the Brandywine Partnership and lease the
Brandywine Facility back to the Brandywine Partnership and (v) upon completion
of the construction of the Brandywine Facility, make certain equity loans to
the Brandywine Partnership or its partners. The following description of the
Brandywine Loan Agreement and the other Brandywine Financing Documents does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Brandywine Financing Documents, including definitions therein
not contained in this Prospectus.
Construction Loans
Construction of the Brandywine Facility is substantially complete. On
December 30, 1996, the Brandywine construction loan was converted to long-term
financing in the form of a leveraged lease (the "Brandywine Financing
Conversion"). In connection therewith, all amounts outstanding under the
Brandywine construction loan were repaid in full and the Brandywine Partnership
funded the completion account described below with funds that will be used to
complete construction of the Brandywine Facility.
Long-Term Financing
As to the Brandywine Financing Conversion, the Brandywine Partnership sold
the Brandywine Facility and leased the facility site to Fleet National Bank, as
owner trustee (the "Brandywine Owner Trustee"), for approximately $217.5
million. The Brandywine Owner Trustee financed the purchase of the Brandywine
Facility through an equity investment of $45.5 million from GE Capital and
loans aggregating $172.0 million from loan participants. The Brandywine Owner
Trustee then leased the Brandywine Facility and sub-leased the facility site
back to the Brandywine Partnership.
GE Capital has committed to provide certain letters of credit for the
account of the Brandywine Partnership and to make equity loans to the partners
of the Brandywine Partnership, as more fully described below. All of the assets
of the Brandywine Partnership and all of the ownership interests in the
Brandywine Partnership, as well as certain other collateral, are pledged to
secure the obligations of the Brandywine Partnership under the Brandywine
Financing Documents.
Brandywine Facility Lease
The Brandywine Partnership is a party to a Facility Lease with the
Brandywine Owner Trustee (the "Brandywine Facility Lease") pursuant to which it
leases the Brandywine Facility from the Brandywine Owner Trustee. The
Brandywine Facility Lease is a net lease and its initial term ends on December
30, 2016. Basic rent is payable quarterly on January 31, April 30, July 31 and
October 31, commencing January 31, 1997, as follows:
Quarterly
Basic Rent Payment Basic Rent ($)
1 0
2-5 2,610,509
6-9 2,602,976
10-13 4,993,980
14-17 5,165,114
18-21 6,816,268
22-25 6,984,563
26-29 6,976,747
30-33 6,864,048
34-37 6,900,548
38-41 7,047,103
42-45 7,517,816
46-49 7,632,159
50-53 7,821,232
54-57 8,303,090
58-61 8,980,537
62-65 10,109,363
66-69 10,463,802
70-73 10,684,854
74-77 10,292,055
78-80 9,429,196
In addition, and from time to time, the Brandywine Owner Trustee may
require the Brandywine Partnership to pay, as supplemental rent, (i) certain
agreed-upon amounts required to be paid to the Brandywine Owner Trustee
following a specified event of loss or event of regulation, after payment of
which the Brandywine Facility Lease would terminate and the Brandywine
Partnership would receive title to the Brandywine Facility; (ii) amounts owed
pursuant to certain tax change indemnity obligations; (iii) certain lender swap
breakage costs arising as a result of an event of default, loss or regulation;
(iv) interest on overdue rent payments; and (v) amounts owed as a result of
certain other obligations arising pursuant to the Brandywine Financing
Documents. Basic rent may also be reduced if GE Capital elects to consummate a
refinancing.
Reserve Accounts
In connection with the obligations of the Brandywine Partnership under the
Brandywine Financing Documents, various accounts were established for the
benefit of the Brandywine Owner Trustee, GE Capital and others.
The Brandywine Partnership funded the operation and maintenance reserve
account in the amount of $1.0 million. Until the balance of such reserve
account reaches $5.0 million (which amount is adjusted upward annually for
inflation after December 30, 2001), quarterly contributions of $125,000 in each
of the first eight calendar quarters and $375,000 for each of the next eight
calendar quarters are made to this reserve account out of funds available from
the project revenue account. Thereafter, contributions will be made out of
funds available in the project revenue account as necessary to maintain the
required balance. Subject to specified conditions, funds held in this reserve
account will be used to replenish a drawing under an operations and maintenance
letter of credit to be issued.
The Brandywine Partnership funded the rent reserve account in the amount
of $2.4 million. The balance in the rent reserve account must be maintained at
the greater of (i) $2.4 million and (ii) the sum of the next two payments of
basic rent.
The Brandywine Partnership funded the warranty maintenance reserve account
in the amount of $750,000. Subject to specified conditions, funds in this
reserve account will be used to satisfy warranty obligations to the
manufacturer of the Brandywine Facility's combustion and steam turbine
generators.
The Brandywine Partnership funded the completion account upon the closing
of the Brandywine Financing Conversion in the amount of $5.3 million. The
balance in the account as of March 31, 1997 is $3.6 million. Subject to
specified conditions, funds held in the completion account will be used to pay
costs and expenses incurred in connection with the construction and completion
of the Brandywine Facility.
If the Brandywine Partnership receives a notice from PEPCO that PEPCO has
determined that the Brandywine Partnership has failed to comply with its
obligation under the Brandywine Power Purchase Agreement to have a reliable
supply of fuel for the Brandywine Facility, then the Brandywine Partnership is
required to establish and fund a special payment account with 100% of the
excess, if any, of Brandywine distributable cash flow over required
contributions to the rent reserve account until such notice is rescinded or the
fuel default is cured. Subject to specified conditions, funds held in the
special payment account will be used to cure the fuel default.
In the event that funds in the project revenue account are insufficient to
pay letter of credit fees and rent, and to make the required contributions to
the reserve accounts, such payments and transfers may be made out of the
partnership security account and distribution reserve account. Subject to
specified conditions, funds held in the partnership security account may from
time to time be distributed to the partners of the Brandywine Partnership and
funds held in the distribution reserve account may from time to time be
transferred to the project revenue account.
Letters of Credit
GE Capital has issued and agreed to maintain certain outstanding stand-by
letters of credit and issue and maintain an additional letter of credit as
required for the account of the Brandywine Partnership in favor of PEPCO to
secure certain obligations of the Brandywine Partnership under the Brandywine
Power Purchase Agreement. The aggregate stated amount of all letters of credit
outstanding at any one time in connection with the Brandywine Facility Lease
cannot exceed a specified aggregate amount, currently $7.33 million. The
Brandywine Partnership is required to reimburse GE Capital for any disbursement
under any letter of credit on the day that GE Capital makes any payment to a
beneficiary thereof. If the Brandywine Partnership does not reimburse GE
Capital on such day, it must pay interest on the amount not reimbursed at a
rate per annum equal to 2.5% plus a base rate of the higher of (i) the base
commercial lending rate of Credit Suisse, New York or (ii) the overnight
federal funds rate plus 0.5%. The Brandywine Partnership is obligated to pay to
GE Capital an issuance fee of 1.75% of the stated amount of each letter of
credit upon initial issuance, a letter of credit fee of 1.5% per annum on the
aggregate stated amounts of all outstanding letters of credit and a commitment
fee of 1.25% per annum on the unused balance of the letter of credit
commitment.
Partnership Distributions
The Brandywine Participation Agreement places limitations on the ability
of the Brandywine Partnership to make distributions to its partners. Subject to
certain other conditions, the Brandywine Partnership may make distributions to
its partners only if: (i) all amounts then required to be deposited in certain
reserve accounts, including the reserve accounts described above, have been
deposited; (ii) all rent payments then due to the Brandywine Owner Trustee
under the Brandywine Facility Lease have been paid; (iii) the Brandywine
Facility meets an operating cash flow to basic rent ratio of 1.2:1; and (iv) at
the time of such distribution, and after giving effect thereto, no default or
event of default has occurred and is continuing under the Brandywine Financing
Documents.
Certain Other Covenants
The Brandywine Financing Documents also contain certain affirmative and
negative covenants which restrict the ability of the Brandywine Partnership and
PBC to take certain actions including, but not limited to, the following:
(i) a requirement that the Brandywine Partnership pay all of its
indebtedness and obligations under the Brandywine Financing
Documents and perform its obligations under the related project
documents;
(ii) a requirement that the Brandywine Partnership and PBC maintain their
current respective form of organization, that PBC remain the general
partner of the Brandywine Partnership and that the Brandywine
Facility be maintained as a QF;
(iii) a prohibition against mergers, sales of assets other than electric
power and steam, and certain acquisitions;
(iv) a prohibition against indebtedness other than under the Brandywine
Financing Documents;
(v) a prohibition against amending certain contracts without the consent
of a majority of the Brandywine Loan Participants and GE Capital;
(vi) a prohibition against entering into leases other than those
specifically contemplated by the Brandywine Financing Documents; and
(vii) a requirement (set forth in a stock pledge agreement entered into by
Panda Interholding) that all subsidiaries of Panda Interholding
(either existing or subsequently acquired or formed) which are
engaged in the financing, development, construction or operation of
independent power projects or energy transmission projects located
in the United States (other than the Kathleen Partnership and the
partners of that partnership) remain as subsidiaries of Panda
Interholding; provided, that the Kathleen Partnership and the
partners thereof shall continue to be subsidiaries of PEC and shall
be transferred to Panda Interholding within 180 days after the
earlier of financial closing or the date of commercial operations
with respect to such Project, and provided, further, that, subject
to certain restrictions in the Brandywine Participation Agreement,
Panda Interholding may sell all or any of the stock of any
subsidiary that is subject to this requirement to any person who is
not an affiliate of Panda Interholding.
Events of Default
The Brandywine Facility Lease contains certain events of default,
including but not limited to: (i) default in the payment of any rental amount
payable under the Brandywine Facility Lease; (ii) a misrepresentation contained
in any document furnished by or on behalf of the Brandywine Partnership or any
partner; (iii) a failure of the Brandywine Partnership or any affiliate to
perform or observe any covenants or obligations contained in the Brandywine
Financing Documents to which it is a party; (iv) a default in payment under any
indebtedness of the Brandywine Partnership or PBC or certain affiliates or in
the observance or performance of any covenant relating to such indebtedness;
(v) bankruptcy or insolvency of any party to or participant under any of the
Brandywine Financing Documents or other project agreements related to the
operation of the Brandywine Facility; (vi) a judgment or judgments in excess of
$150,000 being rendered against the Brandywine Partnership, Brandywine Water
Company or PBC and remaining in effect and unstayed for more than 30 days;
(vii) if PEC and Panda Interholding shall cease to own, directly or indirectly,
51% of PBC and Panda Energy Delaware; and (viii) the Brandywine Facility ceases
to be a QF. Upon an event of default under the Brandywine Financing Documents,
the Brandywine Owner Trustee may, in addition to other remedies, foreclose upon
or terminate the Brandywine Facility Lease.
Collateral
All obligations of the Brandywine Partnership under the Brandywine
Financing Documents to GE Capital and the Brandywine Owner Trustee, and in
turn, all obligations of the Brandywine Owner Trustee to the Brandywine Loan
Participants under the Brandywine Participation Agreement, are secured by (i) a
pledge of, and a security interest in, substantially all of the assets of the
Brandywine Partnership, (ii) pledges by PBC and Panda Energy Delaware, which
are indirect wholly-owned subsidiaries of the Company, of their respective
interests in the Brandywine Partnership and (iii) pledges of all the capital
stock of PBC and Panda Energy Delaware, and all of the stock and all of the
assets of Brandywine Water Company, which is an indirect wholly-owned
subsidiary of the Company that operates the distilled water facility serving as
the steam host for the Brandywine Facility. In addition, the Brandywine
Partnership has assigned its interest in the Brandywine Power Purchase
Agreement to the Brandywine Owner Trustee, to take effect if the Brandywine
Facility Lease terminates.
DESCRIPTION OF THE EXCHANGE NOTES,
THE EXCHANGE NOTES GUARANTEE,
THE ISSUER LOAN, THE SHAREHOLDER LOANS AND
THE COLLATERAL DOCUMENTS
The Exchange Notes will be issued under an indenture (the "Exchange Notes
Indenture") between Panda Global Energy Company (the "Issuer") and Bankers
Trust Company, as trustee (the "Exchange Notes Trustee") and will be
unconditionally guaranteed by Panda Global Holdings, Inc. (the "Company") as to
payment of principal, premium, if any, and interest (including Liquidated
Damages and Additional Amounts, if any), by a guarantee (the "Exchange Notes
Guarantee") issued under an indenture (the "Company Indenture") between the
Company and Bankers Trust Company, as trustee (the "Company Indenture
Trustee"). The Exchange Notes Indenture and the Company Indenture are referred
to together herein as the "Indentures." The Exchange Notes Trustee and the
Company Indenture Trustee are referred to together herein as the "Trustees."
The following summaries of the material provisions of the Indentures, the Issuer
Loan Agreement, the Shareholder Loan Agreements and the material collateral
documents do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions thereof, including the
definitions therein of certain terms.
General
The Exchange Notes will be issued only in registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000.
Principal, premium, if any, and interest (including Liquidated Damages and
Additional Amounts, if any) on the Exchange Notes will be payable, and the
Exchange Notes will be transferable, at the corporate trust office or agency of
the Exchange Notes Trustee. In addition, interest may be paid by wire transfer
or check mailed to the Person entitled thereto as shown on the register for the
Exchange Notes, provided that all payments with respect to Global Notes (as
defined) and Certificated Securities (as defined), the Holders of which have
given wire transfer instructions to the Issuer, will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. The Exchange Notes will initially be represented by a
Global Note (the "Global Note") and will be deposited with, or on behalf
of, The Depository Trust Company (the "Depository") and registered in the name
of a nominee of the Depository. Except as set forth in "--Book-Entry, Delivery
and Form," owners of beneficial interests in such Global Note will not be
entitled to have Exchange Notes registered in their names, will not receive or
be entitled to receive physical delivery of Exchange Notes in definitive form
and will not be considered the owners or Holders thereof under the Exchange
Indenture. See "--Book-Entry, Delivery and Form." No service charge will be
made for any registration of transfer or exchange of the Exchange Notes, except
for any tax or other governmental charge that may be imposed in connection
therewith.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer, together with the Registered Exchange Notes issued in connection with
the Exchange Offer, will be treated as a single class of securities under the
Exchange Notes Indenture.
Ranking, Maturity, Interest and Principal of the Exchange Notes
The Exchange Notes, as well as the Old Notes (i.e., the Existing Notes)
will be senior obligations of the Issuer ranking senior in right of payment to
all subordinated Indebtedness of the Issuer and pari passu with all other
Senior Indebtedness of the Issuer. The Existing Notes will be secured by the
Exchange Notes Collateral. The aggregate principal amount of Existing Notes
will total $155,200,000. Subject to the satisfaction of the applicable
covenants by the Issuer and by the Company pursuant to the Company Indenture,
additional Senior Indebtedness may be issued by the Issuer from time to time
(whether pursuant to the Exchange Notes Indenture or pursuant to another
indenture), which additional Senior Indebtedness will share equally and ratably
in certain of the Exchange Notes Collateral. The Existing Notes will mature on
April 15, 2004. Notwithstanding the foregoing, the Issuer shall be obligated to
repay the Existing Notes by redeeming semi-annually on the dates and in the
amounts indicated in the following table, together with accrued and unpaid
interest (including Liquidated Damages and Additional Amounts, if any):
Semi-annual Principal
Payment Date Amount Repaid
October 15, 2000 $1,650,000
April 15, 2001 $2,200,000
October 15, 2001 $2,200,000
April 15, 2002 $4,000,000
October 15, 2002 $4,000,000
April 15, 2003 $4,950,000
October 15, 2003 $4,950,000
In accordance with the terms of the Exchange Notes Indenture, the Issuer shall
not be allowed to fulfill its obligation to repay such principal amounts
through the purchase of Existing Notes and the deposit thereof with the
Exchange Notes Trustee.
Cash interest on the Existing Notes will accrue at a rate of 12-1/2% per
annum and will be payable semi-annually in arrears on each April 15 and October
15, commencing October 15, 1997 to the Holders of record of Existing Notes at
the close of business on April 1 and October 1, respectively, immediately
preceding such interest payment date. Cash interest will accrue from the most
recent interest payment date to which interest has been paid or, if no interest
has been paid, from April 22, 1997. Interest will be computed on the basis of a
360-day year of twelve 30-day months. Interest on overdue principal and on
overdue installments of interest will accrue at the rate of interest borne by
the Existing Notes.
The Existing Notes will be effectively subordinated to all Indebtedness
and other liabilities and commitments of all Subsidiaries of the Issuer,
including, without limitation, the Indebtedness of Pan-Western and the Joint
Ventures. Any right of the Issuer to receive assets of its Subsidiaries,
including, without limitation, assets of Pan-Western or any Joint Venture
pursuant to the terms of the Exchange Notes Collateral upon liquidation or
reorganization of any such entity (and the consequent right of the Holders of
the Existing Notes to participate in those assets) will be effectively
subordinated to the claims of that entity's creditors, except to the extent
that the Issuer is itself recognized as a creditor of such entity, in which
case the claims of the Issuer would still be subordinate to any security in the
assets of its Subsidiaries, including, without limitation, assets of Pan-
Western or any Joint Venture and any Indebtedness thereof senior to that held
by the Issuer. See "Risk Factors--Issuance of Additional Indebtedness by
Issuer, Company or Their Subsidiaries Could Reduce Cash Available to Make
Payments on Exchange Notes--Effective Subordination of Exchange Notes and
Exchange Notes Guarantee to Obligations of Project Entities and Joint Ventures."
Exchange Notes Guarantee
The Company, under the terms of the Company Indenture, as primary obligor
and not merely as surety, will irrevocably, fully and unconditionally guarantee
on a senior secured basis the performance and punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all obligations of
the Issuer under the Exchange Notes Indenture and the Existing Notes, whether
for principal, premium, if any, and interest (including Liquidated Damages and
Additional Amounts, if any), on the Existing Notes, expenses, indemnification
or otherwise (all such obligations guaranteed by the Company referred to herein
as the "Exchange Notes Guarantee"). The Company has no material assets other
than the Capital Stock of PEC and the Issuer, and, accordingly, its ability to
perform under the Existing Notes Guarantee will be dependent on the financial
condition and results of operation of PEC and the Issuer. Subject to the
satisfaction of the applicable conditions, Indebtedness and additional
guarantees pari passu with the Exchange Notes Guarantee may be issued by the
Company from time to time (whether pursuant to the Company Indenture or
pursuant to another indenture), which additional Senior Indebtedness and
guarantees may share equally and ratably in certain of the Exchange Notes
Guarantee Collateral.
The Exchange Notes Guarantee is a continuing guarantee and shall (a)
remain in full force and effect until payment in full of all the Existing
Notes, (b) be binding upon the Company and its successors, transferees and
assigns and (c) inure to the benefit of and be enforceable by the Exchange
Notes Trustee, the Holders and their successors, transferees and assigns.
The Exchange Notes Guarantee will be effectively subordinated to all
Indebtedness and other liabilities and commitments of all Subsidiaries of the
Company, including, without limitation, the Indebtedness of PIC, PFC, the
Domestic Projects, the Joint Ventures and any Permitted Project. Any right of
the Company to receive assets of its Subsidiaries, including, without
limitation, assets of PIC, PFC, the Domestic Projects, the Joint Ventures or
any Permitted Project pursuant to the terms of the Exchange Notes Guarantee
Collateral upon liquidation or reorganization of any such entity (and the
consequent right of the holders of the Exchange Notes Guarantee to participate
in those assets) will be effectively subordinated to the claims of that
entity's creditors, except to the extent that the Company is itself recognized
as a creditor of such entity, in which case the claims of the Company would
still be subordinate to any security in the assets of its Subsidiaries,
including, without limitation, assets of PIC, PFC, the Domestic Projects, the
Joint Ventures or any Permitted Project and any Indebtedness thereof senior to
that held by the Company.
Redemption
Optional Redemption of Exchange Notes. The Exchange Notes will be
redeemable at the option of the Issuer (an "Exchange Notes Optional
Redemption"), in whole or in part, at any time on or after April 15, 2002, at
the redemption prices (expressed as a percentage of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12 month period beginning on April 15 of the years
indicated below:
Redemption
Year Price
2002 107.00%
2003 103.50%
2004 100.00%
In addition, prior to April 15, 2000, the Issuer may redeem up to
$51,733,000 of the aggregate outstanding issued principal amount of Existing
Notes at a redemption price equal to 113.0% of the principal amount of the
Existing Notes so redeemed, plus accrued and unpaid interest, if any, to the
redemption date with the Net Cash Proceeds of one or more Public Equity
Offerings by the Company, Panda International or any direct or indirect parent
of the Company; provided that (i) the proceeds of such offering used for the
purposes of the optional redemption are contributed as equity to the Issuer and
(ii) at least $103,467,000 of the originally issued principal amount of
Existing Notes would remain outstanding immediately after giving effect to such
redemption (any such redemption, an "Existing Notes Public Equity Offering
Redemption").
Mandatory Redemption. Upon the occurrence of certain events described
below, the outstanding Existing Notes (together with, as provided in paragraph
(vi) below, any additional Senior Indebtedness of the Issuer outstanding at the
time of such Mandatory Redemption) will be redeemed pro rata (a "Mandatory
Redemption"), at a redemption price equal to 100% of the principal amount of
the Existing Notes, together with accrued and unpaid interest, if any, to the
redemption date:
(i) Upon the occurrence of a Luannan Event of Loss or Luannan
Expropriation Event that is determined by the Issuer to render
the Luannan Facility incapable of being rebuilt, repaired or
restored so as to permit operation of the entire Luannan Facility
on a commercially feasible basis, all Luannan Casualty Proceeds
and all Luannan Expropriation Proceeds and repayments of the
Issuer Loan and the Shareholder Loans (resulting from such
Luannan Event of Loss or Luannan Expropriation Event or
otherwise) will be applied pro rata to the redemption of the
Existing Notes. The redemption date for such a Mandatory
Redemption may be any date during the 90-day period following the
date of the Issuer's determination that the Luannan Facility is
incapable of being rebuilt, repaired or restored (taking into
account the notice requirements set forth in the Indentures).
(ii) Upon the occurrence of a Luannan Event of Loss or Luannan
Expropriation Event that is determined by the Issuer to render a
portion of the Luannan Facility incapable of being rebuilt,
repaired or restored, but permits the remaining portion of the
Luannan Facility to be rebuilt, repaired or restored so as to
permit operation of the remaining portion of the Luannan Facility
on a commercially feasible basis (as confirmed by the Luannan
Facility Engineer pursuant to the Company Indentures), and if the
amount of the Luannan Casualty Proceeds or Luannan Expropriation
Proceeds and repayments of the Issuer Loan and the Shareholder
Loans resulting from such Luannan Event of Loss or Luannan
Expropriation Event exceeds $500,000 (after reduction for the
total cost of rebuilding, repairing or restoring the Luannan
Facility in accordance with the Indentures), the total amount of
such excess proceeds will be applied pro rata to the redemption
of the Existing Notes. The redemption date may be any date during
the 90-day period following the date of the Issuer's
certification to the Trustees of completion of the rebuilding,
repairing or restoration of the Luannan Facility (taking into
account the notice requirements set forth in the Indentures).
(iii) Upon the occurrence of a Luannan Event of Loss or a Luannan
Expropriation Event for which the Luannan Casualty Proceeds or
Luannan Expropriation Proceeds and repayments of the Issuer Loan
and the Shareholder Loans exceed the aggregate principal amount
of the outstanding Existing Notes, and any applicable interest
thereon, the Issuer may, at its option, determine not to rebuild,
repair or restore the Luannan Facility. Upon such a determination
by the Issuer, the outstanding Existing Notes will be redeemed,
in whole, but not in part. The amount of the Luannan Casualty
Proceeds or Luannan Expropriation Proceeds and repayments of the
Issuer Loan and the Shareholder Loans resulting from such Luannan
Event of Loss or Luannan Expropriation Event will be applied to
the redemption of the Existing Notes. The redemption date may be
any date during the 90-day period following the date of the
Issuer's determination not to rebuild, repair or restore the
Luannan Facility (taking into account the notice requirements set
forth in the Indentures).
(iv) Upon the payment of performance liquidated damage payments under
the Luannan EPC Contract, the amount of performance liquidated
damages paid, which are required to be applied to payment of the
Issuer Loan and the Shareholder Loans, will be applied pro rata
to the redemption of the Existing Notes. The redemption date may
be any date during the 90-day period following the date of
receipt by the Issuer of any such repayment of the Issuer Loan
(taking into account the notice requirements set forth in the
Indentures).
(v) Upon the occurrence of a Domestic Project Event that results in
Domestic Project Event Proceeds, after the amounts of such
proceeds have been used to fulfill any and all mandatory
redemption or mandatory repayment obligations pursuant to (a) the
PFC Indenture and (b) the debt instrument or instruments
governing the project level financing of such Domestic Project,
any and all excess proceeds shall be applied pro rata to the
redemption of the Existing Notes. The redemption date may be any
date during the 90-day period following the date of the Issuer's
receipt of such proceeds from the Company (taking into account
the notice requirements set forth in the Indentures).
(vi) Upon the occurrence of a Permitted Project Event that results in
Permitted Project Event Proceeds, after the amounts of such
proceeds have been used to fulfill any and all mandatory
redemption or mandatory repayment obligations pursuant to, as the
case may be, the PFC Indenture or the debt instrument or
instruments governing the project level financing (or additional
Senior Indebtedness issued solely to finance such Permitted
Project) of such Permitted Project, any and all excess proceeds
shall be applied pro rata to the redemption of the Existing Notes
and, to the extent that the instrument governing any additional
Senior Indebtedness of the Company and the Issuer outstanding at
the date of the Mandatory Redemption so requires, to the
redemption of such additional Senior Indebtedness. The redemption
date may be any date during the 90-day period following the date
of the Company's or the Issuer's receipt of such proceeds from
such Permitted Project (taking into account the notice
requirements set forth in the Indentures).
Redemption at Option of Holders. Upon the occurrence of certain events
described below, the Issuer will be obligated to make an offer to redeem pro
rata the outstanding Existing Notes (a "Mandatory Redemption Offer") at a
redemption price equal to 100% of the principal amount of the Existing Notes,
together with accrued and unpaid interest, if any, to the redemption date:
(i) Upon the occurrence of an Approval Event of Default or a County
Partners Event of Default that has had or is reasonably likely to
have a Material Adverse Effect, the Issuer shall be obligated to
make a Mandatory Redemption Offer using any and all available
monies to effect such Mandatory Redemption Offer (such amounts to
include, but not be limited to, (a) all amounts in the Company
Funds, (b) all amounts in the Issuer Funds and (c) all amounts
available to the Issuer or the Company through the enforcement of
the Collateral). The redemption date for such a redemption may be
any date during the 90-day period following the date of the
Approval Event of Default or the County Partners Event of Default
(taking into account the notice requirements set forth in the
Indentures).
(ii) If the Luannan Facility Construction Cost is less than the
Projected Luannan Facility Construction Cost, after using such
excess funds to fund any deficits in the Issuer Funds, if any
excess funds are remaining and the amount of such excess funds
equals or exceeds $1.0 million, the Issuer shall be obligated to
use such excess funds to make a Mandatory Redemption Offer to the
Holders of the Existing Notes. The redemption date for such a
redemption may be any date during the 90-day period following the
date of the Issuer's final calculation of the Luannan Facility
Construction Cost (taking into account the notice requirements
set forth in the Exchange Notes Indenture).
Redemption for Taxation Reasons. The Existing Notes may be redeemed, at
the option of the Issuer or the Company, as the case may be, in whole but not
in part, at any time upon giving not less than 30 nor more than 60 days' notice
to the Holders (which notice shall be irrevocable), at a redemption price equal
to the principal amount thereof, together with accrued and unpaid interest and
premium, if any, to the date fixed by the Issuer or the Company, as the case
may be, for redemption (a "Tax Redemption Date") and all Additional Amounts
(see "--Withholding Taxes " below), if any, then due and which will become due
on the Tax Redemption Date as a result of the redemption or otherwise, if the
Issuer or the Company, as the case may be, determines that, as a result of (i)
any change in, or amendment to, the laws or treaties (or any regulations or
rulings promulgated thereunder) of the Cayman Islands or the United States (or
any political subdivision or taxing authority thereof) which change or
amendment becomes effective on or after the Closing Date, (ii) any change in
position regarding the application, administration or interpretation of such
laws, treaties, regulations or rulings (including a holding, judgment or order
by a court of competent jurisdiction), which change in application,
administration or interpretation becomes effective on or after the Closing
Date, the Issuer or the Company, as the case may be, is, or on the next
interest payment date would be, required to pay Additional Amounts, and the
Issuer or the Company, as the case may be, determines that such payment
obligation cannot be avoided by the Issuer or the Company, as the case may be,
taking reasonable measures. Notwithstanding the foregoing, no such notice of
redemption shall be given earlier than 90 days prior to the earliest date on
which the Issuer or the Company, as the case may be, would be obligated to make
such payment or withholding if a payment in respect of the Existing Notes or
the Exchange Notes Guarantee, as the case may be, were then due. Prior to the
publication or, where relevant, mailing of any notice of redemption of the
Existing Notes pursuant to the foregoing, the Issuer or the Company, as the
case may be, will deliver to the Trustees an opinion of a tax counsel
reasonably satisfactory to the Trustees to the effect that the circumstances
referred to above exist. The Trustees shall accept such opinion as sufficient
evidence of the satisfaction of the conditions precedent described above, in
which event it shall be conclusive and binding on the Holders.
Selection and Notice. In the event that less than all of the Existing
Notes are to be redeemed at any time pursuant to an Optional Redemption or a
Public Equity Offering Redemption, selection of the Existing Notes for
redemption will be made by the Exchange Notes Trustee (i) in compliance with
the provisions of the Exchange Notes Indenture described herein under "--
Redemption" and (ii) in accordance with the requirements of the principal
national securities exchange, if any, on which any of the Existing Notes are
listed or, if none of the Existing Notes are then listed on a national
securities exchange, on a pro rata basis; provided that no Existing Notes of a
principal amount or principal amount at maturity, as the case may be, of $1,000
or less shall be redeemed in part and the Exchange Notes Trustee shall have
authority to give full effect to this proviso. Notice of redemption shall be
mailed by first-class mail at least 30 days but not more than 60 days before
the redemption date to each Holder of Existing Notes to be redeemed at its
registered address. If any Existing Note is to be redeemed in part only, the
notice of redemption that relates to such Existing Note shall state the portion
of the principal amount thereof to be redeemed. A new Existing Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Existing Note. On
and after the redemption date, interest will cease to accrue on Existing Notes
or portions thereof called for redemption as long as the Issuer has deposited
with the applicable paying agent for the Existing Notes on or prior to the
relevant redemption date funds in satisfaction of the applicable redemption
price pursuant to the Exchange Notes Indenture.
Limitation on Liability
The Indentures provide that no stockholder, officer or director of the
Company or any of its Subsidiaries will be personally liable for the payment of
principal, premium, if any, or interest (including Liquidated Damages and
Additional Amounts, if any) on the Existing Notes and the Exchange Notes
Guarantee.
Change of Control
In the event of a Change of Control (the date of such occurrence being the
"Change of Control Date"), the Issuer shall notify the Holders of the Existing
Notes in writing of such occurrence and shall make an offer to purchase (the
"Change of Control Offer"), on a business day (the "Change of Control Payment
Date") not later than 60 days following the Change of Control Date, all
Existing Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any (including
Liquidated Damages and Additional Amounts, if any), to the Change of Control
Payment Date (the "Change of Control Purchase Price"). Notice of a Change of
Control Offer shall be mailed by the Issuer to the Holders not less than 30
days nor more than 45 days before the Change of Control Payment Date. The
Change of Control Offer is required to remain open for at least 20 business
days.
There can be no assurance that the Issuer will have available funds
sufficient to fund the purchase of the Existing Notes, or, in the event that
the Issuer does not have available funds sufficient to fund the purchase of the
Existing Notes, that the Company will have available sufficient funds to
perform on the Existing Notes Guarantee, upon a Change of Control. For example,
the Series A-1 bonds, issued by Panda Funding Corporation, an indirect
subsidiary of the Company, in the aggregate principal amount of $105,525,000,
contain similar Change of Control provisions. In the event of an occurrence
which triggers the Change of Control provisions in both the Series A-1 Bonds
and the Exchange Notes, there is a substantial likelihood that the mandatory
offer to repurchase obligations under each series of indebtedness could not
be fulfilled simultaneously. In the event that a Change of Control occurs
at a time when the Issuer does not have available funds sufficient to pay
the Change of Control Purchase Price for all of the Existing Notes delivered
by the Noteholders (or the Company does not have available sufficient funds
to perform the Existing Notes Guarantee in connection with the payment
of the Change of Control Purchase Price by the Issuer) seeking to accept
the Change of Control Offer, an Indentures Event of Default will occur.
The definition of Change of Control includes an event by which
the Company, Panda International, the Issuer or any direct of indirect
parent of the Company sells, conveys, transfers or leases or otherwise disposes
of all or substantially all of the properties and assets of the Company and its
Subsidiaries, taken as a whole, subject to certain exceptions. There is little
case law interpreting the phrase "all or substantially all" in the context of
an indenture. Because there is no precise established definition of this
phrase, there may be uncertainty as to whether a Change of Control has occurred
as a result of any particular sale, conveyance, transfer, lease or other
disposition of assets of the Company and its Subsidiaries. Any such uncertainty
may adversely affect the enforceability of the Change of Control provisions of
the Exchange Note Indenture. Further, a Change of Control by definition, does
not include any transactions with a Related Party, and therefore the Change of
Control provision will not provide any protection to Holders of Existing Notes
in any circumstances.
Description of the Exchange Notes Collateral
The Issuer's obligations under the Existing Notes (and, unless otherwise
specifically stated, any additional Senior Indebtedness of the Issuer hereafter
outstanding) are secured by the following, all of which, collectively,
constitutes the Exchange Notes Collateral:
The Pledge Agreements
The Issuer has executed a pledge agreement (the "Issuer Pledge Agreement")
in favor of the Exchange Notes Trustee providing for the pledge, to the
Exchange Notes Trustee, of (i) at least 90% of the Capital Stock of Pan-Sino
and (ii) the Issuer Note issued by Pan-Western. The Issuer Pledge Agreement
also provides that, (A) in the event that Pan-Sino is merged into Pan-Western,
the Issuer will pledge at least 99% of the Capital Stock of Pan-Western to the
Exchange Notes Trustee and (B) in the event that Pan-Sino is merged into the
Issuer, the Issuer will assume Pan-Sino's obligations under the Pan-Sino Pledge
Agreement.
Pan-Sino has executed a pledge agreement (the "Pan-Sino Pledge Agreement")
in favor of the Exchange Notes Trustee providing for the pledge, to the
Exchange Notes Trustee, of at least 99% of the Capital Stock of Pan-Western.
Pan-Western has executed a pledge agreement (the "Pan-Western Pledge
Agreement") in favor of the Exchange Notes Trustee providing for the pledge, to
the Exchange Notes Trustee, of the Luannan Facility Notes (such notes in the
aggregate amount of $71.253 million) issued by the Joint Ventures. The Pan-
Western Pledge Agreement will provide that Pan-Western will ensure that no
Person other than the Exchange Notes Trustee shall effect a security interest
in its assets or the assets of the Joint Ventures. Furthermore, so long as the
Existing Notes are outstanding, Pan-Western has agreed not to permit the Joint
Ventures to pledge their assets and Pan-Western will not pledge its equity
interests in the Joint Ventures, except in favor of the Exchange Notes Trustee.
Notwithstanding the foregoing, neither Pan-Western nor the Joint Ventures shall
be required to take any action that might jeopardize the characterization of
the Shareholder Loans as shareholder financing under PRC law or regulations.
The Company has executed a pledge agreement (the "Company Pledge
Agreement") in favor of the Exchange Notes Trustee providing for the pledge, to
the Exchange Notes Trustee, of 100% of the Capital Stock of the Issuer.
Individually, and in the aggregate, the pledges of the Capital Stock of
Pan-Western, Pan-Sino and the Issuer do not constitute a "substantial portion"
(as defined in Rule 3-10 of Registration S-X promulgated under the Securities
Act) of the collateral securing the Existing Notes.
The Security Agreements
The Issuer has entered into a security agreement (the "Issuer Security
Agreement") with the Exchange Notes Trustee granting to it, for the benefit of
only the Holders of the Existing Notes, (i) a security interest in (a) the
Capitalized Interest Fund, (b) the Luannan Facility Construction Fund, (c) the
Debt Service Fund, (d) the Debt Service Reserve Fund and (e) Luannan Facility
Restoration Fund established pursuant to the Exchange Notes Indenture,
including all proceeds thereon and all documents evidencing all funds and
investments held therein and (ii) an assignment and security interest in all of
the Issuer's rights under the Issuer Loan Agreement.
The Issuer Security Agreement also provides for the granting to the
Exchange Notes Trustee, for the benefit of the Holders of the Existing Notes
(and any additional Senior Indebtedness of the Issuer) an equal and ratable
security interest in (i) the Issuer Revenue Fund, (ii) the Issuer Operating
Fund and (iii) the Issuer Equity Distribution Fund established pursuant to the
Exchange Notes Indenture, including all proceeds thereon and all documents
evidencing all funds and investments held therein.
Pan-Western has entered into a security agreement (the "Pan-Western
Security Agreement") with the Exchange Notes Trustee granting and assigning to
it a security interest in all (i) of the Pan-Western Funds established pursuant
to the Exchange Notes Indenture, including all proceeds thereon and all
documents evidencing all funds and investments held therein and (ii) of Pan-
Western's rights under the Shareholder Loan Agreements and the Joint Venture
Guarantees.
Pan-Sino has entered into a security agreement (the "Pan-Sino Security
Agreement") with the Exchange Notes Trustee granting and assigning to it a
security interest in the Pan-Sino Fund established pursuant to the Exchange
Notes Indenture, including all proceeds thereon and all documents evidencing
such fund and investments held therein.
The Issuer Pledge Agreement, the Pan-Sino Pledge Agreement, the Pan-
Western Pledge Agreement, certain sections of the Company Pledge Agreement, the
Issuer Security Agreement, the Pan-Western Security Agreement and the Pan-Sino
Security Agreement, collectively, constitute the Exchange Notes Collateral
Documents.
Description of the Exchange Notes Guarantee Collateral
The Company's obligations under the Exchange Notes Guarantee (and, unless
otherwise specifically stated, any additional Senior Indebtedness of the
Company hereafter outstanding) will be secured by the following, all of which,
collectively, constitutes the Exchange Notes Guarantee Collateral:
The Pledge Agreements and the Security Agreement
Panda International has executed a pledge agreement (the "Panda
International Pledge Agreement") in favor of the Company Indenture Trustee
providing for the pledge, to the Company Indenture Trustee, of 100% of the
Capital Stock of the Company.
Pursuant to the Company Pledge Agreement, the Company has pledged to the
Company Indenture Trustee 100% of the Capital Stock of PEC.
Individually, and in the aggregate, the pledges of the Capital Stock of
the Company and PEC do not constitute a "substantial portion" (as defined in
Rule 3-10 of Registration S-X promulgated under the Securities Act) of the
collateral securing the Exchange Notes Guarantee.
The Company has entered into a security agreement (the "Company Security
Agreement") with the Company Indenture Trustee granting to it, for the benefit
of only the holders of the Exchange Notes Guarantee, (i) a security interest in
the Notes Guarantee Service Fund and the Notes Guarantee Service Reserve Fund
established pursuant to the Company Indenture, including all proceeds thereon
and all documents evidencing all funds and investments held therein and (ii) an
assignment and security interest in all of the Company's right, title and
interest in the U.S. Distribution Fund.
The Company Security Agreement also provides for the granting to the
Company Indenture Trustee, for the benefit of the holders of the Exchange Notes
Guarantee (and any additional Senior Indebtedness of the Company) an equal and
ratable security interest in (i) the Company Revenue Fund, (ii) the Company
Operating Fund and (iii) the Company Equity Distribution Fund established
pursuant to the Company Indenture, including all proceeds thereon and all
documents evidencing all funds and investments held therein.
Pursuant to an agreement among PIC, PEC and the Company, dated as of the
Closing Date (the "PEC Assignment and Pledge Agreement"), PIC has agreed that
any and all amounts that are deposited into the U.S. Distribution Fund (as
defined in the PFC Indenture) shall be transferred in same day funds to a
revenue account designated by PEC (the "PEC Revenue Account"). PEC and the
Company have assigned to the Company Indenture Trustee all of their right,
title and interest in and to the following: (i) PEC Revenue Account and all
amounts on deposit therein and (ii) to the extent available after the
fulfillment of any and all mandatory redemption and mandatory repayment
obligations, any and all excess Domestic Project Event Proceeds.
The Panda International Pledge Agreement, certain sections of the Company
Pledge Agreement, the Company Security Agreement and the PEC Assignment and
Pledge Agreement, collectively, constitute the Exchange Notes Guarantee
Collateral Documents (the Exchange Notes Collateral Documents and the Exchange
Notes Guarantee Collateral Documents, collectively, the "Collateral
Documents").
Description of Additional Collateral
Permitted Projects may be financed pursuant to the PFC Indenture, the
Company Indenture and the Exchange Notes Indenture. U.S. Permitted Projects may
be constructed, owned or operated pursuant to the PFC Indenture and U.S.
Permitted Projects may be developed, constructed, owned or operated pursuant to
the Company Indenture. Non-U.S. Permitted Projects may be constructed, owned or
operated pursuant to the PFC Indenture and may be developed, constructed, owned
or operated pursuant to the Exchange Notes Indenture. In practice, Non-U.S.
Permitted Projects are likely to be financed pursuant to the PFC Indenture or
the Exchange Notes Indenture if owning, constructing or operating a Permitted
Project pursuant to the terms of the Company Indenture would have adverse tax
consequences to the Company and its Subsidiaries. The Indentures and the PFC
Indenture provide for the pledging of or granting of a security interest in the
assets of Permitted Projects for the benefit of the Holders of the Existing
Notes or of holders of Indebtedness of the Company or its Subsidiaries.
Security interests in the assets of the Permitted Projects will be granted by
the Company or its relevant Subsidiary in the following manner:
The Issuer Pledge Agreement provides that, in the event that a Non-U.S.
Permitted Project is developed, constructed or owned pursuant to the provisions
of the Exchange Notes Indenture, at the point that the Issuer has expended in
excess of $2.5 million in the furtherance of the development of such Non-U.S.
Permitted Project, 100% of the Capital Stock of the Person that owns such Non-
U.S. Permitted Project will be pledged to the Exchange Notes Trustee (or, to
the extent that a Non-U.S. Permitted Project is not Wholly Owned by the Issuer
or its Subsidiary, the entire ownership interest in such Non-U.S. Permitted
Project held by the Issuer or such Subsidiary or group of Subsidiaries).
Notwithstanding the requirement of the preceding sentence, the Issuer Pledge
Agreement provides that, (i) in the event that the financing arrangements with
respect to a Non-U.S. Permitted Project requires the pledge of a Non-U.S.
Permitted Project's Capital Stock to secure Non-Recourse Debt, upon financial
closing, the Exchange Notes Trustee shall release such stock and allow for such
a pledge and (ii) the Issuer shall not be required to pledge the Capital Stock
of a Subsidiary if (A) such a pledge is contrary to the law of the jurisdiction
of domicile of the relevant Subsidiary or (B) such a pledge is not permitted
under the Project Documents of such Non-U.S. Permitted Project. In the event
that the Capital Stock of a Subsidiary that was not available for a pledge to
the Exchange Notes Trustee pursuant to clauses (i) and (ii) of the preceding
sentence becomes available at a subsequent date, the Issuer shall be required
to pledge promptly the Capital Stock of such Subsidiary to the Exchange Notes
Trustee. The Issuer Pledge Agreement also provides for the grant by the Issuer
of any and all right, title and interest of, to the extent available after the
fulfillment of any and all mandatory redemption and mandatory repayment
obligations, any and all excess Non-U.S. Permitted Project Event Proceeds to
the Exchange Notes Trustee.
The Company Pledge Agreement provides that, in the event that a U.S.
Permitted Project is developed, constructed or owned pursuant to the provisions
of the Company Indenture, at the point that the Company has expended in excess
of $2.5 million in the furtherance of the development of such U.S. Permitted
Project, 100% of the Capital Stock of the Person that owns such Permitted
Project will be pledged to the Company Indenture Trustee (or, to the extent
that a Permitted Project is not Wholly Owned by the Company or its Subsidiary,
the entire ownership interest in such U.S. Permitted Project held by the
Company or such Subsidiary). Notwithstanding the requirement of the preceding
sentence, the Company Pledge Agreement provides that (i) in the event that the
financing arrangements with respect to a U.S. Permitted Project require the
pledge of a U.S. Permitted Project's Capital Stock to secure Non-Recourse Debt,
upon financial closing, the Company Indenture Trustee shall release such stock
and allow for such a pledge and (ii) the Company shall not be required to
pledge the Capital Stock of a Subsidiary if such a pledge is not permitted
under the Project Documents of such U.S. Permitted Project. In the event that
the Capital Stock of a Subsidiary that was not available for a pledge to the
Company Indenture Trustee pursuant to clauses (i) and (ii) of the preceding
sentence becomes available at a subsequent date, the Company shall be required
to promptly pledge the Capital Stock of such Subsidiary to the Company
Indenture Trustee. The Company Pledge Agreement also provides for the grant by
the Company of any and all right, title and interest of, to the extent
available after the fulfillment of any and all mandatory redemption and
mandatory repayment obligations, any and all excess U.S. Permitted Project
Event Proceeds to the Company Indenture Trustee.
The PEC Assignment and Pledge Agreement provides that, (i) in the event
that a U.S. Permitted Project is constructed, owned or operated pursuant to the
provisions of the PFC Indenture, to the extent available after the fulfillment
of any and all mandatory redemption and mandatory repayment obligations, any
and all excess U.S. Permitted Project Event Proceeds shall be paid to PEC for
payment to the Company Indenture Trustee and (ii) in the event that a Non-U.S.
Permitted Project is constructed, owned or operated pursuant to the provisions
of the PFC Indenture, to the extent available after the fulfillment of any and
all mandatory redemption and mandatory repayment obligations, that any and all
excess Non-U.S. Permitted Project Event Proceeds will be deposited in the
International Distribution Fund and will be subject to certain restrictions on
distribution from such fund.
Funds that are created in connection with the issuance of future
Indebtedness by any of PFC, PIC, the Company or the Issuer shall not be pledged
as security for the Existing Notes or the Exchange Notes Guarantee but may be
pledged as security for such future Indebtedness.
The Funds
The Issuer Funds
In accordance with the terms and conditions of the Exchange Notes
Indenture, the Exchange Notes Trustee will establish and maintain the following
funds: (i) the Issuer Revenue Fund, (ii) the Capitalized Interest Fund, (iii)
the Luannan Facility Construction Fund, (iv) the Debt Service Fund, (v) the
Debt Service Reserve Fund, (vi) the Issuer Operating Fund, (vii) the Luannan
Facility Restoration Fund and (viii) the Issuer Equity Distribution Fund (the
"Issuer Funds"). The Issuer will have limited rights of withdrawal under the
Issuer Funds in accordance with the terms and conditions set forth in the
Exchange Notes Indenture. The Issuer Revenue Fund, the Issuer Operating Fund
and the Issuer Equity Distribution Fund will be for the use and benefit of the
holders of any and all securities or guarantees issued pursuant to the Exchange
Notes Indenture. The Capitalized Interest Fund, the Luannan Facility
Construction Fund, the Debt Service Fund, the Debt Service Reserve Fund and the
Luannan Facility Restoration Fund shall be for the exclusive use and benefit of
the Holders of the Existing Notes.
Issuer Revenue Fund. In accordance with the terms and conditions of the
Exchange Notes Indenture, the Issuer will be required to deposit all of the
following in the Issuer revenue fund (the "Issuer Revenue Fund"): (i) any and
all revenues received by the Issuer from any source, (ii) any and all income
from the investment of monies in any of the Issuer Funds, (iii) any and all
proceeds from the payment by Pan-Western of amounts due under the Issuer Loan
and any and all other payments by Pan-Western to the Issuer and (iv) in the
event that a Non-U.S. Permitted Project is developed, constructed or owned
pursuant to the provisions of the Exchange Notes Indenture, (A) any and all
revenues received by the Issuer from such Non-U.S. Permitted Project and (B) to
the extent available, any and all Non-U.S. Permitted Project Event Proceeds.
Additionally, unless transferred to the Luannan Facility Restoration Fund for
the rebuilding, repair or restoration of the Luannan Facility, all Luannan
Casualty Proceeds and Luannan Expropriation Proceeds will be deposited directly
into the Pan-Western Revenue Fund as a repayment of all or a portion of the
Shareholder Loans and then transferred to the Issuer Revenue Fund whereupon the
Issuer will segregate such amounts from all other amounts held in the Issuer
Revenue Fund.
Capitalized Interest Fund. Upon the closing of the Prior Offering and
payment by the Issuer of the fees and expenses incurred in connection with the
issuance of the Old Notes and the Exchange Notes Guarantee, the Issuer
deposited approximately $48.1 million into the capitalized interest fund (the
"Capitalized Interest Fund") to be invested in Dollar Permitted Investments.
Through the Capitalized Interest Expiration Date, interest payments on the
Existing Notes shall be made from the Capitalized Interest Fund.
Luannan Facility Construction Fund. After (i) the payment by the Issuer of
the fees and expenses incurred in connection with the issuance of the Old Notes
and the Exchange Notes Guarantee, (ii) the deposit by the Issuer of the
required funds into the Capitalized Interest Fund and (iii) the deposit by the
Issuer of the required funds into the Debt Service Reserve Fund (as defined
below), the balance of funds remaining from the proceeds of the Prior Offering
(estimated to be approximately $80.4 million) was deposited by the Issuer into
the Luannan Facility construction fund (the "Luannan Facility Construction
Fund") and such amount (including interest income received from Pan-Western
under the Issuer Loan and other amounts received from Pan-Western prior to the
Luannan Commercial Operation Date) was used to make the Issuer Loan.
Pursuant to the terms of the Exchange Notes Indenture and the Issuer Loan
Agreement, the principal amount of the Issuer Loan (and any and all interest
income thereon (and on any of the Issuer Funds) prior to the Luannan Commercial
Operation Date) will be advanced to Pan-Western in installments starting on the
Closing Date and ending on the date on which the last Joint Venture has a
payment obligation relating to the construction of the Luannan Facility (the
"Funding Period"). It is expected that during the Funding Period, Pan-Western
will, in the aggregate, advance from the proceeds of the Issuer Loan (i) in
accordance with the terms of the Shareholder Loan Agreements, $71,253,000 to
make the installment payments of the Shareholder Loans to the Joint Ventures
(during the Funding Period, in the aggregate, Tangshan Panda will receive
$17,880,000, Tangshan Pan-Western will receive $17,880,000, Tangshan Cayman
will receive $17,664,000 and Tangshan Pan-Sino will receive $17,829,000) and
(ii) in accordance with the Joint Venture Agreements, $41,763,000 to make
installment payments of its equity contributions (the "JV Equity
Contributions") to each of the Joint Ventures (during the Funding Period, in
the aggregate, Tangshan Panda will receive $10,480,000, Tangshan Pan-Western
will receive $10,480,000, Tangshan Cayman will receive $10,353,000 and Tangshan
Pan-Sino will receive $10,450,000).
Upon receipt of the JV Equity Contributions, each Joint Venture will,
prior to the disbursement of such monies to meet a Joint Venture contractual
obligation, effect the registration in the PRC of such monies as registered
capital of the Joint Ventures.
Monies will be disbursed from the Luannan Facility Construction Fund
(initially in the form of an installment of the Issuer Loan and upon receipt by
Pan-Western, either in the form of an installment of the Shareholder Loans or
as an installment of the JV Equity Contributions) to meet each of the Joint
Venture's payment obligations under the Luannan EPC Contract and to meet other
contractual obligations of the Joint Ventures under any of the Luannan Project
Documents or other Luannan Facility financing, construction and development
costs, including interest on the Shareholder Loans during construction. In
addition, upon the issuance of the Old Notes, Pan-Western provided as
Shareholder Loans approximately $5.74 million from the Luannan Facility
Construction Fund to Tangshan Pan-Sino and Tangshan Cayman which utilized a
portion of such funds for the purchase of water and land use rights, certain
water wells and pipelines, respectively, from the County Partners. Amounts also
have been disbursed from the Luannan Facility Construction Fund as a
Shareholder Loan to Tangshan Pan-Sino to finance the construction of the
Transmission Facilities.
Amounts will be disbursed periodically from the Luannan Facility
Construction Fund only upon the satisfaction of certain conditions that will
include, but not be limited to, the receipt by the Exchange Notes Trustee of
the following documents:
(i) a certificate from the Issuer, Pan-Western and the Luannan
Facility Engineer (delivered at least once a month whether or not
there is a disbursement pursuant to the Shareholder Loans) to the
effect that: (a) undisbursed funds in the Luannan Facility
Construction Fund (or other monies available to the Issuer, to
the extent that such monies have been segregated in a dedicated
account and a security interest in such account has been granted
to the Exchange Notes Trustee) together with any and all interest
earned on the Issuer Funds and the Pan-Western Funds are
reasonably expected to equal or exceed the amount necessary to
pay all project costs in connection with final completion of the
Luannan Facility; and (b) the Luannan Facility is being
constructed in accordance with the Approved Construction Budget
and Schedule or, if applicable, an Approved Completion Plan (each
such certificate, a "Luannan Facility Construction Schedule
Certificate");
(ii) prior to disbursing more than $15.0 million in the aggregate,
receipt by the Exchange Notes Trustee of a certificate from the
Issuer and Pan-Western certifying that the transfer of land from
the County Partners to the relevant Joint Venture has taken place
and has been legally recognized and recorded in accordance with
PRC law;
(iii) a current construction progress report and requisition
certificate from the Issuer and Pan-Western specifying project
costs that are due and payable or that are reasonably expected to
be due and payable within the next 30 days; and
(iv) an officer's certificate from the Issuer and Pan-Western to the
effect that: (a) no Issuer Loan Agreement Event of Default has
occurred and is continuing; (b) no Shareholder Loan Agreement
Event of Default has occurred and is continuing; and (c) the
representations and warranties in the Shareholder Loan Agreements
are true and correct in all material respects on the date thereof
as if made on such date, except as affected by the consummation
of the transactions contemplated thereby or to the extent
relating solely to an earlier date.
At any time, if (i) the Issuer and Pan-Western shall deliver an officer's
certificate certifying that (a) there does not exist as of the date of such
certificate a Shareholder Loan Agreement Event of Default, (b) all amounts
required to be paid as of such date under the Luannan Project Documents have
been paid and (c) the amount in the Luannan Facility Construction Fund and
estimated income on all Issuer Funds and the Pan-Western Funds through the
anticipated Luannan Commercial Operation Date exceed by an amount specified in
such certificate all reasonably foreseeable expenses (including an appropriate
contingency) in connection with final completion of the Luannan Project other
than the unreimbursed development costs paid to third parties incurred by
Affiliates of the Issuer in connection with the Luannan Facility and (ii) the
Luannan Facility Engineer shall deliver a certificate to the same effect as
clause (c) above, the Exchange Notes Trustee shall transfer to the Issuer
Equity Distribution Fund the lesser of (i) such excess and (ii) such
unreimbursed third-party costs.
Upon completion of the Luannan Facility, (i) the Issuer and Pan-Western
shall deliver an officer's certificate certifying that (a) the Luannan
Commercial Operation Date has occurred, (b) there does not exist as of the date
of such certificate a Shareholder Loan Agreement Event of Default, (c) all
amounts required to be paid as of such date under the Luannan Project Documents
have been paid and (d) an amount has been set aside in the Completion Sub-
Account sufficient to pay all reasonably foreseeable expenses in connection
with final completion of the Luannan Facility, and (ii) the Luannan Facility
Engineer shall deliver a certificate certifying that the Luannan Commercial
Operation Date has occurred and that the amount available in the Completion Sub-
Account is sufficient to complete the Luannan Facility. If, upon the occurrence
of the events described in clauses (i) and (ii) in the immediately preceding
sentence, excess funds remain in the Luannan Facility Construction Fund due to
the Luannan Facility Construction Cost being less than the Projected Luannan
Facility Construction Cost, the Issuer shall, first, fund any deficits in the
Issuer Funds and second, if any excess funds are remaining and the amount of
such excess funds equals or exceeds $1.0 million, be obligated to make a
Mandatory Redemption Offer as described above under "--Redemption--Redemption
at Option of Holders." In the event that there are excess funds following
completion of such Mandatory Redemption Offer, such funds shall be transferred
to the Issuer Revenue Fund.
Debt Service Fund. Amounts deposited in the debt service fund (the "Debt
Service Fund") shall be allocated among sub-funds of a Exchange Notes Principal
Account and an Exchange Notes Interest Account, which shall be established for
the Existing Notes based on the principal, premium, if any, and interest
(including Liquidated Damages and Additional Amounts, if any) due and payable
on the Existing Notes on the next principal or interest payment date falling on
or within six months following the relevant Monthly Date. Amounts on deposit in
such sub-funds shall be used to pay principal, premium, if any, and interest
(including Liquidated Damages and Additional Amounts, if any) due and payable
(whether at the stated maturity, call for redemption, by acceleration or
otherwise) on the Existing Notes. If monies in the Debt Service Fund exceed the
amount of money required by the Exchange Notes Indenture to be deposited
therein, such excess shall be transferred to the Issuer Revenue Fund.
Debt Service Reserve Fund. On the Closing Date, the Issuer deposited $9.7
million in the debt service reserve fund (the "Debt Service Reserve Fund") as a
reserve for payments on the Existing Notes.
After the Luannan Commercial Operation Date, the Debt Service Reserve
Requirement will increase to (A) the aggregate principal, premium, if any, of
payments due on the Existing Notes on the next semi-annual payment date and (B)
the aggregate cash interest payments (including Liquidated Damages and
Additional Amounts, if any) due on the Existing Notes on the next semi-annual
payment date. Amounts on deposit in the Debt Service Reserve Fund shall be used
to pay the principal, premium, if any, or interest (including Liquidated
Damages and Additional Amounts, if any) at any time due on the Existing Notes,
and to the extent that amounts on deposit in the Issuer Revenue Fund and the
Debt Service Fund are insufficient. In the event that the amount on deposit in
the Debt Service Reserve Fund exceeds the Debt Service Reserve Requirement at
any time, the excess shall be transferred to the Issuer Revenue Fund.
Issuer Operating Fund. Amounts deposited in the Issuer operating fund (the
"Issuer Operating Fund") shall be used by the Issuer for the payment of
expenses in connection with the Administrative Services Agreement and certain
other fees and expenses.
Luannan Facility Restoration Fund. All Luannan Casualty Proceeds and
Luannan Expropriation Proceeds, to the extent required by the Exchange Notes
Indenture to be used for the payment of the costs of rebuilding, repair or
restoration of any damaged Joint Venture Facility shall be transferred to the
Luannan Facility restoration fund (the "Luannan Facility Restoration Fund")
from the Issuer Revenue Fund. The Issuer may requisition amounts from the
Luannan Facility Restoration Fund for rebuilding, repair and restoration costs
in accordance with the requisition procedures set forth in the Exchange Notes
Indenture. Following the completion of any rebuilding, repair or restoration
and after giving effect to any retention in accordance with the Exchange Notes
Indenture (after reimbursing the Issuer for any unreimbursed amounts it has
expended in connection with the rebuilding, repair or restoration), if amounts
remaining in the Luannan Facility Restoration Fund exceed $2.5 million, such
amount will be applied, in certain instances, first, to the redemption of the
Issuer Loan and then to the pro rata redemption of the Existing Notes.
Issuer Equity Distribution Fund. All amounts on deposit in the Issuer
Revenue Fund after the transfer of monies therein to each of the other funds in
accordance with the Exchange Notes Indenture shall be transferred to the Issuer
equity distribution fund (the "Issuer Equity Distribution Fund"); provided,
however, that (i) withdrawals from the Issuer Equity Distribution Fund may only
be made in connection with payments to be made by the Issuer pursuant to the
Development Services Agreement and (ii) the Issuer may only make distributions
to its shareholders if (A) the Company is in compliance with the requirements
of the Limitation on Restricted Payments covenant of the Indentures and (B) the
Luannan Commercial Operation Date has occurred.
Issuer Flow of Funds. The Exchange Notes Trustee will, on the eighth day
of each month after the Luannan Commercial Operation Date (or, if such date is
not a business day, the next following business day) (a "Monthly Date"),
transfer or segregate money, to the extent then available in the Issuer Revenue
Fund and not segregated for any purpose, to the other funds as follows:
(i) to the Issuer Operating Fund, the amount estimated by the Issuer
to be needed for the payment of expenses of the Issuer including
expenses in connection with the Administrative Services Agreement
to be incurred during the next month;
(ii) to the Exchange Notes Interest Account of the Debt Service Fund,
an amount equal to the excess of (a) the sum of cash interest
payments (including Liquidated Damages and Additional Amounts, if
any) due and payable on all of the Existing Notes outstanding on
the next succeeding interest payment date falling on or within
six months following such Monthly Date over (b) the amount then
on deposit in such Exchange Notes Interest Account;
(iii) to the Exchange Notes Principal Account of the Debt Service Fund,
an amount equal to the excess of (a) the principal and premium,
if any, payments next due and payable on the Existing Notes
outstanding at the next succeeding principal payment date falling
on or within six months following such Monthly Date over (b) the
amount then on deposit in such Exchange Notes Principal Account;
(iv) to the Debt Service Reserve Fund, the excess of the Debt Service
Reserve Requirement over the amount in the Debt Service Reserve
Fund; and
(v) to the Issuer Equity Distribution Fund, any remainder; provided,
however, that (a) withdrawals from the Issuer Equity Distribution
Fund may only be made in connection with payments to be made by
the Issuer pursuant to the Development Services Agreement and (b)
the Issuer may only make distributions to its shareholders if (1)
the Company is in compliance with the requirements of the
Limitation on Restricted Payments covenant of the Indentures and
(2) the Luannan Commercial Operation Date has occurred.
The Company Funds
In accordance with the terms and conditions of the Company Indenture, the
Company Indenture Trustee will establish and maintain the following funds
(separately defined hereinbelow): (i) the Company Revenue Fund, (ii) the Notes
Guarantee Service Fund, (iii) the Notes Guarantee Service Reserve Fund, (iv)
the Company Operating Fund, (v) the Company Equity Distribution Fund and (vi)
such other funds, from time to time, as may be required pursuant to the terms
of the Company Indenture (the "Company Funds"). The Company will have limited
rights of withdrawal under the Company Funds in accordance with the terms and
conditions set forth in the Company Indenture. The Company Funds will, with the
exception of the Notes Guarantee Service Fund and the Notes Guarantee Service
Reserve Fund, be for the use and benefit of the holders of any and all
securities or guarantees issued pursuant to the Company Indenture. The Notes
Guarantee Service Fund and the Notes Guarantee Service Reserve Fund shall be
for the exclusive use and benefit of the holders of the Exchange Notes
Guarantee.
Company Revenue Fund. All of the following will be deposited in the
Company revenue fund (the "Company Revenue Fund"): (i) revenues received by the
Company from any source, (ii) income from the investment of monies in any of
the Company Funds, (iii) all amounts on deposit in the U.S. Distribution Fund
and (iv) in the event that a U.S. Permitted Project is constructed, owned or
operated pursuant to the provisions of the PFC Indenture or the Company
Indenture, any and all available revenues from such U.S. Permitted Project (in
the case of a U.S. Permitted Project pursuant to the PFC Indenture, such monies
will be required to flow through the U.S. Distribution Fund) and, to the extent
available, any and all Domestic Project Event Proceeds and U.S. Permitted
Project Event Proceeds.
Company Operating Fund. Amounts deposited in the Company operating fund
(the "Company Operating Fund") shall be used by the Company for the payment of
expenses in connection with the Administrative Services Agreement and certain
other fees and expenses.
Notes Guarantee Service Fund. To the extent that there are sufficient
amounts available in the Debt Service Fund of the Issuer to make the payments
equal to the principal, premium, if any, and interest (including Liquidated
Damages and Additional Amounts, if any) due and payable on the Existing Notes
on the next principal or interest payment date(s) falling on or within six
months following the relevant Monthly Date, the Company shall have no
obligation to deposit monies into the Existing Notes guarantee service fund
(the "Notes Guarantee Service Fund"). However, to the extent that there are
insufficient amounts available in the Debt Service Fund of the Issuer to make
the payments equal to the principal, premium, if any, and interest (including
Liquidated Damages and Additional Amounts, if any) due and payable on the
Existing Notes on the next principal or interest payment date(s) falling on or
within six months following the relevant Monthly Date, the Company shall be
required to deposit monies into the Notes Guarantee Service Fund until such
time as the amounts on deposit in the Debt Service Fund and the Notes Guarantee
Service Fund, in the aggregate, are equal to the principal, premium, if any,
and interest (including Liquidated Damages and Additional Amounts, if any) due
and payable on the Existing Notes on the next principal or interest payment
date(s) falling on or within six months following the relevant Monthly Date.
Amounts deposited in the Notes Guarantee Service Fund shall be allocated
among sub-funds of a Existing Notes Guarantee principal account (the "Exchange
Notes Guarantee Principal Account") and Existing Notes Guarantee interest
account (the "Exchange Notes Guarantee Interest Account") which shall be
established for the Exchange Notes Guarantee based on the principal, premium,
if any, and interest (including Liquidated Damages and Additional Amounts, if
any) due and payable on the Existing Notes on the next principal or interest
payment date(s) falling on or within six months following the relevant Monthly
Date less the amount on deposit in the Debt Service Fund. In the event that
amounts on deposit in the Debt Service Fund of the Issuer are insufficient,
amounts on deposit in the sub-funds of the Notes Guarantee Service Fund shall
be used to pay principal, premium, if any, and interest (including Liquidated
Damages and Additional Amounts, if any) due and payable (whether at the stated
maturity, call for redemption, by acceleration or otherwise) on the Existing
Notes. If at any time monies in the Notes Guarantee Service Fund exceed the
amount of money required by the Indentures to be deposited therein, such excess
shall be transferred to the Company Revenue Fund.
Notes Guarantee Service Reserve Fund. After the Luannan Commercial
Operation Date, in the event that the amounts on deposit in the Debt Service
Reserve Fund of the Issuer are not equal to or greater than the Debt Service
Reserve Requirement, the Company shall be obligated to deposit monies into the
Exchange Notes guarantee service reserve fund (the "Notes Guarantee Service
Reserve Fund"), until such time as the sum of (i) the monies in the Debt
Service Reserve Fund of the Issuer and (ii) the monies on deposit in the Notes
Guarantee Service Reserve Fund equal, in the aggregate, the Debt Service
Reserve Requirement. Amounts on deposit in the Notes Guarantee Service Reserve
Fund shall be used to pay the principal, premium, if any, or interest
(including Liquidated Damages and Additional Amounts, if any) due on the
Existing Notes, to the extent that the sum of the amounts on deposit in the
Issuer Revenue Fund, the Debt Service Fund, the Debt Service Reserve Fund and
the Company Revenue Fund are insufficient. If at any time the amount on deposit
in the Notes Guarantee Service Reserve Fund exceeds the Debt Service Reserve
Requirement, the excess shall be transferred to the Company Revenue Fund.
Company Equity Distribution Fund. All amounts on deposit in the Company
Revenue Fund after the transfer of monies therein to each of the other funds in
accordance with the Indentures shall be transferred to the Company equity
distribution fund (the "Company Equity Distribution Fund"); provided, however,
that (A) withdrawals from the Company Equity Distribution Fund may only be made
in connection with payments to be made by the Company pursuant to the
Development Services Agreement and (B) the Company may only make distributions
to its shareholders if (1) the Company is in compliance with the requirements
of the Limitation on Restricted Payments covenant of the Company Indenture and
(2) the Luannan Commercial Operation Date has occurred.
Company Flow of Funds. The Company Indenture Trustee will, on each Monthly
Date, transfer or segregate money, to the extent then available in the Company
Revenue Fund and not segregated for any purpose, to the other funds as follows:
(i) to the Company Operating Fund, the amount estimated by the
Company to be needed for the payment of expenses of the Company
including expenses in connection with the Administrative Services
Agreement to be incurred during the next month;
(ii) to the Exchange Notes Guarantee Interest Account of the Notes
Guarantee Service Fund, an amount equal to the excess (if any) of
(a) the sum of cash interest payments (including Liquidated
Damages and Additional Amounts, if any) due and payable on all of
the Existing Notes outstanding on the next succeeding interest
payment date falling on or within six months following such
Monthly Date over (b) the sum of (x) the amount then on deposit
in such Exchange Notes Guarantee Interest Account and (y) the
amounts on deposit in the Exchange Notes Interest Account of the
Debt Service Fund;
(iii) to the Exchange Notes Guarantee Principal Account of the Notes
Guarantee Service Fund, an amount equal to the excess (if any) of
(a) the principal and premium, if any, payments next due and
payable on the Existing Notes outstanding at the next succeeding
principal payment date falling on or within six months following
such Monthly Date over (b) the sum of (x) the amount then on
deposit in such Exchange Notes Guarantee Principal Account and
(y) the amounts on deposit in the Exchange Notes Principal
Account of the Debt Service Fund;
(iv) to the Notes Guarantee Service Reserve Fund, the excess (if any)
of the Debt Service Reserve Requirement over the amounts on
deposit in the Debt Service Reserve Fund; and
(v) to the Company Equity Distribution Fund, any remainder; provided,
however, that (a) withdrawals from the Company Equity
Distribution Fund may only be made in connection with payments to
be made by the Company pursuant to the Development Services
Agreement and (b) the Company may only make distributions to its
shareholders if (1) the Company is in compliance with the
requirements of the Limitation on Restricted Payments covenant of
the Indentures and (2) the Luannan Commercial Operation Date has
occurred.
The Pan-Western Funds
In accordance with the terms and conditions of the Exchange Notes
Indenture, the Exchange Notes Trustee will establish and maintain outside the
PRC the following funds: (i) the Pan-Western Revenue Fund, (ii) the Pan-Western
Operating Fund and (iii) the Pan-Western Equity Distribution Fund (the "Pan-
Western Funds"). Pan-Western will have limited rights of withdrawal under the
Pan-Western Funds in accordance with terms and conditions set forth in the
Exchange Notes Indenture.
The Pan-Western Revenue Fund. All of the following will be deposited in
the Pan-Western revenue fund (the "Pan-Western Revenue Fund"): (i) revenues
received by Pan-Western from any source, (ii) income from the investment of
monies in the Pan-Western Funds, (iii) proceeds from the payment by the Joint
Ventures of amounts due under the Shareholder Loans, (iv) proceeds from
payments received by Pan-Western on its business interruption insurance
policies maintained by it with respect to the Joint Ventures and (v)
distributions from the Joint Ventures to Pan-Western.
Pan-Western Operating Fund. Amounts deposited in the Pan-Western operating
fund (the "Pan-Western Operating Fund") shall be used by Pan-Western for the
payment of expenses in connection with the Administrative Services Agreement
and certain other fees and expenses.
Pan-Western Equity Distribution Fund. Amounts deposited in the Pan-Western
equity distribution fund (the "Pan-Western Equity Distribution Fund") shall be
allocated among sub-funds consisting of a Pan-Sino distribution account (the
"Pan-Sino Distribution Account") and a Chinamac distribution account (the
"Chinamac Distribution Account"). Pursuant to an agreement among Pan-Western,
Pan-Sino and Chinamac (the "Pan-Western Shareholders' Agreement"), the
shareholders of Pan-Western have agreed to cause Pan-Western to declare
distributions from the sub-funds immediately upon the availability of funds for
such purposes.
Pan-Western Flow of Funds. The Exchange Notes Trustee will, on each
Monthly Date after the Luannan Commercial Operation Date (or the next following
business day), transfer or segregate money, to the extent then available in the
Pan-Western Revenue Fund and not segregated for any purpose, to the other funds
as follows:
(i) to the Pan-Western Operating Fund, the amount estimated by Pan-
Western to be needed for the payment of expenses of Pan-Western
including those in connection with the Administrative Services
Agreement to be incurred during the next month;
(ii) to the payment of interest due and payable with respect to the
Issuer Loan, to the extent then due or to become due during the
next month;
(iii) to the payment of principal and premium, if any, payable with
respect to the Issuer Loan, to the extent then due or to become
due during the next month;
(iv) until such time as the Issuer Loan is repaid in full, to the
prepayment of principal, premium, if any, and interest, with
respect to the Issuer Loan, to the extent amounts are available
to make such prepayments; and
(v) to the Pan-Western Equity Distribution Fund, any remainder.
The Pan-Sino Fund and Flow of Funds
In accordance with the terms and conditions in the Exchange Notes
Indenture, the Exchange Notes Trustee will establish and maintain the Pan-Sino
Fund (the "Pan-Sino Fund"). Pan-Sino will have limited rights of withdrawal
under the Pan-Sino Fund in accordance with terms and conditions set forth in
the Exchange Notes Indenture.
The Pan-Sino Fund. All distributions to Pan-Sino from Pan-Western will be
deposited in the Pan-Sino Fund. Amounts deposited in the Pan-Sino Fund shall be
allocated among sub-funds of a NDR distribution account (the "NDR Distribution
Account") and an Issuer distribution account (the "Issuer Distribution
Account") in accordance with the equity interests of NDR and the Issuer in Pan-
Sino. Pursuant to an agreement among Pan-Sino, the Issuer and NDR (the "Pan-
Sino Shareholders' Agreement"), the shareholders of Pan-Sino have agreed (i) to
cause Pan-Sino to declare distributions immediately upon the availability of
funds for such purposes, (ii) that monies on deposit in the NDR Distribution
Account shall be deemed distributed by Pan-Sino to NDR and (iii) NDR shall
pledge all monies in the NDR Distribution Account to the Exchange Notes Trustee
until such time as the Exchange Notes Trustee shall release such funds in
accordance with the provisions described below.
Pan-Sino Flow of Funds. The Exchange Notes Trustee will, on each Monthly
Date after the Luannan Commercial Operation Date (or the next following
business day), transfer or segregate money, to the extent then available in the
Issuer Distribution Account and the NDR Distribution Account. Amounts on
deposit in the Issuer Distribution Account shall be transferred to the Issuer
Revenue Fund. Amounts on deposit in the NDR Distribution Account shall only be
released to NDR when and if (i) the Company is in compliance with the
requirements of the Limitation on Restricted Payments covenant of the
Indentures and (ii) the Luannan Commercial Operation Date has occurred.
Investment of Funds
The Exchange Notes Trustee or the Company Indenture Trustee, as the case
may be, shall invest, as directed by the Company or the Issuer, the monies on
deposit in the Company Funds, the Issuer Funds, the Pan-Western Funds and the
Pan-Sino Fund in Dollar Permitted Investments. The Exchange Notes Trustee and
the Company Indenture Trustee shall not be liable for any loss incurred other
than by reason of its respective willful misconduct or gross negligence. Any
income or gain realized from Dollar Permitted Investments with respect to
monies on deposit in any Company Fund, Pan-Sino Fund or Pan-Western Fund shall
be deposited, first, into the fund from which the monies invested came, until
the amount required to be held in such fund has been reached, and second, into
either the Company Revenue Fund (in the case of income earned on monies on
deposit in a Company Fund), the Issuer Revenue Fund (in the case of income
earned on monies on deposit in an Issuer Fund), or the Pan-Western Revenue Fund
(in the case of income earned on monies on deposit in a Pan-Western Fund).
During the Funding Period, any and all interest income earned on amounts on
deposits in the Issuer Funds shall be transferred to the Luannan Facility
Construction Fund. Losses on Dollar Permitted Investments shall be charged to
the applicable fund. Income or gain with respect to monies on deposit in the
Issuer Funds (other than the Luannan Facility Construction Fund which shall
remain in the Luannan Facility Construction Fund) shall be deposited into the
Issuer Revenue Fund.
Joint Venture China Accounts
The following seven accounts will be established within China for each
Joint Venture: (i) Registered Capital Account (denominated in U.S. dollars),
(ii) Foreign Debt Account (denominated in U.S. dollars), (iii) Foreign Debt
Repayment Account (denominated in U.S. dollars), (iv) Basic Settlement Account
(denominated in U.S. dollars), (v) RMB Revenue Account (denominated in
Renminbi), (vi) the Major Maintenance Reserve Account (denominated in Renminbi)
and (vii) RMB Checking Account (denominated in Renminbi) (the "Joint Venture
China Accounts"). During construction of the Luannan Facility, the Foreign Debt
Accounts and Registered Capital Accounts will receive funds from the Luannan
Facility Construction Fund. The funds will be registered with the SAFE as debt
under the Shareholder Loans or equity pursuant to the JV Company Equity
Contributions and will be used to pay the contractual obligations of the Joint
Ventures under the Luannan EPC Contract and to pay other Luannan Facility
financing, construction and development costs, including interest on the
Shareholder Loans during construction through the Capitalized Interest
Expiration Date. Payments to be denominated in U.S. dollars will be paid
directly from the Registered Capital Account or the Foreign Debt Account.
Expenditures to be denominated in Renminbi will be converted into Renminbi as
required and transferred to the RMB Checking Accounts for disbursement.
After the Luannan Commercial Operation Date, all revenues received by the
Joint Ventures from any source, including all proceeds from the sale of assets
of the Joint Ventures, shall be deposited in the RMB Revenue Accounts.
Transfers from a RMB Revenue Account will first be made to the RMB Checking
Account, for payment of the Joint Venture's operating expenses and taxes, if
any, and then, after conversion to U.S. dollars, to the Foreign Debt Repayment
Account in an amount equal to the next payment of interest and principal then
due under the Shareholder Loans and any additional reserves required pursuant
to the Shareholder Loan Agreements. Each Joint Venture will also pay to Pan-
Western from the Foreign Debt Repayment Account an administrative fee, for
which Pan-Western will invoice the Joint Ventures based on its costs.
Each Joint Venture will also establish a Major Maintenance Reserve
Account, denominated in Renminbi, and each Joint Venture has covenanted in the
applicable Shareholder Loan Agreement to deposit in its respective Major
Maintenance Reserve Account an amount determined by the Luannan Facility
Engineer to constitute the Major Maintenance Reserve Requirement for such Joint
Venture Facility for such month. The Major Maintenance Reserve Requirement for
each Joint Venture will be established periodically by the Luannan Facility
Engineer based on anticipated major maintenance requirements for the next five
years for each Joint Venture Facility. Funds may only be withdrawn from the
Major Maintenance Reserve Account by a Joint Venture to pay for the major
maintenance costs of its respective Joint Venture Facility upon a certification
of the Luannan Facility Engineer that after withdrawal of such funds for such
purpose, the amounts remaining in the Major Maintenance Reserve Account
(including anticipated future funding thereof) will be adequate to meet the
anticipated needs of the applicable Joint Venture Facility for major
maintenance for the next five years.
The remaining amounts will be retained in the RMB Revenue Account until
the Joint Ventures are able to pay a dividend to its shareholders which, under
PRC law, may only be made from net income as determined in accordance with PRC
generally accepted accounting principles. Pan-Western's share of any such
distribution will be transferred from the RMB Revenue Account (after conversion
to U.S. dollars) to the Basic Settlement Account, and then to the Pan-Western
Revenue Fund under the Exchange Notes Indenture. A pro rata amount will be
distributed from the RMB Revenue Accounts directly to the County Partners.
Certain Covenants
The Exchange Notes Indenture
Set forth below are certain covenants set forth in the Exchange Notes
Indenture.
Ranking. The Issuer will ensure that its obligations under each Existing
Note will at all times constitute general, direct, unsubordinated and
unconditional obligations of the Issuer ranking at all times at least pari
passu in priority of payment, in right of security and in all other respects
with the other Existing Notes and with all other unsubordinated Indebtedness of
the Issuer now or hereafter outstanding.
Use of Proceeds. The gross proceeds from the sale of the Old Notes were
used by the Issuer: (i) to make a deposit in the Capitalized Interest Fund in
the approximate amount of $48.1 million; (ii) to make a deposit in the Debt
Service Reserve Fund in the amount of $9.7 million; (iii) to pay transaction
fees, commissions and expenses incurred in connection with the Prior Offering,
estimated to be approximately $6.8 million, which amount includes fees and
expenses of the Initial Purchaser pursuant to the agreement between the Issuer
and the Initial Purchaser (the "Purchase Agreement"); and (iv) to make a
deposit in the Luannan Facility Construction Fund estimated to be in the amount
of $80.4 million. This amount has been used, and interest thereon and other
income expected to be received by the Issuer during construction will be used,
by the Issuer to make the Issuer Loan to Pan-Western. Pan-Western has used and
will use (in the case of interest and other income expected to be received
during construction) the proceeds of the Issuer Loan to make the JV Equity
Contributions and the Shareholder Loans to each of the four Joint Ventures. The
Joint Ventures will use the proceeds of the JV Equity Contributions and
Shareholder Loans, together with capital contributions from the County Partners
in the amount of $5.7 million, to develop and construct the Luannan Facility.
The Company Indenture
Set forth below are certain covenants set forth in the Company Indenture.
Ranking. The Company will ensure that its obligations under each Exchange
Notes Guarantee will at all times constitute general, direct, unsubordinated
and unconditional obligations of the Company ranking at all times at least pari
passu in priority of payment, in right of security and in all other respects
with the other Exchange Notes guarantees and with all other unsubordinated
Indebtedness of the Company now or hereafter outstanding.
The Indentures
Set forth below are certain covenants set forth in the Indentures.
Reporting. The Indentures provide that the Company and the Issuer will
furnish to the Trustees after the end of each fiscal year, a certificate of a
responsible officer of the Company, the Issuer, Pan-Western and Pan-Sino
stating that a review of the activities of the Company, the Issuer, Pan-Western
and Pan-Sino during the preceding fiscal year has been made under the
supervision of such responsible officer and further stating that, to the best
of such person's knowledge, the Company and the Issuer during the previous year
has kept, observed, performed and fulfilled each and every covenant and
condition contained in the Indentures, the Exchange Notes Guarantee and in the
Existing Notes and that such person has no reason to believe that any
Indentures Event of Default or any condition or event that with the giving of
notice or lapse of time or both would, unless cured or waived, become an
Indentures Event of Default, has occurred, or, if there has been a breach or
default in the fulfillment of any such obligation, specifying each such breach
or default known to such person and the remedies, if any, being taken to remedy
such situation and the Trustees will be fully protected in relying upon such
certificate.
Insurance. The Indentures provide that the Company shall maintain, and
shall cause each of its Subsidiaries to maintain, insurance of the types and in
the amounts that are customary and usual for a company in its respective line
of business. Prior to the Closing Date, the Company retained an Independent
Insurance Consultant, who certified to the Trustees that such insurance met the
standard of the preceding sentence. Thereafter, the Independent Insurance
Consultant shall annually review the insurance coverages of the Company and its
Subsidiaries and certify that such coverages remain customary and usual.
Limitation on Investments. The Indentures provide that the Company shall
not make and shall not permit any of its Subsidiaries to make, directly or
indirectly, any Investments, except: (i) Investments by the Company or any
Wholly Owned Subsidiary in or to any Wholly Owned Subsidiary and Investments or
loans in or to the Company or a Wholly Owned Subsidiary by any Subsidiary; (ii)
Investments represented by accounts receivable created or acquired in the
ordinary course of business; (iii) advances to employees in the ordinary course
of business; (iv) Investments under or pursuant to interest rate protection
agreements; (v) Investments, not exceeding $5.0 million in the aggregate, in
joint ventures, partnerships or Persons that are not Wholly Owned Subsidiaries,
provided that such Investments are made solely for the purpose of acquiring
businesses related to the Company's business; (vi) Restricted Payments
permitted by the covenant "Limitation on Restricted Payments"; (vii)
Investments in connection with any Permitted Project (including, without
limitation, Investments in Permitted Projects which are not Wholly Owned by the
Company or one of its Subsidiaries); (viii) any loan from a Subsidiary of the
Company to a Subsidiary of Panda International in an amount not in excess of
the amount of Restricted Payments which the Company would be permitted to make
at the time of such loan; and (ix) Dollar Permitted Investments.
Limitation on Restricted Payments. The Indentures provide that the
Company shall not make, and shall not permit any of its Subsidiaries to,
directly or indirectly, make any Restricted Payment, unless:
(a) no Indentures Event of Default shall have occurred and be
continuing at the time of or after giving effect to such
Restricted Payment;
(b) the Luannan Facility Engineer has certified that the Luannan
Facility Commercial Operation Date has occurred;
(c) the Debt Service Coverage Ratio of the Company for the
immediately preceding four fiscal quarters (or, if date of
determination is within the preceding four fiscal quarters
following the Luannan Commercial Operation Date, for such
shorter period) is greater than 1.4 to 1, as certified by the
Chief Financial Officer of the Company;
(d) the projected Debt Service Coverage Ratio of the Company for
the immediately succeeding four fiscal quarters is greater
than 1.4 to 1, as certified by the Chief Financial Officer of
the Company;
(e) the amount in the Debt Service Reserve Fund plus the amount in
the Notes Guarantee Service Reserve Fund equals or exceeds the
Debt Service Reserve Requirement; and
(f) immediately after giving effect to such Restricted Payment,
the aggregate of all Restricted Payments declared or made
after the date on which the Existing Notes are originally
issued does not exceed the sum of (1) 50% of the Company's
Consolidated Net Income (or in the event such Consolidated Net
Income shall be a deficit, minus 100% of such deficit if after
the 28th month following the Closing Date or 50% of such
deficit prior to such date) from the next fiscal quarter after
the Closing Date, plus (2) 100% of the aggregate Net Cash
Proceeds and the Fair Market Value of marketable securities
received by the Company from the issue or sale, after the date
on which the Existing Notes are originally issued, of Capital
Stock (other than Disqualified Stock) of the Company or any
Indebtedness or other securities of the Company convertible
into or exercisable for Capital Stock (other than Disqualified
Stock) of the Company which has been so converted or
exercised, as the case may be. For purposes of determining
under clause (2) above the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its
Fair Market Value.
The provisions of this covenant shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at such date
of declaration such payment would comply with the provisions of the Company
Indentures, (ii) the retirement of any shares of Capital Stock of the Company
in exchange for, or out of, the Net Cash Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other shares of
Capital Stock of the Company (other than Disqualified Stock), (iii) the
redemption or retirement of Subordinated Indebtedness of the Issuer or the
Company in exchange for, by conversion into, or out of the Net Cash Proceeds
of, a substantially concurrent (x) sale or issuance of Capital Stock of the
Company or (y) incurrence of Subordinated Indebtedness of the Issuer that is
contractually subordinated in right of payment to the Existing Notes, that is
permitted to be incurred in accordance with the covenant described under
"Limitation on Indebtedness" below and that has the same or greater Weighted
Average Life to Maturity as the Indebtedness being redeemed or retired, (iv)
any payment made by the Company or a Subsidiary, directly or indirectly, to the
Issuer in order to enable the Issuer to pay principal, premium, if any, and
interest (including Liquidated Damages and Additional Amounts, if any) on the
Existing Notes, (v) any payment made by the Company or a Subsidiary, directly
or indirectly, to enable the issuer of any Permitted Indebtedness to pay
principal, premium, if any, and interest thereon, (vi) any dividend made by a
Subsidiary of the Company to its parent and (vii) payments made pursuant to the
Administrative Services Agreement and the Development Services Agreement. In
determining the amount of Restricted Payments permissible under clause (f)
above, amounts expended pursuant to clause (i) of this paragraph and loans
pursuant to clause (viii) of the covenant on "Limitation on Investments" shall
be included as Restricted Payments.
Limitation on Transactions with Affiliates. The Indentures provide that
the Company shall not, and shall not permit any Subsidiary, to conduct any
business or enter into any transaction or series of related transactions with
or for the benefit of any of their respective Affiliates (each an "Affiliate
Transaction"), except in good faith and on terms that are no less favorable to
the Company or such Subsidiary, as the case may be, than those that could have
been obtained in a comparable transaction on an arm's-length basis from a
Person not an Affiliate of the Company or such Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other market
value in excess of $500,000 shall be approved by the Board of Directors of the
Company, such approval to be evidenced by a Board Resolution stating that the
Board of Directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other market value in excess of $1.0 million, the Company or such Subsidiary,
as the case may be, shall, prior to the consummation thereof, obtain a
favorable opinion as to the fairness of such transaction or series of related
transactions to the Company or the relevant Subsidiary, as the case may be,
from a financial point of view, from an Independent Financial Advisor and file
the same with the Company Indenture Trustee. Notwithstanding the foregoing, the
restrictions set forth in this covenant shall not apply to (i) transactions
between the Company and any of its Wholly Owned Subsidiaries or among Wholly
Owned Subsidiaries of the Company, (ii) Restricted Payments permitted by the
Indentures, (iii) customary directors' fees, indemnification and similar
arrangements, consulting fees, employee salaries and bonuses or legal fees,
(iv) payments made pursuant to the Administrative Services Agreement or the
Development Services Agreement, (v) transactions between the Company or any of
its Wholly Owned Subsidiaries and a Permitted Project and (vi) any transaction
which would otherwise constitute an Affiliate Transaction but which has been
entered into prior to the Closing Date.
Limitation on Indebtedness. The Indentures provide that the Company and
its Subsidiaries will not create, incur, assume or suffer to exist any
Indebtedness, whether current or funded, or any other liability, except for (i)
Indebtedness evidenced by the Existing Notes, (ii) Indebtedness evidenced by
the Exchange Notes Guarantee, (iii) Permitted Indebtedness, (iv) Joint Venture
Permitted Indebtedness, (v) liabilities of the Company and the Issuer
representing fees, expenses and indemnities payable to the Trustees pursuant to
the Indentures, (vi) Domestic Project Permitted Indebtedness and (vii)
liabilities of the Issuer representing fees, expenses and indemnities payable
in connection with the issuance of Existing Notes and the Exchange Notes
Guarantee including, without limitation, such amounts payable to the Initial
Purchaser under the Purchase Agreement.
"Permitted Indebtedness" means:
(i) any and all Indebtedness of the Company and its Subsidiaries
outstanding as of the Closing Date;
(ii) Indebtedness of the Company which is owed to and held by a Wholly
Owned Subsidiary and Indebtedness of a Wholly Owned Subsidiary
which is owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
transfer of such Indebtedness (other than to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the incurrence of such Indebtedness by the Company or
by a Wholly Owned Subsidiary, as the case may be;
(iii) Non-Recourse Debt of a Subsidiary or group of Subsidiaries, the
proceeds of which are used to acquire, develop or construct a
Permitted Project by such Subsidiary or group of Subsidiaries;
(iv) Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace,
or refund, Indebtedness that was permitted by the Indentures to
be incurred or was outstanding as of the Closing Date;
(v) any additional Indebtedness incurred by the Company or its
Subsidiaries provided that the Chief Financial Officer of the
Company certifies at the time of incurrence of such Indebtedness
that the following conditions have been met:
(a) no Indentures Event of Default will occur and be continuing
after giving effect to the incurrence of such additional
Indebtedness;
(b) the minimum (or lowest) annual projected Debt Service
Coverage Ratio of the Company for the remaining term of the
Exchange Notes will not be less than 1.4 to 1;
(c) the minimum (or lowest) annual projected Consolidated Debt
Service Coverage Ratio of the Company for the remaining term
of the Exchange Notes will not be less than 1.15 to 1;
(d) the Rating Agencies shall have confirmed that there will be
no rating downgrade with respect to the Exchange Notes after
giving effect to the incurrence of such additional
Indebtedness;
(e) the Debt Service Coverage Ratio of the Company shall be, for
the immediately preceding four fiscal quarters, greater than
1.4 to 1;
(f) the amount in the Debt Service Reserve Fund plus the amount
in the Note Guarantee Service Reserve Fund equals or exceeds
the Debt Service Reserve Requirement;
(vi) any additional Indebtedness issued pursuant to one or more PFC
Indenture supplements, provided that, at the time of the creation
of such Indebtedness (other than the initial Series A Bonds and
any series of bonds issued solely in exchange for an equivalent
aggregate principal amount of outstanding bonds of another
series) the following conditions have been met:
(a) PIC provides an officer's certificate at the time of
incurrence of such Indebtedness to the Company Indenture
Trustee (supported by a certificate to the Company Indenture
Trustee from the Consolidating Financial Analyst) stating
that, after giving effect to the issuance of such
Indebtedness and the application of the proceeds therefrom,
the projected PIC Debt Service Coverage Ratio and the
projected PIC Consolidated Debt Service Coverage Ratio (if
then applicable) equal or exceed 1.7 to 1.0 and 1.25 to 1.0,
respectively, in each case for each PIC Future Ratio
Determination Period; and
(b) the rating of the outstanding Indebtedness in effect
immediately prior to the issuance of such additional
Indebtedness is reaffirmed by the Rating Agencies after
giving effect to the issuance of such additional
Indebtedness, provided, further, that a reaffirmation of the
rating of the outstanding Indebtedness shall not be required
if (1) neither PIC nor any or Subsidiary of the Company has
acquired (or is acquiring in connection with the issuance of
such additional Indebtedness), sold or otherwise disposed
of, since the last date upon which the Indebtedness of any
series were rated or a reaffirmation of rating was given in
respect thereof, any amount of direct or indirect interests
in one or more Permitted Projects with respect to which the
sum of (w) the aggregate purchase prices of all such
acquisitions and (x) the aggregate sales prices and proceeds
received in connection with any such disposition of all such
sales or other dispositions, exceeds the greater of (y)
$50.0 million and (z) 25% of the aggregate principal amount
of the Indebtedness then outstanding and (2) the aggregate
principal amount of additional Indebtedness to be issued is
less than the lesser of (x) $50.0 million and (y) 25% of the
aggregate principal amount of the Indebtedness then
outstanding; and
(vii) in addition to the Indebtedness referred to in clauses (i)
through (vi), any other Indebtedness of the Company and its
Subsidiaries that, in the aggregate, does not exceed $10.0
million.
Limitation on Liens. The Indentures will provide that the Company shall
not, and shall not permit any of its Subsidiaries to, create, incur, assume or
suffer to exist any Lien of any kind upon any of its property or assets now
owned or hereafter acquired by it, except for:
(a) Liens existing as of the Closing Date and disclosed in the
Collateral Documents on the Closing Date and Liens created
by the Existing Notes, the Exchange Notes Indenture, the
Exchange Notes Guarantee, the Company Indenture and the
Collateral Documents;
(b) Permitted Liens on property and assets not constituting
Collateral;
(c) Liens to secure the payment of all or a part of the purchase
price of assets or property acquired or constructed in the
ordinary course of business after the date on which the
Existing Notes are originally issued, provided that (i) the
aggregate principal amount of Indebtedness secured by such
Liens shall not exceed the Fair Market Value of the assets
or property so acquired or constructed, shall be limited to
the asset or property at issue and shall not, in any event,
exceed $2.5 million, (ii) the Indebtedness secured by such
Liens shall have otherwise been permitted to be incurred
under the Indentures and (iii) such Liens shall not encumber
any other assets or property of the Company or any of its
Subsidiaries and shall attach to such assets or property
within 60 days of the construction or acquisition of such
assets or property;
(d) Liens on the assets or property of a Subsidiary of the
Company at the time such Subsidiary became a Subsidiary of
the Company and not incurred as a result of (or in
connection with or in anticipation of) such Subsidiary
becoming a Subsidiary of the Company, provided such Liens do
not extend to or cover any property or assets of the Company
or any of its Subsidiaries (other than the property or
assets so acquired);
(e) leases and subleases of real property of (i) any Material
Subsidiary (which leases and subleases are Non-Recourse Debt
other than to the Material Subsidiary which leases and uses
such asset), which do not interfere with the ordinary
conduct of the business of the Company or any of its
Material Subsidiaries, and which are made on customary and
usual terms applicable to similar properties or (ii) any
Subsidiary (which leases and subleases are Non-Recourse Debt
other than to the Subsidiary which leases and uses such
asset) that is not a Material Subsidiary;
(f) Liens incurred by a Subsidiary or group of Subsidiaries on
its or their assets to secure Non-Recourse Debt incurred in
conformity with the covenant "Limitation on Indebtedness",
provided that the Lien is created, provided for or
contemplated at the time of the initial incurrence of such
Indebtedness and does not extend to any assets or property
of the Company or any other Subsidiary (other than assets or
property directly related to the development, construction,
financing, ownership or operation by a Subsidiary or group
of Subsidiaries of a Permitted Project);
(g) Liens, not existing as of the Closing Date, but required or
permitted to be created at a later date pursuant to the
terms of the PFC Indenture, the Rosemary Indenture or the
Brandywine Facility Lease; and
(h) in addition to Liens permitted under clauses (a)-(g) above,
Liens securing an aggregate of $5.0 million of Indebtedness
or other obligations.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indentures provide that the Company shall not, and shall not
permit any Subsidiary of the Company to, directly or indirectly, create or
otherwise cause or suffer to exist or enter into any agreement with any Person
that would cause, any consensual encumbrance or restriction of any kind on the
ability of any Subsidiary of the Company to (i) pay dividends, in cash or
otherwise, or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits owned by, or pay any
Indebtedness owed to, the Company or a Subsidiary of the Company, (ii) make any
loans or advances to the Company or any Subsidiary of the Company or (iii)
transfer any of its properties or assets to the Company or to any Subsidiary of
the Company, except, in each case, for such encumbrances or restrictions
existing under or contemplated by or by reason of (a) restrictions imposed by
applicable law, (b) customary non-assignment provisions of any contract or any
lease governing a leasehold interest of the Company or any Subsidiary thereof,
(c) the Existing Notes, the Exchange Notes Guarantee, the Indentures and the
Collateral Documents, (d) any restrictions existing under agreements in effect
on the Closing Date, including, without limitation, restrictions under the PFC
Indenture, the Rosemary Indenture and the Brandywine Facility Lease, as such
are in effect on the Closing Date, (e) any restrictions, with respect to a
Subsidiary of the Company (and only to such Subsidiary) that is not a
Subsidiary of the Company on the Closing Date, in existence at the time such
Person becomes a Subsidiary of the Company (but not created in contemplation of
such Person becoming a Subsidiary), (f) any encumbrance imposed pursuant to the
terms of Non-Recourse Debt incurred in conformity with the covenant "Limitation
on Indebtedness" provided that such encumbrance in the written opinion of the
Chief Financial Officer of the Company (1) is required in order to obtain such
financing, (2) is customary for such financings and (3) applies only to the
assets of or revenues of the applicable Permitted Project and any Subsidiary
whose Capital Stock is pledged in connection with such financing or which is
established for the sole purpose of developing, owning, constructing, financing
or operating such Permitted Project and (g) any restrictions existing under any
agreement that refinances or replaces an agreement containing a restriction
permitted by clause (a) through (f), above; provided that the terms and
conditions of any such restrictions are not materially less favorable to the
Holders of the Existing Notes than those under or pursuant to the agreement
being replaced or the agreement evidencing the Indebtedness refinanced. Nothing
contained in this covenant shall prevent the Company or any of its Subsidiaries
from entering into any encumbrance permitted under the covenant described under
"Limitation on Liens" above or restricting the sale or other disposition of
assets or property securing Indebtedness evidenced by such agreement so long as
the Company complies with the covenant described under "Disposition of Proceeds
of Asset Sales" below.
Capital Expenditures. The Indentures provide that the Company will not
make, or permit any Subsidiary to make, any expenditure (by long-term or
operating lease or otherwise) for capital assets (both realty and personalty)
except for expenditures (i) contemplated by the Indentures (including, without
limitation, expenditures with respect to the Luannan Facility), (ii) required
or permitted by the PFC Indenture, the Rosemary Indenture or the Brandywine
Facility Lease, or (iii) subject to compliance with the provisions of
"Limitation on Investments," "Limitation on Indebtedness" and "Limitation on
Restricted Payments," expenditures in connection with the development,
construction or ownership of a Permitted Project.
Permitted Projects. The Indentures provide that to the extent that a
project fulfills the requirements of the PIC Additional Projects Contract, the
Company and its Subsidiaries may develop, construct, own, operate and finance
such project pursuant to the requirements of the PFC Indenture subject to
compliance with the terms of the Indentures. To the extent that a project does
not fulfill the requirements of the PIC Additional Projects Contract, the
Company and its Subsidiaries agree that such project may only be developed,
constructed, financed, owned and operated by the Company or one of its
Subsidiaries pursuant to the requirements of the Indentures and the Company
shall (i) maintain at least a 50% (direct or indirect) ownership or equivalent
interest in each project or (ii)(a) at least a 25% (direct or indirect)
ownership or equivalent interest in each project not meeting the requirements
of clause (i) above and (b) a controlling influence over the management and
policies with respect to each project, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, provided that no
other entity has greater control than the Company over the management and
policies of such project (notwithstanding the foregoing, this covenant shall
not prohibit the sale, lease, transfer or other disposition of all interests in
a project, or a reduction in the ownership or equivalent interest of, or
control over, a project occurring (1) pursuant to the terms of a build-operate-
transfer arrangement at least ten years after the entering into of such
arrangement or (2) allowed pursuant to the other terms of the Indentures).
Limitation of Line of Business. The Indentures provide that the Company
shall not and shall not permit any Subsidiary to engage in any business,
enterprise or activity or enter into any material transaction other than the
development, construction, financing, ownership or operation of power
generating facilities and any and all activities related thereto.
Amendment of Articles of Association. The Indentures provide that the
Company shall not and shall not permit any Subsidiary to amend its respective
articles of association in any manner that is reasonably likely to have a
Material Adverse Effect.
Amendment of Project Documents. The Indentures provide that the Company
shall not and shall not permit any Subsidiary to amend or terminate any Project
Document if such amendment or termination is reasonably likely to have a
Material Adverse Effect.
Protection of Collateral by Company and its Subsidiaries. The Indentures
provide that the Company and its Subsidiaries will, from time to time, take all
action necessary or advisable (including, without limitation, executing and
delivering all such supplements and amendments, financing statements,
continuation statements, instruments of further assurance and other
instruments), to preserve and defend its title to the Collateral against the
claims of all persons and parties.
Performance of Obligations by Company, Subsidiaries and Trustees. The
Indentures provide that the Company and its Subsidiaries will, respectively,
punctually perform and observe all of its respective obligations and agreements
contained in the Collateral Documents, and will, in accordance with the
Indentures, the Issuer Loan Agreement and the Shareholder Loan Agreements,
diligently pursue its respective rights and remedies and cooperate with the
Trustees and the Noteholders in pursuing the same to the extent such rights
have been assigned by such Person to the Trustees, in each case for the benefit
of the Noteholders.
Taxes. The Indentures provide that the Company will cause the Issuer to
promptly pay when due any present or future stamp, court or documentary taxes
or any other excise or property taxes, charges or similar levies that arise in
any jurisdiction from the execution, delivery or registration of each Existing
Note or any other document or instrument referred to in the Indentures,
excluding (i) taxes imposed on or measured by the net income or capital of any
Noteholder by any jurisdiction or any political subdivision or taxing authority
thereof and (ii) any such taxes, charges or similar levies imposed by any
jurisdiction outside of the United States except those resulting from, or
required to be paid in connection with, the enforcement of such Existing Note
or any other such document or instrument following the occurrence of any
Indentures Event of Default.
The Company will, and will cause each of its Subsidiaries to, pay prior to
delinquency, all material taxes, assessments, and governmental levies except
such as are being contested in good faith and by appropriate proceedings or
where the failure to effect such payment will not have a Material Adverse
Effect.
Financial Statements. The Indentures provide that so long as any Existing
Notes are outstanding, the Company will furnish to the Trustees (i) unaudited
quarterly reports containing consolidated financial statements of the Company
and its Subsidiaries for each of the first three quarters of its fiscal year
and (ii) audited annual reports containing consolidated financial statements of
the Company and its Subsidiaries. Whether or not required by the Exchange Act
or the rules and regulations of the Commission thereunder, so long as any
Existing Notes are outstanding, the Company will furnish to the Holders of the
Existing Notes all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q, 10-K
and 8-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's independent public accountants. In addition, whether or not
required by the Exchange Act or the rules and regulations of the Commission
thereunder, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to investors who
request it in writing. In addition, the Company will agree, that, for so long
as any Existing Notes remain outstanding, the Company and the Issuer will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Sale and Leaseback Transactions. The Indentures provide that the Company
will not, and will not permit any of its Subsidiaries to, enter into any sale
and leaseback transaction; provided that the Company or any Subsidiary may
enter into a sale and leaseback transaction if (i) the Company or such
Subsidiary could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the covenant "Limitation on Indebtedness" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant "Limitation on Liens," (ii) the Net
Cash Proceeds of such sale and leaseback transaction are at least equal to the
Fair Market Value (as determined in good faith by the Board of Directors and
set forth in an Officers' Certificate delivered to the Company Indenture
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the proceeds of such transaction are applied
in compliance with, the covenant "Disposition of Proceeds of Asset Sales."
Delivery of Information and Reports under the Shareholder Loan Agreements.
The Indentures provide that the Issuer will deliver to the Exchange Notes
Trustee, at the expense of the Issuer, promptly upon receipt thereof, all
financial statements, reports, notices and certificates of the Joint Ventures.
Disposition of Proceeds of Asset Sales. The Indentures provide that the
Company shall not, and shall not permit any of its Subsidiaries to, make any
Asset Sale unless (i) such Asset Sale is for Fair Market Value and (ii) the
proceeds therefrom consist of at least 85% cash and/or Cash Equivalents (100%
in the case of lease payments). Within 365 days after the receipt of any Net
Cash Proceeds from an Asset Sale, the Company, or its Subsidiary, as the case
may be, may apply such Net Cash Proceeds to an Investment, the making of a
capital expenditure or the acquisition of other tangible assets. Any Net Cash
Proceeds from Asset Sales that are not applied or invested as provided in the
preceding sentence of this paragraph will be deemed to constitute Excess
Proceeds and the Company, or its Subsidiary, as the case may be, will be
required to make an Asset Sale Redemption Offer.
Merger, Consolidation, or Sale of Assets. The Indentures provide that the
Company and the Issuer shall not, in a single transaction or series of related
transactions, consolidate or merge with or into (whether or not the Company or
the Issuer is the surviving corporation), or directly and/or indirectly through
its Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the Company's or the Issuer's properties or assets
determined on a consolidated basis for the Company and its Subsidiaries taken
as a whole in one or more related transactions, to another corporation, Person
or entity unless (i) the Company or the Issuer is the surviving corporation or
the entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company or the Issuer) or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company or the Issuer) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made assumes all the obligations of the Company or the Issuer, under the
Existing Notes, the Exchange Notes Guarantee and the Indentures pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustees; (iii)
immediately after such transaction no Indentures Event of Default exists; (iv)
the Company or the Issuer or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company or the Issuer), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness; and (v) the
Company delivers to the Trustees an Officers' Certificate and an Opinion of
Counsel addressed to the Trustees with respect to the foregoing matters;
provided, however, that the requirement set forth in clause (iv) above shall
not apply to a merger between the Company or the Issuer and any Wholly Owned
Subsidiary or to any merger between Wholly Owned Subsidiaries.
Indentures Events of Default
The following events constitute Indentures Events of Default:
(i) failure by the Issuer to pay the principal and premium, if any,
on any Existing Note when the same becomes due and payable,
whether by scheduled maturity or required prepayment or by
acceleration or otherwise;
(ii) failure by the Issuer to pay the interest (including Liquidated
Damages and Additional Amounts, if any) on any Existing Note when
the same becomes due and payable, whether by scheduled maturity
or required prepayment or by acceleration or otherwise, for 15 or
more days;
(iii) non-payment of any interest on, or any principal of, the Issuer
Loan by Pan-Western when the same becomes due and payable,
whether by scheduled maturity or required prepayment or by
acceleration or otherwise, for 30 or more days;
(iv) failure by the Company to pay any amount it is obligated to pay
to the Noteholders pursuant to the terms of the Exchange Notes
Guarantee, when the same becomes due and payable, whether by
scheduled maturity or required prepayment or by acceleration or
otherwise;
(v) any representation or warranty made by the Company or any of its
Subsidiaries in, respectively, the Indentures, the Issuer Loan
Agreement or the Shareholder Loan Agreements or any
representation, warranty or statement in any certificate,
financial statement or other document furnished to the Trustees
by or on behalf of the Company or any of its Subsidiaries under
the Indentures, shall prove to have been untrue or misleading in
any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such
inaccuracy has had or is reasonably likely to have a Material
Adverse Effect and the fact, event or circumstance shall continue
to be uncured for 30 or more days after the Company or any of its
Subsidiaries acquires notice of such inaccuracy; provided that if
the Company or any such Subsidiary commences efforts to cure such
fact, event or circumstance within such 30-day period, the
Company or any such Subsidiary may continue to effect such cure
of such fact, event or circumstance and such misrepresentation
shall not be deemed an Indentures Event of Default for an
additional 60 days so long as the Company or such Subsidiary, as
the case may be, is diligently pursuing such cure;
(vi) failure by the Company or any of its Material Subsidiaries to
perform or observe its covenants contained in the Indentures
relating to maintenance of existence, prohibition on fundamental
changes, disposition of assets, limitations on Indebtedness,
limitations on Liens or distributions;
(vii) failure by the Company or any of its Material Subsidiaries to
perform or observe any of the other covenants contained in the
Indentures or in the Collateral Documents (other than failures
described in paragraph (v) above) and such failure shall continue
uncured for 30 or more days (including, without limitation,
covenants with respect to insurance and amendments to Luannan
Project Documents or nature of business); provided that if the
Company or such Material Subsidiary commences efforts to cure
such default within such 30-day period, the Company or such
Material Subsidiary may continue to effect such cure of the
default and such default shall not be deemed an Indentures Event
of Default for an additional 60 days so long as the Company or
such Subsidiary is diligently pursuing the cure;
(viii)occurrence of certain events involving the bankruptcy,
insolvency, receivership or reorganization of the Company or any
of its Material Subsidiaries;
(ix) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $1.0 million
(exclusive of judgment amounts fully covered by insurance or
indemnity) against the Company or any of its Material
Subsidiaries, which remains unpaid or unstayed for a period of 90
or more consecutive days;
(x) any Project Document (except as otherwise permitted under the
Indentures) shall terminate or cease to be valid and binding and
in full force and effect, or any third party thereto denies that
it has any liability or obligation under any such Project
Document and such third party ceases performance thereunder, or
any third party is in default under such Project Document
(subject to any applicable grace period), and in each case such
cessation or default has had or is reasonably likely to have a
Material Adverse Effect;
(xi) any Luannan Financing Agreement shall terminate or cease to be
valid and binding and in full force and effect;
(xii) with respect to a Domestic Project, or to the extent applicable,
any Permitted Project, the loss of QF Status, to the extent that
such loss of QF Status has had or is reasonably likely to have a
Material Adverse Effect;
(xiii)failure of any Joint Venture to perform or observe any of its
material covenants or obligations contained in any of the Luannan
Project Documents if such failure has had or is reasonably likely
to have a Material Adverse Effect;
(xiv) the occurrence of any event resulting in the payment of Domestic
Project Event Proceeds or Permitted Project Event Proceeds that
will result, in the opinion of the Consolidating Financial
Analyst, in the Company's failure to meet the following Debt
Service Coverage Ratios (after the application of such amounts as
are required to be applied pursuant to any and all mandatory
redemption or repayment obligations): (1) the minimum (or lowest)
annual projected Company Debt Service Coverage Ratio for the
remaining term of the Existing Notes will not be less than 1.4 to
1 and (2) the minimum (or lowest) annual projected Consolidated
Debt Service Coverage Ratio for the remaining term of the
Existing Notes will not be less than 1.15 to 1;
(xv) the Luannan Facility Construction Schedule Certificate shall at
any time contain a conclusion that the Luannan Facility is not
being constructed in accordance with the Approved Construction
Budget and Schedule or, if applicable, an Approved Completion
Plan;
(xvi) any of the Collateral Documents ceases to be effective or any
lien granted therein ceases to be a perfected lien to the
Trustees on the collateral described therein with the priority
purported to be created thereby; provided that the Company or the
Issuer, as the case may be, shall have 15 days to cure such
cessation or to furnish to the Trustees all documents or
instruments required to cure such cessation; or
(xvii)any default under the Issuer Loan Agreement and the Shareholder
Loan Agreements that has had or is reasonably likely to have a
Material Adverse Effect and any default under the PFC Indenture,
the Rosemary Indenture, the Brandywine Facility Lease and any
other default under any other agreement or instrument containing
Indebtedness of at least $2.5 million of a Domestic Project or a
Permitted Project, to the extent that any of the preceding
defaults is not waived.
The Indentures provide that upon the occurrence of an Indentures Event of
Default as specified in paragraph (viii) above, all interest, principal and
premium, if any (including Liquidated Damages and Additional Amounts, if any),
on the outstanding Existing Notes and Exchange Notes Guarantee shall become
automatically due and payable. In the case of other Indentures Events of
Default, each of the Trustees shall declare all interest, principal and
premium, if any (including Liquidated Damages and Additional Amounts, if any),
on the outstanding Existing Notes to be immediately due and payable if Holders
of at least 25% in aggregate principal amount of the Existing Notes then
outstanding have notified the Issuer and the Exchange Notes Trustee in writing
of the occurrence of an Indentures Event of Default. The rights of any Holder of
Existing Notes to individually institute a suit for enforcement of payment of
principal or interest is not imparied by the Indentures Event of Default
provisions.
Defeasance
The Company and the Issuer may at any time terminate all of their
obligations with respect to the Existing Notes ("defeasance"), except for
certain obligations, including those regarding any trust established for a
defeasance and obligations to register the transfer or exchange of the Existing
Notes, to replace mutilated, destroyed, lost or stolen Existing Notes and to
maintain agencies in respect of Existing Notes. The Company and the Issuer may
at any time terminate their obligations under certain covenants set forth in
the Indentures, some of which are described under "--Certain Covenants" above,
and any omission to comply with such obligations shall not constitute an
Indentures Event of Default with respect to the Existing Notes issued under the
Indentures ("covenant defeasance"). In order to exercise either defeasance or
covenant defeasance, the Issuer must irrevocably deposit in trust, for the
benefit of the Holders of the Existing Notes, with the Exchange Notes Trustee
money or U.S. government obligations, or a combination thereof, in such amounts
as will be sufficient to pay the principal, premium, if any, and interest
(including Liquidated Damages and Additional Amounts, if any) on the Existing
Notes to redemption or maturity and comply with certain other conditions,
including the delivery of an opinion as to certain tax matters.
Satisfaction and Discharge
The Indentures will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of
Existing Notes) as to all outstanding Existing Notes when either (a) all such
Existing Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Existing Notes which have been replaced or paid and Existing Notes
for whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Issuer and thereafter repaid to the Issuer or
discharged from such trust) have been delivered to the Exchange Notes Trustee
for cancellation; or (b)(i) all such Existing Notes not theretofore delivered
to the Exchange Notes Trustee for cancellation have or will (upon the mailing
of a notice or notices deposited with such trustees together with irrevocable
instructions to mail such notice or notices to Holders of the Existing Notes)
become due and payable and the Issuer has irrevocably deposited or caused to be
deposited with the Exchange Notes Trustee as trust funds in the trust for the
purpose an amount of money sufficient to pay and discharge the entire
indebtedness on the Existing Notes not theretofore delivered to the such
trustees for cancellation, for principal, premium, if any, and accrued interest
(including Liquidated Damages and Additional Amounts, if any) to the date of
such deposit; (ii) the Company and the Issuer have paid all sums payable by
them under the Indentures; and (iii) the Issuer has delivered irrevocable
instructions to the Exchange Notes Trustee to apply the deposited money toward
the payment of the Existing Notes at maturity or the redemption date, as the
case may be. In addition, the Issuer must deliver an Officers' Certificate and
an Opinion of Counsel stating that all conditions precedent to satisfaction and
discharge have been complied with.
Withholding Taxes
All payments made by the Issuer on the Existing Notes (whether or not in
the form of definitive Existing Notes) or payments made by the Company with
respect to the Exchange Notes Guarantee will be made without withholding or
deduction for, or on account of, any present or future taxes, duties,
assessments or governmental charges of whatever nature (collectively, "Taxes")
imposed or levied by or on behalf of the Cayman Islands, the United States or
any political subdivision thereof or any authority having power to tax therein
(each a "Tax Authority"), unless the withholding or deduction of such Taxes is
then required by law. If any deduction or withholding for, or on account of,
any Taxes of any Tax Authority, shall at any time be required on any payments
for, or on account of, any payments made by the Issuer with respect to the
Existing Notes, including payments of principal, redemption price, interest or
premium, or payments made by the Company with respect to the Exchange Notes
Guarantee, the Issuer or the Company, as the case may be, will pay such
additional amounts (the "Additional Amounts") as may be necessary in order that
the net amounts received in respect of such payments by the Holders of the
Existing Notes or the Trustees, as the case may be, after such withholding or
deduction, equal the respective amounts which would have been received in
respect of such payments in the absence of such withholding or deduction;
except that no such Additional Amounts will be payable with respect to:
(i) any payments on an Existing Note held by or on behalf of a Holder
or beneficial owner who is liable for such Taxes in respect of
such Existing Note by reason of the Holder or beneficial owner
having some connection with the Cayman Islands or the United
States (including being a citizen or resident or national of, or
carrying on a business or maintaining a permanent establishment
in, or being physically present in, the Cayman Islands or the
United States) other than by the mere holding of such Existing
Note or enforcement of rights thereunder or the receipt of
payments in respect thereof;
(ii) any Taxes that are imposed or withheld where such withholding or
imposition is by reason of the failure of the Holder or
beneficial owner to comply with a request by the Issuer or the
Company, as the case may be, to satisfy any certification,
identification or other reporting requirement which the Holder or
beneficial owner is legally able to satisfy and which is required
or imposed by statute, treaty, regulation, or administrative
practices of the taxing jurisdiction as a precondition to
exemption from all or part of such Taxes; or
(iii) any Existing Note presented for payment (where presentation is
required) more than 30 days after the relevant payment is first
made available for payment to the Holder except to the extent
that the Holder would have been entitled to such Additional
Amounts on presenting such Existing Note for payment on the last
day of such period of 30 days.
Such Additional Amounts will also not be payable where, had the
beneficial owner of the Existing Note been the Holder of the Existing Note,
he would not have been entitled to payment of Additional Amounts by reason of
clauses (i) to (iii) inclusive above.
Upon request, the Issuer or the Company, as the case may be, will
provide the Trustees with documentation satisfactory to the Trustees
evidencing the payment of Additional Amounts. Copies of such documentation
will be made available to the Holders upon request.
The Issuer will pay any present or future stamp, court or documentary
taxes, or any other excise or property taxes, charges or similar levies which
arise in any jurisdiction from the execution, delivery or registration of the
Existing Notes or any other document or instrument referred to therein, or
the receipt of any payments with respect to the Existing Notes, excluding any
such taxes, charges or similar levies imposed by any jurisdiction outside of
the Cayman Islands, the United States of America or any jurisdiction in which
a Paying Agent is located, other than those resulting from, or required to be
paid in connection with, the enforcement of the Existing Notes or any other
such document or instrument following the occurrence of any Indentures Event
of Default with respect to the Existing Notes.
Amendments, Supplements and Waivers
Supplemental Indentures Without Consent. The Company, the Issuer and the
Trustees may from time to time and at any time enter into an indenture or
indentures supplemental to the Indentures for one or more of the following
purposes:
(i) to convey, transfer, assign, mortgage or pledge to the
Trustees as security for the Existing Notes or the Exchange
Notes Guarantee for any property or assets;
(ii) to evidence the succession of another corporation to the
Company or the Issuer, or successive successions, and the
assumption by the successor corporation of the covenants,
agreements and obligations of the Company and the Issuer
pursuant to the Indentures;
(iii) to add to the covenants of the Company and the Issuer such
further covenants, restrictions, conditions or provisions as
the Company or the Issuer may, in the written opinion of
independent legal counsel, consider to be for the protection
of the Noteholders, and to make the occurrence, or the
occurrence and continuance, of a default in any such
additional covenant, restriction, condition or provision an
Indentures Event of Default permitting the enforcement of all
or any of the several remedies provided in the Indentures, the
Existing Notes or in the Exchange Notes Guarantee as herein
set forth; provided, that in respect of any such additional
covenant, restriction, condition or provision such
supplemental indenture may provide for a particular period of
grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such an Indentures
Event of Default or may limit the remedies available to the
Trustees upon such an Indentures Event of Default or may limit
the right of the Noteholders of a majority in aggregate
principal amount of the Existing Notes at the time outstanding
to waive such an Indentures Event of Default;
(iv) to cure any ambiguity or to cure, correct or supplement any
provision contained in the Indentures, the Exchange Notes
Guarantee or in the Existing Notes or in any supplemental
indenture that may be defective or inconsistent with any other
provision contained in the Indentures, the Exchange Notes
Guarantee or in the Existing Notes or in any supplemental
indenture; or to make such other provisions in regard to
matters or questions arising under the Indentures, the
Exchange Notes Guarantee, the Existing Notes or under any
supplemental indenture as the Company or the Issuer may, in
its written opinion, deem necessary or desirable and which,
any of the foregoing cases, shall not adversely affect the
interests of the Holders of Existing Notes and Exchange Notes
Guarantee in any material respect; and
(v) to evidence and provide for the acceptance of appointment of a
successor Trustee or Trustees with respect to the Existing
Notes or the Exchange Notes Guarantee.
The Trustees are authorized to join with the Company or the Issuer in the
execution of any such supplemental indenture or indentures, to make any further
appropriate agreements and stipulations that may be therein contained and to
accept the conveyance, transfer, assignment, mortgage or pledge of any property
thereunder, but the Trustees shall not be obligated to enter into any such
supplemental indenture that adversely affects the Trustees' own rights, duties
or immunities under the Indentures or otherwise.
Any supplemental indenture authorized by the provisions outlined above may
be executed without the consent of the Holders of any of the Existing Notes, or
the holders of the Exchange Notes Guarantee, as the case may be, at the time
outstanding.
Supplemental Indentures With Consent. With the consent of the Holders of
not less than 51% in the aggregate principal amount of each of the Existing
Notes or the holders of the Exchange Notes Guarantee, as the case may be, the
Company, the Issuer and the Trustees may from time to time and at any time,
enter into an indenture or indentures supplemental to the Indentures for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of, respectively, the Exchange Notes Indenture, the
Company Indenture or the Existing Notes, as the case may be, or of any
supplemental indenture or of modifying in any manner the rights of the Holders
of the Existing Notes (including, without limitation, a supplemental indenture
changing the provisions of the Indentures with respect to Change of Control),
as the case may be; provided, that no such supplemental indenture will, without
the unanimous consent of the relevant Holders of all of the affected Existing
Notes or holders of the affected Exchange Notes Guarantee, as the case may be,
make certain "fundamental" changes to the terms, including: (i) modify certain
of the provisions of the Indentures or any Collateral Documents or the
provisions relating to the waiver of defaults or the making of modifications;
(ii) a change in the stated maturity of the principal (or, if the principal
thereof is payable in installments, the stated maturity of any such
installment) of or the dates on which interest is payable in respect of the
Existing Notes; (iii) a reduction in or cancellation of the principal amount of
or interest on the Existing Notes or a change in the obligation of the Issuer
to pay Liquidated Damages or Additional Amounts; (iv) a change in the currency
of payment of principal, premium, if any, and interest (including Liquidated
Damages and Additional Amounts, if any) on the Existing Notes; (v) a reduction
in the above-stated percentage of aggregate principal amount of Existing Notes
necessary to modify or amend the Indentures or the Existing Notes or reduce the
quorum requirements or the percentages of votes required for the adoption of
any action at a meeting of Noteholders; (vi) any impairment of the right to
institute any proceedings for the enforcement of any payment on or with respect
to any Exchange Note; (vii) the release of all or any substantial portion of
the Collateral; (viii) except to the extent expressly permitted by the
Indentures or any of the Collateral Documents, permit the creation of any lien
prior to the lien of the Collateral Documents with respect to any of the
property pledged under the Collateral Documents or terminate the lien of the
Collateral Documents on any property pledged thereunder or deprive any Holder
of the security afforded by the lien of the Collateral Documents; or (ix) alter
or modify the Exchange Notes Guarantee.
Effect of Supplemental Indenture. Upon the execution of any supplemental
indenture pursuant to the provisions hereof, the Indentures, the Exchange Notes
Guarantee and the Existing Notes shall be and shall be deemed to be modified
and amended in accordance therewith and the respective rights, duties and
immunities under the Indentures of the Trustees, the Company, the Issuer and
the Holders of Existing Notes shall thereafter be determined, exercised and
enforced under the Indentures subject in all respects to such modifications and
amendments.
Regarding the Trustees
Bankers Trust Company will serve as the Exchange Notes Trustee under the
Exchange Notes Indenture and will act as collateral agent with respect to the
Exchange Notes Collateral.
Bankers Trust Company will serve as the Company Indenture Trustee under
the Company Indenture and will act as collateral agent with respect to the
Exchange Notes Guarantee Collateral.
Except during the continuance of an Indentures Event of Default, the
Trustees will perform only such duties as are specifically set forth in the
Indentures. During the existence of an Indentures Event of Default, the
Trustees are required to exercise such of the rights and powers vested in them
by the Indentures, and use the same degree of care and skill in their exercise,
as a prudent person would exercise or use under the circumstances in the
conduct of such person's own affairs. Subject to such provisions, the Trustees
will be under no obligation to exercise any of their rights or powers under the
Indentures at the request of any Holder of the Existing Notes or holder of the
Exchange Notes Guarantee, unless such Holder or holder shall have offered to
the Trustees security and indemnity satisfactory to them against any loss,
liability or expense.
The Company and its Subsidiaries may from time to time borrow money from,
and maintain deposit accounts and conduct certain banking transactions with,
the Trustees in the ordinary course of their business.
Old Notes Registration Rights
The holders of Old Notes have certain rights under the Registration Rights
Agreement, dated April 22, 1997, by and among the Issuer, the Company and the
Initial Purchaser, certain provisions of which are discussed below. The
following summary does not purport to be complete or definitive and is
qualified in its entirety by reference to the Registration Rights Agreement, a
copy of which is attached as an exhibit to the Registration Statement of which
this Prospectus constitutes a part.
The Registration Rights Agreement provides that the Issuer and the Company
(i) will file an Exchange Offer Registration Statement with the Commission on
or prior to 60 days after the Closing Date, (ii) will use their best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 150 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Issuer and the Company will commence the Exchange Offer on or prior to ten
business days after the date on which the Exchange Offer Registration Statement
is declared effective by the Commission, and use their best efforts to issue
Registered Exchange Notes in exchange for all Old Notes validly tendered and
not properly withdrawn in the Exchange Offer, and (iv) if obligated to file the
Shelf Registration Statement, the Issuer and the Company will file the Shelf
Registration Statement with the Commission on or prior to 60 days after such
filing obligation arises and use their respective best efforts to cause the
Shelf Registration Statement to be declared effective by the Commission on or
prior to 150 days after such obligation arises; provided that if the Issuer and
the Company have not consummated the Exchange Offer within 180 days of the
Closing Date, then the Issuer and the Company will file the Shelf Registration
Statement with the Commission on or prior to the 181st day after the Closing
Date. The Issuer and the Company shall use their best efforts to keep such
Shelf Registration Statement continuously effective, supplemented and amended
until the third anniversary of the Closing Date or such shorter period that
will terminate when all the Old Notes covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement or are
eligible for sale pursuant to Rule 144(k) under the Securities Act. If (a) the
Issuer and the Company fail to file any of the Registration Statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements are not declared effective by
the Commission on or prior to the date specified above for such effectiveness
(the "Effectiveness Target Date"), (c) the Issuer and the Company fail to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter, subject to certain exceptions, ceases to
be effective for a period of five Business Days during periods when it is
required to be effective or (e) at any time when the Prospectus is required by
the Securities Act to be delivered in connection with sales of Old Notes, the
Issuer and the Company shall conclude, or the Holders of a majority in
principal amount of the affected Old Notes shall reasonably conclude, based on
advice of their counsel, and shall give notice to the Issuer and the Company,
that either (A) any event shall occur or fact exist as a result of which it is
necessary to amend or supplement the Prospectus in order that it will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading, or (B) it shall be necessary to
amend or supplement the Registration Statement or the Prospectus in order to
comply with the requirements of the Securities Act or the rules of the
Commission thereunder, and in the case of clause (A) or (B), the Registration
Statement is not appropriately amended by an effective post-effective
amendment, or the Prospectus is not amended or supplemented, in a manner
reasonably satisfactory to the Holders of Old Notes within five Business Days
after the Issuer and the Company shall so conclude or shall receive the above-
mentioned notice from Holders of Old Notes (each such event referred to in
clauses (a) through (e) above a "Registration Default"), then the Issuer (or
the Company pursuant to the Exchange Notes Guarantee) will pay liquidated
damages ("Liquidated Damages") to each Holder of Old Notes, with respect to the
first 90-day period immediately following the occurrence of such Registration
Default in an amount equal to $.05 per week per $1,000 principal amount of Old
Notes held by such Noteholder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Old
Notes with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages of $.50
per week per $1,000 principal amount of Old Notes. All accrued Liquidated
Damages will be paid by the Issuer and the Company to Global Note Noteholders
by wire transfer of immediately available funds or by federal funds check and
to Holders of Certificated Notes by mailing checks to their registered
addresses. Following the cure of all Registration Defaults applicable to any
particular Old Notes, the accrual of Liquidated Damages will cease. Any time
period for the taking of an action referred to in this paragraph will be tolled
for such period if the Issuer or the Company is prohibited by law from taking
the action in question during such period.
Noteholders will be required to make certain representations to the Issuer
and the Company (as described in the Exchange Offer Registration Statement) in
order to participate in the Exchange Offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement, in order to have their Old
Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
The foregoing description of the Registration Rights Agreement is a
summary only and does not purport to be complete. This summary is qualified in
its entirety by reference to all provisions of the Registration Rights
Agreement.
A Noteholder who sells Old Notes pursuant to the Shelf Registration
Statement will generally be required to be named as a selling security holder
in the related prospectuses and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a Noteholder
(including certain indemnification obligations).
Certain Definitions
Set forth below is a summary of certain defined terms used in the
Indentures. Certain additional defined terms are contained in Appendix A,
"Defined Terms." Reference is made to the Indentures for the full definition of
all such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Affiliate" means with respect to any specified Person (other than the
County Partners which shall be deemed not to be an Affiliate), any other Person
which, directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person. For the purposes of this
definition, (i) "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling", "controlled by" and "under common control with"
have meanings correlative to the foregoing or (ii) beneficial ownership of 10%
or more of the voting securities of a Person shall be deemed to be control;
provided, however, that an otherwise unaffiliated Person that holds a
beneficial ownership of 10% or more of a project level entity or entities in
which the Company or a Subsidiary holds a greater beneficial ownership interest
shall not be considered an Affiliate of the Company solely by reason of holding
such interest in such project level entity or entities.
"Approval Event of Default" means, pursuant to the Shareholder Loan
Agreements, any governmental approvals or permits (whether central, provincial,
municipal, local or otherwise) necessary for (a) the establishment of each of
the Joint Ventures, (b) the ownership, construction, maintenance, financing or
operation of each of the Joint Venture Facilities, (c) the setting or
adjustment of the electricity price for the Luannan Facility in accordance with
the method of calculation set forth in the attachments to the Pricing Document
or (d) the conversion or transfer of any foreign currency shall not be obtained
if and when required, or shall be modified, revoked or canceled, or a notice of
violations is issued under any governmental authorization on grounds of, or
illegality of, the absence of any required authorization, or any proceeding is
commenced by any governmental instrumentality for the purpose of modifying,
revoking or canceling any governmental authorization.
"Approved Completion Plan" means a plan (including budget and schedule)
prior to the Luannan Facility Commercial Operation Date to construct and
complete the Luannan Facility following a determination by the Luannan Facility
Engineer that the Luannan Facility will not achieve the Luannan Commercial
Operation Date within 28 months from the notice to proceed, using funds
available to the Issuer (from funds then remaining in the Luannan Facility
Construction Fund, the Completion Sub-Account, Luannan EPC Contract Liquidated
Damages (as defined in the Luannan EPC Contract), Luannan Event of Loss
Proceeds or Luannan Expropriation Proceeds or otherwise), which plan includes a
certificate by the Issuer (containing customary assumptions and qualifications)
together with a confirmation by the Luannan Facility Engineer (containing
customary assumptions and qualifications) that (i) funds available to the
Issuer are reasonably expected to be sufficient to fund the costs of reaching
the Luannan Commercial Operation Date and (ii) after reaching the Luannan
Commercial Operation Date, the Company's Debt Service Coverage Ratio will be,
for the immediately preceding four fiscal quarters, (1) prior to the six month
anniversary of the Luannan Commercial Operation Date, greater than 1 to 1, (2)
between the six month anniversary of the Luannan Commercial Operation Date and
the one year anniversary thereof, greater than 1.2 to 1 and (3) thereafter,
greater than 1.4 to 1.
"Approved Construction Budget and Schedule" means the construction budget
and schedule prepared by the Issuer (containing customary assumptions and
qualifications) approved as reasonable by the Luannan Facility Engineer prior
to the Closing Date, and as it thereafter may be amended by the Issuer if (i)
such amendment reflects a change order permitted under the Indentures or (ii)
such amendment reflects events of force majeure under the Luannan EPC Contract
(or Approved Completion Plan, if applicable), and the Issuer certifies (with
customary assumptions and qualifications), with the Luannan Facility Engineer's
concurrence, that such amendment is not reasonably likely to have a Material
Adverse Effect, or (iii) such amendment reflects change orders not covered in
the preceding clause (i); provided that the Luannan Facility Engineer certifies
(with customary assumptions and qualifications) that funds available to the
Issuer (from funds then remaining in the Luannan Facility Construction Fund,
the Completion Sub-Account, Luannan EPC Contract Liquidated Damages (as defined
in the Luannan EPC Contract), Luannan Event of Loss Proceeds or Luannan
Expropriation Proceeds or otherwise) are reasonably expected to be sufficient
to fund the costs of reaching the Luannan Commercial Operation Date.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease or other disposition to any Person other than the Company or a Wholly
Owned Subsidiary of the Company, in one transaction or a series of related
transactions, of any other property or asset (including, without limitation,
any contractual or other right) of the Company or any Subsidiary of the
Company, in each case, other than inventory in the ordinary course of business
(which shall include the sale of fuel, steam, energy and/or chilled and
distilled water) and other than such isolated transactions which do not exceed
$250,000 individually.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Capitalized Interest Expiration Date" means October 15, 1999.
"Capitalized Interest Fund" shall have the meaning set forth in
"Description of the Exchange Notes, the Exchange Notes Guarantee, the Issuer
Loan, the Shareholder Loans and the Collateral DocumentsThe FundsThe Issuer
FundsCapitalized Interest Funds."
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any property of which the discounted present value of the rental
obligations of such Person as lessee, in conformity with GAAP, is required to
be capitalized on the balance sheet of such Person, and "Capitalized Lease
Obligation" means the rental obligations, as aforesaid, under such lease.
"Cash Available for Company Debt Service" means, for any period, the sum
of (i) all cash distributions received by the Company (excluding any non-
recurring receipts) plus (ii) all cash distributions received by the Issuer
(excluding any non-recurring receipts) plus (iii) any and all other revenues
received by the Company and the Issuer (including all interest and fee income
but excluding any non-recurring receipts) plus (iv) all other cash payments
received by the Company and the Issuer in the ordinary course of business
including principal payments but excluding items which are non-recurring
receipts less (v) all cash operating costs of the Issuer and the Company
including trustee fees, Operating Lease Obligations and cash taxes, each of
(i), (ii), (iii), (iv) and (v) determined on a cash basis in accordance with
GAAP.
"Cash Available for Consolidated Debt Service" means, for any period, the
sum of (i) all consolidated revenue (including all interest and fee income but
excluding any insurance proceeds, other than business interruption proceeds,
and other similar non-recurring receipts) less (ii) all consolidated cash
operating expenses including trustee fees, Operating Lease Obligations of the
Company and its consolidated Subsidiaries and cash taxes (including withholding
taxes) plus (iii) all other cash proceeds received by the Company on a
consolidated basis in the normal course of business (excluding non-recurring
receipts but including principal on the Luannan Transmission Loan) plus
(iv) withdrawals of cash from any and all Subsidiary debt service reserves,
maintenance reserve funds and any and all other funds which restrict the
payment of money from a Subsidiary to its parent (excluding the PFC Debt
Service Reserve, the U.S. Distribution Fund, the International Distribution
Fund, and amounts distributable from the RMB Revenue Fund which were previously
not distributable) less (v) all additions of cash to any and all Subsidiary
debt service reserves, maintenance reserve funds and any and all other funds
which restrict the payment of money from a Subsidiary to its parent (excluding
the PFC Debt Service Reserve, the U.S. Distribution Fund, the International
Distribution Fund, and amounts which are not distributable from the RMB Revenue
Fund) less (vi) additional consolidated cash expenditures excluding payment of
Net Debt Service, each of (i), (ii), (iii), (iv), (v) and (vi) determined on a
cash basis in accordance with GAAP.
"Cash Available for Project Debt Service" means (i) the sum of all
revenues (including interest and fee income but excluding any insurance
proceeds, other than business interruption insurance proceeds, and other
similar non-recurring receipts) of such Domestic Project, Permitted Project or
Joint Venture for such period minus (ii) the aggregate amount of Operating and
Maintenance Costs of such Domestic Project, Permitted Project or Joint Venture
for such period plus (iii), in the case of the Luannan Facility, the principal
payments on the Luannan Transmission Loan for such period (each of (i), (ii)
and (iii) as determined on a cash basis in accordance with GAAP).
"Cash Equivalents" means, at any time (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System, whose rating is AA or higher
from Standard & Poor's Ratings Service or Aa2 or higher from Moody's Investors
Service, Inc., having combined capital and surplus and undivided profits of not
less than $500 million; (iii) commercial paper with a maturity of 180 days or
less issued by a corporation (except an Affiliate of the Company) organized
under the laws of any state of the United States or the District of Columbia
and having the highest rating obtainable from Standard & Poor's Ratings Service
or Moody's Investors Service, Inc.; and (iv) repurchase obligations for a term
of not more than seven days for underlying securities of the types described in
clause (i) above entered into with any bank meeting the qualifications
specified in clause (ii) above.
"Certificated Notes" shall have the meaning set forth in "Description, of
the Exchange Notes, the Exchange Notes Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral DocumentsBook-Entry, Delivery and
FormDepository Procedures."
"Change of Control" means (i) the direct or indirect, sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company, Panda International, the Issuer or any direct or indirect parent of
the Company to any Person or entity or group of Persons or entities acting in
concert as a partnership or other group (a "Group of Persons") other than a
Related Party, (ii) the replacement of a majority of the Board of Directors of
the Company, Panda International, the Issuer or any direct or indirect parent
of the Company, over a two-year period, from the directors who constituted the
Board of Directors of such Person at the beginning of such period, and such
replacement shall not have been approved by the Board of Directors of such
Person as constituted at the beginning of such period or by the Board of
Directors of Panda International as constituted at the beginning of such
period, (iii) a Person or Group of Persons (other than Panda International or
any Related Party) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company, Panda International, the Issuer or any direct or
indirect parent of the Company representing a percentage interest in the
combined voting power of the then outstanding securities of the Company, Panda
International, the Issuer or any direct or indirect parent of the Company
greater than that held by such entities' shareholders as of the Closing Date
and greater than 20% having the right to vote in the election of directors,
(iv) the Company, directly or indirectly ceases to hold (a) a 100% equity
interest in the Domestic Projects, (b) a 100% equity interest in the Issuer,
(c) a 90% equity interest in Pan-Sino or (d) the minimum required interest in a
Permitted Project, (v) Pan-Sino ceases to hold a 99% equity interest in Pan-
Western and (vi) Pan-Western ceases to hold a 85% equity interest in each of
the Joint Ventures.
"Company Indenture" means the trust indenture governing the terms of the
issuance of, from time to time, bonds, notes, indentures, guarantees and, as of
the Closing Date, the Exchange Notes Guarantee by the Company, dated as of the
Closing Date, between the Company and the Company Indenture Trustee.
"Company Indenture Trustee" means Bankers Trust Company in its capacity as
trustee under the Company Indenture, and any successor thereto under the terms
of the Company Indenture.
"Company Net Debt Service" means Net Debt Service of the Company plus Net
Debt Service of the Issuer.
"Consolidated Debt Service Coverage Ratio" means, as of the date of
determination, and, if the transaction giving rise to the need to calculate a
Consolidated Debt Service Coverage Ratio is an incurrence of Indebtedness or
the making of a Restricted Payment, calculated after giving effect on a pro
forma basis to such Indebtedness or Restricted Payment as if such Indebtedness
or Restricted Payment had been incurred or made as of the first day of such
period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period, the ratio of
(i) Cash Available for Consolidated Debt Service divided by (ii) Consolidated
Net Debt Service; provided, however, with respect to the calculation of
projected Consolidated Debt Service Coverage Ratio, the remaining unpaid
balance of principal due on the Existing Notes at the Stated Maturity of the
Existing Notes ($131,250,000) shall be assumed to be repaid in semi-annual
repayments as per the following schedule:
Semi-annual Principal
Payment Date Amount Repaid
April 15, 2004 $ 6,000,000
October 15, 2004 $ 6,000,000
April 15, 2005 $ 7,250,000
October 15, 2005 $ 7,250,000
April 15, 2006 $ 5,350,000
October 15, 2006 $ 5,350,000
April 15, 2007 $ 4,600,000
October 15, 2007 $ 4,600,000
April 15, 2008 $ 7,450,000
October 15, 2008 $ 7,450,000
April 15, 2009 $ 7,250,000
October 15, 2009 $ 7,250,000
April 15, 2010 $ 5,650,000
October 15, 2010 $ 5,650,000
April 15, 2011 $ 5,350,000
October 15, 2011 $ 5,350,000
April 15, 2012 $16,750,000
October 15, 2012 $16,700,000;
provided further that the coupon rate on the Existing Notes repaid as per the
schedule above shall be the same coupon rate as that payable on the Closing
Date on the Existing Notes with interest expense due and payable on a semi-
annual basis. In the event that the remaining unpaid balance of principal due
on the Existing Notes at the Stated Maturity is less than $131,250,000, then
the amount of each semi-annual repayment shown above shall be deemed to equal
the amount of the semi-annual repayment shown above multiplied by a fraction
the numerator of which is the actual remaining unpaid balance of principal due
on the Existing Notes at the Stated Maturity and the denominator of which is
$131,250,000.
"Consolidated Income Tax Expense" means, for any period, as applied to the
Company, the provision for local, state, federal or foreign income taxes on a
consolidated basis for such period determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the sum of (a) the
total interest expense of the Company and its consolidated Subsidiaries for
such period as determined in accordance with GAAP, including, without
limitation, (i) amortization of debt issuance costs and of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting, (ii) accrued interest, (iii) noncash interest payments, (iv)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (v) interest actually paid by the
Company or any such Subsidiary under any guarantee of Indebtedness or other
obligation of any other Person and (vi) net costs associated with interest rate
agreements (including amortization of discounts) and currency agreements, plus
(b) all capitalized interest plus (c) dividends paid in respect of preferred
stock of the Company or any Subsidiary held by Persons other than the Company
or a Wholly Owned Subsidiary.
"Consolidated Net Debt Service" means the sum of (i)(a) Consolidated
Interest Expense less (b) non-cash Consolidated Interest Expense less (c)
scheduled withdrawals from the Capitalized Interest Fund (if applicable) less
(d) scheduled withdrawals from the PFC Capitalized Interest Fund (if
applicable) plus (ii) all payments of scheduled and overdue principal of, and
premium, if any, on Indebtedness on a consolidated basis plus (iii) without
duplication, all rental payments in respect of Capitalized Lease Obligations
paid, accrued, or scheduled to be paid or accrued by the Company and its
consolidated Subsidiaries.
"Consolidated Net Income" means, for any period, as applied to the
Company, the aggregate of the Net Income of the Company and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) all extraordinary gains or losses shall be
excluded; (ii) the Net Income of any Person in which the Company or any of its
Subsidiaries has a joint interest with a third party (which interest does not
cause the net income of such other Person to be consolidated into the net
income of the Company in accordance with GAAP) shall be included only to the
extent of the amount of dividends or distributions paid, in cash, to the
Company or the Subsidiary, (iii) the net income of any Subsidiary of the
Company that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions shall be excluded to the extent
of such restriction or limitation, (iv) the net income (or loss) of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (v) any net gain or loss resulting from
an Asset Sale by the Company or any of its Subsidiaries other than in the
ordinary course of business shall be excluded and (vi) the cumulative effect of
a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that
by its terms is not entitled to the payment of dividends unless such dividends
may be declared and paid only out of net earnings in respect of the year of
such declaration and payment, but only to the extent of any cash received by
such Person upon issuance of such preferred stock, less (x) all write-ups
(other than write-ups resulting from foreign currency translations and write-
ups of tangible assets of a going concern business made within 12 months after
the acquisition of such business) subsequent to the date of the Indentures in
the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (y) all Investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Investments allowed pursuant to the covenant "Limitation on Investments"), and
(z) all unamortized debt discount and expense and unamortized deferred charges
as of such date, all of the foregoing determined in accordance with GAAP.
"County Partners Event of Default" means a failure by the County Partners
to make their required equity contributions to the Joint Ventures.
"Debt Service Coverage Ratio" as of the date of determination, and, if the
transaction giving rise to the need to calculate Debt Service Coverage Ratio is
an incurrence of Indebtedness or the making of a Restricted Payment, calculated
after giving effect on a pro forma basis to such Indebtedness or Restricted
Payment as if such Indebtedness or Restricted Payment had been incurred or made
on the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period, means:
(i) with respect to the Company, the ratio of (A) Cash Available for
Company Debt Service divided by (B) Company Net Debt Service;
(ii) with respect to PIC and the issuance of Indebtedness pursuant to
the PFC Indenture, the ratio of (A) PIC Cash Available for
Distribution during the relevant period to (B) PIC Debt Service
for such period; and
(iii) with respect to a Domestic Project, a Permitted Project or a
Joint Venture, the ratio of (A) Cash Available for Project Debt
Service to (B) Net Debt Service of such Domestic Project,
Permitted Project or Joint Venture;
provided, however, with respect to the calculation of projected Debt Service
Coverage Ratio, the remaining unpaid balance of principal due on the Existing
Notes after the Stated Maturity of the Existing Notes shall be assumed to be
repaid pursuant to the schedule and the proviso thereto as set forth in the
definition of Consolidated Debt Service Coverage Ratio.
"Debt Service Reserve Fund" shall have the meaning set forth in
"Description of the Exchange Notes, the Exchange Notes Guarantee, the Issuer
Loan, the Shareholder Loans and the Collateral DocumentsThe FundsThe Issuer
FundsDebt Service Reserve Fund."
"Debt Service Reserve Requirement" means (i) the aggregate principal,
premium, if any, of payments due on the Existing Notes on the next semi-annual
payment date and (ii) the aggregate cash interest payments (including
Liquidated Damages and Additional Amounts, if any) due on the Existing Notes on
the next semi-annual payment date.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Existing Notes.
"Dollar Permitted Investments" means any of the following securities: (i)
direct obligations of the Department of the Treasury of the United States of
America; (ii) obligations of any of the following federal agencies which
obligations represent full faith and credit of the United States of America,
including: Export-Import Bank, Farmers Home Administration, General Services
Administration, U.S. Maritime Administration, Small Business Administration,
Government National Mortgage Associate (GNMA), U.S. Department of Housing &
Urban Development (PHA's) and Federal Housing Administration; (iii) bonds,
notes or other evidences of indebtedness rated "AAA" by Standard & Poor's and
"Aaa" by Moody's issued by the Federal Home Loan Bank, the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation; (iv)
commercial paper rated in any one of the two highest rating categories by
Moody's or Standard & Poor's; (v) investment agreements with banks (foreign &
domestic), broker/dealers, and other financial institutions rated at the time
of bid in any one of the three highest rating categories by Moody's and
Standard & Poor's; (vi) repurchase agreements with banks (foreign & domestic),
broker/dealers, and other financial institutions rated at the time of bid in
any one of the three highest rating categories by Moody's and Standard &
Poor's, provided: (1) collateral is limited to (i), (ii) and (iii) above, (2)
the margin levels for collateral must be maintained at a minimum of 102%
including principal and interest, (3) the Trustees shall have a first perfected
security interest in the collateral, (4) the collateral will be delivered to a
third party custodian, designated by the Company, acting for the benefit of the
Trustees and all fees and expenses related to collateral custody will be the
responsibility of the Company, (5) the collateral must have been or will be
acquired at the market price and marked to market weekly and collateral level
shortfalls cured within 24 hours, (6) unlimited right of substitution of
collateral is allowed provided that substitution collateral must be permitted
collateral substituted at a current market price and substitution fees of the
custodian shall be paid by the Company; (vii) forward purchase agreements
delivering securities outlined in (i) and (iv) above with banks (foreign and
domestic), broker/dealers, and other financial institutions maintaining a long-
term rating on the day of bid no lower than investment grade by both Standard &
Poor's and Moody's (such rating may be at either the parent or subsidiary
level).
"Domestic Project" means either the Rosemary Facility or the Brandywine
Facility.
"Domestic Project Event" means the occurrence of any of the following: a
Rosemary Event of Eminent Domain, a Brandywine Event of Loss, a Rosemary Event
of Loss or a Rosemary Title Event.
"Domestic Project Event Proceeds" means the sum of any and all of the
following: Rosemary Eminent Domain Proceeds, Brandywine Event of Loss Proceeds,
Rosemary Casualty Proceeds and Rosemary Title Insurance Proceeds.
"Domestic Project Permitted Indebtedness" means, in addition to any
Indebtedness outstanding as of the Closing Date, (i) working capital debt and
letter of credit reimbursement obligations, provided that after giving effect
to such additional debt and obligations, (a) the minimum (or lowest) projected
Debt Service Coverage Ratio of the Domestic Project for any calendar year will
not be less than 1.5 to 1 and (b) the average projected Debt Service Coverage
Ratio of the Domestic Project for any calendar year will not be less than 1.7
to 1, (ii) purchase money or capital lease obligations incurred to finance
assets of the Domestic Project that are readily replaceable personal property
with a principal amount or capitalized portion not exceeding $1.0 million in
the aggregate outstanding at any time, (iii) trade accounts payable (other than
for borrowed money) due within 90 days arising, and accrued expenses incurred,
in the ordinary course of business of operating or maintaining the Domestic
Project.
"Domestic Projects" means the Rosemary Facility and the Brandywine
Facility.
"Excess Proceeds" means any Net Cash Proceeds from Asset Sales that are
not applied or invested to an investment, the making of a capital expenditure
or the acquisition of other tangible assets. On the earlier of (i) the 366th
day after an Asset Sale or (ii) such date as the Board of Directors of the
Company determines not to apply the Net Cash Proceeds relating to such Asset
Sale in the manner set forth above (or the Company determines not to cause its
Subsidiary to apply the Net Cash Proceeds in such a manner), if the aggregate
amount of Excess Proceeds exceeds $1.0 million, the Company or its Subsidiary,
as the case may be, shall be subject to the following requirements:
(1) in the event that the Company cannot then incur $1.00 of additional
Permitted Indebtedness pursuant to clause (v) of the definition of
"Permitted Indebtedness," the Company or its Subsidiary will be
required to make an offer to purchase (the "Asset Sale Redemption
Offer") from all Holders of Existing Notes and holders of
additional Senior Indebtedness, up to a maximum principal amount
(expressed as a multiple of $1,000) of Existing Notes and holders
of additional Senior Indebtedness equal to the Excess Proceeds at a
purchase price equal to 100% of the principal amount thereof plus
accrued and unpaid interest (including Liquidated Damages and
Additional Amounts, if any) thereon, if any, to the date of
purchase; in the event that there is additional Senior Indebtedness
outstanding at the time of the Asset Sale Redemption Offer, Excess
Proceeds shall be allocated to each issuance of Senior Indebtedness
in accordance with the following formula: Excess Proceeds times a
fraction, the numerator of which is the principal amount of the
Existing and the denominator of which is the sum of the principal
amounts of all Senior Indebtedness which is subject to this
requirement or a similar requirement under such Senior
Indebtedness's governing instrument; and
(2) in the event that the Company can incur $1.00 of additional
Permitted Indebtedness pursuant to clause (v) of the definition of
"Permitted Indebtedness," the Company or its Subsidiary will be
required to make an Asset Sale Redemption Offer from all Holders of
Existing Notes and holders of additional Senior Indebtedness, up to
a maximum principal amount (expressed as a multiple of $1,000) of
Existing Notes and holders of additional Senior Indebtedness equal
to the Excess Proceeds (Excess Proceeds for purposes of this clause
(2) is limited to that amount of the Net Cash Proceeds that equals
the principal amount of Indebtedness incurred by the Issuer or the
Company to acquire, develop, construct or finance the asset being
sold) at a purchase price equal to 100% of the principal amount
thereof plus accrued and unpaid interest (including Liquidated
Damages and Additional Amounts, if any) thereon, if any, to the
date of purchase; in the event that there is additional Senior
Indebtedness outstanding at the time of the Asset Sale Redemption
Offer, Excess Proceeds shall be allocated to each issuance of
Senior Indebtedness in accordance with the following formula:
Excess Proceeds times a fraction, the numerator of which is the
principal amount of the Existing Notes and the denominator of which
is the sum of the principal amounts of all Senior Indebtedness
which is subject to this requirement or a similar requirement under
such Senior Indebtedness's governing instrument.
Upon completion of such Asset Sale Redemption Offer(s), the amount of
Excess Proceeds shall be reset at zero. Whenever Net Cash Proceeds in excess of
$1.0 million from any Asset Sale are received by the Issuer or the Company, as
the case may be, and such Net Cash Proceeds may, through the passage of time or
otherwise, be required to be applied to the purchase of Existing Notes pursuant
to this covenant, the Issuer or the Company, as the case may be, shall deposit
such Net Cash Proceeds with, respectively, the Exchange Notes Trustee or the
Company Indenture Trustee, as trust monies subject to disposition as provided
in this covenant and such Net Cash Proceeds shall be set aside by the Exchange
Notes Trustee or the Company Indenture Trustee pending application to the
purchase of Existing Notes. At the direction of the Company, such Net Cash
Proceeds shall be required to be invested by the Existing Notes Trustee or the
Company Indenture Trustee in Dollar Permitted Investments. The Company or its
relevant Subsidiary, as applicable, shall be entitled to any interest or
dividends accrued, earned or paid on such investments.
"Exchange Notes" shall mean the 12-1/2% Registered Senior Secured Notes
due 2004 of the Issuer.
"Exchange Notes Collateral" shall have the meaning set forth in
"Prospectus SummaryThe OfferingExchange Notes Collateral."
"Exchange Notes Collateral Documents" shall have the meaning set forth in
"Description of the Exchange Notes, the Exchange Notes Guarantee, the Issuer
Loan, the Shareholder Loans and the Collateral DocumentsDescription of the
Exchange Notes CollateralThe Security Agreements."
"Exchange Notes Guarantee" means the Exchange Notes Guarantee issued by
the Company under the terms of the Company Indenture.
"Exchange Notes Guarantee Collateral" shall have the meaning set forth in
"Prospectus SummaryThe Exchange OfferExchange Notes Guarantee Collateral."
"Exchange Notes Guarantee Collateral Documents" shall have the meaning set
forth in "Description of the Exchange Notes, the Exchange Notes Guarantee, the
Issuer Loan, the Shareholder Loans and the Collateral DocumentsDescription of
the Exchange Notes Guarantee CollateralThe Pledge Agreements and the Security
Agreement."
"Exchange Notes Indenture" means the trust indenture governing the terms
of issuance of the Exchange Notes, dated as of the Closing Date, by and between
the Issuer and the Exchange Notes Trustee.
"Exchange Notes Interest Account" shall have the meaning set forth in
"Description of the Exchange Notes, the Exchange Notes Guarantee, the Issuer
Loan, the Shareholder Loans and the Collateral DocumentsThe FundsThe Issuer
FundsDebt Service Fund."
"Exchange Notes Optional Redemption" shall have the meaning set forth in
"Description of the Exchange Notes, the Exchange Notes Guarantee, the Issuer
Loan, the Shareholder Loans and the Collateral DocumentsRedemptionOptional
Redemption of Exchange Notes."
"Exchange Notes Trustee" means the trustee under the Exchange Notes
Indenture.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value shall be determined by the Board of Directors acting in good faith
and shall be evidenced by a Board Resolution delivered to the Trustees except
that any determination of Fair Market Value made with respect to any parcel of
real property shall be made by an independent appraiser.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of the
Indentures.
"Income Tax Expense" means, for any period, as applied to the Person in
question, the provision for local, state, federal or foreign income taxes for
such period determined in accordance with GAAP.
"Indebtedness" means, with respect to any Person, without duplication, (i)
any liability, contingent or otherwise, of such Person (A) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof), (B) evidenced by a note, debenture
or similar instrument or letters of credit (including a purchase money
obligation) or (C) for the payment of money relating to a capitalized lease
obligation or other obligation relating to the deferred purchase price of
property; (ii) any obligation secured by a Lien to which the property or assets
of such Person are subject, whether or not the obligations secured thereby
shall have been assumed by or shall otherwise be such Person's legal liability;
(iii) the maximum fixed repurchase price of any redeemable or putable
Disqualified Stock; (iv) contractual obligations to repurchase goods sold or
distributed; (v) obligations of a Person in respect of interest rate or
currency exchange agreements to the extent they appear on the balance sheet;
(vi) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (i) - (v); and (vii) any liability of
others of the kind described in clauses (i) - (vi) which the Person has
guaranteed or which is otherwise directly or indirectly its legal liability
"Indentures" means the Company Indenture and the Exchange Notes Indenture.
"Indentures Events of Default" shall have the meaning set forth in
"Description of the Exchange Notes, the Exchange Notes Guarantee, the Issuer
Loan, the Shareholder Loans and the Collateral DocumentsCertain
CovenantsIndentures Events of Default."
"Independent Financial Advisor" means an independent and internationally
recognized investment bank, accounting firm or engineering firm, as the case
may be, whose business regularly includes the rendering of valuation opinions
with respect to the assets at issue, chosen by the Company and reasonably
acceptable to the Company Indenture Trustee.
"Interest Expense" means, for any period, the sum of (a) the total
interest expense of the Person in question for such period as determined in
accordance with GAAP, including, without limitation, (i) amortization of debt
issuance costs or of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting, (ii) accrued interest,
(iii) noncash interest payments, (iv) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (v) interest actually paid by the Person in question under any
guarantee of Indebtedness or other obligation of any other Person and (vi) net
costs associated with interest rate agreements (including amortization of
discounts) and currency agreements, plus (b) capitalized interest plus
(c) dividends paid in respect of preferred stock of the Person in question,
held by Persons other than the Person in question.
"International Distribution Fund" means the fund described in Article IV
of the PFC Indenture and maintained in the name of PIC pursuant to such
Article, which such fund is entitled to distributions of monies from a Non-U.S.
Permitted Project to the extent that all obligations have been met by PFC, PIC
and the PIC International Entity (and any other PIC international entities)
under the PFC Indenture.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the books of such person) or
capital contributions (excluding commission, travel, relocation and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Capital
Stock or other securities and all other items that are or would be classified
as investments on a balance sheet prepared in accordance with GAAP.
"Issue Date" shall mean April 22, 1997.
"Issuer Loan" means the outstanding indebtedness of Pan-Western to the
Issuer incurred by Pan-Western to enable it to make the Shareholder Loans and
to make the JV Equity Contributions and funded by the Issuer with the proceeds
of the Old Notes.
"Issuer Loan Agreement" means the Issuer Loan Agreement by and between the
Issuer and Pan-Western.
"Issuer Note" means one or more promissory notes issued by Pan-Western to
the Issuer evidencing its indebtedness to the Issuer.
"Joint Venture Facility" means the portion of the Luannan Facility to be
constructed or acquired by each Joint Venture (collectively, the "Joint Venture
Facilities").
"Joint Venture Guarantees" means collectively, the undertakings by
Tangshan Panda, each executed as of the 24th day of September, 1996, to
unconditionally and irrevocably guarantee to Pan-Western prompt payment and
performance by each of Tangshan Pan-Western, Tangshan Cayman and Tangshan Pan-
Sino of their individual obligations to Pan-Western pursuant to any debt
obligation then or thereafter due and owing by any such party to Pan-Western;
the undertakings by Tangshan Pan-Western, each executed as of the 24th day of
September, 1996, to unconditionally and irrevocably guarantee to Pan-Western
the prompt payment and performance by each of Tangshan Panda, Tangshan Cayman
and Tangshan Pan-Sino of their individual obligations to Pan-Western pursuant
to any debt obligation then or thereafter due and owing by any such party to
Pan-Western; the undertakings by Tangshan Cayman, each executed as of the 24th
day of September, 1996, to unconditionally and irrevocably guarantee to Pan-
Western the prompt payment and performance by each of Tangshan Panda, Tangshan
Pan-Western and Tangshan Pan-Sino of their individual obligations to Pan-
Western pursuant to any debt obligation then or thereafter due and owing by any
such party to Pan-Western; and the undertakings by Tangshan Pan-Sino, each
executed as of the 24th day of September, 1996, to unconditionally and
irrevocably guarantee to Pan-Western the prompt payment and performance by each
of Tangshan Panda, Tangshan Pan-Western and Tangshan Cayman of their individual
obligations to Pan-Western pursuant to any debt obligation then or thereafter
due and owing by any such party to Pan-Western.
"Joint Venture Permitted Indebtedness" means (i) the Shareholder Loans and
any additional loans from Pan-Western to the Joint Ventures, (ii) working
capital debt, provided that after giving effect to such additional debt, (a)
the minimum (or lowest) projected Debt Service Coverage Ratio for any calendar
year will not be less than 1.5 to 1 and (b) the average projected Debt Service
Coverage Ratio for any calendar year will not be less than 1.7 to 1 (provided
that working capital debt shall at no time exceed $1.0 million), (iii) purchase
money or capital lease obligations incurred to finance assets of the Joint
Ventures that are readily replaceable personal property with a principal amount
or capitalized portion not exceeding $1.0 million in the aggregate outstanding
at any time, (iv) trade accounts payable (other than for borrowed money) due
within 90 days arising, and accrued expenses incurred, in the ordinary course
of business of constructing, operating or maintaining the Joint Venture
Facility on customary terms, (v) interest or currency exchange rate protection
agreements, (vi) debt under the Joint Venture Guarantees of each Joint Venture
and any other guarantees of the obligations of the Joint Venture and (vii) any
debt to any other Joint Venture.
"JV Dollar Permitted Investments" means investments which are denominated
and payable in U.S. Dollars (a) with respect to funds in the China Accounts,
deposits denominated in U.S. Dollars maintained at, or certificates of deposit
insured, or obligations insured or guaranteed by, the Bank of China, The China
Construction Bank, the Communication Bank, the China Farmers Bank or China
International Trust and Investment Corporation, or any branch of a commercial
bank organized under the laws of the United States or any political subdivision
thereof having a combined capital and surplus of at least $500 million and
having long-term unsecured debt securities having a rating assigned by each of
the Rating Agencies equal to the highest rating assigned thereby to long-term
unsecured debt securities; and (b) with respect to any funds which the Joint
Venture may from time to time be allowed to invest outside of the PRC in
accordance with PRC laws and regulations, in Dollar Permitted Investments.
"JV Equity Contributions" shall mean the monies disbursed from the Luannan
Facility Construction Fund pursuant to the terms of the Issuer Loan and
contributed by Pan-Western, pursuant to the terms of the Joint Venture
Agreements, to each of the Joint Ventures as Pan-Western's equity contribution
to such Joint Venture.
"JV RMB Permitted Investments" means deposit accounts denominated and
payable in Renminbi to be maintained at, certificates of deposit issued, or
obligations issued or guaranteed by, one of the following policy or commercial
banks in the PRC: (i) the Bank of China, (ii) the China Construction Bank,
(iii) the Communication Bank, (iv) the China Farmers Bank, (v) the China
International Trust and Investment Corporation, (vi) any foreign bank or branch
of any foreign bank authorized and licensed to conduct business in the PRC,
including without limitation, the establishment and maintenance of Renminbi and
foreign currency accounts and exchange functions having a combined capital and
surplus of at least $500 million and having at least an investment grade rating
assigned to its long-term unsecured debt securities by each of Standard &
Poor's and Moody's.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, claim, hypothecation, assignment for security, deposit
arrangement or preference or other security agreement of any kind or nature
whatsoever. For purposes of the Indentures, a Person shall be deemed to own
subject to a lien any property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Person.
"Luannan Casualty Proceeds" means all Insurance Proceeds or other amounts
received by Pan-Western on account of any Luannan Event of Loss ("Insurance
Proceeds" means all amounts and proceeds (including instruments) in respect of
the proceeds of any casualty insurance policy covering any portion of the
Luannan Facility (except proceeds of business interruption insurance)).
"Luannan Commercial Operation Date" means that date by which both of the
following have occurred: (i) the Luannan Facility Engineer has certified that
the Luannan Facility has achieved commercial operations and (ii) the Commercial
Operation Date, as such term is used in the Interconnection Agreement, has
occurred.
"Luannan Event of Loss" means an event which causes all or a portion of
the Luannan Facility to be damaged, destroyed or rendered unfit for normal use
for any reason whatsoever, other than a Luannan Expropriation Event.
"Luannan Expropriation Event" means any compulsory transfer or taking or
transfer under threat of compulsory transfer or taking of any material part of
the Luannan Facility or any ownership interest or other rights in the Joint
Venture Companies by any governmental authority.
"Luannan Expropriation Proceeds" means any proceeds received by Pan-
Western as a result of the occurrence of a Luannan Expropriation Event.
"Luannan Facility Construction Cost" means the actual cost to complete the
construction of the Luannan Facility as certified by the Luannan Facility
Engineer following the Luannan Commercial Operation Date (and which total
includes amounts on deposit in the Completion Sub-Account).
"Luannan Facility Engineer" means Parsons Brinckerhoff, which previously
served as the Joint Ventures' project engineer, and any successor thereto under
the terms of the Indentures.
"Luannan Facility Notes" means shall mean the promissory notes issued by
the Joint Venture Companies to Pan-Western evidencing their indebtedness to Pan-
Western.
"Luannan Financing Agreements" means, collectively, the Shareholder Loan
Agreements, the Joint Venture Guarantees, the Issuer Loan Agreement, the Issuer
Note and the Luannan Facility Notes.
"Luannan Project Documents" means, collectively, the Luannan Power
Purchase Agreement, the Luannan EPC Contract, the Luannan Transmission
Facilities Construction Agreement, the Luannan Operations and Maintenance
Agreement, the Luannan Coal Supply Agreements, the Luannan Coal Transportation
Agreement, the Engineering and Design Contract and all other instruments,
agreements or other documents arising from or related to the Luannan Facility,
but shall not include any Luannan Financing Agreement.
"Major Maintenance Reserve Account" means the Major Maintenance Reserve
Account established by each Joint Venture on the Closing Date pursuant to the
Shareholder Loan Agreements.
"Major Maintenance Reserve Requirement" means the amount required to be
transferred to the Major Maintenance Reserve Account from the RMB Revenue
Account pursuant to the Shareholder Loan Agreements.
"Mandatory Redemption" shall have the meaning set forth in "Description of
the Exchange Notes, the Exchange Notes Guarantee, the Issuer Loan, the
Shareholder Loans and the Collateral Documents Redemption Mandatory
Redemption."
"Material Adverse Effect" means a material adverse change in the financial
condition with respect to the party or entity in question or any event or
occurrence which could reasonably be expected to materially and adversely
affect: (a) the operation of a Domestic Project; (b) the development,
construction or operation of a Material Permitted Project; (c) the development,
construction or operation of the Luannan Facility; (d) the ability of,
respectively, a Domestic Project, a Material Permitted Project or the Luannan
Facility to perform any of their material obligations under a Project Document;
(e) the ability of the Issuer to make payments of principal, premium, if any,
or interest (including Liquidated Damages and Additional Amounts, if any) on
the Existing Notes when due or (f) the ability of the Company to make payments
pursuant to the provisions of the Exchange Notes Guarantee.
"Material Subsidiary" means any Subsidiary which, at any date of
determination, is a "Significant Subsidiary" (as that term is defined in
Regulation S-X, as in effect on the Closing Date, issued under the Securities
Act).
"Net Cash Proceeds" means (a) in the case of any sale of Capital Stock by
the Company, Panda International or any direct or indirect parent of the
Company, the aggregate net cash proceeds received by the Company, Panda
International or any direct or indirect parent of the Company, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the Fair Market Value
thereof, as determined in good faith by the Board of Directors of such Person,
at the time of receipt); (b) in the case of any exchange, exercise, conversion
or surrender of outstanding securities of any kind for or into shares of
Capital Stock of the Company, Panda International or any direct or indirect
parent of the Company which is not Disqualified Stock, the net book value of
such outstanding securities on the date of such exchange, exercise, conversion
or surrender (plus any additional amount required to be paid by the holder to
the Company, Panda International or any direct or indirect parent of the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less
all expenses incurred by the Company, Panda International or any direct or
indirect parent of the Company in connection therewith).
"Net Debt Service" means the sum of (i) (a) Interest Expense less (b) non-
cash Interest Expense less (c) scheduled withdrawals from the Capitalized
Interest Fund (if applicable) less (d) scheduled withdrawals from the PFC
Capitalized Interest Fund (if applicable) plus (ii) all payments of scheduled
and overdue principal of, and premium, if any, on Indebtedness plus
(iii) without duplication, all rental payments in respect of Capitalized Lease
Obligations paid, accrued, or scheduled to be paid or accrued.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Non-PRC Holders" means beneficial owners of the Existing Notes who, or
which, are not residents of the PRC for PRC tax purposes and do not conduct
business activities in the PRC.
"Non-Recourse Debt" means Indebtedness of any Subsidiary or group of
Subsidiaries that is incurred to acquire, construct or develop a Permitted
Project or group of Permitted Projects provided that such Indebtedness is
without recourse to the Company or any Material Subsidiary or to any assets of
the Company or any such Material Subsidiary other than such Permitted Project
and the direct or indirect parent or parents that own such Permitted Project or
group of Permitted Projects and the income from and proceeds of such Permitted
Project or group of Permitted Projects.
"Non-U.S. Permitted Project" means a Permitted Project located outside the
United States.
"Operating and Maintenance Costs" means all amounts disbursed by or on
behalf of the Domestic Project, Permitted Project or Joint Ventures for
operation, maintenance, repair, or improvement of the Domestic Project,
Permitted Project or Joint Ventures, including, without limitation, premiums on
insurance policies, property, income and all other taxes to the extent paid,
and payments under the relevant operating and maintenance agreements, leases
(including Operating Lease Obligations), royalty and other land use agreements,
and any other payments required under the Project Documents, each as determined
on a cash basis in accordance with GAAP.
"Operating Lease Obligations" means any obligation of the Person in
question incurred or assumed under or in connection with any lease of real or
personal property which, in accordance with GAAP, is not required to be
classified and accounted for as a capital lease.
"Permitted Liens" means, with respect to any Person, any Lien arising by
reason of (a) any judgment, decree or order of any court, so long as such Lien
is being contested in good faith and is adequately bonded, any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired; (b)
taxes not yet delinquent or which are being contested in good faith; (c)
security for payment of workers' compensation or other insurance; (d) security
for the performance of tenders, contracts (other than contracts for the payment
of money) or leases; (e) deposits to secure public or statutory obligations, or
to secure permitted contracts for the purchase or sale of any currency entered
into in the ordinary course of business; (f) Liens imposed by operation of law
in favor of carriers, warehousemen, landlords, mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of business
for sums which are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection
thereof; (g) security for surety or appeal bonds; and (h) easements, rights-of-
way, zoning and similar covenants and restrictions and other similar
encumbrances or title defects which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of the Company or any of its Subsidiaries.
"Permitted Project" means (i) any Project or group of Projects that
fulfills the requirements of the PIC Additional Projects Contract and which may
be developed, constructed or owned pursuant to the requirements of the PFC
Indenture and subject to compliance with the terms of the Company Indentures
and (ii) to the extent that a project does not fulfill the requirements of the
PIC Additional Projects Contract, any project or group of projects that may be
developed, owned and operated by the Company or one of its Subsidiaries
pursuant to the requirements of the Indentures and the Company shall (a)
maintain at least a 50% (direct or indirect) ownership or equivalent interest
in each project or (b)(x) at least a 25% (direct or indirect) ownership or
equivalent interest in each project not meeting the requirements of clause (i)
above and (y) a controlling influence over the management and policies with
respect to each project, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, provided that no other entity
has greater control than the Company over the management and policies of such
project (notwithstanding the foregoing, this covenant shall not prohibit the
sale, lease, transfer or other disposition of all interests in a Project, or a
reduction in the ownership or equivalent interest of, or control over, a
Project occurring pursuant to the terms of a build-operate-transfer arrangement
at least ten years after the entering into of such arrangement).
"Permitted Project Document" means any and all documents executed in
connection with the development, construction, ownership and operation of a
Permitted Project.
"Permitted Project Event" means, with respect to any Permitted Project,
(i) an event which causes all or a portion of the facilities of a Permitted
Project to be damaged, destroyed or rendered unfit for normal use for any
reason whatsoever, (ii) any event involving the compulsory transfer or taking
or transfer under threat of compulsory taking of any material part of such
Permitted Project's assets or (iii) the existence of any defect of title or
lien or encumbrance on the any material part of the property of a Permitted
Project (provided that liens or covenants permitted by the covenant Limitation
on Liens shall be excluded from consideration) that entitles a Person to make a
claim under any title insurance policy in existence with respect to such
property.
"Permitted Project Event Proceeds" means the sum of any and all proceeds
payable upon occurrence of a Permitted Project Event.
"Permitted Project Power Purchase Agreement" means the power purchase
agreement of any Permitted Project.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date at least as late as the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Existing Notes such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is subordinated
in right of payment to, the Existing Notes on terms at least as favorable to
the Holders of Existing Notes as those contained in the documentation governing
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iv) if the Indebtedness being refinanced is Non-Recourse Debt, such
Permitted Refinancing Indebtedness shall also be Non-Recourse Debt; and (v)
such Indebtedness is incurred either by the Company or by the Subsidiary who is
the obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, or other business entity or government or agency or
political subdivision thereof (including any subdivision or ongoing business of
any such entity or substantially all of the assets of any such entity,
subdivision or business).
"PFC Capitalized Interest Fund" means the capitalized interest fund
maintained pursuant to the PFC Indenture.
"PIC Cash Available for Distribution" means Total Cash Flow from all
Domestic Projects and Permitted Projects (owned, constructed or developed
pursuant to the PFC Indenture) on a consolidated basis less (i) regularly
scheduled payments of principal and interest on Domestic Project and Permitted
Projects (owned, constructed or developed pursuant to the PFC Indenture)
project level Indebtedness, (ii) additions to reserves required by the
instruments providing for project level Indebtedness, (iii) trustee's fees
under the PFC Indenture and (iv) the NNW Cash Flow Participation (as defined in
the PFC Indenture) plus interest earned on reserves required by the PFC
Indenture entered into by PIC, excluding, however, extraordinary financial
distributions and proceeds received as a result of mandatory redemption events
(pursuant to the PFC Indenture), that at the time of determination is available
to be legally distributed from the Domestic Projects and Permitted Projects
(owned, constructed or developed pursuant to the PFC Indenture) to PIC without
contravention of any agreement.
"PIC Cash Available from Operations" means, for any period, Total Cash
Flow from all Project Entities on a consolidated basis prior to all
Consolidated Debt Service, less (i) additions to reserves required by project
agreements, (ii) trustee's fees under the PFC Indenture plus interest earned on
reserves required by the documents relating to the Pooled Project Bonds entered
into by PIC, and (iii) the NNW Cash Flow Participation, excluding, however,
"Extraordinary Financial Distributions" (as defined in the PFC Indenture) and
proceeds received as a result of "Mandatory Redemption Events" (as defined in
the PFC Indenture).
"PIC Consolidated Debt Service" means for purposes of the PFC Indenture,
for any period, PIC Debt Service plus scheduled principal and interest payments
on all Project Debt.
"PIC Consolidated Debt Service Coverage Ratio" means, as of any date of
determination, the ratio of (i) PIC Cash Available from Operations during the
relevant period to (ii) Consolidated Debt Service for such period; provided,
however, that at any time that PIC holds interests in more than four Projects,
then the PIC Consolidated Debt Service Coverage Ratio shall not be applied in
respect of any event or requirement.
"PIC Debt Service" means, for any period, scheduled principal, premium, if
any, and interest (including liquidated damages and additional amounts, if any)
payments on any and all Indebtedness issued pursuant to the PFC Indenture.
"PIC Debt Service Coverage Ratio" means for purposes of the PFC Indenture,
as of any date of determination, the ratio of (i) PIC Cash Available for
Distribution during the relevant period to (ii) PIC Debt Service for such
period.
"PIC Future Ratio Determination Period" means, as of the date of
determination, each of the following: (i) the period beginning with the date of
determination through December 31 of that calendar year; (ii) each period
consisting of a calendar year thereafter through the calendar year immediately
prior to the calendar year in which the Final Stated Maturity occurs and (iii)
the period beginning with January 1 and ending with the Final Stated Maturity.
For purposes of this definition, "Final Stated Maturity" means the last stated
maturity date of any Indebtedness outstanding under the PFC Indenture.
"Power Purchase Agreements" means the Luannan Power Purchase Agreement,
the Brandywine Power Purchase Agreement, the Rosemary Power Purchase Agreement
and any Permitted Project Power Purchase Agreement.
"Project Document" means, collectively, the Luannan Project Documents, the
Luannan Financing Agreements, the Brandywine Project Documents, the Rosemary
Project Documents, the Administrative Services Agreement, the Development
Services Agreement, and any and all Permitted Project Documents.
"Projected Luannan Facility Construction Cost" means $118.8 million.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Stock) of the Company, Panda International or
any direct or indirect parent of the Company made on a primary basis by the
Company, Panda International or any direct or indirect parent of the Company
pursuant to a registration statement filed with and declared effective by the
Commission in accordance with the Securities Act or an underwritten offering of
Capital Stock (other than Disqualified Stock) of the Company, Panda
International or any direct or indirect parent of the Company made on a primary
basis by the Company, Panda International or any direct or indirect parent of
the Company pursuant to Rule 144A under the Securities Act.
"Related Party" means any Affiliate of the Company of which the Company,
Panda International or any direct or indirect parent of the Company holds 51%
or a more of the voting securities of such Person.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock), and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Subsidiary of the Company), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries or (iii) the making of
any principal payment on, or the purchase, defeasance, repurchase, redemption
or other acquisition or retirement for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of any Indebtedness
which is subordinated in right of payment to the Existing Notes (other than
Indebtedness acquired in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of acquisition).
"Senior Indebtedness" means, under the Indentures and with respect to
either the Company or the Issuer, the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any state, federal or foreign bankruptcy law whether or
not allowable as a claim in such proceeding and including Liquidated Damages
and Additional Amounts, if any) and all other monetary obligations on any
Indebtedness (other than as otherwise provided in this definition), whether
outstanding on the Closing Date or thereafter created, incurred or assumed, and
whether at any time owing, actually or contingently, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall be subordinated or junior in right of payment to other
Indebtedness of such entity. Without limiting the generality of the foregoing,
with respect to the Issuer, "Senior Indebtedness" shall include the principal
of, premium, if any, and interest (including interest accruing after the filing
of a petition initiating any proceedings under any state, federal or foreign
bankruptcy laws whether or not allowable as a claim in such proceeding and
including Liquidated Damages and Additional Amounts, if any), and all other
monetary obligations of every kind and nature of the Issuer from time to time
owed to the Existing Noteholders under the Exchange Notes Indenture.
Notwithstanding the foregoing with respect to the Issuer, "Senior Indebtedness"
shall not include (i) Indebtedness that is by its terms subordinate or junior
in right of payment to any Indebtedness of the Issuer, (ii) Indebtedness which,
when incurred, is without recourse to the Issuer, (iii) any liability for
foreign, federal, state, local or other tax owed or owing by the Issuer to the
extent such liability constitutes Indebtedness, (iv) Indebtedness of the Issuer
to a Wholly Owned Subsidiary and (vi) that portion of any Indebtedness which at
the time of issuance is issued in violation of the Indentures.
"Shareholder Loan Agreement Permitted Liens" means (a) liens for any tax,
assessment or other governmental charge not yet due, due but payable without
penalty or being contested in good faith and by appropriate proceedings, (b)
retentions of title in favor of materialmen, workers or repairmen, or other
like liens arising in the ordinary course of business or in connection with the
construction of the Luannan Facility, (c) liens arising out of judgments or
awards so long as an appeal or proceeding for review is being prosecuted in
good faith, (d) mineral rights the use and enjoyment of which do not materially
interfere with the use and enjoyment of the Joint Venture Facility, (e) liens,
deposits or pledges to secure statutory obligations or performance of bids,
tenders, contracts (other than for the repayment of borrowed money) or leases,
or for purposes of like general nature in the ordinary course of the Joint
Venture's business and affecting property with a value not exceeding the
equivalent of $250,000 at any one time, (f) involuntary liens (including a lien
of an attachment, judgment or execution) securing a charge or obligation, on
any of the Joint Venture's property, real or personal, whether now or hereafter
owned with a value not exceeding the equivalent of $250,000 at any one time,
(g) rights of any party pursuant to any Luannan Project Document, (h) liens
securing workers' compensation, unemployment insurance or other social security
or pension obligations, (i) liens securing Indebtedness permitted pursuant to
the Shareholder Loan Agreement, (j) liens securing the purchase price of
property having an aggregate value not exceeding the equivalent of $1.0 million
at any one time and (k) liens securing other obligations not constituting debt
none of which could reasonably be expected to have a Material Adverse Effect.
"Shareholder Loan Agreements" means, collectively, the Shareholder Loan
Agreement by and among each Joint Venture and Pan-Western.
"Shareholder Loans" means the outstanding indebtedness of the Joint
Ventures to Pan-Western incurred to finance the development and construction of
the Luannan Facility and funded by Pan-Western with the proceeds of the Issuer
Loan.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency).
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof), (ii) any partnership (a) the sole general partner or the
managing general partner of which is such Person or a Subsidiary of such Person
or (b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof) and (iii) any Person
that either is a Permitted Project or owns an interest in a Permitted Project
(to the extent described in the second clauses (i) or (ii) of the definition of
Permitted Project).
"Total Cash Flow" means, as to any Person, the sum of the net income of
such Person for any period plus, to the extent deducted from net income, all
non-cash items, including, but not limited to, depreciation, depletion and
impairment, amortization of intangibles and deferred taxes, in each case for
such period and determined as to such Person minus to the extent included in
net income, all non-cash income, calculated in accordance with GAAP.
"Trustees" shall mean the trustees under the Company Indenture and the
Exchange Notes Indenture.
"U.S. Distribution Fund" means the fund described in Article IV of the PFC
Indenture and maintained in the name of PIC pursuant to such Article, which
such fund is entitled to distributions of monies from the Domestic Projects and
any Permitted Project located in the United States to the extent that all
obligations have been met by PFC and PIC under the PFC Indenture.
"U.S. Permitted Project" means a Permitted Project located within the
United States.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned" by any Person means a Subsidiary of such Person all of the
outstanding Capital Stock or other ownership interests of which (other than
directors' qualifying shares) shall at the time be owned by such Person or by
one or more Wholly Owned Subsidiaries of such Person.
Book-Entry, Delivery and Form
The Exchange Notes initially will be represented by a single, permanent
global certificate in definitive, fully registered form (the "Global Note").
The Global Note will be deposited with, or on behalf of, DTC and registered in
the name of a nominee of DTC. After the initial issuance of the Global Note,
Exchange Notes in certificated form will be issued in exchange for the Global
Note only as set forth in the Exchange Note Indenture.
Except as set forth below, the Global Note may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for
Existing Notes in certificated form except in the limited circumstances
described below. See "--Exchange of Book-Entry Exchange Notes for Certificated
Exchange Notes." In addition, transfer of beneficial interests in the Global
Note will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those of the
Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL")), which may
change from time to time. The Existing Notes may be presented for registration
of transfer and exchange at the offices of the Registrar.
Depository Procedures
DTC has advised the Issuer that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Issuer that pursuant to procedures established by
it, (i) upon deposit of the Global Note, DTC will credit the accounts of
designated Participants with portions of the principal amount of the Global
Note and (ii) ownership of such interests in the Global Note will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the Global Note).
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in the Global Note to such persons may
be limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having beneficial interests in the Global Note to pledge
such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests. For certain
other restrictions on the transferability of the Exchange Notes, see "--
Exchange of Book-Entry Exchange Notes for Certificated Exchange Notes."
Except as described below, owners of interests in the Global Note will not
have Exchange Notes registered in their names, will not receive physical
delivery of Exchange Notes in certificated form (the "Certificated Notes") and
will not be considered the registered owners or Holders thereof under the
Indentures for any purpose.
Exchange Notes originally purchased by or transferred to any purchasers
who elect to take physical delivery of their certificates instead of holding
their interest through the Global Note (collectively referred to herein as the
"Non-Global Purchasers") will be issued in the form of Certificated Notes. Upon
the transfer of any Certificated Note, such Certificated Note will, unless the
transferee requests Certificated Notes or the Global Note has previously been
exchanged in whole for Certificated Notes, be exchanged for an interest in the
Global Note. Upon the transfer of an interest in the Global Note, such interest
will, unless the transferee requests Certificated Notes, be represented by an
interest in the Global Note.
Payments in respect of the principal, premium, if any, and interest
(including Liquidated Damages and Additional Amounts, if any) on the Global
Note registered in the name of DTC or its nominee will be payable by the
Trustees to DTC or its nominee in its capacity as the registered Holder under
the Indentures. Under the terms of the Indentures, the Issuer and the Trustees
will treat the persons in whose names the Exchange Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Issuer, the Trustees nor any agent of the Issuer or the Trustees has or
will have any responsibility or liability for (i) any aspect of DTC's records
or any Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Note, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in the Global Note, or (ii) any other matter relating to the actions
and practices of DTC or any of its Participants or Indirect Participants.
DTC has advised the Issuer that its current practice, upon receipt of any
payment in respect of securities such as the Exchange Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the relevant
security such as the Global Note as shown on the records of DTC. Payments by
the Participants and the Indirect Participants to the beneficial owners of
Exchange Notes will be governed by standing instructions and customary
practices and will not be the responsibility of DTC, the Trustees or the
Issuer. Neither the Issuer nor the Trustees will be liable for any delay by DTC
or any of its Participants in identifying the beneficial owners of the Exchange
Notes, and the Issuer and the Trustees may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Exchange Notes for all purposes.
Except for trades involving only Euroclear and CEDEL participants, it is
expected that interests in the Global Note will trade in DTC's Same--Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same--day funds. Transfers between
participants in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Exchange Notes described herein, cross--market transfers between the
Participants in DTC, on the one hand, and Euroclear or CEDEL participants, on
the other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depositary;
however, such cross--market transactions will require delivery of instructions
to Euroclear or CEDEL, as the case may be, by the counterparty in such system
in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may
be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Note in DTC, and making or receiving payment in accordance with normal
procedures for same--day fund settlement applicable to DTC. Euroclear
participants and CEDEL participants may not deliver instructions directly to
the depositaries for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in the Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL)
immediately following the settlement date of DTC. Cash received in Euroclear
or CEDEL as a result of sales of interests in the Global Note by or through a
Euroclear or CEDEL participant to a Participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or CEDEL cash account only as of the business day for Euroclear or
CEDEL following DTC's settlement date.
DTC has advised the Issuer that it will take any action permitted to be
taken by a Holder of Exchange Notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Note are
credited and only in respect of such portion of the aggregate principal amount
of the Exchange Notes as to which such Participant or Participants has or have
given such direction. However, if there is an Indentures Event of Default, with
respect to the Exchange Notes, DTC reserves the right to exchange the Global
Note for Exchange Notes in certificated form, and to distribute such Exchange
Notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the Global Note among participants in DTC, Euroclear
and CEDEL, they are under no obligation to perform or to continue to perform
such procedures, and such procedures may be discontinued at any time. None of
the Issuer, the Company, the Initial Purchaser or the Trustees will have any
responsibility for the performance by DTC, Euroclear and CEDEL or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Exchange of Book-Entry Exchange Notes for Certificated Exchange Notes
The Global Note is exchangeable for definitive Exchange Notes in
registered certificated form if (i) DTC (x) notifies the Issuer that it is
unwilling or unable to continue as depositary for the Global Note and the
Issuer thereupon fails to appoint a successor depositary or (y) has ceased to
be a clearing agency registered under the Exchange Act, (ii) the Issuer, at its
option, notifies the Trustees in writing that it elects to cause the issuance
of the Exchange Notes in certificated form or (iii) there shall have occurred
and be continuing an Indentures Event of Default with respect to the Exchange.
In addition, beneficial interests in the Global Note may be exchanged for
Certificated Notes upon request but only upon at least 20 days prior written
notice given to the Trustees by or on behalf of DTC in accordance with its
customary procedures. In all cases, Certificated Notes delivered in exchange
for the Global Note or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the depositary (in accordance with its customary procedures).
The Shareholder Loan Agreements
Each Joint Venture entered into a Shareholder Loan Agreement with Pan-
Western on September 24, 1996 and as amended on April 8, 1997 and April 11,
1997, pursuant to which the Shareholder Loans will be made. The Issuer may
cause Pan-Western and the Joint Ventures to further amend the Shareholder Loan
Agreements after the Closing Date in order to adjust the amortization of the
Shareholder Loans to reflect the terms of the Exchange Notes. The Shareholder
Loan Agreements provide, among other things, the rights and obligations of Pan-
Western and the Joint Ventures, as lender and borrowers, respectively,
including, without limitation, principal and interest payments, conditions
precedent, covenants, representations and warranties, events of default, breach
of contract and remedies. The summary description below is equally applicable
to each Shareholder Loan Agreement.
Payment of Principal and Interest
The Joint Venture will pay accrued interest until the first interest
payment date following the Commercial Operation Date semiannually at a rate of
13.75% per annum and thereafter monthly at a rate of 12.75% per annum.
Prepayments
Voluntary Prepayments. The Shareholder Loans will not be prepayable by the
Joint Venture without the consent of Pan-Western.
Mandatory Prepayments. If a Luannan Expropriation Event or a Luannan Event
of Loss shall occur, as soon as reasonably practicable, but no later than
fifteen (15) days after the date of receipt by the Joint Venture of any
proceeds in respect thereof, such Joint Venture shall make a reasonable good
faith determination as to whether (i) the Joint Venture Facility can be
rebuilt, repaired or restored to permit operation of the entire Luannan
Facility on a commercially feasible basis, and (ii) the proceeds thereof,
together with any other amounts that are available to commit to such
rebuilding, repair or restoration, are sufficient to pay for such rebuilding,
repair or restoration of the Joint Venture Facility. The determination of such
Joint Venture shall be evidenced by a certificate filed with Pan-Western which,
in the event such Joint Venture determines that the Joint Venture Facility can
be rebuilt, repaired or restored to permit operation of the entire Luannan
Facility or a portion thereof on a commercially feasible basis, shall also
certify that such proceeds, together with any other amounts that such Joint
Venture has available to commit to such rebuilding, repair or restoration, are
sufficient to pay the costs thereof, and shall also set forth a reasonable good
faith estimate by such Joint Venture of such costs. If the amount of such costs
exceeds $500,000, such certificate shall be accompanied by a Luannan Facility
Engineer's certificate, dated within five (5) days of the date of the Joint
Venture's certificate, stating that, based upon reasonable investigation and a
review of the determination made by the Joint Venture, the Luannan Facility
Engineer believes that the determination and the estimate of the total cost, if
any, set forth in the Joint Venture's certificate to be reasonable.
In the event that the Joint Venture determines not to rebuild, repair or
restore the Joint Venture Facility, all of the proceeds of such Luannan
Expropriation Event or Luannan Event of Loss shall be applied promptly to the
prepayment of the Shareholder Loan by the Joint Venture.
In the event that the determination is made to rebuild, repair or restore
the Joint Venture Facility, all of the proceeds of such Luannan Expropriation
Event or Luannan Event of Loss on deposit in the RMB Revenue Account shall be
transferred to the RMB Checking Account and, together with the amounts (if any)
on deposit in the Luannan Facility Construction Fund and such other amounts as
the Joint Venture has available for such rebuilding, repair or restoration
(which also shall be deposited in the Luannan Facility Construction Fund prior
to any disbursement for rebuilding, repair or restorations), used to pay the
costs of such rebuilding, repair or restoration, and any excess shall, upon
completion of such rebuilding, repair or restoration, be applied promptly to
the prepayment of the Shareholder Loan by the Joint Venture.
In addition to other amounts which shall be applied to the prepayment of
the Shareholder Loan as provided in the Shareholder Loan Agreement, the Joint
Venture shall apply promptly following receipt, (i) all Net Cash Proceeds from
the sale or other disposition of all or any part of the assets or other rights
of such Joint Venture, other than in the ordinary course of business (and
permitted pursuant to the terms of the Luannan Financing Agreements) having a
value, individually in excess of $100,000 and in the aggregate in any year, in
excess of $250,000, and (ii) performance liquidated damage payments which shall
have been made by the Luannan EPC Contractor to such Joint Venture under the
Luannan EPC Contract.
Certain Covenants of the Joint Venture
Repayment of Indebtedness. The Joint Venture shall repay all debt,
including without limitation, all sums due under the Shareholder Loan Agreement
and the other Luannan Financing Agreements, subject to any limitations
contained in the Luannan Financing Agreements.
Existence; Conduct of Business. Except as otherwise permitted by the
Shareholder Loan Agreement, the Joint Venture shall maintain and preserve its
existence as a Sino-foreign joint venture with limited liability and all
rights, privileges and franchises necessary or desirable in the normal conduct
of its business, and engage only in the business contemplated by the Luannan
Financing Agreements and the Luannan Project Documents.
Use of Funds. The Joint Venture will use the proceeds of the Shareholder
Loan only for deposit in the accounts that such Joint Venture has established
pursuant to the Shareholder Loan Agreement pending disbursement for payment of
costs in connection with the Joint Venture Facility.
Compliance with Legal Requirements. The Joint Venture shall promptly and
diligently own, construct, maintain and operate its respective Joint Venture
Facility in compliance with all applicable legal requirements, and procure,
maintain and comply with or cause to be procured, maintained or complied with
all governmental approvals required for the ownership, construction, financing,
maintenance or operation of its respective Joint Venture Facility or any part
thereof at or before the time such governmental approvals become necessary for
the ownership, construction, financing, maintenance or operation of such Joint
Venture Facility as contemplated by the Luannan Project Documents, and except
that the Joint Venture may, at its expense and subject to certain conditions,
contest by appropriate proceedings conducted in good faith the validity or
application of any such legal requirements.
Operating Budget. The Joint Venture shall, on or before the anticipated
Luannan Commercial Operation Date, deliver to Pan-Western an annual operating
budget, certified by the Luannan Facility Engineer and in advance of each
calendar year thereafter, the Joint Venture shall adopt and deliver to Pan-
Western an annual operating budget, certified by the Luannan Facility Engineer.
Records and Financial Statements. The Joint Venture shall maintain
adequate books, accounts and records with respect to itself and its respective
Joint Venture Facility in compliance with the regulations of any governmental
authority having jurisdiction thereof, and provide Pan-Western with, among
other things, (a) as soon as available and in any event within 135 days after
the close of each fiscal year, audited financial statements of the Joint
Venture prepared in accordance with the PRC's generally accepted accounting
principles and certified by Arthur Andersen & Co. or such other comparable
independent accounting firm selected by Pan-Western and (b) as soon as
available and in any event within 90 days after the end of each quarterly
accounting period of its fiscal year, unaudited financial statements of the
Joint Venture.
Insurance. The Joint Venture shall maintain adequate insurance with
respect to its Joint Venture Facility based upon the advice of the Independent
Insurance Consultant.
Progress Report, Project Report and Project Budget. The Joint Venture
shall deliver to Pan-Western (i) within 30 days following the end of each
calendar quarter a quarterly status report describing in reasonable detail the
progress of the construction of its Joint Venture Facility, including without
limitation, the cost incurred to the end of such quarter and an estimate of the
time and cost required for completion of its Joint Venture Facility; (ii) prior
to the Luannan Commercial Operation Date, within 30 days following the end of
each calendar quarter, an update of the budget for the construction of its
Joint Venture Facility, including but not limited to an explanation or other
reconciliation of differences between such report and previous reports; (iii)
from and after the Luannan Commercial Operation Date, within 90 days following
the end of each calendar year an annual summary operating report, which shall
include, unless otherwise agreed to by Pan-Western, a numerical and narrative
assessment of (a) compliance with the annual operating budget, (b) statistical
data relating to the Joint Venture Facility, including heat rate, net
electrical and scheduled and unscheduled outages, (c) fuel deliveries and use,
(d) major maintenance activity, (e) casualty losses of value in excess of
$250,000 or the equivalent thereof in other currencies (whether or not covered
by insurance), (f) disputes with any other major project participant,
materialman, supplier or other person and any related claims against such Joint
Venture, (g) pricing information disclosed or made available pertaining to the
supply of coal and (h) compliance with governmental approvals; and (iv) all
progress reports provided by the Luannan EPC Contractor pursuant to the Luannan
EPC Contract and all progress reports prepared under the Luannan Power Purchase
Agreement.
Taxes; Increased Costs. The Joint Venture shall pay and discharge all
taxes and governmental charges or levies imposed on such Joint Venture or its
Joint Venture Facility. If any change of law subjects Pan-Western to any tax,
duty or other charge with respect to the Shareholder Loan or changes the basis
of taxation of payments by the Joint Venture to Pan-Western on the Shareholder
Loan (except for certain taxes or changes in the rate of taxation as set forth
in the Issuer Loan Agreement) or imposes on Pan-Western any other condition
directly related to the Shareholder Loan thereby increasing the cost to Pan-
Western of making, issuing, creating, renewing, participating in or maintaining
the Shareholder Loan or to reduce any amount receivable by Pan-Western under
the Shareholder Loan Agreement, then the Joint Venture will reimburse Pan-
Western for such increased costs or compensate Pan-Western for such reduced
amounts.
All payments made by the Joint Venture shall be made free and clear of,
and without deduction or withholding for any income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, imposed or
otherwise (or in the alternative, the initial interest rate established shall
include such charges in addition to the interest rate on the Issuer Loan)
levied by any governmental instrumentality, subject to certain limited
exceptions.
Registration of Shareholder Loans; Other Foreign Exchange Matters. The
Joint Venture will register each Shareholder Loan and maintain such
registration with the Tangshan Municipal Bureau for Exchange Control or any
successor entity.
Loan Payment Reserve. The final drawing under the Shareholder Loan by the
Joint Venture will be in an amount of $1.0 million which it will deposit in an
account, to be designated by Pan-Western, to be used as a reserve for the
payment of any amounts owing pursuant to the Shareholder Loan or the Luannan
Facility Note not paid when due; provided, however, to the extent that the
Joint Venture is obligated to make a performance bonus payment under the
Luannan EPC Contract, then the amount on deposit in the preceding debt service
reserve account shall be reduced by the amount of such performance bonus
payment.
Notices. The Joint Venture shall promptly provide to Pan-Western written
notice of (i) any Shareholder Loan Agreement Event of Default of which it has
knowledge, describing any action being taken or proposed to be taken with
respect to its Joint Venture Facility and (ii) any termination or event of
default or notice thereof under the Luannan Power Purchase Agreement.
Luannan Expropriation Event. The Joint Venture shall (i) promptly provide
Pan-Western with written notice of any Luannan Expropriation Event with respect
to its Joint Venture Facility, (ii) diligently pursue all its rights to
compensation, (iii) hold any Luannan Expropriation Proceeds received in respect
of such event (after deducting all reasonable expenses incurred by it in
litigating, arbitrating, compromising, settling or consenting to the settlement
of any claims) in trust for the benefit of Pan-Western and (iv) promptly
deposit all Luannan Expropriation Proceeds in the RMB Revenue Account. In
addition, the Joint Venture consents to the participation of Pan-Western in any
proceedings regarding a Luannan Expropriation Event.
Limitation on Indebtedness. The Joint Venture shall not create, or be
liable for any debt, except:
(i) the Shareholder Loan and additional loans from Pan-Western;
(ii) working capital debt; provided that after giving effect to such
additional debt, (a) the minimum (or lowest) projected Debt
Service Coverage Ratio for any calendar year will not be less
than 1.5 to 1 and (b) the average projected Debt Service Coverage
Ratio for any calendar year will not be less than 1.7 to 1;
provided, however, that working capital debt shall not at any
time exceed $1.0 million;
(iii) purchase money or capital lease obligations incurred to finance
assets of the Joint Venture that are readily replaceable personal
property with a principal amount or capitalized portion not
exceeding $1.0 million in the aggregate outstanding at any time;
(iv) trade accounts payable (other than for borrowed money) due within
90 days arising, and accrued expenses incurred, in the ordinary
course of business of constructing, operating or maintaining its
Joint Venture Facility on customary terms;
(v) interest or currency exchange rate protection agreements;
(vi) debt under the Joint Venture Guarantees and any other guarantees
of the obligations of the Joint Ventures; and
(vii) any debt to any other Joint Venture ((i) through (vii),
collectively "Joint Venture Permitted Indebtedness").
Limitation on Liens. The Joint Venture shall not create or permit to exist
any Lien other than Shareholder Loan Agreement Permitted Liens upon any assets
or properties of the Joint Venture, including, without limitation, the Joint
Venture Facility.
Nature of Business. The Joint Venture shall not amend or modify its
Articles of Association without the prior written consent of Pan-Western and
shall not engage in any business other than the ownership and operation of its
Joint Venture Facility.
Limitation on Sale or Lease of Facility Assets. The Joint Venture shall
not sell, lease, assign, transfer or otherwise dispose of the Joint Venture
Facility or other assets except (i) in the ordinary course of business to the
extent that such property is worn out or no longer useful or usable in
connection with the operation of the Joint Venture Facility and such property
is replaced by property having a fair market value equal to or greater than the
fair market value of the property being leased or transferred or such lease or
transfer is required to comply with law or to obtain or maintain any
governmental approval, (ii) property with a fair market value of less than
$250,000 in any given year or $1.0 million in the aggregate since the date of
the Shareholder Loan Agreement, and (iii) the sale of electricity and steam in
accordance with the Luannan Project Documents.
Limitation on Merger, Consolidation, Liquidation, Dissolution. The Joint
Venture shall not merge or consolidate with or into any other Person, other
than any of the other Joint Ventures or other Sino-foreign joint ventures with
no material liabilities and no material activities unrelated to the Luannan
Facility, or liquidate, wind up, dissolve, or otherwise transfer or dispose of
all or any substantial part of its property, assets or business, or change its
legal form, or purchase or otherwise acquire any assets of any Person unless
such purchase or acquisition of assets is reasonably necessary for the
operation of the Joint Venture Facility or in the ordinary course of business.
Limitation on Contingent Liabilities. The Joint Venture shall not become
liable as a surety, guarantor, accommodation endorser or otherwise, for or upon
the obligation of any other Person; provided, however, that the Joint Venture
may guarantee or otherwise become liable in respect of any debt incurred by any
other Person (on its behalf) in connection with or relating to incurrence of
debt expressly permitted as described above in the section entitled "Limitation
on Indebtedness"; and provided, further, however, that this shall not be deemed
to prohibit (i) the acquisition of goods, supplies or merchandise in the normal
course of business on normal trade credit, or (ii) the endorsement of
negotiable instruments received in the normal course of business; or (iii) the
obligations under the Shareholder Loan Agreement and the Joint Venture
Guarantee to which the Joint Venture is a party, or any other guarantee of any
obligation of any other Joint Venture if such guarantee is required for the
development and construction of the Luannan Facility and is not contrary to any
legal requirement.
Limitation on Loans, Advances or Investments. The Joint Venture shall not
make or permit to remain outstanding any loans, extensions of credit or
advances to or investments in (whether by acquisition of any stocks, notes or
other securities or obligations) any Person except RMB Permitted Investments or
JV Dollar Permitted Investments or as expressly provided in the Luannan Project
Documents.
Immunity. In any proceedings in China or elsewhere in connection with any
of the Luannan Financing Agreements to which the Joint Venture is a party, the
Joint Venture shall not claim for itself or any of its assets immunity from
suit, execution, attachment or other legal process.
Limitations on Distributions. The Joint Venture shall not agree to any
restriction on its ability to pay dividends (excluding restrictions imposed by
law).
Limitation on Transactions With Affiliates. Except for the Luannan Project
Documents, the Joint Venture shall not directly or indirectly: (i) enter into
any transaction with any Person (including any affiliate) other than in the
ordinary course of business and on terms not less favorable to those available
from independent third parties or (ii) establish any sole and exclusive
purchasing or sales agency, or enter into any transaction whereby the Joint
Venture might receive less than the full commercial price (subject to normal
trade discounts) for electricity or pay more than the commercial price for
products of others.
Limitation on Partnerships; Subsidiaries. Except as contemplated by the
Luannan Project Documents, the Joint Venture shall not become a general or
limited partner in any partnership or a joint venturer in any joint venture,
acquire any ownership interest in any other Person or enter into any profit-
sharing or royalty agreement or other similar arrangement whereby the Joint
Venture's income or profits are, or might be, shared with any other Person, or
enter into any management contract or similar arrangement whereby its business
or operations are managed by any other Person (other than any agreement under
which the Joint Venture may provide operation and management, consulting or
other similar services) or form any subsidiary.
Limitation on Amendments. The Joint Venture shall not amend any of the
Luannan Project Documents without the prior written consent of Pan-Western.
Limitation on Assignment. Without the prior written consent of Pan-
Western, the Joint Venture shall not assign or otherwise transfer its rights
under any of the Luannan Project Documents to which it is a party or
governmental approvals to which it is a party to any Person.
Abandonment of Luannan Facility; Improper Use. The Joint Venture shall not
voluntarily cease or abandon the development, construction or operation of the
Joint Venture Facility or use, maintain, operate or occupy, or allow the use,
maintenance, operation or occupancy of, any portion of the site of the Luannan
Facility or facility for certain prohibited purposes.
Shareholder Loan Agreement Events of Default
The occurrence of any of the following events shall constitute a
Shareholder Loan Agreement Event of Default pursuant to the Shareholder Loan
Agreement:
(i) default in the payment of principal of or any interest on the
Shareholder Loan or other amount owed by the Joint Venture to Pan-
Western within 15 banking days after such amounts are due;
(ii) any representation or warranty confirmed or made in any Luannan
Project Documents by the Joint Venture or in any writing provided
by the Joint Venture in connection with the transactions
contemplated by the Shareholder Loan Agreement shall be found to
have been incorrect when made or deemed to be made; provided,
however, that no Shareholder Loan Agreement Event of Default
shall occur if within sixty (60) days after the date on which the
general manager of the Joint Venture has actual notice that such
incorrect statement has occurred, the Joint Venture shall deliver
in good faith, to Pan-Western an officer's certificate stating in
reasonable detail that either (a) the Joint Venture has
eliminated any adverse effect relating to such incorrect
statement or (b) the Joint Venture has taken action that it
reasonably believes will eliminate the adverse effect relating to
such incorrect statement within a reasonable specified time;
(iii) failure of the Joint Venture to perform or observe certain
affirmative covenants under the Shareholder Loan Agreement
(including but not limited to, repayment of indebtedness and use
of funds) and such defaults have not been remedied after the
expiration of the applicable grace period, if any;
(iv) failure of the Joint Venture to observe any of the negative
covenants under the Shareholder Loan Agreement (other than
limitation on liens) and such defaults have not been remedied
prior to the expiration of any applicable cure or grace period;
(v) default by the Joint Venture or any other party under any of the
Luannan EPC Contract, the Luannan EPC Guarantee, the Transmission
Facilities Construction Agreement, the Luannan Power Purchase
Agreement and the Financing Agreements to which the Joint Venture
is a party and such default shall continue unremedied after the
expiration of the applicable grace period, if any;
(vi) voluntary and involuntary bankruptcy or insolvency events of any
Joint Venture, North China Power Company, the Luannan EPC
Contractor or Harbin Power (if such involuntary bankruptcy has
not been dismissed within 60 days from the bringing of
involuntary bankruptcy);
(vii) entry of a final judgment or judgments against the Joint Venture
in the aggregate amount of $1.0 million (exclusive of judgment
amounts fully covered by insurance where the insured has admitted
liability) subject to customary payment, dismissal or stay
rights; or entry of a judgment in the form of an injunction or
similar form of relief requiring suspension or abandonment of
construction or operation of the Joint Venture Facility of such
Joint Venture on grounds of violation of a legal requirement and
failure of the Joint Venture to have such injunction stayed or
discharged within 90 days;
(viii)the Joint Venture shall default for a period beyond any
applicable grace period in the payment of any principal, interest
or other amount due under any agreement involving the borrowing
of money or the advance of credit and the outstanding amount
payable under all such agreements in the aggregate equals or
exceeds $250,000 in the aggregate;
(ix) any of the Luannan Project Documents, the Luannan Financing
Agreements or the Luannan EPC Guarantee shall have become
invalid, illegal, or unenforceable;
(x) the Joint Venture ceases to have the right to use the site of the
Luannan Facility in the manner contemplated by the Luannan
Project Documents (or to obtain sufficient water for its
operations);
(xi) the Joint Venture abandons the Joint Venture Facility or
otherwise ceases to pursue the operations of the Joint Venture
Facility in accordance with standard industry practice, or,
except as otherwise permitted by the terms of the Shareholder
Loan Agreement, the Joint Venture shall sell or otherwise dispose
of its interests in the Joint Venture Facility;
(xii) the Luannan Commercial Operation Date shall not have occurred by
December 31, 1999;
(xiii)any governmental approvals or permits (whether central,
provincial, municipal, local or otherwise) necessary for (a) the
establishment of the Joint Venture, (b) the ownership,
construction, maintenance, financing or operation of the Luannan
Facility, (c) the setting or adjustment of the electricity price
for the Luannan Facility in accordance with the method of
calculation set forth in the attachments to the Pricing Document
or (d) the conversion or transfer of any foreign currency shall
not be obtained if and when required, or shall be modified,
revoked or canceled, or a notice of violations is issued under
any governmental authorization on grounds of, or illegality of
the absence of any required authorization, or any proceeding is
commenced by any governmental instrumentality for the purpose of
modifying, revoking or canceling any governmental authorization
(an "Approval Event of Default");
(xiv) any adverse change in PRC law; and
(xv) the Joint Venture Facility is destroyed, or suffers an actual or
constructive total loss.
Description of Joint Venture Guarantees
Each of the Joint Ventures entered into Joint Venture Guarantees on
September 24, 1996 to unconditionally and irrevocably guarantee to Pan-Western
the prompt payment and performance by each of the other three Joint Ventures of
such Joint Venture's obligations to Pan-Western pursuant to its respective
Shareholder Loan Agreement.
The Issuer Loan Agreement
The Issuer has entered into the Issuer Loan Agreement with Pan-Western,
dated as of the Closing Date, pursuant to which the Issuer Loan will be made.
The Issuer Loan Agreement provides, among other things, the rights and
obligations of the Issuer and Pan-Western, as lender and borrower,
respectively, including, without limitation, principal and interest payments,
conditions precedent, covenants, representations and warranties, events of
default, breach of contract and remedies.
Payment of Principal and Interest
Pan-Western will pay to the Issuer accrued interest and principal on a
monthly basis according to a schedule that will be designed, ultimately, to
provide the Issuer sufficient funds for it to pay principal, premium, if any,
and interest when due on the Exchange Notes. The interest to be charged on the
Issuer Loan will be established based on the interest rate applicable to the
Exchange Notes.
Prepayments
Voluntary Prepayments. The Issuer Loan will not be repayable by Pan-
Western without the consent of the Issuer.
Mandatory Prepayments. After payment of principal and interest and certain
operating expenses, the Issuer Loan will require that Pan-Western use all
available funds to prepay the Issuer Loan.
Certain Covenants of Pan-Western
Repayment of Indebtedness. Pan-Western shall repay all debt, including
without limitation, all sums due under the Issuer Loan Agreement.
Existence; Conduct of Business. Except as otherwise permitted by the
Indentures, Pan-Western shall maintain and preserve its existence as a Cayman
Islands exempted company with limited liability and all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, and
engage only in the business contemplated by the Indentures, the Luannan
Financing Agreements and the Luannan Project Documents.
Use of Funds. Pan-Western will use the proceeds of the Issuer Loan only to
make (i) the Shareholder Loans and (ii) the JV Equity Contributions. Pan-
Western will advance monies to the Joint Ventures (whether in the form of
installments of the Shareholder Loans or installments of the JV Company Equity
Contributions) only in the manner contemplated by the Indentures and described
above under "--The Funds--The Issuer Funds."
Compliance with Legal Requirements. Pan-Western shall promptly and
diligently procure, maintain and comply with or cause to be procured,
maintained or complied with all governmental approvals required for financing
of the Joint Ventures and the transactions contemplated by the Luannan
Financing Documents, and except that Pan-Western may, at its expense and
subject to certain conditions, contest by appropriate proceedings conducted in
good faith the validity or application of any such legal requirements.
Operating Budget. Pan-Western shall deliver to the Issuer an annual
operating budget in advance of each calendar year.
Records and Financial Statements. Provisions with respect to records and
financial statements substantially mirror those of the comparable provision
within the Shareholder Loan Agreements. See above "--The Shareholder Loan
Agreements--Records and Financial Statements."
Progress Report, Project Report and Project Budget. Pan-Western, as soon
as practicable upon the receipt thereof, shall forward to the Issuer any and
all progress reports, project reports and project budgets that it receives from
the Joint Ventures.
Taxes; Increased Costs. Pan-Western shall pay and discharge all taxes and
governmental charges or levies imposed on it. If any change of law subjects the
Issuer to any tax, duty or other charge with respect to the Issuer Loan or
changes the basis of taxation of payments by Pan-Western to the Issuer on the
Issuer Loan (except for certain taxes or changes in the rate of taxation as set
forth in the Indentures) or imposes on the Issuer any other condition directly
related to the Issuer Loan thereby increasing the cost to the Issuer of making,
issuing, creating, renewing, participating in or maintaining the Issuer Loan or
to reduce any amount receivable by the Issuer under the Issuer Loan Agreement,
then Pan-Western will reimburse the Issuer for such increased costs or
compensate the Issuer for such reduced amounts.
All payments made by Pan-Western shall be made free and clear of, and
without deduction or withholding for any income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, imposed or
otherwise (or in the alternative, the initial interest rate established shall
include such charges in addition to the interest rate on the Exchange Notes)
levied by any governmental instrumentality, subject to certain limited
exceptions.
Notices. Provisions with respect to notices substantially mirror those of
the comparable provision within the Shareholder Loan Agreements. See above "--
The Shareholder Loan Agreements--Notices."
Luannan Expropriation Event. Upon notice from a Joint Venture of a Luannan
Expropriation Event, Pan-Western shall endeavor to participate in any
proceedings regarding such an event. In the event that Pan-Western receives
payments from a Joint Venture with respect to a Luannan Expropriation Event,
such proceeds shall be used to prepay the Issuer Loan.
Limitation on Indebtedness. Pan-Western shall not create, or be liable for
any Indebtedness, except the Issuer Loan and additional loans required by law
from the Issuer.
Limitation on Liens. Pan-Western shall not create or permit to exist any
lien other than as contemplated by the Indentures.
Nature of Business. Pan-Western shall not amend or modify its Articles of
Association without the consent of the Issuer and shall not engage in any
business other than owning its interest in the Joint Ventures.
Limitation on Sale or Lease of Assets. Pan-Western shall not sell, lease,
assign, transfer or otherwise dispose of its interests, equity or debt, in the
Joint Ventures other than as contemplated by the Indentures.
Limitation on Merger, Consolidation, Liquidation, Dissolution. Pan-Western
shall not merge or consolidate with or into any other Person, other than the
Issuer or Pan-Sino.
Limitation on Contingent Liabilities. Pan-Western shall not become liable
as a surety, guarantor, accommodation endorser or otherwise, for or upon the
obligation of any other Person.
Limitation on Loans, Advances or Investments. Pan-Western shall not make
or permit to remain outstanding any loans, extensions of credit or advances to
or investments in (whether by acquisition of any stock, notes or other
securities or obligations) any Person except as expressly provided in the
Luannan Financing Documents, the Luannan Project Documents, or the Indentures.
Limitations on Distributions. Other than as contemplated by the
Indentures, Pan-Western shall not agree to any restriction on its ability to
pay dividends (excluding restrictions imposed by law).
Limitations on Transactions With Affiliates. Except for the Luannan
Financing Documents and the Luannan Project Documents, Pan-Western shall not
directly or indirectly enter into any transaction with any Person (including
any affiliate) other than in the ordinary course of business and on terms not
less favorable to those available from independent third parties.
Limitation on Partnerships; Subsidiaries. Except as contemplated by the
Luannan Financing Documents, the Luannan Project Documents or the Indentures,
Pan-Western shall not become a general or limited partner in any partnership or
a joint venturer in any joint venture, acquire any ownership interest in any
other Person or enter into any profit-sharing or royalty agreement or other
similar arrangement whereby Pan-Western's income or profits are, or might be,
shared with any other Person, or enter into any management contract or similar
arrangement whereby its business or operations are managed by any other Person.
Limitation on Amendments. Pan-Western shall not amend any of the Luannan
Financing Documents or the Luannan Project Documents without the consent of the
Issuer.
Limitation on Assignment. Without the prior written consent of the Issuer,
Pan-Western shall not assign or otherwise transfer its rights under any of the
Luannan Financing Documents or Luannan Project Documents to which it is a party
or governmental approvals to which it is a party to any Person.
Actions with Respect to the Joint Ventures. All matters under the
Shareholder Loan Agreements which require the consent or approval of Pan-
Western shall also require the written consent or approval of the Issuer.
Issuer Loan Agreement Events of Default
The occurrence of any of the following events shall constitute an Issuer
Loan Agreement Event of Default:
(i) default in the payment of principal of or any interest on the
Issuer Loan or other amount owed by Pan-Western to the Issuer
within 15 banking days after such amounts are due;
(ii) any representation or warranty confirmed or made in any Luannan
Financing Documents or the Luannan Project Documents by Pan-
Western or in any writing provided by Pan-Western in connection
with the transactions contemplated by the Issuer Loan Agreement
shall be found to have been incorrect when made or deemed to be
made; provided, however, that no Issuer Loan Agreement Event of
Default shall occur if within sixty (60) days after the date on
which Pan-Western has actual notice that such incorrect statement
has occurred, Pan-Western shall deliver in good faith, to the
Issuer an officer's certificate stating in reasonable detail that
either (a) Pan-Western has eliminated any adverse effect relating
to such incorrect statement or (b) Pan-Western has taken action
that it reasonably believes will eliminate the adverse effect
relating to such incorrect statement within a reasonable
specified time;
(iii) failure of Pan-Western to perform or observe certain affirmative
covenants under the Issuer Loan Agreement (including but not
limited to, repayment of indebtedness and use of funds) and such
defaults have not been remedied after the expiration of the
applicable grace period, if any;
(iv) failure of Pan-Western to observe any of the negative covenants
under the Issuer Loan Agreement and such defaults have not been
remedied prior to the expiration of any applicable cure or grace
period;
(v) voluntary and involuntary bankruptcy or insolvency events of Pan-
Western; subject to customary cure and replacement rights for
involuntary bankruptcy;
(vi) entry of a final judgment or judgments against Pan-Western in the
aggregate amount of $1.0 million (exclusive of judgment amounts
fully covered by insurance where the insured has admitted
liability) subject to customary payment, dismissal or stay
rights;
(vii) Pan-Western shall default for a period beyond any applicable
grace period in the payment of any principal, interest or other
amount due under any agreement involving the borrowing of money
or the advance of credit and the outstanding amount payable under
all such agreements in the aggregate equals or exceeds $500,000;
and
(viii)any Default under the Shareholder Loan Agreements.
PLAN OF DISTRIBUTION
Each Broker-Dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Broker-Dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as result of market
making activities or other trading activities. The Company and the Issuer
have agreed to make available for a period of up to 270 days a prospectus
meeting the requirements of the Securities Act to any Broker-Dealer for use in
connection with any such resale so long as they notify the Issuer or the
Company in writingwithin 30 business days after the consummation of the
Exchange Offer that they have acquired Exchange Notes for their own account. A
broker-dealer that delivers such a prospectus to a purchaser in connection with
resales will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification provisions). In addition, until
_____________, 1997 (90 days from the date of this Prospectus), all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus. See "The Exchange Offer Procedures for Tendering."
Each holder of Old Notes who wishes to exchange such Old Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business (whether
or not it is the registered holder of such Exchange Notes), (ii) it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and (iii) it is not an
Affiliate of the Issuer or the Company, or if it is an Affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Neither the Issuer nor the Company will receive any proceeds from any sale
of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company and the Issuer have agreed to pay all expenses incidental to
the Exchange Offer other than commissions and concessions of any brokers or
dealers and will indemnify holders of the Exchange Notes (including any brokers
or dealers) against certain liabilities, including liabilities under the
Securities Act, as set forth in the Registration Rights Agreement.
EXPERTS
Independent Accountants
The consolidated financial statements of the Issuer as of December 31,
1995 and 1996 and for the period from inception (July 20, 1994) through
December 31, 1994, for the years ended December 31, 1995 and 1996 and for the
period from inception (July 20, 1994) through December 31, 1996, and the
consolidated financial statements of the Company as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent accounts, as stated in their reports appearing herein. Deloitte &
Touche LLP has neither examined nor compiled the prospectie financial
information appearing in the Prospectus and the Appendices hereto and,
accordingly, does not express an opinion or any other form of assurance with
respect thereto.
Independent Engineers and Consultants
Consolidated Pro Forma
ICF Resources, Incorporated, a subsidiary of ICF Kaiser International, has
prepared a report entitled "Summary of the Consolidated Pro Forma of Panda
Global Holdings, Inc.," dated April 11, 1997, updated August 7, 1997 (the
"Consolidated Pro Forma Report"), included as Appendix C to this Prospectus.
The Consolidated Pro Forma Report is included herein in reliance upon such
firm as experts in energy economics and financial analysis. The Consolidated
Pro Forma Report should be read in its entirety by all prospective investors
for an understanding of the reliance placed by ICF on pro forma projections
prepared by Burns & McDonnell and of the methods of calculating the debt
coverage ratios projected therein.
Luannan Facility
Parsons Brinckerhoff Energy Services, Inc. has prepared a report entitled
"Engineer's Review and Report--2x50 MW Coal-Fired Power Plant at Luannan,
China," dated April 11, 1997, and updated August 7, 1997 (as updated, the
"Luannan Engineering Report"), included as Appendix D to this Prospectus.
The Luannan Engineering Report is included herein in reliance on such firm as
experts in preparing engineering reports for similar projects. The Luannan
Engineering Report should be read in its entirety by all prospective investors
for information with respect to the Luannan Facility and the related subjects
discussed therein.
Marston & Marston has prepared a report entitled "Review of the Coal
Supply Arrangements for the Luannan Power Project of Panda Energy
International, Inc.," dated April 11, 1997, and updated August 7, 1997 (as
updated, the "Luannan Coal Consultant's Report"), included as Appendix E to this
Prospectus. The Luannan Coal Consultant's Report is included herein in reliance
on such firm as experts in analyzing the coal industry, including coal supply
and transportation arrangements for independent power projects. The Luannan Coal
Consultant's Report should be read in its entirety by all prospective investors
for information with respect to the Luannan Facility and the related subjects
discussed therein.
Rosemary Facility
Burns & McDonnell has prepared a report entitled "Panda-Rosemary
Cogeneration Project Condition Assessment Report," dated April 11, 1997, and
updated August 7, 1997 (as updated, the "Rosemary Engineering Report"). The
Rosemary Engineering Report is summarized herein in reliance upon such firm as
experts in preparing independent engineering reports for similar projects. The
Rosemary Engineering Report is filed as an exhibit to the Registration Statement
on Form S-1, filed with the Commission, of which this Prospectus forms a part.
Benjamin Schlesinger and Associates, Inc. has prepared a report entitled
"Assessment of Fuel Price, Supply and Delivery Risks for the Panda-Rosemary
Cogeneration Project," dated September 20, 1996, as updated on April 11, 1997
and as further updated August 7, 1997 (as updated, the "Rosemary Fuel
Consultant's Report"). The Rosemary Fuel Consultant's Report is summarized
herein in reliance upon such firm as experts in preparing fuel consultant's
reports for similar projects. The Rosemary Fuel Consultant's Report is filed as
an exhibit to the Registration Statement on Form S-1 filed with the Commission,
of which this Prospectus forms a part.
Brandywine Facility
ICF Resources Incorporated, a subsidiary of ICF Kaiser International, has
prepared a report entitled "Independent Panda-Brandywine Pro Forma
Projections," dated April 11, 1997, and updated August 7, 1997 (as updated, the
"Brandywine Pro Forma Report"). The Brandywine Pro Forma Report is summarized
herein in reliance on such firm as experts in energy economics and financial
analysis. The Brandywine Pro Forma Report is filed as an exhibit to the
Registration Statement on Form S-1, filed with the Commission, of which
this Prospectus forms a part.
Pacific Energy Systems, Inc. has prepared a report entitled "Independent
Engineer's Report Panda-Brandywine Cogeneration Project," dated July 22, 1996,
as updated on April 11, 1997, and as further updated August 7, 1997 (as updated,
the "Brandywine Engineering Report"). The Brandywine Engineering Report is
summarized herein in reliance on such firm as experts in preparing independent
engineering reports for similar projects. The Brandywine Engineering Report is
filed as an exhibit to the Registration Statement on Form S-1, filed with the
Commission, of which this Prospectus forms a part.
C.C. Pace Resources, Inc. has prepared a report entitled "Panda-
Brandywine, L.P. Generating Facility Fuel Consultant's Report," dated July 2,
1996, as updated on April 11, 1997, and as further updated August 7, 1997 (as
updated, the "Brandywine Fuel Consultant's Report"). The Brandywine Fuel
Consultant's Report is summarized herein in reliance upon such firm as experts
in preparing fuel consultant's reports for similar projects. The Brandywine
Fuel Consultant's Report is filed as an exhibit to the Registration Statement
on Form S-1, filed with the Commission, of which this Prospectus forms a part.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes is being passed upon
for the Issuer, the Company and the Joint Ventures by Chadbourne & Parke LLP.
Certain legal matters with respect to PRC law are being passed upon for the
Issuer, the Company and the Joint Ventures by Cai, Zhang & Lan. Certain legal
matters with respect to the Cayman Islands law are being passed upon for the
Issuer and the Company by Maples & Calder.
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF THE COMPANY:
Panda Global Holdings, Inc. and Subsidiaries Consolidated Financial Statements:
Independent Accountants' Report ..................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996 ........ F-4
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 .................................. F-5
Consolidated Statements of Shareholder's Deficit for the years
ended December 31, 1994, 1995 and 1996 ............................ F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 .................................. F-7
Notes to Consolidated Financial Statements for the years ended
December 31, 1994, 1995 and 1996 .................................. F-8
Panda Global Holdings, Inc. and Subsidiaries Unaudited Condensed
Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of December 31, 1996
and March 31, 1997 ................................................ F-24
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1997 .............................. F-25
Condensed Consolidated Statements of Shareholder's Deficit for
the three months ended March 31, 1997 ............................. F-26
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1997 .............................. F-27
Notes to Condensed Consolidated Financial Statements for the
three months ended March 31, 1996 and 1997 ........................ F-28
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS - CONTINUED
FINANCIAL STATEMENTS OF THE ISSUER:
Panda Global Energy Company and Subsidiaries Consolidated Financial Statements:
Independent Accountants' Report ...................................... F-34
Consolidated Balance Sheets as of December 31, 1995 and 1996 ........ F-35
Consolidated Statements of Operations for the period from
inception (July 20, 1994) through December 31, 1994, the
years ended December 31, 1995 and 1996, and the period
from inception through December 31, 1996 ........................... F-36
Consolidated Statements of Cash Flows for the period from
inception (July 20, 1994) through December 31, 1994, the
years ended December 31, 1995 and 1996, and the period
from inception through December 31, 1996 ........................... F-37
Consolidated Statements of Shareholder's Deficit for the
period from inception (July 20, 1994) through December
31, 1994 and the years ended December 31, 1995 and 1996 ............ F-38
Notes to Consolidated Financial Statements for the period
from inception (July 20, 1994) through December 31, 1994,
the years ended December 31, 1995 and 1996, and the
period from inception through December 31, 1996 .................... F-39
Panda Global Energy Company and Subsidiaries Unaudited
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of December 31,
1996 and March 31, 1997 ............................................ F-42
Condensed Consolidated Statements of Operations and
Deficit Accumulated During the Development Stage for
the three months ended March 31, 1996 and 1997 and
for the period from inception (July 20, 1994) through
March 31, 1997 ..................................................... F-43
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1997 and for the
period from inception (July 20, 1994) through March 31, 1997 ....... F-44
Condensed Consolidated Statements of Shareholder's Equity for
the three months ended March 31, 1997............................... F-45
Notes to Condensed Consolidated Financial Statements for
the three months ended March 31, 1996 and 1997 and for
the period from inception (July 20, 1994) through March 31, 1997 ... F-46
F-2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
of Panda Energy International, Inc.
We have audited the accompanying consolidated balance sheets of Panda Global
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of operations, shareholder's
deficit and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 9, 1997
F-3
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS
1995 1996
------------- -------------
Current Assets:
Cash and cash equivalents ................. $ 1,166,385 $ 1,335,086
Restricted cash -- current ................ 1,876,142 17,809,921
Accounts receivable ....................... 5,199,999 9,402,685
Fuel oil, spare parts and supplies ........ 3,084,168 7,913,777
Other current assets ...................... 12,664 164,905
------------- -------------
Total current assets ................... 11,339,358 36,626,374
Plant and equipment:
Electric generating facilities ............ 105,168,094 288,716,711
Furniture and fixtures .................... 29,080 494,418
Less accumulated depreciation ............. (21,008,036) (26,539,539)
Construction in progress .................. 132,604,494 --
Development costs ......................... 3,350,924 6,053,361
------------- -------------
Total plant and equipment, net ......... 220,144,556 268,724,951
Restricted cash -- debt service
reserves and escrow deposits .............. 10,947,948 32,548,366
Debt issuance costs, net of accumulated
amortization of $3,169,285 and
$165,015, respectively .................... 3,990,655 7,570,521
Partnership formation costs, net of
accumulated amortization of $2,132,440
and $2,665,540 respectively ............... 533,100 --
------------- -------------
$ 246,955,617 $ 345,470,212
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ..................... $ 5,597,818 $ 660,167
Interest and letter of credit fees ..... 2,540,347 6,297,558
Operating expenses and other ........... 1,219,061 6,991,796
Current portion of long-term debt ......... 9,100,000 5,717,623
------------- -------------
Total current liabilities .............. 18,457,226 19,667,144
Long term debt, less current portion ......... 234,608,361 209,830,918
Capital lease obligation ..................... -- 217,488,645
Minority interest ............................ 36,835,666 --
Commitments and contingencies
(Notes 2, 5 and 8) ........................ -- --
Shareholder's deficit:
Common stock, par value $.01; 1,000
shares authorized, issued and
outstanding ............................ 10 10
Advances to parent ........................ (26,869,548) (52,782,940)
Accumulated deficit ....................... (16,076,098) (48,733,565)
------------- -------------
Total shareholder's deficit ............ (42,945,636) (101,516,495)
------------- -------------
$ 246,955,617 $ 345,470,212
============= =============
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Electric capacity and energy sales ........... $ 30,664,096 $ 29,858,475 $ 32,273,736
Steam and chilled water sales ................ 650,575 473,040 502,757
Interest income .............................. 602,783 895,268 1,518,006
------------ ------------ ------------
31,917,454 31,226,783 34,294,499
------------ ------------ ------------
Expenses:
Plant operating expenses ..................... 8,940,146 9,347,707 12,050,495
Project development and administrative ....... 1,779,349 2,550,376 5,187,348
Interest expense and letter of credit fees ... 11,017,418 11,715,929 19,414,012
Depreciation ................................. 4,208,314 4,209,453 5,531,502
Amortization of debt issuance costs .......... 600,382 554,311 493,799
Amortization of partnership formation costs .. 533,116 533,116 533,100
------------ ------------ ------------
27,078,725 28,910,892 43,210,256
------------ ------------ ------------
Income (loss) before minority interest
and extraordinary item ........................ 4,838,729 2,315,891 (8,915,757)
Minority interest ............................... (5,699,994) (5,047,580) (2,405,160)
------------ ------------ ------------
Loss before extraordinary item .................. (861,265) (2,731,689) (11,320,917)
Extraordinary item - loss on
early extinguishment of debt .................. -- -- (21,336,550)
------------ ------------ ------------
Net loss ........................................ $ (861,265) $ (2,731,689) $(32,657,467)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Total
Common Advances Accumulated Shareholder's
Stock to Parent Deficit Deficit
-------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 . $ 10 $ (8,152,454) $(12,483,144) $ (20,635,588)
Advances to parent ....... -- (5,712,475) -- (5,712,475)
Net loss ................. -- -- (861,265) (861,265)
-------- ------------ ------------ -------------
Balance, December 31, 1994 10 (13,864,929) (13,344,409) (27,209,328)
Advances to parent ....... -- (13,004,619) -- (13,004,619)
Net loss ................. -- -- (2,731,689) (2,731,689)
-------- ------------ ------------ -------------
Balance, December 31, 1995 10 (26,869,548) (16,076,098) (42,945,636)
Advances to parent ....... -- (25,913,392) -- (25,913,392)
Net loss ................. -- -- (32,657,467) (32,657,467)
-------- ------------ ------------ -------------
Balance, December 31, 1996 $ 10 $(52,782,940) $(48,733,565) $(101,516,495)
======== ============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ......................................... $ (861,265) $ (2,731,689) $ (32,657,467)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on early extinguishment of debt .......... -- -- 21,336,550
Minority interest ............................. 5,699,994 5,047,580 2,405,160
Depreciation .................................. 4,208,314 4,209,453 5,531,502
Amortization of debt issuance costs ........... 600,382 554,311 493,799
Amortization of partnership formation costs ... 533,116 533,116 533,100
Amortization of loan discount and deferred
interest ..................................... -- 124,176 391,491
Changes in assets and liabilities:
Accounts receivable ........................... (2,454,524) 460,319 (4,202,686)
Fuel oil, spare parts and supplies ............ (33,698) 261,516 (4,829,609)
Other current assets .......................... 6,646 26,484 (152,241)
Accounts payable and accrued expenses ......... (114,382) (81,728) 9,529,946
------------ ------------- -------------
Net cash provided by operating activities 7,584,583 8,403,538 (1,620,455)
------------ ------------- -------------
INVESTING ACTIVITIES:
Restricted cash-current .......................... 2,847,429 695,684 (15,933,779)
Additions to plant and equipment ................. (5,045,085) (124,109,566) (62,881,838)
Acquisition of minority interest ................. -- -- (34,256,423)
Increase in restricted cash -- debt service
reserves and escrow deposits ................. (457,538) (747,655) (21,600,418)
------------ ------------- -------------
Net cash used in investing activities ...... (2,655,194) (124,161,537) (134,672,458)
------------ ------------- -------------
FINANCING ACTIVITIES:
Distributions to minority interest owner ......... (4,590,354) (3,800,279) (1,152,113)
Advances to parent ............................... (6,954,287) (13,004,619) (25,913,392)
Proceeds from long-term debt ..................... 16,534,706 147,541,291 299,677,926
Repayment of long-term debt ...................... (7,500,000) (17,500,000) (128,415,271)
Debt issuance costs .............................. (498,281) (334,391) (7,735,536)
------------ ------------- -------------
Net cash provided by (used in)
financing activities ...................... (3,008,216) 112,902,002 136,461,614
------------ ------------- -------------
Increase (decrease) in cash and cash equivalents .... 1,921,173 (2,855,997) 168,701
Cash and cash equivalents, beginning of period ...... 2,101,209 4,022,382 1,166,385
------------ ------------- -------------
Cash and cash equivalents, end of period ............ $ 4,022,382 $ 1,166,385 $ 1,335,086
============ ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ........ $ 10,855,819 $ 11,799,297 $ 15,656,801
NON CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs ....................... $ 1,489,412 $ 5,597,818 $ 660,167
Interest cost .................................... -- 153,861 172,924
Debt discount .................................... 1,241,812 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Global Holdings, Inc. ("Panda Global", or collectively with its
subsidiaries the "Company"), a wholly owned subsidiary of Panda Energy
International, Inc. ("PEII"), was formed in March 1997 to hold the ownership
interests in four independent power projects which were formerly owned by other
wholly owned subsidiaries of PEII. The ownership interests were transferred to
the Company at PEII's historical cost. Because the transfers occurred between
entities under common control, the transactions have been accounted for in a
manner similar to a pooling of interests. Panda Global has two direct wholly
owned subsidiaries: Panda Energy Corporation ("PEC")( a Texas corporation) which
indirectly holds the Company's ownership interests in domestic projects, and
Panda Global Energy Company ("Global Cayman")(a Cayman Islands company), which
indirectly holds the Company's ownership interest in an international project
located in China.
PEC, through its wholly owned subsidiary Panda Interfunding Corporation
("PIC") and PIC's wholly owned subsidiary Panda Interholding Corporation
("Interholding"), holds the Company's ownership interests in the Rosemary
project and the Brandywine project (see Note 5). The entities holding such
ownership interests include the following: Panda Rosemary Corporation ("PRC"), a
91% general partner in Panda-Rosemary, L.P. ("Panda-Rosemary"); PRC II
Corporation ("PRC II"), a 9% limited partner in Panda- Rosemary; Panda
Brandywine Corporation, a 50% general partner in Panda-Brandywine, L.P.
("Panda-Brandywine"); Panda Energy Corporation (a Delaware corporation), a 50%
limited partner in Panda-Brandywine; and Brandywine Water Company. The Company,
through its general and limited partnership interests, owns 100% of
Panda-Brandywine and, as of July 31, 1996, owns 100% of Panda-Rosemary. Prior to
July 31, 1996, the Company owned 10% of Panda-Rosemary (see Note 5). The
Rosemary and Brandywine projects are located in the United States. Other direct
or indirect wholly owned subsidiaries of PIC include Panda Funding Corporation
("PFC"), Panda-Rosemary Funding Corporation ("PRFC") and Panda Cayman
Interfunding Corporation ("PIC Cayman"), which have been formed to facilitate
the financing of the development and acquisition of independent power projects.
Additionally, PEC holds the Company's 100% ownership interest in the
Kathleen project (see Note 5) through its wholly owned subsidiaries.
Global Cayman (which collectively with its subsidiaries is a development
stage enterprise having no operating revenues) holds a 95.5% ownership interest
in Pan-Sino Energy Development Company LLC ("Pan-Sino")(a Cayman Islands
company), which in turn holds a 99% ownership interest in Pan-Western Energy
Corporation LLC ("Pan-Western")(a Cayman Islands company), which in turn owns an
approximately 88% interest in four joint venture companies (the "Joint Venture
Companies") organized under the laws of the People's Republic of China ("China")
to develop and construct an independent power project to be located in China
(see Note 5). The Joint Venture Companies are: Tangshan Panda Heat and Power
Company, Ltd. ("Tangshan Panda"), Tangshan Pan-Western Heat and Power Company,
Ltd. ("Tangshan Pan-Western"), Tangshan Cayman Heat and Power Company, Ltd.
("Tangshan Cayman") and Tangshan Pan-Sino Heat Company, Ltd. ("Tangshan
Pan-Sino").
Collectively, PEC, Pan-Sino and Pan-Western are the predecessors
of the Company.
All material intercompany accounts and transactions have been eliminated
in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH -- Included in cash and cash equivalents are highly liquid
investments with original maturities of three months or less.
RESTRICTED CASH - CURRENT -- Restricted cash-current represents escrowed
cash which may be used to pay operating expenses and make debt payments and
distributions to partners pursuant to the trust indenture agreements.
F-8
<PAGE>
RESTRICTED CASH - DEBT SERVICE RESERVES AND ESCROW DEPOSITS -- Debt
service reserves and escrow deposits include cash held by the bank to pay debt
service and capital improvements pursuant to the trust indenture agreements, or
as collateral for performance guarantees for projects under development or
construction.
FUEL OIL, SPARE PARTS AND SUPPLIES -- These items include fuel oil stored
on-site and various spare parts and supplies necessary for plant maintenance.
The items are valued at cost using the weighted average method, and are
expensed, as plant operating expenses, when used.
PLANT AND EQUIPMENT -- Electric generating facility assets are recorded at
cost and depreciated using the straight-line method over the term of the
related power purchase agreement, generally twenty or twenty-five years (see
Note 5). Depreciation of office furniture, equipment, and leasehold improvements
is provided using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Costs, including interest on funds
borrowed to finance the construction of facilities, related to projects under
construction are capitalized as construction in progress. Construction in
progress balances are transferred to electric generating facilities when the
assets are ready for their intended use. Capitalized interest was $803,254,
$5,793,296 and $11,055,172 during 1994, 1995 and 1996, respectively.
Maintenance and repair costs are charged to expense as incurred. Costs of
developing new projects are capitalized when the projects reach an advanced
stage of development where the execution of a power purchase agreement has
occurred or is imminent. Such costs include direct incremental amounts incurred
for professional services, permits, options, travel and other related costs.
The continued capitalization is subject to on-going risks related to successful
completion, including legal, political, siting, financing, construction,
permitting and contract compliance. Development costs are transferred to
construction in progress when financing has been obtained and construction
activity has commenced, or are expensed at the time the Company determines
it is probable that a particular project will no longer be developed.
Other projects currently under development by PEII may be transferred to
the Company at PEII's historical cost when construction financing has been
obtained or when the completed projects have commenced commercial operations,
subject to certain limitations in the Company's indentures (see Note 6).
DEBT ISSUANCE COSTS -- The costs related to the issuance of debt are
capitalized and amortized using the effective interest method over the term of
the related debt.
PARTNERSHIP FORMATION COSTS -- The costs related to the formation of
Panda-Rosemary are capitalized and amortized over five years.
ENVIRONMENTAL MATTERS -- The operations of the Company are subject to
federal, state and local laws and regulations relating to protection of the
environment. Although the Company believes that its operations are in compliance
with applicable environmental regulation, risks of additional costs and
liabilities are inherent in cogeneration operations, and there can be no
assurance that significant costs and liabilities will not be incurred by the
Company. Management is not aware of any contingent liabilities that currently
exist with respect to environmental matters.
Environmental expenditures are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded if environmental assessments and/or remedial efforts
become probable, and the costs reasonably estimable.
MINORITY INTEREST -- Minority interest reflects the capital of the outside
investor in Panda-Rosemary's net income allocated to the outside investor (see
Note 5). There is no minority interest related to Pan-Sino, Pan-Western and the
Joint Venture Companies (see Note 1) because the minority interest owners had
not contributed any capital to those entities as of December 31, 1996.
REVENUE RECOGNITION -- Revenue generated from the sale of electric
capacity and energy from the Rosemary and Brandywine projects is recognized
based on the amount billed under the power purchase agreements which were
entered into prior to May 21, 1992. The revenue generated from the sale of
electric capacity and energy from other projects will be recognized based on
the lesser of the amount billable under the power purchase agreement or an
amount determined by the annual kilowatts made available multiplied by the
estimated average revenue per kilowatt over the term of the power purchase
agreement. Revenue from the sale of steam and chilled water is recognized
based on the output delivered at rates specified under contract terms.
INCOME TAXES -- The Company records income taxes according to Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109)
which requires deferred tax liabilities or assets to be recognized for the
anticipated future tax effects of temporary differences that arise as a result
of the differences in the carrying amounts and the tax bases of assets and
liabilities. SFAS 109 also requires a valuation allowance for deferred tax
assets in certain circumstances.
The Company is included in the consolidated federal income tax return of
PEII. PEII's policy is to allocate income tax expense or benefits to the Company
as if it filed a separate tax return.
F-9
<PAGE>
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain accounting,
legal, insurance, and consulting services for the Company. These general and
administrative costs are generally allocated to the Company using the percentage
of time PEII personnel spent performing these services. The expenses allocated
were $1,003,353, $1,599,200 and $3,308,000 in 1994, 1995 and 1996, respectively,
and are included in project development and administrative expenses in the
statement of operations. Management believes the method used to allocate these
costs is reasonable.
NEW ACCOUNTING PRONOUNCEMENTS -- In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS 121). SFAS 121 is effective for financial statements for
fiscal years beginning after December 15, 1995 and requires the write-down of
certain long-lived assets if circumstances indicate that the carrying value of
those assets may not be recoverable. The Company adopted SFAS 121 in 1996 and
such adoption did not have a material impact on its financial position or
results of operations.
INTEREST COST -- Total interest cost incurred, including capitalized
interest, was $11,820,672, $17,509,225 and $30,469,184 in 1994, 1995 and 1996,
respectively.
3. ADVANCES TO PARENT
Advances to parent represent cash advances to the parent, allocations of
general and administrative expenses from the parent, and the excess of
liabilities assumed over the assets contributed on projects owned by the parent
and contributed in connection with the formation of the Company.
The advances to parent for the years ended December 31, 1994, 1995 and
1996 consist of the following:
Balance, January 1, 1994 ......................... $ 8,152,454
Cash advanced to parent, net ..................... 7,957,640
Administrative costs allocated from parent ...... (1,003,353)
Debt discount allocated from parent .............. (1,241,812)
------------
Balance, December 31, 1994 ....................... 13,864,929
Cash advanced to parent, net ..................... 14,603,819
Administrative costs allocated from parent ...... (1,599,200)
------------
Balance, December 31, 1995 ....................... 26,869,548
Cash advanced to parent, net ..................... 29,221,392
Administrative costs allocated from parent ....... (3,308,000)
------------
Balance, December 31, 1996 ....................... $ 52,782,940
============
The average balance of advances to parent was $11,009,000, $20,367,000 and
$39,826,000 during 1994, 1995 and 1996, respectively.
4. FUEL OIL, SPARE PARTS AND SUPPLIES
Fuel oil, spare parts and supplies are comprised of the following amounts:
1995 1996
---------- ----------
Fuel oil ..................... $1,182,310 $3,496,269
Spare parts and supplies ..... 1,901,858 4,417,508
---------- ----------
Total .............. $3,084,168 $7,913,777
========== ==========
F-10
<PAGE>
5. POWER PROJECTS
ROSEMARY PROJECT -- Effective May 5, 1989, PEII formed a wholly-owned
subsidiary, now a wholly-owned subsidiary of the Company, to develop, construct,
and operate the 180 megawatt gas-fired Rosemary cogeneration facility in Roanoke
Rapids, North Carolina ("Rosemary Project"). Construction on the Rosemary
Project began in September 1989, and commercial operation of the facility began
on December 27, 1990.
The Rosemary Project produces both electricity and useful thermal energy
in the form of steam. Electric capacity and energy sales are based on the terms
of the power purchase agreement between Panda-Rosemary and Virginia Electric
Power Company ("VEPCO") dated January 24, 1989. The agreement requires
Panda-Rosemary to provide VEPCO with all the available capacity of the Rosemary
Project on an as-needed basis with VEPCO obligated to pay for the power
delivered and dependable capacity of the facility at a rate per kilowatt which
decreases in certain periods as defined by the agreement. The term of the
agreement is 25 years and it expires December 2015. A financial institution has
provided a letter of credit for approximately $5 million guaranteeing
Panda-Rosemary's performance under the power purchase agreement. Steam and
chilled water are sold to a third party under a separate agreement which also
has a term of 25 years and expires December 2015. The Rosemary Project is
managed by PRC, the general partner, and is operated by an unrelated third party
through 1996. Effective January 1, 1997 the Rosemary Project will be operated
by a subsidiary of PEII. This change will not have a material impact on the
Company's consolidated financial statements.
On January 6, 1992, PRC contributed substantially all project assets and
liabilities and $216,553 in cash to Panda-Rosemary, in exchange for a 10%
combined general partnership and limited partnership interest. The assets and
liabilities were recorded at historical cost, resulting in $19,874,216 in
partners' deficit being contributed by PRC. An institutional investor
("Investor") contributed $30,948,987 in cash in exchange for a 90% limited
partnership interest. On July 31, 1996, the Company acquired the Investor's
limited partnership interest in Panda-Rosemary for a purchase price of
approximately $34.3 million. As a result of this acquisition, the Company owns
100% of Panda-Rosemary. The acquisition was accounted for using the purchase
method of accounting. The excess of minority interest over the purchase price
(approximately $3.8 million) was allocated to plant and equipment.
Prior to July 31, 1996, the Investor received percentage allocations of
income, expense, and cash flow which would decline over time if certain rate of
return requirements were achieved. For the duration of the Investor's
participation in Panda-Rosemary, the allocation to the Investor remained at 90%.
Prior to acquiring the Investor's 90% limited partnership interest on July
31, 1996, the Company controlled Panda-Rosemary through its one percent general
partner interest. As general partner, the Company has exclusive management
authority over the operations of Panda-Rosemary. Accordingly, Panda-Rosemary's
balance sheet as of December 31, 1995, and statements of operations and of cash
flows for the years ended December 31, 1994 and 1995 and for the period January
1, 1996 through July 31, 1996 (in addition to the post-acquisition period) have
been consolidated in the accompanying financial statements. The capital of the
Investor and Panda-Rosemary's net income allocated to the Investor are presented
as minority interest in the accompanying financial statements.
BRANDYWINE PROJECT -- On August 9, 1991, Panda-Brandywine entered into a
power purchase agreement with Potomac Electric Power Company ("PEPCO") to build
a 230 megawatt gas-fired facility ("Brandywine Project"). The agreement requires
Panda-Brandywine to supply PEPCO with all available capacity from the facility
for the 25-year term of the agreement with a guaranteed dispatch level of at
least 60 hours per week for the first 15 years. The Brandywine Project, in
Brandywine, Maryland, constructed by Raytheon Engineers and Constructors, Inc.
under a fixed fee, turn-key contract was substantially completed and commenced
commercial operations in October, 1996. A construction loan commitment in the
amount of $215 million was provided by General Electric Capital Corporation
("GECC") in April, 1995. On December 30, 1996 the loan converted to a capital
lease with GECC in the amount of $217.5 million with a twenty year term and two
five year renewal options (see Note 6). GECC has provided letters of credit for
approximately $2.3 million guaranteeing Panda-Brandywine's performance under the
agreement. GECC has committed to increase the amount available under letters of
credit to a maximum of approximately $7.3 million under certain circumstances.
KATHLEEN PROJECT -- In 1991, through a wholly-owned subsidiary, the
Company entered into a 30-year power purchase agreement with Florida Power
Corporation ("Florida Power") to build a 75 megawatt gas-fired facility near
Lakeland, Florida ("Kathleen Project"). The Company and Florida Power are
engaged in litigation before various state and federal forums in Florida over
the interpretation of the Kathleen power purchase agreement (see Note 8). The
litigation has not yet progressed to a stage at which management can predict
the outcome. Actual construction of the Kathleen Project has not yet commenced
and is subject to the outcome of the related litigation and the successful
completion of financing.
F-11
<PAGE>
The Company has incurred development costs for the Kathleen Project of $2.8
million as of December 31, 1996, which are included in plant and equipment under
development costs in the accompanying balance sheet. The development costs will
be expensed if management determines that it is probable that the Kathleen
Project will no longer be developed.
LUANNAN PROJECT -- In 1994, PEII entered into a preliminary letter of
intent with a subsidiary of the North China Power Group Company ("NCPGC") for
the purchase and sale of electric energy from two 50 megawatt coal-fired
cogeneration plants to be located in Luannan County, Tangshan Municipality,
Hebei Province, China ("Luannan Project"). On September 22, 1995, Tangshan Panda
and Tangshan Pan-Western (see Note 1) entered into a Power Purchase Agreement
with NCPGC for the purchase and sale of electric energy from the Luannan
Project. Under the terms of the 20-year agreement, all electrical output of the
project will be sold to NCPGC. The steam and hot water generated by
Tangshan-Cayman's facility within the project will be sold to the domestic
Chinese industrial and commercial markets by Tangshan Pan-Sino. The Luannan
Project will be constructed pursuant to a fixed-price, turnkey contract with
Harbin Power Engineering Company Limited, subject to escalation under certain
circumstances. Preliminary construction activity commenced in December 1996.
Full construction activity commenced after the successful completion of
financing in April 1997 (see Note 11). The Company has incurred development
costs for the Luannan Project of $3.3 million as of December 31, 1996, which
are included in plant and equipment under development costs in the accompanying
balance sheet.
The Luannan Project is subject to political, regulatory and economic
uncertainties, risks of expropriation of property and cancellation or
modification of contract rights, foreign exchange restrictions, construction
risk, dependence on limited number of customers and other risks arising from
foreign governmental sovereignty.
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Long-term debt and capital lease obligation of the Company as of December
31, 1995 and 1996 are summarized as follows:
1995 1996
------------- -------------
Taxable Revenue Bonds for Rosemary Project ..... $ 90,000,000 $ --
Construction Loan for Brandywine Project ....... 134,735,719 --
Term Loan with TCW, net of discount ............ 18,972,642 --
First Mortgage Bonds for Rosemary Project ...... -- 110,023,541
Series A Bonds ................................. -- 105,525,000
------------- -------------
Total long-term debt ........................... 243,708,361 215,548,541
Less current portion ........................... (9,100,000) (5,717,623)
------------- -------------
$ 234,608,361 $ 209,830,918
============= =============
Capital lease obligation for Brandywine Project $ -- $ 217,488,645
TAXABLE REVENUE BONDS -- In October 1989, PRC obtained long-term financing
for the Rosemary Project in the form of $116 million of taxable revenue bonds
("Tax Bonds") issued by the Halifax Regional Economic Development Corporation
("Halifax"), a nonprofit corporation organized in North Carolina. In connection
with the issuance of first mortgage bonds for the Rosemary Project in July 1996
as discussed below, the Company refinanced the Tax Bonds and incurred a loss of
$13.3 million on the early extinguishment of that obligation. The Tax Bonds bore
interest at a fixed rate of 9.25% payable semiannually. Scheduled principal
payments began on October 1, 1991. Such principal and interest payments paid by
Panda-Rosemary to Halifax were used to make required payments on the Tax Bonds.
The Tax Bonds were fully guaranteed by an irrevocable, direct-pay letter
of credit issued by The Fuji Bank, Limited, Houston Agency ("Fuji"). The letter
of credit had a term equal to the term of the Tax Bonds and included annual fees
of .9375% for years 1-5, 1.3125% for years 6-10, and 1.6875% thereafter.
FIRST MORTGAGE BONDS -- In July 1996, Panda-Rosemary Funding Corporation
("PRFC"), a wholly-owned subsidiary of Panda-Rosemary, issued $111,400,000 of
first mortgage bonds ("Rosemary Bonds"). The Rosemary Bonds bear interest at a
fixed rate of 8-5/8% payable quarterly commencing November 15, 1996. Scheduled
principal payments are required quarterly commencing November 15, 1996, and will
continue through maturity on February 15, 2016. The Rosemary Bonds are subject
F-12
<PAGE>
to mandatory redemption prior to maturity under certain conditions. The Rosemary
Bonds are unconditionally guaranteed by Panda-Rosemary but are non-recourse to
the Company, and are secured by substantially all of the assets of
Panda-Rosemary as well as all of the outstanding capital stock of PRC, PRC II
and PRFC. The indenture contains certain covenants, including limitations on
distributions, additional debt and certain other transactions.
While amounts are outstanding under the Rosemary Bonds, all revenues of
Panda-Rosemary are paid to a collateral agent. Funds held by the collateral
agent are included in the accompanying consolidated balance sheets as restricted
cash-current. On a monthly basis, the collateral agent remits to Panda-Rosemary
remaining funds available after payment of all expenditures relating to the
Rosemary project, including debt service, provided that Panda-Rosemary is in
compliance with the debt covenants. Additionally, the collateral agent withholds
funds to meet future debt service, maintenance and pollution control
requirements, if required under the indenture. These amounts are included in the
accompanying consolidated balance sheets as restricted cash-current and
restricted cash-debt service reserves and escrow deposits.
TERM LOAN -- On October 27, 1995, PEII obtained a term loan in the amount
of $20 million from Trust Company of the West ("TCW"). This loan amended and
restated the loan agreement dated November 8, 1994. In July 1996, in connection
with the offering of Series A Bonds as discussed below, a portion of the
proceeds was used to retire all of the term loan debt. The Company incurred a
loss of $8 million on the early extinguishment of this obligation. The loan bore
interest at a rate of 13.5%, payable at a rate of 11.0%. The 2.5% interest not
payable currently was added to the principal balance of the loan.
Under the loan agreement, TCW also received 1,004,000 warrants to purchase
shares of PEII stock. A loan discount of $1,241,812 was created as a result of
allocating value to the warrants. The carrying value of the warrants is adjusted
annually to the redemption price. Such adjustment, which was allocated to the
Company from PEII until the debt was retired in July 1996, was $153,861 and
$172,924 in 1995 and 1996, respectively, and was recorded as interest expense in
the accompanying statement of operations.
SERIES A BONDS -- In July 1996, Panda Funding Corporation ("PFC"), a
wholly-owned subsidiary of the Company, issued $105,525,000 of pooled project
bonds ("Series A Bonds"). The Series A Bonds bear interest at a fixed rate of
11-5/8% payable semiannually commencing February 20, 1997. Scheduled principal
payments are required semiannually commencing February 20, 1997 and will
continue through maturity on August 20, 2012. The Series A Bonds are subject to
mandatory redemption prior to maturity under certain conditions. The Series A
Bonds are fully and unconditionally guaranteed by PIC and are guaranteed on a
limited basis by Interholding up to a maximum amount specified by the guarantee
agreement which approximates $25.1 million at December 31, 1996. Additionally,
the Series A Bonds are secured by (i) all of the capital stock of PFC, PIC and
Interholding, (ii) 60% of the capital stock of PIC Cayman, (iii) PIC's interest
in distributions from Interholding, and (iv) certain other collateral. The
Series A Bonds are effectively subordinated to the obligations of PIC's
subsidiaries under project-level financing arrangements. The indenture contains
certain covenants, including limitations on distributions, additional debt and
certain other transactions.
While amounts are outstanding under the Series A Bonds, all distributions
to PIC from Interholding and certain proceeds received from PIC Cayman will be
paid to a collateral agent. On a monthly basis, the collateral agent will remit
to PIC remaining funds available after satisfaction of PIC's debt service
obligations (including amounts withheld, if necessary, to meet future debt
service and reserve fund requirements as required by the indenture) provided
that PIC is in compliance with the debt covenants.
In connection with the issuance of the Series A Bonds, the Company
advanced approximately $34.8 million to PEII for project development and general
corporate purposes.
CONSTRUCTION LOAN AND CAPITAL LEASE -- On April 10, 1995, Panda-Brandywine
closed the initial funding of a $215 million construction loan commitment with
GECC. The construction loan bears an interest rate of the Eurodollar rate plus
2.5%. The construction loan provides for commitments under letters of credit
aggregating approximately $12.4 million of which approximately $5.4 million was
outstanding as of December 31, 1995. The letters of credit have terms up to the
terms of the lease, an annual fee of 1.50% on any amounts outstanding and 1.25%
on the unused commitment and are collateralized by the Brandywine Project.
The Brandywine Project commenced commercial operations on October 31,
1996. The construction loan was converted to long-term non-recourse financing of
$217.5 million in the form of a capital lease on December 30, 1996. To effect
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<PAGE>
the lease financing, title to the Brandywine Project was transferred to a third
party trustee and leased back to Panda-Brandywine. The Brandywine facility lease
is a net lease with an initial term of 20 years and two five-year renewal
options. The documents governing the lease financing contain various affirmative
and negative covenants, including limitations on the ability of Panda-Brandywine
to make distributions to its partners. In connection with the capital lease
financing, GECC has provided letters of credit of approximately $2.3 million,
which may be increased to approximately $7.3 million under certain
circumstances. The letters of credit have an annual fee of 1.50% on any amounts
outstanding.
The future minimum lease commitments under the capital lease for the
Brandywine Project are as follows:
1997 ................................... $ 7,831,527
1998 ................................... 10,419,439
1999 ................................... 17,584,915
2000 ................................... 20,489,320
2001 ................................... 25,613,918
Thereafter ............................. 501,415,526
-------------
Total minimum lease payments ........... 583,354,645
Amounts representing interest .......... (365,866,000)
-------------
Present value of net minimum payments .. $ 217,488,645
=============
LONG-TERM DEBT MATURITIES -- The principal maturities of long-term
obligations, excluding the capital lease relating to the Brandywine Project, for
each of the five years succeeding December 31, 1996 and thereafter are as
follows:
1997 ......................... $ 5,717,623
1998 ......................... 5,816,974
1999 ......................... 5,926,269
2000 ......................... 6,024,598
2001 ......................... 7,229,603
Thereafter ................... 184,833,474
------------
$215,548,541
============
7. INCOME TAXES
A provision for income taxes for 1994, 1995 and 1996 has not been recorded
since operating losses were incurred for each year.
The Company has approximately $45 million of net operating loss
carryforwards at December 31, 1996, the benefits of which will be available to
the Company when realized by PEII. The net operating loss carryforwards will
expire during the years 2007 to 2011. PEII may become subject to a limitation on
the amount of net operating loss carryforwards which may be used annually to
offset income should certain changes in its ownership occur in the future.
Should PEII become subject to such a limitation, the amount of tax benefits
available to the Company could be reduced.
Deferred tax assets of approximately $4 million and $14 million as of
December 31, 1995 and 1996, respectively, consist primarily of interest in
partnerships and net operating losses and are offset by a valuation allowance.
The deferred tax asset for interest in partnerships relates to the difference
between the tax basis of the assets contributed to the partnership upon its
formation and the Company's financial reporting basis in those assets.
SFAS No. 109 requires that a valuation allowance be recorded against tax
assets which are not likely to be realized. The Company's carryforwards expire
at specific future dates and utilization of certain carryforwards is limited to
specific amounts each year. However, due to the uncertain nature of their
ultimate realization based upon past performance and expiration dates, the
Company has established a full valuation allowance against these carryforward
benefits and will recognize the benefits only when reassessment demonstrates
that it is more likely than not that such benefits will be realized. Realization
is entirely dependent upon future earnings in specific tax jurisdictions. While
the need for this valuation allowance is subject to periodic review, if the
allowance is reduced, the tax benefits of the carryforwards will be recorded in
future operations as a reduction of the Company's income tax expense.
F-14
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
In connection with a previous borrowing from Nova Northwest Inc. ("Nova"),
Nova received a cash flow participation interest in the distributions from the
Rosemary Project for the term of the Panda-Rosemary L.P. partnership agreement.
Such participation interest amounted to 4.33% of the Company's own participation
interest, which was 10% at the time the agreement was entered into. The Company
has filed an action with the District Court of Dallas County, Texas seeking a
declaratory judgment that Nova's cash flow participation is 0.433% of the
Company's 100% interest after the acquisition of the institutional investor's
90% limited partnership interest. Management believes that the resolution of
this dispute will not have a material effect on the financial position, results
of operations or cash flows of the Company. PEII and Nova each have the option
to convert the present value of cash flow participation, as defined by the
agreement, to PEII common stock at $6 a share.
In 1995, Florida Power filed an action with the Florida Public Service
Commission ("Florida PSC") relating to the term of the power purchase agreement
for the Kathleen Project (see Note 5) and whether the Kathleen Project, as
designed, is eligible to execute the power purchase agreement pursuant to
Florida Power's bid solicitation and the Florida PSC's regulations. On May 20,
1996, the Florida PSC issued an order finding that: (1) the Kathleen Project, as
designed, did not comply with the power purchase agreement and the Florida PSC's
regulations; (2) the capacity payments under the power purchase agreement should
only extend for 20 years (as opposed to the 30 year stated term of the
agreement); and (3) the construction and commercial operation milestones should
be extended for an additional 18 months. The Company has appealed this ruling to
the Florida Supreme Court and will vigorously defend this action. Management
believes that the outcome of this litigation will not have a material effect on
the accompanying consolidated financial statements.
In August 1996, Panda-Brandywine and PEPCO commenced discussions
concerning commercial operational requirements of the Brandywine Project and
conversion of the construction loan to long-term financing in the form of a
lease. During these discussions, disagreements arose between Panda-Brandywine
and PEPCO with respect to certain provisions of the Brandywine Power Purchase
Agreement, one of which relates to the determination of the interest rate that
is the basis for reduction in capacity payments thereunder (the "PEPCO Interest
Rate Dispute"). PEPCO and Panda-Brandywine are presently attempting to resolve
these disagreements but there are no assurances that such efforts will be
successful. If the PEPCO Interest Rate Dispute is determined adversely to
Panda-Brandywine, the capacity payments paid by PEPCO under the Brandywine Power
Purchase Agreement (which commence in January 1997) will be less than originally
anticipated, thereby adversely affecting the revenues realized by
Panda-Brandywine, and consequently, reducing the amount of funds that would be
available for distribution to the Company.
Raytheon Engineers and Constructors, Inc. ("Raytheon") constructed the
Brandywine Project pursuant to a fixed-price, turnkey engineering, procurement
and construction contract (the "Brandywine EPC Agreement") with
Panda-Brandywine. Raytheon completed the construction and start-up of the
Brandywine Project and has met the requirements for commercial operations and
substantial completion under the Brandywine EPC Agreement, although the date on
which commercial operations were achieved and the entitlement of Raytheon to
certain early completion bonuses under the Brandywine EPC Agreement are the
subject of a dispute between Panda-Brandywine and Raytheon. The Company
estimates that the amount in dispute is less than $1 million and believes that
the resolution of this dispute will not have a material adverse effect upon the
financial position, results of operations or liquidity of the Company.
The Company has entered into various long-term contracts for the purchase
and transportation of fuel subject to termination only in certain limited
circumstances. These contracts have remaining terms of 10 to 25 years. The
Company's minimum purchase commitment under these contracts is 2.3 million
British thermal units of gas annually from October 31, 1996 through October 31,
2011. In the aggregate, such commitments are not at prices in excess of the
current market.
PEC is also involved in other legal and administrative proceedings in the
ordinary course of business. Management believes, based on the advice of
counsel, the amount of ultimate liability with respect to these matters will not
have a material affect on the financial position, results of operations or cash
flows of the Company.
9. RELATED PARTY TRANSACTIONS
The Company purchases insurance coverage through an agency owned by a
major shareholder of PEII who is also a member of the board of directors of PEII
and a relative of PEII's chairman. The Company believes such coverage is on
terms that are no less favorable than reasonably available from unaffiliated
third parties. Total insurance purchases through this
F-15
<PAGE>
agency were $291,142, $298,728 and $754,388 for the years ended December 31,
1994, 1995 and 1996, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair values of the Company's financial instruments as of
December 31, 1996 are as follows:
Carrying Value Fair Value
------------ ------------
Long-term debt, including current portion ... $215,548,541 $220,824,791
Capital lease obligation .................... $217,488,645 $217,488,645
The Rosemary Bonds and the Series A Bonds have limited trading. The fair
value of these bonds is estimated based on an April 1997 third party quotation,
adjusted to reflect changes in the yield of government securities with similar
maturities since December 31, 1996. The fair value of the capital lease
obligation equals the carrying value of the obligation because the lease
financing transaction, which closed on December 30, 1996, reflects the Company's
incremental borrowing rate at year end.
The Company is also a party to letters of credit. Historically, no claims
have been made against these financial instruments and management does not
expect any material losses to result from these off-balance-sheet instruments
because performance is not usually expected to be required. Therefore,
management is of the opinion that the fair value of these instruments is zero.
The Company has various purchase commitments for gas supply and delivery
incident to the ordinary conduct of business. In the aggregate, such commitments
are not at prices in excess of the current market.
The Company's electric capacity and energy sales are currently under two
power sales contracts with two customers. The failure of these customers to
fulfill their contractual obligations could have a substantial negative impact
on the Company's revenue. However, the Company does not anticipate
non-performance by the customers under these contracts.
11. SUBSEQUENT EVENT
In April 1997, Global Cayman issued $155.2 million original principal
amount of senior secured notes ("Senior Secured Notes") to finance the
development and construction of the Luannan Project. The Senior Secured Notes,
which were issued at a discount for gross proceeds of $145.0 million, bear
interest at a fixed rate of 12 1/2% payable semiannually commencing October 15,
1997. Scheduled principal payments are required semiannually commencing October
15, 2000 and will continue through maturity on April 15, 2004. The Senior
Secured Notes are subject to mandatory redemption prior to maturity under
certain conditions. The Senior Secured Notes are secured by (i) a pledge of 100%
of the capital stock of Global Cayman, 99% of the capital stock of Pan-Western
and at least 90% of the capital stock of Pan-Sino, and (ii) a security interest
in certain funds of Global Cayman and its subsidiaries established under the
indenture. Additionally, the Senior Secured Notes are fully and unconditionally
guaranteed by Panda Global, whose guarantee (the "Senior Secured Notes
Guarantee") is secured by (i) a pledge of 100% of the capital stock of Panda
Global and PEC and (ii) a security interest in certain funds of Panda Global
established under the indenture. The Senior Secured Notes Guarantee is
effectively subordinated to the obligations of PIC and its subsidiaries under
the Series A Bonds and project-level financing arrangements. The indenture
contains certain covenants, including limitations on distributions, additional
debt and certain other transactions. Individually, and in the aggregate, the
pledges of the capital stock of PEC, Pan-Western and Pan-Sino do not constitute
a "substantial portion" (as defined in Rule 3-10 of Regulation S-X promulgated
under the Securities Act of 1933) of collateral for the Senior Secured Notes or
the Senior Secured Notes Guarantee. Separate financial statements of such
entities are not presented, as management has determined that such information
is not material to holders of the Senior Secured Notes. See Note 12 for
condensed consolidating financial information for the Company.
F-16
<PAGE>
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
As discussed in Note 11, the Senior Secured Notes issued in April 1997 by
Global Cayman are fully and unconditionally guaranteed by Panda Global.
Condensed consolidating financial information for the Company as of December 31,
1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996 is as
follows:
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............. $ -- $ -- $ 1,166,385 $ -- $ 1,166,385
Restricted cash -- current ............ -- -- 1,876,142 -- 1,876,142
Accounts receivable ................... -- -- 5,199,999 -- 5,199,999
Fuel oil, spare parts and supplies .... -- -- 3,084,168 -- 3,084,168
Other current assets .................. -- -- 12,664 -- 12,664
----------- ------------- ------------- ------------- -------------
Total current assets ............... -- -- 11,339,358 -- 11,339,358
Plant and equipment:
Electric generating facility .......... -- -- 105,168,094 -- 105,168,094
Furniture and fixtures ................ -- -- 29,080 -- 29,080
Less accumulated depreciation ......... -- -- (21,008,036) -- (21,008,036)
Construction in progress .............. -- -- 132,604,494 -- 132,604,494
Development costs ..................... -- -- 3,350,924 -- 3,350,924
----------- ------------- ------------- ------------- -------------
Total plant and equipment, net ..... -- -- 220,144,556 -- 220,144,556
Investment in and advances to subsidiaries 1,065,063 -- -- (1,065,063) --
Restricted cash -- debt service reserves
and escrow deposits ................... -- -- 10,947,948 -- 10,947,948
Debt issuance costs ...................... -- -- 3,990,655 -- 3,990,655
Partnership formation costs, net ......... -- -- 533,100 -- 533,100
----------- ------------- ------------- ------------- -------------
$ 1,065,063 $ -- $ 246,955,617 $ (1,065,063) $ 246,955,617
=========== ============= ============= ============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ................. $ -- $ -- $ 5,597,818 $ -- $ 5,597,818
Interest and letter of credit fees . -- -- 2,540,347 -- 2,540,347
Operating expenses and other ....... -- -- 1,219,061 -- 1,219,061
Current portion of long-term debt ..... -- -- 9,100,000 -- 9,100,000
----------- ------------- ------------- ------------- -------------
Total current liabilities .......... -- -- 18,457,226 -- 18,457,226
Long term debt, less current portion ..... -- -- 234,608,361 -- 234,608,361
Investment in and advances from affiliates -- 42,945,636 -- (42,945,636) --
Minority interest ........................ -- -- 36,835,666 -- 36,835,666
Shareholder's equity (deficit):
Common stock, par value
$.01; 1,000 shares authorized,
issued and outstanding ............. 2 10 10 (12) 10
Advances (to) from parent ............. 1,712,061 (26,869,548 (26,869,548) 25,157,487 (26,869,548)
Accumulated deficit ................... (647,000) (16,076,098) (16,076,098) 16,723,098 (16,076,098)
Total shareholder's equity (deficit) 1,065,063 (42,945,636) (42,945,636) 41,880,573 (42,945,636)
----------- ------------- ------------- ------------- -------------
$ 1,065,063 $ -- $ 246,955,617 $ (1,065,063) $ 246,955,617
=========== ============= ============= ============= =============
</TABLE>
F-17
<PAGE>
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............. $ -- $ -- $ 1,335,086 $ -- $ 1,335,086
Restricted cash -- current ............ -- -- 17,809,921 -- 17,809,921
Accounts and notes receivable ......... -- -- 9,402,685 -- 9,402,685
Fuel oil, spare parts and supplies .... -- -- 7,913,777 -- 7,913,777
Other current assets .................. -- -- 164,905 -- 164,905
----------- ------------- ------------- ------------- -------------
Total current assets ............... -- -- 36,626,374 -- 36,626,374
Plant and equipment:
Electric generating facility .......... -- -- 288,716,711 -- 288,716,711
Furniture and fixtures ................ -- -- 494,418 -- 494,418
Less accumulated depreciation ......... -- -- (26,539,539) -- (26,539,539)
Construction in progress .............. -- -- -- -- --
Development costs ..................... -- -- 6,053,361 -- 6,053,361
----------- ------------- ------------- ------------- -------------
Total plant and equipment, net ..... -- -- 268,724,951 -- 268,724,951
Investment in and advances to subsidiaries 3,798,781 -- -- (3,798,781) --
Restricted cash -- debt service reserves
and escrow deposits ................... -- -- 32,548,366 -- 32,548,366
Debt issuance costs ...................... -- -- 7,570,521 -- 7,570,521
Partnership formation costs, net ......... -- -- -- -- --
----------- ------------- ------------- ------------- -------------
$ 3,798,781 $ -- $ 345,470,212 $ (3,798,781) $ 345,470,212
=========== ============= ============= ============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ................. $ -- $ -- $ 660,167 $ -- $ 660,167
Interest and letter of credit fees . -- -- 6,297,558 -- 6,297,558
Operating expenses and other ....... -- -- 6,991,796 -- 6,991,796
Current portion of long-term debt ..... -- -- 5,717,623 -- 5,717,623
----------- ------------- ------------- ------------- -------------
Total current liabilities .......... -- -- 19,667,144 -- 19,667,144
Long term debt, less current portion ..... -- -- 209,830,918 -- 209,830,918
Capital lease obligation ................. -- -- 217,488,645 -- 217,488,645
Investment in and advances from affiliates 101,516,495 -- (101,516,495) --
Minority interest ........................ -- -- -- -- --
Shareholder's equity (deficit):
Common stock, par value
$.01; 1,000 shares authorized,
issued and outstanding ........... 2 10 10 (12) 10
Advances (to) from parent ............. 6,099,779 (52,782,940) (52,782,940) 46,683,161 (52,782,940)
Accumulated deficit ................... (2,301,000) (48,733,565) (48,733,565) 51,034,565 (48,733,565)
Total shareholder's equity(deficit) 3,398,781 (101,516,495) (101,516,495) 97,717,714 (101,516,495)
----------- ------------- ------------- ------------- -------------
$ 3,798,781 $ -- $ 345,470,212 $ (3,798,781) $ 345,470,212
=========== ============= ============= ============= =============
</TABLE>
F-18
<PAGE>
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Electric capacity ......................... $ -- $ -- $ 30,664,096 $ -- $ 30,664,096
Steam and chilled water sales ............. -- -- 650,575 -- 650,575
Interest income ........................... -- -- 602,783 -- 602,783
Equity in loss of subsidiary .............. (203,000) (861,265) -- 1,064,265 --
------------ ------------ ------------ ------------ ------------
Total revenue .......................... (203,000) (861,265) 31,917,454 1,064,265 31,917,454
Expenses:
Plant operating expenses .................. -- -- 8,940,146 -- 8,940,146
Project development and administrative .... -- -- 1,779,349 -- 1,779,349
Interest expense and letter of credit fees -- -- 11,017,418 -- 11,017,418
Depreciation .............................. -- -- 4,208,314 -- 4,208,314
Amortization of debt issuance costs ....... -- -- 600,382 -- 600,382
Amortization of partnership formation costs -- -- 533,116 -- 533,116
------------ ------------ ------------ ------------ ------------
Total expenses ......................... -- -- 27,078,725 -- 27,078,725
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest ....... (203,000) (861,265) 4,838,729 1,064,265 4,838,729
Minority interest ............................ -- -- (5,699,994) -- (5,699,994)
------------ ------------ ------------ ------------ ------------
Net loss .................................. $ (203,000) $ (861,265) $ (861,265) $ 1,064,265 $ (861,265)
============ ============ ============ ============ ============
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Electric capacity ......................... $ -- $ -- $ 29,858,475 $ -- $ 29,858,475
Steam and chilled water sales ............. -- -- 473,040 -- 473,040
Interest income ........................... -- -- 895,268 -- 895,268
Equity in loss of subsidiary ............. (444,000) (2,731,689) -- 3,175,689 --
------------ ------------ ------------ ------------ ------------
Total revenue .......................... (444,000) (2,731,689) 31,226,783 3,175,689 31,226,783
------------ ------------ ------------ ------------ ------------
Expenses:
Plant operating expenses .................. -- -- 9,347,707 -- 9,347,707
Project development and administrative .... -- -- 2,550,376 -- 2,550,376
Interest expense and letter of credit fees -- -- 11,715,929 -- 11,715,929
Depreciation .............................. -- -- 4,209,453 -- 4,209,453
Amortization of debt issuance costs ....... -- -- 554,311 -- 554,311
Amortization of partnership formation costs -- -- 533,116 -- 533,116
------------ ------------ ------------ ------------ ------------
Total expenses ......................... -- -- 28,910,892 -- 28,910,892
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest ....... (444,000) (2,731,689) 2,315,891 3,175,689 2,315,891
Minority interest ............................ -- -- (5,047,580) -- (5,047,580)
------------ ------------ ------------ ------------ ------------
Net loss ..................................... $ (444,000) $ (2,731,689) $ (2,731,689) $ 3,175,689 $ (2,731,689)
============ ============ ============ ============ ============
</TABLE>
F-19
<PAGE>
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Electric capacity ........................... $ -- $ -- $ 32,273,736 $ -- $ 32,273,736
Steam and chilled water sales ............... -- -- 502,757 -- 502,757
Interest income ............................. -- -- 1,518,006 -- 1,518,006
Equity in loss of subsidiaries .............. (1,654,000) (32,657,467) -- 34,311,467 --
------------ ------------ ------------ ------------ ------------
Total revenue ............................ (1,654,000) (32,657,467) 34,294,499 34,311,467 34,294,499
Expenses:
Plant operating expenses .................... -- -- 12,050,495 -- 12,050,495
Project development and administrative ...... -- -- 5,187,348 -- 5,187,348
Interest expense and letter of credit fees .. -- -- 19,414,012 -- 19,414,012
Depreciation ................................ -- -- 5,531,502 -- 5,531,502
Amortization of debt issuance costs ......... -- -- 493,799 -- 493,799
Amortization of partnership formation costs . -- -- 533,100 -- 533,100
------------ ------------ ------------ ------------ ------------
Total expenses ........................... -- -- 43,210,256 -- 43,210,256
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest and
extraordinary item ........................ (1,654,000) (32,657,467) (8,915,757) 34,311,467 (8,915,757)
Minority interest .............................. -- -- (2,405,160) -- (2,405,160)
------------ ------------ ------------ ------------ ------------
Income (loss) before extraordinary item ........ (1,654,000) (32,657,467) (11,320,917) 34,311,467 (11,320,917)
Extraordinary item - loss on debt extinguishment -- -- (21,336,550) -- (21,336,550)
------------ ------------ ------------ ------------ ------------
Net loss ....................................... $ (1,654,000) $(32,657,467) $(32,657,467) $ 34,311,467 $(32,657,467)
============ ============ ============ ============ ============
</TABLE>
F-20
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities $ -- $ -- $ 7,584,583 $ -- $ 7,584,583
Investing activities:
Restricted cash - current -- -- 2,847,429 -- 2,847,429
Additions to plant and equipment -- -- (5,045,085) -- (5,045,085)
Acquisition of minority interest -- -- -- -- --
Restricted cash - debt service
reserves and escrow deposits -- -- (457,538) -- (457,538)
----------- ---------- ---------- ----------- ----------
Net cash used in investing
activities -- -- (2,655,194) -- (2,655,194)
----------- ---------- ---------- ----------- ----------
Financing activities:
Distributions to minority
interest owner -- -- (4,590,354) -- (4,590,354)
Advances (to) from parent 732,773 (6,954,287) (6,954,287) 6,221,514 (6,954,287)
Advances (to) from subsidiaries (732,773) 6,954,287 -- (6,221,514) --
Proceeds from long-term debt -- -- 16,534,706 -- 16,534,706
Repayment of long-term debt -- -- (7,500,000) -- (7,500,000)
Debt issuance costs -- -- (498,281) -- (498,281)
----------- ----------- ---------- ------------ ----------
Net cash provided by
financing activities -- -- (3,008,216) -- (3,008,216)
----------- ----------- ---------- ------------ ----------
Increase (decrease) in cash
and cash equivalents -- -- 1,921,173 -- 1,921,173
Cash and cash equivalents,
beginning of period -- -- 2,101,209 -- 2,101,209
----------- ----------- ----------- ------------ -----------
Cash and cash equivalents,
end of period $ -- $ -- $ 4,022,382 $ -- $ 4,022,382
============ ============ ============ ============ ============
</TABLE>
F-21
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $ -- $ -- $ 8,403,538 $ -- $ 8,403,538
Investing activities:
Restricted cash - current -- -- 695,684 -- 695,684
Additions to plant and equipment -- -- (124,109,566) -- (124,109,566)
Acquisition of minority interest -- -- -- -- --
Restricted cash - debt service
reserves and escrow deposits -- -- (747,655) -- (747,655)
----------- ----------- ----------- ------------ -----------
Net cash used in investing
activities -- -- (124,161,537) -- (124,161,537)
----------- ----------- ----------- ------------ -----------
Financing activities:
Distributions to minority
interest owner -- -- (3,800,279) -- (3,800,279)
Advances (to) from parent 979,288 (13,004,619) (13,004,619) 12,025,331 (13,004,619)
Advances (to) from subsidiaries (979,288) 13,004,619 -- (12,025,331) --
Proceeds from long-term debt -- -- 147,541,291 -- 147,541,291
Repayment of long-term debt -- -- (17,500,000) -- (17,500,000)
Debt issuance costs -- -- (334,391) -- (334,391)
----------- ----------- ------------ ----------- -----------
Net cash provided by
financing activities -- -- 112,902,002 -- 112,902,002
----------- ----------- ------------ ----------- ------------
Increase (decrease) in cash
and cash equivalents -- -- (2,855,997) -- (2,855,997)
Cash and cash equivalents,
beginning of period -- -- 4,022,382 -- 4,022,382
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents,
end of period $ -- $ -- $ 1,166,385 $ -- $ 1,166,385
============ =========== ============ ============ ============
</TABLE>
F-22
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $ -- $ -- $ (1,620,455) $ -- $ (1,620,455)
Investing activities:
Restricted cash - current -- -- (15,933,779) -- (15,933,779)
Additions to plant and equipment -- -- (62,881,838) -- (62,881,838)
Acquisition of minority interest -- -- (34,256,423) -- (34,256,423)
Restricted cash - debt service
reserves and escrow deposits -- -- (21,600,418) -- (21,600,418)
------------ ----------- ------------ ------------ ------------
Net cash used in
investing activities -- -- (134,672,458) -- (134,672,458)
------------ ----------- ------------ ------------ ------------
Financing activities:
Distributions to minority
interest owner -- -- (1,152,113) -- (1,152,113)
Advances (to) from parent 4,387,718 (25,913,392) (25,913,392) 21,525,674 (25,913,392)
Advances (to) from subsidiaries (4,387,718) 25,913,392 -- (21,525,674) --
Proceeds from long-term debt -- -- 299,677,926 -- 299,677,926
Repayment of long-term debt -- -- (128,415,271) -- (128,415,271)
Debt issuance costs -- -- (7,735,536) -- (7,735,536)
------------ ----------- ------------ ------------ ------------
Net cash provided by
financing activities -- -- 136,461,614 -- 136,461,614
------------ ----------- ------------ ------------ ------------
Increase (decrease) in cash
and cash equivalents -- -- 168,701 -- 168,701
Cash and cash equivalents,
beginning of period -- -- 1,166,385 -- 1,166,385
------------ ----------- ------------ ----------- ------------
Cash and cash equivalents,
end of period $ -- $ -- $ 1,335,086 $ -- $ 1,335,086
============ ============ ============ =========== ============
</TABLE>
F-23
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
DECEMBER 31 MARCH 31
1996 1997
------------- -------------
Current assets:
Cash and cash equivalents ................... $ 1,335,086 $ 1,198,071
Restricted cash -- current .................. 17,809,921 15,115,215
Accounts receivable ......................... 9,402,685 9,219,619
Fuel oil, spare parts and supplies .......... 7,913,777 6,897,908
Other current assets ........................ 164,905 234,585
------------- -------------
Total current assets ..................... 36,626,374 32,665,398
Plant and equipment:
Electric generating facilities .............. 288,716,711 289,097,164
Furniture and fixtures ...................... 494,418 496,202
Less: accumulated depreciation .............. (26,539,539) (29,488,416)
Development costs ........................... 6,053,361 9,426,582
------------- -------------
Total plant and equipment, net ........... 268,724,951 269,531,532
Restricted cash - debt service reserves
and escrow deposits .......................... 32,548,366 32,548,366
Debt issuance costs, net of accumulated
amortization of $165,015 and $338,822,
respectively ................................. 7,570,521 7,530,770
------------- -------------
$ 345,470,212 $ 342,276,066
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ....................... $ 660,167 $ --
Interest and letter of credit fees ....... 6,297,558 2,505,216
Operating expenses and other ............. 6,991,796 5,931,986
Current portion of long-term debt ........... 5,717,623 5,501,823
------------- -------------
Total current liabilities ............. 19,667,144 13,939,025
Long-term debt, less current portion ........... 209,830,918 208,454,461
Capital lease obligation ....................... 217,488,645 222,868,697
Commitments and contingencies (Note 4)
Shareholder's deficit:
Common stock, par value $.01; 1,000 shares
authorized, issued and outstanding .... 10 10
Advances to parent .......................... (52,782,940) (47,562,041)
Accumulated deficit ......................... (48,733,565) (55,424,086)
------------- -------------
Total shareholder's deficit .............. (101,516,495) (102,986,117)
------------- -------------
$ 345,470,212 $ 342,276,066
============= =============
See accompanying notes to condensed consolidated financial statements
F-24
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
1996 1997
------------ ------------
Revenue:
Electric capacity and energy sales ............ $ 8,015,442 $ 17,329,693
Steam and chilled water sales ................. 121,548 130,582
Interest income ............................... 185,672 429,727
------------ ------------
8,322,662 17,890,002
------------ ------------
Expenses:
Plant operating expenses ...................... 2,441,532 8,261,187
Project development and administrative ........ 803,433 2,395,022
Interest expense and letter of credit fees .... 3,184,745 10,801,629
Depreciation .................................. 1,053,220 2,948,878
Amortization of debt issuance costs ........... 140,907 173,807
Amortization of partnership formation costs ... 133,275 --
------------ ------------
7,757,112 24,580,523
------------ ------------
Income (loss) before minority interest ........... 565,550 (6,690,521)
Minority interest ................................ (1,718,948) --
------------ ------------
Net loss ......................................... $ (1,153,398) $ (6,690,521)
============ ============
See accompanying notes to condensed consolidated financial statements.
F-25
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT FOR THE
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
TOTAL
COMMON ADVANCES ACCUMULATED SHAREHOLDER'S
STOCK TO PARENT DEFICIT DEFICIT
--- ------------ ------------ -------------
Balance, January 1, 1997 $10 $(52,782,940) $(48,733,565) $(101,516,495)
Advances from parent .... -- 5,220,899 -- 5,220,899
Net loss ................ -- -- (6,690,521) (6,690,521)
--- ------------ ------------ -------------
Balance, March 31, 1997 . $10 $(47,562,041) $(55,424,086) $(102,986,117)
=== ============ ============ =============
See accompanying notes to condensed consolidated financial statements.
F-26
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
Operating activities:
Net loss .................................................. $ (1,153,398) $(6,690,521)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority interest ...................................... 1,718,948 --
Depreciation ........................................... 1,053,220 2,948,878
Amortization of debt issuance costs .................... 140,907 173,807
Amortization of partnership formation costs ............ 133,275 --
Amortization of loan discount and deferred interest .... 47,953 5,380,052
Changes in assets and liabilities:
Accounts receivable .................................... (660,500) 183,066
Fuel oil, spare parts and supplies ..................... 281,634 1,015,869
Other current assets ................................... (47,151) (69,680)
Accounts payable and accrued expenses .................. 2,623,451 (4,852,153)
------------ -----------
Net cash provided (used) by operating activities ....... 4,138,339 (1,910,682)
------------ -----------
Investing activities:
Restricted cash - current ................................. (4,843,722) 2,694,706
Additions to property, plant and equipment ................ (21,631,804) (4,415,625)
Restricted cash - debt service reserves and escrow deposits 76,776 --
------------ -----------
Net cash provided (used) by investing activities ....... (26,398,750) (1,720,919)
------------ -----------
Financing activities:
Distributions to minority interest owner .................. (321,124) --
Advances from parent ...................................... 1,490,607 5,220,899
Proceeds from long-term debt .............................. 21,488,220 --
Repayment of long-term debt ............................... -- (1,592,257)
Debt issuance costs ....................................... (199,498) (134,056)
------------ -----------
Net cash provided by financing activities .............. 22,458,205 3,494,586
------------ -----------
Increase (decrease) in cash and cash equivalents ............. 197,794 (137,015)
Cash and cash equivalents, beginning of period ............... 1,166,385 1,335,086
------------ -----------
Cash and cash equivalents, end of period ..................... $ 1,364,179 $ 1,198,071
============ ===========
NON-CASH OPERATING AND FINANCING ACTIVITIES:
Interest expense on capital lease obligation ................. $ -- $ 5,380,052
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-27
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Global Holdings, Inc. ("Panda Global", or collectively with its
subsidiaries the "Company"), a wholly owned subsidiary of Panda Energy
International, Inc. ("PEII"), was formed in March 1997 to hold the ownership
interests in four independent power projects which were formerly owned by other
wholly owned subsidiaries of PEII. The ownership interests were transferred to
the Company at PEII's historical cost. Because the transfers occurred between
entities under common control, the transactions have been accounted for in a
manner similar to a pooling of interests. The Company has two direct wholly
owned subsidiaries: Panda Energy Corporation ("PEC")( a Texas corporation) which
indirectly holds the Company's ownership interests in domestic projects, and
Panda Global Energy Company ("Global Cayman")(a Cayman Islands company) which
indirectly holds the Company's ownership interest in an international project
located in China.
PEC, through its wholly owned subsidiary Panda Interfunding Corporation
("PIC") and PIC's wholly owned subsidiary Panda Interholding Corporation
("Interholding"), holds the Company's ownership interests in the Rosemary
project and the Brandywine project. The entities holding such ownership
interests include the following: Panda Rosemary Corporation ("PRC"), a 91%
general partner in Panda-Rosemary, L.P. ("Panda-Rosemary"); PRC II Corporation
("PRC II"), a 9% limited partner in Panda-Rosemary; Panda Brandywine
Corporation, a 50% general partner in Panda-Brandywine, L.P.
("Panda-Brandywine"); Panda Energy Corporation (a Delaware corporation), a 50%
limited partner in Panda-Brandywine; and Brandywine Water Company. The Company,
through its general and limited partnership interests, owns 100% of
Panda-Brandywine and, as of July 31, 1996, owns 100% of Panda-Rosemary. Prior to
July 31, 1996, the Company owned 10% of Panda-Rosemary. The Rosemary and
Brandywine projects are located in the United States. Other direct or indirect
wholly owned subsidiaries of PIC include Panda Funding Corporation ("PFC"),
Panda-Rosemary Funding Corporation ("PRFC") and Panda Cayman Interfunding
Corporation ("PIC Cayman"), which have been formed to facilitate the financing
of the development and acquisition of independent power projects.
Additionally, PEC holds the Company's 100% ownership interest in the
Kathleen project through its wholly owned subsidiaries.
Global Cayman (which collectively with its subsidiaries is a development
stage enterprise having no operating revenues) holds a 95.5% ownership interest
in Pan-Sino Energy Development Company LLC ("Pan-Sino")(a Cayman Islands
company), which in turn holds a 99% ownership interest in Pan-Western Energy
Corporation LLC ("Pan-Western")(a Cayman Islands company), which in turn owns an
approximately 88% interest in four joint venture companies (the "Joint Venture
Companies") organized under the laws of the People's Republic of China ("China")
to develop and construct an independent power project located in China. The
Joint Venture Companies, which currently have no material assets or operations,
are: Tangshan Panda Heat and Power Company, Ltd. ("Tangshan Panda"), Tangshan
Pan-Western Heat and Power Company, Ltd. ("Tangshan Pan-Western"), Tangshan
Cayman Heat and Power Company, Ltd. ("Tangshan Cayman") and Tangshan Pan-Sino
Heat Company, Ltd. ("Tangshan Pan-Sino").
Collectively, PEC, Pan-Sino and Pan-Western are the predecessors of the
Company.
All material intercompany accounts and transactions have been eliminated
in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and should be read in conjunction with the audited financial statements for the
year ended December 31, 1996. The accompanying unaudited condensed consolidated
financial statements for the three months ended March 31, 1996 and 1997 include
all adjustments, consisting of normal recurring accruals, which management
considers necessary for a fair presentation of the results for the interim
periods. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. The amounts presented in the balance sheet as of
December 31, 1996 were derived from the Company's audited consolidated financial
statements.
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain accounting,
legal, insurance, and consulting services for the
F-28
<PAGE>
Company. These general and administrative costs are generally allocated to the
Company using the percentage of time PEII personnel spent performing these
services. The expenses allocated were $532,000 and $1,110,000 for the three
months ended March 31, 1996 and 1997, respectively, and are included in project
development and administrative expenses in the statement of operations.
Management believes the method used to allocate these costs is reasonable.
3. POWER PROJECTS AND LONG-TERM DEBT
The Company has incurred development costs on the Kathleen Project of $2.8
million as of December 31, 1996 and March 31, 1997. The Company has incurred
development costs on the Luannan Project of $3.3 million and $6.6 million as of
December 31, 1996 and March 31, 1997, respectively. Such costs are included in
plant and equipment under development costs in the accompanying balance sheets.
4. COMMITMENTS AND CONTINGENCIES
In 1995, Florida Power filed an action with the Florida Public Service
Commission ("Florida PSC") relating to the term of the power purchase agreement
for the Kathleen Project and whether the Kathleen Project, as designed, is
eligible to execute the power purchase agreement pursuant to Florida Power's bid
solicitation and the Florida PSC's regulations. On May 20, 1996, the Florida PSC
issued an order finding that: (1) the Kathleen Project, as designed, did not
comply with the power purchase agreement and the Florida PSC's regulations; (2)
the capacity payments under the power purchase agreement should only extend for
20 years (as opposed to the 30 year stated term of the agreement); and (3) the
construction and commercial operation milestones should be extended for an
additional 18 months. The Company has appealed this ruling to the Florida
Supreme Court and will vigorously defend this action. Management believes that
the outcome of this litigation will not have a material effect on the
accompanying condensed consolidated financial statements.
In August 1996, Panda-Brandywine and PEPCO commenced discussions
concerning commercial operational requirements of the Brandywine Project and
conversion of the construction loan to long-term financing in the form of a
lease. During these discussions, disagreements arose between Panda-Brandywine
and PEPCO with respect to certain provisions of the Brandywine Power Purchase
Agreement which relate to the determination of the interest rate that is the
basis for reduction in capacity payments thereunder (the "PEPCO Interest Rate
Dispute"). PEPCO and Panda-Brandywine are presently attempting to resolve these
disagreements but there are no assurances that such efforts will be successful.
If the PEPCO Interest Rate Dispute is determined adversely to Panda-Brandywine,
the capacity payments paid by PEPCO under the Brandywine Power Purchase
Agreement will be less than originally anticipated, thereby adversely affecting
the revenues realized by Panda-Brandywine, and consequently, reducing the amount
of funds that would be available for distribution to the Company.
Raytheon Engineers and Constructors, Inc. ("Raytheon") constructed the
Brandywine Project pursuant to a fixed-price, turnkey engineering, procurement
and construction contract (the "Brandywine EPC Agreement") with
Panda-Brandywine. Raytheon completed the construction and start-up of the
Brandywine Project and has met the requirements for commercial operations and
substantial completion under the Brandywine EPC Agreement, although the date on
which commercial operations were achieved and the entitlement of Raytheon to
certain early completion bonuses under the Brandywine EPC Agreement are the
subject of a dispute between Panda-Brandywine and Raytheon. The Company
estimates that the amount in dispute is less than $1 million and believes that
the resolution of this dispute will not have a material adverse effect upon the
financial position, results of operations or liquidity of the Company.
5. SUBSEQUENT EVENT
In April 1997, Global Cayman issued $155.2 million original principal
amount of senior secured notes ("Senior Secured Notes") to finance the
development and construction of the Luannan Project. The Senior Secured Notes,
which were issued at a discount for gross proceeds of $145.0 million, bear
interest at a fixed rate of 12 1/2% payable semiannually commencing October 15,
1997. Scheduled principal payments are required semiannually commencing October
15, 2000 and will continue through maturity on April 15, 2004. The Senior
Secured Notes are subject to mandatory redemption prior to maturity under
certain conditions. The Senior Secured Notes are secured by (i) a pledge of 100%
of the capital stock of Global Cayman, 99% of the capital stock of Pan-Western
and at least 90% of the capital stock of Pan-Sino, and (ii) a security interest
in certain funds of Global Cayman and its subsidiaries established under the
indenture. Additionally, the Senior Secured Notes are fully and unconditionally
guaranteed by Panda Global, whose guarantee (the "Senior Secured Notes
Guarantee") is secured by (i) a pledge of 100% of the capital stock of Panda
Global and PEC and (ii) a security interest in certain funds of Panda Global
established under the indenture. The Senior Secured Notes Guarantee is
effectively subordinated to the obligations of PIC and its subsidiaries under
the Series A Bonds and project-level financing arrangements. The indenture
contains certain covenants, including limitations on distributions, additional
debt and certain other transactions. Individually, and in the aggregate, the
pledges of capital stock of PEC, Pan-Western and Pan-Sino do not constitute
a "substantial portion" (as defined in Rule 3-10 of Regulation S-X promulgated
under the Securities Act of 1933) of collateral for the Senior Secured Notes or
the Senior Secured Notes Guarantee. Separate financial statements of such
entities are not presented, as management has determined that such information
is not material to holders of the Senior Secured Notes. See Note 6 for
condensed consolidating financial information for the Company.
F-29
6. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
As discussed in Note 5, the Senior Secured Notes issued in April 1997 by
Global Cayman are fully and unconditionally guaranteed by Panda Global.
Condensed consolidating financial information for the Company as of
March 31, 1997 and for the three mont periods ended March 31, 1996 and 1997
is as follows:
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 1997
<TABLE>
<CAPTION>
ASSETS
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............. $ -- $ -- $ 1,198,071 $ -- $ 1,198,071
Restricted cash -- current ............ -- -- 15,115,215 -- 15,115,215
Accounts receivable ................... -- -- 9,219,619 -- 9,219,619
Fuel oil, spare parts and supplies .... -- -- 6,897,908 6,897,908
Other current assets .................. -- -- 234,585 234,585
----------- ------------- ------------- ------------- -------------
Total current assets ............... -- -- 32,665,398 -- 32,665,398
Plant and equipment:
Electric generating facility .......... -- -- 289,097,164 -- 289,097,164
Furniture and fixtures ................ -- -- 496,202 -- 496,202
Less accumulated depreciation ......... -- -- (29,488,416) -- (29,488,416)
Construction in progress .............. -- -- -- -- --
Development costs ..................... -- -- 9,426,582 -- 9,426,582
----------- ------------- ------------- ------------- -------------
Total plant and equipment, net ..... -- -- 269,531,532 -- 269,531,532
Investment in and advances to subsidiaries 6,620,212 -- -- (6,620,212) --
Restricted cash -- debt service reserves
and escrow deposits ................... -- -- 32,548,366 -- 32,548,366
Debt issuance costs ...................... -- -- 7,530,770 -- 7,530,770
Partnership formation costs, net ......... -- -- -- -- --
----------- ------------- ------------- ------------- -------------
$ 6,620,212 $ -- $ 342,276,066 $ (6,620,212) $ 342,276,066
<CAPTION> =========== ============= ============= ============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ................. $ -- $ -- $ -- $ -- $ --
Interest and letter of credit fees . -- -- 2,505,216 -- 2,505,216
Operating expenses and other ....... -- -- 5,931,986 -- 5,931,986
Current portion of long-term debt ..... -- -- 5,501,823 -- 5,501,823
----------- ------------- ------------- ------------- -------------
Total current liabilities .......... -- -- 13,939,025 -- 13,939,025
Long term debt, less current portion ..... -- -- 208,454,461 -- 208,454,461
Capital lease obligation ................. -- -- 222,868,697 -- 222,868,697
Investment in and advances from affiliates -- 102,986,117 -- (102,986,117) --
Minority interest ........................ -- -- -- -- --
Shareholder's equity (deficit):
Common stock, par value
$.01; 1,000 shares authorized,
issued and outstanding ............. 2 10 10 (12) 10
Advances (to) from parent ............. 9,476,210 (47,562,041) (47,562,041) 38,085,831 (47,562,041)
Accumulated deficit ................... (2,856,000) (55,424,086) (55,424,086) 58,280,086 (55,424,086)
----------- ------------- ------------- ------------- -------------
Total shareholder's equity (deficit) 6,620,212 (102,986,117) (102,986,117) 96,365,905 (102,986,117)
----------- ------------- ------------- ------------- -------------
$ 6,620,212 $ -- $ 342,276,066 $ (6,620,212) $ 342,276,066
=========== ============= ============= ============= =============
</TABLE>
F-30
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Electric capacity ......................... $ -- $ -- $ 8,015,442 $ -- $ 8,015,442
Steam and chilled water sales ............. -- -- 121,548 -- 121,548
Interest income ........................... -- -- 185,672 -- 185,672
Equity in loss of subsidiary .............. (266,000) (1,153,398) -- 1,419,398 --
------------ ------------ ------------ ------------ ------------
Total revenue .......................... (266,000) (1,153,398) 8,322,662 1,419,398 8,322,662
Expenses:
Plant operating expenses .................. -- -- 2,441,532 -- 2,441,532
Project development and administrative .... -- -- 803,433 -- 803,433
Interest expense and letter of credit fees -- -- 3,184,745 -- 3,184,745
Depreciation .............................. -- -- 1,053,220 -- 1,053,220
Amortization of debt issuance costs ....... -- -- 140,907 -- 140,907
Amortization of partnership formation costs -- -- 133,275 -- 133,275
------------ ------------ ------------ ------------ ------------
Total expenses ......................... -- -- 7,757,112 -- 7,757,112
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest ....... (266,000) (1,153,398) 565,550 1,419,398 565,550
Minority interest ............................ -- -- (1,718,948) -- (1,718,948)
------------ ------------ ------------ ------------ ------------
Net loss .................................. $ (266,000) $ (1,153,398) $ (1,153,398) $ 1,419,398 $ (1,153,398)
============ ============ ============ ============ ============
</TABLE>
For the Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Electric capacity ......................... $ -- $ -- $ 17,329,693 $ -- $ 17,329,693
Steam and chilled water sales ............. -- -- 130,582 -- 130,582
Interest income ........................... -- -- 429,727 -- 429,727
Equity in loss of subsidiary ............. (555,000) (6,690,521) -- 7,245,521 --
------------ ------------ ------------ ------------ ------------
Total revenue .......................... (555,000) (6,690,521) 17,890,002 7,245,521 17,890,002
------------ ------------ ------------ ------------ ------------
Expenses:
Plant operating expenses .................. -- -- 8,261,187 -- 8,261,187
Project development and administrative .... -- -- 2,395,002 -- 2,395,022
Interest expense and letter of credit fees -- -- 10,801,629 -- 10,801,629
Depreciation .............................. -- -- 2,948,878 -- 2,948,878
Amortization of debt issuance costs ....... -- -- 173,807 -- 173,807
Amortization of partnership formation costs -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total expenses ......................... -- -- 24,580,523 -- 24,580,523
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest ....... (555,000) (6,690,521) (6,690,521) 7,245,521 (6,690,521)
Minority interest ............................ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss ..................................... $ (555,000) $ (6,690,521) $ (6,690,521) $ 7,245,521 $ (6,690,521)
============ ============ ============ ============ ============
</TABLE>
F-31
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 1996
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $ -- $ -- $4,138,339 $ -- $ 4,138,339
Investing activities:
Restricted cash - current -- -- (4,843,722) -- (4,843,722)
Additions to plant and equipment -- -- (21,631,804) -- (21,631,804)
Acquisition of minority interest -- -- -- -- --
Restricted cash - debt service
reserves and escrow deposits -- -- 76,776 -- 76,776
---------- ---------- ---------- ---------- ------------
Net cash used in investing
activities -- -- (26,398,750) -- (26,398,750)
---------- ---------- ---------- ---------- ------------
Financing activities:
Distributions to minority
interest owner -- -- (321,124) -- (321,124)
Advances (to) from parent 756,701 1,490,607 1,490,607 (2,247,308) 1,490,607
Advances (to) from subsidiaries (756,701) (1,490,607) -- 2,247,308 --
Proceeds from long-term debt -- -- 21,488,220 -- 21,488,220
Repayment of long-term debt -- -- -- -- --
Debt issuance costs -- -- (199,498) -- (199,498)
---------- ---------- ---------- ---------- ------------
Net cash provided by
financing activities -- -- 22,458,205 -- 22,458,205
---------- ---------- ---------- ---------- ------------
Increase (decrease) in cash
and cash equivalents -- -- 197,794 -- 197,794
Cash and cash equivalents,
beginning of period -- -- 1,166,385 -- 1,166,385
---------- ---------- ---------- ---------- ------------
Cash and cash equivalents,
end of period $ -- $ -- $ 1,364,179 $ -- $1,364,179
========== ========== =========== ========== ============
</TABLE>
F-32
For the three months ended March 31, 1997
<TABLE>
<CAPTION>
Non-
Panda Panda Guar- Panda
Global Global antor Global
Energy Co. Holdings, Inc. Subsid- Elimi- Holdings, Inc.
(Issuer) (Guarantor) iaries nations Consolidated
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities $ -- $ -- $(1,910,682) $ -- $(1,910,682)
Investing activities:
Restricted cash - current -- -- 2,694,706 -- 2,694,706
Additions to plant and equipment -- -- (4,415,625) -- (4,415,625)
Acquisition of minority interest -- -- -- -- --
Restricted cash - debt service
reserves and escrow deposits -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Net cash used in investing
activities -- -- (1,720,919) -- (1,720,919)
---------- ---------- ---------- ---------- ------------
Financing activities:
Distributions to minority
interest owner -- -- -- -- --
Advances (to) from parent 3,376,431 5,220,899 5,220,899 (8,597,330) 5,220,899
Advances (to) from subsidiaries (3,376,431) (5,220,899) -- 8,597,330 --
Proceeds from long-term debt -- -- -- -- --
Repayment of long-term debt -- -- (1,592,257) -- (1,592,257)
Debt issuance costs -- -- (134,056) -- (134,056)
---------- ---------- ---------- ---------- ------------
Net cash provided by
financing activities -- -- 3,494,586 -- 3,494,586
---------- ---------- ---------- ---------- ------------
Increase (decrease) in cash
and cash equivalents -- -- (137,015) -- (137,015)
Cash and cash equivalents,
beginning of period -- -- 1,335,086 -- 1,335,086
---------- ---------- ---------- ---------- ------------
Cash and cash equivalents,
end of period $ -- $ -- $ 1,198,071 $ -- $1,198,071
========== ========== =========== ========== ============
</TABLE>
F-33
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
of Panda Energy International, Inc.
We have audited the accompanying consolidated balance sheets of Panda Global
Energy Company and subsidiaries (the "Company"), a development stage enterprise,
as of December 31, 1995 and 1996, and the related consolidated statements of
operations, cash flows and shareholder's equity for the period from July 20,
1994 (date of inception) through December 31, 1994, the years ended December 31,
1995 and 1996 and the period from July 20, 1994 (date of inception) through
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and 1996, and the results of their operations and their cash flows for the
period from July 20, 1994 (date of inception) through December 31, 1994, the
years ended December 31, 1995 and 1996, and the period from July 20, 1994 (date
of inception) through December 31, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 9, 1997
F-34
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................... $ 6,289 $ 506,289
Development costs .............................. 1,058,774 3,292,492
----------- -----------
Total assets ................................... $ 1,065,063 $ 3,798,781
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Liabilities:
Commitments and contingencies (Note 3)
Shareholder's equity:
Common stock, par value $1: 50,000 shares
authorized; 2 shares issued and outstanding $ 2 $ 2
Advances from parent ........................... $ 1,712,061 $ 6,099,779
Deficit accumulated during the development
stage......................................... (647,000) (2,301,000)
----------- -----------
Total shareholder's equity................... $ 1,065,063 $ 3,798,781
----------- -----------
Total liabilities and shareholder's equity ..... $ 1,065,063 $ 3,798,781
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period from Inception (July 20, 1994) Through December 31, 1994,
the Years Ended December 31, 1995 and 1996,
and the Period from Inception Through December 31, 1996
<TABLE>
<CAPTION>
Inception Inception
Through Year Ended Year Ended Through
December 31 December 31 December 31 December 31
1994 1995 1996 1996
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
General and administrative expenses $ 203,000 $ 444,000 $ 1,654,000 $ 2,301,000
--------- --------- ----------- -----------
Net loss .......................... $(203,000) $(444,000) $(1,654,000) $(2,301,000)
========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period from Inception (July 20, 1994) Through December 31, 1994,
the Years Ended December 31, 1995 and 1996,
and the Period from Inception Through December 31, 1996
<TABLE>
<CAPTION>
Inception Inception
Through Year Ended Year Ended Through
December 31 December 31 December 31 December 31
1994 1995 1996 1996
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................... $(203,000) $(444,000) $(1,654,000) $(2,301,000)
INVESTING ACTIVITIES:
Development costs .................. (428,486) (630,288) (2,233,718) (3,292,492)
FINANCING ACTIVITIES:
Capital contribution from parent ... 2 -- -- 2
Advances from parent ............... 732,773 979,288 4,387,718 6,099,779
--------- --------- ----------- -----------
Cash provided by financing activities 732,775 979,288 4,387,718 6,099,781
--------- --------- ----------- -----------
Increase (decrease) in cash ........ 101,289 (95,000) 500,000 506,289
Cash, beginning of period .......... -- 101,289 6,289 --
--------- --------- ----------- -----------
Cash, end of period ................ $ 101,289 $ 6,289 $ 506,289 $ 506,289
========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT
For the Period from Inception (July 20, 1994) Through December 31, 1994
and the Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION> Deficit
Accumulated
Advances During the Total
Number Common from Development Shareholder's
of Shares Stock Parent Stage Equity
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Issuance of common stock, July 20, 1994 2 $ 2 $ - $ -- $ 2
Advances from parent................... -- 732,773 -- 732,773
Net loss .............................. -- -- (203,000) (203,000)
----------- ----------- ----------- ----------- ------------
Balance, December 31, 1994 ............ 2 2 732,773 (203,000) 529,775
Advances from parent................... -- 979,288 -- 979,288
Net loss .............................. -- -- (444,000) (444,000)
----------- ----------- ----------- ----------- ------------
Balance, December 31, 1995 ............ 2 2 1,712,061 (647,000) 1,065,063
Advances from parent................... -- 4,387,718 -- 4,387,718
Net loss .............................. -- -- (1,654,000) (1,654,000)
----------- ----------- ----------- ----------- ------------
Balance, December 31, 1996 ............ 2 $ 2 $ 6,099,779 $(2,301,000) $ 3,798,781
=========== =========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
FROM INCEPTION (JULY 20, 1994) THROUGH DECEMBER 31, 1994,
THE YEARS ENDED DECEMBER 31, 1995 AND 1996,
AND THE PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Global Energy Company ("Global Cayman", or collectively with its
subsidiaries the "Company")(a Cayman Islands company) is a wholly owned
subsidiary of Panda Global Holdings, Inc. ("Panda Global"), which in turn is a
wholly owned subsidiary of Panda Energy International, Inc. ("PEII"). PEII is
engaged in the development, acquisition, ownership and operation of independent
power generation facilities and other energy-related projects worldwide. Global
Cayman was formed in March 1997 to hold PEII's indirect ownership interest in an
independent power project located in the People's Republic of China ("China").
The ownership interest was transferred to Global Cayman at PEII's historical
cost. Because the transfer occurred between entities under common control, the
transaction has been accounted for in a manner similar to a pooling of
interests.
Global Cayman holds a 95.5% ownership interest in Pan-Sino Energy
Development Company LLC ("Pan-Sino")(a Cayman Islands company), which in turn
holds a 99% ownership interest in Pan-Western Energy Corporation LLC
("Pan-Western")(a Cayman Islands company), which in turn owns an approximately
88% interest in four joint venture companies (the "Joint Venture Companies")
organized under the laws of China to develop and construct two 50 megawatt
coal-fired cogeneration plants (the "Luannan Project") to be located in Luannan
County, Tangshan Municipality, Hebei Province, China. Pan-Sino and Pan-Western
were formed on July 20, 1994 and are the Company's predecessor. The Joint
Venture Companies are: Tangshan Panda Heat and Power Company, Ltd. ("Tangshan
Panda"), Tangshan Pan-Western Heat and Power Company, Ltd. ("Tangshan
Pan-Western"), Tangshan Cayman Heat and Power Company, Ltd. ("Tangshan Cayman")
and Tangshan Pan-Sino Heat Company, Ltd. ("Tangshan Pan-Sino").
All material intercompany accounts and transactions have been eliminated
in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
DEVELOPMENT STAGE ENTERPRISE -- The Company is in the development stage
and has no operating revenues. PEII has committed to provide the Company with
continued financial support until the Company obtains the financing necessary
for the continued development and construction of the Luannan Project.
Such financing was obtained in April 1997 (see Note 5).
CASH -- Included in cash and cash equivalents are highly liquid
investments with original maturities of three months or less.
DEVELOPMENT COSTS -- Costs of developing new projects, such as the
Luannan Project, are capitalized when the projects reach an advanced stage
of development where the execution of a power purchase agreement has occurred
or is imminent. Such costs primarily consist of engineering, legal and other
costs directly related to the project. Such costs will be depreciated using
the straight-line method over the term of the power purchase agreement
(twenty years for the Luannan Project - see Note 3). Depreciation will begin
when the completed facility is ready for its intended use.
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain accounting,
legal, insurance and consulting services for the Company. These general and
administrative costs are generally allocated to the Company using the percentage
of time PEII personnel spent performing these services. The expenses allocated
were $203,000, $444,000 and $1,654,000 in 1994, 1995 and 1996, respectively, and
are included in general and administrative expenses in the consolidated
statements of operations. Management believes the method used to allocate these
costs is reasonable.
INCOME TAXES -- On the basis of the current legislation in the Cayman
Islands, there is no income, corporation, profits, capital gains or other form
of taxation that would be of application to Global Cayman or its subsidiaries
and, accordingly, there is no withholding tax. In addition, Pan-Western, as an
exempted company, has obtained from the Cayman Islands Government an undertaking
that should the current legislation change, no taxation will be imposed upon the
profits of Pan-Western or any shareholders in Pan-Western for a twenty year
period commencing August, 1994.
3. LUANNAN PROJECT
In 1994, PEII entered into a preliminary letter of intent with a
subsidiary of the North China Power Group Company ("NCPGC") for the purchase and
sale of electric energy from the Luannan Project. On September 22, 1995,
Tangshan Panda and Tangshan Pan-Western (see Note 1) entered into a Power
Purchase Agreement with NCPGC for the purchase and sale of electric energy from
the Luannan Project. Under the terms of the 20-year agreement, all electrical
output of the project will be sold to NCPGC. The steam and hot water generated
by Tangshan-Cayman's facility within the project will be sold to the domestic
Chinese industrial and commercial markets by Tangshan Pan-Sino. The Luannan
Project will be constructed pursuant to a fixed-price, turnkey contract with
Harbin Power Engineering Company Limited, subject to escalation under certain
circumstances. Preliminary construction activity commenced in December 1996.
Commencement of full construction activity is subject to the successful
completion of financing.
The Luannan Project is subject to political, regulatory and economic
uncertainties, risks of expropriation of property and cancellation or
modification of contract rights, foreign exchange restrictions, construction
risk, dependence on limited number of customers and other risks arising from
foreign governmental sovereignty.
4. ADVANCES FROM PARENT
PEII has performed all project development and administrative activities
for the Company. The advances from parent reflect the advances for such
costs incurred by PEII on the Company's behalf. Such advances have no specific
repayment terms, bear no interest and may be partially reimbursed during the
construction period of the Luannan Project.
F-40
<PAGE>
The advances from parent for the period from inception (July 20, 1994) through
December 31, 1994 and the years ended December 31, 1995 and 1996 consist of the
following:
Balance, July 20, 1994 $ --
Development costs advanced from parent 428,486
Administrative costs allocated from parent 203,000
Cash advanced from parent 101,287
----------
Balance, December 31, 1994 732,773
Development costs advanced from parent 630,288
Administrative costs allocated from parent 444,000
Cash repaid to parent (95,000)
----------
Balance, December 31, 1995 1,712,061
Development costs advanced from parent 2,233,718
Administrative costs allocated from parent 1,654,000
Cash advanced from parent 500,000
----------
Balance, December 31, 1996 $6,099,779
==========
The average balance of advances from parent was $366,000, $1,22,000 and
$3,906,000 during the 1994, 1995 and 1996 periods, respectively.
5. Subsequent Event
In April 1997, Global Cayman issued $155.2 million original principal
amount of senior secured notes ("Senior Secured Notes") to finance the
development and construction of the Luannan Project. The Senior Secured
Notes, which were issued at a discount for gross proceeds of $145.0 million,
bear interest at a fixed rate of 12 1/2% payable semiannually commencing
October 15, 1997. Scheduled principal payments are rquired semiannually
commening October 15, 2000 and will continue through maturity on April 15,
2004. The Senior Secured Notes are secured by (i) a pledge of 100% of the
capital stock of Global Cayman, 99% of the capital stock of Pan-Western and
at least 90% of the capital stock of Pan-Sino, and (ii) a security interest
in certain funds of Global Cayman and its subsidiaries established under
the indenture. Additionally, the Senior Secured Notes are fully and
unconditionally guaranteed by Panda Global, whose guarantee (the "Senior
Secured Notes Guarantee") is secured by (i) a pledge of 100% of the capital
stock of Panda Global and PEC and (ii) a security interest in certain funds
of Panda Global established under the indenture. The Senior Secured Notes
Guarantee is effectively subordinated to the obligations of PIC and its
subsidiaries under the Series A Bonds and the project-level financing
arrangements. The indenture contains certain covenants, including
limitations on distributions, additional debt and certain other transactions.
F-41
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and March 31, 1997
<TABLE>
<CAPTION>
(Unaudited)
December 31 March 31
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................ $ 506,289 $ 6,289
Development costs ................................ 3,292,492 6,613,923
----------- -----------
Total assets ..................................... $ 3,798,781 $ 6,620,212
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Liabilities:
Advances from parent ............................. $ 6,099,779 $ 9,476,210
Commitments and contingencies (Note 3) ........... -- --
Shareholder's deficit:
Common stock, par value $1: 50,000 shares
authorized; 2 shares issued and outstanding .. 2 2
Deficit accumulated during the development stage . (2,301,000) (2,856,000)
----------- -----------
Total shareholder's deficit ................... (2,300,998) (2,855,998)
----------- -----------
Total liabilities and shareholder's equity........ $ 3,798,781 $ 6,620,212
</TABLE> =========== ===========
See accompanying notes to condensed consolidated financial statements.
F-42
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE
For the Three Months Ended March 31, 1996 and 1997
and Inception (July 20, 1994) Through March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Inception
Three Months Ended March 31 Through
------------------------ March 31
1996 1997 1997
--------- ----------- -----------
<S> <C> <C> <C>
General and administrative expenses ..... $ 266,000 $ 555,000 $ 2,856,000
--------- ----------- -----------
Net loss ................................ (266,000) (555,000) (2,856,000)
========= =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-43
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1997
and Inception (July 20, 1994) Through March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Inception
Through
March 31
1996 1997 1997
--------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................... $(266,000) $ (555,000) $(2,856,000)
INVESTING ACTIVITIES:
Development costs .................. (490,701) (3,321,431) (6,613,923)
FINANCING ACTIVITIES:
Capital contribution from parent ... -- -- 2
Advances from parent ............... 756,701 3,376,431 9,476,210
--------- ----------- -----------
Cash provided by financing activities 756,701 3,376,431 9,476,212
--------- ----------- -----------
Increase (decrease) in cash ........ -- (500,000) 6,289
Cash, beginning of period .......... 6,289 506,289 --
--------- ----------- -----------
Cash, end of period ................ $ 6,289 $ 6,289 $ 6,289
</TABLE> ========= =========== ===========
See accompanying notes to condensed consolidated financial statements.
F-44
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
For the Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Advances During the Total
Number Common from Development Shareholder's
of Shares Stock Parent Stage Equity
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997............... 2 $ 2 $ 6,099,779 $(2,301,000) $ 3,798,781
Advances from parent................... -- 3,376,431 -- 3,376,431
Net loss .............................. -- -- (555,000) (555,000)
----------- ----------- ----------- ----------- ------------
Balance, December 31, 1994 ............ 2 2 9,476,210 (2,856,000) 6,620,212
</TABLE> F-45
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 AND THE
PERIOD FROM INCEPTION (JULY 20, 1994) THROUGH MARCH 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Global Energy Company ("Global Cayman", or collectively with its
subsidiaries the "Company")(a Cayman Islands company) is a wholly owned
subsidiary of Panda Global Holdings, Inc. ("Panda Global"), which in turn is a
wholly owned subsidiary of Panda Energy International, Inc. ("PEII"). PEII is
engaged in the development, acquisition, ownership and operation of independent
power generation facilities and other energy-related projects worldwide. Global
Cayman was formed in March 1997 to hold PEII's indirect ownership interest in an
independent power project located in the People's Republic of China ("China").
The ownership interest was transferred to Global Cayman at PEII's historical
cost. Because the transfer occurred between entities under common control, the
transaction has been accounted for in a manner similar to a pooling of
interests.
Global Cayman holds a 95.5% ownership interest in Pan-Sino Energy
Development Company LLC ("Pan-Sino")(a Cayman Islands company), which in turn
holds a 99% ownership interest in Pan-Western Energy Corporation LLC
("Pan-Western")(a Cayman Islands company), which in turn owns an approximately
88% interest in four joint venture companies (the "Joint Venture Companies")
organized under the laws of China to develop and construct two 50 megawatt
coal-fired cogeneration plants (the "Luannan Project") located in Luannan
County, Tangshan Municipality, Hebei Province, China. Pan-Sino and Pan-Western
were formed on July 20,1994 and are the Company's predecessor. The Joint Venture
Companies, which currently have no material assets or operations, are: Tangshan
Panda Heat and Power Company, Ltd. ("Tangshan Panda"), Tangshan Pan-Western Heat
and Power Company, Ltd. ("Tangshan Pan-Western"), Tangshan Cayman Heat and Power
Company, Ltd. ("Tangshan Cayman") and Tangshan Pan-Sino Heat Company, Ltd.
("Tangshan Pan-Sino").
All material intercompany accounts and transactions have been eliminated
in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 1996. The accompanying unaudited
financial statements for the three months ended March 31, 1996 and 1997 include
all adjustments, consisting of normal recurring accruals, which management
considers necessary for a fair presentation of the results of operations for the
interim periods. The results of operations for the three months ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. The amounts presented in the balance sheet as of
December 31, 1996 were derived from the Company's audited financial statements.
DEVELOPMENT STAGE ENTERPRISE -- The Company is in the development stage
and has no operating revenues. PEII has committed to provide the Company with
continued financial support until the Company obtains the financing necessary
for the continued development and construction of the Luannan Project. Such
financing was obtained in April 1997 (see Note 5).
CASH -- Included in cash and cash equivalents are highly liquid
investments with original maturities of three months or less.
DEVELOPMENT COSTS -- Costs of developing new projects, such as the
Luannan Project, are capitalized when the projects reach an advanced stage of
development where the execution of a power purchase agreement has occurred or
is imminent. Such costs primarily consist of engineering, legal and other
costs directly related to the project. Such costs will be depreciated using
the straight-line method over the term of the power purchase agreement
(twenty years for the Luannan Project - see Note 3). Depreciation will begin
when the completed facility is ready for its intended use.
F-46
<PAGE>
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain accounting,
legal, insurance and consulting services for the Company. These general and
administrative costs are generally allocated to the Company using the percentage
of time PEII spent performing these services. The expenses allocated were
$266,000 and $555,000 for the three months ended March 31, 1996 and 1997,
respectively, and are included in general and administrative expenses in the
consolidated statements of operations. Management believes the method used to
allocate these costs is reasonable.
INCOME TAXES -- On the basis of the current legislation in the Cayman
Islands, there is no income, corporation, profits, capital gains or other form
of taxation that would be of application to Global Cayman or its subsidiaries
and, accordingly, there is no withholding tax. In addition, Pan-Western, as an
exempted company, has obtained from the Cayman Islands Government an undertaking
that should the current legislation change, no taxation will be imposed upon the
profits of Pan-Western or any shareholders in Pan-Western for a twenty year
period commencing August, 1994.
3. LUANNAN PROJECT
In 1994, PEII entered into a preliminary letter of intent with a
subsidiary of the North China Power Group Company ("NCPGC") for the purchase and
sale of electric energy from the Luannan Project. On September 22, 1995,
Tangshan Panda and Tangshan Pan-Western (see Note 1) entered into a Power
Purchase Agreement with NCPGC for the purchase and sale of electric energy from
the Luannan Project. Under the terms of the 20-year agreement, all electrical
output of the project will be sold to NCPGC. The steam and hot water generated
by Tangshan-Cayman's facility within the project will be sold to the domestic
Chinese industrial and commercial markets by Tangshan Pan-Sino. The Luannan
Project will be constructed pursuant to a fixed-price, turnkey contract with
Harbin Power Engineering Company Limited. Preliminary construction activity
commenced in December 1996. Full construction activity commenced after the
successful completion of financing in April 1997 (see Note 5).
The Luannan Project is subject to political, regulatory and economic
uncertainties, risks of expropriation of property and cancellation or
modification of contract rights, foreign exchange restrictions, construction
risk, dependence on limited number of customers and other risks arising from
foreign governmental sovereignty.
4. ADVANCES FROM PARENT
PEII has performed all project development and administrative activities
for the Company. The advances from parent reflect the advances for such costs
incurred by PEII on the Company's behalf. Such advances have no specific
repayment terms, bear no interest and may be partially reimbursed during the
construction period of the Luannan Project.
5. SUBSEQUENT EVENT
In April 1997, Global Cayman issued $155.2 million original principal
amount of senior secured notes ("Senior Secured Notes") to finance the
development and construction of the Luannan Project. The Senior Secured Notes,
which were issued at a discount for gross proceeds of $145.0 million, bear
interest at a fixed rate of 12 1/2% payable semiannually commencing October 15,
1997. Scheduled principal payments are required semiannually commencing October
15, 2000 and will continue through maturity on April 15, 2004. The Senior
Secured Notes are subject to mandatory redemption prior to maturity under
certain conditions. The Senior Secured Notes are secured by (i) a pledge of 100%
of the capital stock of Global Cayman, 99% of the capital stock of Pan-Western
and at least 90% of the capital stock of Pan-Sino, and (ii) a security interest
in certain funds of Global Cayman and its subsidiaries established under the
indenture. Additionally, the Senior Secured Notes are fully and unconditionally
guaranteed by Panda Global, whose guarantee (the "Senior Secured Notes
Guarantee") is secured by (i) a pledge of 100% of the capital stock of Panda
Global and PEC and (ii) a security interest in certain funds of Panda Global
established under the indenture. The Senior Secured Notes Guarantee is
effectively subordinated to the obligations of PIC and its subsidiaries under
the Series A Bonds and project-level financing arrangements. The indenture
contains certain covenants, including limitations on distributions, additional
debt and certain other transactions.
F-47
APPENDIX A
PART I - CERTAIN DEFINED TERMS
Unless the context requires otherwise, any reference in this
Prospectus to any agreement shall mean such agreement and all
schedules, exhibits and attachments thereto as amended,
supplemented or otherwise modified and in effect as of the date
of this Offering Memorandum. All terms defined herein used in the
singular shall have the same meanings when used in the plural and
vice versa.
Certain terms defined below are summaries of terms defined
in, and are defined more specifically in, the Project Documents
and the Indentures. Additional defined terms can be found in
"Description of the Exchange Notes, the Exchange Note Guarantees,
the Issuer Loan, the Shareholder Loans and the Collateral
Documents." Such summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to,
all of the provisions of the Project Documents and the
Indentures.
"1988 VEPCO Solicitation" means the solicitation of bids
conducted by VEPCO in 1988 for electricity generation payment
rates from several non-utility generation plants.
"1990 Clean Air Act Amendments" means Public Law 101-549,
enacted November 15, 1990, which amended the Clean Air Act (42
U.S.C. 7401 et seq.). The 1990 Clean Air Act Amendments have
been codified into the Clean Air Act.
"Accredited Investors" has the meaning ascribed to such term
under Rule 501(a)(1), (2), (3) or (7) of Regulation D of the
Securities Act.
"Additional Amounts" means the additional amounts as
described in "Description of the Notes, the Guarantees, the
Issuer Loan, the Shareholder Loans and the Collateral Documents-
Withholding Taxes."
"Administrative Services Agreement" means the administrative
services agreement between Panda International and the Company,
dated as of the Closing Date.
"AFR" means the applicable federal rate set periodically by
the IRS.
"Anticipated Additional Debt" means the original principal
amount of an additional series of Pooled Project Bonds proposed
to be issued by PFC which is equal to the largest principal
amount of such series that will provide a projected PIC Debt
Service Coverage Ratio and a projected PIC Consolidated Debt
Service Coverage Ratio (if then applicable) of at least 1.7:1 and
1.25:1, respectively, for each PIC Future Ratio Determination
Period, as confirmed in each case by a certificate from the
Consolidating Financial Analyst, assuming, in respect of the
additional series of Pooled Project Bonds proposed to be issued:
(i) a maximum maturity and average life generally available in
the marketplace for debt of a similar nature and (ii) a coupon
rate then prevailing in the market for debt of a similar nature,
and taking into account (a) in the case of the PIC Debt Service
Coverage Ratio, PIC Cash Available for Distribution and (b) in
the case of the PIC Consolidated Debt Service Coverage Ratio, PIC
Cash Available from Operations (net of any reserve requirements
under Project-level debt and PIC-level debt) from the PIC Project
Portfolio (giving effect, in each case, to the transfer to the
PIC Project Portfolio of any Project in respect of which such
additional series of Pooled Project Bonds is proposed to be
issued); in making this analysis, the Consolidating Financial
Analyst is required to use generally accepted financial analysis
methods and generally follow the methods used to calculate the
amount of the offering of the Series A Bonds.
"BG&E" means Baltimore Gas & Electric Company, a Maryland
corporation.
"Bibb" means The Bibb Company, a Delaware corporation.
"BOT" means foreign investment through build-operate-
transfer, a method that has been utilized in the PRC to finance
the development of the PRC's electric power industry.
"Brandywine Effluent Agreement" means the Treated Effluent
Water Purchase Agreement dated as of September 13, 1994 between
the Brandywine Partnership and the County Commissioners of
Charles County, Maryland, together with the Water Easement
Maintenance Agreement, in the form (including all amendments and
clarification letters relating thereto) delivered to GE Capital
and Credit Suisse, New York branch, as amended, supplemented or
otherwise modified from time to time in accordance with the terms
of such agreement and the Brandywine Participation Agreement.
"Brandywine Engineering Report" means the report entitled
"Panda-Brandywine Cogeneration Project" Independent Engineer's
Report prepared by PES, dated July 22, 1996, as updated on April
11, 1997, as further updated August 7, 1997, evaluating the design,
construction and expected operation of the Brandywine Facility.
"Brandywine EPC Agreement" means the Amended and Restated
Turnkey Cogeneration Facility Agreement, dated as of March 30,
1995, between Raytheon and the Brandywine Partnership.
"Brandywine Event of Loss Proceeds" means proceeds of
casualty insurance or condemnation awards or the like, payable
with respect to a Brandywine Event of Loss (net of costs of
obtaining such proceeds or awards) to the extent not used to
replace or repair the Brandywine Facility and for other required
payments under the Brandywine Facility Lease.
"Brandywine Event of Loss" means an Event of Loss as defined
in the Brandywine Participation Agreement.
"Brandywine Facility" means the Brandywine Partnership's 230
MW natural gas-fired, combined-cycle cogeneration facility in
Brandywine, Prince George's County, Maryland.
"Brandywine Facility Lease" means the Facility Lease, dated
December 18, 1996, between Panda-Brandywine Partnership and Fleet
National Bank, as Owner Trustee, pursuant to which the Panda-
Brandywine Partnership leases the Brandywine Facility.
"Brandywine Financing" means the transactions set out in the
Brandywine Financing Documents and described in this Offering
Memorandum in the section entitled "Description of Other
Indebtedness-The Brandywine Financing."
"Brandywine Financing Conversion" means the conversion, on
December 30, 1996, of the Brandywine construction loan to a long-
term leveraged lease pursuant to the Brandywine Financing
Documents.
"Brandywine Financing Documents" means the Brandywine
Participation Agreement, the Brandywine Facility Lease and
certain other agreements relating to the Brandywine Financing.
"Brandywine Fuel Consultant" means C.C. Pace.
"Brandywine Fuel Consultant's Report" means the report
entitled "Panda-Brandywine, L.P. Generating Facility Fuel
Consultant's Report" prepared by the Brandywine Fuel Consultant,
dated July 2, 1996, as updated on April 11, 1997, and as further
updated August 7, 1997, analyzing the sufficiency of the fuel
supply and transportation arrangements for the Brandywine Facility.
"Brandywine Fuel Management Agreement" means the Fuel Supply
Management Agreement, dated March 30, 1995, between CDC and the
Brandywine Partnership.
"Brandywine Gas Agreement" means the Gas Sales Agreement,
dated as of March 30, 1995, between the Brandywine Partnership
and CDC.
"Brandywine Loan Agreement" means the Construction Loan
Agreement and Lease Commitment, dated as of March 30, 1995, among
GE Capital, the Brandywine Partnership and PBC.
"Brandywine O&M Agreement" means the Operations &
Maintenance Agreement, dated November 21, 1994, as amended on
December 7, 1994, between the Brandywine Partnership and Ogden
Brandywine.
"Brandywine Owner Trustee" means Fleet National Bank, as
owner trustee in connection with the lease of the Brandywine
Facility.
"Brandywine Participation Agreement" means the Participation
Agreement, dated as of December 18, 1996, among the Brandywine
Partnership, PBC, GE Capital, Fleet National Bank, as owner
trustee and security agent, First Security Bank, National
Association, as indenture trustee, Credit Suisse, as
administrative agent, and the loan participants party thereto.
"Brandywine Partnership" means Panda-Brandywine, L.P., a
Delaware limited partnership.
"Brandywine Partnership Agreement" means the Agreement of
Limited Partnership of Panda-Brandywine, L.P., dated as of March
25, 1991, between PEC and PBC as amended, supplemented or
otherwise modified from time to time.
"Brandywine Power Purchase Agreement" means the Power
Purchase Agreement, dated August 9, 1991, as amended September
16, 1994, between the Brandywine Partnership and PEPCO.
"Brandywine Pro Forma" means the pro forma financial
projections prepared by ICF which are contained in the Brandywine
Pro Forma Report.
"Brandywine Pro Forma Report" means the report entitled
"Independent Panda-Brandywine Pro Forma Projections" prepared by
ICF, dated April 11, 1997, and updated June 6, 1997, presenting
an independent assessment of the Brandywine Pro Forma.
"Brandywine Project Documents" means, collectively, the
Brandywine Power Purchase Agreement, the Brandywine EPC
Agreement, the Brandywine O & M Agreement, the Brandywine Steam
Agreement, the Brandywine Gas Agreement, the Raytheon Parent
Guaranty, the Brandywine Effluent Agreement, the Brandywine
Partnership Agreement and each Additional Project Document.
"Brandywine Steam Agreement" means the Steam Sales
Agreement, dated March 30, 1995, between Brandywine Water Company
and the Brandywine Partnership.
"Brandywine Water Company" means Brandywine Water Company, a
Delaware corporation.
"Burns & McDonnell" means Burns & McDonnell Engineering
Company, Inc., a Missouri corporation.
"Capitalized Interest Fund" shall have the meaning set forth
under "Description of the Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the Shareholder Loans and the
Collateral DocumentsThe FundsCapitalized Interest Fund."
"Carrier" means Luannan County State-Owned Transportation
Company, a PRC company owned and operated by Luannan County.
"Cautionary Statements" means the important factors that
could cause actual results to differ materially from the Issuer's
expectations reflected in this Offering Memorandum that are
disclosed in "Risk Factors," in the assumptions made by the
Independent Engineers and Consultants and contained in their
reports and elsewhere in this Offering Memorandum.
"C.C. Pace" means C.C. Pace Resources, Inc., a Virginia
corporation.
"CDC" means Cogen Development Company, a Michigan
corporation.
"Central Government" means the Central Government of the PRC.
"CEOZ Notice" means the Notice to Expand the Scope of
Coastal Economic Open Zone promulgated by the State Council of
the PRC on March 18, 1988.
"CERCLA" means the United States Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
"CFETC" means the national interbank foreign exchange market
in the PRC, also known as the China Foreign Exchange Trading
Center.
"CHEXIM" means the Export-Import Bank of China, a company
organized under the laws of the PRC.
"CHEXIM Guarantee" means the Guarantee dated July 9, 1996
provided by CHEXIM as required pursuant to the Luannan EPC
Contract in respect of the payment of liquidated damages and
termination payments up to a maximum amount of 35% of the Luannan
EPC Contract Price.
"China" means the People's Republic of China.
"Chinamac" means Chinamac (Singapore) Pte Ltd, a Singapore
corporation and a wholly-owned subsidiary of CMC.
"Clean Air Act" means the United States Federal Clean Air
Act, as amended.
"Clean Water Act" means the United States Federal Clean
Water Act, as amended.
"Closing Date" means the April 22, 1997, the date on which
the Old Notes were issued and sold to the Initial Purchaser.
"CMC" means China National Machinery Import & Export
Corporation, a PRC corporation.
"CNG" means CNG Transmission Corporation, a Delaware
corporation.
"CNG FT Agreement" means the Services Agreement Applicable
to Transportation of Natural Gas Under Rate Schedule FT (X-74
Assignment), dated as of August 20, 1996, between CNG and the
Rosemary Partnership.
"CNPC" China National Power Corporation.
"Code" means the United States Internal Revenue Code of
1986, as amended.
"COFTEC" means, with respect to a province or county of the
PRC, the Commission of Foreign Trade and Economic Cooperation of
such province or county.
"Collateral Documents" means the Exchange Notes Collateral
Documents and the Exchange Notes Guarantee Collateral Documents.
"Columbia Gas" means Columbia Gas Transmission Corporation,
a Delaware corporation.
"Columbia Gas FT Agreement" means the Amended and Restated
FTS Service Agreement, dated March 23, 1995, between the
Brandywine Partnership and Columbia Gas.
"Columbia Gas IT Agreement" means the Service Agreement for
Service Under ITS Rate Schedule, dated as of April 4, 1991,
between Columbia Gas and PR Corp., which agreement was assigned
by PR Corp. to, and assumed by, the Rosemary Partnership on
January 6, 1992.
"Columbia Gulf" means Columbia Gulf Transmission Company, a
Delaware corporation.
"Columbia Gulf IT Agreement" means the ITS-1 Transportation
Service Agreement, dated as of June 13, 1996, between Columbia
Gulf and the Rosemary Partnership.
"Columbia Precedent Agreement" means the Precedent
Agreement, dated as of February 25, 1994, as amended by the
Amending Agreement, dated March 24, 1995, between the Brandywine
Partnership and Columbia Gas.
"Commercial Operations" means, for purposes of the PIC
Additional Projects Contract, with respect to a Project, (i) the
completion of construction and testing and the functioning of
such Project and (ii) the satisfaction and discharge of all
completion requirements of, and commencement of regular capacity
or reservation payments under, the purchase, transportation or
other off-take or use contracts for such Project.
"Commission" means the Securities and Exchange Commission of
the United States.
"Company" means Panda Global Holdings, Inc., a Delaware
corporation and the owner of 100% of the Issuer, and its
successors pursuant to the terms of the Company Indentures.
"Consolidated Pro Forma" means the summary consolidation of
the Rosemary Pro Forma, the Brandywine Pro Forma and the Luannan
Pro Forma.
"Consolidated Pro Forma Report" means the report entitled
"Summary of the Consolidated Pro Forma of Panda Global Holdings,
Inc." prepared by ICF, dated April 11, 1997, and updated August 7,
1997, containing the Consolidated Pro Forma.
"Consolidating Financial Analyst" means ICF, or its
successor (any such successor shall be a firm of national
reputation with expertise in engineering and financial analysis),
which such party may rely, to the extent necessary for purposes
of performing its duties under the Indentures, on the reports of
the Luannan Facility Engineer, the Brandywine Facility
independent engineer, the Rosemary Project independent engineer
or other qualified consultants.
"Constellation" means Constellation Energy Corporation.
"Construction Schedule" means the construction schedule set
forth in the Luannan EPC Contract.
"Consultants" means the Rosemary Fuel Consultant, the
Brandywine Fuel Consultant, the Luannan Coal Consultant, the
Consolidating Financial Analyst and the Independent Insurance
Consultant or their respective successors.
"Consultants' Reports" means the Consolidated Pro Forma
Report, the Rosemary Fuel Consultant's Report, the Brandywine
Fuel Consultant's Report, the Luannan Engineering Report and the
Luannan Coal Consultant's Report.
"County Partners" means Luannan Heat and Power, Luanhua Co.
and Luannan Heat Company, all of which are business entities
owned or related to the Luannan County Government or its
subdivisions.
"Cove Point" means Cove Point LNG Limited Partnership, a
Delaware limited partnership.
"Cove Point FT Agreement" means that certain FTS Service
Agreement, dated March 30, 1995, between the Brandywine
Partnership and Cove Point.
"Debt Service Reserve Fund" shall have the meaning set forth
under "Description of the Exchange Notes, the Exchange Notes
Guarantee, the Issuer Loan, the Shareholder Loans and the
Collateral DocumentsThe FundsDebt Service Reserve Fund."
"Design Institute" means Hebei Electric Power Survey and
Design Institute.
"Development Services Agreement" means the development
services agreement between Panda International and the Company,
dated as of the Closing Date.
"Dispatch Centers" means, collectively, dispatch centers
operated by the Power Bureaus.
"Dispatch Regulations" means the Regulations on the
Administration of Electric Power Dispatch to Networks and Grids
of the PRC.
"Dth" is a measurement of natural gas, being an abbreviation
of "kekatherm" and being the equivalent of an "Mcf" of natural gas.
"Duff & Phelps" means Duff & Phelps Credit Rating Co.
"Energy Policy Act" means the United States Energy Policy
Act of 1992.
"Energy Purchase Agreement" means the Electric Energy
Purchase and Sales Agreement, dated September 22, 1995, among
North China Power Company, Tangshan Panda and Tangshan Pan-
Western.
"Engineering and Design Contract" means the Engineering and
Design Contract, dated December 21, 1995, among the Design
Institute, Tangshan Panda and Tangshan Pan-Western.
"Equity Joint Venture Law of the PRC" means the Law of the
People's Republic of China on Joint Ventures Using Chinese and
Foreign Investment, adopted on July 1, 1979 by the National
People's Congress, as amended.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EWG" means an Exempt Wholesale Generator under Section 32
of PUHCA.
"Exchange Act" means the United States Securities and
Exchange Act of 1934, as amended.
"Exchange Agent" shall mean Bankers Trust Company as
Exchange Agent for the Exchange Offer.
"Exchange Offer Registration Statement" shall have the
meaning set forth in "Prospectus Summary--Prior Offering."
"FERC" means the Federal Energy Regulatory Commission of
the United States.
"FIEs" means foreign investment enterprises in the PRC.
"Financial Closing" means closing of the initial
construction or long-term project financing of a Project.
"Firm Gas Transportation Agreements" means (i) the Texas Gas
FT Agreement, the CNG FT Agreement and the Transco FT Agreement,
as they may exist at any time, (ii) any firm transportation
agreement that replaces any such agreement pursuant to a
specified conversion election by the Rosemary Partnership and
(iii) any other firm agreement having a term (including all
renewal or extension periods) greater than one year entered into
by the Rosemary Partnership to transport natural gas supplied
under the Rosemary Gas Supply Agreement.
"First Amendment" means the amendment dated September 16,
1994, to the Brandywine Power Purchase Agreement.
"Flippo" means Flippo Construction, a District of Columbia
corporation.
"Florida Power" means Florida Power Corporation, a Florida
corporation.
"Florida PSC" means the Florida Public Service Commission.
"Force Majeure Event" has the meaning ascribed to such term
under the Luannan Operations and Maintenance Agreement.
"Ford Credit" means Ford Motor Credit Company, a Delaware
corporation.
"Foreign Debt Registration Certificate" means the
certificate issued to FIEs by SAFE which evidences proper filing
of foreign debts in the PRC.
"FPA" means the United States Federal Power Act, as amended.
"Funding Period" means, with respect to the Issuer Loan
Agreement, the period of time beginning with the Closing Date and
ending on the date when the last Joint Venture has a payment
obligation relating to the construction of the Luannan Facility.
"GE Capital" means General Electric Capital Corporation, a
New York corporation.
"GNPIPD" means the Gross National Product Implicit Price
Deflator.
"Guaranteed Commercial Operation Date" means 28 months
following the issuance of the Notice to Proceed pursuant to the
Luannan EPC Contract.
"Harbin Power" means Harbin Power Equipment Company, a
company organized under the laws of the PRC.
"Heard Defendants" means the Heard Energy Corporation,
collectively with certain individual former PEC officers,
employees and advisors who are involved in litigation with PEC.
"Heat Network Construction Agreement" means the Construction
Agreement of the Heat and Steam Network, dated June 20, 1996,
between Tangshan Pan-Sino and Tangshan Engineering.
"HPPC" means the Hebei Provincial Planning Commission.
"HRSG" means heat recovery steam generator.
"ICC" means the International Chamber of Commerce.
"ICF" means ICF Resources, Incorporated, a Delaware
corporation.
"Independent Engineers" means Burns & McDonnell with respect
to the Rosemary Facility and PES with respect to the Brandywine
Facility, or their respective successors.
"Independent Engineers' Reports" means the Rosemary
Engineering Report and the Brandywine Engineering Report.
"Independent Insurance Consultant" means Sedgwick, PLC, a
corporation incorporated in accordance with the laws of the
United Kingdom, or its successor.
"Initial Purchaser" shall mean Donaldson, Lufkin & Jenrette,
the initial purchaser of the Old Notes.
"Interconnection Agreement" means the General
Interconnection Agreement, dated September 22, 1995, between
North China Power Company, Tangshan Panda and Tangshan Pan-
Western, as supplemented by the Supplemental Agreement.
"Interholding" means Panda Interholding Corporation, a
Delaware corporation.
"International Collateral Agent" shall have the meaning set
forth in "Description of other Indebtedness -- Series A Bonds--
The Funds."
"IRS" means the United States Internal Revenue Service.
"Issuer" means Panda Global Energy Company, a Cayman Islands
exempted company.
"Jing-Jin-Tang Grid" means North China Power's Beijing--
Tianjin--Tangshan Regional Power Network, to which the
electricity generated by the Luannan Facility will be transmitted
for distribution.
"Joint Venture Agreements" means, collectively, the joint
venture contracts in respect of Tangshan Panda, Tangshan Pan-
Western, Tangshan Cayman and Tangshan Pan-Sino.
"Joint Ventures" means, collectively, Tangshan Panda,
Tangshan Pan-Western, Tangshan Cayman and Tangshan Pan-Sino.
"Kathleen Facility" means the natural gas-fired, combined-
cycle cogeneration facility to be located near Lakeland, Florida,
that is being developed by PEC.
"Kathleen Partnership" means Panda-Kathleen, L.P., a
Delaware limited partnership.
"Kailuan Coal" means Kailuan Coal Mining Administration, one
of the Luannan Coal Suppliers.
"Liquidated Damages" means the amount payable as liquidated
damages under the terms of the Registration Rights Agreements, as
described in "Description of the Notes, the Guarantees, the
Issuer Loan, the Shareholder Loans and the Collateral Documents."
"Luanhua Co." means Tangshan Luanhua (Group) Co., a company
organized under the laws of the PRC.
"Luannan Coal Consultant" means Marston & Marston.
"Luannan Coal Consultant's Report" means the report prepared
by the Luannan Coal Consultant entitled "Review of the Coal
Supply Arrangements for the Luannan Power Project of Panda Energy
International, Inc." dated April 11, 1997, as updated August 7, 1997.
"Luannan Coal Suppliers" means, collectively, Kailuan Coal
Mining Administration, Luannan County Coal Mine, Liu Guantun Coal
Mine, Le Ting County Coal Mine, Zunhua Coal Mine and Chang Li
County Coal Mine.
"Luannan Coal Supply Agreements" means, collectively, the
coal supply agreements entered into among Tangshan Panda,
Tangshan Pan-Western and the Luannan Coal Suppliers.
"Luannan Coal Transportation Agreement" means the coal
transportation agreement, dated March 6, 1996, among the Carrier,
Tangshan Panda and Tangshan Pan-Western.
"Luannan County Government" means the government of Luannan
County, Tangshan Municipality, Hebei Province, PRC.
"Luannan Engineering Report" means the report entitled
"Engineer's Review and Report Panda Energy International, Inc.
2x50 MW Coal-Fired Power Plant at Luannan, China" prepared by
Parsons Brinckerhoff, dated April 11, 1997, and updated August 7,
1997 evaluating the design, construction and expected operational
and financial performance of the Luannan Facility.
"Luannan EPC Contract" means the Engineering, Procurement
and Construction Contract, dated as of April 24, 1996 among the
Luannan EPC Contractor, Tangshan Panda and Tangshan Pan-Western,
as the same may from time to time be amended, supplemented or
otherwise modified.
"Luannan EPC Contract Price" means the price that the Joint
Ventures have agreed to pay to the Luannan EPC Contractor under
the Luannan EPC Contract.
"Luannan EPC Contractor" means Harbin Power Engineering
Company Limited, a company organized under the laws of the PRC,
and a wholly-owned subsidiary of Harbin Power.
"Luannan EPC Guarantee" means (i) the corporate guarantee
provided by Harbin Power for the benefit of Tangshan Panda and
Tangshan Pan-Western, guaranteeing the liabilities and
obligations of the Luannan EPC Contractor under the Luannan EPC
Contract and (ii) the Guarantee, dated July 9, 1996, provided by
CHEXIM as required pursuant to the Luannan EPC Contract in
respect of the payment of liquidated damages and termination
payments up to a maximum amount of 35% of the Luannan EPC
Contract Price.
"Luannan EPC Work" means the design, engineering,
procurement, construction, startup, and performance testing of
the Plant.
"Luannan Facility" means the Plant, the related steam and
hot water generation and distribution facility and other related
facilities to be located in Luannan County, Tangshan
Municipality, Hebei Province, China.
"Luannan Heat and Power" means Luannan County Heat and Power
Plant, a company organized under the laws of the PRC.
"Luannan Heat Company" means Luannan County Heat Company,
Ltd., a company organized under the laws of the PRC.
"Luannan Heat Supply Contracts" means the contracts to
supply steam and hot water to various PRC industrial and
commercial users that have been assigned by Luannan Heat and
Power to Tangshan Pan-Sino.
"Luannan Interconnection Dispatch Agreement" means the
agreement to be negotiated among Tangshan Power Supply Bureau of
North China Power Company, Tangshan Panda and Tangshan Pan-
Western shortly prior to the Luannan Commercial Operation Date
concerning specific details as to the dispatch of the Luannan
Facility.
"Luannan O&M Contractor" means Duke/Fluor Daniel
International Services, a partnership whose partners are Duke
Coal Project Services Pacific, Inc., a Nevada corporation, and
Fluor Daniel Asia, Inc., a California corporation.
"Luannan Operations and Maintenance Agreement" means the
Amended and Restated Operation and Maintenance Agreement, dated
as of March 6, 1997, among the Joint Ventures and the Luannan O&M
Contractor.
"Luannan Power Purchase Agreement" means, collectively, the
Energy Purchase Agreement, the General Interconnection Agreement
and the Supplemental Agreement (and, after execution thereof, the
Interconnection Dispatch Agreement).
"Luannan Pro Forma" means the pro forma financial
projections prepared by Parsons Brinckerhoff and contained in the
Luannan Engineering Report.
"Luannan Transmission Facilities" means three new
substations, the upgrades of both an existing substation and an
existing switching station and approximately 43 km of 110 KV
transmission lines to interconnect the Plant to the Jing-Jin-Tang
Grid.
"Luannan Transmission Facilities Construction Agreement"
means the Transmission Facilities Construction Agreement among
North China Power Company, Tangshan Panda and Tangshan Pan-
Western, dated February 10, 1996, as assigned by Tangshan Panda
and Tangshan Pan-Western to Tangshan Pan-Sino on July 11, 1996.
"Luannan Transmission Facilities Contractor" means North
China Power Company as the contractor pursuant to the Luannan
Transmission Facilities Construction Agreement.
"Luannan Transmission Facilities Loan" means the loan made
by Tangshan Pan-Sino to the Transmission Facilities Contractor
through a PRC financial intermediary for the construction cost of
the Luannan Transmission Facilities, in the amount of RMB
78,218,000, to be adjusted for inflation from December 31, 1994
to the date of issuance of the notice to proceed with preliminary
design and for accrued interest during the construction period.
"Marston & Marston" means Marston & Marston, Inc., a
Missouri corporation.
"MCN" means MCN Corporation, a Michigan corporation.
"MOEP" means the Ministry of Electric Power of the PRC.
"MOFTEC" means the Ministry of Foreign Trade and Economic
Cooperation of the PRC.
"Moody's" means Moody's Investors Service, Inc.
"NCNG" means North Carolina Natural Gas Corporation, a
Delaware corporation.
"NCPA" means the North China Power Administration.
"NCUC" means the North Carolina Utilities Commission.
"NDR" means National Development and Research Corporation, a
Texas corporation.
"NEA" means the Nepal Electricity Authority.
"Network" means the heat and steam network of Luannan Heat
and Power which will consist of 12.1 kilometers of hot water
pipeline, 8.78 kilometers of steam pipeline, heat exchange
stations, heat control equipment and civil construction.
"NGC" means Natural Gas Clearinghouse, a Colorado
partnership.
"NNW" means NNW, Inc., formerly known as Nova Northwest,
Inc., an Oregon corporation.
"NNW Cash Flow Participation" means NNW's cash flow
participation interest in distributions from the Rosemary
Partnership.
"NNW Credit Agreement" means the Credit, Term Loan and
Security Agreement, dated August 31, 1993, among PEC, Panda
Rosemary Corporation, a Delaware corporation, PRC II and NNW.
"Non-Global Purchasers" means foreign purchasers, Accredited
Investors or QIBs who elect to take physical delivery of their
certificates instead of holding their interest through a Global
Note.
"Non-payment Default" means any non-payment default with
respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may then be accelerated immediately.
"Noon Buying Rate" means the noon buying rate in New York
City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York.
"North China Power" means North China Power Group, a
regional grid administrative agency in northern China whose
jurisdiction covers Beijing, Tianjin, Hebei Province, Shanxi
Province and western Inner Mongolia.
"North China Power Company" means North China Power Group
Company, a company organized under the laws of the PRC and the
business arm of North China Power.
"Noteholders" or "Holders" means the persons in whose names
Existing Notes are registered on the Registrars' books.
"NPC" means the National People's Congress, the highest
legislative body of the PRC.
"NPDES" means the National Pollutant Discharge Elimination
System.
"O&M" means operations and maintenance services.
"Offering" means the offering of the Old Notes pursuant to
an offering memorandum dated April 11, 1997.
"Ogden Brandywine" means Ogden Brandywine Operations, Inc.,
a subsidiary of Ogden Power Corporation.
"OID" means Original Issue Discount.
"Old Notes" means the 12-1/2% Senior Secured Notes due 2004 of
the Issuer issued to the Initial Purchaser on April 22, 1997.
"Pan-Sino" means Pan-Sino Energy Development Company LLC, a
Cayman Islands exempted company.
"Pan-Western" means Pan-Western Energy Corporation LLC, a
Cayman Islands exempted company, an indirect subsidiary of the
Issuer.
"Panda Global Rosemary O&M Agreement" means the operations
and maintenance agreement pursuant to which the Rosemary
Partnership purchases O&M services for the Rosemary Facility from
Panda Global Services.
"Panda Global Services" means Panda Global Services, Inc., a
Delaware corporation and an indirect wholly-owned subsidiary of
Panda International.
"Panda International" means Panda Energy International,
Inc., a Texas corporation.
"Parsons Brinckerhoff" means Parsons Brinckerhoff Energy
Services, Inc., a Delaware corporation.
"PBC" means Panda Brandywine Corporation, a Delaware
corporation.
"PBOC" means People's Bank of China.
"PBOC Rate" means the official RMB-foreign currency exchange
rate determined by the People's Bank of China.
"Peak Hours" means one of the three eight-hour delivery
periods designated by the Luannan Power Purchase Agreement.
"PEC" means Panda Energy Corporation, a Texas corporation.
"PEPCO" means Potomac Electric Power Company, a District of
Columbia and Virginia corporation.
"PES" means Pacific Energy Services, Inc., an Oregon
corporation.
"PFC" means Panda Funding Corporation, a Delaware
corporation and an indirect wholly-owned subsidiary of the
Company.
"PFC Bonds" means any series of bonds issued under the PFC
Indenture.
"PFC Indenture" means the Trust Indenture, dated as of July
31, 1996, among PFC, PIC and Bankers Trust Company, as trustee,
providing for the issuance from time to time of the Pooled
Project Bonds in one or more series.
"PFC Registration Statement" means the Registration
Statement on Form S-1, filed by PFC and certain of its affiliates
with the Commission which became effective on February 14, 1997.
"PIC" means Panda Interfunding Corporation, a Delaware
corporation and an indirect wholly-owned subsidiary of the
Company.
"PIC Additional Projects Contract" means the Additional
Projects Contract, dated as of July 31, 1996, among Panda
International, PEC and PIC.
"PIC Capitalized Interest Fund" shall mean the respective
capitalized interest fund established under the PFC Indenture.
"PIC Company Expense Fund" shall mean the company expense
fund established under the PFC Indenture.
"PIC Debt Service Reserve Fund" shall mean the respective
debt service reserve fund established under the PFC Indenture.
"PIC Entity" or "PIC Entities" means one or more
corporations, companies, partnerships, limited liability
companies or other entities (i) that are not Project Entities,
(ii) 100% of the voting capital stock or other voting equity
interests of which are owned directly by PIC, other than
directors' qualifying shares mandated by applicable law and (iii)
through which PIC owns indirect interests in Project Entities.
"PIC Guaranty" means the unconditional guaranty of the
Series A Bonds and each other series of Pooled Project Bonds by
PIC.
"PIC International Entities" means PIC Entities that,
through Project Entities, own Projects that are not U.S.
Projects.
"PIC Notes" means any promissory note evidencing loans from
PFC to PIC of the proceeds of the offering of the Series A Bonds
and each other series of Pooled Project Bonds.
"PIC Project Portfolio" means the portfolio of Projects
owned directly or indirectly by PIC.
"PIC U.S. Entities" means PIC Entities that, through Project
Entities, own U.S. Projects.
"Pipeline Operating Agreement" means the Pipeline Operating
Agreement, dated as of February 14, 1990, among PEC, PR Corp. and
NCNG, which agreement was assigned by PEC and PR Corp. to, and
assumed by, the Rosemary Partnership.
"Plant" means the 2x50 MW coal-fired cogeneration plant to
be constructed by the Joint Ventures in Luannan County, Tangshan
Municipality, Hebei Province, China.
"Pooled Project Bonds" means the Series A Bonds and certain
additional series of bonds issued pursuant to the PFC Indenture.
"PORTAL" means the Private Offerings, Resale and Trading
Through Automatic Linkages market.
"Power Bureaus" means, collectively, all power bureaus of
each level of the administration of the PRC.
"Power Law" means the Law of Electric Power of the PRC,
effective as of April 1, 1996.
"PR Corp." means Panda-Rosemary Corporation, a Delaware
corporation.
"PRC" means the People's Republic of China.
"PRC II" means PRC II Corporation, a Delaware corporation.
"Pricing Approval Authority" means the Tangshan Municipal
Price Bureau.
"Pricing Document" means the document or documents (issued
by the Pricing Approval Authority) determining the price for
electric energy delivered, retail price and principles for
adjustment.
"Prior Offering" shall mean the offering of Old Notes
consummated on April 22, 1997.
"Project" means a power generation facility or any activity
relating thereto.
"Project Debt" means any indebtedness created, incurred or
assumed by a Project Entity or secured by the assets of a
Project, including the Rosemary Bonds.
"Project Design Criteria" means the Chinese codes and
regulations, and the project design criteria detailed in the
Engineering and Design Contract.
"Project Entity" means any corporation, company,
partnership, limited liability company or other entity that is
(i) directly or indirectly owned by a PIC Entity and (ii) (a) the
direct or indirect owner of a Project or (b) obligated under or a
guarantor of Project Debt or that has granted a security interest
in any of its assets (including Project cash flows), other than
the capital stock of any of its Subsidiaries (and any dividends
or other distributions on such capital stock and proceeds
therefrom), to secure the payment of Project Debt or the
performance of any Project agreement.
"Prospectus" shall mean the prospectus forming a part of the
Registration Statement.
"Provincial Power Bureaus" means, collectively, the eight
independent provincial and two special administrative power
bureaus of the PRC.
"Prudent Utility Practices" means the practices generally
followed by the electric utility industry, as changed from time
to time, which generally include, but are not limited to,
engineering and operating considerations.
"PUCs" means state public utility commissions in the United
States.
"PUHCA" means the United States Public Utility Holding
Company Act of 1935, as amended.
"Purchase Agreement" shall mean the purchase agreement dated
April 11, 1997, whereby the Initial Purchaser agreed to purchase
the Old Notes.
"PURPA" means the United States Public Utility Regulatory
Policies Act of 1978, as amended.
"QF" means Qualifying Facility.
"QIB" means qualified institutional buyer, as such term is
defined under Rule 144A of the Securities Act.
"Qualifying Facility" or "QF Status" means either a small
power production facility or a cogeneration facility that has
satisfied the definition of "qualifying facility" as set forth in
18 C.F.R. 292.101(b)(1) of the regulations promulgated under
PURPA.
"Rating Agencies" means Standard & Poor's, Moody's, and Duff
& Phelps. "Reaffirmed by the Rating Agencies," or words to
similar effect, means two or three of such agencies have
reaffirmed the rating of the Indebtedness at issue.
"Raytheon" means Raytheon Engineers and Constructors, Inc.
"Raytheon Parent Guaranty" means the Parent Guaranty dated
as of March 30, 1995 executed by Raytheon Company in favor of the
Brandywine Partnership.
"RCRA" means the United States Resource Conservation and
Recovery Act of 1976.
"Regional Power Groups" means, collectively, the five
interprovincial power groups of China.
"Registration Rights Agreement" shall have the meaning set
forth in "Prospectus Summary--Prior Offering".
"Registration Statement" shall have the meaning set forth in
"Available Information."
"Reimbursement Agreement" means the Second Amended and
Restated Letter of Credit and Reimbursement Agreement, dated as
of January 6, 1992, among the Rosemary Partnership, The Fuji
Bank, Limited, and certain other banks party thereto, which was
terminated in July 1996.
"Renminbi" or "RMB" means Renminbi, the legal tender
currency of China.
"Retainage" means the withholding by Tangshan Panda and
Tangshan Pan-Western of 10% of the Luannan EPC Contract Price.
"Rosemary Bonds" means the 8 5/8% First Mortgage Bonds due
2016 of Panda-Rosemary Funding Corporation.
"Rosemary Borrowers" means Panda-Rosemary Funding
Corporation, PR Corp. and PRC II.
"Rosemary Casualty Proceeds" means Casualty Proceeds as
defined in the Rosemary Indenture.
"Rosemary Eminent Domain Proceeds" means Eminent Domain
Proceeds as defined in the Rosemary Indenture.
"Rosemary Engineering Report" means the report entitled
"Panda-Rosemary Cogeneration Project Condition Assessment Report
prepared by Burns & McDonnell, dated April 11, 1997, and updated
August 7, 1997, concerning certain technical, environmental and
economic aspects of the Rosemary Facility.
"Rosemary Event of Eminent Domain" means an Event of Eminent
Domain as defined in the Rosemary Indenture.
"Rosemary Event of Loss" means an Event of Loss as defined
in the Rosemary Indenture.
"Rosemary Facility" means the 180 MW natural gas-fired,
combined-cycle cogeneration facility of the Rosemary Partnership
located in Roanoke Rapids, North Carolina.
"Rosemary Fuel Consultant" means Benjamin Schlesinger and
Associates, Inc.
"Rosemary Fuel Consultant's Report" means the report
entitled "Assessment of Fuel Price, Supply and Delivery Risks for
the Panda-Rosemary Cogeneration Project" prepared by the Rosemary
Fuel Consultant, dated September 20, 1996, as updated on April
11, 1997, and August 7, 1997, analyzing the sufficiency of the fuel
supply and transportation arrangements for the Rosemary Facility.
"Rosemary Fuel Management Agreement" means the Fuel Supply
Management Agreement, dated October 10, 1990, between the
Rosemary Partnership and NGC, as amended.
"Rosemary Gas Supply Agreement" means the Gas Purchase
Contract, dated April 12, 1990, between the Rosemary Partnership
and NGC, as amended.
"Rosemary Indenture" means the trust indenture governing the
terms of issuance from time to time of debt securities in one or
more series, dated as of July 31, 1996, among Panda-Rosemary
Funding Corporation, the Rosemary Partnership and Fleet National
Bank, as trustee.
"Rosemary Issuer" means Panda-Rosemary Funding Corporation,
a Delaware corporation.
"Rosemary Offering" means the offering of the Rosemary
Bonds.
"Rosemary Partnership" means Panda-Rosemary, L.P., a
Delaware limited partnership.
"Rosemary Pipeline" means the 10.26 mile gas pipeline owned
by the Rosemary Partnership.
"Rosemary Power Purchase Agreement" means the Power Purchase
and Operating Agreement, dated January 24, 1989, as amended on
October 24, 1989, and July 30, 1993, between VEPCO and the
Rosemary Partnership.
"Rosemary Pro Forma" means the pro forma financial
projections prepared by Burns & McDonnell that are contained in
the Rosemary Engineering Report.
"Rosemary Project Document" means, collectively, the
Rosemary Power Purchase Agreement, the Rosemary EPC Agreement,
the Rosemary O&M Agreement, the Rosemary Steam Agreement, the
Rosemary Fuel Management Agreement, the Rosemary Gas Supply
Agreement, the Rosemary Site Lease and (as each of the following
is defined in the Rosemary Indenture) and each Additional Project
Document.
"Rosemary Site Lease" means the Real Property Lease and
Easement Agreement, dated June 9, 1989, as amended on October 1,
1989, and as further amended on January 31, 1990, and March 15,
1996, between the Rosemary Partnership and Bibb.
"Rosemary Steam Agreement" means the Cogeneration Energy
Supply Agreement, dated January 12, 1989, by and between PEC and
Bibb, which contract was assigned by PEC to, and assumed by, PR
Corp., as such contract was amended October 1, 1989, and as the
same was further assigned by PR Corp. to, and assumed by, the
Rosemary Partnership on January 3, 1990.
"Rosemary Title Event" means a Title Event as defined in the
Rosemary Indenture.
"Rosemary Title Insurance Proceeds" means Title Insurance
Proceeds as defined in the Rosemary Indenture.
"SAFE" means the State Administration of Foreign Exchange of
the PRC.
"SAIC" means the State Administration of Industry and
Commerce of the PRC.
"SCC" means the State Corporation Commission of the
Commonwealth of Virginia, or any successor agency.
"SEC" means the Securities and Exchange Commission of the
United States.
"Securities Act" means the United States Securities Act of
1933, as amended.
"Series A Bonds" means the 11 5/8% Pooled Project Bonds,
Series A due 2012 of Panda Funding Corporation.
"Series A Offering" means the offering of the Series A
Bonds.
"Series A-1 Bonds" means they 11-5/8% Pooled Project Bond,
series A-1 due 2012 of Panda Funding Corporation, exchanged for
the Series A Bonds of Panda Funding Corporation.
"Services" means the services to be performed by the Design
Institute pursuant to the Engineering and Design Contract.
"Shelf Registration Statement" shall have the meaning set
forth in "Prospectus Summary--Prior Offering."
"SFV" means Straight Fixed-Variable transportation rates.
"SP" means the State Power Corporation of China.
"SPC" means the State Planning Commission of the PRC.
"Standard & Poor's" means Standard & Poor's Ratings Service.
"Superfund" means the United States Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended.
"Supplemental Agreement" means the Supplemental Agreement
for General Interconnection Agreement and Electric Energy
Purchase and Sales Agreement, dated February 10, 1996, among
North China Power Company, Tangshan Panda and Tangshan Pan-
Western.
"Swap Centers" means the official foreign exchange swap
markets of the PRC.
"Tangshan Cayman" means Tangshan Cayman Heat & Power Co.,
Ltd., a Sino-foreign equity joint venture.
"Tangshan Engineering" means Tangshan Heat and Engineering
Company, a company organized under the laws of the PRC.
"Tangshan Pan-Sino" means Tangshan Pan-Sino Heat Co., Ltd.,
a Sino-foreign equity joint venture.
"Tangshan Pan-Western" means Tangshan Pan-Western Heat and
Power Co., Ltd., a Sino-foreign equity joint venture.
"Tangshan Panda" means Tangshan Panda Heat and Power Co.,
Ltd., a Sino-foreign equity joint venture.
"Taxes" means any present or future taxes, duties,
assessments or governmental charges of whatever nature.
"Texas Gas" means Texas Gas Transmission Corporation.
"Texas Gas FT Agreement" means the Gas Transportation
Agreement, dated August 1, 1996, between Texas Gas and the
Rosemary Partnership.
"Total Transmission Facilities Construction Cost" means the
U.S. dollar equivalent of RMB 78,218,000, to be adjusted for
inflation from December 31, 1994, to the date of issuance of the
notice to proceed with preliminary design in relation to the
construction of the Luannan Transmission Facilities.
"Transco" means Transcontinental Gas Pipe Line Corporation,
a Delaware corporation.
"Transco FT Agreement" means the Service Agreement, dated
July 26, 1996, effective as of August 20, 1996, between the
Rosemary Partnership and Transco.
"Treasury" means the United States Department of Treasury.
"Treasury Regulations" means regulations issued by the
United States Department of Treasury.
"Trough Hours" means one of the three eight-hour delivery
periods designated by the Luannan Power Purchase Agreement.
"U.S. dollars," "dollars," or "$" means United States
dollars, legal currency of the United States of America.
"U.S. Projects" means the Projects owned by PIC U.S.
Entities and located in the United States and certain other
international Projects in respect of which deferral of U.S.
federal income taxes is not being sought.
"United States" or "U.S." means the United States of
America.
"United States Holder" or "U.S. Holder" means a holder of a
Note who is (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any
political subdivision thereof, (iii) an estate or trust, the
income of which is subject to United States federal income
taxation regardless of its source or (iv) a trust which is
subject to the supervision of a court within the United States
and the control of a United States fiduciary as described in
Section 7701(a)(30) of the Code.
"VEPCO" means Virginia Electric and Power Company, a
Virginia public service corporation (including North Carolina
Power).
"WestPoint" means WestPoint Stevens, Inc., a Delaware
corporation.
"WGL" means Washington Gas Light Company, a District of
Columbia corporation and a Virginia corporation.
"WGL Agreement" means the Gas Transportation and Supply
Agreement, dated November 10, 1994, between the Brandywine
Partnership and WGL.
APPENDIX A
PART II - CERTAIN TECHNICAL TERMS COMMONLY USED IN THE UTILITY
INDUSTRY
Defined below are certain technical terms commonly used in the
electric and gas utility industries.
"Available" means the status of a major piece of equipment
which is capable of service, whether or not it is actually in
service.
"Btu" means British Thermal Unit, the amount of heat
required to raise the temperature of 1 pound of pure water 1
degree F from 59 degrees F to 60 degrees F at a constant pressure
of 14.73 pounds per square inch absolute.
"Capability" means the maximum load which an electric
generating unit can carry under specific conditions for a given
period of time, without exceeding approved limits of temperature
and stress.
"Capacity" means the load for which an electric generating
unit is rated either by the user or by the manufacturer.
"Cogeneration" means the simultaneous production of electric
energy and useful thermal energy for industrial, commercial,
heating or cooling purposes.
"Cogeneration Facility" means a facility that produces
electric energy and useful thermal energy used for industrial,
commercial, heating or cooling purposes.
"Dispatch" means for purposes of this Offering Memorandum,
dispatching a plant means directing such plant to produce power
under the appropriate power sales agreement.
"Dth" is a measurement of natural gas, being an abbgreviation
of "dekatherm" and being the equivalent of an "Mcf" of natural gas.
"GJ" means gigajoule; one billion Joules.
"GWH" means gigawatt hour; one million kWh.
"Installed Capacity" means the full-load continuous rating
of a generator, prime mover or other electrical equipment under
specified conditions as designated by the manufacturers.
"kJ" means kilojoule; 1000 Joules and equals .947817 Btu
(international).
"kV" means kilovolt; 1,000 volts.
"kW" means kilowatt; 1,000 watts.
"kWh" means kilowatt-hour; the basic unit of electric energy
equal to one kilowatt of power supplied to or taken from an
electrical circuit steadily for one hour.
"LHV" means lower heating value.
"Load" means with respect to a power generating plant or a
generator, the extent to which it is being used at a particular
time.
"Metric Ton" means 1,000 kilograms or 2204.6 pounds.
"MM" means thousand.
"MW" means megawatt; one million watts.
"MWh" means megawatt hour; one thousand kWh.
"Net Dependable Capacity" means the tested or demonstrated
output of the facility in kilowatts, measured at the output (high
voltage side) of the main transformers.
"Outage" means an interruption that fully or partially
curtails the electric generating facility's output of
electricity.
"Transmission Line" means an electrical connection between
two points on a power system for the purpose of transferring high
voltage electrical energy between the points. Generally, a
transmission line consists of large wires or conductors held
aloft by towers.
"TW" means terawatt; one billion kW.
"TWh" means terawatt-hour; one billion kWh. One thousand
GWh. TWh is typically used as a measure of the annual energy
output of a region or country.
"Watt" means the electric unit of real power or rate of
doing work. The unit of power in the international system (SI),
expressed as the Watt, is the power required to do work at the
rate of one Joule per second.
THE ELECTRIC POWER INDUSTRY AND REGULATION
IN THE PRC
AND THE
UNITED STATES
The information in this Section has been derived from various
government and private publications and obtained in
communications with various PRC governmental agencies and has not
been prepared or independently verified by the Joint Ventures,
the Issuer, the Company or the Initial Purchaser or any of their
respective affiliates. Capitalized terms used in this Appendix B
and not otherwise defined herein have the meanings assigned in
the glossary included as Appendix A hereto.
General
Although most production assets in the PRC are still owned
ultimately by the government of the PRC, the level of direct control
the government of the PRC exercises over the economy is being gradually
relaxed. Since 1978, the PRC government has been implementing market-
oriented economic reforms in an effort to revitalize the PRC's
economy and improve its citizens' standard of living. In October 1992,
the 14th Congress of the Communist Party of China declared that the PRC
would adopt a "socialist market economy" in which a market-oriented
economy would be allowed to develop while the PRC government
would continue to set economic targets and guide growth through macro-
regulations. The concept of a socialist market economy was incorporated
in the PRC's Constitution in March 1993 and reaffirmed in the PRC's
Ninth Five-Year Economic and Social Development Plan adopted in early
1996. The reforms have marked a shift from a more rigid, centrally-
planned economy to a more mixed economy in which market forces play an
increased role and the government has a reduced role. State-owned
enterprises still constitute the largest sector of the economy, but
implementation of the economic reforms has led to, among other
things, the delegation to managers of enterprises of more decision-
making powers and responsibilities regarding matters such as
production, marketing, use of funds and employment of staff. It
has also led to the conversion of selected State-owned enterprises
into joint stock limited companies which issue shares to the public
and private investors (including their employees); the gradual
reduction of PRC government control over producer prices; and
the designation of certain coastal areas and cities as special
economic development zones with greater local autonomy. The
PRC government has also implemented policies designed to attract
foreign investment and technology. The PRC government's reforms
have resulted in significant economic growth. The gross domestic
product of China increased significantly during the period 1980 to 1995
and inflation has moderated to 6.1% in 1996.
The China Power Market
At the end of 1995, China had an aggregate installed electric
power generation capacity of approximately 217,220 MW, making
China's electric power generation capacity the third largest in
the world. In 1995, about 17,323 MW of installed capacity was
added. China's electric power industry produced approximately
1,007 TWh of electricity in 1995. This represents an addition of
nearly 80 TWh from 1994, making China's electricity industry one
of the fastest growing in the world. Despite its size, China's
electric power system is inadequate to meet current and expected
demand, and the consequent shortage is one of the major obstacles
to economic growth in the PRC. In addition, as of October 1994,
approximately 120 million people did not yet have access to
electricity.
Developments in the PRC's Power Industry
Under the PRC's Eighth Five-Year Plan (1991-1995), increasing
demands for electricity resulted in the rapid increase in the
PRC's total annual electricity generation. A total of 65,747 MW
of electric power generating capacity was installed during the
four-year period from 1992-1995, representing an average annual
increase of more than 16,000 MW. Notwithstanding such increase,
the PRC's average annual growth rate for installed electric
generating capacity between 1992 and 1995 (approximately 10.4%)
did not keep pace with the average annual growth rate of the
PRC's GDP. The following table sets forth figures for installed
capacity, increases in installed capacity, electricity generation
and percentage increases in electric power generation in China
for the years 1986 to 1995.
<TABLE>
<CAPTION>
Increase in
Installed Installed Electricity Increase in
Capacity Capacity Generation Electricity
<C> <C> <C> <C> <C>
Year (MW) (MW) (TWh) (%)
1986 93,818.5 6,795.3 449.6 9.5
1987 102,897.0 9,078.5 497.3 10.6
1988 115,497.1 12,600.1 545.2 9.6
1989 126,638.6 11,141.5 584.8 7.3
1990 137,890.0 11,251.4 621.2 6.3
1991 151,473.1 13,583.1 677.5 9.0
1992 166,532.4 15,059.3 754.2 11.3
1993 182,910.7 16,378.3 836.4 10.9
1994 199,897.2 16,986.5 927.9 10.9
1995 217,220.0 17,322.8 1,007.0 8.5
</TABLE>
(estimated)
(1)
__________________
Source: Ministry of Electric Power, Electric Power Industry in
China (1995).
(1) Based on various published statements from MOEP officials.
Based on statements by the Ministry of Electric Power (the
"MOEP"), China will need an average of approximately 16,600 MW of
new electric generating capacity annually through the year 2000
(or an aggregate of approximately 83,000 MW of new electric
generating capacity in the Ninth Five-Year Plan period ending
2000). MOEP estimates that approximately $20 billion of overseas
investment will be needed to reach the MOEP's target of
increasing installed capacity to 290,000 MW by 2000.
Electric Power and Other Regulation
The Joint Ventures, North China Power Company and North
China Power are subject to governmental and electric power grid
regulation in virtually all aspects of their operations,
including the amount and timing of electricity generation and
dispatch, the setting of power rates, the performance of
scheduled maintenance and compliance with power grid control
directives. Moreover, the conversion of the revenues of the
Joint Ventures into U.S. dollars is subject to the foreign
exchange regulations of the PRC, which are administered by State
Administration of Foreign Exchange of the PRC (the "SAFE"). See
"Risk Factors - Considerations Relating to the PRC-Government
Control of Currency Conversion and Exchange Rate Risks."
Regulation of the Electric Power Industry; General
The PRC's electric power industry is regulated primarily by
the MOEP in conjunction with the SPC and other governmental
agencies. For foreign investments in electric power projects in
the PRC, such governmental agencies include the Ministry of
Foreign Trade and Economic Cooperation of the PRC (the "MOFTEC"),
the SPC, the SAFE, the State Administration of Industry and
Commerce of the PRC (the "SAIC") and certain other agencies.
Certain functions of the MOEP are expected to be transferred in
the near future to the State Power Corporation of China ("SP")
which was formally approved in January 1997. See "Central
Governmental Authorities - Ministry of Electric Power" below.
The regulatory and approval authorities of the Central
Governmental agencies are delegated to local provincial or city
governmental agencies performing similar functions if the total
amount of such foreign-invested projects does not exceed certain
thresholds (denominated in U.S. dollars). See "Risk
Factors-Considerations Relating to the PRC-Legal and Regulatory
Considerations."
Central Governmental Authorities
The structure of the PRC political system is based on the
PRC Constitution and is headed by the National People's Congress
("NPC"), which is the highest legislative body, and the State
Council, which is the highest executive body charged with the
implementation and administration of the laws and decisions made
by the NPC. In addition, the SPC is in charge of formulating
national long-term, medium-term and annual economic plans based
on the industrial policy of the PRC.
State Council
The State Council is responsible for the integration of all
activities and policies of its component commissions and
ministries, as well as provincial and local governments. Rules
and regulations of the State Council and its commissions and
ministries preempt all legislation, rules or regulations enacted
by provincial and local governments. Thirty-eight ministries and
commissions, the General Office of the State Council, the
People's Bank of China (the "PBOC"), the State Auditing
Administration and a number of other bureaus and administrations
are currently under the direct authority of the State Council.
The agencies described below are the primary Central Governmental
agencies vested with authority to regulate foreign investment in
the electric power industries in the PRC.
In 1985, the State Council revised a number of its policies
with the intention of fostering the rapid development of the
electric power industry, including (i) allowing local governments
to invest in the development of power plants in their areas,
(ii) loaning funds to the local and provincial Power Bureaus for
the development of local and provincial power plants and
(iii) encouraging the utilization of foreign capital by
permitting foreign participation in the development and
management of power plants in China.
State Planning Commission
The SPC is responsible for coordinating the foreign
investment plans submitted by the provincial planning
departments, and formulating national long-term, medium-term and
annual foreign investment plans based on the industrial policy of
the PRC. The SPC has authority to approve the project proposal
and the feasibility study of foreign investment enterprises
("FIEs") with total investment of over $10 million, or $30
million in certain cases, except that FIEs with total investment
of over $100 million must also obtain final approval from the
State Council. The SPC is also responsible for coordinating the
Renminbi and foreign exchange funds required for the
construction, production and operation of FIEs.
Ministry of Electric Power
As the ministry responsible for the electric power industry,
the MOEP is responsible for formulating development strategies
and policies for the electric power industry in the PRC,
including investment, technical, and major production and
consumption policies. In addition to formulating electric power
industry planning in collaboration with the SPC and other
governmental agencies, the MOEP (i) coordinates the development
of the electric power industry, (ii) supervises the
implementation of related national policies, decrees and plans
and (iii) provides services to electric power enterprises. The
MOEP shares certain of its administrative responsibilities with
the China Nuclear Industry Corporation and the Ministry of Water
Resources with respect to nuclear-powered and hydro-powered
electricity generating facilities, respectively. In addition to
these regulatory and administrative functions, the MOEP is also
in charge of the overall financial management of the power
industry, including consolidating the profits and taxes and
approving the budgets of all the regional power entities
annually. The MOEP owns China's State-owned power generating
assets on behalf of the State, other than those owned by
companies not directly managed by the MOEP and a few smaller
units directly owned by local governments.
In an attempt to separate the regulatory and commercial
functions of the electric power industry, the PRC State Council
formally approved the establishment of the SP in January 1997.
The SP is a state-owned legal entity with funds provided directly
by the State Council. It will serve as the PRC's principal
investor in and/or operator of wholly or partially state-owned
facilities in China. It will also be responsible for the
operation of interregional transmission facilities and the
development of a national power grid. After the establishment of
the SP, the MOEP will continue to exercise the regulatory
function over the Chinese electricity industry, but the MOEP's
enterprise management function and its function to operate state
assets will be turned over to the SP. As part of the reform,
provincial power bureaus will also need to transfer their
regulatory functions to other departments of the local government
and become subsidiaries of the SP. It has been reported that the
MOEP itself will also be dissolved and its regulatory function
will be transferred to the China Electricity Council. The
organization and establishment work of the SP is expected to be
completed before the end of June 1997. There can be no assurance
as to what impact this reform will have on the Luannan Facility.
See "Risk Factors--Considerations Relating to the PRC--Risk Regarding
Changes to PRC and Local Laws, Policies and Regulatory Authorities."
Ministry of Foreign Trade and Economic Cooperation
The MOFTEC controls all affairs pertaining to foreign
economic relations and trade through the implementation of
principles and policies of the medium and long-term foreign trade
development plans. Its aim is to foster international
multilateral and bilateral economic and technological cooperation
by utilizing foreign funds, organizing import and export of
technology, and generating construction projects abroad. On a
national level, the main responsibility of the MOFTEC consists of
controlling and coordinating foreign trade activities in the
provinces, autonomous regions and municipalities, as well as in
various departments under the State Council. The MOFTEC has the
authority to approve organizational documents of FIEs with total
investments exceeding the $10 million or $30 million threshold.
State Administration of Industry and Commerce
The SAIC is in charge of the registration of, and issuance
of business licenses to, FIEs. It has the authority to conduct
annual inspections of FIEs to ensure that their business
activities have been carried out in accordance with their
approved business scope and the applicable laws and regulations.
State Administration of Foreign Exchange
The SAFE is responsible for administration of foreign
exchange in the PRC. It formulates and oversees the
implementation of foreign exchange regulations applicable to
FIEs. The relevant approval authorities consult the SAFE in
respect of foreign exchange matters relating to FIEs. The SAFE is
also responsible for administrating the Swap Centers and issuing
permits to FIEs for access to the Swap Centers as well as for
monitoring the interbank system.
Local Governments
Administratively, the PRC is divided into 23 provinces, four
municipalities with provincial level authority (Beijing,
Shanghai, Tianjin and Chongqing) and five autonomous regions. At
the local level, administrative entities derive their authority
from, and are accountable to, the National People's Congresses at
the provincial and municipal levels. Provincial and local
congresses and governments are permitted to enact legislation,
rules and regulations designed for local conditions, provided
that such legislation does not contravene the Constitution or the
laws or regulations adopted by the Central Government of the PRC.
The local provincial and county equivalents of the Central
Government approval authorities discussed above play a
corresponding role in the approval process where the total
investment and other conditions of proposed FIEs fall within the
prescribed limits of delegated approval authority. In this
regard, the provincial and county planning departments and
economic departments have the authority to approve the project
proposal and the feasibility study and the provincial and county
Commissions of Foreign Trade and Economic Cooperation ("COFTECs")
have the authority to approve the organizational documents of
FIEs.
Regional, Provincial and Local Power Bureaus
The MOEP directly oversees the five interprovincial power
groups (the "Regional Power Groups") and the eight independent
provincial and two special administrative region power bureaus
("Provincial Power Bureaus") in China. The Regional Power Groups
(i) manage their respective regional power grids, (ii) dispatch
the power plants connected to such grids either directly or
indirectly through lower level power bureaus, and (iii) supervise
the power bureaus at lower administrative levels. The Regional
Power Groups also act through power companies which develop,
construct, own and operate certain power plants and transmission
facilities within their respective territories. The key personnel
of the Regional Power Groups are appointed by the MOEP and the
key personnel of the Provincial Power Bureaus are appointed by
the provincial governments in consultation with the MOEP.
A similar structure exists for the Provincial Power Bureaus
under the Regional Power Groups and the Provincial Power Bureaus
directly managed by the MOEP. Each Provincial Power Bureau
manages its provincial power grid and dispatches the power plants
connected to such grid to meet local demand. Many Provincial
Power Bureaus also act through power companies which operate
certain power plants and certain transmission facilities within
their respective provinces. Cities and counties directly under
the administration of the provinces may have power bureaus
(together with the Regional Power Groups and the Provincial Power
Bureaus, the "Power Bureaus") which perform, under the
administration of the Power Bureau at the next higher level of
government, similar functions within their respective
jurisdictions. In case of the Luannan Facility, the Hebei Provincial
Price Bureau has delegated its authority to the Tangshan Municipal
Price Bureau (the "Pricing Approval Authority"). The delegation
letter, however, makes clear that the Hebei Provincial Bureau can
revoke such delegation at any time if it is necessary for the state's
electric tariff policy. See "Risk Factors--Considerations Relating
to the PRC--Risk Regarding Changes to PRC and Local Laws, Policies
and Regulatory Authorities."
Investment in the Electric Power Industry
The Ninth Five-Year Plan contemplates that power generating
capacity in the PRC nationwide will be increased on average by
16,600 MW annually, representing an annual increase of about 7%
in power generation. By the year 2000, the total power generating
capacity nationwide is expected to reach 290,000 MW with an
expected annual power generation of 1,400 billion kWh. In order
to achieve these goals, it is estimated that 20% of the required
investment in the expansion of the power sector will have to come
from abroad. As stated above, prior to 1985 virtually all
investment in China's electric power industry was financed by the
Central Government. In 1985, the Central Government began to
implement a policy of using a variety of ways and financing
methods to develop the PRC's electric power industry, including
foreign investment through independent power projects and build-
operate-transfer ("BOT") approaches. To date, the primary means
of foreign investment in the PRC's electric power industry has
been debt financing of State-owned plants with a small amount of
equity investment in independent or BOT projects.
With appropriate Central Government approvals, Regional
Power Groups and Provincial Power Bureaus may form directly
managed power companies, which may develop, construct, own and
operate power plants in their respective territories. North China
Power Company was formed by North China Power in 1993 to serve as
North China Power's business arm. At least two-thirds of the
installed capacity in China at the end of 1995 was attributed to
power plants managed by the MOEP directly or indirectly through
such power companies. The remainder was attributed to power
plants owned and operated by the China Huaneng Group, the State
Energy Investment Corporation, the China Power Investment
Corporation, local government investment institutions and, to a
much lesser extent, foreign investors.
Rate Setting Mechanisms
Rates for electricity produced by power plants that the MOEP
directly or indirectly manages are generally set by the Central
Government, thus most electricity has historically been purchased
from power plants at such rates. For certain power plants with
local government, China Huaneng Group or foreign investment, such
as the Luannan Facility, rates are set on the basis of
discussions between such power plants and the relevant provincial
pricing bureau.
In the case of power plants managed by the MOEP, customers
purchase electricity from the Power Bureaus of each level of the
administration of the PRC at rates determined by the Central
Government, which vary according to the category and location of
the user. The rates set by the Central Government have
traditionally been maintained at a low level, requiring the
subsidization of the electric power industry by the Central
Government. One of the stated goals of the MOEP, which has also
been restated in the Power Law (as described below), is to reform
power pricing to be consistent with the development of the market
economy. The MOEP has commenced the trial implementation in
several cities of a time-sharing pricing policy which charges
consumers higher rates for peak load periods and lower rates for
off-peak load periods. North China Power has adopted a similar
program in its service area. Allowing the market to influence the
setting of power rates is intended to provide incentives for
greater efficiency in energy production, reduction of energy use
per unit of industrial output and promotion of conservation
technologies. See "Risk Factors - Considerations Relating to the
PRC-Governmental Regulation of Power Rates."
Transmission and Dispatch
The main system for the dispatch, transmission and
distribution of electric power in China consists of the five
interprovincial power grids managed by their respective Regional
Power Groups and the eight provincial and two autonomous region
power grids managed by the Provincial Power Bureaus. The table
below shows the aggregate installed capacity of the power plants
connected to the grids managed by such Power Bureaus and the
total electricity generated on those grids in 1994.
1994
1994 Total
Installed Electricity
Grid Capacity Generation
(MW) (TWh)
East China Power Bureau 31,673.2 164.358
Central China Power Bureau 27,602.2 132.041
North China Power Bureau 27,146.4 140.087
Northeast Power Bureau 26,534.4 124.531
Guangdong Provincial Bureau 19,009.7 73.916
Shandong Provincial Bureau 11,518.2 67.183
Northwest Power Bureau 11,483.0 60.423
Sichuan Provincial Bureau 10,095.3 47.328
Fujian Provincial Bureau 4,960.3 21.605
Guangxi Provincial Bureau 4,230.8 16.854
Yunnan Provincial Bureau 4,082.9 16.939
Guizhou Provincial Bureau 3,253.8 15.206
Xinjiang Autonomous Region Bureau 2,865.1 10.617
Hainan Provincial Bureau 1,057.3 2.869
Tibet Autonomous Region Bureau 166.7 0.357
(each a "Power Bureau")
Source: Ministry of Electric Power, Electric Power Industry in
China (1995)
China's energy sources, such as coal and potential
hydroelectric resources, are principally located in the western,
northern and central inland provinces, but its high electricity
consumption regions are located in the eastern and southern
coastal areas. As a result of plans to develop large power plants
in areas with significant energy sources, the expansion of
China's electricity transmission capabilities is of major
importance. China plans to interconnect the North China Power
Grid with the Northeast Power Grid around 2000. In 2003, with the
expected completion of the first phase of the Three Gorges
Project, the Central China Power Grid is expected to be
interconnected on the east with the East China Power Grid and on
the west with the Sichuan Power Grid. A unified national power
grid is planned for completion sometime between 2010 and 2020.
All electricity produced in China is dispatched by the Power
Bureaus, except for that generated by units not connected to a
grid. The grids and the electric power dispatch to each grid are
administered by dispatch centers ("Dispatch Centers") operated by
the Power Bureaus. Prior to November 1993, such electric power
dispatch had been carried out pursuant to MOEP guidelines. In
order to achieve more efficient and rational dispatch of electric
power, the State Council issued, with effect from November 1,
1993, the Regulations on the Administration of Electric Power
Dispatch to Networks and Grids (the "Dispatch Regulations"). The
Dispatch Regulations are the first nationwide regulations in
China governing the dispatch of electric power. Under the
Dispatch Regulations, Dispatch Centers were established at each
of five levels: the National Dispatch Center, the Dispatch
Centers of the Regional Power Groups, the Dispatch Centers of the
Provincial Power Bureaus, the Dispatch Centers of the Power
Bureaus of municipalities under provinces and the Dispatch
Centers of the county Power Bureaus. Dispatch Centers are charged
with setting production levels for the various power plants
connected to the grid. To effect this determination, each power
plant receives on a daily basis from its local Dispatch Center an
expected hour-by-hour output schedule for the following day,
based on expected demand, the weather and other factors.
The Dispatch Regulations provide that the Dispatch Centers
must dispatch electric power according to, among other things,
(i) power supply agreements entered into between a Power Bureau
and certain large or primary electricity customers, where such
agreements take into account the electric power generation and
consumption plans formulated annually by the Central Government
and set forth in the State Plan, (ii) agreements entered into
between a Dispatch Center and each power plant subject to its
dispatch, (iii) interconnection agreements between Power Bureaus
and (iv) actual conditions of the grid, including equipment
capabilities and safety reserve margins.
Peak and Seasonal Demands
The demand for electric power in China goes through fairly
predictable daily and other periodic cycles. Peak periods of
power use are during the day, from approximately 8:00 a.m. to
10:00 p.m., when industrial and commercial use is highest. Power
demand moderates from approximately 10:00 p.m. to 8:00 a.m. for a
number of reasons, including the fact that multiple shifts are
not routine in Chinese factories and that the residential demand
for electricity is relatively low. Because China has a
significant shortage of electricity generating capacity, the
Dispatch Centers restrict certain users' access to electricity
during peak periods of demand. As a result, the peak load in
China does not reflect the extent of the total demand for power.
China does, however, have enough generating capacity to meet all
demand during off-peak periods. While power plants operate at
less than full capacity during off-peak periods, virtually all
available power plants operate at full capacity during peak
periods, subject to grid-wide safety reserve margins.
Because the combustion of coal provides most of China's
space-heating needs and because air conditioning is not yet
prevalent in most regions of China, seasonal variations in the
demand for electricity are less than in countries such as the
United States.
Electricity Sources
The table below sets forth for each of the years 1993 and
1994 the amount of electricity generated in the PRC by type of
power plant in absolute terms, as well as a percentage of total
gross production.
Actual
1993 1994
TWh % TWh %
Thermal(1) 685.9 83.0 747.0 80.5
Hydroelectric power
(including pumped 150.6 17.0 166.8 18.0
storage) (2)
Nuclear 14.1 1.5
Total gross production 836.5 100.0 927.9 100.0
production
Source: Ministry of Electric Power, Electric Power Industry in
China (1995)
(1) Predominant fuel is coal; includes for 1993 an insignificant
amount of electricity generated by nuclear power plants.
(2) Pumped storage facilities pump water into reservoirs using
electricity generated during off-peak periods. The water is
released to generate hydroelectric power during peak demand
periods.
China is the world's largest producer of coal. China
depended on the consumption of coal for the supply of
approximately 75% of its primary energy needs in 1994, a higher
percentage than most developed countries. Coal is used in China
not only for generation of electricity, coking and other
industrial applications, but is also widely used for residential
and commercial cooking and heating. Because of China's extensive
domestic coal resources and its desire to minimize dependence on
foreign sources for energy, it is expected that coal will remain
the main energy source for electricity generation in China for
the foreseeable future.
A small portion of the coal and oil used in the generation
of electricity is allocated to power plants by the Central
Government in accordance with the State Plan. Pursuant to price
reforms introduced in the beginning of 1994, allocated coal is
generally sold at prices negotiated between the supplier and
purchaser subject to certain limitations of price currently
imposed by the Central Government.
Much of the coal used in the electric power industry must be
transported from relatively isolated inland coal mines by rail to
the coast for forwarding to the population and industrial centers
concentrated in China's coastal areas. Railway transportation
capability is generally insufficient to satisfy China's
industrial and commercial transportation needs. As a result,
railway transportation is allocated by the Central Government at
set prices.
PRC Electric Power Law
Given the importance of the continued rapid expansion of
China's power industry, the NPC adopted the Law of Electric Power
on December 28, 1995 (the "Power Law"). The Power Law, which
became effective on April 1, 1996, provides the legislative basis
for the regulation of China's electric power sector. It contains
guidelines in areas such as the generation, supply and use of
electric power, pricing and tariffs and regulatory supervision.
Under the Power Law, the appropriate administrative
department of the State Council is authorized within the scope of
its authority to supervise the electric power industry throughout
the country, and relevant departments of the State Council are
authorized within the scope of their respective authority to
supervise the electric power enterprises. While electric power
development planning will be carried out according to the needs
of the national economy, the Power Law also provides that each
administrative department of the local government at or above the
county level will be responsible for the supervision and control
of the electric power industry within its administrative region.
The Power Law states that independent power companies shall
be granted grid access upon their request, and provides that the
on-grid price of electricity shall be implemented on the basis of
"the same price for the same quality on the same grid." The Power
Law lists the criteria to be applied in the determination of
tariffs as including reasonable compensation for costs,
reasonable profits, inclusion of taxes in accordance with law,
firm adherence to the principle of equitable sharing of burdens,
and promoting electric power construction. The law delineates the
approval process for on-grid tariffs and makes a distinction
between the approvals required for regional/provincial level and
independent grids. Central Government approval is required for
tariffs on regional/provincial grids but no such approval is
specifically required for independent grids. The Power Law
reiterates the Central Government's position that entities
involved in the construction of power plants, power generation
and grid operation are autonomous and assume sole responsibility
for their own profits and losses. See "Risk
Factors-Considerations Relating to the PRC - Governmental
Regulation of Power Rates."
Because of its recent promulgation and in light of the fact
that the related implementing regulations (including provisions
concerning appropriate tariff setting authorities) have not yet
been published, there can be no assurance as to the effect the
Power Law and its implementation rules will have on the Luannan
Facility.
Joint Venture Formation Approval
The formation of the Joint Ventures and the construction and
operation of the Luannan Facility are subject to various
governmental approvals. Under PRC law and regulations, the
formation of a Sino-foreign joint venture requires the approval
of certain governmental authorities in the province in which the
joint venture is located, and, if the total investment (including
equity contributions to the joint venture and expected borrowings
of the joint venture) exceeds certain thresholds (denominated in
U.S. dollars), the approval of certain Central Government
authorities is required. Such thresholds vary by province,
municipality and special economic zone. In the case of Hebei
Province, where the Joint Ventures are located, provincial
governmental authorities have authority to approve the
establishment of any Sino-foreign joint venture entity the total
investment of which does not exceed $30 million in accordance
with a guideline issued in 1988 by the Central Government which
is currently in effect. The Hebei Provincial Planning Commission
(the "HPPC") and Hebei COFTEC, the provincial approval
authorities for the development of power plants and the formation
of Sino-foreign joint ventures, respectively, have advised that
the approval of the formation of the Joint Ventures is within
their approval authority because the total investment (including
equity contributions and borrowings) of each Joint Venture is
less then $30 million.
The Issuer has been advised by Cai, Zhang & Lan, Chinese
counsel to the Issuer and the Joint Ventures, that, because each
Joint Venture is technically viable and operational by itself,
has its own clearly defined business scope and purpose, and has
followed proper procedures for all required approvals, each Joint
Venture will be treated as a separate company, each project in
respect of which each Joint Venture has been established will be
treated as a separate project for approval purposes and Central
Government approval is not required. Based on the opinion of its
counsel and advice from the HPPC, Hebei COFTEC and the County
Partners, the Issuer believes that all required government
approvals to form the Joint Ventures and all required
governmental approvals that can be obtained to date to develop
the Luannan Facility have been obtained. See "Risk
Factors-Considerations Relating to the PRC - Legal and Regulatory
Considerations."
HEBEI PROVINCE, BEIJING AND TIANJIN
Economic Development
Hebei Province
The Luannan Facility will be located in Luannan County,
Tangshan City, Hebei Province, PRC. Luannan County is situated in
the area that is frequently referred to as Beijing-Tianjin-
Tangshan triangle, an important economic and political center in
the PRC. Hebei Province is located on the North China seaboard
and has an area of 187,700 square kilometers. Its population in
1995 was 64.3 million, representing approximately 3% of the total
population of the PRC. Shijiazhuang, the provincial capital, is
an industrial center and a rail-highway hub approximately 270
kilometers southwest of Beijing. Hebei Province is an important
coal producing province and is also adjacent to China's largest
coal producing and exporting province, Shanxi. The major rail and
highway routes for transporting coal from Shanxi Province all
pass through Hebei Province.
Hebei Province borders Beijing on three sides. The
industrial and economic growth of these two large urban centers
has positively influenced the development of Hebei Province.
Situated in northeastern Hebei Province, along its 487-kilometer
coastline, is Qinhuangdao, China's largest and one of the world's
largest coal ports.
In 1996, foreign investment in Hebei rose 58.4% to reach
$1.24 billion, making Hebei the fastest growing of China's 17
coastal provinces. Exports amounted to $3.46 billion, a 13%
increase over 1995. By 2000, exports are expected to rise to
$6.5 billion.
Beijing
Beijing has an area of 16,808 square kilometers and at the
end of 1996 had a population of 12.6 million, representing
approximately 1% of the total population of the PRC. Beijing is
composed of ten central districts and eight surrounding counties,
which are bordered by Hebei Province and Tianjin Municipality.
Beijing is one of three municipalities supervised directly by the
Central Government of the PRC, occupying the same administrative
level as a province, the others being Tianjin and Shanghai.
Beijing is the capital of the PRC and the Central
Government, the State Council and various ministries and
commissions are located in the city. As the capital, Beijing
enjoys a well-developed infrastructure with respect to
transportation, finance, culture and education. Beijing's urban
development is among the most advanced in China.
Beijing has developed a comprehensive industrial base, leading
the country in the fields of electronics, organic chemistry,
textiles, metallurgy, machinery and construction of educational
and cultural facilities. The total GDP generated within Beijing
in 1996 was approximately RMB 160.7 billion, representing an
increase of 9.1% over 1995. In 1996, the total foreign investment
amounted to $2.26 billion, representing an increase of 14.1% over
1995. The total value of exports was approximately $2.1 billion
in 1996.
Tianjin
Tianjin has an area of 11,305 square kilometers and at the
end of 1995 had a population of 9.4 million, representing
approximately 0.8% of the total population of the PRC. The
municipality is bordered by Hebei Province, Beijing and the sea.
Tianjin is one of three municipalities supervised directly by the
Central Government, occupying the same administrative level as a
province, the others being Beijing and Shanghai.
Tianjin is an industrial and commercial gateway and
transportation hub of Northern China. Benefiting from a 153-km
long coastline, the municipality is rich in oil and natural gas
resources. Tianjin's port, Xingang, is one of the largest man-
made seaports in China and is a major trading port in Northern
China. The city has been designated the state center for research
into and production of microcomputers and it is among the
national leaders in production of chemicals and textiles.
In 1996, Tianjin's total GDP was RMB 110.2 billion,
representing an increase of approximately 14.3% over the previous
year. Gross industrial output was approximately RMB 211 billion,
representing an increase of 22.7% over 1995, and total value of
exports was $4.05 billion.
Power Supply and Demand
By the end of 1995, the installed capacity of North China
Power was 25,140 MW and the annual power generation was 126.7
TWh. The Beijing-Tianjin-Tangshan Power Network had installed
capacity of 11,647 MW, of which 10, 964 MW was comprised of
thermal power and 683 MW was hydropower. Demand for electricity
in Beijing, Tianjin and northern China is expected to grow by 10%
during the Ninth Five-Year Plan (1996-2000). In 1996, the HPPC
indicated that Hebei needed to increase installed power
generating capacity by more than 1,000 MW annually over the next
five years.
Hebei Province
Most of Hebei Province's electricity is generated by coal-
fired power plants. Because of its proximity to major coal
fields, Hebei Province's per unit cost of electricity generation
is relatively low. The tables below show the major power plants
in operation and under development in Hebei Province:
Facilities in Operation
Operational Additional
Plant Capacity (MW) Planned
Capacity (MW)
Douhe Power Plant 1,550 1,200
Zhangjiakou Power Plant 1,200 1,200
Xingtai Power Plant 1,290 1,255
Matou Power Plant 1,000
Shang'an Power Plant 700 700
Xibaipo Power Plant 600 600
Qinhuangdao Power Plant 1,000 300
Weishui Power Plant 106
Total 7,446 5,255
Facilities under Development
Projected Projected
Plant Operational Completion Date
Capacity (MW)
Zhanhewan Pumped Storage 1,000 2005
Station
Sanhe Power Plant 600-700 2000
Hanfeng Power Plant 660 2001
Total 2,260 - 2,360
Beijing
The fuel sources and per unit generating costs for power
plants serving Beijing are similar to those for Hebei Province.
The table shows the major power plants in operation and under
development in Beijing.
Facilities in Operation
Operational Additional
Plant Capacity (MW) Planned
Capacity (MW)
Shiginhshan Cogeneration Plant 800
Facilities under Development
Projected Projected
Plant Operational Completion
Capacity (MW) Date
Shisanling Pumped Storage 800 1997
Station
Gaobeidian Power Plant 660 1999
Total 1,460
Tianjin
The fuel sources and per unit generating costs for power
plants serving Tianjin are similar to those for Hebei Province.
The table shows the major power plants in operation in Tianjin.
Facilities in Operation
Operational Additional
Plant Capacity (MW) Planned
Capacity (MW)
Dagang 1,280 300
Junliangcheng 950
Total 2,230 300
THE ELECTRIC POWER INDUSTRY IN THE UNITED STATES
AND UNITED STATES REGULATION
The Independent Power Industry in the United States
The United States independent power industry expanded
rapidly in the 1980s following the enactment of The Public
Utility Regulatory Policies Act of 1978 ("PURPA"). Prior to
PURPA, the demand for power in the United States had
traditionally been met by utilities constructing large-scale
electric generating plants under cost-of-service based
regulation. PURPA removed most regulatory constraints on the
production and sale of electric energy by certain non-utility
generators known as "Qualifying Facilities" or "QFs" and required
electric utilities to buy electricity from QFs at the utilities'
avoided costs, thereby encouraging companies other than electric
utilities to enter the electric power production market.
Concurrently, due in part to regulatory disallowance of many
large utility construction project costs, there was a general
decline in the construction of generating plants by electric
utilities. As a result, a significant market for electric power
produced by independent power producers has developed in the
United States since the enactment of PURPA.
The future market for independently produced power in the
United States will be determined primarily by the need for new
electric generation capacity. According to the North American
Electricity Reliability Council's 1995-2004 Electricity Supply
and Demand Report, electric utilities forecast that they will
need approximately 78,000 MW of new generating capacity from 1995
through 2004. Many published forecasts reflect expectations for
the continued growth of independent power producers. According to
RCG/Hagler Bailly, based on a review of the capacity of the top
125 U.S. electric utilities, it is probable that, from 1994 to
2003, independent power producers will supply from 45-50% of
total electric generating capacity additions. In February 1993,
the Utility Data Institute projected that, of the total amount of
generating capacity projected to be added through the year 2000,
the amount of new independent power capacity expected to become
operational in the United States will be approximately 45,000 MW.
For a discussion of the movement to restructure the electric
utility industry, see "Federal Energy Regulation" below.
Natural gas-fired power generation has become the
predominant power generation technology utilized by new power
plants in the United States, accounting for 60% or more of the
annual increase in independent power generation capacity during
each of the last three years. Industry analysts predict that
natural gas will continue to be the dominant fuel for new power
generation facilities in the United States for the foreseeable
future. Natural gas-fired power plants offer significant
advantages over other power generation technologies, such as
coal, oil or nuclear energy, including favorable resource prices,
significant environmental benefits, the availability of high
efficiency turbines and shorter construction periods.
Project subsidiaries of the Company located in the United
States are subject to complex and stringent energy, environmental
and other governmental laws and regulations at the federal, state
and local levels in connection with the development, ownership
and operation of its electricity generation facilities. Federal
laws and regulations govern transactions by electric and gas
utility companies, the types of fuel that may be utilized by an
electric generating facility, the type of energy that may be
produced by such a facility and the ownership of the facility.
State utility regulatory commissions must approve the rates and
terms and conditions under which public utilities sell electric
power at retail and, under certain circumstances, purchase
electric power from independent producers. Under certain
circumstances where specific exemptions are otherwise
unavailable, state utility regulatory commissions may have broad
jurisdiction over non-utility electric power generation
facilities. Energy producing projects located in the United
States also are subject to federal, state and local laws and
administrative regulations governing the emissions and other
substances produced, discharged or disposed of by a facility and
the geographical location, zoning, land use and operation of a
facility. Applicable federal environmental laws typically have
state and local enforcement and implementation provisions. These
environmental laws and regulations generally require that a
variety of permits and other approvals be obtained before the
commencement of construction or operation of an energy-producing
facility and that the facility then operate in compliance with
those permits and approvals.
Federal Energy Regulation
PURPA
PURPA and the regulations promulgated thereunder provide
certain rate and regulatory incentives to an electric generating
facility that is a qualifying cogeneration or small power
production facility. The Rosemary Facility and the Brandywine
Facility are QFs. If built, the Kathleen Facility also would be a
QF. A cogeneration facility is a QF if it (i) sequentially
produces both electricity and useful thermal energy that is used
for industrial, commercial, heating or cooling purposes, (ii)
meets certain energy efficiency and operating standards when oil
or natural gas is used as a fuel source and (iii) is not more
than 50%-owned by an electric utility, electric utility holding
company or an entity or person owned by either or any combination
thereof.
Under PURPA and the regulations promulgated thereunder, QFs
receive two primary benefits. First, most types of QFs are exempt
from most provisions of the Public Utility Holding Company Act of
1935, as amended ("PUHCA"), and from most provisions of the
Federal Power Act, as amended (the "FPA"), while all QFs are
exempt from certain state laws relating to organizational, rate
and financial regulation. Second, regulations promulgated by the
Federal Energy Regulatory Commission (the "FERC") under PURPA
require that (i) electric utilities purchase electricity
generated by QFs, construction of which commenced on or after
November 9, 1978, at a price based on the purchasing utility's
full "avoided costs" and (ii) the utilities sell supplementary,
back-up, maintenance and interruptible power to the QFs on a just
and reasonable and non-discriminatory basis. See "PUHCA" and
"FPA" below. PURPA and the regulations promulgated thereunder
define "avoided costs" as the "incremental costs to an electric
utility of electric energy or capacity or both which, but for the
purchase from the qualifying facility or qualifying facilities,
such utility would generate itself or purchase from another
source." Utilities may also purchase power from QFs at prices
other than "avoided costs" pursuant to negotiations as provided
by FERC regulations.
The FERC's regulations also provide that if energy or
capacity is provided pursuant to a legally enforceable obligation
over a specified term, avoided costs may be determined, at the
option of the QF, either at the time the energy or capacity is
delivered or as calculated at the time the obligation is
incurred. The FERC's regulations further provide that, in the
case of rates based on estimates of avoided costs over the term
of a contract, the rates do not violate the FERC's rates if the
rates for such purchases differ from avoided costs at the time of
delivery.
In certain instances, payments based upon avoided costs
estimated at the time a contract is entered into have proven to
be greater than a utility's avoided costs at the time of
delivery. Many utilities have attempted to minimize the disparity
by implementing strategies designed to reduce avoided cost
payments under such contracts to levels that the utilities
believe will be more competitive in a short-term marginal cost
electric energy market. See "Industry Restructuring Proposals"
below. Such strategies include attempts to renegotiate or buy out
power purchase contracts with QFs. Some utilities have sought
rigorously to enforce the terms of such contracts and to exercise
their contractual termination rights if the contracts are not
strictly observed. In addition, some utilities have engaged in
litigation and regulatory action against QFs to achieve these
ends.
The FERC has refused to disturb QF contract rates on two
operating projects where estimates of a utility's avoided costs,
calculated at the time the contracts were signed, were higher
than the actual avoided costs at the time of delivery and the
contract rates were not challenged at the time the contracts were
signed and were not the subject of an ongoing challenge to the
state's avoided cost determination. New York State Electric & Gas
Corporation, 71 FERC 61,027, reconsideration denied, 72
FERC 61,067 (1995). This decision is currently the subject of a
petition for review in the United States Court of Appeals for the
D.C. Circuit.
Relying in part on the FERC's regulations, a federal court
of appeals has held that once a state commission has approved (by
final and nonappealable order) a QF contract rate as being
consistent with avoided costs, just, reasonable and prudently
incurred, any action or order by the state commission to
reconsider its approval or deny the pass-through of the QF's
charges to the utility's retail customers under purported state
authority is preempted by PURPA. Freehold Cogeneration Assocs.,
L.P. v. Board of Regulatory Comm'rs of New Jersey, 44 F.3d 1178
(3rd Cir.), cert. denied sub nom., Jersey Central Power & Light
Co. v. Freehold Cogeneration Assocs., L.P., 116 S. Ct. 68
(1995).
In Independent Energy Producers Assoc. v. California Public
Utilities Comm'n, 36 F.3d 848 (9th Cir. 1994), the U.S. Court of
Appeals for the Ninth Circuit held that states are not preempted
by PURPA from instituting a program that requires QFs to submit
operating data, to purchasing utilities for monitoring compliance
with QF status requirements, as long as the monitoring
requirements do not impose an undue burden on the QFs. However,
the same court determined that states and utilities are preempted
by federal law from taking action on their determination that a
QF is no longer in compliance with QF status requirements, other
than requesting that the FERC revoke the facility's QF status,
either by filing a request for revocation or by filing a petition
for a declaratory order that the facility is no longer a QF.
On May 29, 1996, VEPCO filed with the State Corporation
Commission of the Commonwealth of Virginia ("SCC") a request for
authorization to institute a formal QF status monitoring program.
The request states that the proposed monitoring program would
apply to all QFs that have entered into power purchase agreements
with VEPCO. Under the proposed program, QFs would submit to VEPCO
by March 1 of each year certain operational data from the
previous year. If VEPCO believes, on the basis of such data, that
a QF does not comply with QF requirements, the request indicates
that VEPCO would first inform the QF and, if the QF agreed with
or failed to respond to VEPCO's findings, VEPCO would file a
petition seeking a declaration from the FERC that such a facility
is not a QF.
The North Carolina Utilities Commission ("NCUC") has
disallowed the pass-through to VEPCO's North Carolina retail
rates of a portion of capacity payments VEPCO had been making to
several non-utility generation plants. The capacity payment rates
for the plants had been determined by an arbitrator and approved
by the SCC. The NCUC found that bids from a 1988 solicitation
(the "1988 VEPCO Solicitation") were available at the time the
contract was approved and should have been used, instead of
arbitration, to determine VEPCO's avoided costs. The NCUC ruled
that rates in excess of the rates derived from bids received in
the 1988 VEPCO Solicitation were therefore disallowed in VEPCO's
North Carolina retail rates. The North Carolina Supreme Court
upheld the NCUC's decision, saying that the NCUC had simply
disallowed rates above avoided costs. North Carolina Utilities
Comm'n v. North Carolina Power, 338 N.C 412, 450 S.E.2d 896
(1994). The United States Supreme Court declined to review that
decision.
While the Rosemary Power Purchase Agreement with VEPCO was
not specifically approved by the SCC, the SCC did approve the
1988 VEPCO Solicitation that resulted in the Rosemary Power
Purchase Agreement. Although the NCUC used the 1988 VEPCO
Solicitation to determine the avoided costs in the North Carolina
decision discussed above, there can be no assurance that it would
not disallow the pass-through of the Rosemary Power Purchase
Agreement rates, which arose from the 1988 VEPCO Solicitation. If
the NCUC were to disallow such pass-through, and if the courts
were to allow the decision to stand, Panda International believes
that any such disallowance would affect only that portion of
VEPCO's rates allocated to its North Carolina retail customers.
The Brandywine Power Purchase Agreement has been approved by both
the Maryland and District of Columbia Public Service Commissions.
The Company and its affiliates endeavor to develop their
U.S. Projects, monitor compliance by the U.S. Projects with
applicable regulations and choose their customers in a manner
which minimizes the risks of losing their QF status. Certain
factors necessary to maintain QF status are, however, subject to
the risk of events outside Panda International's control. For
example, loss of a thermal energy customer or failure of a
thermal energy customer to take required amounts of thermal
energy from a cogeneration facility that is a QF could cause the
facility to fail to satisfy the criteria required for QF status
regarding the level of useful thermal energy output. Upon the
occurrence of such an event, Panda International would seek to
replace the thermal energy customer or find another use for the
thermal energy that meets PURPA's requirements, but no assurance
can be given that this would be possible.
If one of the U.S. Projects in which Panda International has
an interest should lose its status as a QF, the Project would no
longer be entitled to the exemptions from PUHCA and the FPA. This
could subject the U.S. Project to rate regulation as a public
utility under the FPA and state law and could result in Panda
International inadvertently becoming a public utility holding
company by owning more than 10% of the voting securities of, or
controlling, a facility that would no longer be exempt from
PUHCA. This could cause all of Panda International's remaining
U.S. Projects to lose their QF status, because QFs may not be
controlled, or more than 50%-owned, by public utility holding
companies. Loss of QF status may also trigger defaults under
covenants to maintain QF status in the Projects' power purchase
agreements, steam sales agreements and financing agreements and
result in termination, penalties or acceleration of indebtedness
under such agreements. A facility may lose its QF status on a
retroactive or a prospective basis.
If a U.S. Project were to lose its QF status (because, for
example, it lost its steam customer), Panda International could
attempt to avoid holding company status (and thereby protect the
QF status of its other Projects) on a prospective basis by
restructuring its interests in the U.S. Project. For instance,
Panda International could change its voting interest in the
entity owning the nonqualifying Project to nonvoting or limited
partnership interests and sell the voting interest to an
individual or company which could tolerate the lack of exemption
from PUHCA, or by otherwise restructuring ownership of the
Project so as not to become a holding company. These actions,
however, would require approval of the Securities and Exchange
Commission (the "SEC") or a no-action letter from the SEC, and
would result in a loss of control over the nonqualifying Project,
could result in a reduced financial interest therein and might
result in a modification of Panda International's operation and
maintenance agreement relating to such Project. A reduced
financial interest could result in a gain or loss on the sale of
the interest in such Project, the removal of the affiliate
through which the ownership interest is held from the
consolidated income tax group or the consolidated financial
statements of Panda International, or a change in the results of
operations of Panda International. Loss of QF status on a
retroactive basis could lead to, among other things, fines and
penalties being levied against Panda International and its
subsidiaries and claims by utilities for refund of payments
previously made.
Under the Energy Policy Act of 1992 ("Energy Policy Act"), a
company engaged exclusively in the business of owning and/or
operating a facility used for the generation of electric energy
exclusively for sale at wholesale may be exempted from PUHCA as
an "exempt wholesale generator." An exempt wholesale generator
may not make retail sales of electricity. If a Project can be
qualified as an exempt wholesale generator ("EWG") under Section
32 of PUHCA it will be exempt from PUHCA even if it does not
qualify as a QF. Therefore, if a QF in Panda International's
Project Portfolio were to lose its QF status, Panda International
could apply to have the Project qualified as an EWG. However,
assuming this changed status would be permissible under the terms
of the applicable power purchase agreement, rate approval from
FERC would be required. See "FPA" below. In addition, the Project
would be required to cease selling electricity to any retail
customers (such as the thermal energy customer) and could become
subject to state regulation of sales of thermal energy. See
"PUHCA" below.
PUHCA
PUHCA provides that any corporation, partnership or other
entity or organized group that owns, controls or holds power to
vote 10% or more of the outstanding voting securities of a
"public utility company" or a company that is a "holding company"
of a public utility company is subject to regulation under PUHCA,
unless an exemption is established or an SEC order declaring it
not to be a holding company is granted. Registered holding
companies under PUHCA are required to limit their utility
operations to a single integrated utility system and to divest
any other operations not functionally related to the operation of
the utility system. In addition, a public utility company that is
a subsidiary of a registered holding company under PUHCA is
subject to financial and organizational regulation, including
approval by the SEC of certain of its financing transactions.
As discussed above, most types of QFs are exempt from most
of the provisions of PUHCA. A foreign utility company is also
exempt from most of the provisions of PUHCA if certain notice and
other requirements are satisfied.
FPA
Under the FPA, the FERC has exclusive rate-making
jurisdiction over wholesale sales of electricity and transmission
in interstate commerce. These rates may be determined on either a
cost-of-service basis or a market-based approach. If a QF in
Panda International's project portfolio were to lose its QF
status, the rates set forth in the applicable power purchase
agreement would have to be filed with the FERC and would be
subject to initial and potentially subsequent reviews by the FERC
under the FPA, which could result in reductions to the rates.
Industry Restructuring Proposals
The United States Congress is currently considering
legislation to repeal PURPA entirely, or at least to repeal the
obligation of utilities to purchase from QFs. There is strong
Congressional support for grandfathering contracts of existing
QFs if such legislation is passed, and also support for requiring
utilities to conduct competitive bidding for new electric
generation if the PURPA purchase obligation is eliminated.
The FERC and many state utility commissions are currently
studying a number of proposals to restructure the electric
utility industry in the United States to permit utility customers
to choose their utility supplier in a competitive electric energy
market. The FERC has recently issued a final rule requiring
utilities to offer wholesale customers and suppliers open access
on their transmission lines, on a basis comparable to the
utilities' own use of the lines. Although the rule (Order No.
888) may be appealed, many utilities have already filed "open
access" tariffs. The utilities contend that they should recover
from departing customers their fixed costs that will be
"stranded" if their wholesale customers choose new electric power
suppliers. These stranded costs include the capacity costs
utilities are required to pay under many QF contracts, which the
utilities view as excessive when compared with current market
prices for capacity. Many utilities are therefore seeking ways to
lower these contract prices or terminate the contracts
altogether, out of fear that their shareholders will have to bear
all or part of such "stranded" costs. Some utilities have engaged
in litigation against QFs to achieve these ends. See "PURPA"
above. The FERC's rule allows full recovery of "legitimate and
verifiable" prudently incurred stranded costs at the wholesale
level. However, the FERC has jurisdiction over only a small
percentage of electric rates, and there is likely to be
litigation over whether wholesale stranded costs are "legitimate
and verifiable."
In addition to restructuring proposals being considered by
regulatory agencies, a number of bills have been introduced in
the U.S. Congress to promote electric utility restructuring and
deregulation of electric rates. These bills differ as to how and
to what extent a utility's "stranded" or "transition" costs would
be recoverable if current captive customers left the utility's
system. The existence of this legislation may increase the desire
of utilities to renegotiate, buy out or attempt to terminate
existing power purchase agreements containing prices that the
utilities believe will not be competitive in a short-term
marginal cost electric energy market. In addition, if electric
energy prices are deregulated, electric energy producers will
have to sell electric energy at competitive market prices.
State Regulations
State public utility commissions ("PUCs") have broad
authority to regulate both the rates charged by and financial
activities of electric utilities, and to promulgate regulations
implementing PURPA. Since a power purchase agreement will become
a part of a utility's cost structure (and therefore generally is
reflected in its retail rates), power purchase agreements from
independent power producers are potentially subject to the
regulatory purview of PUCs, particularly the process by which the
utility has entered into the power purchase agreements. If a PUC
has approved the process by which a utility secures its power
supply, a PUC generally will be inclined to allow a utility to
"pass through" the expenses associated with an independent power
contract to the utility's retail customers. Moreover, a federal
court of appeals has held in one instance that a PUC may not
disallow the full reimbursement to a utility for the purchase of
electricity from a QF once the PUC has approved the rates as
consistent with the requirements of PURPA. See Freehold
Cogeneration Assocs., L.P. v. Board of Regulatory Comm'rs of New
Jersey, 44 F.3d 1178 (3rd Cir.), cert. denied sub nom., Jersey
Central Power and Light Co. v. Freehold Cogeneration Assocs.,
L.P., 116 S. Ct. 68 (1995). In addition, retail sales of
electricity or thermal energy by an independent power producer
may be subject to PUC regulation, depending on state law.
Independent power producers that are not QFs under PURPA are
considered to be public utilities in many states and are subject
to broad regulation by PUCs ranging from the requirement that
certificates of public convenience and necessity be obtained to
regulation of organizational, accounting, financial and other
corporate matters. However, sales of electricity at wholesale are
subject to the exclusive regulatory jurisdiction of the FERC. In
addition, states may assert jurisdiction over the siting and
construction of facilities, and over the issuance of securities
and the sale or other transfer of assets by these facilities that
are not QFs.
State PUCs also have jurisdiction over the transportation
and retail sale of natural gas by local distribution companies.
Each state's regulatory laws are somewhat different; however, all
generally require a local distribution company to obtain approval
from the PUC to provide services and construct facilities. The
rates of local distribution companies are usually subject to
continuing oversight by the PUC.
In the case of the Rosemary Facility, the Rosemary
Partnership is subject to a number of conditions imposed by the
NCUC pursuant to a Certificate of Public Convenience and
Necessity (""CPCN""), including that the Rosemary Facility and
the Rosemary Pipeline both be owned by the Rosemary Partnership,
that the Rosemary Partnership not transport gas for or sell or
deliver gas to any other entity, that all electricity generated
at the Rosemary Facility be sold to an electric utility and that
all thermal energy produced at the Rosemary Facility be sold only
to the textile mill to which steam and chilled water from the
Rosemary Facility are currently delivered. On February 18, 1997,
The Bibb Company (""Bibb"") announced that it would sell the
textile mill to WestPoint Stevens, Inc. (""WestPoint""). The
closing of the sale was reported in the news media on February
21, 1997, but the Rosemary Partnership has not received formal
notice of such sale from Bibb or WestPoint. If, in fact, Bibb is
no longer the owner of the textile mill, the Rosemary Partnership
is obligated to notify the NCUC and VEPCO and the NCUC could
order such further proceedings as it deemed appropriate, which
proceedings could result in revocation of the CPCN or the
imposition of other conditions. See "Risk Factors - U.S. Industry
Conditions; Restructuring Initiatives; Utility Responses -
Maintaining Qualifying Facility Status" and "Description of the
Projects - The Rosemary Facility - Steam and Chilled Water
Sales."
Natural Gas Regulation
The Company has an indirect 100% interest in and operates
two natural gas-fired cogeneration projects in the United States,
one of which is owned and one of which is under a long term lease
financing arrangement. The cost of natural gas (other than debt
costs) is ordinarily the largest expense of a gas-fired power
project and is critical to the project's economics. The risks
associated with using natural gas can include the need to arrange
transportation of the gas across great distances, including
obtaining removal, export and import authority if the gas is
transported from Canada, the possibility of interruption of the
gas supply or transportation (depending on the quality of the gas
reserves purchased or dedicated to the Project, the financial and
operating strength of the gas supplier and whether firm or non-
firm transportation is purchased), and obligations to take a
minimum quantity of gas or pay for it (take-or-pay obligations).
Pursuant to the Natural Gas Act, the FERC has jurisdiction
over the transportation and storage of natural gas in interstate
commerce. With respect to most transactions that do not involve
the construction of pipeline facilities, regulatory authorization
can be obtained on a self-implementing basis. However, pipeline
rates for such services are subject to continuing FERC oversight.
Order No. 636, issued by the FERC in April 1992, mandated the
restructuring of interstate natural gas pipeline sales and
transportation services. The restructuring required by the rule
includes (i) the separation ("unbundling") of a pipeline's sales
and transportation services, (ii) the implementation of a
straight fixed-variable rate design methodology under which all
of a pipeline's fixed costs are recovered through its reservation
charge, (iii) the implementation of a capacity release mechanism
under which holders of firm transportation capacity on pipelines
can release that capacity for resale by the pipeline, and (iv)
the opportunity for pipelines to recover 100% of their prudently
incurred costs ("transition costs") associated with implementing
the restructuring mandated by the rule. On July 16, 1996, the
United States Court of Appeals for the District of Columbia
Circuit issued an order following appeals of Order No. 636 by
various interested parties (United Distribution Companies v.
FERC, No. 92-1485). The court approved most of Order No. 636.
However, the court remanded some issues to the FERC for further
consideration. The remanded issues include: (i) the FERC's
requirement that an existing firm transportation customer bid up
to a 20-year term to retain its rights to firm transportation
capacity at the end of its contract term; (ii) certain aspects of
the FERC's efforts to mitigate the economic effect of Straight
Fixed-Variable ("SFV") transportation rates on certain
transportation customers; (iii) the FERC's limitation on the
obligation of the pipelines to provide "no-notice" transportation
service; and (iv) the FERC's determination that pipelines can
recover 100% of their prudently-incurred Gas Supply Realignment
("GSR") costs from their transportation customers and can recover
10% of these costs from their interruptible transportation
customers. The FERC's order on remand of these issues should not
have an adverse effect on the gas transportation arrangements for
the U.S. Projects owned by Panda International.
Environmental Regulations
The development, construction and operation of power
projects in the United States is subject to extensive federal,
state and local laws and regulations adopted for the protection
of the environment and to regulate land use. The laws and
regulations applicable to Panda International and its domestic
subsidiaries primarily involve the discharge of emissions into
the water and air and the use of water, but can also include
wetlands preservation, endangered species, waste disposal and
noise regulations. These laws and regulations in many cases
require a lengthy and complex process of obtaining licenses,
permits and approvals from federal, state and local agencies.
Noncompliance with environmental laws and regulations can
result in the imposition of civil or criminal fines or penalties.
In some instances, environmental laws also may impose clean-up or
other remedial obligations in the event of a release of
pollutants or contaminants into the environment. The following
federal laws are among the more significant environmental laws
that may apply to Panda International and its domestic
subsidiaries. In most cases, analogous state laws also exist that
may impose similar, and in some cases more stringent,
requirements on Panda International and its domestic
subsidiaries.
Clean Air Act
The Federal Clean Air Act, as amended (the "Clean Air Act"),
provides for the regulation, largely through state implementation
of federal requirements, of ambient air quality and emissions of
air pollutants from certain facilities and operations. As
originally enacted, the Clean Air Act set guidelines for
emissions standards for major pollutants (e.g., sulfur dioxide
and nitrogen oxide) from new sources. The 1990 Clean Air Act
Amendments tightened regulations on emissions from existing
sources, particularly previously exempted older power plants.
Panda International believes that the Rosemary Facility and the
Brandywine Facility are in compliance with federal performance
standards mandated for such plants under the Clean Air Act.
Clean Water Act
The Federal Clean Water Act, as amended (the "Clean Water
Act"), also provides for the regulation, largely through state
implementation of federal requirements, of the quality of surface
waters and imposes limitations on discharges to those waters from
point sources, including certain facilities and operations. The
water quality standards established under the Clean Water Act are
used as the basis for developing specific pollutant discharge
limitations from point sources. The discharge limitations are
incorporated into permits called National Pollutant Discharge
Elimination System ("NPDES") permits. Panda International
believes that the Panda-Rosemary Facility is in compliance with
the federal and state requirements applicable through its NPDES
wastewater discharge permit under the Clean Water Act. Panda
International believes that the Brandywine Facility does not make
any discharges of wastewater for which the Brandywine Facility is
required to have an NPDES permit. The Clean Water Act also
imposes requirements with respect to the discharge of stormwater
runoff from industrial sites. Those requirements are implemented
through state stormwater discharge permits, which have been
obtained for the Rosemary Facility and the Brandywine Facility.
Panda International believes that the operation of the Rosemary
Facility and the Brandywine Facility complies with the
requirements of their stormwater discharge permits. The Clean
Water Act also restricts discharges of fill materials to
wetlands. The Rosemary Facility obtained approval for discharges
in connection with its construction.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act of 1976 ("RCRA")
regulates the generation, treatment, storage, handling,
transportation and disposal of solid and hazardous waste. Panda
International believes that it and its subsidiaries are in
material compliance with solid and hazardous waste requirements
under RCRA.
Comprehensive Environmental Response, Compensation, and Liability
Act
The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA" or "Superfund"),
requires the remediation of sites from which there has been a
release or threatened release of hazardous substances and
authorizes the United States Environmental Protection Agency to
take any necessary response action at Superfund sites, including
ordering potentially responsible parties liable for the release
to take or pay for such actions. Potentially Responsible Parties
are broadly defined under CERCLA to include past and present
owners and operators of such sites, as well as generators,
arrangers and transporters of wastes sent to a site.
APPENDIX C
Summary of the
Consolidated Pro Forma of
Panda Global Holdings, Inc.
Prepared for:
Panda Energy International, Inc.
Prepared by:
ICF Resources Incorporated,
A Subsidiary of ICF Kaiser International
April 11, 1997
This report was produced by ICF
Resources Incorporated (ICF) in
accordance with an agreement with Panda
Energy International, Inc., who paid for
its services in producing the report and
this report is subject to the terms of
that agreement. This report is meant to
be read as a whole and in conjunction
with this disclaimer. Any use of this
report other than as a whole and in
conjunction with this disclaimer is
forbidden. Any use of this report,
other than as provided for in ICF's
agreement with Panda Energy
International, is forbidden. This
report may not be copied in whole or in
part or distributed to anyone outside
Panda Energy International without ICF's
prior express and specific written
permission.
This report and information and
statements herein are based in whole or
in part on information obtained from
various sources. ICF makes no
assurances as to the accuracy of any
such information or any conclusions
based thereon. ICF bears no
responsibility for the results of any
actions taken on the basis of this
Report.
CONSOLIDATED PRO FORMA
ICF Resources, Incorporated (ICF), a subsidiary of ICF
Kaiser International, was retained by Panda Energy
International ("Panda") on behalf of its subsidiary, Panda
Global Holdings, Inc. (the "Company"), to create a
consolidated summary of the pro forma financial projections
(the "Consolidated Pro Forma") for the Panda-Rosemary
cogeneration project (the "Rosemary Project"), the Panda-
Brandywine cogeneration project (the "Brandywine Project"),
and Pan-Western Energy Corporation LLC ("Pan-Western") which
includes the Panda-Luannan cogeneration project (the
"Luannan Project") (collectively, the "Projects"). In
preparing the Consolidated Pro Forma, ICF has relied on the
independent reports described below by Burns & McDonnell,
the independent engineer for the Rosemary Project, by ICF
and Pacific Energy Systems, Inc. ("PES"), the independent
consultant and independent engineer, respectively, for the
Brandywine Project and by Parsons Brinckerhoff Energy
Systems, Inc. ("Parsons Brinckerhoff"), the independent
engineer for the Luannan Project. The terms of the Panda
Funding Corporation ("PFC") Series A Bonds (including
principal and interest, amortization schedule, debt service
reserve fund, capitalized interest, and coverage ratio) are
represented in the pro forma in a manner that we understand
to be consistent with the terms of the indenture. This
report, provided for use in the offering memorandum for the
offering by Panda Global Energy Company of its Senior
Secured Notes due 2004 (the "Senior Secured Notes"),
describes the Consolidated Pro Forma and explains how it was
derived.
Background
The Rosemary Project
The Rosemary Project is a 180 MW gas-fired cogeneration
project operating in Roanoke Rapids, North Carolina. The
Rosemary Project sells electricity to Virginia Electric and
Power Company pursuant to a Power Purchase Agreement that
expires on December 26, 2015.
Burns & McDonnell, the independent engineer for the Rosemary
Project since 1989, has prepared pro forma financial
projections (the "Rosemary Pro Forma"), which are presented
in Panda-Rosemary Cogeneration Project Condition Assessment
Report dated April 11, 1997 (as so supplemented, the
"Rosemary Engineering Report"). The Rosemary Engineering
Report contains the primary assumptions underlying, and the
conclusions drawn from, the Rosemary Pro Forma. ICF has
reviewed the Rosemary Engineering Report only to the extent
necessary to incorporate the results of the Rosemary Pro
Forma in the Consolidated Pro Forma, and has made no
independent investigation of the conclusions or the
assumptions contained therein.
The Brandywine Project
The Brandywine Project is a 230 MW gas-fired cogeneration
project operating in Brandywine, Maryland. According to
PES, construction was substantially complete as of October
31, 1996, when commencement of commercial operations
occurred. Since the commercial operations date, the
Brandywine Project began selling electricity to Potomac
Electric Power Company ("PEPCO") pursuant to a 25-year Power
Purchase Agreement whose initial term expires on October 30,
2021.
ICF has prepared pro forma financial projections for the
Brandywine Project's operations (the "Brandywine Pro
Forma"), which are presented in Independent Panda-Brandywine
Pro Forma Projections dated April 11, 1997 (the "Brandywine
Pro Forma Report"). As discussed more fully in the
Brandywine Pro Forma Report in preparing the Brandywine Pro
Forma, ICF relied, among other things, on the PES report,
Independent Engineers' Report: Panda-Brandywine Cogeneration
Project dated July 22, 1996, and supplemented by an Update
Report dated April 11, 1997 (as so supplemented the
"Brandywine Engineering Report"). A more complete discussion
of the assumptions underlying the Brandywine Pro Forma and
the conclusions drawn therefrom are contained in the
Brandywine Pro Forma Report.
The Brandywine Pro Forma Report presents two potential
scenarios regarding the resolution of disagreements with
PEPCO concerning certain adjustments to Brandywine's
capacity payments. The "Base Case" represents the most
conservative assessment (i.e., the lowest capacity payments)
while the "Sensitivity Case" represents a reasonable "middle
ground" scenario regarding the ultimate resolution of these
disagreements.(1) A more complete discussion of the
assumptions underlying the Brandywine Pro Forma and the
conclusions drawn therefrom are contained in the Brandywine
Pro Forma Report.
The Luannan Project
The Luannan Project is a 2x50 MW pulverized coal-fired
thermal power plant being developed in Luannan County,
Tangshan Municipality, Hebei Province in the People's
Republic of China (the "PRC"). It is comprised of four joint
venture companies (the "JV Cos.") owned by Pan-Western and
certain affiliates of Luannan County. Limited construction
of the plant began in December 1996, and full construction
will commence upon completion of this Panda Global Energy
Company offering. Inasmuch as Parsons Brinckerhoff has
indicated that the Luannan Project's 28-month construction
timetable is reasonable and achievable, it should begin
commercial operations by August 1999. The Luannan Project
will sell power to the North China Power Group Company under
a 20-year Power Purchase Agreement.
Parsons Brinckerhoff, the independent engineer for the
Luannan Project, has prepared pro forma financial
projections (the "Luannan Pro Forma"), which are presented
in Engineer's Review and Report: 2x50 MW Coal-Fired Power
Plant at Luannan, China, dated April 11, 1997 (the "Luannan
Engineering Report").(2) The Luannan Engineering Report
contains the primary assumptions underlying, and the
conclusions drawn from, the Luannan Pro Forma. ICF has
reviewed the Luannan Engineering Report only to the extent
necessary to incorporate the results of the Luannan Pro
Forma in the Consolidated Pro Forma, and has made no
independent investigation of the conclusions or the
assumptions contained therein.
Results
The attached table presents the Consolidated Pro Forma. The
information set forth in the table reflects the issuance of
Senior Secured Notes due 2004 in an aggregate principal
amount of $155.2 million at an assumed 12 1/2 percent
interest rate. The gross proceeds from the issuance of the
Senior Secured Notes are assumed to be approximately $145.0
million.
Revenues and operating expenses were taken from the Rosemary
Pro Forma, Brandywine Pro Forma (Base Case), and Luannan Pro
Forma to calculate EBITDA at each project and on a
consolidated basis. The consolidated EBITDA is adjusted to
create Cash Available for Consolidated Debt Service, by
accounting for interest income at the project-level as well
as at the PFC/PIC and Company/Issuer levels, project-level
reserve contributions, and other adjustments. The other
adjustments are comprised of trustee fees associated with
PFC and the Issuer, other cash expenditures at the project-
level, cash principal receipts on the Luannan transmission
facilities loan and PRC income and withholding taxes.
Trustee fees for PFC are based on estimates provided by
Bankers Trust Company, the PFC trustee. Interest income is
based on an estimated 4.5 percent interest factor on annual
reserve balances. Interest income on the PFC debt service
reserve is assumed to be monetized in 1997 with net proceeds
of approximately $4 million. In 1997, the Company/Issuer is
projected to have Cash Available for Consolidated Debt
Service of approximately $39.3 million. This figure
averages approximately $79.5 million between 1997 and 2007.
Cash Available for Consolidated Debt Service is further
adjusted to create Cash Available for Company Debt Service,
by accounting for debt service at the Projects and for the
PFC Series A Bonds, contributions to PFC/PIC-level reserves,
distributions to minority interests and others. In 1997,
the Company/Issuer is projected to have Cash Available for
Company Debt Service of approximately $5.7 million. This
figure averages approximately $24.9 million between 1997 and
2007.
The Consolidated Pro Forma also presents "Consolidated Cash
and Restricted Cash" balances including capitalized interest
funds as well as debt service reserves at the Projects,
PFC/PIC and at the Company/Issuer levels. "Consolidated Long-
Term Debt" is also presented as described in footnote 9
attached to the Consolidated Pro Forma.
The Consolidated Pro Forma also provides a Company Debt
Service Coverage Ratio defined as the ratio of Cash
Available for Company Debt Service to Issuer Net Cash Debt
Service. The Company Debt Service Coverage Ratio averages
1.30x between 2000 and 2007 with a maximum of 1.37x and a
minimum of 1.27x.
Please refer to the footnotes to the Consolidated Pro Forma
included herewith for a discussion of certain other
variables that may affect the Company Debt Service Coverage
Ratio.
Respectfully Submitted,
/s/ ICF Resources Incorporated
_______________________________
(1) The names of the two scenarios are not meant to imply any
independent assessment by ICF regarding the ultimate
resolution of Panda's disagreements with PEPCO.
(2) As indicated in the Luannan Engineering Report, the
Luannan Pro Forma uses an exchange rate of US$ 1.00 = RMB 8.50.
PANDA GLOBAL CONSOLIDATED CASH FLOW STATEMENT ($ in 000s)
<TABLE>
<CAPTION>
PROJECTED FYE DECEMBER 31,
-------------------------------------------
1997 1998 1999 2000
------- ------- -------- --------
<S> <C> <C> <C> <C>
CAPACITY REVENUE
Rosemary $25,382 $25,382 $ 23,568 $ 23,568
Brandywine 21,932 21,420 37,940 38,759
------- ------- -------- --------
Total Capacity Revenue 47,314 46,802 61,508 62,327
AS A % OF TOTAL REVENUE 63.4% 60.2% 54.3% 42.8%
ENERGY & OTHER REVENUE(1)
Rosemary 3,850 5,768 7,734 10,010
Brandywine 23,495 25,141 26,057 27,092
Luannan 0 0 18,038 46,110
------- ------- -------- --------
TOTAL REVENUE 74,659 77,712 113,337 145,540
OPERATING EXPENSES
Rosemary 9,680 11,185 12,860 14,808
Brandywine 27,433 28,831 29,655 30,493
Luannan (2) 0 0 7,082 18,478
------- ------- -------- --------
TOTAL OPERATING EXPENSES 37,113 40,016 49,597 63,779
EBITDA
Rosemary 19,552 19,965 18,442 18,770
Brandywine 17,994 17,731 34,342 35,359
Luannan 0 0 10,956 27,632
------- ------- -------- --------
TOTAL EBITDA 37,546 37,696 63,740 81,761
Plus: Interest Income 8,175 988 1,738 3,509
Less: Additions to Project Reserves (4,299) (4,470) (5,690) (5,431)
Less: Other Adjustments (3) (2,102) (76) (224) (401)
------- ------- -------- --------
CASH AVAILABLE FOR CONSOLIDATED DEBT SERVICE 39,321 34,139 59,564 79,437
PROJECT & PFC DEBT SERVICE
Rosemary (4) 14,693 14,627 13,314 13,242
Brandywine (5) 10,442 10,412 19,976 20,660
PFC (6) 12,242 12,242 13,479 12,094
Less: PFC Capitalized Interest Fund Draw (2,421) (6,689) 0 (107)
------- ------- -------- --------
TOTAL PROJECT & PFC NET DEBT SERVICE 34,956 30,593 46,768 45,890
Less: PFC/PIC Reserve Additions 1,358 (3,311) (2,100) (475)
Less: Luannan & NNW Minority Interests and Others (7) (26) (14) (1,202) (4,216)
------- ------- -------- --------
CASH AVAILABLE FOR COMPANY DEBT SERVICE 5,697 221 9,494 28,856
SENIOR SECURED NOTES NET DEBT SERVICE
Interest Payment 9,323 19,400 19,400 19,400
Less: Issuer Capitalized Interest Fund Draw (9,323) (19,400) (19,400) 0
Principal Payment (8) 0 0 0 1,650
------- ------- -------- --------
TOTAL ISSUER NET CASH DEBT SERVICE 0 0 0 21,050
BALANCE SHEET DATA:
Consolidated Cash and Restricted Cash $81,207 $60,635 $ 55,795 $ 68,601
Consolidated Long-Term Debt (9) 584,812 592,266 590,749 588,305
CREDIT STATISTICS
------- ------- -------- --------
Company Debt Service Coverage Ratio (10) (11) (11) (11) 1.37x
------- ------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FYE DECEMBER 31,
-------------------------------------------
2001 2002 2003 2004
------- ------- -------- --------
<S> <C> <C> <C> <C>
CAPACITY REVENUE
Rosemary $ 23,568 $ 23,568 $ 23,568 $ 23,568
Brandywine 48,960 49,739 50,358 50,387
------- ------- -------- --------
Total Capacity Revenue 72,528 73,307 73,926 73,955
AS A % OF TOTAL REVENUE 44.0% 42.7% 42.3% 41.7%
ENERGY & OTHER REVENUE (1)
Rosemary 12,462 13,872 15,692 17,793
Brandywine 30,647 33,340 31,954 30,419
Luannan 49,040 51,266 53,372 55,230
------- ------- -------- --------
TOTAL REVENUE 164,677 171,785 174,944 177,397
OPERATING EXPENSES
Rosemary 16,861 18,122 19,667 21,526
Brandywine 32,806 35,124 34,357 33,554
Luannan (2) 20,103 21,883 23,834 24,878
------- ------- -------- --------
TOTAL OPERATING EXPENSES 69,769 75,129 77,858 79,958
EBITDA
Rosemary 19,169 19,318 19,593 19,835
Brandywine 46,802 47,955 47,955 47,252
Luannan 28,937 29,384 29,538 30,352
------- ------- -------- --------
TOTAL EBITDA 94,908 96,656 97,086 97,439
Plus: Interest Income 3,958 4,334 4,720 4,992
Less: Additions to Project Reserves (6,209) (3,708) (3,850) (3,160)
Less: Other Adjustments (3) (1,275) (1,232) (1,157) (2,538)
------- ------- -------- --------
CASH AVAILABLE FOR CONSOLIDATED DEBT SERVICE 91,382 96,050 96,798 96,733
PROJECT & PFC DEBT SERVICE
Rosemary (4) 13,164 13,057 12,943 12,825
Brandywine (5) 27,265 27,939 27,907 27,456
PFC (6) 15,011 16,437 17,374 17,364
Less: PFC Capitalized Interest Fund Draw 0 0 0 0
------- ------- -------- --------
TOTAL PROJECT & PFC NET DEBT SERVICE 55,441 57,433 58,224 57,645
Less: PFC/PIC Reserve Additions (2,216) (1,184) (459) 84
Less: Luannan & NNW Minority Interests and Others (7) (3,842) (3,733) (3,266) (2,739)
------- ------- -------- --------
CASH AVAILABLE FOR COMPANY DEBT SERVICE 29,883 33,702 34,849 36,434
SENIOR SECURED NOTES NET DEBT SERVICE
Interest Payment 19,056 18,394 17,334 16,031
Less: Issuer Capitalized Interest Fund Draw 0 0 0 0
Principal Payment (8) 4,400 8,000 9,900 12,000
------- ------- -------- --------
TOTAL ISSUER NET CASH DEBT SERVICE 23,456 26,394 27,234 28,031
BALANCE SHEET DATA:
Consolidated Cash and Restricted Cash $ 81,381 $ 92,120 $101,603 $110,839
Consolidated Long-Term Debt (9) 573,343 551,661 525,814 495,781
CREDIT STATISTICS
------- ------- -------- --------
Company Debt Service Coverage Ratio (10) 1.27x 1.28x 1.28x 1.30x
------- ------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FYE DECEMBER 31,
-------------------------------
2005 2006 2007
------- ------- --------
<S> <C> <C> <C>
CAPACITY REVENUE
Rosemary $ 23,568 $ 18,123 $ 18,123
Brandywine 50,253 50,543 52,639
------- ------- --------
Total Capacity Revenue 73,821 68,666 70,762
AS A % OF TOTAL REVENUE 40.0% 37.6% 37.9%
ENERGY & OTHER REVENUE (1)
Rosemary 20,571 20,283 20,004
Brandywine 33,464 35,545 35,763
Luannan 56,472 58,074 60,060
------- ------- --------
TOTAL REVENUE 184,328 182,568 186,590
OPERATING EXPENSES
Rosemary 23,907 23,964 23,985
Brandywine 36,288 37,984 38,592
Luannan (2) 25,970 27,113 28,309
------- ------- --------
TOTAL OPERATING EXPENSES 86,165 89,061 90,886
EBITDA
Rosemary 20,232 14,442 14,142
Brandywine 47,429 48,105 49,811
Luannan 30,502 30,961 31,751
------- ------- --------
TOTAL EBITDA 98,163 93,507 95,704
Plus: Interest Income 5,302 5,602 6,032
Less: Additions to Project Reserves (5,166) (6,035) (4,135)
Less: Other Adjustments (3) (2,480) (2,457) (2,469)
------- ------- --------
CASH AVAILABLE FOR CONSOLIDATED DEBT SERVICE 95,818 90,618 95,132
PROJECT & PFC DEBT SERVICE
Rosemary (4) 12,669 8,710 8,534
Brandywine (5) 27,602 28,188 30,071
PFC (6) 17,183 14,677 18,206
Less: PFC Capitalized Interest Fund Draw 0 0 0
------- ------- --------
TOTAL PROJECT & PFC NET DEBT SERVICE 57,454 51,576 56,811
Less: PFC/PIC Reserve Additions 1,387 (7,087) (5,531)
Less: Luannan & NNW Minority Interests and Others (7) (2,106) (1,406) (5,829)
------- ------- --------
CASH AVAILABLE FOR COMPANY DEBT SERVICE 37,646 30,550 26,961
SENIOR SECURED NOTES NET DEBT SERVICE
Interest Payment 14,453 12,759 11,469
Less: Issuer Capitalized Interest Fund Draw 0 0 0
Principal Payment (8) 14,500 10,700 9,200
------- ------- --------
TOTAL ISSUER NET CASH DEBT SERVICE 28,953 23,459 20,669
BALANCE SHEET DATA:
Consolidated Cash and Restricted Cash $117,544 $130,822 $145,679
Consolidated Long-Term Debt (9) 460,547 433,032 399,857
CREDIT STATISTICS
------- ------- --------
Company Debt Service Coverage Ratio (10) 1.30x 1.30x 1.30x
------- ------- --------
</TABLE>
FOOTNOTES
- ---------------
(1) Other Revenue is comprised of revenue generated from the sale of steam,
chilled and hot water and firm transportation capacity release at
Brandywine.
(2) For the purposes of consolidation, Operating Expenses at Luannan exclude
management fees payable to the Issuer.
(3) Other Adjustments include PIC and Issuer trustee fees, certain capital
expenditures at Rosemary and Brandywine, Luannan transmission facilities
loan principal payments and PRC income and withholding taxes.
(4) Represents debt service for the year ended February 15 in the year
immediately following the year presented per the PFC indenture.
(5) Represents debt service for the year ended January 31 in the year
immediately following the year presented per the PFC indenture.
(6) Represents debt service for the year ended February 20 in the year
immediately following the year presented per the PFC indenture.
(7) Other is comprised of undistributable cash flow in excess of net income at
Luannan.
(8) Assumes outstanding balance of the Senior Secured Notes is refinanced in
2004 at an equivalent coupon rate and repaid over nine years.
(9) Consolidated long-term debt includes Rosemary First Mortgage Bonds,
Brandywine GECC Lease, PFC Pooled Project Bonds-Series, and the Senior
Secured Notes.
(10) Company Debt Service Coverage Ratio = Cash Available for Company Debt
Service / Total Issuer Net Cash Debt Service.
(11) Effectively 1.0x Company Debt Service Coverage Ratio since Issuer
Capitalized Interest Fund Draw equals Interest Payment on the Senior
Secured Notes.
[ICF Kaiser Letterhead]
Officer's Certificate
I, Theodore Breton, of ICF Resources Incorporated, DO
HEREBY CERTIFY that:
Since April 11, 1997, to our knowledge, no event affecting
our reports entitled "Independent Panda-Brandywine Pro Forma
Projections," dated April 11, 1997 and "Summary of the
Consolidated Pro Forma of Panda Global Holdings, Inc." dated
April 11, 1997 (the "Pro Forma Reports") or the matters referred
to therein has occurred which makes untrue or incorrect in any
material respect, as the date hereof, any information or
statement contained in the Pro Forma Reports or in the Prospectus
relating to the offering of 12-1/2% Registered Senior Secured
Notes due 2004 by Panda Global Energy Company (the "Prospectus")
under the captions "Summary - Independent Engineers' and
Consultants' Reports - Consolidating Financial Analyst's Pro
Forma Report," "Description of the Projects - The Rosemary
Facility - Independent Engineers' and Consultants' Reports -
Rosemary Engineering Report," "Description of the Projects - The
Brandywine Facility - Disagreement with PEPCO Over Calculation of
Capacity Payment," "Description of the Projects - The Brandywine
Facility - Independent Engineers' and Consultants' Reports -
Brandywine Pro Forma Report," "Description of the Projects - The
Brandywine Facility - Independent Engineers' and Consultants'
Reports - Brandywine Fuel Consultants' Report," "Independent
Engineers and Consultants - Consolidated Pro Forma" and
"Independent Engineers and Consultants - Brandywine Facility" in
the Prospectus.
WITNESS my hand this 7th day of August 1997.
By: /s/ Theodore R. Breton
Name: Theodore R. Breton
Title: Vice President
Appendix D
Engineer's Review and Report
Panda Energy International, Inc.
2X50 MW Coal-Fired
Power Plant at Luannan,
China
April 11, 1997
PARSONS BRINCKERHOFF ENERGY SERVICES, INC.
0.0 EXECUTIVE SUMMARY 1
1.0 PROJECT DESCRIPTION AND OVERVIEW 4
1.1 PARTICIPATING PARTIES 4
1.2 PROJECT DESCRIPTION 4
2.0 SITE CONDITIONS 4
2.1 GENERAL DESCRIPTION 4
2.2 FUEL TRANSPORTATION 5
2.3 WATER RESOURCE 5
2.4 HYDROMETEOROLOGY 6
2.4.1 METEOROLOGICAL CONDITIONS 6
2.4.2 THE EFFECT OF WATER FLOOD ON THE PLANT SITE 7
2.5 REGIONAL GEOLOGICAL OVERVIEW 7
2.5.1 NATURAL GEOLOGY 7
2.5.2 TOPOGRAPHY 7
2.5.3 REGIONAL GEOLOGICAL STRUCTURES 7
2.5.4 STRATIGRAPHY 8
2.5.5 FAULT STRUCTURES AND EARTHQUAKE 8
2.5.6 PLANT SITE 2 GEOTECHNICAL CONDITIONS 9
2.5.7 GROUND WATER 9
2.5.8 DESIGN CONSIDERATIONS 9
2.5.9 SITE SEISMICITY AND RELATED DESIGN CONSIDERATIONS 10
2.6 ASH STORAGE SITES 10
2.7 ASSESSMENT OF SITE SUITABILITY 11
3.0 DESCRIPTION OF FACILITY DESIGN 11
3.1 MECHANICAL EQUIPMENT AND SYSTEMS 12
3.1.1 STEAM TURBINE GENERATOR 12
3.1.2 BOILER / FIRING CYCLE 12
3.1.3 MAIN STEAM SYSTEM 14
3.1.4 EXTRACTION STEAM SYSTEM 14
3.1.5 AUXILIARY STEAM SYSTEM 15
3.1.6 CONDENSATE AND FEEDWATER SYSTEMS 15
3.1.7 COOLING WATER SYSTEM 15
3.1.8 FIRE PROTECTION SYSTEM 16
3.1.9 COAL HANDLING SYSTEM 17
3.2 CIVIL/STRUCTURAL SYSTEM 17
3.2.1 CIVIL DESIGN 18
3.2.2 STRUCTURAL DESIGN 18
3.2.3 ARCHITECTURAL DESIGN 18
3.3 ELECTRICAL AND CONTROL SYSTEMS 18
3.3.1 STEP-UP TRANSFORMERS 19
3.3.2 PLANT SWITCHYARD 19
3.3.3 UTILITY INTERCONNECTION 19
3.3.4 OFF-SITE TRANSMISSION LINES 20
3.3.5 OFF-SITE SUBSTATIONS 20
3.3.6 AUXILIARY/START-UP POWER 20
3.3.7 REVENUE METERING 20
3.3.8 CONTROL SYSTEMS 22
3.3.9 DISPATCH/SCADA/COMMUNICATIONS 23
3.4 WATER SUPPLY AND DISPOSAL 23
3.4.1 WATER WELLS FOR THE POWER PLANT 23
3.4.2 WASTE WATER DISCHARGE 24
3.4.3 STORM DRAINAGE 24
3.4.4 MAKE-UP WATER 24
3.5 ASH HANDLING SYSTEM 25
3.5.1 FLY ASH SYSTEM 25
3.5.2 BOTTOM ASH SYSTEM 25
3.6 ASSESSMENT OF FACILITY DESIGN 25
4.0 ASSESSMENT OF EXPECTED PERFORMANCE 26
4.1 START-UP AND COMMISSION 27
5.0 ASSESSMENT OF DESIGN TO SIMILAR PLANTS 27
6.0 ASSESSMENT OF ABILITY OF PLANT TO MEET CONTRACTUAL
REQUIREMENTS 27
6.1 ELECTRICAL REQUIREMENTS 27
6.2 STEAM REQUIREMENTS 28
7.0 ASSESSMENT OF ECONOMIC LIFE OF THE PLANT 29
8.0 DESCRIPTION OF ENVIRONMENTAL ISSUES 29
8.1 PROJECT ENVIRONMENTAL STANDARDS 30
8.1.1 ENVIRONMENTAL QUALITY STANDARDS: 30
8.1.2 EFFLUENT AND EMISSION STANDARDS: 30
8.2 ASSESSMENT OF ENVIRONMENTAL IMPACT 30
9.0 GOVERNMENT APPROVALS AND BUSINESS AGREEMENTS 32
9.1 GENERAL DESCRIPTION 32
9.2 GOVERNMENT APPROVALS 32
9.3 BUSINESS AGREEMENTS 35
9.4 ASSESSMENT OF SUPPORT DOCUMENTS 36
10.0 PROJECT SCHEDULE 36
11.0 REVIEW OF EPC CONTRACTOR AND AGREEMENT 36
11.1 ASSESSMENT OF MANPOWER AND STAFFING 36
11.2 EVALUATION OF THE EPC CONTRACTOR'S EXPERIENCE 37
11.3 EVALUATION OF EPC CONTRACT TERMS 37
12.0 FINANCIAL PERFORMANCE ASSESSMENT 38
12.1 LEVEL OF POWER PRODUCTION 39
12.1.1 POWER PURCHASE AGREEMENT 39
12.1.2 HEAT SALE AGREEMENT AND ASSUMPTIONS 42
12.2 POWER TARIFFS 43
12.2.1 PLANNED WHOLESALE ELECTRIC ENERGY PRICE 43
12.2.2 FUTURE PRICE ADJUSTMENTS AND "PASSTHROUGH" PROVISIONS 46
12.2.3 HEAT SALE PRICE AGREEMENT 47
12.2.4 INTERCONNECTION AND LOAN AGREEMENTS 47
12.3 REVIEW OF PROJECT COSTS 48
12.4 REVIEW OF OPERATING EXPENSES 51
12.5 REVIEW OF RESERVE REQUIREMENTS 51
12.5.1 EQUIPMENT MAINTENANCE & OVERHAUL RESERVE 51
12.5.2 DEBT SERVICE RESERVE 53
12.5.3 WELFARE RESERVE FOR CHINESE EMPLOYEES 53
12.5.4 OTHER CHINESE RESERVE REQUIREMENTS 53
12.6 THE FINANCIAL PLAN 53
12.6.1 ESTIMATED SOURCES AND USES OF FUNDS 53
12.6.2 SHAREHOLDER LOAN ASSUMPTIONS 54
12.6.3 REPAYMENT OF PAN-WESTERN SHAREHOLDER LOANS 54
12.7 CONSOLIDATED OPERATING RESULTS -- BASE CASE 54
12.7.1 OPERATING REVENUES 55
12.7.2 OPERATING EXPENSES 56
12.7.3 DEPRECIATION AND TAXES 56
12.7.4 DISCUSSION OF DEBT COVERAGE RATIOS 57
12.7.5 DISTRIBUTION TO PAN-WESTERN EQUITY ACCOUNT 57
12.8 SUMMARY OF SENSITIVITY ANALYSIS 58
12.9 INDIVIDUAL JOINT VENTURE COMPANIES OPERATING RESULTS
-- BASE CASE 58
0.0 EXECUTIVE SUMMARY
Panda Energy International, Inc. has requested Parsons
Brinckerhoff Energy Services, Inc., to provide an Engineer's
Report for certain of its affiliated companies (the "JV Cos." or
"Owner") involved in the development, construction, ownership and
operation of the Luannan Thermal Power Plant (the "Plant") and
Steam Distribution System to be located near Tangshan City, China
(the "Project"). This report, to be included in the Offering
Circular prepared for the offering by Panda Global Energy Company
of its Senior Secured Notes due 2004, offers the following
opinions concerning the adequacy of the technical, environmental
and economic aspects of the project:
The design of the Plant is based on current, proven technology
and is in conformance with engineering practice and industry
standards in the People's Republic of China. Specifically the
proposed Plant will be similar in design to other thermal power
plants designed by the Hebei Electric Power Design Institute
which are presently operating in China.
The construction schedule is reasonable and achievable. The
Engineering, Procurement and Construction (EPC) Contractor should
be able to meet the agreed construction schedule and pass all
performance tests as stipulated within 28 months. This schedule
has been found comparable to similar projects in China.
The EPC Contractor is an established and reputable construction
company with both international and domestic experience in
manufacturing and installing equipment for similar power
generation projects. The Contractor's boiler manufacturing
facility performs quality control to ISO standards and has
achieved ASME certification. The Contractor's list of
achievements include 16 coal fired power plants in China plus 5
international power plant installations completed on a turn-key
basis.
The budgeted costs of $118.8 million to develop and construct the
Luannan Facility are reasonable and represent a realistic and
attainable project cost. Most project costs are denominated in
US dollars, however, for steam and heat network, land and water
use rights, and transmission line which are denominated in RMB,
an exchange rate of US $1 = RMB 8.30 was used.
The EPC Contract price which includes a contingency amount of
approximately 5% and the general contingency amount of
approximately 4% (exclusive of any Contractor's contingency)
contained in the Project Budget should provide sufficient funds
to complete the Project.
Based upon the proposed equipment and design criteria, the design
lives of the main components of the Plant are sufficient for the
intended modes of operation of the Project and should meet the
expected Plant performance criteria. With proper design,
careful, periodic maintenance and operation of the Plant within
design parameters, a useful life of 20 years should be easily
achievable.
Based on the review of the various Government Approvals, the JV
Cos. have obtained the key approvals required from the various
governmental agencies which are required to commence construction
of the plant. They have also identified the necessary permits
that will be required in due course during the construction and
operation. There is no reason to believe that those licenses and
consents not yet received will not be granted.
Based on the review of the various Business Agreements and their
amendments, the major contracts including the Power Purchase
Agreement, EPC Contract, Operation and Maintenance Agreement,
Transmission Line EPC Contract and Coal Supply Agreements are
technically reasonable and are consistent with each other and the
assumptions used in the financial analysis.
The technical performance requirements, performance testing and
obligations of the parties identified in the EPC Contract are
reasonable and achievable. The EPC contract has the necessary
protective terms and conditions and is comparable to other turn-
key projects in the United States. The EPC contracts in China
are more rigorous than in US on government approvals, design
stages, and guarantee issues and less stringent on environmental
issues.
This assessment has concluded that, from an environmental point
of view, the Plant is feasible and is capable of meeting the
relevant emissions and discharge limits required by the
applicable Chinese Standards if all environmental protection and
control measures recommended by the Environmental Impacts
Assessment (EIA) are implemented.
The ash handling system uses appropriate environmental protection
measures and the ash disposal plan is reasonable and achievable
based on the expected quality of the coal and its expected ash
content as summarized in the Marston & Marston Coal Consultant's
Report. The EIA indicates the effluent quality will comply with
the national environmental standard.
The Operation and Maintenance Contractor (Operator) selected for
the Project is Duke/Fluor Daniel. Duke/Fluor Daniel, a joint
venture between Duke Power and Fluor Daniel, has domestic and
international experience with coal-fired power plants and has the
necessary experience and capability to fulfill the O&M Agreement.
The O&M Agreement contains incentives and penalties in the
Contract Price Adjustment clause which should provide the
Operator reasonable initiative toward achieving excellence in
plant operational performance. Requirements for developing
operations plans are contained in Section 2.10 of the O&M
Agreement. The Owner has review and approval authority for all
operations plans developed by the O&M Contractor.
The Project can be expected to operate commercially throughout
the term of the Power Purchase Agreement. There is a large
number of coal-fired plants currently in operation in the United
States that have been in service for well over 30 years.
The Plant is capable of meeting the required performance and
availability levels while operating in the modes agreed in the
Power Purchase Agreement. The design of the Plant and the Net
Dependable Capacity performance guaranteed by the EPC Contractor
of 102 MW insures that the contractual amount in the Power
Purchase Agreement can be met and exceeded during the Peak hours.
Maximum Plant output of 106 MW will further exceed the stipulated
amount. The actual performance and availability of the Plant
will depend on the successful operation and maintenance of the
facility throughout the Plant's life.
The projected dispatch targets for the Plant, as specified by the
Power Purchase Agreement, are achievable and consistent with the
design criteria and equipment for the Plant.
The projected O&M costs and capital expenditures for major
maintenance are reasonable and representative of the planned
operations of the Project. The Owner and Operator have the
responsibility for establishing the full time manpower
requirements of the Facility.
Under the Power Purchase Agreement, North China Power Group
Company (NCPGC) is obligated to purchase electricity for a period
of 20 years beginning on the Commercial Operation Date. The
useful life of the Project will extend beyond this 20-year
period.
On the basis of the financial analyses presented in Chapter 12,
we are of the opinion that, in the base case, the projected
operating revenues are adequate to pay the projected operating
and maintenance expenses, pay the local and federal taxes,
provide a minimum of 2.02 and average of 2.19 annual debt service
coverage for the Pan-Western Shareholder Loans during the
repayment period of 10 years, and provide equity distribution to
Pan-Western throughout the 20 year term of the Power Purchase
Agreement. For the financial analysis and projections an
exchange rate assumption of US $1 = RMB 8.50 was used.
Five sensitivity cases were developed to test the Project's
performance under operating assumptions different from the base
case. As shown in Section 12.8, the selected changes did not
yield debt coverage ratios significantly different from that in
the base case.
1.0 PROJECT DESCRIPTION AND OVERVIEW
1.1 PARTICIPATING PARTIES
Certain affiliated entities owned indirectly by Panda Energy
International, Inc. are developing a 2X50 MW pulverized coal-
fired thermal power plant in Luannan County, Tangshan City,
Hebei Province in the People's Republic of China. The
Project, commonly known as the "Panda Luannan Project" is
comprised of joint venture companies between the Pan-Western
Energy Corp., LLC. ("Pan-Western"), a Cayman Islands Company
and certain affiliates of Luannan County.
Pan-Western will issue the Shareholder Loans and make equity
contributions to the JV Cos. for financing the construction
of the project.
The Pan-Sino Energy Development Corporation, an indirectly
owned subsidiary of Panda, owns 99% of Pan-Western. ChinaMac
(Singapore), PTE. Ltd. owns 1% of Pan-Western. Pan-Western
owns 88% of the JV Cos. and the remaining 12% ownership of
the joint venture is held by affiliates of Luannan County.
The Central Government of the People's Republic of China owns
the Qianjiaying Coal Mine from which the majority of the coal
for the power plant will be supplied. The balance of coal
supply will be from five County owned mines. The Central
Government controls the North China Power Group Company which
will purchase the plant electrical output. The Central
Government indirectly controls the Tangshan Price Bureau
which sets the local tariffs and costs for other key
commodities.
1.2 PROJECT DESCRIPTION
The Project is in Luannan County which is part of Tangshan
City in Hebei Province. The site is approximately 210 km
northeast of Beijing and only 100 km from the port cities of
Tianjin and Quinhuandao. The county has a population of
550,000 and Tangshan City has 6.7 million. The region
requires power to meet the current demand. Considerable
growth of this demand is anticipated as is the overall
economic development in the region.
2.0 SITE CONDITIONS
2.1 GENERAL DESCRIPTION
The Plant site (number 2, as designated in the Plant
Feasibility Study), which was selected for the proposed
project, is on the north side of Bensi Road, approximately 1
km west of the village of Gujiaying in Luannan County.
Luannan County is in the southeast part of Tangshan City in
northeastern Hebei Province. Luannan County has a total
area of 1270 sq km and a population of 550,000. The terrain
in this area is coastal plains flanked with low mountains in
the north.
The plant site was chosen from four proposed locations. The
selection criteria considered engineering, geology,
hydrometeorology, and transmission access. The site
selection was made in a review meeting on February 10, 1993
with the Engineering Consulting Institute - Hebei Province.
Other advantages of this site include good access to heating
networks and the highest ground elevation among the four
proposed sites. The Plant is above the flood plain.
According to residents, the town of Bengchen near the site
has never been flooded.
The Plant area will occupy nonirrigated farmland which
presently produces peanuts, corn, sesame, etc. The yield of
crops from this site is lower than the surrounding irrigated
land.
There are no village-owned enterprises, military
installations, places of historic interest or scenic
features in the area which would be negatively affected by a
power plant.
2.2 FUEL TRANSPORTATION
The fuel (coal) will be transported from the Kailuan Coal
Administration and local County owned mines to the Plant by
trucks. A 1.5 km access road connects the Plant to the
outer ring road of the town. The Tangshan-Luannan highway
is approximately 2 km north of the Plant site and connects
with the outer ring road of the town. The plant is located
approximately 30 km from the Qianjiaying coal mines. The
coal will be delivered to the site where the weight will be
checked, a quality sample will be taken and then it will be
unloaded.
2.3 WATER RESOURCE
The Plant uses a natural draft cooling tower with a
recirculating cooling water system. The water requirement
including circulating water, boiler make-up, district
heating network make-up and domestic water is approximately
980 m3/h. The local water resource administration office
has approved the pumping of water from nine local water
wells to the Plant. Seven wells will furnish the water
required with 2 wells on stand-by.
The Feasibility Study contains the test results of eight
samples of the groundwater from the wells and indicates the
water is potable and suitable for industrial purposes.
2.4 HYDROMETEOROLOGY
2.4.1 Meteorological Conditions
Luannan County is 2.5 to 35 m above sea level with a
declination from north to south. The land is rather smooth
and is traversed by four rivers running from north to south
into the Bohai Sea.
The County is located in the warm temperature zone with semi-
moist to monsoon climate.
The main meteorological data are as follows:
(1) Annual mean atmospheric temperature 10.7 degrees C,
(51 degrees F)
(2) Extreme max. atmospheric temperature 38.6 degrees C,
(101 degrees F)
(3) Extreme min. atmospheric temperature -21.7 degrees C, (-7
degrees F)
(4) Average temperature of the coldest month -10.9 degrees C,
(12 degrees F)
(5) Annual mean rainfall 653.3 mm, (25.7 in)
(6) Annual average evaporate capacity 1752.0 mm, (68.9 in)
(7) Annual maximum rainfall 978.8 mm, (38.5 in)
(8) Daily maximum rainfall 236.5 mm, (9.3 in)
(9) Maximum hourly rainfall 69.7 mm, (2.7 in)
(10) Maximum wind speed 19 m/s, (42.5 mph)
(11) Annual average wind speed 2.7 m/s, (6.0 mph)
(12) Annual average relative humidity 65%
(13) Maximum depth of frozen ground 77 cm, (30.3 in)
(14) Maximum thickness of accumulated snow 23 cm, (9.1 in)
2.4.2 The Effect of Water Flood on the Plant Site
The general elevation of the Plant is 17 m. The rain
records of Luannan County and a survey and
investigation of the site indicate the proposed plant
area has never flooded. From an analysis of the water
flows in the area and calculations of the mean
rainfall, it is concluded that the site will not be
affected by a one hundred year flood. Results of the
analysis and calculations are detailed in the
Feasibility Study on Thermal Power Plant -
Hydrometerology Report.
2.5 REGIONAL GEOLOGICAL OVERVIEW
2.5.1 Natural Geology
Luannan County is located in the east part of Hebei
province about 43 km southeast of Tangshan City. The
county has eight naturally formed rivers; Xiaoqinghe,
Yihe (Xinluanhe), Beihe, Munute, Xiaochinlunghe,
Suanlunghe, Xiaozanmenhe and Yaoijiahe. Each is
seasonal. The rainy season is concentrated between
June and September, producing about 82.7% of the annual
precipitation. The yearly average precipitation is
653.3 mm (25.7 in). The annual temperature is -21.70C
(-70F) minimum, 38.60C (1010F) maximum and 10.70C
(510F) average.
2.5.2 Topography
Luannan County is situated at the southern foot of
Yansan Mountain. Two area rivers form a 3.5 km wide,
Class 1 terrace running north to south. The terrace
elevation is 13 - 18 m with the toe of the terrace at
about 3 m. The flood plane is at elevation 10 m. The
terrain generally slopes down from north toward south.
2.5.3 Regional Geological Structures
The Plant site is located at the south rim of Yansan
Mountain fold zone at the southeast part of the
Tangshan subsidence block. It is adjoined by
Sanhaiguan upheaval block on the east side and Leting
subsidence block on the south. The great Ninghe-
Changli fault is located about 3 km south of the plant
site and 14 km east is the Luanxian-Leting Fault.
These faults form the demarcation lines for the three
subsidence blocks.
2.5.4 Stratigraphy
According to "Hebei Province Luannan County Master Plan
Geotechnical Investigation Report," the crust of the
Luannan area had been in rising and upheaval states
ever since Precambrian era. Due to weathering and
erosions, the area is void of Paleozoic and Mesozoic
alluvial deposits. A tertiary strata was deposited on
the Precambrian gneiss beginning at the end of Mesozoic
era and through the early Neozoic era as the crust in
the area subsided. The tertiary stratum now consists of
cemented fluvial/lucustine deposits, uncemented gravel,
mudstone, and sandstone, etc. The depth of the
tertiary stratum is about 150-250 m. The Quaternary
stratum consists mainly of diluvial deposits, fluvial
deposits and lacustrine sediments. The thickness of
these deposits are about 350 m.
2.5.5 Fault Structures and Earthquake
According to a geoseismic evaluation report by the
State Seismic Bureau for a 220 kV electric power
substation located 1.5 km south of Luannan county town,
the Ninthe-Changli rift is a large scale, deep cut,
hidden fault running NEE. The total length is about
120 km. The fault plane tilts toward the southeast at
35 to 650. The tilt angle is steep at the higher
elevations on the plane and flatter at the lower
elevations. The faults had been formed in Mesozoic era
and were dormant for a period during Cretaceous and
early Tertiary era. It became active again the middle
of Oligocene. Historically, earthquakes occurred only
at the east and south sections of this fault; a
Magnitude 4 in 1567 and Magnitude 5 in 1805.
Recently, there have been small shocks scattered along
this fault line. After a Magnitude 7.8 earthquake in
the Tangshan area, it is believed that long term
cumulated stresses in the area have been relieved. An
earthquake of more than Magnitude 6 it is not believed
likely over the next 50 years. According to the
"Seismic (Damage) Intensity Map of China (1990)," the
baseline seismic intensity at Luannan area is level 7.
This level is based on the Chinese scale which is a 12
degree system.
Section 4.2.4.2.4 of the Scope of Work contained in the
EPC Contract describes the design criteria to meet the
requirements of UBC Seismic Zone 4. Zone 4 is the
highest Zone in the US and is based on the logarithmic
Richter Scale which has a high rating of 8.0 and over.
Zone 4 covers areas where major damage potential exists
from earthquakes, i.e., California.
According to the report prepared by Sedgwick Insurance
and Risk Management Consultants (China) Limited and
Sedgwick Construction Asia Limited, the insurance
provider, there is adequate earthquake insurance
available and this insurance will be provided at the
time of construction.
2.5.6 Plant Site 2 Geotechnical Conditions
The Gujiaying Plant Site, Plant Site 2, is located
about 2.5 km west of Luannan County seat, at the west
side of Gujiaying town and at the north side of Benxi
Highway. The site is on a Class 1 Terrace of Luanhe
River. The Plant area is flanked with a sand dune on
the north, Benxi Highway on the south and farming roads
to the east and west. The site is essentially flat at
elevations between 16.4 and 16.7 m. It has the highest
elevations in the vicinity of the county seat.
During the 7.8 Magnitude earthquake in the Tangshan
area in 1978, the area south of Plant Site 2 suffered
some blowouts of sand and/or water. No trace of
liquefaction was observed at the ground surface of
Plant Site 2. Each of the other sites exhibited more
severe effects of the quake.
In summary, the Plant Site 2 at Gujiaying, situated at
about 3 km north of Ninghe-Changli fault offers
relatively stable ground for plant structures. The
plant site is acceptable from an engineering geology
point of view. The soil is slightly soft. The
subsurface soil allows a bearing capacity of 120-140
kPa.
2.5.7 Ground Water
The groundwater table was placed at 1.95 - 5.2 m depth,
at elevation 11.78 to 15.03 m, with a relatively steep
gradient. The water table is high in the south and low
in the north. This gradient is in the reverse
direction of ground water flow in this general area.
The anomaly is explained by the proximity of rice
paddies southeast and west of the plant site. The
ground has high permeability allowing seasonal
irrigation water to influence the local water table
levels. Sample analysis indicates HCO3-Ca type water,
with a PH value of 7.68. This type of water has no
corrosive effect on concrete.
2.5.8 Design Considerations
The number of soil samples and standard penetration
tests were limited. The soil bearing capacities
derived from laboratory tests varied significantly from
those of the standard penetration tests. Construction
experience in the area indicates soil bearing
capacities which also differ from test results. An
evaluation of the specific conditions at the placement
site of an individual structure is required.
Appropriate bearing capacities can then be employed in
establishing the structure design. Section 4.2.3 of
the Scope of Work document describes the EPC
Contractor's responsibilities for performing the
necessary on-site subsurface investigations and for
supplying all the geotechnical information required in
the design of the Plant.
2.5.9 Site Seismicity and Related Design Considerations
The site is located in a Design Intensity 7 zone. In
the plant area, the soils include loose to medium dense
sand stratum, loose to medium dense medium sand
stratum, and plastic to liquid plastic silt stratum to
a depth of 0 to 15 m. Bed rock is at a depth of 500 to
600 m. The soil is classified Type III, Intermediary
Soft Soil.
In some Plant areas, some soil strata have the
potential for liquefaction of medium grade to
insignificant grade during an earthquake. Field
investigation found no trace of liquefaction at Plant
Site 2 resulting from the Tangshan earthquake. The
Preliminary Design Document states that the
liquefaction phenomena does not appear at each layer of
the stratum in the Plant site when the earthquake
seismic intensity magnitude is 7.
2.6 ASH STORAGE SITES
Two sites were investigated and compared for possible
selection as ash storage yards for the thermal power plants.
One site is located at Dupingtuo and the other at
Xinzhuangzi. Each site has a planned capacity for 20 years
of ash storage. There are no major facilities such as
roads, water wells or communications lines to be removed in
either of the two available ash storage sites.
The Dupingtuo Ash Yard was selected as the best location for
storage of ash from the plant. This site is located on the
north side of Bengsi Road, about 4.3 km away from the site
and the site permit has been received. The following
considerations contributed to the selection:
- The terrain of the Dupingtuo site is smooth and open
with a ground level of about 17 m.
- As farmland, this site is less productive in crop
yields than Xinzhuangzi.
- The Xinzhuangzi site is located on the Ninghe-Changli
rift zone making it less unfavorable for the
construction of dams.
- The local Water Conservancy Bureau indicates the
Xinzhuangzi site elevation is below the ten year flood
level, whereas the Dupingtuo site will not be affected
by flooding.
- The ash slurry route from the Dupingtuo site to the
Plant is preferable to the route from the Xinzhuangzi
site.
- Cities near the Xinzhuangzi Ash Yard will be more
negatively impacted in the winter and spring by flying
ash than the Cities near the Dupingtuo site.
2.7 ASSESSMENT OF SITE SUITABILITY
Given the general area which will receive electric power for
the grid and steam for district heating, Plant Site 2 was
selected as the best site from four considered. The site is
relatively level; above flood elevation; will occupy
nonirrigated farmland with lower crop yield than surrounding
irrigated land; and there are no features of historic
interest or scenic beauty in the area which would be
negatively impacted by the Project.
Roads for the transportation of coal from nearby mines are
relatively good. A minimum amount of road construction for
highway access will be required.
There is adequate water to operate the plant from nine local
water wells.
Although the site is located in an area which has been
affected by earthquakes, it is generally agreed that the
earth stresses have been released and a plant designed for a
7 degree tumbler will be suitable. The soil in the area has
good bearing capacity. For these reasons, the plant site is
acceptable from an engineering point of view.
3.0 DESCRIPTION OF FACILITY DESIGN
The EPC Contractor will design, construct, and provide
Project equipment in accordance with the requirements in the
Scope of Work of the EPC contract. The Scope of Work
defines the conceptual design and prescribes the technical
requirements for the Project. The conceptual design is
based on a Feasibility Study on Luannan Thermal Power Plant
of Tangshan Panda Heat and Power Co., Ltd. by Hebei Electric
Power Design Institute (HDI), dated October 1994.
The electrical output from the Project is determined by the
plant capability and the General Interconnect Agreement with
its Supplements. The Plant design will be capable of
producing 106 MW net of the 47 metric tons per hour of steam
extraction.
The steam output from the Project is determined by the plant
capability and contractual arrangements.
The Project is expected to be implemented in accordance with
the protection guidelines and requirements of the
Environmental Impact Report as Approved by the Hebei
Provincial Environmental Protection Bureau dated 7/5/95.
Based upon the proposed equipment and design criteria, the
Project should meet expected plant performance criteria
contained in the EPC Contract and comply with the
contractual agreements for steam and electric energy.
3.1 MECHANICAL EQUIPMENT AND SYSTEMS
3.1.1 Steam Turbine Generator
Each of the two identical steam turbine generators is a
condensing extraction unit nominally rated at 50 MW at
3000 RPM capable of producing 60 MW gross under full
condensing conditions. The steam turbine consists of a
high pressure and a low pressure casing. The
extraction steam from the high pressure casing is used
for industrial steam processes while exhaust steam from
the low pressure casing is piped to a heat exchanger
that generates hot water for district heating.
Extraction points from both the high pressure and the
low pressure casings are provided for condensate and
feedwater heating.
3.1.2 Boiler / Firing Cycle
Each unit boiler uses a balanced draft design with two
forced draft (FD) fans and two induced draft (ID) fans.
The boiler is a natural circulating drum type, dry
bottom, with economizer, air heater, and superheater.
The boiler is rated for 255 metric tons/hr steam flow
at Maximum Continuous Rating (MCR) with a coal
consumption of 39.14 metric tons/hr based on the worst-
case coal as supplied from the Kailuan Coal
Administration's Qianjiaying Mine, and a coal
consumption of 40 metric tons/hr based on coal supplied
from typical county owned mines. Parsons Brinckerhoff
has reviewed the coal contracts and determined, of the
six contracts, coal from the Qianjiaying Mine has the
lowest heat value specification i.e., 4,600
kilocalories per kilogram, average and 4,300
kilocalories per kilogram, minimum. Marston & Marston,
the Coal Consultant has estimated the coal quality to
range from 4,600 to 4,700 kilocalories per kilogram
with an ash content of 34-35% which should be adequate
to provide the expected performance of the Plant.
Steam sootblowers are provided on each boiler to remove
soot and slag deposits that accumulate on heat transfer
surfaces.
Pulverized coal is the main fuel. The boilers utilize
an indirect firing system. A pulverized coal storage
silo is provided for each unit. Two ball mills, each
having a pulverizing capacity of 22.5 metric tons/hr
with worst-case coal (i.e. 1.15 capacity reserve
factor), are provided for each unit. Ball mill design
capacity is based on operating each boiler at MCR with
worst-case coal and includes sufficient margin for coal
quality transient conditions. Each ball mill has a
dedicated coal bunker that receives raw crushed coal
from a belt conveyor. A coal feeder delivers the coal
from the bunker to the ball mill. Pre-heated air is
supplied to the ball mill where the coal is partially
dried and pulverized. The heated air also conveys the
coal into a pulverized coal separator to remove
oversize coal particles. The pulverized coal is then
passed through a cyclone separator and transferred into
the pulverized coal storage silo. Air with some
entrapped coal particles is removed from the cyclone
separator with the aid of mill exhausters (2 per unit)
and delivered to the burners. A fan and dedicated,
pulverized coal feeder transfers and meters the
pulverized coal from the coal storage silo to the coal
burners in the boiler units. A screw conveyor is used
to transfer pulverized coal from one unit's pulverized
coal silo to the other. This allows the operation of
both boilers utilizing any three of the four mills.
The burner arrangement on the boilers is a tangentially
fired design with two coal burners at each corner of
each boiler unit. An oil ignition fueled by light
diesel oil (stored on site) serves as the ignition
source for each coal burner.
Combustion air is supplied by the FD fans. Air from
these fans passes through a regenerative type air pre-
heater and then is distributed to the windbox, to the
burners and to the pulverizers. An air pre-heater by-
pass is provided to admit tempering air for temperature
control. Gaseous combustion products are extracted
from the boiler units by the ID fans.
Electrostatic precipitators are provided downstream of
the air pre-heater to remove fly ash from the boiler
flue gas. The fly ash is collected in hoppers for
further handling and disposal, which is consistent with
current Chinese environmental standards.
3.1.3 Main Steam System
The main steam system conveys the high pressure,
superheated steam from the boiler steam outlet to the
turbine stop valve.
A steam dump system is provided for diverting steam
around the steam turbine to the condenser to
effectively enable the plant to operate at the trough
period load. The steam dump system capacity will be 15
%- 30% of the steam turbine generator (STG) flow and
will be designed consistent with the boiler
manufacturer's boiler turndown capabilities.
3.1.4 Extraction Steam System
The extraction steam system consists of six stages of
condensate/feedwater heating. The first two high
pressure (HP) stages receive steam from high pressure
extraction points located on the STG HP casing to heat
feedwater in the high pressure feedwater heaters. A
third stage, which comes from the crossover between the
HP and low pressure (LP) steam turbine casings,
supplies steam for industrial use and also feeds the
deaerator. The fourth and sixth stages supply steam to
the condensate (low pressure feedwater) heaters and the
gland steam condenser. The fifth stage supplies steam
to the district heating system and also feeds one of
the three low pressure heaters. All low pressure steam
extraction points are located on the LP steam turbine
casing.
3.1.5 Auxiliary Steam System
The auxiliary steam system consists of one oil fired
auxiliary boiler capable of satisfying the steam
demands for cold start-up of one unit using oil stored
on-site.
3.1.6 Condensate and Feedwater Systems
Steam exhausted from the turbine into the condenser
becomes condensate. Two condensate pumps are provided
to pump the condensate from the condenser hotwell to
the low pressure feedwater heaters and the deaerators.
The feedwater heaters are of the vertical design. The
condensate passes first through a gland steam condenser
and then through the three LP heaters. From the third
LP heater, the condensate enters the deaerating heater
where dissolved oxygen and other gases are removed from
the condensate. The condensate is then collected and
stored in the deaerator storage tank as the water
supply for the boiler feed pumps. Extraction steam
condensate from the two LP heaters near the deaerator
is pumped into the condensate stream and to the
deaerators. The remaining LP heater and the gland
steam condenser are drained into the condenser. An
emergency drain is provided on each feedwater heater
and is activated on heater high level for routing flow
back to the condenser to provide protection from water
induction to the turbine.
The boiler feed pumps transfer water to the boiler drum
via an economizer. Water leaving the boiler feedwater
pumps flows through two high pressure feedwater heaters
to preheat the feedwater. The feedwater then passes
through the economizer where it is heated by the flue
gas leaving the furnace. After leaving the economizer,
the feedwater enters the steam drum. High pressure
feedwater heater extraction steam condensate is
cascaded (drained) to the deaerator or in emergency, is
routed to the condenser.
3.1.7 Cooling Water System
A circulating water system common to both units,
provides cooling water to the condensers and other
auxiliary equipment. There are four circulating water
pumps receiving suction from a common header tied to
the discharge of the cooling tower. A single, natural
draft cooling tower provides sufficient heat removal
capacity to serve both units. The discharge piping of
the circulating water pumps is cross tied to serve both
units and has a common return header to the cooling
tower. Each pump has a motor operated butterfly valve
on the discharge line.
An auxiliary cooling water system is also provided to
satisfy plant auxiliary cooling water requirements for
generators, coolers, pump and motor bearings, air
compressors, etc. Two booster pumps supply the
auxiliary cooling water requirements by taking suction
from the circulating water system.
3.1.8 Fire Protection System
The Preliminary Design documents describe the design
philosophy of, "fire prevention first and the combining
of prevention with fire fighting".
Luannan County town is 2.5 km from the proposed plant
site. Since this distance requires less than five
minutes driving time, the Luannan Fire Brigade will
provide personnel and equipment for fire fighting at
the Plant site. A fire engine with water tank will be
provided to the Luannan Fire Brigade by the project.
A fire fighting water system will be installed at the
Plant site which will include a 800 mwater storage tank
and two fire pumps. One fire pump is for operation and
the other is standby. The tank also provides potable
water for human consumption. An additional water
storage tank is to be installed on top of the main
power building. Start-up of the fire pump, controls a
valve on the roof tank inlet to ensure flow and
pressure during fire fighting. Maximum fire water
consumption is 234 m/hr. Maximum pressure is
calculated at 702 kPa.
Automatic COfire extinguishing systems will be
installed in the switchgear room and other identified
electrical locations. Additionally, all buildings in
the Power Plant will be equipped with fire
extinguishers according to applicable codes.
As described in the scope of work document for the EPC
contractor, an underground fire water pipeline will
loop around the power block and feed the plant
hydrants, building sprinklers and water deluge systems.
Automatic water spray systems will be installed in the
coal corridors, in the vicinity of the oil tanks, main
oil pipes in the main power building and at the
transformers.
The design of the fire protection system will be in
accordance with Chinese local and national codes and
standards, and, where applicable, the Uniform Fire Code
and NFPA 850, Recommended Practice for Fire Protection
for Fossil Fueled Steam and Combustion Turbine Electric
Generating Plants.
Fire monitoring, detection and alarm systems will be
furnished in the control rooms, cable flat, cable
shaft, battery room, relay room, and other key
locations to provide for early warning and personnel
safety. The fire safety control system will be
monitored in the electrical control room. Automatic
protection systems will operate after confirmation of
the alarm by the operator.
3.1.9 Coal Handling System
Raw coal is delivered by truck to the Plant. The coal
is weighed at the plant by a dynamic truck scale to
determine the amount of coal being delivered. The
trucks unload the coal in the coal unloading trough.
The trough is located along both sides of the coal
stock yard and is the same length as the stock yard.
Two gantry cranes with five ton buckets are installed
on rails above the coal stock yard and coal unloading
troughs. The dual gantry cranes are acceptable from an
engineering standpoint and typical of the design used
for Chinese coal-fired power plants of this size. Two
bulldozers and a truck loader will serve as backup coal
feeding equipment to the gantry cranes during emergency
conditions. The stock yard is divided into two equal
areas. Coal unloaded in the troughs is delivered by
the gantry crane onto a belt conveyor which transports
the coal to the transfer house where it is crushed
before being delivered to the raw coal storage bunkers
via belt conveyors or stacked by the gantry crane in
the coal stock yard.
A twin belt conveyor system, each rated at 100 % of
Plant requirement, transports the coal to the crusher
house. The coal passes through coal screens and
crushers (depending on size), a series of magnetic
separators, and is directly fed into the coal bunkers
on each boiler. A coal feeder at the discharge of each
coal bunker feeds coal to a ball mill for
pulverization.
The coal handling equipment and systems should be
adequate to provide for efficient plant production ,
even using the worst-case coal described above.
3.2 CIVIL/STRUCTURAL SYSTEM
Plant designs addressing Civil, Structural and Architectural
requirements are to be consistent with the applicable
Chinese Standards for Coal Fired Power Plants. The general
layout of the plant follows a design philosophy of
functional groupings. There are three general groupings of
buildings, structures and equipment. The first group
includes the high voltage switchyard area, main transformers
and the control building. The second group includes the
turbine buildings, boilers, draft fans, precipitators and
chimney. The third group includes the coal storage and
supply systems.
3.2.1 Civil Design
The design incorporates considerations for the type of
soils encountered at the Plant site. Where key building
foundations are to be placed, the sub-soils will be
extensively reworked and/or replaced with suitable base
material. Site grading allows for proper drainage.
Roadways are included in the design to provide access
to equipment and buildings for maintenance and
operation.
3.2.2 Structural Design
Designs for Plant structures and buildings includes
considerations for basic structure loading, equipment
access and earthquake stresses. General specifications
for concrete steel and masonry are included for each
major construction or structure type. The materials
have been chosen consistent with their intended
application. Corrosion resistant materials are
specified where appropriate.
3.2.3 Architectural Design
Building architecture is generally consistent with the
intended functions. The designs include features to
maximize natural lighting, facilitate the flow of
operations personnel and provide fire barriers to
improve personnel safety. Additional considerations
have been given to building surface finishes to improve
the building aesthetics. Ceramic tile, brick and
terrazzo finishes are specified for select Plant areas.
3.3 ELECTRICAL AND CONTROL SYSTEMS
The Plant electrical and control systems conceptual design
is consistent with present Chinese power plant design. Off
site transmission, substation, protection and communication
systems are described in the Feasibility Study and are
provided through the loan agreement between the NCPGC and
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-
Western Heat and Power Co., Ltd. dated 2/10/1996.
3.3.1 Step-Up Transformers
The electrical plant will consist of two nominal 50 MW
generators (60 MW maximum output) capable of producing
a minimum of 51 MW net power to the electrical grid. A
75 MVA rated Generator Step-Up Transformer will
increase the output from each generator from 10.5 kV to
110 kV for connection to the high voltage switchyard.
3.3.2 Plant Switchyard
The high voltage switchyard electrical equipment will
include 110 kV rated SF-6 gas insulated circuit
breakers, current and potential transformers, manual
air break switches, surge arresters, metering and
protection equipment. As dictated by the North China
Power Administration, a double bus arrangement will be
used in the switchyard to connect the generators to the
transmission lines exiting the plant.
Each generator/step-up transformer will be connected to
a bus in the switchyard by a single, 110 kV circuit
breaker. In normal operation, this scheme is adequate
to supply all of the output from the plant to the grid.
However, a failure of a generator breaker will create
an outage for the associated generator until the
problem is corrected or the breaker is replaced. This
contingency will have an impact on plant availability.
To mitigate the effects from such contingency, the
initial spare parts purchase should include this
equipment in order that it will be readily available on
site.
3.3.3 Utility Interconnection
Arrangements have been made with NCPGC for the
construction of required facilities to adequately
interconnect the Plant with the utility grid. Approval
Notice Document-Huabeidianshe [1995] No. 65, dated July
13, 1995 and Approval Comments Document Huabeidianjishe
[1995] No. 75, dated August 24, 1995 describes the
size, location and other requirements of the proposed
interconnection facilities at the plant site. These
documents also provide for the construction of a new 5
km double circuit 110 kV transmission line which will
connect the proposed plant with a new substation to be
constructed at Ningtuo.
3.3.4 Off-Site Transmission Lines
Arrangements have been made with NCPGC for construction
of additional off-site transmission lines required to
adequately deliver power from the Plant to area
substations. Approval Notice Document-Huabeidianshe
[1995] No. 65, dated July 13, 1995 and Approval
Comments Document Huabeidianjishe [1995] No. 75, dated
August 24, 1995 provide for NCPGC to construct three
additional double circuit 110 kV transmission lines
necessary to tie in various substations. From Ningtuo,
18 km of 110 kV transmission line will be constructed
to the new Changing substation, 12 km of 110 kV
transmission line will be constructed to the new
Sijezhuang substation and 8 km of 110 kV transmission
line will be constructed to the existing 2 x 110 kV
Bengcheng switching station.
3.3.5 Off-Site Substations
Adequate arrangements have been made with NCPGC for the
construction of new off-site substations and increasing
the capacity of existing substations. Approval Notice
Document-Huabeidianshe [1995] No. 65, dated July 13,
1995 and Approval Comments Document Huabeidianjishe
[1995] No. 75, dated August 24, 1995 describe the
necessary off-site substation improvements. Three new
2 x 40 MVA substations will be constructed at Ningtuo,
Changning and Sijezhuang. Modifications will be made
to existing Yangling substation and Bencheng switching
station. Additionally, changes to the communication
systems at the Bengcheng switching station and system
dispatch center and system protection and relay
requirements are also described in these documents.
3.3.6 Auxiliary/Start-Up Power
Each generator will have an auxiliary transformer
connected to the output terminals which will adequately
supply plant electrical service. Each auxiliary
transformer is capable of supplying the electrical
needs of the entire Plant. Additional redundancy to
the Plant electrical service is achieved by a start-up
transformer served from the high voltage switchyard.
3.3.7 Revenue Metering
Revenue metering located at the point of
Interconnection between the power plants and the
utility grid will measure electrical energy provided to
the grid. Readings from these meters will also be
transmitted to the dispatch office of the Tangshan
Power Supply Bureau of the Grid. Testing and
calibration of the revenue meters will be by a
qualified inspection agency approved by both the Owner
and the NCPGC.
3.3.8 Control Systems
A Distributed Control System (DCS) manufactured by
Siemens and imported into China for assembly and
delivery will provide integrated modulating control,
sequential control and data acquisition from plant
systems. The DCS system design includes provisions for
1500 Input/Output (I/O) and 300 spare I/O points, for a
total of 1800 points.
The following functions are included in the DCS:
Data Acquisition System (DAS)
Furnace Safety Supervisory System (FSSS)
Continuous Control System (CCS)
Sequence of Events Recording (SOE)
Interlock Protection System
The Boiler Controls and the Turbine Controls being
furnished will be upgraded from the standard Chinese
design to interface with the DCS and accommodate data
transmission to the DCS.
The Coal Handling System as well as the Bottom and Fly
Ash Handling Systems will be controlled locally with
Programmable Logic Controllers (PLC's) and interfaced
with the DCS system.
The Demineralizer System and the Sampling and Chemical
Injection System will be controlled locally. The
systems will interface with the DCS for monitoring.
To accommodate operating personnel trained in Chinese
plants of similar design, control for both units will
be performed using a two control room scheme. The
Steam Turbine and Boiler Controls will be located in
one control room and the Generator and Switchyard
controls in another control room.
The following DCS equipment will be located in the
Steam Turbine and Boiler Controls room:
One operator's station (with 2 CRTs and 1 printer)
per boiler.
One operator's station (with 1 CRT and 1 printer)
per turbine.
One operator's station (with 1 CRT and 1 printer)
for balance of plant.
The following DCS equipment will be located in the
Generator and Switchyard Controls room:
One operator's station (with 1 CRT and printer)
for the electrical system.
These systems and configurations have been used before
at plants of similar size and technology and should be
adequate for Plant control.
3.3.9Dispatch/SCADA/Communications
The output electrical power from the proposed Plant(s)
will be dispatched by the Tangshan Power Supply
Bureau's Dispatch Department according to the terms and
conditions contained in Article Two of the Electric
Energy Purchase and Sales Agreement, dated September
22, 1995.
The SCADA of the operating utility will interface with
the plant DCS for monitoring, controlling and obtaining
data.
Telecommunications will be achieved through redundant
paths using microwave, fiberoptic and hard wire
systems. A power line carrier used primarily for relay
applications is also available for other communication
needs. These systems should be more than adequate for
Plant communications.
3.4 WATER SUPPLY AND DISPOSAL
3.4.1 Water Wells for the Power Plant
The Plant water requirement is 980 m3/h (4,508 gpm).
The water source for plant water use is from ground
water. There are seven production wells nearby with a
total capacity of 993 m3/ hr (4,568 gpm) and two backup
wells which increase the total water capacity to 1,263
m/ hr (5,810 gpm), which is adequate for the
requirements of the Plant. The wells are located
approximately two miles west of the Plant in the
Quaternary aquifer.
The Quaternary aquifer is a medium water-rich aquifer
and contains four sets of water-bearing strata as
follows.
a) At 0 - 25 m deep, with a yield of about 3 to 5 t/h
(13.8-23.0 gpm) water.
b) At 25 - 160 m deep, with a yield of about 20-30 t/h
(92.0-138.0 gpm) water.
c) At 160 - 250 m deep, with a yield of about 10-20 t/h
(46.0-92.0 gpm) water.
d) At 250 - 350 m deep, with a yield of about 5-10 t/h
(23.0-46.0 gpm) water.
The aquifers are fed by the side slopes of the mountain
to the north and seepage from various other sources.
The hydraulic gradient of the ground water is about 5%.
The Hydraulic Bureau of Luannan County stated that the
water from shallow upper aquifers are reserved for
irrigation.
3.4.2 Waste Water Discharge
Waste water discharges from the Plant include: Boiler
room and steam turbine room discharge, coal wash water,
domestic waste water and ash yard discharge. Domestic
waste water will be treated and discharged according to
national standards. Production waste water will be re-
used as practical for flush water for the ash and coal
handling systems. The proposed design should
adequately handle the waste water discharge anticipated
from a plant of this size.
Processing of the Plant waste water is detailed in the
Hebei Environmental Protection Bureau Approval on the
Environmental Impact Report.
3.4.3 Storm Drainage
In accordance with the Environmental Impacts Assessment
Report prepared by Hebei Environmental Protection
Research Institute; a dry climate exists in the Plant
area and rainfall from minor or medium rainfall events
will be evaporated. Only severe and extreme rainfall
events will result in significant runoff.
Surface water for the Plant will drain into the Little
Qinglong River.
3.4.4 Make-up Water
Ground water from local water wells will serve as an
adequate source for boiler make-up water. Water from
the wells flows into raw water storage tanks in the
water treatment area and is pumped to a dual train
mixed bed demineralizer system. The demineralizer
water treating system supplies the make-up water needs
for both units. After being treated and demineralized,
the make-up water is pumped to the boiler deaerating
water heater. At the deaerator, the make-up water
supplements the feedwater supply to the boiler to make-
up for steam losses (such as those caused by boiler
blowdown).
3.5 ASH HANDLING SYSTEM
3.5.1 Fly Ash System
The fly ash disposal system to be furnished is a wet
ash disposal system. Fly ash collected in the
electrostatic precipitator hoppers is discharged into a
sealed mixing drum at the bottom of each hopper. Two
low pressure water pumps supply the water for mixing
with the fly ash in the six precipitator hopper mixing
drums. The slurry created in the mixing drums is
pumped to an ash slurry sump. One slurry sump is
provided to serve both units 1 and 2 at the plant.
Three sets of two ash slurry pumps (total of 6) are
provided to pump the ash slurry to the retention pond.
Normally only one set of pumps is operating and the
other two sets are in stand-by mode. One ash retention
pond will be constructed to handle the ash slurry from
both units.
3.5.2 Bottom Ash System
The bottom ash system to be furnished is a wet ash
disposal system. Bottom ash is removed from the bottom
ash hopper by a scraper chain conveyor and transported
into a crusher. The crusher reduces the size of the
ash and a high pressure hydroejector transports the ash
slurry to the ash slurry sump. The bottom ash is mixed
with the fly ash in the slurry sump and pumped to the
ash retention pond. The proposed ash handling systems
should be capable of adequately disposing of the ash
from the Plant based on the 34-35% ash content coal
from the mines as described in the Marston & Marston
Coal Report.
3.6 ASSESSMENT OF FACILITY DESIGN
The design criteria contained in the Scope of Work of the
EPC contract with its addendum define a plant which is
specified to be consistent with Chinese National Codes and
Standards. The Preliminary Design is complete and approved
by the North China Power Administration. The detail design
will be completed under the EPC contract.
4.0 ASSESSMENT OF EXPECTED PERFORMANCE
It is anticipated that the steam turbine-generator will be
sized and designed by the Chinese in accordance with the
performance requirements specified in the EPC contract and
in accordance with Chinese design standards. These
standards, typically, have been adopted from relatively
early Russian or other east-European nation's standards and
guidelines under some kind of a license agreement. The
prevailing practice was to design steam turbine-generators
(STG) with margins which in today's conditions, would be
considered substantial. A typical STG would be able to
operate on a continuous basis, at a steam flow (valves wide
open - VWO - condition) up to 5-10 percent greater than the
rated flow (i.e. flow required to meet guaranteed
performance) and at a steam pressure up to 10 percent higher
than the rated pressure. These parameters would lead to an
increase in the STG power output up to 10-15 percent over
the guaranteed output. It has been customary to size the
generator and its auxiliaries to match the steam turbine
maximum output.
There are other operating conditions which if changed, can
lead to increases in steam turbine output. For example, if
the extraction steam flow to the district heat exchangers is
assumed shut off, the steam turbine output will increase and
additional electric power can be generated up to the maximum
continuous rating of the generator (60 MW gross). A similar
situation will result when feedwater/condensate heater(s)
are taken out of service and the corresponding extractions
are shut-off. If such operating conditions are assumed to
occur coincidentally, further increase to the STG electrical
power generating capability is likely with the generator
rating being the limiting factor.
The Net Dependable Capacity performance guaranteed by the
EPC Contractor for this plant is 102 MW (51 MW each unit).
Given the possible design and operating combinations and
approaches described above, and with the equipment ratings
described in the Preliminary Design documents, the gross
electric power producing capability should achieve the 58-60
MW maximum output stipulated. The pro forma projections
reflect a net maximum output of 106 MW which is achievable
and a reasonable basis for the 20-year operating period.
The guaranteed heat rate at design conditions is 12,156
BTU/kWh (LHV) which should be achievable under full load
output conditions. The pro forma projections have assumed a
higher levelized heat rate of 13,402 BTU/kWh (HHV), (12,764
BTU/kWh (LHV)) which factors in the off peak and trough
period load factors and 2-1/2% degradation of the plant.
This heat rate should be achievable with proper operations
and maintenance of the facility.
Articles 11, 12, 13 and 14 of the EPC contract contain the
required warranties and guarantees.
4.1 START-UP AND COMMISSION
Section 3.0 of the Scope of Work in the EPC contract
contains the performance and testing requirements for the
plant. Plant Acceptance Testing is specified for 72 hours
for verifying Net Dependable Capacity, Heat Rate, Plant
Emissions and Noise. Plant Reliability and Operational
Testing is specified for 240 hours for verifying
Availability, Ramp Rates, Startup Rates and Dispatch Level.
Additionally, Article 10 of the EPC contract describes the
EPC contractor's responsibilities for performance testing
and final acceptance.
5.0 ASSESSMENT OF DESIGN TO SIMILAR PLANTS
The proposed Luannan Thermal Power Plant will be similar in
design, construction and operation to other plants designed
by the Hebei Electric Power Design Institute. Specifically,
Parson Brinckerhoff visited and inspected for design and
construction purposes, two coal fired power plants in China
which were designed by HDI. One is currently operating at
Hepo using two 50 MW units and the other is under
construction at Hengshui with two 300 MW units.
HDI has completed the preliminary design for the Plant and
will work for the EPC Contractor in the completion of the
detail design for this project. Parsons Brinckerhoff has
reviewed the preliminary design and determined it is
adequate and reasonable. In addition, Parsons Brinckerhoff
will review the detail design and monitor construction of
the Plant.
6.0 ASSESSMENT OF ABILITY OF PLANT TO MEET CONTRACTUAL
REQUIREMENTS
6.1 ELECTRICAL REQUIREMENTS
The nameplate rating of each generator is 50 MW, however,
during peak periods generator output can be increased as
described in Section 4.0. With 4 MW of plant auxiliary
loads, the 51 MW described in the Scope of Work and
guaranteed by the EPC Contractor will be available at the
grid interconnection. The revenue generated by the sale of
this electrical energy may be estimated using the contract
purchase levels to estimate the total kWh to be purchased on
a yearly basis.
With a gross production of 58 MW and a 8.5 % load loss
factor (4.93 MW auxiliary load), 53.07 MW remain for sale
during the 8 hour peak period.
Additionally, 29.74 MW (65% of the 50 MW contractual
agreement less 8.5% of load loss factor) for 8 hours during
the non-peak period, and 27.45 MW (60% of the 50 MW
contractual agreement less 8.5% of load loss factor) for 8
hours during the trough period are available for sale
(reference Article 2.1 of the Power Purchase Agreement).
The following table provides Parsons Brinckerhoff's
reasonable estimate of output during each daily period
taking into account the steam requirements:
53.07 MW x 8 hours = 424,560 kWh - Peak period
29.74 MW x 8 hours = 237,904 kWh - Non-peak period
27.45 MW x 8 hours = 219,600 kWh - Trough period
Total daily kWh 882,064 kWh
882,064 kWh x 310 days/year = 273,439,840 kWh / year
Assuming $.0603 / kWh, the total annual revenue from the
first 50 MW unit will be $16,488,422. The second unit, to
be brought on line simultaneously, will double the revenue
to $32,976,844 annually.
The operation of the Plant must obey the dispatch control of
the electrical grid and conform to the peak regulation
dispatch practice of the grid as stipulated in Article Three
of the General Interconnection Agreement. Using the utility
grid demand profile of the Beijing-Tianjin-Tangshan Regional
Grid dated September 4, 1995 and a trapezoidal approximation
of the demand curve, the daily demand may be estimated.
Calculations with this methodology and 310 days/year yield
an annual unit production of 318,254,992 kWh/year. If the
Plant is dispatched in accordance with the electrical demand
curve, the projected total annual revenue will be
$38,381,552.
6.2 STEAM REQUIREMENTS
The Project will sell thermal energy as steam and hot water
to the Luannan County and local industrial users as
specified in the Feasibility Study and the approval of the
Preliminary Design. The Project will initially sell 47
metric tons/hour (approximately 184,000 million kilocalories
per year) of steam to the local industries. Additionally,
the project will sell 36 metric tons/hour (approximately
100,000 million kilocalories per year) of steam for the
production of hot water to the County for its schools,
hospitals and other facilities. Both steam and hot water
have been properly reflected in the pro forma projections
and the Plant is capable of producing these quantities of
steam and hot water when at the maximum expected output of
106 MW. The JV Partner, Luannan County, has negotiated
steam contracts or agreements with each of the individual
factories. The JV Cos. will directly bill all steam users.
47 metric tons/hour X 7440 hours/year = 349,680 metric tons/year
36 metric tons/hour X 3650 hours/year = 131,400 metric tons/year
Total = 481,080 metric tons/year
Assuming a 1995 price of $5.39/metric ton for the industrial
steam heat load and $4.99/metric ton for the district
heating load, the total annual revenue will be $2,540,461.
7.0 ASSESSMENT OF ECONOMIC LIFE OF THE PLANT
Substantially all Government approvals have been granted for
the 20-year joint venture Project, therefore the useful life
of the plant is considered to be 20 years. With proper
design, careful, periodic maintenance and operation of the
plant within design parameters, a useful life of 20 years
should be easily achievable. For comparison, there is a
large number of coal-fired plants currently in operation in
the United States that have been in service for well over 30
years.
To achieve maximum useful life, it is essential to have in
place by the time the plant is commissioned, a well-defined
maintenance and operating plan including a comprehensive set
of operating procedures. Careful record-keeping of all
outages whether planned or unplanned, outage causes and
corrective actions should be an integral requirement of the
plant operating procedures to be performed by Duke/Fluor
Daniel. Audits of plant operations by an independent
auditor should be considered.
8.0 DESCRIPTION OF ENVIRONMENTAL ISSUES
In 1992, the Provincial Government authorized the Hebei
Provincial Metallurgy & Energy Environmental Protection
Research Institute (EEPRI) to conduct an environmental
impact assessment of the proposed Luannan Power Plant. In
June 1993, the Hebei Environmental Protection Department
(HEPD) gathered experts to evaluate and subsequently approve
the Luannan Thermal Electric Power Plant Environmental
Impact Assessment Report. The original Environmental Report
was amended in May 1995 to address environmental changes in
recent years and the expansion of the facility. The 255
page Environmental Report evaluated air, surface water,
ground water, waste water and noise according to standards
approved by the Hebei Environmental Protection Department
and the Tangshan City Environmental Protection Department
(TCEPD).
8.1 PROJECT ENVIRONMENTAL STANDARDS
The approved environmental standards which apply to the
Project are as follows:
8.1.1 Environmental Quality Standards:
Environmental Air: Code BG3095-82 (air quality), Class
II standard.
Surface water: GB3838-88 (surface water quality)
Category V standard.
Surface water: GB5084-92 (irrigation water quality)
Category II standard.
Ground water: GB/T14848-93 (ground water quality).
Noise: GB12348-90 (industrial and commercial noise
standard) Category IV standard.
8.1.2 Effluent and Emission Standards:
Air emission--GB13223-91 (coal-fired electric power
plant air emission standard).
Waste water effluent--GB8978-88 (combined sewer
discharge standard) Class II standard.
Plant noise--GB12348-90, (industrial and commercial
noise standard) Category IV standard.
Parsons Brinckerhoff believes the Project can achieve
each of these standards.
8.2 ASSESSMENT OF ENVIRONMENTAL IMPACT
The Environmental Site Assessment as reported in the
Environmental Impact Assessment Report appears to have been
conducted in a manner consistent with industry standards
using comparable industry protocols for similar studies.
The Environmental Report was prepared with the assistance of
HEPD, TCEPD, Luannan County Environmental Protection
Department, Hebei Electric Power Design Institute and the
Luannan County Thermal Electric Power Planning Commission.
Although we have not performed an independent site
assessment, we are of the opinion that the conclusions which
EEPRI reached were supported by the data and reports which
we reviewed.
From the view point of environmental protection, the site
plan fully considers the needs of the employees' daily
activities and working conditions, centralizes the air
emission sources, and provides proper design for noise
consideration. The site plan also isolates potential
problems. For example, the entrance for material is located
at the northeast corner of the site, and the coal pile is
located north of the site, therefore, avoiding the
prevailing wind effects, and minimizing noise and dust
impacts on the project area. The cooling tower is located
at the eastern part of the site and is connected to other
work areas with a sky-walk, therefore minimizing the water
and noise impacts on the employees and their working
environment. The boiler room is located at the western part
of the site; this arrangement provides a convenient location
for steam emission and minimizes the steam noise impacts.
Additionally, the engineering analysis indicates that the
plant environmental protection facilities and the effluent
quality complies with the national standards for air,
surface water, ground water, noise, and waste water
effluent. These standards were listed earlier in this
section.
Data from the Environmental Impacts Assessment Report (EIA)
prepared by Hebei Provincial Metallurgy and Energy
Environmental Protection Research Institute and calculations
prepared by Panda Energy International, Inc., indicate air
emissions will be below the limits set by the World Bank for
sulfur dioxide and slightly above the limits for nitrous
oxide and particulate emissions.
Particulate emissions from the facility will exceed the
World Bank Guidelines because of limitations on guaranteed
efficiency of Chinese electrostatic precipitator technology.
However, these guidelines are not applicable to this project
and emissions calculations in the Preliminary Design
Documents are below the requirements of Chinese Standards.
Neither the Preliminary Design Documents nor the EIA
stipulate a requirement for nitrous oxide emission control
in China. Calculations for nitrous oxide emissions may be
updated when burner design is completed.
The planned facility will replace 91 coal-fired boilers in
the area. The majority of these 91 boilers do not have any
ash removal facilities and they have short stacks. Those
having ash removal facilities are equipped with low-
efficiency precipitators. These 91 boilers are the major
pollutant contributors to the area. Due to the closure of
these 91 coal fired boilers, the net impact to the area is
very positive. The ground level particulate concentration
is reduced below Chinese standards and close to the World
Bank Guidelines.
In summary, the Plant will enhance electrical service, help
relieve the deficient supply and will promote economic
development for the area. Centralizing thermal production
and winter heating will also improve the air quality in the
area.
This assessment has concluded that, from the environmental
point of view, the plant is feasible and will meet
applicable Chinese Standards if all environmental protection
and control measures recommended by the EIA are implemented.
9.0 GOVERNMENT APPROVALS AND BUSINESS AGREEMENTS
9.1 GENERAL DESCRIPTION
The Project has been under consideration for a number of
years. As the Project has developed, Business Agreements
have been made and Government Approvals have been obtained.
9.2 GOVERNMENT APPROVALS
A list of Government Approvals for the Project design and
construction are as follows:
- Project Proposal Approvals (#682, #683 and #684 dated
9/26/94 and #470 dated 5/29/96) by Hebei Provincial
Planning Commission.
- Project Feasibility Study Approvals (#144, #145 and #146
dated 2/28/95 and #471 dated 5/29/96) by Hebei Provincial
Planning Commission.
- Project Feasibility Study Approval (#10) by North China
Power Administration of the Ministry of Electric Power
(2/16/95).
- Project Heat Network Feasibility Study Approval (#57) by
Tangshan Municipal Planning Commission (4/11/95).
- Environmental Impact Approval (#150) by Hebei Provincial
Environmental Protection Bureau (7/5/95). Environmental
Impact Approval Supplements: An Official Reply to the
"Report on Environmental Impact Assessment for Luannan
Thermal Power Plant (2nd edition)" by Hebei Environmental
Protection Bureau, J. H. G. H. (1996) No. 318, dated
September 9, 1996.
- Interconnection Design Approval (#65) by North China
Power Administration of the Ministry of Electric Power
(7/13/95).
- Water Usage (#11) by Tangshan Municipal Water Usage
Bureau (8/13/94).
- Joint Venture Approvals (#253 and #254) by Tangshan
Municipal Bureau for Foreign Trade and Economic
Cooperation (9/20/95). Certificate of Foreign Invested
Enterprise of Tangshan Panda Heat and Power Co., Ltd.
(No. 0153758) and Certificate of Foreign Invested
Enterprise of Tangshan Pan-Western Heat and Power Co.,
Ltd. (No. 0153759) issued by the Hebei Provincial
People's Government under Approvals (#078 and #079) dated
(9/20/95).
- Joint Venture Approvals (#123) dated 5/14/96 for the
Tangshan Cayman Heat and Power Co., Ltd. and (#134) dated
6/7/96 for the Tangshan Pan-Sino Heat Co., Ltd. issued by
Tangshan Municipal Bureau for Foreign Trade and Economic
Relations. Certificate of Foreign Invested Enterprise of
Tangshan Cayman Heat and Power Co., Ltd. (No. 0255737,
approval #040 dated 5/14/96) and Certificate of Foreign
Invested Enterprise of Tangshan Pan-Sino Heat Co., Ltd.
(No. 0255740, approval # 044 dated 6/07/96) issued by the
Hebei Provincial People's Government.
- Public "Right-Of-Way and Road Usage" (Transportation)
Approvals by the Luannan County Bureau of Transportation:
Coal Transportation Approval (8/18/94)
Ash Transportation Approval (1/10/95)
- Steam Price Approval by Luannan County Price Bureau
(8/13/94).
- Approvals (#5) by the Tangshan Office of the Hebei
Provincial Construction and Planning Commission (6/23/95)
for Land Sites, Transportation and Roads, Water usage and
Electricity Usage.
- Business License of the Tangshan Pan-Western Heat and
Power Co., Ltd. (Reg. No. 000512) and Business License
of Tangshan Panda Heat and Power Co., Ltd. (Reg. No.
000511) issued by the State Administration of Industry
and Commerce (9/22/95). Business License of Tangshan
Cayman Heat and Power Co., Ltd. (Reg. No. 000665) and
Business License of Tangshan Pan-Sino Heat Co., Ltd.
(Reg. No. 000666) issued by the State Administration of
Industry and Commerce (6/13/96).
9.3 BUSINESS AGREEMENTS
Following is a list of the Business Agreements for the
Project:
- Joint Venture Contracts (9/3/94 and 9/4/94).
- Joint Venture Articles of Association (9/3/94 and
9/4/94).
- General Interconnection Agreement with North China Power
Group Co. (9/22/95).
- Supplemental Agreement for General Interconnection
Agreement and Electric Energy Purchase and Sales
Agreement with North China Power Group Company (2/10/96).
- Construction Agreement attachment to the General
Interconnection Agreement (2/10/96).
- Loan Agreement with the North China Power Group Company
to finance the construction of the transmission
facilities through a financial intermediary in the PRC
(2/10/96).
- Power Price and Pass-Thru Price Adjustment Formula
Approval by Tangshan Municipal Price Control Bureau
(10/18/95).
- Coal Supply Allocation Commitment from the Qianjiaying
Coal Mine (11/94) and Confirmation of Commitment by
Kailuan Mining Administration of the Ministry of Coal
Industry (3/7/95).
- Coal Supply Agreements:
- with Kailuan Coal Mining Administration for 300,000
tons/year (2/3/96)
- with Luannan County Coal Mine for 70,000 tons/year
(2/2/96)
- with Liu Guantun Coal Mine for 70,000 tons/year
(2/2/96)
- with Le Ting County Coal Mine for 60,000 tons/year
(2/2/96)
- with Zunhua Coal Mine for 60,000 tons/year (2/2/96)
- with Chang Li County Coal Mine for 50,000 tons/year
(2/2/96)
- Coal Transportation Agreement (3/6/96).
- Agreement on Land Contribution with Luannan Partners
(9/7/94).
- Agreement to Expand Power Plant with Luannan Partners by
Additional 50 MW (9/7/94). This agreement expands the
Plant capacity from the original 50 MW to the present 100
MW.
- Operation and Maintenance Agreement between JV Cos. and
Duke/Fluor Daniel International Services, Inc. (6/26/96).
- Engineering, Procurement and Construction (EPC) Contract
(4/24/96) and Amendment No. 1 (7/5/96), No. 2 (9/14/96),
and No. 3 (12/17/96).
9.4 ASSESSMENT OF SUPPORT DOCUMENTS
Based on our review of the various Government Approvals and
Business Agreements, we are of the opinion that the JV Cos.
have obtained the key governmental approvals required from
the various governmental agencies which are necessary to
construct and operate the Project.
We are not aware of any technical circumstances that would
prevent the issuance of the remaining approvals.
10.0 PROJECT SCHEDULE
The construction schedule is 28 months and is suitable for
similar projects in China. The governing factor is the lead
time required for major equipment manufacturing. The
critical path is the main turbine building, which must be
finished before the delivery of the major equipment which
will be installed in the turbine building. Based on our
review of the Project Schedule and the EPC Contractor's
experience, the 28 month schedule should be achievable.
11.0 REVIEW OF EPC CONTRACTOR AND AGREEMENT
11.1 ASSESSMENT OF MANPOWER AND STAFFING
The EPC Contractor shall submit a detail manpower plan as
specified in Section 5.0 of the Scope of Work document.
However, the staffing information required for the
construction of the plant is not available from the EPC
Contractor as this time. The EPC Contract specifies the
Contractor's responsibilities and warranties with respect to
vendors and subcontractors. Since civil work is a major
portion of the contract, Harbin will identify and owner will
approve the Civil Contractor and other Substantial
Contractors prior to starting the project as described in
Article 2 of EPC Contract. Parsons Brinckerhoff believes
the staffing of the project by the EPC Contractor will be
adequately provided.
Article 3 of the EPC Contract describes the Contractors
responsibilities for engineering and construction of the
project. China has a large supply of general labor. Harbin
is expected to employ unskilled labor from within Luannan
County, however, the skilled labors (welders, electricians,
etc.), for the most part, will have to be provided by Harbin
or their subcontractors. The skilled labor requirement
should be available within the Tianjin-Tangshan-Beijing
triangle.
11.2 EVALUATION OF THE EPC CONTRACTOR'S EXPERIENCE
HPE is a well known Chinese power contractor and has both
international and domestic experience in manufacturing and
installing equipment for similar power generation projects.
HPE's technical brochure includes 16 coal fired power plants
in its list of Chinese achievements. HPE has supplied main
or all equipment and provided technical services for these
plants. Of these 16, Pingwei, Zhujiang, Tieling, Mawan,
Shuangyashan, Diaquing and Dengfeng power stations were
completed as turnkey projects. Additionally, HPE has
completed international power plant installations on a turn-
key basis in Pakistan at Guddu, Jamshoro and Kotri; Angat
Hydraulic, Philippines; and Hiep Phuoc, Viet Nam.
The No. 2 Hebei Power Construction Company (2HPCC) has been
selected by HPE to be the construction subcontractor for the
Luannan Thermal Power Plant. 2HPCC has completed the
construction of No. 1 unit at the 1200 MW Hengshui Power
Plant in December, 1995. This first unit, 300 MW coal-
fired, was completed in 24 months. In addition to the
facilities visited at Hepo and Hengshui, 2HPCC has completed
power plants and cogeneration plants at 8 other locations in
China during the last 10 years.
Portions of the project will be subcontracted out to local
contractors. Owner has given the EPC Contractor a Limited
Notice to Proceed and has allocated the necessary
expenditures to cover this preliminary work. Given HPE's
track record, We believe they have the ability to follow the
Chinese construction standards and enough capacity and
manpower to complete the project as the EPC contractor and
meet the performance and schedule requirements of the EPC
Contract.
11.3 EVALUATION OF EPC CONTRACT TERMS
The Liquidated Damages (L.D.s) are capped at 35% of the
contract price plus 10% retention. The total of 45% is the
largest known percentage from a Chinese contractor compared
to the customary 10% total. The terms in the irrevocable
bank guarantee (letter of credit) are strong enough to cover
the interest and penalty risk of Owner.
In addition, a performance bond in the form of the Parent
Guarantee will be issued by the parent corporation of the
EPC Contractor. The terms in the guarantee are suitable to
replace the bid security with given assumptions that (1) the
parent company has enough assets, (2) the Chinese government
will allow such a flow of money when due, and (3) Changes
are regulated and managed.
The contract has the necessary clauses and is comparable to
the other turnkey projects in the US. The EPC contracts in
China are more rigorous than in the US on the government
approvals, design stages, and guarantee issues, and less
rigorous on environmental issues. With the arbitration
location outside of China for disputes over $1,000,000 US,
the risks of Owner are limited. The China factor becomes
important when the laws and regulations change and there is
no contract clause to effectively protect the Owner.
Parsons Brinckerhoff believes the EPC Contract has adequate
protection for the Owner in terms of L.D.s, Parent Guarantee
and other requirements.
12.0 FINANCIAL PERFORMANCE ASSESSMENT
We have reviewed the financial assumptions and projections
with respect to the Plant's performance and revenue-
generating capability and the operating, maintenance and
capital costs of the Project. This chapter contains the
financial analysis based on such assumptions and a
discussion of their reasonableness.
The Project will be composed of four separate joint venture
companies. Each has its distinct scope of business and
asset ownership of the Project. However the financial
performance of the Project is presented as a consolidated
entity, since the payment and performance obligations of
each joint venture company under their shareholder loan
agreement will be cross-guaranteed by the other joint
venture companies. This chapter will include a section on
the operating results of each of the four joint venture
companies.
Among the many assumptions that are critical to the
financial viability of the Project are the level of power
production, power tariffs, capital costs, operating
expenses, maintenance costs, reserve requirements, and tax
rates. On the basis of such assumptions, we have prepared a
pro forma statement to forecast the operating revenues and
expenses, net income, and cash flow of the Project on an
annual basis throughout the contract period.
This chapter includes the following sections:
- level of power production
- power tariffs
- review of project costs
- review of operating expenses
- review of reserve requirements
- the financing plan
- consolidated operating results -- base case
- summary of sensitivity analysis
- individual joint venture companies operating results
-- base case
12.1 LEVEL OF POWER PRODUCTION
The financial analysis is based on the assumption that the
NCPGC will purchase electricity and the Luannan County
customers will purchase thermal energy produced by the
Plant. The contractual terms of power purchase and sales
agreement are thus used as the basis of power production
projections in the analysis.
12.1.1 Power Purchase Agreement
We reviewed the Power Purchase Agreement dated
September 1995. The Agreement provides for the sale of
electric energy generated by the Plant for the contract
period of 20 years. The key provisions as defined in
the Agreement are summarized as follows, which then
become important assumptions used in projecting power
output from the Plant:
- The Power Purchase Agreement establishes a
commercial operation period of 20 years for the
Plant. The Joint Venture Companies are responsible
for the operation and maintenance of the Plant
during the contract period.
- Starting on the Commercial Operation Date and
throughout the 20-year term, subject to the
limitations on the gross generation levels, the
Joint Venture Companies agree to sell, and NCPGC
agrees to purchase and take, all electric energy
delivered to NCPGC from the Plant. The gross
generation levels in different time periods, subject
to adjustments agreed by both parties, are presented
in Table 12.1. We believe that the Plant operating
assumptions presented in Table 12.1 are reasonable
and that the Project will be capable of achieving
these parameters throughout the 20-year term of the
Power Purchase Agreement.
- The Joint Venture Companies will be paid for the
delivered electric energy at or over the minimum
output level during the Peak Hours at the applicable
energy price. NCPGC is required to purchase the
electricity output below the maximum levels as
specified in Table 12.1 during the Non-Peak and
Trough hours.
- The Agreement specifies that the cumulative annual
overhaul outage for the Plant, including the forced
outages, will not exceed 55 days. Outages will be
calculated on an actual time elapsed basis. During
the 55 days, the Joint Venture Companies will not be
penalized for the failure to produce or deliver
electric energy. As a result of this agreement,
this financial analysis assumes that the Plant will
run 310 days each year to generate and deliver
electricity to NCPGC. It is reasonable to expect
the Project will be capable of meeting this 310 day
requirement throughout the 20-year term of the Power
Purchase Agreement.
Table 12.1 Plant Operating Assumptions
<TABLE>
<CAPTION>
PEAK HOUR NON-PEAK TROUGH TOTAL
HOUR HOUR
<S> <C> <C> <C> <C>
Contractual minimum maximum maximum 1,800,000
Gross 800,000 520,000 480,000
Generation kWh kWh kWh kWh
Limit/Day
Plant Gross 116MW 100MW 100MW --
Output
Capacity
Percent Load 100% 65% 60% --
Load Loss 8.5% 8.5% 8.5% --
Factor
Net Output 106,140 59,475 54,900 220,516
(kW)
Average 8 8 8 24
Hours/Day
Net Output/Day 849,120 475,800 439,200 1,764,120
(kWh) (above (below (below
contrac- contrac- contrac-
tual tual tual
minumum) maximum) maximum)
Annual Running 310 310 310 310
Days
Annual Net 263,227 147,498 136,152 546,877
Output MWh MWh MWh MWh*
Steam Output 47 47 47 349,680
tons/hour tons/hour tons/hour tons/year
310 310 310
days/year days/year days/year
Heat Output 36 36 36 131,400
tons/hour tons/hour tons/hour tons/year
5 5 5
months/ months/ months/
year year year
</TABLE>
*: Equivalent to 100 MW for 5,469 hours.
This Report contains a separate review of the
operational capacity of the Plant in Chapter 6, which
verifies the Joint Venture Companies' ability to meet
the terms of the Power Purchase Agreement to produce
and deliver power as scheduled.
Based on the contractual commitments set forth in the
Power Purchase Agreement and the technical assessment
of the Plant's operating performance, the Plant
Operating Assumptions presented in Table 12.1 are used
to calculate the annual electricity power output, which
remains constant throughout the 20-year contract
period.
12.1.2 Heat Sale Agreement and Assumptions
The Joint Venture Companies will sell thermal energy of
industrial steam and district heat to Luannan County
and other local industries.
A Steam Heat Supply Agreement for hot water consumption
was signed in October 1996 by the Luannan County Heat
Company and the Joint Venture Companies. The Agreement
specified that the County Heat Company will purchase a
minimum of 362,518 gigajoules per year, or about
131,400 tons of hot water per year, from the Joint
Venture Companies for consumption by the local
residents.
Table 12.2 lists the steam customers who have signed
individual heat supply agreements with the Joint
Venture Companies and specified their requests for
steam consumption levels:
Table 12.2 List of Thermal Energy Customers
Name of Customer Use in Summer Use in Winter
(metric tons / (metric tons /
hour) hour)
1 Tangshan Shanfeng 6 0
Fodder Co.
2 Paper Board Factory of 28 30
Yiteng Paper Co.
3 County Textile Mill 4 5
4 County Canned Food 4 5
Factory
5 County Asbestos Tile 7 8
Factory
6 Seal Fodder Factory 6 0
Total Steam Requested 55 tons 48 tons
Per Hour:
The Plant's design heat energy output, according to the
"Feasibility Study on Luannan Thermal Power Plant" by
Hebei Electric Power Design Institute dated October
1994, is an average of 47 tons of steam and 36 tons of
district heat per hour. The design steam output of 47
tons per hour would be less than the requested total
amount specified in the heat supply agreements.
However, the Joint Venture Companies will not be
obligated according to the agreements in place to
provide the full amount of requested thermal energy.
There are no punitive damage provisions in the heat
sale agreement if and when the Joint Venture Companies
deliver thermal energy below the requested amount.
It is therefore reasonable to assume in the financial
analysis that the Plant will provide as much as 47 tons
per hour of steam for 310 days per year, and 36 tons
per hour of heat for 5 months of winter each year. At
this level of steam and heat production, the Project
should be able to produce the 106 MW of output during
peak hours. The financial analysis also assumes that
this level of thermal energy production will remain
constant throughout the contract period.
12.2 POWER TARIFFS
12.2.1 Planned Wholesale Electric Energy Price
The electricity prices used in the financial analysis
are based on the Planned Wholesale Power Price that was
proposed by the Joint Venture Companies for the Project
financial evaluation purposes and agreed to by the
Tangshan Municipal Price Bureau (the Pricing Approval
Authority), as specified in the Power Purchase
Agreement. The Pricing Approval Authority also accepted
the Joint Venture Companies' proposed pricing formulae
to adjust the Planned Wholesale Power Price in the
future to reflect changes in the cost adjustment
factors in order to mitigate the Project's exposure to
inflation and currency risks.
Based on the estimated production cost, plus tax and a
profit margin that is set by the Chinese government
regulations on joint-venture developments, the Joint
Venture Companies estimated the Planned Wholesale Power
Price in 1995 cost by using the following cost
categories:
Table 12.3 Cost Components for Wholesale Power Price
A. Unit Generation Cost
-- Direct Material Costs (including depreciation on
plant and equipment)
-- Direct Labor Costs
-- Management Costs
-- Administrative Costs
B. Financial Expenses, including long term debt interest and
working capital interest
C. Unit Reserves, including equipment maintenance & overhaul,
welfare reserve for Chinese employees
D. Unit Taxes, including central and local taxes, real estate
tax, and stamp tax
E. Unit Profit (Tax-affected), including return on equity,
profit deferral & recovery, interest on profit deferral, and
income taxes on profit.
The estimated pre-VAT Planned Wholesale Price of 0.5126
yuan (6.0 US cents1) per kWh in 1995 cost was then
increased to 0.5997 yuan (7.1 US cents1) per kWh to
include the 17 percent VAT. Based on the pre-VAT
price, the financial analysis projects the Initial
Wholesale Price for 1999 by using the following cost
adjustment assumptions in the complex pricing
adjustment formulae accepted by the Pricing Approval
Authority:
- Coal Escalation Assumption: 10% annual increase
from 1995 to 2003, 4% annual increase from 2004 to
2018.
- Chinese Consumer Price Index Assumption: 10% from
1995 to 2003, 6% from 2004 to 2008, 4% from 2009 to
2018.
- US$ Exchange Rate Assumption (US dollar to RMB):
1:8.5 from 1995 to 2018, which was consistently used
throughout the projections.
- US Inflation Adjustment Assumption: 3.0% annual
increase from 1995 to 2018.
- Total Investment Cost Adjustment, which represents a
one-time adjustment factor for the difference
between the estimated total investment cost of $105
million as agreed in the Power Purchase Agreement
and $119 million as the final project cost presented
in the Offering Circular.
Other cost adjustment factors include profit deferral /
recovery adjustment and interest on profit deferral
adjustment. These two adjustment methods were proposed
by the Joint Venture Companies and agreed to by the
Pricing Approval Authority in the Power Purchase
Agreement in order to stabilize power price throughout
the contract period. The pre-VAT Initial Wholesale
Price, based on the above cost adjustment assumptions,
is projected to be 0.6320 yuan (or 7.4 US cents1) per
kilowatt hour in 1999, the first year of commercial
operation.
In this analysis, the projected pre-VAT energy sale
prices are compared with other power tariffs in China
that were made available to the Engineer. The existing
research, without giving detailed information,
indicates that electricity tariffs in China had been
set artificially low by the central, provincial and
local governments2,3, as illustrated in Table 12.4:
Table 12.4 China's Electricity Prices in International
Context4
(US cents/kWh at current exchange rates, 1994 - 1995)
New Plant 3.5 cents per kilowatt hour
Beijing 3.3 - 6.4
Shanghai 5.0
Guangdong IPPs 7.5 - 9.0
Average China 2.6
Average OECD Countries 8.1
Luannan 1995 Wholesale Price 6.0
Luannan Projected 1999 Initial Price 7.4
Although the Project's pre-VAT energy prices (6.0 US
cents in 1995 and 7.4 US cents in 1999) are higher
than most other rates currently reported for plants in
China, it is lower than that reported for some
Independent Power Plants (IPPs, or foreign invested
power projects) in Guangdong Province in southern China
and certainly lower than that of the developed
countries in the Organization for Economic Cooperation
and Development.
Similarly high rates have been reported even within the
North China Power Grid. As an innovative method to
regulate power consumption, time-of-use tariffs were
employed in Hebei Province, within which the Plant is
located. According to the 1995 James Dorian report,
the highest rate charged during peak times since
November 1994 was 6.4 cents per kilowatt hour.
Meanwhile, tariff controls have been eliminated for
electricity sales by power plants that are foreign
built or financed to attract foreign investment. The
independent author concluded that the potentially large
private investments will only occur with electricity
prices being at least double the present levels of
about 3 US cents per kWh. James Dorian also quoted a
Taiwan publication in estimating the economic cost to
the power consumers of about 17 cents per kWh for
shortages throughout China on average, which is more
than double the Plant's Initial Planned Price of 7.4
cents for 1999. The Project's electricity sale prices,
increasing from 7.4 US cents per kilowatt hour in 1999,
to 11.1 in 2009 and 12.4 in 2018 should not be viewed
as unreasonable and unacceptable in the context of
chronic power shortage in China, particularly in the
rapidly developing region of Beijing-Tianjin-Tangshan.
12.2.2 Future Price Adjustments and "Passthrough"
Provisions
During the contract period, the Joint Venture Companies
are authorized by the Power Purchase Agreement to apply
for price adjustments for approval by the Pricing
Approving Authority. The Joint Venture Companies will
propose cost adjustments based on the price adjustment
formulae to provide for parity of the escalation of the
operating expenses to the revenues. This contractual
arrangement ensures a "passthrough" of the potential
cost escalation to the energy purchasers. In other
words, the energy price will go up or down, depending
on the changes in the various cost items in the future.
For example, if the Chinese Consumer Price Index (CPI)
goes up, the energy price will go up by the weighted
adjustments of the CPI factor applicable to the
construction capital costs and the Chinese O&M costs,
thus the energy sale revenues will be increased to
offset cost increases based on the Chinese CPI.
Thirty days prior to the Commercial Operation Date, the
Joint Venture Companies will apply for an Initial
Wholesale Price to be adjusted from the 1995 Planned
Wholesale Price. The Pricing Approval Authority will
review the application for accuracy in the employment
of the price adjustment formulae. Upon approval by the
Authority before the Commercial Operation Date, the
Initial Wholesale Price will become the "Price for
Electric Power Delivered". All future price adjustment
applications will be processed in the same manner.
12.2.3 Heat Sale Price Agreement
The Pricing Approval Authority reviewed the Joint
Venture Companies application for heat sale price, and
agreed to set the base heat sale price as 15 yuan per
gigajoules, equivalent to $5.39 per metric ton of
industrial steam and $4.99 per metric ton of district
heat in 1995 cost. The Price Bureau requests the Joint
Venture Companies to obtain the approval of the actual
heat sale price prior to the commercial operation.
Because there is no complex pricing formulae set up for
heat sale as that for electricity power price, this
financial analysis conservatively adjusts the base heat
sale prices by 50 percent of the projected Chinese CPI
annual changes.
12.2.4 Interconnection and Loan Agreements
The NCPGC and the Joint Venture Companies signed the
General Interconnection Agreement on September 22, 1995
in which both parties agreed to interconnect the Plant
to the Beijing-Tianjin-Tangshan Regional Grid. The
Loan Agreement of February 10, 1996 as amended sets
forth the terms under which the Joint Venture Companies
will lend through the required intermediate lending
institutes to the NCPGC 83,693,260 yuans (equivalent to
$10.1 million) for the construction of the Transmission
Line which includes the designated inflation costs
specified in the Loan Agreement. In addition, NCPGC
will be required to pay the Joint Venture Companies
approximately $2.1 million for capitalized interest
which will be added to the principal of the loan during
the construction period. The NCPGC is obliged by the
contractual terms to annually repay the Joint Venture
Companies the loan principal and accrued interest over
the period of 10 years in mortgage style. It is
therefore reasonable to assume that the Joint Venture
Companies will receive the principal and interest
payments immediately following the Commercial Operation
Date of the Plant. The Loan Agreement requires the
repayment to be made in US Dollars. This pro forma
analysis conservatively assumes loan repayments will be
made from RMB revenues, which will be converted to US
dollars, and thus may be subject to convertibility
limitations and RMB devaluation risks, because of the
existing regulatory limitations on NCPGC to repay loans
in US Dollars. A sensitivity test of RMB devaluation
is presented in Section 12.8.
12.3 REVIEW OF PROJECT COSTS
The project costs listed in Table 12.5 address major
categories of expected costs to implement the Project. The
costs associated with each category are reasonable. The
total budgeted amount represents a realistic and attainable
project cost as provided in Table 12.5. Remarks and
explanations are additionally provided.
Table 12.5 Project Cost Estimates
_________________________________________________________________
EPC Contract Allocation:
Thermal System $22,483,000
Coal Handling System $924,000
Ash Handling System $2,449,000
Water Treatment System $1,528,000
Feedwater System $3,390,000
Electrical System $5,239,000
I&C Systems $2,893,000
Service Water System $155,000
Auxiliary Plant Systems $1,156,000
Equipment Structures & $11,087,000
Buildings
Site Infrastructure & $4,185,000
Civil Work
Miscellaneous Buildings $1,654,000
Subtotal for Systems and $57,143,000
Equipment
Start-up & Testing $960,000
Engineering & Design $840,000
Construction Support $1,681,000
EPC Costs Escalation $1,113,450
EPC Contingency $3,001,830
EPC Contract Allocation $64,739,280
Total(1)
Transmission Project: (2) $10,083,525
Steam & Heat Network: (3) $2,912,048
Builders Risk Insurance $819,000
Total Construction Costs $78,553,855
Land Use Rights: (4) $5,378,715
Water Use Rights: (4) $361,446
Engineering Costs: $1,950,000
Interest During Construction $13,330,000
(5)
Financing & Legal Costs: $4,350,865
Project Management Costs: $3,700,000
Fuel, Spare Parts & Other $2,750,000
Equip. (6):
Debt Service Reserve $4,000,000
Project Contingency: (7) $4,380,120
Project Total: $118,755,000
Most project costs listed above are US dollar
denominated, however, for steam and heat network, land
and water use rights, and transmission line which are
denominated in RMB, an exchange rate of US $1 = RMB
8.30 was used.
________________________________________________________________
Notes:
(1) EPC Contract Allocation: Based on PB experience with other
projects in China, the allocation is reasonable. The turn-
key contract scope will be completed with Harbin Power
Engineering Co. LTD at approximately $64.7 million,
including an escalation of $1.1 million per EPC Contract
Amendment No. 3, and a contingency of $3.0 million.
(2) Transmission Project: Funds are allocated for
interconnection with the North China Power Grid as a loan to
the North China Power Group Company. The quantity was
established and requested by the NCPGC and indicated in the
Loan Agreement by NCPGC.
(3) Process Steam and Heat Network: Funds are allocated for a
steam and hot water system to provide process steam and hot
water to local industrial and a residential heating loop.
The cost quoted was established by the municipality.
(4) Land and Water Use Rights: Land and water well use rights
payments will be made to area agencies for property and
rights of way. Property rights must be for the plant, ash
pond, ash slurry pipeline and associated service roads. The
prices have been negotiated with and agreed to by the area
officials.
(5) Interest during construction for Shareholder Loans is based
on an average interest rate of 12% per year.
(6) The total of $2,750,000 for Fuel, Spare Parts & other
Equipment is within the anticipated range of allocations for
other projects similar in size and technology.
(7) The Joint Venture Companies allocated $4.4 million as
project contingency. The total contingency of $7.4 million
including the $3.0 million EPC Contract construction
contingency, equivalent to 6.2% of total project cost, is
adequate based on market uncertainties in material costs,
labor, and equipment availability as well as other
fluctuating cost factors inherent in China's expanding
economy.
We have reviewed both construction draw-down schedule and the
milestone activity provided in the EPC Contract and believe that
both are reasonable and achievable.
12.4 REVIEW OF OPERATING EXPENSES
A comparison was made between the annual fuel and operation and
maintenance cost of the proposed plant and the same expenditures
for similar US plants. This comparison is based on 1995 dollars
and was made to review the projected production expenses. The
average of five years production costs as recorded by the Utility
Data Institute for twelve coal-fired power plants of
approximately 120 MW size in the US are used in the comparison
below:
PRODUCTION COST COMPARISON
Description Luannan Average of High/Low of
Thermal US Plants US Plants
Power Plant
O&M Cost 12.20 11.94 25.16/4.24
$/Net MWhr
Fuel Cost 12.20 18.39 25.57/8.30
$/Net MWhr
12.5 REVIEW OF RESERVE REQUIREMENTS
This section describes the various reserve requirements and
assesses the adequacy of the reserve estimates made by the
Joint Venture Companies.
12.5.1 Equipment Maintenance & Overhaul Reserve
An estimated overhaul cost of $1,000,000/turbine
provided by Siemens for a similar international project
was used in this estimate. Additionally, "Combustion",
a periodical by Combustion Engineering, Inc., a
division of ABB, lists $8.75/kW to $13.00/kW as
industry standards used for determining system reserve
margin. An average of $10.875/kW was used for this
estimate giving a reserve margin of $1,087,500. The
methodology used to determine the reserve figure and
the allocated cost appears reasonable and justifiable
for this project.
To maintain the productive capacity and operational
efficiency of the Plant during the 20-year period, the
overhaul reserve will begin to be funded in the first
year of operation and be fully funded with $3.0 million
in the fourth year of operation. Expenses to cover
major overhaul activities will be drawn from the
reserve, towards which additional deposits will be made
to maintain the $3.0 million fund each year which is
reflected in the pro forma projection.
12.5.2 Debt Service Reserve
The off-shore debt service reserve will be funded with
$4 million before the Commercial Operation Date as part
of the total project cost. The reserve will be
credited towards equity accounts at the end of the
Shareholder Loans' 10-year term.
12.5.3 Welfare Reserve for Chinese Employees
A deposit of 10 percent of the total annual wages for
Chinese employees is funded in the welfare reserve each
year, as required by the Chinese Joint Venture law.
For the 500 Chinese workers employed at the Plant, this
reserve would have about $157,700 by end of 2000 and
$5.8 million at the end of the contract period.
12.5.4 Other Chinese Reserve Requirements
The Chinese Joint Venture law requires two other after-
tax reserves to be set up by the Joint Venture
Companies: the General Reserve Fund and the Enterprise
Expansion Fund. Each reserve is funded at the sole
discretion of the JV Cos.' Board of Directors and is
expected to be funded with approximately 50,000 RMB per
year. Each reserve would have about $5,900 by end of
2000 and $118,000 at the end of the contract period.
12.6 THE FINANCIAL PLAN
12.6.1 Estimated Sources and Uses of Funds
The Joint Venture Companies projected the uses and
sources of funds for the development of the Project.
The sources for the project total cost of $118.8
million would be $47.5 million from equity
contributions and $71.3 million of Shareholder Loans
from Pan-Western. The equity contributions by the
Luannan County would largely be in the form of land and
sites required for the Project development. The total
construction costs of $78.6 million would be the
largest user of the funds. The interest payment during
construction is $13.3 million. Table 12.6 summarizes
the estimated sources and uses of funds as proposed in
the Financial Plan.
__________________________________________________________
<TABLE>
<CAPTION>
Table 12.6 SOURCES AND USES OF FUNDS
(1996 US$ in thousands)
Funds Percentage of
Sources or Uses
<S> <C> <C>
Sources
Sponsor Equity $ 47,502 40.0%
Contributions
-- Panda Contribution 41,762 35.2
-- Luannan County 5,740 4.8
Contribution
Pan-Western Shareholder 71,253 60.0
Loan Proceeds
Total Sources of Funds $118,755 100.0%
Uses
Construction Costs $78,555 66.2%
-- Harbin EPC Contract 64,739 54.6
-- Transmission Line 10,084 8.5
Project Loan
-- Steam & Heat Network 2,912 2.4
-- Builder's Risk Insurance 819 0.7
Land & Well Costs 5,740 4.8
Engineering Costs 1,950 1.6
Interest During 13,330 11.2
Construction
Financing & Legal Costs 4,351 3.7
Project Management Costs 3,700 3.1
Fuel, Spare Parts & Other 2,750 2.3
Equip.
Reserves & Contingency 8,380 7.1
Total Uses of Funds $118,755 100.0%
</TABLE>
Most project costs listed above are US dollar
denominated, however, for steam and heat network, land and
water use rights, and transmission line which are
denominated in RMB, an exchange rate of US $1 = RMB 8.30 was
used.
___________________________________________________________
12.6.2 Shareholder Loan Assumptions
The Pan-Western Shareholder Loans, $71.3 million in
total, were amortized by a variable method in this
financial analysis. The loan is amortized over the
debt term of 10 year at the annual interest rate of
13.89%. The total principal and interest payment each
year is approximately $13.5 million. Other assumptions
used in the Financial Plan include:
- Debtors
JV1 - Tangshan Panda Heat and Power Co., Ltd.
JV2 - Tangshan Pan-Western Heat and Power Co., Ltd.
JV3 - Tangshan Cayman Heat and Power Co., Ltd.
JV4 - Tangshan Pan-Sino Heat Co., Ltd.
- Aggregate Principal Amount
$71,253,000, payable semi-annually
- Interest Rate
13.89% per annum
- Maturity
2009
12.6.3 Repayment of Pan-Western Shareholder Loans
The repayment of the $71.3 million Shareholder Loans is
the obligation of the four joint venture companies that
make up the Project. The four joint venture companies
are required, under their shareholder loan agreements,
to distribute their cash flow available for debt
service to the repayment of the annual principal and
interest payment of approximately $13.5 million.
12.7 CONSOLIDATED OPERATING RESULTS -- BASE CASE
We have reviewed the estimates and projections of the
operating capabilities of the Plant, the estimates of
capital and operating costs for the Project, the estimated
debt service requirements, and the estimated depreciation
and taxes payable by the JV Cos. On the basis of such
data, we have compiled a pro forma summary table (Exhibit 12-
1) to project the consolidated operating results of the four
joint venture companies as in the base case. The results of
sensitivity analysis will be summarized and presented in
Section 12.8. An exchange rate of US $1 = RMB 8.50 was used
consistently throughout the projections.
12.7.1 Operating Revenues
The annual electric energy output is assumed to be
546,877 MWh, which is conservatively assumed to remain
constant throughout the contract period. We believe
this output is achievable and that there is a
possibility that the annual output might exceed this
level, since the Plant can sell more power to the NCPGC
to meet high demand during the peak period without any
penalty, and the Joint Venture Companies expect the
Plant to incur less than 55 days of overhaul outage
each year. The pre-VAT unit sale price of 7.4 US cents
per kilowatt hour in 1999 gradually increases to 11.1
cents per kilowatt hour in 2009 and to 12.4 cents in
2018. The annual electric energy revenue thus grows
from $42.9 million in 2000, to $60.7 million in 2009,
and to $67.7 million in 2018.
The heat energy operating revenue is determined by the
amount of steam and heat to be delivered by the Plant
to the local thermal energy users. Based on the design
capacity of the Plant as presented in the Feasibility
Study by the Hebei Electric Power Design Institute (see
Section 12.1.2), this financial analysis
conservatively assumes that the annual output would be
about 350,000 metric tons of industrial steam and
131,400 metric tons of district heat. We believe these
output levels are reasonable based on the assumed
annual electric energy output assumptions listed above.
Both output levels also conservatively remain constant
throughout the operating period. At the sale prices of
$6.55 per ton for steam and $6.07 per ton for district
heat in 1999, the total annual thermal energy revenue
is estimated at $3.2 million in 2000, $4.4 million in
2009, and $5.3 million in 2018.
The operating revenues also include the transmission
loan interest payments from the NCPGC at an estimated
interest rate of 12.0% per year. The total interest
payment from the transmission loan over its ten-year
term is about $9.4 million.
The on-shore reserves are conservatively assumed to
earn interest revenues at a reinvestment rate of 5
percent per annum. The on-shore interest earning
accounts include the overhaul reserve, Chinese Employee
Welfare Reserve, Chinese General Reserve, Chinese
Enterprise Reserve, and the un-distributable cash
account. The total interest earnings from on-shore
reserves is about $20.9 million.
The total operating revenue estimated for the contract
period is about $1,265 million.
12.7.2 Operating Expenses
The operating expenses assumed for the Plant's
operation include the costs to deliver coal, water
costs for both water usage and water treatment,
supplies and spare parts, utilities, labor,
administration costs, and real estate and stamp taxes.
The cost categories are affected by the projected
annual increases in Chinese CPI and coal escalation
factors from 1999 to 2019 as presented in Section
12.2.1. Exhibit 12-1 shows that the annual total
operating expenses will be about $19.4 million in 2000,
$31.8 million in 2009, and $44.7 million in 2018. In
each year, 50 percent or more of the annual operating
cost is required to purchase and deliver the coal. The
next biggest item of expense is the labor and
management cost. We believe these operating expense
assumptions are reasonable.
The total operating expenses estimated for the contract
period is about $642.0 million.
12.7.3 Depreciation and Taxes
As estimated by the Joint Venture Companies, the
depreciable basis for the Project is 90% of $102.7
million of equipment, buildings and depreciable land
(built-upon land that is allowed for depreciation by
Chinese laws), accounting for approximately 86% of the
total project cost. Book depreciation is straight-line
method over the 20-year period, with an assumption that
buildings and land will depreciate on a 20-year basis,
and the equipment will depreciate on a twelve-year
basis. The annual depreciation, a deductible expense
for tax purposes, is approximately $7 million to $8
million from 2000 to 2011, $5 million in 2012, and $2
million to $1 million from 2013 to 2018. The
depreciation schedule and taxes payable to the local
and federal government as reflected in the pro forma
was estimated by the Joint Venture Companies based on
the advice of their Chinese accounting and legal
counsels. The advisors had provided a separate report
to the Joint Venture Companies on current Chinese laws
and regulations applicable to a Sino-foreign venture
such as the Project.
12.7.4 Discussion of Debt Coverage Ratios
To calculate the Pan-Western Shareholder Loan debt
service coverage ratios, Exhibit 12-1 presents the
income statement and cash flow statement for the
Project during the payment period of the Shareholder
Loans. The net income after tax will fund the Chinese
Employee Welfare Reserve, the Chinese General Reserve,
and the Chinese Enterprise Expansion Reserve, as
required by the Chinese Joint Venture law. This
financial analysis also assumes that NCPGC will meet
the requirements of the Interconnection and Loan
Agreements and pay to the Joint Venture Companies the
annual principal payments on the Transmission Project
Loan. The total after-tax cash flow available for
debt service increases from $28.7 million in 2000 to
$30.3 million in 2008.
On the basis of our financial analyses of the proposed
Project and the assumptions set forth in this Report,
we are of the opinion that, in the base case, the
projected operating revenues are adequate to pay the
projected operating and maintenance expenses and to
provide an average of 2.19 and minimum of 2.02 after-
tax annual debt service coverage for the Shareholder
Loans during the payment period. The lowest coverage
ratio of 2.02 occurs in the first year of repayment
period.
12.7.5 Distribution to Pan-Western Equity Account
After the payments of debt services and funding for
overhaul reserve, the Joint Venture Companies
calculated the un-distributable cash flow, which
reflects the difference between Net Distributable
Earnings and Net Cash Flow, plus interest and reserve
income from the off-shore debt service reserve account.
The remaining cash flow after adjustment for the un-
distributable cash flow is cash flow distributable to
equity accounts. As shown in Exhibit 12-1, cash flow
to Pan-Western equity account totals $321.6 million for
the contract period.
12.8 SUMMARY OF SENSITIVITY ANALYSIS
Five sensitivity cases were run in order to test the
viability of the Project under operating assumptions
different from the base case. Case I assumes the Plant
would generate 102 MW, instead of 106 MW of net output.
Case II assumes an annual devaluation of 5 percent for RMB
throughout the contract period. Case III assumes a higher
annual Chinese CPI change rates, and Case IV assumes a lower
Chinese CPI change rates throughout the contract period.
Case V assumes a higher coal escalation factor throughout
the contract period. As shown in the following table,
changes in the selected operating assumptions did not yield
minimum and average debt coverage ratios significantly
different from that in the base case.
SUMMARY OF SENSITIVITY ANALYSIS
Minimum Debt Average Debt
Coverage Coverage
Base Case 2.02 2.19
Case I 102 MW net output 1.98 2.15
(base case: 106 MW)
Case II RMB devaluation = 5 percent / year 2.01 2.20
(base case: 0 percent)
Case III Higher Chinese CPI change per year: 2.12 2.64
20% from 1995 to 2018
Case IV Lower Chinese CPI change per year: 1.95 2.02
0% from 1995 to 2018
Case V Coal escalation factors: 20% from 2.02 2.19
1995 to 2018
12.9 INDIVIDUAL JOINT VENTURE COMPANIES OPERATING RESULTS -- BASE CASE
For information purposes this section highlights the
business make-up and operating results of the four joint
venture companies. It should be noted that the assumptions
and the consolidated pro forma presented in previous
sections should be regarded as the best financial indicators
for the Project as a whole, since the payment and
performance obligations of each joint venture company under
their shareholder loan agreement will be cross-guaranteed by
the other joint venture companies.
The joint venture companies' share of the Project's scope of
business and asset ownership is reflected in the following
chart:
Scope of Business Assets
JV1 Unit 1 thermal system , -- Boiler, precipitator & other
manufacturing and sale of ancillary equipment. Steam
electricity, sale of its turbine, generator, transformer
products & services at a & switch gear, control system,
profit, 1 x 50 MW. coal handling system.
JV2 Unit 2 thermal system , -- Boiler, precipitator & other
manufacturing and sale of ancillary, equipment. Steam
electricity, sale of its turbine, generator, transformer
products & services at a & switch gear, control system,
profit, 1 x 50 MW. coal handling system.
JV3 Manufacture & sell hot water -- Water wells & water supply
and steam to local heat system, water storage systems,
network. Construction, water treatment systems,
management and operation of a steam/water handling &
water supply system and steam condensing system, cooling
and heat production facility. towers, commercial steam
Sale of its products & services production system.
at a profit.
JV4 Distribution & sale of hot -- Local steam and hot water
water & steam to industrial & distribution system, land,
commercial markets. social buildings, investment,
Construction, management & offsite ash-disposal land and
operation of local steam and ash slurry pipeline.
hot water network. Sale of its
products and services at a
profit.
Each individual joint venture company's cash flow and income
statements are presented in Exhibits 12-2 to 12-5. JV1 and
JV2 in total collect 100% of electricity sales revenue. JV3
collects 50% of thermal energy sales revenue, while JV4
receives 50% of thermal energy revenue and 100% of the
transmission line loan repayment from NCPGC. Each company
also received 25% of the interest earnings on the on-shore
reserves.
The four companies are responsible for the operating
expenses that correspond to their share of business scope
and assets. Each company distributes net cash available,
after paying all applicable expenses and taxes, for the
repayment of the senior debt. After the debt service
payment the remaining cash will become available for equity
accounts.
_______________________________
1 Based on an exchange rate of US $1 = 8.50 RMB.
2 "Energy in China", James P. Dorian, Financial Times Energy
Publishing, 1995.
3 "Financing China's Electricity", JS Adams, AMCD (Publishers)
Ltd., England, 1996
4 "Financing China's Electricity", JS Adams, AMCD (Publishers)
Ltd., England, 1996
1 EXHIBIT 12-1
<TABLE>
<CAPTION>
2 CONSOLIDATED INCOME/
3 CASH FLOW STATEMENTS 1 2 3 4 5 6
4 -- BASE CASE UNITS 1999 2000 2001 2002 2003 2004
5 (5 months)
<S> <C> <C> <C> <C> <C> <C> <C>
6 PERFORMANCE
7 Net Electrical Output kw hrs/y 227,865,500 546,877,200 546,877,200 546,877,200 546,877,200 546,877,200
8 Net Steam Production tons/yr 145,700 349,680 349,680 349,680 349,680 349,680
9 Net Hot Water Production tons/yr 54,750 131,400 131,400 131,400 131,400 131,400
10
11 PRICING
12 Pre-VAT Electric Energy Price US$/kw h 0.074 0.078 0.083 0.087 0.091 0.094
13 Steam Price US$/ton 6.552 6.879 7.223 7.584 7.963 8.202
14 Hot Water Price US$/ton 6.065 6.369 6.687 7.021 7.373 7.594
15
16 REVENUES
17 Electric Energy Revenue 16,751,240 42,867,885 45,635,533 47,691,675 49,618,451 51,363,730
18 Steam Revenue 954,565 2,405,504 2,525,779 2,652,068 2,784,671 2,868,212
19 Hot Water Revenue 332,079 836,840 878,682 922,616 968,747 997,809
20 T-Line Interest Payments from NCPGC 609,444 1,427,937 1,340,421 1,242,403 1,132,622 1,009,668
21 Interest Income (On-shore Reserves) 0 92,694 262,613 410,447 570,687 652,861
22 TOTAL OPERATING REVENUES US $ 18,647,329 47,630,860 50,643,028 52,919,209 55,075,178 56,892,280
23
24 OPERATING EXPENSES
25 Coal Delivered 3,978,244 10,502,565 11,552,822 12,708,104 13,978,914 14,538,071
26 Water Usage 139,831 369,154 406,069 446,676 491,344 520,824
27 Supplies, Spare Parts, Consumable 610,042 1,610,510 1,771,561 1,948,717 2,143,589 2,272,204
28 Utilities 129,185 341,049 375,154 412,670 453,936 481,173
29 Project Management Fees & Expenses 351,722 869,456 895,539 922,405 950,078 978,580
30 Other Labor & Management Costs 1,170,747 2,993,804 3,193,306 3,409,763 3,644,779 3,816,692
31 Administrative Costs 993,056 2,514,639 2,655,863 2,807,901 2,971,738 3,098,415
32 Real Estate Tax 53,992 129,580 129,580 129,580 129,580 129,580
33 Stamp Tax 6,605 16,984 18,178 19,192 20,205 20,930
34 TOTAL OPERATING EXPENSES US $ 7,433,423 19,347,740 20,998,072 22,805,009 24,784,163 25,856,470
35
36 INCOME STATEMENT
37 EBITDA 11,213,905 28,283,120 29,644,956 30,114,200 30,291,015 31,035,810
38 - Depreciation 3,013,732 7,256,393 7,312,643 7,345,456 7,376,706 7,449,417
39 - Interest on Shareholder Loan 4,123,438 9,552,356 8,982,045 8,334,616 7,599,642 6,765,283
40 EBT (PRE-TAX INCOME) 4,076,736 11,474,371 13,350,267 14,434,127 15,314,667 16,821,110
41 - Local Income Taxes (Luannan) 0 0 7,287 9,697 12,352 266,706
42 - Federal Income Taxes (China) 25,451 99,978 1,110,573 1,228,020 1,333,873 2,667,060
43 NET INCOME 4,051,285 11,374,393 12,232,407 13,196,410 13,968,442 13,887,344
44 - Employee Welfare Res. (on-shore) 59,355 156,698 172,368 189,605 208,565 221,079
45 - General Reserve (on-shore) 2,451 5,882 5,882 5,882 5,882 5,882
46 - E'prise Exp. Reserve (on-shore) 2,451 5,882 5,882 5,882 5,882 5,882
47 NET DISTRIBUTABLE EARNINGS US $ 3,987,028 11,205,930 12,048,275 12,995,041 13,748,112 13,654,501
48
49 CASH FLOW STATEMENT
50 Net Distributable Earnings 3,987,028 11,205,930 12,048,275 12,995,041 13,748,112 13,654,501
51 + Depreciation 3,013,732 7,256,393 7,312,643 7,345,456 7,376,706 7,449,417
52 + Interest on Shareholder Loan 4,123,438 9,552,356 8,982,045 8,334,616 7,599,642 6,765,283
53 + T-Line Principal Payments from NCPGC 289,406 729,302 816,818 914,836 1,024,617 1,147,571
54 NET CASH AVAILABLE FOR SHAREHOLDER LOAN 11,413,603 28,743,981 29,159,781 29,589,949 29,749,076 29,016,771
55 - Interest on Shareholder Loan 4,123,438 9,552,356 8,982,045 8,334,616 7,599,642 6,765,283
56 - Principal of Shareholder Loan 1,513,522 3,976,085 4,513,736 5,124,088 5,816,974 6,603,550
57 CASH FLOW AFTER SHAREHOLDER LOAN 5,776,643 15,215,540 15,664,000 16,131,245 16,332,461 15,647,939
58 +/- Debt Service Reserve (Off-Shore) 0 0 0 0 0 0
59 +/- Overhaul Reserve (on-shore) (1,087,500) (1,165,800) (1,249,738) (996,962) (1,000,000) (926,768)
60 NET CASH FLOW 4,689,143 14,049,740 14,414,263 15,134,283 15,332,461 14,721,170
61 UNDISTRIBUTABLE CASH FLOW (702,115) (2,843,810) (2,365,988) (2,139,242) (1,584,348) (1,066,670)
62 PAN-WESTERN DISTRIBUTION US $ 3,505,234 9,851,801 10,592,356 11,424,715 12,086,785 12,004,485
63 LUANNAN COUNTY DISTRIBUTION US $ 481,794 1,354,129 1,455,918 1,570,326 1,661,327 1,650,015
64
65 AFTER-TAX SHAREHOLDER LOAN COVERAGE
66 Debt service Coverage Ratio (DSCR) 2.02 2.12 2.16 2.20 2.22 2.17
67 Minimum DSCR 2.02
68 Average DSCR 2.19
<PAGE>
1 EXHIBIT 12-1 (Continued)
2 CONSOLIDATED INCOME/
3 CASH FLOW STATEMENTS 7 8 9 10 11 12
4 -- BASE CASE UNITS 2005 2006 2007 2008 2009 2010
5
6 PERFORMANCE
7 Net Electrical Output kw hrs/y 546,877,200 546,877,200 546,877,200 546,877,200 546,877,200 546,877,200
8 Net Steam Production tons/yr 349,680 349,680 349,680 349,680 349,680 349,680
9 Net Hot Water Production tons/yr 131,400 131,400 131,400 131,400 131,400 131,400
10
11 PRICING
12 Pre-VAT Electric Energy Price US$/kw h 0.096 0.099 0.102 0.106 0.111 0.114
13 Steam Price US$/ton 8.448 8.702 8.963 9.232 9.416 9.605
14 Hot Water Price US$/ton 7.821 8.056 8.298 8.547 8.718 8.892
15
16 REVENUES
17 Electric Energy Revenue 52,490,315 53,972,291 55,835,920 57,978,501 60,732,794 62,118,770
18 Steam Revenue 2,954,258 3,042,886 3,134,172 3,228,197 3,292,761 3,358,617
19 Hot Water Revenue 1,027,744 1,058,576 1,090,333 1,123,043 1,145,504 1,168,414
20 T-Line Interest Payments from NCPGC 871,960 717,726 544,985 351,514 134,827 0
21 Interest Income (On-shore Reserves) 708,593 726,564 702,898 831,817 762,081 797,495
22 TOTAL OPERATING REVENUES US $ 58,052,869 59,518,043 61,308,309 63,513,072 66,067,968 67,443,296
23
24 OPERATING EXPENSES
25 Coal Delivered 15,119,594 15,724,378 16,353,353 17,007,487 17,687,786 18,395,298
26 Water Usage 552,074 585,198 620,310 657,529 683,830 711,183
27 Supplies, Spare Parts, Consumable 2,408,536 2,553,049 2,706,231 2,868,605 2,983,350 3,102,684
28 Utilities 510,043 540,646 573,084 607,469 631,768 657,039
29 Project Management Fees & Expenses 1,007,937 1,038,175 1,069,321 1,101,400 1,134,442 1,168,476
30 Other Labor & Management Costs 3,997,517 4,187,745 4,387,899 4,598,529 4,764,395 4,936,354
31 Administrative Costs 3,231,145 3,370,243 3,516,043 3,668,900 3,795,706 3,926,986
32 Real Estate Tax 129,580 129,580 129,580 129,580 129,580 129,580
33 Stamp Tax 21,478 22,139 22,924 23,801 24,858 25,512
34 TOTAL OPERATING EXPENSES US $ 26,977,904 28,151,153 29,378,746 30,663,300 31,835,715 33,053,111
35
36 INCOME STATEMENT
37 EBITDA 31,074,966 31,366,890 31,929,563 32,849,772 34,232,253 34,390,184
38 - Depreciation 7,521,010 7,597,012 7,676,663 7,724,401 7,760,137 7,847,617
39 - Interest on Shareholder Loan 5,818,101 4,742,840 3,522,181 2,136,463 572,814 0
40 EBT (PRE-TAX INCOME) 17,735,855 19,027,038 20,730,719 22,988,907 25,899,302 26,542,567
41 - Local Income Taxes (Luannan) 282,583 304,204 332,133 369,316 776,979 796,277
42 - Federal Income Taxes (China) 2,825,826 3,042,039 3,321,328 3,693,165 4,156,112 4,257,354
43 NET INCOME 14,627,446 15,680,795 17,077,258 18,926,426 20,966,211 21,488,936
44 - Employee Welfare Res. (on-shore) 234,344 248,404 263,309 279,107 290,272 301,882
45 - General Reserve (on-shore) 5,882 5,882 5,882 5,882 5,882 5,882
46 - E'prise Exp. Reserve (on-shore) 5,882 5,882 5,882 5,882 5,882 5,882
47 NET DISTRIBUTABLE EARNINGS US $ 14,381,338 15,420,625 16,802,184 18,635,554 20,664,175 21,175,289
48
49 CASH FLOW STATEMENT
50 Net Distributable Earnings 14,381,338 15,420,625 16,802,184 18,635,554 20,664,175 21,175,289
51 + Depreciation 7,521,010 7,597,012 7,676,663 7,724,401 7,760,137 7,847,617
52 + Interest on Shareholder Loan 5,818,101 4,742,840 3,522,181 2,136,463 572,814 0
53 + T-Line Principal Payments from NCPGC 1,285,279 1,439,513 1,612,254 1,805,725 1,123,562 0
54 NET CASH AVAILABLE FOR SHAREHOLDER LOAN 29,005,728 29,199,990 29,613,283 30,302,143 17,570,401 29,022,906
55 - Interest on Shareholder Loan 5,818,101 4,742,840 3,522,181 2,136,463 572,814 0
56 - Principal of Shareholder Loan 7,496,490 8,510,173 9,660,929 10,967,290 7,070,163 0
57 CASH FLOW AFTER SHAREHOLDER LOAN 15,691,137 15,946,978 16,430,172 17,198,390 9,927,424 29,022,906
58 +/- Debt Service Reserve (Off-Shore) 0 0 4,000,000 0 0 0
59 +/- Overhaul Reserve (on-shore) (993,495) (1,041,183) (1,091,160) (0) (1,143,536) (1,198,425)
60 NET CASH FLOW 14,697,642 14,905,794 19,339,012 17,198,390 8,783,888 27,824,481
61 UNDISTRIBUTABLE CASH FLOW (316,304) 514,831 (2,536,828) 1,437,164 (670,000) (6,649,192)
62 PAN-WESTERN DISTRIBUTION US $ 12,643,491 13,557,191 14,771,802 16,383,626 18,167,108 18,616,458
63 LUANNAN COUNTY DISTRIBUTION US $ 1,737,847 1,863,435 2,030,383 2,251,928 2,497,067 2,558,830
64
65 AFTER-TAX SHAREHOLDER LOAN COVERAGE
66 Debt service Coverage Ratio (DSCR) 2.18 2.20 2.25 2.31 2.30
67 Minimum DSCR 2.02
68 Average DSCR 2.19
<PAGE>
1 EXHIBIT 12-1 (Continued)
2 CONSOLIDATED INCOME/
3 CASH FLOW STATEMENTS 13 14 15 16 17 18
4 -- BASE CASE UNITS 2011 2012 2013 2014 2015 2016
5
6 PERFORMANCE
7 Net Electrical Output kw hrs/y 546,877,200 546,877,200 546,877,200 546,877,200 546,877,200 546,877,200
8 Net Steam Production tons/yr 349,680 349,680 349,680 349,680 349,680 349,680
9 Net Hot Water Production tons/yr 131,400 131,400 131,400 131,400 131,400 131,400
10
11 PRICING
12 Pre-VAT Electric Energy Price US$/kw h 0.108 0.111 0.113 0.116 0.118 0.121
13 Steam Price US$/ton 9.797 9.993 10.193 10.397 10.605 10.817
14 Hot Water Price US$/ton 9.070 9.251 9.436 9.625 9.818 10.014
15
16 REVENUES
17 Electric Energy Revenue 59,024,783 60,526,304 61,982,143 63,394,575 64,765,964 66,098,766
18 Steam Revenue 3,425,789 3,494,305 3,564,191 3,635,475 3,708,184 3,782,348
19 Hot Water Revenue 1,191,782 1,215,618 1,239,930 1,264,729 1,290,024 1,315,824
20 T-Line Interest Payments from NCPGC 0 0 0 0 0 0
21 Interest Income (On-shore Reserves) 1,131,786 1,467,767 1,673,718 1,695,550 1,786,134 1,807,558
22 TOTAL OPERATING REVENUES US $ 64,774,140 66,703,993 68,459,982 69,990,329 71,550,305 73,004,496
23
24 OPERATING EXPENSES
25 Coal Delivered 19,131,110 19,896,354 20,692,208 21,519,896 22,380,692 23,275,920
26 Water Usage 739,631 769,216 799,984 831,984 865,263 899,874
27 Supplies, Spare Parts, Consumable 3,226,791 3,355,863 3,490,097 3,629,701 3,774,889 3,925,885
28 Utilities 683,320 710,653 739,079 768,643 799,388 831,364
29 Project Management Fees & Expenses 1,203,530 1,239,636 1,276,825 1,315,130 1,354,583 1,395,221
30 Other Labor & Management Costs 5,114,633 5,299,468 5,491,104 5,689,794 5,895,804 6,109,407
31 Administrative Costs 4,062,900 4,203,617 4,349,308 4,500,153 4,656,337 4,818,055
32 Real Estate Tax 129,580 129,580 129,580 129,580 129,580 129,580
33 Stamp Tax 24,832 25,540 26,244 26,944 27,643 28,342
34 TOTAL OPERATING EXPENSES US $ 34,316,327 35,629,926 36,994,428 38,411,825 39,884,181 41,413,647
35
36 INCOME STATEMENT
37 EBITDA 30,457,813 31,074,068 31,465,554 31,578,505 31,666,124 31,590,849
38 - Depreciation 7,939,297 5,383,615 1,747,421 1,773,584 1,785,975 1,819,575
39 - Interest on Shareholder Loan 0 0 0 0 0 0
40 EBT (PRE-TAX INCOME) 22,518,517 25,690,453 29,718,133 29,804,921 29,880,149 29,771,274
41 - Local Income Taxes (Luannan) 675,555 770,714 891,544 894,148 896,404 893,138
42 - Federal Income Taxes (China) 3,668,418 4,194,684 4,859,044 4,875,943 4,893,891 4,881,361
43 NET INCOME 18,174,543 20,725,055 23,967,545 24,034,830 24,089,853 23,996,775
44 - Employee Welfare Res. (on-shore) 313,958 326,516 339,577 353,160 367,286 381,978
45 - General Reserve (on-shore) 5,882 5,882 5,882 5,882 5,882 5,882
46 - E'prise Exp. Reserve (on-shore) 5,882 5,882 5,882 5,882 5,882 5,882
47 NET DISTRIBUTABLE EARNINGS US $ 17,848,820 20,386,774 23,616,204 23,669,906 23,710,802 23,603,033
48
49 CASH FLOW STATEMENT
50 Net Distributable Earnings 17,848,820 20,386,774 23,616,204 23,669,906 23,710,802 23,603,033
51 + Depreciation 7,939,297 5,383,615 1,747,421 1,773,584 1,785,975 1,819,575
52 + Interest on Shareholder Loan 0 0 0 0 0 0
53 + T-Line Principal Payments from NCPGC 0 0 0 0 0 0
54 NET CASH AVAILABLE FOR SHAREHOLDER LOAN 25,788,117 25,770,389 25,363,625 25,443,490 25,496,778 25,422,608
55 - Interest on Shareholder Loan 0 0 0 0 0 0
56 - Principal of Shareholder Loan 0 0 0 0 0 0
57 CASH FLOW AFTER SHAREHOLDER LOAN 25,788,117 25,770,389 25,363,625 25,443,490 25,496,778 25,422,608
58 +/- Debt Service Reserve (Off-Shore) 0 0 0 0 0 0
59 +/- Overhaul Reserve (on-shore) (1,255,950) (1,301,164) (1,348,006) (0) (1,396,534) (1,446,809)
60 NET CASH FLOW 24,532,167 24,469,225 24,015,619 25,443,490 24,100,244 23,975,798
61 UNDISTRIBUTABLE CASH FLOW (6,683,347) (4,082,451) (399,415) (1,773,584) (389,441) (372,766)
62 PAN-WESTERN DISTRIBUTION US $ 15,691,962 17,923,228 20,762,412 20,809,625 20,845,580 20,750,833
63 LUANNAN COUNTY DISTRIBUTION US $ 2,156,859 2,463,546 2,853,791 2,860,281 2,865,223 2,852,200
64
65 AFTER-TAX SHAREHOLDER LOAN COVERAGE
66 Debt service Coverage Ratio (DSCR)
67 Minimum DSCR 2.02
68 Average DSCR 2.19
<PAGE>
1 EXHIBIT 12-1 (Continued)
2 CONSOLIDATED INCOME/
3 CASH FLOW STATEMENTS 19 20 21
4 -- BASE CASE UNITS 2017 2018 2019 Total
5 (7 months)
6 PERFORMANCE
7 Net Electrical Output kw hrs/y 546,877,200 546,877,200 319,011,700 10,937,544,000
8 Net Steam Production tons/yr 349,680 349,680 203,980 6,993,600
9 Net Hot Water Production tons/yr 131,400 131,400 76,650 2,628,000
10
11 PRICING
12 Pre-VAT Electric Energy Price US$/kw h 0.122 0.124 0.124 n/a
13 Steam Price US$/ton 11.033 11.254 11.254 n/a
14 Hot Water Price US$/ton 10.214 10.418 10.418 n/a
15
16 REVENUES
17 Electric Energy Revenue 66,870,713 67,713,091 39,499,303 1,146,932,749
18 Steam Revenue 3,857,995 3,935,155 2,295,507 64,900,636
19 Hot Water Revenue 1,342,140 1,368,983 798,574 22,577,991
20 T-Line Interest Payments from NCPGC 0 0 0 9,383,509
21 Interest Income (On-shore Reserves) 1,828,201 1,849,776 1,092,460 20,851,700
22 TOTAL OPERATING REVENUES US $ 73,899,050 74,867,004 43,685,843 1,264,646,585
23
24 OPERATING EXPENSES
25 Coal Delivered 24,206,957 25,175,235 14,685,554 358,510,541
26 Water Usage 935,869 973,303 590,471 13,589,617
27 Supplies, Spare Parts, Consumable 4,082,920 4,246,237 2,576,050 59,287,510
28 Utilities 864,618 899,203 545,517 12,555,002
29 Project Management Fees & Expenses 1,437,078 1,480,190 889,347 23,079,070
30 Other Labor & Management Costs 6,330,887 6,560,539 3,923,382 95,516,551
31 Administrative Costs 4,985,506 5,158,896 3,067,171 76,352,576
32 Real Estate Tax 129,580 129,580 75,588 2,591,599
33 Stamp Tax 28,883 29,458 17,184 477,877
34 TOTAL OPERATING EXPENSES US $ 43,002,297 44,652,641 26,370,264 641,960,343
35
36 INCOME STATEMENT
37 EBITDA 30,896,753 30,214,364 17,315,579 622,686,242
38 - Depreciation 1,889,167 1,970,734 1,149,595 111,340,150
39 - Interest on Shareholder Loan 0 0 0 62,149,779
40 EBT (PRE-TAX INCOME) 29,007,585 28,243,630 16,165,985 449,196,313
41 - Local Income Taxes (Luannan) 870,228 847,309 484,980 10,381,553
42 - Federal Income Taxes (China) 4,770,111 4,658,709 2,424,898 66,987,838
43 NET INCOME 23,367,246 22,737,612 13,256,107 371,826,922
44 - Employee Welfare Res. (on-shore) 397,257 413,147 250,642 5,768,509
45 - General Reserve (on-shore) 5,882 5,882 3,431 117,647
46 - E'prise Exp. Reserve (on-shore) 5,882 5,882 3,431 117,647
47 NET DISTRIBUTABLE EARNINGS US $ 22,958,225 22,312,701 12,998,602 365,823,119
48
49 CASH FLOW STATEMENT
50 Net Distributable Earnings 22,958,225 22,312,701 12,998,602 365,823,119
51 + Depreciation 1,889,167 1,970,734 1,149,595 111,340,150
52 + Interest on Shareholder Loan 0 0 0 62,149,779
53 + T-Line Principal Payments from NCPGC 0 0 0 12,188,882
54 NET CASH AVAILABLE FOR SHAREHOLDER LOAN 24,847,392 24,283,434 14,148,197 538,951,644
55 - Interest on Shareholder Loan 0 0 0 62,149,779
56 - Principal of Shareholder Loan 0 0 0 71,253,000
57 CASH FLOW AFTER SHAREHOLDER LOAN 24,847,392 24,283,434 14,148,197 405,548,865
58 +/- Debt Service Reserve (Off-Shore) 0 0 0 4,000,000
59 +/- Overhaul Reserve (on-shore) (1,498,894) 1,447,145 0 (18,694,780)
60 NET CASH FLOW 23,348,498 25,730,580 14,148,197 390,854,085
61 UNDISTRIBUTABLE CASH FLOW (390,273) (3,417,879) (1,149,595) (37,581,253)
62 PAN-WESTERN DISTRIBUTION US $ 20,183,944 19,616,425 11,427,846 321,616,907
63 LUANNAN COUNTY DISTRIBUTION US $ 2,774,281 2,696,276 1,570,756 44,206,212
64
65 AFTER-TAX SHAREHOLDER LOAN COVERAGE
66 Debt service Coverage Ratio (DSCR) n/a
67 Minimum DSCR 2.02
68 Average DSCR 2.19
</TABLE>
1 EXHIBIT 12-2
<TABLE>
<CAPTION>
2 JV1 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 1 2 3 4 5 6
4 % OF 1999 2000 2001 2002 2003 2004
5 TOTAL (5 months)
<S> <C> <C> <C> <C> <C> <C> <C>
6 REVENUES
7 Electric Energy Revenue 50% 8,375,620 21,433,943 22,817,766 23,845,837 24,809,225 25,681,865
8 Steam Revenue 0% 0 0 0 0 0 0
9 Hot Water Revenue 0% 0 0 0 0 0 0
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserve 25% 0 23,173 65,653 102,612 142,672 163,215
12 TOTAL OPERATING REVENUES 8,375,620 21,457,116 22,883,420 23,948,449 24,951,897 25,845,080
13
14 OPERATING EXPENSES
15 Coal Delivered 50% 1,989,122 5,251,283 5,776,411 6,354,052 6,989,457 7,269,035
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 33% 203,347 536,837 590,520 649,572 714,530 757,401
18 Utilities 45% 58,133 153,472 168,819 185,701 204,271 216,528
19 Project Management Fees 30% 105,516 260,837 268,662 276,722 285,023 293,574
20 Other Labor & Management 30% 371,009 950,374 1,015,448 1,086,131 1,162,956 1,218,701
21 Administrative Costs 30% 297,917 754,392 796,759 842,370 891,521 929,525
22 Real Estate and Stamp Taxes 40% 24,239 58,626 59,103 59,509 59,914 60,204
23 TOTAL OPERATING EXPENSES 3,049,284 7,965,819 8,675,722 9,454,057 10,307,672 10,744,968
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Payment (to JV 3) (754,653) (1,777,426) (1,723,315) (1,658,588) (1,584,472) (1,504,289)
27 Water Usage Payment (to JV 3) (565,270) (1,452,849) (1,557,487) (1,671,369) (1,795,384) (1,884,071)
28 Site Lease Payment (to JV 4) (111,111) (266,667) (266,667) (266,667) (266,667) (266,667)
29 TOTAL (1,431,034) (3,496,941) (3,547,468) (3,596,624) (3,646,522) (3,655,027)
30
31 INCOME STATEMENT
32 EBITDA 3,895,302 9,994,356 10,660,230 10,897,768 10,997,703 11,445,085
33 - Depreciation 33% 994,531 2,394,610 2,413,172 2,424,000 2,434,313 2,458,308
34 - Interest on S/H Loan 1,034,722 2,397,038 2,253,926 2,091,462 1,907,030 1,697,658
35 EBT (Pre-tax Income) 1,866,048 5,202,708 5,993,132 6,382,306 6,656,360 7,289,119
36 - Local Income Taxes (Luannan) 0 0 0 0 0 109,337
37 - Federal Income Taxes (China) 0 0 449,485 478,673 499,227 1,093,368
38 Net Income 1,866,048 5,202,708 5,543,647 5,903,633 6,157,133 6,086,415
39 - Employee Welfare Res. (on-shore) 40% 23,742 62,679 68,947 75,842 83,426 88,432
40 - General Reserve (on-shore) 40% 980 2,353 2,353 2,353 2,353 2,353
41 - E'prise Exp. Reserve (on-shore) 40% 980 2,353 2,353 2,353 2,353 2,353
42 NET DISTRIBUTABLE EARNINGS 1,840,346 5,135,323 5,469,994 5,823,085 6,069,001 5,993,277
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 1,840,346 5,135,323 5,469,994 5,823,085 6,069,001 5,993,277
46 + Depreciation 33% 994,531 2,394,610 2,413,172 2,424,000 2,434,313 2,458,308
47 + Interest on S/H Loan 1,034,722 2,397,038 2,253,926 2,091,462 1,907,030 1,697,658
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 3,869,599 9,926,971 10,137,092 10,338,548 10,410,344 10,149,243
50 - Interest on S/H Loan (1,034,722) (2,397,038) (2,253,926) (2,091,462) (1,907,030) (1,697,658)
51 - Principal of S/H Loan (379,798) (997,746) (1,132,662) (1,285,822) (1,459,693) (1,657,074)
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (362,500) (388,600) (416,579) (332,321) (333,333) (308,923)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 0 0 0
55 +/- Undistributable Cash Flow (252,233) (1,008,264) (863,931) (805,857) (641,287) (492,311)
56 PAN-WESTERN DISTRIBUTION US$ 1,617,957 4,514,769 4,808,997 5,119,421 5,335,621 5,269,047
57 LUANNAN COUNTY DISTRIBUTION US$ 222,388 620,555 660,996 703,664 733,381 724,230
<PAGE>
1 EXHIBIT 12-2 (Continued)
2 JV1 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 7 8 9 10 11 12
4 % OF 2005 2006 2007 2008 2009 2010
5 TOTAL
6 REVENUES
7 Electric Energy Revenue 50% 26,245,158 26,986,145 27,917,960 28,989,250 30,366,397 31,059,385
8 Steam Revenue 0% 0 0 0 0 0 0
9 Hot Water Revenue 0% 0 0 0 0 0 0
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserve 25% 177,148 181,641 175,725 207,954 190,520 199,374
12 TOTAL OPERATING REVENUES 26,422,306 27,167,787 28,093,685 29,197,204 30,556,918 31,258,759
13
14 OPERATING EXPENSES
15 Coal Delivered 50% 7,559,797 7,862,189 8,176,676 8,503,743 8,843,893 9,197,649
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 33% 802,845 851,016 902,077 956,202 994,450 1,034,228
18 Utilities 45% 229,519 243,291 257,888 273,361 284,296 295,667
19 Project Management Fees 30% 302,381 311,453 320,796 330,420 340,333 350,543
20 Other Labor & Management 30% 1,277,370 1,339,125 1,404,139 1,472,594 1,526,076 1,581,534
21 Administrative Costs 30% 969,343 1,011,073 1,054,813 1,100,670 1,138,712 1,178,096
22 Real Estate and Stamp Taxes 40% 60,423 60,688 61,002 61,352 61,775 62,037
23 TOTAL OPERATING EXPENSES 11,201,679 11,678,834 12,177,392 12,698,343 13,189,534 13,699,753
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Payment (to JV 3) (1,412,101) (1,306,887) (1,186,742) (1,045,815) (884,866) (833,809)
27 Water Usage Payment (to JV 3) (1,977,509) (2,075,965) (2,179,722) (2,289,081) (2,373,288) (2,460,644)
28 Site Lease Payment (to JV 4) (266,667) (266,667) (266,667) (266,667) (266,667) (266,667)
29 TOTAL (3,656,277) (3,649,519) (3,633,131) (3,601,563) (3,524,821) (3,561,120)
30
31 INCOME STATEMENT
32 EBITDA 11,564,350 11,839,434 12,283,163 12,897,299 13,842,562 13,997,886
33 - Depreciation 33% 2,481,933 2,507,014 2,533,299 2,549,052 2,560,845 2,589,714
34 - Interest on S/H Loan 1,459,976 1,190,153 883,845 536,117 143,740 0
35 EBT (Pre-tax Income) 7,622,441 8,142,267 8,866,019 9,812,129 11,137,977 11,408,172
36 - Local Income Taxes (Luannan) 114,337 122,134 132,990 147,182 334,139 342,245
37 - Federal Income Taxes (China) 1,143,366 1,221,340 1,329,903 1,471,819 1,670,697 1,711,226
38 Net Income 6,364,738 6,798,793 7,403,126 8,193,128 9,133,141 9,354,701
39 - Employee Welfare Res. (on-shore) 40% 93,738 99,362 105,323 111,643 116,109 120,753
40 - General Reserve (on-shore) 40% 2,353 2,353 2,353 2,353 2,353 2,353
41 - E'prise Exp. Reserve (on-shore) 40% 2,353 2,353 2,353 2,353 2,353 2,353
42 NET DISTRIBUTABLE EARNINGS 6,266,295 6,694,725 7,293,097 8,076,779 9,012,327 9,229,243
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 6,266,295 6,694,725 7,293,097 8,076,779 9,012,327 9,229,243
46 + Depreciation 33% 2,481,933 2,507,014 2,533,299 2,549,052 2,560,845 2,589,714
47 + Interest on S/H Loan 1,459,976 1,190,153 883,845 536,117 143,740 0
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 10,208,204 10,391,892 10,710,240 11,161,949 11,716,912 11,818,956
50 - Interest on S/H Loan (1,459,976) (1,190,153) (883,845) (536,117) (143,740) (0)
51 - Principal of S/H Loan (1,881,145) (2,135,516) (2,424,283) (2,752,097) (1,774,164) 0
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (331,165) (347,061) (363,720) (0) (381,179) (399,475)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 1,000,000 0 0 0
55 +/- Undistributable Cash Flow (269,623) (24,437) (745,296) 203,044 (405,502) (2,190,239)
56 PAN-WESTERN DISTRIBUTION US$ 5,509,073 5,885,732 6,411,796 7,100,778 7,923,274 8,113,977
57 LUANNAN COUNTY DISTRIBUTION US$ 757,222 808,993 881,301 976,001 1,089,053 1,115,265
<PAGE>
1 EXHIBIT 12-2 (Continued)
2 JV1 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 13 14 15 16 17 18
4 % OF 2011 2012 2013 2014 2015 2016
5 TOTAL
6 REVENUES
7 Electric Energy Revenue 50% 29,512,392 30,263,152 30,991,072 31,697,288 32,382,982 33,049,383
8 Steam Revenue 0% 0 0 0 0 0 0
9 Hot Water Revenue 0% 0 0 0 0 0 0
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserve 25% 282,946 366,942 418,430 423,888 446,533 451,890
12 TOTAL OPERATING REVENUES 29,795,338 30,630,094 31,409,501 32,121,175 32,829,515 33,501,273
13
14 OPERATING EXPENSES
15 Coal Delivered 50% 9,565,555 9,948,177 10,346,104 10,759,948 11,190,346 11,637,960
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 33% 1,075,597 1,118,621 1,163,366 1,209,900 1,258,296 1,308,628
18 Utilities 45% 307,494 319,794 332,586 345,889 359,725 374,114
19 Project Management Fees 30% 361,059 371,891 383,047 394,539 406,375 418,566
20 Other Labor & Management 30% 1,639,043 1,698,679 1,760,523 1,824,658 1,891,170 1,960,148
21 Administrative Costs 30% 1,218,870 1,261,085 1,304,792 1,350,046 1,396,901 1,445,417
22 Real Estate and Stamp Taxes 40% 61,765 62,048 62,329 62,610 62,889 63,169
23 TOTAL OPERATING EXPENSES 14,229,382 14,780,294 15,352,748 15,947,590 16,565,703 17,208,001
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Payment (to JV 3) (843,550) (572,009) (185,663) (188,443) (189,760) (193,330)
27 Water Usage Payment (to JV 3) (2,551,266) (2,645,278) (2,742,811) (2,843,996) (2,948,972) (3,057,884)
28 Site Lease Payment (to JV 4) (266,667) (266,667) (266,667) (266,667) (266,667) (266,667)
29 TOTAL (3,661,483) (3,483,954) (3,195,141) (3,299,106) (3,405,399) (3,517,881)
30
31 INCOME STATEMENT
32 EBITDA 11,904,473 12,365,845 12,861,613 12,874,479 12,858,414 12,775,390
33 - Depreciation 33% 2,619,968 1,776,593 576,649 585,283 589,372 600,460
34 - Interest on S/H Loan 0 0 0 0 0 0
35 EBT (Pre-tax Income) 9,284,505 10,589,252 12,284,964 12,289,197 12,269,042 12,174,930
36 - Local Income Taxes (Luannan) 278,535 317,678 368,549 368,676 368,071 365,248
37 - Federal Income Taxes (China) 1,392,676 1,588,388 1,842,745 1,843,380 1,840,356 1,826,240
38 Net Income 7,613,294 8,683,187 10,073,670 10,077,141 10,060,614 9,983,443
39 - Employee Welfare Res. (on-shore) 40% 125,583 130,606 135,831 141,264 146,914 152,791
40 - General Reserve (on-shore) 40% 2,353 2,353 2,353 2,353 2,353 2,353
41 - E'prise Exp. Reserve (on-shore) 40% 2,353 2,353 2,353 2,353 2,353 2,353
42 NET DISTRIBUTABLE EARNINGS 7,483,005 8,547,874 9,933,134 9,931,172 9,908,994 9,825,946
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 7,483,005 8,547,874 9,933,134 9,931,172 9,908,994 9,825,946
46 + Depreciation 33% 2,619,968 1,776,593 576,649 585,283 589,372 600,460
47 + Interest on S/H Loan 0 0 0 0 0 0
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 10,102,973 10,324,467 10,509,783 10,516,454 10,498,366 10,426,406
50 - Interest on S/H Loan (0) (0) (0) (0) (0) (0)
51 - Principal of S/H Loan 0 0 0 0 0 0
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (418,650) (433,721) (449,335) (0) (465,511) (482,270)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 0 0 0
55 +/- Undistributable Cash Flow (2,201,318) (1,342,872) (127,314) (585,283) (123,861) (118,190)
56 PAN-WESTERN DISTRIBUTION US$ 6,578,756 7,514,946 8,732,810 8,731,085 8,711,587 8,638,575
57 LUANNAN COUNTY DISTRIBUTION US$ 904,249 1,032,929 1,200,324 1,200,087 1,197,407 1,187,371
<PAGE>
1 EXHIBIT 12-2 (Continued)
2 JV1 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 19 20 21
4 % OF 2017 2018 2019 TOTAL
5 TOTAL (7 months)
6 REVENUES
7 Electric Energy Revenue 50% 33,435,357 33,856,545 19,749,652 573,466,374
8 Steam Revenue 0% 0 0 0 0
9 Hot Water Revenue 0% 0 0 0 0
10 T-Line Interest Payments 0% 0 0 0 0
11 Interest Income on On-Shore Reserve 25% 457,050 462,444 273,115 5,212,925
12 TOTAL OPERATING REVENUES 33,892,407 34,318,989 20,022,767 578,679,299
13
14 OPERATING EXPENSES
15 Coal Delivered 50% 12,103,478 12,587,618 7,342,777 179,255,271
16 Water Usage 0% 0 0 0 0
17 Supplies, Spare Parts, Consumable 33% 1,360,973 1,415,412 858,683 19,762,503
18 Utilities 45% 389,078 404,641 245,482 5,649,751
19 Project Management Fees 30% 431,123 444,057 266,804 6,923,721
20 Other Labor & Management 30% 2,031,685 2,105,877 1,260,562 30,577,802
21 Administrative Costs 30% 1,495,652 1,547,669 920,151 22,905,773
22 Real Estate and Stamp Taxes 40% 63,385 63,615 37,109 1,227,790
23 TOTAL OPERATING EXPENSES 17,875,375 18,568,889 10,931,569 266,302,610
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Payment (to JV 3) (200,724) (209,390) (122,144) (18,377,978)
27 Water Usage Payment (to JV 3) (3,170,882) (3,288,119) (1,975,612) (47,507,458)
28 Site Lease Payment (to JV 4) (266,667) (266,667) (155,556) (5,333,333)
29 TOTAL (3,638,273) (3,764,177) (2,253,312) (71,218,769)
30
31 INCOME STATEMENT
32 EBITDA 12,378,759 11,985,923 6,837,885 241,157,920
33 - Depreciation 33% 623,425 650,342 379,366 36,742,250
34 - Interest on S/H Loan 0 0 0 15,595,667
35 EBT (Pre-tax Income) 11,755,334 11,335,581 6,458,519 188,820,004
36 - Local Income Taxes (Luannan) 352,660 340,067 193,756 4,255,604
37 - Federal Income Taxes (China) 1,763,300 1,700,337 968,778 25,835,302
38 Net Income 9,639,374 9,295,177 5,295,986 158,729,098
39 - Employee Welfare Res. (on-shore) 40% 158,903 165,259 100,257 2,307,403
40 - General Reserve (on-shore) 40% 2,353 2,353 1,373 47,059
41 - E'prise Exp. Reserve (on-shore) 40% 2,353 2,353 1,373 47,059
42 NET DISTRIBUTABLE EARNINGS 9,475,765 9,125,212 5,192,984 156,327,576
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 9,475,765 9,125,212 5,192,984 156,327,576
46 + Depreciation 33% 623,425 650,342 379,366 36,742,250
47 + Interest on S/H Loan 0 0 0 15,595,667
48 + T-Line Principal Payments 0% 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 10,099,191 9,775,554 5,572,350 208,665,493
50 - Interest on S/H Loan (0) (0) (0) (15,595,667)
51 - Principal of S/H Loan 0 0 0 (17,880,000)
52 ADJUSTMENTS 0
53 +/- Overhaul Reserve (on-shore) 33% (499,631) 482,382 0 (6,231,593)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 1,000,000
55 +/- Undistributable Cash Flow (123,794) (1,132,724) (379,366) (13,630,656)
56 PAN-WESTERN DISTRIBUTION US$ 8,330,710 8,022,518 4,565,461 $ 137,436,890
57 LUANNAN COUNTY DISTRIBUTION US$ 1,145,055 1,102,694 627,522 $ 18,890,687
</TABLE>
1 EXHIBIT 12-3
<TABLE>
<CAPTION>
2 JV2 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 1 2 3 4 5 6
4 % of 1999 2000 2001 2002 2003 2004
5 Total (5 months)
<S> <C> <C> <C> <C> <C> <C> <C>
6 REVENUES
7 Electric Energy Revenue 50% 8,375,620 21,433,943 22,817,766 23,845,837 24,809,225 25,681,865
8 Steam Revenue 0% 0 0 0 0 0 0
9 Hot Water Revenue 0% 0 0 0 0 0 0
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserve 25% 0 23,173 65,653 102,612 142,672 163,215
12 TOTAL OPERATING REVENUES 8,375,620 21,457,116 22,883,420 23,948,449 24,951,897 25,845,080
13
14 OPERATING EXPENSES
15 Coal Delivered 50% 1,989,122 5,251,283 5,776,411 6,354,052 6,989,457 7,269,035
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 33% 203,347 536,837 590,520 649,572 714,530 757,401
18 Utilities 45% 58,133 153,472 168,819 185,701 204,271 216,528
19 Project Management Fees 30% 105,516 260,837 268,662 276,722 285,023 293,574
20 Other Labor & Management 30% 371,009 950,374 1,015,448 1,086,131 1,162,956 1,218,701
21 Administrative Costs 30% 297,917 754,392 796,759 842,370 891,521 929,525
22 Real Estate and Stamp Taxes 40% 24,239 58,626 59,103 59,509 59,914 60,204
23 TOTAL OPERATING EXPENSES 3,049,284 7,965,819 8,675,722 9,454,057 10,307,672 10,744,968
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Payment (to JV 3) (754,653) (1,777,426) (1,723,315) (1,658,588) (1,584,472) (1,504,289)
27 Water Usage Payment (to JV 3) (565,270) (1,452,849) (1,557,487) (1,671,369) (1,795,384) (1,884,071)
28 Site Lease Payment (to JV 4) (111,111) (266,667) (266,667) (266,667) (266,667) (266,667)
29 TOTAL (1,431,034) (3,496,941) (3,547,468) (3,596,624) (3,646,522) (3,655,027)
30
31 INCOME STATEMENT
32 EBITDA 3,895,302 9,994,356 10,660,230 10,897,768 10,997,703 11,445,085
33 - Depreciation 33% 994,531 2,394,610 2,413,172 2,424,000 2,434,313 2,458,308
34 - Interest on S/H Loan 1,034,722 2,397,038 2,253,926 2,091,462 1,907,030 1,697,658
35 EBT (Pre-tax Income) 1,866,048 5,202,708 5,993,132 6,382,306 6,656,360 7,289,119
36 - Local Income Taxes (Luannan) 0 0 0 0 0 109,337
37 - Federal Income Taxes (China) 0 0 449,485 478,673 499,227 1,093,368
38 Net Income 1,866,048 5,202,708 5,543,647 5,903,633 6,157,133 6,086,415
39 - Employee Welfare Res. (on-shore) 40% 23,742 62,679 68,947 75,842 83,426 88,432
40 - General Reserve (on-shore) 40% 980 2,353 2,353 2,353 2,353 2,353
41 - E'prise Exp. Reserve (on-shore) 40% 980 2,353 2,353 2,353 2,353 2,353
42 NET DISTRIBUTABLE EARNINGS 1,840,346 5,135,323 5,469,994 5,823,085 6,069,001 5,993,277
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 1,840,346 5,135,323 5,469,994 5,823,085 6,069,001 5,993,277
46 + Depreciation 33% 994,531 2,394,610 2,413,172 2,424,000 2,434,313 2,458,308
47 + Interest on S/H Loan 1,034,722 2,397,038 2,253,926 2,091,462 1,907,030 1,697,658
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 3,869,599 9,926,971 10,137,092 10,338,548 10,410,344 10,149,243
50 - Interest on S/H Loan (1,034,722) (2,397,038) (2,253,926) (2,091,462) (1,907,030) (1,697,658)
51 - Principal of S/H Loan (379,798) (997,746) (1,132,662) (1,285,822) (1,459,693) (1,657,074)
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (362,500) (388,600) (416,579) (332,321) (333,333) (308,923)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 0 0 0
55 +/- Undistributable Cash Flow (252,233) (1,008,264) (863,931) (805,857) (641,287) (492,311)
56 PAN-WESTERN DISTRIBUTION US$ 1,617,957 4,514,769 4,808,997 5,119,421 5,335,621 5,269,047
57 LUANNAN COUNTY DISTRIBUTION US$ 222,388 620,555 660,996 703,664 733,381 724,230
<PAGE>
1 EXHIBIT 12-3 (Continued)
2 JV2 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 7 8 9 10 11 12
4 % of 2005 2006 2007 2008 2009 2010
5 Total
6 REVENUES
7 Electric Energy Revenue 50% 26,245,158 26,986,145 27,917,960 28,989,250 30,366,397 31,059,385
8 Steam Revenue 0% 0 0 0 0 0 0
9 Hot Water Revenue 0% 0 0 0 0 0 0
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserve 25% 177,148 181,641 175,725 207,954 190,520 199,374
12 TOTAL OPERATING REVENUES 26,422,306 27,167,787 28,093,685 29,197,204 30,556,918 31,258,759
13
14 OPERATING EXPENSES
15 Coal Delivered 50% 7,559,797 7,862,189 8,176,676 8,503,743 8,843,893 9,197,649
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 33% 802,845 851,016 902,077 956,202 994,450 1,034,228
18 Utilities 45% 229,519 243,291 257,888 273,361 284,296 295,667
19 Project Management Fees 30% 302,381 311,453 320,796 330,420 340,333 350,543
20 Other Labor & Management 30% 1,277,370 1,339,125 1,404,139 1,472,594 1,526,076 1,581,534
21 Administrative Costs 30% 969,343 1,011,073 1,054,813 1,100,670 1,138,712 1,178,096
22 Real Estate and Stamp Taxes 40% 60,423 60,688 61,002 61,352 61,775 62,037
23 TOTAL OPERATING EXPENSES 11,201,679 11,678,834 12,177,392 12,698,343 13,189,534 13,699,753
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Payment (to JV 3) (1,412,101) (1,306,887) (1,186,742) (1,045,815) (884,866) (833,809)
27 Water Usage Payment (to JV 3) (1,977,509) (2,075,965) (2,179,722) (2,289,081) (2,373,288) (2,460,644)
28 Site Lease Payment (to JV 4) (266,667) (266,667) (266,667) (266,667) (266,667) (266,667)
29 TOTAL (3,656,277) (3,649,519) (3,633,131) (3,601,563) (3,524,821) (3,561,120)
30
31 INCOME STATEMENT
32 EBITDA 11,564,350 11,839,434 12,283,163 12,897,299 13,842,562 13,997,886
33 - Depreciation 33% 2,481,933 2,507,014 2,533,299 2,549,052 2,560,845 2,589,714
34 - Interest on S/H Loan 1,459,976 1,190,153 883,845 536,117 143,740 0
35 EBT (Pre-tax Income) 7,622,441 8,142,267 8,866,019 9,812,129 11,137,977 11,408,172
36 - Local Income Taxes (Luannan) 114,337 122,134 132,990 147,182 334,139 342,245
37 - Federal Income Taxes (China) 1,143,366 1,221,340 1,329,903 1,471,819 1,670,697 1,711,226
38 Net Income 6,364,738 6,798,793 7,403,126 8,193,128 9,133,141 9,354,701
39 - Employee Welfare Res. (on-shore) 40% 93,738 99,362 105,323 111,643 116,109 120,753
40 - General Reserve (on-shore) 40% 2,353 2,353 2,353 2,353 2,353 2,353
41 - E'prise Exp. Reserve (on-shore) 40% 2,353 2,353 2,353 2,353 2,353 2,353
42 NET DISTRIBUTABLE EARNINGS 6,266,295 6,694,725 7,293,097 8,076,779 9,012,327 9,229,243
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 6,266,295 6,694,725 7,293,097 8,076,779 9,012,327 9,229,243
46 + Depreciation 33% 2,481,933 2,507,014 2,533,299 2,549,052 2,560,845 2,589,714
47 + Interest on S/H Loan 1,459,976 1,190,153 883,845 536,117 143,740 0
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 10,208,204 10,391,892 10,710,240 11,161,949 11,716,912 11,818,956
50 - Interest on S/H Loan (1,459,976) (1,190,153) (883,845) (536,117) (143,740) (0)
51 - Principal of S/H Loan (1,881,145) (2,135,516) (2,424,283) (2,752,097) (1,774,164) 0
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (331,165) (347,061) (363,720) (0) (381,179) (399,475)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 1,000,000 0 0 0
55 +/- Undistributable Cash Flow (269,623) (24,437) (745,296) 203,044 (405,502) (2,190,239)
56 PAN-WESTERN DISTRIBUTION US$ 5,509,073 5,885,732 6,411,796 7,100,778 7,923,274 8,113,977
57 LUANNAN COUNTY DISTRIBUTION US$ 757,222 808,993 881,301 976,001 1,089,053 1,115,265
<PAGE>
1 EXHIBIT 12-3 (Continued)
2 JV2 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 13 14 15 16 17 18
4 % of 2011 2012 2013 2014 2015 2016
5 Total
6 REVENUES
7 Electric Energy Revenue 50% 29,512,392 30,263,152 30,991,072 31,697,288 32,382,982 33,049,383
8 Steam Revenue 0% 0 0 0 0 0 0
9 Hot Water Revenue 0% 0 0 0 0 0 0
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserve 25% 282,946 366,942 418,430 423,888 446,533 451,890
12 TOTAL OPERATING REVENUES 29,795,338 30,630,094 31,409,501 32,121,175 32,829,515 33,501,273
13
14 OPERATING EXPENSES
15 Coal Delivered 50% 9,565,555 9,948,177 10,346,104 10,759,948 11,190,346 11,637,960
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 33% 1,075,597 1,118,621 1,163,366 1,209,900 1,258,296 1,308,628
18 Utilities 45% 307,494 319,794 332,586 345,889 359,725 374,114
19 Project Management Fees 30% 361,059 371,891 383,047 394,539 406,375 418,566
20 Other Labor & Management 30% 1,639,043 1,698,679 1,760,523 1,824,658 1,891,170 1,960,148
21 Administrative Costs 30% 1,218,870 1,261,085 1,304,792 1,350,046 1,396,901 1,445,417
22 Real Estate and Stamp Taxes 40% 61,765 62,048 62,329 62,610 62,889 63,169
23 TOTAL OPERATING EXPENSES 14,229,382 14,780,294 15,352,748 15,947,590 16,565,703 17,208,001
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Payment (to JV 3) (843,550) (572,009) (185,663) (188,443) (189,760) (193,330)
27 Water Usage Payment (to JV 3) (2,551,266) (2,645,278) (2,742,811) (2,843,996) (2,948,972) (3,057,884)
28 Site Lease Payment (to JV 4) (266,667) (266,667) (266,667) (266,667) (266,667) (266,667)
29 TOTAL (3,661,483) (3,483,954) (3,195,141) (3,299,106) (3,405,399) (3,517,881)
30
31 INCOME STATEMENT
32 EBITDA 11,904,473 12,365,845 12,861,613 12,874,479 12,858,414 12,775,390
33 - Depreciation 33% 2,619,968 1,776,593 576,649 585,283 589,372 600,460
34 - Interest on S/H Loan 0 0 0 0 0 0
35 EBT (Pre-tax Income) 9,284,505 10,589,252 12,284,964 12,289,197 12,269,042 12,174,930
36 - Local Income Taxes (Luannan) 278,535 317,678 368,549 368,676 368,071 365,248
37 - Federal Income Taxes (China) 1,392,676 1,588,388 1,842,745 1,843,380 1,840,356 1,826,240
38 Net Income 7,613,294 8,683,187 10,073,670 10,077,141 10,060,614 9,983,443
39 - Employee Welfare Res. (on-shore) 40% 125,583 130,606 135,831 141,264 146,914 152,791
40 - General Reserve (on-shore) 40% 2,353 2,353 2,353 2,353 2,353 2,353
41 - E'prise Exp. Reserve (on-shore) 40% 2,353 2,353 2,353 2,353 2,353 2,353
42 NET DISTRIBUTABLE EARNINGS 7,483,005 8,547,874 9,933,134 9,931,172 9,908,994 9,825,946
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 7,483,005 8,547,874 9,933,134 9,931,172 9,908,994 9,825,946
46 + Depreciation 33% 2,619,968 1,776,593 576,649 585,283 589,372 600,460
47 + Interest on S/H Loan 0 0 0 0 0 0
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 10,102,973 10,324,467 10,509,783 10,516,454 10,498,366 10,426,406
50 - Interest on S/H Loan (0) (0) (0) (0) (0) (0)
51 - Principal of S/H Loan 0 0 0 0 0 0
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (418,650) (433,721) (449,335) (0) (465,511) (482,270)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 0 0 0
55 +/- Undistributable Cash Flow (2,201,318) (1,342,872) (127,314) (585,283) (123,861) (118,190)
56 PAN-WESTERN DISTRIBUTION US$ 6,578,756 7,514,946 8,732,810 8,731,085 8,711,587 8,638,575
57 LUANNAN COUNTY DISTRIBUTION US$ 904,249 1,032,929 1,200,324 1,200,087 1,197,407 1,187,371
<PAGE>
1 EXHIBIT 12-3 (Continued)
2 JV2 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 19 20 21
4 % of 2017 2018 2019 Total
5 Total (7 months)
6 REVENUES
7 Electric Energy Revenue 50% 33,435,357 33,856,545 19,749,652 573,466,374
8 Steam Revenue 0% 0 0 0 0
9 Hot Water Revenue 0% 0 0 0 0
10 T-Line Interest Payments 0% 0 0 0 0
11 Interest Income on On-Shore Reserve 25% 457,050 462,444 273,115 5,212,925
12 TOTAL OPERATING REVENUES 33,892,407 34,318,989 20,022,767 578,679,299
13
14 OPERATING EXPENSES
15 Coal Delivered 50% 12,103,478 12,587,618 7,342,777 179,255,271
16 Water Usage 0% 0 0 0 0
17 Supplies, Spare Parts, Consumable 33% 1,360,973 1,415,412 858,683 19,762,503
18 Utilities 45% 389,078 404,641 245,482 5,649,751
19 Project Management Fees 30% 431,123 444,057 266,804 6,923,721
20 Other Labor & Management 30% 2,031,685 2,105,877 1,260,562 30,577,802
21 Administrative Costs 30% 1,495,652 1,547,669 920,151 22,905,773
22 Real Estate and Stamp Taxes 40% 63,385 63,615 37,109 1,227,790
23 TOTAL OPERATING EXPENSES 17,875,375 18,568,889 10,931,569 266,302,610
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Payment (to JV 3) (200,724) (209,390) (122,144) (18,377,978)
27 Water Usage Payment (to JV 3) (3,170,882) (3,288,119) (1,975,612) (47,507,458)
28 Site Lease Payment (to JV 4) (266,667) (266,667) (155,556) (5,333,333)
29 TOTAL (3,638,273) (3,764,177) (2,253,312) (71,218,769)
30
31 INCOME STATEMENT
32 EBITDA 12,378,759 11,985,923 6,837,885 241,157,920
33 - Depreciation 33% 623,425 650,342 379,366 36,742,250
34 - Interest on S/H Loan 0 0 0 15,595,667
35 EBT (Pre-tax Income) 11,755,334 11,335,581 6,458,519 188,820,004
36 - Local Income Taxes (Luannan) 352,660 340,067 193,756 4,255,604
37 - Federal Income Taxes (China) 1,763,300 1,700,337 968,778 25,835,302
38 Net Income 9,639,374 9,295,177 5,295,986 158,729,098
39 - Employee Welfare Res. (on-shore) 40% 158,903 165,259 100,257 2,307,403
40 - General Reserve (on-shore) 40% 2,353 2,353 1,373 47,059
41 - E'prise Exp. Reserve (on-shore) 40% 2,353 2,353 1,373 47,059
42 NET DISTRIBUTABLE EARNINGS 9,475,765 9,125,212 5,192,984 156,327,576
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 9,475,765 9,125,212 5,192,984 156,327,576
46 + Depreciation 33% 623,425 650,342 379,366 36,742,250
47 + Interest on S/H Loan 0 0 0 15,595,667
48 + T-Line Principal Payments 0% 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 10,099,191 9,775,554 5,572,350 208,665,493
50 - Interest on S/H Loan (0) (0) (0) (15,595,667)
51 - Principal of S/H Loan 0 0 0 (17,880,000)
52 ADJUSTMENTS 0
53 +/- Overhaul Reserve (on-shore) 33% (499,631) 482,382 0 (6,231,593)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 1,000,000
55 +/- Undistributable Cash Flow (123,794) (1,132,724) (379,366) (13,630,656)
56 PAN-WESTERN DISTRIBUTION US$ 8,330,710 8,022,518 4,565,461 $ 137,436,890
57 LUANNAN COUNTY DISTRIBUTION US$ 1,145,055 1,102,694 627,522 $ 18,890,687
</TABLE>
1 EXHIBIT 12-4
<TABLE>
<CAPTION>
2 JV3 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 1 2 3 4 5 6
4 % OF 1999 2000 2001 2002 2003 2004
5 TOTAL (5 months)
<S> <C> <C> <C> <C> <C> <C> <C>
6 REVENUES
7 Electric Energy Revenue 0% 0 0 0 0 0 0
8 Steam Revenue 50% 477,283 1,202,752 1,262,890 1,326,034 1,392,336 1,434,106
9 Hot Water Revenue 50% 166,040 418,420 439,341 461,308 484,373 498,905
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserves 25% 0 23,173 65,653 102,612 142,672 163,215
12 TOTAL OPERATING REVENUES 643,322 1,644,345 1,767,884 1,889,954 2,019,381 2,096,226
13
14 OPERATING EXPENSES
15 Coal Delivered 0% 0 0 0 0 0 0
16 Water Usage 100% 139,831 369,154 406,069 446,676 491,344 520,824
17 Supplies, Spare Parts, Consumable 33% 203,347 536,837 590,520 649,572 714,530 757,401
18 Utilities 10% 12,919 34,105 37,515 41,267 45,394 48,117
19 Project Management Fees 30% 105,516 260,837 268,662 276,722 285,023 293,574
20 Other Labor & Management 30% 371,009 950,374 1,015,448 1,086,131 1,162,956 1,218,701
21 Administrative Costs 30% 297,917 754,392 796,759 842,370 891,521 929,525
22 Real Estate and Stamp Taxes 10% 6,060 14,656 14,776 14,877 14,979 15,051
23 TOTAL OPERATING EXPENSES 1,136,599 2,920,354 3,129,749 3,357,615 3,605,746 3,783,193
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Revenue (from JV 1 & 2) 1,509,307 3,554,852 3,446,629 3,317,176 3,168,943 3,008,578
27 Water Usage Revenue (from JV 1 & 2) 1,130,539 2,905,698 3,114,973 3,342,738 3,590,767 3,768,142
28 Site Lease Payment (to JV 4) (111,111) (266,667) (266,667) (266,667) (266,667) (266,667)
29 TOTAL 2,528,735 6,193,883 6,294,936 6,393,247 6,493,044 6,510,054
30
31 INCOME STATEMENT
32 EBITDA 2,035,458 4,917,874 4,933,071 4,925,586 4,906,679 4,823,086
33 - Depreciation 25% 753,433 1,814,098 1,828,161 1,836,364 1,844,176 1,862,354
34 - Interest on S/H Loan 1,022,222 2,368,080 2,226,697 2,066,196 1,883,992 1,677,150
35 EBT (Pre-tax Income) 259,803 735,695 878,213 1,023,026 1,178,510 1,283,582
36 - Local Income Taxes (Luannan) 0 0 0 0 0 19,254
37 - Federal Income Taxes (China) 0 0 65,866 76,727 88,388 192,537
38 Net Income 259,803 735,695 812,347 946,299 1,090,122 1,071,791
39 - Employee Welfare Res. (on-shore) 10% 5,936 15,670 17,237 18,960 20,857 22,108
40 - General Reserve (on-shore) 10% 245 588 588 588 588 588
41 - E'prise Exp. Reserve (on-shore) 10% 245 588 588 588 588 588
42 NET DISTRIBUTABLE EARNINGS 253,377 718,849 793,933 926,162 1,068,089 1,048,507
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 253,377 718,849 793,933 926,162 1,068,089 1,048,507
46 + Depreciation 25% 753,433 1,814,098 1,828,161 1,836,364 1,844,176 1,862,354
47 + Interest on S/H Loan 1,022,222 2,368,080 2,226,697 2,066,196 1,883,992 1,677,150
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 2,029,033 4,901,028 4,848,791 4,828,722 4,796,257 4,588,011
50 - Interest on S/H Loan (1,022,222) (2,368,080) (2,226,697) (2,066,196) (1,883,992) (1,677,150)
51 - Principal of S/H Loan (375,210) (985,693) (1,118,979) (1,270,289) (1,442,059) (1,637,055)
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (362,500) (388,600) (416,579) (332,321) (333,333) (308,923)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 0 0 0
55 +/- Undistributable Cash Flow (15,723) (439,806) (292,602) (233,754) (68,784) 83,624
56 PAN-WESTERN DISTRIBUTION US$ 222,759 631,983 697,994 814,244 939,021 921,805
57 LUANNAN COUNTY DISTRIBUTION US$ 30,618 86,866 95,939 111,918 129,068 126,702
<PAGE>
1 EXHIBIT 12-4 (Continued)
2 JV3 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 7 8 9 10 11 12
4 % OF 2005 2006 2007 2008 2009 2010
5 TOTAL
6 REVENUES
7 Electric Energy Revenue 0% 0 0 0 0 0 0
8 Steam Revenue 50% 1,477,129 1,521,443 1,567,086 1,614,099 1,646,381 1,679,308
9 Hot Water Revenue 50% 513,872 529,288 545,167 561,522 572,752 584,207
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserves 25% 177,148 181,641 175,725 207,954 190,520 199,374
12 TOTAL OPERATING REVENUES 2,168,149 2,232,372 2,287,977 2,383,574 2,409,653 2,462,889
13
14 OPERATING EXPENSES
15 Coal Delivered 0% 0 0 0 0 0 0
16 Water Usage 100% 552,074 585,198 620,310 657,529 683,830 711,183
17 Supplies, Spare Parts, Consumable 33% 802,845 851,016 902,077 956,202 994,450 1,034,228
18 Utilities 10% 51,004 54,065 57,308 60,747 63,177 65,704
19 Project Management Fees 30% 302,381 311,453 320,796 330,420 340,333 350,543
20 Other Labor & Management 30% 1,277,370 1,339,125 1,404,139 1,472,594 1,526,076 1,581,534
21 Administrative Costs 30% 969,343 1,011,073 1,054,813 1,100,670 1,138,712 1,178,096
22 Real Estate and Stamp Taxes 10% 15,106 15,172 15,250 15,338 15,444 15,509
23 TOTAL OPERATING EXPENSES 3,970,124 4,167,102 4,374,695 4,593,500 4,762,021 4,936,796
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Revenue (from JV 1 & 2) 2,824,202 2,613,774 2,373,483 2,091,630 1,769,732 1,667,619
27 Water Usage Revenue (from JV 1 & 2) 3,955,018 4,151,930 4,359,444 4,578,162 4,746,577 4,921,287
28 Site Lease Payment (to JV 4) (266,667) (266,667) (266,667) (266,667) (266,667) (266,667)
29 TOTAL 6,512,553 6,499,037 6,466,261 6,403,125 6,249,642 6,322,239
30
31 INCOME STATEMENT
32 EBITDA 4,710,579 4,564,307 4,379,543 4,193,199 3,897,275 3,848,332
33 - Depreciation 25% 1,880,253 1,899,253 1,919,166 1,931,100 1,940,034 1,961,904
34 - Interest on S/H Loan 1,442,338 1,175,775 873,168 529,641 142,004 0
35 EBT (Pre-tax Income) 1,387,988 1,489,279 1,587,210 1,732,458 1,815,237 1,886,427
36 - Local Income Taxes (Luannan) 20,820 22,339 23,808 25,987 54,457 56,593
37 - Federal Income Taxes (China) 208,198 223,392 238,082 259,869 272,286 282,964
38 Net Income 1,158,970 1,243,548 1,325,320 1,446,603 1,488,494 1,546,870
39 - Employee Welfare Res. (on-shore) 10% 23,434 24,840 26,331 27,911 29,027 30,188
40 - General Reserve (on-shore) 10% 588 588 588 588 588 588
41 - E'prise Exp. Reserve (on-shore) 10% 588 588 588 588 588 588
42 NET DISTRIBUTABLE EARNINGS 1,134,359 1,217,531 1,297,813 1,417,516 1,458,291 1,515,506
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 1,134,359 1,217,531 1,297,813 1,417,516 1,458,291 1,515,506
46 + Depreciation 25% 1,880,253 1,899,253 1,919,166 1,931,100 1,940,034 1,961,904
47 + Interest on S/H Loan 1,442,338 1,175,775 873,168 529,641 142,004 0
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 4,456,950 4,292,560 4,090,146 3,878,257 3,540,328 3,477,410
50 - Interest on S/H Loan (1,442,338) (1,175,775) (873,168) (529,641) (142,004) (0)
51 - Principal of S/H Loan (1,858,420) (2,109,717) (2,394,996) (2,718,850) (1,752,731) 0
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (331,165) (347,061) (363,720) (0) (381,179) (399,475)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 1,000,000 0 0 0
55 +/- Undistributable Cash Flow 309,333 557,525 (160,450) 787,750 193,876 (1,562,429)
56 PAN-WESTERN DISTRIBUTION US$ 997,283 1,070,404 1,140,985 1,246,222 1,282,070 1,332,371
57 LUANNAN COUNTY DISTRIBUTION US$ 137,076 147,127 156,828 171,293 176,220 183,134
<PAGE>
1 Exhibit 12-4 (Continued)
2 JV3 Income and Cash Flow Statements
3 -- Base Case 13 14 15 16 17 18
4 % OF 2011 2012 2013 2014 2015 2016
5 TOTAL
6 REVENUES
7 Electric Energy Revenue 0% 0 0 0 0 0 0
8 Steam Revenue 50% 1,712,894 1,747,152 1,782,095 1,817,737 1,854,092 1,891,174
9 Hot Water Revenue 50% 595,891 607,809 619,965 632,364 645,012 657,912
10 T-Line Interest Payments 0% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserves 25% 282,946 366,942 418,430 423,888 446,533 451,890
12 TOTAL OPERATING REVENUES 2,591,732 2,721,903 2,820,490 2,873,989 2,945,637 3,000,975
13
14 OPERATING EXPENSES
15 Coal Delivered 0% 0 0 0 0 0 0
16 Water Usage 100% 739,631 769,216 799,984 831,984 865,263 899,874
17 Supplies, Spare Parts, Consumable 33% 1,075,597 1,118,621 1,163,366 1,209,900 1,258,296 1,308,628
18 Utilities 10% 68,332 71,065 73,908 76,864 79,939 83,136
19 Project Management Fees 30% 361,059 371,891 383,047 394,539 406,375 418,566
20 Other Labor & Management 30% 1,639,043 1,698,679 1,760,523 1,824,658 1,891,170 1,960,148
21 Administrative Costs 30% 1,218,870 1,261,085 1,304,792 1,350,046 1,396,901 1,445,417
22 Real Estate and Stamp Taxes 10% 15,441 15,512 15,582 15,652 15,722 15,792
23 TOTAL OPERATING EXPENSES 5,117,972 5,306,069 5,501,203 5,703,644 5,913,667 6,131,561
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Revenue (from JV 1 & 2) 1,687,101 1,144,018 371,327 376,887 379,520 386,660
27 Water Usage Revenue (from JV 1 & 2) 5,102,531 5,290,557 5,485,621 5,687,991 5,897,945 6,115,769
28 Site Lease Payment (to JV 4) (266,667) (266,667) (266,667) (266,667) (266,667) (266,667)
29 Total 6,522,965 6,167,908 5,590,281 5,798,211 6,010,798 6,235,762
30
31 INCOME STATEMENT
32 EBITDA 3,996,725 3,583,743 2,909,568 2,968,557 3,042,768 3,105,176
33 - Depreciation 25% 1,984,824 1,345,904 436,855 443,396 446,494 454,894
34 - Interest on S/H Loan 0 0 0 0 0 0
35 EBT (Pre-tax Income) 2,011,901 2,237,839 2,472,713 2,525,161 2,596,274 2,650,282
36 - Local Income Taxes (Luannan) 60,357 67,135 74,181 75,755 77,888 79,508
37 - Federal Income Taxes (China) 301,785 335,676 370,907 378,774 389,441 397,542
38 Net Income 1,649,758 1,835,028 2,027,624 2,070,632 2,128,945 2,173,232
39 - Employee Welfare Res. (on-shore) 10% 31,396 32,652 33,958 35,316 36,729 38,198
40 - General Reserve (on-shore) 10% 588 588 588 588 588 588
41 - E'prise Exp. Reserve (on-shore) 10% 588 588 588 588 588 588
42 NET DISTRIBUTABLE EARNINGS 1,617,186 1,801,200 1,992,490 2,034,139 2,091,040 2,133,857
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 1,617,186 1,801,200 1,992,490 2,034,139 2,091,040 2,133,857
46 + Depreciation 25% 1,984,824 1,345,904 436,855 443,396 446,494 454,894
47 + Interest on S/H Loan 0 0 0 0 0 0
48 + T-Line Principal Payments 0% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 3,602,010 3,147,103 2,429,346 2,477,535 2,537,534 2,588,751
50 - Interest on S/H Loan (0) (0) (0) (0) (0) (0)
51 - Principal of S/H Loan 0 0 0 0 0 0
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 33% (418,650) (433,721) (449,335) (0) (465,511) (482,270)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 0 0 0
55 +/- Undistributable Cash Flow (1,566,174) (912,182) 12,480 (443,396) 19,017 27,376
56 PAN-WESTERN DISTRIBUTION US$ 1,421,765 1,583,542 1,751,717 1,788,333 1,838,358 1,876,001
57 LUANNAN COUNTY DISTRIBUTION US$ 195,421 217,658 240,773 245,806 252,682 257,856
<PAGE>
1 EXHIBIT 12-4 (Continued)
2 JV3 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 19 20 21
4 % OF 2017 2018 2019 TOTAL
5 TOTAL (7 months)
6 REVENUES
7 Electric Energy Revenue 0% 0 0 0 0
8 Steam Revenue 50% 1,928,997 1,967,577 1,147,753 32,450,318
9 Hot Water Revenue 50% 671,070 684,492 399,287 11,288,996
10 T-Line Interest Payments 0% 0 0 0 0
11 Interest Income on On-Shore Reserves 25% 457,050 462,444 273,115 5,212,925
12 TOTAL OPERATING REVENUES 3,057,118 3,114,513 1,820,155 48,952,239
13
14 OPERATING EXPENSES
15 Coal Delivered 0% 0 0 0 0
16 Water Usage 100% 935,869 973,303 590,471 13,589,617
17 Supplies, Spare Parts, Consumable 33% 1,360,973 1,415,412 858,683 19,762,503
18 Utilities 10% 86,462 89,920 54,552 1,255,500
19 Project Management Fees 30% 431,123 444,057 266,804 6,923,721
20 Other Labor & Management 30% 2,031,685 2,105,877 1,260,562 30,577,802
21 Administrative Costs 30% 1,495,652 1,547,669 920,151 22,905,773
22 Real Estate and Stamp Taxes 10% 15,846 15,904 9,277 306,948
23 TOTAL OPERATING EXPENSES 6,357,610 6,592,143 3,960,501 95,321,863
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Revenue (from JV 1 & 2) 401,448 418,781 244,289 36,755,955
27 Water Usage Revenue (from JV 1 & 2) 6,341,764 6,576,239 3,951,224 95,014,916
28 Site Lease Payment (to JV 4) (266,667) (266,667) (155,556) (5,333,333)
29 TOTAL 6,476,545 6,728,353 4,039,957 126,437,538
30
31 INCOME STATEMENT
32 EBITDA 3,176,053 3,250,723 1,899,611 80,067,913
33 - Depreciation 25% 472,292 492,683 287,399 27,835,038
34 - Interest on S/H Loan 0 0 0 15,407,263
35 EBT (Pre-tax Income) 2,703,761 2,758,040 1,612,213 36,825,613
36 - Local Income Taxes (Luannan) 81,113 82,741 48,366 870,303
37 - Federal Income Taxes (China) 405,564 413,706 241,832 5,143,536
38 Net Income 2,217,084 2,261,593 1,322,014 30,811,774
39 - Employee Welfare Res. (on-shore) 10% 39,726 41,315 25,064 576,851
40 - General Reserve (on-shore) 10% 588 588 343 11,765
41 - E'prise Exp. Reserve (on-shore) 10% 588 588 343 11,765
42 NET DISTRIBUTABLE EARNINGS 2,176,182 2,219,102 1,296,264 30,211,393
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 2,176,182 2,219,102 1,296,264 30,211,393
46 + Depreciation 25% 472,292 492,683 287,399 27,835,038
47 + Interest on S/H Loan 0 0 0 15,407,263
48 + T-Line Principal Payments 0% 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 2,648,474 2,711,785 1,583,663 73,453,694
50 - Interest on S/H Loan (0) (0) (0) (15,407,263)
51 - Principal of S/H Loan 0 0 0 (17,664,000)
52 ADJUSTMENTS 0
53 +/- Overhaul Reserve (on-shore) 33% (499,631) 482,382 0 (6,231,593)
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 1,000,000
55 +/- Undistributable Cash Flow 27,340 (975,065) (287,399) (4,939,444)
56 PAN-WESTERN DISTRIBUTION US$ 1,913,211 1,950,944 1,139,623 $ 26,560,636
57 LUANNAN COUNTY DISTRIBUTION US$ 262,971 268,157 156,641 $ 3,650,757
</TABLE>
1 EXHIBIT 12-5
<TABLE>
<CAPTION>
2 JV4 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 1 2 3 4 5 6
4 % OF 1999 2000 2001 2002 2003 2004
5 TOTAL (5 months)
<S> <C> <C> <C> <C> <C> <C> <C>
6 REVENUES
7 Electric Energy Revenue 0% 0 0 0 0 0 0
8 Steam Revenue 50% 477,283 1,202,752 1,262,890 1,326,034 1,392,336 1,434,106
9 Hot Water Revenue 50% 166,040 418,420 439,341 461,308 484,373 498,905
10 T-Line Interest Payments 100% 609,444 1,427,937 1,340,421 1,242,403 1,132,622 1,009,668
11 Interest Income on On-Shore Reserves 25% 0 23,173 65,653 102,612 142,672 163,215
12 TOTAL OPERATING REVENUES 1,252,766 3,072,283 3,108,305 3,132,357 3,152,003 3,105,894
13
14 OPERATING EXPENSES
15 Coal Delivered 0% 0 0 0 0 0 0
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 0% 0 0 0 0 0 0
18 Utilities 0% 0 0 0 0 0 0
19 Project Management Fees 10% 35,172 86,946 89,554 92,241 95,008 97,858
20 Other Labor & Management 10% 57,719 142,682 146,963 151,372 155,913 160,590
21 Administrative Costs 10% 99,306 251,464 265,586 280,790 297,174 309,842
22 Real Estate and Stamp Taxes 10% 6,060 14,656 14,776 14,877 14,979 15,051
23 TOTAL OPERATING EXPENSES 198,257 495,748 516,879 539,280 563,073 583,341
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Revenue 0 0 0 0 0 0
27 Water Usage Revenue 0 0 0 0 0 0
28 Site Lease Payment (from JV 1, 2, & 3) 333,333 800,000 800,000 800,000 800,000 800,000
29 TOTAL 333,333 800,000 800,000 800,000 800,000 800,000
30
31 INCOME STATEMENT
32 EBITDA 1,387,843 3,376,534 3,391,426 3,393,077 3,388,930 3,322,553
33 - Depreciation 9% 271,236 653,075 658,138 661,091 663,904 670,448
34 - Interest on S/H Loan 1,031,771 2,390,200 2,247,497 2,085,496 1,901,590 1,692,816
35 EBT (Pre-tax Income) 84,836 333,259 485,792 646,490 823,437 959,290
36 - Local Income Taxes (Luannan) 0 0 7,287 9,697 12,352 28,779
37 - Federal Income Taxes (China) 25,451 99,978 145,737 193,947 247,031 287,787
38 Net Income 59,385 233,281 332,767 442,845 564,054 642,724
39 - Employee Welfare Res. (on-shore) 10% 5,936 15,670 17,237 18,960 20,857 22,108
40 - General Reserve (on-shore) 10% 245 588 588 588 588 588
41 - E'prise Exp. Reserve (on-shore) 10% 245 588 588 588 588 588
42 NET DISTRIBUTABLE EARNINGS 52,960 216,435 314,354 422,708 542,021 619,440
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 52,960 216,435 314,354 422,708 542,021 619,440
46 + Depreciation 9% 271,236 653,075 658,138 661,091 663,904 670,448
47 + Interest on S/H Loan 1,031,771 2,390,200 2,247,497 2,085,496 1,901,590 1,692,816
48 + T-Line Principal Payments 100% 289,406 729,302 816,818 914,836 1,024,617 1,147,571
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 1,645,372 3,989,013 4,036,807 4,084,132 4,132,132 4,130,274
50 - Interest on S/H Loan (1,031,771) (2,390,200) (2,247,497) (2,085,496) (1,901,590) (1,692,816)
51 - Principal of S/H Loan (378,715) (994,900) (1,129,432) (1,282,155) (1,455,529) (1,652,347)
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 0% 0 0 0 0 0 0
54 +/- Debt Service Reserve (off-shore 25% 0 0 0 0 0 0
55 +/- Undistributable Cash Flow (181,926) (387,477) (345,524) (293,773) (232,991) (165,671)
56 PAN-WESTERN DISTRIBUTION US$ 46,560 190,281 276,367 371,628 476,523 544,586
57 LUANNAN COUNTY DISTRIBUTION US$ 6,400 26,154 37,987 51,080 65,498 74,853
<PAGE>
1 EXHIBIT 12-5 (Continued)
2 JV4 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 7 8 9 10 11 12
4 % OF 2005 2006 2007 2008 2009 2010
5 TOTAL
6 REVENUES
7 Electric Energy Revenue 0% 0 0 0 0 0 0
8 Steam Revenue 50% 1,477,129 1,521,443 1,567,086 1,614,099 1,646,381 1,679,308
9 Hot Water Revenue 50% 513,872 529,288 545,167 561,522 572,752 584,207
10 T-Line Interest Payments 100% 871,960 717,726 544,985 351,514 134,827 0
11 Interest Income on On-Shore Reserves 25% 177,148 181,641 175,725 207,954 190,520 199,374
12 TOTAL OPERATING REVENUES 3,040,109 2,950,098 2,832,962 2,735,089 2,544,480 2,462,889
13
14 OPERATING EXPENSES
15 Coal Delivered 0% 0 0 0 0 0 0
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 0% 0 0 0 0 0 0
18 Utilities 0% 0 0 0 0 0 0
19 Project Management Fees 10% 100,794 103,818 106,932 110,140 113,444 116,848
20 Other Labor & Management 10% 165,408 170,370 175,481 180,746 186,168 191,753
21 Administrative Costs 10% 323,114 337,024 351,604 366,890 379,571 392,699
22 Real Estate and Stamp Taxes 10% 15,106 15,172 15,250 15,338 15,444 15,509
23 TOTAL OPERATING EXPENSES 604,422 626,384 649,268 673,114 694,627 716,808
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Revenue 0 0 0 0 0 0
27 Water Usage Revenue 0 0 0 0 0 0
28 Site Lease Payment (from JV 1, 2, & 3) 800,000 800,000 800,000 800,000 800,000 800,000
29 TOTAL 800,000 800,000 800,000 800,000 800,000 800,000
30
31 INCOME STATEMENT
32 EBITDA 3,235,687 3,123,714 2,983,694 2,861,975 2,649,854 2,546,081
33 - Depreciation 9% 676,891 683,731 690,900 695,196 698,412 706,286
34 - Interest on S/H Loan 1,455,811 1,186,758 881,324 534,588 143,330 0
35 EBT (Pre-tax Income) 1,102,985 1,253,225 1,411,471 1,632,191 1,808,111 1,839,795
36 - Local Income Taxes (Luannan) 33,090 37,597 42,344 48,966 54,243 55,194
37 - Federal Income Taxes (China) 330,895 375,968 423,441 489,657 542,433 551,939
38 Net Income 739,000 839,661 945,685 1,093,568 1,211,435 1,232,663
39 - Employee Welfare Res. (on-shore) 10% 23,434 24,840 26,331 27,911 29,027 30,188
40 - General Reserve (on-shore) 10% 588 588 588 588 588 588
41 - E'prise Exp. Reserve (on-shore) 10% 588 588 588 588 588 588
42 NET DISTRIBUTABLE EARNINGS 714,389 813,644 918,178 1,064,481 1,181,231 1,201,298
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 714,389 813,644 918,178 1,064,481 1,181,231 1,201,298
46 + Depreciation 9% 676,891 683,731 690,900 695,196 698,412 706,286
47 + Interest on S/H Loan 1,455,811 1,186,758 881,324 534,588 143,330 0
48 + T-Line Principal Payments 100% 1,285,279 1,439,513 1,612,254 1,805,725 1,123,562 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 4,132,370 4,123,646 4,102,656 4,099,990 3,146,535 1,907,584
50 - Interest on S/H Loan (1,455,811) (1,186,758) (881,324) (534,588) (143,330) (0)
51 - Principal of S/H Loan (1,875,780) (2,129,424) (2,417,368) (2,744,247) (1,769,104) 0
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 0% 0 0 0 0 0 0
54 +/- Debt Service Reserve (off-shore) 25% 0 0 1,000,000 0 0 0
55 +/- Undistributable Cash Flow (86,391) 6,181 (885,786) 243,326 (52,871) (706,286)
56 PAN-WESTERN DISTRIBUTION US$ 628,062 715,323 807,225 935,848 1,038,491 1,056,133
57 LUANNAN COUNTY DISTRIBUTION US$ 86,327 98,321 110,953 128,632 142,740 145,165
<PAGE>
1 EXHIBIT 12-5 (Continued)
2 JV4 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 13 14 15 16 17 18
4 % OF 2011 2012 2013 2014 2015 2016
5 TOTAL
6 REVENUES
7 Electric Energy Revenue 0% 0 0 0 0 0 0
8 Steam Revenue 50% 1,712,894 1,747,152 1,782,095 1,817,737 1,854,092 1,891,174
9 Hot Water Revenue 50% 595,891 607,809 619,965 632,364 645,012 657,912
10 T-Line Interest Payments 100% 0 0 0 0 0 0
11 Interest Income on On-Shore Reserves 25% 282,946 366,942 418,430 423,888 446,533 451,890
12 TOTAL OPERATING REVENUES 2,591,732 2,721,903 2,820,490 2,873,989 2,945,637 3,000,975
13
14 OPERATING EXPENSES
15 Coal Delivered 0% 0 0 0 0 0 0
16 Water Usage 0% 0 0 0 0 0 0
17 Supplies, Spare Parts, Consumable 0% 0 0 0 0 0 0
18 Utilities 0% 0 0 0 0 0 0
19 Project Management Fees 10% 120,353 123,964 127,682 131,513 135,458 139,522
20 Other Labor & Management 10% 197,506 203,431 209,534 215,820 222,294 228,963
21 Administrative Costs 10% 406,290 420,362 434,931 450,015 465,634 481,806
22 Real Estate and Stamp Taxes 10% 15,441 15,512 15,582 15,652 15,722 15,792
23 TOTAL OPERATING EXPENSES 739,590 763,268 787,729 813,000 839,109 866,083
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Revenue 0 0 0 0 0 0
27 Water Usage Revenue 0 0 0 0 0 0
28 Site Lease Payment (from JV 1, 2, & 3) 800,000 800,000 800,000 800,000 800,000 800,000
29 TOTAL 800,000 800,000 800,000 800,000 800,000 800,000
30
31 INCOME STATEMENT
32 EBITDA 2,652,142 2,758,635 2,832,761 2,860,989 2,906,528 2,934,892
33 - Depreciation 9% 714,537 484,525 157,268 159,623 160,738 163,762
34 - Interest on S/H Loan 0 0 0 0 0 0
35 EBT (Pre-tax Income) 1,937,606 2,274,110 2,675,493 2,701,366 2,745,791 2,771,131
36 - Local Income Taxes (Luannan) 58,128 68,223 80,265 81,041 82,374 83,134
37 - Federal Income Taxes (China) 581,282 682,233 802,648 810,410 823,737 831,339
38 Net Income 1,298,196 1,523,653 1,792,580 1,809,916 1,839,680 1,856,658
39 - Employee Welfare Res. (on-shore) 10% 31,396 32,652 33,958 35,316 36,729 38,198
40 - General Reserve (on-shore) 10% 588 588 588 588 588 588
41 - E'prise Exp. Reserve (on-shore) 10% 588 588 588 588 588 588
42 NET DISTRIBUTABLE EARNINGS 1,265,623 1,489,825 1,757,446 1,773,423 1,801,775 1,817,283
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 1,265,623 1,489,825 1,757,446 1,773,423 1,801,775 1,817,283
46 + Depreciation 9% 714,537 484,525 157,268 159,623 160,738 163,762
47 + Interest on S/H Loan 0 0 0 0 0 0
48 + T-Line Principal Payments 100% 0 0 0 0 0 0
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 1,980,160 1,974,351 1,914,714 1,933,046 1,962,512 1,981,045
50 - Interest on S/H Loan (0) (0) (0) (0) (0) (0)
51 - Principal of S/H Loan 0 0 0 0 0 0
52 ADJUSTMENTS
53 +/- Overhaul Reserve (on-shore) 0% 0 0 0 0 0 0
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 0 0 0
55 +/- Undistributable Cash Flow (714,537) (484,525) (157,268) (159,623) (160,738) (163,762)
56 PAN-WESTERN DISTRIBUTION US$ 1,112,685 1,309,794 1,545,076 1,559,122 1,584,047 1,597,682
57 LUANNAN COUNTY DISTRIBUTION US$ 152,938 180,031 212,370 214,301 217,727 219,601
<PAGE>
1 EXHIBIT 12-5 (Continued)
2 JV4 INCOME AND CASH FLOW STATEMENTS
3 -- BASE CASE 19 20 21
4 % OF 2017 2018 2019 Total
5 TOTAL (7 months)
6 REVENUES
7 Electric Energy Revenue 0% 0 0 0 0
8 Steam Revenue 50% 1,928,997 1,967,577 1,147,753 32,450,318
9 Hot Water Revenue 50% 671,070 684,492 399,287 11,288,996
10 T-Line Interest Payments 100% 0 0 0 9,383,509
11 Interest Income on On-Shore Reserves 25% 457,050 462,444 273,115 5,212,925
12 TOTAL OPERATING REVENUES 3,057,118 3,114,513 1,820,155 58,335,748
13
14 OPERATING EXPENSES
15 Coal Delivered 0% 0 0 0 0
16 Water Usage 0% 0 0 0 0
17 Supplies, Spare Parts, Consumable 0% 0 0 0 0
18 Utilities 0% 0 0 0 0
19 Project Management Fees 10% 143,708 148,019 88,935 2,307,907
20 Other Labor & Management 10% 235,832 242,907 141,696 3,783,146
21 Administrative Costs 10% 498,551 515,890 306,717 7,635,258
22 Real Estate and Stamp Taxes 10% 15,846 15,904 9,277 306,948
23 TOTAL OPERATING EXPENSES 893,937 922,719 546,625 14,033,259
24
25 INTERCOMPANY EXPENSES/REVENUES
26 Water Capacity Revenue 0 0 0 0
27 Water Usage Revenue 0 0 0 0
28 Site Lease Payment (from JV 1, 2, & 3) 800,000 800,000 466,667 16,000,000
29 TOTAL 800,000 800,000 466,667 16,000,000
30
31 INCOME STATEMENT
32 EBITDA 2,963,181 2,991,794 1,740,197 60,302,489
33 - Depreciation 9% 170,025 177,366 103,464 10,020,614
34 - Interest on S/H Loan 0 0 0 15,551,182
35 EBT (Pre-tax Income) 2,793,156 2,814,427 1,636,734 34,730,693
36 - Local Income Taxes (Luannan) 83,795 84,433 49,102 1,000,042
37 - Federal Income Taxes (China) 837,947 844,328 245,510 10,173,698
38 Net Income 1,871,415 1,885,666 1,342,121 23,556,953
39 - Employee Welfare Res. (on-shore) 10% 39,726 41,315 25,064 576,851
40 - General Reserve (on-shore) 10% 588 588 343 11,765
41 - E'prise Exp. Reserve (on-shore) 10% 588 588 343 11,765
42 NET DISTRIBUTABLE EARNINGS 1,830,513 1,843,175 1,316,371 22,956,573
43
44 CASH FLOW STATEMENT
45 Net Distributable Earnings 1,830,513 1,843,175 1,316,371 22,956,573
46 + Depreciation 9% 170,025 177,366 103,464 10,020,614
47 + Interest on S/H Loan 0 0 0 15,551,182
48 + T-Line Principal Payments 100% 0 0 0 12,188,882
49 CASH AVAILABLE FOR SHAREHOLDER LOAN 2,000,538 2,020,541 1,419,834 60,717,251
50 - Interest on S/H Loan (0) (0) (0) (15,551,182)
51 - Principal of S/H Loan 0 0 0 (17,829,000)
52 ADJUSTMENTS 0
53 +/- Overhaul Reserve (on-shore) 0% 0 0 0 0
54 +/- Debt Service Reserve (off-shore) 25% 0 0 0 1,000,000
55 +/- Undistributable Cash Flow (170,025) (177,366) (103,464) (5,380,496)
56 PAN-WESTERN DISTRIBUTION US$ 1,609,313 1,620,445 1,157,300 $ 20,182,491
57 LUANNAN COUNTY DISTRIBUTION US$ 221,200 222,730 159,071 $ 2,774,081
</TABLE>
[PARSONS BRINCKERHOFF ENERGY SERVICES, INC. LETTERHEAD]
PARSONS BRINCKERHOFF ENERGY SERVICES, INC.
Officer's Certificate
I, R. J. Bednarz, of Parsons Brinckerhoff Energy Services, Inc.
DO HEREBY CERTIFY that:
Since April 11, 1997, no event affecting our report entitled
"2x50 MW Coal-Fired Power Plant at Luannan, China" dated April
11, 1997 (the "Engineer's Report") or the matters referred to
therein has occurred (i) which makes untrue or incorrect in any
material respect, as the date hereof, any information or
statement contained in the Engineer's Report or in the Prospectus
relating to the offering of 12-1/2% Registered Senior Secured
Notes due 2004 by Panda Global Energy Company (the "Prospectus")
under the captions "Summary - Independent Engineers' and
Consultants' Reports - Consolidating Financial Analyst's Pro
Forma Report," Summary - Independent Engineers' and Consultants'
Reports - Luannan Engineering Report," and Independent Engineers
and Consultants - Luannan Facility" in the Prospectus or (ii)
which is not reflected in the Prospectus but should be reflected
therein in order to make the statements and information contained
in the Engineer's Report or in the Prospectus under the captions
set forth above, in the light of the circumstances under which
they were made, not misleading.
WITNESS my hand this 7th day of August 1997.
By: /s/
Name:
Title:
APPENDIX E
REVIEW OF THE
COAL SUPPLY ARRANGEMENTS
FOR
THE LUANNAN POWER PROJECT
OF
PANDA ENERGY INTERNATIONAL, INC.
April 11, 1997
This copy of our report was prepared for inclusion in the
Offering Circular relating to the offering by Panda Global Energy
Company of its Senior Secured Notes due 2004 and does not include
the listed appendices. (See Table of Contents).
REVIEW OF THE COAL SUPPLY ARRANGEMENTS FOR
THE LUANNAN POWER PROJECT OF PANDA ENERGY INTERNATIONAL, INC.
PREFACE
The data contained in this report is based primarily on verbal
communication which was translated from Chinese to English and
vice versa. The only hard data Marston saw was in the form of
Preliminary Feasibility Studies for the two new shaft and mine
areas to be constructed and one mine plan showing the initial
development work and drill hole locations. Other data given to
Marston regarding coal quality is contained in the attached
appendices.
The Observations and Conclusions given here are drawn from
discussions with people in responsible positions, as set out in
the following list.
1.Luannan County Government Vice Magistrate Li He
2.Tangshan Municipal Coal Mine Industry Bureau, Manager Han Wen Xu
3.Kailuan Coal Mine Administration, Deputy Director Yang Zhong
4.Qianjiaying Coal Mine, Chief Engineer Zhang Pu Tian
5.Linguantun Coal Mine, Chief Engineer Yao Yaoguang
6.LeTing Coal Mine, Vice Manager Xu Zi Li Engineer Tao Zhi Hong
7.Chang Li Coal Mine, Manager Zhang Zuo Xiang
8.Luannan Coal Mine, Manager Du Yang Fang Engineer Gao Guo Bao
9.Zunhua Coal Mine, Vice Manager Liu Qing Hua
We were accompanied by Mr. Xue Shu Xing and Mr. Zhao (former
Luannan Mine Manager) who provided general information and
comments on operations in the Tangshan area.
TABLE OF CONTENTS
PAGE
1.0 SUMMARY AND CONCLUSIONS 1-1
2.0 BACKGROUND 2-1
3.0 BASIC DATA PROVIDED BY PANDA 3-1
4.0 COAL PRODUCTION AND RESERVES 4-1
5.0 COAL QUALITY 5-1
6.0 COAL TRANSPORT 6-1
7.0 PANDA FUEL SUPPLY STRATEGY 7-1
This copy of the report does not incorporate the appendices
listed below which include the Field Notes taken by Larry Pituley
during his China Site Visit (Appendix 1) and copies of Data
provided by Panda Energy International, Inc. which is listed in
Section 3.0 of this report (Appendix 2).
APPENDICES
APPENDIX 1 - Field Notes
APPENDIX 2 - Data Provided by Panda Energy International, Inc.
1.0 SUMMARY AND CONCLUSIONS
Following are Marston's observations and conclusions with regard
to coal reserves, coal quality and reliability of coal supply and
coal transportation in the Tangshan Region of Hebei Province, The
Peoples Republic of China, as a fuel supply for the proposed
Luannan power plant. This report has been prepared for use in
the Offering Circular relating to the offering by Panda Global
Energy Company of its Senior Secured Notes due 2004. These
conclusions are subject to the limitations and constraints under
which this review was conducted and should be judged and used
accordingly:
Overall Conclusion
Although this project can not be assessed by the usual Western
standards because the data to do such an assessment is not
readily available, it is reasonable to believe that a coal
resource of the appropriate quality is available, at a locally
competitive price in sufficient quantity to operate Panda's
proposed Luannan Power plant successfully, taking into
consideration the local environment. The fuel supply strategy,
coal supply agreements and the coal transportation agreement are
appropriate for the conditions and situation as it exists in
China. Given that cost of the fuel supply is a pass-through
arrangement in the Power Purchase Agreement, the risk exposure
for the project will be minimal in terms of the delivered fuel
price.
Reserves
Marston believes that the remaining coal reserves in the Tangshan
coal field are adequate to provide a long-term supply even though
the area has been mined for more than 100 years. The reserves may
be overstated but at 7.6 billion tonnes even a 50% error would
still leave ample reserves for the 20 year time frame Panda is
concerned about. The expectation with reserves, in Marstons'
opinion, is that in 20 years the remaining reserves will be
deeper and more expensive to mine, rather than be in short
supply.
The Chinese government does not permit the disclosure of the
methods for calculating coal reserves. Even if the methods and
standards were made known, the provinces and local coal regions
do not necessarily conform to the central government's standards
and regulations. Disclosure that the local agencies have their
own standards would not be politically astute. The Cultural
Revolution (1966 to 1976) destroyed a lot of the old records and
discouraged constructive work. Records kept during the Cultural
Revolution were poor to non-existent.
By Western standards, Chinese mine operators do not have the
funds to do extensive drilling and geologic assessment in most
cases. The local attitude is that the coal seams in the region
are fairly consistent and the general geologic structure, though
complex, is well known and understood.
The two mines sinking new shafts have had feasibility studies
done by the Provincial Capital Coal Mine Institute. The two
studies had different formats but they appeared to be fairly
detailed.
The large tonnage Kailuan mines are mining in deeper coal
reserves. They are generally 600-meters or greater in depth. At
those depths, only limited drilling is done to confirm the
presence of coal seams. This is evidenced by the plans observed
for the development of one of the smaller mines. The smaller
mines are working shallower structures or have re-entered old,
large-scale mines to clean up the leavings. Some of the smaller
mines are now going after some coal which is in excess of 600
meters in depth.
Quality
Marston believes Panda has a good understanding of what the coal
quality range is going to be for the coals delivered to the
Luannan power plant from the mines in the Tangshan Region. It is
important to design the power plant stockpile and feed system to
cope with the quality variability and to establish operating
procedures for managing the expected variability. Panda is aware
of these needs and has initiated control systems to handle it. It
is not realistic to expect the system in the Tangshan Region,
which is producing 21 million tonnes per year, to change because
of a single customer using 450,000 tonnes per year.
Coal product quality will vary. One hundred and seventeen years
of mining coal in this area has taught the operators that a given
coal seam within a geologic structure is usually very consistent.
However, the amount of out of seam dilution will vary
significantly. In recent times, China has had a shortage of coal
for domestic consumption and as a result, the political and
economic system has dictated that "if it's black, bring it to the
surface and use it". Therefore, the material coming out of the
mines typically is high in ash and is used in its raw state.
The mine managers quite openly admit that they mix bone coal with
higher grade coal (>5000 kcal/kg) since this product will sell
and is acceptable in the marketplace. From what Marston observed
of coal loaded in trucks, it is quite soft, friable and fine-
grained. This type of coal would be difficult to upgrade without
a wash plant. There has been no financial incentive to the mine
operators to separate the higher grade (lower ash) seams since
the state doesn't pay any premium for better quality, and the
newly instituted free market has not matured enough for the
consumers to pay a premium for better quality. As the Chinese
get more international exposure, and experience revenue benefits
from quality control, there will be changes, but over a period of
time.
In summary, it is reasonable to expect that a coal supply with
4,600 to 4,700 kilocalories per kilogram and 33-34% ash, will be
available from the Tangshan coal field for the life of the
facility.
Reliability Of Supply
The whole Luannan/Tangshan district needs power to satisfy its
industrial ambitions. The Luannan County government, who is
Panda's partner in the venture, is development oriented and will
make sure that the plant has the required coal supply even if it
has to come from mines other than the contracted ones. This, in
Marston's opinion gives more comfort to the reliability of the
supply issue than long-term western style contracts, which are
new to the Chinese coal industry.
Indications are that free market prices are increasing as more
and more free-market coal is being sold. Since the Power
Purchase Agreement for electricity sales has a pass-through
arrangement on the fuel supply cost and the local political-
management system will help control fuel-supply costs, then the
risk to the power plant investors should be minimal.
Transportation
Panda has executed a Coal Transportation agreement at locally
competitive rates. There appears to be a reasonable amount of
competition in the trucking business and plenty of local
entrepreneurs willing to bid on this type of business. The
condition of the roads could be an issue as far as rates are
concerned, but they are not severe enough to present a risk to
the deliverability of the coal. Parts of the road system do need
repair work, and with more heavy traffic this situation will be
aggravated.
On Site Management
Another plus is Panda's on site manager, Mr. John Zamlen, who has
operated coal fired power plants for five years. He has a good
understanding of local conditions and is rapidly establishing a
good relationship with the Chinese people involved. In China
this is very important.
2.0 BACKGROUND
In late 1994, Panda Energy International, Inc. ("Panda") formed
joint ventures in China and entered into a Power Purchase
Agreement with the North China Power Grid to supply 100 megawatts
of power to be generated by a new 100 MW power plant (2 X 50 MW
units) to be built in Luannan County, Hebei Province.
Panda has the Luannan County Government as a partner in it's
joint venture companies, Tangshan Panda Heat and Power Company,
Ltd. and Pan-Western Heat and Power Company Ltd. The North China
Power Group Co. is the electricity transmission agency for the
northern part of China.
Hebei province is the province which surrounds the municipalities
of Beijing and Tianjin. It reaches to the east coast of China
and is the center of a growing industrial region. Tangshan City
is located about 180 kilometers by road to the east of Beijing.
The town of Luannan, which is the seat of Luannan County and the
site of the proposed power plant is about 40 kilometers southeast
of Tangshan City. The Tangshan City location has access to port
cities in the area. See Figure 1.
Tangshan City is in the center of the Tangshan coal basin which
has been the source of energy and raw materials for its
industrial base. The predecessor of the Kailuan Coal Mining
Administration was established in 1878 and currently produces
about 18 million tonnes of coal per year. The region was
occupied by the Japanese during World War II, during which time
the Japanese expanded the coal mining operations and shipped the
coal to Japan.
Given the proximity of these coal fields to Panda's proposed
power plant at Luannan, coal produced in the Tangshan region was
selected by Panda to be the most advantageous source of fuel for
the power plant.
[FIGURE 1
PROJECT LOCATION MAP]
In January of 1997 Panda engaged Marston & Marston, Inc.
("Marston") to provide such consulting services, as may be
requested by Panda, for Panda's proposed power plant to be
constructed in Luannan County and other power projects using coal
as a fuel. The initial assignment was to visit the coal mines
contracted to supply the proposed power plant and to assess the
local conditions pertaining to transporting the coal by trucks
from the mines to the power plant. These contracts were entered
into by Panda as the result of a study done in the December 1995
- - January 1996 time frame by Anderson & Schwab, Inc. and
specifically Robert E. Golkosky (now with Marston). This most
recent site visit by L.J. Pituley of Marston & Marston, Inc. took
place from January 22, through January 29, 1997.
Marston was also requested to prepare this summary report as
outlined in Panda's memo of January 21, 1997 to Robert E.
Golkosky of Marston.
3.0 BASIC DATA PROVIDED BY PANDA
In preparing this report, Marston relied, in part, on the
following data and material provided by Panda:
- - A report prepared by Robert E. Golkosky of Anderson & Schwab,
Inc. (now with Marston) dated March 29, 1996 including copies
of Coal Supply Agreements with 6 mines.
- - A memo titled "Clarification from Tangshan Municipal Coal
Industry Bureau", signed by Han Wan-xu, Tangshan Municipal
Coal Industry Bureau and dated February 10, 1996. Under
official seal.
- - A memo from the Kailuan Coal Mining Administration titled
"Clarification of Coal Reserves and Production of Kailuan
Coal Mining Administration" dated March 7, 1996. Under
official seal.
- - A certified translation of a signed copy of the Coal
Transportation Agreement between Luannan County State-Owned
Transportation Company owned and operated by Luannan County
and Tangshan Panda Heat and Power Co. Ltd. And Tangshan Pan-
Western Heat and Power Co. Ltd.
- - A letter from John R. Zamlen General Manager of Pan-Western
Energy Corp. on Tangshan Panda Heat and Power Co. Ltd.
Letterhead to Mr. Zhao Xiucheng, General Manager, Luannan
County Heat and Power Plant.
- - Analytical results and discussion of the above mentioned spot
sample by the Harbin Power System Engineering and Research
Institute dated December 9, 1996 and an English translation
dated January 16, 1997.
- - Daily Qianjiaying Mine heating values of coal produced during
the months of October and November 1995.
- - Luannan Thermal Power Plant, a General Discussion on Coal
Supply, Quality Control and Management prepared by J.R.
Zamlen dated October 9, 1996.
An information packet on the Kailuan mining area produced by the
Kailuan Coal Mining Administration.
4.0 COAL PRODUCTION AND RESERVES
General
China as a country reportedly produces in the order of 1.2 to 1.3
billion tonnes of raw coal per year. Only a small percentage of
the total is upgraded by washing or by coal processing for the
internal coking operations and for export. Thermal coal for
domestic consumption is not upgraded beyond screening and hand
picking of waste rock off the product conveyor belts.
Coal transportation in China is mainly by railroad and the
railroad system is inadequate to deliver coal from the producing
regions to the consuming industrial areas in the quantities
required. While China exports a small amount of coal from the
northern producing areas it also imports coal to the southern
industrial areas. Locally, truck transportation is used.
The Tangshan coal field covers an area of some 670 square
kilometers and contains some 7.6 billion tonnes of geological
reserves down to a depth of 1000 meters (3281 feet). See Figure
2. The field consists of three basins, two of which Kaiping and
Chi Zhoushan are being commercially exploited and the third
smaller block Jiyu is not yet developed. It lies to the
southeast of the two larger structures.
The coal field is all of the same geological formation but
erosion has removed some of the anticlinal structures thus
creating the separate basins. Within the basins the structures
range from gently dipping monoclines to steeply dipping (nearly
vertical) and faulted complex structures. The general strike of
the anticlines and synclines is NE - SW.
While the seams lens out in places and thicken in other places
there are consistently six mineable seams over a large part of
the area. A coal seam that is 0.7 meters thick or more is
considered to be mineable.
Differing underground mining methods are used to cope with the
geologic structures present in the area, however an overall
mining coal recovery at 50% of the geologic reserve is based on a
long history of mining in the area. Longwall mining operations
report 80 to 90% coal recovery from panels.
By token of the same long history, the Chinese have found that
the coal quality, when all seams are blended together is
relatively consistent. In the mining process not all seams are
always mined in the same proportion and this leads to some
substantial swings in the ash content of the coal on a day to day
basis.
Projections for future coal quality based on limited drill
results and on the historic quality of the coal that has been
produced. Some blending takes place to eliminate very low heat
content coal by blending it with the higher heat content coal.
Annual production from the Tangshan coal field is 21 million
tonnes. Six million tonnes is clean coal and is utilized for
coking, gas production and export. Note that the main rail line
from Datong, and Beijing to the coal port of Qinhuangdao
straddles the Tangshan coal field. Wash plant reject and the raw
coal is used for thermal power generation in North and East
China.
Locally coal is distributed by truck and trailer units of varying
sizes up to about 15 tonnes in combined capacity.
[FIGURE 2
MAP OF TANGSHAN BASIN COAL MINE LOCATIONS]
Kailuan Coal Mining Administration
This Administration, owned by the Central Government, operates
ten major mines in the Tangshan coal field and produces some 18
million tonnes of coal per year. The Kailuan Coal Mining
Administration has under its control approximately 72% of the
total 7.6 billion tonnes of geological coal reserve in the
Tangshan coal fields, or 5.0 billion tonnes. See Appendix 2.
Reserves are re-estimated on an annual basis.
The Qianjiaying Coal Mine is one of the larger Kailuan mines with
1995 production of 3.34 million tonnes and 1996 production of
3.67 million tonnes of 4700 kilo calories/kilogram, heat content
and 34 to 35% ash coal. This mine has six longwall faces. Five
of these faces are equipped with mechanical shearers and one is
semi-mechanical. The mine has available to it nine mechanical
shearers and one more is on order. The mining operation is 600
meters below sea level and does not have any serious water,
temperature or roof control problems according to mine
management. The mine operates seven days per week with two
production shifts and one maintenance shift. The mine only shuts
down for 3 days every December for equipment checking and major
maintenance.
All the coal produced at the Qianjiaying mine goes for thermal
power generation with as much as one third of the production
being sold on the free market. Up to 300,000 tonnes per year,
some 70% of the total annual requirement for the proposed Luannan
power plant is contracted to be supplied by this mine.
Tangshan Municipal Coal Industry Bureau
The Tangshan Municipal Coal Industry Bureau controls some 546
million tonnes of mineable coal reserves. See Appendix 2. This
organization consists of more than 180 individual mines ranging
in annual individual production up to 80,000 tonnes per year.
These mines are locally owned and not owned by the Central
Government. One new mine under development will have production
capability of up to 300,000 tonnes per year while another mine is
to sink a second shaft which will increase its production
capability to 210,000 tonnes per year. These mines operate in
the shallower leavings of former larger scale mines and in
structurally complex areas. These mines generally operate in the
50 to 300 meter depth range but the larger proposed mine is
planning to mine coal down to 660 meters. The current combined
annual production of these mines is some 4 million tonnes per
year of a variable coal quality product.
These smaller mines utilize a variety of mining methods but most
are labor intensive. Some of these mines can increase production
fairly quickly but others can not as they are producing at
capacity. Of the five mines that have contracts with Panda two
are expanding their capacity, two can increase their production
and one is at its production limit. All these mines say that the
Panda power plant will have first priority for their coal
production.
The five mines visited by Marston in this jurisdiction stated
that they do not have any water, methane or roof control problems
nor geological structural problems.
The present combined production capacity of the five mines is
400,000 tonnes annually. When the two new shafts are completed
by late 1998 or early 1999 the combined production capacity will
be 750,000 tonnes per year. A number of these operations have
other producing mines of similar coal quality that they could
call on in case of unforseen problems at the contracted mines.
These mines jointly will be able to provide the 150,000 tonnes or
more if required annually, for the Panda power plant in addition
to the 300,000 tonnes contracted for from Kailuan's Qianjiaying
Mine.
5.0 COAL QUALITY
As indicated earlier in the report mine forecasts of future coal
quality are based on limited drill hole information and on
historic records of coal quality. The Qianjiaying mine is mining
the continuation of known seams and carries a small risk of any
radical quality change. Moreover, the five smaller mines are
mining the edges of seams that have been mined before or
structurally difficult areas in the proximity of previously mined
areas and should not encounter any great quality surprises.
There will be day to day variations because of variations in
seams being mined but the long term average (month to month)
should not change more than 5% up or down from the committed heat
content of the As Received coal supply.
On a mine by mine basis the situation is as follows:
Qianjiaying Mine: The 1995 heat content was 4,500 kiloCal/kg and
the 1996 heat content was 4,700 kiloCal/kg at a 34% to 35% ash
level. Mine management expressed the opinion that to increase
the heat content to 4,750 kiloCal/kg in 1997 is not very
realistic. It is most probable that the mine will be able to
meet its long term commitment to Panda to supply 4,600 kiloCal/kg
coal at a 35% to 36% ash level on an As Received basis.
Tangshan Liu Guantun Mine: From the analysis given for each seam
in the new mine feasibility study the seam ash content varies
from 18% to 23.7% on an As Received basis. If one takes an
average ash level of 22% and 7% total moisture then the heat
content of 5,595 kiloCal/kg is possible on an all seams blended
basis. How much dilution or in seam rock will be added during
the mining process is unknown although the mine staff insist
dilution is less than 1%. In summary it is likely that the
contract heat content of 4,900 kiloCal/kg and 30% ash will be
achieved or even exceeded.
LeTing County Coal Mine: The current mine production produces a
heat content of 4,600 kiloCal/kg and 38% ash however coal from
the new shaft area mine is expected to be some 5,400 kiloCal/kg
at 28.9% ash on an As Received basis. This seems to be a high
ash level for 7.59 meters of coal with an ash level of 17% and
1.6 meters of 31% ash, as stated in a preliminary feasibility
study. One can only assume that in-seam partings and dilution
make up the extra ash content in the proposed product quality.
In any event the contract heat content of 4,900 kiloCal/kg should
be readily achievable.
Chang Li County Coal Mine: The heat content of the current
production was given as ranging between 4,000 and 4,500
kiloCal/kg and 34 to 40% ash on an As Received basis. The owners
have two other mines one of which produces 4,500 to 4,700
kiloCal/kg coal and the third mine has the same coal quality as
the first mine.
This mine may not be able to meet the average quality of 4,900
kiloCal/kg and will have some difficulty in staying above the
minimum 4,400 kiloCal/kg. It is likely to be the least
consistent coal supplier.
Luannan County Coal Mine: The quality of the coal produced in
the last two years has an ash content variation of 26% to 36% and
averages on a partially air dried basis about 31% ash and 5,000
kiloCal/kg heat content. This mine, with careful management,
should be a good coal supplier for the power plant as it can meet
the contract specification.
Zunhau Coal Mine: The coal quality was stated as being 25% to
26% ash and 4,500 to 5,000 kiloCal/kg. This appears to be
inconsistent with the reported quality of all the other mines in
the area. With a 25% to 26% ash level the heat content should be
over 5,000. The mine should fall into the heat content zone
between 4,400 and 4,900 kiloCal/kg as specified in the contract.
In summary, it is reasonable to expect that a coal supply with
4,600 to 4,700 kiloCal/kg and 33% to 34% ash, for the power plant
will be available from the Tangshan coal field for the life of
the facility.
Other Coal Analyses
Moisture: The total moisture ranges between 6% and 10% depending
on precipitation and length of time in the stockpile. The
inherent moisture varies from 0.6% to more than 2% but on average
for freshly mined coal is less than 1.0%.
Sulphur: As a generalization the thinner seams (less than 1
meter) have a higher sulfur content consequently the impact on
the blended coal is minimized. The sulphur values in the
analysis we have had access to range from 0.3% to 4.53% in
individual seams. An average sulphur content of 1.25% is a
reasonable number for a long term coal supply. Mines producing
from a number of thin coal seams should be monitored very closely
to make sure they do not exceed the sulphur specification.
Volatiles: The volatile content on a dry ash free basis is in
excess of 30%. On an air dried basis the volatiles vary from a
low of 20% to values in the 38% range. It is not possible to
establish a volatile value for 33% to 35% ash coal from the data
we have available to us.
Sodium Oxide: As a percentage of the ash the value is less than
one percent and quite frequently less than one half of one
percent.
Chlorine: From the limited information available the chlorine
content is low with a range of 0.035% to 0.10%. This is based on
one set of average analyses for a mine with 7 seams.
6.0 COAL TRANSPORT
Since the power plant is located near the Tangshan coal field it
is reasonable to haul the coal from the mines to the plant with
trucks.
There appears to be a good supply of coal hauling trucks in the
area with ownership ranging from individuals to small companies
and the local County government.
The shortest coal haul from the Qianjiaying mine is approximately
28 kilometers, which is also the largest tonnage, and the longest
haul distance, approximately 48 kilometers is from the LeTing
mine.
The road system in the area is reasonable and most of the roads
are paved.
A coal trucking contract has been negotiated and executed with
Luannan County State - owned Transportation Company. A normal
cost of trucking in the area as of January 1997 is 0.3 RMB Yuan
(approximately $0.036 US) per tonne kilometer but bad road
conditions in some areas have pushed the price up to 0.35 to 0.4
RMB Yuan per tonne kilometer. The trucking company is
responsible for any coal loss. The time of Marston's visit was
also the high demand season for coal in this area.
7.0 PANDA FUEL SUPPLY STRATEGY
Panda developed a fuel supply strategy that focuses on providing
a stable, long-term coal supply consisting of the following
elements.
Utilize coal from the Tangshan coal field which has a long
history of producing good quality coal and has coal reserves that
will continue to be exploited for many years into the future. In
other words a stable long-term coal supply.
The close proximity of the coal field to the proposed power plant
site allows Panda to take advantage of the local trucking
opportunity and eliminates the risk of transporting by railroad,
a system that is overloaded and not dependable.
An assessment was made of the mines in the area and the decision
was made to negotiate a long-term supply contract with a major
State owned and operated mine (1996 production 3.67 million
tonnes) for up to 70% of the power plants fuel requirement. For
the other 30% of the fuel requirement Panda negotiated contracts
with five independent mines, some of which operate more than one
mine. Panda has built into the contracts the opportunity to pick
and choose the better quality coal being produced from the
individual mines at any given time.
The price of the coal is to be determined annually for the
Kailuan contract and monthly for the Tangshan Coal Industry
Bureau Mines, based on the prevailing market price, for a given
quality of coal, in the Tangshan area.
Specific conditions of the coal supply contracts are as follows:
A. Kailuan Coal Administration Mine Contract
The Buyer has the right to determine the tonnage to be purchased
up to 300,000 annual tonnes. Buyer and Seller agree that the
primary mine to supply coal for Panda is the Qianjiaying Mine.
The Seller also represents that sufficient reserves and
production capability exist within the Kailuan Coal Mining
Administration.
The Buyer is to provide to the Seller annual and monthly
tonnage requirements in approximately equal monthly amounts.
Buyer and Seller will meet every November to mutually
determine the market price, shipping schedule and other
conditions for a coal supply contract for the following year.
Effective with the first purchase of coal, the Agreement shall
continue for a term of ten years.
Coal quality specifications with Average Quality and
Acceptable Limits are spelled out for Total Moisture, Ash,
Sulphur, Heat Value Top Size and Fines for acceptance by the
buyer. The Seller will sample the coal and have analysis
performed and the Buyer can dispute the analysis if a significant
difference exists. A third party independent analysis shall be
binding. Buyer has the right to reject and suspend coal
deliveries that do not meet specifications. Weight is to be
determined by Sellers certified scales. Market price shall be
the average annual price in RMB Yuan per Kilo calorie for coal
sold by the Seller for the following year under similar terms and
conditions.
Payments by the Buyer are to be made within 5 to 15 days
after the end of each month. The agreement is governed by the
laws of the Peoples Republic of China. Either party can
terminate the agreement if the other party materially breaches
the contract and does not cure the breach within 60 days. Lender
Approval, Peoples Republic of China National Energy Policy
changes and certain Force Majuere clauses for circumstances
beyond the reasonable control of either party are included.
B. Tangshan Coal Industry Bureau Mine Contracts
Buyer has the right to buy up to a set tonnage from each
mine for a period of ten years at market prices. Buyer will
notify Seller prior to the first day of each month of the
requirements for the following month.
Coal Quality Specifications with Average Quality and
Acceptable Limits are spelled out for total Moisture, Ash,
Sulphur, Heat Value, Coal Size and Fines for acceptance by the
Buyer.
Buyer and Seller will analyze coal samples collected at the
Buyer's facilities. In case of dispute an independent third
party analysis will be binding. Buyer can reject coal outside
the Acceptable Limits and the Supplier shall replace it with
acceptable quality. Weight of the coal sold and purchased shall
be determined by certified scales maintained by the Seller. A
dispute mechanism is in place.
Market Price shall be the average monthly price in RMB Yuan
per tonne for coal sold by mines regulated by the Tangshan
Municipal Coal Industry Bureau under similar terms and
conditions. The Market Price is based on heating value and if
the quality shipped varies significantly from the average Quality
specification the Buyer and Seller will discuss the reasons for
the variation.
Payment shall be made by the Buyer including adjustments
within 15 days of each month end. Buyer will pay an annual
Reservation Fee of between 400,000 RMB Yuan and 560,000 RMB Yuan
per year which shall be applied against coal purchased over the
Current year. The Buyer is not committed to any minimum monthly
take.
The Agreement is governed by the laws of the Peoples
Republic of China. Either party can terminate the agreement if
the other party breaches the contract and does not cure the
breach within 60 days. Buyer upon notice to Seller can terminate
the agreement due to non-approval by the Lenders. Notices or
other communications shall be in writing.
C. Coal Transportation Agreement
The agreement is with the Luannan County State-Owned
Transportation Company ("Carrier") owned and operated by the
Luannan County is for 10 years from the date of the first truck
deliveries for up to 500,000 tonnes per year. Buyer will provide
monthly delivery schedules which can be adjusted weekly. Failure
to deliver by the Carrier allows the Buyer to make alternate
arrangements and incremental costs shall be to the Carriers
account. The Buyer is reimbursable by the Carrier for weight
differences greater than four tenths of one percent between the
Suppliers' and Buyers' scales.
The first year of coal deliveries shall be at 15 RMB Yuan
per tonne and the price will then be negotiated annually.
Payments to Carrier shall be within 15 days after each month end.
The Carrier represents that it owns and operates a
sufficient number of trucks to supply the Buyer's coal
requirements. If necessary the Carrier will supplement its truck
fleet. The Carrier is responsible for all licenses, permits and
for meeting all government obligations.
The Agreement is subject to the laws of the Peoples Republic
of China. Either party may terminate the agreement under certain
conditions. Subject to the Buyer obtaining its Lender's approval
the agreement can be canceled. Notices are to be in writing.
The fuel supply strategy, coal supply agreements and the coal
transportation agreement are appropriate for the conditions and
situation as it exists in China. Given that cost of the fuel
supply is a pass-through arrangement in the Power Purchase
Agreement, the risk exposure for the project will be minimal in
terms of the delivered fuel price.
Future Central Government actions cannot be definitively forecast
but current indications are that power supply development is an
important factor in the country's development plan.
[Marston & Marston Letterhead]
MARSTON & MARSTON, INC.
Officer's Certificate
I, Richard Marston, of Marston & Marston, Inc., DO HEREBY
CERTIFY that:
Since April 11, 1997, no event affecting our report entitled
"Review of the Coal Supply Arrangements for the Luannan Power
Project of Panda Energy International" dated April 11, 1997 (the
"Fuel Consultant's Report") or the matters referred to therein
has occurred (i) which makes untrue or incorrect in any material
respect, as the date hereof, any information or statement
contained in the Fuel Consultant's Reports or in the Prospectus
relating to the offering of 12-1/2% Registered Senior Secured
Notes due 2004 by Panda Global Energy Company (the "Prospectus")
under the captions ""Summary - Independent Engineer's and
Consultant's Reports - Luannan Engineering Reports," "Summary -
Independent Engineers' and Consultants' Reports - Luannan Coal
Consultant's Report," and "Independent Engineers and Consultants
- - Luannan Facility" or (ii) which is not reflected in the
Prospectus but should be reflected therein in order to make the
statements and information contained in the Fuel Consultant's
Report or in the Prospectus under the captions set forth above,
in the light of the circumstances under which they were made, not
misleading.
WITNESS my hand this 7th day of August 1997.
By: /s/ Richard R. Marston
Name: Richard R. Marston, P.E.
Title: Vice President & General Counsel
APPENDIX G
OWNERSHIP STRUCTURE OF THE ISSUER, THE COMPANY,
PANDA INTERNATIONAL AND CERTAIN OF THEIR SUBSIDIARIES
PANDA ENERGY
INTERNATIONAL, INC.
("PANDA INTERNATIONAL")
PANDA GLOBAL
____________ HOLDINGS, INC. _______________
| 100% (THE "COMPANY") 100% |
Panda Energy Panda Global
Corporation Energy Company
(Texas) (the "Issuer")
("PEC") |
| |
Panda Interfunding Pan-Sino
Corporation Energy Development
("PIC") Company, LLC*
| ("Pan-Sino")
___________|_____________ |
| 100% | 100% |
Panda Interholding Panda Funding Pan-Western Energy
Corporation Corporation Corporation LLC**
("Interholding") ("PFC") ("Pan-Western")
| |
|_____________________________|____________________ |
| 100% | 100% | 100% | 100% | 100% |
Panda- PRC II Panda Panda Brandywine |
Rosemary Corporation Brandywine Energy Water |
Corporation ("PRC II") Corporation Corp. Company |
("PR Corp.") ("PBC") (Delaware) |
| | | | |
_____|_____________|____ ____|____________|___ |
Panda-Rosemary, L.P.*** Panda-Brandywine, L.P. |
(the "Rosemary (the "Brandywine |
Partnership") Partnership") |
| |
| _______________________________|____
_________|____________ | | | |
Panda-Rosemary Funding 87.92% | 87.92% | 87.92% | 87.92% |
Corporation Tangshan Tangshan Tangshan Tangshan
("the "Rosemary Issuer") Panda Pan- Cayman Pan-Sino
(a "Joint (a "Joint (a "Joint (a "Joint
Venture") Venture") Venture") Venture")
| | | |
12.08% | 12.08% | 12.08% | 12.08% |
|___________|___________|__________|
| |
Luannan County Partners
(the "County Partners")
* The remaining 4.5% equity interest in Pan-Sino is
owned by NDR. This equity interest can increase to a
maximum of 10%.
** The remaining 1% equity interest in Pan-Western is
owned by Chinamac.
*** NNW, Inc. holds a cash flow participation in the
distributions from the Rosemary Partnership (which the
Issuer believes is 0.433% and would increase to 1.732%
after 2008 based on projected distributions). See
"Description of the Projects-The Rosemary Facility-Cash
Flow Participation" and "Legal Proceedings-NNW, Inc.
Proceeding."
No dealer, salesman or other person has
been authorized to give any
information or to make any $155,200,000
representations not contained in this
Prospectus, and, if given or made,
such information or representations [ L O G O ]
must not be relied upon as having been
authorized by the Company or the
Issuer. This does not constitute an
offer to sell, or a solicitation of an OFFER TO EXCHANGE
offer to buy, the securities offered
hereby in any jurisdiction where, or 12-1/2% Registered Senior Secured
to any person to whom, it is unlawful Notes due 2004
to make such offer or solicitation. which have been registered under the
The delivery of this Prospectus at any Securities Act
time and any sale made hereunder does for any and all outstanding
not imply that the information 12-1/2% Senior Secured Notes due 2004
contained herein is correct as of any of
time subsequent to the date hereof. PANDA GLOBAL ENERGY COMPANY
Fully and Unconditionally Guaranteed
Enforcement of Civil Liabilities i By PANDA GLOBAL HOLDINGS, INC.
Defined Terms i
Available Information i
Disclosure Regarding
Forward-Looking Statements ii PROSPECTUS
Prospectus Summary 1
Risk Factors 23
Business of The Issuer, The Company,
Panda International and Their The Exchange Agent is:
Subsidiaries 44 BANKERS TRUST COMPANY
Use of Proceeds 47
Capitalization 48 Facsimile Transmission:
Unaudited Pro Forma Consolidated (615) 835-3701
Financial Data of the Company 49 Confirm by Telephone:
Selected Financial Data of the (615) 835-3572
Issuer 53
Selected Financial Data of the By Overnight Courier or Certified Mail:
Company 54 BT Services Tennessee, Inc.
Management's Discussion and Corporate Trust & Agency Group
Analysis of Financial Condition Reorganization Unit
and Results of Operations of the 648 Grassmere Park Road
Issuer 55 Nashville, TN 37211
Management's Discussion and
Analysis of Financial Condition By Hand Delivery:
and Results of Operations of the Bankers Trust Company
Company 55 Corporate Trust & Agency Group
The Exchange Offer 61 Receipt & Delivery Window
Certain Tax Considerations of the 123 Washington Street, 1st Floor
Exchange Offer 69 New York, NY 10006
Description of the Projects 70
Foreign Exchange System in the PRC By Mail:
and Exchange Rate BT Services Tennessee, Inc.
Information 96 Reorganization Unit
Description of Principal Documents P. O. Box 292737
Relating to the Luannan Facility 98 Nashville, TN 37229-2737
Management 112
Legal Proceedings 115
Description of Other Indebtedness 117
Description of the Exchange _________________, 1997
Notes, the Exchange Notes
Guarantee, the Issuer Loan, the
Shareholder Loans and the
Collateral Documents 130
Plan of Distribution 191
Experts 192
Legal Matters 193
Index to Financial Statements F-1
Certain Defined Terms A-1
The Electric Power Industry and
Regulation in the PRC and the United
States B-1
Consolidated Pro Forma Report C-1
Luannan Engineering Report D-1
Luannan Coal Consultant's Report E-1
Ownership Structure of the Issuer,
the Company,Panda International
and Certain of Their Subsidiaries G-1
Until _________, 1997 (90 days after the
date of this Prospectus), all dealers
effecting transactions in the
securities offered hereby, whether or
not participating in this
distribution, may be required to
deliver a Prospectus. This delivery
requirement is in addition to the
obligations to dealers to deliver a
Prospectus when acting as underwriters
with respect to their unsold
allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is a statement of estimated expenses to be incurred in
connection with the offering of the 12-1/2% Registered Senior Secured Notes
due 2004 of Panda Global Energy Company (the "Registrant") covered by this
Registration Statement, all of which will be paid by the Registrant and
Panda Global Holdings, Inc. (a "Co-Registrant"):
Securities and Exchange Commission Registration Fee $ 43,947
Accounting Fees and Expenses 30,000
Legal Fees and Expenses 60,000
Exchange Agent and Trustee Fees and Expenses 15,000
Independent Engineers' Fees and Expenses 25,000
Fuel Consultants' Fees and Expenses 15,000
Miscellaneous 11,053
--------
Total $200,000
========
Item 14. Indemnification of Directors and Officers.
The Certificate of Incorporation of the Co-Registrant provides that to
the fullest extent permitted by the Delaware General Corporation Law, a
director thereof shall not be liable to such corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director. The Co-
Registrant's Bylaws provide for mandatory indemnification to directors
(including independent directors) and officers of the corporation, except to
the extent prohibited by law, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. No person shall be indemnified in respect of any claim or matter
as to which such person has been adjudged to be liable to the corporation,
unless otherwise adjudged by the court.
The Articles of Association of the Registrant provide that the directors,
any independent director, the officers and any trustee for the time being
acting in relation to any of the affairs of the company and their heirs,
executors, administrators and personal representatives respectively shall be
indemnified out of the assets of the Registrant from and against all
actions, proceedings, costs, charges, losses, damages and expenses which
they or any of them shall or may incur or sustain by reason of any act done
or omitted in or about the execution of their duty in their respective
offices or trusts except such (if any) as they shall incur or sustain by or
through their own willful neglect or default respectively and no such
director, independent director, officer or trustee shall be answerable for
the acts, receipts, neglects or defaults of any other director, officer or
trustee or for joining in any receipt for the sake of conformity or for the
solvency or honesty of any banker or other persons with whom any monies or
effects belonging to the Registrant may be lodged or deposited for safe
custody or for any insufficiency of any security upon which any monies of
the Registrant may be invested or for any other loss or damage due to any
such cause as aforesaid or which may happen in or about the execution of his
office or trust unless the same shall happen through the willful neglect or
default of such director, independent director, officer or trustee.
Item 15. Recent Sales of Unregistered Securities
Information regarding the securities sold by the Registrant and the Co-
Registrant during the last three years is set forth below. None of such
securities have been registered under the Securities Act of 1933, as amended
(the "Securities Act").
Common Stock
On March 10, 1997, the Registrant issued one (1) common share (U.S. $1.00
par value) to Mr. Anthony B. Travers, a Cayman Islands resident, and one (1)
common share (U.S. $1.00 par value) to Ms. Sophia Dilbert, a Cayman Islands
resident, for the consideration of $10 each. Exemption from United States
registration of such common shares is claimed under Section 4(2) of the
Securities Act and because such transactions were performed entirely in the
Cayman Islands.
On March 10, 1997, the Co-Registrant issued 1,000 shares of common stock,
$.01 par value, to Panda Energy International, Inc., a Texas corporation,
for the consideration of $1,000. Exemption from registration of such shares
of common stock is claimed under Section 4(2) of the Securities Act.
Senior Secured Notes and Guarantee
On April 22, 1997, the Registrant issued and sold for cash, at 93.444% of
aggregate principal amount, to Donaldson, Lufkin & Jenrette Securities
Corporation, $155,200,000 aggregate principal amount of its 12-1/2% Senior
Secured Notes due 2004 (the "Old Notes"). Donaldson, Lufkin & Jenrette
Securities Corporation subsequently sold the Old Notes to qualified
institutional buyers and institutional accredited investors. The Old Notes
are fully and unconditionally guaranteed by Panda Global Holdings, Inc., the
Co-Registrant. The Registrant paid total commissions and underwriting
discounts equal to $4,359,753 to Donaldson, Lufkin & Jenrette Securities
Corporation in connection with such transaction. Exemption from the
registration of the Old Notes and the guarantee thereof is claimed under
Section 4(2) of the Securities Act, and Rule 144A and Regulation S
promulgated thereunder.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
Number Exhibit Description
3.01 Memorandum of Association of Panda Global Energy Company. (2)
3.02 Articles of Association of Panda Global Energy Company. (2)
3.03 Certificate of Incorporation of Panda Global Holdings, Inc. (2)
3.04 Bylaws of Panda Global Holdings, Inc. (2)
4.01 Trust Indenture dated July 31, 1996, among Panda Funding
Corporation, Panda Interfunding Corporation and Bankers Trust
Company, as Trustee. (1)
4.02 First Supplemental Indenture to Trust Indenture, dated July 31,
1996, among Panda Funding Corporation, Panda Interfunding
Corporation and Bankers Trust Company, as Trustee. (1)
4.03 Second Supplemental Indenture to Trust Indenture, dated January 6,
1997, among Panda Funding Corporation, Panda Interfunding
Corporation and Bankers Trust Company, as Trustee. (1)
4.04 Form of 11-5/8% Pooled Project Bonds, Series A due 2012 of Panda
Funding Corporation. (1)
4.05 Form of 11-5/8% Pooled Project Bonds, Series A-1 due 2012 of Panda
Funding Corporation. (1)
4.06 Registration Rights Agreement, dated July 31, 1996, among Panda
Funding Corporation, Panda Interfunding Corporation and Jefferies
& Company Inc. (1)
4.07 Collateral Agency Agreement, dated July 31, 1996, among Panda
Interfunding Corporation, Panda Funding Corporation and Bankers
Trust Company, as Trustee and Collateral Agent. (1)
4.08 Subrogation and Contribution Agreement, dated July 31, 1996, among
Panda Interfunding Corporation, Panda Funding Corporation and
Panda Interholding Corporation and each PIC U.S. Entity that is a
signatory thereto. (1)
4.09 Guaranty Agreement (PIC U.S. Entity Subsidiaries), dated July 31,
1996 by Panda Interholding Corporation in favor of Bankers Trust
Company, as Collateral Agent for the benefit of the Secured
Parties. (1)
4.10 Trust Indenture, dated April 22, 1997, between Panda Global Energy
Company and Bankers Trust Company, as Trustee. (2)
4.11 First Supplemental Indenture between Panda Global Energy Company
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
4.12 Trust Indenture, dated April 22, 1997, between Panda Global
Holdings, Inc. and Bankers Trust Company, as Trustee. (2)
4.13 First Supplemental Indenture between Panda Global Holdings, Inc.
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
4.14 Registration Rights Agreement among Panda Global Energy Company,
Panda Global Holdings, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, dated April 22, 1997. (2)
4.15 Form of 12-1/2% Senior Secured Notes due 2004 of Panda Global
Energy Company. (2)
4.16 Form of 12-1/2% Registered Senior Secured Note due 2004 of Panda
Global Energy Company. (2)
5.00 Legal Opinion of Chadbourne & Parke LLP, counsel for the
Registrant and Co-Registrant. (3)
10.01 PIC Loan Agreement, dated July 31, 1996, between Panda Funding
Corporation, as Lender, and Panda Interfunding Corporation, as
Borrower. (1)
10.02 Loan Agreement, dated July 31, 1996, between Panda Interfunding
Corporation, as Lender, and Panda Cayman Interfunding Company, as
Borrower. (1)
10.03 Promissory Note issued by Panda Interfunding Corporation on July
31, 1996 to Panda Funding Corporation in the original principal
amount of $105,525,000, endorsed to Bankers Trust Company, as
Collateral Agent. (1)
10.04 Security Agreement, dated July 31, 1996, between Panda
Interfunding Corporation and Bankers Trust Company, as Collateral
Agent. (1)
10.05 Security Agreement, dated July 31, 1996, between Panda Funding
Corporation and Bankers Trust Company, as Collateral Agent. (1)
10.06 Security Agreement, dated July 31, 1996, between Panda Cayman
Interfunding Company, as Debtor, and Panda Interfunding
Corporation, as Secured Party. (1)
10.07 Stock Pledge Agreement (Panda Interfunding Corporation Stock),
dated July 31, 1996, between Panda Energy Corporation and Bankers
Trust Company, as Collateral Agent. (1)
10.08 Stock Pledge Agreement (Panda Funding Corporation and PIC Entity
Stock), dated July 31, 1996, between Panda Interfunding
Corporation and Bankers Trust Company, as Collateral Agent. (1)
10.09 Trust Indenture, dated July 31, 1996, among Panda-Rosemary Funding
Corporation, Panda-Rosemary, L.P. and Fleet National Bank, as
Trustee. (1)
10.10 First Supplemental Indenture to Trust Indenture, dated July 31,
1996, among Panda-Rosemary Funding Corporation, Panda-Rosemary,
L.P. and Fleet National Bank, as Trustee. (1)
10.11 Form of 8-5/8% First Mortgage Bonds due 2016 of Panda-Rosemary
Funding Corporation. (1)
10.12 Deposit and Disbursement Agreement, dated July 31, 1996, among
Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P., Fleet
National Bank, as Collateral Agent, and Fleet National Bank, as
Depositary Agent. (1)
10.13 Collateral Agency and Intercreditor Agreement, dated July 31,
1996, among Panda Rosemary Funding Corporation, Panda-Rosemary,
L.P., The L/C Issuer, The Trustee Under The Trust Indenture, The
Depositary Agent, The Collateral Agent and The Other Secured
Parties, all as named therein. (1)
10.14 Deed of Trust and Security Agreement, dated July 31, 1996, by
Panda-Rosemary, L.P., Grantor, Ross J. Smyth, Trustee, and Fleet
National Bank, as Collateral Agent, the Beneficiary. (1)
10.15 Security Agreement, dated July 31, 1996, by Panda-Rosemary, L.P.
to Fleet National Bank, as Collateral Agent. (1)
10.16 Security Agreement, dated July 31, 1996, by Panda-Rosemary Funding
Corporation to Fleet National Bank, as Collateral Agent. (1)
10.17 General Partner Pledge and Security Agreement, dated July 31,
1996, by Panda-Rosemary Corporation to Fleet National Bank, as
Collateral Agent. (1)
10.18 Limited Partner Pledge and Security Agreement, dated July 31,
1996, by PRC II Corporation to Fleet National Bank, as Collateral
Agent. (1)
10.19 Stock Pledge and Security Agreement, dated July 31, 1996, by Panda
Interholding Corporation to Fleet National Bank, as Collateral
Agent. (1)
10.20 Stock Pledge and Security Agreement, dated July 31, 1996, by Panda-
Rosemary, L.P. to Fleet National Bank, as Collateral Agent. (1)
10.21 Partnership Guaranty, dated July 31, 1996, by Panda-Rosemary, L.P.
in favor of Fleet National Bank, as Trustee. (1)
10.22 Reimbursement Agreement, dated July 31, 1996, between Panda-
Rosemary, L.P., Panda-Rosemary Funding Corporation and Bayerische
Vereinsbank AG, New York Branch. (1)
10.23 Irrevocable Direct Pay Letter of Credit issued by Bayerische
Vereinsbank AG. (1)
10.24 Construction Loan Agreement and Lease Commitment, dated March 30,
1996, between Panda-Brandywine, L.P. and General Electric Capital
Corporation. (1)
10.24.1 Participation Agreement, dated December 18, 1996, among Panda-
Brandywine, L.P., Panda Brandywine Corporation, General Electric
Capital Corporation, Fleet National Bank, First Security Bank,
National Association, and Credit Suisse. (1)
10.24.2 Letter of Credit Reimbursement Agreement, dated December 18, 1996,
among Panda-Brandywine, L.P., Panda Brandywine Corporation and
General Electric Capital Corporation. (1)
10.24.3 Equity Loan Facility Letter Agreement, dated December 18, 1996,
among Panda Brandywine Corporation, Panda Energy Corporation and
General Electric Capital Corporation. (1)
10.25 Bill of Sale and Severance Agreement, dated December 30, 1996,
between Panda-Brandywine, L.P., as Seller, and Fleet National
Bank, Owner Trustee, as Buyer. (1)
10.26 Facility Lease, dated December 18, 1996, between Fleet National
Bank, as Owner Trustee, and Panda-Brandywine, L.P. (1)
10.27 Steam Lease, dated as of December 18, 1996, between Panda-
Brandywine, L.P. and Brandywine Water Company. (1)
10.28 Amended and Restated Security Deposit Agreement, dated December
18, 1996, among Panda-Brandywine, L.P., Panda Brandywine
Corporation, General Electric Capital Corporation, Fleet National
Bank, Credit Suisse and First Security Bank, National Association.
(1)
10.29 Amended and Restated Deed of Trust and Security Agreement, dated
December 18, 1996, by Panda-Brandywine, L.P. to Chicago Title
Insurance Company, Trustee for the benefit of Fleet National Bank,
as Security Agent, Beneficiary. (1)
10.30 Amended and Restated Steam Lessee Security Agreement, dated
December 18, 1996, by Brandywine Water Company in favor of Fleet
National Bank, as Security Agent. (1)
10.31 Amended and Restated Security Agreement, dated December 18, 1996,
by Panda-Brandywine, L.P. in favor of Fleet National Bank, as
Security Agent. (1)
10.32 Amended and Restated Trust Agreement, dated December 18, 1996,
between General Electric Capital Corporation, as Owner
Participant, and Fleet National Bank, as Owner Trustee. (1)
10.33 Amended and Restated General Partner Pledge Agreement, dated
December 18, 1996, by Panda Brandywine Corporation to Fleet
National Bank, as Security Agent. (1)
10.34 Amended and Restated Limited Partner Pledge Agreement, dated
December 18, 1996, by Panda Energy Corporation to Fleet National
Bank, as Security Agent. (1)
10.35 Amended and Restated Stock Pledge Agreement, dated December 18,
1996, by Panda Interholding Corporation to Fleet National Bank, as
Security Agent. (1)
10.36 Assumption Agreement and Release, dated July 31, 1996, by Panda
Interholding Corporation in favor of General Electric Capital
Corporation and Fleet National Bank. (1)
10.37 Power Purchase and Operating Agreement, dated January 24, 1989,
between Panda Energy Corporation and Virginia Electric and Power
Company. (1)
10.38 Amendment No. 1 to Power Purchase and Operating Agreement, dated
October 24, 1989, between Panda Energy Corporation and Virginia
Electric and Power Company. (1)
10.39 Amendment No. 2 to Power Purchase and Operating Agreement, dated
July 30, 1993, between Panda-Rosemary, L.P. and Virginia Electric
and Power Company. (1)
10.40 Fuel Supply Management Agreement, dated October 10, 1990, between
Panda-Rosemary Corporation and Natural Gas Clearinghouse. (1)
10.41 Amendment No. 1 to Fuel Supply Management Agreement, dated March
5, 1991, between Panda-Rosemary Corporation and Natural Gas
Clearinghouse. (1)
10.42 Gas Purchase Contract, dated April 12, 1990, between Panda-
Rosemary Corporation and Natural Gas Clearinghouse. (1)
10.43 Amendment of Gas Purchase Contract between Panda-Rosemary
Corporation and Natural Gas Clearinghouse. (1)
10.44 Pipeline Operating Agreement, dated February 14, 1990, between
Panda Energy Corporation, Panda-Rosemary Corporation and North
Carolina Natural Gas Corporation. (1)
10.45 Amendment No. 1 to Pipeline Operating Agreement, dated May 7,
1990, between Panda Energy Corporation, Panda-Rosemary Corporation
and North Carolina Natural Gas Corporation. (1)
10.46 Assignment Agreement, dated June 15, 1990, between Panda Energy
Corporation and Panda-Rosemary Corporation. (1)
10.47 Amendment No. 2 to Pipeline Operating Agreement, dated November
19, 1991, among Panda Energy Corporation, Panda-Rosemary
Corporation and North Carolina Natural Gas Corporation. (1)
10.48 Real Property Lease and Easement Agreement, dated June 9, 1989,
between The Bibb Company and Panda-Rosemary Corporation. (1)
10.49 First Amendment to Real Property Lease and Easement Agreement,
dated October 1, 1989, between The Bibb Company and Panda-Rosemary
Corporation. (1)
10.50 Second Amendment to Real Property Lease and Easement Agreement,
dated January 31, 1990, between The Bibb Company and Panda-
Rosemary Corporation. (1)
10.51 Leasehold and Real Property Assignment and Assumption Agreement,
dated January 6, 1992, between Panda-Rosemary Corporation and
Panda-Rosemary, L.P. (1)
10.52 Third Amendment to Real Property Lease and Easement Agreement,
dated March 15, 1996, between The Bibb Company and Panda-Rosemary,
L.P. (1)
10.53 Cogeneration Energy Supply Agreement, dated January 12, 1989,
between Panda Energy Corporation and The Bibb Company. (1)
10.54 First Amendment to Cogeneration Energy Supply Agreement, dated
October 1, 1989, between Panda Energy Corporation, Panda-Rosemary
Corporation and The Bibb Company. (1)
10.55 Service Agreement, dated July 26, 1996, between Transcontinental
Gas Pipe Line Corporation and Panda-Rosemary, L.P. (1)
10.55.1 Form of Amendment to Service Agreement, effective January 1, 1997,
between Transcontinental Gas Pipe Line Corporation and Panda-
Rosemary, L.P. (1)
10.56 Service Agreement Applicable to Transportation of Natural Gas
Under Rate Schedule FT, dated August 20, 1996, between CNG
Transmission Corporation and Panda-Rosemary, L.P. (1)
10.57 Gas Transportation Agreement, dated August 1, 1996, between Texas
Gas Transmission Corporation and Panda-Rosemary, L.P. (1)
10.58 Assignment and Assumption Agreement, dated May 15, 1989, between
Panda Energy Corporation and Panda-Rosemary Corporation. (1)
10.59 Bill of Sale and Assignment and Assumption Agreement, dated
January 6, 1992, between Panda-Rosemary Corporation and Panda-
Rosemary, L.P. (1)
10.60 Assignment and Assumption Agreement, dated January 6, 1992,
between Panda Energy Corporation and Panda-Rosemary Corporation.
(1)
10.61 Power Purchase Agreement, dated August 9, 1991, between Panda-
Brandywine, L.P. and Potomac Electric Power Company. (1)
10.62 First Amendment to Power Purchase Agreement, dated September 16,
1994, between Panda-Brandywine, L.P. and Potomac Electric Power
Company. (1)
10.62.1 Present Assignment of Power Purchase Agreement, dated December 18,
1996, by Panda-Brandywine, L.P. to Fleet National Bank, as Owner
Trustee, for the benefit of General Electric Capital Corporation,
as Owner Participant. (1)
10.62.2 Amended and Restated Consent and Agreement, dated December 30,
1996, among Potomac Electric Power Company, Panda-Brandywine,
L.P., Fleet National Bank, as Security Agent and Owner Trustee,
General Electric Capital Corporation, as the issuer of the Letters
of Credit, the Interest Hedging Counterparty and Owner
Participant, First Security Bank, National Association, as
Indenture Trustee, and Credit Suisse, as Administrative Agent. (1)
10.63 Amended and Restated Turnkey Cogeneration Facility Agreement,
dated March 30, 1995, between Panda-Brandywine, L.P. and Raytheon
Engineers & Constructors, Inc. (1)
10.64 Raytheon Parent Guaranty, dated May 18, 1994, between Raytheon
Company and Panda-Brandywine, L.P. (1)
10.65 Steam Sales Agreement, dated March 30, 1995, between Panda-
Brandywine, L.P. and Brandywine Water Company. (1)
10.66 Gas Sales Agreement, dated March 30, 1995, between Cogen
Development Company and Panda Brandywine, L.P. (1)
10.67 Precedent Agreement, dated February 25, 1994, between Columbia Gas
Transmission Corporation and Panda-Brandywine, L.P. (1)
10.68 Amending Agreement, dated March 24, 1995, between Columbia Gas
Transmission Corporation and Panda-Brandywine, L.P. (1)
10.69 Amended and Restated FTS Service Agreement, dated March 23, 1995,
between Columbia Gas Transmission Corporation and Panda-
Brandywine, L.P. (1)
10.70 FTS Service Agreement, dated of as March 30, 1995, between Cove
Point LNG Limited Partnership and Panda-Brandywine, L.P. (1)
10.71 Gas Transportation and Supply Agreement, dated November 10, 1994,
between Panda-Brandywine, L.P. and Washington Gas Light Company.
(1)
10.72 Amended and Restated Site Lease, dated December 18, 1996, between
Panda-Brandywine, L.P. and Fleet National Bank, as Owner Trustee.
(1)
10.73 Amended and Restated Site Sublease, dated December 18, 1996,
between Fleet National Bank, Owner Trustee, as Sublessor, and
Panda-Brandywine, L.P., as Sublessee. (1)
10.74 Purchase Agreement, dated July 26, 1996, between Panda Funding
Corporation and Jefferies & Company, Inc. (1)
10.75 Additional Projects Contract, dated July 31, 1996, among Panda
Energy International, Inc., Panda Energy Corporation, and Panda
Interfunding Corporation. (1)
10.76 Non-Petition Agreement, dated July 31, 1996, among Panda
Interfunding Corporation, Panda Interholding Corporation, Panda-
Rosemary Corporation, PRC II Corporation, Panda-Rosemary Funding
Corporation and Panda-Rosemary, L.P. (1)
10.77 Non-Petition Agreement, dated July 31, 1996, among Panda Funding
Corporation, Panda Interholding Corporation, Panda Interfunding
Corporation and Panda (Cayman) Interfunding Company. (1)
10.78 Joint Venture Contract for Tangshan Panda Heat and Power Co.,
Ltd., dated September 4, 1994, between Luannan County Heat & Power
Plant and Pan-Western Energy Corp., LLC, as amended July 19, 1996
and November 18, 1996, respectively. (2)
10.79 Joint Venture Contract for Tangshan Pan-Western Heat and Power
Co., Ltd., dated September 3, 1994, between Tangshan Luanhua Co.
(Group) and Pan-Western Energy Corp., LLC, as amended July 19,
1996 and November 18, 1996, respectively. (2)
10.80 Joint Venture Contract for Tangshan Cayman Heat and Power Co.,
Ltd., dated May 11, 1996, between Luannan County Heat & Power
Plant and Pan-Western Energy Corp., LLC, as amended July 19, 1996
and November 18, 1996, respectively. (2)
10.81 Joint Venture Contract for Tangshan Pan-Sino Heat Co., Ltd., dated
May 28, 1996, between Luannan County Heat Company and Pan-Western
Energy Corp., LLC, as amended July 19, 1996 and November 18, 1996,
respectively. (2)
10.82 Coal Supply Agreement between Tangshan Panda Heat and Power Co.,
Ltd. and Kailuan Coal Mining Administration, dated February 3,
1996. (2)
10.83 General Interconnection Agreement between North China Power Group
Company, Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-
Western Heat and Power Co., Ltd., dated September 22, 1995. (2)
10.84 Electric Energy Purchase and Sales Agreement between North China
Power Group Company, Tangshan Panda Heat and Power Co., Ltd. and
Tangshan Pan-Western Heat and Power Co., Ltd., dated September 22,
1995. (2)
10.85 Supplemental Agreement for General Interconnection and Electric
Energy Purchase and Sales Agreement Between North China Power
Group Company, Tangshan Panda Heat and Power Co., Ltd. and
Tangshan Pan-Western Heat and Power Co., Ltd. dated February 10,
1996. (2)
10.86 Construction Agreement between North China Power Group Company,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated February 10, 1996. (2)
10.87 Loan Agreement between North China Power Group Company, Tangshan
Panda Heat and Power Co., Ltd. and Tangshan Pan-Western Heat and
Power Co., Ltd., dated February 10, 1996, as amended June 18,
1996. (2)
10.88 Agency Contract for Entrusted Loan between China Information Trust
and Investment Corporation, Tangshan Panda Heat and Power Co.,
Ltd. and Tangshan Pan-Western Heat and Power Co. Ltd., dated June
18, 1996, as amended July 17, 1996. (2) (4)
10.89 Transfer of Loan Agreement among Tangshan Panda Heat and Power
Co., Ltd., Tangshan Pan-Western Heat and Power Co., Ltd. and
Tangshan Pan-Sino Heat Co., Ltd. (2)
10.90 Engineering, Procurement and Construction Contract among Tangshan
Panda Heat and Power Co., Ltd., Tangshan Pan-Western Heat and
Power Co., Ltd. and Harbin Power Engineering Company Limited,
dated April 24, 1996, as amended July 4, 1996, September 14, 1996
and December 17, 1996, respectively. (2) (4)
10.91 Engineering and Design Contract among Hebei Electric Power Survey
and Design Institute, Tangshan Panda Heat and Power Company, Ltd.
and Tangshan Pan-Western Heat and Power Company, Ltd., dated
December 21, 1995, as amended June 21, 1996. (2)
10.92 Guaranty by China Harbin Power Equipment Group Company, dated July
16, 1996. (2)
10.93 Performance Guarantee by The Export-Import Bank of China, dated
January 3, 1997. (2)
10.94 Amended and Restated Operation and Maintenance Agreement between
Tangshan Heat and Power Co., Ltd., Tangshan Pan-Western Heat and
Power Co., Ltd., Tangshan Cayman Heat and Power Co., Ltd.,
Tangshan Pan-Sino Heat Co., Ltd. and Duke/Fluor Daniel
International Services, dated March 6, 1997. (2) (4)
10.95 Construction Agreement of Heat and Steam Network between Tangshan
Pan-Sino Heat Co., Ltd. and Tangshan Heat and Engineering Company,
dated June 20, 1996. (2)
10.96 Amended and Restated Shareholder Loan Agreement between Pan-
Western Energy Corporation, LLC and Tangshan Panda Heat and Power
Co., Ltd., April 1, 1997 (2) (4)
10.97 Amended and Restated Shareholder Loan Agreement between Pan-
Western Energy Corporation, LLC and Tangshan Pan-Western Heat and
Power Co., Ltd., April 1, 1997 (2) (4)
10.98 Amended and Restated Shareholder Loan Agreement between Pan-
Western Energy Corporation, LLC and Tangshan Cayman Heat and Power
Co., Ltd., April 1, 1997 (2) (4)
10.99 Amended and Restated Shareholder Loan Agreement between Pan-
Western Energy Corporation, LLC and Tangshan Pan-Sino Heat and
Power Co., Ltd., April 1, 1997 (2) (4)
10.100 Water, Heat, Steam and Hot Water Supply and Usage Agreement
between Tangshan Cayman Heat and Power Company, Ltd., and Tangshan
Panda Heat and Power Company, Ltd., dated October 3, 1996. (2) (4)
10.101 Water, Heat, Steam and Hot Water Supply and Usage Agreement
between Tangshan Cayman Heat and Power Company, Ltd. and Tangshan
Pan-Western Heat and Power Company, Ltd., dated October 3, 1996.
(2) (4)
10.102 Steam for Process and Heating Water Sales Agreement between
Tangshan Cayman Heat and Power Company, Ltd., and Tangshan Pan-
Sino Heat Company, Ltd., dated October 16, 1996. (2)
10.103 Articles of Association of Tangshan Panda Heat and Power Co., Ltd.
between Luannan County Heat & Power Plant and Pan-Western Energy
Corp., LLC dated September 4, 1994. (2)
10.104 Articles of Association for Tangshan Pan-Western Heat and Power
Co., Ltd., between Tangshan Luanhua Co. (Group) and Pan-Western
Energy Corp., LLC, dated September 3, 1994. (2)
10.105 Articles of Association for Tangshan Cayman Heat and Power Co.,
Ltd., between Luannan County Heat & Power Plant and Pan-Western
Energy Corp., LLC, dated May 11, 1996. (2)
10.106 Articles of Association for Tangshan Pan-Sino Heat Co., Ltd.,
between Luannan County Heat Company and Pan-Western Energy Corp.,
LLC, dated May 28, 1996. (2)
10.107 Application Regarding Power Price among Tangshan Panda Heat and
Power Co., Ltd., Tangshan Pan-Western Heat and Power Co., Ltd.,
and Tangshan Municipal Price Bureau dated October 17, 1995, as
amended October 18, 1995 and May 8, 1996, respectively. (2) (4)
10.108 Administrative Services Agreement between Panda Energy
International, Inc. and Panda Global Holdings, Inc. dated April
22, 1997. (2)
10.109 Development Services Agreement between Panda Energy International,
Inc. and Panda Global Holdings, Inc. dated April 22, 1997. (2)
10.110 Form of Purchase Agreement among Donaldson, Lufkin & Jenrette
Securities Corporation, Panda Global Energy Company, Panda Global
Holdings, Inc. and Panda Energy International, Inc., dated April
11, 1997. (2)
10.111 Form of Issuer Loan Agreement between Panda Global Energy Company
and Pan-Western Energy Corporation, LLC, dated April 22, 1997. (2)
10.112 Form of Issuer Note of Pan-Western Energy Corporation, LLC, dated
April 22, 1997. (2)
10.113 Registered Capital Contribution and Agency Agreement among
Tangshan Panda Heat and Power Company, Ltd., Tangshan Pan-Western
Heat and Power Company, Ltd., Tangshan Cayman Heat and Power
Company, Ltd., Tangshan Pan-Sino Heat Company, Ltd., Luannan
County Heat and Power Plant, Tangshan Luanhua (Group) Co., Luannan
County Heat Company and Pan-Western Energy Corporation, LLC, dated
March 26, 1997. (2)
10.114 Form of Account Agreement among Panda Interfunding Corporation,
Panda Energy Corporation and Panda Global Holdings, Inc., dated
April 22, 1997. (2)
10.115 Form of Pledge Agreement between Panda Global Energy Company and
Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.116 Form of Pledge Agreement between Pan-Sino Energy Development
Company, LLC and Bankers Trust Company, as Trustee, dated April
22, 1997. (2)
10.117 Form of Pledge Agreement between Pan-Western Energy Corporation,
LLC and Bankers Trust Company, as Trustee, dated April 22, 1997.
(2)
10.118 Form of Pledge Agreement between Panda Global Holdings, Inc. and
Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.119 Form of Cash Collateral Agreement between Panda Global Energy
Company and Bankers Trust Company, as Trustee, dated April 22,
1997. (2)
10.120 Form of Cash Collateral Agreement between Pan-Western Energy
Corporation, LLC and Bankers Trust Company, as Trustee, dated
April 22, 1997. (2)
10.121 Form of Cash Collateral Agreement between Pan-Sino Energy
Development Company, LLC and Bankers Trust Company, as Trustee,
dated April 22, 1997. (2)
10.122 Form of Pledge Agreement between Panda Energy International, Inc.
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.123 Form of Cash Collateral Agreement between Panda Global Holdings,
Inc. and Bankers Trust Company, as Trustee, dated April 22, 1997.
(2)
10.124 Form of Cash Collateral Agreement Between Panda Energy Corporation
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.125 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Cayman Heat
and Power Co., Ltd., dated September 24, 1996. (2)
10.126 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.127 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Sino Heat
Co., Ltd., dated September 24, 1996. (2)
10.128 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Pan-
Sino Heat Co., Ltd., dated September 24, 1996. (2)
10.129 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Panda
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.130 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Cayman
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.131 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Panda Heat
and Power Co., Ltd., dated September 24, 1996. (2)
10.132 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Pan-Sino
Heat Co. Ltd., dated September 24, 1996. (2)
10.133 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.134 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Cayman Heat and
Power Co., Ltd., dated September 24, 1996. (2)
10.135 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Pan-Western Heat and
Power Co., Ltd., dated September 24, 1996. (2)
10.136 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Panda Heat and
Power Co., Ltd., dated September 24, 1996. (2)
12.00 Computation of Ratio of Earnings to Fixed Charges. (2)
21.00 Subsidiaries of Registrant and Co-Registrant. (2)
23.01 Consent of Deloitte & Touche LLP. (2)
23.02 Consent of Chadbourne & Parke LLP (contained in their Legal
Opinion filed as Exhibit 5.00). (3)
23.03 Consent of ICF Resources, Incorporated. (2)
23.04 Consent of Burns & McDonnell Engineering Company, Inc. (2)
23.05 Consent of Benjamin Schlesinger and Associates, Inc. (2)
23.06 Consent of Pacific Energy Systems, Inc. (2)
23.07 Consent of C.C. Pace Resources, Inc. (2)
23.08 Consent of Parsons Brinckerhoff Energy Services, Inc. (2)
23.09 Consent of Marston & Marston, Inc. (2)
23.10 Consent of Maples & Calder. (2)
23.10 Consent of Cai, Zhang & Lan. (2)
24.00 Powers of Attorney (contained in the signature pages in Part II of
this Registration Statement). (2)
25.00 Statement of Eligibility of Trustee under Indenture on Form T-1.
(2)
27.00 Financial Data Schedule. (2)
99.01 Form of Transmittal Letter. (3)
99.02 Form of Notice of Guaranteed Delivery. (3)
99.03 Independent Engineer's Report of Burns & McDonnell Engineering
Company, Inc., dated April 11, 1997, as updated June 6, 1997. (2)
99.04 Independent Fuel Consultant's Report of Benjamin Schlesinger and
Associates, Inc., dated September 20, 1996, as updated April 11, 1997
and June 6, 1997, respectively. (2)
99.05 Independent Engineer's Report of Pacific Energy Systems, Inc.,
dated July 22, 1996, as updated April 11, 1997 and June 6, 1997,
respectively. (2)
99.06 Independent Fuel Consultant's Report of C.C. Pace Resources, Inc.,
dated July 2, 1996, as updated April 11, 1997 and June 6, 1997,
respectively. (2)
99.07 Independent Engineer's Report of ICF Resources Incorporated,
dated April 11, 1997, as updated June 6, 1997, respectively. (2)
________________________
(1) Previously filed as an exhibit to the Registration Statement on Form
S-1 (Registration No. 333-19445) of Panda Funding Corporation, Panda
Interfunding Corporation and Panda Interholding Corporation
(affiliates of the Registrant and Co-Registrant), and incorporated
herein by reference.
(2) Filed herewith.
(3) To be filed by amendment.
(4) The Registrant and the Co-Registrant have sought confidential
treatment for certain information identified in these exhibits.
(b) Financial Statement Schedules: None.
Item 17. Undertakings
(a) The undersigned Registrant and each Co-Registrant hereby
undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution previously disclosed in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant and the Co-Registrant hereby undertake
that, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrant and the Co-Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant and the Co-Registrant
have been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant or the Co-
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant or the Co-Registrant, as the case may
be, in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Registrant and the Co-Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Panda Global Energy Company has duly caused this Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on June 10, 1997.
PANDA GLOBAL ENERGY COMPANY
(Registrant)
By: /s/ Robert W. Carter
Robert W. Carter, Chairman of the
Board, Chief Executive Officer and
Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Robert W. Carter as his or her true and lawful attorney-in-fact and agent,
with full powers of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments to this Registration
Statement and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes and he or she might do in person, hereby ratifying and confirming
all that said attorney-in fact and agent, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following
persons in the capacities indicated on the dates indicated.
Signature Title Date
Chairman of the Board, Chief
/s/ Robert W. Carter Executive Officer and Director June 10, 1997
Robert W. Carter (Principal Executive Officer)
Executive Vice President
/s/ Janice Carter Secretary and Treasurer June 10, 1997
Janice Carter (Principal Financial and
Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Panda Global Holdings, Inc. has duly caused this Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on June 10, 1997.
PANDA GLOBAL HOLDINGS, INC.
(Co-Registrant)
By: /s/ Robert W. Carter
Robert W. Carter, Chairman of the
Board ,Chief Executive Officer and
Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Robert W. Carter as his or her true and lawful attorney-in-fact and agent,
with full powers of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments to this Registration
Statement and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes and he or she might do in person, hereby ratifying and confirming
all that said attorney-in fact and agent, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following
persons in the capacities indicated on the dates indicated.
Signature Title Date
Chairman of the Board, Chief
/s/ Robert W. Carter Executive Officer and Director June 10, 1997
Robert W. Carter (Principal Executive Officer)
Executive Vice President
/s/ Janice Carter Secretary and Treasurer June 10, 1997
Janice Carter (Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
3.01 Memorandum of Association of Panda Global Energy Company. (2)
3.02 Articles of Association of Panda Global Energy Company. (2)
3.03 Certificate of Incorporation of Panda Global Holdings, Inc. (2)
3.04 Bylaws of Panda Global Holdings, Inc. (2)
4.01 Trust Indenture dated July 31, 1996, among Panda Funding
Corporation, Panda Interfunding Corporation and Bankers Trust
Company, as Trustee. (1)
4.02 First Supplemental Indenture to Trust Indenture, dated July 31,
1996, among Panda Funding Corporation, Panda Interfunding
Corporation and Bankers Trust Company, as Trustee. (1)
4.03 Second Supplemental Indenture to Trust Indenture, dated January 6,
1997, among Panda Funding Corporation, Panda Interfunding
Corporation and Bankers Trust Company, as Trustee. (1)
4.04 Form of 11-5/8% Pooled Project Bonds, Series A due 2012 of Panda
Funding Corporation. (1)
4.05 Form of 11-5/8% Pooled Project Bonds, Series A-1 due 2012 of Panda
Funding Corporation. (1)
4.06 Registration Rights Agreement, dated July 31, 1996, among Panda
Funding Corporation, Panda Interfunding Corporation and Jefferies
& Company Inc. (1)
4.07 Collateral Agency Agreement, dated July 31, 1996, among Panda
Interfunding Corporation, Panda Funding Corporation and Bankers
Trust Company, as Trustee and Collateral Agent. (1)
4.08 Subrogation and Contribution Agreement, dated July 31, 1996, among
Panda Interfunding Corporation, Panda Funding Corporation and
Panda Interholding Corporation and each PIC U.S. Entity that is a
signatory thereto. (1)
4.09 Guaranty Agreement (PIC U.S. Entity Subsidiaries), dated July 31,
1996 by Panda Interholding Corporation in favor of Bankers Trust
Company, as Collateral Agent for the benefit of the Secured
Parties. (1)
4.10 Trust Indenture, dated April 22, 1997, between Panda Global Energy
Company and Bankers Trust Company, as Trustee. (2)
4.11 First Supplemental Indenture between Panda Global Energy Company
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
4.12 Trust Indenture, dated April 22, 1997, between Panda Global
Holdings, Inc. and Bankers Trust Company, as Trustee. (2)
4.13 First Supplemental Indenture between Panda Global Holdings, Inc.
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
4.14 Registration Rights Agreement among Panda Global Energy Company,
Panda Global Holdings, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, dated April 22, 1997. (2)
4.15 Form of 12-1/2% Senior Secured Notes due 2004 of Panda Global
Energy Company. (2)
4.16 Form of 12-1/2% Registered Senior Secured Note due 2004 of Panda
Global Energy Company. (2)
5.00 Legal Opinion of Chadbourne & Parke LLP, counsel for the
Registrant and Co-Registrant. (3)
10.01 PIC Loan Agreement, dated July 31, 1996, between Panda Funding
Corporation, as Lender, and Panda Interfunding Corporation, as
Borrower. (1)
10.02 Loan Agreement, dated July 31, 1996, between Panda Interfunding
Corporation, as Lender, and Panda Cayman Interfunding Company, as
Borrower. (1)
10.03 Promissory Note issued by Panda Interfunding Corporation on July
31, 1996 to Panda Funding Corporation in the original principal
amount of $105,525,000, endorsed to Bankers Trust Company, as
Collateral Agent. (1)
10.04 Security Agreement, dated July 31, 1996, between Panda
Interfunding Corporation and Bankers Trust Company, as Collateral
Agent. (1)
10.05 Security Agreement, dated July 31, 1996, between Panda Funding
Corporation and Bankers Trust Company, as Collateral Agent. (1)
10.06 Security Agreement, dated July 31, 1996, between Panda Cayman
Interfunding Company, as Debtor, and Panda Interfunding
Corporation, as Secured Party. (1)
10.07 Stock Pledge Agreement (Panda Interfunding Corporation Stock),
dated July 31, 1996, between Panda Energy Corporation and Bankers
Trust Company, as Collateral Agent. (1)
10.08 Stock Pledge Agreement (Panda Funding Corporation and PIC Entity
Stock), dated July 31, 1996, between Panda Interfunding
Corporation and Bankers Trust Company, as Collateral Agent. (1)
10.09 Trust Indenture, dated July 31, 1996, among Panda-Rosemary Funding
Corporation, Panda-Rosemary, L.P. and Fleet National Bank, as
Trustee. (1)
10.10 First Supplemental Indenture to Trust Indenture, dated July 31,
1996, among Panda-Rosemary Funding Corporation, Panda-Rosemary,
L.P. and Fleet National Bank, as Trustee. (1)
10.10.1 Second Suplemental Indenture to Trust Indenture, dated January 15,
1997, among Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P.
and Fleet National Bank, as Trustee. (3)
10.11 Form of 8-5/8% First Mortgage Bonds due 2016 of Panda-Rosemary
Funding Corporation. (1)
10.12 Deposit and Disbursement Agreement, dated July 31, 1996, among
Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P., Fleet
National Bank, as Collateral Agent, and Fleet National Bank, as
Depositary Agent. (1)
10.13 Collateral Agency and Intercreditor Agreement, dated July 31,
1996, among Panda Rosemary Funding Corporation, Panda-Rosemary,
L.P., The L/C Issuer, The Trustee Under The Trust Indenture, The
Depositary Agent, The Collateral Agent and The Other Secured
Parties, all as named therein. (1)
10.14 Deed of Trust and Security Agreement, dated July 31, 1996, by
Panda-Rosemary, L.P., Grantor, Ross J. Smyth, Trustee, and Fleet
National Bank, as Collateral Agent, the Beneficiary. (1)
10.15 Security Agreement, dated July 31, 1996, by Panda-Rosemary, L.P.
to Fleet National Bank, as Collateral Agent. (1)
10.16 Security Agreement, dated July 31, 1996, by Panda-Rosemary Funding
Corporation to Fleet National Bank, as Collateral Agent. (1)
10.17 General Partner Pledge and Security Agreement, dated July 31,
1996, by Panda-Rosemary Corporation to Fleet National Bank, as
Collateral Agent. (1)
10.18 Limited Partner Pledge and Security Agreement, dated July 31,
1996, by PRC II Corporation to Fleet National Bank, as Collateral
Agent. (1)
10.19 Stock Pledge and Security Agreement, dated July 31, 1996, by Panda
Interholding Corporation to Fleet National Bank, as Collateral
Agent. (1)
10.20 Stock Pledge and Security Agreement, dated July 31, 1996, by Panda-
Rosemary, L.P. to Fleet National Bank, as Collateral Agent. (1)
10.21 Partnership Guaranty, dated July 31, 1996, by Panda-Rosemary, L.P.
in favor of Fleet National Bank, as Trustee. (1)
10.22 Reimbursement Agreement, dated July 31, 1996, between Panda-
Rosemary, L.P., Panda-Rosemary Funding Corporation and Bayerische
Vereinsbank AG, New York Branch. (1)
10.23 Irrevocable Direct Pay Letter of Credit issued by Bayerische
Vereinsbank AG. (1)
10.24 Construction Loan Agreement and Lease Commitment, dated March 30,
1996, between Panda-Brandywine, L.P. and General Electric Capital
Corporation. (1)
10.24.1 Participation Agreement, dated December 18, 1996, among Panda-
Brandywine, L.P., Panda Brandywine Corporation, General Electric
Capital Corporation, Fleet National Bank, First Security Bank,
National Association, and Credit Suisse. (1)
10.24.2 Letter of Credit Reimbursement Agreement, dated December 18, 1996,
among Panda-Brandywine, L.P., Panda Brandywine Corporation and
General Electric Capital Corporation. (1)
10.24.3 Equity Loan Facility Letter Agreement, dated December 18, 1996,
among Panda Brandywine Corporation, Panda Energy Corporation and
General Electric Capital Corporation. (1)
10.25 Bill of Sale and Severance Agreement, dated December 30, 1996,
between Panda-Brandywine, L.P., as Seller, and Fleet National
Bank, Owner Trustee, as Buyer. (1)
10.26 Facility Lease, dated December 18, 1996, between Fleet National
Bank, as Owner Trustee, and Panda-Brandywine, L.P. (1)
10.27 Steam Lease, dated as of December 18, 1996, between Panda-
Brandywine, L.P. and Brandywine Water Company. (1)
10.28 Amended and Restated Security Deposit Agreement, dated December
18, 1996, among Panda-Brandywine, L.P., Panda Brandywine
Corporation, General Electric Capital Corporation, Fleet National
Bank, Credit Suisse and First Security Bank, National Association.
(1)
10.28.1 First Amendment to Amended and Restated Security Deposit Agreement,
dated February 21, 1997, among Panda Brandywine, L.P., General Electric
Capital Corporation, Fleet National Bank, Credit Suisse and First
Secuirty Bank, National Association. (3)
10.29 Amended and Restated Deed of Trust and Security Agreement, dated
December 18, 1996, by Panda-Brandywine, L.P. to Chicago Title
Insurance Company, Trustee for the benefit of Fleet National Bank,
as Security Agent, Beneficiary. (1)
10.30 Amended and Restated Steam Lessee Security Agreement, dated
December 18, 1996, by Brandywine Water Company in favor of Fleet
National Bank, as Security Agent. (1)
10.31 Amended and Restated Security Agreement, dated December 18, 1996,
by Panda-Brandywine, L.P. in favor of Fleet National Bank, as
Security Agent. (1)
10.32 Amended and Restated Trust Agreement, dated December 18, 1996,
between General Electric Capital Corporation, as Owner
Participant, and Fleet National Bank, as Owner Trustee. (1)
10.33 Amended and Restated General Partner Pledge Agreement, dated
December 18, 1996, by Panda Brandywine Corporation to Fleet
National Bank, as Security Agent. (1)
10.34 Amended and Restated Limited Partner Pledge Agreement, dated
December 18, 1996, by Panda Energy Corporation to Fleet National
Bank, as Security Agent. (1)
10.35 Amended and Restated Stock Pledge Agreement, dated December 18,
1996, by Panda Interholding Corporation to Fleet National Bank, as
Security Agent. (1)
10.36 Assumption Agreement and Release, dated July 31, 1996, by Panda
Interholding Corporation in favor of General Electric Capital
Corporation and Fleet National Bank. (1)
10.37 Power Purchase and Operating Agreement, dated January 24, 1989,
between Panda Energy Corporation and Virginia Electric and Power
Company. (1)
10.38 Amendment No. 1 to Power Purchase and Operating Agreement, dated
October 24, 1989, between Panda Energy Corporation and Virginia
Electric and Power Company. (1)
10.39 Amendment No. 2 to Power Purchase and Operating Agreement, dated
July 30, 1993, between Panda-Rosemary, L.P. and Virginia Electric
and Power Company. (1)
10.40 Fuel Supply Management Agreement, dated October 10, 1990, between
Panda-Rosemary Corporation and Natural Gas Clearinghouse. (1)
10.41 Amendment No. 1 to Fuel Supply Management Agreement, dated March
5, 1991, between Panda-Rosemary Corporation and Natural Gas
Clearinghouse. (1)
10.42 Gas Purchase Contract, dated April 12, 1990, between Panda-
Rosemary Corporation and Natural Gas Clearinghouse. (1)
10.43 Amendment of Gas Purchase Contract between Panda-Rosemary
Corporation and Natural Gas Clearinghouse. (1)
10.44 Pipeline Operating Agreement, dated February 14, 1990, between
Panda Energy Corporation, Panda-Rosemary Corporation and North
Carolina Natural Gas Corporation. (1)
10.45 Amendment No. 1 to Pipeline Operating Agreement, dated May 7,
1990, between Panda Energy Corporation, Panda-Rosemary Corporation
and North Carolina Natural Gas Corporation. (1)
10.46 Assignment Agreement, dated June 15, 1990, between Panda Energy
Corporation and Panda-Rosemary Corporation. (1)
10.47 Amendment No. 2 to Pipeline Operating Agreement, dated November
19, 1991, among Panda Energy Corporation, Panda-Rosemary
Corporation and North Carolina Natural Gas Corporation. (1)
10.48 Real Property Lease and Easement Agreement, dated June 9, 1989,
between The Bibb Company and Panda-Rosemary Corporation. (1)
10.49 First Amendment to Real Property Lease and Easement Agreement,
dated October 1, 1989, between The Bibb Company and Panda-Rosemary
Corporation. (1)
10.50 Second Amendment to Real Property Lease and Easement Agreement,
dated January 31, 1990, between The Bibb Company and Panda-
Rosemary Corporation. (1)
10.51 Leasehold and Real Property Assignment and Assumption Agreement,
dated January 6, 1992, between Panda-Rosemary Corporation and
Panda-Rosemary, L.P. (1)
10.52 Third Amendment to Real Property Lease and Easement Agreement,
dated March 15, 1996, between The Bibb Company and Panda-Rosemary,
L.P. (1)
10.53 Cogeneration Energy Supply Agreement, dated January 12, 1989,
between Panda Energy Corporation and The Bibb Company. (1)
10.54 First Amendment to Cogeneration Energy Supply Agreement, dated
October 1, 1989, between Panda Energy Corporation, Panda-Rosemary
Corporation and The Bibb Company. (1)
10.55 Service Agreement, dated July 26, 1996, between Transcontinental
Gas Pipe Line Corporation and Panda-Rosemary, L.P. (1)
10.55.1 Form of Amendment to Service Agreement, effective January 1, 1997,
between Transcontinental Gas Pipe Line Corporation and Panda-
Rosemary, L.P. (1)
10.56 Service Agreement Applicable to Transportation of Natural Gas
Under Rate Schedule FT, dated August 20, 1996, between CNG
Transmission Corporation and Panda-Rosemary, L.P. (1)
10.57 Gas Transportation Agreement, dated August 1, 1996, between Texas
Gas Transmission Corporation and Panda-Rosemary, L.P. (1)
10.58 Assignment and Assumption Agreement, dated May 15, 1989, between
Panda Energy Corporation and Panda-Rosemary Corporation. (1)
10.59 Bill of Sale and Assignment and Assumption Agreement, dated
January 6, 1992, between Panda-Rosemary Corporation and Panda-
Rosemary, L.P. (1)
10.60 Assignment and Assumption Agreement, dated January 6, 1992,
between Panda Energy Corporation and Panda-Rosemary Corporation.
(1)
10.61 Power Purchase Agreement, dated August 9, 1991, between Panda-
Brandywine, L.P. and Potomac Electric Power Company. (1)
10.62 First Amendment to Power Purchase Agreement, dated September 16,
1994, between Panda-Brandywine, L.P. and Potomac Electric Power
Company. (1)
10.62.1 Present Assignment of Power Purchase Agreement, dated December 18,
1996, by Panda-Brandywine, L.P. to Fleet National Bank, as Owner
Trustee, for the benefit of General Electric Capital Corporation,
as Owner Participant. (1)
10.62.2 Amended and Restated Consent and Agreement, dated December 30,
1996, among Potomac Electric Power Company, Panda-Brandywine,
L.P., Fleet National Bank, as Security Agent and Owner Trustee,
General Electric Capital Corporation, as the issuer of the Letters
of Credit, the Interest Hedging Counterparty and Owner
Participant, First Security Bank, National Association, as
Indenture Trustee, and Credit Suisse, as Administrative Agent. (1)
10.63 Amended and Restated Turnkey Cogeneration Facility Agreement,
dated March 30, 1995, between Panda-Brandywine, L.P. and Raytheon
Engineers & Constructors, Inc. (1)
10.64 Raytheon Parent Guaranty, dated May 18, 1994, between Raytheon
Company and Panda-Brandywine, L.P. (1)
10.65 Steam Sales Agreement, dated March 30, 1995, between Panda-
Brandywine, L.P. and Brandywine Water Company. (1)
10.66 Gas Sales Agreement, dated March 30, 1995, between Cogen
Development Company and Panda Brandywine, L.P. (1)
10.67 Precedent Agreement, dated February 25, 1994, between Columbia Gas
Transmission Corporation and Panda-Brandywine, L.P. (1)
10.68 Amending Agreement, dated March 24, 1995, between Columbia Gas
Transmission Corporation and Panda-Brandywine, L.P. (1)
10.69 Amended and Restated FTS Service Agreement, dated March 23, 1995,
between Columbia Gas Transmission Corporation and Panda-
Brandywine, L.P. (1)
10.70 FTS Service Agreement, dated of as March 30, 1995, between Cove
Point LNG Limited Partnership and Panda-Brandywine, L.P. (1)
10.71 Gas Transportation and Supply Agreement, dated November 10, 1994,
between Panda-Brandywine, L.P. and Washington Gas Light Company.
(1)
10.72 Amended and Restated Site Lease, dated December 18, 1996, between
Panda-Brandywine, L.P. and Fleet National Bank, as Owner Trustee.
(1)
10.73 Amended and Restated Site Sublease, dated December 18, 1996,
between Fleet National Bank, Owner Trustee, as Sublessor, and
Panda-Brandywine, L.P., as Sublessee. (1)
10.74 Purchase Agreement, dated July 26, 1996, between Panda Funding
Corporation and Jefferies & Company, Inc. (1)
10.75 Additional Projects Contract, dated July 31, 1996, among Panda
Energy International, Inc., Panda Energy Corporation, and Panda
Interfunding Corporation. (1)
10.76 Non-Petition Agreement, dated July 31, 1996, among Panda
Interfunding Corporation, Panda Interholding Corporation, Panda-
Rosemary Corporation, PRC II Corporation, Panda-Rosemary Funding
Corporation and Panda-Rosemary, L.P. (1)
10.77 Non-Petition Agreement, dated July 31, 1996, among Panda Funding
Corporation, Panda Interholding Corporation, Panda Interfunding
Corporation and Panda (Cayman) Interfunding Company. (1)
10.78 Joint Venture Contract for Tangshan Panda Heat and Power Co.,
Ltd., dated September 4, 1994, between Luannan County Heat & Power
Plant and Pan-Western Energy Corp., LLC, as amended July 19, 1996
and November 18, 1996, respectively. (2)
10.79 Joint Venture Contract for Tangshan Pan-Western Heat and Power
Co., Ltd., dated September 3, 1994, between Tangshan Luanhua Co.
(Group) and Pan-Western Energy Corp., LLC, as amended July 19,
1996 and November 18, 1996, respectively. (2)
10.80 Joint Venture Contract for Tangshan Cayman Heat and Power Co.,
Ltd., dated May 11, 1996, between Luannan County Heat & Power
Plant and Pan-Western Energy Corp., LLC, as amended July 19, 1996
and November 18, 1996, respectively. (2)
10.81 Joint Venture Contract for Tangshan Pan-Sino Heat Co., Ltd., dated
May 28, 1996, between Luannan County Heat Company and Pan-Western
Energy Corp., LLC, as amended July 19, 1996 and November 18, 1996,
respectively. (2)
10.82 Coal Supply Agreement between Tangshan Panda Heat and Power Co.,
Ltd. and Kailuan Coal Mining Administration, dated February 3,
1996. (2)
10.83 General Interconnection Agreement between North China Power Group
Company, Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-
Western Heat and Power Co., Ltd., dated September 22, 1995. (2)
10.84 Electric Energy Purchase and Sales Agreement between North China
Power Group Company, Tangshan Panda Heat and Power Co., Ltd. and
Tangshan Pan-Western Heat and Power Co., Ltd., dated September 22,
1995. (2)
10.85 Supplemental Agreement for General Interconnection and Electric
Energy Purchase and Sales Agreement Between North China Power
Group Company, Tangshan Panda Heat and Power Co., Ltd. and
Tangshan Pan-Western Heat and Power Co., Ltd. dated February 10,
1996. (2)
10.86 Construction Agreement between North China Power Group Company,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated February 10, 1996. (2)
10.87 Loan Agreement between North China Power Group Company, Tangshan
Panda Heat and Power Co., Ltd. and Tangshan Pan-Western Heat and
Power Co., Ltd., dated February 10, 1996, as amended June 18,
1996. (2)
10.88 Agency Contract for Entrusted Loan between China Information Trust
and Investment Corporation, Tangshan Panda Heat and Power Co.,
Ltd. and Tangshan Pan-Western Heat and Power Co. Ltd., dated June
18, 1996, as amended July 17, 1996. (2) (4)
10.89 Transfer of Loan Agreement among Tangshan Panda Heat and Power
Co., Ltd., Tangshan Pan-Western Heat and Power Co., Ltd. and
Tangshan Pan-Sino Heat Co., Ltd. (2)
10.90 Engineering, Procurement and Construction Contract among Tangshan
Panda Heat and Power Co., Ltd., Tangshan Pan-Western Heat and
Power Co., Ltd. and Harbin Power Engineering Company Limited,
dated April 24, 1996, as amended July 4, 1996, September 14, 1996
and December 17, 1996, respectively. (2) (4)
10.91 Engineering and Design Contract among Hebei Electric Power Survey
and Design Institute, Tangshan Panda Heat and Power Company, Ltd.
and Tangshan Pan-Western Heat and Power Company, Ltd., dated
December 21, 1995, as amended June 21, 1996. (2)
10.92 Guaranty by China Harbin Power Equipment Group Company, dated July
16, 1996. (2)
10.93 Performance Guarantee by The Export-Import Bank of China, dated
January 3, 1997. (2)
10.94 Amended and Restated Operation and Maintenance Agreement between
Tangshan Heat and Power Co., Ltd., Tangshan Pan-Western Heat and
Power Co., Ltd., Tangshan Cayman Heat and Power Co., Ltd.,
Tangshan Pan-Sino Heat Co., Ltd. and Duke/Fluor Daniel
International Services, dated March 6, 1997. (2) (4)
10.95 Construction Agreement of Heat and Steam Network between Tangshan
Pan-Sino Heat Co., Ltd. and Tangshan Heat and Engineering Company,
dated June 20, 1996. (2)
10.96 Amended and Restated Shareholder Loan Agreement between Pan-
Western Energy Corporation, LLC and Tangshan Panda Heat and Power
Co., Ltd., April 1, 1997 (3) (4)
10.97 Amended and Restated Shareholder Loan Agreement between Pan-
Western Energy Corporation, LLC and Tangshan Pan-Western Heat and
Power Co., Ltd., April 1, 1997 (3) (4)
10.98 Amended and Restated Shareholder Loan Agreement between Pan-
Western Energy Corporation, LLC and Tangshan Cayman Heat and Power
Co., Ltd., April 1, 1997 (3) (4)
10.99 Amended and Restated Shareholder Loan Agreement between Pan-
Western Energy Corporation, LLC and Tangshan Pan-Sino Heat and
Power Co., Ltd., April 1, 1997 (3) (4)
10.100 Water, Heat, Steam and Hot Water Supply and Usage Agreement
between Tangshan Cayman Heat and Power Company, Ltd., and Tangshan
Panda Heat and Power Company, Ltd., dated October 3, 1996. (2) (4)
10.101 Water, Heat, Steam and Hot Water Supply and Usage Agreement
between Tangshan Cayman Heat and Power Company, Ltd. and Tangshan
Pan-Western Heat and Power Company, Ltd., dated October 3, 1996.
(2) (4)
10.102 Steam for Process and Heating Water Sales Agreement between
Tangshan Cayman Heat and Power Company, Ltd., and Tangshan Pan-
Sino Heat Company, Ltd., dated October 16, 1996. (2)
10.103 Articles of Association of Tangshan Panda Heat and Power Co., Ltd.
between Luannan County Heat & Power Plant and Pan-Western Energy
Corp., LLC dated September 4, 1994. (2)
10.104 Articles of Association for Tangshan Pan-Western Heat and Power
Co., Ltd., between Tangshan Luanhua Co. (Group) and Pan-Western
Energy Corp., LLC, dated September 3, 1994. (2)
10.105 Articles of Association for Tangshan Cayman Heat and Power Co.,
Ltd., between Luannan County Heat & Power Plant and Pan-Western
Energy Corp., LLC, dated May 11, 1996. (2)
10.106 Articles of Association for Tangshan Pan-Sino Heat Co., Ltd.,
between Luannan County Heat Company and Pan-Western Energy Corp.,
LLC, dated May 28, 1996. (2)
10.107 Application Regarding Power Price among Tangshan Panda Heat and
Power Co., Ltd., Tangshan Pan-Western Heat and Power Co., Ltd.,
and Tangshan Municipal Price Bureau dated October 17, 1995, as
amended October 18, 1995 and May 8, 1996, respectively. (2) (4)
10.108 Administrative Services Agreement between Panda Energy
International, Inc. and Panda Global Holdings, Inc. dated April
22, 1997. (2)
10.109 Development Services Agreement between Panda Energy International,
Inc. and Panda Global Holdings, Inc. dated April 22, 1997. (2)
10.110 Form of Purchase Agreement among Donaldson, Lufkin & Jenrette
Securities Corporation, Panda Global Energy Company, Panda Global
Holdings, Inc. and Panda Energy International, Inc., dated April
11, 1997. (2)
10.111 Form of Issuer Loan Agreement between Panda Global Energy Company
and Pan-Western Energy Corporation, LLC, dated April 22, 1997. (2)
10.112 Form of Issuer Note of Pan-Western Energy Corporation, LLC, dated
April 22, 1997. (2)
10.113 Registered Capital Contribution and Agency Agreement among
Tangshan Panda Heat and Power Company, Ltd., Tangshan Pan-Western
Heat and Power Company, Ltd., Tangshan Cayman Heat and Power
Company, Ltd., Tangshan Pan-Sino Heat Company, Ltd., Luannan
County Heat and Power Plant, Tangshan Luanhua (Group) Co., Luannan
County Heat Company and Pan-Western Energy Corporation, LLC, dated
March 26, 1997. (2)
10.114 Form of Account Agreement among Panda Interfunding Corporation,
Panda Energy Corporation and Panda Global Holdings, Inc., dated
April 22, 1997. (2)
10.115 Form of Pledge Agreement between Panda Global Energy Company and
Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.116 Form of Pledge Agreement between Pan-Sino Energy Development
Company, LLC and Bankers Trust Company, as Trustee, dated April
22, 1997. (2)
10.117 Form of Pledge Agreement between Pan-Western Energy Corporation,
LLC and Bankers Trust Company, as Trustee, dated April 22, 1997.
(2)
10.118 Form of Pledge Agreement between Panda Global Holdings, Inc. and
Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.119 Form of Cash Collateral Agreement between Panda Global Energy
Company and Bankers Trust Company, as Trustee, dated April 22,
1997. (2)
10.120 Form of Cash Collateral Agreement between Pan-Western Energy
Corporation, LLC and Bankers Trust Company, as Trustee, dated
April 22, 1997. (2)
10.121 Form of Cash Collateral Agreement between Pan-Sino Energy
Development Company, LLC and Bankers Trust Company, as Trustee,
dated April 22, 1997. (2)
10.122 Form of Pledge Agreement between Panda Energy International, Inc.
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.123 Form of Cash Collateral Agreement between Panda Global Holdings,
Inc. and Bankers Trust Company, as Trustee, dated April 22, 1997.
(2)
10.124 Form of Cash Collateral Agreement Between Panda Energy Corporation
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.125 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Cayman Heat
and Power Co., Ltd., dated September 24, 1996. (2)
10.126 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.127 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Sino Heat
Co., Ltd., dated September 24, 1996. (2)
10.128 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Pan-
Sino Heat Co., Ltd., dated September 24, 1996. (2)
10.129 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Panda
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.130 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Cayman
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.131 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Panda Heat
and Power Co., Ltd., dated September 24, 1996. (2)
10.132 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Pan-Sino
Heat Co. Ltd., dated September 24, 1996. (2)
10.133 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.134 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Cayman Heat and
Power Co., Ltd., dated September 24, 1996. (2)
10.135 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Pan-Western Heat and
Power Co., Ltd., dated September 24, 1996. (2)
10.136 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Panda Heat and
Power Co., Ltd., dated September 24, 1996. (2)
12.00 Computation of Ratio of Earnings to Fixed Charges. (2)
21.00 Subsidiaries of Registrant and Co-Registrant. (3)
23.01 Consent of Deloitte & Touche LLP. (3)
23.02 Consent of Chadbourne & Parke LLP (contained in their Legal
Opinion filed as Exhibit 5.00). (3)
23.03 Consent of ICF Resources, Incorporated. (3)
23.04 Consent of Burns & McDonnell Engineering Company, Inc. (3)
23.05 Consent of Benjamin Schlesinger and Associates, Inc. (3)
23.06 Consent of Pacific Energy Systems, Inc. (3)
23.07 Consent of C.C. Pace Resources, Inc. (3)
23.08 Consent of Parsons Brinckerhoff Energy Services, Inc. (3)
23.09 Consent of Marston & Marston, Inc. (3)
23.10 Consent of Maples & Calder. (3)
23.11 Consent of Cai, Zhang & Lan. (3)
24.00 Powers of Attorney (contained in the signature pages in Part II of
this Registration Statement). (2)
25.00 Statement of Eligibility of Trustee under Indenture on Form T-1.
(2)
27.00 Financial Data Schedule. (2)
99.01 Form of Transmittal Letter. (3)
99.02 Form of Notice of Guaranteed Delivery. (3)
99.03 Independent Engineer's Report of Burns & McDonnell Engineering
Company, Inc., dated April 11, 1997, as updated June 6, 1997. (2)
99.03.1 Update dated August 7, 1997 of Independent Engineer's Report of
Burns & McDonnell Engineering Company, Inc., dated April 11, 1997. (3)
99.04 Independent Fuel Consultant's Report of Benjamin Schlesinger and
Associates, Inc., dated September 20, 1996, as updated April 11, 1997
and June 6, 1997, respectively. (2)
99.04.1 Update dated August 7, 1997 of Independent Fuel Consultant's
Report of Benjamin Schlesinger and Associates, Inc., dated
September 20, 1996, as updated April 11, 1997. (3)
99.05 Independent Engineer's Report of Pacific Energy Systems, Inc.,
dated July 22, 1996, as updated April 11, 1997 and June 6, 1997,
respectively. (2)
99.05.1 Update dated August 7, 1997 of Independent Engineer's Report of
Pacific Energy Systems, Inc., dated July 22, 1996, as updated
April 11, 1997. (3)
99.06 Independent Fuel Consultant's Report of C.C. Pace Resources, Inc.,
dated July 2, 1996, as updated April 11, 1997 and June 6, 1997,
respectively. (2)
99.06.1 Update dated August 7, 1997 of Independent Fuel Consultant's Report
of C.C. Pace Resources, Inc., dated July 2, 1996, as updated
April 11, 1997. (3)
99.07 Independent Engineer's Report of ICF Resources Incorporated,
dated April 11, 1997, as updated June 6, 1997, respectively. (2)
99.07.1 Update dated August 7, 1997 of Independent Engineer's Report of
ICF Resources Incorporated, dated April 11, 1997. (3)
________________________
(1) Previously filed as an exhibit to the Registration Statement on Form
S-1 (Registration No. 333-19445) of Panda Funding Corporation, Panda
Interfunding Corporation and Panda Interholding Corporation
(affiliates of the Registrant and Co-Registrant), and incorporated
herein by reference.
(2) Previoiusly filed.
(3) Filed herewith.
(4) The Registrant and the Co-Registrant have sought confidential
treatment for certain information identified in these exhibits.
EXHIBIT 5.00
[CHADBOURNE & PARKE LLP]
August 11, 1997
Panda Global Energy Company
Panda Global Holdings, Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
Dear Sirs:
We have acted as counsel for Panda Global Energy Company, a
Cayman Islands Company (the "Company") and Panda Global Holdings,
Inc., a Delaware Corporation, in connection with the proposed
issuance and sale by the Company of up to $155,200,000 in
aggregate principal amount of 12 1/2% Registered Senior Secured
Notes due 2004 (the "Notes"), which are being registered with the
Securities and Exchange Commission on Form S-1 (Registration No.
333-29005) under the Securities Act of 1933, as amended (the
"Act") (collectively, the Registration Statement"). The Notes
are to be issued pursuant to a Trust Indenture, dated as of April
22, 1997, among the Company and Bankers Trust Company, as
trustee, (the "Indenture"), and are to be exchanged for the
Company's 12 1/2 % Senior Secured Notes due 2004 (the "Old Notes").
As such counsel, we have examined originals or copies
certified or otherwise identified to our satisfaction of the
Certificate of Incorporation and By-Laws of the Company, as
amended to the date hereof, the Indenture and resolutions adopted
by the Company's Board of Directors in connection with the
authorization, registration, issuance and sale of the Notes. We
also have examined originals, or copies certified or otherwise
identified to our satisfaction, of such corporate records of the
Company and other instruments, certificates of appropriate public
officials and certificates of officers and representatives of the
Company, and other documents as we have deemed necessary as a
basis for the opinions hereinafter expressed. In such
examination, we have assumed the authenticity of all documents
submitted to us as originals, the conformity with the originals
of all documents submitted to us as copies, the genuineness of
all signatures and the legal capacity of natural persons.
On the basis of the foregoing, we are of the opinion that,
when the Registration Statement with respect to the Notes filed
pursuant to the Act has become effective under the Act, the
Indenture has been qualified under the Trust Indenture Act of
1939, as amended, and the Notes have been duly executed,
authenticated and delivered in exchange for the Old Notes, the
Notes will be legally and validly issued and will constitute the
valid and binding obligations of the Company.
We are members of the bar of the State of New York and with
your approval do not herein express any opinion as to any matters
governed by any law other than the laws of the State of New York,
the General Corporation Law and the State of Delaware and the
federal laws of the United States.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference made
to this firm under the caption "Legal Matters" in the prospectus
constituting part of the Registration Statement.
Very truly yours,
CHADBOURNE & PARKE LLP
EXHIBIT 10.10.1
SECOND SUPPLEMENTAL INDENTURE
dated as of January 15, 1997
to
TRUST INDENTURE
dated as of July 31, 1996
among
PANDA-ROSEMARY FUNDING CORPORATION,
PANDA-ROSEMARY, L.P.,
and
FLEET NATIONAL BANK, AS TRUSTEE
TABLE OF CONTENTS
Page
ARTICLE I
AMENDMENTS
SECTION 1.1 AMENDMENT OF SECTION 6.22. 1
SECTION 1.2 AMENDMENT OF SECTION 12.2. 2
ARTICLE II
MISCELLANEOUS
SECTION 2.1 EXECUTION OF SUPPLEMENTAL INDENTURE. 2
SECTION 2.2 CONCERNING THE TRUSTEE. 2
SECTION 2.3 COUNTERPARTS. 3
SECTION 2.4 GOVERNING LAW. 3
SECTION 2.5 DEFINITIONS. 3
SECOND SUPPLEMENTAL INDENTURE, dated as of January 15,
1997, to the Trust Indenture, dated as of July 31, 1996 and
supplemented by a First Supplemental Indenture of the same
date (the "Indenture"), among PANDA-ROSEMARY FUNDING
CORPORATION, a Delaware corporation (the "Company"), its
executive office and mailing address being at 4100 Spring
Valley Road, Suite 1001, Dallas, Texas 75244, PANDA-ROSEMARY,
L.P., a Delaware limited partnership (the "Partnership"), its
executive office and mailing address being at 4100 Spring
Valley Road, Suite 1001, Dallas, Texas 75244, and FLEET
NATIONAL BANK, a national banking association established
under the laws of the United States (the "Trustee"), its
corporate trust office and mailing address being at 777 Main
Street, Hartford, Connecticut 06115.
WITNESSETH:
WHEREAS, the Company, the Partnership and the Trustee
have heretofore executed and delivered the Indenture and,
pursuant to the Indenture, the Company has issued its 85/8%
First Mortgage Bonds due 2016 in the aggregate principal
amount of $111,400,000 (the "Initial Bonds");
WHEREAS, Section 12.2 of the Indenture provides that the
Company, the Partnership and the Trustee may enter into
indentures supplemental to the Indenture for, among other
things, the purpose of changing the provisions of the
Indenture;
WHEREAS, the Company has requested the Trustee and the
Partnership to enter into this Second Supplemental Indenture
for the purpose of amending in certain respects Section 6.22
and Section 12.2 of the Indenture;
WHEREAS, each of the holders of the Initial Bonds has
consented to the execution and delivery of this Second
Supplemental Indenture; and
WHEREAS, all acts and things necessary to make this
instrument a valid and binding supplemental indenture
according to its terms, have been done and performed, and the
execution of this Second Supplemental Indenture have in all
respects been duly authorized.
NOW, THEREFORE, in consideration of the premises and the
agreements herein contained and other good and valuable
consideration, the parties agrees as follows:
ARTICLE HEADINGS ARE CODED FOR TOC USING THE HEADING 1 STYLE.
SUBSECTION HEADINGS ARE CODED USING THE HEADING 2 STYLE. DO
NOT RECODE THESE HEADINGS WITH FIELD CODES. USE FIELD CODES
ONLY WHEN SUBHEADINGS ARE A PART OF THE PARAGRAPH WITH THE
TEXT.
ARTICLE 1
AMENDMENT
Section 1.1 Amendment of Section 6.22.
Clauses (i) and (ii) of Section 6.22 of the Indenture are
hereby deleted in their entirety and the following is
substituted therefor:
"(i) amounts deposited in the Interest Account of
the Debt Service Fund shall be equal to or greater than
the sum of (A) the aggregate interest payments due on all
of the Bonds and Additional Permitted Debt within the
next succeeding three month period and (B) if no payment
is due with respect to interest on Additional Permitted
Debt within such next succeeding three month period, the
pro rata share of the next following payment of interest
due on Additional Permitted Debt which corresponds to
such three month period;
(ii) amounts deposited in the Principal Account of
the Debt Service Fund shall be equal to or greater than
the sum of (A) the aggregate principal and premium, if
any, payments due on all of the Bonds and Additional
Permitted Debt within the next succeeding three month
period and (B) if no payment is due with respect to
principal and premium, if any, on Additional Permitted
Debt within such next succeeding three month period, the
pro rata share of the next following payment of principal
and premium, if any, due on Additional Permitted Debt
which corresponds to such three month period;"
Section 1.2 Amendment of Section 12.2.
Clause (d) of Section 12.2 of the Indenture is hereby
deleted in its entirety and the following is substituted
therefor:
(d) modify any of the provisions of
Section 8.7 or of this Section 12.2 or,
except as provided in Section 12.1 and
except for any change in any provision of
any Collateral Document intended to conform
such provision to any provision of a
supplemental indenture consented to
pursuant to this Section 12.2, of any
Collateral Documents.
ARTICLE II
MISCELLANEOUS
Section 2.1 Execution of Supplemental Indenture.
This Second Supplemental Indenture is executed and shall
be construed as an indenture supplemental to the Indenture
and, as provided in the Indenture, this Second Supplemental
Indenture forms a part thereof.
Section 2.2 Concerning the Trustee.
The Trustee accepts the amendment of the Indenture
effected by this Second Supplemental Indenture and agrees to
execute the trust created by the Indenture as hereby amended,
but only upon the terms and conditions set forth in the
Indenture, including the terms and provisions defining and
limiting the liabilities and responsibilities of the Trustee,
which terms and provisions shall in like manner define and
limit its liabilities and responsibilities in the performance
of the trust created by the Indenture as hereby amended.
Without limiting the generality of the foregoing, the Trustee
has no responsibility for the correctness of the recitals of
fact herein contained which shall be taken as the statements
of the Company and the Partnership, and makes no
representations as to the validity or sufficiency of this
Second Supplemental Indenture and shall incur no liability or
responsibility in respect of the validity thereof.
Section 2.3 Counterparts.
This Second Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall
be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 2.4 Governing Law.
THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN THE STATE OF NEW YORK.
Section 2.5 Definitions.
Capitalized terms not otherwise defined herein shall have
the meanings set forth in the Indenture. Such definitions
shall be equally applicable to the singular and plural forms
of the terms defined.
IN WITNESS WHEREOF, the parties have caused this Second
Supplemental Indenture to be duly executed by their respective
officers thereunto duly authorized as of the day and year
first above written.
PANDA-ROSEMARY FUNDING CORPORATION
By:
Name:
Title:
PANDA-ROSEMARY, L.P.
By: Panda-Rosemary Corporation, as
its General Partner
By:
Name:
Title:
FLEET NATIONAL BANK, as Trustee
By:
Name:
Title:
EXHIBIT 10.28.1
FIRST AMENDMENT
TO
AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED SECURITY
DEPOSIT AGREEMENT (this "Amendment"), dated February 21, 1997, is
among PANDA BRANDYWINE, L.P., a Delaware limited partnership (the
"Partnership"), of which PANDA BRANDYWINE CORPORATION, a Delaware
corporation, is the sole general partner, GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation, in its individual
capacity and as owner participant ("GE Capital"), FLEET NATIONAL
BANK, not in its individual capacity but solely as owner trustee
(in such capacity, the "Owner Trustee") under the Trust
Agreement, FLEET NATIONAL BANK, a national banking association,
as security agent hereunder for GE Capital, the Owner Trustee and
the Loan Participants, CREDIT SUISSE, a bank organized and
existing under the laws of Switzerland, acting by and through its
New York branch, as administrative agent for the Loan
Participants, and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a
national banking association, not in its individual capacity but
solely as indenture trustee under the Indenture.
W I T N E S S E T H :
WHEREAS, the parties hereto entered into the Amended and
Restated Security Deposit Agreement as of December 18, 1996 (the
"Deposit Agreement"); and
WHEREAS, the Partnership has requested the other parties
hereto to enter into this Amendment for the purpose of amending
certain aspects of Section 4.2 of the Deposit Agreement and the
parties hereto have agreed to do so;
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
Amendments
SECTION 1.1 Amendment of Section 4.2(a).
(a) The first six words of the first sentence of
Section 4.2(a) of the Deposit Agreement, being "On or before
the twentieth day," are hereby deleted and replaced with the
following: "On or before the fifth day prior to the last
Business Day."
(b) The first four words of the third sentence of Section
4.2(a) of the Deposit Agreement, being "On the twenty-fifth day,"
are hereby deleted and replaced with the following: "On the last
Business Day."
ARTICLE II
Miscellaneous
SECTION 2.1 APPLICABLE LAW. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 2.2 Counterparts. This Amendment may be executed
in several counterparts, each of which shall be an original and
all of which shall constitute but one and the same instrument.
SECTION 2.3 Definitions. Each term used herein with its
initial letter capitalized and not otherwise defined shall have
the meaning assigned to such term in the Deposit Agreement.
SECTION 2.4 Full Force and Effect. Except as otherwise
expressly amended or modified by this Amendment, the Deposit
Agreement is and shall continue to be in full force and effect in
accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have each caused
this Amendment to be duly executed by their duly authorized
officers, all as of the day and year first above written.
PANDA-BRANDYWINE, L.P.
By: Panda Brandywine Corporation,its
General Partner
By: /s/
Name:
Title:
PANDA BRANDYWINE CORPORATION,
as the General Partner
By: /s/
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/
Name:
Title:
FLEET NATIONAL BANK, as Security Agent
and as Owner Trustee
By: /s/
Name:
Title:
CREDIT SUISSE, a bank organized and
existing under the laws of
Switzerland, acting by and through
its New York branch, as
Administrative Agent
By: /s/
Name:
Title:
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, as Indenture Trustee
By: /s/
Name:
Title:
EXHIBIT 10.96
AMENDED AND RESTATED SHAREHOLDER LOAN AGREEMENT
between
PAN-WESTERN ENERGY CORPORATION LLC
as Lender
and
TANGSHAN PANDA HEAT AND POWER CO., LTD.
as Borrower
Dated as of April 1, 1997
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS 1
1.1 Definitions 1
ARTICLE 2 - THE CREDIT FACILITY 13
2.1 Credit Facility 13
2.2 Interest Payments 13
2.2.1 Interest Payment Dates 13
2.2.2 Interest 13
2.3 Project Note 13
2.4 Repayment of the Loans 14
2.4.1 Payments 14
2.4.2 Application of Payments 14
2.5 Prepayments 14
2.5.1 Voluntary Prepayments 14
2.5.2 Certain Mandatory Prepayments 14
2.5.3 Expropriation Event; Event of Loss 14
2.6 Fees 15
ARTICLE 3 - CONDITIONS PRECEDENT 16
3.1 Borrower's Certificate 16
(a) Representations and Warranties 16
(b) No Event of Default 16
(c) Governmental Authorizations and other
consents and approvals 16
(d) Facility Costs 16
3.2 On-Shore Accounts 16
3.3 Evidence of Facility Costs and Other Expenses 16
3.4 Progress Report; Project Engineer 16
3.5 Registration Certificate 17
3.6 Equity Contributions; Real Estate Transfers 17
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES 17
4.1 Organization 17
4.2 Authorization; No Conflict 17
4.3 Legality, Validity and Enforceability 17
4.4 Compliance with Law, Governmental Authorizations
and Project Documents 17
4.5 Governmental Authorizations 18
4.6 Litigation 18
4.7 Existing Defaults 18
4.8 Taxes 18
4.9 Contingent Liabilities 18
4.10 Business, Debt, Contracts, Etc. 18
4.11 Representations and Warranties 18
4.12 Utilities 18
4.13 Project Documents 19
4.14 Fees and Enforcement 19
4.15 Immunity 19
4.16 Subsidiaries and Beneficial Interest 19
4.17 No Other Powers of Attorney, etc. 19
4.18 Liens 19
4.19 Regulation of Parties 19
4.20 Transactions with Affiliates 19
ARTICLE 5 - AFFIRMATIVE COVENANTS OF THE BORROWER 20
5.1 Repayment of Indebtedness 20
5.2 Existence, Conduct of Business, Properties, Etc. 20
5.3 Performance of Covenants and Obligations 20
5.4 Use of Funds 20
5.5 Accounts 20
5.6 Compliance with Legal Requirements 21
5.7 Operating Budgets 21
5.8 Books, Records, Access 22
5.9 Financial Statements 22
5.10 Insurance 22
5.11 Reports; Cooperation 23
5.12 Taxes and Other Governmental Charges 23
5.13 Notices 24
5.14 Expropriation Event 24
5.15 Increased Costs 24
5.16 Taxes 25
5.17 Registration of the Loans; Other Foreign
Exchange Matters 25
5.18 Loan Payment Reserve 25
ARTICLE 6 - NEGATIVE COVENANTS 25
6.1 Indebtedness 26
6.2 Limitations on Liens 26
6.3 Nature of Business 26
6.4 Sale or Lease of Facility Assets 26
6.5 Merger, Consolidation, Liquidation, Dissolution 26
6.7 Loans, Advances or Investments 27
6.8 Immunity 27
6.9 Distributions 27
6.10 Transactions With Affiliates 27
6.11 Partnerships; Subsidiaries 27
6.12 Assignment 27
6.13 Abandonment of Project 28
6.14 Improper Use 28
6.15 Regulation of Parties 28
6.16 Amendments 28
ARTICLE 7 - EVENTS OF DEFAULT; CURE RIGHTS; REMEDIES 28
7.1 Events of Default; Cure Rights 28
7.1.1 Failure to Make Payments 28
7.1.2 Misstatements; Omissions 28
7.1.3 Affirmative Covenants 28
7.1.4 Negative Covenants 29
7.1.5 Breach of Material Project Documents 29
7.1.6 Bankruptcy; Insolvency 29
7.1.7 Judgments 30
7.1.8 Other Indebtedness 30
7.1.9 Termination or Invalidity of Certain
Project Documents; Abandonment of Project 30
7.1.10 Commercial Operation Date 30
7.1.11 Government Authorizations 31
7.1.12 Destruction of Project 31
7.1.13 Change of Law 31
7.1.14 Remedies 31
ARTICLE 8 - SCOPE OF LIABILITY 31
ARTICLE 9 - MISCELLANEOUS 32
9.1 Addresses 32
9.2 Delay and Waiver 32
9.3 Entire Agreement 32
9.4 Governing Law 32
9.5 Severability 33
9.6 Headings 33
9.7 No Partnership, Etc. 33
9.8 Consent to Jurisdiction 33
9.9 Successors and Assigns 33
9.10 Counterparts 33
TABLE OF SCHEDULES AND EXHIBITS iv
TABLE OF SCHEDULES AND EXHIBITS
Exhibit A Form of Project Note
Schedule 5.8 Insurance
Schedule A Interest Payment Schedule
Schedule B Amortization Schedule
THIS AMENDED AND RESTATED SHAREHOLDER LOAN AGREEMENT (this
"Agreement") dated as of April 1, 1997, by and between Pan-
Western Energy Corporation LLC (the "Lender"), a company with
limited liability organized under the laws of the Cayman Islands,
and Tangshan Panda Heat and Power Co., Ltd. (the "Borrower"), a
Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China (the
"PRC" or "China").
W I T N E S S E T H :
WHEREAS, the Borrower has developed, and desires to
construct and operate, a 50 MW coal-fired thermal power
generation facility to be located in Luannan County, Tangshan
City, Hebei Province, China (the "Facility") in conjunction with
certain other facilities including an additional 50 MW coal-fired
thermal power generation facility and certain water supply,
steam, heat and hot water production and distribution facilities
and other related facilities (collectively referred to herein as
the "Project"); and
WHEREAS, the Lender, as the owner of approximately 88% of
the aggregate ownership interest in the Borrower, can be expected
to derive certain benefits as a result of this Agreement and
desires to lend certain funds to the Borrower on commercial terms
negotiated at arms length by and between the Borrower and the
Lender pursuant to, and upon the term and conditions contained
in, this Agreement and for the benefit of the Borrower;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 Definitions. The following terms, as used herein, have
the following meanings:
"Affiliate" of a specified Person means any other
Person or Persons that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under
common control with the Person specified, or who holds or
beneficially owns 10% or more of the equity interest in the
Person specified or 10% or more of any class of voting securities
of the Person specified.
"Asset Sale" means sale, transfer or other disposition
(including any sale and leaseback of assets and any sale of
accounts receivable in connection with a receivable financing
transaction) by the Borrower or any of its Subsidiaries of any
property of the Borrower or any such Subsidiary, other than as
permitted pursuant to subsection 2.5.2.
"Authorized Representative" means as to any Person, its
president, chief executive officer or any senior vice president
or any other person specifically identified as such in a
certificate of such Person delivered to the Lender.
"Banking Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banks in New York, New York,
George Town, Grand Cayman, Cayman Islands or Zhongdajie,
Bencheng, Luannan County, Hebei Province, China, are authorized
or required to be closed.
"Bankruptcy Law" means any insolvency, reorganization,
moratorium or similar law for the general relief of debtors in
any relevant jurisdiction.
"Basic Settlement Account" shall have the meaning
ascribed to it in subsection 5.5.
"Borrower" means Tangshan Panda.
"Business Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banks in New York, New York,
George Town, Grand Cayman, Cayman Islands or Zhongdajie,
Bencheng, Luannan County, Hebei Province, China, are authorized
or required to be closed.
"Capital Stock" means any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent ownership
interests in a Person (other than a corporation) and any and all
warrants or options to purchase any of the foregoing.
"Capitalized Lease" means as to any Person, any lease
of any property of which the discounted present value of the
rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such
Person, and "Capitalized Lease Obligation" means the rental
obligations, as aforesaid, under any such lease.
"Cash Equivalents" means, at any time (i) any evidence
of Indebtedness with a maturity of 180 days or less issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System, whose
rating is AA or higher from Standard & Poor's or Aa2 or higher
from Moody's, having combined capital and surplus and undivided
profits of not less than $500 million; (iii) commercial paper
with a maturity of 180 days or less issued by a corporation
(except an Affiliate of the Company) organized under the laws of
any state of the United States or the District of Columbia and
having the highest rating obtainable from Standard & Poor's or
Moody's; and (iv) repurchase obligations for a term of not more
than seven days for underlying securities of the types described
in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above.
"Cash Flow Available for Debt Service" means, for any
period, (i) the sum of all revenues (including interest and fee
income and any principal payments received by the Borrower on the
Transmission Loan for such period, but excluding any insurance
proceeds, other than business interruption insurance proceeds,
and other similar non-recurring receipts) of the Borrower for
such period minus (ii) the aggregate amount of O&M Costs for such
period as determined on a cash basis and otherwise in accordance
with GAAP).
"Change of Law" means after the date of this Agreement,
the adoption of any Legal Requirement, any change in any Legal
Requirement or the application or requirements thereof, any
change in the interpretation or administration of any Legal
Requirement by any Governmental Instrumentality, or compliance by
the Lender or the Borrower with any request or directive (whether
or not having the force of law) of any Governmental
Instrumentality.
"CHEXIM" means the Export-Import Bank of China, a
company organized under the laws of PRC.
"CHEXIM Guarantee" means the guarantee to be given by
CHEXIM as required pursuant to the EPC Contract in respect of the
EPC Contractor's obligations under the EPC Contract, as the same
may from time to time be amended, supplemented or otherwise
modified.
"Coal Supply Agreements" means all agreements entered
into by the Joint Venture Companies for the supply of coal to the
Project.
"Coal Transportation Agreements" means all agreements
entered into by the Joint Venture Companies for the
transportation of coal to the Project.
"Commercial Operation Date" means that date by which
both of the following have occurred: (i) the Project Engineer
has certified that the Project has achieved commercial operations
and (ii) the Commercial Operation Date, as such term is used in
the General Interconnection Agreement, has occurred.
"Commercially Feasible Basis" means that, following an
Event of Loss or an Expropriation Event, (i) the sum of the
proceeds of business interruption insurance, any funds available
to be applied to the rebuilding, repair or restoration pursuant
to subsection 2.5.3(e), any amounts that the shareholders of all
the Joint Venture Companies are irrevocably committed to
contribute and the anticipated revenues of the Project during the
estimated period of rebuilding, repair or restoration will be
sufficient to pay all Debt Service and O&M Costs of the Project
during the estimated period of rebuilding, repair or restoration
and (ii) the Project upon being rebuilt, repaired or restored can
reasonably be expected to produce revenues adequate to pay all
Debt Service and O&M Costs of all Joint Venture Companies
pursuant to each such Joint Venture Company's respective
Shareholder Loan Agreement over the remaining terms of the Loans
outstanding of each Joint Venture Company, taking into account
any change in projected operating results due to the impairment
of any portion of the Project, all without materially affecting
the Borrower's Debt Service Coverage Ratio.
"Covered Taxes" means taxes, levies, imposts,
deductions, charges, withholdings and liabilities imposed on or
measured by the net income or capital of a Person by any
jurisdiction or any political subdivision or taxing authority
thereof or therein solely as a result of a permanent
establishment of such Person in such jurisdiction or political
subdivision.
"Debt Service" means, for any period, an amount equal
to the aggregate of, without duplication all payments of
principal and interest (including any adjustment for withholding
taxes or similar taxes) due and payable on Indebtedness during
such period.
"Debt Service Coverage Ratio" means, for any period,
and, if the transaction giving rise to the need to calculate Debt
Service Coverage Ratio is an incurrence of Indebtedness,
calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred or made on
the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, means the
ratio of (A) Cash Available for Debt Service to (B) Net Debt
Service for such period.
"Debt Service Reserve Requirement" means US$1,000,000
less the amount of any Performance Bonus Payment paid by the
Borrower.
"Development Expenses" shall mean all reasonable out-of
pocket expenses related to the Facility that have been incurred
by the Borrower, Panda International or their Affiliates in the
development of the Facility prior to the date of this Agreement.
"Disqualified Stock" means, with respect to any Person,
any Capital Stock which, by its terms (or by the terms of any
security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Loans, as the case may be.
"Dollar Equivalent" means, with respect to any monetary
amount in Renminbi, at any time for the determination thereof,
the amount of Dollars obtained by converting the amount of
Renminbi involved in such computation into Dollars at the spot
rate at which Renminbi are offered for sale against delivery of
Dollars by leading banks in Tangshan City on the date of
determination thereof as determined by the Lender in its
reasonable judgement. If for any reason the Dollar Equivalent
cannot be calculated as provided in the immediately preceding
sentence, the Lender shall calculate the Dollar Equivalent on
such basis as it deems fair and equitable.
"Dollar Permitted Investments" means investments which
are denominated and payable in U.S. Dollars (a) with respect to
funds in the On-Shore Accounts, deposits denominated in U.S.
Dollars maintained at, or certificates of deposit insured, or
obligations insured or guaranteed by, the Bank of China, The
China Construction Bank, the Communication Bank, the China
Farmers Bank or China International Trust and Investment
Corporation, or any branch of a commercial bank organized under
the laws of the United States or any political subdivision
thereof having a combined capital and surplus of at least
$500,000,000 and having long-term unsecured debt securities
having a rating assigned by each of Standard & Poor's and Moody's
equal to the highest rating assigned thereby to long-term
unsecured debt securities; and (b) means any of the following
securities: (i) direct obligations of the Department of the
Treasury of the United States of America; (ii) obligations of any
of the following federal agencies which obligations represent
full faith and credit of the United States of America, including:
Export-Import Bank, Farmers Home Administration, General Services
Administration, U.S. Maritime Administration, Small Business
Administration, Government National Mortgage Associate (GNMA),
U.S. Department of Housing & Urban Development (PHA's) and
Federal Housing Administration; (iii) bonds, notes or other
evidences of indebtedness rated "AAA" by Standard & Poor's and
"Aaa" by Moody's issued by the Federal Home Loan Bank, the
Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation; (iv) commercial paper rated in any one of
the two highest rating categories by Moody's or Standard &
Poor's; (v) investment agreements with banks (foreign &
domestic), broker/dealers, and other financial institutions rated
at the time of bid in any one of the three highest rating
categories by Moody's and Standard & Poor's; (vi) repurchase
agreements with banks (foreign & domestic), broker/dealers, and
other financial institutions rated at the time of bid in any one
of the three highest rating categories by each of Standard &
Poor's and Moody's, provided: (1) collateral is limited to (i),
(ii) and (iii) above, (2) the margin levels for collateral must
be maintained at a minimum of 102% including principal and
interest, (3) the Lender shall have a first perfected security
interest in the collateral, (4) the collateral will be delivered
to a third party custodian, designated by the Lender and all fees
and expenses related to collateral custody will be the
responsibility of the Lender, (5) the collateral must have been
or will be acquired at the market price and marked to market
weekly and collateral level shortfalls cured within 24 hours, (6)
unlimited right of substitution of collateral is allowed provided
that substitution collateral must be permitted collateral
substituted at a current market price and substitution fees of
the custodian shall be paid by the Lender; (vii) forward purchase
agreements delivering securities outlined in (i) and (iv) above
with banks (foreign and domestic), broker/dealers, and other
financial institutions maintaining a long-term rating on the day
of bid no lower than investment grade by each of Standard &
Poor's and Moody's (such rating may be at either the parent or
subsidiary level).
"Dollars," "U.S. Dollars" and "US$" mean lawful
currency of the United States of America.
"Energy Purchase Agreement" means Electric Energy
Purchase and Sales Agreement, dated September 22, 1995, between
NCPGC and Tangshan Panda and Tangshan Pan-Western, as the same
may from time to time be amended, supplemented or otherwise
modified.
"EPC Contract" means the Engineering, Procurement and
Construction Contract, dated as of April 24, 1996 between the EPC
Contractor and Tangshan Panda and Tangshan Pan-Western, as the
same may from time to time be amended, supplemented or otherwise
modified.
"EPC Contractor" means Harbin Power Engineering Company
Limited, a company organized under the laws of the PRC and a
wholly owned subsidiary of Harbin Power.
"EPC Contract Liquidated Damages" means liquidated
damages as defined in the EPC Contract.
"EPC Contractor Parent Guarantee" means the guarantee
to be given by Harbin Power in favor of Tangshan Panda and
Tangshan Pan-Western in respect of the EPC Contractor's
obligations under the EPC Contract, as the same may from time to
time be amended, supplemented or otherwise modified.
"Event of Default" shall have the meaning given to such
term in Section 7.1.
"Event of Loss" means an event which causes all or a
portion of the Facility to be damaged, destroyed or rendered
unfit for normal use for any reason whatsoever, other than an
Expropriation Event.
"Expropriation Event" means any condemnation,
nationalization, seizing, or expropriation by any Government
Instrumentality of all or a substantial portion of the Project or
the property or assets of the Borrower or of its share capital,
or any Government Instrumentality shall have assumed custody or
control of such property or other assets or business operations
of the Borrower or of its share capital, or shall have taken any
action for the dissolution or disestablishment of the Borrower or
any action that would prevent the Borrower or its officers from
carrying on its business or operations or a substantial part
thereof.
"Expropriation Proceeds" means any proceeds received by
the Borrower as a result of the occurrence of an Expropriation
Event.
"Facility" shall have the meaning stated in the first
WHEREAS clause of this Agreement.
"Facility Budget" means the construction budget and
schedule provided by the Lender (containing customary assumptions
and qualifications) approved as reasonable by the Project
Engineer prior to the making of the first Loan pursuant to this
Agreement, and as it thereafter may be amended with the approval
of the Lender.
"Facility Costs" means all costs incurred, or to be
incurred, in connection with the development, design,
engineering, procurement, construction and commissioning of the
Facility, which costs shall include, but not be limited to: (a)
all costs incurred under the EPC Contract, (b) Development
Expenses, (c) O&M Costs incurred in connection with the start up
of the Facility or otherwise prior to the Commercial Operation
Date, (d) actual interest costs (including, prior to Commercial
Operation, interest due and payable on the Loans) and amounts
required pursuant to the Debt Service Reserve Requirement,
closing and administration costs related to the Facility until
the Commercial Operation Date, (e) the costs of acquiring
Governmental Authorizations for the Facility prior to the
Commercial Operation Date and (f) without duplication, working
capital costs.
"Fair Market Value" or "fair value" means, with respect
to any asset or property, the price which could be negotiated in
an arm's-length market transaction, for cash, between a willing
seller and a willing buyer, neither of whom is under undue
pressures or compulsion to complete the transaction. Fair Market
Value shall be determined by the board of directors of the
Borrower acting in good faith and shall be evidenced by a board
resolution delivered to the Lender except that any determination
of Fair Market Value made with respect to any parcel of real
property shall be made by an independent appraiser.
"Financing Agreements" means, collectively, this
Agreement, the Guarantees, the Project Notes, the other
Shareholder Loan Agreements, each individually a "Financing
Agreement".
"Foreign Debt Account" shall have the meaning ascribed
to it in Section 5.5.
"Foreign Debt Repayment Account" shall have the meaning
ascribed to it in Section 5.5.
"FPA" means the United States Federal Power Act, as
amended, excluding Sections I-18, 21-30, 202(c), 210, 211, 212,
305(c) and any necessary enforcement provision of Part III of the
Act with regard to the foregoing sections.
"GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the
accounting profession of the United States, which are applicable
as of the date hereof.
"Governmental Authorizations" means all authorizations,
consents, decrees, permits, waivers, privilege approvals from and
filings with all Governmental Instrumentalities necessary for the
realization of the Project in accordance with the Project
Documents.
"Governmental Instrumentality" of any country shall
mean such country and its government and any ministry,
department, political subdivision, instrumentality, agency,
corporation or commission under the direct or indirect control of
such country.
"Guarantees" means collectively, the undertakings by
Tangshan Panda, each executed as of the 22nd day of September,
1996 to unconditionally and irrevocably guarantee to the Lender
the prompt payment and performance by each of Tangshan Pan-
Western, Tangshan Cayman and Tangshan Pan-Sino of their
individual obligations to Lender pursuant to any Indebtedness
obligation then or thereafter due and owing by any such party to
Lender; the undertakings by Tangshan Pan-Western, each executed
as of the 22nd day of September, 1996, to unconditionally and
irrevocably guarantee to the Lender the prompt payment and
performance by each of Tangshan Panda, Tangshan Cayman, and
Tangshan Pan-Sino of their individual obligations to Lender
pursuant to any Indebtedness obligation then or thereafter due
and owing by any such party to Lender; the undertakings by
Tangshan Cayman, each executed as of the 22nd day of September,
1996 to unconditionally and irrevocably guarantee to the Lender
the prompt payment and performance by each of Tangshan Panda,
Tangshan Pan-Western and Tangshan Pan-Sino of their individual
obligations to Lender pursuant to any Indebtedness obligation
then or thereafter due and owing by any such party to Lender; and
the undertakings by Tangshan Pan-Sino, each executed as of the
22nd day of September, 1996 to unconditionally and irrevocably
guarantee to the Lender the prompt payment and performance by
each of Tangshan Panda, Tangshan Pan-Western and Tangshan Cayman
of their individual obligations to Lender pursuant to any
Indebtedness obligation then or thereafter due and owing by any
such party to Lender.
"Harbin Power" means Harbin Power Equipment Group
Company, a PRC Company.
"Heat Supply Contracts" means the contracts to supply
steam and hot water to various PRC industrial and commercial
users that have been assigned by Luannan Heat and Power Plant to
Tangshan Pan-Sino, or any similar contracts in addition to or in
replacement thereof.
"Indebtedness" means, with respect to any Person,
without duplication, (i) any liability, contingent or otherwise,
of such Person (A) for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (B) evidenced by a note,
debenture or similar instrument or letters of credit (including a
purchase money obligation) or (C) for the payment of money
relating to a capitalized lease obligation or other obligation
relating to the deferred purchase price of property; (ii) any
obligation secured by a Lien to which the property or assets of
such Person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such
Person's legal liability; (iii) the maximum fixed repurchase
price of any redeemable or putable Disqualified Stock; (iv)
contractual obligations to repurchase goods sold or distributed;
(v) obligations of a Person in respect of interest rate or
currency exchange agreements to the extent they appear on the
balance sheet; (vi) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding
clauses (i) - (v); and (vii) any liability of others of the kind
described in clauses (i) - (vi) which the Person has guaranteed
or which is otherwise directly or indirectly its legal liability.
"Independent Accountants" means an internationally
recognized accounting firm.
"Independent Insurance Consultant" means Sedgwick, PLC,
a corporation incorporated in accordance with the laws of the
United Kingdom, or its successors.
"Inter-Company Steam Sales Agreement" means the Water,
Heat, Steam and Hot Water Supply and Usage Agreement, dated as of
October 3, 1996 between Tangshan Cayman and Tangshan Panda.
"Interconnection Agreement" means the General
Interconnection Agreement dated September 22, 1995, between NCPGC
and Tangshan Panda and Tangshan Pan-Western, as the same may from
time to time be amended, supplemented or otherwise modified.
"Interconnection Dispatch Agreement" means the
agreement to be negotiated among Tangshan Power Supply Bureau of
NCPGC, Tangshan Panda and Tangshan pan-Western shortly prior to
the Commercial Operation Date of the Project concerning specific
details as to the dispatch of the Luannan Facility.
"Interest Expense"means, for any period, the sum of (a)
the total interest expense of the Person in question for such
period as determined in accordance with GAAP, including, without
limitation, (i) amortization of debt issuance costs or of
original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting, (ii)
accrued interest, (iii) noncash interest payments, (iv)
commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(v) interest actually paid by the Person in question under any
guarantee of Indebtedness or other obligation of any other Person
and (vi) net costs associated with interest rate agreements
(including amortization of discounts) and currency agreements,
plus (b) capitalized interest plus (c) dividends paid in respect
of preferred stock of the Person in question, held by Persons
other than the Person in question.
"Joint Venture Companies" means, collectively Tangshan
Panda, Tangshan Pan-Western, Tangshan Cayman and Tangshan Pan-
Sino.
"Legal Requirements" means all laws, statutes, orders,
decrees, injunctions, licenses, permits, approvals, agreements
and regulations of any Governmental Instrumentality having
jurisdiction over the matter in question.
"Lender" means Pan-Western Energy Corporation LLC, a
Cayman Islands corporation.
"Lien" means any mortgage, lien (statutory or other),
pledge, security interest, encumbrance, claim, hypothecation,
assignment for security, deposit arrangement or preference or
other security agreement of any kind or nature whatsoever. For
purposes of this Agreement, a Person shall be deemed to own
subject to a lien any property which it has acquired or holds
subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title
retention agreement relating to such Person.
"Loans" means the loans made under this Agreement.
"Luanhua Co." means Tangshan Luanhua (Group) Co., a
company organized under the laws of the PRC.
"Luannan Government" means the government of Luannan
County, Tangshan City, Hebei Province, PRC.
"Luannan Heat Company" means Luannan County Heat
Company, Ltd. a company organized under the laws of the PRC.
"Luannan Heat & Power" means Luannan County Heat &
Power Plant, a company organized under the laws of the PRC.
"Major Maintenance Reserve Account" shall have the
meaning ascribed to it in subsection 5.5.
"Major Maintenance Reserve Requirement" means, with
respect to any month, an amount established periodically by the
Project Engineer, based on anticipated major maintenance
requirements for the next five years, to constitute the Major
Maintenance Reserve Requirement for the Facility for such month.
"Material Adverse Effect" means (i) a material adverse
change in the financial condition of the Joint Venture Companies
taken as a whole or (ii) any event or occurrence which could
reasonably be expected to materially and adversely affect: (a)
the construction or operation of the Project or (b) the Joint
Venture Companies' ability (taken as a whole) to perform any of
their obligations under the Project Documents.
"Material Project Documents" means, collectively, the
Power Purchase Agreement, the EPC Contract, the Transmission
Facilities Construction Agreement, the O&M Agreement, the Coal
Supply Agreements, the Coal Transportation Agreement and all
other instruments, agreements or other documents arising from or
related to the Project, but shall not include any Financing
Agreement.
"Maturity Date" means April 1, 2004.
"Moody's" means Moody's Investors Services.
"NCPGC" means North China Power Group Company, a
company organized under the laws of the PRC.
"Net Cash Proceeds" in connection with (a) any Asset
Sale, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of
deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise,
but only as and when received) of such Asset Sale, net of
attorneys' fees, accountants' fees, investment banking fees,
survey costs, title insurance premiums, amounts required to be
applied to the repayment of Indebtedness secured by a Lien
expressly permitted hereunder on any asset which is the subject
of such Asset Sale and other customary fees and expenses actually
incurred in connection therewith, net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax
sharing arrangements) and net of purchase price adjustments
reason.
"Net Debt Service" means the sum of (i) (a) Interest
Expense less (b) non-cash Interest Expense plus (ii) all payments
of scheduled and overdue principal of, and premium, if any, on
Indebtedness plus (iii) without duplication, all rental payments
in respect of Capitalized Lease Obligations paid, accrued, or
scheduled to be paid or accrued.
"Non-Excluded Taxes" shall have the meaning ascribed to
it subsection 5.16.
"Nonrecourse Persons" shall have the meaning ascribed
to it in Article 8.
"O&M" means operation and maintenance services.
"O&M Agreement" means the Amended and Restated
Operation and Maintenance Agreement, dated as of March 6, 1997,
among the Joint Ventures and Duke/Fluor Daniel Asia, Inc., a
California corporation.
"O&M Costs" means all amounts disbursed by or on behalf
of the Borrower for operation, maintenance, repair, or
improvement of the Facility, including, without limitation,
premiums on insurance policies, property, income and all other
taxes to the extent paid, and payments under the relevant
operating and maintenance agreements, leases (including Operating
Lease Obligations), royalty and other land use agreements, and
any other payments required under the Project Documents, each as
determined on a cash basis and otherwise in accordance with GAAP.
"Obligations" means all loans, advances, debts,
liabilities, and obligations, howsoever arising, owed by the
Borrower to the Lender or existing or hereafter arising hereunder
or pursuant to the terms of any of the Financing Agreements or
any of the other Project Documents, including all interest, fees,
charges and expenses chargeable to the Borrower; and in the event
of any proceeding for the collection or enforcement of the
Obligations, after an event of default shall have occurred and be
continuing, any exercise by the Lender, together with reasonable
attorney's fees and court costs.
"Officer's Certificate" means a certificate of an
authorized representative of the Borrower, signed by the
Chairman, the President, a Vice President, the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of
the Borrower.
"On-Shore Accounts" has the meaning set forth in
subsection 5.5.
"Operating Lease Obligations" means any obligation of
the Person in question incurred or assumed under or in connection
with any lease of real or personal property which, in accordance
with GAAP, is not required to be classified and accounted for as
a capital lease.
"Other Taxes" means any other excise or property taxes,
charges or similar levies that arise under the laws of any
jurisdiction on any payment made under this Agreement or under
any other Financing Agreement or from the execution or delivery
or otherwise with respect to this Agreement or any other
Financing Agreement.
"Panda International" means Panda Energy International
Inc., a Texas corporation.
"Performance Bonus Payment" means an amount payable to
the EPC Contractor pursuant to subsections 13.3 and 13.4 of the
EPC Contract.
"Permitted Indebtedness" has the meaning set forth in
subsection 6.1.
"Permitted Liens" means (a) Liens for any tax,
assessment or other governmental charge not yet due, due but
payable without penalty or being contested in good faith and by
appropriate proceedings, (b) retentions of title in favor of
materialmen, workers or repairmen, or other like Liens arising in
the ordinary course of business or in connection with the
construction of the Project, (c) Liens arising out of judgments
or awards so long as an appeal or proceeding for review is being
prosecuted in good faith, (d) mineral rights the use and
enjoyment of which do not materially interfere with the use and
enjoyment of the Facility, (e) Liens, deposits or pledges to
secure statutory obligations or performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or
leases, or for purposes of like general nature in the ordinary
course of the Borrower's business and affecting property with a
value not exceeding the equivalent of US$250,000 at any one time,
(f) involuntary Liens (including a Lien of an attachment,
judgment or execution) securing a charge or obligation, on any of
the Borrower's property, real or personal, whether now or
hereafter owned with a value not exceeding the equivalent of
US$250,000 at any one time, (g) rights of any party pursuant to
any Project Document, (h) Liens securing workers' compensation,
unemployment insurance or other social security or pension
obligations, (i) Liens securing Indebtedness permitted pursuant
to Section 6.1 (to the extent not required by Section 6.1 to be
unsecured), (j) Liens securing the purchase price of property
having an aggregate value not exceeding the equivalent of
US$1,000,000 at any one time an (k) Liens securing other
obligations not constituting Indebtedness none of which could
reasonably be expected to have a Material Adverse Effect.
"Person" means any natural person, corporation,
partnership, firm, association, Governmental Instrumentality or
any other entity whether acting in an individual, fiduciary or
other capacity.
"PRC" or "China" means the People's Republic of China.
"PRC Shareholder" means Luannan Heat and Power.
"Pricing Document" means the document or documents
(issued by the Tangshan Municipal Price Bureau) determining the
price for electric energy delivered, retail price and principals
for adjustment.
"Project" shall have the meaning stated in the first
WHEREAS clause of this Agreement.
"Project Documents" means this Agreement and all
instruments, contracts, agreements or other documents arising
from or related to the Project, including all Financing
Agreements, each individually a "Project Document".
"Project Engineer" means Parsons Brinckerhoff Energy
Services Inc., or its successor.
"Project Note" has the meaning given that term in
Section 2.3.
"Power Purchase Agreement" means, collectively, the
Energy Purchase Agreement, the Interconnection Agreement and the
Supplemental Agreement (and, after execution thereof, the
Interconnection Dispatch Agreement).
"PUHCA" means the United States Public Utility Holding
Company Act of 1935, as amended, and all rules and regulations
adopted thereunder.
"Registered Capital Account" shall have the meaning
ascribed to it in Section 5.5.
"Registration Certificate" has the meaning given to
such term in Section 3.5.
"Renminbi" or "RMB" means lawful currency of the PRC.
"Registered Capital Contribution and Agency Agreement"
means the agreement among each of the Joint Venture Companies and
their respective shareholders, dated as of March 26, 1997 (as
amended, modified and supplemented from time to time) pursuant to
which the Joint Venture Companies are entitled to receive equity
contributions.
"RMB Permitted Investments" means deposit accounts
denominated and payable in RMB to be maintained at, certificates
of deposit issued, or obligations issued or guaranteed by, one of
the following policy or commercial banks in the PRC: (i) the
Bank of China, (ii) the China Construction Bank, (iii) the
Communication Bank, (iv) the China Farmers Bank, (v) the China
International Trust and Investment Corporation (vi) any foreign
bank or branch of any foreign bank authorized and licensed to
conduct business in the PRC, including without limitation, the
establishment and maintenance of RMB and foreign currency
accounts and exchange functions having a combined capital and
surplus of at least $500,000,000 and having at least an
investment grade rating assigned to its long-term unsecured debt
securities by each of Standard & Poor's and Moody's.
"RMB Revenue Account" shall have the meaning ascribed
to it in Section 5.5.
"RMB Checking Account" shall have the meaning ascribed
to it in Section 5.5.
"SAFE" means the State Administration of Foreign
Exchange of the PRC.
"Shareholder Loan Agreements" means, collectively, this
Agreement and the Shareholder Loan Agreements, each dated as of
September 24, 1996, between the Lender and (i) Tangshan Pan-
Western, (ii) Tangshan Cayman and (iii) Tangshan Pan-Sino, as the
same may from time to time be amended, supplemented or otherwise
modified.
"Shareholders" means the Lender and the PRC
Shareholder.
"Site" means the approximately 200 square meters of
land on which the Facility is to be located.
"Standard & Poor's" means Standard & Poor's Ratings
Service.
"Steam Sales Agreements" means the Heat Supply
Contracts and the Inter-Company Steam Sales Agreement.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a)
the sole general partner or the managing general partner of which
is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Supplemental Agreement" means Supplemental Agreement
for General Interconnection Agreement and Electric Energy
Purchase and Sales Agreement, dated February 10, 1996, among
NCPGC, Tangshan Panda and Tangshan Pan-Western, as the same may
from time to time be amended, supplemented or otherwise modified.
"Tangshan Cayman" means Tangshan Cayman Heat and Power
Co., Ltd., a Sino-foreign equity joint venture with limited
liability organized under the laws of the PRC.
"Tangshan Panda" means Tangshan Panda Heat and Power
Co., Ltd., a Sino-foreign equity joint venture with limited
liability organized under the laws of the PRC.
"Tangshan Pan-Sino" means Tangshan Pan-Sino Heat Co.,
Ltd., a Sino-foreign equity joint venture with limited liability
organized under the laws of the PRC.
"Tangshan Pan-Western" means Tangshan Pan-Western Heat
and Power Co., Ltd., a Sino-foreign equity joint venture with
limited liability organized under the laws of the PRC.
"Transmission Facilities" means three new substations,
the upgrades of both an existing substation and an existing
switching station and approximately 43 km of 110 KV transmission
lines to interconnect the Project to the Jing-Jin-Tang Grid.
"Transmission Facilities Construction Agreement" means
the construction agreement, dated February 10, 1996, among
Tangshan Panda, Tangshan Pan-Western and NCPGC.
"Transmission Loan" means the loan made by Tangshan Pan-
Sino to NCPGC through a PRC financial intermediary for the
construction cost of the Transmission Facilities, in the amount
of RMB 78,218,000, to be adjusted for inflation from December 31,
1994 to the date of issuance of the notice to proceed with
preliminary design and for accrued interest during the
construction period.
ARTICLE 2 - THE CREDIT FACILITY
2.1 Credit Facility. Subject to the terms and conditions
set forth in Article 3, the Lender shall from time to time make
shareholder loans to the Borrower in an aggregate amount of
US$17,880,000 (the "Loans").
2.2 Interest Payments.
2.2.1 Interest Payment Dates. The Borrower shall
pay accrued interest on the unpaid principal amount of the Loans
semiannually in arrears on each June 30 and December 31,
commencing June 30, 1997, until the first such date to occur not
less than six months after the Commercial Operation Date, and on
the last day of each month thereafter.
2.2.2 Interest. The Borrower shall pay accrued
interest on the unpaid principal amount of the Loans from the
date of this Agreement (i) through the first June 30 or December
31 to occur not less than six months after the Commercial
Operation Date, at a rate per annum of 13.75%, subject to a
maximum applicable to all interest accrued in respect of such
period and all amounts due in respect thereof pursuant to Section
5.16 hereof of $4,010,273, and (b) thereafter until the maturity
thereof at a rate per annum equal to 12.75%.
2.3 Project Note. The obligation of the Borrower to repay
the Loans and to pay interest thereon at the rate provided herein
shall be evidenced by a promissory note substantially in the form
of Exhibit A, payable to the order of the Lender and in the
principal amount of SEVENTEEN MILLION EIGHT HUNDRED EIGHTY
THOUSAND DOLLARS (US$17,880,000) (the "Project Note"). The
Borrower authorizes the Lender to record on the schedule annexed
to the Project Note, each payment or prepayment of principal of
the Loans and agrees that all such notations shall be prima facie
evidence of the information recorded. The Borrower further
authorizes the Lender to attach to and make a part of the Project
Note continuations of the schedule attached thereto as necessary.
No failure to make any such notations, nor any errors in making
any such notations, shall affect the validity of the Borrower's
obligations to repay the full unpaid principal amount of the
Loans or the duties of the Borrower hereunder or thereunder.
2.4 Repayment of the Loans.
2.4.1 Payments. The Borrower shall make all
payments hereunder to an account which the Lender shall specify
by notice to Borrower prior to the date of the first payment of
interest hereunder. The aggregate unpaid principal amount of the
Loans shall be payable in installments on or before 10:00 A.M.,
Beijing time, on each Repayment Date in accordance with the
amortization schedule set forth on Schedule B, and any remaining
unpaid principal, interest, fees and costs shall be due and
payable on the Maturity Date.
2.4.2 Application of Payments. If the amount of
any payment made by the Borrower hereunder is less than the total
amount due and payable by the Borrower to the Lender as of the
date on which such payment is actually made by the Borrower, such
payment shall be applied: (i) first, against charges, fees,
costs and expenses due hereunder; (ii) second, if the principal
of the Loans shall not have become or be then due and payable,
against interest on the overdue principal of the Loans (including
amounts payable in respect thereof pursuant to Section 5.16) in
order of maturity of such installments of interest and against
interest on such overdue interest; (iii) third, if the principal
of the Loans shall have become or shall be then due and payable,
against the whole amount of all such principal, interest on
overdue principal of the Loans (including amounts payable in
respect thereof pursuant to Section 5.16) and interest on such
overdue interest; and (iv) fourth, against all other amounts then
due and payable to the Lender hereunder.
2.5 Prepayments.
2.5.1 Voluntary Prepayments. Except as required by
this Agreement, the Borrower may not prepay Loans without the
permission of the Lender.
2.5.2 Certain Mandatory Prepayments. In addition
to other amounts which shall be applied to the prepayment of
Loans as provided in this Agreement, the Borrower shall apply to
prepayment of the principal of the Loan, within ten Business Days
following receipt thereof, (i) all Net Cash Proceeds from the
sale or other disposition of all or any part of the assets or
other rights of the Borrower, other than in the ordinary course
of business and permitted pursuant to the terms of the Financing
Agreements, having a value, individually in excess of US$100,000
and in the aggregate in any year, in excess of US$250,000, and
(ii) any Liquidated Damages which shall have been made by the EPC
Contractor to the Borrower under the EPC Contract.
2.5.3 Expropriation Event; Event of Loss. (a) If
an Expropriation Event shall occur with respect to the Facility
or any part thereof, the Borrower shall (i) diligently pursue all
of its rights to compensation against the appropriate
Governmental Instrumentality in respect of such event, (ii) not
compromise, settle or consent to the settlement of any claim in
respect thereof without the consent of the Lender, and (iii)
promptly deposit all proceeds received in respect of any
Expropriation Event (after deducting all reasonable expenses) (A)
in the RMB Revenue Account if denominated in RMB or (B) in the
Foreign Debt Repayment Account if denominated in Dollars, in each
case segregated from all other moneys pending the determination
pursuant to paragraph (c) below.
(b) If an Event of Loss shall occur with respect
to the Facility or any part thereof, the Borrower shall (i)
diligently pursue all its rights to compensation with respect to
such Event of Loss, (ii) not compromise, settle or consent to the
settlement of any claim exceeding $250,000 in respect thereof
without the consent of the Lender, and (iii) promptly deposit all
proceeds received in respect of any Event of Loss (after
deducting all reasonable expenses) which are denominated in RMB
in the RMB Revenue Account, and transfer to the Lender any such
proceeds which are denominated in U.S. Dollars, to be held by the
Lender and segregated from all other moneys pending the
determination pursuant to paragraph (c) below.
(c) If such Expropriation Event or an Event of
Loss shall occur, as soon as reasonably practicable, but no later
than fifteen (15) days after the date of receipt by the Borrower
of any proceeds in respect thereof, the Borrower shall make a
reasonable good faith determination as to whether (i) the
Facility can be rebuilt, repaired or restored to permit operation
of the entire Project on a Commercially Feasible Basis, and (ii)
the proceeds thereof, together with any other amounts that the
Borrower has available to commit to such rebuilding, repair or
restoration, are sufficient to pay for such rebuilding, repair or
restoration of the Facility. The determination of the Borrower
shall be evidenced by a certificate filed with the Lender which,
in the event the Borrower determines that the Facility can be
rebuilt, repaired or restored to permit operation of the entire
Project or a portion thereof on a commercially feasible basis,
shall also certify that such proceeds, together with any other
amounts that the Borrower is willing to commit to such
rebuilding, repair or restoration, are sufficient to pay the
costs thereof, and shall also set forth a reasonable good faith
estimate by the Borrower of such costs. If the amount of such
costs exceeds $500,000, such certificate shall be accompanied by
a Project Engineer's certificate, dated within five (5) days of
the date of the Borrower's certificate, stating that, based upon
reasonable investigation and a review of the determination made
by the Borrower, the Project Engineer believes that the
determination and the estimate of the total cost, if any, set
forth in the Borrower's certificate to be reasonable.
(d) In the event that the Borrower determines not
to rebuild, repair or restore the Facility, all of the proceeds
of such Expropriation Event or Event of Loss shall be transferred
within ten Business Days after the date of such determination to
the Lender and applied to prepayment of the Loans.
(e) In the event that the determination is made
to rebuild, repair or restore the Facility, all of the proceeds
of such Expropriation Event or Event of Loss on deposit in the
RMB Revenue Account shall be transferred to the RMB Checking
Account and, together with the amounts (if any) previously
transferred to the Lender in connection with such Expropriation
Event or Event of Loss and such other amounts as the Borrower has
available for such rebuilding, repair or restoration (which also
shall be transferred to the Lender prior to any disbursement for
rebuilding, repair or restorations), shall be used to pay the
costs of such rebuilding, repair or restoration, and any excess
shall, upon completion of such rebuilding, repair or restoration,
be applied to the prepayment of the Loans within 15 days of the
completion of such rebuilding, repair or restoration as certified
by the Project Engineer.
2.6 Fees. Not more than thirty (30) days following the
making of the first Loan hereunder, the Borrower shall reimburse
the Lender for its reasonable costs other than interest costs
incurred in funding the Loans.
ARTICLE 3 - CONDITIONS PRECEDENT
The obligation of the Lender to make each Loan shall be
subject to the fulfillment or waiver of each of the following
conditions precedent:
3.1 Borrower's Certificate. The Lender shall have received
from the Borrower a certificate dated the date of the request for
such Loan, certifying the following:
(a) Representations and Warranties. The
representations and warranties made by the Borrower herein or in
any other Project Document to which it is a party, or which are
contained in any certificate, document, financial or other
statement furnished by the Borrower hereunder or thereunder or in
connection herewith or therewith, are true and correct in all
material respects on and as of such date as if made on and as of
such date, except as affected by the consummation of the
transaction contemplated thereby or to extent that such
representations and warranties relate solely to an earlier date;
(b) No Event of Default. No Event of Default is in
existence on such date, or shall occur after giving effect to the
Loan to be made on such date;
(c) Governmental Authorizations and other consents and
approvals. All Governmental Authorizations which are required to
be obtained on or prior to the date of the making of such Loan
have been duly obtained or maintained and are in full force and
effect, except for Governmental Authorizations which have not
been obtained at such time but which the Borrower has no reason
to believe will not be obtained in the normal course of business
prior to the date such Governmental Authorizations are required;
and
(d) Facility Costs. The costs for the payment of
which the borrowing is being made are Facility Costs and payment
of such costs is in accordance with the Facility Budget.
3.2 On-Shore Accounts. The On-Shore Accounts shall have
been established pursuant to Section 5.5.
3.3 Evidence of Facility Costs and Other Expenses. At
least 10 Business Days prior to each such Loan, the Lender shall
have received a copy of the EPC Contractor's application for
payment under the EPC Contract or evidence of or application for
other expenses in connection with the construction and
development of the Facility (together with all supplemental
reports required to be furnished thereunder), and copies of all
invoices and other statements of charges with respect to the
payments to be made to the EPC Contractor pursuant to the EPC
Contract or to the recipient of such other expenses on the date,
or expected to be due and payable within 30 days of, such Loan
and with respect to all other items of Facility Costs to be paid
on such date, or expected to be due and payable within 30 days of
such Loan.
3.4 Progress Report; Project Engineer. The Lender shall
have received a report signed by the Authorized Representative of
the Borrower on the date of each such Loan to the effect that
construction of the Facility is proceeding satisfactorily in
accordance with the EPC Contract and the Facility Budget and the
Facility Budget sets forth accurately the estimated costs to
complete the Facility, and such confirmation thereof from the
Project Engineer as the Lender reasonably deems necessary.
3.5 Registration Certificate. The Lender shall have
received a registration certificate of the Tangshan Municipal
Bureau for Exchange Control (a "Registration Certificate")
evidencing that a Registration Certificate has been obtained for
the full aggregate amount of the Loans to be made hereunder
pursuant to subsection 2.1.
3.6 Equity Contributions; Real Estate Transfers. It shall
be a condition to any Loan hereunder which increases the
aggregate of all loans made under all of the Shareholder Loan
Agreements to more than $15,000,000 that (A) the Borrower shall
have received the full amount of the equity contributions to
which the Borrower is then entitled pursuant to the Registered
Capital Contribution and Agency Agreement (B) all transfers of
land use rights relating to the Site shall have been completed.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
The Borrower makes all of the following representations
and warranties to and in favor of the Lender the date on which
any Loan is made hereunder, except as such representations relate
to an earlier date.
4.1 Organization. The Borrower (a) is a Sino-foreign
equity joint venture with limited liability duly organized and
validly existing under the laws of the PRC, (b) is duly
authorized to do business in the PRC, and (c) has all requisite
power and authority to (i) own or hold under land use right or
lease and operate the property it purports to own or hold under
land use right or lease, (ii) carry on its business as now being
conducted and as now proposed to be conducted in respect of the
Project, (iii) incur Indebtedness, and (iv) execute, deliver and
perform its obligations under each of the Project Documents to
which it is a party. The sole shareholders of the Borrower are
the Lender and Luannan Heat and Power.
4.2 Authorization; No Conflict. The Borrower has duly
authorized, executed and delivered the Project Documents to which
it is a party, and neither its execution and delivery thereof nor
its consummation of the transactions contemplated thereby nor its
compliance with the terms thereof (a) does or will contravene its
formation documents or any other Legal Requirement then
applicable to or binding on it, (b) does or will contravene or
result in any breach or constitute any default under, or result
in or require the creation of any Lien upon any of its property
or under any agreement or instrument to which it is a party or by
which it or any of its properties may be bound, or (c) does or
will require the consent or approval of any Person.
4.3 Legality, Validity and Enforceability. Each of the
Project Documents to which the Borrower is a party is a legal,
valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, subject to bankruptcy
laws or principles of equity, to the extent applicable to the
Borrower. None of the Project Documents to which the Borrower is
a party has been amended or modified except in accordance with
this Agreement.
4.4 Compliance with Law, Governmental Authorizations and
Project Documents. The Borrower is in compliance in all material
respects with all Legal Requirements and Governmental
Authorizations and Project Documents to which it is a party, and
no notices of violation of any Governmental Authorization or
Project Document relating to the Project have been issued,
entered or received by the Borrower.
4.5 Governmental Authorizations. There are no Governmental
Authorizations under Legal Requirements existing as of the date
of this Agreement that are required or will become required,
other than the Governmental Authorizations (a) which have been
obtained or granted and are in full force and effect, or (b)
which the Borrower has no reason to believe will not be obtained
before they become necessary for the ownership, construction,
financing or operation of the Facility. To the best of its
knowledge, the Borrower is not in violation of any condition in
any Governmental Authorization.
4.6 Litigation. There are no pending or, to the Borrower's
knowledge, threatened actions, suits, proceedings or
investigations of any kind, including actions or proceedings of
or before any Governmental Instrumentality, to which the Borrower
or any Shareholder or, to the knowledge of the Borrower, is a
party or is subject, or by which any of them or any of their
properties are bound.
4.7 Existing Defaults. There is no Event of Default by the
Borrower under any of the Material Project Documents. To the
best of the Borrower's knowledge, there is no event of default
under any Material Project Document by any party to such Material
Project Document.
4.8 Taxes. The Borrower has filed, or caused to be filed,
all tax and informational returns that are required to have been
filed by it in any jurisdiction, and has paid all taxes shown to
be due and payable on such returns and all other taxes and
assessments payable by it, to the extent the same have become due
and payable (other than those taxes that it is contesting in good
faith and by appropriate proceedings, with adequate, segregated
reserves established for such taxes) and, to the extent such
taxes are not due, has established reserves that are adequate for
the payment thereof and are required by the GAAP.
4.9 Contingent Liabilities. The Borrower has no material
contingent liabilities or obligations except those authorized
under and permitted by the Project Documents and the Financing
Agreements.
4.10 Business, Debt, Contracts, Etc. The Borrower has not
conducted any business other than the business contemplated by
the Project Documents to which it is a party, has no outstanding
Indebtedness other than Indebtedness incurred under the Financing
Agreements or permitted under Section 6.1 and has no other
liabilities other than those incurred under the Project Documents
or permitted under this Agreement, and is not a party to or bound
by any contract other than as contemplated by the Project
Documents to which Borrower is a party and those contracts
permitted under this Agreement. The Borrower has established
offices in the PRC only.
4.11 Representations and Warranties. All representations
and warranties of the Borrower contained in the Project Documents
are true and correct in all material respects and the Borrower
hereby confirms each such representation and warranty of the
Borrower with the same effect as if set forth in full herein.
4.12 Utilities. All utility services and easements
necessary for the construction and the operation of the Facility
for its intended purposes, are or will be available at the Site
as and when required on commercially reasonable terms.
4.13 Project Documents.
4.13.1 The Lender has received a true, complete and
correct copy of each of the Project Documents in effect or
required to be in effect as of the date this representation is
made or deemed made (including all exhibits, schedules, side
letters and disclosure letters to therein or delivered pursuant
thereto, if any).
4.13.2 All conditions precedent to the obligations
of the respective parties under the Material Project Documents
have been satisfied or waived in accordance with the provisions
thereof and hereof, except for such conditions precedent which by
their terms cannot be met until a later stage in the construction
or operation of the Facility, and the Borrower has no reason to
believe that any such condition precedent cannot be satisfied on
or prior to the appropriate stage in the construction or
operation of the Facility.
4.14 Fees and Enforcement. Other than amounts that have
been paid in full, no fees or taxes, including without limitation
stamp, transaction, registration or similar taxes, are required
to be paid for the legality, validity, or enforceability of this
Agreement or any of the other Project Documents.
4.15 Immunity. In any proceedings in the PRC or elsewhere
in connection with any of the Project Documents to which the
Borrower is a party, the Borrower will not be entitled to claim
for itself or any of its assets immunity from suit, execution,
attachment or other legal process.
4.16 Subsidiaries and Beneficial Interest. The Borrower has
no subsidiaries and does not beneficially own the whole or any
part of the issued share capital or other ownership interest of
any other company or corporation or other Person.
4.17 No Other Powers of Attorney, etc. The Borrower has not
executed and delivered any powers of attorney, fiduciary transfer
agreements or similar documents, instruments or agreements,
except for powers authorizing signatures of various Project
Documents.
4.18 Liens. The Borrower has not secured or agreed to
secure any Indebtedness by any Lien upon any of its present or
future revenues or assets or capital stock except Permitted
Liens. The Borrower does not have any outstanding Lien or
obligation to create Liens on or with respect to any of its
properties or revenues except Permitted Liens.
4.19 Regulation of Parties. The Borrower is not nor will it
be, solely as a result of its participation in the transactions
contemplated hereby or by any other Project Document, or as a
result of the ownership, use or operation of the Facility,
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "public utility holding
company." The Borrower is not subject to regulation as a
"subsidiary company" or an "affiliate" of a "holding company"
under (and as defined in) PUHCA.
4.20 Transactions with Affiliates. Except as otherwise
permitted under Section 6.10, the Borrower is not a party to any
contracts or agreements with, or any other commitments to,
whether or not in the ordinary course of business, any Affiliate
of the Borrower.
ARTICLE 5 - AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower covenants and agrees that until all
Obligations owed to the Lender are paid in full it will:
5.1 Repayment of Indebtedness. Repay in accordance with
its terms, all Indebtedness, including without limitation, all
sums due under this Agreement and the other Financing Agreements
but, in the case of any such Indebtedness with a repayment that
is limited by any term of any Financing Agreement, repay subject
to such limitation.
5.2 Existence, Conduct of Business, Properties, Etc.
Except as otherwise expressly permitted under this Agreement,
(i) maintain and preserve its existence as a Sino-foreign joint
venture with limited liability and all rights, privileges and
franchises necessary or desirable in the normal conduct of its
business, and (ii) engage only in the business contemplated by
the Financing Agreements and the Project Documents.
5.3 Performance of Covenants and Obligations. The Borrower
shall perform and observe in all material respects, its covenants
and obligations under all Material Project Documents.
5.4 Use of Funds. The Borrower shall use the proceeds of
the Loans only for deposit in the On-Shore Accounts pending
disbursement for the payment of Facility Costs as provided
herein.
5.5 Accounts. (a) On or prior to the date of the making
of the first Loan, the Borrower shall establish the following
accounts with banks or financial institutions in the PRC in
accordance with applicable PRC laws and regulations: (i) the
Registered Capital Account denominated in U.S. Dollars (the
"Registered Capital Account"), (ii) the Foreign Debt Account
denominated in U.S. Dollars (the "Foreign Debt Account"), (iii)
the Foreign Debt Repayment Account denominated in U.S. Dollars
(the "Foreign Debt Repayment Account"), (iv) the Basic Settlement
Account denominated in U.S. Dollars (the "Basic Settlement
Account"), (v) the RMB Revenue Account denominated in Renminbi
(the "RMB Revenue Account"), (vi) the RMB Checking Account
denominated in Renminbi (the "RMB Checking Account"), and (vii)
the Major Maintenance Reserve Account denominated in Renminbi
(the "Major Maintenance Reserve Account") (collectively, the "On-
Shore Accounts").
(b) The proceeds of all Loans shall be deposited in
the Foreign Debt Account. Funds in the Foreign Debt Account
shall not be used for any purpose other than disbursement of
Facility Costs denominated in U.S. Dollars or funding of reserves
for the payment of principal and interest on the Loans, or, after
conversion into RMB, transfer to the RMB Checking Account for
disbursement of Facility Costs denominated in RMB.
(c) All funds received by the Borrower constituting
capital contributions from any shareholder shall be deposited in
the Registered Capital Account. Until after Commercial Operation
Date, funds in the Registered Capital Account shall not be used
for any purpose other than disbursement of Facility Costs
denominated in the U.S. Dollars or, after conversion into RMB,
transfer to the RMB Checking Account for disbursement of Facility
Costs denominated in RMB.
(d) All revenues received by the Borrower from any
source whatsoever shall be deposited (after conversion into
Renminbi, if necessary) into the RMB Revenue Account. The
Borrower shall instruct NCPGC, the EPC Contractor and other
participants in the Project to deposit revenues, penalties or
other payments owing to the Borrower in RMB directly into the RMB
Revenue Account. The RMB Revenue Account shall not be used for
any purpose other than (and in accordance with the following
priority): (i) the transfer of funds to the RMB Checking Account
for the payment of O&M Costs and (ii) after conversion into U.S.
Dollars, the transfer of funds to the Foreign Debt Repayment
Account for the payment of the principal of and interest on the
Loans or reserves in respect thereof.
(e) Amounts remaining in the RMB Revenue Account
subsequent to disbursement in accordance with clause (d) hereof
shall be deposited into the Major Maintenance Reserve Account in
an amount equal to the Major Maintenance Reserve Requirement.
Disbursement shall be made from the Major Maintenance Reserve
Account only to pay for major maintenance costs of the Facility
upon a certification of the Project Engineer that after
withdrawal of such funds for such purpose, the amounts remaining
in the Major Maintenance Reserve Account (including anticipated
future funding thereof) shall be adequate to meet the anticipated
needs of the Facility for major maintenance for the next five
years.
(f) Amounts remaining in the RMB Revenue Account
subsequent to disbursements in accordance with clauses (d) and
(e) hereof shall be retained in the RMB Revenue Account pending
disbursement to the Borrower's Shareholders in the form of
dividends. The amount designated for the payment of dividends to
the Lender in its capacity as a shareholder of the Borrower shall
be transferred from the RMB Revenue Account (after conversion to
U.S. Dollars) to the Basic Settlement Account and then to the
Lender. The corresponding amount designated for the payment of
dividends to the PRC Shareholder shall be distributed from the
RMB Revenue Account directly to the PRC Shareholder in RMB.
(g) The funds in the Foreign Debt Repayment Account
shall not be used for any purpose other than the payment of
amounts due hereunder pursuant to Subsection 2.4 to an off-shore
account maintained by the Lender.
(h) The funds in the Basic Settlement Account shall
not be used for any purpose other than remittance after the
Commercial Operation Date to an off-shore equity distribution
account approved by the Lender.
5.6 Compliance with Legal Requirements. Promptly and
diligently (i) own, construct, maintain and operate the Facility
in compliance with all applicable Legal Requirements, and
(ii) procure, maintain and comply, or cause to be procured,
maintained and complied with all Governmental Authorizations
required for the ownership, construction, financing, maintenance
or operation of the Facility or any part thereof at or before the
time such Governmental Authorization becomes necessary for the
ownership, construction, financing, maintenance or operation of
the Facility, as the case may be, as contemplated by the Project
Documents and except that the Borrower may, at its expense,
contest by appropriate proceedings conducted in good faith the
validity or application of any such Legal Requirements, provided
that, in either case, (x) neither the Lender nor the Borrower
would be subject to any criminal liability for failure to comply
therewith and (y) all proceedings to enforce such Legal
Requirements against the Lender, the Borrower or the Project or
any part thereof, shall have been duly and effectively stayed
during the entire pendency of such contest.
5.7 Operating Budgets. On or before the anticipated
Commercial Operation Date, deliver to the Lender an annual
operating budget, certified by the Project Engineer as being a
reasonable estimate of projected costs, expenses and revenues of
the Borrower, for the period commencing on the anticipated
Commercial Operation Date, and continuing until the end of the
first full calendar year thereafter, in substantially the same
form as the initial annual operating budget. In advance of each
calendar year thereafter, the Borrower shall adopt and deliver to
the Lender an annual operating budget, certified by the Project
Engineer as being a reasonable estimate of projected costs,
expenses and revenues of the Borrower, for the ensuing calendar
year.
5.8 Books, Records, Access. Maintain adequate books,
accounts and records with respect to the Borrower and the
Facility in compliance with the regulations of any Governmental
Instrumentality having jurisdiction thereof, and, with respect to
financial statements, in accordance with the GAAP and, subject to
reasonable safety requirements, permit employees or designees of
the Lender and the Project Engineer, at any reasonable time and
upon reasonable prior notice to inspect the Facility, and to
examine or audit all of Borrower's books, accounts and records
pertaining or related to the Facility and make copies and
memoranda thereof.
5.9 Financial Statements.
5.9.1 Provide the Lender with:
(a) As soon as available and in any event
within one hundred thirty five (135) days after the close of each
fiscal year commencing with the fiscal year ended after the date
of this Agreement, audited financial statements of the Borrower
including a statement of equity, a balance sheet as of the close
of such year, an income and expense statement, reconciliation of
capital accounts and a statement of sources and uses of funds,
all prepared in accordance with the GAAP and certified by
Independent Accountants.
(b) As soon as available and in any event
within ninety (90) days after the end of each of the quarterly
accounting periods of its fiscal year commencing with the quarter
ending after the date of this Agreement, unaudited financial
statements of the Borrower, including without limitation, an
unaudited balance sheet of the Borrower as of the last day of
such quarterly period, the related statements of income and cash
flows for such quarterly period and (in the case of second, third
and fourth quarterly periods) for the portion of the fiscal year
ending with the last day of such quarterly period, setting forth
in each case in comparative form corresponding unaudited figures
from the preceding fiscal year.
5.9.2 Each time the financial statements of
the Borrower are delivered under this subsection 5.9, a
certificate signed by an Authorized Representative of the
Borrower shall be delivered along with such financial statements,
certifying that such officer has made or caused to be made a
review of the transactions and financial condition of the
Borrower during the relevant fiscal period and that such review
has not, to the best of such Authorized Representative's
knowledge, disclosed the existence of any event or condition
which constitutes an Event of Default under this Agreement, or if
any such event or condition existed or exists, the nature thereof
and the corrective actions that Borrower has taken or proposes to
take with respect thereto, and also certifying that the Borrower
is in compliance in all material respects with its obligations
under this Agreement and each other Financing Agreement to which
it is a party or, if such is not the case, stating the nature of
such non-compliance and the corrective actions which the Borrower
has taken or proposes to take with respect thereto.
5.10 Insurance. The Borrower shall maintain, or cause to be
maintained, adequate insurance with respect to its Facility
satisfactory to the Lender in its reasonable judgment, based upon
the advice of the Independent Insurance Consultant. All
insurance other than third party liability insurance shall name
the Lender as an insured and the sole loss payee thereunder.
Policies for third party liability insurance shall name the
Lender as an additional insured.
5.11 Reports; Cooperation.
5.11.1 Deliver to the Lender on each anniversary of
the date of this Agreement a certificate from the Borrower's
insurers or insurance agents (i) evidencing that the insurance
policies in place satisfy the requirements specified in Section
5.10 (including, without limitation, listing all insurance being
carried by or on behalf of the Borrower pursuant to the Project
Documents and certifying that all insurance required to be
maintained by the Borrower pursuant to the Project Documents is
in full force and effect and all premiums therefore have been
paid in full), and (ii) setting forth a summary of all losses in
excess of US$250,000 (or the equivalent thereof) incurred with
respect to the Project in the preceding year.
5.11.2 Deliver to the Lender within thirty (30) days
following the end of each calendar quarter a quarterly status
report describing in reasonable detail the progress of the
construction of the Facility since the immediately preceding
report hereunder, including without limitation, the cost incurred
to the end of such quarter, an estimate of the time and cost
required for completion of the Facility and such other
information which the Lender may reasonably request.
5.11.3 Prior to the Commercial Operation Date,
deliver to the Lender, within thirty (30) days following the end
of each calendar quarter an update of the Facility Budget,
including but not limited to an explanation or other
reconciliation of differences between such report and previous
reports.
5.11.4 From and after the Commercial Operation Date,
deliver to the Lender within ninety (90) days following each
calendar year, a summary operating report, which shall include,
unless otherwise agreed to by the Lender, a numerical and
narrative assessment of (i) the Project's compliance with each
category in the annual operating budget, (ii) statistical data
relating to the Facility, including heat rate, net electrical and
scheduled and unscheduled outages, (iii) fuel deliveries and use,
(iv) major maintenance activity, (v) casualty losses of value in
excess of US$250,000 or the equivalent thereof in other
currencies (whether or not covered by insurance), (vi) disputes
with any other Major Project Participant, materialman, supplier
or other Person and any related claims against the Borrower,
(vii) pricing information disclosed or made available under the
agreements pertaining to the supply of coal for the Facility and
(viii) compliance with the Governmental Authorizations.
5.11.5 No later than five Business Days following
the receipt thereof, deliver to the Lender all progress reports
provided by the EPC Contractor to the Borrower pursuant to the
EPC Contract and all progress reports prepared under the Power
Purchase Agreement.
5.11.6 Deliver to the Lender any such other
information or data with respect to its business or operations
(including supporting information as to compliance with this
Agreement) as the Lender may reasonably request from time to
time.
5.12 Taxes and Other Governmental Charges. Before the same
become delinquent, pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental charges or
levies lawfully imposed upon the Borrower or its income or
profits or upon the Facility, all utility and other governmental
charges incurred in the ownership, operation, maintenance, use,
occupancy and upkeep of the Facility. However, the Borrower may
contest in good faith any such taxes, assessments and other
charges and, in such event, may permit the taxes, assessments or
other charges so contested to remain unpaid during any period,
including appeals, when the Borrower is in good faith contesting
the same, so long as (a) adequate cash reserves have been
established in an amount sufficient to pay any such taxes,
assessments or other charges, accrued interest thereon and
potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made,
(b) enforcement of the contested tax, assessment or other charge
is effectively stayed for the entire duration of such contest,
and (c) any tax, assessment or other charge determined to be due,
together with any interest or penalties thereon, is promptly paid
after resolution of such contest.
5.13 Notices. Promptly, upon acquiring notice or giving
notice, or obtaining knowledge thereof, as the case may be,
provide to the Lender written notice of:
5.13.1 Any Event of Default which it has knowledge,
specifically stating that an Event of Default has occurred and
describing such an Event of Default and any action being taken or
proposed to be taken with respect to such Event of Default;
5.13.2 Any termination or event of default or notice
thereof under the Power Purchase Agreement; and
5.13.3 Any litigation pending against the Borrower or
any other party of which the Borrower has actual knowledge, which
is or could reasonably be expected to have a Material Adverse
Effect.
5.14 Expropriation Event. If an Expropriation Event shall
occur with respect to the Project, (a) promptly upon discovery or
receipt of notice of any occurrence thereof, provide written
notice thereof to the Lender, (b) diligently pursue all its
rights to compensation against the relevant Governmental
Instrumentality in respect of such Expropriation Event, and
(c) hold any Expropriation Proceeds received in respect of such
event (after deducting all reasonable expenses incurred by it in
litigating, arbitrating, compromising, settling or consenting to
the settlement of any claims) in trust for the benefit of the
Lender separated from other funds of the Borrower, (d) promptly
deposit all Expropriation Proceeds in (i) the RMB Revenue Account
if denominated in RMB or (ii) in the Foreign Debt Repayment
Account if denominated in Dollars. The Borrower consents to the
participation of the Lender in any proceedings regarding an
Expropriation Event, and the Borrower shall from time to time
deliver to the Lender all documents and instruments requested by
it to permit such participation. Nothing in this Section 5.14
shall be deemed to impair any rights which the Lender may have
with respect to any such Expropriation Event.
5.15 Increased Costs. If, after the date of this Agreement,
any Change of Law:
(a) shall subject the Lender to any tax, duty or other
charge with respect to the
Loans, or shall change the basis of taxation of payments by the
Borrower to the Lender on the Loans (except for Covered Taxes,
Other Taxes or changes in the rate of taxation on the overall net
income of the Lender); or
(b) shall impose on the Lender any other condition
directly related to the Loans;
and the effect of any of the foregoing is to increase the cost to
the Lender of making, issuing, creating, renewing, participating
in or maintaining the Loans or to reduce any amount receivable by
the Lender hereunder, then the Borrower shall from time to time,
upon demand by the Lender, pay to the Lender additional amounts
sufficient to reimburse the Lender for such increased costs or to
compensate the Lender for such reduced amounts.
5.16 Taxes. All payments made by the Borrower under this
Agreement and the Project Note shall be made free and clear of,
and without deduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any
Governmental Instrumentality, excluding net income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on
the Lender as a result of a present or former connection between
the Lender and the jurisdiction of the Governmental
Instrumentality imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such
connection arising solely from the Lender having executed,
delivered or performed its obligations or received a payment
under, or enforced, this Agreement or the Project Note). If any
such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to
be withheld from any amounts payable to the Lender hereunder or
under the Project Note, the amounts so payable to the Lender
shall be increased to the extent necessary to yield to the Lender
(after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts
specified in this Agreement. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the
Borrower shall send to the Lender for its own account a certified
copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the
Lender for any incremental taxes, interest or penalties that may
become payable by the Lender as a result of any such failure.
The agreements in this subsection 5.16 shall survive the
termination of this Agreement and the payment of the Loans, the
Project Note and all other amounts payable hereunder.
5.17 Registration of the Loans; Other Foreign Exchange
Matters.
5.17.1 Prior to any due date for any repayment of
the principal of and/or the payment of interest on the Loans, the
Borrower shall (i) use the Registration Certificate and the
notice regarding such repayment and/or payment to obtain from the
registration department a verification and approval certificate
with respect to such repayment and/or payment and (ii) use such
verification and approval certificate and the Registration
Certificate to handle matters regarding the remittance from its
foreign debt account of the principal of and interest on the
Loans outside of China at the relevant bank.
5.17.2 At the beginning of each year, the Borrower
shall submit to the local foreign exchange administration a
report stating the amount of foreign currency purchased in the
preceding year for the purpose of repaying the principal of
and/or paying the interest on the Loans and a plan regarding the
purchase of foreign currency for the current year.
5.18 Loan Payment Reserve. At the time of the final drawing
under this Agreement, the Borrower shall deposit an amount equal
to the Debt Service Reserve Requirement in the Debt Service
Reserve Fund.
ARTICLE 6 - NEGATIVE COVENANTS
The Borrower covenants and agrees for the benefit of the
Lender that until all Obligations owed to the Lender are paid in
full, without the consent of the Lender, the Borrower shall not:
6.1 Indebtedness. Incur, create, assume or be liable for
any Indebtedness, except:
(a) the Loans and additional loans from the Lender;
(b debt incurred to finance working capital
requirements; provided that after giving effect to such
additional debt, (i) the minimum (or lowest) projected Debt
Service Coverage Ratio for any calendar year will not be
less than 1.5 to 1 and (ii) the average projected Debt
Service Coverage Ratio for any calendar year will not be
less than 1.7 to 1; provided further, however, that the
amount of such debt shall not at any time exceed
US$1,000,000;
(c) purchase money or Capital Lease Obligations
incurred to finance assets of the Borrower that are readily
replaceable personal property with a principal amount or
capitalized portion not exceeding US$1,000,000 in the
aggregate outstanding at any time;
(d) trade accounts payable (other than for borrowed
money) due within 90 days arising, and accrued expenses
incurred, in the ordinary course of business of
constructing, operating or maintaining the Facility on
customary terms;
(e) interest or currency exchange rate protection
agreements;
(f) Indebtedness under the Guarantees to which the
Borrower is a party and any other guarantees of the
obligations of any other Joint Venture Company permitted
under the Financing Agreements.
(g) any debt to any other Joint Venture Company, ((a)
through (g), collectively "Permitted Indebtedness").
6.2 Limitations on Liens. Create, assume or permit to
exist any Lien upon any of the Borrower's assets or properties
including without limitation the Facility, whether now owned or
hereafter acquired, other than Permitted Liens.
6.3 Nature of Business. Amend or modify its Articles of
Association without the prior written consent of the Lender, or
engage in any business other than the ownership and operation of
the Facility.
6.4 Sale or Lease of Facility Assets. Sell, lease, assign,
transfer or otherwise dispose of the Facility or other assets
unless (a) such sale, lease, assignment or other disposition
relates only to property that is worn out or no longer useful or
usable in connection with the operation of the Facility or such
property is replaced by property having a Fair Market Value equal
to or greater than the Fair Market Value of the property being
leased or transferred or such lease or transfer is required to
comply with law or to obtain or maintain any Governmental
Authorization, (b) with respect to any other sales, leases,
assignments or other dispositions, the aggregate amount thereof
does not exceed US$250,000 in any given year or US$1,000,000 in
the aggregate since the date of this Agreement, or (c) such sale,
lease, assignment or other disposition is made in the ordinary
course of business in accordance with the Project Documents.
6.5 Merger, Consolidation, Liquidation, Dissolution. Merge
or consolidate with or into any other Person, other than any of
the other Joint Venture Companies or other Sino-foreign joint
ventures with no material liabilities and no material activities
unrelated to the Project, or liquidate, wind up, dissolve, or
otherwise transfer or dispose of all or any substantial part of
its property, assets or business, or change its legal form, or
purchase or otherwise acquire any assets of any Person unless
such purchase or acquisition of assets is reasonably necessary
for the operation of the Facility or in the ordinary course of
business.
6.6 Contingent Liabilities. Become liable as a surety,
guarantor, accommodation endorser or otherwise, for or upon the
obligation of any other Person; provided, however, that the
Borrower may guarantee or otherwise become liable in respect of
any Indebtedness incurred by any other Person (on its behalf) in
connection with or relating to incurrence of Indebtedness
permitted under Section 6.1; and provided, further, however, that
this Section 6.6 shall not be deemed to prohibit (i) the
acquisition of goods, supplies or merchandise in the normal
course of business on normal trade credit, or (ii) the
endorsement of negotiable instruments received in the normal
course of business; or (iii) the obligations hereunder and under
the Guarantees or any other guarantee of any obligation of any
other Joint Venture Company if such guarantee is required for the
development and construction of the Project and is not contrary
to any Legal Requirements.
6.7 Loans, Advances or Investments. Make or permit to
remain outstanding any loans, extensions of credit or advances to
or investments in (whether by acquisition of any stocks, notes or
other securities or obligations) any Person except RMB Permitted
Investments with respect to the On-Shore Accounts denominated in
Renminbi or Dollar Permitted Investments with respect to the On-
Shore Accounts denominated in the U.S. Dollars or as expressly
provided in the Project Documents.
6.8 Immunity. In any proceedings in China or elsewhere in
connection with any of the Financing Agreements to which the
Borrower is a party, claim for itself or any of its assets
immunity from suit, execution, attachment or other legal process.
6.9 Distributions. Agree to any restriction on its ability
to pay dividends (excluding restrictions imposed by law).
6.10 Transactions With Affiliates. Except for the Project
Documents, directly or indirectly: (i) enter into any
transaction with any Person (including any Affiliate) other than
in the ordinary course of business, or (ii) enter into any
transaction with any Person, including any Affiliate, on terms
less favorable to those available from independent third parties
or (ii) establish any sole and exclusive purchasing or sales
agency, or enter into any transaction whereby the Borrower might
receive less than the full commercial price (subject to normal
trade discounts) for electricity or pay more than the commercial
price for products of others.
6.11 Partnerships; Subsidiaries. Except as contemplated by
the Project Documents, become a general or limited partner in any
partnership or a joint venturer in any joint venture, acquire any
ownership interest in any other Person or enter into any profit-
sharing or royalty agreement or other similar arrangement whereby
the Borrower's income or profits are, or might be, shared with
any other Person, or enter into any management contract or
similar arrangement whereby its business or operations are
managed by any other Person (other than any agreement under which
the Borrower may provide operation and management consulting or
other similar services), or form any Subsidiary.
6.12 Assignment. Assign or otherwise transfer its rights
under any of the Project Documents to which it is a party, or
Governmental Authorizations for its benefit, to any Person
without the prior written consent of the Lender.
6.13 Abandonment of Project. Voluntarily cease or abandon
the development, construction or operation of the Project.
6.14 Improper Use. Use, maintain, operate or occupy, or
allow the use, maintenance, operation or occupancy of, any
portion of the Site or Facility for any purpose which: (a) may
be dangerous, unless safeguarded as required by any Legal
Requirement or Government Instrumentality; (b) may constitute a
public or private nuisance resulting in a Material Adverse
Effect; or (c) may make void, voidable or cancelable, or
materially increase the premium of, any insurance then in force
with respect to the Site or Project or any part thereof.
6.15 Regulation of Parties. Take any action which could
reasonably be expected to result in (a) the Borrower being
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "public utility holding
company", (b) the Borrower being subject to regulation as a
"subsidiary company" or an "affiliate" of a "holding company"
under (and as defined in) PUHCA or (c) any Person who by reason
of its or their ownership or operation of the Facility upon the
exercise of remedies hereunder or under the Guarantees, being
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "holding company" or a
subsidiary or Affiliate of any of the foregoing under any Legal
Requirement of the United States (including, without limitation,
PUHCA and the FPA).
6.16 Amendments. Amend any of the Project Documents without
the prior written consent of the Lender.
ARTICLE 7 - EVENTS OF DEFAULT; CURE RIGHTS; REMEDIES
7.1 Events of Default; Cure Rights. The occurrence of any
of the following events shall constitute an event of default
("Event of Default") hereunder:
7.1.1 Failure to Make Payments. Payment shall not
have been made of any principal of or any interest on the Loans
or other amounts owed by the Borrower to the Lender within 15
Banking Days after such amounts are due.
7.1.2 Misstatements; Omissions. Any representation
or warranty confirmed or made in any Project Documents by the
Borrower or in any writing provided by the Borrower in connection
with the transactions contemplated by this Agreement shall be
found to have been incorrect in any material respect when made or
deemed to be made; provided, however, that no Event of Default
shall occur if within sixty (60) days after the date on which the
General Manager of the Borrower has actual notice that such
incorrect statement has occurred, the Borrower shall deliver in
good faith, to the Lender an Officer's Certificate stating in
reasonable detail that either (i) the Borrower has eliminated any
adverse effect relating to such incorrect statement or (ii) that
the Borrower has taken action that it reasonably believes will
eliminate the adverse effect relating to such incorrect statement
within a reasonable specified time.
7.1.3 Affirmative Covenants. The Borrower shall
fail to perform or observe any of its obligations under (a)
Sections 5.4 and 5.5 or (b) any other term, covenant or agreement
set forth in Article 5 hereof, where such default shall not have
been remedied within fifteen (15) days after notice of such
failure.
7.1.4 Negative Covenants. The Borrower shall fail
to perform or observe any of its obligations under any term,
covenant or agreement set forth in Article 6 hereof other than
Section 6.2, where such default shall not have been remedied
within fifteen (15) days after the Borrower has received notice
of such failure.
7.1.5 Breach of Material Project Documents. The
Borrower or any other party thereto shall breach or default under
any term, condition, provision, covenant, representation or
warranty contained in any of the Material Project Documents and
the Financing Agreements to which the Borrower is a party if such
breach or default shall continue unremedied for fifteen (15) days
after notice to the Borrower from the Lender; provided, however,
that in the case of any of the EPC Contract, the CHEXIM Guarantee
or the Transmission Facilities Construction Agreement, if the
breach or default cannot be remedied within such fifteen (15)
days despite the Borrower's and/or such other party's, as the
case may be, good faith and diligent efforts to do so, but is
susceptible to cure within a longer period, the Borrower or such
party shall continue diligently such efforts to cure such breach
or default until cured (but in no event longer than sixty (60)
days in the aggregate.
7.1.6 Bankruptcy; Insolvency.
(a) The Borrower or any other Joint Venture Company
shall institute a voluntary case or undertake actions to form an
arrangement with creditors for the purpose of paying past due
debts, seeking liquidation, reorganization or moratorium of
payments, under any Bankruptcy Law (or any successor statute or
similar statute in any relevant jurisdiction), or shall consent
to the institution of an involuntary case thereunder against it;
or the Borrower shall file a petition, answer or consent or shall
otherwise institute any similar proceeding under any other Legal
Requirements, or shall consent thereto; or the Borrower or any
other Joint Venture Company shall apply for, or by consent or
acquiescence there shall be an appointment of, a receiver,
liquidator, sequestrator, trustee or other officer with similar
powers; or the Borrower or any other Joint Venture Company shall
make an assignment for the benefit of creditors; or the Borrower
or any other Joint Venture Company shall admit in writing its
inability to pay its debts generally as they become due; or if an
involuntary case shall be commenced seeking the liquidation or
reorganization of the Borrower or any other Joint Venture Company
under any Bankruptcy Law (or any successor statute or similar
statute under any relevant jurisdiction) or any similar
proceeding shall be commenced against the Borrower or any other
Joint Venture Company under any other Legal Requirements and (i)
the petition commencing the involuntary case is not timely
controverted, (ii) the petition commencing the involuntary case
is not dismissed within sixty (60) days of its filing, (iii) an
interim trustee is appointed to take possession of all or a
portion of the property, and/or to operate all or any part of the
business of the Borrower or any other Joint Venture Company and
such appointment is not vacated within sixty (60) days, or
(iv) an order for relief shall have been issued or entered
therein; or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer having similar powers of
the Borrower or any other Joint Venture Company of all or a part
of their property, shall have been entered; or any other similar
relief shall be granted against the Borrower or any other Joint
Venture Company under any Legal Requirements; and
(b) NCPGC, the EPC Contractor, or Harbin Power shall
institute a voluntary case or undertake actions to form an
arrangement with creditors for the purpose of paying past due
debts, seeking liquidation, reorganization or moratorium of
payments, under any Bankruptcy Law (or any successor statute or
similar statute in any relevant jurisdiction), or shall consent
to the institution of an involuntary case thereunder against it;
or shall file a petition, answer or consent or shall otherwise
institute any similar proceeding under any other Legal
Requirements, or shall consent thereto; or shall apply for, or by
consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with
similar powers; or shall make an assignment for the benefit of
creditors; or shall admit in writing its inability to pay its
debts generally as they become due; or if an involuntary case
shall be commenced seeking the liquidation or reorganization of
NCPGC, the EPC Contractor, or Harbin Power under any Bankruptcy
Law (or any successor statute or similar statute under any
relevant jurisdiction) or any similar proceeding shall be
commenced against NCPGC, the EPC Contractor, or Harbin Power
under other Legal Requirements and (i) the petition commencing
the involuntary case is not timely controverted, (ii) the
petition commencing the involuntary case is not dismissed within
sixty (60) days of its filing, (iii) an interim trustee is
appointed to take possession of all or a portion of the property,
and/or to operate all or any part of the business of any of
NCPGC, the EPC Contractor, or Harbin Power and such appointment
is not vacated within sixty (60) days, or (iv) an order for
relief shall have been issued or entered therein; or a decree or
order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee or
other officer having similar powers of any of NCPGC, the EPC
Contractor, or Harbin Power of all or a part of any of their
respective property, shall have been entered; or any other
similar relief shall be granted against the NCPGC, the EPC
Contractor, or Harbin Power under any Legal Requirements.
7.1.7 Judgments. A final judgment or judgments
shall be entered (i) against the Borrower in the aggregate amount
of US$1,000,000 (or the equivalent thereof in other currencies)
(exclusive of judgment amounts fully covered by insurance where
the insured has admitted liability), other than a judgment, the
execution of which is effectively stayed within sixty (60) days
after its entry but only for no more than ninety (90) days after
the date on which such stay is terminated or expires; or (ii) in
the form of an injunction or similar form of relief requiring
suspension or abandonment of construction or operation of the
Facility on grounds of violation of a Legal Requirement and
failure of the Borrower to have such injunction or similar form
of relief stayed or discharged within ninety (90) days.
7.1.8 Other Indebtedness. The Borrower shall
default for a period beyond any applicable grace period in the
payment of any principal, interest or other amount due under any
agreement involving the borrowing of money or the advance of
credit and the outstanding amount or amounts payable under such
agreement equals or exceeds US$250,000 (or the equivalent thereof
in other currencies) in the aggregate.
7.1.9 Termination or Invalidity of Certain Project
Documents; Abandonment of Project.
(a) Any of the Project Documents or the Financing
Agreements shall have become invalid, illegal or unenforceable;
(b) The Borrower shall cease to have the right to use
the Site for the purpose of owning, constructing, maintaining and
operating the Facility in the manner contemplated by the Project
Documents (or to obtain sufficient water for its operations); or
(c) The Borrower shall abandon the Project or
otherwise cease to pursue the operations of the Project in
accordance with standard industry practice or shall (except as
permitted by Section 6.4) sell or otherwise dispose of its
interest in the Project.
7.1.10 Commercial Operation Date. The Commercial
Operation Date shall not have occurred by December 31, 1999.
7.1.11 Government Authorizations. Any Governmental
Authorization, approval or permit (whether central, provincial,
municipal, local or otherwise) necessary for (a) the
establishment of the Borrower (b) the ownership, construction,
maintenance, financing or operation of the Project, (c) the
setting or adjustment of the electricity price for the Project in
accordance with the method of calculation set forth in the
attachments to the Pricing Document or (d) the conversion or
transfer of any foreign currency shall not be obtained if and
when required, or shall be modified, revoked or cancelled, or a
notice of violations is issued under any Governmental
Authorization on grounds of, or illegality or the absence of any
required authorization, by the issuing agency or other
Governmental Instrumentality having jurisdiction or any
proceeding is commenced by any Governmental Instrumentality for
the purpose of modifying, revoking or cancelling any Governmental
Authorization.
7.1.12 Destruction of Project. The Facility is
destroyed, or suffers an actual or constructive total loss or
damage.
7.1.13 Change of Law. The occurrence of any adverse
Change of Law of the PRC.
7.1.14 Remedies. Upon the occurrence of any of the
Events of Default, the Lender may, by written notice to the
Borrower and the other Joint venture Companies, declare the Loans
to be immediately due and payable and pursue any and all remedies
available for the non-payment of debts.
ARTICLE 8 - SCOPE OF LIABILITY
The Lender shall have no claims with respect to the
transactions contemplated by the Project Documents against any
Person other than the Borrower including, but not limited to, the
Panda International and the Luannan Government or any of their
respective Affiliates (other than the Borrower) or direct or
indirect parents, or to the shareholders, officers, directors,
employees, or other controlling persons (including members of the
management committee) of the Panda International and the Luannan
Government, their respective Affiliates (other than the
Borrower), or their direct or indirect parents (collectively the
"Nonrecourse Persons"), subject to the exceptions set forth below
in this Article 8; provided that (a) the foregoing provision of
this Article 8 shall not constitute a waiver, release or
discharge of any of the indebtedness, or of any of the terms,
covenants, conditions, or provisions of this Agreement, any other
Financing Agreement and the same shall continue until fully paid,
discharged, observed, or performed; (b) the foregoing provision
of this Article 8 shall not limit or restrict the right of the
Lender, to name the Borrower or any other Person as a defendant
in any action or suit for a judicial foreclosure or for the
exercise of any other remedy under or with respect to this
Agreement or any other Financing Agreement, or for injunction or
specific performance, so long as no judgement in the nature of a
deficiency judgement shall be enforced against any Nonrecourse
Persons, except as set forth in this Article 8; (c) the foregoing
provision of this Article 8 shall not affect or diminish or
constitute a waiver, release or discharge of any specific written
obligation, covenant, or agreement in respect to the Project made
by any of the Nonrecourse Persons; and (d) nothing contained
herein shall limit the liability of any Person who is a party to
any Project Document or has issued any certificate or other
statement in connection therewith with respect to such liability
as may arise by reason of the terms and conditions of such
Project Document, certificate or statement, or otherwise, in each
case under this clause (d) relating solely to such liability of
such Person as may arise under such referenced agreement,
instrument or opinion. The limitations on recourse set forth in
this Article 8 shall survive the termination of this Agreement
and the full payment and performance of the Obligations hereunder
and under the other Project Documents.
ARTICLE 9 - MISCELLANEOUS
9.1 Addresses. Any communications between the parties
hereto or notice provided herein to be given may be given to the
following addresses.
If to the Lender: Pan-Western Energy Corporation, LLC
c/o Maples and Calder
P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands, British West Indies
If to the Borrower: Tangshan Panda Heat and Power Co., Ltd.
South Gujiaying Cun, Bencheng
Luannan County
Hebei Province, China
in either case,
with a copy to: Panda Energy Industrial Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
9.2 Delay and Waiver. No delay or omission to exercise any
right, power or remedy accruing to the Lender upon the occurrence
of any Event of Default or any breach or default of the Borrower
under this Agreement shall impair any such right, power or remedy
of the Lender, nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring, nor shall any
waiver of any single Event of Default, or other breach or default
be deemed a waiver of any other Event of Default, or other breach
or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part
of the Lender of any Event of Default, or other breach or default
under this Agreement, or any waiver on the part of the Lender of
any provision or condition of this Agreement, must be in writing
and shall be effective only to the extent in such writing
specifically set forth. All remedies, either under this
Agreement or by law or otherwise afforded to the Lender shall be
cumulative and not alternative.
9.3 Entire Agreement. This Agreement and any agreement,
document or instrument attached hereto or referred to herein
integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral negotiations and prior
writings in respect to the subject matter hereof. In the event
of any conflict between the terms, conditions and provisions of
this Agreement and any such agreement, document or instrument,
the terms, conditions and provisions of this Agreement shall
prevail. This Agreement may only be amended or modified by an
instrument in writing signed by the Borrower, the Lender and any
other parties to be charged.
9.4 Governing Law. This Agreement shall be governed by,
and be construed and interpreted in accordance with, the law of
the Cayman Islands.
9.5 Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal
or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
9.6 Headings. Paragraph headings have been inserted in
this Agreement as a matter of convenience for reference only and
it is agreed that such paragraph headings are not a part of this
Agreement and shall not be used in the interpretation of any
provision of this Agreement.
9.7 No Partnership, Etc. The Lender and the Borrower
intend that the relationship between them shall be solely that of
creditor and debtor. Nothing contained in this Agreement or the
Project Note shall be deemed or construed to create a
partnership, tenancy-in-common, joint tenancy, joint venture or
co-ownership by or between the Lender, on the one hand, and the
Borrower or any other Person, on the other hand. The Lender
shall not be in any way responsible or liable for the debts,
losses, obligations or duties of the Borrower or any other Person
with respect to the Project or otherwise. All obligations to pay
real property or other taxes, assessments, insurance premiums,
and all other fees and charges arising from the ownership,
operation or occupancy of the Project and to perform all
obligations under the agreements and contracts relating to the
Project shall be the sole responsibility of the Borrower.
9.8 Consent to Jurisdiction. The Lender and the Borrower
agree that any legal action or proceeding by or against the
Borrower or with respect to or arising out of this Agreement the
Project Note may be brought in or removed to the courts of the
Cayman Islands. By execution and delivery of this Agreement, the
Lender and the Borrower accept, for themselves and in respect of
their property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The Lender and the Borrower irrevocably
consent to the service of process out of any of the
aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified airmail,
postage prepaid, to the Lender or the Borrower, as the case may
be, at their respective addresses for notices as specified herein
and that such service shall be effective five (5) Banking Days
after such mailing. Nothing herein shall affect the right to
serve process in any other manner permitted by law or the right
of the Lender to bring legal action or proceedings in any other
competent jurisdiction. The Lender and the Borrower further
agree that the aforesaid courts of the Cayman Islands shall have
exclusive jurisdiction with respect to any claim or counterclaim
of the Borrower based upon the assertion that the rate of
interest charged by the Lender on or under this Agreement and/or
the Project Note is usurious. The Lender and the Borrower hereby
waive any right to stay or dismiss any action or proceeding under
or in connection with any or all of the Project or this Agreement
brought before the foregoing courts on the basis of forum
non-conveniens.
9.9 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The
Borrower may not assign or otherwise transfer any of its rights
under this Agreement.
9.10 Counterparts. This Agreement may be executed in one or
more duplicate counterparts and when signed by all of the parties
listed below shall constitute a single binding agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their officers or partners
thereunto duly authorized as of the day and year first above
written.
PAN-WESTERN ENERGY CORPORATION LLC
By:
Name:
Title:
TANGSHAN PANDA HEAT AND POWER CO., LTD.
By:
Name:
Title:
Schedule 5.8
OUTLINE OF INSURANCE
TYPE Construction & Erection "All Risks",
Third Party Liability & Delay in Start-
Up Insurance.
INSURED Joint Venture Companies
and
Harbin Power Equipment Co., Ltd.
and / or
all Contractors, Sub-Contractors,
Suppliers, thereto, as their interest
may appear.
PERIOD From notification to proceed through
completion of construction testing and
final acceptance (Est. 26 months in
all).
Extensions to Period relating to
construction/erection not exceeding six
months to be automatically held covered
by Insurers at an additional premium to
be agreed.
INTEREST Section 1 Construction & Erection "All
Risks"
The permanent works and plant supplied,
temporary works and materials until take
over for commercial operation by the
Principal of Unit 2.
Section 2 Third Party Liability
The legal liability of the insured for
personal injury or damage to property.
Section 3 Delay I Start-Up
Loss of Revenue &/or Increased Cost of
Working due to delayed completion
resulting from loss or damage insured by
Section 1.
Project Insured
The design, project management, supply
construction, erection, testing,
commissioning and maintenance / defects
liability period of the 2x50MW coal-
fired electric and thermal energy
cogeneration power plants at Luannan
County, Tangshan City, and all work and
services ancillary thereto.
SUM INSURED Section 1 Construction & Erection "All
Risks"
Full Contract Value US $90,000,000
Section 2 Third Party Liability
Limit of Indemnity US $20,000,000
any one occurrence / unlimited in all
during the Period of Insurance.
Section 3 Delay in Start-Up
Sum Insured US $38,250,000
Indemnity Period 12 months
LOCATION Near the City of Gujiaying, Hebei
Province, Peoples Republic of China.
EXHIBIT A
FORM OF PROJECT NOTE
$ New York, New York
, 199
FOR VALUE RECEIVED, the undersigned,
, a Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China, (the
"Borrower"), hereby unconditionally promises to pay to the order
of Pan-Western Energy Corporation LLC (the "Lender") at the
office of [ ] in lawful money of the United
States of America and in immediately available funds, the
principal amount of DOLLARS ($ ),
or, if less, the unpaid principal amount of the Loans made by the
Lender pursuant to the Shareholder Loan Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and
on the dates specified in the Shareholder Loan Agreement. The
Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in the
Shareholder Loan Agreement.
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of the Loans and the date and
amount of each payment or prepayment of principal with respect
thereto. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed. The
failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Loans.
This Note (a) is the Project Note referred to in the
Shareholder Loan Agreement dated as of September 24, 1996 (as
amended, supplemented or otherwise modified from time to time,
the "Shareholder Loan Agreement"), between the Borrower and the
Lender, (b) is subject to the provisions of the Shareholder Loan
Agreement and (c) is subject to optional and mandatory prepayment
in whole or in part as provided in the Shareholder Loan
Agreement. This Note is guaranteed as provided in the Financing
Agreements. Reference is hereby made to the Financing Agreements
for a description of the terms and conditions upon which each
guarantee was granted and the rights of the holder of this Note
in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable,
all as provided in the Shareholder Loan Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all
other notices of any kind.
Unless otherwise defined herein, terms defined in the
Shareholder Loan Agreement and used herein shall have the
meanings given to them in the Shareholder Loan Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE CAYMAN ISLANDS.
[BORROWER]
By:
Name:
Title:
SCHEDULE A
INTEREST PAYMENT SCHEDULE
[***] FILED SEPARATELY WITH THE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
SCHEDULE B
AMORTIZATION SCHEDULE
[***] FILED SEPARATELY WITH THE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
AMENDED AND RESTATED SHAREHOLDER LOAN AGREEMENT
between
PAN-WESTERN ENERGY CORPORATION LLC
as Lender
and
TANGSHAN PAN-WESTERN HEAT AND POWER CO., LTD.
as Borrower
Dated as of April 1, 1997
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS 1
1.1 Definitions 1
ARTICLE 2 - THE CREDIT FACILITY 13
2.1 Credit Facility 13
2.2 Interest Payments 13
2.2.1 Interest Payment Dates 13
2.2.2 Interest 13
2.3 Project Note 13
2.4 Repayment of the Loans 14
2.4.1 Payments 14
2.4.2 Application of Payments 14
2.5 Prepayments 14
2.5.1 Voluntary Prepayments 14
2.5.2 Certain Mandatory Prepayments 14
2.5.3 Expropriation Event; Event of Loss 14
2.6 Fees 15
ARTICLE 3 - CONDITIONS PRECEDENT 16
3.1 Borrower's Certificate 16
(a) Representations and Warranties 16
(b) No Event of Default 16
(c) Governmental Authorizations and other
consents and approvals 16
(d) Facility Costs 16
3.2 On-Shore Accounts 16
3.3 Evidence of Facility Costs and Other Expenses 16
3.4 Progress Report; Project Engineer 16
3.5 Registration Certificate 17
3.6 Equity Contributions; Real Estate Transfers 17
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES 17
4.1 Organization 17
4.2 Authorization; No Conflict 17
4.3 Legality, Validity and Enforceability 17
4.4 Compliance with Law, Governmental
Authorizations and Project Documents 17
4.5 Governmental Authorizations 18
4.6 Litigation 18
4.7 Existing Defaults 18
4.8 Taxes 18
4.9 Contingent Liabilities 18
4.10 Business, Debt, Contracts, Etc. 18
4.11 Representations and Warranties 18
4.12 Utilities 18
4.13 Project Documents 19
4.14 Fees and Enforcement 19
4.15 Immunity 19
4.16 Subsidiaries and Beneficial Interest 19
4.17 No Other Powers of Attorney, etc. 19
4.18 Liens 19
4.19 Regulation of Parties 19
4.20 Transactions with Affiliates 19
ARTICLE 5 - AFFIRMATIVE COVENANTS OF THE BORROWER 20
5.1 Repayment of Indebtedness 20
5.2 Existence, Conduct of Business,
Properties, Etc. 20
5.3 Performance of Covenants and Obligations 20
5.4 Use of Funds 20
5.5 Accounts 20
5.6 Compliance with Legal Requirements 21
5.7 Operating Budgets 21
5.8 Books, Records, Access 22
5.9 Financial Statements 22
5.10 Insurance 22
5.11 Reports; Cooperation 23
5.12 Taxes and Other Governmental Charges 23
5.13 Notices 24
5.14 Expropriation Event 24
5.15 Increased Costs 24
5.16 Taxes 25
5.17 Registration of the Loans; Other Foreign
Exchange Matters 25
5.18 Loan Payment Reserve 25
ARTICLE 6 - NEGATIVE COVENANTS 25
6.1 Indebtedness 26
6.2 Limitations on Liens 26
6.3 Nature of Business 26
6.4 Sale or Lease of Facility Assets 26
6.5 Merger, Consolidation, Liquidation, Dissolution 26
6.7 Loans, Advances or Investments 27
6.8 Immunity 27
6.9 Distributions 27
6.10 Transactions With Affiliates 27
6.11 Partnerships; Subsidiaries 27
6.12 Assignment 27
6.13 Abandonment of Project 28
6.14 Improper Use 28
6.15 Regulation of Parties 28
6.16 Amendments 28
ARTICLE 7 - EVENTS OF DEFAULT; CURE RIGHTS; REMEDIES 28
7.1 Events of Default; Cure Rights 28
7.1.1 Failure to Make Payments 28
7.1.2 Misstatements; Omissions 28
7.1.3 Affirmative Covenants 28
7.1.4 Negative Covenants 29
7.1.5 Breach of Material Project Documents 29
7.1.6 Bankruptcy; Insolvency 29
7.1.7 Judgments 30
7.1.8 Other Indebtedness 30
7.1.9 Termination or Invalidity of Certain
Project Documents; Abandonment of
Project 30
7.1.10 Commercial Operation Date 30
7.1.11 Government Authorizations 31
7.1.12 Destruction of Project 31
7.1.13 Change of Law 31
7.1.14 Remedies 31
ARTICLE 8 - SCOPE OF LIABILITY 31
ARTICLE 9 - MISCELLANEOUS 32
9.1 Addresses 32
9.2 Delay and Waiver 32
9.3 Entire Agreement 32
9.4 Governing Law 32
9.5 Severability 33
9.6 Headings 33
9.7 No Partnership, Etc. 33
9.8 Consent to Jurisdiction 33
9.9 Successors and Assigns 33
9.10 Counterparts 33
TABLE OF SCHEDULES AND EXHIBITS iv
TABLE OF SCHEDULES AND EXHIBITS
Exhibit A Form of Project Note
Schedule 5.8 Insurance
Schedule A Interest Payment Schedule
Schedule B Amortization Schedule
THIS AMENDED AND RESTATED SHAREHOLDER LOAN AGREEMENT (this
"Agreement") dated as of April 1, 1997, by and between Pan-
Western Energy Corporation LLC (the "Lender"), a company with
limited liability organized under the laws of the Cayman Islands,
and Tangshan Pan-Western Heat and Power Co., Ltd. (the
"Borrower"), a Sino-foreign equity joint venture with limited
liability organized under the laws of the People's Republic of
China (the "PRC" or "China").
W I T N E S S E T H :
WHEREAS, the Borrower has developed a business opportunity
concerning ownership and operation of a steam and hot water
distribution system, land conscribed to industrial use, an ash
slurry pipeline and ash disposal land, certain social buildings,
the provision of certain services and the making of certain
investments (collectively referred to as the "Facility") to be
undertaken in conjunction with the development and operation of
certain other facilities including two 50 MW coal-fired thermal
power generation facilities, water wells and pipeline systems,
heat, steam and hot water system facilities (collectively, with
the Facility referred to herein as the "Project"); and
WHEREAS, the Lender, as the owner of approximately 88% of
the aggregate ownership interest in the Borrower, can be expected
to derive certain benefits as a result of this Agreement and
desires to lend certain funds to the Borrower on commercial terms
negotiated at arms length by and between the Borrower and the
Lender pursuant to, and upon the term and conditions contained
in, this Agreement and for the benefit of the Borrower;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 Definitions. The following terms, as used herein, have
the following meanings:
"Affiliate" of a specified Person means any other
Person or Persons that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under
common control with the Person specified, or who holds or
beneficially owns 10% or more of the equity interest in the
Person specified or 10% or more of any class of voting securities
of the Person specified.
"Asset Sale" means sale, transfer or other disposition
(including any sale and leaseback of assets and any sale of
accounts receivable in connection with a receivable financing
transaction) by the Borrower or any of its Subsidiaries of any
property of the Borrower or any such Subsidiary, other than as
permitted pursuant to subsection 2.5.2.
"Authorized Representative" means as to any Person, its
president, chief executive officer or any senior vice president
or any other person specifically identified as such in a
certificate of such Person delivered to the Lender.
"Banking Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banks in New York, New York,
George Town, Grand Cayman, Cayman Islands or Zhongdajie,
Bencheng, Luannan County, Hebei Province, China, are authorized
or required to be closed.
"Bankruptcy Law" means any insolvency, reorganization,
moratorium or similar law for the general relief of debtors in
any relevant jurisdiction.
"Basic Settlement Account" shall have the meaning
ascribed to it in subsection 5.5.
"Borrower" means Tangshan Pan-Western.
"Business Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banks in New York, New York,
George Town, Grand Cayman, Cayman Islands or Zhongdajie,
Bencheng, Luannan County, Hebei Province, China, are authorized
or required to be closed.
"Capital Stock" means any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent ownership
interests in a Person (other than a corporation) and any and all
warrants or options to purchase any of the foregoing.
"Capitalized Lease" means as to any Person, any lease
of any property of which the discounted present value of the
rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such
Person, and "Capitalized Lease Obligation" means the rental
obligations, as aforesaid, under any such lease.
"Cash Equivalents " means, at any time (i) any evidence
of Indebtedness with a maturity of 180 days or less issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System, whose
rating is AA or higher from Standard & Poor's or Aa2 or higher
from Moody's, having combined capital and surplus and undivided
profits of not less than $500 million; (iii) commercial paper
with a maturity of 180 days or less issued by a corporation
(except an Affiliate of the Company) organized under the laws of
any state of the United States or the District of Columbia and
having the highest rating obtainable from Standard & Poor's or
Moody's; and (iv) repurchase obligations for a term of not more
than seven days for underlying securities of the types described
in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above.
"Cash Flow Available for Debt Service" means, for any
period, (i) the sum of all revenues (including interest and fee
income and any principal payments received by the Borrower on the
Transmission Loan for such period, but excluding any insurance
proceeds, other than business interruption insurance proceeds,
and other similar non-recurring receipts) of the Borrower for
such period minus (ii) the aggregate amount of O&M Costs for such
period as determined on a cash basis and otherwise in accordance
with GAAP).
"Change of Law" means after the date of this Agreement,
the adoption of any Legal Requirement, any change in any Legal
Requirement or the application or requirements thereof, any
change in the interpretation or administration of any Legal
Requirement by any Governmental Instrumentality, or compliance by
the Lender or the Borrower with any request or directive (whether
or not having the force of law) of any Governmental
Instrumentality.
"CHEXIM" means the Export-Import Bank of China, a
company organized under the laws of PRC.
"CHEXIM Guarantee" means the guarantee to be given by
CHEXIM as required pursuant to the EPC Contract in respect of the
EPC Contractor's obligations under the EPC Contract, as the same
may from time to time be amended, supplemented or otherwise
modified.
"Coal Supply Agreements" means all agreements entered
into by the Joint Venture Companies for the supply of coal to the
Project.
"Coal Transportation Agreements" means all agreements
entered into by the Joint Venture Companies for the
transportation of coal to the Project.
"Commercial Operation Date" means that date by which
both of the following have occurred: (i) the Project Engineer
has certified that the Project has achieved commercial operations
and (ii) the Commercial Operation Date, as such term is used in
the General Interconnection Agreement, has occurred.
"Commercially Feasible Basis" means that, following an
Event of Loss or an Expropriation Event, (i) the sum of the
proceeds of business interruption insurance, any funds available
to be applied to the rebuilding, repair or restoration pursuant
to subsection 2.5.3(e), any amounts that the shareholders of all
the Joint Venture Companies are irrevocably committed to
contribute and the anticipated revenues of the Project during the
estimated period of rebuilding, repair or restoration will be
sufficient to pay all Debt Service and O&M Costs of the Project
during the estimated period of rebuilding, repair or restoration
and (ii) the Project upon being rebuilt, repaired or restored can
reasonably be expected to produce revenues adequate to pay all
Debt Service and O&M Costs of all Joint Venture Companies
pursuant to each such Joint Venture Company's respective
Shareholder Loan Agreement over the remaining terms of the Loans
outstanding of each Joint Venture Company, taking into account
any change in projected operating results due to the impairment
of any portion of the Project, all without materially affecting
the Borrower's Debt Service Coverage Ratio.
"Covered Taxes" means taxes, levies, imposts,
deductions, charges, withholdings and liabilities imposed on or
measured by the net income or capital of a Person by any
jurisdiction or any political subdivision or taxing authority
thereof or therein solely as a result of a permanent
establishment of such Person in such jurisdiction or political
subdivision.
"Debt Service" means, for any period, an amount equal
to the aggregate of, without duplication all payments of
principal and interest (including any adjustment for withholding
taxes or similar taxes) due and payable on Indebtedness during
such period.
"Debt Service Coverage Ratio" means, for any period,
and, if the transaction giving rise to the need to calculate Debt
Service Coverage Ratio is an incurrence of Indebtedness,
calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred or made on
the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, means the
ratio of (A) Cash Available for Debt Service to (B) Net Debt
Service for such period.
"Debt Service Reserve Requirement" means US$1,000,000
less the amount of any Performance Bonus Payment paid by the
Borrower.
"Development Expenses" shall mean all reasonable out-of
pocket expenses related to the Facility that have been incurred
by the Borrower, Panda International or their Affiliates in the
development of the Facility prior to the date of this Agreement.
"Disqualified Stock" means, with respect to any Person,
any Capital Stock which, by its terms (or by the terms of any
security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Loans, as the case may be.
"Dollar Equivalent" means, with respect to any monetary
amount in Renminbi, at any time for the determination thereof,
the amount of Dollars obtained by converting the amount of
Renminbi involved in such computation into Dollars at the spot
rate at which Renminbi are offered for sale against delivery of
Dollars by leading banks in Tangshan City on the date of
determination thereof as determined by the Lender in its
reasonable judgement. If for any reason the Dollar Equivalent
cannot be calculated as provided in the immediately preceding
sentence, the Lender shall calculate the Dollar Equivalent on
such basis as it deems fair and equitable.
"Dollar Permitted Investments" means investments which
are denominated and payable in U.S. Dollars (a) with respect to
funds in the On-Shore Accounts, deposits denominated in U.S.
Dollars maintained at, or certificates of deposit insured, or
obligations insured or guaranteed by, the Bank of China, The
China Construction Bank, the Communication Bank, the China
Farmers Bank or China International Trust and Investment
Corporation, or any branch of a commercial bank organized under
the laws of the United States or any political subdivision
thereof having a combined capital and surplus of at least
$500,000,000 and having long-term unsecured debt securities
having a rating assigned by each of Standard & Poor's and Moody's
equal to the highest rating assigned thereby to long-term
unsecured debt securities; and (b) means any of the following
securities: (i) direct obligations of the Department of the
Treasury of the United States of America; (ii) obligations of any
of the following federal agencies which obligations represent
full faith and credit of the United States of America, including:
Export-Import Bank, Farmers Home Administration, General Services
Administration, U.S. Maritime Administration, Small Business
Administration, Government National Mortgage Associate (GNMA),
U.S. Department of Housing & Urban Development (PHA's) and
Federal Housing Administration; (iii) bonds, notes or other
evidences of indebtedness rated "AAA" by Standard & Poor's and
"Aaa" by Moody's issued by the Federal Home Loan Bank, the
Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation; (iv) commercial paper rated in any one of
the two highest rating categories by Moody's or Standard &
Poor's; (v) investment agreements with banks (foreign &
domestic), broker/dealers, and other financial institutions rated
at the time of bid in any one of the three highest rating
categories by Moody's and Standard & Poor's; (vi) repurchase
agreements with banks (foreign & domestic), broker/dealers, and
other financial institutions rated at the time of bid in any one
of the three highest rating categories by each of Standard &
Poor's and Moody's, provided: (1) collateral is limited to (i),
(ii) and (iii) above, (2) the margin levels for collateral must
be maintained at a minimum of 102% including principal and
interest, (3) the Lender shall have a first perfected security
interest in the collateral, (4) the collateral will be delivered
to a third party custodian, designated by the Lender and all fees
and expenses related to collateral custody will be the
responsibility of the Lender, (5) the collateral must have been
or will be acquired at the market price and marked to market
weekly and collateral level shortfalls cured within 24 hours, (6)
unlimited right of substitution of collateral is allowed provided
that substitution collateral must be permitted collateral
substituted at a current market price and substitution fees of
the custodian shall be paid by the Lender; (vii) forward purchase
agreements delivering securities outlined in (i) and (iv) above
with banks (foreign and domestic), broker/dealers, and other
financial institutions maintaining a long-term rating on the day
of bid no lower than investment grade by each of Standard &
Poor's and Moody's (such rating may be at either the parent or
subsidiary level).
"Dollars," "U.S. Dollars" and "US$" mean lawful
currency of the United States of America.
"Energy Purchase Agreement" means Electric Energy
Purchase and Sales Agreement, dated September 22, 1995, between
NCPGC and Tangshan Panda and Tangshan Pan-Western, as the same
may from time to time be amended, supplemented or otherwise
modified.
"EPC Contract" means the Engineering, Procurement and
Construction Contract, dated as of April 24, 1996 between the EPC
Contractor and Tangshan Panda and Tangshan Pan-Western, as the
same may from time to time be amended, supplemented or otherwise
modified.
"EPC Contractor" means Harbin Power Engineering Company
Limited, a company organized under the laws of the PRC and a
wholly owned subsidiary of Harbin Power.
"EPC Contract Liquidated Damages" means liquidated
damages as defined in the EPC Contract.
"EPC Contractor Parent Guarantee" means the guarantee
to be given by Harbin Power in favor of Tangshan Panda and
Tangshan Pan-Western in respect of the EPC Contractor's
obligations under the EPC Contract, as the same may from time to
time be amended, supplemented or otherwise modified.
"Event of Default" shall have the meaning given to such
term in Section 7.1.
"Event of Loss" means an event which causes all or a
portion of the Facility to be damaged, destroyed or rendered
unfit for normal use for any reason whatsoever, other than an
Expropriation Event.
"Expropriation Event" means any condemnation,
nationalization, seizing, or expropriation by any Government
Instrumentality of all or a substantial portion of the Project or
the property or assets of the Borrower or of its share capital,
or any Government Instrumentality shall have assumed custody or
control of such property or other assets or business operations
of the Borrower or of its share capital, or shall have taken any
action for the dissolution or disestablishment of the Borrower or
any action that would prevent the Borrower or its officers from
carrying on its business or operations or a substantial part
thereof.
"Expropriation Proceeds" means any proceeds received by
the Borrower as a result of the occurrence of an Expropriation
Event.
"Facility" shall have the meaning stated in the first
WHEREAS clause of this Agreement.
"Facility Budget" means the construction budget and
schedule provided by the Lender (containing customary assumptions
and qualifications) approved as reasonable by the Project
Engineer prior to the making of the first Loan pursuant to this
Agreement, and as it thereafter may be amended with the approval
of the Lender.
"Facility Costs" means all costs incurred, or to be
incurred, in connection with the development, design,
engineering, procurement, construction and commissioning of the
Facility, which costs shall include, but not be limited to: (a)
all costs incurred under the EPC Contract, (b) Development
Expenses, (c) O&M Costs incurred in connection with the start up
of the Facility or otherwise prior to the Commercial Operation
Date, (d) actual interest costs (including, prior to Commercial
Operation, interest due and payable on the Loans) and amounts
required pursuant to the Debt Service Reserve Requirement,
closing and administration costs related to the Facility until
the Commercial Operation Date, (e) the costs of acquiring
Governmental Authorizations for the Facility prior to the
Commercial Operation Date and (f) without duplication, working
capital costs.
"Fair Market Value" or "fair value" means, with respect
to any asset or property, the price which could be negotiated in
an arm's-length market transaction, for cash, between a willing
seller and a willing buyer, neither of whom is under undue
pressures or compulsion to complete the transaction. Fair Market
Value shall be determined by the board of directors of the
Borrower acting in good faith and shall be evidenced by a board
resolution delivered to the Lender except that any determination
of Fair Market Value made with respect to any parcel of real
property shall be made by an independent appraiser.
"Financing Agreements" means, collectively, this
Agreement, the Guarantees, the Project Notes, the other
Shareholder Loan Agreements, each individually a "Financing
Agreement".
"Foreign Debt Account" shall have the meaning ascribed
to it in Section 5.5.
"Foreign Debt Repayment Account" shall have the meaning
ascribed to it in Section 5.5.
"FPA" means the United States Federal Power Act, as
amended, excluding Sections I-18, 21-30, 202(c), 210, 211, 212,
305(c) and any necessary enforcement provision of Part III of the
Act with regard to the foregoing sections.
"GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the
accounting profession of the United States, which are applicable
as of the date hereof.
"Governmental Authorizations" means all authorizations,
consents, decrees, permits, waivers, privilege approvals from and
filings with all Governmental Instrumentalities necessary for the
realization of the Project in accordance with the Project
Documents.
"Governmental Instrumentality" of any country shall
mean such country and its government and any ministry,
department, political subdivision, instrumentality, agency,
corporation or commission under the direct or indirect control of
such country.
"Guarantees" means collectively, the undertakings by
Tangshan Panda, each executed as of the 22nd day of September,
1996 to unconditionally and irrevocably guarantee to the Lender
the prompt payment and performance by each of Tangshan Pan-
Western, Tangshan Cayman and Tangshan Pan-Sino of their
individual obligations to Lender pursuant to any Indebtedness
obligation then or thereafter due and owing by any such party to
Lender; the undertakings by Tangshan Pan-Western, each executed
as of the 22nd day of September, 1996, to unconditionally and
irrevocably guarantee to the Lender the prompt payment and
performance by each of Tangshan Panda, Tangshan Cayman, and
Tangshan Pan-Sino of their individual obligations to Lender
pursuant to any Indebtedness obligation then or thereafter due
and owing by any such party to Lender; the undertakings by
Tangshan Cayman, each executed as of the 22nd day of September,
1996 to unconditionally and irrevocably guarantee to the Lender
the prompt payment and performance by each of Tangshan Panda,
Tangshan Pan-Western and Tangshan Pan-Sino of their individual
obligations to Lender pursuant to any Indebtedness obligation
then or thereafter due and owing by any such party to Lender; and
the undertakings by Tangshan Pan-Western, each executed as of the
22nd day of September, 1996 to unconditionally and irrevocably
guarantee to the Lender the prompt payment and performance by
each of Tangshan Panda, Tangshan Pan-Western and Tangshan Cayman
of their individual obligations to Lender pursuant to any
Indebtedness obligation then or thereafter due and owing by any
such party to Lender.
"Harbin Power" means Harbin Power Equipment Group
Company, a PRC Company.
"Heat Supply Contracts" means the contracts to supply
steam and hot water to various PRC industrial and commercial
users that have been assigned by Luannan Heat and Power Plant to
Tangshan Pan-Western, or any similar contracts in addition to or
in replacement thereof.
"Indebtedness" means, with respect to any Person,
without duplication, (i) any liability, contingent or otherwise,
of such Person (A) for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (B) evidenced by a note,
debenture or similar instrument or letters of credit (including a
purchase money obligation) or (C) for the payment of money
relating to a capitalized lease obligation or other obligation
relating to the deferred purchase price of property; (ii) any
obligation secured by a Lien to which the property or assets of
such Person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such
Person's legal liability; (iii) the maximum fixed repurchase
price of any redeemable or putable Disqualified Stock; (iv)
contractual obligations to repurchase goods sold or distributed;
(v) obligations of a Person in respect of interest rate or
currency exchange agreements to the extent they appear on the
balance sheet; (vi) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding
clauses (i) - (v); and (vii) any liability of others of the kind
described in clauses (i) - (vi) which the Person has guaranteed
or which is otherwise directly or indirectly its legal liability.
"Independent Accountants" means an internationally
recognized accounting firm.
"Independent Insurance Consultant" means Sedgwick, PLC,
a corporation incorporated in accordance with the laws of the
United Kingdom, or its successors.
"Inter-Company Steam Sales Agreement" means the Water,
Heat, Steam and Hot Water Supply and Usage Agreement, dated as of
October 3, 1996 between Tangshan Cayman and Tangshan Panda.
"Interconnection Agreement" means the General
Interconnection Agreement dated September 22, 1995, between NCPGC
and Tangshan Panda and Tangshan Pan-Western, as the same may from
time to time be amended, supplemented or otherwise modified.
"Interconnection Dispatch Agreement" means the
agreement to be negotiated among Tangshan Power Supply Bureau of
NCPGC, Tangshan Panda and Tangshan pan-Western shortly prior to
the Commercial Operation Date of the Project concerning specific
details as to the dispatch of the Luannan Facility.
"Interest Expense" means, for any period, the sum of
(a) the total interest expense of the Person in question for such
period as determined in accordance with GAAP, including, without
limitation, (i) amortization of debt issuance costs or of
original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting, (ii)
accrued interest, (iii) noncash interest payments, (iv)
commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(v) interest actually paid by the Person in question under any
guarantee of Indebtedness or other obligation of any other Person
and (vi) net costs associated with interest rate agreements
(including amortization of discounts) and currency agreements,
plus (b) capitalized interest plus (c) dividends paid in respect
of preferred stock of the Person in question, held by Persons
other than the Person in question.
"Joint Venture Companies" means, collectively Tangshan
Panda, Tangshan Pan-Western, Tangshan Cayman and Tangshan Pan-
Sino.
"Legal Requirements" means all laws, statutes, orders,
decrees, injunctions, licenses, permits, approvals, agreements
and regulations of any Governmental Instrumentality having
jurisdiction over the matter in question.
"Lender" means Pan-Western Energy Corporation LLC, a
Cayman Islands corporation.
"Lien" means any mortgage, lien (statutory or other),
pledge, security interest, encumbrance, claim, hypothecation,
assignment for security, deposit arrangement or preference or
other security agreement of any kind or nature whatsoever. For
purposes of this Agreement, a Person shall be deemed to own
subject to a lien any property which it has acquired or holds
subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title
retention agreement relating to such Person.
"Loans" means the loans made under this Agreement.
"Luanhua Co." means Tangshan Luanhua (Group) Co., a
company organized under the laws of the PRC.
"Luannan Government" means the government of Luannan
County, Tangshan City, Hebei Province, PRC.
"Luannan Heat Company" means Luannan County Heat
Company, Ltd. a company organized under the laws of the PRC.
"Luannan Heat & Power" means Luannan County Heat &
Power Plant, a company organized under the laws of the PRC.
"Major Maintenance Reserve Account" shall have the
meaning ascribed to it in subsection 5.5.
"Major Maintenance Reserve Requirement" means, with
respect to any month, an amount established periodically by the
Project Engineer, based on anticipated major maintenance
requirements for the next five years, to constitute the Major
Maintenance Reserve Requirement for the Facility for such month.
"Material Adverse Effect" means (i) a material adverse
change in the financial condition of the Joint Venture Companies
taken as a whole or (ii) any event or occurrence which could
reasonably be expected to materially and adversely affect: (a)
the construction or operation of the Project or (b) the Joint
Venture Companies' ability (taken as a whole) to perform any of
their obligations under the Project Documents.
"Material Project Documents" means, collectively, the
Power Purchase Agreement, the EPC Contract, the Transmission
Facilities Construction Agreement, the O&M Agreement, the Coal
Supply Agreements, the Coal Transportation Agreement and all
other instruments, agreements or other documents arising from or
related to the Project, but shall not include any Financing
Agreement.
"Maturity Date" means April 1, 2004.
"Moody's" means Moody's Investors Services.
"NCPGC" means North China Power Group Company, a
company organized under the laws of the PRC.
"Net Cash Proceeds" in connection with (a) any Asset
Sale, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of
deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise,
but only as and when received) of such Asset Sale, net of
attorneys' fees, accountants' fees, investment banking fees,
survey costs, title insurance premiums, amounts required to be
applied to the repayment of Indebtedness secured by a Lien
expressly permitted hereunder on any asset which is the subject
of such Asset Sale and other customary fees and expenses actually
incurred in connection therewith, net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax
sharing arrangements) and net of purchase price adjustments
reason.
"Net Debt Service" means the sum of (i) (a) Interest
Expense less (b) non-cash Interest Expense plus (ii) all payments
of scheduled and overdue principal of, and premium, if any, on
Indebtedness plus (iii) without duplication, all rental payments
in respect of Capitalized Lease Obligations paid, accrued, or
scheduled to be paid or accrued.
"Non-Excluded Taxes" shall have the meaning ascribed to
it subsection 5.16.
"Nonrecourse Persons" shall have the meaning ascribed
to it in Article 8.
"O&M" means operation and maintenance services.
"O&M Agreement" means the Amended and Restated
Operation and Maintenance Agreement, dated as of March 6, 1997,
among the Joint Ventures and Duke/Fluor Daniel Asia, Inc., a
California corporation.
"O&M Costs" means all amounts disbursed by or on behalf
of the Borrower for operation, maintenance, repair, or
improvement of the Facility, including, without limitation,
premiums on insurance policies, property, income and all other
taxes to the extent paid, and payments under the relevant
operating and maintenance agreements, leases (including Operating
Lease Obligations), royalty and other land use agreements, and
any other payments required under the Project Documents, each as
determined on a cash basis and otherwise in accordance with GAAP.
"Obligations" means all loans, advances, debts,
liabilities, and obligations, howsoever arising, owed by the
Borrower to the Lender or existing or hereafter arising hereunder
or pursuant to the terms of any of the Financing Agreements or
any of the other Project Documents, including all interest, fees,
charges and expenses chargeable to the Borrower; and in the event
of any proceeding for the collection or enforcement of the
Obligations, after an event of default shall have occurred and be
continuing, any exercise by the Lender, together with reasonable
attorney's fees and court costs.
"Officer's Certificate" means a certificate of an
authorized representative of the Borrower, signed by the
Chairman, the President, a Vice President, the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of
the Borrower.
"On-Shore Accounts" has the meaning set forth in
subsection 5.5.
"Operating Lease Obligations" means any obligation of
the Person in question incurred or assumed under or in connection
with any lease of real or personal property which, in accordance
with GAAP, is not required to be classified and accounted for as
a capital lease.
"Other Taxes" means any other excise or property taxes,
charges or similar levies that arise under the laws of any
jurisdiction on any payment made under this Agreement or under
any other Financing Agreement or from the execution or delivery
or otherwise with respect to this Agreement or any other
Financing Agreement.
"Panda International" means Panda Energy International
Inc., a Texas corporation.
"Performance Bonus Payment" means an amount payable to
the EPC Contractor pursuant to subsections 13.3 and 13.4 of the
EPC Contract.
"Permitted Indebtedness" has the meaning set forth in
subsection 6.1.
"Permitted Liens" means (a) Liens for any tax,
assessment or other governmental charge not yet due, due but
payable without penalty or being contested in good faith and by
appropriate proceedings, (b) retentions of title in favor of
materialmen, workers or repairmen, or other like Liens arising in
the ordinary course of business or in connection with the
construction of the Project, (c) Liens arising out of judgments
or awards so long as an appeal or proceeding for review is being
prosecuted in good faith, (d) mineral rights the use and
enjoyment of which do not materially interfere with the use and
enjoyment of the Facility, (e) Liens, deposits or pledges to
secure statutory obligations or performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or
leases, or for purposes of like general nature in the ordinary
course of the Borrower's business and affecting property with a
value not exceeding the equivalent of US$250,000 at any one time,
(f) involuntary Liens (including a Lien of an attachment,
judgment or execution) securing a charge or obligation, on any of
the Borrower's property, real or personal, whether now or
hereafter owned with a value not exceeding the equivalent of
US$250,000 at any one time, (g) rights of any party pursuant to
any Project Document, (h) Liens securing workers' compensation,
unemployment insurance or other social security or pension
obligations, (i) Liens securing Indebtedness permitted pursuant
to Section 6.1 (to the extent not required by Section 6.1 to be
unsecured), (j) Liens securing the purchase price of property
having an aggregate value not exceeding the equivalent of
US$1,000,000 at any one time an (k) Liens securing other
obligations not constituting Indebtedness none of which could
reasonably be expected to have a Material Adverse Effect.
"Person" means any natural person, corporation,
partnership, firm, association, Governmental Instrumentality or
any other entity whether acting in an individual, fiduciary or
other capacity.
"PRC" or "China" means the People's Republic of China.
"PRC Shareholder" means Luannan Heat Company.
"Pricing Document" means the document or documents
(issued by the Tangshan Municipal Price Bureau) determining the
price for electric energy delivered, retail price and principals
for adjustment.
"Project" shall have the meaning stated in the first
WHEREAS clause of this Agreement.
"Project Documents" means this Agreement and all
instruments, contracts, agreements or other documents arising
from or related to the Project, including all Financing
Agreements, each individually a "Project Document".
"Project Engineer" means Parsons Brinckerhoff Energy
Services Inc., or its successor.
"Project Note" has the meaning given that term in
Section 2.3.
"Power Purchase Agreement" means, collectively, the
Energy Purchase Agreement, the Interconnection Agreement and the
Supplemental Agreement (and, after execution thereof, the
Interconnection Dispatch Agreement).
"PUHCA" means the United States Public Utility Holding
Company Act of 1935, as amended, and all rules and regulations
adopted thereunder.
"Registered Capital Account" shall have the meaning
ascribed to it in Section 5.5.
"Registration Certificate" has the meaning given to
such term in Section 3.5.
"Renminbi" or "RMB" means lawful currency of the PRC.
"Registered Capital Contribution and Agency Agreement"
means the agreement among each of the Joint Venture Companies and
their respective shareholders, dated as of March 26, 1997 (as
amended, modified and supplemented from time to time) pursuant to
which the Joint Venture Companies are entitled to receive equity
contributions.
"RMB Permitted Investments" means deposit accounts
denominated and payable in RMB to be maintained at, certificates
of deposit issued, or obligations issued or guaranteed by, one of
the following policy or commercial banks in the PRC: (i) the
Bank of China, (ii) the China Construction Bank, (iii) the
Communication Bank, (iv) the China Farmers Bank, (v) the China
International Trust and Investment Corporation (vi) any foreign
bank or branch of any foreign bank authorized and licensed to
conduct business in the PRC, including without limitation, the
establishment and maintenance of RMB and foreign currency
accounts and exchange functions having a combined capital and
surplus of at least $500,000,000 and having at least an
investment grade rating assigned to its long-term unsecured debt
securities by each of Standard & Poor's and Moody's.
"RMB Revenue Account" shall have the meaning ascribed
to it in Section 5.5.
"RMB Checking Account" shall have the meaning ascribed
to it in Section 5.5.
"SAFE" means the State Administration of Foreign
Exchange of the PRC.
"Shareholder Loan Agreements" means, collectively, this
Agreement and the Shareholder Loan Agreements, each dated as of
September 24, 1996, between the Lender and (i) Tangshan Panda,
(ii) Tangshan Cayman and (iii) Tangshan Pan-Sino, as the same may
from time to time be amended, supplemented or otherwise modified.
"Shareholders" means the Lender and the PRC
Shareholder.
"Site" means the approximately 200 square meters of
land on which the Facility is to be located.
"Standard & Poor's" means Standard & Poor's Ratings
Service.
"Steam Sales Agreements" means the Heat Supply
Contracts and the Inter-Company Steam Sales Agreement.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a)
the sole general partner or the managing general partner of which
is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Supplemental Agreement" means Supplemental Agreement
for General Interconnection Agreement and Electric Energy
Purchase and Sales Agreement, dated February 10, 1996, among
NCPGC, Tangshan Panda and Tangshan Pan-Western, as the same may
from time to time be amended, supplemented or otherwise modified.
"Tangshan Cayman" means Tangshan Cayman Heat and Power
Co., Ltd., a Sino-foreign equity joint venture with limited
liability organized under the laws of the PRC.
"Tangshan Panda" means Tangshan Panda Heat and Power
Co., Ltd., a Sino-foreign equity joint venture with limited
liability organized under the laws of the PRC.
"Tangshan Pan-Sino" means Tangshan Pan-Sino Heat Co.
Ltd., a Sino-foreign equity joint venture with limited liability
organized under the laws of the PRC.
"Tangshan Pan-Western" means Tangshan Pan-Western Heat
and Power Co., Ltd., a Sino-foreign equity joint venture with
limited liability organized under the laws of the PRC.
"Transmission Facilities" means three new substations,
the upgrades of both an existing substation and an existing
switching station and approximately 43 km of 110 KV transmission
lines to interconnect the Project to the Jing-Jin-Tang Grid.
"Transmission Facilities Construction Agreement" means
the construction agreement, dated February 10, 1996, among
Tangshan Panda, Tangshan Pan-Western and NCPGC.
"Transmission Loan" means the loan made by Tangshan Pan-
Sino to NCPGC through a PRC financial intermediary for the
construction cost of the Transmission Facilities, in the amount
of RMB 78,218,000, to be adjusted for inflation from December 31,
1994 to the date of issuance of the notice to proceed with
preliminary design and for accrued interest during the
construction period.
ARTICLE 2 - THE CREDIT FACILITY
2.1 Credit Facility. Subject to the terms and conditions
set forth in Article 3, the Lender shall from time to time make
shareholder loans to the Borrower in an aggregate amount of
US$17,829,000 (the "Loans").
2.2 Interest Payments.
2.2.1 Interest Payment Dates. The Borrower shall
pay accrued interest on the unpaid principal amount of the Loans
semiannually in arrears on each June 30 and December 31,
commencing June 30, 1997, until the first such date to occur not
less than six months after the Commercial Operation Date, and on
the last day of each month thereafter.
2.2.2 Interest. The Borrower shall pay accrued
interest on the unpaid principal amount of the Loans from the
date of this Agreement (i) through the first June 30 or December
31 to occur not less than six months after the Commercial
Operation Date, at a rate per annum of 13.75%, subject to a
maximum applicable to all interest accrued in respect of such
period and all amounts due in respect thereof pursuant to Section
5.16 hereof of $4,010,273, and (b) thereafter until the maturity
thereof at a rate per annum equal to 12.75%.
2.3 Project Note. The obligation of the Borrower to repay
the Loans and to pay interest thereon at the rate provided herein
shall be evidenced by a promissory note substantially in the form
of Exhibit A, payable to the order of the Lender and in the
principal amount of SEVENTEEN MILLION EIGHT HUNDRED TWENTY-NINE
THOUSAND DOLLARS (US$17,829,000) (the "Project Note"). The
Borrower authorizes the Lender to record on the schedule annexed
to the Project Note, each payment or prepayment of principal of
the Loans and agrees that all such notations shall be prima facie
evidence of the information recorded. The Borrower further
authorizes the Lender to attach to and make a part of the Project
Note continuations of the schedule attached thereto as necessary.
No failure to make any such notations, nor any errors in making
any such notations, shall affect the validity of the Borrower's
obligations to repay the full unpaid principal amount of the
Loans or the duties of the Borrower hereunder or thereunder.
2.4 Repayment of the Loans.
2.4.1 Payments. The Borrower shall make all
payments hereunder to an account which the Lender shall specify
by notice to Borrower prior to the date of the first payment of
interest hereunder. The aggregate unpaid principal amount of the
Loans shall be payable in installments on or before 10:00 A.M.,
Beijing time, on each Repayment Date in accordance with the
amortization schedule set forth on Schedule B, and any remaining
unpaid principal, interest, fees and costs shall be due and
payable on the Maturity Date.
2.4.2 Application of Payments. If the amount of
any payment made by the Borrower hereunder is less than the total
amount due and payable by the Borrower to the Lender as of the
date on which such payment is actually made by the Borrower, such
payment shall be applied: (i) first, against charges, fees,
costs and expenses due hereunder; (ii) second, if the principal
of the Loans shall not have become or be then due and payable,
against interest on the overdue principal of the Loans (including
amounts payable in respect thereof pursuant to Section 5.16) in
order of maturity of such installments of interest and against
interest on such overdue interest; (iii) third, if the principal
of the Loans shall have become or shall be then due and payable,
against the whole amount of all such principal, interest on
overdue principal of the Loans (including amounts payable in
respect thereof pursuant to Section 5.16) and interest on such
overdue interest; and (iv) fourth, against all other amounts then
due and payable to the Lender hereunder.
2.5 Prepayments.
2.5.1 Voluntary Prepayments. Except as required by
this Agreement, the Borrower may not prepay Loans without the
permission of the Lender.
2.5.2 Certain Mandatory Prepayments. In addition
to other amounts which shall be applied to the prepayment of
Loans as provided in this Agreement, the Borrower shall apply to
prepayment of the principal of the Loan, within ten Business Days
following receipt thereof, (i) all Net Cash Proceeds from the
sale or other disposition of all or any part of the assets or
other rights of the Borrower, other than in the ordinary course
of business and permitted pursuant to the terms of the Financing
Agreements, having a value, individually in excess of US$100,000
and in the aggregate in any year, in excess of US$250,000, and
(ii) any Liquidated Damages which shall have been made by the EPC
Contractor to the Borrower under the EPC Contract.
2.5.3 Expropriation Event; Event of Loss. (a) If
an Expropriation Event shall occur with respect to the Facility
or any part thereof, the Borrower shall (i) diligently pursue all
of its rights to compensation against the appropriate
Governmental Instrumentality in respect of such event, (ii) not
compromise, settle or consent to the settlement of any claim in
respect thereof without the consent of the Lender, and (iii)
promptly deposit all proceeds received in respect of any
Expropriation Event (after deducting all reasonable expenses) (A)
in the RMB Revenue Account if denominated in RMB or (B) in the
Foreign Debt Repayment Account if denominated in Dollars, in each
case segregated from all other moneys pending the determination
pursuant to paragraph (c) below.
(b) If an Event of Loss shall occur with respect
to the Facility or any part thereof, the Borrower shall (i)
diligently pursue all its rights to compensation with respect to
such Event of Loss, (ii) not compromise, settle or consent to the
settlement of any claim exceeding $250,000 in respect thereof
without the consent of the Lender, and (iii) promptly deposit all
proceeds received in respect of any Event of Loss (after
deducting all reasonable expenses) which are denominated in RMB
in the RMB Revenue Account, and transfer to the Lender any such
proceeds which are denominated in U.S. Dollars, to be held by the
Lender and segregated from all other moneys pending the
determination pursuant to paragraph (c) below.
(c) If such Expropriation Event or an Event of
Loss shall occur, as soon as reasonably practicable, but no later
than fifteen (15) days after the date of receipt by the Borrower
of any proceeds in respect thereof, the Borrower shall make a
reasonable good faith determination as to whether (i) the
Facility can be rebuilt, repaired or restored to permit operation
of the entire Project on a Commercially Feasible Basis, and (ii)
the proceeds thereof, together with any other amounts that the
Borrower has available to commit to such rebuilding, repair or
restoration, are sufficient to pay for such rebuilding, repair or
restoration of the Facility. The determination of the Borrower
shall be evidenced by a certificate filed with the Lender which,
in the event the Borrower determines that the Facility can be
rebuilt, repaired or restored to permit operation of the entire
Project or a portion thereof on a commercially feasible basis,
shall also certify that such proceeds, together with any other
amounts that the Borrower is willing to commit to such
rebuilding, repair or restoration, are sufficient to pay the
costs thereof, and shall also set forth a reasonable good faith
estimate by the Borrower of such costs. If the amount of such
costs exceeds $500,000, such certificate shall be accompanied by
a Project Engineer's certificate, dated within five (5) days of
the date of the Borrower's certificate, stating that, based upon
reasonable investigation and a review of the determination made
by the Borrower, the Project Engineer believes that the
determination and the estimate of the total cost, if any, set
forth in the Borrower's certificate to be reasonable.
(d) In the event that the Borrower determines not
to rebuild, repair or restore the Facility, all of the proceeds
of such Expropriation Event or Event of Loss shall be transferred
within ten Business Days after the date of such determination to
the Lender and applied to prepayment of the Loans.
(e) In the event that the determination is made
to rebuild, repair or restore the Facility, all of the proceeds
of such Expropriation Event or Event of Loss on deposit in the
RMB Revenue Account shall be transferred to the RMB Checking
Account and, together with the amounts (if any) previously
transferred to the Lender in connection with such Expropriation
Event or Event of Loss and such other amounts as the Borrower has
available for such rebuilding, repair or restoration (which also
shall be transferred to the Lender prior to any disbursement for
rebuilding, repair or restorations), shall be used to pay the
costs of such rebuilding, repair or restoration, and any excess
shall, upon completion of such rebuilding, repair or restoration,
be applied to the prepayment of the Loans within 15 days of the
completion of such rebuilding, repair or restoration as certified
by the Project Engineer.
2.6 Fees. Not more than thirty (30) days following the
making of the first Loan hereunder, the Borrower shall reimburse
the Lender for its reasonable costs other than interest costs
incurred in funding the Loans.
ARTICLE 3 - CONDITIONS PRECEDENT
The obligation of the Lender to make each Loan shall be
subject to the fulfillment or waiver of each of the following
conditions precedent:
3.1 Borrower's Certificate. The Lender shall have received
from the Borrower a certificate dated the date of the request for
such Loan, certifying the following:
(a) Representations and Warranties. The
representations and warranties made by the Borrower herein or in
any other Project Document to which it is a party, or which are
contained in any certificate, document, financial or other
statement furnished by the Borrower hereunder or thereunder or in
connection herewith or therewith, are true and correct in all
material respects on and as of such date as if made on and as of
such date, except as affected by the consummation of the
transaction contemplated thereby or to extent that such
representations and warranties relate solely to an earlier date;
(b) No Event of Default. No Event of Default is in
existence on such date, or shall occur after giving effect to the
Loan to be made on such date;
(c) Governmental Authorizations and other consents and
approvals. All Governmental Authorizations which are required to
be obtained on or prior to the date of the making of such Loan
have been duly obtained or maintained and are in full force and
effect, except for Governmental Authorizations which have not
been obtained at such time but which the Borrower has no reason
to believe will not be obtained in the normal course of business
prior to the date such Governmental Authorizations are required;
and
(d) Facility Costs. The costs for the payment of
which the borrowing is being made are Facility Costs and payment
of such costs is in accordance with the Facility Budget.
3.2 On-Shore Accounts. The On-Shore Accounts shall have
been established pursuant to Section 5.5.
3.3 Evidence of Facility Costs and Other Expenses. At
least 10 Business Days prior to each such Loan, the Lender shall
have received a copy of the EPC Contractor's application for
payment under the EPC Contract or evidence of or application for
other expenses in connection with the construction and
development of the Facility (together with all supplemental
reports required to be furnished thereunder), and copies of all
invoices and other statements of charges with respect to the
payments to be made to the EPC Contractor pursuant to the EPC
Contract or to the recipient of such other expenses on the date,
or expected to be due and payable within 30 days of, such Loan
and with respect to all other items of Facility Costs to be paid
on such date, or expected to be due and payable within 30 days of
such Loan.
3.4 Progress Report; Project Engineer. The Lender shall
have received a report signed by the Authorized Representative of
the Borrower on the date of each such Loan to the effect that
construction of the Facility is proceeding satisfactorily in
accordance with the EPC Contract and the Facility Budget and the
Facility Budget sets forth accurately the estimated costs to
complete the Facility, and such confirmation thereof from the
Project Engineer as the Lender reasonably deems necessary.
3.5 Registration Certificate. The Lender shall have
received a registration certificate of the Tangshan Municipal
Bureau for Exchange Control (a "Registration Certificate")
evidencing that a Registration Certificate has been obtained for
the full aggregate amount of the Loans to be made hereunder
pursuant to subsection 2.1.
3.6 Equity Contributions; Real Estate Transfers. It shall
be a condition to any Loan hereunder which increases the
aggregate of all loans made under all of the Shareholder Loan
Agreements to more than $15,000,000 that (A) the Borrower shall
have received the full amount of the equity contributions to
which the Borrower is then entitled pursuant to the Registered
Capital Contribution and Agency Agreement (B) all transfers of
land use rights relating to the Site shall have been completed.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
The Borrower makes all of the following representations
and warranties to and in favor of the Lender the date on which
any Loan is made hereunder, except as such representations relate
to an earlier date.
4.1 Organization. The Borrower (a) is a Sino-foreign
equity joint venture with limited liability duly organized and
validly existing under the laws of the PRC, (b) is duly
authorized to do business in the PRC, and (c) has all requisite
power and authority to (i) own or hold under land use right or
lease and operate the property it purports to own or hold under
land use right or lease, (ii) carry on its business as now being
conducted and as now proposed to be conducted in respect of the
Project, (iii) incur Indebtedness, and (iv) execute, deliver and
perform its obligations under each of the Project Documents to
which it is a party. The sole shareholders of the Borrower are
the Lender and Luannan Heat Company.
4.2 Authorization; No Conflict. The Borrower has duly
authorized, executed and delivered the Project Documents to which
it is a party, and neither its execution and delivery thereof nor
its consummation of the transactions contemplated thereby nor its
compliance with the terms thereof (a) does or will contravene its
formation documents or any other Legal Requirement then
applicable to or binding on it, (b) does or will contravene or
result in any breach or constitute any default under, or result
in or require the creation of any Lien upon any of its property
or under any agreement or instrument to which it is a party or by
which it or any of its properties may be bound, or (c) does or
will require the consent or approval of any Person.
4.3 Legality, Validity and Enforceability. Each of the
Project Documents to which the Borrower is a party is a legal,
valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, subject to bankruptcy
laws or principles of equity, to the extent applicable to the
Borrower. None of the Project Documents to which the Borrower is
a party has been amended or modified except in accordance with
this Agreement.
4.4 Compliance with Law, Governmental Authorizations and
Project Documents. The Borrower is in compliance in all material
respects with all Legal Requirements and Governmental
Authorizations and Project Documents to which it is a party, and
no notices of violation of any Governmental Authorization or
Project Document relating to the Project have been issued,
entered or received by the Borrower.
4.5 Governmental Authorizations. There are no Governmental
Authorizations under Legal Requirements existing as of the date
of this Agreement that are required or will become required,
other than the Governmental Authorizations (a) which have been
obtained or granted and are in full force and effect, or (b)
which the Borrower has no reason to believe will not be obtained
before they become necessary for the ownership, construction,
financing or operation of the Facility. To the best of its
knowledge, the Borrower is not in violation of any condition in
any Governmental Authorization.
4.6 Litigation. There are no pending or, to the Borrower's
knowledge, threatened actions, suits, proceedings or
investigations of any kind, including actions or proceedings of
or before any Governmental Instrumentality, to which the Borrower
or any Shareholder or, to the knowledge of the Borrower, is a
party or is subject, or by which any of them or any of their
properties are bound.
4.7 Existing Defaults. There is no Event of Default by the
Borrower under any of the Material Project Documents. To the
best of the Borrower's knowledge, there is no event of default
under any Material Project Document by any party to such Material
Project Document.
4.8 Taxes. The Borrower has filed, or caused to be filed,
all tax and informational returns that are required to have been
filed by it in any jurisdiction, and has paid all taxes shown to
be due and payable on such returns and all other taxes and
assessments payable by it, to the extent the same have become due
and payable (other than those taxes that it is contesting in good
faith and by appropriate proceedings, with adequate, segregated
reserves established for such taxes) and, to the extent such
taxes are not due, has established reserves that are adequate for
the payment thereof and are required by the GAAP.
4.9 Contingent Liabilities. The Borrower has no material
contingent liabilities or obligations except those authorized
under and permitted by the Project Documents and the Financing
Agreements.
4.10 Business, Debt, Contracts, Etc. The Borrower has not
conducted any business other than the business contemplated by
the Project Documents to which it is a party, has no outstanding
Indebtedness other than Indebtedness incurred under the Financing
Agreements or permitted under Section 6.1 and has no other
liabilities other than those incurred under the Project Documents
or permitted under this Agreement, and is not a party to or bound
by any contract other than as contemplated by the Project
Documents to which Borrower is a party and those contracts
permitted under this Agreement. The Borrower has established
offices in the PRC only.
4.11 Representations and Warranties. All representations
and warranties of the Borrower contained in the Project Documents
are true and correct in all material respects and the Borrower
hereby confirms each such representation and warranty of the
Borrower with the same effect as if set forth in full herein.
4.12 Utilities. All utility services and easements
necessary for the construction and the operation of the Facility
for its intended purposes, are or will be available at the Site
as and when required on commercially reasonable terms.
4.13 Project Documents.
4.13.1 The Lender has received a true, complete and
correct copy of each of the Project Documents in effect or
required to be in effect as of the date this representation is
made or deemed made (including all exhibits, schedules, side
letters and disclosure letters to therein or delivered pursuant
thereto, if any).
4.13.2 All conditions precedent to the obligations
of the respective parties under the Material Project Documents
have been satisfied or waived in accordance with the provisions
thereof and hereof, except for such conditions precedent which by
their terms cannot be met until a later stage in the construction
or operation of the Facility, and the Borrower has no reason to
believe that any such condition precedent cannot be satisfied on
or prior to the appropriate stage in the construction or
operation of the Facility.
4.14 Fees and Enforcement. Other than amounts that have
been paid in full, no fees or taxes, including without limitation
stamp, transaction, registration or similar taxes, are required
to be paid for the legality, validity, or enforceability of this
Agreement or any of the other Project Documents.
4.15 Immunity. In any proceedings in the PRC or elsewhere
in connection with any of the Project Documents to which the
Borrower is a party, the Borrower will not be entitled to claim
for itself or any of its assets immunity from suit, execution,
attachment or other legal process.
4.16 Subsidiaries and Beneficial Interest. The Borrower has
no subsidiaries and does not beneficially own the whole or any
part of the issued share capital or other ownership interest of
any other company or corporation or other Person.
4.17 No Other Powers of Attorney, etc. The Borrower has not
executed and delivered any powers of attorney, fiduciary transfer
agreements or similar documents, instruments or agreements,
except for powers authorizing signatures of various Project
Documents.
4.18 Liens. The Borrower has not secured or agreed to
secure any Indebtedness by any Lien upon any of its present or
future revenues or assets or capital stock except Permitted
Liens. The Borrower does not have any outstanding Lien or
obligation to create Liens on or with respect to any of its
properties or revenues except Permitted Liens.
4.19 Regulation of Parties. The Borrower is not nor will it
be, solely as a result of its participation in the transactions
contemplated hereby or by any other Project Document, or as a
result of the ownership, use or operation of the Facility,
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "public utility holding
company." The Borrower is not subject to regulation as a
"subsidiary company" or an "affiliate" of a "holding company"
under (and as defined in) PUHCA.
4.20 Transactions with Affiliates. Except as otherwise
permitted under Section 6.10, the Borrower is not a party to any
contracts or agreements with, or any other commitments to,
whether or not in the ordinary course of business, any Affiliate
of the Borrower.
ARTICLE 5 - AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower covenants and agrees that until all
Obligations owed to the Lender are paid in full it will:
5.1 Repayment of Indebtedness. Repay in accordance with
its terms, all Indebtedness, including without limitation, all
sums due under this Agreement and the other Financing Agreements
but, in the case of any such Indebtedness with a repayment that
is limited by any term of any Financing Agreement, repay subject
to such limitation.
5.2 Existence, Conduct of Business, Properties, Etc.
Except as otherwise expressly permitted under this Agreement,
(i) maintain and preserve its existence as a Sino-foreign joint
venture with limited liability and all rights, privileges and
franchises necessary or desirable in the normal conduct of its
business, and (ii) engage only in the business contemplated by
the Financing Agreements and the Project Documents.
5.3 Performance of Covenants and Obligations. The Borrower
shall perform and observe in all material respects, its covenants
and obligations under all Material Project Documents.
5.4 Use of Funds. The Borrower shall use the proceeds of
the Loans only for deposit in the On-Shore Accounts pending
disbursement for the payment of Facility Costs as provided
herein.
5.5 Accounts. (a) On or prior to the date of the making
of the first Loan, the Borrower shall establish the following
accounts with banks or financial institutions in the PRC in
accordance with applicable PRC laws and regulations: (i) the
Registered Capital Account denominated in U.S. Dollars (the
"Registered Capital Account"), (ii) the Foreign Debt Account
denominated in U.S. Dollars (the "Foreign Debt Account"), (iii)
the Foreign Debt Repayment Account denominated in U.S. Dollars
(the "Foreign Debt Repayment Account"), (iv) the Basic Settlement
Account denominated in U.S. Dollars (the "Basic Settlement
Account"), (v) the RMB Revenue Account denominated in Renminbi
(the "RMB Revenue Account"), (vi) the RMB Checking Account
denominated in Renminbi (the "RMB Checking Account"), and (vii)
the Major Maintenance Reserve Account denominated in Renminbi
(the "Major Maintenance Reserve Account") (collectively, the "On-
Shore Accounts").
(b) The proceeds of all Loans shall be deposited in
the Foreign Debt Account. Funds in the Foreign Debt Account
shall not be used for any purpose other than disbursement of
Facility Costs denominated in U.S. Dollars or funding of reserves
for the payment of principal and interest on the Loans, or, after
conversion into RMB, transfer to the RMB Checking Account for
disbursement of Facility Costs denominated in RMB.
(c) All funds received by the Borrower constituting
capital contributions from any shareholder shall be deposited in
the Registered Capital Account. Until after Commercial Operation
Date, funds in the Registered Capital Account shall not be used
for any purpose other than disbursement of Facility Costs
denominated in the U.S. Dollars or, after conversion into RMB,
transfer to the RMB Checking Account for disbursement of Facility
Costs denominated in RMB.
(d) All revenues received by the Borrower from any
source whatsoever shall be deposited (after conversion into
Renminbi, if necessary) into the RMB Revenue Account. The
Borrower shall instruct NCPGC, the EPC Contractor and other
participants in the Project to deposit revenues, penalties or
other payments owing to the Borrower in RMB directly into the RMB
Revenue Account. The RMB Revenue Account shall not be used for
any purpose other than (and in accordance with the following
priority): (i) the transfer of funds to the RMB Checking Account
for the payment of O&M Costs and (ii) after conversion into U.S.
Dollars, the transfer of funds to the Foreign Debt Repayment
Account for the payment of the principal of and interest on the
Loans or reserves in respect thereof.
(e) Amounts remaining in the RMB Revenue Account
subsequent to disbursement in accordance with clause (d) hereof
shall be deposited into the Major Maintenance Reserve Account in
an amount equal to the Major Maintenance Reserve Requirement.
Disbursement shall be made from the Major Maintenance Reserve
Account only to pay for major maintenance costs of the Facility
upon a certification of the Project Engineer that after
withdrawal of such funds for such purpose, the amounts remaining
in the Major Maintenance Reserve Account (including anticipated
future funding thereof) shall be adequate to meet the anticipated
needs of the Facility for major maintenance for the next five
years.
(f) Amounts remaining in the RMB Revenue Account
subsequent to disbursements in accordance with clauses (d) and
(e) hereof shall be retained in the RMB Revenue Account pending
disbursement to the Borrower's Shareholders in the form of
dividends. The amount designated for the payment of dividends to
the Lender in its capacity as a shareholder of the Borrower shall
be transferred from the RMB Revenue Account (after conversion to
U.S. Dollars) to the Basic Settlement Account and then to the
Lender. The corresponding amount designated for the payment of
dividends to the PRC Shareholder shall be distributed from the
RMB Revenue Account directly to the PRC Shareholder in RMB.
(g) The funds in the Foreign Debt Repayment Account
shall not be used for any purpose other than the payment of
amounts due hereunder pursuant to Subsection 2.4 to an off-shore
account maintained by the Lender.
(h) The funds in the Basic Settlement Account shall
not be used for any purpose other than remittance after the
Commercial Operation Date to an off-shore equity distribution
account approved by the Lender.
5.6 Compliance with Legal Requirements. Promptly and
diligently (i) own, construct, maintain and operate the Facility
in compliance with all applicable Legal Requirements, and
(ii) procure, maintain and comply, or cause to be procured,
maintained and complied with all Governmental Authorizations
required for the ownership, construction, financing, maintenance
or operation of the Facility or any part thereof at or before the
time such Governmental Authorization becomes necessary for the
ownership, construction, financing, maintenance or operation of
the Facility, as the case may be, as contemplated by the Project
Documents and except that the Borrower may, at its expense,
contest by appropriate proceedings conducted in good faith the
validity or application of any such Legal Requirements, provided
that, in either case, (x) neither the Lender nor the Borrower
would be subject to any criminal liability for failure to comply
therewith and (y) all proceedings to enforce such Legal
Requirements against the Lender, the Borrower or the Project or
any part thereof, shall have been duly and effectively stayed
during the entire pendency of such contest.
5.7 Operating Budgets. On or before the anticipated
Commercial Operation Date, deliver to the Lender an annual
operating budget, certified by the Project Engineer as being a
reasonable estimate of projected costs, expenses and revenues of
the Borrower, for the period commencing on the anticipated
Commercial Operation Date, and continuing until the end of the
first full calendar year thereafter, in substantially the same
form as the initial annual operating budget. In advance of each
calendar year thereafter, the Borrower shall adopt and deliver to
the Lender an annual operating budget, certified by the Project
Engineer as being a reasonable estimate of projected costs,
expenses and revenues of the Borrower, for the ensuing calendar
year.
5.8 Books, Records, Access. Maintain adequate books,
accounts and records with respect to the Borrower and the
Facility in compliance with the regulations of any Governmental
Instrumentality having jurisdiction thereof, and, with respect to
financial statements, in accordance with the GAAP and, subject to
reasonable safety requirements, permit employees or designees of
the Lender and the Project Engineer, at any reasonable time and
upon reasonable prior notice to inspect the Facility, and to
examine or audit all of Borrower's books, accounts and records
pertaining or related to the Facility and make copies and
memoranda thereof.
5.9 Financial Statements.
5.9.1 Provide the Lender with:
(a) As soon as available and in any event
within one hundred thirty five (135) days after the close of each
fiscal year commencing with the fiscal year ended after the date
of this Agreement, audited financial statements of the Borrower
including a statement of equity, a balance sheet as of the close
of such year, an income and expense statement, reconciliation of
capital accounts and a statement of sources and uses of funds,
all prepared in accordance with the GAAP and certified by
Independent Accountants.
(b) As soon as available and in any event
within ninety (90) days after the end of each of the quarterly
accounting periods of its fiscal year commencing with the quarter
ending after the date of this Agreement, unaudited financial
statements of the Borrower, including without limitation, an
unaudited balance sheet of the Borrower as of the last day of
such quarterly period, the related statements of income and cash
flows for such quarterly period and (in the case of second, third
and fourth quarterly periods) for the portion of the fiscal year
ending with the last day of such quarterly period, setting forth
in each case in comparative form corresponding unaudited figures
from the preceding fiscal year.
5.9.2 Each time the financial statements of
the Borrower are delivered under this subsection 5.9, a
certificate signed by an Authorized Representative of the
Borrower shall be delivered along with such financial statements,
certifying that such officer has made or caused to be made a
review of the transactions and financial condition of the
Borrower during the relevant fiscal period and that such review
has not, to the best of such Authorized Representative's
knowledge, disclosed the existence of any event or condition
which constitutes an Event of Default under this Agreement, or if
any such event or condition existed or exists, the nature thereof
and the corrective actions that Borrower has taken or proposes to
take with respect thereto, and also certifying that the Borrower
is in compliance in all material respects with its obligations
under this Agreement and each other Financing Agreement to which
it is a party or, if such is not the case, stating the nature of
such non-compliance and the corrective actions which the Borrower
has taken or proposes to take with respect thereto.
5.10 Insurance. The Borrower shall maintain, or cause to be
maintained, adequate insurance with respect to its Facility
satisfactory to the Lender in its reasonable judgment, based upon
the advice of the Independent Insurance Consultant. All
insurance other than third party liability insurance shall name
the Lender as an insured and the sole loss payee thereunder.
Policies for third party liability insurance shall name the
Lender as an additional insured.
5.11 Reports; Cooperation.
5.11.1 Deliver to the Lender on each anniversary of
the date of this Agreement a certificate from the Borrower's
insurers or insurance agents (i) evidencing that the insurance
policies in place satisfy the requirements specified in Section
5.10 (including, without limitation, listing all insurance being
carried by or on behalf of the Borrower pursuant to the Project
Documents and certifying that all insurance required to be
maintained by the Borrower pursuant to the Project Documents is
in full force and effect and all premiums therefore have been
paid in full), and (ii) setting forth a summary of all losses in
excess of US$250,000 (or the equivalent thereof) incurred with
respect to the Project in the preceding year.
5.11.2 Deliver to the Lender within thirty (30) days
following the end of each calendar quarter a quarterly status
report describing in reasonable detail the progress of the
construction of the Facility since the immediately preceding
report hereunder, including without limitation, the cost incurred
to the end of such quarter, an estimate of the time and cost
required for completion of the Facility and such other
information which the Lender may reasonably request.
5.11.3 Prior to the Commercial Operation Date,
deliver to the Lender, within thirty (30) days following the end
of each calendar quarter an update of the Facility Budget,
including but not limited to an explanation or other
reconciliation of differences between such report and previous
reports.
5.11.4 From and after the Commercial Operation Date,
deliver to the Lender within ninety (90) days following each
calendar year, a summary operating report, which shall include,
unless otherwise agreed to by the Lender, a numerical and
narrative assessment of (i) the Project's compliance with each
category in the annual operating budget, (ii) statistical data
relating to the Facility, including heat rate, net electrical and
scheduled and unscheduled outages, (iii) fuel deliveries and use,
(iv) major maintenance activity, (v) casualty losses of value in
excess of US$250,000 or the equivalent thereof in other
currencies (whether or not covered by insurance), (vi) disputes
with any other Major Project Participant, materialman, supplier
or other Person and any related claims against the Borrower,
(vii) pricing information disclosed or made available under the
agreements pertaining to the supply of coal for the Facility and
(viii) compliance with the Governmental Authorizations.
5.11.5 No later than five Business Days following
the receipt thereof, deliver to the Lender all progress reports
provided by the EPC Contractor to the Borrower pursuant to the
EPC Contract and all progress reports prepared under the Power
Purchase Agreement.
5.11.6 Deliver to the Lender any such other
information or data with respect to its business or operations
(including supporting information as to compliance with this
Agreement) as the Lender may reasonably request from time to
time.
5.12 Taxes and Other Governmental Charges. Before the same
become delinquent, pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental charges or
levies lawfully imposed upon the Borrower or its income or
profits or upon the Facility, all utility and other governmental
charges incurred in the ownership, operation, maintenance, use,
occupancy and upkeep of the Facility. However, the Borrower may
contest in good faith any such taxes, assessments and other
charges and, in such event, may permit the taxes, assessments or
other charges so contested to remain unpaid during any period,
including appeals, when the Borrower is in good faith contesting
the same, so long as (a) adequate cash reserves have been
established in an amount sufficient to pay any such taxes,
assessments or other charges, accrued interest thereon and
potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made,
(b) enforcement of the contested tax, assessment or other charge
is effectively stayed for the entire duration of such contest,
and (c) any tax, assessment or other charge determined to be due,
together with any interest or penalties thereon, is promptly paid
after resolution of such contest.
5.13 Notices. Promptly, upon acquiring notice or giving
notice, or obtaining knowledge thereof, as the case may be,
provide to the Lender written notice of:
5.13.1 Any Event of Default which it has knowledge,
specifically stating that an Event of Default has occurred and
describing such an Event of Default and any action being taken or
proposed to be taken with respect to such Event of Default;
5.13.2 Any termination or event of default or notice
thereof under the Power Purchase Agreement; and
5.13.3 Any litigation pending against the Borrower or
any other party of which the Borrower has actual knowledge, which
is or could reasonably be expected to have a Material Adverse
Effect.
5.14 Expropriation Event. If an Expropriation Event shall
occur with respect to the Project, (a) promptly upon discovery or
receipt of notice of any occurrence thereof, provide written
notice thereof to the Lender, (b) diligently pursue all its
rights to compensation against the relevant Governmental
Instrumentality in respect of such Expropriation Event, and
(c) hold any Expropriation Proceeds received in respect of such
event (after deducting all reasonable expenses incurred by it in
litigating, arbitrating, compromising, settling or consenting to
the settlement of any claims) in trust for the benefit of the
Lender separated from other funds of the Borrower, (d) promptly
deposit all Expropriation Proceeds in (i) the RMB Revenue Account
if denominated in RMB or (ii) in the Foreign Debt Repayment
Account if denominated in Dollars. The Borrower consents to the
participation of the Lender in any proceedings regarding an
Expropriation Event, and the Borrower shall from time to time
deliver to the Lender all documents and instruments requested by
it to permit such participation. Nothing in this Section 5.14
shall be deemed to impair any rights which the Lender may have
with respect to any such Expropriation Event.
5.15 Increased Costs. If, after the date of this Agreement,
any Change of Law:
(a) shall subject the Lender to any tax, duty or other
charge with respect to the
Loans, or shall change the basis of taxation of payments by the
Borrower to the Lender on the Loans (except for Covered Taxes,
Other Taxes or changes in the rate of taxation on the overall net
income of the Lender); or
(b) shall impose on the Lender any other condition
directly related to the Loans;
and the effect of any of the foregoing is to increase the cost to
the Lender of making, issuing, creating, renewing, participating
in or maintaining the Loans or to reduce any amount receivable by
the Lender hereunder, then the Borrower shall from time to time,
upon demand by the Lender, pay to the Lender additional amounts
sufficient to reimburse the Lender for such increased costs or to
compensate the Lender for such reduced amounts.
5.16 Taxes. All payments made by the Borrower under this
Agreement and the Project Note shall be made free and clear of,
and without deduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any
Governmental Instrumentality, excluding net income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on
the Lender as a result of a present or former connection between
the Lender and the jurisdiction of the Governmental
Instrumentality imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such
connection arising solely from the Lender having executed,
delivered or performed its obligations or received a payment
under, or enforced, this Agreement or the Project Note). If any
such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to
be withheld from any amounts payable to the Lender hereunder or
under the Project Note, the amounts so payable to the Lender
shall be increased to the extent necessary to yield to the Lender
(after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts
specified in this Agreement. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the
Borrower shall send to the Lender for its own account a certified
copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the
Lender for any incremental taxes, interest or penalties that may
become payable by the Lender as a result of any such failure.
The agreements in this subsection 5.16 shall survive the
termination of this Agreement and the payment of the Loans, the
Project Note and all other amounts payable hereunder.
5.17 Registration of the Loans; Other Foreign Exchange
Matters.
5.17.1 Prior to any due date for any repayment of
the principal of and/or the payment of interest on the Loans, the
Borrower shall (i) use the Registration Certificate and the
notice regarding such repayment and/or payment to obtain from the
registration department a verification and approval certificate
with respect to such repayment and/or payment and (ii) use such
verification and approval certificate and the Registration
Certificate to handle matters regarding the remittance from its
foreign debt account of the principal of and interest on the
Loans outside of China at the relevant bank.
5.17.2 At the beginning of each year, the Borrower
shall submit to the local foreign exchange administration a
report stating the amount of foreign currency purchased in the
preceding year for the purpose of repaying the principal of
and/or paying the interest on the Loans and a plan regarding the
purchase of foreign currency for the current year.
5.18 Loan Payment Reserve. At the time of the final drawing
under this Agreement, the Borrower shall deposit an amount equal
to the Debt Service Reserve Requirement in the Debt Service
Reserve Fund.
ARTICLE 6 - NEGATIVE COVENANTS
The Borrower covenants and agrees for the benefit of the
Lender that until all Obligations owed to the Lender are paid in
full, without the consent of the Lender, the Borrower shall not:
6.1 Indebtedness. Incur, create, assume or be liable for
any Indebtedness, except:
(a) the Loans and additional loans from the Lender;
(b) debt incurred to finance working capital
requirements; provided that after giving effect to such
additional debt, (i) the minimum (or lowest) projected Debt
Service Coverage Ratio for any calendar year will not be
less than 1.5 to 1 and (ii) the average projected Debt
Service Coverage Ratio for any calendar year will not be
less than 1.7 to 1; provided further, however, that the
amount of such debt shall not at any time exceed
US$1,000,000;
(c) purchase money or Capital Lease Obligations
incurred to finance assets of the Borrower that are readily
replaceable personal property with a principal amount or
capitalized portion not exceeding US$1,000,000 in the
aggregate outstanding at any time;
(d) trade accounts payable (other than for borrowed
money) due within 90 days arising, and accrued expenses
incurred, in the ordinary course of business of
constructing, operating or maintaining the Facility on
customary terms;
(e) interest or currency exchange rate protection
agreements;
(f) Indebtedness under the Guarantees to which the
Borrower is a party and any other guarantees of the
obligations of any other Joint Venture Company permitted
under the Financing Agreements.
(g) any debt to any other Joint Venture Company, ((a)
through (g), collectively "Permitted Indebtedness").
6.2 Limitations on Liens. Create, assume or permit to
exist any Lien upon any of the Borrower's assets or properties
including without limitation the Facility, whether now owned or
hereafter acquired, other than Permitted Liens.
6.3 Nature of Business. Amend or modify its Articles of
Association without the prior written consent of the Lender, or
engage in any business other than the ownership and operation of
the Facility.
6.4 Sale or Lease of Facility Assets. Sell, lease, assign,
transfer or otherwise dispose of the Facility or other assets
unless (a) such sale, lease, assignment or other disposition
relates only to property that is worn out or no longer useful or
usable in connection with the operation of the Facility or such
property is replaced by property having a Fair Market Value equal
to or greater than the Fair Market Value of the property being
leased or transferred or such lease or transfer is required to
comply with law or to obtain or maintain any Governmental
Authorization, (b) with respect to any other sales, leases,
assignments or other dispositions, the aggregate amount thereof
does not exceed US$250,000 in any given year or US$1,000,000 in
the aggregate since the date of this Agreement, or (c) such sale,
lease, assignment or other disposition is made in the ordinary
course of business in accordance with the Project Documents.
6.5 Merger, Consolidation, Liquidation, Dissolution. Merge
or consolidate with or into any other Person, other than any of
the other Joint Venture Companies or other Sino-foreign joint
ventures with no material liabilities and no material activities
unrelated to the Project, or liquidate, wind up, dissolve, or
otherwise transfer or dispose of all or any substantial part of
its property, assets or business, or change its legal form, or
purchase or otherwise acquire any assets of any Person unless
such purchase or acquisition of assets is reasonably necessary
for the operation of the Facility or in the ordinary course of
business.
6.6 Contingent Liabilities. Become liable as a surety,
guarantor, accommodation endorser or otherwise, for or upon the
obligation of any other Person; provided, however, that the
Borrower may guarantee or otherwise become liable in respect of
any Indebtedness incurred by any other Person (on its behalf) in
connection with or relating to incurrence of Indebtedness
permitted under Section 6.1; and provided, further, however, that
this Section 6.6 shall not be deemed to prohibit (i) the
acquisition of goods, supplies or merchandise in the normal
course of business on normal trade credit, or (ii) the
endorsement of negotiable instruments received in the normal
course of business; or (iii) the obligations hereunder and under
the Guarantees or any other guarantee of any obligation of any
other Joint Venture Company if such guarantee is required for the
development and construction of the Project and is not contrary
to any Legal Requirements.
6.7 Loans, Advances or Investments. Make or permit to
remain outstanding any loans, extensions of credit or advances to
or investments in (whether by acquisition of any stocks, notes or
other securities or obligations) any Person except RMB Permitted
Investments with respect to the On-Shore Accounts denominated in
Renminbi or Dollar Permitted Investments with respect to the On-
Shore Accounts denominated in the U.S. Dollars or as expressly
provided in the Project Documents.
6.8 Immunity. In any proceedings in China or elsewhere in
connection with any of the Financing Agreements to which the
Borrower is a party, claim for itself or any of its assets
immunity from suit, execution, attachment or other legal process.
6.9 Distributions. Agree to any restriction on its ability
to pay dividends (excluding restrictions imposed by law).
6.10 Transactions With Affiliates. Except for the Project
Documents, directly or indirectly: (i) enter into any
transaction with any Person (including any Affiliate) other than
in the ordinary course of business, or (ii) enter into any
transaction with any Person, including any Affiliate, on terms
less favorable to those available from independent third parties
or (ii) establish any sole and exclusive purchasing or sales
agency, or enter into any transaction whereby the Borrower might
receive less than the full commercial price (subject to normal
trade discounts) for electricity or pay more than the commercial
price for products of others.
6.11 Partnerships; Subsidiaries. Except as contemplated by
the Project Documents, become a general or limited partner in any
partnership or a joint venturer in any joint venture, acquire any
ownership interest in any other Person or enter into any profit-
sharing or royalty agreement or other similar arrangement whereby
the Borrower's income or profits are, or might be, shared with
any other Person, or enter into any management contract or
similar arrangement whereby its business or operations are
managed by any other Person (other than any agreement under which
the Borrower may provide operation and management consulting or
other similar services), or form any Subsidiary.
6.12 Assignment. Assign or otherwise transfer its rights
under any of the Project Documents to which it is a party, or
Governmental Authorizations for its benefit, to any Person
without the prior written consent of the Lender.
6.13 Abandonment of Project. Voluntarily cease or abandon
the development, construction or operation of the Project.
6.14 Improper Use. Use, maintain, operate or occupy, or
allow the use, maintenance, operation or occupancy of, any
portion of the Site or Facility for any purpose which: (a) may
be dangerous, unless safeguarded as required by any Legal
Requirement or Government Instrumentality; (b) may constitute a
public or private nuisance resulting in a Material Adverse
Effect; or (c) may make void, voidable or cancelable, or
materially increase the premium of, any insurance then in force
with respect to the Site or Project or any part thereof.
6.15 Regulation of Parties. Take any action which could
reasonably be expected to result in (a) the Borrower being
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "public utility holding
company", (b) the Borrower being subject to regulation as a
"subsidiary company" or an "affiliate" of a "holding company"
under (and as defined in) PUHCA or (c) any Person who by reason
of its or their ownership or operation of the Facility upon the
exercise of remedies hereunder or under the Guarantees, being
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "holding company" or a
subsidiary or Affiliate of any of the foregoing under any Legal
Requirement of the United States (including, without limitation,
PUHCA and the FPA).
6.16 Amendments. Amend any of the Project Documents without
the prior written consent of the Lender.
ARTICLE 7 - EVENTS OF DEFAULT; CURE RIGHTS; REMEDIES
7.1 Events of Default; Cure Rights. The occurrence of any
of the following events shall constitute an event of default
("Event of Default") hereunder:
7.1.1 Failure to Make Payments. Payment shall not
have been made of any principal of or any interest on the Loans
or other amounts owed by the Borrower to the Lender within 15
Banking Days after such amounts are due.
7.1.2 Misstatements; Omissions. Any representation
or warranty confirmed or made in any Project Documents by the
Borrower or in any writing provided by the Borrower in connection
with the transactions contemplated by this Agreement shall be
found to have been incorrect in any material respect when made or
deemed to be made; provided, however, that no Event of Default
shall occur if within sixty (60) days after the date on which the
General Manager of the Borrower has actual notice that such
incorrect statement has occurred, the Borrower shall deliver in
good faith, to the Lender an Officer's Certificate stating in
reasonable detail that either (i) the Borrower has eliminated any
adverse effect relating to such incorrect statement or (ii) that
the Borrower has taken action that it reasonably believes will
eliminate the adverse effect relating to such incorrect statement
within a reasonable specified time.
7.1.3 Affirmative Covenants. The Borrower shall
fail to perform or observe any of its obligations under (a)
Sections 5.4 and 5.5 or (b) any other term, covenant or agreement
set forth in Article 5 hereof, where such default shall not have
been remedied within fifteen (15) days after notice of such
failure.
7.1.4 Negative Covenants. The Borrower shall fail
to perform or observe any of its obligations under any term,
covenant or agreement set forth in Article 6 hereof other than
Section 6.2, where such default shall not have been remedied
within fifteen (15) days after the Borrower has received notice
of such failure.
7.1.5 Breach of Material Project Documents. The
Borrower or any other party thereto shall breach or default under
any term, condition, provision, covenant, representation or
warranty contained in any of the Material Project Documents and
the Financing Agreements to which the Borrower is a party if such
breach or default shall continue unremedied for fifteen (15) days
after notice to the Borrower from the Lender; provided, however,
that in the case of any of the EPC Contract, the CHEXIM Guarantee
or the Transmission Facilities Construction Agreement, if the
breach or default cannot be remedied within such fifteen (15)
days despite the Borrower's and/or such other party's, as the
case may be, good faith and diligent efforts to do so, but is
susceptible to cure within a longer period, the Borrower or such
party shall continue diligently such efforts to cure such breach
or default until cured (but in no event longer than sixty (60)
days in the aggregate.
7.1.6 Bankruptcy; Insolvency.
(a) The Borrower or any other Joint Venture Company
shall institute a voluntary case or undertake actions to form an
arrangement with creditors for the purpose of paying past due
debts, seeking liquidation, reorganization or moratorium of
payments, under any Bankruptcy Law (or any successor statute or
similar statute in any relevant jurisdiction), or shall consent
to the institution of an involuntary case thereunder against it;
or the Borrower shall file a petition, answer or consent or shall
otherwise institute any similar proceeding under any other Legal
Requirements, or shall consent thereto; or the Borrower or any
other Joint Venture Company shall apply for, or by consent or
acquiescence there shall be an appointment of, a receiver,
liquidator, sequestrator, trustee or other officer with similar
powers; or the Borrower or any other Joint Venture Company shall
make an assignment for the benefit of creditors; or the Borrower
or any other Joint Venture Company shall admit in writing its
inability to pay its debts generally as they become due; or if an
involuntary case shall be commenced seeking the liquidation or
reorganization of the Borrower or any other Joint Venture Company
under any Bankruptcy Law (or any successor statute or similar
statute under any relevant jurisdiction) or any similar
proceeding shall be commenced against the Borrower or any other
Joint Venture Company under any other Legal Requirements and (i)
the petition commencing the involuntary case is not timely
controverted, (ii) the petition commencing the involuntary case
is not dismissed within sixty (60) days of its filing, (iii) an
interim trustee is appointed to take possession of all or a
portion of the property, and/or to operate all or any part of the
business of the Borrower or any other Joint Venture Company and
such appointment is not vacated within sixty (60) days, or
(iv) an order for relief shall have been issued or entered
therein; or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer having similar powers of
the Borrower or any other Joint Venture Company of all or a part
of their property, shall have been entered; or any other similar
relief shall be granted against the Borrower or any other Joint
Venture Company under any Legal Requirements; and
(b) NCPGC, the EPC Contractor, or Harbin Power shall
institute a voluntary case or undertake actions to form an
arrangement with creditors for the purpose of paying past due
debts, seeking liquidation, reorganization or moratorium of
payments, under any Bankruptcy Law (or any successor statute or
similar statute in any relevant jurisdiction), or shall consent
to the institution of an involuntary case thereunder against it;
or shall file a petition, answer or consent or shall otherwise
institute any similar proceeding under any other Legal
Requirements, or shall consent thereto; or shall apply for, or by
consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with
similar powers; or shall make an assignment for the benefit of
creditors; or shall admit in writing its inability to pay its
debts generally as they become due; or if an involuntary case
shall be commenced seeking the liquidation or reorganization of
NCPGC, the EPC Contractor, or Harbin Power under any Bankruptcy
Law (or any successor statute or similar statute under any
relevant jurisdiction) or any similar proceeding shall be
commenced against NCPGC, the EPC Contractor, or Harbin Power
under other Legal Requirements and (i) the petition commencing
the involuntary case is not timely controverted, (ii) the
petition commencing the involuntary case is not dismissed within
sixty (60) days of its filing, (iii) an interim trustee is
appointed to take possession of all or a portion of the property,
and/or to operate all or any part of the business of any of
NCPGC, the EPC Contractor, or Harbin Power and such appointment
is not vacated within sixty (60) days, or (iv) an order for
relief shall have been issued or entered therein; or a decree or
order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee or
other officer having similar powers of any of NCPGC, the EPC
Contractor, or Harbin Power of all or a part of any of their
respective property, shall have been entered; or any other
similar relief shall be granted against the NCPGC, the EPC
Contractor, or Harbin Power under any Legal Requirements.
7.1.7 Judgments. A final judgment or judgments
shall be entered (i) against the Borrower in the aggregate amount
of US$1,000,000 (or the equivalent thereof in other currencies)
(exclusive of judgment amounts fully covered by insurance where
the insured has admitted liability), other than a judgment, the
execution of which is effectively stayed within sixty (60) days
after its entry but only for no more than ninety (90) days after
the date on which such stay is terminated or expires; or (ii) in
the form of an injunction or similar form of relief requiring
suspension or abandonment of construction or operation of the
Facility on grounds of violation of a Legal Requirement and
failure of the Borrower to have such injunction or similar form
of relief stayed or discharged within ninety (90) days.
7.1.8 Other Indebtedness. The Borrower shall
default for a period beyond any applicable grace period in the
payment of any principal, interest or other amount due under any
agreement involving the borrowing of money or the advance of
credit and the outstanding amount or amounts payable under such
agreement equals or exceeds US$250,000 (or the equivalent thereof
in other currencies) in the aggregate.
7.1.9 Termination or Invalidity of Certain Project
Documents; Abandonment of Project.
(a) Any of the Project Documents or the Financing
Agreements shall have become invalid, illegal or unenforceable;
(b) The Borrower shall cease to have the right to use
the Site for the purpose of owning, constructing, maintaining and
operating the Facility in the manner contemplated by the Project
Documents (or to obtain sufficient water for its operations); or
(c) The Borrower shall abandon the Project or
otherwise cease to pursue the operations of the Project in
accordance with standard industry practice or shall (except as
permitted by Section 6.4) sell or otherwise dispose of its
interest in the Project.
7.1.10 Commercial Operation Date. The Commercial
Operation Date shall not have occurred by December 31, 1999.
7.1.11 Government Authorizations. Any Governmental
Authorization, approval or permit (whether central, provincial,
municipal, local or otherwise) necessary for (a) the
establishment of the Borrower (b) the ownership, construction,
maintenance, financing or operation of the Project, (c) the
setting or adjustment of the electricity price for the Project in
accordance with the method of calculation set forth in the
attachments to the Pricing Document or (d) the conversion or
transfer of any foreign currency shall not be obtained if and
when required, or shall be modified, revoked or cancelled, or a
notice of violations is issued under any Governmental
Authorization on grounds of, or illegality or the absence of any
required authorization, by the issuing agency or other
Governmental Instrumentality having jurisdiction or any
proceeding is commenced by any Governmental Instrumentality for
the purpose of modifying, revoking or cancelling any Governmental
Authorization.
7.1.12 Destruction of Project. The Facility is
destroyed, or suffers an actual or constructive total loss or
damage.
7.1.13 Change of Law. The occurrence of any adverse
Change of Law of the PRC.
7.1.14 Remedies. Upon the occurrence of any of the
Events of Default, the Lender may, by written notice to the
Borrower and the other Joint venture Companies, declare the Loans
to be immediately due and payable and pursue any and all remedies
available for the non-payment of debts.
ARTICLE 8 - SCOPE OF LIABILITY
The Lender shall have no claims with respect to the
transactions contemplated by the Project Documents against any
Person other than the Borrower including, but not limited to, the
Panda International and the Luannan Government or any of their
respective Affiliates (other than the Borrower) or direct or
indirect parents, or to the shareholders, officers, directors,
employees, or other controlling persons (including members of the
management committee) of the Panda International and the Luannan
Government, their respective Affiliates (other than the
Borrower), or their direct or indirect parents (collectively the
"Nonrecourse Persons"), subject to the exceptions set forth below
in this Article 8; provided that (a) the foregoing provision of
this Article 8 shall not constitute a waiver, release or
discharge of any of the indebtedness, or of any of the terms,
covenants, conditions, or provisions of this Agreement, any other
Financing Agreement and the same shall continue until fully paid,
discharged, observed, or performed; (b) the foregoing provision
of this Article 8 shall not limit or restrict the right of the
Lender, to name the Borrower or any other Person as a defendant
in any action or suit for a judicial foreclosure or for the
exercise of any other remedy under or with respect to this
Agreement or any other Financing Agreement, or for injunction or
specific performance, so long as no judgement in the nature of a
deficiency judgement shall be enforced against any Nonrecourse
Persons, except as set forth in this Article 8; (c) the foregoing
provision of this Article 8 shall not affect or diminish or
constitute a waiver, release or discharge of any specific written
obligation, covenant, or agreement in respect to the Project made
by any of the Nonrecourse Persons; and (d) nothing contained
herein shall limit the liability of any Person who is a party to
any Project Document or has issued any certificate or other
statement in connection therewith with respect to such liability
as may arise by reason of the terms and conditions of such
Project Document, certificate or statement, or otherwise, in each
case under this clause (d) relating solely to such liability of
such Person as may arise under such referenced agreement,
instrument or opinion. The limitations on recourse set forth in
this Article 8 shall survive the termination of this Agreement
and the full payment and performance of the Obligations hereunder
and under the other Project Documents.
ARTICLE 9 - MISCELLANEOUS
9.1 Addresses. Any communications between the parties
hereto or notice provided herein to be given may be given to the
following addresses.
If to the Lender: Pan-Western Energy Corporation, LLC
c/o Maples and Calder
P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands, British West Indies
If to the Borrower: Tangshan Pan-Western Heat and Power Co., Ltd.
Zhongdajie, Bencheng
Luannan County
Hebei Province, China
in either case,
with a copy to: Panda Energy Industrial Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
9.2 Delay and Waiver. No delay or omission to exercise any
right, power or remedy accruing to the Lender upon the occurrence
of any Event of Default or any breach or default of the Borrower
under this Agreement shall impair any such right, power or remedy
of the Lender, nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring, nor shall any
waiver of any single Event of Default, or other breach or default
be deemed a waiver of any other Event of Default, or other breach
or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part
of the Lender of any Event of Default, or other breach or default
under this Agreement, or any waiver on the part of the Lender of
any provision or condition of this Agreement, must be in writing
and shall be effective only to the extent in such writing
specifically set forth. All remedies, either under this
Agreement or by law or otherwise afforded to the Lender shall be
cumulative and not alternative.
9.3 Entire Agreement. This Agreement and any agreement,
document or instrument attached hereto or referred to herein
integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral negotiations and prior
writings in respect to the subject matter hereof. In the event
of any conflict between the terms, conditions and provisions of
this Agreement and any such agreement, document or instrument,
the terms, conditions and provisions of this Agreement shall
prevail. This Agreement may only be amended or modified by an
instrument in writing signed by the Borrower, the Lender and any
other parties to be charged.
9.4 Governing Law. This Agreement shall be governed by,
and be construed and interpreted in accordance with, the law of
the Cayman Islands.
9.5 Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal
or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
9.6 Headings. Paragraph headings have been inserted in
this Agreement as a matter of convenience for reference only and
it is agreed that such paragraph headings are not a part of this
Agreement and shall not be used in the interpretation of any
provision of this Agreement.
9.7 No Partnership, Etc. The Lender and the Borrower
intend that the relationship between them shall be solely that of
creditor and debtor. Nothing contained in this Agreement or the
Project Note shall be deemed or construed to create a
partnership, tenancy-in-common, joint tenancy, joint venture or
co-ownership by or between the Lender, on the one hand, and the
Borrower or any other Person, on the other hand. The Lender
shall not be in any way responsible or liable for the debts,
losses, obligations or duties of the Borrower or any other Person
with respect to the Project or otherwise. All obligations to pay
real property or other taxes, assessments, insurance premiums,
and all other fees and charges arising from the ownership,
operation or occupancy of the Project and to perform all
obligations under the agreements and contracts relating to the
Project shall be the sole responsibility of the Borrower.
9.8 Consent to Jurisdiction. The Lender and the Borrower
agree that any legal action or proceeding by or against the
Borrower or with respect to or arising out of this Agreement the
Project Note may be brought in or removed to the courts of the
Cayman Islands. By execution and delivery of this Agreement, the
Lender and the Borrower accept, for themselves and in respect of
their property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The Lender and the Borrower irrevocably
consent to the service of process out of any of the
aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified airmail,
postage prepaid, to the Lender or the Borrower, as the case may
be, at their respective addresses for notices as specified herein
and that such service shall be effective five (5) Banking Days
after such mailing. Nothing herein shall affect the right to
serve process in any other manner permitted by law or the right
of the Lender to bring legal action or proceedings in any other
competent jurisdiction. The Lender and the Borrower further
agree that the aforesaid courts of the Cayman Islands shall have
exclusive jurisdiction with respect to any claim or counterclaim
of the Borrower based upon the assertion that the rate of
interest charged by the Lender on or under this Agreement and/or
the Project Note is usurious. The Lender and the Borrower hereby
waive any right to stay or dismiss any action or proceeding under
or in connection with any or all of the Project or this Agreement
brought before the foregoing courts on the basis of forum
non-conveniens.
9.9 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The
Borrower may not assign or otherwise transfer any of its rights
under this Agreement.
9.10 Counterparts. This Agreement may be executed in one or
more duplicate counterparts and when signed by all of the parties
listed below shall constitute a single binding agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their officers or partners
thereunto duly authorized as of the day and year first above
written.
PAN-WESTERN ENERGY CORPORATION LLC
By:
Name:
Title:
TANGSHAN PAN-WESTERN HEAT AND POWER CO.,
LTD.
By:
Name:
Title:
Schedule 5.8
[TO COME]
EXHIBIT A
FORM OF PROJECT NOTE
$ New York, New York
, 199
FOR VALUE RECEIVED, the undersigned,
, a Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China, (the
"Borrower"), hereby unconditionally promises to pay to the order
of Pan-Western Energy Corporation LLC (the "Lender") at the
office of [ ] in lawful money of the United
States of America and in immediately available funds, the
principal amount of DOLLARS ($ ),
or, if less, the unpaid principal amount of the Loans made by the
Lender pursuant to the Shareholder Loan Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and
on the dates specified in the Shareholder Loan Agreement. The
Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in the
Shareholder Loan Agreement.
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of the Loans and the date and
amount of each payment or prepayment of principal with respect
thereto. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed. The
failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Loans.
This Note (a) is the Project Note referred to in the
Shareholder Loan Agreement dated as of September 24, 1996 (as
amended, supplemented or otherwise modified from time to time,
the "Shareholder Loan Agreement"), between the Borrower and the
Lender, (b) is subject to the provisions of the Shareholder Loan
Agreement and (c) is subject to optional and mandatory prepayment
in whole or in part as provided in the Shareholder Loan
Agreement. This Note is guaranteed as provided in the Financing
Agreements. Reference is hereby made to the Financing Agreements
for a description of the terms and conditions upon which each
guarantee was granted and the rights of the holder of this Note
in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable,
all as provided in the Shareholder Loan Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all
other notices of any kind.
Unless otherwise defined herein, terms defined in the
Shareholder Loan Agreement and used herein shall have the
meanings given to them in the Shareholder Loan Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE CAYMAN ISLANDS.
[BORROWER]
By:
Name:
Title:
Schedule 5.8
OUTLINE OF INSURANCE
TYPE Construction & Erection "All Risks",
Third Party Liability & Delay in Start-
Up Insurance.
INSURED Joint Venture Companies
and
Harbin Power Equipment Co., Ltd.
and / or
all Contractors, Sub-Contractors,
Suppliers, thereto, as their interest
may appear.
PERIOD From notification to proceed through
completion of construction testing and
final acceptance (Est. 26 months in
all).
Extensions to Period relating to
construction/erection not exceeding six
months to be automatically held covered
by Insurers at an additional premium to
be agreed.
INTEREST Section 1 Construction & Erection "All
Risks"
The permanent works and plant supplied,
temporary works and materials until take
over for commercial operation by the
Principal of Unit 2.
Section 2 Third Party Liability
The legal liability of the insured for
personal injury or damage to property.
Section 3 Delay I Start-Up
Loss of Revenue &/or Increased Cost of
Working due to delayed completion
resulting from loss or damage insured by
Section 1.
Project Insured
The design, project management, supply
construction, erection, testing,
commissioning and maintenance / defects
liability period of the 2x50MW coal-
fired electric and thermal energy
cogeneration power plants at Luannan
County, Tangshan City, and all work and
services ancillary thereto.
SUM INSURED Section 1 Construction & Erection "All
Risks"
Full Contract Value US $90,000,000
Section 2 Third Party Liability
Limit of Indemnity US $20,000,000
any one occurrence / unlimited in all
during the Period of Insurance.
Section 3 Delay in Start-Up
Sum Insured US $38,250,000
Indemnity Period 12 months
LOCATION Near the City of Gujiaying, Hebei
Province, Peoples Republic of China.
EXHIBIT A
FORM OF PROJECT NOTE
$ New York, New York
, 199
FOR VALUE RECEIVED, the undersigned,
, a Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China, (the
"Borrower"), hereby unconditionally promises to pay to the order
of Pan-Western Energy Corporation LLC (the "Lender") at the
office of [ ] in lawful money of the United
States of America and in immediately available funds, the
principal amount of DOLLARS ($ ),
or, if less, the unpaid principal amount of the Loans made by the
Lender pursuant to the Shareholder Loan Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and
on the dates specified in the Shareholder Loan Agreement. The
Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in the
Shareholder Loan Agreement.
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of the Loans and the date and
amount of each payment or prepayment of principal with respect
thereto. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed. The
failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Loans.
This Note (a) is the Project Note referred to in the
Shareholder Loan Agreement dated as of September 24, 1996 (as
amended, supplemented or otherwise modified from time to time,
the "Shareholder Loan Agreement"), between the Borrower and the
Lender, (b) is subject to the provisions of the Shareholder Loan
Agreement and (c) is subject to optional and mandatory prepayment
in whole or in part as provided in the Shareholder Loan
Agreement. This Note is guaranteed as provided in the Financing
Agreements. Reference is hereby made to the Financing Agreements
for a description of the terms and conditions upon which each
guarantee was granted and the rights of the holder of this Note
in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable,
all as provided in the Shareholder Loan Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all
other notices of any kind.
Unless otherwise defined herein, terms defined in the
Shareholder Loan Agreement and used herein shall have the
meanings given to them in the Shareholder Loan Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE CAYMAN ISLANDS.
[BORROWER]
By:
Name:
Title:
SCHEDULE A
INTEREST PAYMENT SCHEDULE
[***] FILED SEPARATELY WITH THE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
SCHEDULE B
AMORTIZATION SCHEDULE
[***] FILED SEPARATELY WITH THE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT 10.98
AMENDED AND RESTATED SHAREHOLDER LOAN AGREEMENT
between
PAN-WESTERN ENERGY CORPORATION LLC
as Lender
and
TANGSHAN CAYMAN HEAT AND POWER CO., LTD.
as Borrower
Dated as of April 1, 1997
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS 1
1.1 Definitions 1
ARTICLE 2 - THE CREDIT FACILITY 13
2.1 Credit Facility 13
2.2 Interest Payments 13
2.2.1 Interest Payment Dates 13
2.2.2 Interest 13
2.3 Project Note 13
2.4 Repayment of the Loans 14
2.4.1 Payments 14
2.4.2 Application of Payments 14
2.5 Prepayments 14
2.5.1 Voluntary Prepayments 14
2.5.2 Certain Mandatory Prepayments 14
2.5.3 Expropriation Event; Event of Loss 14
2.6 Fees 15
ARTICLE 3 - CONDITIONS PRECEDENT 16
3.1 Borrower's Certificate 16
(a) Representations and Warranties 16
(b) No Event of Default 16
(c) Governmental Authorizations and other consents
and approvals 16
(d) Facility Costs 16
3.2 On-Shore Accounts 16
3.3 Evidence of Facility Costs and Other Expenses 16
3.4 Progress Report; Project Engineer 16
3.5 Registration Certificate 17
3.6 Equity Contributions; Real Estate Transfers 17
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES 17
4.1 Organization 17
4.2 Authorization; No Conflict 17
4.3 Legality, Validity and Enforceability 17
4.4 Compliance with Law, Governmental Authorizations
and Project Documents 17
4.5 Governmental Authorizations 18
4.6 Litigation 18
4.7 Existing Defaults 18
4.8 Taxes 18
4.9 Contingent Liabilities 18
4.10 Business, Debt, Contracts, Etc. 18
4.11 Representations and Warranties 18
4.12 Utilities 18
4.13 Project Documents 19
4.14 Fees and Enforcement 19
4.15 Immunity 19
4.16 Subsidiaries and Beneficial Interest 19
4.17 No Other Powers of Attorney, etc. 19
4.18 Liens 19
4.19 Regulation of Parties 19
4.20 Transactions with Affiliates 19
ARTICLE 5 - AFFIRMATIVE COVENANTS OF THE BORROWER 20
5.1 Repayment of Indebtedness 20
5.2 Existence, Conduct of Business, Properties, Etc. 20
5.3 Performance of Covenants and Obligations 20
5.4 Use of Funds 20
5.5 Accounts 20
5.6 Compliance with Legal Requirements 21
5.7 Operating Budgets 21
5.8 Books, Records, Access 22
5.9 Financial Statements 22
5.10 Insurance 22
5.11 Reports; Cooperation 23
5.12 Taxes and Other Governmental Charges 23
5.13 Notices 24
5.14 Expropriation Event 24
5.15 Increased Costs 24
5.16 Taxes 25
5.17 Registration of the Loans; Other Foreign
Exchange Matters 25
5.18 Loan Payment Reserve 25
ARTICLE 6 - NEGATIVE COVENANTS 25
6.1 Indebtedness 26
6.2 Limitations on Liens 26
6.3 Nature of Business 26
6.4 Sale or Lease of Facility Assets 26
6.5 Merger, Consolidation, Liquidation, Dissolution 26
6.7 Loans, Advances or Investments 27
6.8 Immunity 27
6.9 Distributions 27
6.10 Transactions With Affiliates 27
6.11 Partnerships; Subsidiaries 27
6.12 Assignment 27
6.13 Abandonment of Project 28
6.14 Improper Use 28
6.15 Regulation of Parties 28
6.16 Amendments 28
ARTICLE 7 - EVENTS OF DEFAULT; CURE RIGHTS; REMEDIES 28
7.1 Events of Default; Cure Rights 28
7.1.1 Failure to Make Payments 28
7.1.2 Misstatements; Omissions 28
7.1.3 Affirmative Covenants 28
7.1.4 Negative Covenants 29
7.1.5 Breach of Material Project Documents 29
7.1.6 Bankruptcy; Insolvency 29
7.1.7 Judgments 30
7.1.8 Other Indebtedness 30
7.1.9 Termination or Invalidity of Certain
Project Documents; Abandonment of Project 30
7.1.10 Commercial Operation Date 30
7.1.11 Government Authorizations 31
7.1.12 Destruction of Project 31
7.1.13 Change of Law 31
7.1.14 Remedies 31
ARTICLE 8 - SCOPE OF LIABILITY 31
ARTICLE 9 - MISCELLANEOUS 32
9.1 Addresses 32
9.2 Delay and Waiver 32
9.3 Entire Agreement 32
9.4 Governing Law 32
9.5 Severability 33
9.6 Headings 33
9.7 No Partnership, Etc. 33
9.8 Consent to Jurisdiction 33
9.9 Successors and Assigns 33
9.10 Counterparts 33
TABLE OF SCHEDULES AND EXHIBITS iv
TABLE OF SCHEDULES AND EXHIBITS
Exhibit A Form of Project Note
Schedule 5.8 Insurance
Schedule A Interest Payment Schedule
Schedule B Amortization Schedule
THIS AMENDED AND RESTATED SHAREHOLDER LOAN AGREEMENT (this
"Agreement") dated as of April 1, 1997, by and between Pan-
Western Energy Corporation LLC (the "Lender"), a company with
limited liability organized under the laws of the Cayman Islands,
and Tangshan Cayman Heat and Power Co., Ltd. (the "Borrower"), a
Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China (the
"PRC" or "China").
W I T N E S S E T H :
WHEREAS, the Borrower has developed, and desires to obtain,
own and operate certain water wells and pipeline systems, heat,
steam and hot water system facilities (the "Facility") and to
provide services related thereto, in conjunction with certain
other facilities including two 50 MW coal-fired thermal power
generation facilities and a steam and hot water distribution
system (collectively referred to herein as the "Project"); and
WHEREAS, the Lender, as the owner of approximately 88% of
the aggregate ownership interest in the Borrower, can be expected
to derive certain benefits as a result of this Agreement and
desires to lend certain funds to the Borrower on commercial terms
negotiated at arms length by and between the Borrower and the
Lender pursuant to, and upon the term and conditions contained
in, this Agreement and for the benefit of the Borrower;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 Definitions. The following terms, as used herein, have
the following meanings:
"Affiliate" of a specified Person means any other
Person or Persons that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under
common control with the Person specified, or who holds or
beneficially owns 10% or more of the equity interest in the
Person specified or 10% or more of any class of voting securities
of the Person specified.
"Asset Sale" means sale, transfer or other disposition
(including any sale and leaseback of assets and any sale of
accounts receivable in connection with a receivable financing
transaction) by the Borrower or any of its Subsidiaries of any
property of the Borrower or any such Subsidiary, other than as
permitted pursuant to subsection 2.5.2.
"Authorized Representative" means as to any Person, its
president, chief executive officer or any senior vice president
or any other person specifically identified as such in a
certificate of such Person delivered to the Lender.
"Banking Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banks in New York, New York,
George Town, Grand Cayman, Cayman Islands or Zhongdajie,
Bencheng, Luannan County, Hebei Province, China, are authorized
or required to be closed.
"Bankruptcy Law" means any insolvency, reorganization,
moratorium or similar law for the general relief of debtors in
any relevant jurisdiction.
"Basic Settlement Account" shall have the meaning
ascribed to it in subsection 5.5.
"Borrower" means Tangshan Cayman.
"Business Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banks in New York, New York,
George Town, Grand Cayman, Cayman Islands or Zhongdajie,
Bencheng, Luannan County, Hebei Province, China, are authorized
or required to be closed.
"Capital Stock" means any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent ownership
interests in a Person (other than a corporation) and any and all
warrants or options to purchase any of the foregoing.
"Capitalized Lease" means as to any Person, any lease
of any property of which the discounted present value of the
rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such
Person, and "Capitalized Lease Obligation" means the rental
obligations, as aforesaid, under any such lease.
"Cash Equivalents" means, at any time (i) any evidence
of Indebtedness with a maturity of 180 days or less issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System, whose
rating is AA or higher from Standard & Poor's or Aa2 or higher
from Moody's, having combined capital and surplus and undivided
profits of not less than $500 million; (iii) commercial paper
with a maturity of 180 days or less issued by a corporation
(except an Affiliate of the Company) organized under the laws of
any state of the United States or the District of Columbia and
having the highest rating obtainable from Standard & Poor's or
Moody's; and (iv) repurchase obligations for a term of not more
than seven days for underlying securities of the types described
in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above.
"Cash Flow Available for Debt Service" means, for any
period, (i) the sum of all revenues (including interest and fee
income and any principal payments received by the Borrower on the
Transmission Loan for such period, but excluding any insurance
proceeds, other than business interruption insurance proceeds,
and other similar non-recurring receipts) of the Borrower for
such period minus (ii) the aggregate amount of O&M Costs for such
period as determined on a cash basis and otherwise in accordance
with GAAP).
"Change of Law" means after the date of this Agreement,
the adoption of any Legal Requirement, any change in any Legal
Requirement or the application or requirements thereof, any
change in the interpretation or administration of any Legal
Requirement by any Governmental Instrumentality, or compliance by
the Lender or the Borrower with any request or directive (whether
or not having the force of law) of any Governmental
Instrumentality.
"CHEXIM" means the Export-Import Bank of China, a
company organized under the laws of PRC.
"CHEXIM Guarantee" means the guarantee to be given by
CHEXIM as required pursuant to the EPC Contract in respect of the
EPC Contractor's obligations under the EPC Contract, as the same
may from time to time be amended, supplemented or otherwise
modified.
"Coal Supply Agreements" means all agreements entered
into by the Joint Venture Companies for the supply of coal to the
Project.
"Coal Transportation Agreements" means all agreements
entered into by the Joint Venture Companies for the
transportation of coal to the Project.
"Commercial Operation Date" means that date by which
both of the following have occurred: (i) the Project Engineer
has certified that the Project has achieved commercial operations
and (ii) the Commercial Operation Date, as such term is used in
the General Interconnection Agreement, has occurred.
"Commercially Feasible Basis" means that, following an
Event of Loss or an Expropriation Event, (i) the sum of the
proceeds of business interruption insurance, any funds available
to be applied to the rebuilding, repair or restoration pursuant
to subsection 2.5.3(e), any amounts that the shareholders of all
the Joint Venture Companies are irrevocably committed to
contribute and the anticipated revenues of the Project during the
estimated period of rebuilding, repair or restoration will be
sufficient to pay all Debt Service and O&M Costs of the Project
during the estimated period of rebuilding, repair or restoration
and (ii) the Project upon being rebuilt, repaired or restored can
reasonably be expected to produce revenues adequate to pay all
Debt Service and O&M Costs of all Joint Venture Companies
pursuant to each such Joint Venture Company's respective
Shareholder Loan Agreement over the remaining terms of the Loans
outstanding of each Joint Venture Company, taking into account
any change in projected operating results due to the impairment
of any portion of the Project, all without materially affecting
the Borrower's Debt Service Coverage Ratio.
"Covered Taxes" means taxes, levies, imposts,
deductions, charges, withholdings and liabilities imposed on or
measured by the net income or capital of a Person by any
jurisdiction or any political subdivision or taxing authority
thereof or therein solely as a result of a permanent
establishment of such Person in such jurisdiction or political
subdivision.
"Debt Service" means, for any period, an amount equal
to the aggregate of, without duplication all payments of
principal and interest (including any adjustment for withholding
taxes or similar taxes) due and payable on Indebtedness during
such period.
"Debt Service Coverage Ratio" means, for any period,
and, if the transaction giving rise to the need to calculate Debt
Service Coverage Ratio is an incurrence of Indebtedness,
calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred or made on
the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, means the
ratio of (A) Cash Available for Debt Service to (B) Net Debt
Service for such period.
"Debt Service Reserve Requirement" means US$1,000,000
less the amount of any Performance Bonus Payment paid by the
Borrower.
"Development Expenses" shall mean all reasonable out-of
pocket expenses related to the Facility that have been incurred
by the Borrower, Panda International or their Affiliates in the
development of the Facility prior to the date of this Agreement.
"Disqualified Stock" means, with respect to any Person,
any Capital Stock which, by its terms (or by the terms of any
security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Loans, as the case may be.
"Dollar Equivalent" means, with respect to any monetary
amount in Renminbi, at any time for the determination thereof,
the amount of Dollars obtained by converting the amount of
Renminbi involved in such computation into Dollars at the spot
rate at which Renminbi are offered for sale against delivery of
Dollars by leading banks in Tangshan City on the date of
determination thereof as determined by the Lender in its
reasonable judgement. If for any reason the Dollar Equivalent
cannot be calculated as provided in the immediately preceding
sentence, the Lender shall calculate the Dollar Equivalent on
such basis as it deems fair and equitable.
"Dollar Permitted Investments" means investments which
are denominated and payable in U.S. Dollars (a) with respect to
funds in the On-Shore Accounts, deposits denominated in U.S.
Dollars maintained at, or certificates of deposit insured, or
obligations insured or guaranteed by, the Bank of China, The
China Construction Bank, the Communication Bank, the China
Farmers Bank or China International Trust and Investment
Corporation, or any branch of a commercial bank organized under
the laws of the United States or any political subdivision
thereof having a combined capital and surplus of at least
$500,000,000 and having long-term unsecured debt securities
having a rating assigned by each of Standard & Poor's and Moody's
equal to the highest rating assigned thereby to long-term
unsecured debt securities; and (b) means any of the following
securities: (i) direct obligations of the Department of the
Treasury of the United States of America; (ii) obligations of any
of the following federal agencies which obligations represent
full faith and credit of the United States of America, including:
Export-Import Bank, Farmers Home Administration, General Services
Administration, U.S. Maritime Administration, Small Business
Administration, Government National Mortgage Associate (GNMA),
U.S. Department of Housing & Urban Development (PHA's) and
Federal Housing Administration; (iii) bonds, notes or other
evidences of indebtedness rated "AAA" by Standard & Poor's and
"Aaa" by Moody's issued by the Federal Home Loan Bank, the
Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation; (iv) commercial paper rated in any one of
the two highest rating categories by Moody's or Standard &
Poor's; (v) investment agreements with banks (foreign &
domestic), broker/dealers, and other financial institutions rated
at the time of bid in any one of the three highest rating
categories by Moody's and Standard & Poor's; (vi) repurchase
agreements with banks (foreign & domestic), broker/dealers, and
other financial institutions rated at the time of bid in any one
of the three highest rating categories by each of Standard &
Poor's and Moody's, provided: (1) collateral is limited to (i),
(ii) and (iii) above, (2) the margin levels for collateral must
be maintained at a minimum of 102% including principal and
interest, (3) the Lender shall have a first perfected security
interest in the collateral, (4) the collateral will be delivered
to a third party custodian, designated by the Lender and all fees
and expenses related to collateral custody will be the
responsibility of the Lender, (5) the collateral must have been
or will be acquired at the market price and marked to market
weekly and collateral level shortfalls cured within 24 hours, (6)
unlimited right of substitution of collateral is allowed provided
that substitution collateral must be permitted collateral
substituted at a current market price and substitution fees of
the custodian shall be paid by the Lender; (vii) forward purchase
agreements delivering securities outlined in (i) and (iv) above
with banks (foreign and domestic), broker/dealers, and other
financial institutions maintaining a long-term rating on the day
of bid no lower than investment grade by each of Standard &
Poor's and Moody's (such rating may be at either the parent or
subsidiary level).
"Dollars," "U.S. Dollars" and "US$" mean lawful
currency of the United States of America.
"Energy Purchase Agreement" means Electric Energy
Purchase and Sales Agreement, dated September 22, 1995, between
NCPGC and Tangshan Panda and Tangshan Pan-Western, as the same
may from time to time be amended, supplemented or otherwise
modified.
"EPC Contract" means the Engineering, Procurement and
Construction Contract, dated as of April 24, 1996 between the EPC
Contractor and Tangshan Panda and Tangshan Pan-Western, as the
same may from time to time be amended, supplemented or otherwise
modified.
"EPC Contractor" means Harbin Power Engineering Company
Limited, a company organized under the laws of the PRC and a
wholly owned subsidiary of Harbin Power.
"EPC Contract Liquidated Damages" means liquidated
damages as defined in the EPC Contract.
"EPC Contractor Parent Guarantee" means the guarantee
to be given by Harbin Power in favor of Tangshan Panda and
Tangshan Pan-Western in respect of the EPC Contractor's
obligations under the EPC Contract, as the same may from time to
time be amended, supplemented or otherwise modified.
"Event of Default" shall have the meaning given to such
term in Section 7.1.
"Event of Loss" means an event which causes all or a
portion of the Facility to be damaged, destroyed or rendered
unfit for normal use for any reason whatsoever, other than an
Expropriation Event.
"Expropriation Event" means any condemnation,
nationalization, seizing, or expropriation by any Government
Instrumentality of all or a substantial portion of the Project or
the property or assets of the Borrower or of its share capital,
or any Government Instrumentality shall have assumed custody or
control of such property or other assets or business operations
of the Borrower or of its share capital, or shall have taken any
action for the dissolution or disestablishment of the Borrower or
any action that would prevent the Borrower or its officers from
carrying on its business or operations or a substantial part
thereof.
"Expropriation Proceeds" means any proceeds received by
the Borrower as a result of the occurrence of an Expropriation
Event.
"Facility" shall have the meaning stated in the first
WHEREAS clause of this Agreement.
"Facility Budget" means the construction budget and
schedule provided by the Lender (containing customary assumptions
and qualifications) approved as reasonable by the Project
Engineer prior to the making of the first Loan pursuant to this
Agreement, and as it thereafter may be amended with the approval
of the Lender.
"Facility Costs" means all costs incurred, or to be
incurred, in connection with the development, design,
engineering, procurement, construction and commissioning of the
Facility, which costs shall include, but not be limited to: (a)
all costs incurred under the EPC Contract, (b) Development
Expenses, (c) O&M Costs incurred in connection with the start up
of the Facility or otherwise prior to the Commercial Operation
Date, (d) actual interest costs (including, prior to Commercial
Operation, interest due and payable on the Loans) and amounts
required pursuant to the Debt Service Reserve Requirement,
closing and administration costs related to the Facility until
the Commercial Operation Date, (e) the costs of acquiring
Governmental Authorizations for the Facility prior to the
Commercial Operation Date and (f) without duplication, working
capital costs.
"Fair Market Value" or "fair value" means, with respect
to any asset or property, the price which could be negotiated in
an arm's-length market transaction, for cash, between a willing
seller and a willing buyer, neither of whom is under undue
pressures or compulsion to complete the transaction. Fair Market
Value shall be determined by the board of directors of the
Borrower acting in good faith and shall be evidenced by a board
resolution delivered to the Lender except that any determination
of Fair Market Value made with respect to any parcel of real
property shall be made by an independent appraiser.
"Financing Agreements" means, collectively, this
Agreement, the Guarantees, the Project Notes, the other
Shareholder Loan Agreements, each individually a "Financing
Agreement".
"Foreign Debt Account" shall have the meaning ascribed
to it in Section 5.5.
"Foreign Debt Repayment Account" shall have the meaning
ascribed to it in Section 5.5.
"FPA" means the United States Federal Power Act, as
amended, excluding Sections I-18, 21-30, 202(c), 210, 211, 212,
305(c) and any necessary enforcement provision of Part III of the
Act with regard to the foregoing sections.
"GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the
accounting profession of the United States, which are applicable
as of the date hereof.
"Governmental Authorizations" means all authorizations,
consents, decrees, permits, waivers, privilege approvals from and
filings with all Governmental Instrumentalities necessary for the
realization of the Project in accordance with the Project
Documents.
"Governmental Instrumentality" of any country shall
mean such country and its government and any ministry,
department, political subdivision, instrumentality, agency,
corporation or commission under the direct or indirect control of
such country.
"Guarantees" means collectively, the undertakings by
Tangshan Panda, each executed as of the 22nd day of September,
1996 to unconditionally and irrevocably guarantee to the Lender
the prompt payment and performance by each of Tangshan Pan-
Western, Tangshan Cayman and Tangshan Pan-Sino of their
individual obligations to Lender pursuant to any Indebtedness
obligation then or thereafter due and owing by any such party to
Lender; the undertakings by Tangshan Pan-Western, each executed
as of the 22nd day of September, 1996, to unconditionally and
irrevocably guarantee to the Lender the prompt payment and
performance by each of Tangshan Panda, Tangshan Cayman, and
Tangshan Pan-Sino of their individual obligations to Lender
pursuant to any Indebtedness obligation then or thereafter due
and owing by any such party to Lender; the undertakings by
Tangshan Cayman, each executed as of the 22nd day of September,
1996 to unconditionally and irrevocably guarantee to the Lender
the prompt payment and performance by each of Tangshan Panda,
Tangshan Pan-Western and Tangshan Pan-Sino of their individual
obligations to Lender pursuant to any Indebtedness obligation
then or thereafter due and owing by any such party to Lender; and
the undertakings by Tangshan Pan-Sino, each executed as of the
22nd day of September, 1996 to unconditionally and irrevocably
guarantee to the Lender the prompt payment and performance by
each of Tangshan Panda, Tangshan Pan-Western and Tangshan Cayman
of their individual obligations to Lender pursuant to any
Indebtedness obligation then or thereafter due and owing by any
such party to Lender.
"Harbin Power" means Harbin Power Equipment Group
Company, a PRC Company.
"Heat Supply Contracts" means the contracts to supply
steam and hot water to various PRC industrial and commercial
users that have been assigned by Luannan Heat and Power Plant to
Tangshan Pan-Sino, or any similar contracts in addition to or in
replacement thereof.
"Indebtedness" means, with respect to any Person,
without duplication, (i) any liability, contingent or otherwise,
of such Person (A) for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (B) evidenced by a note,
debenture or similar instrument or letters of credit (including a
purchase money obligation) or (C) for the payment of money
relating to a capitalized lease obligation or other obligation
relating to the deferred purchase price of property; (ii) any
obligation secured by a Lien to which the property or assets of
such Person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such
Person's legal liability; (iii) the maximum fixed repurchase
price of any redeemable or putable Disqualified Stock; (iv)
contractual obligations to repurchase goods sold or distributed;
(v) obligations of a Person in respect of interest rate or
currency exchange agreements to the extent they appear on the
balance sheet; (vi) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding
clauses (i) - (v); and (vii) any liability of others of the kind
described in clauses (i) - (vi) which the Person has guaranteed
or which is otherwise directly or indirectly its legal liability.
"Independent Accountants" means an internationally
recognized accounting firm.
"Independent Insurance Consultant" means Sedgwick, PLC,
a corporation incorporated in accordance with the laws of the
United Kingdom, or its successors.
"Inter-Company Steam Sales Agreement" means the Water,
Heat, Steam and Hot Water Supply and Usage Agreement, dated as of
October 3, 1996 between Tangshan Cayman and Tangshan Panda.
"Interconnection Agreement" means the General
Interconnection Agreement dated September 22, 1995, between NCPGC
and Tangshan Panda and Tangshan Pan-Western, as the same may from
time to time be amended, supplemented or otherwise modified.
"Interconnection Dispatch Agreement" means the
agreement to be negotiated among Tangshan Power Supply Bureau of
NCPGC, Tangshan Panda and Tangshan pan-Western shortly prior to
the Commercial Operation Date of the Project concerning specific
details as to the dispatch of the Luannan Facility.
"Interest Expense" means, for any period, the sum of
(a) the total interest expense of the Person in question for such
period as determined in accordance with GAAP, including, without
limitation, (i) amortization of debt issuance costs or of
original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting, (ii)
accrued interest, (iii) noncash interest payments, (iv)
commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(v) interest actually paid by the Person in question under any
guarantee of Indebtedness or other obligation of any other Person
and (vi) net costs associated with interest rate agreements
(including amortization of discounts) and currency agreements,
plus (b) capitalized interest plus (c) dividends paid in respect
of preferred stock of the Person in question, held by Persons
other than the Person in question.
"Joint Venture Companies" means, collectively Tangshan
Panda, Tangshan Pan-Western, Tangshan Cayman and Tangshan Pan-
Sino.
"Legal Requirements" means all laws, statutes, orders,
decrees, injunctions, licenses, permits, approvals, agreements
and regulations of any Governmental Instrumentality having
jurisdiction over the matter in question.
"Lender" means Pan-Western Energy Corporation LLC, a
Cayman Islands corporation.
"Lien" means any mortgage, lien (statutory or other),
pledge, security interest, encumbrance, claim, hypothecation,
assignment for security, deposit arrangement or preference or
other security agreement of any kind or nature whatsoever. For
purposes of this Agreement, a Person shall be deemed to own
subject to a lien any property which it has acquired or holds
subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title
retention agreement relating to such Person.
"Loans" means the loans made under this Agreement.
"Luanhua Co." means Tangshan Luanhua (Group) Co., a
company organized under the laws of the PRC.
"Luannan Government" means the government of Luannan
County, Tangshan City, Hebei Province, PRC.
"Luannan Heat Company" means Luannan County Heat
Company, Ltd. a company organized under the laws of the PRC.
"Luannan Heat & Power" means Luannan County Heat &
Power Plant, a company organized under the laws of the PRC.
"Major Maintenance Reserve Account" shall have the
meaning ascribed to it in subsection 5.5.
"Major Maintenance Reserve Requirement" means, with
respect to any month, an amount established periodically by the
Project Engineer, based on anticipated major maintenance
requirements for the next five years, to constitute the Major
Maintenance Reserve Requirement for the Facility for such month.
"Material Adverse Effect" means (i) a material adverse
change in the financial condition of the Joint Venture Companies
taken as a whole or (ii) any event or occurrence which could
reasonably be expected to materially and adversely affect: (a)
the construction or operation of the Project or (b) the Joint
Venture Companies' ability (taken as a whole) to perform any of
their obligations under the Project Documents.
"Material Project Documents" means, collectively, the
Power Purchase Agreement, the EPC Contract, the Transmission
Facilities Construction Agreement, the O&M Agreement, the Coal
Supply Agreements, the Coal Transportation Agreement and all
other instruments, agreements or other documents arising from or
related to the Project, but shall not include any Financing
Agreement.
"Maturity Date" means April 1, 2004.
"Moody's" means Moody's Investors Services.
"NCPGC" means North China Power Group Company, a
company organized under the laws of the PRC.
"Net Cash Proceeds" in connection with (a) any Asset
Sale, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of
deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise,
but only as and when received) of such Asset Sale, net of
attorneys' fees, accountants' fees, investment banking fees,
survey costs, title insurance premiums, amounts required to be
applied to the repayment of Indebtedness secured by a Lien
expressly permitted hereunder on any asset which is the subject
of such Asset Sale and other customary fees and expenses actually
incurred in connection therewith, net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax
sharing arrangements) and net of purchase price adjustments
reason.
"Net Debt Service" means the sum of (i) (a) Interest
Expense less (b) non-cash Interest Expense plus (ii) all payments
of scheduled and overdue principal of, and premium, if any, on
Indebtedness plus (iii) without duplication, all rental payments
in respect of Capitalized Lease Obligations paid, accrued, or
scheduled to be paid or accrued.
"Non-Excluded Taxes" shall have the meaning ascribed to
it subsection 5.16.
"Nonrecourse Persons" shall have the meaning ascribed
to it in Article 8.
"O&M" means operation and maintenance services.
"O&M Agreement" means the Amended and Restated
Operation and Maintenance Agreement, dated as of March 6, 1997,
among the Joint Ventures and Duke/Fluor Daniel Asia, Inc., a
California corporation.
"O&M Costs" means all amounts disbursed by or on behalf
of the Borrower for operation, maintenance, repair, or
improvement of the Facility, including, without limitation,
premiums on insurance policies, property, income and all other
taxes to the extent paid, and payments under the relevant
operating and maintenance agreements, leases (including Operating
Lease Obligations), royalty and other land use agreements, and
any other payments required under the Project Documents, each as
determined on a cash basis and otherwise in accordance with GAAP.
"Obligations" means all loans, advances, debts,
liabilities, and obligations, howsoever arising, owed by the
Borrower to the Lender or existing or hereafter arising hereunder
or pursuant to the terms of any of the Financing Agreements or
any of the other Project Documents, including all interest, fees,
charges and expenses chargeable to the Borrower; and in the event
of any proceeding for the collection or enforcement of the
Obligations, after an event of default shall have occurred and be
continuing, any exercise by the Lender, together with reasonable
attorney's fees and court costs.
"Officer's Certificate" means a certificate of an
authorized representative of the Borrower, signed by the
Chairman, the President, a Vice President, the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of
the Borrower.
"On-Shore Accounts" has the meaning set forth in
subsection 5.5.
"Operating Lease Obligations" means any obligation of
the Person in question incurred or assumed under or in connection
with any lease of real or personal property which, in accordance
with GAAP, is not required to be classified and accounted for as
a capital lease.
"Other Taxes" means any other excise or property taxes,
charges or similar levies that arise under the laws of any
jurisdiction on any payment made under this Agreement or under
any other Financing Agreement or from the execution or delivery
or otherwise with respect to this Agreement or any other
Financing Agreement.
"Panda International" means Panda Energy International
Inc., a Texas corporation.
"Performance Bonus Payment" means an amount payable to
the EPC Contractor pursuant to subsections 13.3 and 13.4 of the
EPC Contract.
"Permitted Indebtedness" has the meaning set forth in
subsection 6.1.
"Permitted Liens" means (a) Liens for any tax,
assessment or other governmental charge not yet due, due but
payable without penalty or being contested in good faith and by
appropriate proceedings, (b) retentions of title in favor of
materialmen, workers or repairmen, or other like Liens arising in
the ordinary course of business or in connection with the
construction of the Project, (c) Liens arising out of judgments
or awards so long as an appeal or proceeding for review is being
prosecuted in good faith, (d) mineral rights the use and
enjoyment of which do not materially interfere with the use and
enjoyment of the Facility, (e) Liens, deposits or pledges to
secure statutory obligations or performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or
leases, or for purposes of like general nature in the ordinary
course of the Borrower's business and affecting property with a
value not exceeding the equivalent of US$250,000 at any one time,
(f) involuntary Liens (including a Lien of an attachment,
judgment or execution) securing a charge or obligation, on any of
the Borrower's property, real or personal, whether now or
hereafter owned with a value not exceeding the equivalent of
US$250,000 at any one time, (g) rights of any party pursuant to
any Project Document, (h) Liens securing workers' compensation,
unemployment insurance or other social security or pension
obligations, (i) Liens securing Indebtedness permitted pursuant
to Section 6.1 (to the extent not required by Section 6.1 to be
unsecured), (j) Liens securing the purchase price of property
having an aggregate value not exceeding the equivalent of
US$1,000,000 at any one time an (k) Liens securing other
obligations not constituting Indebtedness none of which could
reasonably be expected to have a Material Adverse Effect.
"Person" means any natural person, corporation,
partnership, firm, association, Governmental Instrumentality or
any other entity whether acting in an individual, fiduciary or
other capacity.
"PRC" or "China" means the People's Republic of China.
"PRC Shareholders" means collectively, Luannan Heat and
Power and Luanhua Co.
"Pricing Document" means the document or documents
(issued by the Tangshan Municipal Price Bureau) determining the
price for electric energy delivered, retail price and principals
for adjustment.
"Project" shall have the meaning stated in the first
WHEREAS clause of this Agreement.
"Project Documents" means this Agreement and all
instruments, contracts, agreements or other documents arising
from or related to the Project, including all Financing
Agreements, each individually a "Project Document".
"Project Engineer" means Parsons Brinckerhoff Energy
Services Inc., or its successor.
"Project Note" has the meaning given that term in
Section 2.3.
"Power Purchase Agreement" means, collectively, the
Energy Purchase Agreement, the Interconnection Agreement and the
Supplemental Agreement (and, after execution thereof, the
Interconnection Dispatch Agreement).
"PUHCA" means the United States Public Utility Holding
Company Act of 1935, as amended, and all rules and regulations
adopted thereunder.
"Registered Capital Account" shall have the meaning
ascribed to it in Section 5.5.
"Registration Certificate" has the meaning given to
such term in Section 3.5.
"Renminbi" or "RMB" means lawful currency of the PRC.
"Registered Capital Contribution and Agency Agreement"
means the agreement among each of the Joint Venture Companies and
their respective shareholders, dated as of March 26, 1997 (as
amended, modified and supplemented from time to time) pursuant to
which the Joint Venture Companies are entitled to receive equity
contributions.
"RMB Permitted Investments" means deposit accounts
denominated and payable in RMB to be maintained at, certificates
of deposit issued, or obligations issued or guaranteed by, one of
the following policy or commercial banks in the PRC: (i) the
Bank of China, (ii) the China Construction Bank, (iii) the
Communication Bank, (iv) the China Farmers Bank, (v) the China
International Trust and Investment Corporation (vi) any foreign
bank or branch of any foreign bank authorized and licensed to
conduct business in the PRC, including without limitation, the
establishment and maintenance of RMB and foreign currency
accounts and exchange functions having a combined capital and
surplus of at least $500,000,000 and having at least an
investment grade rating assigned to its long-term unsecured debt
securities by each of Standard & Poor's and Moody's.
"RMB Revenue Account" shall have the meaning ascribed
to it in Section 5.5.
"RMB Checking Account" shall have the meaning ascribed
to it in Section 5.5.
"SAFE" means the State Administration of Foreign
Exchange of the PRC.
"Shareholder Loan Agreements" means, collectively, this
Agreement and the Shareholder Loan Agreements, each dated as of
September 24, 1996, between the Lender and (i) Tangshan Pan-
Western, (ii) Tangshan Cayman and (iii) Tangshan Pan-Sino, as the
same may from time to time be amended, supplemented or otherwise
modified.
"Shareholders" means the Lender and the PRC
Shareholders.
"Site" means the approximately 200 square meters of
land on which the Facility is to be located.
"Standard & Poor's" means Standard & Poor's Ratings
Service.
"Steam Sales Agreements" means the Heat Supply
Contracts and the Inter-Company Steam Sales Agreement.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a)
the sole general partner or the managing general partner of which
is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Supplemental Agreement" means Supplemental Agreement
for General Interconnection Agreement and Electric Energy
Purchase and Sales Agreement, dated February 10, 1996, among
NCPGC, Tangshan Panda and Tangshan Pan-Western, as the same may
from time to time be amended, supplemented or otherwise modified.
"Tangshan Cayman" means Tangshan Cayman Heat and Power
Co., Ltd., a Sino-foreign equity joint venture with limited
liability organized under the laws of the PRC.
"Tangshan Panda" means Tangshan Panda Heat and Power
Co., Ltd., a Sino-foreign equity joint venture with limited
liability organized under the laws of the PRC.
"Tangshan Pan-Sino" means Tangshan Pan-Sino Heat Co.,
Ltd., a Sino-foreign equity joint venture with limited liability
organized under the laws of the PRC.
"Tangshan Pan-Western" means Tangshan Pan-Western Heat
and Power Co., Ltd., a Sino-foreign equity joint venture with
limited liability organized under the laws of the PRC.
"Transmission Facilities" means three new substations,
the upgrades of both an existing substation and an existing
switching station and approximately 43 km of 110 KV transmission
lines to interconnect the Project to the Jing-Jin-Tang Grid.
"Transmission Facilities Construction Agreement" means
the construction agreement, dated February 10, 1996, among
Tangshan Panda, Tangshan Pan-Western and NCPGC.
"Transmission Loan" means the loan made by Tangshan Pan-
Sino to NCPGC through a PRC financial intermediary for the
construction cost of the Transmission Facilities, in the amount
of RMB 78,218,000, to be adjusted for inflation from December 31,
1994 to the date of issuance of the notice to proceed with
preliminary design and for accrued interest during the
construction period.
ARTICLE 2 - THE CREDIT FACILITY
2.1 Credit Facility. Subject to the terms and conditions
set forth in Article 3, the Lender shall from time to time make
shareholder loans to the Borrower in an aggregate amount of
US$17,664,000 (the "Loans").
2.2 Interest Payments.
2.2.1 Interest Payment Dates. The Borrower shall
pay accrued interest on the unpaid principal amount of the Loans
semiannually in arrears on each June 30 and December 31,
commencing June 30, 1997, until the first such date to occur not
less than six months after the Commercial Operation Date, and on
the last day of each month thereafter.
2.2.2 Interest. The Borrower shall pay accrued
interest on the unpaid principal amount of the Loans from the
date of this Agreement (i) through the first June 30 or December
31 to occur not less than six months after the Commercial
Operation Date, at a rate per annum of 13.75%, subject to a
maximum applicable to all interest accrued in respect of such
period and all amounts due in respect thereof pursuant to Section
5.16 hereof of $4,010,273, and (b) thereafter until the maturity
thereof at a rate per annum equal to 12.75%.
2.3 Project Note. The obligation of the Borrower to repay
the Loans and to pay interest thereon at the rate provided herein
shall be evidenced by a promissory note substantially in the form
of Exhibit A, payable to the order of the Lender and in the
principal amount of SEVENTEEN MILLION SIX HUNDRED SIXTY-FOUR
THOUSAND DOLLARS (US$17,664,000) (the "Project Note"). The
Borrower authorizes the Lender to record on the schedule annexed
to the Project Note, each payment or prepayment of principal of
the Loans and agrees that all such notations shall be prima facie
evidence of the information recorded. The Borrower further
authorizes the Lender to attach to and make a part of the Project
Note continuations of the schedule attached thereto as necessary.
No failure to make any such notations, nor any errors in making
any such notations, shall affect the validity of the Borrower's
obligations to repay the full unpaid principal amount of the
Loans or the duties of the Borrower hereunder or thereunder.
2.4 Repayment of the Loans.
2.4.1 Payments. The Borrower shall make all
payments hereunder to an account which the Lender shall specify
by notice to Borrower prior to the date of the first payment of
interest hereunder. The aggregate unpaid principal amount of the
Loans shall be payable in installments on or before 10:00 A.M.,
Beijing time, on each Repayment Date in accordance with the
amortization schedule set forth on Schedule B, and any remaining
unpaid principal, interest, fees and costs shall be due and
payable on the Maturity Date.
2.4.2 Application of Payments. If the amount of
any payment made by the Borrower hereunder is less than the total
amount due and payable by the Borrower to the Lender as of the
date on which such payment is actually made by the Borrower, such
payment shall be applied: (i) first, against charges, fees,
costs and expenses due hereunder; (ii) second, if the principal
of the Loans shall not have become or be then due and payable,
against interest on the overdue principal of the Loans (including
amounts payable in respect thereof pursuant to Section 5.16) in
order of maturity of such installments of interest and against
interest on such overdue interest; (iii) third, if the principal
of the Loans shall have become or shall be then due and payable,
against the whole amount of all such principal, interest on
overdue principal of the Loans (including amounts payable in
respect thereof pursuant to Section 5.16) and interest on such
overdue interest; and (iv) fourth, against all other amounts then
due and payable to the Lender hereunder.
2.5 Prepayments.
2.5.1 Voluntary Prepayments. Except as required by
this Agreement, the Borrower may not prepay Loans without the
permission of the Lender.
2.5.2 Certain Mandatory Prepayments. In addition
to other amounts which shall be applied to the prepayment of
Loans as provided in this Agreement, the Borrower shall apply to
prepayment of the principal of the Loan, within ten Business Days
following receipt thereof, (i) all Net Cash Proceeds from the
sale or other disposition of all or any part of the assets or
other rights of the Borrower, other than in the ordinary course
of business and permitted pursuant to the terms of the Financing
Agreements, having a value, individually in excess of US$100,000
and in the aggregate in any year, in excess of US$250,000, and
(ii) any Liquidated Damages which shall have been made by the EPC
Contractor to the Borrower under the EPC Contract.
2.5.3 Expropriation Event; Event of Loss. (a) If
an Expropriation Event shall occur with respect to the Facility
or any part thereof, the Borrower shall (i) diligently pursue all
of its rights to compensation against the appropriate
Governmental Instrumentality in respect of such event, (ii) not
compromise, settle or consent to the settlement of any claim in
respect thereof without the consent of the Lender, and (iii)
promptly deposit all proceeds received in respect of any
Expropriation Event (after deducting all reasonable expenses) (A)
in the RMB Revenue Account if denominated in RMB or (B) in the
Foreign Debt Repayment Account if denominated in Dollars, in each
case segregated from all other moneys pending the determination
pursuant to paragraph (c) below.
(b) If an Event of Loss shall occur with respect
to the Facility or any part thereof, the Borrower shall (i)
diligently pursue all its rights to compensation with respect to
such Event of Loss, (ii) not compromise, settle or consent to the
settlement of any claim exceeding $250,000 in respect thereof
without the consent of the Lender, and (iii) promptly deposit all
proceeds received in respect of any Event of Loss (after
deducting all reasonable expenses) which are denominated in RMB
in the RMB Revenue Account, and transfer to the Lender any such
proceeds which are denominated in U.S. Dollars, to be held by the
Lender and segregated from all other moneys pending the
determination pursuant to paragraph (c) below.
(c) If such Expropriation Event or an Event of
Loss shall occur, as soon as reasonably practicable, but no later
than fifteen (15) days after the date of receipt by the Borrower
of any proceeds in respect thereof, the Borrower shall make a
reasonable good faith determination as to whether (i) the
Facility can be rebuilt, repaired or restored to permit operation
of the entire Project on a Commercially Feasible Basis, and (ii)
the proceeds thereof, together with any other amounts that the
Borrower has available to commit to such rebuilding, repair or
restoration, are sufficient to pay for such rebuilding, repair or
restoration of the Facility. The determination of the Borrower
shall be evidenced by a certificate filed with the Lender which,
in the event the Borrower determines that the Facility can be
rebuilt, repaired or restored to permit operation of the entire
Project or a portion thereof on a commercially feasible basis,
shall also certify that such proceeds, together with any other
amounts that the Borrower is willing to commit to such
rebuilding, repair or restoration, are sufficient to pay the
costs thereof, and shall also set forth a reasonable good faith
estimate by the Borrower of such costs. If the amount of such
costs exceeds $500,000, such certificate shall be accompanied by
a Project Engineer's certificate, dated within five (5) days of
the date of the Borrower's certificate, stating that, based upon
reasonable investigation and a review of the determination made
by the Borrower, the Project Engineer believes that the
determination and the estimate of the total cost, if any, set
forth in the Borrower's certificate to be reasonable.
(d) In the event that the Borrower determines not
to rebuild, repair or restore the Facility, all of the proceeds
of such Expropriation Event or Event of Loss shall be transferred
within ten Business Days after the date of such determination to
the Lender and applied to prepayment of the Loans.
(e) In the event that the determination is made
to rebuild, repair or restore the Facility, all of the proceeds
of such Expropriation Event or Event of Loss on deposit in the
RMB Revenue Account shall be transferred to the RMB Checking
Account and, together with the amounts (if any) previously
transferred to the Lender in connection with such Expropriation
Event or Event of Loss and such other amounts as the Borrower has
available for such rebuilding, repair or restoration (which also
shall be transferred to the Lender prior to any disbursement for
rebuilding, repair or restorations), shall be used to pay the
costs of such rebuilding, repair or restoration, and any excess
shall, upon completion of such rebuilding, repair or restoration,
be applied to the prepayment of the Loans within 15 days of the
completion of such rebuilding, repair or restoration as certified
by the Project Engineer.
2.6 Fees. Not more than thirty (30) days following the
making of the first Loan hereunder, the Borrower shall reimburse
the Lender for its reasonable costs other than interest costs
incurred in funding the Loans.
ARTICLE 3 - CONDITIONS PRECEDENT
The obligation of the Lender to make each Loan shall be
subject to the fulfillment or waiver of each of the following
conditions precedent:
3.1 Borrower's Certificate. The Lender shall have received
from the Borrower a certificate dated the date of the request for
such Loan, certifying the following:
(a) Representations and Warranties. The
representations and warranties made by the Borrower herein or in
any other Project Document to which it is a party, or which are
contained in any certificate, document, financial or other
statement furnished by the Borrower hereunder or thereunder or in
connection herewith or therewith, are true and correct in all
material respects on and as of such date as if made on and as of
such date, except as affected by the consummation of the
transaction contemplated thereby or to extent that such
representations and warranties relate solely to an earlier date;
(b) No Event of Default. No Event of Default is in
existence on such date, or shall occur after giving effect to the
Loan to be made on such date;
(c) Governmental Authorizations and other consents and
approvals. All Governmental Authorizations which are required to
be obtained on or prior to the date of the making of such Loan
have been duly obtained or maintained and are in full force and
effect, except for Governmental Authorizations which have not
been obtained at such time but which the Borrower has no reason
to believe will not be obtained in the normal course of business
prior to the date such Governmental Authorizations are required;
and
(d) Facility Costs. The costs for the payment of
which the borrowing is being made are Facility Costs and payment
of such costs is in accordance with the Facility Budget.
3.2 On-Shore Accounts. The On-Shore Accounts shall have
been established pursuant to Section 5.5.
3.3 Evidence of Facility Costs and Other Expenses. At
least 10 Business Days prior to each such Loan, the Lender shall
have received a copy of the EPC Contractor's application for
payment under the EPC Contract or evidence of or application for
other expenses in connection with the construction and
development of the Facility (together with all supplemental
reports required to be furnished thereunder), and copies of all
invoices and other statements of charges with respect to the
payments to be made to the EPC Contractor pursuant to the EPC
Contract or to the recipient of such other expenses on the date,
or expected to be due and payable within 30 days of, such Loan
and with respect to all other items of Facility Costs to be paid
on such date, or expected to be due and payable within 30 days of
such Loan.
3.4 Progress Report; Project Engineer. The Lender shall
have received a report signed by the Authorized Representative of
the Borrower on the date of each such Loan to the effect that
construction of the Facility is proceeding satisfactorily in
accordance with the EPC Contract and the Facility Budget and the
Facility Budget sets forth accurately the estimated costs to
complete the Facility, and such confirmation thereof from the
Project Engineer as the Lender reasonably deems necessary.
3.5 Registration Certificate. The Lender shall have
received a registration certificate of the Tangshan Municipal
Bureau for Exchange Control (a "Registration Certificate")
evidencing that a Registration Certificate has been obtained for
the full aggregate amount of the Loans to be made hereunder
pursuant to subsection 2.1.
3.6 Equity Contributions; Real Estate Transfers. It shall
be a condition to any Loan hereunder which increases the
aggregate of all loans made under all of the Shareholder Loan
Agreements to more than $15,000,000 that (A) the Borrower shall
have received the full amount of the equity contributions to
which the Borrower is then entitled pursuant to the Registered
Capital Contribution and Agency Agreement (B) all transfers of
land use rights relating to the Site shall have been completed.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
The Borrower makes all of the following representations
and warranties to and in favor of the Lender the date on which
any Loan is made hereunder, except as such representations relate
to an earlier date.
4.1 Organization. The Borrower (a) is a Sino-foreign
equity joint venture with limited liability duly organized and
validly existing under the laws of the PRC, (b) is duly
authorized to do business in the PRC, and (c) has all requisite
power and authority to (i) own or hold under land use right or
lease and operate the property it purports to own or hold under
land use right or lease, (ii) carry on its business as now being
conducted and as now proposed to be conducted in respect of the
Project, (iii) incur Indebtedness, and (iv) execute, deliver and
perform its obligations under each of the Project Documents to
which it is a party. The sole shareholders of the Borrower are
the Lender and the PRC Shareholders.
4.2 Authorization; No Conflict. The Borrower has duly
authorized, executed and delivered the Project Documents to which
it is a party, and neither its execution and delivery thereof nor
its consummation of the transactions contemplated thereby nor its
compliance with the terms thereof (a) does or will contravene its
formation documents or any other Legal Requirement then
applicable to or binding on it, (b) does or will contravene or
result in any breach or constitute any default under, or result
in or require the creation of any Lien upon any of its property
or under any agreement or instrument to which it is a party or by
which it or any of its properties may be bound, or (c) does or
will require the consent or approval of any Person.
4.3 Legality, Validity and Enforceability. Each of the
Project Documents to which the Borrower is a party is a legal,
valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, subject to bankruptcy
laws or principles of equity, to the extent applicable to the
Borrower. None of the Project Documents to which the Borrower is
a party has been amended or modified except in accordance with
this Agreement.
4.4 Compliance with Law, Governmental Authorizations and
Project Documents. The Borrower is in compliance in all material
respects with all Legal Requirements and Governmental
Authorizations and Project Documents to which it is a party, and
no notices of violation of any Governmental Authorization or
Project Document relating to the Project have been issued,
entered or received by the Borrower.
4.5 Governmental Authorizations. There are no Governmental
Authorizations under Legal Requirements existing as of the date
of this Agreement that are required or will become required,
other than the Governmental Authorizations (a) which have been
obtained or granted and are in full force and effect, or (b)
which the Borrower has no reason to believe will not be obtained
before they become necessary for the ownership, construction,
financing or operation of the Facility. To the best of its
knowledge, the Borrower is not in violation of any condition in
any Governmental Authorization.
4.6 Litigation. There are no pending or, to the Borrower's
knowledge, threatened actions, suits, proceedings or
investigations of any kind, including actions or proceedings of
or before any Governmental Instrumentality, to which the Borrower
or any Shareholder or, to the knowledge of the Borrower, is a
party or is subject, or by which any of them or any of their
properties are bound.
4.7 Existing Defaults. There is no Event of Default by the
Borrower under any of the Material Project Documents. To the
best of the Borrower's knowledge, there is no event of default
under any Material Project Document by any party to such Material
Project Document.
4.8 Taxes. The Borrower has filed, or caused to be filed,
all tax and informational returns that are required to have been
filed by it in any jurisdiction, and has paid all taxes shown to
be due and payable on such returns and all other taxes and
assessments payable by it, to the extent the same have become due
and payable (other than those taxes that it is contesting in good
faith and by appropriate proceedings, with adequate, segregated
reserves established for such taxes) and, to the extent such
taxes are not due, has established reserves that are adequate for
the payment thereof and are required by the GAAP.
4.9 Contingent Liabilities. The Borrower has no material
contingent liabilities or obligations except those authorized
under and permitted by the Project Documents and the Financing
Agreements.
4.10 Business, Debt, Contracts, Etc. The Borrower has not
conducted any business other than the business contemplated by
the Project Documents to which it is a party, has no outstanding
Indebtedness other than Indebtedness incurred under the Financing
Agreements or permitted under Section 6.1 and has no other
liabilities other than those incurred under the Project Documents
or permitted under this Agreement, and is not a party to or bound
by any contract other than as contemplated by the Project
Documents to which Borrower is a party and those contracts
permitted under this Agreement. The Borrower has established
offices in the PRC only.
4.11 Representations and Warranties. All representations
and warranties of the Borrower contained in the Project Documents
are true and correct in all material respects and the Borrower
hereby confirms each such representation and warranty of the
Borrower with the same effect as if set forth in full herein.
4.12 Utilities. All utility services and easements
necessary for the construction and the operation of the Facility
for its intended purposes, are or will be available at the Site
as and when required on commercially reasonable terms.
4.13 Project Documents.
4.13.1 The Lender has received a true, complete and
correct copy of each of the Project Documents in effect or
required to be in effect as of the date this representation is
made or deemed made (including all exhibits, schedules, side
letters and disclosure letters to therein or delivered pursuant
thereto, if any).
4.13.2 All conditions precedent to the obligations
of the respective parties under the Material Project Documents
have been satisfied or waived in accordance with the provisions
thereof and hereof, except for such conditions precedent which by
their terms cannot be met until a later stage in the construction
or operation of the Facility, and the Borrower has no reason to
believe that any such condition precedent cannot be satisfied on
or prior to the appropriate stage in the construction or
operation of the Facility.
4.14 Fees and Enforcement. Other than amounts that have
been paid in full, no fees or taxes, including without limitation
stamp, transaction, registration or similar taxes, are required
to be paid for the legality, validity, or enforceability of this
Agreement or any of the other Project Documents.
4.15 Immunity. In any proceedings in the PRC or elsewhere
in connection with any of the Project Documents to which the
Borrower is a party, the Borrower will not be entitled to claim
for itself or any of its assets immunity from suit, execution,
attachment or other legal process.
4.16 Subsidiaries and Beneficial Interest. The Borrower has
no subsidiaries and does not beneficially own the whole or any
part of the issued share capital or other ownership interest of
any other company or corporation or other Person.
4.17 No Other Powers of Attorney, etc. The Borrower has not
executed and delivered any powers of attorney, fiduciary transfer
agreements or similar documents, instruments or agreements,
except for powers authorizing signatures of various Project
Documents.
4.18 Liens. The Borrower has not secured or agreed to
secure any Indebtedness by any Lien upon any of its present or
future revenues or assets or capital stock except Permitted
Liens. The Borrower does not have any outstanding Lien or
obligation to create Liens on or with respect to any of its
properties or revenues except Permitted Liens.
4.19 Regulation of Parties. The Borrower is not nor will it
be, solely as a result of its participation in the transactions
contemplated hereby or by any other Project Document, or as a
result of the ownership, use or operation of the Facility,
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "public utility holding
company." The Borrower is not subject to regulation as a
"subsidiary company" or an "affiliate" of a "holding company"
under (and as defined in) PUHCA.
4.20 Transactions with Affiliates. Except as otherwise
permitted under Section 6.10, the Borrower is not a party to any
contracts or agreements with, or any other commitments to,
whether or not in the ordinary course of business, any Affiliate
of the Borrower.
ARTICLE 5 - AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower covenants and agrees that until all
Obligations owed to the Lender are paid in full it will:
5.1 Repayment of Indebtedness. Repay in accordance with
its terms, all Indebtedness, including without limitation, all
sums due under this Agreement and the other Financing Agreements
but, in the case of any such Indebtedness with a repayment that
is limited by any term of any Financing Agreement, repay subject
to such limitation.
5.2 Existence, Conduct of Business, Properties, Etc.
Except as otherwise expressly permitted under this Agreement,
(i) maintain and preserve its existence as a Sino-foreign joint
venture with limited liability and all rights, privileges and
franchises necessary or desirable in the normal conduct of its
business, and (ii) engage only in the business contemplated by
the Financing Agreements and the Project Documents.
5.3 Performance of Covenants and Obligations. The Borrower
shall perform and observe in all material respects, its covenants
and obligations under all Material Project Documents.
5.4 Use of Funds. The Borrower shall use the proceeds of
the Loans only for deposit in the On-Shore Accounts pending
disbursement for the payment of Facility Costs as provided
herein.
5.5 Accounts. (a) On or prior to the date of the making
of the first Loan, the Borrower shall establish the following
accounts with banks or financial institutions in the PRC in
accordance with applicable PRC laws and regulations: (i) the
Registered Capital Account denominated in U.S. Dollars (the
"Registered Capital Account"), (ii) the Foreign Debt Account
denominated in U.S. Dollars (the "Foreign Debt Account"), (iii)
the Foreign Debt Repayment Account denominated in U.S. Dollars
(the "Foreign Debt Repayment Account"), (iv) the Basic Settlement
Account denominated in U.S. Dollars (the "Basic Settlement
Account"), (v) the RMB Revenue Account denominated in Renminbi
(the "RMB Revenue Account"), (vi) the RMB Checking Account
denominated in Renminbi (the "RMB Checking Account"), and (vii)
the Major Maintenance Reserve Account denominated in Renminbi
(the "Major Maintenance Reserve Account") (collectively, the "On-
Shore Accounts").
(b) The proceeds of all Loans shall be deposited in
the Foreign Debt Account. Funds in the Foreign Debt Account
shall not be used for any purpose other than disbursement of
Facility Costs denominated in U.S. Dollars or funding of reserves
for the payment of principal and interest on the Loans, or, after
conversion into RMB, transfer to the RMB Checking Account for
disbursement of Facility Costs denominated in RMB.
(c) All funds received by the Borrower constituting
capital contributions from any shareholder shall be deposited in
the Registered Capital Account. Until after Commercial Operation
Date, funds in the Registered Capital Account shall not be used
for any purpose other than disbursement of Facility Costs
denominated in the U.S. Dollars or, after conversion into RMB,
transfer to the RMB Checking Account for disbursement of Facility
Costs denominated in RMB.
(d) All revenues received by the Borrower from any
source whatsoever shall be deposited (after conversion into
Renminbi, if necessary) into the RMB Revenue Account. The
Borrower shall instruct NCPGC, the EPC Contractor and other
participants in the Project to deposit revenues, penalties or
other payments owing to the Borrower in RMB directly into the RMB
Revenue Account. The RMB Revenue Account shall not be used for
any purpose other than (and in accordance with the following
priority): (i) the transfer of funds to the RMB Checking Account
for the payment of O&M Costs and (ii) after conversion into U.S.
Dollars, the transfer of funds to the Foreign Debt Repayment
Account for the payment of the principal of and interest on the
Loans or reserves in respect thereof.
(e) Amounts remaining in the RMB Revenue Account
subsequent to disbursement in accordance with clause (d) hereof
shall be deposited into the Major Maintenance Reserve Account in
an amount equal to the Major Maintenance Reserve Requirement.
Disbursement shall be made from the Major Maintenance Reserve
Account only to pay for major maintenance costs of the Facility
upon a certification of the Project Engineer that after
withdrawal of such funds for such purpose, the amounts remaining
in the Major Maintenance Reserve Account (including anticipated
future funding thereof) shall be adequate to meet the anticipated
needs of the Facility for major maintenance for the next five
years.
(f) Amounts remaining in the RMB Revenue Account
subsequent to disbursements in accordance with clauses (d) and
(e) hereof shall be retained in the RMB Revenue Account pending
disbursement to the Borrower's Shareholders in the form of
dividends. The amount designated for the payment of dividends to
the Lender in its capacity as a shareholder of the Borrower shall
be transferred from the RMB Revenue Account (after conversion to
U.S. Dollars) to the Basic Settlement Account and then to the
Lender. The corresponding amount designated for the payment of
dividends to the PRC Shareholders shall be distributed from the
RMB Revenue Account directly to the PRC Shareholders in RMB.
(g) The funds in the Foreign Debt Repayment Account
shall not be used for any purpose other than the payment of
amounts due hereunder pursuant to Subsection 2.4 to an off-shore
account maintained by the Lender.
(h) The funds in the Basic Settlement Account shall
not be used for any purpose other than remittance after the
Commercial Operation Date to an off-shore equity distribution
account approved by the Lender.
5.6 Compliance with Legal Requirements. Promptly and
diligently (i) own, construct, maintain and operate the Facility
in compliance with all applicable Legal Requirements, and
(ii) procure, maintain and comply, or cause to be procured,
maintained and complied with all Governmental Authorizations
required for the ownership, construction, financing, maintenance
or operation of the Facility or any part thereof at or before the
time such Governmental Authorization becomes necessary for the
ownership, construction, financing, maintenance or operation of
the Facility, as the case may be, as contemplated by the Project
Documents and except that the Borrower may, at its expense,
contest by appropriate proceedings conducted in good faith the
validity or application of any such Legal Requirements, provided
that, in either case, (x) neither the Lender nor the Borrower
would be subject to any criminal liability for failure to comply
therewith and (y) all proceedings to enforce such Legal
Requirements against the Lender, the Borrower or the Project or
any part thereof, shall have been duly and effectively stayed
during the entire pendency of such contest.
5.7 Operating Budgets. On or before the anticipated
Commercial Operation Date, deliver to the Lender an annual
operating budget, certified by the Project Engineer as being a
reasonable estimate of projected costs, expenses and revenues of
the Borrower, for the period commencing on the anticipated
Commercial Operation Date, and continuing until the end of the
first full calendar year thereafter, in substantially the same
form as the initial annual operating budget. In advance of each
calendar year thereafter, the Borrower shall adopt and deliver to
the Lender an annual operating budget, certified by the Project
Engineer as being a reasonable estimate of projected costs,
expenses and revenues of the Borrower, for the ensuing calendar
year.
5.8 Books, Records, Access. Maintain adequate books,
accounts and records with respect to the Borrower and the
Facility in compliance with the regulations of any Governmental
Instrumentality having jurisdiction thereof, and, with respect to
financial statements, in accordance with the GAAP and, subject to
reasonable safety requirements, permit employees or designees of
the Lender and the Project Engineer, at any reasonable time and
upon reasonable prior notice to inspect the Facility, and to
examine or audit all of Borrower's books, accounts and records
pertaining or related to the Facility and make copies and
memoranda thereof.
5.9 Financial Statements.
5.9.1 Provide the Lender with:
(a) As soon as available and in any event
within one hundred thirty five (135) days after the close of each
fiscal year commencing with the fiscal year ended after the date
of this Agreement, audited financial statements of the Borrower
including a statement of equity, a balance sheet as of the close
of such year, an income and expense statement, reconciliation of
capital accounts and a statement of sources and uses of funds,
all prepared in accordance with the GAAP and certified by
Independent Accountants.
(b) As soon as available and in any event
within ninety (90) days after the end of each of the quarterly
accounting periods of its fiscal year commencing with the quarter
ending after the date of this Agreement, unaudited financial
statements of the Borrower, including without limitation, an
unaudited balance sheet of the Borrower as of the last day of
such quarterly period, the related statements of income and cash
flows for such quarterly period and (in the case of second, third
and fourth quarterly periods) for the portion of the fiscal year
ending with the last day of such quarterly period, setting forth
in each case in comparative form corresponding unaudited figures
from the preceding fiscal year.
5.9.2 Each time the financial statements of the
Borrower are delivered under this subsection 5.9, a certificate
signed by an Authorized Representative of the Borrower shall be
delivered along with such financial statements, certifying that
such officer has made or caused to be made a review of the
transactions and financial condition of the Borrower during the
relevant fiscal period and that such review has not, to the best
of such Authorized Representative's knowledge, disclosed the
existence of any event or condition which constitutes an Event of
Default under this Agreement, or if any such event or condition
existed or exists, the nature thereof and the corrective actions
that Borrower has taken or proposes to take with respect thereto,
and also certifying that the Borrower is in compliance in all
material respects with its obligations under this Agreement and
each other Financing Agreement to which it is a party or, if such
is not the case, stating the nature of such non-compliance and
the corrective actions which the Borrower has taken or proposes
to take with respect thereto.
5.10 Insurance. The Borrower shall maintain, or cause to be
maintained, adequate insurance with respect to its Facility
satisfactory to the Lender in its reasonable judgment, based upon
the advice of the Independent Insurance Consultant. All
insurance other than third party liability insurance shall name
the Lender as an insured and the sole loss payee thereunder.
Policies for third party liability insurance shall name the
Lender as an additional insured.
5.11 Reports; Cooperation.
5.11.1 Deliver to the Lender on each anniversary of
the date of this Agreement a certificate from the Borrower's
insurers or insurance agents (i) evidencing that the insurance
policies in place satisfy the requirements specified in Section
5.10 (including, without limitation, listing all insurance being
carried by or on behalf of the Borrower pursuant to the Project
Documents and certifying that all insurance required to be
maintained by the Borrower pursuant to the Project Documents is
in full force and effect and all premiums therefore have been
paid in full), and (ii) setting forth a summary of all losses in
excess of US$250,000 (or the equivalent thereof) incurred with
respect to the Project in the preceding year.
5.11.2 Deliver to the Lender within thirty (30) days
following the end of each calendar quarter a quarterly status
report describing in reasonable detail the progress of the
construction of the Facility since the immediately preceding
report hereunder, including without limitation, the cost incurred
to the end of such quarter, an estimate of the time and cost
required for completion of the Facility and such other
information which the Lender may reasonably request.
5.11.3 Prior to the Commercial Operation Date,
deliver to the Lender, within thirty (30) days following the end
of each calendar quarter an update of the Facility Budget,
including but not limited to an explanation or other
reconciliation of differences between such report and previous
reports.
5.11.4 From and after the Commercial Operation Date,
deliver to the Lender within ninety (90) days following each
calendar year, a summary operating report, which shall include,
unless otherwise agreed to by the Lender, a numerical and
narrative assessment of (i) the Project's compliance with each
category in the annual operating budget, (ii) statistical data
relating to the Facility, including heat rate, net electrical and
scheduled and unscheduled outages, (iii) fuel deliveries and use,
(iv) major maintenance activity, (v) casualty losses of value in
excess of US$250,000 or the equivalent thereof in other
currencies (whether or not covered by insurance), (vi) disputes
with any other Major Project Participant, materialman, supplier
or other Person and any related claims against the Borrower,
(vii) pricing information disclosed or made available under the
agreements pertaining to the supply of coal for the Facility and
(viii) compliance with the Governmental Authorizations.
5.11.5 No later than five Business Days following
the receipt thereof, deliver to the Lender all progress reports
provided by the EPC Contractor to the Borrower pursuant to the
EPC Contract and all progress reports prepared under the Power
Purchase Agreement.
5.11.6 Deliver to the Lender any such other
information or data with respect to its business or operations
(including supporting information as to compliance with this
Agreement) as the Lender may reasonably request from time to
time.
5.12 Taxes and Other Governmental Charges. Before the same
become delinquent, pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental charges or
levies lawfully imposed upon the Borrower or its income or
profits or upon the Facility, all utility and other governmental
charges incurred in the ownership, operation, maintenance, use,
occupancy and upkeep of the Facility. However, the Borrower may
contest in good faith any such taxes, assessments and other
charges and, in such event, may permit the taxes, assessments or
other charges so contested to remain unpaid during any period,
including appeals, when the Borrower is in good faith contesting
the same, so long as (a) adequate cash reserves have been
established in an amount sufficient to pay any such taxes,
assessments or other charges, accrued interest thereon and
potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made,
(b) enforcement of the contested tax, assessment or other charge
is effectively stayed for the entire duration of such contest,
and (c) any tax, assessment or other charge determined to be due,
together with any interest or penalties thereon, is promptly paid
after resolution of such contest.
5.13 Notices. Promptly, upon acquiring notice or giving
notice, or obtaining knowledge thereof, as the case may be,
provide to the Lender written notice of:
5.13.1 Any Event of Default which it has knowledge,
specifically stating that an Event of Default has occurred and
describing such an Event of Default and any action being taken or
proposed to be taken with respect to such Event of Default;
5.13.2 Any termination or event of default or notice
thereof under the Power Purchase Agreement; and
5.13.3 Any litigation pending against the Borrower or
any other party of which the Borrower has actual knowledge, which
is or could reasonably be expected to have a Material Adverse
Effect.
5.14 Expropriation Event. If an Expropriation Event shall
occur with respect to the Project, (a) promptly upon discovery or
receipt of notice of any occurrence thereof, provide written
notice thereof to the Lender, (b) diligently pursue all its
rights to compensation against the relevant Governmental
Instrumentality in respect of such Expropriation Event, and
(c) hold any Expropriation Proceeds received in respect of such
event (after deducting all reasonable expenses incurred by it in
litigating, arbitrating, compromising, settling or consenting to
the settlement of any claims) in trust for the benefit of the
Lender separated from other funds of the Borrower, (d) promptly
deposit all Expropriation Proceeds in (i) the RMB Revenue Account
if denominated in RMB or (ii) in the Foreign Debt Repayment
Account if denominated in Dollars. The Borrower consents to the
participation of the Lender in any proceedings regarding an
Expropriation Event, and the Borrower shall from time to time
deliver to the Lender all documents and instruments requested by
it to permit such participation. Nothing in this Section 5.14
shall be deemed to impair any rights which the Lender may have
with respect to any such Expropriation Event.
5.15 Increased Costs. If, after the date of this Agreement,
any Change of Law:
(a) shall subject the Lender to any tax, duty or other
charge with respect to the
Loans, or shall change the basis of taxation of payments by the
Borrower to the Lender on the Loans (except for Covered Taxes,
Other Taxes or changes in the rate of taxation on the overall net
income of the Lender); or
(b) shall impose on the Lender any other condition
directly related to the Loans;
and the effect of any of the foregoing is to increase the cost to
the Lender of making, issuing, creating, renewing, participating
in or maintaining the Loans or to reduce any amount receivable by
the Lender hereunder, then the Borrower shall from time to time,
upon demand by the Lender, pay to the Lender additional amounts
sufficient to reimburse the Lender for such increased costs or to
compensate the Lender for such reduced amounts.
5.16 Taxes. All payments made by the Borrower under this
Agreement and the Project Note shall be made free and clear of,
and without deduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any
Governmental Instrumentality, excluding net income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on
the Lender as a result of a present or former connection between
the Lender and the jurisdiction of the Governmental
Instrumentality imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such
connection arising solely from the Lender having executed,
delivered or performed its obligations or received a payment
under, or enforced, this Agreement or the Project Note). If any
such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to
be withheld from any amounts payable to the Lender hereunder or
under the Project Note, the amounts so payable to the Lender
shall be increased to the extent necessary to yield to the Lender
(after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts
specified in this Agreement. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the
Borrower shall send to the Lender for its own account a certified
copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the
Lender for any incremental taxes, interest or penalties that may
become payable by the Lender as a result of any such failure.
The agreements in this subsection 5.16 shall survive the
termination of this Agreement and the payment of the Loans, the
Project Note and all other amounts payable hereunder.
5.17 Registration of the Loans; Other Foreign Exchange
Matters.
5.17.1 Prior to any due date for any repayment of
the principal of and/or the payment of interest on the Loans, the
Borrower shall (i) use the Registration Certificate and the
notice regarding such repayment and/or payment to obtain from the
registration department a verification and approval certificate
with respect to such repayment and/or payment and (ii) use such
verification and approval certificate and the Registration
Certificate to handle matters regarding the remittance from its
foreign debt account of the principal of and interest on the
Loans outside of China at the relevant bank.
5.17.2 At the beginning of each year, the Borrower
shall submit to the local foreign exchange administration a
report stating the amount of foreign currency purchased in the
preceding year for the purpose of repaying the principal of
and/or paying the interest on the Loans and a plan regarding the
purchase of foreign currency for the current year.
5.18 Loan Payment Reserve. At the time of the final drawing
under this Agreement, the Borrower shall deposit an amount equal
to the Debt Service Reserve Requirement in the Debt Service
Reserve Fund.
ARTICLE 6 - NEGATIVE COVENANTS
The Borrower covenants and agrees for the benefit of the
Lender that until all Obligations owed to the Lender are paid in
full, without the consent of the Lender, the Borrower shall not:
6.1 Indebtedness. Incur, create, assume or be liable for
any Indebtedness, except:
(a) the Loans and additional loans from the Lender;
(b) debt incurred to finance working capital
requirements; provided that after giving effect to such
additional debt, (i) the minimum (or lowest) projected Debt
Service Coverage Ratio for any calendar year will not be
less than 1.5 to 1 and (ii) the average projected Debt
Service Coverage Ratio for any calendar year will not be
less than 1.7 to 1; provided further, however, that the
amount of such debt shall not at any time exceed
US$1,000,000;
(c) purchase money or Capital Lease Obligations
incurred to finance assets of the Borrower that are readily
replaceable personal property with a principal amount or
capitalized portion not exceeding US$1,000,000 in the
aggregate outstanding at any time;
(d) trade accounts payable (other than for borrowed
money) due within 90 days arising, and accrued expenses
incurred, in the ordinary course of business of
constructing, operating or maintaining the Facility on
customary terms;
(e) interest or currency exchange rate protection
agreements;
(f) Indebtedness under the Guarantees to which the
Borrower is a party and any other guarantees of the
obligations of any other Joint Venture Company permitted
under the Financing Agreements.
(g) any debt to any other Joint Venture Company, ((a)
through (g), collectively "Permitted Indebtedness").
6.2 Limitations on Liens. Create, assume or permit to
exist any Lien upon any of the Borrower's assets or properties
including without limitation the Facility, whether now owned or
hereafter acquired, other than Permitted Liens.
6.3 Nature of Business. Amend or modify its Articles of
Association without the prior written consent of the Lender, or
engage in any business other than the ownership and operation of
the Facility.
6.4 Sale or Lease of Facility Assets. Sell, lease, assign,
transfer or otherwise dispose of the Facility or other assets
unless (a) such sale, lease, assignment or other disposition
relates only to property that is worn out or no longer useful or
usable in connection with the operation of the Facility or such
property is replaced by property having a Fair Market Value equal
to or greater than the Fair Market Value of the property being
leased or transferred or such lease or transfer is required to
comply with law or to obtain or maintain any Governmental
Authorization, (b) with respect to any other sales, leases,
assignments or other dispositions, the aggregate amount thereof
does not exceed US$250,000 in any given year or US$1,000,000 in
the aggregate since the date of this Agreement, or (c) such sale,
lease, assignment or other disposition is made in the ordinary
course of business in accordance with the Project Documents.
6.5 Merger, Consolidation, Liquidation, Dissolution. Merge
or consolidate with or into any other Person, other than any of
the other Joint Venture Companies or other Sino-foreign joint
ventures with no material liabilities and no material activities
unrelated to the Project, or liquidate, wind up, dissolve, or
otherwise transfer or dispose of all or any substantial part of
its property, assets or business, or change its legal form, or
purchase or otherwise acquire any assets of any Person unless
such purchase or acquisition of assets is reasonably necessary
for the operation of the Facility or in the ordinary course of
business.
6.6 Contingent Liabilities. Become liable as a surety,
guarantor, accommodation endorser or otherwise, for or upon the
obligation of any other Person; provided, however, that the
Borrower may guarantee or otherwise become liable in respect of
any Indebtedness incurred by any other Person (on its behalf) in
connection with or relating to incurrence of Indebtedness
permitted under Section 6.1; and provided, further, however, that
this Section 6.6 shall not be deemed to prohibit (i) the
acquisition of goods, supplies or merchandise in the normal
course of business on normal trade credit, or (ii) the
endorsement of negotiable instruments received in the normal
course of business; or (iii) the obligations hereunder and under
the Guarantees or any other guarantee of any obligation of any
other Joint Venture Company if such guarantee is required for the
development and construction of the Project and is not contrary
to any Legal Requirements.
6.7 Loans, Advances or Investments. Make or permit to
remain outstanding any loans, extensions of credit or advances to
or investments in (whether by acquisition of any stocks, notes or
other securities or obligations) any Person except RMB Permitted
Investments with respect to the On-Shore Accounts denominated in
Renminbi or Dollar Permitted Investments with respect to the On-
Shore Accounts denominated in the U.S. Dollars or as expressly
provided in the Project Documents.
6.8 Immunity. In any proceedings in China or elsewhere in
connection with any of the Financing Agreements to which the
Borrower is a party, claim for itself or any of its assets
immunity from suit, execution, attachment or other legal process.
6.9 Distributions. Agree to any restriction on its ability
to pay dividends (excluding restrictions imposed by law).
6.10 Transactions With Affiliates. Except for the Project
Documents, directly or indirectly: (i) enter into any
transaction with any Person (including any Affiliate) other than
in the ordinary course of business, or (ii) enter into any
transaction with any Person, including any Affiliate, on terms
less favorable to those available from independent third parties
or (ii) establish any sole and exclusive purchasing or sales
agency, or enter into any transaction whereby the Borrower might
receive less than the full commercial price (subject to normal
trade discounts) for electricity or pay more than the commercial
price for products of others.
6.11 Partnerships; Subsidiaries. Except as contemplated by
the Project Documents, become a general or limited partner in any
partnership or a joint venturer in any joint venture, acquire any
ownership interest in any other Person or enter into any profit-
sharing or royalty agreement or other similar arrangement whereby
the Borrower's income or profits are, or might be, shared with
any other Person, or enter into any management contract or
similar arrangement whereby its business or operations are
managed by any other Person (other than any agreement under which
the Borrower may provide operation and management consulting or
other similar services), or form any Subsidiary.
6.12 Assignment. Assign or otherwise transfer its rights
under any of the Project Documents to which it is a party, or
Governmental Authorizations for its benefit, to any Person
without the prior written consent of the Lender.
6.13 Abandonment of Project. Voluntarily cease or abandon
the development, construction or operation of the Project.
6.14 Improper Use. Use, maintain, operate or occupy, or
allow the use, maintenance, operation or occupancy of, any
portion of the Site or Facility for any purpose which: (a) may
be dangerous, unless safeguarded as required by any Legal
Requirement or Government Instrumentality; (b) may constitute a
public or private nuisance resulting in a Material Adverse
Effect; or (c) may make void, voidable or cancelable, or
materially increase the premium of, any insurance then in force
with respect to the Site or Project or any part thereof.
6.15 Regulation of Parties. Take any action which could
reasonably be expected to result in (a) the Borrower being
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "public utility holding
company", (b) the Borrower being subject to regulation as a
"subsidiary company" or an "affiliate" of a "holding company"
under (and as defined in) PUHCA or (c) any Person who by reason
of its or their ownership or operation of the Facility upon the
exercise of remedies hereunder or under the Guarantees, being
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "holding company" or a
subsidiary or Affiliate of any of the foregoing under any Legal
Requirement of the United States (including, without limitation,
PUHCA and the FPA).
6.16 Amendments. Amend any of the Project Documents without
the prior written consent of the Lender.
ARTICLE 7 - EVENTS OF DEFAULT; CURE RIGHTS; REMEDIES
7.1 Events of Default; Cure Rights. The occurrence of any
of the following events shall constitute an event of default
("Event of Default") hereunder:
7.1.1 Failure to Make Payments. Payment shall not
have been made of any principal of or any interest on the Loans
or other amounts owed by the Borrower to the Lender within 15
Banking Days after such amounts are due.
7.1.2 Misstatements; Omissions. Any representation
or warranty confirmed or made in any Project Documents by the
Borrower or in any writing provided by the Borrower in connection
with the transactions contemplated by this Agreement shall be
found to have been incorrect in any material respect when made or
deemed to be made; provided, however, that no Event of Default
shall occur if within sixty (60) days after the date on which the
General Manager of the Borrower has actual notice that such
incorrect statement has occurred, the Borrower shall deliver in
good faith, to the Lender an Officer's Certificate stating in
reasonable detail that either (i) the Borrower has eliminated any
adverse effect relating to such incorrect statement or (ii) that
the Borrower has taken action that it reasonably believes will
eliminate the adverse effect relating to such incorrect statement
within a reasonable specified time.
7.1.3 Affirmative Covenants. The Borrower shall
fail to perform or observe any of its obligations under (a)
Sections 5.4 and 5.5 or (b) any other term, covenant or agreement
set forth in Article 5 hereof, where such default shall not have
been remedied within fifteen (15) days after notice of such
failure.
7.1.4 Negative Covenants. The Borrower shall fail
to perform or observe any of its obligations under any term,
covenant or agreement set forth in Article 6 hereof other than
Section 6.2, where such default shall not have been remedied
within fifteen (15) days after the Borrower has received notice
of such failure.
7.1.5 Breach of Material Project Documents. The
Borrower or any other party thereto shall breach or default under
any term, condition, provision, covenant, representation or
warranty contained in any of the Material Project Documents and
the Financing Agreements to which the Borrower is a party if such
breach or default shall continue unremedied for fifteen (15) days
after notice to the Borrower from the Lender; provided, however,
that in the case of any of the EPC Contract, the CHEXIM Guarantee
or the Transmission Facilities Construction Agreement, if the
breach or default cannot be remedied within such fifteen (15)
days despite the Borrower's and/or such other party's, as the
case may be, good faith and diligent efforts to do so, but is
susceptible to cure within a longer period, the Borrower or such
party shall continue diligently such efforts to cure such breach
or default until cured (but in no event longer than sixty (60)
days in the aggregate.
7.1.6 Bankruptcy; Insolvency.
(a) The Borrower or any other Joint Venture Company
shall institute a voluntary case or undertake actions to form an
arrangement with creditors for the purpose of paying past due
debts, seeking liquidation, reorganization or moratorium of
payments, under any Bankruptcy Law (or any successor statute or
similar statute in any relevant jurisdiction), or shall consent
to the institution of an involuntary case thereunder against it;
or the Borrower shall file a petition, answer or consent or shall
otherwise institute any similar proceeding under any other Legal
Requirements, or shall consent thereto; or the Borrower or any
other Joint Venture Company shall apply for, or by consent or
acquiescence there shall be an appointment of, a receiver,
liquidator, sequestrator, trustee or other officer with similar
powers; or the Borrower or any other Joint Venture Company shall
make an assignment for the benefit of creditors; or the Borrower
or any other Joint Venture Company shall admit in writing its
inability to pay its debts generally as they become due; or if an
involuntary case shall be commenced seeking the liquidation or
reorganization of the Borrower or any other Joint Venture Company
under any Bankruptcy Law (or any successor statute or similar
statute under any relevant jurisdiction) or any similar
proceeding shall be commenced against the Borrower or any other
Joint Venture Company under any other Legal Requirements and (i)
the petition commencing the involuntary case is not timely
controverted, (ii) the petition commencing the involuntary case
is not dismissed within sixty (60) days of its filing, (iii) an
interim trustee is appointed to take possession of all or a
portion of the property, and/or to operate all or any part of the
business of the Borrower or any other Joint Venture Company and
such appointment is not vacated within sixty (60) days, or
(iv) an order for relief shall have been issued or entered
therein; or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer having similar powers of
the Borrower or any other Joint Venture Company of all or a part
of their property, shall have been entered; or any other similar
relief shall be granted against the Borrower or any other Joint
Venture Company under any Legal Requirements; and
(b) NCPGC, the EPC Contractor, or Harbin Power shall
institute a voluntary case or undertake actions to form an
arrangement with creditors for the purpose of paying past due
debts, seeking liquidation, reorganization or moratorium of
payments, under any Bankruptcy Law (or any successor statute or
similar statute in any relevant jurisdiction), or shall consent
to the institution of an involuntary case thereunder against it;
or shall file a petition, answer or consent or shall otherwise
institute any similar proceeding under any other Legal
Requirements, or shall consent thereto; or shall apply for, or by
consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with
similar powers; or shall make an assignment for the benefit of
creditors; or shall admit in writing its inability to pay its
debts generally as they become due; or if an involuntary case
shall be commenced seeking the liquidation or reorganization of
NCPGC, the EPC Contractor, or Harbin Power under any Bankruptcy
Law (or any successor statute or similar statute under any
relevant jurisdiction) or any similar proceeding shall be
commenced against NCPGC, the EPC Contractor, or Harbin Power
under other Legal Requirements and (i) the petition commencing
the involuntary case is not timely controverted, (ii) the
petition commencing the involuntary case is not dismissed within
sixty (60) days of its filing, (iii) an interim trustee is
appointed to take possession of all or a portion of the property,
and/or to operate all or any part of the business of any of
NCPGC, the EPC Contractor, or Harbin Power and such appointment
is not vacated within sixty (60) days, or (iv) an order for
relief shall have been issued or entered therein; or a decree or
order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee or
other officer having similar powers of any of NCPGC, the EPC
Contractor, or Harbin Power of all or a part of any of their
respective property, shall have been entered; or any other
similar relief shall be granted against the NCPGC, the EPC
Contractor, or Harbin Power under any Legal Requirements.
7.1.7 Judgments. A final judgment or judgments
shall be entered (i) against the Borrower in the aggregate amount
of US$1,000,000 (or the equivalent thereof in other currencies)
(exclusive of judgment amounts fully covered by insurance where
the insured has admitted liability), other than a judgment, the
execution of which is effectively stayed within sixty (60) days
after its entry but only for no more than ninety (90) days after
the date on which such stay is terminated or expires; or (ii) in
the form of an injunction or similar form of relief requiring
suspension or abandonment of construction or operation of the
Facility on grounds of violation of a Legal Requirement and
failure of the Borrower to have such injunction or similar form
of relief stayed or discharged within ninety (90) days.
7.1.8 Other Indebtedness. The Borrower shall
default for a period beyond any applicable grace period in the
payment of any principal, interest or other amount due under any
agreement involving the borrowing of money or the advance of
credit and the outstanding amount or amounts payable under such
agreement equals or exceeds US$250,000 (or the equivalent thereof
in other currencies) in the aggregate.
7.1.9 Termination or Invalidity of Certain Project
Documents; Abandonment of Project.
(a) Any of the Project Documents or the Financing
Agreements shall have become invalid, illegal or unenforceable;
(b) The Borrower shall cease to have the right to use
the Site for the purpose of owning, constructing, maintaining and
operating the Facility in the manner contemplated by the Project
Documents (or to obtain sufficient water for its operations); or
(c) The Borrower shall abandon the Project or
otherwise cease to pursue the operations of the Project in
accordance with standard industry practice or shall (except as
permitted by Section 6.4) sell or otherwise dispose of its
interest in the Project.
7.1.10 Commercial Operation Date. The Commercial
Operation Date shall not have occurred by December 31, 1999.
7.1.11 Government Authorizations. Any Governmental
Authorization, approval or permit (whether central, provincial,
municipal, local or otherwise) necessary for (a) the
establishment of the Borrower (b) the ownership, construction,
maintenance, financing or operation of the Project, (c) the
setting or adjustment of the electricity price for the Project in
accordance with the method of calculation set forth in the
attachments to the Pricing Document or (d) the conversion or
transfer of any foreign currency shall not be obtained if and
when required, or shall be modified, revoked or cancelled, or a
notice of violations is issued under any Governmental
Authorization on grounds of, or illegality or the absence of any
required authorization, by the issuing agency or other
Governmental Instrumentality having jurisdiction or any
proceeding is commenced by any Governmental Instrumentality for
the purpose of modifying, revoking or cancelling any Governmental
Authorization.
7.1.12 Destruction of Project. The Facility is
destroyed, or suffers an actual or constructive total loss or
damage.
7.1.13 Change of Law. The occurrence of any adverse
Change of Law of the PRC.
7.1.14 Remedies. Upon the occurrence of any of the
Events of Default, the Lender may, by written notice to the
Borrower and the other Joint venture Companies, declare the Loans
to be immediately due and payable and pursue any and all remedies
available for the non-payment of debts.
ARTICLE 8 - SCOPE OF LIABILITY
The Lender shall have no claims with respect to the
transactions contemplated by the Project Documents against any
Person other than the Borrower including, but not limited to, the
Panda International and the Luannan Government or any of their
respective Affiliates (other than the Borrower) or direct or
indirect parents, or to the shareholders, officers, directors,
employees, or other controlling persons (including members of the
management committee) of the Panda International and the Luannan
Government, their respective Affiliates (other than the
Borrower), or their direct or indirect parents (collectively the
"Nonrecourse Persons"), subject to the exceptions set forth below
in this Article 8; provided that (a) the foregoing provision of
this Article 8 shall not constitute a waiver, release or
discharge of any of the indebtedness, or of any of the terms,
covenants, conditions, or provisions of this Agreement, any other
Financing Agreement and the same shall continue until fully paid,
discharged, observed, or performed; (b) the foregoing provision
of this Article 8 shall not limit or restrict the right of the
Lender, to name the Borrower or any other Person as a defendant
in any action or suit for a judicial foreclosure or for the
exercise of any other remedy under or with respect to this
Agreement or any other Financing Agreement, or for injunction or
specific performance, so long as no judgement in the nature of a
deficiency judgement shall be enforced against any Nonrecourse
Persons, except as set forth in this Article 8; (c) the foregoing
provision of this Article 8 shall not affect or diminish or
constitute a waiver, release or discharge of any specific written
obligation, covenant, or agreement in respect to the Project made
by any of the Nonrecourse Persons; and (d) nothing contained
herein shall limit the liability of any Person who is a party to
any Project Document or has issued any certificate or other
statement in connection therewith with respect to such liability
as may arise by reason of the terms and conditions of such
Project Document, certificate or statement, or otherwise, in each
case under this clause (d) relating solely to such liability of
such Person as may arise under such referenced agreement,
instrument or opinion. The limitations on recourse set forth in
this Article 8 shall survive the termination of this Agreement
and the full payment and performance of the Obligations hereunder
and under the other Project Documents.
ARTICLE 9 - MISCELLANEOUS
9.1 Addresses. Any communications between the parties
hereto or notice provided herein to be given may be given to the
following addresses.
If to the Lender: Pan-Western Energy Corporation, LLC
c/o Maples and Calder
P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands, British West Indies
If to the Borrower: Tangshan Cayman Heat and Power Co.,
Ltd.
Zhongdajie, Bencheng
Luannan County
Hebei Province, China
in either case,
with a copy to: Panda Energy Industrial Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
9.2 Delay and Waiver. No delay or omission to exercise any
right, power or remedy accruing to the Lender upon the occurrence
of any Event of Default or any breach or default of the Borrower
under this Agreement shall impair any such right, power or remedy
of the Lender, nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring, nor shall any
waiver of any single Event of Default, or other breach or default
be deemed a waiver of any other Event of Default, or other breach
or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part
of the Lender of any Event of Default, or other breach or default
under this Agreement, or any waiver on the part of the Lender of
any provision or condition of this Agreement, must be in writing
and shall be effective only to the extent in such writing
specifically set forth. All remedies, either under this
Agreement or by law or otherwise afforded to the Lender shall be
cumulative and not alternative.
9.3 Entire Agreement. This Agreement and any agreement,
document or instrument attached hereto or referred to herein
integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral negotiations and prior
writings in respect to the subject matter hereof. In the event
of any conflict between the terms, conditions and provisions of
this Agreement and any such agreement, document or instrument,
the terms, conditions and provisions of this Agreement shall
prevail. This Agreement may only be amended or modified by an
instrument in writing signed by the Borrower, the Lender and any
other parties to be charged.
9.4 Governing Law. This Agreement shall be governed by,
and be construed and interpreted in accordance with, the law of
the Cayman Islands.
9.5 Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal
or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
9.6 Headings. Paragraph headings have been inserted in
this Agreement as a matter of convenience for reference only and
it is agreed that such paragraph headings are not a part of this
Agreement and shall not be used in the interpretation of any
provision of this Agreement.
9.7 No Partnership, Etc. The Lender and the Borrower
intend that the relationship between them shall be solely that of
creditor and debtor. Nothing contained in this Agreement or the
Project Note shall be deemed or construed to create a
partnership, tenancy-in-common, joint tenancy, joint venture or
co-ownership by or between the Lender, on the one hand, and the
Borrower or any other Person, on the other hand. The Lender
shall not be in any way responsible or liable for the debts,
losses, obligations or duties of the Borrower or any other Person
with respect to the Project or otherwise. All obligations to pay
real property or other taxes, assessments, insurance premiums,
and all other fees and charges arising from the ownership,
operation or occupancy of the Project and to perform all
obligations under the agreements and contracts relating to the
Project shall be the sole responsibility of the Borrower.
9.8 Consent to Jurisdiction. The Lender and the Borrower
agree that any legal action or proceeding by or against the
Borrower or with respect to or arising out of this Agreement the
Project Note may be brought in or removed to the courts of the
Cayman Islands. By execution and delivery of this Agreement, the
Lender and the Borrower accept, for themselves and in respect of
their property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The Lender and the Borrower irrevocably
consent to the service of process out of any of the
aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified airmail,
postage prepaid, to the Lender or the Borrower, as the case may
be, at their respective addresses for notices as specified herein
and that such service shall be effective five (5) Banking Days
after such mailing. Nothing herein shall affect the right to
serve process in any other manner permitted by law or the right
of the Lender to bring legal action or proceedings in any other
competent jurisdiction. The Lender and the Borrower further
agree that the aforesaid courts of the Cayman Islands shall have
exclusive jurisdiction with respect to any claim or counterclaim
of the Borrower based upon the assertion that the rate of
interest charged by the Lender on or under this Agreement and/or
the Project Note is usurious. The Lender and the Borrower hereby
waive any right to stay or dismiss any action or proceeding under
or in connection with any or all of the Project or this Agreement
brought before the foregoing courts on the basis of forum non-
conveniens.
9.9 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The
Borrower may not assign or otherwise transfer any of its rights
under this Agreement.
9.10 Counterparts. This Agreement may be executed in one or
more duplicate counterparts and when signed by all of the parties
listed below shall constitute a single binding agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their officers or partners
thereunto duly authorized as of the day and year first above
written.
PAN-WESTERN ENERGY CORPORATION LLC
By:
Name:
Title:
TANGSHAN CAYMAN HEAT AND POWER CO., LTD.
By:
Name:
Title:
Schedule 5.8
[TO COME]
EXHIBIT A
FORM OF PROJECT NOTE
$ New York, New York
, 199
FOR VALUE RECEIVED, the undersigned,
, a Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China, (the
"Borrower"), hereby unconditionally promises to pay to the order
of Pan-Western Energy Corporation LLC (the "Lender") at the
office of [ ] in lawful money of the United
States of America and in immediately available funds, the
principal amount of DOLLARS ($ ),
or, if less, the unpaid principal amount of the Loans made by the
Lender pursuant to the Shareholder Loan Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and
on the dates specified in the Shareholder Loan Agreement. The
Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in the
Shareholder Loan Agreement.
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of the Loans and the date and
amount of each payment or prepayment of principal with respect
thereto. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed. The
failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Loans.
This Note (a) is the Project Note referred to in the
Shareholder Loan Agreement dated as of September 24, 1996 (as
amended, supplemented or otherwise modified from time to time,
the "Shareholder Loan Agreement"), between the Borrower and the
Lender, (b) is subject to the provisions of the Shareholder Loan
Agreement and (c) is subject to optional and mandatory prepayment
in whole or in part as provided in the Shareholder Loan
Agreement. This Note is guaranteed as provided in the Financing
Agreements. Reference is hereby made to the Financing Agreements
for a description of the terms and conditions upon which each
guarantee was granted and the rights of the holder of this Note
in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable,
all as provided in the Shareholder Loan Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all
other notices of any kind.
Unless otherwise defined herein, terms defined in the
Shareholder Loan Agreement and used herein shall have the
meanings given to them in the Shareholder Loan Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE CAYMAN ISLANDS.
[BORROWER]
By:
Name:
Title:
Schedule 5.8
OUTLINE OF INSURANCE
TYPE Construction & Erection "All Risks",
Third Party Liability & Delay in Start-
Up Insurance.
INSURED Joint Venture Companies
and
Harbin Power Equipment Co., Ltd.
and / or
all Contractors, Sub-Contractors,
Suppliers, thereto, as their interest
may appear.
PERIOD From notification to proceed through
completion of construction testing and
final acceptance (Est. 26 months in
all).
Extensions to Period relating to
construction/erection not exceeding six
months to be automatically held covered
by Insurers at an additional premium to
be agreed.
INTEREST Section 1 Construction & Erection "All
Risks"
The permanent works and plant supplied,
temporary works and materials until take
over for commercial operation by the
Principal of Unit 2.
Section 2 Third Party Liability
The legal liability of the insured for
personal injury or damage to property.
Section 3 Delay I Start-Up
Loss of Revenue &/or Increased Cost of
Working due to delayed completion
resulting from loss or damage insured by
Section 1.
Project Insured
The design, project management, supply
construction, erection, testing,
commissioning and maintenance / defects
liability period of the 2x50MW coal-
fired electric and thermal energy
cogeneration power plants at Luannan
County, Tangshan City, and all work and
services ancillary thereto.
SUM INSURED Section 1 Construction & Erection "All
Risks"
Full Contract Value US $90,000,000
Section 2 Third Party Liability
Limit of Indemnity US $20,000,000
any one occurrence / unlimited in all
during the Period of Insurance.
Section 3 Delay in Start-Up
Sum Insured US $38,250,000
Indemnity Period 12 months
LOCATION Near the City of Gujiaying, Hebei
Province, Peoples Republic of China.
EXHIBIT A
FORM OF PROJECT NOTE
$ New York, New York
, 199
FOR VALUE RECEIVED, the undersigned,
, a Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China, (the
"Borrower"), hereby unconditionally promises to pay to the order
of Pan-Western Energy Corporation LLC (the "Lender") at the
office of [ ] in lawful money of the United
States of America and in immediately available funds, the
principal amount of DOLLARS ($ ),
or, if less, the unpaid principal amount of the Loans made by the
Lender pursuant to the Shareholder Loan Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and
on the dates specified in the Shareholder Loan Agreement. The
Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in the
Shareholder Loan Agreement.
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of the Loans and the date and
amount of each payment or prepayment of principal with respect
thereto. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed. The
failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Loans.
This Note (a) is the Project Note referred to in the
Shareholder Loan Agreement dated as of September 24, 1996 (as
amended, supplemented or otherwise modified from time to time,
the "Shareholder Loan Agreement"), between the Borrower and the
Lender, (b) is subject to the provisions of the Shareholder Loan
Agreement and (c) is subject to optional and mandatory prepayment
in whole or in part as provided in the Shareholder Loan
Agreement. This Note is guaranteed as provided in the Financing
Agreements. Reference is hereby made to the Financing Agreements
for a description of the terms and conditions upon which each
guarantee was granted and the rights of the holder of this Note
in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable,
all as provided in the Shareholder Loan Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all
other notices of any kind.
Unless otherwise defined herein, terms defined in the
Shareholder Loan Agreement and used herein shall have the
meanings given to them in the Shareholder Loan Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE CAYMAN ISLANDS.
[BORROWER]
By:
Name:
Title:
SCHEDULE A
INTEREST PAYMENT SCHEDULE
[***] FILED SEPARATELY WITH THE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
SCHEDULE B
AMORTIZATION SCHEDULE
[***] FILED SEPARATELY WITH THE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT 10.99
AMENDED AND RESTATED SHAREHOLDER LOAN AGREEMENT
between
PAN-WESTERN ENERGY CORPORATION LLC
as Lender
and
TANGSHAN PAN-SINO HEAT CO., LTD.
as Borrower
Dated as of April 1, 1997
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS 1
1.1 Definitions 1
ARTICLE 2 - THE CREDIT FACILITY 13
2.1 Credit Facility 13
2.2 Interest Payments 13
2.2.1 Interest Payment Dates 13
2.2.2 Interest 13
2.3 Project Note 13
2.4 Repayment of the Loans 14
2.4.1 Payments 14
2.4.2 Application of Payments 14
2.5 Prepayments 14
2.5.1 Voluntary Prepayments 14
2.5.2 Certain Mandatory Prepayments 14
2.5.3 Expropriation Event; Event of Loss 14
2.6 Fees 15
ARTICLE 3 - CONDITIONS PRECEDENT 16
3.1 Borrower's Certificate 16
(a) Representations and Warranties 16
(b) No Event of Default 16
(c) Governmental Authorizations and other
consents and approvals 16
(d) Facility Costs 16
3.2 On-Shore Accounts 16
3.3 Evidence of Facility Costs and Other Expenses 16
3.4 Progress Report; Project Engineer 16
3.5 Registration Certificate 17
3.6 Equity Contributions; Real Estate Transfers 17
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES 17
4.1 Organization 17
4.2 Authorization; No Conflict 17
4.3 Legality, Validity and Enforceability 17
4.4 Compliance with Law, Governmental
Authorizations and Project Documents 17
4.5 Governmental Authorizations 18
4.6 Litigation 18
4.7 Existing Defaults 18
4.8 Taxes 18
4.9 Contingent Liabilities 18
4.10 Business, Debt, Contracts, Etc. 18
4.11 Representations and Warranties 18
4.12 Utilities 18
4.13 Project Documents 19
4.14 Fees and Enforcement 19
4.15 Immunity 19
4.16 Subsidiaries and Beneficial Interest 19
4.17 No Other Powers of Attorney, etc. 19
4.18 Liens 19
4.19 Regulation of Parties 19
4.20 Transactions with Affiliates 19
ARTICLE 5 - AFFIRMATIVE COVENANTS OF THE BORROWER 20
5.1 Repayment of Indebtedness 20
5.2 Existence, Conduct of Business, Properties, Etc.20
5.3 Performance of Covenants and Obligations 20
5.4 Use of Funds 20
5.5 Accounts 20
5.6 Compliance with Legal Requirements 21
5.7 Operating Budgets 21
5.8 Books, Records, Access 22
5.9 Financial Statements 22
5.10 Insurance 22
5.11 Reports; Cooperation 23
5.12 Taxes and Other Governmental Charges 23
5.13 Notices 24
5.14 Expropriation Event 24
5.15 Increased Costs 24
5.16 Taxes 25
5.17 Registration of the Loans; Other Foreign
Exchange Matters 25
5.18 Loan Payment Reserve 25
ARTICLE 6 - NEGATIVE COVENANTS 25
6.1 Indebtedness 26
6.2 Limitations on Liens 26
6.3 Nature of Business 26
6.4 Sale or Lease of Facility Assets 26
6.5 Merger, Consolidation, Liquidation, Dissolution 26
6.7 Loans, Advances or Investments 27
6.8 Immunity 27
6.9 Distributions 27
6.10 Transactions With Affiliates 27
6.11 Partnerships; Subsidiaries 27
6.12 Assignment 27
6.13 Abandonment of Project 28
6.14 Improper Use 28
6.15 Regulation of Parties 28
6.16 Amendments 28
ARTICLE 7 - EVENTS OF DEFAULT; CURE RIGHTS; REMEDIES 28
7.1 Events of Default; Cure Rights 28
7.1.1 Failure to Make Payments 28
7.1.2 Misstatements; Omissions 28
7.1.3 Affirmative Covenants 28
7.1.4 Negative Covenants 29
7.1.5 Breach of Material Project Documents 29
7.1.6 Bankruptcy; Insolvency 29
7.1.7 Judgments 30
7.1.8 Other Indebtedness 30
7.1.9 Termination or Invalidity of Certain
Project Documents; Abandonment of
Project 30
7.1.10 Commercial Operation Date 30
7.1.11 Government Authorizations 31
7.1.12 Destruction of Project. 31
7.1.13 Change of Law. 31
7.1.14 Remedies. 31
ARTICLE 8 - SCOPE OF LIABILITY 31
ARTICLE 9 - MISCELLANEOUS 32
9.1 Addresses 32
9.2 Delay and Waiver 32
9.3 Entire Agreement 32
9.4 Governing Law 32
9.5 Severability 33
9.6 Headings 33
9.7 No Partnership, Etc. 33
9.8 Consent to Jurisdiction 33
9.9 Successors and Assigns 33
9.10 Counterparts 33
TABLE OF SCHEDULES AND EXHIBITS iv
TABLE OF SCHEDULES AND EXHIBITS
Exhibit A Form of Project Note
Schedule 5.8 Insurance
Schedule A Interest Payment Schedule
Schedule B Amortization Schedule
THIS AMENDED AND RESTATED SHAREHOLDER LOAN AGREEMENT (this
"Agreement") dated as of April 1, 1997, by and between Pan-
Western Energy Corporation LLC (the "Lender"), a company with
limited liability organized under the laws of the Cayman Islands,
and Tangshan Pan-Sino Heat Co., Ltd. (the "Borrower"), a Sino-
foreign equity joint venture with limited liability organized
under the laws of the People's Republic of China (the "PRC" or
"China").
W I T N E S S E T H :
WHEREAS, the Borrower has developed a business opportunity
concerning ownership and operation of a steam and hot water
distribution system, land conscribed to industrial use, an ash
slurry pipeline and ash disposal land, certain social buildings,
the provision of certain services and the making of certain
investments (collectively referred to as the "Facility") to be
undertaken in conjunction with the development and operation of
certain other facilities including two 50 MW coal-fired thermal
power generation facilities, water wells and pipeline systems,
heat, steam and hot water system facilities (collectively, with
the Facility referred to herein as the "Project"); and
WHEREAS, the Lender, as the owner of approximately 88% of
the aggregate ownership interest in the Borrower, can be expected
to derive certain benefits as a result of this Agreement and
desires to lend certain funds to the Borrower on commercial terms
negotiated at arms length by and between the Borrower and the
Lender pursuant to, and upon the term and conditions contained
in, this Agreement and for the benefit of the Borrower;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 Definitions. The following terms, as used herein, have
the following meanings:
"Affiliate" of a specified Person means any other
Person or Persons that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under
common control with the Person specified, or who holds or
beneficially owns 10% or more of the equity interest in the
Person specified or 10% or more of any class of voting securities
of the Person specified.
"Asset Sale" means sale, transfer or other disposition
(including any sale and leaseback of assets and any sale of
accounts receivable in connection with a receivable financing
transaction) by the Borrower or any of its Subsidiaries of any
property of the Borrower or any such Subsidiary, other than as
permitted pursuant to subsection 2.5.2.
"Authorized Representative" means as to any Person, its
president, chief executive officer or any senior vice president
or any other person specifically identified as such in a
certificate of such Person delivered to the Lender.
"Banking Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banks in New York, New York,
George Town, Grand Cayman, Cayman Islands or Zhongdajie,
Bencheng, Luannan County, Hebei Province, China, are authorized
or required to be closed.
"Bankruptcy Law" means any insolvency, reorganization,
moratorium or similar law for the general relief of debtors in
any relevant jurisdiction.
"Basic Settlement Account" shall have the meaning
ascribed to it in subsection 5.5.
"Borrower" means Tangshan Pan-Sino.
"Business Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banks in New York, New York,
George Town, Grand Cayman, Cayman Islands or Zhongdajie,
Bencheng, Luannan County, Hebei Province, China, are authorized
or required to be closed.
"Capital Stock" means any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent ownership
interests in a Person (other than a corporation) and any and all
warrants or options to purchase any of the foregoing.
"Capitalized Lease" means as to any Person, any lease
of any property of which the discounted present value of the
rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such
Person, and "Capitalized Lease Obligation" means the rental
obligations, as aforesaid, under any such lease.
"Cash Equivalents " means, at any time (i) any evidence
of Indebtedness with a maturity of 180 days or less issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System, whose
rating is AA or higher from Standard & Poor's or Aa2 or higher
from Moody's, having combined capital and surplus and undivided
profits of not less than $500 million; (iii) commercial paper
with a maturity of 180 days or less issued by a corporation
(except an Affiliate of the Company) organized under the laws of
any state of the United States or the District of Columbia and
having the highest rating obtainable from Standard & Poor's or
Moody's; and (iv) repurchase obligations for a term of not more
than seven days for underlying securities of the types described
in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above.
"Cash Flow Available for Debt Service" means, for any
period, (i) the sum of all revenues (including interest and fee
income and any principal payments received by the Borrower on the
Transmission Loan for such period, but excluding any insurance
proceeds, other than business interruption insurance proceeds,
and other similar non-recurring receipts) of the Borrower for
such period minus (ii) the aggregate amount of O&M Costs for such
period as determined on a cash basis and otherwise in accordance
with GAAP).
"Change of Law" means after the date of this Agreement,
the adoption of any Legal Requirement, any change in any Legal
Requirement or the application or requirements thereof, any
change in the interpretation or administration of any Legal
Requirement by any Governmental Instrumentality, or compliance by
the Lender or the Borrower with any request or directive (whether
or not having the force of law) of any Governmental
Instrumentality.
"CHEXIM" means the Export-Import Bank of China, a
company organized under the laws of PRC.
"CHEXIM Guarantee" means the guarantee to be given by
CHEXIM as required pursuant to the EPC Contract in respect of the
EPC Contractor's obligations under the EPC Contract, as the same
may from time to time be amended, supplemented or otherwise
modified.
"Coal Supply Agreements" means all agreements entered
into by the Joint Venture Companies for the supply of coal to the
Project.
"Coal Transportation Agreements" means all agreements
entered into by the Joint Venture Companies for the
transportation of coal to the Project.
"Commercial Operation Date" means that date by which
both of the following have occurred: (i) the Project Engineer
has certified that the Project has achieved commercial operations
and (ii) the Commercial Operation Date, as such term is used in
the General Interconnection Agreement, has occurred.
"Commercially Feasible Basis" means that, following an
Event of Loss or an Expropriation Event, (i) the sum of the
proceeds of business interruption insurance, any funds available
to be applied to the rebuilding, repair or restoration pursuant
to subsection 2.5.3(e), any amounts that the shareholders of all
the Joint Venture Companies are irrevocably committed to
contribute and the anticipated revenues of the Project during the
estimated period of rebuilding, repair or restoration will be
sufficient to pay all Debt Service and O&M Costs of the Project
during the estimated period of rebuilding, repair or restoration
and (ii) the Project upon being rebuilt, repaired or restored can
reasonably be expected to produce revenues adequate to pay all
Debt Service and O&M Costs of all Joint Venture Companies
pursuant to each such Joint Venture Company's respective
Shareholder Loan Agreement over the remaining terms of the Loans
outstanding of each Joint Venture Company, taking into account
any change in projected operating results due to the impairment
of any portion of the Project, all without materially affecting
the Borrower's Debt Service Coverage Ratio.
"Covered Taxes" means taxes, levies, imposts,
deductions, charges, withholdings and liabilities imposed on or
measured by the net income or capital of a Person by any
jurisdiction or any political subdivision or taxing authority
thereof or therein solely as a result of a permanent
establishment of such Person in such jurisdiction or political
subdivision.
"Debt Service" means, for any period, an amount equal
to the aggregate of, without duplication all payments of
principal and interest (including any adjustment for withholding
taxes or similar taxes) due and payable on Indebtedness during
such period.
"Debt Service Coverage Ratio" means, for any period,
and, if the transaction giving rise to the need to calculate Debt
Service Coverage Ratio is an incurrence of Indebtedness,
calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred or made on
the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, means the
ratio of (A) Cash Available for Debt Service to (B) Net Debt
Service for such period.
"Debt Service Reserve Requirement" means US$1,000,000
less the amount of any Performance Bonus Payment paid by the
Borrower.
"Development Expenses" shall mean all reasonable out-of
pocket expenses related to the Facility that have been incurred
by the Borrower, Panda International or their Affiliates in the
development of the Facility prior to the date of this Agreement.
"Disqualified Stock" means, with respect to any Person,
any Capital Stock which, by its terms (or by the terms of any
security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Loans, as the case may be.
"Dollar Equivalent" means, with respect to any monetary
amount in Renminbi, at any time for the determination thereof,
the amount of Dollars obtained by converting the amount of
Renminbi involved in such computation into Dollars at the spot
rate at which Renminbi are offered for sale against delivery of
Dollars by leading banks in Tangshan City on the date of
determination thereof as determined by the Lender in its
reasonable judgement. If for any reason the Dollar Equivalent
cannot be calculated as provided in the immediately preceding
sentence, the Lender shall calculate the Dollar Equivalent on
such basis as it deems fair and equitable.
"Dollar Permitted Investments" means investments which
are denominated and payable in U.S. Dollars (a) with respect to
funds in the On-Shore Accounts, deposits denominated in U.S.
Dollars maintained at, or certificates of deposit insured, or
obligations insured or guaranteed by, the Bank of China, The
China Construction Bank, the Communication Bank, the China
Farmers Bank or China International Trust and Investment
Corporation, or any branch of a commercial bank organized under
the laws of the United States or any political subdivision
thereof having a combined capital and surplus of at least
$500,000,000 and having long-term unsecured debt securities
having a rating assigned by each of Standard & Poor's and Moody's
equal to the highest rating assigned thereby to long-term
unsecured debt securities; and (b) means any of the following
securities: (i) direct obligations of the Department of the
Treasury of the United States of America; (ii) obligations of any
of the following federal agencies which obligations represent
full faith and credit of the United States of America, including:
Export-Import Bank, Farmers Home Administration, General Services
Administration, U.S. Maritime Administration, Small Business
Administration, Government National Mortgage Associate (GNMA),
U.S. Department of Housing & Urban Development (PHA's) and
Federal Housing Administration; (iii) bonds, notes or other
evidences of indebtedness rated "AAA" by Standard & Poor's and
"Aaa" by Moody's issued by the Federal Home Loan Bank, the
Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation; (iv) commercial paper rated in any one of
the two highest rating categories by Moody's or Standard &
Poor's; (v) investment agreements with banks (foreign &
domestic), broker/dealers, and other financial institutions rated
at the time of bid in any one of the three highest rating
categories by Moody's and Standard & Poor's; (vi) repurchase
agreements with banks (foreign & domestic), broker/dealers, and
other financial institutions rated at the time of bid in any one
of the three highest rating categories by each of Standard &
Poor's and Moody's, provided: (1) collateral is limited to (i),
(ii) and (iii) above, (2) the margin levels for collateral must
be maintained at a minimum of 102% including principal and
interest, (3) the Lender shall have a first perfected security
interest in the collateral, (4) the collateral will be delivered
to a third party custodian, designated by the Lender and all fees
and expenses related to collateral custody will be the
responsibility of the Lender, (5) the collateral must have been
or will be acquired at the market price and marked to market
weekly and collateral level shortfalls cured within 24 hours, (6)
unlimited right of substitution of collateral is allowed provided
that substitution collateral must be permitted collateral
substituted at a current market price and substitution fees of
the custodian shall be paid by the Lender; (vii) forward purchase
agreements delivering securities outlined in (i) and (iv) above
with banks (foreign and domestic), broker/dealers, and other
financial institutions maintaining a long-term rating on the day
of bid no lower than investment grade by each of Standard &
Poor's and Moody's (such rating may be at either the parent or
subsidiary level).
"Dollars," "U.S. Dollars" and "US$" mean lawful
currency of the United States of America.
"Energy Purchase Agreement" means Electric Energy
Purchase and Sales Agreement, dated September 22, 1995, between
NCPGC and Tangshan Panda and Tangshan Pan-Western, as the same
may from time to time be amended, supplemented or otherwise
modified.
"EPC Contract" means the Engineering, Procurement and
Construction Contract, dated as of April 24, 1996 between the EPC
Contractor and Tangshan Panda and Tangshan Pan-Western, as the
same may from time to time be amended, supplemented or otherwise
modified.
"EPC Contractor" means Harbin Power Engineering Company
Limited, a company organized under the laws of the PRC and a
wholly owned subsidiary of Harbin Power.
"EPC Contract Liquidated Damages" means liquidated
damages as defined in the EPC Contract.
"EPC Contractor Parent Guarantee" means the guarantee
to be given by Harbin Power in favor of Tangshan Panda and
Tangshan Pan-Western in respect of the EPC Contractor's
obligations under the EPC Contract, as the same may from time to
time be amended, supplemented or otherwise modified.
"Event of Default" shall have the meaning given to such
term in Section 7.1.
"Event of Loss" means an event which causes all or a
portion of the Facility to be damaged, destroyed or rendered
unfit for normal use for any reason whatsoever, other than an
Expropriation Event.
"Expropriation Event" means any condemnation,
nationalization, seizing, or expropriation by any Government
Instrumentality of all or a substantial portion of the Project or
the property or assets of the Borrower or of its share capital,
or any Government Instrumentality shall have assumed custody or
control of such property or other assets or business operations
of the Borrower or of its share capital, or shall have taken any
action for the dissolution or disestablishment of the Borrower or
any action that would prevent the Borrower or its officers from
carrying on its business or operations or a substantial part
thereof.
"Expropriation Proceeds" means any proceeds received by
the Borrower as a result of the occurrence of an Expropriation
Event.
"Facility" shall have the meaning stated in the first
WHEREAS clause of this Agreement.
"Facility Budget" means the construction budget and
schedule provided by the Lender (containing customary assumptions
and qualifications) approved as reasonable by the Project
Engineer prior to the making of the first Loan pursuant to this
Agreement, and as it thereafter may be amended with the approval
of the Lender.
"Facility Costs" means all costs incurred, or to be
incurred, in connection with the development, design,
engineering, procurement, construction and commissioning of the
Facility, which costs shall include, but not be limited to: (a)
all costs incurred under the EPC Contract, (b) Development
Expenses, (c) O&M Costs incurred in connection with the start up
of the Facility or otherwise prior to the Commercial Operation
Date, (d) actual interest costs (including, prior to Commercial
Operation, interest due and payable on the Loans) and amounts
required pursuant to the Debt Service Reserve Requirement,
closing and administration costs related to the Facility until
the Commercial Operation Date, (e) the costs of acquiring
Governmental Authorizations for the Facility prior to the
Commercial Operation Date and (f) without duplication, working
capital costs.
"Fair Market Value" or "fair value" means, with respect
to any asset or property, the price which could be negotiated in
an arm's-length market transaction, for cash, between a willing
seller and a willing buyer, neither of whom is under undue
pressures or compulsion to complete the transaction. Fair Market
Value shall be determined by the board of directors of the
Borrower acting in good faith and shall be evidenced by a board
resolution delivered to the Lender except that any determination
of Fair Market Value made with respect to any parcel of real
property shall be made by an independent appraiser.
"Financing Agreements" means, collectively, this
Agreement, the Guarantees, the Project Notes, the other
Shareholder Loan Agreements, each individually a "Financing
Agreement".
"Foreign Debt Account" shall have the meaning ascribed
to it in Section 5.5.
"Foreign Debt Repayment Account" shall have the meaning
ascribed to it in Section 5.5.
"FPA" means the United States Federal Power Act, as
amended, excluding Sections I-18, 21-30, 202(c), 210, 211, 212,
305(c) and any necessary enforcement provision of Part III of the
Act with regard to the foregoing sections.
"GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the
accounting profession of the United States, which are applicable
as of the date hereof.
"Governmental Authorizations" means all authorizations,
consents, decrees, permits, waivers, privilege approvals from and
filings with all Governmental Instrumentalities necessary for the
realization of the Project in accordance with the Project
Documents.
"Governmental Instrumentality" of any country shall
mean such country and its government and any ministry,
department, political subdivision, instrumentality, agency,
corporation or commission under the direct or indirect control of
such country.
"Guarantees" means collectively, the undertakings by
Tangshan Panda, each executed as of the 22nd day of September,
1996 to unconditionally and irrevocably guarantee to the Lender
the prompt payment and performance by each of Tangshan Pan-
Western, Tangshan Cayman and Tangshan Pan-Sino of their
individual obligations to Lender pursuant to any Indebtedness
obligation then or thereafter due and owing by any such party to
Lender; the undertakings by Tangshan Pan-Western, each executed
as of the 22nd day of September, 1996, to unconditionally and
irrevocably guarantee to the Lender the prompt payment and
performance by each of Tangshan Panda, Tangshan Cayman, and
Tangshan Pan-Sino of their individual obligations to Lender
pursuant to any Indebtedness obligation then or thereafter due
and owing by any such party to Lender; the undertakings by
Tangshan Cayman, each executed as of the 22nd day of September,
1996 to unconditionally and irrevocably guarantee to the Lender
the prompt payment and performance by each of Tangshan Panda,
Tangshan Pan-Western and Tangshan Pan-Sino of their individual
obligations to Lender pursuant to any Indebtedness obligation
then or thereafter due and owing by any such party to Lender; and
the undertakings by Tangshan Pan-Sino, each executed as of the
22nd day of September, 1996 to unconditionally and irrevocably
guarantee to the Lender the prompt payment and performance by
each of Tangshan Panda, Tangshan Pan-Western and Tangshan Cayman
of their individual obligations to Lender pursuant to any
Indebtedness obligation then or thereafter due and owing by any
such party to Lender.
"Harbin Power" means Harbin Power Equipment Group
Company, a PRC Company.
"Heat Supply Contracts" means the contracts to supply
steam and hot water to various PRC industrial and commercial
users that have been assigned by Luannan Heat and Power Plant to
Tangshan Pan-Sino, or any similar contracts in addition to or in
replacement thereof.
"Indebtedness" means, with respect to any Person,
without duplication, (i) any liability, contingent or otherwise,
of such Person (A) for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (B) evidenced by a note,
debenture or similar instrument or letters of credit (including a
purchase money obligation) or (C) for the payment of money
relating to a capitalized lease obligation or other obligation
relating to the deferred purchase price of property; (ii) any
obligation secured by a Lien to which the property or assets of
such Person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such
Person's legal liability; (iii) the maximum fixed repurchase
price of any redeemable or putable Disqualified Stock; (iv)
contractual obligations to repurchase goods sold or distributed;
(v) obligations of a Person in respect of interest rate or
currency exchange agreements to the extent they appear on the
balance sheet; (vi) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding
clauses (i) - (v); and (vii) any liability of others of the kind
described in clauses (i) - (vi) which the Person has guaranteed
or which is otherwise directly or indirectly its legal liability.
"Independent Accountants" means an internationally
recognized accounting firm.
"Independent Insurance Consultant" means Sedgwick, PLC,
a corporation incorporated in accordance with the laws of the
United Kingdom, or its successors.
"Inter-Company Steam Sales Agreement" means the Water,
Heat, Steam and Hot Water Supply and Usage Agreement, dated as of
October 3, 1996 between Tangshan Cayman and Tangshan Panda.
"Interconnection Agreement" means the General
Interconnection Agreement dated September 22, 1995, between NCPGC
and Tangshan Panda and Tangshan Pan-Western, as the same may from
time to time be amended, supplemented or otherwise modified.
"Interconnection Dispatch Agreement" means the
agreement to be negotiated among Tangshan Power Supply Bureau of
NCPGC, Tangshan Panda and Tangshan pan-Western shortly prior to
the Commercial Operation Date of the Project concerning specific
details as to the dispatch of the Luannan Facility.
"Interest Expense" means, for any period, the sum of
(a) the total interest expense of the Person in question for such
period as determined in accordance with GAAP, including, without
limitation, (i) amortization of debt issuance costs or of
original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting, (ii)
accrued interest, (iii) noncash interest payments, (iv)
commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(v) interest actually paid by the Person in question under any
guarantee of Indebtedness or other obligation of any other Person
and (vi) net costs associated with interest rate agreements
(including amortization of discounts) and currency agreements,
plus (b) capitalized interest plus (c) dividends paid in respect
of preferred stock of the Person in question, held by Persons
other than the Person in question.
"Joint Venture Companies" means, collectively Tangshan
Panda, Tangshan Pan-Western, Tangshan Cayman and Tangshan Pan-
Sino.
"Legal Requirements" means all laws, statutes, orders,
decrees, injunctions, licenses, permits, approvals, agreements
and regulations of any Governmental Instrumentality having
jurisdiction over the matter in question.
"Lender" means Pan-Western Energy Corporation LLC, a
Cayman Islands corporation.
"Lien" means any mortgage, lien (statutory or other),
pledge, security interest, encumbrance, claim, hypothecation,
assignment for security, deposit arrangement or preference or
other security agreement of any kind or nature whatsoever. For
purposes of this Agreement, a Person shall be deemed to own
subject to a lien any property which it has acquired or holds
subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title
retention agreement relating to such Person.
"Loans" means the loans made under this Agreement.
"Luanhua Co." means Tangshan Luanhua (Group) Co., a
company organized under the laws of the PRC.
"Luannan Government" means the government of Luannan
County, Tangshan City, Hebei Province, PRC.
"Luannan Heat Company" means Luannan County Heat
Company, Ltd. a company organized under the laws of the PRC.
"Luannan Heat & Power" means Luannan County Heat &
Power Plant, a company organized under the laws of the PRC.
"Major Maintenance Reserve Account" shall have the
meaning ascribed to it in subsection 5.5.
"Major Maintenance Reserve Requirement" means, with
respect to any month, an amount established periodically by the
Project Engineer, based on anticipated major maintenance
requirements for the next five years, to constitute the Major
Maintenance Reserve Requirement for the Facility for such month.
"Material Adverse Effect" means (i) a material adverse
change in the financial condition of the Joint Venture Companies
taken as a whole or (ii) any event or occurrence which could
reasonably be expected to materially and adversely affect: (a)
the construction or operation of the Project or (b) the Joint
Venture Companies' ability (taken as a whole) to perform any of
their obligations under the Project Documents.
"Material Project Documents" means, collectively, the
Power Purchase Agreement, the EPC Contract, the Transmission
Facilities Construction Agreement, the O&M Agreement, the Coal
Supply Agreements, the Coal Transportation Agreement and all
other instruments, agreements or other documents arising from or
related to the Project, but shall not include any Financing
Agreement.
"Maturity Date" means April 1, 2004.
"Moody's" means Moody's Investors Services.
"NCPGC" means North China Power Group Company, a
company organized under the laws of the PRC.
"Net Cash Proceeds" in connection with (a) any Asset
Sale, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of
deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise,
but only as and when received) of such Asset Sale, net of
attorneys' fees, accountants' fees, investment banking fees,
survey costs, title insurance premiums, amounts required to be
applied to the repayment of Indebtedness secured by a Lien
expressly permitted hereunder on any asset which is the subject
of such Asset Sale and other customary fees and expenses actually
incurred in connection therewith, net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax
sharing arrangements) and net of purchase price adjustments
reason.
"Net Debt Service" means the sum of (i) (a) Interest
Expense less (b) non-cash Interest Expense plus (ii) all payments
of scheduled and overdue principal of, and premium, if any, on
Indebtedness plus (iii) without duplication, all rental payments
in respect of Capitalized Lease Obligations paid, accrued, or
scheduled to be paid or accrued.
"Non-Excluded Taxes" shall have the meaning ascribed to
it subsection 5.16.
"Nonrecourse Persons" shall have the meaning ascribed
to it in Article 8.
"O&M" means operation and maintenance services.
"O&M Agreement" means the Amended and Restated
Operation and Maintenance Agreement, dated as of March 6, 1997,
among the Joint Ventures and Duke/Fluor Daniel Asia, Inc., a
California corporation.
"O&M Costs" means all amounts disbursed by or on behalf
of the Borrower for operation, maintenance, repair, or
improvement of the Facility, including, without limitation,
premiums on insurance policies, property, income and all other
taxes to the extent paid, and payments under the relevant
operating and maintenance agreements, leases (including Operating
Lease Obligations), royalty and other land use agreements, and
any other payments required under the Project Documents, each as
determined on a cash basis and otherwise in accordance with GAAP.
"Obligations" means all loans, advances, debts,
liabilities, and obligations, howsoever arising, owed by the
Borrower to the Lender or existing or hereafter arising hereunder
or pursuant to the terms of any of the Financing Agreements or
any of the other Project Documents, including all interest, fees,
charges and expenses chargeable to the Borrower; and in the event
of any proceeding for the collection or enforcement of the
Obligations, after an event of default shall have occurred and be
continuing, any exercise by the Lender, together with reasonable
attorney's fees and court costs.
"Officer's Certificate" means a certificate of an
authorized representative of the Borrower, signed by the
Chairman, the President, a Vice President, the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of
the Borrower.
"On-Shore Accounts" has the meaning set forth in
subsection 5.5.
"Operating Lease Obligations" means any obligation of
the Person in question incurred or assumed under or in connection
with any lease of real or personal property which, in accordance
with GAAP, is not required to be classified and accounted for as
a capital lease.
"Other Taxes" means any other excise or property taxes,
charges or similar levies that arise under the laws of any
jurisdiction on any payment made under this Agreement or under
any other Financing Agreement or from the execution or delivery
or otherwise with respect to this Agreement or any other
Financing Agreement.
"Panda International" means Panda Energy International
Inc., a Texas corporation.
"Performance Bonus Payment" means an amount payable to
the EPC Contractor pursuant to subsections 13.3 and 13.4 of the
EPC Contract.
"Permitted Indebtedness" has the meaning set forth in
subsection 6.1.
"Permitted Liens" means (a) Liens for any tax,
assessment or other governmental charge not yet due, due but
payable without penalty or being contested in good faith and by
appropriate proceedings, (b) retentions of title in favor of
materialmen, workers or repairmen, or other like Liens arising in
the ordinary course of business or in connection with the
construction of the Project, (c) Liens arising out of judgments
or awards so long as an appeal or proceeding for review is being
prosecuted in good faith, (d) mineral rights the use and
enjoyment of which do not materially interfere with the use and
enjoyment of the Facility, (e) Liens, deposits or pledges to
secure statutory obligations or performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or
leases, or for purposes of like general nature in the ordinary
course of the Borrower's business and affecting property with a
value not exceeding the equivalent of US$250,000 at any one time,
(f) involuntary Liens (including a Lien of an attachment,
judgment or execution) securing a charge or obligation, on any of
the Borrower's property, real or personal, whether now or
hereafter owned with a value not exceeding the equivalent of
US$250,000 at any one time, (g) rights of any party pursuant to
any Project Document, (h) Liens securing workers' compensation,
unemployment insurance or other social security or pension
obligations, (i) Liens securing Indebtedness permitted pursuant
to Section 6.1 (to the extent not required by Section 6.1 to be
unsecured), (j) Liens securing the purchase price of property
having an aggregate value not exceeding the equivalent of
US$1,000,000 at any one time an (k) Liens securing other
obligations not constituting Indebtedness none of which could
reasonably be expected to have a Material Adverse Effect.
"Person" means any natural person, corporation,
partnership, firm, association, Governmental Instrumentality or
any other entity whether acting in an individual, fiduciary or
other capacity.
"PRC" or "China" means the People's Republic of China.
"PRC Shareholder" means Luannan Heat Company.
"Pricing Document" means the document or documents
(issued by the Tangshan Municipal Price Bureau) determining the
price for electric energy delivered, retail price and principals
for adjustment.
"Project" shall have the meaning stated in the first
WHEREAS clause of this Agreement.
"Project Documents" means this Agreement and all
instruments, contracts, agreements or other documents arising
from or related to the Project, including all Financing
Agreements, each individually a "Project Document".
"Project Engineer" means Parsons Brinckerhoff Energy
Services Inc., or its successor.
"Project Note" has the meaning given that term in
Section 2.3.
"Power Purchase Agreement" means, collectively, the
Energy Purchase Agreement, the Interconnection Agreement and the
Supplemental Agreement (and, after execution thereof, the
Interconnection Dispatch Agreement).
"PUHCA" means the United States Public Utility Holding
Company Act of 1935, as amended, and all rules and regulations
adopted thereunder.
"Registered Capital Account" shall have the meaning
ascribed to it in Section 5.5.
"Registration Certificate" has the meaning given to
such term in Section 3.5.
"Renminbi" or "RMB" means lawful currency of the PRC.
"Registered Capital Contribution and Agency Agreement"
means the agreement among each of the Joint Venture Companies and
their respective shareholders, dated as of March 26, 1997 (as
amended, modified and supplemented from time to time) pursuant to
which the Joint Venture Companies are entitled to receive equity
contributions.
"RMB Permitted Investments" means deposit accounts
denominated and payable in RMB to be maintained at, certificates
of deposit issued, or obligations issued or guaranteed by, one of
the following policy or commercial banks in the PRC: (i) the
Bank of China, (ii) the China Construction Bank, (iii) the
Communication Bank, (iv) the China Farmers Bank, (v) the China
International Trust and Investment Corporation (vi) any foreign
bank or branch of any foreign bank authorized and licensed to
conduct business in the PRC, including without limitation, the
establishment and maintenance of RMB and foreign currency
accounts and exchange functions having a combined capital and
surplus of at least $500,000,000 and having at least an
investment grade rating assigned to its long-term unsecured debt
securities by each of Standard & Poor's and Moody's.
"RMB Revenue Account" shall have the meaning ascribed
to it in Section 5.5.
"RMB Checking Account" shall have the meaning ascribed
to it in Section 5.5.
"SAFE" means the State Administration of Foreign
Exchange of the PRC.
"Shareholder Loan Agreements" means, collectively, this
Agreement and the Shareholder Loan Agreements, each dated as of
September 24, 1996, between the Lender and (i) Tangshan Pan-
Western, (ii) Tangshan Cayman and (iii) Tangshan Pan-Sino, as the
same may from time to time be amended, supplemented or otherwise
modified.
"Shareholders" means the Lender and the PRC
Shareholder.
"Site" means the approximately 200 square meters of
land on which the Facility is to be located.
"Standard & Poor's" means Standard & Poor's Ratings
Service.
"Steam Sales Agreements" means the Heat Supply
Contracts and the Inter-Company Steam Sales Agreement.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a)
the sole general partner or the managing general partner of which
is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Supplemental Agreement" means Supplemental Agreement
for General Interconnection Agreement and Electric Energy
Purchase and Sales Agreement, dated February 10, 1996, among
NCPGC, Tangshan Panda and Tangshan Pan-Western, as the same may
from time to time be amended, supplemented or otherwise modified.
"Tangshan Cayman" means Tangshan Cayman Heat and Power
Co., Ltd., a Sino-foreign equity joint venture with limited
liability organized under the laws of the PRC.
"Tangshan Panda" means Tangshan Panda Heat and Power
Co., Ltd., a Sino-foreign equity joint venture with limited
liability organized under the laws of the PRC.
"Tangshan Pan-Sino" means Tangshan Pan-Sino Heat Co.
Ltd., a Sino-foreign equity joint venture with limited liability
organized under the laws of the PRC.
"Tangshan Pan-Western" means Tangshan Pan-Western Heat
and Power Co., Ltd., a Sino-foreign equity joint venture with
limited liability organized under the laws of the PRC.
"Transmission Facilities" means three new substations,
the upgrades of both an existing substation and an existing
switching station and approximately 43 km of 110 KV transmission
lines to interconnect the Project to the Jing-Jin-Tang Grid.
"Transmission Facilities Construction Agreement" means
the construction agreement, dated February 10, 1996, among
Tangshan Panda, Tangshan Pan-Western and NCPGC.
"Transmission Loan" means the loan made by Tangshan Pan-
Sino to NCPGC through a PRC financial intermediary for the
construction cost of the Transmission Facilities, in the amount
of RMB 78,218,000, to be adjusted for inflation from December 31,
1994 to the date of issuance of the notice to proceed with
preliminary design and for accrued interest during the
construction period.
ARTICLE 2 - THE CREDIT FACILITY
2.1 Credit Facility. Subject to the terms and conditions
set forth in Article 3, the Lender shall from time to time make
shareholder loans to the Borrower in an aggregate amount of
US$17,829,000 (the "Loans").
2.2 Interest Payments.
2.2.1 Interest Payment Dates. The Borrower shall
pay accrued interest on the unpaid principal amount of the Loans
semiannually in arrears on each June 30 and December 31,
commencing June 30, 1997, until the first such date to occur not
less than six months after the Commercial Operation Date, and on
the last day of each month thereafter.
2.2.2 Interest. The Borrower shall pay accrued
interest on the unpaid principal amount of the Loans from the
date of this Agreement (i) through the first June 30 or December
31 to occur not less than six months after the Commercial
Operation Date, at a rate per annum of 13.75%, subject to a
maximum applicable to all interest accrued in respect of such
period and all amounts due in respect thereof pursuant to Section
5.16 hereof of $4,010,273, and (b) thereafter until the maturity
thereof at a rate per annum equal to 12.75%.
2.3 Project Note. The obligation of the Borrower to repay
the Loans and to pay interest thereon at the rate provided herein
shall be evidenced by a promissory note substantially in the form
of Exhibit A, payable to the order of the Lender and in the
principal amount of SEVENTEEN MILLION EIGHT HUNDRED TWENTY-NINE
THOUSAND DOLLARS (US$17,829,000) (the "Project Note"). The
Borrower authorizes the Lender to record on the schedule annexed
to the Project Note, each payment or prepayment of principal of
the Loans and agrees that all such notations shall be prima facie
evidence of the information recorded. The Borrower further
authorizes the Lender to attach to and make a part of the Project
Note continuations of the schedule attached thereto as necessary.
No failure to make any such notations, nor any errors in making
any such notations, shall affect the validity of the Borrower's
obligations to repay the full unpaid principal amount of the
Loans or the duties of the Borrower hereunder or thereunder.
2.4 Repayment of the Loans.
2.4.1 Payments. The Borrower shall make all
payments hereunder to an account which the Lender shall specify
by notice to Borrower prior to the date of the first payment of
interest hereunder. The aggregate unpaid principal amount of the
Loans shall be payable in installments on or before 10:00 A.M.,
Beijing time, on each Repayment Date in accordance with the
amortization schedule set forth on Schedule B, and any remaining
unpaid principal, interest, fees and costs shall be due and
payable on the Maturity Date.
2.4.2 Application of Payments. If the amount of
any payment made by the Borrower hereunder is less than the total
amount due and payable by the Borrower to the Lender as of the
date on which such payment is actually made by the Borrower, such
payment shall be applied: (i) first, against charges, fees,
costs and expenses due hereunder; (ii) second, if the principal
of the Loans shall not have become or be then due and payable,
against interest on the overdue principal of the Loans (including
amounts payable in respect thereof pursuant to Section 5.16) in
order of maturity of such installments of interest and against
interest on such overdue interest; (iii) third, if the principal
of the Loans shall have become or shall be then due and payable,
against the whole amount of all such principal, interest on
overdue principal of the Loans (including amounts payable in
respect thereof pursuant to Section 5.16) and interest on such
overdue interest; and (iv) fourth, against all other amounts then
due and payable to the Lender hereunder.
2.5 Prepayments.
2.5.1 Voluntary Prepayments. Except as required by
this Agreement, the Borrower may not prepay Loans without the
permission of the Lender.
2.5.2 Certain Mandatory Prepayments. In addition
to other amounts which shall be applied to the prepayment of
Loans as provided in this Agreement, the Borrower shall apply to
prepayment of the principal of the Loan, within ten Business Days
following receipt thereof, (i) all Net Cash Proceeds from the
sale or other disposition of all or any part of the assets or
other rights of the Borrower, other than in the ordinary course
of business and permitted pursuant to the terms of the Financing
Agreements, having a value, individually in excess of US$100,000
and in the aggregate in any year, in excess of US$250,000, and
(ii) any Liquidated Damages which shall have been made by the EPC
Contractor to the Borrower under the EPC Contract.
2.5.3 Expropriation Event; Event of Loss. (a) If
an Expropriation Event shall occur with respect to the Facility
or any part thereof, the Borrower shall (i) diligently pursue all
of its rights to compensation against the appropriate
Governmental Instrumentality in respect of such event, (ii) not
compromise, settle or consent to the settlement of any claim in
respect thereof without the consent of the Lender, and (iii)
promptly deposit all proceeds received in respect of any
Expropriation Event (after deducting all reasonable expenses) (A)
in the RMB Revenue Account if denominated in RMB or (B) in the
Foreign Debt Repayment Account if denominated in Dollars, in each
case segregated from all other moneys pending the determination
pursuant to paragraph (c) below.
(b) If an Event of Loss shall occur with respect
to the Facility or any part thereof, the Borrower shall (i)
diligently pursue all its rights to compensation with respect to
such Event of Loss, (ii) not compromise, settle or consent to the
settlement of any claim exceeding $250,000 in respect thereof
without the consent of the Lender, and (iii) promptly deposit all
proceeds received in respect of any Event of Loss (after
deducting all reasonable expenses) which are denominated in RMB
in the RMB Revenue Account, and transfer to the Lender any such
proceeds which are denominated in U.S. Dollars, to be held by the
Lender and segregated from all other moneys pending the
determination pursuant to paragraph (c) below.
(c) If such Expropriation Event or an Event of
Loss shall occur, as soon as reasonably practicable, but no later
than fifteen (15) days after the date of receipt by the Borrower
of any proceeds in respect thereof, the Borrower shall make a
reasonable good faith determination as to whether (i) the
Facility can be rebuilt, repaired or restored to permit operation
of the entire Project on a Commercially Feasible Basis, and (ii)
the proceeds thereof, together with any other amounts that the
Borrower has available to commit to such rebuilding, repair or
restoration, are sufficient to pay for such rebuilding, repair or
restoration of the Facility. The determination of the Borrower
shall be evidenced by a certificate filed with the Lender which,
in the event the Borrower determines that the Facility can be
rebuilt, repaired or restored to permit operation of the entire
Project or a portion thereof on a commercially feasible basis,
shall also certify that such proceeds, together with any other
amounts that the Borrower is willing to commit to such
rebuilding, repair or restoration, are sufficient to pay the
costs thereof, and shall also set forth a reasonable good faith
estimate by the Borrower of such costs. If the amount of such
costs exceeds $500,000, such certificate shall be accompanied by
a Project Engineer's certificate, dated within five (5) days of
the date of the Borrower's certificate, stating that, based upon
reasonable investigation and a review of the determination made
by the Borrower, the Project Engineer believes that the
determination and the estimate of the total cost, if any, set
forth in the Borrower's certificate to be reasonable.
(d) In the event that the Borrower determines not
to rebuild, repair or restore the Facility, all of the proceeds
of such Expropriation Event or Event of Loss shall be transferred
within ten Business Days after the date of such determination to
the Lender and applied to prepayment of the Loans.
(e) In the event that the determination is made
to rebuild, repair or restore the Facility, all of the proceeds
of such Expropriation Event or Event of Loss on deposit in the
RMB Revenue Account shall be transferred to the RMB Checking
Account and, together with the amounts (if any) previously
transferred to the Lender in connection with such Expropriation
Event or Event of Loss and such other amounts as the Borrower has
available for such rebuilding, repair or restoration (which also
shall be transferred to the Lender prior to any disbursement for
rebuilding, repair or restorations), shall be used to pay the
costs of such rebuilding, repair or restoration, and any excess
shall, upon completion of such rebuilding, repair or restoration,
be applied to the prepayment of the Loans within 15 days of the
completion of such rebuilding, repair or restoration as certified
by the Project Engineer.
2.6 Fees. Not more than thirty (30) days following the
making of the first Loan hereunder, the Borrower shall reimburse
the Lender for its reasonable costs other than interest costs
incurred in funding the Loans.
ARTICLE 3 - CONDITIONS PRECEDENT
The obligation of the Lender to make each Loan shall be
subject to the fulfillment or waiver of each of the following
conditions precedent:
3.1 Borrower's Certificate. The Lender shall have received
from the Borrower a certificate dated the date of the request for
such Loan, certifying the following:
(a) Representations and Warranties. The
representations and warranties made by the Borrower herein or in
any other Project Document to which it is a party, or which are
contained in any certificate, document, financial or other
statement furnished by the Borrower hereunder or thereunder or in
connection herewith or therewith, are true and correct in all
material respects on and as of such date as if made on and as of
such date, except as affected by the consummation of the
transaction contemplated thereby or to extent that such
representations and warranties relate solely to an earlier date;
(b) No Event of Default. No Event of Default is in
existence on such date, or shall occur after giving effect to the
Loan to be made on such date;
(c) Governmental Authorizations and other consents and
approvals. All Governmental Authorizations which are required to
be obtained on or prior to the date of the making of such Loan
have been duly obtained or maintained and are in full force and
effect, except for Governmental Authorizations which have not
been obtained at such time but which the Borrower has no reason
to believe will not be obtained in the normal course of business
prior to the date such Governmental Authorizations are required;
and
(d) Facility Costs. The costs for the payment of
which the borrowing is being made are Facility Costs and payment
of such costs is in accordance with the Facility Budget.
3.2 On-Shore Accounts. The On-Shore Accounts shall have
been established pursuant to Section 5.5.
3.3 Evidence of Facility Costs and Other Expenses. At
least 10 Business Days prior to each such Loan, the Lender shall
have received a copy of the EPC Contractor's application for
payment under the EPC Contract or evidence of or application for
other expenses in connection with the construction and
development of the Facility (together with all supplemental
reports required to be furnished thereunder), and copies of all
invoices and other statements of charges with respect to the
payments to be made to the EPC Contractor pursuant to the EPC
Contract or to the recipient of such other expenses on the date,
or expected to be due and payable within 30 days of, such Loan
and with respect to all other items of Facility Costs to be paid
on such date, or expected to be due and payable within 30 days of
such Loan.
3.4 Progress Report; Project Engineer. The Lender shall
have received a report signed by the Authorized Representative of
the Borrower on the date of each such Loan to the effect that
construction of the Facility is proceeding satisfactorily in
accordance with the EPC Contract and the Facility Budget and the
Facility Budget sets forth accurately the estimated costs to
complete the Facility, and such confirmation thereof from the
Project Engineer as the Lender reasonably deems necessary.
3.5 Registration Certificate. The Lender shall have
received a registration certificate of the Tangshan Municipal
Bureau for Exchange Control (a "Registration Certificate")
evidencing that a Registration Certificate has been obtained for
the full aggregate amount of the Loans to be made hereunder
pursuant to subsection 2.1.
3.6 Equity Contributions; Real Estate Transfers. It shall
be a condition to any Loan hereunder which increases the
aggregate of all loans made under all of the Shareholder Loan
Agreements to more than $15,000,000 that (A) the Borrower shall
have received the full amount of the equity contributions to
which the Borrower is then entitled pursuant to the Registered
Capital Contribution and Agency Agreement (B) all transfers of
land use rights relating to the Site shall have been completed.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
The Borrower makes all of the following representations
and warranties to and in favor of the Lender the date on which
any Loan is made hereunder, except as such representations relate
to an earlier date.
4.1 Organization. The Borrower (a) is a Sino-foreign
equity joint venture with limited liability duly organized and
validly existing under the laws of the PRC, (b) is duly
authorized to do business in the PRC, and (c) has all requisite
power and authority to (i) own or hold under land use right or
lease and operate the property it purports to own or hold under
land use right or lease, (ii) carry on its business as now being
conducted and as now proposed to be conducted in respect of the
Project, (iii) incur Indebtedness, and (iv) execute, deliver and
perform its obligations under each of the Project Documents to
which it is a party. The sole shareholders of the Borrower are
the Lender and Luannan Heat Company.
4.2 Authorization; No Conflict. The Borrower has duly
authorized, executed and delivered the Project Documents to which
it is a party, and neither its execution and delivery thereof nor
its consummation of the transactions contemplated thereby nor its
compliance with the terms thereof (a) does or will contravene its
formation documents or any other Legal Requirement then
applicable to or binding on it, (b) does or will contravene or
result in any breach or constitute any default under, or result
in or require the creation of any Lien upon any of its property
or under any agreement or instrument to which it is a party or by
which it or any of its properties may be bound, or (c) does or
will require the consent or approval of any Person.
4.3 Legality, Validity and Enforceability. Each of the
Project Documents to which the Borrower is a party is a legal,
valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, subject to bankruptcy
laws or principles of equity, to the extent applicable to the
Borrower. None of the Project Documents to which the Borrower is
a party has been amended or modified except in accordance with
this Agreement.
4.4 Compliance with Law, Governmental Authorizations and
Project Documents. The Borrower is in compliance in all material
respects with all Legal Requirements and Governmental
Authorizations and Project Documents to which it is a party, and
no notices of violation of any Governmental Authorization or
Project Document relating to the Project have been issued,
entered or received by the Borrower.
4.5 Governmental Authorizations. There are no Governmental
Authorizations under Legal Requirements existing as of the date
of this Agreement that are required or will become required,
other than the Governmental Authorizations (a) which have been
obtained or granted and are in full force and effect, or (b)
which the Borrower has no reason to believe will not be obtained
before they become necessary for the ownership, construction,
financing or operation of the Facility. To the best of its
knowledge, the Borrower is not in violation of any condition in
any Governmental Authorization.
4.6 Litigation. There are no pending or, to the Borrower's
knowledge, threatened actions, suits, proceedings or
investigations of any kind, including actions or proceedings of
or before any Governmental Instrumentality, to which the Borrower
or any Shareholder or, to the knowledge of the Borrower, is a
party or is subject, or by which any of them or any of their
properties are bound.
4.7 Existing Defaults. There is no Event of Default by the
Borrower under any of the Material Project Documents. To the
best of the Borrower's knowledge, there is no event of default
under any Material Project Document by any party to such Material
Project Document.
4.8 Taxes. The Borrower has filed, or caused to be filed,
all tax and informational returns that are required to have been
filed by it in any jurisdiction, and has paid all taxes shown to
be due and payable on such returns and all other taxes and
assessments payable by it, to the extent the same have become due
and payable (other than those taxes that it is contesting in good
faith and by appropriate proceedings, with adequate, segregated
reserves established for such taxes) and, to the extent such
taxes are not due, has established reserves that are adequate for
the payment thereof and are required by the GAAP.
4.9 Contingent Liabilities. The Borrower has no material
contingent liabilities or obligations except those authorized
under and permitted by the Project Documents and the Financing
Agreements.
4.10 Business, Debt, Contracts, Etc. The Borrower has not
conducted any business other than the business contemplated by
the Project Documents to which it is a party, has no outstanding
Indebtedness other than Indebtedness incurred under the Financing
Agreements or permitted under Section 6.1 and has no other
liabilities other than those incurred under the Project Documents
or permitted under this Agreement, and is not a party to or bound
by any contract other than as contemplated by the Project
Documents to which Borrower is a party and those contracts
permitted under this Agreement. The Borrower has established
offices in the PRC only.
4.11 Representations and Warranties. All representations
and warranties of the Borrower contained in the Project Documents
are true and correct in all material respects and the Borrower
hereby confirms each such representation and warranty of the
Borrower with the same effect as if set forth in full herein.
4.12 Utilities. All utility services and easements
necessary for the construction and the operation of the Facility
for its intended purposes, are or will be available at the Site
as and when required on commercially reasonable terms.
4.13 Project Documents.
4.13.1 The Lender has received a true, complete and
correct copy of each of the Project Documents in effect or
required to be in effect as of the date this representation is
made or deemed made (including all exhibits, schedules, side
letters and disclosure letters to therein or delivered pursuant
thereto, if any).
4.13.2 All conditions precedent to the obligations
of the respective parties under the Material Project Documents
have been satisfied or waived in accordance with the provisions
thereof and hereof, except for such conditions precedent which by
their terms cannot be met until a later stage in the construction
or operation of the Facility, and the Borrower has no reason to
believe that any such condition precedent cannot be satisfied on
or prior to the appropriate stage in the construction or
operation of the Facility.
4.14 Fees and Enforcement. Other than amounts that have
been paid in full, no fees or taxes, including without limitation
stamp, transaction, registration or similar taxes, are required
to be paid for the legality, validity, or enforceability of this
Agreement or any of the other Project Documents.
4.15 Immunity. In any proceedings in the PRC or elsewhere
in connection with any of the Project Documents to which the
Borrower is a party, the Borrower will not be entitled to claim
for itself or any of its assets immunity from suit, execution,
attachment or other legal process.
4.16 Subsidiaries and Beneficial Interest. The Borrower has
no subsidiaries and does not beneficially own the whole or any
part of the issued share capital or other ownership interest of
any other company or corporation or other Person.
4.17 No Other Powers of Attorney, etc. The Borrower has not
executed and delivered any powers of attorney, fiduciary transfer
agreements or similar documents, instruments or agreements,
except for powers authorizing signatures of various Project
Documents.
4.18 Liens. The Borrower has not secured or agreed to
secure any Indebtedness by any Lien upon any of its present or
future revenues or assets or capital stock except Permitted
Liens. The Borrower does not have any outstanding Lien or
obligation to create Liens on or with respect to any of its
properties or revenues except Permitted Liens.
4.19 Regulation of Parties. The Borrower is not nor will it
be, solely as a result of its participation in the transactions
contemplated hereby or by any other Project Document, or as a
result of the ownership, use or operation of the Facility,
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "public utility holding
company." The Borrower is not subject to regulation as a
"subsidiary company" or an "affiliate" of a "holding company"
under (and as defined in) PUHCA.
4.20 Transactions with Affiliates. Except as otherwise
permitted under Section 6.10, the Borrower is not a party to any
contracts or agreements with, or any other commitments to,
whether or not in the ordinary course of business, any Affiliate
of the Borrower.
ARTICLE 5 - AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower covenants and agrees that until all
Obligations owed to the Lender are paid in full it will:
5.1 Repayment of Indebtedness. Repay in accordance with
its terms, all Indebtedness, including without limitation, all
sums due under this Agreement and the other Financing Agreements
but, in the case of any such Indebtedness with a repayment that
is limited by any term of any Financing Agreement, repay subject
to such limitation.
5.2 Existence, Conduct of Business, Properties, Etc.
Except as otherwise expressly permitted under this Agreement,
(i) maintain and preserve its existence as a Sino-foreign joint
venture with limited liability and all rights, privileges and
franchises necessary or desirable in the normal conduct of its
business, and (ii) engage only in the business contemplated by
the Financing Agreements and the Project Documents.
5.3 Performance of Covenants and Obligations. The Borrower
shall perform and observe in all material respects, its covenants
and obligations under all Material Project Documents.
5.4 Use of Funds. The Borrower shall use the proceeds of
the Loans only for deposit in the On-Shore Accounts pending
disbursement for the payment of Facility Costs as provided
herein.
5.5 Accounts. (a) On or prior to the date of the making
of the first Loan, the Borrower shall establish the following
accounts with banks or financial institutions in the PRC in
accordance with applicable PRC laws and regulations: (i) the
Registered Capital Account denominated in U.S. Dollars (the
"Registered Capital Account"), (ii) the Foreign Debt Account
denominated in U.S. Dollars (the "Foreign Debt Account"), (iii)
the Foreign Debt Repayment Account denominated in U.S. Dollars
(the "Foreign Debt Repayment Account"), (iv) the Basic Settlement
Account denominated in U.S. Dollars (the "Basic Settlement
Account"), (v) the RMB Revenue Account denominated in Renminbi
(the "RMB Revenue Account"), (vi) the RMB Checking Account
denominated in Renminbi (the "RMB Checking Account"), and (vii)
the Major Maintenance Reserve Account denominated in Renminbi
(the "Major Maintenance Reserve Account") (collectively, the "On-
Shore Accounts").
(b) The proceeds of all Loans shall be deposited in
the Foreign Debt Account. Funds in the Foreign Debt Account
shall not be used for any purpose other than disbursement of
Facility Costs denominated in U.S. Dollars or funding of reserves
for the payment of principal and interest on the Loans, or, after
conversion into RMB, transfer to the RMB Checking Account for
disbursement of Facility Costs denominated in RMB.
(c) All funds received by the Borrower constituting
capital contributions from any shareholder shall be deposited in
the Registered Capital Account. Until after Commercial Operation
Date, funds in the Registered Capital Account shall not be used
for any purpose other than disbursement of Facility Costs
denominated in the U.S. Dollars or, after conversion into RMB,
transfer to the RMB Checking Account for disbursement of Facility
Costs denominated in RMB.
(d) All revenues received by the Borrower from any
source whatsoever shall be deposited (after conversion into
Renminbi, if necessary) into the RMB Revenue Account. The
Borrower shall instruct NCPGC, the EPC Contractor and other
participants in the Project to deposit revenues, penalties or
other payments owing to the Borrower in RMB directly into the RMB
Revenue Account. The RMB Revenue Account shall not be used for
any purpose other than (and in accordance with the following
priority): (i) the transfer of funds to the RMB Checking Account
for the payment of O&M Costs and (ii) after conversion into U.S.
Dollars, the transfer of funds to the Foreign Debt Repayment
Account for the payment of the principal of and interest on the
Loans or reserves in respect thereof.
(e) Amounts remaining in the RMB Revenue Account
subsequent to disbursement in accordance with clause (d) hereof
shall be deposited into the Major Maintenance Reserve Account in
an amount equal to the Major Maintenance Reserve Requirement.
Disbursement shall be made from the Major Maintenance Reserve
Account only to pay for major maintenance costs of the Facility
upon a certification of the Project Engineer that after
withdrawal of such funds for such purpose, the amounts remaining
in the Major Maintenance Reserve Account (including anticipated
future funding thereof) shall be adequate to meet the anticipated
needs of the Facility for major maintenance for the next five
years.
(f) Amounts remaining in the RMB Revenue Account
subsequent to disbursements in accordance with clauses (d) and
(e) hereof shall be retained in the RMB Revenue Account pending
disbursement to the Borrower's Shareholders in the form of
dividends. The amount designated for the payment of dividends to
the Lender in its capacity as a shareholder of the Borrower shall
be transferred from the RMB Revenue Account (after conversion to
U.S. Dollars) to the Basic Settlement Account and then to the
Lender. The corresponding amount designated for the payment of
dividends to the PRC Shareholder shall be distributed from the
RMB Revenue Account directly to the PRC Shareholder in RMB.
(g) The funds in the Foreign Debt Repayment Account
shall not be used for any purpose other than the payment of
amounts due hereunder pursuant to Subsection 2.4 to an off-shore
account maintained by the Lender.
(h) The funds in the Basic Settlement Account shall
not be used for any purpose other than remittance after the
Commercial Operation Date to an off-shore equity distribution
account approved by the Lender.
5.6 Compliance with Legal Requirements. Promptly and
diligently (i) own, construct, maintain and operate the Facility
in compliance with all applicable Legal Requirements, and
(ii) procure, maintain and comply, or cause to be procured,
maintained and complied with all Governmental Authorizations
required for the ownership, construction, financing, maintenance
or operation of the Facility or any part thereof at or before the
time such Governmental Authorization becomes necessary for the
ownership, construction, financing, maintenance or operation of
the Facility, as the case may be, as contemplated by the Project
Documents and except that the Borrower may, at its expense,
contest by appropriate proceedings conducted in good faith the
validity or application of any such Legal Requirements, provided
that, in either case, (x) neither the Lender nor the Borrower
would be subject to any criminal liability for failure to comply
therewith and (y) all proceedings to enforce such Legal
Requirements against the Lender, the Borrower or the Project or
any part thereof, shall have been duly and effectively stayed
during the entire pendency of such contest.
5.7 Operating Budgets. On or before the anticipated
Commercial Operation Date, deliver to the Lender an annual
operating budget, certified by the Project Engineer as being a
reasonable estimate of projected costs, expenses and revenues of
the Borrower, for the period commencing on the anticipated
Commercial Operation Date, and continuing until the end of the
first full calendar year thereafter, in substantially the same
form as the initial annual operating budget. In advance of each
calendar year thereafter, the Borrower shall adopt and deliver to
the Lender an annual operating budget, certified by the Project
Engineer as being a reasonable estimate of projected costs,
expenses and revenues of the Borrower, for the ensuing calendar
year.
5.8 Books, Records, Access. Maintain adequate books,
accounts and records with respect to the Borrower and the
Facility in compliance with the regulations of any Governmental
Instrumentality having jurisdiction thereof, and, with respect to
financial statements, in accordance with the GAAP and, subject to
reasonable safety requirements, permit employees or designees of
the Lender and the Project Engineer, at any reasonable time and
upon reasonable prior notice to inspect the Facility, and to
examine or audit all of Borrower's books, accounts and records
pertaining or related to the Facility and make copies and
memoranda thereof.
5.9 Financial Statements.
5.9.1 Provide the Lender with:
(a) As soon as available and in any event
within one hundred thirty five (135) days after the close of each
fiscal year commencing with the fiscal year ended after the date
of this Agreement, audited financial statements of the Borrower
including a statement of equity, a balance sheet as of the close
of such year, an income and expense statement, reconciliation of
capital accounts and a statement of sources and uses of funds,
all prepared in accordance with the GAAP and certified by
Independent Accountants.
(b) As soon as available and in any event
within ninety (90) days after the end of each of the quarterly
accounting periods of its fiscal year commencing with the quarter
ending after the date of this Agreement, unaudited financial
statements of the Borrower, including without limitation, an
unaudited balance sheet of the Borrower as of the last day of
such quarterly period, the related statements of income and cash
flows for such quarterly period and (in the case of second, third
and fourth quarterly periods) for the portion of the fiscal year
ending with the last day of such quarterly period, setting forth
in each case in comparative form corresponding unaudited figures
from the preceding fiscal year.
5.9.2Each time the financial statements of the Borrower
are delivered under this subsection 5.9, a certificate signed by
an Authorized Representative of the Borrower shall be delivered
along with such financial statements, certifying that such
officer has made or caused to be made a review of the
transactions and financial condition of the Borrower during the
relevant fiscal period and that such review has not, to the best
of such Authorized Representative's knowledge, disclosed the
existence of any event or condition which constitutes an Event of
Default under this Agreement, or if any such event or condition
existed or exists, the nature thereof and the corrective actions
that Borrower has taken or proposes to take with respect thereto,
and also certifying that the Borrower is in compliance in all
material respects with its obligations under this Agreement and
each other Financing Agreement to which it is a party or, if such
is not the case, stating the nature of such non-compliance and
the corrective actions which the Borrower has taken or proposes
to take with respect thereto.
5.10 Insurance. The Borrower shall maintain, or cause to be
maintained, adequate insurance with respect to its Facility
satisfactory to the Lender in its reasonable judgment, based upon
the advice of the Independent Insurance Consultant. All
insurance other than third party liability insurance shall name
the Lender as an insured and the sole loss payee thereunder.
Policies for third party liability insurance shall name the
Lender as an additional insured.
5.11 Reports; Cooperation.
5.11.1 Deliver to the Lender on each anniversary of
the date of this Agreement a certificate from the Borrower's
insurers or insurance agents (i) evidencing that the insurance
policies in place satisfy the requirements specified in Section
5.10 (including, without limitation, listing all insurance being
carried by or on behalf of the Borrower pursuant to the Project
Documents and certifying that all insurance required to be
maintained by the Borrower pursuant to the Project Documents is
in full force and effect and all premiums therefore have been
paid in full), and (ii) setting forth a summary of all losses in
excess of US$250,000 (or the equivalent thereof) incurred with
respect to the Project in the preceding year.
5.11.2 Deliver to the Lender within thirty (30) days
following the end of each calendar quarter a quarterly status
report describing in reasonable detail the progress of the
construction of the Facility since the immediately preceding
report hereunder, including without limitation, the cost incurred
to the end of such quarter, an estimate of the time and cost
required for completion of the Facility and such other
information which the Lender may reasonably request.
5.11.3 Prior to the Commercial Operation Date,
deliver to the Lender, within thirty (30) days following the end
of each calendar quarter an update of the Facility Budget,
including but not limited to an explanation or other
reconciliation of differences between such report and previous
reports.
5.11.4 From and after the Commercial Operation Date,
deliver to the Lender within ninety (90) days following each
calendar year, a summary operating report, which shall include,
unless otherwise agreed to by the Lender, a numerical and
narrative assessment of (i) the Project's compliance with each
category in the annual operating budget, (ii) statistical data
relating to the Facility, including heat rate, net electrical and
scheduled and unscheduled outages, (iii) fuel deliveries and use,
(iv) major maintenance activity, (v) casualty losses of value in
excess of US$250,000 or the equivalent thereof in other
currencies (whether or not covered by insurance), (vi) disputes
with any other Major Project Participant, materialman, supplier
or other Person and any related claims against the Borrower,
(vii) pricing information disclosed or made available under the
agreements pertaining to the supply of coal for the Facility and
(viii) compliance with the Governmental Authorizations.
5.11.5 No later than five Business Days following
the receipt thereof, deliver to the Lender all progress reports
provided by the EPC Contractor to the Borrower pursuant to the
EPC Contract and all progress reports prepared under the Power
Purchase Agreement.
5.11.6 Deliver to the Lender any such other
information or data with respect to its business or operations
(including supporting information as to compliance with this
Agreement) as the Lender may reasonably request from time to
time.
5.12 Taxes and Other Governmental Charges. Before the same
become delinquent, pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental charges or
levies lawfully imposed upon the Borrower or its income or
profits or upon the Facility, all utility and other governmental
charges incurred in the ownership, operation, maintenance, use,
occupancy and upkeep of the Facility. However, the Borrower may
contest in good faith any such taxes, assessments and other
charges and, in such event, may permit the taxes, assessments or
other charges so contested to remain unpaid during any period,
including appeals, when the Borrower is in good faith contesting
the same, so long as (a) adequate cash reserves have been
established in an amount sufficient to pay any such taxes,
assessments or other charges, accrued interest thereon and
potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made,
(b) enforcement of the contested tax, assessment or other charge
is effectively stayed for the entire duration of such contest,
and (c) any tax, assessment or other charge determined to be due,
together with any interest or penalties thereon, is promptly paid
after resolution of such contest.
5.13 Notices. Promptly, upon acquiring notice or giving
notice, or obtaining knowledge thereof, as the case may be,
provide to the Lender written notice of:
5.13.1 Any Event of Default which it has knowledge,
specifically stating that an Event of Default has occurred and
describing such an Event of Default and any action being taken or
proposed to be taken with respect to such Event of Default;
5.13.2 Any termination or event of default or notice
thereof under the Power Purchase Agreement; and
5.13.3 Any litigation pending against the Borrower or
any other party of which the Borrower has actual knowledge, which
is or could reasonably be expected to have a Material Adverse
Effect.
5.14 Expropriation Event. If an Expropriation Event shall
occur with respect to the Project, (a) promptly upon discovery or
receipt of notice of any occurrence thereof, provide written
notice thereof to the Lender, (b) diligently pursue all its
rights to compensation against the relevant Governmental
Instrumentality in respect of such Expropriation Event, and
(c) hold any Expropriation Proceeds received in respect of such
event (after deducting all reasonable expenses incurred by it in
litigating, arbitrating, compromising, settling or consenting to
the settlement of any claims) in trust for the benefit of the
Lender separated from other funds of the Borrower, (d) promptly
deposit all Expropriation Proceeds in (i) the RMB Revenue Account
if denominated in RMB or (ii) in the Foreign Debt Repayment
Account if denominated in Dollars. The Borrower consents to the
participation of the Lender in any proceedings regarding an
Expropriation Event, and the Borrower shall from time to time
deliver to the Lender all documents and instruments requested by
it to permit such participation. Nothing in this Section 5.14
shall be deemed to impair any rights which the Lender may have
with respect to any such Expropriation Event.
5.15 Increased Costs. If, after the date of this Agreement,
any Change of Law:
(a) shall subject the Lender to any tax, duty or other
charge with respect to the
Loans, or shall change the basis of taxation of payments by the
Borrower to the Lender on the Loans (except for Covered Taxes,
Other Taxes or changes in the rate of taxation on the overall net
income of the Lender); or
(b) shall impose on the Lender any other condition
directly related to the Loans;
and the effect of any of the foregoing is to increase the cost to
the Lender of making, issuing, creating, renewing, participating
in or maintaining the Loans or to reduce any amount receivable by
the Lender hereunder, then the Borrower shall from time to time,
upon demand by the Lender, pay to the Lender additional amounts
sufficient to reimburse the Lender for such increased costs or to
compensate the Lender for such reduced amounts.
5.16 Taxes. All payments made by the Borrower under this
Agreement and the Project Note shall be made free and clear of,
and without deduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any
Governmental Instrumentality, excluding net income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on
the Lender as a result of a present or former connection between
the Lender and the jurisdiction of the Governmental
Instrumentality imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such
connection arising solely from the Lender having executed,
delivered or performed its obligations or received a payment
under, or enforced, this Agreement or the Project Note). If any
such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to
be withheld from any amounts payable to the Lender hereunder or
under the Project Note, the amounts so payable to the Lender
shall be increased to the extent necessary to yield to the Lender
(after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts
specified in this Agreement. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the
Borrower shall send to the Lender for its own account a certified
copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the
Lender for any incremental taxes, interest or penalties that may
become payable by the Lender as a result of any such failure.
The agreements in this subsection 5.16 shall survive the
termination of this Agreement and the payment of the Loans, the
Project Note and all other amounts payable hereunder.
5.17 Registration of the Loans; Other Foreign Exchange
Matters.
5.17.1 Prior to any due date for any repayment of
the principal of and/or the payment of interest on the Loans, the
Borrower shall (i) use the Registration Certificate and the
notice regarding such repayment and/or payment to obtain from the
registration department a verification and approval certificate
with respect to such repayment and/or payment and (ii) use such
verification and approval certificate and the Registration
Certificate to handle matters regarding the remittance from its
foreign debt account of the principal of and interest on the
Loans outside of China at the relevant bank.
5.17.2 At the beginning of each year, the Borrower
shall submit to the local foreign exchange administration a
report stating the amount of foreign currency purchased in the
preceding year for the purpose of repaying the principal of
and/or paying the interest on the Loans and a plan regarding the
purchase of foreign currency for the current year.
5.18 Loan Payment Reserve. At the time of the final drawing
under this Agreement, the Borrower shall deposit an amount equal
to the Debt Service Reserve Requirement in the Debt Service
Reserve Fund.
ARTICLE 6 - NEGATIVE COVENANTS
The Borrower covenants and agrees for the benefit of the
Lender that until all Obligations owed to the Lender are paid in
full, without the consent of the Lender, the Borrower shall not:
6.1 Indebtedness. Incur, create, assume or be liable for
any Indebtedness, except:
(a) the Loans and additional loans from the Lender;
(b) debt incurred to finance working capital
requirements; provided that after giving effect to such
additional debt, (i) the minimum (or lowest) projected Debt
Service Coverage Ratio for any calendar year will not be
less than 1.5 to 1 and (ii) the average projected Debt
Service Coverage Ratio for any calendar year will not be
less than 1.7 to 1; provided further, however, that the
amount of such debt shall not at any time exceed
US$1,000,000;
(c) purchase money or Capital Lease Obligations
incurred to finance assets of the Borrower that are readily
replaceable personal property with a principal amount or
capitalized portion not exceeding US$1,000,000 in the
aggregate outstanding at any time;
(d) trade accounts payable (other than for borrowed
money) due within 90 days arising, and accrued expenses
incurred, in the ordinary course of business of
constructing, operating or maintaining the Facility on
customary terms;
(e) interest or currency exchange rate protection
agreements;
(f) Indebtedness under the Guarantees to which the
Borrower is a party and any other guarantees of the
obligations of any other Joint Venture Company permitted
under the Financing Agreements.
(g) any debt to any other Joint Venture Company, ((a)
through (g), collectively "Permitted Indebtedness").
6.2 Limitations on Liens. Create, assume or permit to
exist any Lien upon any of the Borrower's assets or properties
including without limitation the Facility, whether now owned or
hereafter acquired, other than Permitted Liens.
6.3 Nature of Business. Amend or modify its Articles of
Association without the prior written consent of the Lender, or
engage in any business other than the ownership and operation of
the Facility.
6.4 Sale or Lease of Facility Assets. Sell, lease, assign,
transfer or otherwise dispose of the Facility or other assets
unless (a) such sale, lease, assignment or other disposition
relates only to property that is worn out or no longer useful or
usable in connection with the operation of the Facility or such
property is replaced by property having a Fair Market Value equal
to or greater than the Fair Market Value of the property being
leased or transferred or such lease or transfer is required to
comply with law or to obtain or maintain any Governmental
Authorization, (b) with respect to any other sales, leases,
assignments or other dispositions, the aggregate amount thereof
does not exceed US$250,000 in any given year or US$1,000,000 in
the aggregate since the date of this Agreement, or (c) such sale,
lease, assignment or other disposition is made in the ordinary
course of business in accordance with the Project Documents.
6.5 Merger, Consolidation, Liquidation, Dissolution. Merge
or consolidate with or into any other Person, other than any of
the other Joint Venture Companies or other Sino-foreign joint
ventures with no material liabilities and no material activities
unrelated to the Project, or liquidate, wind up, dissolve, or
otherwise transfer or dispose of all or any substantial part of
its property, assets or business, or change its legal form, or
purchase or otherwise acquire any assets of any Person unless
such purchase or acquisition of assets is reasonably necessary
for the operation of the Facility or in the ordinary course of
business.
6.6 Contingent Liabilities. Become liable as a surety,
guarantor, accommodation endorser or otherwise, for or upon the
obligation of any other Person; provided, however, that the
Borrower may guarantee or otherwise become liable in respect of
any Indebtedness incurred by any other Person (on its behalf) in
connection with or relating to incurrence of Indebtedness
permitted under Section 6.1; and provided, further, however, that
this Section 6.6 shall not be deemed to prohibit (i) the
acquisition of goods, supplies or merchandise in the normal
course of business on normal trade credit, or (ii) the
endorsement of negotiable instruments received in the normal
course of business; or (iii) the obligations hereunder and under
the Guarantees or any other guarantee of any obligation of any
other Joint Venture Company if such guarantee is required for the
development and construction of the Project and is not contrary
to any Legal Requirements.
6.7 Loans, Advances or Investments. Make or permit to
remain outstanding any loans, extensions of credit or advances to
or investments in (whether by acquisition of any stocks, notes or
other securities or obligations) any Person except RMB Permitted
Investments with respect to the On-Shore Accounts denominated in
Renminbi or Dollar Permitted Investments with respect to the On-
Shore Accounts denominated in the U.S. Dollars or as expressly
provided in the Project Documents.
6.8 Immunity. In any proceedings in China or elsewhere in
connection with any of the Financing Agreements to which the
Borrower is a party, claim for itself or any of its assets
immunity from suit, execution, attachment or other legal process.
6.9 Distributions. Agree to any restriction on its ability
to pay dividends (excluding restrictions imposed by law).
6.10 Transactions With Affiliates. Except for the Project
Documents, directly or indirectly: (i) enter into any
transaction with any Person (including any Affiliate) other than
in the ordinary course of business, or (ii) enter into any
transaction with any Person, including any Affiliate, on terms
less favorable to those available from independent third parties
or (ii) establish any sole and exclusive purchasing or sales
agency, or enter into any transaction whereby the Borrower might
receive less than the full commercial price (subject to normal
trade discounts) for electricity or pay more than the commercial
price for products of others.
6.11 Partnerships; Subsidiaries. Except as contemplated by
the Project Documents, become a general or limited partner in any
partnership or a joint venturer in any joint venture, acquire any
ownership interest in any other Person or enter into any profit-
sharing or royalty agreement or other similar arrangement whereby
the Borrower's income or profits are, or might be, shared with
any other Person, or enter into any management contract or
similar arrangement whereby its business or operations are
managed by any other Person (other than any agreement under which
the Borrower may provide operation and management consulting or
other similar services), or form any Subsidiary.
6.12 Assignment. Assign or otherwise transfer its rights
under any of the Project Documents to which it is a party, or
Governmental Authorizations for its benefit, to any Person
without the prior written consent of the Lender.
6.13 Abandonment of Project. Voluntarily cease or abandon
the development, construction or operation of the Project.
6.14 Improper Use. Use, maintain, operate or occupy, or
allow the use, maintenance, operation or occupancy of, any
portion of the Site or Facility for any purpose which: (a) may
be dangerous, unless safeguarded as required by any Legal
Requirement or Government Instrumentality; (b) may constitute a
public or private nuisance resulting in a Material Adverse
Effect; or (c) may make void, voidable or cancelable, or
materially increase the premium of, any insurance then in force
with respect to the Site or Project or any part thereof.
6.15 Regulation of Parties. Take any action which could
reasonably be expected to result in (a) the Borrower being
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "public utility holding
company", (b) the Borrower being subject to regulation as a
"subsidiary company" or an "affiliate" of a "holding company"
under (and as defined in) PUHCA or (c) any Person who by reason
of its or their ownership or operation of the Facility upon the
exercise of remedies hereunder or under the Guarantees, being
subject to regulation by any Governmental Instrumentality of the
United States as a "public utility," an "electric utility," an
"electric utility holding company" or a "holding company" or a
subsidiary or Affiliate of any of the foregoing under any Legal
Requirement of the United States (including, without limitation,
PUHCA and the FPA).
6.16 Amendments. Amend any of the Project Documents without
the prior written consent of the Lender.
ARTICLE 7 - EVENTS OF DEFAULT; CURE RIGHTS; REMEDIES
7.1 Events of Default; Cure Rights. The occurrence of any
of the following events shall constitute an event of default
("Event of Default") hereunder:
7.1.1 Failure to Make Payments. Payment shall not
have been made of any principal of or any interest on the Loans
or other amounts owed by the Borrower to the Lender within 15
Banking Days after such amounts are due.
7.1.2 Misstatements; Omissions. Any representation
or warranty confirmed or made in any Project Documents by the
Borrower or in any writing provided by the Borrower in connection
with the transactions contemplated by this Agreement shall be
found to have been incorrect in any material respect when made or
deemed to be made; provided, however, that no Event of Default
shall occur if within sixty (60) days after the date on which the
General Manager of the Borrower has actual notice that such
incorrect statement has occurred, the Borrower shall deliver in
good faith, to the Lender an Officer's Certificate stating in
reasonable detail that either (i) the Borrower has eliminated any
adverse effect relating to such incorrect statement or (ii) that
the Borrower has taken action that it reasonably believes will
eliminate the adverse effect relating to such incorrect statement
within a reasonable specified time.
7.1.3 Affirmative Covenants. The Borrower shall
fail to perform or observe any of its obligations under (a)
Sections 5.4 and 5.5 or (b) any other term, covenant or agreement
set forth in Article 5 hereof, where such default shall not have
been remedied within fifteen (15) days after notice of such
failure.
7.1.4 Negative Covenants. The Borrower shall fail
to perform or observe any of its obligations under any term,
covenant or agreement set forth in Article 6 hereof other than
Section 6.2, where such default shall not have been remedied
within fifteen (15) days after the Borrower has received notice
of such failure.
7.1.5 Breach of Material Project Documents. The
Borrower or any other party thereto shall breach or default under
any term, condition, provision, covenant, representation or
warranty contained in any of the Material Project Documents and
the Financing Agreements to which the Borrower is a party if such
breach or default shall continue unremedied for fifteen (15) days
after notice to the Borrower from the Lender; provided, however,
that in the case of any of the EPC Contract, the CHEXIM Guarantee
or the Transmission Facilities Construction Agreement, if the
breach or default cannot be remedied within such fifteen (15)
days despite the Borrower's and/or such other party's, as the
case may be, good faith and diligent efforts to do so, but is
susceptible to cure within a longer period, the Borrower or such
party shall continue diligently such efforts to cure such breach
or default until cured (but in no event longer than sixty (60)
days in the aggregate.
7.1.6 Bankruptcy; Insolvency.
(a) The Borrower or any other Joint Venture Company
shall institute a voluntary case or undertake actions to form an
arrangement with creditors for the purpose of paying past due
debts, seeking liquidation, reorganization or moratorium of
payments, under any Bankruptcy Law (or any successor statute or
similar statute in any relevant jurisdiction), or shall consent
to the institution of an involuntary case thereunder against it;
or the Borrower shall file a petition, answer or consent or shall
otherwise institute any similar proceeding under any other Legal
Requirements, or shall consent thereto; or the Borrower or any
other Joint Venture Company shall apply for, or by consent or
acquiescence there shall be an appointment of, a receiver,
liquidator, sequestrator, trustee or other officer with similar
powers; or the Borrower or any other Joint Venture Company shall
make an assignment for the benefit of creditors; or the Borrower
or any other Joint Venture Company shall admit in writing its
inability to pay its debts generally as they become due; or if an
involuntary case shall be commenced seeking the liquidation or
reorganization of the Borrower or any other Joint Venture Company
under any Bankruptcy Law (or any successor statute or similar
statute under any relevant jurisdiction) or any similar
proceeding shall be commenced against the Borrower or any other
Joint Venture Company under any other Legal Requirements and (i)
the petition commencing the involuntary case is not timely
controverted, (ii) the petition commencing the involuntary case
is not dismissed within sixty (60) days of its filing, (iii) an
interim trustee is appointed to take possession of all or a
portion of the property, and/or to operate all or any part of the
business of the Borrower or any other Joint Venture Company and
such appointment is not vacated within sixty (60) days, or
(iv) an order for relief shall have been issued or entered
therein; or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer having similar powers of
the Borrower or any other Joint Venture Company of all or a part
of their property, shall have been entered; or any other similar
relief shall be granted against the Borrower or any other Joint
Venture Company under any Legal Requirements; and
(b) NCPGC, the EPC Contractor, or Harbin Power shall
institute a voluntary case or undertake actions to form an
arrangement with creditors for the purpose of paying past due
debts, seeking liquidation, reorganization or moratorium of
payments, under any Bankruptcy Law (or any successor statute or
similar statute in any relevant jurisdiction), or shall consent
to the institution of an involuntary case thereunder against it;
or shall file a petition, answer or consent or shall otherwise
institute any similar proceeding under any other Legal
Requirements, or shall consent thereto; or shall apply for, or by
consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with
similar powers; or shall make an assignment for the benefit of
creditors; or shall admit in writing its inability to pay its
debts generally as they become due; or if an involuntary case
shall be commenced seeking the liquidation or reorganization of
NCPGC, the EPC Contractor, or Harbin Power under any Bankruptcy
Law (or any successor statute or similar statute under any
relevant jurisdiction) or any similar proceeding shall be
commenced against NCPGC, the EPC Contractor, or Harbin Power
under other Legal Requirements and (i) the petition commencing
the involuntary case is not timely controverted, (ii) the
petition commencing the involuntary case is not dismissed within
sixty (60) days of its filing, (iii) an interim trustee is
appointed to take possession of all or a portion of the property,
and/or to operate all or any part of the business of any of
NCPGC, the EPC Contractor, or Harbin Power and such appointment
is not vacated within sixty (60) days, or (iv) an order for
relief shall have been issued or entered therein; or a decree or
order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee or
other officer having similar powers of any of NCPGC, the EPC
Contractor, or Harbin Power of all or a part of any of their
respective property, shall have been entered; or any other
similar relief shall be granted against the NCPGC, the EPC
Contractor, or Harbin Power under any Legal Requirements.
7.1.7 Judgments. A final judgment or judgments
shall be entered (i) against the Borrower in the aggregate amount
of US$1,000,000 (or the equivalent thereof in other currencies)
(exclusive of judgment amounts fully covered by insurance where
the insured has admitted liability), other than a judgment, the
execution of which is effectively stayed within sixty (60) days
after its entry but only for no more than ninety (90) days after
the date on which such stay is terminated or expires; or (ii) in
the form of an injunction or similar form of relief requiring
suspension or abandonment of construction or operation of the
Facility on grounds of violation of a Legal Requirement and
failure of the Borrower to have such injunction or similar form
of relief stayed or discharged within ninety (90) days.
7.1.8 Other Indebtedness. The Borrower shall
default for a period beyond any applicable grace period in the
payment of any principal, interest or other amount due under any
agreement involving the borrowing of money or the advance of
credit and the outstanding amount or amounts payable under such
agreement equals or exceeds US$250,000 (or the equivalent thereof
in other currencies) in the aggregate.
7.1.9 Termination or Invalidity of Certain Project
Documents; Abandonment of Project.
(a) Any of the Project Documents or the Financing
Agreements shall have become invalid, illegal or unenforceable;
(b) The Borrower shall cease to have the right to use
the Site for the purpose of owning, constructing, maintaining and
operating the Facility in the manner contemplated by the Project
Documents (or to obtain sufficient water for its operations); or
(c) The Borrower shall abandon the Project or
otherwise cease to pursue the operations of the Project in
accordance with standard industry practice or shall (except as
permitted by Section 6.4) sell or otherwise dispose of its
interest in the Project.
7.1.10 Commercial Operation Date. The Commercial
Operation Date shall not have occurred by December 31, 1999.
7.1.11 Government Authorizations. Any Governmental
Authorization, approval or permit (whether central, provincial,
municipal, local or otherwise) necessary for (a) the
establishment of the Borrower (b) the ownership, construction,
maintenance, financing or operation of the Project, (c) the
setting or adjustment of the electricity price for the Project in
accordance with the method of calculation set forth in the
attachments to the Pricing Document or (d) the conversion or
transfer of any foreign currency shall not be obtained if and
when required, or shall be modified, revoked or cancelled, or a
notice of violations is issued under any Governmental
Authorization on grounds of, or illegality or the absence of any
required authorization, by the issuing agency or other
Governmental Instrumentality having jurisdiction or any
proceeding is commenced by any Governmental Instrumentality for
the purpose of modifying, revoking or cancelling any Governmental
Authorization.
7.1.12 Destruction of Project. The Facility is
destroyed, or suffers an actual or constructive total loss or
damage.
7.1.13 Change of Law. The occurrence of any adverse
Change of Law of the PRC.
7.1.14 Remedies. Upon the occurrence of any of the
Events of Default, the Lender may, by written notice to the
Borrower and the other Joint venture Companies, declare the Loans
to be immediately due and payable and pursue any and all remedies
available for the non-payment of debts.
ARTICLE 8 - SCOPE OF LIABILITY
The Lender shall have no claims with respect to the
transactions contemplated by the Project Documents against any
Person other than the Borrower including, but not limited to, the
Panda International and the Luannan Government or any of their
respective Affiliates (other than the Borrower) or direct or
indirect parents, or to the shareholders, officers, directors,
employees, or other controlling persons (including members of the
management committee) of the Panda International and the Luannan
Government, their respective Affiliates (other than the
Borrower), or their direct or indirect parents (collectively the
"Nonrecourse Persons"), subject to the exceptions set forth below
in this Article 8; provided that (a) the foregoing provision of
this Article 8 shall not constitute a waiver, release or
discharge of any of the indebtedness, or of any of the terms,
covenants, conditions, or provisions of this Agreement, any other
Financing Agreement and the same shall continue until fully paid,
discharged, observed, or performed; (b) the foregoing provision
of this Article 8 shall not limit or restrict the right of the
Lender, to name the Borrower or any other Person as a defendant
in any action or suit for a judicial foreclosure or for the
exercise of any other remedy under or with respect to this
Agreement or any other Financing Agreement, or for injunction or
specific performance, so long as no judgement in the nature of a
deficiency judgement shall be enforced against any Nonrecourse
Persons, except as set forth in this Article 8; (c) the foregoing
provision of this Article 8 shall not affect or diminish or
constitute a waiver, release or discharge of any specific written
obligation, covenant, or agreement in respect to the Project made
by any of the Nonrecourse Persons; and (d) nothing contained
herein shall limit the liability of any Person who is a party to
any Project Document or has issued any certificate or other
statement in connection therewith with respect to such liability
as may arise by reason of the terms and conditions of such
Project Document, certificate or statement, or otherwise, in each
case under this clause (d) relating solely to such liability of
such Person as may arise under such referenced agreement,
instrument or opinion. The limitations on recourse set forth in
this Article 8 shall survive the termination of this Agreement
and the full payment and performance of the Obligations hereunder
and under the other Project Documents.
ARTICLE 9 - MISCELLANEOUS
9.1 Addresses. Any communications between the parties
hereto or notice provided herein to be given may be given to the
following addresses.
If to the Lender: Pan-Western Energy Corporation, LLC
c/o Maples and Calder
P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands, British West Indies
If to the Borrower: Tangshan Pan-Sino Heat Co., Ltd.
Zhongdajie, Bencheng
Luannan County
Hebei Province, China
in either case,
with a copy to: Panda Energy Industrial Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
9.2 Delay and Waiver. No delay or omission to exercise any
right, power or remedy accruing to the Lender upon the occurrence
of any Event of Default or any breach or default of the Borrower
under this Agreement shall impair any such right, power or remedy
of the Lender, nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring, nor shall any
waiver of any single Event of Default, or other breach or default
be deemed a waiver of any other Event of Default, or other breach
or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part
of the Lender of any Event of Default, or other breach or default
under this Agreement, or any waiver on the part of the Lender of
any provision or condition of this Agreement, must be in writing
and shall be effective only to the extent in such writing
specifically set forth. All remedies, either under this
Agreement or by law or otherwise afforded to the Lender shall be
cumulative and not alternative.
9.3 Entire Agreement. This Agreement and any agreement,
document or instrument attached hereto or referred to herein
integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral negotiations and prior
writings in respect to the subject matter hereof. In the event
of any conflict between the terms, conditions and provisions of
this Agreement and any such agreement, document or instrument,
the terms, conditions and provisions of this Agreement shall
prevail. This Agreement may only be amended or modified by an
instrument in writing signed by the Borrower, the Lender and any
other parties to be charged.
9.4 Governing Law. This Agreement shall be governed by,
and be construed and interpreted in accordance with, the law of
the Cayman Islands.
9.5 Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal
or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
9.6 Headings. Paragraph headings have been inserted in
this Agreement as a matter of convenience for reference only and
it is agreed that such paragraph headings are not a part of this
Agreement and shall not be used in the interpretation of any
provision of this Agreement.
9.7 No Partnership, Etc. The Lender and the Borrower
intend that the relationship between them shall be solely that of
creditor and debtor. Nothing contained in this Agreement or the
Project Note shall be deemed or construed to create a
partnership, tenancy-in-common, joint tenancy, joint venture or
co-ownership by or between the Lender, on the one hand, and the
Borrower or any other Person, on the other hand. The Lender
shall not be in any way responsible or liable for the debts,
losses, obligations or duties of the Borrower or any other Person
with respect to the Project or otherwise. All obligations to pay
real property or other taxes, assessments, insurance premiums,
and all other fees and charges arising from the ownership,
operation or occupancy of the Project and to perform all
obligations under the agreements and contracts relating to the
Project shall be the sole responsibility of the Borrower.
9.8 Consent to Jurisdiction. The Lender and the Borrower
agree that any legal action or proceeding by or against the
Borrower or with respect to or arising out of this Agreement the
Project Note may be brought in or removed to the courts of the
Cayman Islands. By execution and delivery of this Agreement, the
Lender and the Borrower accept, for themselves and in respect of
their property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The Lender and the Borrower irrevocably
consent to the service of process out of any of the
aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified airmail,
postage prepaid, to the Lender or the Borrower, as the case may
be, at their respective addresses for notices as specified herein
and that such service shall be effective five (5) Banking Days
after such mailing. Nothing herein shall affect the right to
serve process in any other manner permitted by law or the right
of the Lender to bring legal action or proceedings in any other
competent jurisdiction. The Lender and the Borrower further
agree that the aforesaid courts of the Cayman Islands shall have
exclusive jurisdiction with respect to any claim or counterclaim
of the Borrower based upon the assertion that the rate of
interest charged by the Lender on or under this Agreement and/or
the Project Note is usurious. The Lender and the Borrower hereby
waive any right to stay or dismiss any action or proceeding under
or in connection with any or all of the Project or this Agreement
brought before the foregoing courts on the basis of forum
non-conveniens.
9.9 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The
Borrower may not assign or otherwise transfer any of its rights
under this Agreement.
9.10 Counterparts. This Agreement may be executed in one or
more duplicate counterparts and when signed by all of the parties
listed below shall constitute a single binding agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their officers or partners
thereunto duly authorized as of the day and year first above
written.
PAN-WESTERN ENERGY CORPORATION LLC
By:
Name:
Title:
TANGSHAN PAN-SINO HEAT CO., LTD.
By:
Name:
Title:
Schedule 5.8
[TO COME]
EXHIBIT A
FORM OF PROJECT NOTE
$ New York, New York
, 199
FOR VALUE RECEIVED, the undersigned,
, a Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China, (the
"Borrower"), hereby unconditionally promises to pay to the order
of Pan-Western Energy Corporation LLC (the "Lender") at the
office of [ ] in lawful money of the United
States of America and in immediately available funds, the
principal amount of DOLLARS ($ ),
or, if less, the unpaid principal amount of the Loans made by the
Lender pursuant to the Shareholder Loan Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and
on the dates specified in the Shareholder Loan Agreement. The
Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in the
Shareholder Loan Agreement.
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of the Loans and the date and
amount of each payment or prepayment of principal with respect
thereto. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed. The
failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Loans.
This Note (a) is the Project Note referred to in the
Shareholder Loan Agreement dated as of September 24, 1996 (as
amended, supplemented or otherwise modified from time to time,
the "Shareholder Loan Agreement"), between the Borrower and the
Lender, (b) is subject to the provisions of the Shareholder Loan
Agreement and (c) is subject to optional and mandatory prepayment
in whole or in part as provided in the Shareholder Loan
Agreement. This Note is guaranteed as provided in the Financing
Agreements. Reference is hereby made to the Financing Agreements
for a description of the terms and conditions upon which each
guarantee was granted and the rights of the holder of this Note
in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable,
all as provided in the Shareholder Loan Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all
other notices of any kind.
Unless otherwise defined herein, terms defined in the
Shareholder Loan Agreement and used herein shall have the
meanings given to them in the Shareholder Loan Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE CAYMAN ISLANDS.
[BORROWER]
By:
Name:
Title:
Schedule 5.8
OUTLINE OF INSURANCE
TYPE Construction & Erection "All Risks",
Third Party Liability & Delay in Start-
Up Insurance.
INSURED Joint Venture Companies
and
Harbin Power Equipment Co., Ltd.
and / or
all Contractors, Sub-Contractors,
Suppliers, thereto, as their interest
may appear.
PERIOD From notification to proceed through
completion of construction testing and
final acceptance (Est. 26 months in
all).
Extensions to Period relating to
construction/erection not exceeding six
months to be automatically held covered
by Insurers at an additional premium to
be agreed.
INTEREST Section 1 Construction & Erection "All
Risks"
The permanent works and plant supplied,
temporary works and materials until take
over for commercial operation by the
Principal of Unit 2.
Section 2 Third Party Liability
The legal liability of the insured for
personal injury or damage to property.
Section 3 Delay I Start-Up
Loss of Revenue &/or Increased Cost of
Working due to delayed completion
resulting from loss or damage insured by
Section 1.
Project Insured
The design, project management, supply
construction, erection, testing,
commissioning and maintenance / defects
liability period of the 2x50MW coal-
fired electric and thermal energy
cogeneration power plants at Luannan
County, Tangshan City, and all work and
services ancillary thereto.
SUM INSURED Section 1 Construction & Erection "All
Risks"
Full Contract Value US $90,000,000
Section 2 Third Party Liability
Limit of Indemnity US $20,000,000
any one occurrence / unlimited in all
during the Period of Insurance.
Section 3 Delay in Start-Up
Sum Insured US $38,250,000
Indemnity Period 12 months
LOCATION Near the City of Gujiaying, Hebei
Province, Peoples Republic of China.
EXHIBIT A
FORM OF PROJECT NOTE
$ New York, New York
, 199
FOR VALUE RECEIVED, the undersigned,
, a Sino-foreign equity joint venture with limited liability
organized under the laws of the People's Republic of China, (the
"Borrower"), hereby unconditionally promises to pay to the order
of Pan-Western Energy Corporation LLC (the "Lender") at the
office of [ ] in lawful money of the United
States of America and in immediately available funds, the
principal amount of DOLLARS ($ ),
or, if less, the unpaid principal amount of the Loans made by the
Lender pursuant to the Shareholder Loan Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and
on the dates specified in the Shareholder Loan Agreement. The
Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in the
Shareholder Loan Agreement.
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of the Loans and the date and
amount of each payment or prepayment of principal with respect
thereto. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed. The
failure to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Loans.
This Note (a) is the Project Note referred to in the
Shareholder Loan Agreement dated as of September 24, 1996 (as
amended, supplemented or otherwise modified from time to time,
the "Shareholder Loan Agreement"), between the Borrower and the
Lender, (b) is subject to the provisions of the Shareholder Loan
Agreement and (c) is subject to optional and mandatory prepayment
in whole or in part as provided in the Shareholder Loan
Agreement. This Note is guaranteed as provided in the Financing
Agreements. Reference is hereby made to the Financing Agreements
for a description of the terms and conditions upon which each
guarantee was granted and the rights of the holder of this Note
in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable,
all as provided in the Shareholder Loan Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all
other notices of any kind.
Unless otherwise defined herein, terms defined in the
Shareholder Loan Agreement and used herein shall have the
meanings given to them in the Shareholder Loan Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE CAYMAN ISLANDS.
[BORROWER]
By:
Name:
Title:
SCHEDULE A
INTEREST PAYMENT SCHEDULE
[***] FILED SEPARATELY WITH THE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
SCHEDULE B
AMORTIZATION SCHEDULE
[***] FILED SEPARATELY WITH THE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
EXHIBIT 21.00
SUBSIDIARIES OF PANDA GLOBAL ENERGY CO.
Jurisdiction of
Name of Entity: Organization:
Pan-Sino Energy Development Company, L.L.C. Cayman Islands
Pan-Western Energy, L.L.C. Cayman Islands
Tangshan Panda Heat & Power Company, Ltd. People's Republic of
China
Tangshan Pan-Western Heat & Power Company, Ltd. People's Republic of
China
Tangshan Cayman Heat & Power Company, Ltd. People's Republic of
China
Tangshan Pan-Sino Heat Company, Ltd. People's Republic of
China
SUBSIDIARIES OF PANDA GLOBAL HOLDING, INC.
Jurisdiction of
Name of Entity: Organization:
Panda Energy Corporation Texas
Lakeland Water Company Delaware
Panda-Kathleen Corporation Delaware
Panda/Live Oak Corporation Delaware
Panda-Kathleen, L.P. Delaware
Panda Interfunding Corporation Delaware
Panda Interholding Corporation Delaware
Panda Funding Corporation Delaware
Panda-Rosemary Corporation Delaware
PRC II Corporation Delaware
Panda-Rosemary, L.P. Delaware
Panda-Rosemary Funding Co. Delaware
Panda-Brandywine Corporation Delaware
Panda Energy Corp. Delaware
Brandywine Water Company Delaware
Panda-Brandywine, L.P. Delaware
Panda Cayman Interfunding Corporation Cayman Islands
Pan-Sino Energy Development Company, L.L.C. Cayman Islands
Pan-Western Energy, L.L.C. Cayman Islands
Panda Global Energy Company Cayman Islands
Panda of Nepal, L.L.C. Cayman Islands
Tangshan Panda Heat & Power Company, Ltd. People's Republic of
China
Tangshan Pan-Western Heat & Power Company, Ltd. People's Republic of
China
Tangshan Cayman Heat & Power Company, Ltd. People's Republic of
China
Tangshan Pan-Sino Heat Company, Ltd. People's Republic of
China
Bhote Koshi Power Co., Pvt. Ltd. Nepal
EXHIBIT 23.01
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT ACCOUNTANT'S CONSENT
We consent to the use in this Registration Statement on Form S-1
of Panda Global Energy Company and Panda Global Holdings, Inc. of
our report dated April 9, 1997 on the consolidated financial
statements of Panda Global Energy Company and Panda Global
Holdings, Inc. appearing in the Prospectus, which is a part of
such Registration Statement, and to the reference to us under the
headings "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
August 8, 1997
[ICF Kaiser Letterhead]
August 7, 1997
Panda Global Holdings, Inc.
Panda Global Energy Company
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
RE: Consultant's Report
Ladies and Gentlemen:
We consent to the use of (i) our report dated April 11, 1997
entitled "Independent Panda Brandywine Pro Forma Projects" (the
"Brandywine Report"), (ii) our report dated April 11, 1997 entitled
"Summary of the Consolidated Pro Forma of Panda Global Holdings, Inc.
(the "Consolidated Report") and (iii) the Officer's Certificate dated
August 7, 1997 related thereto (including any amendments or supplements
thereto) in the Registration Statement on Form S-1 of Panda Global
Energy Company and Panda Global Holdings, Inc. (the "Registration
Statement") relating to the offering of 12-1/2% Registered Senior
Secured Notes by Panda Global Energy Company and the inclusion of the
Officer's Certificate and Brandywine Report as an exhibit to the
Registration Statement (the "Prospectus"). In addition, we consent
to the inclusion of the summary of the Brandywine Report and the
Consolidated Report contained in the Prospectus.
We also consent to the statements by C.C. Pace Resources, Inc.
and Pacific Energy Services, Inc. in their reports that they have
relied on our Brandywine Report and we authorize such reliance.
We also hereby consent to the reference to us as experts
under the headings "Independent Engineers and Consultants" in
the Prospectus.
All the above-referenced ICF Resources Incorporated reports
were prepared pursuant to the terms of Consulting Agreement(s) between
ICF Resources and Panda Energy International.
ICF RESOURCES (sm) INCORPORATED
By: /s/ Theodore R. Breton
Name: Theodore R. Breton
Title: Vice President
[BURNS & MCDONNELL LETTERHEAD]
August 7, 1997
Panda Global Holdings, Inc.
Panda Global Energy Company
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
Re: Rosemary Independent Engineer's Report
Ladies and Gentlemen:
We consent to the use of our report dated April 11, 1997 entitled
"Panda-Rosemary Cogeneration Project Condition Assessment Report
for Potential Investors at the Request of Panda Energy
International, Inc. "(the "Report") and the Officer's Certificate
dated August 7th, 1997 related thereto (including any amendments or
supplements thereto) as an exhibit to the Registration Statement
on Form S-1 of Panda Global Energy Company and Panda Global
Holdings, Inc. (the "Registration Statement") relating to the
offering of 12-1/2% Registered Senior Secured Notes by Panda
Global Energy Company. In addition, we consent to the inclusion
of the summary of the Report contained in the Prospectus included
in the Registration Statement (the "Prospectus").
We also consent to the statements by ICF Resources Incorporated
in their reports included in the Prospectus that they have relied
on our Report referenced above, and we authorize such reliance.
We also hereby consent to the reference to us as experts under
the heading "Independent Engineers and Consultants" in the
Prospectus.
BURNS & MCDONNELL ENGINEERING
COMPANY, INC.
By: /s/ Michael W. McComas
Name: Michael W. McComas
Title: Vice President
[Benjamin Schlesinger & Assoc. Letterhead]
August 7, 1997
Panda Global Holdings, Inc.
Panda Global Energy Company
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
Re: Rosemary Fuel Consultant's Report
Ladies and Gentlemen:
We consent to the use of our Report dated September 20,
1996, updated on April 11, 1997, entitled "Assessment of Fuel
Price, Supply and Delivery Risks for the Panda-Rosemary
Cogeneration Project" (the "Report") and the Officer's
Certificate dated August 7, 1997 Related thereto (including any
amendments or supplements thereto) as an exhibit to the
Registration Statement on Form S-1 of Panda Global Energy Company
and Panda Global Holdings, Inc. (the "Registration Statement")
relating to the offering of 12-1/2% Registered Senior Secured
Notes by Panda Global Energy Company. In addition, we consent to
the inclusion of the summary of the Report contained in the
Prospectus included in the Registration Statement.
We also hereby consent to the statements by Burns &
McDonnell Engineering Company, Inc. in their report summarized in
the Registration Statement that they have relied on the Report,
and we authorize such reliance.
We also hereby consent to the reference to us as experts
under the heading "Independent Engineers and Consultants" in the
Prospectus included in the Registration Statement.
BENJAMIN SCHLESINGER & ASSOCIATES, INC.
By: /s/ Benjamin Schlesinger
Benjamin Schlesinger, Ph.D
President
[PACIFIC ENERGY SYSTEMS LETTERHEAD]
August 7, 1997
Panda Global Holdings, Inc.
Panda Global Energy Company
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
Re: Brandywine Independent Engineer's Report
Ladies and Gentlemen:
We consent to the use of our report dated July 22, 1996 and
updated on April 11, 1997 entitled "Independent Engineer's Report
Panda-Brandywine Cogeneration Project" (the "Report") and the
Officer's Certificate dated August 7, 1997 related thereto
(including any amendments or supplements thereto) as an exhibit
to the Registration Statement on Form S-1 of Panda Global Energy
Company and Panda Global Holdings, Inc. (the "Registration
Statement") relating to the offering of 12-1/2% Registered
Secured Notes by Panda Global Energy Company. In addition, we
consent to the inclusion of the summary of the Report contained
in the Prospectus included in the Registration Statement (the
"Prospectus").
We also consent to the statements by ICF Resources Incorporated
and C.C. Pace Resources, Inc. in their reports included or
summarized in the Prospectus that they have relied on the Report
and we authorize such reliance.
We also consent to the reference to us as experts under the
heading "Independent Engineers and Consultants" in the
Prospectus.
PACIFIC ENERGY SYSTEMS, INC.
By: /s/ John R. Martin
Name: John R. Martin
Title: President
[CC PACE RESOURCES LETTERHEAD]
August 7, 1997
Panda Global Holdings, Inc.
Panda Global Energy Company
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
Re: Brandywine Fuel Consultant's Report
Ladies and Gentlemen:
We consent to the use of our report dated July 2, 1996 entitled
"Panda-Brandywine, L.P. Generating Facility Fuel Consultant's
Report" and the supplemental update letter dated April 11, 1997
(the "Report") and the Officer's Certificate dated August 7, 1997
related thereto as an exhibit to the Registration Statement on
Form S-1 of Panda Global Energy Company and Global Holdings, Inc.
(the "Registration Statement") relating to the offering of 12.5%
Registered Senior Secured Notes offered by Panda Global Energy
Company. In addition, we consent to the summary of the Report
contained in the Prospectus included in the Registration
Statement (the "Prospectus").
We also consent to the statements by ICF Resources, Incorporated
in their reports included or summarized in the Prospectus, that
they have relied on the Report and we authorize such reliance.
We also hereby consent to the reference to us as experts under
the heading "Independent Engineers and Consultants" in the
Prospectus.
C. C. PACE RESOURCES, INC.
By: /s/ Daniel E. White
Name: Daniel E. White
Title: Senior Vice President
[PARSONS BRINCKERHOFF ENERGY SERVICES, INC.]
August 7, 1997
Panda Global Holdings, Inc.
Panda Global Energy Company
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
RE: Luannan Engineer's Review Report
Ladies and Gentlemen:
We consent to the use of our report dated April 11, 1997 entitled
"Engineer's Review and Report Panda Energy International, Inc. 2
x 50 MW Coal-Fired Power Plant at Luannan, China" (the "Report")
and the Officer's Certificate dated August 7, 1997 related thereto
in the Prospectus (including any amendments or supplements
thereto) relating to the offering of 12-1/2% Registered Senior
Secured Notes offered by Panda Global Energy Company and included
in the registration statement on Form S-1 of Panda Global Energy
Company and Panda Global Holdings, Inc. (the "Prospectus") and
the inclusion of the Report and Officer's Certificate as an
Appendix to the Prospectus. In addition, we consent to the
inclusion of the summary of the Report contained in the
Prospectus.
We also consent to the statements by ICF Resources Incorporated
in their report included in the Prospectus that they have relied
on the Report and we authorize such reliance.
We also hereby consent to the reference to us as experts under
the heading "Independent Engineers and Consultants" in the
Prospectus.
Very truly yours,
PARSONS BRINCKERHOFF ENERGY SERVICES, INC.
/s/ R. J. Bednarz
R. J. Bednarz
Engineering Manager
[MARSTON & MARSTON, INC. LETTERHEAD]
August 7, 1997
Panda Global Holdings, Inc.
Panda Global Energy Company
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
RE: Independent Coal Consultant's Report
Ladies and Gentlemen:
We consent to the use of our report dated April 11, 1997,
entitled "Review of the Coal Supply Arrangements for the Luannan
Power Project of Panda Energy International, Inc." (the "Report")
and the Officer's Certificate dated August 7, 1997, related thereto
in the Prospectus (including any amendments or supplements
thereto) relating to the offering of 12-1/2% Registered Senior
Secured Notes by Panda Global Energy Company (the "Prospectus")
and included in the registration statement on Form S-1 of Panda
Global Energy Company and Panda Global Holdings, Inc. and the
inclusion of the Report and Officer's Certificate as an Appendix
to the Prospectus. In addition, we consent to the inclusion of
the summary of the Report contained in the Prospectus.
We also hereby consent to the reference to us as experts under
the heading "Independent Engineers and Consultants" in the
Prospectus.
Yours truly,
MARSTON & MARSTON, INC.
/s/ Richard Marston
Richard Marston, P.E.
Vice President & General Counsel
[MAPLES AND CALDER LETTERHEAD]
August 7, 1997
Panda Global Energy Company
Panda Global Holdings, Inc.
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, TX 75244
Ladies and Gentlemen:
We hereby consent to the references to our firm contained in the
Prospectus constituting a part of the Registration Statement on
Form S-1 under the United States Securities Act of 1993 of Panda
Global Energy Company and Panda Global Holdings, Inc., under the
captions:
(i) "Enforcement of Civil Liabilities"; and
ii) "Legal Matters".
Very truly yours,
MAPLES & CALDER
By: /s/
[CAI, ZHANG & LAN LETTERHEAD]
August 7, 1997
Panda Global Energy Company
Panda Global Holdings, Inc.
c/o Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, TX 75244
Ladies and Gentlemen:
We hereby consent to the references to our firm in the
Registration Statement on Form S-1 of Panda Global Energy Company
and Panda Global Holdings, Inc., under the captions: (i) Risk
Factors -- Considerations Relating to the PRC (ii) Description
of the Projects - The Luannan Facility - Governmental Approvals,
(iii) Certain Tax Considerations of the Exchange Offer - PRC
Taxation, and (v) Legal Matters.
Very truly yours,
CAI, ZHANG & LAN
By: /s/ Chungsheng Cai
Chunsheng Cai
EXHIBIT 99.01
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
__________________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
PANDA GLOBAL ENERGY COMPANY
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
LETTER OF TRANSMITTAL
To Tender for Exchange
12-1/2% Senior Secured Notes due 2004
Exchange Agent:
BANKERS TRUST COMPANY
Facsimile Transmission:
(615) 835-3701
Confirm by telephone:
(615) 835-3572
By Overnight Courier
By Mail: By Hand Delivery: or Ceritified Mail:
BT Services Bankers Trust Company BT Services
Tennessee, Inc. Corporate Trust Tennessee, Inc.
Reorganization Unit & Agency Group Corporate Trust
P.O. Box 292737 Receipt & Delivery Window & Agency Group
Nashville, TN 123 Washington Street Reorganization Unit
37229-2737 1st Floor 648 Grassmere Park Road
New York, NY 10006 Nashville, TN 37211
For Information Call:
(800)735-7777
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
_____________, 1997, (as the same may be amended or supplemented from
time to time, the "Prospectus") of Panda Global Energy Company, a
Delaware corporation (the "Issuer"), and this Letter of Transmittal
for 12-1/2% Senior Secured Notes due 2004 which may be amended from
time to time (this "Letter of Transmittal"), which together constitute
the Issuer's offer (the "Exchange Offer") to exchange $1,000 principal
amount of its 12-1/2 Registered Senior Secured Notes due 2004(the "Exchange
Notes") which have been registered under the Securities Act of 1933,as
amended (the "Securities Act")for each $1,000 in principal amount of its
outstanding 12-1/2% Senior Secured Notes due 2004(the "Old Notes") which
were issued and sold in a transaction exempt from registration under
the Securities Act. Each term used herein with its initial letter
capitalized and not otherwise defined herein shall have the meaning
assigned to such term in the Prospectus.
Only a registered holder of the Old Notes may tender such Old
Notes in the Exchange Offer. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should contact the
registered holder promptly and instruct such registered holder to
tender on such beneficial owner's behalf. To tender in the Exchange
Offer, a holder must, prior to the Expiration Date, either (a)
complete and sign this Letter of Transmittal (or a facsimile thereof),
in accordance with the instructions contained herein and in the
Prospectus, and deliver such Letter of Transmittal, together with any
signature guarantees and any other documents required by this Letter
of Transmittal, to the Exchange Agent at its address set forth on the
cover page of this Letter of Transmittal and the tendered Old Notes
must either be (i) physically delivered to the Exchange Agent or (ii)
transferred by book-entry to the account maintained by the Exchange
Agent at The Depository Trust Company ("DTC") and a confirmation of
such book-entry transfer must be received by the Exchange Agent prior
to the Expiration Date, or (b) comply with the guaranteed delivery
procedures set forth under the caption "The Exchange Offer -
Guaranteed Delivery Procedures" in the Prospectus (see Instruction 3)
in the event a holder's Old Notes are not immediately available, or
time will not permit such holder's Old Notes or any other required
documents to reach the Exchange Agent prior to the Expiration Date.
To be validly tendered, the Old Notes, together with a properly
completed Letter of Transmittal (or facsimile thereof), executed by
the holder of record thereof, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at the
address set forth on the cover page of this Letter of Transmittal
prior to 5:00 p.m., New York City time, on the Expiration Date, except
as otherwise provided under the guaranteed delivery procedures.
Upon satisfaction or waiver of the conditions of the Exchange
Offer, the Issuer will accept for exchange any and all Old Notes which
are properly tendered and not withdrawn prior to the Expiration Date.
For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted properly tendered Old Notes when, as and if the Issuer has
given oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders of Old
Notes for the purpose of receiving the Exchange Notes from the Issuer
and transmitting the Exchange Notes to each holder exchanging Old
Notes.
The Instructions included with this Letter of Transmittal must be
followed in their entirety. Questions and requests for assistance or
for additional copies of the Prospectus or this Letter of Transmittal
may be directed to the Exchange Agent, at the address listed above, or
L. Stephen Rizzieri, General Counsel of the Issuer, at (972) 980-7159,
4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE
INSTRUCTIONS TO THIS LETTER OF TRANSMITTAL, CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
List in Box 1 below the Old Notes of which you are the registered
holder. If the space provided in Box 1 is inadequate, list the
certificate numbers and principal amount of Old Notes on a separate
signed schedule and affix that schedule to this Letter of Transmittal.
Holders tendering Old Notes represented by a certificate must provide a
DTC account number for delivery of the Exchange Notes issued in exchange
therefor.
TO BE COMPLETED BY ALL TENDERING HOLDERS
BOX 1
DESCRIPTION OF OLD NOTES TENDERED
(Attach additional signed pages, if necessary)
Aggregate
Name(s) and address(es), and if Principal Aggregate
applicable DTC account numbers, of Certificate Amount Principal
Registered Holder(s) of Old Notes Number(s) Represented Amount
exactly as name(s) appear(s) on of Old Notes(1) by Certicate(s) Tendered(2)
Old Notes Certificate(s)
Totals:
(1) Need not be completed if Old Notes are being
tendered by book-entry transfer.
(2) Unless otherwise indicated, the entire principal
amount of Old Notes represented by a certificate or
book-entry confirmation delivered to the Exchange Agent
will be deemed to have been tendered. All tenders must
be in integral multiples of $1,000 of principal amount.
BOX 2
BENEFICIAL OWNER(S)
State of Principal Residence of Principal Amount of Tendered Old Notes
Each Beneficial Owner of Tendered Held for Account of Beneficial Owner
Old Notes
Ladies and Gentlemen:
The undersigned hereby tenders the Old Notes described in Box 1
above pursuant to the terms and conditions described in the Prospectus
and this Letter of Transmittal. The undersigned is the registered
owner of all the tendered Old Notes and the undersigned represents
that it has received from each beneficial owner of tendered Old Notes
a duly completed and executed form of "Instruction to Registered
Holder from Beneficial Owner" accompanying this Letter of Transmittal,
instructing the undersigned to take the action described in this
Letter of Transmittal. Subject to, and effective upon, the acceptance
for exchange of the Old Notes tendered with this Letter of
Transmittal, the undersigned exchanges, assigns and transfers to, or
upon the order of, the Issuer all right, title and interest in and to
the Old Notes tendered.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent the agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as the agent of the
Issuer) with respect to the tendered Old Notes, with full power of
substitution, to: (a) deliver certificates for such Old Notes to or
for the order of the Issuer; (b) deliver Old Notes and all
accompanying evidence of transfer and authenticity to, or upon the
order of, the Issuer, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to which the undersigned is
entitled upon the acceptance by the Issuer of the Old Notes tendered
in the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Old Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that the
undersigned has full right, power and authority to tender, exchange,
assign and transfer the Old Notes tendered hereby and that the Issuer
will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Issuer to be necessary
or desirable to complete and give effect to the transactions
contemplated hereby.
The undersigned agrees that acceptance of any tendered Old Notes
by the Issuer and the issuance of Exchange Notes (together with the
guaranty of Panda Interfunding Corporation (the "Company") with
respect thereto) in exchange therefor shall constitute performance in
full by the Issuer and the Company of their obligations under the
Registration Rights Agreement (as defined in the Prospectus) and that,
upon the issuance of the Exchange Notes, the Issuer and the Company
will have no further obligations or liabilities thereunder (except in
certain limited circumstances as set forth therein). By tendering Old
Notes, the undersigned certifies, acknowledges and agrees that (a) each
of the undersigned and each Beneficial Owner is a "financial or
institutional investor" as defined under the securities laws of the State
of its principal residence (See Exhibit A - Definitions of Financial or
Institutional Investors Under State Securities Laws); (b) the Exchange
Notes to be acquired by the undersigned and any beneficial owner(s) of such
Old Notes ("Beneficial Owner(s)") in connection with the Exchange Offer
are being acquired by the undersigned and such Beneficial Owner(s) in the
ordinary course of business of the undersigned and any Beneficial Owner(s);
(c) the undersigned (other than a broker-dealer referred to clause (h) below)
and each Beneficial Owner are not participating and do not intend to
participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes; (d) the undersigned and each Beneficial Owner
have no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the
Exchange Notes; (e) the undersigned and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of
the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Commission that is discussed under "The
Exchange Offer - Resales of Exchange Notes" in the Prospectus; (f) the
undersigned and each Beneficial Owner understand that a secondary
resale transaction described in clause (d) above should be covered by
an effective registration statement containing the selling security
holder information required by Item 507 of Regulation S-K of the
Commission; (g) neither the undersigned nor any Beneficial Owner is an
"affiliate" (within the meaning of Rule 405 promulgated under the
Securities Act) of the Company, or the Issuer or Panda Interfunding
Corporation, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable; and (h) each broker-dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of market making activities
or other trading activities, will deliver a prospectus in connection with any
resale of such Exchange Notes. By so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The undersigned acknowledges that the tender of Old Notes in the
Exchange Offer will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the
conditions of the Exchange Offer. The undersigned understands that
the Issuer may accept the undersigned's tender by giving oral or
written notice of acceptance to the Exchange Agent, at which time the
undersigned's right to withdraw such tender will terminate. All
authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death or incapacity of the undersigned,
and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. Tenders may be withdrawn
only in accordance with the procedures set forth in the Instructions
contained in this Letter of Transmittal.
Unless otherwise indicated in Box 4 or 5 below, the Exchange
Agent will issue and deliver Exchange Notes to the undersigned by crediting
the undersigned's account maintained at DTC and, (b) if applicable, any
Old Notes not tendered or exchanged but represented by a certificate
also encompassing Old Notes which are tendered or exchanged to the
undersigned at the address set forth in Box 1 above, or if tenders are
made by book-entry transfer, by crediting the undersigned's account
maintained at DTC.
The undersigned acknowledges that the Exchange Offer is subject
to the more detailed terms set forth in the Prospectus and, in case of
any conflict between the terms of the terms of the Prospectus and this
Letter of Transmittal, the Prospectus shall prevail.
___ CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
___ CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
Account Number
Transaction Code Number
___ CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
Date of Execution of Notice of Guaranteed Delivery
Window Ticket Number (if available)
Name of Institution which Guaranteed Delivery
Account Number (if delivered by book-entry transfer)
___ CHECK HERE IF YOU ARE A BROKER-DEALER WHICH ACQUIRED OLD NOTES FOR
ITS OWN ACCOUNT AND AS A RESULT NEED TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND ANY AMENDMENTS OR SUPPLEMENTS THERETO (TO BE
DELIVERED BY YOU UPON ANY RESALE OF EXCHANGE NOTES):
Name
Address
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
TO BE COMPLETED BY ALL TENDERING HOLDERS
BOX 3
PLEASE SIGN HERE
WHETHER OR NOT OLD NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
This box must be signed by registered holder(s) of Old Notes
as their name(s) appear on certificate(s) for Old Notes, or
by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Letter of
Transmittal. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, such person must set
forth his or her full title below. (See Instruction 4)
X
X
Signature(s) of Owner(s) or Authorized Signatory
Date:
Name(s):
(Please Print)
Capacity:
Address:
(Include Zip Code)
Area Code and Telephone No.:
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (See Instruction 4)
Certain Signatures Must Be Guaranteed by an Eligible
Institution
(Name of Eligible Institution Guaranteeing Signatures)
(Address (including zip code) and Telephone Number
(including area code) of Firm)
(Authorized Signature)
(Title)
(Printed Name)
Date:
PAYOR'S NAME: PANDA GLOBAL ENERGY COMPANY
SUBSTITUTE
FORM W-9
Part 1-Please Social Security Number
Provide Your
TIN in the Box at OR
Right and Certify
Department of the by Signing and Employer ID Number
Treasury Internal Dating Below
Revenue Service
Payor's Request for Part 2-Certification-Under Penalties Part 3-
Taxpayer of Perjury, I certify: Awaiting
Identification
Number (TIN) (1) The number shown on TIN
this form is my correct
Taxpayer Identification
Number (or I am waiting for
a number to be issued to
me), and
(2) I am not subject to
back withholding because
(a) I am exempt from backup
withholding, (b) I have not
been notified by the
Internal Revenue Service
(the "IRS") that I am
subject to backup
withholding as a result of
a failure to report all
interest or dividends, or
(c) the IRS has notified me
that I am no longer subject
to backup withholding.
Certification Instructions -
You must cross out item (2)
above if you have been
notified by the IRS that you
are subject to backup
withholding because of under
reporting interest or
dividends on your tax return.
However, if after being
notified by the IRS that you
were subject to backup
withholding you received
another notification from the
IRS stating that you are no
longer subject to backup
withholding, do not cross out
item (2).
SIGNATURE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO
THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either
(a) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate Internal
Revenue Service Center or Social Security Administration
Office or (b) I intend to mail or deliver such an
application in the near future. I understand that if I do
not provide a taxpayer identification number within sixty
(60) days, 31% of all reportable payments made to me
thereafter will be withheld until I provide such a number.
Signature Date
BOX 4 BOX 5
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 6 and 7) (See Instructions 6 and 7)
To be completed ONLY if To be completed ONLY if
certificates for Old Notes in certificates for Old Notes in
a principal amount not a principal amount not
exchanged, or Exchange Notes, exchanged, or Exchange Notes,
are to be issued in the name are to be sent to someone
of someone other than the other than the person whose
person whose signature signature appears in Box 3 or
appears in Box 3, or in the to an address other than that
case of Old Notes delivered shown in Box 1.
by book-entry transfer which
are not exchanged, are to be
credited to an account
maintained at DTC other than
the account indicated above.
Issue: Deliver:
(check appropriate boxes) (check appropriate boxes)
Old Notes not tendered to: Old Notes not tendered to:
Exchange Notes to: Exchange Notes to:
(Please Print) (Please Print)
Name: Name:
Address: Address:
Credit DTC Account Number (if
applicable):
Please complete the Substitute Please complete the Substitute Form W-9
Substitute Form W-9
Tax Identification or Social Tax Identification or Social
Security Number: Security Number:
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates.
Certificates for Old Notes or a confirmation of book-entry transfer,
as the case may be, as well as a properly completed and duly executed
Letter of Transmittal and any other documents required by this Letter
of Transmittal, must be received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date.
THE METHOD OF DELIVERY OF THE OLD NOTES AND THIS LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS
AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL,
IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IF DELIVERY IS TO BE MADE BY MAIL, IT IS SUGGESTED THAT THE
HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE. DELIVERY WILL BE DEEMED MADE WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT. NO LETTER OF TRANSMITTAL OR THE OLD NOTES
SHOULD BE SENT TO THE ISSUER OR THE COMPANY.
2. Beneficial Owner Instructions to Registered Holders. Any
Beneficial Owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and
instruct such registered holder to tender on such Beneficial Owner's
behalf. See "Instructions to Registered Holder from Beneficial
Owner" accompanying this Letter of Transmittal.
3. Guaranteed Delivery Procedures. If a holder of Old Notes
desires to tender such Old Notes and if the Old Notes are not
immediately available, or time will not permit such holder's Old Notes
or any other required documents to reach the Exchange Agent before
5:00 p.m., New York City time, on the Expiration Date, a tender for
exchange may be effected if: (a) the tender for exchange is made by
or through an Eligible Institution; (b) prior to 5:00 p.m., New York
City time, on the Expiration Date, the Exchange Agent has received
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old
Notes and the principal amount of Old Notes tendered for exchange,
stating that tender is being made thereby and guaranteeing that,
within five Business Days after the Expiration Date, the duly executed
Letter of Transmittal, properly completed and validly executed,
together with the Old Notes in proper form for transfer (or
confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account with DTC), and any other documents required
by this Letter of Transmittal and the instructions thereto, will be
deposited by the Eligible Institution with the Exchange Agent; and (c)
such properly completed and executed Letter of Transmittal, as well as
the certificate(s) representing all tendered Old Notes in proper form
for transfer (or confirmation of book-entry transfer of such Old Notes
into the Exchange Agent's account with DTC) and all other documents
required by this Letter of Transmittal, are received by the Exchange
Agent within five Business Days after the Expiration Date.
4. Signatures on this Letter of Transmittal; Guarantee of
Signatures; Bond Powers. If this Letter of Transmittal is signed by
the holder(s) of Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of the
certificate(s) for such Old Notes, without alteration, enlargement or
any change whatsoever. If any of the Old Notes tendered hereby are
owned by two or more joint owners, all owners must sign this Letter of
Transmittal. If any tendered Old Notes are held in different names on
several certificates, it will be necessary to complete, sign and
submit as many separate copies of this Letter of Transmittal as there
are names in which certificates are held.
Signatures on a Letter of Transmittal must be guaranteed unless
the Old Notes tendered pursuant thereto are (a) tendered by a
registered holder of the Old Notes who has not completed the Box 4
entitled "Special Issuance Instructions" or Box 5 entitled "Special
Delivery Instructions" in this Letter of Transmittal or (b) tendered
for the account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal are required to be
guaranteed, such guarantee must be by a firm that is a member of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States,
or by an entity that is otherwise an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act
of 1934, as amended (an "Eligible Institution").
If this Letter of Transmittal is signed by a person other than
the registered holder of any Old Notes listed therein, such Old Notes
must be endorsed by the registered holder or accompanied by a properly
completed bond power or other written instrument of transfer in form
satisfactory to the Issuer in its sole discretion, signed by such
registered holder as such registered holder's name appears on such Old
Notes. If this Letter of Transmittal is signed by the registered
holder and (a) the entire principal amount of the holder's Old Notes
is tendered or (b) untendered Old Notes are to be issued to the
registered holder, then the registered holder need not endorse any
certificates for tendered Old Notes or provide a separate bond power.
In any other case, the registered holder must transmit a separate bond
power with this Letter of Transmittal.
If this Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing,
and proper evidence satisfactory to the Issuer of their authority to
so act must be submitted.
5. Tax Identification Number. Unless an exemption applies
under the applicable law and regulations concerning "backup
withholding" of federal income tax, the Exchange Agent will be
required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a holder pursuant to the Exchange Offer if the
holder does not provide his or her taxpayer identification number
(social security number or employer identification number) and certify
that such number is correct. Each tendering holder should complete and
sign the Substitute Form W-9 included as part of this Letter of
Transmittal so as to provide the information and certification
necessary to avoid backup withholding, unless an applicable exemption
exists and is proved in a manner satisfactory to the Issuer and the
Exchange Agent. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
The Issuer reserves the right in its sole discretion to take
whatever steps it deems necessary to comply with the Issuer's
obligation regarding backup withholding.
6. Partial Tenders; Withdrawals. If less than the entire
principal amount of any Old Bond is tendered, the tendering holder
must fill in the principal amount tendered in the fourth column of Box
1 above. The entire principal amount of Old Notes represented by a
certificate delivered to the Exchange Agent or transferred by book-
entry to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. In the case of Old Notes tendered by
delivery of a certificate, a certificate for Old Notes in a principal
amount not accepted for exchange or not tendered will be issued to and
sent to the holder, unless otherwise provided in Box 4 or 5, as soon
as practicable after the Expiration Date. In the case of Old Notes
tendered by a book-entry transfer, the principal amount not accepted
for exchange or not tendered will be credited to the account
maintained by the holder with DTC, unless otherwise provided in Box 4,
as soon as practicable after the Expiration Date.
Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date. Thereafter, such tenders are irrevocable. To withdraw
a tender of Old Notes in the Exchange Offer, a written notice of
withdrawal, delivered by hand, mail or facsimile transmission, must
(a) be received by the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date at the address set forth on the
cover hereof, (b) specify the name of and be signed by the registered
holder of such Old Notes in the same manner as the applicable Letter
of Transmittal (including any required signature guarantees) as set
forth in "The Exchange Offer - Procedures for Tendering" in the
Prospectus, (c) specify the name of the person identified in this
Letter of Transmittal as having tendered the Old Notes to be withdrawn
and (d) specify the aggregate principal amount represented by such
withdrawn Old Notes. If Old Notes have been tendered pursuant to the
procedures for book-entry transfer as set forth herein, any notice of
withdrawal must also specify the name and number of the account at DTC
to be credited with the withdrawn Old Notes. Withdrawals of tenders
of Old Notes may not be rescinded, and any Old Notes withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange
Offer; provided, however, that withdrawn Old Notes may be re-tendered
by again complying with the procedures for tendering Old Notes
described herein at any time prior to 5:00 p.m., New York City time,
on the Expiration Date.
All questions as to the validity, form and eligibility (including
time of receipt) of notices of withdrawal will be determined by the
Issuer, such determination to be final and binding. None of the
Company, the Issuer, the Exchange Agent or any other person will be
under any duty to give notification of any defects or irregularities
in any notice of withdrawal of Old Notes or incur any liability for
failure to give any such notification.
7. Special Issuance and Delivery Instructions. Tendering
holders must indicate in Box 4 or 5, as applicable, the name and
address to which the Exchange Notes or certificates for principal
amounts of Old Notes not tendered or not accepted for exchange are to
be issued and/or sent, if different from the name and address of the
person signing this Letter of Transmittal. In the case of issuance in
a different name, the tax identification number of the person named
must also be indicated. Holders tendering Old Notes by book-entry
transfer may request that principal amounts of Old Notes not tendered
or not accepted for exchange be credited to such account maintained at
DTC as such holder may designate. Any transfer of a beneficial interest in a
Bond must be made in accordance with the Provisions of the Indenture.
8. Transfer Taxes. The Issuer will pay all transfer taxes, if
any, applicable to the transfer of Old Notes to it or its order
pursuant to the Exchange Offer. If, however, the Exchange Notes or
Old Notes not exchanged are to be delivered to, or are to be issued in
the name of, any person other than the record holder, or if tendered
certificates are recorded in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is
imposed by any reason other than the transfer of Old Notes to the
Issuer or its order pursuant to the Exchange Offer, then the amount of
such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory
evidence of payment of taxes or exemption from taxes is not submitted
with this Letter of Transmittal, the amount of transfer taxes will be
billed directly to the tendering holder.
Except as provided in this Instruction 8, it will not be
necessary for transfer tax stamps to be affixed to the certificates
listed in this Letter of Transmittal.
9. Validity of Tenders. All questions as to the validity,
form, eligibility (including time of receipt) and acceptance of Old
Notes tendered for exchange will be determined by the Issuer in its
sole discretion, whose determination will be final and binding. The
Issuer reserves the absolute right to reject any or all tenders that
are not in proper form or the acceptance of which would, in the
opinion of the Issuer or counsel for the Issuer, be unlawful. The
Issuer also reserves the right to waive certain of the conditions to
the Exchange Offer or any irregularities or defects in the tender of
Old Notes. The Issuer's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all persons. Unless waived,
any irregularities in connection with tenders of Old Notes must be
cured within such time as the Issuer shall determine. Neither the
Company, the Issuer, the Exchange Agent nor any other person shall be
under any duty to give notifications of defects or irregularities in
such tenders or shall incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been
made until any defects with respect to such tenders have been cured or
waived.
10. Waiver of Conditions. The Issuer reserves the absolute
right to amend or waive any of the specified conditions in the
Exchange Offer in the case of any Old Notes tendered.
11. Mutilated, Lost, Stolen or Destroyed Certificates. Any
holder whose certificates for Old Notes have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at (800)735-7777 for
further instructions.
12. Requests for Assistance or Additional Copies. Questions
relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus or this Letter of Transmittal, may
be directed to the Exchange Agent at the address listed above, or
L. Stephen Rizzieri, General Counsel of the Issuer, at (972) 980-7159,
4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244.
IMPORTANT: This Letter of Transmittal (together with certificates
representing tendered Old Notes or a confirmation of a book-entry
transfer and all other required documents) must be received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
EXHIBIT A
DEFINITIONS OF FINANCIAL OR INSTITUTIONAL INVESTORS UNDER STATE
SECURITIES LAWS
Alabama. Any bank, savings institution, credit union, trust
company, insurance company or investment company as defined in
the Investment Company Act of 1940, pension or profit-sharing
trust, or other financial institution or institutional buyer, or
any dealer, whether the purchaser is acting for itself or in some
fiduciary capacity.
Alaska. Any bank, savings institution, trust company, insurance
company, investment company as defined in the Investment Company
Act of 1940, pension or profit-sharing trust, or other financial
institution or institutional buyer, or any broker-dealer, whether
the purchaser is acting for itself or in some fiduciary capacity.
Arizona. Any bank, savings institution, insurance company,
dealer or agency or instrumentality of the United States or of a
state or any person a principal part of whose business consists
of buying securities.
Arkansas. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or any
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity.
California. Any (1) bank, savings and loan association, trust
company, insurance company, investment company registered under
the Investment Company Act of 1940, pension or profit-sharing
trust (other than a pension or profit-sharing trust of the
issuer, a self-employed individual retirement plan or an
individual retirement account); (2) any organization described in
Section 501(c)(3) of the Internal Revenue Code, as amended
December 29, 1981, which has total assets (including endowment,
annuity and life income funds) of not less than $5,000,000
according to its most recent audited financial statement; (3) any
corporation which has a net worth on a consolidated basis
according to its most recent audited financial statement of not
less than $14,000,000, provided that if the Securities being
acquired are common stock or Securities exchangeable for or
convertible into common stock, (i) the holders of less than 25%
of the outstanding shares of common stock of the company
(computed as provided by the Rules of the Commissioner of
Corporations, but deeming outstanding all shares of common stock
issuable upon exchange or conversion of securities presently
exchangeable for or convertible into common stock) have addresses
in California according to the records of the company as of its
most recent record date for any action requiring the
determination of shareholders of record, or as of three months
prior to such offer or sale, whichever is most recent; or (ii)
the securities being acquired (plus any other similar securities
of the company held by the purchaser) will not represent more
than five percent of the total number of outstanding shares of
common stock of the company assuming the exchange or conversion
of all securities exchangeable for or convertible into common
stock of the company, provided, however, that the foregoing
limitations shall not apply to a transaction approved by the
holders of seventy-five percent (75%) or more of the outstanding
common stock of the company; (4) any wholly owned subsidiary of
any of the foregoing institutional purchasers, whether the
purchaser is acting for itself or as a trustee; or (5) the
federal government, any agency or instrumentality of the federal
government, any corporation wholly owned by the federal
government, any state, city, city and county, or county, or any
agency or instrumentality of a state, city, city and county, or
county, or any state university or state college, and any
retirement system for the benefit of employees of any of the
foregoing governments or governmental instrumentalities; provided
the purchaser represents that it is purchasing for its own
account (or for such trust account for which it is trustee) for
investment and not with a view to or for sale in connection with
any distribution of the securities.
Colorado. Any of the following purchasers, whether acting for
itself or for others in a fiduciary capacity; (1) broker-dealer;
(2) depository institution, which means a person that is
organized or chartered, or is doing business or holds an
authorization certificate, under the laws of a state or of the
United States which authorize the person to receive deposits,
including deposits in savings, share, certificate, or other
deposit accounts, and is supervised and examined for the
protection of depositors by an official or agency of any state or
the United States, or a trust company or other institution which
is authorized by federal or state law to exercise fiduciary
powers of the type a national bank is permitted to exercise under
the authority of the Comptroller of the Currency and is
supervised and examined by an official or agency of a state or of
the United States but does not include in either case an
insurance company or other organization primarily engaged in the
insurance business; (3) an insurance company or a separate
account of an insurance company; (4) an investment company
registered under the Investment Company Act of 1940; (5) a
business development company as defined in the Investment Company
Act of 1940; (6) a private business development company as
defined in the Investment Advisors Act of 1940; or a small
business investment company licensed by the Small Business
Administration under the Small Business Investment Act of 1958;
(7) an employee pension, profit-sharing, or benefit plan if the
plan has total assets in excess of $5,000,000 or its investment
decisions are made by a named fiduciary, as defined in the
Employee Retirement Income Security Act of 1974, that is a broker-
dealer registered under the Securities Exchange Act of 1934, an
investment adviser registered or exempt from registration under
the Investment Advisors Act of 1940, a depository institution (as
defined above), or an insurance company; (8) an entity, but not
an individual, a substantial part of whose business activities
consist of investing, purchasing, selling, or trading in
securities of more than one issuer and not of its own issue and
that has total assets in excess of $5,000,000 as of the end of
its latest fiscal year, and (9) any other institutional buyer.
Connecticut. Any state bank and trust company, national banking
association, savings bank, savings and loan association, federal
savings and loan association, credit union, federal credit union,
trust company, insurance company, investment company as defined
in the Investment Company Act of 1940, pension or profit-sharing
trust, or other financial institution or institutional buyer, or
any broker-dealer, whether the purchaser is acting for itself or
in some fiduciary capacity.
Delaware. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or any
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity.
District of Columbia. Any bank, savings institution, trust
company, insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, including
a qualified institutional buyer as defined by SEC Rule 144A,
whether acting for itself or in some fiduciary capacity.
Florida. Any bank or trust company, savings institution,
insurance company, dealer, investment company as defined by the
Investment Company Act of 1940, or pension or profit-sharing
trust, or qualified institutional buyer as defined by SEC Rule
144A, whether any of such entities is acting in its individual or
fiduciary capacity.
Georgia. Any bank, savings institution, trust company, insurance
company, or investment company as defined in the Investment
Company Act of 1940, real estate investment trust, small business
investment corporation, pension or profit-sharing plan or trust,
or other financial institution, or any dealer, whether the
purchaser is acting for itself or in some fiduciary capacity.
Hawaii. Any bank, savings institution, trust company, insurance
company, investment company as defined in the Investment Company
Act of 1940, pension or profit-sharing trust, or other financial
institution or institutional buyer, including any organization
coming within the scope of Section 501(c)(3) of the Internal
Revenue Code, or any dealer, whether the purchaser is acting for
itself or in some fiduciary capacity.
Idaho. Any bank, savings institution, trust company, insurance
company, investment company as defined in the Investment Company
Act of 1940, pension or profit-sharing trust, or other financial
institution or institutional buyer, including any qualified
institutional buyer as defined in SEC Rule 144A, or any broker-
dealer, whether the purchaser is acting for itself or in some
fiduciary capacity.
Illinois. (1) Any corporation, bank, savings bank, savings
institution, savings and loan association, trust company,
insurance company, building and loan association, dealer, pension
fund or pension trust, employees' profit-sharing trust; (2) other
financial institutions (including, but not limited to, a manager
of investment accounts on behalf of other than natural persons,
who, with affiliates, exercises sole investment discretion with
respect to such accounts, and provided such accounts exceed 10 in
number and have a fair market value of not less than $10,000,000
at the end of the calendar month preceding the month during which
the transaction occurred for which the exemption is utilized);
(3) institutional investors (including, but not limited to, (a)
investment companies, universities and other organizations whose
primary purpose is to invest its own assets or those held in
trust by it for others, (b) trust accounts or individual or group
retirement accounts in which a bank, trust company, insurance
company or savings and loan institution acts in a fiduciary
capacity, and (c) foundations and endowment funds exempt from
taxation under the Internal Revenue Code, a principal business
function of which is to invest funds to produce income in order
to carry out the purpose of the foundation or fund); or (4) any
government or political subdivision or instrumentality thereof,
whether any purchaser heretofore mentioned is acting for itself
or in some fiduciary capacity; (5) any partnership or other
association engaged as a substantial part of its business or
operations in purchasing or holding securities; (6) any trust in
respect of which a bank or trust company is trustee or co-
trustee; (7) any entity in which at least 90% of the equity is
owned by (i) any entity identified in clause (1) through (6)
above, (ii) a natural person whose individual net worth, or joint
net worth with that person's spouse, exceeds $1,000,000 or who
had an individual income or joint income with that person's
spouse in excess of $200,000 in each of the two most recent years
and who reasonably expects an income in excess of $200,000 in the
current year, or (iii) a director or executive officer of the
issuer; (8) any employee benefit plan within the meaning of Title
1 of Employee Retirement Income Security Act of 1974 if (a) the
investment decision is made by a plan fiduciary as defined in
Section 3(21) of ERISA and such plan fiduciary is either a bank,
savings and loan association, insurance company, registered
investment adviser or an investment adviser registered under the
Investment Advisers Act of 1940, or (b) the plan has total assets
in excess of $5,000,000, or (c) in the case of a self-directed
plan, investment decisions are made solely by persons that are
described above; (9) any plan established and maintained by, and
for the benefit of the employees of, any state or political
subdivision or agency or instrumentality thereof if such plan has
total assets in excess of $5,000,000; or (10) any organization
described in Section 501(c)(3) of the Internal Revenue Code of
1986, any Massachusetts or similar business trust, or any
partnership, if such organization, trust, or partnership has
total assets in excess of $5,000,000.
Indiana. Any bank, savings institution, trust company, insurance
company, investment company as defined in the Investment Company
Act of 1940, pension or profit-sharing trust, or other financial
institution or institutional buyer, including any qualified
institutional buyer as defined in SEC Rule 144A, or any broker-
dealer, whether the purchaser is acting for itself or in a
fiduciary capacity.
Iowa. Any bank, savings and loan association, credit union,
trust company, insurance company, investment company as defined
in the Investment Company Act of 1940, pension or profit-sharing
trust, or other financial institution or institutional buyer, or
any broker-dealer, including (A) any bank or any savings and loan
association or other institution as defined in Section 3(a)(5)(A)
of the Securities Act of 1933, (B) insurance company as defined
in Section 2(13) of the Securities Act of 1933, (C) investment
company registered under the Investment Company Act of 1940 or
business development company as defined in Section 2(a)(48) of
such act, (D) small business investment company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958, (E) plan established
and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has
total assets in excess of $5,000,000, (F) employee benefit plan
within the meaning of the Employee Retirement Income Security Act
of 1974 if the investment decision is made by a plan fiduciary,
as defined in Section 3(21) of such act, which is either a bank,
savings and loan association, insurance company or registered
investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000 or if a self-directed plan, with
investment decisions made solely by persons that are
institutional buyers, (G) private business development company as
defined in Section 202(a)(22) of the Investment Advisors Act of
1940, (H) organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring these securities, with total assets in
excess of $5,000,000, (I) director, executive officer, or general
partner of the issuer of these securities, or any director,
executive officer, or general partner of a general partner of the
issuer, (J) natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of the purchase
exceeds $1,000,000, (K) natural person who had an individual
income in excess of $200,000 in each of the two most recent years
or joint income with that person's spouse in excess of $300,000
in each of those years and has a reasonable expectation of
reaching the same income level in the current year, (L) trust,
with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring these securities, whose purchase is
directed by a person whose has such knowledge and experience in
financial and business matters that the person is capable of
evaluating the merits and risks of these securities, (M) entity
in which all of the equity owners are institutional buyers, (N)
venture or seed capital company, meaning a corporation,
partnership or association that has been in existence for five
years or whose net assets exceed $250,000 and whose primary
business is investing in developmental stage companies or
eligible small business companies as that term is defined in the
regulations of the Small Business Administration, and (O) any
qualified institutional buyer as that term is defined in SEC Rule
144A; whether the purchaser is acting for itself or in a
fiduciary capacity.
Kansas. Any bank, savings institution, trust company, insurance
company, investment company as defined in the Investment Company
Act of 1940, pension or profit-sharing trust, or other financial
institution or institutional buyer, or any broker-dealer or
underwriter, provided that any of the above purchasers (other
than a broker-dealer or underwriter) is acting for its own
account or as a bona fide trustee of a trust organized and
existing other than for the purpose of acquiring the securities.
Kentucky. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or any
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity. The term "institutional buyer"
includes, but is not limited to, any qualified institutional
buyer as defined in SEC Rule 144A.
Louisiana. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, real estate investment trust,
small business investment corporation, pension or profit-sharing
plan or trust, other financial institution or any dealer, whether
the purchaser is acting for itself or in some fiduciary capacity.
Maine. Any financial and institutional investor or broker-
dealer. "Financial and institutional investor" is defined in the
Maine Securities Act to include, but is not limited to: (A) a
depository institution, which means (i) a person which is
organized, chartered or holding an authorization certificate
under the laws of any state or of the United States which
authorizes the person to receive deposits, including a savings,
share, certificate or deposit account, and is supervised and
examined for the protection of depositors by an official or
agency of any state or of the United States, and (ii) a trust
company or other institution which is authorized by state law to
exercise fiduciary powers similar to those permitted to national
banks under the authority of the United States Comptroller of the
Currency, but does not include in either case an insurance
company or other organization primarily engaged in the insurance
business, or any industrial bank, Morris Plan bank or industrial
loan bank; (B) a depository institution holding company; (C) an
insurance company; (D) a separate account of an insurance
company; (E) an investment company as defined by the Investment
Company Act of 1940; (F) a business development company as
defined by the Investment Company Act of 1940; (G) an entity,
other than a natural person, a substantial part of whose business
activities consists of investing, purchasing, selling or trading
in securities of more than one issuer and not of its own issue
and that has gross assets in excess of $1,000,000 at the end of
its latest fiscal year; (H) an employee pension and profit-
sharing or benefit plan (other than an employee pension and
profit-sharing or benefit plan of the issuer), any self-employed
individual retirement plan or individual retirement account, if
(1) the investment decision is made by a plan fiduciary (as
defined in Section 3(21) of the Employee Retirement Income
Security Act of 1974) which is either a depository institution,
an insurance company or an investment adviser registered in
Maine, or (2) the plan has total assets in excess of $5,000,000;
(I) a small business investment company licensed by the Small
Business Administration, under Section 301(c) or (d) of the Small
Business Investment Act of 1958; or (J) an entity organized and
operated not for private profit (as described in the Internal
Revenue Code, Section 501(c)(3)) with total assets in excess of
$5,000,000; whether any purchaser heretofore mentioned is acting
for themselves or in a fiduciary capacity.
Maryland. Any bank, savings and loan association, trust company,
insurance company, broker-dealer, investment company as defined
in the Investment Company Act of 1940, investment adviser with
assets under management of not less than $1,000,000, employee
benefit plan with assets of not less than $1,000,000, or
governmental agency or instrumentality, whether acting for itself
or as a trustee or a fiduciary with investment control, or other
institutional investor as designated by rule or order of the
commissioner, including "accredited investors" as defined in
Section 230.501(a)(1)-(3), (7) and (8) of Regulation D under the
Securities Act of 1933, as amended, and qualified institutional
buyers as defined in SEC Rule 144A.
Massachusetts. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust
(meaning (1) any entity with total assets in excess of $5,000,000
and which is (a) an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974, as amended,
or (b) a self-directed employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974, as
amended with investment decisions made by a person that is an
accredited investor as defined in Section 501(a) of Regulation D
under the Securities Act of 1933, as amended, with investment
decisions made by a plan fiduciary, as defined in Section 2(21)
of the Employee Retirement Income Security Act of 1974, as
amended, which is either a bank, savings and loan association,
insurance company or registered investment advisor, or (3) an
employee benefit plan established and maintained by a state, its
political subdivisions), or other financial institution or
institutional buyer, or any broker-dealer, whether the purchaser
is acting for itself or in some fiduciary capacity.
"Institutional buyer" is defined to include, but is not limited
to: any small business investment company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958, as amended; any private
business development company as defined in the Investment
Advisors Act of 1940, as amended; any business development
company as defined in Section 2(a)(48) of the Investment Company
Act of 1940, as amended; any entity with total assets in excess
of $5,000,000 and which is either: (1) a company (whether a
corporation, a Massachusetts or similar business trust or a
partnership), not formed for the specific purpose of acquiring
the securities, a substantial part of whose business activities
consists of investing, purchasing, selling or trading in
securities issued by others and whose investment decisions are
made by persons who are reasonably believed by the seller to have
such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of
investment, or (2) an organization described in Section 501(c)(3)
of the Internal Revenue Code; or a qualified institutional buyer
as defined in SEC Rule 144A.
Michigan. Any bank, savings institution, trust company,
insurance company, any federal and state savings and loan
association or credit union, or investment company as defined in
the Investment Company Act of 1940, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, or the
Government National Mortgage Association, any pension or profit-
sharing trust the assets of which are managed by an institutional
manager, the Michigan State Treasurer, other financial
institution, including any federal or state savings and loan
association or credit union, or a broker-dealer, whether the
purchaser is acting for itself or in some fiduciary capacity, or
a lender approved by the Federal Housing Administration and who
has satisfied any additional requirements established by the
administrator by rule or order.
Minnesota. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or any
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity. "Financial institution or institutional
buyer" is defined to include (1) a corporation with a class of
equity securities registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, and (2) a person who is an
"accredited investor" within the meaning of Rule 501(a) of
Regulation D.
Mississippi. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, including,
but not limited to (A) any of the following entities, acting for
its own account or the accounts of other institutional buyers,
that in the aggregate owns and invests on a discretionary basis
at least $100 million in securities of issuers that are not
affiliated with the entity: (1) any insurance company as defined
in Section 2(13) of the Securities Act of 1932, (2) any
investment company registered under the Investment Company Act of
1940 or any business development company as defined in Section
2(a)(48) of the Investment Company Act of 1940, (3) any small
business investment company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958, (4) any plan established and maintained
by a state, its political subdivision, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, (5) any employee benefit plan within
the meaning of Title I of the Employee Retirement Security Act of
1974, (6) any business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, (7) any
organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation (other than a bank as defined in
Section 3(a)(2) of the Securities Act of 1933 or a savings and
loan association or other institution referenced in Section
3(a)(5)(A) of the Securities Act of 1933 or a foreign bank or
savings and loan association or equivalent institution),
partnership, or Massachusetts or similar business trust, and (8)
any investment adviser registered under the Investment Advisers
Act of 1940; (B) any dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934, acting for its own account
or the accounts of other institutional buyers, that in the
aggregate owns and invests on a discretionary basis at least
$10,000,000 of securities of issuers that are not affiliated with
the dealer, provided that securities constituting the whole or a
part of an unsold allotment to or subscription by a dealer as a
participant in a public offering shall not be deemed to be owned
by such dealer; (C) any dealer registered pursuant to Section 15
of the Securities Exchange Act of 1934 acting in a riskless
principal transaction on behalf of an institutional buyer; (D)
any investment company registered under the Investment Company
Act of 1940, acting for its own account or for the accounts of
other institutional buyers, that is part of a family of
investment companies which own in the aggregate at least
$100,000,000 in securities of issuers, other than issuers that
are affiliated with the investment company or are part of such
family of investment companies ("family of investment companies"
meaning any two or more investment companies registered under the
Investment Company Act of 1940, except for a unit investment
trust whose assets consist solely of shares of one or more
registered investment companies, that have the same investment
adviser (or, in the case of a unit investment trust, the same
depositor), provided that, for purposes of this section (1) each
series of a series company (as defined in Rule 18f-2 under the
Investment Company Act of 1940) shall be deemed to be a separate
investment company, and (2) investment companies shall be deemed
to have the same adviser (or depositor) if their advisers (or
depositors) are majority-owned subsidiaries of the same parent,
or if one investment company's adviser (or depositor) is a
majority-owned subsidiary of the other investment company's
adviser (or depositor)); (E) any entity, all of the equity owners
of which are institutional buyers, acting for its own account or
the accounts of other institutional buyers, acting for its own
account or the accounts of other institutional buyers; and (F)
any bank as defined in Section 3(a)(2) of the Securities Act of
1933, any savings and loan association or other institution as
referenced in Section 3(a)(5)(A) of the Securities Act of 1933,
or any foreign bank or savings and loan association or equivalent
institution, acting for its own account or the accounts of other
institutional buyers, that in the aggregate owns and invests on a
discretionary basis at least $100,000,000 in securities of
issuers that are not affiliated with it and that has an audited
net worth of at least $25,000,000 as demonstrated in its latest
annual financial statements, as of a date not more than 16 months
preceding the date of sale under this rule in the case of a
United States bank or savings and loan association, and not more
than 18 months preceding such date of sale for a foreign bank or
savings and loan association or equivalent institution; or any
broker-dealer; whether the purchaser is acting for itself or in
some fiduciary capacity.
Missouri. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust
the assets of which are managed by a bank or trust company or
other institutional manager, or other financial institution or
institutional buyer, or any broker-dealer, whether the purchaser
is acting for itself or in some fiduciary capacity. A financial
institution or institutional buyer includes an endowment or trust
fund of a charitable organization specified in Section
170(b)(1)(A) of the Internal Revenue Code, an issuer which has a
class of securities registered under Section 12 of the Securities
Exchange Act of 1934 and any wholly owned subsidiary thereof, any
other corporation, partnership or association which has been in
existence for ten years or whose net assets exceed $500,000 and
whose principal purpose as stated in its articles, bylaws or
other organizational instrument is investing in securities, and
any Qualified Institutional Buyer as defined in SEC Rule 144A.
Montana. Any bank, savings institution, trust company, insurance
company, investment company as defined in the Investment Company
Act of 1940, pension or profit-sharing trust, or other financial
institution or institutional buyer, including any qualified
institutional buyer as defined in SEC Rule 144A, or any broker-
dealer, whether the purchaser is acting for itself or in some
fiduciary capacity.
Nebraska. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust
(including an employee benefit plan as defined in ERISA, if (1)
the investment decisions are made by a plan fiduciary, as defined
in Section 3(21) of such act, which is either a bank, insurance
company or registered investment advisor or (2) the employee
benefit plan has total assets in excess of $5,000,000),
individual accredited investor, or any other financial
institution or institutional buyer, including any bank as defined
in Section 3(a)(2) of the Securities Act of 1933, insurance
company as defined in Section 2(13) of the Securities Act of
1933, business development company as defined in Section 2(a)(48)
of the Investment Company Act of 1940, small business investment
company licensed by the Small Business Administration pursuant to
Section 301(c) or (d) of the Small Business Investment Company
Act of 1958, or any broker-dealer; in each case, whether the
purchaser is acting for itself or in some fiduciary capacity.
Nevada. Any financial or institutional investor, meaning (A) a
depository institution, which means (1) a person that is
organized, chartered or holding an authorization certificate
under the laws of a state or of the United States which
authorizes the person to receive deposits, including a savings,
share, certificate or deposit account, and which is supervised
and examined by an official or agency of a state or of the United
States, and (2) a trust company or other institution authorized
by federal or state law to exercise fiduciary powers of a type a
national bank is permitted to exercise under the authority of the
Comptroller of the Currency and which is supervised and examined
by an official or agency of a state or of the United States (but
excluding, in either case, an insurance company or other company
primarily engaged in the insurance business, or a Morris Plan
bank, industrial loan company or a similar bank or company unless
its deposits are insured by a federal agency); (B) insurance
company or separate account of an insurance company; (C)
investment company as defined in the Investment Company Act of
1940; (D) employee pension, profit-sharing or benefit plan if the
plan has total assets in excess of $5,000,000 or its investment
decisions are made by a named fiduciary, as defined in ERISA,
that is either (1) a broker-dealer registered under the
Securities Exchange Act of 1934, (2) an investment adviser
registered or exempt from registration under the Investment
Company Act of 1940, (3) a depository institution as defined
above or (4) an insurance company; or (F) any other institutional
buyer, or any broker-dealer; in each case, whether the purchaser
is acting for itself or others in a fiduciary capacity other than
as an agent.
New Hampshire. Any bank, savings institution, trust company
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
venture capital company which operates as a small business
investment company under the Small Business Investment Act of
1958, or other financial institution or institutional buyer, or
any broker-dealer, whether the purchaser is acting for itself or
in some fiduciary capacity.
New Jersey. Any bank, savings institution (meaning any savings
and loan association or building and loan association operating
pursuant to the "Savings and Loan Act (1963)", P.L. 1963, c.144
(C.17:12B-2 et seq.), and any federal savings and loan
association and any association organized under the laws of any
state whose accounts are insured by the Federal Savings and Loan
Insurance Corporation and who is subject to supervision and
examination by the Federal Home Loan Bank Board, and any credit
union licensed and supervised under the Credit Union Act of 1984,
P.L. 1984, c.171 (C.17:13-79 et al.) or licensed and supervised
by the National Credit Union Administration), trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or any
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity.
New Mexico. Any depository institution, including (1) a person
which is organized, chartered or holding an authorization
certificate under the laws of a state or of the United States
which authorizes the person to receive deposits, including a
savings, share, certificate or deposit account, which is
regulated, supervised and examined for the protection of
depositors by an official or agency of the state or of the United
States and is insured by the Federal Deposit Insurance
Corporation, the Federal Savings and Loan Insurance Corporation
or the National Credit Union Share Insurance Fund and (2) a trust
company or other institution authorized by federal or state law
to exercise fiduciary powers of the type a national bank is
permitted to exercise under the authority of the Comptroller of
the Currency and is regulated, supervised and examined by an
official or agency of a state or of the United States (but
excluding, in either case, an insurance company or other
organization primarily engaged in the insurance business, or a
Morris Plan bank, industrial loan company or a similar bank or
company); any insurance company, separate account of an insurance
company, investment company as defined in the Investment Company
Act of 1940; any employee pension, profit-sharing or benefit plan
if the plan has total assets in excess of $5,000,000 or if
investment decisions are made by a plan fiduciary (as defined in
ERISA) that is either a broker-dealer registered under the
Securities Exchange Act of 1934, an investment adviser registered
or exempt from registration under the Investment Advisors Act of
1940, a depository institution or an insurance company; any
business development company as defined in the Investment Company
Act of 1940, or small business investment company licensed by the
Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; or any broker-dealer; in
each case, whether the purchaser is acting for itself or in some
fiduciary capacity, other than as an agent. The definition of
"financial and institutional investors" includes, but is not
limited to, any entity (other than a natural person) that is
directly engaged in the business of, and derives at least 80% of
its annual gross income from, investing, purchasing, selling or
trading in securities of more than one issuer and not selling or
trading in securities of its own issue, and that has gross assets
in excess of $5,000,000 at the end of its latest fiscal year; any
entity organized and operated not for private profit as described
in Section 501(c)(3) of the Internal Revenue Code with total
assets in excess of $5,000,000; or a state, a political
subdivision of a state or an agency or corporate or other
instrumentality of a state.
New York. Any state or national bank, trust company, or savings
institution incorporated under the laws and subject to the
examination, supervision and control of any state or of the
United States or of any insular possession thereof, any dealer or
broker, or any syndicate, corporation or group formed for the
specific purpose of acquiring the Notes for resale to the public
directly or through other syndicates or groups.
North Carolina. Any corporation that has a net worth in excess
of $1,000,000, as determined by generally accepted accounting
principles; or any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or any
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity.
North Dakota. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
other financial institution or institutional buyer or dealer.
Ohio. Any bank, trust company, or savings association
incorporated or organized under the laws of the United States or
any state thereof, or of Canada or any province thereof, and
subject to regulation or supervision by such country, state or
province, or any trust in respect of which any of the foregoing
is a trustee or co-trustee. Also, any dealer licensed in Ohio or
any corporation, bank, insurance company, pension fund or pension
fund trust, employees' profit sharing fund or employees' profit
sharing trust, any association engaged, as a substantial part of
its business or operations, in purchasing or holding securities,
or any qualified institutional buyer, as defined in SEC Rule
144A.
Oklahoma. Any depository institution, including (1) a person
that is organized, chartered, or holding an authorization
certificate under the laws of a state or of the United States
which authorizes the person to receive deposits, including a
savings, share, certificate or deposit account, which is
regulated, supervised and examined for the protection of
depositors by an official or agency of a state or of the United
States and (2) a trust company or other institution that is
authorized by federal or state law to exercise fiduciary powers
of the type a national bank is permitted to exercise under the
authority of the Comptroller of the Currency and is supervised
and examined by an official or agency of a state or of the United
States (but excluding an insurance company or other organization
primarily engaged in the insurance business, a Morris Plan bank,
industrial loan company or similar bank or company unless its
deposits are insured by a federal agency); any insurance company
or separate account of an insurance company; any investment
company as defined in the Investment Company Act of 1940; any
employee pension, profit-sharing or benefit plan if the plan has
total assets in excess of $5,000,000 or if investment decisions
are made by a named fiduciary (as defined in ERISA) that is
either a broker-dealer registered under the Securities and
Exchange Act of 1934, an investment adviser registered or exempt
under the Investment Advisors Act of 1940, a depository
institution or an insurance company; any Qualified Institutional
Buyer as defined in SEC Rule 144A; or other institutional buyer,
or any broker-dealer, whether the purchaser is acting for itself
or in some fiduciary capacity.
Oregon. Any bank, savings institution, trust company, insurance
company, investment company, pension or profit-sharing trust, or
other financial institution or institutional buyer (including, by
not limited, to the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Federal Housing
Administration, the United States Department of Veterans' Affairs
and the Government National Mortgage Association), or any broker-
dealer or any mortgage broker (meaning a person who engages for
all or part of the time, for the account of others, or for the
person's own account, in the business of selling real estate
paper whether as issuer, agent or principal to persons other than
those enumerated in Section 59.035(4) of the Oregon Securities
Law, or accepting funds from one or more persons other than those
enumerated in said Section 59.035(4) for investment in real
estate paper), mortgage banker (meaning any person whose business
is originating, processing to completion, funding from its own
resources (i.e., providing funds from its own capital, from lines
of credit or from one or more persons enumerated in said Section
59.035(4)) and servicing or selling real estate paper), or
qualified institutional buyer as defined in SEC Rule 144A,
whether the purchaser is acting for itself or in a fiduciary
capacity when the purchaser has discretionary authority to make
investment decisions.
Pennsylvania. Any bank, banking and trust company, savings bank,
trust company or private bank, as defined in the Banking Code of
1965, or any savings and loan association, as defined in the
Savings Association Code of 1967, or any banking institution
(other than a bank holding company or a bank in organization) the
business of which is substantially confined to the business of
banking and which is supervised and examined as a bank by the
appropriate state or federal authorities having supervision over
such institution, trust company or savings and loan institution
(other than a savings and loan holding company or a savings and
loan in organization) organized under the laws of the United
States or of any state, territory or the District of Columbia,
the business of which is substantially confined to the savings
association business and which is supervised and examined as a
savings association by the appropriate state or federal
authorities having supervision over the institution, or a
receiver, conservator or other liquidating agent of any of the
foregoing, any insurance company, pension or profit-sharing plan
or trust (but only where there are plan assets of at least
$5,000,000 or where securities of at least $500,000 are involved
and a professional investment management advisor has been
retained on an ongoing basis), any investment company as defined
in the Investment Company Act of 1940, other financial
institution or any person, other than an individual, that
controls any of the foregoing, or the federal government or a
state, or any agency or political subdivision thereof, or any
broker-dealer, in each case, whether the purchaser is acting for
itself or in some fiduciary capacity. The Pennsylvania
Securities Commission has by rule included in the foregoing list
of institutional investors: any corporation or business trust or
wholly owned subsidiary of any corporation or business trust that
has been in existence for 18 months and that has a tangible net
worth on a consolidated basis, as reflected in its most recent
audited statements, of not less than $10,000,000; any college,
university, or other public or private institution that has
received exempt status under Section 501(c)(3) of the Internal
Revenue Code of 1954 and that has a total endowment or trust
funds, including annuity and life income funds, of $5,000,000 or
more according to its most recent audited financial statements,
provided that the aggregate dollar amount of securities being
sold to such institution may not exceed 5% of such endowment or
trust funds; a person, other than an individual or an entity
whose security holders consist entirely of one individual or
group of individuals who are related, which is organized
primarily for the purpose of purchasing in non-public offerings,
securities of corporations or issuers engaged in research and
development activities in conjunction with a corporation and
which complies with one of the following four criteria: (1) has
purchased $5,000,000 or more of the securities, excluding both
(a) a purchase of securities of a corporation in which the person
directly or beneficially owns more than 50% of the corporation's
voting securities (except that securities purchased under a
leveraged buy-out financing in which the person does not intend
to provide direct management to the issuer are not excluded) and
(b) any dollar amount of a purchase of securities of a
corporation which investment represents more than 20% of the
investor's net worth, or (2) is capitalized at $2,500,000 or more
and is controlled by an individual controlling a person which
meets the criteria contained in (1) immediately above, or (3) is
capitalized at $10,000,000 or more and has purchased $500,000 or
more of the securities, excluding a purchase of securities of a
corporation in which the person directly or beneficially owns
more than 50% of the corporation's voting securities, or (4) is
capitalized at $250,000 or more and is a side-by-side fund as
defined by Pennsylvania Rule 102.111, subsection (b)(4); any
wholly owned subsidiary of a bank; any small business investment
company, as defined in Section 103 of the Small Business
Investment Act of 1958, that either has total capital of
$1,000,000 or more or is controlled by an institutional investor
listed herein; any Seed Capital Fund as defined in the Small
Business Incubators Act of Pennsylvania; any Business Development
Credit Corporation, as authorized by the Business Development
Credit Corporation Law of Pennsylvania; or any person whose
security holders consists solely of broker-dealers or
institutional investors listed herein.
Rhode Island. Any licensed broker-dealer; or any financial or
institutional investor, whether acting for itself or in a
fiduciary capacity, which is defined as: (1) a depository
institution, which is defined to mean (a) a person that is
organized, chartered, or holding an authorization certificate
under the laws of a state or of the United States, which
authorizes the person to receive deposits, including a savings,
share, certificate or deposit account, and which is supervised
and examined for the protection of depositors by an official or
agency of a state of the United States, or (b) a trust company or
other institution that is authorized by a federal or state law to
exercise fiduciary powers of the type a national bank is
permitted to exercise under the authority of the Comptroller of
the Currency and is supervised and examined by an official or
agency of a state or the United States (but excluding, in either
case, an insurance company or other organization primarily
engaged in the insurance business, a Morris Plan bank, industrial
loan company, or a similar bank or company unless its deposits
are insured by a federal agency); (2) an insurance company or
separate account of an insurance company; (3) an investment
company as defined in the Investment Company Act of 1940; (4) an
employee pension, profit sharing or benefit plan if the plan has
total assets in excess of $5,000,000, or its investment decisions
are made by a plan fiduciary, as defined in ERISA, which is
either a broker-dealer registered under the Securities Exchange
Act of 1934, an investment adviser registered or exempt from
registration under the Investment Company Act of 1940, a
depository institution as defined above or an insurance company;
and (5) any other institutional buyer, including but not limited
to any Qualified Institutional Buyer as defined in SEC Rule 144A.
South Carolina. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or any
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity.
South Dakota. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, including
(1) an endowment or trust fund of a charitable organization
specified in Section 170(b)(1)(A) of the Internal Revenue Code
(as amended through April 1, 1990); (2) an issuer which has a
class of securities registered under Section 12 of the Securities
Exchange Act of 1934 (as amended through April 1, 1990) and any
wholly owned subsidiary of such an issuer; and (3) any other
corporation, partnership, or association which has been in
existence for 10 years or whose net assets exceed $500,000 and
whose principal purpose as stated in its articles, bylaws, or
other organizational instrument is investing in securities (but
excluding any natural person or the individual retirement account
or self-directed Keogh plan of a natural person), or to any
broker-dealer, in each case, whether the purchaser is acting for
itself or in some fiduciary capacity.
Tennessee. Any bank, trust company, insurance company,
investment company registered under the Investment Company Act of
1940, any holding company that controls any of the foregoing, any
trust or fund over which any of the foregoing has or shares
investment discretion, any other person engaged as a substantial
part of its business in investing in securities, in each case
having a net worth in excess of $1,000,000, or any broker-dealer.
Texas. Any bank, trust company, building and loan association,
insurance company, surety or guaranty company, savings
institution (including any federally chartered credit union or
savings and loan association or federal savings bank, and any
credit union or savings and loan association chartered under the
laws of any state of the United States), investment company as
defined in the Investment Company Act of 1940; small business
investment company as defined in the Small Business Investment
Act of 1958, as amended "accredited investor" as defined in SEC
Rule 501(a)(1) through (4), (7) and (8) promulgated by the
Securities and Exchange Commission under the Securities Act of
1933, as amended, as made effective in SEC Release Number 33-
6389, as amended in Release Numbers 33-6437, 33-6663, 33-6758 and
33-6825 (excluding, however, any self-directed employee benefit
plan with investment decisions made solely by persons that are
"accredited investors" as defined in SEC Rule 501(a)(5) through
(6)); any Qualified Institutional Buyer as defined by SEC Rule
144A promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended, as made effective in SEC
Release Number 33-6862 and amended in SEC Release Number 33-6963;
and any corporation, partnership, trust, estate, or other entity
(excluding individuals) having net worth of not less than
$5,000,000 or wholly owned subsidiary of such entity, as long as
the entity was not formed for the purpose of acquiring the
specific securities; or any dealer registered in Texas who is
actually engaged in buying and selling securities; provided the
purchaser is not acting only as agent for another purchaser that
is not a financial institution or other institutional purchaser
as defined herein, and provided further that the purchaser is
acting for its own account or as a bona fide trustee of a trust
organized and existing other than for the purpose of acquiring
the specific securities for which the seller is claiming an
exemption.
Utah. Any bank, savings institution, trust company, insurance
company, investment company as defined in the Investment Company
Act of 1940, pension or profit-sharing trust, or other financial
institution or institutional buyer, including a qualified
institutional buyer as defined in SEC Rule 144A, or any broker-
dealer, whether the purchaser is acting for itself or in some
fiduciary capacity.
Vermont. Any sales made to Qualified Institutional Buyers as
defined by SEC Rule 144A. Sellers who are registered broker-
dealers in Vermont may offer and sell the Notes to any registered
broker-dealer; any depository institution, which is defined to
include (1) any person that is organized, chartered, or holding
an authorization certificate under the laws of a state or of the
United States which authorizes the person to receive deposits,
including a savings, share, certificate, or deposit account, and
which is supervised and examined for the protection of depositors
by an official or agency of a state or the United States, or (2)
any trust company or other institution that is authorized by a
federal or state law to exercise fiduciary powers of the type a
national bank is permitted to exercise under the authority of the
Comptroller of the Currency and is supervised and examined by an
official or agency of a state or the United States (excluding,
however, an insurance company or other organization primarily
engaged in the insurance business or a Morris Plan bank,
industrial loan company, or a similar bank or company unless its
deposits are insured by a federal agency); any insurance company,
separate account of an insurance company or investment company as
defined in the Investment Company Act of 1940; an employee
pension, profit-sharing or benefit plan having total assets in
excess of $5,000,000 or whose investment decisions are made by a
named fiduciary, as defined in ERISA, that is either a broker-
dealer registered under the Securities Exchange Act of 1934, an
investment advisor registered or exempt from registration under
Investment Advisors Act of 1940, a depository institution or an
insurance company; any other financial or institutional buyer
which qualifies as an accredited investor under the provisions of
Regulation D under the Securities Act of 1933, as amended, as
such provisions may be amended form time to time hereafter; in
each case, whether the purchaser is acting for itself or in a
fiduciary capacity; or any registered broker-dealer.
Virginia. Any corporation, investment company, pension or profit-
sharing trust, or any broker-dealer.
Washington. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust
(but excluding an IRA, Keogh account or other self-directed
pension plan), or other financial institution or institutional
buyer, including, a corporation, business trust, or partnership
or wholly owned subsidiary of such an entity, which has been
operating for at least 12 months and which has a net worth on a
consolidated basis of at least $10,000,000 as determined by the
entity's most recent audited financial statements, such
statements to be dated within 16 months of the transaction made
in reliance upon this exemption; or any entity which has been
granted exempt status under Section 501(c)(3) of the Internal
Revenue Code of 1986 and which has a total endowment or trust
funds of $5,000,000 or more according to its most recent audited
financial statements, such statements to be dated within 16
months of the transaction made in reliance upon this exemption;
any wholly owned subsidiary of a bank, savings institution,
insurance company, or investment company, as defined in the
Investment Company Act of 1940; any qualified institutional buyer
as defined in SEC Rule 144A; or any broker-dealer; in each case,
whether the purchaser is acting for itself or in some fiduciary
capacity.
West Virginia. Any bank, savings institution, trust company,
insurance company, investment company as defined in the
Investment Company Act of 1940, pension or profit-sharing trust,
or other financial institution or institutional buyer, or any
broker-dealer, whether the purchaser is acting for itself or in
some fiduciary capacity.
Wisconsin. Any bank, savings institution, savings bank, credit
union, trust company, insurer, broker-dealer, investment adviser
or savings and loan association, provided such purchaser is
acting for itself or as trustee with investment control; a
pension or profit-sharing trust or an individual retirement
account (except that an offer or sale of a security to a pension
or profit-sharing trust or to an individual retirement plan,
including a self-employed individual retirement plan, is not
exempt unless the trust or plan is administered by a bank,
savings institution, savings bank, credit union, trust company,
insurer, broker-dealer, investment adviser or savings and loan
association that has investment control); any investment company
as defined in the Investment Company Act of 1940; the state of
Wisconsin or any of its agencies or political subdivisions; the
federal government or any of its agencies or instrumentalities;
or any financial institution or institutional investor designated
by rule or order of the Commissioner of Securities of Wisconsin.
The Commissioner of Securities has by rule defined "financial
institution or institutional investor" to include (1) any
endowment or trust fund of a charitable organization specified in
Section 170(b)(1)(A) of the Internal Revenue Code, (2) any issuer
that has a class of securities registered under Section 12 of the
Securities Exchange Act of 1934, and any wholly owned subsidiary
thereof, (3) a venture capital company as a result of meeting any
of the following requirements: (a) operating a small business
investment company licensed under the Small Business Investment
Act of 1958; or (b) being a corporation, partnership or
association whose net assets exceed $1,000,000 or which has
existed for more than five years and either: (i) whose
principal purpose as stated in its articles, bylaws, or other
organizational instruments is investing in securities; or (ii)
whose primary business is investing in developmental stage
companies or eligible small business companies as defined in the
regulations of the Small Business Administration at 13 CFR 108.2,
and (4) any qualified institutional buyer, as defined and listed
in Rule 144A under the Securities Act of 1933, whether acting for
its own account or the accounts of other qualified institutional
buyers, that in the aggregate owns and invests on a discretionary
basis at least $100 million in securities of issuers that are not
affiliated with the qualified institutional buyer; any accredited
investor, as defined and listed in Section 230.501(a)(1), (2),
(3) or (7) of Regulation D under the Securities Act of 1933; and
any individual accredited investor, meaning (i) any director,
executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive
officer, or general partner of that issuer, (ii) any natural
person whose individual net worth, or joint net worth with that
person's spouse, at the time of his or her purchase exceeds
$1,000,000, or (iii) any natural person who had an individual
income in excess of $200,000 in each of the two most recent years
or joint income with that person's spouse in excess of $300,000
in each of those years and has a reasonable expectation of
reaching the same income level in the current year, provided, in
each case, that the issuer reasonably believes immediately before
the sale that the individual accredited investor, either alone or
with the individual accredited investor's representative, has
such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of the
prospective investment.
Wyoming. Any bank, savings institution, trust company, insurance
company, investment company as defined in the Investment Company
Act of 1940, pension or profit-sharing trust, or other financial
institution or institutional buyer, including Qualified
Institutional Buyers as defined in SEC Rule 144A, or any broker-
dealer, whether the purchaser is acting for itself or in some
fiduciary capacity.
EXHIBIT 99.02
NOTICE OF GUARANTEED DELIVERY
for tender of
12-1/2% Senior Secured Notes due 2004
of
Panda Global Energy Company
This form or one substantially equivalent hereto must be used to
accept the Exchange Offer (as defined below) if the 12-1/2% Senior Secured
Notes due 2004 (the "Old Notes") of Panda Global Energy Company (the "Issuer")
are not immediately available or if the procedure for book-entry transfer
cannot be completed on a timely basis or time will not permit all
required documents to reach the Exchange Agent prior to the Expiration Date
(as defined below) as set forth in the Prospectus dated _______, 1997 (as the
same may be amended or supplemented from time to time, the "Prospectus") of the
Issuer under the caption "The Exchange Offer - Procedures for Tendering" and in
the Letter of Transmittal. Such form may be delivered by hand or
transmitted by telegram, telex, facsimile transmission or letter to the
Exchange Agent. Each term used herein with its initial letter capitalized
and not otherwise defined shall have the meaning assigned to such term in
the Prospectus.
TO:
BANKERS TRUST COMPANY
(the "Exchange Agent")
Facsimile Transmission:
(615) 835-3701
Confirm by telephone to:
(615) 835-3572
By Mail: By Hand Delivery By Overnight Courier
or Certified Mail:
BT Services Bankers Trust Company BT Services
Tennessee, Inc. Corporate Trust Tennessee, Inc.
Reorganization Unit Agency Group Corporate Trust &
P.O. Box 292737 Receipt & Delivery Window Agency & Group
Nashville, TN 123 Washington Street, Reorganization Unit
37229-2737 1st Floor 648 Grassmere Park Road
New York, NY 10006 Nashville, TN 37211
For Information Call:
(800) 735-7777
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged,
the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedures described in the Prospectus and the Letter
of Transmittal.
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1997, unless
extended by the Issuer. With respect to the Exchange Offer, "Expiration
Date" means such time and date, or if the Exchange Offer is extended, the
latest time and date to which the Exchange Offer is so extended by the
Issuer.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees
in bankruptcy and other legal representatives of the undersigned.
Name(s) of Record Holders: Principal amount of Old Notes tendered:
$
Certificate Nos. of Old Notes (if available):
(Please Type or Print)
Address:
IF OLD NOTES WILL BE DELIVERED BY BOOK
Area Code and ENTRY TRANSFER, CHECK BOX AND PROVIDE THE
Telephone No.: DEPOSITORY TRUST COMPANY ACCOUNT
NUMBER:
Capacity (full title), if signing
in a representative capacity:
Account No.:
Tax Payer Identification
or Social Security Number:
SIGNATURES
Signature of Record Holder
Signature of Record Holder (if more than one)
Dated:
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States or an entity that is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), hereby guarantees
(a) that the above-named person(s) own(s) the above-described securities
tendered hereby within the meaning of Rule 10b-4 under the Exchange Act,
(b) that such tender of the above-described securities complies with Rule
10b-4, and (c) that delivery to the Exchange Agent of securities tendered
hereby, in proper form for transfer, or confirmation of book-entry transfer
of such securities into Exchange Agent's account at The Depository Trust
Company pursuant to the procedure for book-entry transfer, in either case
with delivery of a properly completed and duly executed Letter of
Transmittal and any other required documents, is being made within five
Business Days after the Expiration Date.
(Name of Firm) (Authorized Signature)
Address:
Title:
Name:
(please type or print)
Area Code and
Telephone No.:
Date:
Fax No.:
NOTE: DO NOT SEND CERTIFICATES REPRESENTING OLD NOTES WITH THIS NOTICE.
OLD NOTES MUST BE SENT TO THE EXCHANGE AGENT WITH A PROPERLY COMPLETED AND
DULY EXECUTED LETTER OF TRANSMITTAL.
EXHIBIT 99.03.01
[Burns & McDonnell Letterhead]
Officer's Certificate
I, Michael W. McComas, Vice President of Burns & McDonnell
Engineering Company, Inc., DO HEREBY CERTIFY that:
Since April 11, 1997, no event affecting our report entitled
"Panda-Rosemary Cogeneration Project Condition Assessment Report
for Potential Investors at the Request of Panda Energy
Corporation," dated April 11 (the "Independent Engineer's
Report") or the matters referred to therein has occurred (i)
which makes untrue or incorrect in any material respect, as the
date hereof, any information or statement contained in the
Independent Engineer's Report or in the Prospectus relating to
the offering of 12-1/2% Registered Senior Secured Notes due 2004
by Panda Global Energy Company (the "Prospectus") under the
captions "Summary -- Independent Engineers' and Consultants'
Reports -- Consolidating Financial Analyst's Pro Forma Report,"
"Description of the Projects -- The Rosemary Facility --
Independent Engineers' and Consultants' Reports -- Rosemary
Engineering Report," "Description of the Projects -- The Rosemary
Facility -- Independent Engineers' and Consultants' Reports --
Rosemary Fuel Consultant's Report," "Independent Engineers and
Consultants -- Consolidated Pro Forma," and "Independent
Engineers and Consultants -- Rosemary Facility" in the Prospectus
or (ii) which is not reflected in the Prospectus but should be
reflected therein in order to make the statements and information
contained in the Independent Engineer's Report or in the
Prospectus under the captions set forth above in the light of the
circumstances under which they were made, not misleading.
WITNESS my hand this 7th day of August 1997.
By: /s/ Michael W. McComas
Name: Michael W. McComas
Title: Vice President
EXHIBIT 99.04.01
[Schlesinger Letterhead]
BENJAMIN SCHLESINGER AND ASSOCIATES, INC.
Officer's Certificate
I, Benjamin Schlesinger, Principal of Benjamin Schlesinger
and Associates, Inc., DO HEREBY CERTIFY that:
Since April 11, 1997, no event affecting our report entitled
"Assessment of Fuel Price, Supply and Delivery Risks for the
Panda-Rosemary Cogeneration Project" dated September 20, 1996 and
updated April 11, 1997 (the "Fuel Consultant's Report") or the
matters referred to therein has occurred (i) which makes untrue
or incorrect in any material respect, as the date hereof, any
information or statement contained in the Fuel Consultant's
Report or in the Prospectus relating to the offering of 12-1/2%
Registered Senior Secured Notes due 2004 by Panda Global Energy
Company (the "Prospectus") under the captions "Description of the
Projects -- The Rosemary Facility -- Independent Engineers' and
Consultants' Reports -- Rosemary Fuel Consultant's Report" and
"Independent Engineers and Consultants -- Rosemary Facility" in
the Prospectus or (ii) which is not reflected in the Prospectus
but should be reflected therein in order to make the statements
and information contained in the Fuel Consultant's Report or in
the Prospectus under the captions set forth above, in the light
of the circumstances under which they were made, not misleading.
WITNESS my hand this 7th day of August, 1997.
By: /s/ Benjamin Schlesinger
Name: Benjamin Schlesinger, Ph.D.
Title: President
EXHIBIT 99.05.01
[PES Letterhead]
PACIFIC ENERGY SYSTEMS, INC.
Officer's Certificate
I, John R. Martin, President of Pacific Energy Systems,
Inc., DO HEREBY CERTIFY that to the best of my knowledge and
belief since April 11, 1997, no event affecting our report
entitled "Independent Engineer's Report, Panda-Brandywine
Cogeneration Project," dated July 22, 1996 and updated April 11,
1997 (the "Independent Engineer's Report") or the matters
referred to therein has occurred (i) which makes untrue or
incorrect in any material respect, as of the date hereof, any
information or statement contained in the Independent Engineer's
Report or in the Prospectus relating to the offering of 12-1/2%
Registered Senior Secured Notes due 2004 by Panda Global Energy
Company (the "Prospectus") under the captions "Description of the
Projects - The Brandywine Facility - Independent Engineers' and
Consultants' Reports - Brandywine Pro Forma Report," "Description
of the Projects - The Brandywine Facility - Independent
Engineers' and Consultants' Reports - Brandywine Engineering
Report," and "Independent Engineers and Consultants - Brandywine
Facility" in the Prospectus or (ii) which is not reflected in the
Prospectus but should be reflected therein in order to make the
statements and information contained in the Independent
Engineer's Report or in the Prospectus under the captions set
forth above in light of the circumstances under which they were
made, not misleading.
WITNESS my hand this 7th day of August, 1997
By: /s/ John R. Martin
Name: John R. Martin, P.E.
Title: President
EXHIBIT 99.06.01
[CC Pace Letterhead]
Officer's Certificate
I, Daniel E. White, Senior Vice President of C.C. Pace
Resources, Inc. ("Pace"), DO HEREBY CERTIFY that:
Except as set forth in our supplemental update letter dated
April 11, 1997, to our knowledge, since July 2, 1996, no event
affecting our report entitled "Panda-Brandywine, L.P. Generating
Facility Fuel Consultant's Report" (the "Fuel Consultant's
Report") or the matters referred to therein has occurred which
makes untrue or incorrect in any material respect, as of the date
hereof, any information or statement contained in the Fuel
Consultant's Report used in the Prospectus constituting part of
the Registration Statement on Form S-1 by Panda Global Energy
Company and Panda Global Holdings, Inc.
WITNESS my hand this 7th day of August 1997.
By: /s/ Daniel E. White
Name: Daniel E. White
Title: Senior Vice President
EXHIBIT 99.07.01
[ICF Kaiser Letterhead]
Officer's Certificate
I, Theodore Breton, of ICF Resources Incorporated, DO
HEREBY CERTIFY that:
Since April 11, 1997, to our knowledge, no event affecting
our reports entitled "Independent Panda-Brandywine Pro Forma
Projections," dated April 11, 1997 and "Summary of the
Consolidated Pro Forma of Panda Global Holdings, Inc." dated
April 11, 1997 (the "Pro Forma Reports") or the matters referred
to therein has occurred which makes untrue or incorrect in any
material respect, as the date hereof, any information or
statement contained in the Pro Forma Reports or in the Prospectus
relating to the offering of 12-1/2% Registered Senior Secured
Notes due 2004 by Panda Global Energy Company (the "Prospectus")
under the captions "Summary - Independent Engineers' and
Consultants' Reports - Consolidating Financial Analyst's Pro
Forma Report," "Description of the Projects - The Rosemary
Facility - Independent Engineers' and Consultants' Reports -
Rosemary Engineering Report," "Description of the Projects - The
Brandywine Facility - Disagreement with PEPCO Over Calculation of
Capacity Payment," "Description of the Projects - The Brandywine
Facility - Independent Engineers' and Consultants' Reports -
Brandywine Pro Forma Report," "Description of the Projects - The
Brandywine Facility - Independent Engineers' and Consultants'
Reports - Brandywine Fuel Consultants' Report," "Independent
Engineers and Consultants - Consolidated Pro Forma" and
"Independent Engineers and Consultants - Brandywine Facility" in
the Prospectus.
WITNESS my hand this 7th day of August 1997.
By: /s/ Theodore R. Breton
Name: Theodore R. Breton
Title: Vice President
