As Filed with the Securities and Exchange Commission on September 8, 1997
Registration No. 333-29005
333-29005-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
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. ___
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
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 OCTOBER 8, 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 June 30, 1997, the Company
and its subsidiaries had approximately $342 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 October 8, 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 September 8, 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 Currency Due to Governmental 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 if it were 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 to
Obligations of Project Entities and Joint Ventures."
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 Moddy'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 to Obligations
of Project Entities and Joint Ventures".
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 June 30, 1997, the Project Entities had approximately
$342.0 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 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 June 30,
1997, PFC had approximately $109.7 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 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 and the Exchange Notes Guarantee will be the
exclusive obligations of the Issuer and the Company, respectively, and not
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 June 30, 1997, the Project Entities had approximately
$342.0 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 Brandywine Financing".
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 an 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 Exchange Notes
Trustee; (iv) 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 the 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 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."
[chart]
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 October 8, 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 October 8, 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 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.
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 and the Company in writing
that they have acquired Exchange
Notes for their own account (which
notification must be made in the
applicable location in the Letter of
Transmittal that is deliverd by such
broker-dealer along with such broker-
dealer's Old Notes to be exchanged
pursuant to the Exchange Offer). 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 Distributions From, Luannan Facility
(When Constructed), Rosemary Facility and Brandywine Facility.
- Distributions 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 six months ended June 30, 1996 and
1997, which have been derived from the Company's financial statements. Also
presented is unaudited pro forma consolidated financial data for the year
ended December 31, 1996 and for the six months ended June 30, 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
June 30, 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.
These transactions are reflected in the historical balance sheet data as of
June 30, 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 JUNE 30
-------------------------------------------- --------------------------------
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 $14,559 $ 32,286 $ 32,286
Steam and chilled water sales ................... 650 473 502 502 263 284 284
Interest income ................................. 603 895 1,518 1,518 387 2,915 2,915
-------- -------- -------- -------- ------- -------- --------
Total revenue .............................. 31,917 31,227 34,294 34,294 15,209 35,485 35,485
Plant operating expenses ........................ 8,940 9,348 12,050 12,050 5,061 13,629 13,629
Development and administrative expenses ......... 1,779 2,550 5,187 5,187 1,747 4,866 4,866
Interest expense ................................ 11,018 11,716 19,414 46,055 6,370 25,026 31,391
Depreciation .................................... 4,208 4,210 5,532 5,421 2,106 5,898 5,898
Amortization - Debt issuance costs .............. 600 554 494 1,413 282 415 719
Amortization - Partnership formation costs ...... 533 533 533 533 267 -- --
-------- -------- -------- -------- ------- -------- --------
Total expenses ............................. 27,078 28,911 43,210 70,659 15,833 49,834 56,503
Income (loss) before minority interest .......... 4,839 2,316 (8,916) (36,365) (624) (14,349) (21,018)
Minority interest ............................... (5,700) (5,048) (2,405) 2,557 (1,906) 160 960
-------- -------- -------- -------- ------- -------- --------
Net loss before extraordinary item .............. (861) (2,732) (11,321) $(33,808) (2,530) (14,189) $(20,058)
======== ========
Extraordinary loss on early
extinguishment of debt ......................... -- -- (21,336) -- --
-------- -------- -------- ------- --------
Net loss ................................... $ (861) $ (2,732) $(32,657) $(2,530) $(14,189)
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash and other current assets .................... $ 15,639 $ 11,339 $ 36,626 $ 16,246 $113,539
Power plant and equipment (net) .................. 96,136 220,145 268,725 258,036 288,440
Reserves and escrow deposits, and other
assets ........................................... 15,477 15,471 40,119 15,712 106,328
-------- -------- -------- -------- --------
Total assets ................................ $127,252 $246,955 $345,470 $289,994 $508,307
======== ======== ======== ======== ========
Current liabilities .............................. $ 12,531 $ 18,457 $ 19,667 $ 19,641 $ 22,793
Long-term debt (including capital
lease obligation) less current portion ..... 106,343 234,608 427,319 274,344 577,777
</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 six months ended June 30,
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 Pro Forma Consolidated 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, June 30,
December 31, --------------------- ---------------------
1994 1995 1996 1996 1997
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (Unaudited)
Interest income ................................................ $ -- $ -- $ -- $ -- $ 1,558
General and administrative expenses ............................ 203 444 1,654 554 1,054
Interest and letter of credit fees ............................. -- -- -- -- 3,438
Amortization of debt issuance costs ............................ -- -- -- -- 197
----- ------- ------- ------- -------
Total expenses 203 444 1,654 554 4,689
Net loss before minority interest (203) (444) (1,654) (554) (3,131)
Minority interest -- -- -- -- 160
----- ------- ------- ------- -------
Net loss .............................................. $(203) $ (444) $(1,654) $ (554) $ (2,971)
===== ======= ======= ======= =======
<CAPTION>
December 31, June 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (Unaudited)
Cash and other current assets ................................ $ 101 $ 6 $ 506 $ 6 $ 76,406
Power plant and equipment (net) .............................. 428 1,059 3,292 2,322 28,006
Reserves and escrow deposits and other assets ................ -- -- -- -- 62,826
----- ------- ------- ------- -------
Total assets .......................................... $ 529 $ 1,065 $ 3,798 $ 2,328 $167,238
===== ======= ======= ======= =======
Current liabilities .......................................... $ -- $ -- $ -- $ -- $ 3,667
Long-term debt ............................................... -- -- -- -- 145,196
Minority interest -- -- -- -- 5,581
Shareholder's equity ......................................... 529 1,065 3,798 2,328 12,794
----- ------- ------- ------- -------
Total liabilities and shareholder's equity............. $ 529 $ 1,065 $ 3,798 $ 2,328 $167,238
===== ======= ======= ======= =======
</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 September 5, 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).
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 September 5, 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 measures 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 performance 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 September 5,
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 qualities 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 Supply 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 June 30, 1997, the Company's total consolidated
long-term indebtedness (including capital lease obligation) was $583.4
million, its total consolidated assets were $508.3 million and its
consolidated shareholder's deficit was $105.0 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 June 30, 1997, the
Project Entities had approximately $342.0 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 June 30, 1997, PFC had approximately $109.7
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 Factors-Financial
Risks-Risk in Case of Foreclosure on Assets of Underlying Projects of the
Company or Equity Interests 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 "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 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 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, specified 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 sufficient funds to make such 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 Underlying Assumptions 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 Risks 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, or delay or prevent the
completion of construction or the commencement of commercial operations 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-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 Approvals Regarding Level of Foreign
Investment in Luannan Facility" below. There can be no assurance 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 Facility: Lack of Fixed Capacity Payments and Risk Therefrom
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 Facility 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 Partnerships' 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 under the Luannan Power Purchase Agreement 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 Foreign 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 FIEs 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 Issuer 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 Timely 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 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 will 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. dollar (unless
offset by inflation in China) could 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 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 Currency 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."
Amendments 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
Risks 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 on 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 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 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. In
certain circumstances, Indentures Events of Default will occur in regard to
both the Exchange Notes Indenture and the Company Indenture, and as a result,
the Company and the Issuer may not have sufficient funds to pay all amounts
that become immediately due.
Panda of Nepal Facility
Risk That Financial Closing and Commercial Operations Will Not be Achieved
While Panda International has received various commitment letters from
multilateral agencies to provide for some of the financing for the Panda of
Nepal Facility, it still is seeking the requisite additional funding for this
Project. 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 Accuracy of Certain Information in This Prospectus Regarding Nepal has
not been Independently Verified by the Issuer or the Company
Certain information contained in this Prospectus concerning Nepal has
been obtained by the Issuer and the Company from various sources. Official
statistics in Nepal may 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.
Risk of Glacier Lake Outburst Flood
The Bhote Koshi River is a perennial stream fed by glaciers, snow melt
and monsoons. A glacier lake outburst flood occurred in 1981, causing
significant damage to a highway and the Sunkoshi Hydroelectric Project
downstream from the Project site. In the event that the Nepal Project
achieves Financial Closing and Commercial Operations, there can be no
assurance that another such glacial lake outburst flood will not occur,
causing significant damage to the Nepal Project.
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 11,456,212 shares of Common Stock of Panda International
outstanding at June 30, 1997. Of this amount, 4,418,957 shares (38.6%) 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
(18.6%). Other directors, officers and employees of Panda International own
less than 1% of the outstanding shares of Common Stock. At June 30, 1997: (i)
there were outstanding options to acquire 1,124,000 shares of Common Stock of
Panda International (options for 1,043,000 shares being fully vested and for
81,000 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 June 30, 1997, which reflects the issuance of
the Old Notes and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds."
June 30, 1997
(in thousands)
Long-term debt:
Old Notes due 2004 $145,196
Minority interest 5,581
Shareholder's equity 12,794
Total capitalization $163,571
The following table sets forth the capitalization of the Company and its
consolidated subsidiaries as of June 30, 1997, which reflects the issuance of
the Old Notes and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds".
June 30, 1997
(in thousands)
Short-term debt and current portion of long-
term debt:
Current portion of Rosemary Bonds due 2016 $ 5,606
Long-term debt:
Old Notes due 2004 145,196
Series A Bonds due 2012 105,309
Brandywine capital lease obligation 225,605
Rosemary Bonds due 2016, less current portion 101,667
Total long-term debt, including capital 577,777
lease obligation
Minority interest 5,581
Shareholder's deficit (105,035)
Total capitalization $483,929
____________________________
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 June 30, 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. These transactions, which occurred on April 22,
1997, are reflected in the historical consolidated balance sheet of the
Company as of June 30, 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, whose guarantee of the Old Notes is full and unconditional.
Also, the capitalization table presents the 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 SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRIOR
HISTORICAL OFFERING PRO FORMA
-------- ------- ---------
<S> <C> <C> <C>
REVENUE:
Electric capacity and energy sales ....... $ 32,286 $ -- $ 32,286
Steam and chilled water sales ............ 284 -- 284
Interest income .......................... 2,915 -- 2,915
-------- ------- --------
Total revenue .............. 35,485 -- 35,485
EXPENSES:
Plant operating expenses ................. 13,629 -- 13,629
Development and administrative expenses .. 4,866 -- 4,866
Interest expense ......................... 25,026 6,365(H) 31,391
Depreciation ............................. 5,898 -- 5,898
Amortization - Debt issuance costs ....... 415 304(I) 719
Amortization - Partnership formation costs -- -- --
-------- ------- --------
Total expenses ............. 49,834 6,669 56,503
-------- ------- --------
Loss before minority interest............. (14,349) (6,669) (21,018)
Minority interest 160 800(G) 960
-------- ------- --------
Net loss $(14,189) $(5,869) $(20,058)
======== ======= ========
</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 over a life of 7 years to
maturity of the Old Notes.
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 June 30, 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 six months ended June 30,
1996 and 1997 and the period from inception through June 30, 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.
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 June 30, 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 six months ended June 30,
1996 and 1997 and the period from inception through June 30, 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 prececessor, 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 Six Months Ended Inception
through December 31, June 30, through
December 31, ------------------- ----------------- June 30,
1994 1995 1996 1996 1997 1997
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (Unaudited) (Unaudited)
Interest income $ -- $ -- $ -- $ -- $ 1,558 $ 1,558
General and administrative expenses .............. 203 444 1,654 554 1,054 3,355
Interest and letter of credit fees................ -- -- -- -- 3,438 3,438
Amortization of debt issuance costs .............. -- -- -- -- 197 197
---- ---- ------ ---- ------- ------
Total expenses ............................. 203 444 1,654 554 4,689 6,990
Net loss before minority interest (203) (444) (1,654) (554) (3,131) (5,432)
Minority interest -- -- -- -- 160 160
---- ---- ------ ---- ------- ------
Net loss ................................ $(203) $(444) $(1,654) $(554) $(2,971) $(5,272)
==== ==== ====== ==== ======= ======
<CAPTION>
December 31, June 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (Unaudited)
Cash and other current assets ................................ $ 101 $ 6 $ 506 $ 6 $ 76,406
Power plant and equipment (net)............................... 428 1,059 3,292 2,322 28,006
Reserves and escrow deposits and other assets ................ -- -- -- -- 62,826
----- ------- ------- ------- --------
Total assets .......................................... $ 529 $ 1,065 $ 3,798 $ 2,328 $167,238
===== ======= ======= ======= ========
Current liabilities .......................................... $ -- $ -- $ -- $ -- $ 3,667
Long-term debt ............................................... -- -- -- -- 145,196
Minority interest............................................. -- -- -- -- 5,581
Shareholder's equity ......................................... 529 1,065 3,798 2,328 12,794
---- ------- ------- ------- --------
Total liabilities and shareholder's equity............. $ 529 $ 1,065 $ 3,798 $ 2,328 $167,238
===== ======= ======= ======= ========
</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 six months ended June 30, 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30
------------------------------------------------------------ ----------------------
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 $ 14,559 $ 32,286
Steam and chilled water sales ............ 624 618 650 473 502 263 284
Interest income .......................... 562 365 603 895 1,518 387 2,915
--------- --------- --------- --------- --------- --------- ---------
Total revenue ................... 30,723 30,839 31,917 31,227 34,294 15,209 35,485
EXPENSES:
Plant operating expenses ................. 7,534 7,676 8,940 9,348 12,050 5,061 13,629
Development and administrative expenses .. 1,608 2,434 1,779 2,550 5,187 1,747 4,866
Interest expense ......................... 11,478 11,066 11,018 11,716 19,414 6,370 25,026
Depreciation ............................. 4,177 4,282 4,208 4,210 5,532 2,106 5,898
Amortization-- Debt issuance costs ....... 436 502 600 554 494 282 415
Amortization-- Partnership formation costs 533 533 533 533 533 267 --
--------- --------- --------- --------- --------- --------- ---------
Total expenses .................. 25,766 26,493 27,078 28,911 43,210 15,833 49,834
Income (loss) before taxes and minority
interest ............................ 4,957 4,346 4,839 2,316 (8,916) (624) (14,349)
Minority interest ........................ (5,249) (5,474) (5,700) (5,048) (2,405) (1,906) 160
Provision for income taxes ............... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items . (292) (1,128) (861) (2,732) (11,321) (2,530) (14,189)
Extraordinary loss, net(1) ............... -- -- -- -- (21,336) -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss ........................ $ (292) $ (1,128) $ (861) $ (2,732) $ (32,657) $ (2,530) $ (14,189)
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
Ratio of earnings to fixed charges(2) .... 1.42x 1.38x 1.32x (2) (2) (2) (2)
<CAPTION>
DECEMBER 31, JUNE 30
------------------------------------------------------------ ----------------------
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 $ 16,246 $ 113,539
Power plant and equipment (net) .......... 96,529 93,815 96,136 220,145 268,725 258,036 288,440
Reserves and escrow deposits,
and other assets .................... 15,778 15,650 15,477 15,471 40,119 15,712 106,328
--------- --------- --------- --------- --------- --------- ---------
Total assets .................... $ 127,474 $ 123,549 $ 127,252 $ 246,955 $ 345,470 $ 289,994 $ 508,307
========= ========= ========= ========= ========= ========= =========
Current liabilities ...................... $ 9,735 $ 11,252 $ 12,531 $ 18,457 $ 19,667 19,641 $ 22,793
Deferred revenue ......................... -- -- -- -- -- -- 7,191
Long-term debt (including capital lease
obligation), less current portion ... 103,200 89,454 106,343 234,608 427,319 274,344 577,777
Minority interest ........................ 33,346 34,479 35,588 36,836 -- 37,614 5,581
Shareholder's deficit .................... (18,807) (20,636) (27,210) (42,946) (101,516) (41,605) (105,035)
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and
shareholder's deficit ........ $ 127,474 $ 123,549 $ 127,252 $ 246,955 $ 345,470 $ 289,994 $ 508,307
========= ========= ========= ========= ========= ========= =========
</TABLE>
SELECTED FINANCIAL DATA OF THE COMPANY
Presented below are selected consolidate 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 six months ended June 30, 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 of Results of Operations of the Company" and the
consolidated financial statements of the Company, including the notes thereto,
included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30
------------------------------------------------------------ ----------------------
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 $ 14,559 $ 32,286
Steam and chilled water sales ............ 624 618 650 473 502 263 284
Interest income .......................... 562 365 603 895 1,518 387 2,915
--------- --------- --------- --------- --------- --------- ---------
Total revenue ................... 30,723 30,839 31,917 31,227 34,294 15,209 35,485
EXPENSES:
Plant operating expenses ................. 7,534 7,676 8,940 9,348 12,050 5,061 13,629
Development and administrative expenses .. 1,608 2,434 1,779 2,550 5,187 1,747 4,866
Interest expense ......................... 11,478 11,066 11,018 11,716 19,414 6,370 25,026
Depreciation ............................. 4,177 4,282 4,208 4,210 5,532 2,106 5,898
Amortization-- Debt issuance costs ....... 436 502 600 554 494 282 415
Amortization-- Partnership formation costs 533 533 533 533 533 267 --
--------- --------- --------- --------- --------- --------- ---------
Total expenses .................. 25,766 26,493 27,078 28,911 43,210 15,833 49,834
Income (loss) before taxes and minority
interest ............................ 4,957 4,346 4,839 2,316 (8,916) (624) (14,349)
Minority interest ........................ (5,249) (5,474) (5,700) (5,048) (2,405) (1,906) 160
Provision for income taxes ............... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items . (292) (1,128) (861) (2,732) (11,321) (2,530) (14,189)
Extraordinary loss, net(1) ............... -- -- -- -- (21,336) -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss ........................ $ (292) $ (1,128) $ (861) $ (2,732) $ (32,657) $ (2,530) $ (14,189)
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
Ratio of earnings to fixed charges(2) .... 1.42x 1.38x 1.32x (2) (2) (2) (2)
<CAPTION>
DECEMBER 31, JUNE 30
------------------------------------------------------------ ----------------------
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 $ 16,246 $ 113,539
Power plant and equipment (net) .......... 96,529 93,815 96,136 220,145 268,725 258,036 288,440
Reserves and escrow deposits,
and other assets .................... 15,778 15,650 15,477 15,471 40,119 15,712 106,328
--------- --------- --------- --------- --------- --------- ---------
Total assets .................... $ 127,474 $ 123,549 $ 127,252 $ 246,955 $ 345,470 $ 289,994 $ 508,307
========= ========= ========= ========= ========= ========= =========
Current liabilities ...................... $ 9,735 $ 11,252 $ 12,531 $ 18,457 $ 19,667 19,641 $ 22,793
Deferred revenue ......................... -- -- -- -- -- -- 7,191
Long-term debt (including capital lease
obligation), less current portion ... 103,200 89,454 106,343 234,608 427,319 274,344 577,777
Minority interest ........................ 33,346 34,479 35,588 36,836 -- 37,614 5,581
Shareholder's deficit .................... (18,807) (20,636) (27,210) (42,946) (101,516) (41,605) (105,035)
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and
shareholder's deficit ........ $ 127,474 $ 123,549 $ 127,252 $ 246,955 $ 345,470 $ 289,994 $ 508,307
========= ========= ========= ========= ========= ========= =========
</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 six months
ended June 30, 1996 and 1997 by $6,849 and $14,749, respectively. In 1994,
1995 and 1996 and the six months ended June 30, 1996 and 1997, fixed
charges included capitalized interest of $803, $5,793, $11,055, $6,225 and
$400, respectively.
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 operating
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 six months of 1997, the parent advanced an additional $1.8 million to
the Issuer. These additional advances were used to fund development costs
and general and administrative expenses. As of June 30, 1997, following the
completion of financing for the Luannan Project, the Issuer had cash balances
totaling approximately $132.2 million, all of which were restricted to
construction of the Luannan project and debt service on the related debt
obligations. With the successful completion of financing for the Luannan
project, which resulted in the issuance of $145.0 million discounted
principal amount of Senior Secured Notes in April 1997, management expects
that advances from the parent will no longer be required to fund development
and construction activities of 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 Six Months of 1997 compared to 1996
The Company recorded a net loss before minority interest of $14,349 in
the first six months of 1997 on revenues of $35,485 compared to net loss
before minority interest of $624 on revenues of $15,209 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 $12,670 and $13,600,
respectively, reflecting a contractual decrease of $930. Energy revenues for
the Rosemary Facility for the 1997 and 1996 periods were $842 and $959,
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 six months of 1997, the Rosemary Facility was
dispatched 243 hours as compared to 267 hours in the 1996 period. Capacity
revenues and energy revenues from Potomac Electric Power Company for the
Brandywine Facility for the first six months of 1997 were $10,035 and $5,051,
respectively. The Brandywine Facility was dispatched 1,709 hours during this
period. Additionally, the Company had energy revenues of $3,688 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 $13,629 (38% of revenues) in the
1997 period from $5,061 (33% 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 $4,867 (14% of
revenues) and $1,747 (11% of revenues) for the 1997 and 1996 periods,
respectively. The increase in 1997 was primarily attributable to 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 $25,026 (71% of revenues) in the 1997
period from $6,370 (42% 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"), the capital lease financing for the
Brandywine Facility, and $145.0 million discounted principal amount of Senior
Secured Notes issued in April 1997 for the Luannan 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 $6,312 (18% of revenues) in the 1997
period and $2,655 (17% 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 of Panda-Rosemary
was $1,906. There is no minority interest in 1997 related to Panda-Rosemary
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. For the 1997 period,
the minority interest in the net loss of the Luannan project entities was
$160.
As a result of the various factors discussed above, the Company recorded
net losses of $14,189 and $2,530 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 half of 1997, the Company maintained
unrestricted cash balances of approximately $0.6 million to $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 generated
$6.2 million during the first half of 1997. During the first half of 1996,
the Company's operating activities generated $4.3 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 half of 1996; that
period's liquidity requirements were met principally through the issuance of
additional long-term debt of approximately $40 million relating to
construction of the Brandywine Facility. During the first half of 1997, the
Company's liquidity requirements were met principally by the cash generated
from operations and by the issuance of $145 million discounted principal
amount of Senior Secured Notes related to the Luannan project. 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
October 8, 1997 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 October 8, 1997, 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, THE COMPANY OR PANDA INTERHOLDING.
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 three 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 &
P.O. Box 292737 Group Agency Group
Nashville, TN Receipt & Delivery Window Reorganization Unit
37229-2737 123 Washington Street, 648 Grassmere Park Road
1st Floor Nashville, TN 37211
New York, NY 10006
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 operations 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 received subsequent written 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 continues 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-Interruptible 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
(GWH) 129.0 44.8 31.9 76.7 234.9 64.5
Steam Production (MM Lbs) 330.8 377.9 429.9 364.8 291.2 294.6
Chilled Water Production MM
Ton-hours) N/A 4.0 3.7 4.1 4.1 3.3
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 September 5, 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
projections contained in the Rosemary Engineering Report are as follows:
- Fuel costs will be as 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 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 thereunder, 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 those
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 September 5, 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 assumptions 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
("NGC"), 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
the 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 its fuel management plan, the
Brandywine Partnership will endeavor to enter into fuel oil supply and
transportation 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
Facility May Create Risk of Unavailability For Disptach."
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' Report; Actual Results May Vary From Such Projections."
Brandywine Pro Forma Report. ICF has prepared a report, dated April 11,
1997 and updated September 5, 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 PES. 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
September 5, 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 September 5, 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 responsibilities in regard to
the Brandywine Facility.
- The Brandywine Partnership will adhere to the provisions of the
Brandywine Facility'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 (Panda of Nepal LLC, a Cayman Islands
company) 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 "Nepal Project"). 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 HMGN obligating the HMGN 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 Nepal Project was signed with China Gezhouba
Construction Group Corporation ("CGGC") 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 the Nepal Project and is currently negotiating the documents
governing such financing, as well as seeking the requisite additional
financing for the Nepal Project. In order to assist in the funding of the
Nepal 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 the
Nepal 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 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 between 1965 and 1992. 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 Nepal
Project site.
The Nepal Project would be located in the Sindhupalchok zone of central
Nepal, close to the China-Nepal border and 70 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 therein 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 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 Nepal 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 Nepal 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 Nepal
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 Nepal 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 That Power 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 majeure, 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 11,456,212 shares of common stock of Panda International
outstanding at June 30, 1997. Of this amount, 4,418,957 shares (38.6%) 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 (18.6%). Other directors,
officers and employees of Panda International own less than 1% of the
outstanding shares of common stock. At June 30, 1997: (i) there were
outstanding options to acquire 1,124,000 shares of common stock of Panda
International (options for 1,043,000 shares being fully vested and for 81,000
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, on the
one hand, and any director of 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 Percentage
of Original of Original
Principal Principal
Amount Amount
Payment Date Payable Payment Date Payable
February 20, 1997 0.2045% February 20, 2005 3.4687%
August 20, 1997 0.0000% August 20, 2005 3.5977%
February 20, 1998 0.0000% February 20, 2006 3.7820%
August 20, 1998 0.0000% August 20, 2006 2.8098%
February 20, 1999 0.0000% February 20, 2007 3.0076%
August 20, 1999 0.5933% August 20, 2007 4.8415%
February 20, 2000 0.6129% February 20, 2008 5.1145%
August 20, 2000 0.0000% August 20, 2008 5.0057%
February 20, 2001 0.0000% February 20, 2009 5.2949%
August 20, 2001 1.3753% August 20, 2009 5.5185%
February 20, 2002 1.4691% February 20, 2010 5.8300%
August 20, 2002 2.2184% August 20, 2010 5.7248%
February 20, 2003 2.3565% February 20, 2011 6.0590%
August 20, 2003 2.9328% August 20, 2011 6.4800%
February 20, 2004 3.1031% February 20, 2012 6.8808%
August 20, 2004 3.2796% August 20, 2012 8.4390%
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
Interests 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 June
30, 1997, were $9.8 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 June 30, 1997 is $3.4 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
the Global Note (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
such 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 Regulation 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 Regulation 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 impaired 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 writing (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) 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 December 8, 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
OfferProcedures 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, and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing. Deloitte & Touche LLP has neither
examined nor compiled the prospective 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, and updated September 5,
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 September 5, 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 September 5, 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 September 5, 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 September 5, 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 September 5, 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 September 5, 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 September 5, 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 June 30, 1997 ................................................ F-24
Condensed Consolidated Statements of Operations for the six
months ended June 30, 1996 and 1997 .............................. F-25
Condensed Consolidated Statements of Shareholder's Deficit for
the six months ended June 30, 1997 ............................... F-26
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1997 .............................. F-27
Notes to Condensed Consolidated Financial Statements for the
six months ended June 30, 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-35
Consolidated Balance Sheets as of December 31, 1995 and 1996 ....... F-36
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-37
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-38
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-39
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-40
Panda Global Energy Company and Subsidiaries Unaudited
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of December 31, 1996
and June 30, 1997 .................................................. F-43
Condensed Consolidated Statements of Operations for the
for the six months ended June 30, 1996 and 1997 and
for the period from inception (July 20, 1994) through
June 30, 1997 ...................................................... F-44
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1997 and for the
period from inception (July 20, 1994) through June 30, 1997 ........ F-45
Condensed Consolidated Statements of Shareholder's Equity for
the six months ended June 30, 1997 ................................. F-46
Notes to Condensed Consolidated Financial Statements for
the six months ended June 30, 1996 and 1997 and for
the period from inception (July 20, 1994) through June 30, 1997 .... F-47
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.
F-9
<PAGE>
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.
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
F-13
<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 agency were $291,142,
$298,728 and $754,388 for the years ended December 31, 1994, 1995 and 1996,
respectively.
F-15
<PAGE>
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 EVENTS
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.
In June 1997, a subsidiary of PEII transferred its ownership interest
(expected to be 75% following completion of financing) in an independent power
project in Nepal to Global Cayman. The project, which was transferred to
Global Cayman at historical cost, is a joint venture with major hydroelectric
engineering company and a local Nepalese party to build a 36 megawatt
hydroelectric facility on the upper Bhote Koshi River in Nepal ("Nepal
Project"). A power purchase agreement with the Nepal Electricity Authority
was signed in July 1996. The Nepal Project will be constructed pursuant to
a fixed-price, turnkey contract with China Gezhouba Construction Group
Corporation. The Company has received a commitment letter from a multilateral
agency to provide debt financing for the Nepal Project and is currently
seeking additional financing for the project. Construction of the project
is subject to the successful completion of financing. The Company has incurred
development costs on the Nepal Project of $8.9 million as of June 30, 1997.
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 JUNE 30
1996 1997
------------- -------------
Current assets:
Cash and cash equivalents ................... $ 1,335,086 $ 610,844
Restricted cash -- current .................. 17,809,921 94,805,912
Accounts receivable ......................... 9,402,685 10,914,061
Fuel oil, spare parts and supplies .......... 7,913,777 7,043,381
Other current assets ........................ 164,905 164,653
------------- -------------
Total current assets ..................... 36,626,374 113,538,851
Plant and equipment:
Electric generating facilities .............. 288,716,711 289,447,022
Furniture and fixtures ...................... 494,418 501,417
Less: accumulated depreciation .............. (26,539,539) (32,437,443)
Construction in progress..................... -- 19,147,506
Development costs ........................... 6,053,361 11,781,994
------------- -------------
Total plant and equipment, net ........... 268,724,951 288,440,496
Restricted cash - debt service reserves
and escrow deposits .......................... 32,548,366 91,786,313
Debt issuance costs, net of accumulated
amortization of $165,015 and $579,607,
respectively ................................. 7,570,521 14,541,413
------------- -------------
$ 345,470,212 $ 508,307,073
============= =============
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 9,216,792
Operating expenses and other ............. 6,991,796 7,970,579
Current portion of long-term debt ........... 5,717,623 5,605,982
------------- -------------
Total current liabilities ............. 19,667,144 22,793,353
Deferred revenue................................ -- 7,190,857
Long-term debt, less current portion ........... 209,830,918 352,171,268
Capital lease obligation ....................... 217,488,645 225,605,268
Minority interest............................... -- 5,581,166
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) (42,112,589)
Accumulated deficit ......................... (48,733,565) (62,922,260)
------------- -------------
Total shareholder's deficit .............. (101,516,495) (105,034,839)
------------- -------------
$ 345,470,212 $ 508,307,073
============= =============
See accompanying notes to condensed consolidated financial statements
F-24
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
1996 1997
------------ ------------
Revenue:
Electric capacity and energy sales ............ $ 14,558,903 $ 32,286,239
Steam and chilled water sales ................. 263,002 284,303
Interest income ............................... 386,826 2,914,440
------------ ------------
15,208,731 35,484,982
------------ ------------
Expenses:
Plant operating expenses ...................... 5,061,346 13,628,706
Project development and administrative ........ 1,746,659 4,866,550
Interest expense and letter of credit fees .... 6,369,754 25,025,925
Depreciation .................................. 2,106,439 5,897,904
Amortization of debt issuance costs ........... 281,815 414,592
Amortization of partnership formation costs ... 266,550 --
------------ ------------
15,832,563 49,833,677
------------ ------------
Income (loss) before minority interest ........... (623,832) (14,348,695)
Minority interest ................................ (1,906,083) 160,000
------------ ------------
Net loss ......................................... $ (2,529,915) $(14,188,695)
============ ============
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
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADVANCES ACCUMULATED SHAREHOLDER'S
STOCK AMOUNT TO PARENT DEFICIT DEFICIT
----- ------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 1,000 $10 $(52,782,940) $(48,733,565) $(101,516,495)
Advances (to) from parent. -- -- 10,670,351 -- 10,670,351
Net loss ................ -- -- -- (14,188,695) (14,188,695)
----- --- ------------ ------------ -------------
Balance, June 30, 1997... 1,000 $10 $(42,112,589) $(62,922,260) $(105,034,839)
===== === ============ ============ =============
</TABLE>
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 SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
Operating activities:
Net loss .................................................. $ (2,529,915) $(14,188,695)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority interest ...................................... 1,906,083 (160,000)
Depreciation ........................................... 2,106,439 5,897,904
Amortization of debt issuance costs .................... 281,815 414,592
Amortization of partnership formation costs ............ 266,550 --
Amortization of loan discount and deferred interest .... 95,366 10,930,616
Changes in assets and liabilities:
Accounts receivable .................................... 375,340 (1,511,376)
Fuel oil, spare parts and supplies ..................... 6,378 870,396
Other current assets ................................... (30,838) 252
Accounts payable and accrued expenses .................. 1,804,774 3,898,017
------------ -----------
Net cash provided (used) by operating activities ....... 4,281,992 6,151,706
------------ -----------
Investing activities:
Restricted cash - current ................................. (4,513,354) (76,995,991)
Additions to property, plant and equipment ................ (39,000,715) (17,414,551)
Restricted cash - debt service reserves and escrow deposits (65,612) (59,237,947)
------------ ------------
Net cash provided (used) by investing activities ....... (43,579,681) (153,648,489)
------------ ------------
Financing activities:
Contributions from minority interest owners................ -- 5,741,166
Distributions to minority interest owner .................. (1,127,665) --
Advances (to)from parent .................................. 2,251,895 1,811,286
Deferred revenue .......................................... -- 7,190,857
Proceeds from long-term debt .............................. 39,864,956 145,025,088
Repayment of long-term debt ............................... (225,000) (2,967,379)
Repayment of capital lease obligation ..................... -- (2,642,993)
Debt issuance costs ....................................... (722,202) (7,385,484)
------------ ------------
Net cash provided by financing activities .............. 40,041,984 146,772,541
------------ ------------
Increase (decrease) in cash and cash equivalents ............. 744,295 (724,242)
Cash and cash equivalents, beginning of period ............... 1,166,385 1,335,086
------------ ------------
Cash and cash equivalents, end of period ..................... $ 1,910,680 $ 610,844
============ ============
NON-CASH OPERATING AND FINANCING ACTIVITIES:
Interest expense on capital lease obligation ................. $ -- $10,759,616
Development costs transferred from parent .................... $ 8,859,065
</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 SIX MONTHS ENDED JUNE 30, 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"). Additionally, effective in June 1997,
Global Cayman holds a 100% interest in Panda of Nepal LLC (a Cayman Islands
company), which in turn holds an ownership interest (expected to be 75%
following the completion of financing) in Bhote Koshi Power Company Pvt. Ltd.
(a Nepal company), which was organized under the laws of Nepal to develop and
construct an independent power project in Nepal.
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 six months ended June 30, 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 six months ended June 30, 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.
F-28
<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 $1,108,000 and $2,110,000 for the six months ended June 30, 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.
DEFERRED REVENUE -- Revenue from the sale of rights to future interest
income from certain of the Company's restricted cash accounts (debt service
reserves and escrow deposits) is deferred and recognized as interest revenue
over the lives of the related debt obligations.
3. POWER PROJECTS AND LONG-TERM DEBT
Luannan Project Financing -- 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 5 for
condensed consolidating financial information for the Company. The Company
has incurred costs on the Luannan Project of $3.3 million and $19.1 million as
of December 31, 1996 and June 30, 1997, respectively. Such costs are included
in the accompanying balance sheets in plant and equipment under development
costs as of December 31, 1996 and under construction in progress as of
June 30, 1997 due to the completion of financing for the project in April 1997.
NEPAL PROJECT -- The Company 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
megawatt hydroelectric facility on the upper Bhote Koshi River in Nepal
("Nepal Project"). The ownership interest was transferred from a subsidiary
of PEII to Global Cayman at historical cost in June 1997. A power purchase
agreement with the Nepal Electricity Authority was signed in July 1996.
The Nepal Project will be constructed pursuant to a fixed-price, turnkey
contract with China Gezhouba Construction Group Corporation. The Company
has received a commitment letter from amultilateral agency to provide debt
financing for the Nepal Project and is currently seeking additional
financing for the project. Construction of the project is subject to the
successful completion of financing. The Company has incurred development costs
for the Nepal Project of $8.9 million as of June 30, 1997, which are included
in plant and equipment under development costs in the accompanying balance
sheet.
KATHLEEN PROJECT -- The Company has incurred costs on the Kathleen
Project of $2.8 million and $2.9 million as of December 31, 1996 and
June 30, 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 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 capacity
payments thereunder (the "PEPCO Interest Rate Dispute"). PEPCO nd 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.
F-29
5. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
As discussed in Note 3, 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
June 30, 1997 and for the six month periods ended June 30, 1996 and 1997
is as follows:
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 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 ............. $ -- $ 10 $ 610,834 $ -- $ 610,844
Restricted cash -- current ............ 76,400,000 5,655 18,400,257 -- 94,805,912
Accounts receivable ................... -- -- 10,914,061 -- 10,914,061
Fuel oil, spare parts and supplies .... -- -- 7,043,381 -- 7,043,381
Other current assets .................. -- -- 164,653 -- 164,653
----------- ------------- ------------- ------------- -------------
Total current assets ............... 76,400,000 5,665 37,133,186 -- 113,538,851
Plant and equipment:
Electric generating facility .......... -- -- 289,447,022 -- 289,447,022
Furniture and fixtures ................ -- -- 501,417 -- 501,417
Less accumulated depreciation ......... -- -- (32,437,443) -- (32,437,443)
Construction in progress .............. -- -- 19,147,506 -- 19,147,506
Development costs ..................... -- -- 11,781,994 -- 11,781,994
----------- ------------- ------------- ------------- -------------
Total plant and equipment, net ..... -- -- 288,440,496 -- 288,440,496
Investment in and advances to subsidiaries 26,747,528 -- -- (26,747,528) --
Restricted cash -- debt service reserves
and escrow deposits ................... 55,756,132 -- 36,030,181 -- 91,786,313
Debt issuance costs ...................... 2,753,710 -- 11,787,703 -- 14,541,413
Partnership formation costs, net ......... -- -- -- -- --
----------- ------------- ------------- ------------- -------------
$161,657,370 $ 5,665 $373,391,566 $(26,747,528) $ 508,307,073
<CAPTION> =========== ============= ============= ============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ................. $ -- $ -- $ -- $ -- $ --
Interest and letter of credit fees . 3,667,000 -- 5,549,792 -- 9,216,792
Operating expenses and other ....... -- -- 7,970,579 -- 7,970,579
Current portion of long-term debt ..... -- -- 5,605,982 -- 5,605,982
----------- ------------- ------------- ------------- -------------
Total current liabilities .......... 3,667,000 -- 19,126,353 -- 22,793,353
Deferred revenue ......................... -- -- 7,190,857 -- 7,190,857
Long term debt, less current portion ..... 145,196,088 -- 206,975,180 -- 352,171,268
Capital lease obligation ................. -- -- 225,605,268 -- 225,605,268
Investment in and advances from affiliates 105,040,504 -- (105,040,504) --
Minority interest ........................ -- -- 5,581,166 -- 5,581,166
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 ............. 18,065,839 (42,112,589) (30,106,090) 12,040,251 (42,112,589)
Accumulated deficit ................... (5,271,559) (62,922,260) (60,981,178) 66,252,737 (62,922,260)
----------- ------------- ------------- ------------- -------------
Total shareholder's equity (deficit) 12,794,282 (105,034,839) (91,087,258) 78,292,976 (105,034,839)
----------- ------------- ------------- ------------- -------------
$161,657,370 $ 5,665 $373,391,566 $(26,747,528) $ 508,307,073
=========== ============= ============= ============= =============
</TABLE>
F-30
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 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 ......................... $ -- $ -- $ 14,558,903 $ -- $ 14,558,903
Steam and chilled water sales ............. -- -- 263,002 -- 263,002
Interest income ........................... -- -- 386,826 -- 386,826
Equity in loss of subsidiary .............. (554,000) (2,529,915) -- 3,083,915 --
------------ ------------ ------------ ------------ ------------
Total revenue .......................... (554,000) (2,529,915) 15,208,731 3,083,915 15,208,731
Expenses:
Plant operating expenses .................. -- -- 5,061,346 -- 5,061,346
Project development and administrative .... -- -- 1,746,659 -- 1,746,659
Interest expense and letter of credit fees -- -- 6,369,754 -- 6,369,754
Depreciation .............................. -- -- 2,106,439 -- 2,106,439
Amortization of debt issuance costs ....... -- -- 281,815 -- 281,815
Amortization of partnership formation costs -- -- 266,550 -- 266,550
------------ ------------ ------------ ------------ ------------
Total expenses ......................... -- -- 15,832,563 -- 15,832,563
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest ....... (554,000) (2,529,915) (623,832) 3,083,915 (623,832)
Minority interest ............................ -- -- (1,906,083) -- (1,906,083)
------------ ------------ ------------ ------------ ------------
Net loss .................................. $ (554,000) $ (2,529,915) $ (2,529,915) $ 3,083,915 $ (2,529,915)
============ ============ ============ ============ ============
</TABLE>
F-31
For the Six Months Ended June 30, 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 ......................... $ -- $ -- $ 32,286,239 $ -- $ 32,286,239
Steam and chilled water sales ............. -- -- 284,303 -- 284,303
Interest income ........................... 1,558,088 15,416 1,340,936 -- 2,914,440
Equity in loss of subsidiary ............. (1,014,061) (14,204,111) -- 15,218,172 --
------------ ------------ ------------ ------------ ------------
Total revenue .......................... 544,027 (14,188,695) 33,911,478 15,218,172 35,484,982
------------ ------------ ------------ ------------ ------------
Expenses:
Plant operating expenses .................. -- -- 13,628,706 -- 13,628,706
Project development and administrative .... -- -- 4,866,550 -- 4,866,550
Interest expense and letter of credit fees 3,438,000 -- 21,587,925 -- 25,025,925
Depreciation .............................. -- -- 5,897,904 -- 5,897,904
Amortization of debt issuance costs ....... 76,586 -- 338,006 -- 414,592
Amortization of partnership formation costs -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total expenses ......................... 3,514,586 -- 46,319,091 -- 49,833,677
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest ....... (2,970,559) (14,188, 695) (12,407,613) 15,218,172 (14,348,695)
Minority interest ............................ -- -- 160,000 -- 160,000
------------ ------------ ------------ ------------ ------------
Net loss ..................................... $(2,970,559) $(14,188,695) $(12,247,613) $ 15,218,172 $(14,188,695)
============ ============ ============ ============ ============
</TABLE>
F-32
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 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 $ -- $ -- $4,281,992 $ -- $ 4,281,992
Investing activities:
Restricted cash - current -- -- (4,513,354) -- (4,513,354)
Additions to plant and equipment -- -- (39,000,715) -- (39,000,715)
Acquisition of minority interest -- -- -- -- --
Restricted cash - debt service
reserves and escrow deposits -- -- (65,612) -- (65,612)
---------- ---------- ---------- ---------- ------------
Net cash used in investing
activities -- -- (43,579,681) -- (43,579,681)
---------- ---------- ---------- ---------- ------------
Financing activities:
Distributions to minority
interest owner -- -- (1,127,665) -- (1,127,665)
Advances (to) from parent 1,816,724 2,251,895 2,251,895 4,068,619 2,251,895
Advances (to) from subsidiaries 1,816,724 (2,251,895) -- 4,068,619 --
Proceeds from long-term debt -- -- 39,864,956 -- 39,864,956
Repayment of long-term debt -- -- (225,000) -- (225,000)
Debt issuance costs -- -- (722,202) -- (722,202)
---------- ---------- ---------- ---------- ------------
Net cash provided by
financing activities -- -- 40,041,984 -- 40,041,984
---------- ---------- ---------- ---------- ------------
Increase (decrease) in cash
and cash equivalents -- -- 744,295 -- 744,295
Cash and cash equivalents,
beginning of period -- -- 1,166,385 -- 1,166,385
---------- ---------- ---------- ---------- ------------
Cash and cash equivalents,
end of period $ -- $ -- $ 1,910,680 $ -- $1,910,680
========== ========== =========== ========== ============
</TABLE>
F-33
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 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 $ 1,558,088 $ 15,416 $ 4,578,202 $ -- $ 6,151,706
Investing activities:
Restricted cash - current (76,400,000) (5,665) (590,326) -- (76,995,991)
Additions to plant and equipment -- -- (17,414,551) -- (17,414,551)
Acquisition of minority interest -- -- -- -- --
Restricted cash - debt service
reserves and escrow deposits (55,756,132) -- (3,481,815) -- (59,237,947)
------------ ---------- ---------- ---------- ------------
Net cash used in investing
activities (132,156,132) (5,665) (21,486,692) -- (153,648,489)
----------- ---------- ---------- ---------- ------------
Financing activities:
Contributions from minority
owners -- -- 5,741,166 -- 5,741,166
Distributions to minority
interest owner -- -- -- -- --
Advances (to) from parent 3,106,995 1,811,286 13,417,775 (16,524,770) 1,811,286
Advances (to) from subsidiaries (14,703,743) (1,821,027) -- 16,524,770) --
Deferred revenue -- -- 7,190,857 -- 7,190,857
Proceeds from long-term debt 145,025,088 -- -- -- 145,025,088
Repayment of long-term debt -- -- (2,967,379) -- (2,967,379)
Repayment of capital lease
obligation -- -- (2,642,993) (2,642,993)
Debt issuance costs (2,830,296) -- (4,555,188) -- (7,385,484)
----------- ---------- ---------- ---------- ------------
Net cash provided by
financing activities 130,598,044 (9,741) 16,184,238 -- 146,772,541
---------- ---------- ---------- ---------- ------------
Increase (decrease) in cash
and cash equivalents -- 10 (724,252) -- (724,252)
Cash and cash equivalents,
beginning of period -- -- 1,335,086 -- 1,335,086
---------- ---------- ---------- ---------- ------------
Cash and cash equivalents,
end of period $ -- $ 10 $ 610,834 $ -- $ 610,844
========== ========== =========== ========== ============
</TABLE>
F-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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.
F-40
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-41
<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 repaid to parent 500,000
----------
Balance, December 31, 1996 $6,099,779
==========
The average balance of advances from parent was $366,000, $1,222,000
and $3,906,000 during the 1994, 1995 and 1996 periods, respectively.
5. Subsequent Events
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.
In June 1997, a subsidiary of PEII transferred its ownership
interest (expected to be 75% following completion of financing)
in an independent power project in Nepal to Global Cayman. The
project, which was transferred to Global Cayman at historical
cost, is a joint venture with a major hydroelectric engineering
company and a local Nepalese party to build a 36 megawatt
hydroelectric facility on the upper Bhote Koshi River in Nepal
("Nepal Project"). A power purchase agreement with the Nepal
Electricity Authority was signed in July 1996. The Nepal Project
will be constructed pursuant to a fixed-price, turnkey contract
with China Gezhouba Construction Group Corporation. The Company
has received a commitment letter from a multilateral agency to
provide debt financing for the Nepal Project and is currently
seeking additional financing for the project. Construction of the
project is subject to the successful completion of financing. The
Company has incurred development costs on the Nepal Project of
$8.9 million as of June 30, 1997.
F-42
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and June 30, 1997
<TABLE>
<CAPTION>
(Unaudited)
December 31 June 30
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................ $ 506,289 $ 6,289
Restricted cash - current ........................ -- 76,400,000
----------- ------------
Total current assets ........................... $ 506,289 $ 76,406,289
Plant and equipment:
Construction in progress ....................... -- 19,147,506
Development costs .............................. 3,292,492 8,859,065
---------- ------------
Total plant and equipment ...................... 3,292,492 28,006,571
Restricted cash - debt service reserves and
escrow deposits ................................ -- 55,756,132
Debt issuance costs, net of accumulated
amortization of $196,617 as of June 30, 1997 ... -- 7,069,544
----------- ------------
Total assets $ 3,798,781 $167,238,536
=========== ============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Liabilities:
Accrued interest ................................. $ -- $ 3,667,000
Long-term debt.................................... -- 145,196,088
Minority interest ................................ -- 5,581,166
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 ............................. $ 6,099,779 $ 18,065,839
Deficit accumulated during the development stage . (2,301,000) (5,271,559)
----------- -----------
Total shareholder's equity ..................... 3,798,781 2,794,282
----------- -----------
Total liabilities and shareholder's equity ....... $ 3,798,781 $167,238,536
=========== ============
</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 OPERATIONS
For the SixMonths Ended June 30, 1996 and 1997
and Inception (July 20, 1994) Through June 30, 1997
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Inception
Six Months Ended June 30 Through
------------------------ June 30
1996 1997 1997
--------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Interest Income $ -- $ 1,558,088 $ 1,558,088
Expenses:
Project development and administrative. 554,000 1,054,030 3,355,030
Interest expense and letter of credit
fees................................. 3,438,000 3,438,000
Amortization of debt issuance costs.... 196,617 196,617
--------- ----------- -----------
Total expenses...................... 554,000 4,688,647 6,989,647
Net loss before minority interest........ (554,000) (3,130,559) (5,431,559)
Minority interest -- 160,000 160,000
--------- ----------- -----------
Net loss ................................ $(554,000) $(2,970,559) $(5,271,559)
========= =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-44
<PAGE>
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six Months Ended June 30, 1996 and 1997
and Inception (July 20, 1994) Through June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Inception
Through
June 30
1996 1997 1997
--------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................... $(554,000) $(2,970,559) $(5,271,559)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Minority interest................. -- (160,000) (160,000)
Amortization of debt issuance
costs........................... -- 196,617 196,617
Amortization of debt discount..... -- 171,000 171,000
Changes in assets and liabilities:
Accrued interest.................. -- 3,667,000 3,667,000
--------- ----------- -----------
Net cash provided by operating
activities .................... (554,000) 904,058 (1,396,942)
--------- ----------- -----------
INVESTING ACTIVITIES:
Restricted cash - current........... -- (76,400,000) (76,400,000)
Additions to plant and equipment (1,262,724) (15,855,014) (19,147,506)
Restricted cash - debt service
reserves and escrow deposits ..... -- (55,756,132) (55,756,132)
--------- ----------- -----------
Cash used by investing activities... (1,262,724) (148,011,146) (151,303,638)
--------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt ....... -- 145,025,088 145,025,088
Contributions from minority interes
owners ........................... -- 5,741,166 5,741,166
Capital contribution from parent ... -- -- 2
Advances from parent ............... 1,816,724 3,106,995 9,206,774
Debt issuance costs ................ -- (7,266,151) (7,266,161)
--------- ----------- -----------
Cash provided by financing
activities 1,816,724 146,607,088 152,706,869
--------- ----------- -----------
Increase (decrease) in cash ........ -- (500,000) 6,289
Cash and cash equivalents,
beginning of period ............. 6,289 506,289 --
--------- ----------- -----------
Cash and cash equivalents,
end of period ................... $ 6,289 $ 6,289 $ 6,289
========= =========== ===========
Noncash investing and financing
activities:
Development costs transferred
from parent: $ - $ 8,859,065 $ 8,859,065
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-45
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
For the Six Months Ended June 30, 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................... -- 11,966,060 -- 11,966,060
Net loss .............................. -- -- (2,970,559) (2,970,559)
----------- ----------- ----------- ----------- ------------
Balance, June 30, 1997 ................ 2 2 $18,065,839 $(5,271,559) $12,794,282
</TABLE> F-46
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1996 and 1997
and the Period from Inception (July 20, 1994) Through June 30,
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"). Additionally, effective in June 1997,
Global Cayman holds a 100% interest in Panda of Nepal LLC (a
Cayman Islands company), which in turn holds an ownership
interest (expected to be 75% following the completion of
financing) in Bhote Koshi Power Company Pvt. Ltd. (a Nepal
company), which was organized under the laws of Nepal to develop
and construct an independent power project in Nepal.
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 six months ended June 30, 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 six months ended June 30, 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 3).
Cash -- Included in cash and cash equivalents are highly
liquid investments with original maturities of three months or
less.
Plant and Equipment -- 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 primarily consist of
engineering, legal and other costs directly related to the
project. Development costs are transferred to construction in
progress when financing has been obtained and construction has
commenced. Costs related to projects under construction,
including interest on funds borrowed to finance the construction
of facilities, are capitalized as construction in progress. 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 spent
performing these services. The expenses allocated were $554,000
and $1,055,000 for the six months ended June 30, 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. POWER PROJECTS AND LONG-TERM DEBT
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 as discussed below.
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.
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.
Nepal Project - The Company 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 megawatt hydroelectric
facility on the upper Bhote Koshi River in Nepal ("Nepal
Project"). The ownership interest was transferred from a
subsidiary of PEII to Global Cayman at historical cost in June
1997. A power purchase agreement with the Nepal Electricity
Authority was signed in July 1996. The Nepal Project will be
constructed pursuant to a fixed-price, turnkey contract with
China Gezhouba Construction Group Corporation. The Company has
received a commitment letter from a multilateral agency to
provide debt financing for the Nepal Project and is currently
seeking additional financing for the project. Construction of
the project is subject to the successful completion of financing.
The Company has incurred development costs for the Nepal Project
of $8.9 million as of June 30, 1997, which are included in plant
and equipment under development costs in the accompanying balance
sheet.
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 related projects as permitted by
the indentures.
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 and 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 Projects
under the PIC Additional Projects Contract and any other
Projects, (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.
"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 BondsThe
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 abbreviation
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.
APPENDIX B
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 5th day of September, 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 5th day of September, 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 5th day of September, 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 45 BANKERS TRUST COMPANY
Use of Proceeds 48
Capitalization 49 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 September 8, 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 December 8, 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)
10.10.1 Second Supplemental Indenture to Trust Indenture, dated
January 15, 1997, among Panda-Rosemary Funding Corporation, Panda-
Rosemary, L.P. and Fleet National Bank, as Trustee. (2)
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 Security Bank, National Association. (2)
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)
10.137 Operation and Maintenance Agreement between Bhote Koshi
Power Company Private Limited and Harza Engineering Company
International L.P. dated April 24, 1997. (3)
10.138 Amended and Restated Contract for the Engineering,
Procurement and Construction of the Upper Bhote Koshi Hydroelectric
Project between China Gezhouba Construction Group Corporation and
Bhote Koshi Power Company Private Limited dated December 19, 1996.
(3)
10.139 Project Agreement between His Majesty's Government of
Nepal and Bhote Koshi Power Company Private Limited dated July 21,
1996. (3)
10.140 Power Purchase Agreement between His Majesty's Government
of Nepal and Bhote Koshi Power Company Private Limited dated July
21, 1996. (3)
10.141 Services Agreement between Panda of Nepal and Harza
Engineering Company International L.P. (for services provided
outside of Nepal) dated July 11, 1997. (3)
10.142 Services Agreement between Panda of Nepal and Harza
Engineering Company International L.P. (for services provided in
Nepal) dated July 11, 1997. (3)
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. (2)
99.03 Independent Engineer's Report of Burns & McDonnell
Engineering Company, Inc., dated April 11, 1997, and 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. (2)
99.03.2 Update dated September 5, 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 updated June 6, 1997. (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. (2)
99.04.2 Update dated September 5, 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 updated
June 6, 1997. (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. (2)
99.05.2 Update dated September 5, 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
updated June 6, 1997. (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. (2)
99.06.2 Update dated September 5, 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, and updated June 6, 1997. (2)
99.07.1 Update dated August 7, 1997 of Independent Engineer's
Report of ICF Resources Incorporated, dated April 11, 1997. (2)
99.07.2 Update dated September 5, 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) Previously filed.
(3) Filed herewith.
(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 September 8, 1997.
PANDA GLOBAL ENERGY COMPANY
(Registrant)
By:
Robert W. Carter,
Chairman of the Board ,
Chief Executive Officer
and Director
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
September 8, 1997
Chairman of the Board,
Chief Executive Officer
and Director
______________________ (Principal Executive Officer)
Robert W. Carter
September 8, 1997
Executive Vice President,
______________________ Secretary and Treasurer
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 September 8, 1997.
PANDA GLOBAL HOLDINGS, INC.
(Co-Registrant)
By:
Robert W. Carter, Chairman of the
Board ,
Chief Executive Officer and Director
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
September 8, 1997
Chairman of the Board,
Chief Executive Officer
and Director
______________________ (Principal Executive Officer)
Robert W. Carter
September 8, 1997
Executive Vice President,
______________________ Secretary and Treasurer
Janice Carter (Principal Financial and
Accounting Officer)
[CHADBOURNE & PARKE LLP]
September 8, 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") and Amendment No. 1 thereto filed on August 11, 1997, and
Amendment No. 2 thereto filed September 8, 1997 (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 duly executed, authenticated and delivered in exchange for
the Old Notes, the Notes 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
and the General Corporation Law of the State of Delaware.
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 NO. 10.137
OPERATION AND MAINTENANCE AGREEMENT
BY
AND
BETWEEN
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
AND
HARZA ENGINEERING COMPANY INTERNATIONAL L.P.
EXHIBITS:
A POWER PURCHASE AGREEMENT A-1
B PROJECT AGREEMENT B-1
C HOME OFFICE SUPPORT C-1
D OPERATION & MAINTENANCE PLAN OUTLINE D-1
OPERATION AND MAINTENANCE AGREEMENT
BY AND BETWEEN
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
AND
HARZA ENGINEERING COMPANY INTERNATIONAL L.P.
RECITALS:
THIS AGREEMENT is made and entered into on the 24th day of
April, 1997, by and between Bhote Koshi Power Company Private
Limited, a private limited liability company duly incorporated
and registered in Nepal ("Owner"), and Harza Engineering Company
International L.P., a Delaware limited partnership ("Operator"),
individually referred to hereinafter as "Party" and collectively
as "Parties."
WHEREAS, Owner and Nepal Electricity Authority (the
"Utility") entered into a Power Purchase Agreement dated July 21,
1996, pursuant to which Owner intends to construct, own, operate
and transfer a hydroelectric facility with two (2) generating
units with a combined nominal rating of 36 MW, 25 km electrical
transmission line and all related works located on the Bhote
Koshi River in Sindhupalchok District of Nepal and pursuant to
which Owner will sell and the Utility will purchase electrical
energy produced by the Facilities;
WHEREAS, Owner and China Gezhouba Construction Group
Corporation for Water Resources and Hydropower, a Chinese company
(the "EPC Contractor") have entered into an Amended and Restated
Contract for the Engineering, Procurement and Construction
Contract dated December 19, 1996, (the "EPC Contract") a copy of
which has previously been furnished to Operator pursuant to which
the EPC Contractor thereunder will design, engineer, survey,
construct, test and Pre-startup, Start-up the Facilities; and
WHEREAS, Owner desires to have Operator provide pre-
commercial and commercial operation and maintenance services at
the Facilities and Operator desires to provide such services.
NOW, THEREFORE, in consideration of the foregoing and of the
premises hereinafter contained, Owner and Operator agree as
follows:
ARTICLE 1
DEFINITIONS
Whenever the following terms appear in this Agreement, they
shall have the following meanings:
"Affiliate" shall mean, with respect to any specified
entity, an entity which directly or indirectly controls, is
controlled by, or is under common control, not including
individual owners, with such specified entity or successor
thereto. For purposes of this definition, the term control shall
have the same meaning as set forth in the Power Purchase
Agreement.
"Agreement" shall mean this Operation and Maintenance
Agreement made and entered into on the date set forth above by
and between Bhote Koshi Power Company Private Limited and Harza
Engineering Company International L.P., which may be amended from
time to time.
"Annual Budget" shall mean the budget of all costs and
expenses anticipated to be incurred by Operator to meet its
obligations under this Agreement during any calendar year, or
part thereof.
"Approved Budget" shall mean the Annual Budget prepared and
submitted by Operator pursuant to Article 2.17 hereof, which has
been approved by Owner.
"Authorization To Proceed" shall mean Owner's written notice
to Operator to commence the work required by this Agreement.
"Availability Test" shall have the meaning specified in
Article 6.8 of the Power Purchase Agreement.
"Change in Law" shall mean, with respect to Nepal, any new
law or amendment, modification, deletion, addition or change in
or to any applicable existing law or applicable permission or in
any interpretation or application thereof that occurs and takes
effect after the signing of this Agreement that either Party can
demonstrate will materially and adversely affect the performance
of either Party's obligations under this Agreement.
"Claims" shall have the meaning given such term in Article
8.04A. hereof.
"Commencement Date" shall mean the calendar date upon which
Operator is to commence the work required by this Agreement as
specified in the Authorization to Proceed. The expected date for
the Commencement Date is on or before January 1, 1999. The
actual date will be as mutually agreed upon between Owner and
Operator, but in no event later than 150 days prior to Start-up
and testing of the Facility.
"Commercial Operation Date" shall mean the Unit Delivery
Date of the first Unit.
"Consumables" shall have the meaning set forth in Article
2.07 hereof.
"Contract Month" shall mean each Nepalese calendar month
commencing with the first such month in which the first Unit
Delivery Date occurs.
"Contract Year" shall mean the period beginning on the
Commercial Operation Date and ending on the last day of the
following Ashad (mid-July), and each succeeding twelve (12) Month
period thereafter beginning on 1 Srawan (mid-July) and ending on
the last day of the following Ashad (mid-July), provided that the
last Contract Year shall begin on 1 Srawan (mid-July) and end on
the date that is twenty-five (25) years from the Commercial
Operation Date.
"Delivery Point" shall mean the point, at the 132-kV gantry
of the new substation to be constructed by Utility near the
existing Sun Koshi power station, at which electric energy from
the Project is delivered to the NEA Interconnection Facilities.
"Dispatch Instruction" shall mean Utility's instructions to
Owner from the Load Dispatch Center in accordance with Prudent
Utility Practices and the Power Purchase Agreement, and taking
into account the Technical Limits and then available water flow,
to schedule and control the generation of the Project in order to
commence, increase, decrease or cease the Electrical Output
delivered to the Utility.
"Dollars" or "$" shall mean the currency of the United
States of America.
"Electrical Output" shall mean for any period, after the
first Unit Delivery Date, the electrical energy delivered by the
Project at the Delivery Point, as metered in accordance with
Schedule 7 of the Power Purchase Agreement and expressed in kWh.
"EMMP" shall mean the Environmental Mitigation, Management
and Monitoring Plan for the Upper Bhote Koshi Hydroelectric
Project dated November 1996, submitted by the Owner to His
Majesty's Government of Nepal included and accepted by His
Majesty's Government of Nepal as an attachment to the Project
License issued November 28, 1996, as approved by the Lenders and
satisfactory in form and substance to each of the Lenders, copies
of which have been made available to the Operator.
"Environmental Laws" shall mean all applicable World Bank
policies , as in effect in March 1996, relating to the
environment, indigenous peoples, involuntary resettlement, and
occupational health and safety, the EMMP, any statute, law, rule
regulation, ordinance, code, guideline or policy, or rule of
common law (including the EMMP, the HSE Plan, and Nepalese
environmental laws applicable to the Project), in each case, now
or hereafter in effect and in each case as amended, any
applicable judicial or administrative order, consent, decree, or
judgment, or any permissions, permits, certifications,
authorizations, approvals, and licenses for the Facility, both
obtained and applied for, including any variances or waivers in
effect from time to time necessary or desirable for the Project
relating to the environment or to noise, emissions, discharges,
releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes
into the environment, including without limitation, those
relating to vehicular noise and emissions standards, ambient
equipment noise standards, prescribed hours of operation with
respect to noise (nuisance), or discharges into ambient air,
surface water, groundwater or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants,
chemicals, or industrial, toxic or Hazardous Materials,
substances or wastes.
"EPC Contract" shall mean the Engineering, Procurement and
Construction (EPC) Contract between Owner and EPC Contractor
relating to the design, procurement, construction, testing, Pre-
startup, and Start-up of the Facilities as the same may be
amended, supplemented or modified from time-to-time.
"EPC Contractor" shall mean China Gezhouba Construction
Group Corporation for Water Resources and Hydropower, a Chinese
company.
"Equipment" shall have the meaning set forth in Article
2.06A. hereof.
"Facility" or "Facilities" shall mean the land, structures
including without limitation the dam, spillway, desanding basin,
tunnel and surge shaft, penstock, powerhouse and necessary
infrastructure, Major Equipment, all electrical internal
services, onsite and offsite buildings and structures and
infrastructure, pipelines, electrical transmission lines and
interconnection facilities, communications systems and disposal
facilities, and all other such means or processes necessary to
the economic and efficient operation of the Facility.
"Force Majeure Event" shall have the meaning set forth in
Article 12.01 hereof.
"Governmental Authority" shall mean Nepal Rastra Bank, HMGN
(as such term is defined in the Loan Documents) and any federal,
national, regional, municipal or local authority or regulatory
department, body, political subdivision, commission,
instrumentality, agency, ministry, court, judicial or
administrative body, taxing authority or other authority in any
jurisdiction having jurisdiction over any party (or any
subcontractor of any such party) to a Principal Document (as such
term is defined in the Loan Documents) or the services or
obligations to be performed thereunder, or the Project or the NEA
System (as such term is defined in the Loan Documents).
"Hazardous Materials" shall mean any chemicals, materials or
substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," "contaminants" or
"pollutants," or words of similar import, under any Environmental
Law; and any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any governmental
authority of Nepal by reason of its hazardous nature.
"HSE Plan" shall mean the Health, Safety and Environmental
Plan implemented by the EPC Contractor pursuant to the EPC
Contract, a copy of which has been made available to the
Operator.
"Indemnitee" shall have the meaning set forth in Article
8.04A. hereof.
"Independent Engineer" shall have the meaning specified in
Article 1.1 of the Power Purchase Agreement.
"Lender" and "Lenders" shall mean any lenders, export credit
agencies, multilateral institutions and others providing
financing or refinancing to or on behalf of Owner, for the
development, ownership, operation and maintenance of the
Facilities or any portion thereof, or any trustee or agent acting
on behalf of any of the foregoing.
"Load Dispatch Center" shall mean the Load Dispatch Center
of Utility located in Kathmandu or such other load dispatch
center as Utility shall specify in writing to Owner.
"Loan Documents" shall mean the relevant documentation
executed between the Lender(s) and Owner for the financing of the
Facilities and any other financing documents as may be amended
from time-to-time.
"Major Equipment" shall mean all equipment required for the
operation of turbine generators including the spillway and intake
gates and operators; penstock; powerhouse inlet valves; turbines,
generators, governors and auxiliary mechanical and electrical
equipment; powerhouse crane; draft tube gates; transformers and
switchgear.
"NEA Interconnection Facilities" shall have the meaning set
forth in Article 1.1 of the Power Purchase Agreement.
"Operator" shall mean Harza Engineering Company
International L.P.
"Owner" shall mean Bhote Koshi Power Company Private
Limited, a private limited liability company duly incorporated
and registered in Nepal.
"Owner's Account" or "Account of Owner" shall have the
meaning set forth in Article 4.02 hereof.
"Owner's Representative" shall have the meaning set forth in
Article 3.01 hereof.
"Plant Manager" shall mean Operator's on-site employee
responsible for managing the operation and maintenance of the
Facilities.
"Power Purchase Agreement" shall mean the Power Purchase
Agreement dated as of 6 Shrawan 2053 (July 21, 1996) attached
hereto as Exhibit A, between Owner and the Utility, which may be
amended from time to time.
"Pre-Startup" shall mean the period between the Commencement
Date and the Start-up date.
"Project" shall have the meaning specified in Article 1.1 of
the Power Purchase Agreement.
"Project Agreement" shall mean the Project Agreement dated
as of 6 Shrawn 2053 (July 21, 1996) between His Majesty's
Government of Nepal and Owner attached hereto as Exhibit B.
"Proprietary Information" shall have the meaning set forth
in Article 20.01 hereof.
"Prudent Utility Practices" shall mean the practices,
methods, techniques and standards, as changed from time-to-time,
that are generally accepted internationally for use in electric
utility industries taking into account conditions of Nepal, and
commonly used in prudent electric utility engineering and
operations to design, engineer, construct, test, operate and
maintain equipment of a type and size similar to the Facilities
or the NEA Interconnection Facilities lawfully, safely and
efficiently and that generally conform to the manufacturers'
operation and maintenance guidelines.
"Reimbursable Costs" or "Reimbursable Cost" shall mean all
reasonable and actual direct costs properly incurred by Operator.
"Scheduled Commercial Operation Date" shall mean the
expected date which the Facilities achieve Commercial Operation
Date as such date may be revised from time-to-time based on the
construction program for the Facilities. The Scheduled
Commercial Operation Date as of the date of this Agreement is 17
Poush 2056 (January 1, 2000). Owner may change the Scheduled
Commercial Operation Date by giving written notice to Operator.
"Scheduled Outage" shall have the meaning specified in
Article 1.1 of the Power Purchase Agreement.
"Site" shall mean the real property upon which the
Facilities are located.
"Start-Up" shall mean any period during which all plant
systems are checked and the Facilities are synchronized to the
Utility system.
"Subcontractor" shall mean any person other than Operator
performing any portion of the work contracted by Operator under
the Operation and Maintenance Agreement.
"Unit" shall mean either of the approximately 18 MW (nominal
net) turbine-generator units incorporated into the Facilities.
"Unit Capacity" shall mean, as to any Unit for any period,
18MW or such other amount of net electricity generating capacity
of such Unit as demonstrated by the performance tests conducted
under Schedule 8 of the Power Purchase Agreement for such Unit.
"Unit Delivery Date" shall mean, for each Unit, the date
declared by Owner to be the date on which such Unit is available
for commercial operation at the Unit Capacity thereof, as such
date is specified in a written notice given at least fifteen (15)
days in advance by Owner to Utility.
"Utility" shall mean the Nepal Electricity Authority (NEA).
ARTICLE 2
SERVICES TO BE PERFORMED BY OPERATOR
Operator will provide all operation and maintenance services
necessary for the efficient, sound and effective operation of the
Facilities so as to enable the Facilities to satisfy the
requirements set forth in the Power Purchase Agreement, attached
as Exhibit A hereto and which may be amended from time-to-time,
and to maintain the Facilities in good mechanical and operating
repair and condition all in accordance with Prudent Utility
Practices. Without limiting the generality of the foregoing,
Operator shall do the following:
2.01 Personnel. Operator shall provide and train, in a
manner consistent with Prudent Utility Practices, competent
qualified personnel to operate and maintain the Facilities
including, without limitation, the following:
A. A Plant Manager, assigned to the
Facilities full time, to manage on-site operations
and maintenance, which individual shall be
approved in writing by Owner.
B. Additional full time on-site personnel
as needed.
C. Additional engineering support,
operations, maintenance, and management personnel
not located full time at the Facilities, as needed
to perform the requirements of this Agreement.
D. Subcontractors, as required, subject to the
approval of Owner.
Without limiting the generality of the foregoing, Operator
will (i) provide the staff for the Facilities during all hours;
(ii) provide those full time on-site personnel identified and
agreed to by Operator and Owner; and (iii) provide the home
office support identified in Exhibit C hereto. Operator shall
submit the qualifications of full-time, on-site management and
key supervisory personnel hired for review and approval by Owner,
and such personnel shall be acceptable to Owner at all times.
Owner's approval or acceptance of any such personnel shall not be
construed as or imply Owner's acceptance of the conduct,
performance or qualifications of such personnel nor result in any
waiver of Operator's duties and responsibilities for providing
personnel as required for its performance or for responsibility
for compliance with any standard or other duty of performance
hereunder and as required by the Power Purchase Agreement, the
Loan Documents, and consistent with the requirements of Article
2.18 herein.
2.02 Initial Staffing, Pre-startup, Testing and Start-up.
After receiving Authorization to Proceed, Operator shall prepare
a hiring schedule for the personnel identified and agreed to by
Operator and Owner. Owner shall require Operator to have
personnel on site at least one hundred eighty (180) days prior to
the Scheduled Commercial Operation Date, or at such time as may
be determined by Owner at its sole discretion but in no event
shall the Plant Manager be onsite later than one hundred eighty
(180) days prior to Scheduled Commercial Operation Date. After
review and written approval of the hiring schedule by Owner,
Operator shall cause the commencement of initial hiring of
personnel. Operator shall adjust the hiring schedule, as
requested by Owner in writing, in accordance with changes in the
construction, Pre-startup, Start-up, and Commercial Operation
Date, and shall obtain Owner's review and approval of such
changes.
Operator shall provide capable operating personnel to assist
in initial training, Pre-startup, testing and Start-up of the
Facilities under the direction and supervision of the EPC
Contractor. It is understood that Owner is obligated to pay for
Operator's services during Pre-startup, testing and Start-up as
provided herein, but that total supervision and direction of all
Pre-startup, testing and Start-up activities (including those of
Operator) shall be furnished by the EPC Contractor who will have
care, custody and control of the Facilities prior to Commercial
Operation Date of the Facilities.
2.03 Operation and Maintenance. Operator shall operate and
maintain the Facilities, seven (7) days a week, twenty-four (24)
hours per day, in accordance with Prudent Utility Practices;
Major Equipment Technical Limits; manufacturers' operating
procedures, manuals, recommendations, guarantees and warranties
as applicable; and as required by the Power Purchase Agreement,
Loan Documents, insurance policies, and this Agreement. Without
limiting the generality of the foregoing, Operator will operate
the Facilities in a manner to safeguard human life, to maximize
revenue to Owner, to maximize the useful life of the equipment,
to minimize downtime for repairs, and to avoid forced outages, in
a manner consistent with that of a prudent owner maintaining its
own facility for its own account. Operator shall consult with
Owner in order to clarify its obligations in the event that any
conflict exists in these obligations under this Agreement.
Operator shall be solely responsible for the operation and
maintenance of the Facilities hereunder. The Operator will
monitor Facilities' performance and efficiency and will follow
the directions of Owner with respect to financial or economic
matters as long as compliance with such directions will not
materially and adversely affect the operation and maintenance of
the Facilities or its performance as required hereunder after
comparison of the relative benefits and detriment of incurring
any cost and the relative effect on operations if such cost were
not incurred. In the event of any inconsistency between the
procedures approved by Owner and the equipment manufacturer's or
EPC Contractor's recommendations, Procedures and Manuals,
Operator will follow the most stringent standards always in a
manner to preserve warranties on the Equipment and Major
Equipment.
In the event of circumstances which Operator reasonably
determines to be emergencies, Operator shall have the obligation
to curtail or to shut down the Facilities or parts thereof in
order to avoid any potential damage or prevent possible injury to
any person. In such case Operator shall provide oral notice to
Owner at the earliest practicable time and subsequent written
notice within no later than 72 hours.
If there is a need to suspend or substantially reduce the
output of electricity for any reason which Operator determines to
be an emergency, Operator shall be so entitled to suspend or
reduce the output of electricity for the purpose of performing
unscheduled maintenances. Operator shall provide to Owner
immediate oral notice and subsequent written notice as soon as
practicable but not later than 72 hours, containing a reasonable
detailed statement of the reason for such suspension or reduction
and the likely duration thereof. Operator shall use its best
efforts to complete the unscheduled maintenance as soon as
reasonably possible.
2.04 Tools.
A. Operator shall review the tool list
developed by the EPC Contractor pursuant to the
EPC Contract, and shall identify and prepare a
list of recommended tools to supplement the tools
furnished by the EPC Contractor required to
adequately perform the requirements of this
Agreement. Said list will be submitted to Owner
in one or more increments and shall be modified or
supplemented throughout the term of this Agreement
by agreement of the Parties as necessary to permit
the timely acquisition thereof. The initial list
of such tools shall, in no event, be submitted to
Owner later than one hundred eighty (180) days
prior to the Scheduled Commercial Operation Date.
B. The initial supply of tools identified
on the list described in Article 2.04A. above
shall be subject to the written approval of Owner
and will be procured by Operator to Owner's
Account as provided in Article 4 of this Agreement
or as a Reimbursable Cost. Operator shall
promptly notify Owner in writing of tools that
were not approved that could impact its
obligations and duties hereunder.
C. Operator shall be responsible for
annually, or as otherwise reasonably requested by
Owner in writing, preparing and presenting to
Owner an accurate reconciliation of the
Facilities' tool inventory.
D. Operator shall be responsible for the
use, management, control, care, and custody of the
Facilities' tools.
E. Operator shall repair or replace tools
as required, as a Reimbursable Cost or to the
Account of Owner, as provided in Article 4 of this
Agreement.
F. Operator shall periodically, and no less
frequently than annually, review the Facilities
tools, and make recommendations to Owner for
additional tools that would improve the Facilities
operations.
2.05 Spare Parts.
A. Operator shall review the spare parts
list developed by the EPC Contractor pursuant to
the EPC Contract, and shall identify and prepare a
list of recommended spare parts required to
adequately perform the requirements of this
Agreement. Said list will be submitted to Owner
in one or more increments and shall be modified or
supplemented throughout the term of this Agreement
by agreement of the Parties as necessary to permit
the timely acquisition thereof. The initial list
of such spare parts shall, in no event, be
submitted to Owner later than two hundred seventy
(270) days prior to the Scheduled Commercial
Operation Date. Spare parts will be determined
with reference to generally accepted practices in
the industry and with reference to manufacturer's
recommendations.
B. The initial supply of spare parts
identified on the list described in Article 2.05A.
above shall be subject to the written approval of
Owner and will be procured by Operator for Owner's
Account as provided in Article 4 hereof or as a
Reimbursable Cost.
C. Operator shall, subsequent to submitting
the initial list of spare parts described in
Article 2.05A. above be responsible for procuring,
subject to Owner's written approval, for Owner's
Account as provided in Article 4 hereof or as a
Reimbursable Cost, replacements for said listed
spare parts as necessary. Such spare parts shall
be ordered and scheduled to be on site prior to
the Unit Delivery Date of the Second Unit.
D. Operator shall be responsible for the
use, care, custody, management and control of said
spare parts.
E. Operator shall be responsible for
annually, or as otherwise reasonably requested by
Owner in writing, performing and presenting to
Owner an accurate reconciliation of the
Facilities' spare parts inventory.
F. Operator shall be responsible for
establishing proper and effective on-site
warehousing and inventory controls for such spare
parts. The inventory control system is to be
coupled to an Owner approved plant maintenance
management information system. All spare parts
shall be stored in the on-site maintenance
facility provided by Owner unless otherwise
mutually agreed upon between Owner and Operator.
2.06 Equipment.
A. Operator shall identify and prepare a
list of recommended machinery, equipment,
vehicles, office furnishings, computers, and
software (the "Equipment") required to adequately
perform the requirements of this Agreement. Said
list will be submitted to Owner in one or more
increments and shall be modified or supplemented
throughout the term of this Agreement by agreement
of the Parties as necessary to permit the timely
acquisition thereof. The initial list of such
Equipment shall, in no event, be submitted to
Owner later than one hundred eighty (180) days
prior to the Scheduled Commercial Operation Date.
B. The Equipment identified on the list of
such Equipment described in Article 2.06A. above
shall be subject to the written approval by Owner
and shall be procured by Operator for Owner's
Account as provided in Article 4 or as a
Reimbursable Cost. Operator shall promptly notify
Owner in writing of the Equipment that was not
approved that could impact Operator's obligations
and duties hereunder.
C. Operator shall periodically review the
Equipment required to perform under this Agreement
and make recommendations to Owner of modifications
or additions to the Facilities equipment
throughout the term of this Agreement that would
improve or enhance the Facilities operations.
D. Operator shall be responsible for the
use, management, care, custody, operation and
maintenance of said Equipment. Operator shall
repair or replace, as a Reimbursable Cost or to
the Account of Owner as provided for in Article 4,
the Equipment.
2.07 Consumables and Other Materials.
A. Operator shall identify those
consumable, expendable, and other materials and
supplies ("Consumables") necessary to perform the
requirements of this Agreement. Said Consumables
will be identified to Owner throughout the term of
this Agreement as necessary to permit the timely
acquisition thereof. The initial list of such
Consumables shall, in any event, be identified and
submitted to Owner in writing no later than one
hundred eighty (180) days prior to the Scheduled
Commercial Operation Date.
B. Operator shall use, manage, care for,
control and maintain Consumables as required to
support the needs of the Facilities, and procure
Consumables, as Reimbursable Costs or to Owner's
Account as provided in Article 4, throughout the
term of this Agreement.
C. Operator shall be responsible for the
use, care, custody and control of such
Consumables.
2.08 Purchased Parts, Labor and Services. Operator shall
identify and procure, as Reimbursable Costs or for the Account of
Owner as provided for in Article 4, parts other than spare parts
and labor and services throughout the term of this Agreement as
necessary to perform the requirements of this Agreement. This
will include procurement for the services of equipment
manufacturer's personnel, or personnel trained and qualified to
provide equivalent services, to perform manufacturer's
recommended service procedures when deemed necessary. Without
limitation, Operator, in its capacity as Owner's agent, shall
procure as a Reimbursable Cost or for the Account of Owner as
provided for in Article 4, third-party contracts to clean up and
remove hazardous waste and solid waste, except to the extent such
waste arises out of the negligence or fault of Operator or
pursuant to Article 2.16. Any maintenance or repair which can
reasonably be performed by Operator's full time on-site
personnel, provided pursuant to Article 2.01 above, shall be
performed by them.
2.09 Maintenance and Repairs. Operator shall comply with
procedures developed pursuant to Article 2.10 below and otherwise
provide all maintenance and repair services necessary to keep the
Facilities in good working order in a manner consistent with
Prudent Utility Practices, to correct by appropriate measures any
damage to or malfunction of the Facilities, and provide all
necessary information to and cooperate with Owner so that Owner
may enforce or make warranty claims with respect to any repair or
malfunction. Any parts utilized in performing operation and
maintenance services shall be new or refurbished according to
manufacturers' recommendations. Operator shall assign to Owner
the manufacturers' warranty on all parts Operator has procured.
2.10 Operating, Maintenance and Safety Plans and Procedures.
Using the operations and maintenance manuals supplied to Owner by
the EPC Contractor pursuant to the EPC Contract as supplemented
by Operator's standard procedures developed for like facilities,
Operator shall develop (and furnish copies to Owner and Lenders
for review and approval in writing not later than one hundred
eighty (180) days prior to the Unit Delivery Date of the first
Unit) necessary, specific and fully integrated operating,
maintenance and safety plans and procedures including, without
limitation, the following, as described below (each of which
shall satisfy the requirements set forth in the Power Purchase
Agreement) and as outlined substantially in the form provided in
Exhibit D:
A. Pre-startup, Start-up, operating,
dispatching and shutdown procedures for the
Facilities equipment and systems including
appropriate periodic checks for leaks, improper
temperatures, excessive noise and vibrations,
proper pressures and liquid levels, and other
pertinent operating information indicative of the
equipment condition.
B. Periodic maintenance plans identifying
schedules and procedures for the equipment
lubrication, packing and seal checks, filter
checks and services, electrical and control system
checks, and structure checks and inspections.
C. Plans and procedures for long-term
maintenance and overhaul of the Facilities.
D. Plans and procedures for as-needed
repairs and overhauls.
E. Plans and procedures for emergency
service and repairs as needed, twenty-four (24)
hours a day, each day of the year. Such
procedures will provide for expedited service and
repairs; for the availability of Operator's
management personnel, in connection with such
services, on a twenty-four (24) hours a day, each
day of the year basis; for notification of and
expediting the availability of factory or service
personnel when necessary repairs are beyond the
capabilities of Operator's on-site personnel, and
for the immediate notification of Owner of any
emergency event or condition, of anticipated
corrective actions to be taken and of anticipated
service and repair times and cost consequences.
F. Procedures for identifying, acquiring
and maintaining required spare parts so that the
Facilities have an adequate inventory of spare
parts, in accordance with Article 2.05 of this
Agreement including a critical spare parts
analysis which will identify key parts that may
require over-stocking for the purpose of increased
plant availability.
G. Procedures for notice to and approval by
Owner of any alterations or capital improvements
to the Facilities, so that no alterations or
capital improvements to the Facilities will be
made without the written consent of Owner.
Operator will, without limitation, provide in such plans and
procedures for visual, mechanical or instrumental inspection as
necessary in order to provide early detection of required
adjustments, repairs or replacements so that required
adjustments, repairs or replacements can be scheduled with
minimum interference to the Facilities operations insofar as
possible. Such procedures will be consistent with applicable
manufacturer's recommendations, will provide for the services of
factory representatives and/or outside consultants where
appropriate and will provide for orderly shutdowns and minimum
interference with operations. Such procedures will be reviewed
as required and in no event less frequently than annually with a
copy of the review provided to Owner. No alterations to the
Facilities shall, in any event, be made without the prior written
approval of Owner.
2.11 Records. Operator shall keep and maintain maintenance
and operation records for the Facilities and for the equipment
therein. Such records shall satisfy the requirements set forth
in the Power Purchase Agreement and Lenders' requirements under
Loan Documents and shall include, without limitation: the logging
of daily exception reports; daily Operator's logs; a record of
all maintenance and repairs performed; copies of all plans and
procedures developed pursuant to Article 2.10 above or otherwise;
equipment and instrument calibration records; and electricity
production, consumption and delivery records. All records shall
be made available for examination by Owner, the Utility (where
required by the Power Purchase Agreement) or Lender and Lender's
Independent Engineer (where required by the Loan Documents)
during normal working hours.
2.12 Reports. Operator shall prepare and furnish a monthly
operations report within ten (10) business days following the
close of each calendar month, including the following:
A. A review of operations for the prior
month (electricity production, consumption and
deliveries).
B. Identification of significant exceptions
to the normal status of equipment.
C. Identification of all major repairs or
alterations made to equipment during the prior
month.
D. Identification and explanation of
significant performance deviations from the prior
month or from anticipated performance.
E. Identification of maintenance and
shutdowns planned for the succeeding twelve (12)
months.
F. Any significant personnel issues
including hiring, disciplinary action or lost time
due to injuries.
G. Identification and report on efficiency
of water usage.
H. Identification and report of results on
any availability tests made at the request of the
Utility.
I. Such other matters as may be reasonably
requested by Owner in writing.
Operator shall also provide all notices and reports required
in connection with the operation and maintenance of the
Facilities by applicable permits, laws and regulations and the
Power Purchase Agreement and Loan Documents within the times
required. Owner shall be responsible, pursuant to Article 3.10B.,
for providing those documents which identify all required notices
relating to the operation and maintenance of equipment contained
in the Facilities that are required by this Article 2.12.
2.13 Governmental, Regulatory, Utility and Safety
Requirements. Operator shall operate and maintain the Facilities
in compliance with all applicable laws, permits, approvals,
ordinances, rules, regulations, Environmental Laws, environmental
guidelines and mitigation requirements and orders of governmental
authorities. Operator shall also comply with all safety and
other rules and regulations reasonably established in writing by
Owner with respect to the Facilities and with all safety and
other rules and regulations established by the Utility with
respect to interconnection delivery facilities and with respect
to property owned by or leased from the Utility. In the event
that such requirements change during the term of the Agreement,
and such changes require additional expenses to Operator, these
additional costs shall be mutually determined by Owner and
Operator and reimbursed to Operator by Owner as Reimbursable
Costs. In the event such changes require alteration to the
Facilities, Owner shall be responsible for the costs of such
alterations.
2.14 Liens And Encumbrances. Operator shall keep all real
property and all personal property and equipment associated with
or part of the Facilities free and clear of all liens and
encumbrances caused by an action or failure to act by Operator or
any of its consultants, suppliers or subcontractors in the
performance of its obligations under this Agreement, including,
without limitation, failure by Operator to pay, when due, any
bill or charge for labor or services performed or materials or
equipment furnished for use in connection with this Agreement.
Operator shall immediately notify Owner in writing of any such
liens or encumbrances. Nothing herein contained shall require
Operator to pay any claims for labor, materials or services which
Operator, in good faith disputes and which Operator, at its own
expense, is currently and diligently contesting; provided,
however, that Operator shall, not later than thirty (30) days
after notice of the filing of any claim of lien that is disputed
or contested by Operator, post a surety bond sufficient to
release said claim of lien in accordance with the relevant laws
and approvals of Nepal or other relevant laws.
2.15 Metering. Operator shall verify the accuracy of meters
and devices used to measure the delivery of electricity to the
Utility, as required, but in no event less frequently than
annually. Such verification is to be performed in a manner
consistent with the requirements of the Power Purchase Agreement,
and other applicable regulations of the Utility.
2.16 Waste. Operator shall not allow any hazardous or solid
waste to accumulate on the Site in contravention of any
applicable law, regulation or governmental permit or license, the
Power Purchase Agreement, or any Loan Documents relating to the
Facilities or otherwise to cause any impediment to operations and
maintenance services to be performed or which may threaten the
health or safety of persons present at the Facilities. Operator
shall notify Owner immediately should any hazardous or solid
waste problem arise and shall assist Owner to remedy such
situation.
2.17 Scope of Work. Operator shall perform, throughout the
term of this Agreement, all services described in this Agreement.
Such services shall be performed and supplied in connection with,
but not limited to, the following:
A. Pre-Commercial Operations Period.
Subsequent to the Commencement Date and prior to
the Commercial Operation Date, Operator will
assist Owner in specifying and procuring tools,
spare parts, chemicals, etc., and will provide
operating personnel to assist in Pre-startup,
testing and Start-up of the Facilities under the
direction and supervision of the EPC Contractor.
These services will be performed by Operator in
accordance with this Agreement and the schedules
and budgets that are established by Operator and
approved by Owner, and will include providing all
management, administration, supervision and
staffing functions required to mobilize and
provide the personnel capable of assisting the EPC
Contractor during Pre-startup, testing and Start-
up and also technically capable of operating the
Facilities upon commencement of operations
following the Commercial Operations Date. In
addition, Operator shall monitor any services
previously required to be provided, and amend or
revise or update all information as required in
order to maintain a current and correct account
thereof; and perform the following generally
described duties all in accordance with the terms
of this Agreement:
i. Administrative Services.
Operator shall be responsible for all normal
administrative and personnel related
activities with respect to Operator-provided
personnel, including benefits, bonuses,
scheduling and overtime. In addition,
Operator's administrative responsibilities
shall include, but are not limited to, the
following:
(a) Develop a written
plan for the conduct of its
responsibilities under this Agreement
and form, or be prepared to immediately
form, a business entity appropriate for
the conduct of its responsibilities
under this Agreement and in accordance
with a written business plan to be
agreed to by Owner;
(b) The development of the
Facilities safety procedures including,
but not limited to, electrical lock-
out/tag-out procedures, confined space
entry procedures, hazardous materials
control plan, spill prevention plan,
fire prevention plan, etc.;
(c) All customary purchasing
activities on-site, including the
purchase of all consumables, chemicals,
spare parts, equipment, tools and
miscellaneous equipment needed prior to
Commercial Operations Date. Purchasing
activities shall include, without
limitation, obtaining competitive
quotes, examinations, purchase document
control, warranty tracking, receiving
and inspection and invoice approval.
Monthly purchase summaries shall be
provided to Owner within twenty (20)
days from the last day of each month;
(d) Preparation and
submission to Owner of pre-commercial
Annual Budgets to provide for all
customary operation and maintenance
functions in accordance with Prudent
Utility Practices including, among other
things, initial spare parts,
consumables, maintenance overhauls,
tools, equipment, etc. An Annual Budget
shall be submitted to Owner for approval
at least ninety (90) days prior to any
commitment of funds;
(e) The review and comment by
Operator-provided management and
supervisory personnel of the Pre-
startup, testing and Start-up activities
prior to and during performance testing
by the EPC Contractor, subject to
Owner's ultimate responsibility for the
results of such Pre-startup, testing and
Start-up activities;
(f) The review and comment by
Operator-provided management and
supervisory personnel of all mechanical
and electrical one-line drawings on the
plant operability and maintainability
concerns are addressed by the EPC
Contractor, subject to Owner's ultimate
responsibility for any errors or
omissions by the EPC Contractor;
(g) The review and comment by
Operator-provided management and
supervisory personnel of the adequacy of
EPC Contractor and vendor training
programs and how these are scheduled to
fit in with Operator's overall training
program;
(h) The development of
operating procedures for all customary
aspects of the plant's operations and
maintenance, including but not limited
to: day-to-day operations and
maintenance, dispatch protocol, delivery
and receipt of fuels, consumables and
hazardous materials, etc.;
(i) Making reasonable efforts
to promote the public relations of the
Facilities and to maintain good
community relations including those with
governmental authorities, customer
representatives, Lender personnel and
approved site visitors;
(j) The identifying and
preparing of lists of recommended office
equipment and furnishings to adequately
perform administrative activities; and
(k) Providing Owner's on-site
construction manager and Owner's
engineering representatives with as
needed assistance during the Pre-
startup, testing and Start-up of the
Facilities.
ii. Training. Operator will
provide training services in conjunction with
those of the EPC Contractor which will fully
familiarize its personnel with all the
Facilities systems operation and maintenance
requirements based on Operator's assessment
of available local Nepalese labor skills.
Such training will consist of, among other
things, combined classroom instruction and
field walk-downs for the operations and
maintenance personnel, as well as any
specialized training required for Nepalese
labor. These training sessions will be
conducted prior to the commencement of Pre-
startup, Start-up activities on the
Facilities so that Operator's staff can get
hands-on experience during the Pre-startup,
Start-up, check-out, testing and
commissioning of the Facilities' systems.
iii. Operating Services. Operator's
operating responsibilities prior to the
Commercial Operation Date will include, but
are not limited to, the following:
(a) Develop an
organization chart describing the
staffing of the Facilities and develop
the standards, qualifications, and
position description criteria for key
personnel and positions which are
believed necessary to perform its duties
under this Agreement;
(b) The hiring and
mobilization on-site in a timely manner
of qualified and competent (expatriate
and/or local) plant management,
supervision, operations and maintenance
personnel ready to be trained;
(c) Providing trained
operations and maintenance personnel to
assist in Pre-startup, testing and Start-
up of the Facilities under the direction
and supervision of the EPC Contractor
prior to the Commercial Operation Date
of the Facilities; and
(d) The development and
preparation of lists of consumables,
expendables and other materials and
supplies necessary to operate the plant.
(e) Assistance in the
testing of the Facilities from the EPC
Contractor including: (i) review of
turnover packages, (ii) system walk-
downs; and (iii) assistance in
developing punchlists.
iv. Maintenance Services.
Operator's maintenance responsibilities prior
to the Commercial Operation Date shall
include, but are not limited to, the
following:
(a) The development and
implementation of an Owner approved
maintenance management information
system (MMIS) in time to support the
commencement of system hand-over;
(b) The developing of
initial short- and long-term maintenance
plans for the Facilities in accordance
with manufacturer requirements prior to
the Commercial Operation Date;
(c) The preparation of
lists of recommended spare parts
required to adequately operate and
maintain the Facilities in a reliable
manner to meet the requirements of the
Power Purchase Agreement after the
Commercial Operation Date;
(d) The setting up and
organizing of an inventory control
system which is coupled to the MMIS
prior to the Commercial Operation Date;
and
(e) The organizing,
stocking and management of the plant
spare parts, consumables, and tools
inventory.
v. Utility Meetings. Participate
in meetings between Owner and Utility after
the Commencement Date regarding Operation of
the Facility including, but not limited to,
performance, resolution of issues and
coordination of activities.
B. Commercial Operations Period. After the
Commercial Operation Date, Operator will have
complete on-site responsibility for the operations
and maintenance of the Facilities. This includes
providing all (expatriate and/or local) plant
management, administration, supervision and
staffing functions and activities as are
necessary. This responsibility will include the
procurement of materials, supplies, consumables
and outside services, as per Approved Budget.
The scope of services and activities
required from Operator to meet these
responsibilities include, but are not limited to,
those described in the following articles.
i. Operational Services.
Operator's operations and maintenance
responsibilities shall include, but are not
limited to, the following:
(a) The continued providing
and training of sufficient qualified and
competent personnel to operate and
maintain the Facilities;
(b) Operational activities
necessary to produce and supply reliable
electrical energy to the Utility and to
dispatch the Facility in accordance with
the Power Purchase Agreement;
(c) Cooperate with the
Utility in scheduling and performing all
testing required under the Power
Purchase Agreement;
(d) Cooperate with the
Utility and Owner in scheduling and
performing all scheduled maintenance
outages, routine maintenance and major
overhaul outages and during emergencies
in accordance with Owner's obligations
under the Power Purchase Agreement and
as set forth in any Loan Documents;
(e) The Facilities operation
in compliance with all Environmental
Laws. This shall include the timely
submittal of periodic reports as
required by the permits;
(f) The safe and secure
storage and control of all Hazardous
Materials;
(g) Operate the Facilities in
accordance with the EPC Contractor's and
Major Equipment Manufacturers'
recommendations, guarantee and warranty
requirements and Prudent Utility
Practices; and
(h) Monitor that the
Facility is meeting the EPC Contractors
and Major Equipment manufacturers'
performance, guarantee and warranty
requirements during the relevant
guarantee and warranty periods.
ii. Maintenance Services.
Operator shall preserve the Facilities in
good mechanical, electrical and operating
repair and condition in accordance with
Prudent Utility Practices. Operator's
maintenance responsibilities shall include,
but are not limited to, the following:
(a) Providing continuous
updates to the previously implemented
MMIS including the generation of
comprehensive monthly reports on all
preventive, planned, and/or deferred
work orders associated with the
Facilities;
(b) Developing short-term and
long-term maintenance plans for the
Facilities in accordance with
manufacturer's requirements and Prudent
Utility Practices;
(c) The Facilities upkeep and
maintenance, including landscaping,
roadways, buildings, and rubbish
collection;
(d) The management of the
spare parts and tool inventory including
a monthly activity summary. This
responsibility shall include performing
an annual, audited, physical count of
all items retained on-site;
(e) Maintenance
schedules and other records required by
the Power Purchase Agreement; and
(f) Submit a desired
schedule of Scheduled Outages as defined
herein (including the duration of each
outage) to Owner at least four (4) weeks
before Owner is required to supply same
to the Utility.
iii. Administrative Services.
Operator shall be responsible for all normal
administrative and personnel related
activities relating to its employees,
including benefits, bonuses, scheduling and
overtime.
In addition, Operator's
responsibilities shall include, but are not
limited to, the following:
(a) The safety of all
personnel and equipment at the
Facilities. This responsibility shall
include compliance with all ordinances,
regulations, and local or national
legislation;
(b) The physical security of
the Facilities and its equipment,
inventory, and personnel;
(c) The efficient operation
of the Facilities to maximize revenue,
maximize useful life of equipment, to
minimize downtime for repairs and forced
outages within the constraints of the
Power Purchase Agreement;
(d) All purchasing activities
on-site, including the purchase of all
consumables, chemicals, spare parts,
equipment, equipment repairs, outside
Operator services and approved
Facilities modifications. Purchasing
activities shall include obtaining
competitive quotes, examination,
purchase document control, expediting,
receiving, inspection and invoice
approval. Monthly purchase activity
summaries will be required;
(e) Providing home office
support activities for the Facilities
including, but not limited to those of
Exhibit C;
(f) Preparation and
submission to Owner, for Owner's
approval, of Annual Budgets for the
Facilities, at least ninety (90) days
before the Commercial Operation Date and
at least ninety (90) days before the
beginning of each calendar year
thereafter. Such Annual Budget shall be
consistent with the requirements of this
Agreement and meet the requirements of
the Power Purchase Agreement and any
Loan Documents;
(g) The development of,
revisions to, and management of
emergency systems and procedures in
accordance with the Power Purchase
Agreement and local and national
regulations;
(h) To use reasonable efforts
to promote public relations relating to
the Facilities and to maintain good
community relations including those with
governmental authorities and neighbors;
(i) Support of Owner in the
timely update, re-application or renewal
of all environmental or operating
permits that pertain directly to the
operation of the Facilities; and
(j) The development of an
annual capital improvement plan with
draft plans and proposed budget
implications.
v. Utility Meetings. Participate
in all meetings between Owner and Utility
regarding Operation of the Facility
including, but not limited to, performance,
resolution of issues and coordination of
activities.
2.18 Workers Rights. The Operator shall not take actions to
prevent its employees from lawfully exercising their right of
free association and their right to organize and bargain
collectively. The Operator shall permit its employees adequately
to remove themselves from hazardous or life-threatening work
environments without endangering their continued employment. The
Operator shall observe applicable laws relating to minimum age
for employment of children, which is 16 years of age in Nepal.
The Operator shall also observe acceptable conditions of work
with respect to minimum wages, hours of work, and occupational
health and safety. The Operator acknowledges and agrees that it
shall comply with the Labor Act of Nepal including the
requirement establishing a 48-hour workweek with one day of rest.
The Operator shall not use forced labor.
2.19 Environmental Compliance. The Operator shall operate
and maintain the Facility in compliance with requirements
relating to environmental matters set forth in the EPC Contract,
His Majesty's Government of Nepal Project License, the HSE Plan,
the EMMP, and all Environmental Laws, and shall cooperate with
the Owner to provide to each of the Lenders an annual monitoring
report, based on the requirements outlined in the EMMP,
confirming compliance with such requirements of the EPC Contract,
the EMMP, the HMGN Project Licenses, the HSE Plan, and
applicable Environmental Laws or, as the case may be, detailing
any non-compliance, or any complaint with respect to any of the
foregoing matters, together with the action being taken to remedy
such failure, or address such complaint, and ensure future
compliance. Such report shall be satisfactory inform and
substance to the Lenders and shall provide sufficient information
to monitor the performance of the Project over the preceding year
with respect to environmental protection and, at a minimum, shall
include narrative summaries of (i) the results of environmental
monitoring or sampling activity (as detailed in the EMMP); (ii)
Project-related accidents materially adversely impacting the
environment or resulting in the loss of life; and (iii)
environmental deficiencies identified by Governmental Authorities
and any remedial actions taken in respect thereof; and (iv) any
event, condition or circumstance which could reasonably be
expected to lead to a violation of the Environmental Laws.
ARTICLE 3
SERVICES TO BE PERFORMED BY OWNER
From and after the Commencement Date, Owner shall be
responsible for the following:
3.01 Owner's Representative. Owner shall provide a full-
time Owner's Representative to administer Owner's
responsibilities under this Agreement, to monitor the operation
of the Facilities, and to provide direction on economic and
financial matters associated with all its responsibilities
hereunder.
3.02 Office Space, Equipment, and Administrative Services.
Owner shall provide reasonable office and administrative space,
administrative services and equipment for Operator at the
Facilities.
3.03 Tools, Spare Parts, Equipment and Consumables. Owner
will:
A. Provide written approval or give timely
objections to the lists of tools, spare parts,
Equipment, and Consumables identified by Operator
pursuant to Article 2 of this Agreement.
B. Pay for approved supplies of tools,
spare parts, Equipment, Consumables, and purchased
parts, labor and services and Reimbursable Costs
required by Operator to perform its
responsibilities under this Agreement, and as
provided for in this Agreement.
3.04 Utilities. Owner will provide and pay for all
utilities.
3.05 Permits And Licenses. Owner will obtain necessary
permits and licenses, except those which are issued in the name
of Operator or that Operator is required to obtain under Article
2 of this Agreement.
3.06 Staffing Schedules. Owner will provide written
approval or give timely objections for its obligation to give
staffing schedule approval required in Article 2.02.
3.07 Manuals. Consistent with the needs of Operator for
such material to perform its obligations under this Agreement,
Owner shall deliver, or cause to be delivered to Operator, copies
of operating and maintenance manuals for all equipment installed
in the Facilities and any and all additional documents received
from the EPC Contractor under the EPC Contract including, but not
limited to as-built drawings of the Facilities, test record
books, catalog data and operations and maintenance manuals and
specifications.
3.08 Training. Owner shall cause the EPC Contractor to
provide training to the employees of Operator in the Pre-startup,
Start-up and operation of the Facilities and any and all related
machinery and equipment to the extent set forth in Article 3.20
of the EPC Contract provided Operator has made such employees
available to the EPC Contractor as provided in Article 2.
3.9 Payments. Owner shall make payments to Operator in
accordance with Articles 4 and 5 of this Agreement.
3.10 Other Responsibilities. Owner will:
A. Pay or reimburse Operator all property
or other taxes (including, but not limited to, any
business tax or VAT taxes) related to the
Facilities or its activities and operations, but
not income taxes of Operator or its employees.
B. Provide all necessary documents in its
possession, that Operator needs to perform its
obligations relating to the operation and
maintenance of equipment contained in the
Facilities under this Agreement. Owner and
Operator shall consult and mutually agree with
each other to determine the obligations under such
documents for which Operator is responsible.
C. Provide written approval or give timely
objections to the Annual Budget submitted by
Operator pursuant to Article 2.17.
3.11 Owner shall, at all times, conform to all laws,
ordinances, rules and regulations applicable to it.
3.12 Owner has a responsibility to provide Operator with the
Power Purchase Agreement and relevant provisions of the Loan
Documents and any amendments thereto in a timely manner. To the
extent that Owner does not notify Operator of such amendments,
Operator is not liable for compliance with such amendments.
Owner agrees to consult with Operator in the event that such
changes to the Loan Documents or Power Purchase Agreement is
contemplated.
ARTICLE 4
COMPENSATION
4.01 Owner shall pay for services provided by Operator
during all periods of service provided under this Agreement as
follows:
A. Operations and Maintenance Costs.
Operator will manage and control operations and
maintenance costs according to the Approved Budget
that has been accepted by and developed in
conjunction with Owner. All operations and
maintenance expenses will be administered by
Operator and paid by Owner.
B. Local Labor Costs. Operator shall
contract with one or more Nepalese contractors to
supply suitable operations and maintenance
personnel for the Facilities, or shall direct-hire
qualified and competent individuals with
preference given to local Nepalese. All labor
contract expenses shall be administered by
Operator and paid by Owner in local currency. If
Operator direct-hires labor personnel, the Parties
will mutually agree upon the compensation terms to
apply to such direct-hired labor, including all
social benefits, severance benefits, and other
applicable costs.
C. Operator's US Labor Costs (work inside
US). All Operator's United States labor (those
employed and paid by Operator) charges will be
billed in Dollars to Owner at a fixed multiplier
of 3.0 on the pre-approved actual hourly rate paid
to the employee for work performed while in the
United States. Travel and living expenses which
have been pre-approved by Owner and Operator in
accordance with an approved budget, will be billed
in Dollars at actual cost with no markup in
accordance with Operator's standard travel
policies. Expenses associated with the work
performed will be billed at cost with no markup.
Payments by Owner to Operator for such labor shall
be in Dollars.
D. Operator's US Labor Costs (work outside
of US). All Operator's United States labor (those
employed and paid by Operator for work performed
outside the US) will be billed in Dollars to Owner
at a fixed multiplier of 3.0 on the pre-approved
actual hourly rate paid to the employee, plus an
additional amount sufficient to cover any
incremental duties, taxes, incentives and other
labor-related fees assessed on the income of
foreign nationals (which will be passed along by
Operator to its employees), for pre-approved work
performed hereunder outside of the United States.
Expenses associated with pre-approved work
performed will be billed at cost. Travel and
living expenses will be billed in Dollars at
actual cost with no markup and will be in
accordance with Operator's standard travel
policies. Payments by Owner to Operator for such
labor shall be in Dollars.
E. Expatriate Contract Labor Costs.
Expatriate contract labor costs will be treated as
normal operations and maintenance expenses
(summarized in Article 4.01A. above) and will be
billed through to Owner at actual cost with no
markup, but with an additional amount sufficient
to cover any duties, taxes, incentives and other
labor-related fees assessed on the income of such
expatriate contract laborers for payment by
Operator to such laborers, and to cover the costs
of any benefits provided such contract labor.
Payments by Owner to Operator for such labor shall
be in Dollars or local currency as directed by
Operator.
All labor costs (items A., B., C., D. and E. above) will be
tracked against an Approved Budget.
F. Plant General and Administrative
Expenses. Facilities General and Administrative
(G&A) costs will be managed and controlled
according to the Approved Budget that has been
accepted by Owner. All G&A costs associated with
plant operations will be administered by Operator
and paid for by Owner in local currency.
G. Operating Fee. In addition to the
expense reimbursements provided for above, an
annual Operating Fee of Seventy-Two Thousand and
No/100 Dollars (US$72,000.00) will be paid to
Operator in equal monthly installments beginning
with the Commencement Date. The Operating Fee
shall be adjusted annually commencing on the first
day of each year subsequent to the Commencement
Date, by the change in index values of the (i)
immediately preceding month of December; and (ii)
the next immediately preceding month of December,
as specified in the Consumer Price Index for All
Urban Consumers, U.S. City Average, Table 1, in
the row titled "Services" under the column heading
"Unadjusted percent change to..." as published in
CPI Detailed Report for the immediately preceding
December.
H. Management Effectiveness and Plant
Appearance, Price Adjustment. Subsequent to the
Commercial Operation Date, Operator's monthly
installment of the annual Operating Fee, described
in Article 4.01G., may be increased by up to Two
Thousand and No/100 Dollars (US$2,000.00) per
month based on Owner's subjective assessment, in
its sole discretion, of Operator's management
effectiveness and the overall housekeeping and
general appearance of the Facilities.
4.02 Operator Procurement to Owner's Account. Operator may
procure those items and services which are considered
Reimbursable Costs and are included in the Approved Budget or are
approved supplies, spare parts, Equipment and Consumables
pursuant to Article 3.03B. by issuing purchase orders to be paid
directly by Owner on Owner's purchasing and requisition forms.
Operator shall supply a confirming copy of the purchase order to
Owner. For purchase orders in excess of the equivalent of One
Thousand and No/100 Dollars (US$1,000.00) or for any items not in
the Approved Budget, Operator is required to receive written
authorization from Owner's Representative prior to issuing
purchase orders to be paid directly by Owner on Owner's
purchasing and requisition forms.
4.03 Operator's Expenses. Any and all expenses specifically
associated with setting up Operator's subsidiary in Nepal will be
to the account of Operator.
4.04 Taxes. Owner shall pay or reimburse all taxes or
duties arising from this Agreement, other than tax on Operator's
or any employee's or other representative's income, as provided
in Article 3.10A.
ARTICLE 5
PAYMENT
5.01 Payment of Monthly Compensation. The payment required
by Article 4, will be made on a calendar month basis. Operator
shall submit its invoices by the tenth (10th) day of the
following month. Owner shall pay the amount due to Operator on or
before the thirtieth (30th) day following the date the invoice is
received by Owner, provided that invoices are submitted in a
timely manner. Late invoices shall be paid within sixty (60)
days. Operator shall submit its invoices together with copies of
supporting, vouchers, receipts, and such other evidence of
payment as Owner shall require.
5.02 Payment Of Termination Payments. Owner shall pay the
amount due pursuant to Article 7.02 to Operator on or before the
thirtieth (30th) day following the date the invoice for such
amount is received by Owner. Operator shall submit its invoice
together with copies of supporting invoices, vouchers, receipts,
and such other evidence of payment as Owner shall require.
5.03 Payment Disputes. In the event of a dispute or
question regarding any invoice submitted by Operator, (i) all
amounts not disputed or in question shall be promptly paid as and
when required by Article 5.01 and 5.02 above, (ii) an explanation
of the dispute shall be promptly transmitted by Owner to
Operator, (iii) Owner and Operator shall immediately seek to
resolve the dispute or question, and (iv) payment shall be made
within ten (10) days of any remaining amount due after dispute
resolution. In the event the Parties are unable to resolve the
dispute, Owner and Operator shall submit to arbitration pursuant
to Article 13.
5.04 Audit Rights. Owner shall have the right to audit
Operator's books and records to verify that all Reimbursable
Costs are properly charged to Owner. No audit rights extend to
the makeup of lump sum amounts, unit rates, fixed percentages or
multipliers as may be agreed upon between Owner and Operator.
5.05 Interest. If Owner should fail to pay Operator the
amounts due and payable hereunder, except to the extent such
amounts may be in dispute, such delinquent payments shall bear
interest at an annual rate equal to 1.25 times the prime interest
rate then currently charged by the Chase Manhattan Bank in New
York, New York prorated for the period of arrears, but in no
event shall such rate exceed the maximum legal rate allowed by
applicable usury laws. Payment of interest shall not excuse or
cure any default or delay in payment of amounts due.
ARTICLE 6
TERM
6.01 Term. This Agreement shall become effective as of the
date of execution of this Agreement, and shall continue in effect
thereafter until the fifth (5th) anniversary of the Commercial
Operation Date unless otherwise terminated as provided in this
Agreement.
6.02 Extension of Term. The term of this Agreement shall
automatically extend for additional one (1) year periods until
such time as the financial obligations of the Owner are satisfied
under the Loan Documents unless the Owner, with the consent of
the Lenders as contemplated in the Loan Documents, gives at least
ninety (90) days written notice of non-renewal prior to the end
of the then effective one year term. All of the terms and
conditions of this Agreement which are not modified or changed in
any such written agreement shall remain in full force and effect
throughout any such extended term.
ARTICLE 7
TERMINATION
7.01 Termination By Owner Without Cause. Owner shall have
the right to terminate this Agreement upon any termination of the
Power Purchase Agreement. Any Lender to the Facilities shall have
the right to terminate this Agreement for convenience should it
declare an "Event of Default" under the Loan Documents after any
cure period or other ability of Owner or any other party to cure
any such default. In addition, Owner shall have the right to
terminate this Agreement for convenience in the event that the
Facilities are sold to a third party who intends to operate the
Facilities. In the event Owner gives a written termination
notice pursuant to the provision of this Article 7.01, this
Agreement shall terminate as of the date specified in such notice
which shall be no earlier than fifteen (15) days after the date
the notice is given.
7.02 Termination Payments. Upon termination pursuant to
this Article 7, Owner shall pay Operator: (i) all outstanding
costs pursuant to Article 4 hereof; (ii) reasonable costs that
may be incurred by Operator in support of the termination of this
Agreement, and (iii) reasonable severance costs resulting from
the termination of employment of Operator's employees. Operator
shall use best efforts to mitigate the amount of such costs of
termination. Payment of these amounts will be in accordance with
Article 5.
In the event of termination for convenience pursuant to
Article 7.01 or in the event of termination pursuant to Articles
7.04A. and 7.04B., Owner shall pay, in addition to the amounts
above, a termination payment of Fifty Thousand and No/100 Dollars
(US$50,000.00) for termination after the Commencement Date or a
termination payment of Twenty-Five Thousand and No/100 Dollars
(US$25,000.00) for termination which occurs after EPC Contractor
is given Notice to Proceed (as defined in the EPC Contract) and
prior to the Commencement Date.
7.03 Termination By Owner for Cause. Owner may terminate
this Agreement upon written notice to Operator as provided for in
Article 7.05 upon the occurrence of any of the following:
A. Operator's failure to provide adequate
qualified personnel to perform its obligations
under the Agreement.
B. Repeated failure of the Facilities to
respond to Dispatch Instructions from the Utility
to the extent such failure was in Operator's
control.
C. Repeated failure to cooperate with the
Utility which could result in Owner's breach of
the Power Purchase Agreement.
D. Repeated failure to provide written
documentation to the Utility which could result in
Owner's breach of the Power Purchase Agreement.
E. Failure to produce Unit Capacity at
available net head measured at the turbine and
corrected for Unit efficiency due to normal wear
and tear during two (2) consecutive Availability
Tests.
F. Failure of Operator to perform in any
material respect any service or obligation to be
performed by it hereunder or any representation or
warranty shall prove to be incorrect in any
material respect.
G. The appointment of a receiver,
liquidator or trustee for Operator by a court of
competent jurisdiction or an adjudication of
bankruptcy or insolvency by any such court or the
filing by Operator of a petition seeking an
adjudication of bankruptcy or insolvency.
H. Continuance of a Force Majeure claimed
by Operator for more than one hundred eighty (180)
days.
7.04 Termination By Operator For Cause. Operator may
terminate this Agreement upon written notice to Owner as
provided for in Article 7.05 upon the occurrence of any of the
following:
A. Failure of Owner to pay undisputed
amounts due to Operator under this Agreement in
accordance with Article 5.
B. Failure of Owner to perform in any
material respect any service or obligation to be
supplied or performed by it or any representation
or warranty shall prove to be incorrect in any
material respect.
7.05 Written Notification of Termination. In the event a
written termination notice is given pursuant to Articles 7.03A.,
7.03F. or 7.04A., 7.04B., such notice shall set forth the
circumstances providing the basis for such termination and the
Party which receives such notice shall have thirty (30) days to
remedy such condition. In the event such circumstance is not
corrected by the Party receiving such notice, or the Party
receiving such notice has not taken substantive action acceptable
to the other Party in its sole discretion to correct the
circumstances by the end of such thirty (30) day period, this
Agreement shall terminate.
7.06 Termination Procedure. Neither Party may terminate
this Agreement except as provided in this Article 7. Operator
shall, in the event of termination, take all reasonable steps
necessary to assure an orderly transfer of operation and
maintenance responsibility to Owner or to Owner's designee
including, without limitation, the delivery of all of the
following to Owner or to any such designee at the time the
termination takes effect:
A. All operation, maintenance or other
records, manuals and procedures associated with
the Facilities.
B. All tools, Consumables, spare parts and
equipment associated with the Facilities.
C. At the option of Owner or such designee,
assignments to Owner or such designee, in form
reasonably satisfactory to Owner or such designee,
or any agreements between Operator and third
parties relating to the performance of the
obligations of Operator under this Agreement.
7.07 Owner Cure of Operator's Default. In the event of a
default by Operator in its obligations hereunder, Owner may (but
shall not be required to) cure such default and may charge
Operator any additional incremental costs incurred by Owner to
cure such default up to a maximum amount of Forty Thousand and
No/100 Dollars (US$40,000.00). The exercise by Owner of this
right shall not waive any other rights of Owner hereunder.
ARTICLE 8
INSURANCE AND INDEMNIFICATION
8.01 Obligations of Operator. Without limiting any of the
obligations or liabilities of Operator, Operator shall at all
times throughout the term of this Agreement and any renewal
thereof, carry and maintain, or cause to be maintained, at a
reimbursable cost under this Agreement, insurance with at least
the minimum insurance coverage as set forth below and such other
additional insurance as may be reasonably required from time to
time by Owner and/or Lenders. All insurance carried and
maintained pursuant to this Agreement shall be with insurers and
shall be in such form and substance as shall be satisfactory to
Owner and/or Lenders, whose acceptance shall not be unreasonably
withheld.
A. Operator shall carry and maintain or
cause to be maintained workers' compensation
insurance (or other similar or equivalent social
insurance) written in accordance with the
governing insurance laws of His Majesty's
Government of Nepal and employers' liability
coverage in an amount not less than US$5,000,000
per occurrence. Such employer's liability
insurance shall include an indemnification to the
Owner and Lenders. This coverage shall not
contain an occupational disease exclusion.
B. Operator shall carry and maintain or
cause to be maintained comprehensive automobile
liability insurance in accordance with the
governing insurance laws of His Majesty's
Government of Nepal as may be amended from time to
time and covering all owned, non-owned and hired
vehicles. Such coverage shall be written in an
amount not less than US$1,000,000 per occurrence.
C. Before permitting Subcontractors, if
any, to perform any work at the Facility, Operator
shall obtain a Certificate of Insurance from each
such Subcontractor evidencing that such
Subcontractor has obtained insurance, as
reasonably and customarily required by Operator of
its Subcontractors. All insurance policies of
Subcontractors shall, if available, include a
waiver of any right of subrogation of the insurers
thereunder against Owner, Operator, Financing
Parties, and the Utility, and any right of the
insurers to set-off or counterclaim, offset or any
other deduction, whether by attachment or
otherwise.
D. All deductibles or self-insured
retentions for the coverage required by (A) and
(B) shall be sole the sole responsibility of the
Operator.
E. Operator shall use all reasonable means
to obtain the insurance coverage required by (A)
and (B) above so long as such coverage and
conditions are commercially available policies in
the prevailing insurance market. All shall be
endorsed to provide that:
i. Owner and Lenders shall not be
responsible to the insurers or reinsurers for
the payment of Operators insurance premiums
directly. Operator shall be responsible for
payment of premiums and request reimbursement
from Owner per Article 8.01 A.
ii. The interest of Owner and any
Lender to the Facilities shall not be
invalidated by any action or inaction of
Operator or any other person and the
comprehensive automobile liability insurance
shall insure Owner and Lender regardless of
any breach or violation by Operator or any
other person of any warranties, declarations,
or conditions in such policies;
iii. Subject to the Laws of Nepal,
all Policies of the Operator shall include a
waiver of any right of subrogation of the
insurers thereunder against Owner, Lenders
and the Utility, and any right of the
insurers to any set-off or counterclaim,
offset or any other deduction, whether by
attachment or otherwise.
iv. The comprehensive automobile
liability insurance shall be primary without
right of contribution of any other insurance
carried by or on behalf of Owner, any Lender,
and the Utility with respect to their
interests as such in the Facilities;
v. Inasmuch as the comprehensive
automobile liability insurance is written to
cover more than one insured, all terms,
conditions, insuring agreements and
endorsements (other than the limits of
liability) shall operate in the same manner
as if there were a separate policy covering
each insured provided nothing shall operate
to increase the insureds liability as set
forth elsewhere in the policy beyond the
amount or amounts for which the insured would
have been liable if only one person or
interest had been named insured; and
vi. If such insurance is canceled
for any reason whatsoever, including
nonpayment of premium, or any substantial
change is made in the coverage that affects
the interests of Owner, any Lender, or the
Utility, such cancellation or change shall
not be effective as to Owner, such Lender,
and the Utility, until sixty (60) days after
receipt by Owner, Lender, and the Utility of
written notice sent by first class air mail
from such insurer of such cancellation or
change; provided, however, that such sixty
(60) day period shall be reduced to ten (10)
days in the case where cancellation results
from the nonpayment of premiums.
F. On or before the execution of this
Agreement and annually thereafter, Operator shall
furnish Owner, Lenders and the Utility and such
designated third parties for which Owner makes
written request approved certificates of all above
required insurance. Such certificates shall be
executed by each insurer or by an authorized
representative of each insurer. Such certificates
or notice, as the case may be, shall identify
insurers, the type of insurance, the insurance
limits and the policy term. Operator will furnish
Owner and any third party, including the Lenders
pursuant to the requirements of the Loan
Documents, with copies of the insurance policies,
binders, and cover notes or other evidence of such
insurance required relating to the Facilities in
the event of a claim.
G. Concurrently with the furnishing of the
certification referred to in Article 8.01F. above,
Operator will furnish Owner and any third party at
the request of Owner with a report of each insurer
or insurance broker stating that all premiums then
due from Operator have been paid and that in the
opinion of such insurer or insurance broker, the
insurance then carried and maintained with respect
to the Facility is in accordance with the terms of
this Agreement. Furthermore, Operator will cause
an insurer or insurance broker to advise Owner and
Lenders promptly in writing of any default in the
payment of the premiums or any other act or
omission on the part of the Operator or any other
Person of which such broker has actual knowledge
which might invalidate or render unenforceable, in
whole or in part, any insurance provided
hereunder. Owner and/or such third party may, at
their sole option, obtain such insurance at
reasonable cost if not obtained by Operator and,
in such event, Operator shall reimburse Owner
and/or such third party upon demand for the cost
thereof.
8.02 Obligations of Owner. Without limiting any of the
obligations or liabilities of the Owner, Owner shall at all times
throughout the terms of this Agreement and any renewal thereof,
carry and maintain, or cause to be maintained at its own expense
with insurers of Owner's choosing, insurance with at least the
minimum insurance coverage set forth below for the benefit of the
Owner, Operator, Lenders and such other persons as Owner may
elect.
A. Owner shall procure and maintain during
the course of construction, testing and
commissioning, Construction All Risk Insurance for
the Facility covering loss or property damage to
the Facility on a full replacement value basis and
Third Party Bodily Injury and Property Damage
Liability. Such policy shall include the interest
of the Owner, Lenders and the Operator.
B. Owner shall procure and maintain "All
Risk" property damage insurance for the full
current replacement value of the completed
Facility, broiler and machinery insurance and
business interruption insurance. Such policy
shall include the interests of the Owner, Lenders
and the Operator.
C. Owner shall procure and maintain
Commercial General Liability (Third Party
Liability) insurance written on an occurrence
basis in respect of claims for third party bodily
injury (including death) and including property
damage on a broad policy form subject to the
prevailing insurance market conditions. The
policy will provide a combined single limit of at
least $5,000,000 and include the interests of the
Owner, and Operator.
D. The Owner shall arrange for furnishing
the Operator with approved certification of said
insurance. Such certification shall be executed
by each insurer or by an authorized representative
of each insurer. Such certification or notice, as
the case may be, shall identify insurers, the type
of insurance, the insurance limits, and the policy
term. All such certificates shall represent that
the policies may not be canceled without thirty
(30) days prior written notice to the Operator.
E. The Owner shall use all reasonable means
to obtain the insurance coverage required herein
so long as such coverage is commercially available
in the prevailing insurance market.
8.03 Risk of Loss. Owner shall bear the risk of physical
loss or damage to the Facilities, including all materials,
equipment and supplies (including temporary materials, equipment
and supplies) purchased for permanent installation in or used
during construction of the Facilities, regardless of whether
Owner has title thereto. Operator and Subcontractors shall have
no liability at any time for loss or damage to property of Owner,
or in custody of Owner, and Owner releases Operator and their
Subcontractors there from. Operator and their Subcontractors
shall also have no liability for any loss of, or damage to the
Facilities, as it is the intent of the Parties to rely on the
proceeds of Owner's insurance as satisfaction for any loss or
damage to the Facilities, and Owner releases Operator and their
Subcontractors for any such loss or damage.
8.04 Indemnification.
A. Subject to the scope and limits of the
insurance coverages listed in Article 8.01 above,
Operator agrees to defend and indemnify Owner, any
Lenders, and the Utility and their respective
directors, officers and employees (collectively
"Indemnitee") against, and hold them harmless from
any and all claims, suits, liabilities and legal
expenses (collectively "Claims") resulting from or
in connection with Operator's performance,
negligent performance, or non-performance of its
obligations hereunder except where such Claims
were caused by the negligence or willful
misconduct of an Indemnitee, provided that
Operator shall be promptly notified in writing so
such claim or suit brought against such Indemnitee
and shall be permitted to participate in the
defense thereof.
B. Subject to the scope and limits of the
insurance coverages listed in Article 8.02 above,
Owner agrees to defend and to indemnify Operator
and its directors, officers and employees
(collectively "Operator Indemnitee") against, and
to hold them harmless from any and all Claims,
resulting from or in connection with Owner'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 Operator
Indemnitee, provided that the same notification
to, and opportunity to participate, specified in
Article 7.05 above is afforded to Owner.
C. Subject to the scope and limits of the
insurance coverages listed in Article 8.02 above,
Owner agrees to defend and to indemnify Operator
Indemnitee against and to hold them harmless from
any and all claims, resulting from or in
connection with Operator Indemnitee acting under
the EPC Contractor's supervision and direction,
the EPC's Contractor's performance, negligent
performance or non-performance of its obligations
pursuant to Article 2.02, except where such claims
where caused by Operator's Indemnitee's failure to
comply with the directions given by EPC Contractor
and/or the sole negligence or willful misconduct
of Operator's Indemnitee.
D. Indemnities against, releases from,
assumptions of, and limitations on liability
expressed in this Agreement, as well as waivers of
subrogation rights, shall apply even in the event
of the fault, negligence or strict liability of
the Party indemnified or released or whose
liability is limited or assumed or against whom
rights of subrogation are waived and shall extend
to the partners of each Party, their Affiliates,
and their respective officers, directors,
employees, and agents.
8.05 Claims Procedures. Owner and Operator shall both
cooperate and comply in all respects with the claims procedure
and requirements to be established by the insurers.
8.06 Additional Insured. The Lenders and Trustee shall be
named as additional insureds under the foregoing policies of
insurance.
8.07 Pre-Existing Contamination. Anything herein to the
contrary notwithstanding, title to, ownership of, and legal
responsibility and liability for any and all pre-existing
contamination shall at all times remain with Owner. "Pre-
existing contamination" is any hazardous or toxic substance
present at the site or sites concerned which was not brought onto
such site or sites by Operator. Owner agrees to release, defend,
indemnify and hold Operator harmless from and against any and all
liability which may in any manner arise in any way directly or
indirectly caused by such pre-existing contamination except if
such liability arises from Operator's gross negligence or willful
misconduct.
8.08 Damage Limitation. Except as expressly provided
herein, neither Operator nor Owner shall have liability to the
other party hereunder for indirect, incidental or consequential
damages, including, without limitation, loss of revenues,
liability for loss of use of the Facilities or existing property,
loss of profits, loss of product or business interruption,
howsoever caused, including breach of contract, tort (including
negligence), strict liability or otherwise. In any event the
total liability of Operator to Owner arising out of or in
connection with the performance of Operator's obligations under
the Operation and Maintenance Agreement, whether by way of
indemnity or by reason of any breach of the Operation and
Maintenance Agreement, or in tort, or otherwise, shall not exceed
one hundred percent (100%) of the annual Operating Fee for any
and all occurrences in any given year.
ARTICLE 9
PERMITS AND LICENSES
9.01 Owner Permits and Licenses. Owner shall be responsible
for obtaining and maintaining all permits, approvals and
licenses, required to be in the name of Owner, necessary for the
operation and maintenance of the Facilities (unless specifically
determined to be within the scope of work undertaken by
Operator). Operator shall cooperate with Owner in obtaining and
maintaining such permits and licenses and in preparing reports
required thereunder. Operator shall promptly advise Owner of any
required permits and licenses or renewals of which it becomes
aware.
9.02 Operator Permits and Licenses. Operator shall be
responsible for obtaining and maintaining all permits, approvals
and licenses required to be in the name of Operator and otherwise
required to be obtained by Operator in the performance of his
duties hereunder. Operator shall obtain authorization to do
business in Nepal at least one hundred eighty (180) days prior to
the scheduled Unit Delivery Date for the first Unit, but in no
event later than two (2) months prior the Commencement Date.
ARTICLE 10
INDEPENDENT CONTRACTOR
At all times, Operator shall perform the requirements of
this Agreement as an independent contractor to Owner. Operator
shall have full responsibility for the control and direction of
its employees, contractors, servants and agents. Operator shall
be fully and solely responsible for the payment of such
employees, servants and agents and for the payment of all
obligations incurred by Operator in performing the requirements
of this Agreement. This Agreement is not intended to and shall
not create a partnership of any kind or type. Except for as
provided in Article 2.08, Operator shall not be an agent for and
may not bind Owner. Owner shall not be an agent for and may not
bind Operator.
ARTICLE 11
COORDINATION AND ACCESS
11.01 Access. Owner shall provide Operator and its
employees, agents, and sub-contractors with free and clear access
to the Facilities at all times to perform its obligations under
this Agreement. Operator shall furnish Owner with a list of
employees engaged in operation and maintenance of the Facilities
and shall inform Owner in writing of all changes thereto.
Operator, its employees, agents and subcontractors shall comply
with all safety and other requirements established by Operator
and Owner in connection with such access.
11.02 Coordination and Required Level of Performance.
Operator's personnel will interface with Owner's Representative
and with appropriate representatives of the Utility. Operator
shall accept daily instructions from the Utility and Owner as to
projected requirements, subject to the design and performance
limits of the Facilities. Operator shall operate the Facilities
at the maximum generating output unless otherwise instructed by
Owner, but always subject to Prudent Utility Practices and within
the guarantee and warranty limits of the EPC Contractors and
Major Equipment Manufacturers during the relevant guarantee and
warranty periods. In the event of any interruption of the
operation of the Facilities or in the event Operator is unable to
operate the Facilities so as to meet such requirements of the
Utility and Owner, Operator shall immediately notify Owner of the
circumstance and shall exert its best efforts to restore the
Facilities to its required operating level.
ARTICLE 12
FORCE MAJEURE
12.01 Force Majeure. Force Majeure Event shall mean any
event or circumstance or combination of events or circumstances
that materially and adversely affects either Party in the
performance of its obligations in accordance with the terms of
this Agreement, but only if and to the extent that such events
and circumstances are not within the reasonable control of the
affected Party. Without limitation to the generality of the
foregoing, Force Majeure Event shall include the following events
and circumstances:
A. lightning, drought, fire, earthquake,
volcanic eruption, landslide, flood, storm,
cyclone, typhoon, or tornado;
B. chemical contamination or naturally
occurring explosion;
C. epidemic, quarantine or plague;
D. air crash, shipwreck or train wrecks;
E. delays of transportation resulting from
accidents or closure of transportation routes;
F. acts of war (whether declared or
undeclared), invasion, armed conflict or acts of
foreign enemy, blockade, embargo (including
without limitation, unavailability or shortage of
fuel or materials), revolution, riot,
insurrection, civil commotion, acts of terrorism
or sabotage in Nepal;
G. any Change in Law;
H. expropriation, requisition, confiscation
or nationalization in Nepal; or
I. any event or circumstance of a nature
analogous to any of the foregoing.
A Force Majeure Event does not include delay of
Subcontractors and any such delay caused by Subcontractors will
not excuse the Operator from timely performance in accordance
with the Agreement.
12.02 Notification Obligations.
A. The Party claiming a Force Majeure Event
shall give notice to the other Party describing
such Force Majeure Event as soon as reasonably
practicable, but not later than four (4) days
after the date on which such Party knew or should
reasonably have known of the commencement of the
Force Majeure Event. Such notice shall include (i)
the date of commencement of the Force Majeure
Event, (ii) the estimated duration and (iii) the
expected probable impact on performance of such
Party's obligations, to the extent known as of the
date of the notice. Notwithstanding the above, if
the Force Majeure Event results in a breakdown of
communications rendering it not reasonably
practicable to give notice within the applicable
time limit specified herein, then the Party
claiming a Force Majeure Event shall give such
notice as soon as reasonably practicable after the
reinstatement of communications, but not later
than four (4) days after such reinstatement.
B. The Party claiming a Force Majeure Event
shall give notice to the other Party of (i) the
cessation of the relevant Force Majeure Event or
(ii) the cessation of the effects of such Force
Majeure Event on the enjoyment by such Party of
its rights or the performance by it of its
obligations under this Agreement as soon as
practicable after becoming aware of either of sub-
Articles (i) and (ii) above; but in any event no
later than four (4) days after such event occurs.
12.03 Duty to Mitigate. The Parties shall use their
best efforts to mitigate and minimize any delays or costs caused
by the effects of any Force Majeure Event and to cooperate to
develop and implement a plan of remedial and reasonable
alternative measures to remove the Force Majeure Event, provided
that:
A. The Party with a deficiency in its
performance uses its best efforts to remedy such
deficiency and to mitigate the effect of the Force
Majeure Event. If the Force Majeure Event is
labor related, Operator shall use best efforts to
hire new employees or enter into new subcontracts;
and
B. If Operator declares Force Majeure,
Owner shall have the immediate right to enter the
site at Owner's discretion to operate and maintain
the Facilities until such time as the Force
Majeure is resolved.
12.04 Excused Performance. Pursuant to and consistent
with Article 12, the events described in Article 12.01 shall
constitute Force Majeure Events, and to the extent provided in
this Article 12.04, the affected Party shall not be liable for
any failures or delays in complying with its performance
obligations pursuant to this Agreement. To the extent that such
failure or delay has been caused, or contributed to, by one or
more Force Majeure Events, the period allowed for the performance
by such Party of its obligations hereunder shall be extended on
the condition that :
A. the non-performing Party gives the other
Party notice describing the particulars of the
Force Majeure Event in accordance with Article
12.02 and continue to furnish regular reports with
respect thereto during the continuation of the
Force Majeure Event;
B. the suspension of performance and
extension of such dates is of no greater scope and
of no longer duration than is reasonably required
by the Force Majeure Event;
C. when the non-performing Party is able to
resume performance of its obligations under this
Agreement, it shall give the other Party notice to
that effect as required by Article 12.02; and
D. the non-performing Party uses its
reasonable efforts to remedy its inability to
perform;
E. in no event shall a Force Majeure Event
excuse the obligations of a Party that are
required to be completely performed prior to the
occurrence of a Force Majeure Event.
12.05 Extension of Agreement by Force Majeure. Except
as otherwise provided, in no event will any condition of Force
Majeure extend this Agreement beyond its stated Term.
12.06 Extra Disbursements. If for reasons of Force
Majeure the performance of the services by the Operator shall be
delayed, or extra disbursements incurred in continuing the work,
the Owner shall pay to the Operator all reasonable costs
previously approved by the Owner resulting from the delay, or
extra disbursements, including, if necessary, disbursements for
round trip business travel and subsistence during temporary
evacuation for personnel normally resident in Nepal while
performing their duties and for the dependents normally residing
with such personnel.
ARTICLE 13
ARBITRATION
Any unresolved dispute that may arise between the Parties
regarding this Agreement shall be settled by arbitration. The
arbitration shall be conducted in accordance with the UNCITRAL
Arbitration Rules. Venue for any arbitration proceedings shall
be in New York, New York. In such proceedings, the arbitral
tribunal shall have the authority to include in their award
reimbursement of attorney fees and costs to the prevailing Party.
Each arbitral tribunal shall consist of three arbitrators.
Each Party shall appoint one arbitrator for each arbitration.
Each of the two selected arbitrators shall agree upon a list of
five additional potential arbitrators. Each Party shall strike
two names from such list and the remaining person shall be the
chairman of the arbitration panel. No arbitrator shall be a
present employee or agent of, or consultant or counsel to, either
Party to this Contract or any Affiliate of either Party. The
Parties agree to exclude any right to application to any court or
tribunal of competent jurisdiction in connection with any
question of law, or otherwise arising in the course of any
arbitration. The language to be used and all written documents
provided in each arbitration shall be English.
Any decision or award of an arbitral tribunal appointed
pursuant to this Article 13 shall be final and binding upon the
Parties. The Parties waive to the extent permitted by law any
rights to appeal or any review of such award by any court or
tribunal of competent jurisdiction. The Parties agree that any
arbitration award may be enforced by any court having competent
jurisdiction thereof. Notwithstanding the generality of the
immediately preceding sentence, each of the Parties consents and
submits unconditionally to the non-exclusive jurisdiction for
itself and in respect of any of its property to any court in the
State of New York. The Parties expressly submit to the
jurisdiction of any such court. All arbitration awards shall be
payable in Dollars. Interest at the Reference Rate plus two
percent (2%) shall be due and payable to the Party in receipt of
an arbitration award from the date the amount in dispute was
first due until the date of payment.
ARTICLE 14
OPERATOR AND OWNER REPRESENTATIONS AND WARRANTIES
14.01 Representations and Warranties of Operator.
Operator represents and warrants, as of the date hereof, as
follows:
A. It is a limited partnership duly
organized, validly existing and in good standing
under the laws of the State of Delaware and shall
(either directly or through an Affiliate) be
qualified to do business in Nepal at least one
hundred eighty (180) days prior to the Unit
Delivery Date of the first Unit and in no event
later than two
(2) months prior to the Commencement
Date, and in any other jurisdiction where it is
required to be so qualified.
B. It has taken all necessary action to
authorize the execution, delivery and performance
of its obligations under this Agreement, which
action has not been superseded or modified, and
this Agreement constitutes the legal, valid and
binding obligation of Operator, enforceable in
accordance with its terms;
C. The execution, delivery and performance
of this Agreement do not violate (i) its
partnership agreement or by-laws or any resolution
of its Board of Directors or other committees
charged with the governance of its affairs, (ii)
any contract to which it or, to the best of its
knowledge, any of its Affiliates is a party or
(iii) any law, rule, regulation, order writ,
judgment, injunction, decree or determination
affecting Operator or any of its properties;
D. It has not filed any petition for relief
under the bankruptcy laws of the United States of
America, or any other sovereign nation has not
made nor is making an assignment for the benefit
of creditors, initiated nor been the subject of
any proceeding seeking to have a receiver or
trustee appointed to liquidate or manage its
affairs, and none of its properties is subject to
the jurisdiction of any bankruptcy court of the
United States of America or any receivership
proceeding;
E. No litigation is pending or, to its
knowledge, threatened which seeks to restrain it
from performing its obligations hereunder or the
adverse outcome of which would materially affect
its business or its ability to perform its
obligations hereunder;
F. No authorization or approval or other
action by, and notice to or filing with, any
government agency or regulatory body is required
for the due execution, delivery and performance by
Operator of this Agreement which have not been
obtained. Operator shall use reasonable efforts
to obtain any other material governmental approval
in a timely manner and such approvals shall not
expire without being renewed in a timely manner or
shall not be revoked, suspended, held invalid or
limited in effect;
G. It or one of its Affiliates, through its
management and personnel, is experienced in the
operation, maintenance and repair of electrical
power generating facilities, has complied with the
provisions of all applicable laws, including,
without limitation, Environmental Laws, respecting
the operation of such Facilities and has not been
and is not currently subject to any judgment or
settlement of any claim imposing liability on it
for noncompliance with law or mismanagement in its
operation of any electric power generating
facility; and
H. It is familiar with the terms of the
Power Purchase Agreement and EPC Contract which
affect or relate to the operation of the
Facilities.
14.02 Representations and Warranties of Owner. Owner
warrants, as of the date hereof, as follows:
A. It is private limited liability company
duly organized, validly existing and in good
standing under the laws of Nepal;
B. It has taken all necessary action to
authorize the execution, delivery and performance
of its obligations under this Agreement, which
action has not been superseded or modified, and
this Agreement represents the valid and binding
obligation of Owner, enforceable in accordance
with its terms;
C. The execution, delivery and performance
of this Agreement do not violate (i) its Joint
Venture Agreements, Articles of Association, and
Memorandum of Association or any resolution of its
Shareholders or other committees charges with the
governance of its affairs, (ii) any contract to
which it is a party or (iii) any law, rule,
regulation, order, writ, judgment, injunction,
decree or determination affecting Owner or any of
its properties;
D. It has not filed any petition for relief
under the bankruptcy laws of Nepal, the United
States of America or any other sovereign nation,
has not made nor is making an assignment for the
benefit of creditors, has not initiated nor been
the subject of any proceeding seeking to have a
receiver or trustee appointed to liquidate or
manage its affairs, and none of its properties is
subject to the jurisdiction of any bankruptcy
court of Nepal, the United States of America or
any receivership proceeding;
E. No litigation is pending or, to its
knowledge, threatened which seeks to restrain the
performance of its obligations hereunder or the
adverse outcome of which could materially affect
its business or its ability to perform its
obligations hereunder; and
F. No authorization or approval or other
action by, and notice to or filing with, any
government agency or regulatory body is required
for the due execution, delivery and performance by
Owner of this Agreement which have not been
obtained.
ARTICLE 15
NOTICES
All notices, approvals, consents, requests and other
communications hereunder shall be in writing and shall be deemed
to have been given when delivered to the other Party by
registered, certified, or express mail, return receipt requested,
postage prepaid, or by facsimile, addressed as follows:
If to Operator:
Harza Engineering Company International L.P.
c/o Harza Engineering Company
Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606-6392
USA
ATTN: General Counsel
If to Owner:
Bhote Koshi Power Company Private Limited
KHA 1-960
Kalimati, Tachachal
Kathmandu
Nepal
ATTN: Project Manager
With copies to:
Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
ATTN: Chief Executive Officer and General Counsel
Either Party may change or augment their above address by
written notice given as provided herein.
ARTICLE 16
APPLICABLE LAW
16.01 Choice of Law. This Agreement shall be deemed to
have been made in New York, New York and to be performed in
Nepal. It shall be construed in accordance with the laws of the
State of New York without application of its conflicts of laws
provisions.
16.02 Certain Legal Representations and Undertakings.
Each of Operator and Owner represent, undertake and warrant that
it will not engage in and that no funds shall be used directly or
indirectly for any illegal payments or activities under the laws
of Nepal or of the United States of America.
The Owner and Operator shall not, and shall cause their
directors, employees and agent to not, make or offer, or cause to
be made or offered, any payment, loan or gift of money or
anything of value directly or indirectly to (i) any official or
employee of any government, or any agency or instrumentality
thereof; (ii) any political party or official thereof or any
candidate for political office; or (iii) any other person, under
circumstances in which the Owner and Operator, the directors,
employees or agents know, or have reason to know, that all or any
portion of such money or thing of value will be offered or given,
directly or indirectly, to any person named in items (i) and (ii)
above to influence a decision or to gain any advantage for the
Owner and Operator or their respective directors, employees or
agents in connection with any transaction relating to this
Agreement which could result in a violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any other law,
regulation, order, decree, or directive having the force of law
and relating to bribery, kick-backs, or similar business
practices.
In addition to the foregoing provisions, each of Operator
and Owner expressly undertake that in connection with any
inspection or audit of the records of either party, to insure
compliance with the provisions hereof, the audited party shall
cooperate fully with the auditing party or its designee, shall
refrain from making any false or misleading statements, and shall
not omit to state, or cause any person to omit to state, any
material facts necessary in order to make the statements made, in
light of the circumstances under which they were made, not
misleading.
ARTICLE 17
NON-WAIVER
The failure of Owner or of Operator to enforce any of the
terms and conditions or to exercise any right or privilege under
this Agreement shall not be construed as waiving any such term or
condition or right or privilege and the same shall continue and
remain in force and effect as if no such failure to enforce or
exercise has occurred. No waiver shall be valid unless so stated
in writing.
ARTICLE 18
TITLE
Title to all tools, equipment, supplies and parts purchased
by Operator and of all reports, record logs and documentation
prepared by Operator pursuant to this Agreement shall pass
directly upon payment by Owner. Said tools, equipment, supplies
and parts shall be and become the property of Owner free of all
liens and encumbrances except as provided for in Article 2.14.
ARTICLE 19
ASSIGNMENT
Operator may not assign either its rights or duties under
this Agreement without the prior written consent of Owner and
Lenders which consent shall not be unreasonably withheld.
Operator shall execute all consents to assignment and other
documents reasonably required by Lenders to the Facilities.
However, the entire interest or any part thereof of Operator's
interest may be assigned to an Affiliate of the transferor with
the prior written approval of Owner and Lenders and such approval
of Owner and Lenders will not be unreasonably withheld, provided,
however, that such assignment shall not relieve the transferor
from any liability or obligation under this Agreement. This
Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Parties. In the event Operator
assigns its rights and obligations under this Agreement to an
Affiliate under this Article, Operator agrees to provide to the
Lenders a guarantee of the performance of the obligations by the
Affiliate.
ARTICLE 20
MISCELLANEOUS
20.01 Confidentiality. The term "Proprietary
Information" means all written information which has been or is
disclosed by a Party (the "Transferor"), or by an Affiliate,
officer, employee, agent, representative, consultant, contractor,
subcontractor or partner of the Transferor, or which other
becomes known to the other Party (the "Transferee") or other
party in a confidential relationship with the Transferee, and
which (i) relates to matters such as patents, trade secrets,
research and development activities, draft or final contracts or
other business arrangements, books and records, budgets, cost
estimates, pro forma calculations, engineering work project,
environmental compliance, pricing information, operations and
maintenance procedures, private processes and other similar
information, as they may exist from time-to-time, or (ii) the
Transferor expressly designates in writing to be confidential.
However, Proprietary Information shall exclude:
A. Information that, at the time of disclosure
hereunder is in the public domain, other than any such
information which entered the public domain by breach
of this Agreement or in violation of applicable law;
B. Information that, after disclosure hereunder,
enters the public domain, other than information that
entered the public domain by breach of this Agreement
or any other agreement, or in violation of applicable
law;
C. Information, other than that obtained from third
parties, that prior to disclosure hereunder, was
already in the recipient's possession, either without
limitation on disclosure to others or subsequently
becoming free of such limitation;
D. Information obtained by the recipient from a third
party having an independent right to disclose the
information; or
E. Information that is obtained through independent
research without use of or access to the Proprietary
Information.
All Proprietary Information of the Transferor which is
disclosed to or otherwise received or obtained by the Transferee
incident to this Agreement is disclosed, and shall be held, in
confidence, and the Transferee shall not publish or otherwise
disclose any Proprietary Information to any person for any reason
or purpose whatsoever or use any Proprietary Information for its
own purposes or for the benefit of any person, without the prior
written approval of the Transferor for a period of eight (8)
years from the date of receipt of such Proprietary Information;
provided, however, that the Proprietary Information may be
disclosed to any prospective financier of the Facilities for
purposes of obtaining financing for the development,
construction, operation or maintenance of the Facilities; and,
provided further that nothing herein shall limit the right of the
Transferee to provide any Proprietary Information to any court or
governmental authority having jurisdiction over or asserting a
right to obtain such information, provided that (i) such court or
governmental authority orders that such Proprietary Information
be provided, and (ii) the Transferee promptly advises the
Transferor of any request for such information by such
governmental authority and cooperates in giving the Transferor an
opportunity to present objections, requests for limitation,
and/or requests for confidentiality or other restrictions on
disclosure or access, to such court or governmental authority.
20.02 Amendments. All amendments to this Agreement must
be written and must be signed by both parties hereto. Owner
shall give Operator written notice of any relevant amendments to
the Loan Documents in a timely manner. If an amendment or sub-
agreement to the Power Purchase Agreement, or an amendment to the
Loan Documents materially adversely affects the performance of
the Parties to this Agreement, the Parties shall negotiate in
good faith to amend this Agreement accordingly, including, but
not limited to, appropriate modifications to Article 4.01H.,
Contract Price Adjustments and Article 7., Termination
provisions, however, such amendment(s) shall preserve the rights
of the Parties hereto.
20.03 Invalidity. If any provision of this Agreement
shall be found to be invalid by any court of competent
jurisdiction, such finding shall not invalidate any other
provision hereof.
20.04 Successors and Assigns. This Agreement shall
inure to the benefit of and shall be binding upon the Parties
hereto and upon their respective successors and assigns.
20.05 Entire Agreement. This Agreement contains the
entire agreement and understanding between the parties as to the
subject matter of this Agreement and merges and supersedes all
prior agreements, commitments, representations, and discussion
between the Parties pertaining to the subject matter of this
Agreement.
20.06 Survival. The provisions of this Agreement which
by their nature are intended to survive the cancellation,
completion or termination of the Agreement shall continue as
valid and enforceable commitments of the Parties notwithstanding
any such cancellation, completion or termination.
20.07 Limitations Application. Neither Party makes any
representations, covenants, warranties or guarantees, express or
implied, other than expressly set forth herein. The Parties'
rights, liabilities, responsibilities and remedies with respect
to the Services, whether in contract or otherwise, shall be
exclusively those expressly set forth in this Agreement.
20.08 Third Party Beneficiaries. Excluding rights of
any Lenders to the Facilities, this Agreement is not intended to
create any third party beneficiary or rights.
20.09 Counterparts. This Agreement may be executed in
more than one counterpart, each of which shall be deemed to be an
original but all of which taken together shall be deemed a single
instrument.
20.10 Service of Process Agent. The Operator shall
appoint an agent satisfactory to each of the Lenders for service
of process in the State of New York, and such other jurisdictions
as may be requested by each of the Lenders, such agent shall be
the Operator's, authorized agent to receive, accept, and
acknowledge on its behalf service of process in any such
proceeding, and shall provide each of the Lenders with evidence
of the prepayment in full of the fees of such agent as of the
date of the financial closing and throughout the term of this
Agreement.
20.11 Rules of Interpretation. In this Agreement,
unless the text otherwise requires:
A. The language of the Operation and Maintenance Agreement
and for all communication of any nature between Owner and
Operator is English.
B. Words importing any gender include the other genders
and references to the singular include the plural, and vice
versa.
C. Reference to persons include, but are not limited to
individuals, corporate entities, associations, partnerships, and
statutory agencies.
D. Reference to any party or person shall mean and include
a reference to that party or person, its successors or legal
personal representatives, as the case may be and permitted
assigns, transferees, or substitutes.
E. Reference to this Agreement or any other document
include the document as modified, amended, or superseded in the
manner specified therein and notwithstanding any change in the
identity of the parties.
F. Reference in this Agreement to parties, clauses, sub-
clauses, schedules, and appendices are, unless the context
indicates otherwise, references to the parties to this Agreement
and to the Articles, clauses, sub-clauses, schedules and
appendices of this Agreement.
G. References to "day" mean calendar day, references to
"month" mean a calendar month, and references to "year" mean 365
days or 366 in a leap year, unless otherwise specified in the
text. Where the day on or by which any sum is payable is a day
other than a business day, such sum shall be paid on the
immediately following business day.
H. Reference to the word "including" means "including, but
not limited to" and other forms of the words "include" or
"including" are used and shall be interpreted accordingly.
I. Reference to an act, statue or law shall include any
and all regulations, rules, bylaws, rulings, decrees, judgments,
or orders made under that act, statute or law and a reference to
an act, statue, law, code or standard shall include any
amendment, reenactment, variation or extension thereof or
provisions substituted therefor.
Executed on the first day above-written.
FOR HARZA ENGINEERING COMPANY INTERNATIONAL L.P.
By:
Name: Richard L. Meagher
Title: Chairman, Harza Engineering Company International,
a limited liability company (the General Partner)
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
By:
Name: Darol S. Lindloff
Title: President
EXHIBIT A
POWER PURCHASE AGREEMENT
[See Stand-alone document filed as Exhibit 10.140 to
this Registration Statement]
EXHIBIT B
PROJECT AGREEMENT
[See Stand-alone document filed as Exhibit 10.139 to
this Registration Statement]
EXHIBIT C
HOME OFFICE SUPPORT
The following services may be typically provided by
Operator's home office and shall be considered Reimbursable
Costs:
A. Overall management of the Facilities;
B. Annual operations audit and report;
C. Engineering review of plant performance and efficiency;
D. Maintenance planning assistance programs;
E. Inventory tracking control programs;
F. Contract administration and interpretation assistance;
G. Troubleshooting support;
H. Site safety and hazardous materials programs;
I. Capital project engineering support (includes
conceptualization, analysis, and recommendation and
does not include detailed engineering for such
projects, which will be performed as required as a
separate contract);
J. Problem analysis and resolution;
K. Warranty administration assistance;
L. Travel and living expenses of home office support
personnel related to Project;
M. Other services pre-approved by Owner; and
N. Review of actual hydrological flows versus historical data.
SCHEDULE D
Upper Bhote Koshi Hydroelectric Project
Operation and Maintenance Plan
General Outline
1. Project Arrangement and General Project Description
(In this section a general description of the project will
be prepared which describes the purpose of the project and
the major features of the project. This description will be
cross referenced to the general arrangement drawings which
will be included in this section of the Operation and
Maintenance Plan or appended at the end of the document).
2. Staffing and Organization
(In this section an organization chart will be prepared
which indicates the various levels within the organization
including, but not limited to general management, chief of
operations, station operators, maintenance personnel,
engineering support, and administrative personnel. In
addition, job descriptions will be provided for all
personnel which clearly define their individual
responsibilities within the organization).
3. General Emergency Procedures
(In this section general emergency procedures will be
prepared which provide procedures for handling on-the-job
injuries and accidents. Key staff personnel will be trained
in CPR and basic first aid and standard procedures will be
established for contacting and directing emergency personnel
to the job site. An emergency organization chart with
names, titles and phone numbers will be prepared and posted
which identify local fire, police, hospital, and local
emergency agencies).
4. Civil Structures
(In this section each of the structures listed below will be
described in detail and where applicable operation and
maintenance procedures will be prepared. Maintenance
procedures will define the interval for the various
inspections and maintenance procedures. Equipment
associated with these structures which is described in
subsequent sections will not be described in this section.
Where applicable, the necessary equipment operation and
maintenance manuals furnished by the EPC Contractor will be
cross referenced herein.
Headworks
Tunnel
Penstock
Powerhouse
Geotechnical Monitoring
General Site Maintenance
Other Infrastructure
5. Powerhouse Equipment and Systems
(In this section each piece of equipment or system listed
below will be described in detail. The operation of the
equipment will be described herein or cross referenced to
the appropriate equipment operation and maintenance manual.
The maintenance procedures will be described in a similar
manner. Maintenance procedures will define the interval for
the various inspections and maintenance procedures).
Mechanical Equipment
Hydraulic Turbines
Inlet Valves
Governing Systems
Cranes
Unit Unwatering and Filling Systems
Station Drainage Systems
Cooling Water and Service Water Systems
Treated Water Systems
Sanitary Drainage and Sewage Treatment System
Water Level Monitoring and Sensing System
Station Service Compressed Air System
Lubricating Oil System
Oil Recovery System
Fire Protection System
Heating, Ventilating and Air Conditioning System
Emergency Generating System
Electrical Equipment
Generators
Excitation Systems
Main Power Transformers
Bus Assemblies
Switchgear
Station Service
Plant Control Switchboard
Batteries, Chargers and Uninterruptible Power Supplies
Lighting System
Switchyard Equipment
Fire Detection System
Distribution Lines
Power Line Carrier Equipment
6. Headworks Equipment and Systems
(In this section each piece of equipment or system listed
below will be described in detail. The operation of the
equipment will be described herein or cross referenced to
the appropriate equipment operation and maintenance manual.
The maintenance procedures will be described in a similar
manner. Maintenance procedures will define the interval for
the various inspections and maintenance procedures).
Spillway Gates
Desanding Basin Intake Trashracks and Bulkheads
Desanding Basin Flushing Gates
Headrace Tunnel Intake Gates and Bulkheads
Bypass Facility Equipment
Minimum Release Equipment
Emergency Generating Systems
Miscellaneous Equipment
7. Facility Operating Procedures
(In this section the detailed operating procedures will be
described for the three major systems listed below. The
operating procedures for the turbine-generators will provide
a step-by-step procedure for starting and stopping the
machinery, procedures for synchronizing the units with the
utilities grid, and will discuss emergency shutdown
procedures. The procedures will also describe in detail the
interface between the utility and the plant operator(s) and
describe dispatch procedures. The operation and maintenance
of the desanding basin will be described in Item 6 above.
The procedures in this section will discuss the coordination
of operating the desanding basin for maintenance while
maintaining partial operation of the turbine-generators
through the desanding basin bypass system).
Turbine-Generators
Desanding Basin
Utility Interface
8. Transmission Line
(In this section the transmission line will be described in
detail and the inspection and maintenance procedures will be
described in detail. Where applicable, the necessary
equipment operation and maintenance manuals furnished by the
EPC Contractor will be cross referenced herein).
9. Flood Preparedness
(In this section emergency procedures will be described
which cover floods of various magnitudes and will discuss
notification procedures, evacuation procedures and medical
procedures associated with flood conditions. A notification
flowchart will be prepared and posted with names, titles and
phone numbers of persons to be contacted in the event of an
emergency. Specific procedures for the areas listed below
will be prepared).
Emergency Procedures
Facility Maintenance (On-Site and Off-Site)
Periodic Monitoring Activities
Warning Systems
10. Spare Parts List and Inventory Procedures
(In this section the inventory procedures developed for the
project will be described in detail and spare parts lists
will be updated on a regular basis and filed in this O & M
Plan for access to plant personnel on an "as authorized"
basis).
11. Vehicles, Maintenance and Fuels
(In this section a log of each project vehicle will be
maintained. The log will document maintenance on an "on
going" basis. Fuel inventory will be maintained for the
emergency diesel generator equipment).
12. Replacement Schedules
(In this section replacement schedules will be maintained
for disposable equipment, such as, fuel filters, air
filters, oil filters, seals, etc. Where applicable, these
disposable items will be cross referenced to other section
of this O & M Plan).
13. Maintenance Management Program
(In this section overall maintenance schedules will be
maintained and cross referenced with other sections of the O &
M Plan, where applicable).
14. Administrative Procedures
(In this section administrative procedures for all plant
operation and personnel will be prepared and maintained).
15. Record Keeping, Reporting and Other Procedures
(In this section detailed procedures will be prepared for
the items listed below and other procedures as necessary for
efficient operation of the facilities).
Streamflow and Other Operating Parameters
Deemed Generation
Compliance with Environmental Laws and EMMP
NEA Reporting Requirements
Owner Reporting Requirements
Annual Budgeting
Safety Inspections and Evaluations
Medical Emergencies
EXHIBIT 10.138
AMENDED AND RESTATED
CONTRACT
FOR THE
ENGINEERING, PROCUREMENT AND CONSTRUCTION
OF THE
UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
BHOTE KOSHI RIVER
SINDHUPALCHOK DISTRICT OF NEPAL
BETWEEN
CHINA GEZHOUBA CONSTRUCTION GROUP CORPORATION
FOR WATER RESOURCES AND HYDROPOWER
AND
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
DATED DECEMBER 19, 1996
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS 2
ARTICLE 2 RELATIONSHIP OF OWNER, CONTRACTOR, SUBCONTRACTORS
AND VENDORS 14
2.1 Status of Contractor 14
2.2 Subcontractors and Vendors 14
ARTICLE 3 CONTRACTOR'S RESPONSIBILITIES 14
3.1 Facility Design and Construction 14
3.2 The Subcontractors and Vendors 14
3.3 Labor 15
3.4 Control of the Work 18
3.5 Payment of Costs 18
3.6 Clean-Up 18
3.7 Health and Safety 19
3.8 Access 20
3.9 Emergencies 20
3.10 Obtaining and Maintaining Applicable Permissions and
Approvals 20
3.11 Laws and Regulations 20
3.12 Status Reports 20
3.13 Tax Accounting 21
3.14 Contractor Taxes 21
3.15 Contractor's Representative 21
3.16 As-Built Drawings and Operation and Maintenance
Manuals 21
3.17 Ownership of Drawings, Information, and Other
Materials 21
3.18 Spare Parts and Equipment Tools. 22
3.18 Spare Parts and Equipment Tools 22
3.19 Contractor's Environmental Obligations 22
3.20 Training of Owner's Personnel 23
3.21 Claims and Liens for Labor and Materials 24
3.22 Electrical 24
3.23 Construction Power Requirements 24
3.24 Insurance 24
3.25 Temporary Office Quarters 24
3.26 Performance Guarantee 25
3.27 Cooperation with Other Contractors 25
3.28 Materials, Equipment, Transportation and Storage 25
3.29 Facility Site Conditions. 26
3.30 Royalties and License Fees 28
3.31 Further Assurances 28
3.32 Compliance with Statutes, Regulations, and
Environmental Laws. 29
3.33 Health, Safety and Environmental Plan. 33
ARTICLE 4 OWNER'S RESPONSIBILITIES 35
4.1 Payment 35
4.2 Access to Facility Site 36
4.3 Land for Temporary Works 36
4.4 Owner's Representative 36
4.6 Owner Taxes 36
4.7 Project Licenses 36
4.8 Other Applicable Licenses and Permissions 37
ARTICLE 5 CONSTRUCTION SCHEDULE AND AVAILABLE FUNDS 37
5.1 Commencement of Work 36
5.2 Construction Schedule. 37
5.3 Available Funds 39
ARTICLE 6 CHANGE ORDERS 39
6.1 Request for Change Orders 39
6.2 Force Majeure Event. 41
6.3 Change in Law 43
6.4 Disputes 44
ARTICLE 7 CONTRACT PRICE; PAYMENTS TO CONTRACTOR 44
7.1 Contract Price 44
7.2 Payment for Work 44
7.3 Financing of Facility 46
7.4 Contractor's Payment Account 46
7.5 Financing Parties' Requirements and Lien Waivers 46
ARTICLE 8 TITLE, CARE, CUSTODY, CONTROL AND RISK OF LOSS 47
8.1 Clear Title 47
8.2 Care, Custody and Control 48
8.3 Risk of Loss 48
ARTICLE 9 INSURANCE 48
9.1 Owner's Insurances 48
9.2 Contractor's Insurances 49
9.3 Other Specific Terms. 50
9.4 Contractor's Obligations 51
9.5 No Liability Limit 51
ARTICLE 10 SYNCHRONIZATION, PERFORMANCE TESTS AND
FINAL ACCEPTANCE 52
10.1 Notice 52
10.2 Performance Tests 52
10.3 Owner's, Utility's and Financing Parties' Right To
Be Present During Tests 52
10.4 Performance Testing Procedures 53
10.5 Minimum Performance Levels 54
10.6 Failure to Meet Minimum Performance Levels. 54
10.7 Failure to Meet Guaranteed Performance Levels. 55
10.8 Notice of Unit Delivery Dates 55
10.9 Owner's Acceptance of Unit Delivery Date 55
10.10 Notice of Final Acceptance 56
ARTICLE 11 WARRANTIES AND GUARANTEES 57
11.1 Materials and Workmanship. 57
11.2 Engineering and Design 58
11.3 Vendors and Subcontractors 58
11.4 Assignment of Warranties 58
11.5 Limitations 59
11.6 Remedies of Owner for Breach of Warranties 60
11.7 Quality of Materials and Workmanship 60
11.8 Cost of Samples 60
11.9 Cost of Tests 60
11.10 Inspection of Operations 60
11.11 Inspection and Testing 61
11.12 Dates for Inspection and Testing 61
11.13 Rejection 61
11.14 Independent Inspection 62
11.15 Examination of Work Before Covering Up 62
11.16 Uncovering and Making Openings 62
11.17 Removal of Improper Work or Materials 62
11.18 Default of Contractor in Compliance 62
ARTICLE 12 COMPLETION GUARANTEE 63
12.1 Guarantee of Timely Completion 63
12.2 Bonus for Early Unit Delivery. 63
12.3 Delay in Unit Delivery Date 63
ARTICLE 13 LIQUIDATED DAMAGES FOR FAILURE TO ACHIEVE
GUARANTEED PERFORMANCE LEVELS 64
13.1 Guarantee 64
13.2 Achievement of Minimum Performance Levels 65
13.4 Schedule Liquidated Damages and Performance
Liquidated Damages 66
13.5 Adjustment of Performance Liquidated Damages 66
ARTICLE 14 CONTRACTOR'S REPRESENTATIONS AND WARRANTIES 68
14.1 Representations and Warranties 68
14.2 Standards of Conduct 69
14.3 Sovereign Immunity. 70
ARTICLE 15 DEFAULT AND TERMINATION 71
15.1 Default by Contractor. 71
15.2 Suspension or Termination for Convenience. 73
15.3 Termination by Contractor. 75
15.4 Termination Due To Owner's Force Majeure Event 75
ARTICLE 16 INDEMNITIES 76
16.1 Contractor's Indemnification 76
16.2 Owner's Indemnification 76
16.3 Contractor Taxes 76
16.4 Owner Taxes 77
16.5 Proprietary Rights. 77
16.6 Notice of Claim. 77
ARTICLE 17 SETTLEMENT OF DISPUTES 78
17.1 Amicable Settlement 78
17.2 Arbitration. 78
17.3 Expert Determination. 80
ARTICLE 18 LIABILITY 80
18.1 Consequential Damages 80
18.2 Aggregate Liability of Contractor 81
ARTICLE 19 MISCELLANEOUS PROVISIONS 81
19.1 Entire Contract 81
19.2 Amendments 81
19.3 Joint Effort 81
19.4 Captions 81
19.5 Notice 81
19.6 Severability 83
19.7 Assignment by Owner and Contractor. 83
19.8 No Waiver 83
19.9 Applicable Law 83
19.10 Exhibits 83
19.11 Confidential Information 83
19.12 Obligations 84
19.13 Time of the Essence 84
19.14 Language 84
19.15 Currency 84
19.16 Survival 84
TABLE OF EXHIBITS
Exhibit Rev. Date Description Page
A Construction Schedule A-1
B Form of Request for Payment B-1
C Facility Site Description C-1
D Form of Final Acceptance Certificate D-1
E-1 Form of Milestone Achievement Certificate E-1
E-2 Milestone Payment Schedule E-2
F Performance Testing Guidelines F-1
G Form of Performance Guarantee G-1
H Form of Certificate for Waiver of Liens H-1
I Scope of Work I-1
J Contractor's Key Personnel J-1
K Project Licenses K-1
L Optional Spare Parts L-1
AMENDED AND RESTATED
ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT
THIS AMENDED AND RESTATED ENGINEERING, PROCUREMENT AND
CONSTRUCTION CONTRACT (hereinafter together with all Exhibits, addenda or
amendments hereof this "Contract") is made and entered into as of
December 19, 1996, by and between China Gezhouba Construction Group
Corporation for Water Resources and Hydropower, a Chinese company
(hereinafter "Contractor"), and Bhote Koshi Power Company Private Limited,
a private limited liability company, formed pursuant to the laws of Nepal
(hereinafter "Owner" or the "Company"). Contractor and Owner may be
referred to herein individually as a "Party" or, collectively, as the
"Parties".
WITNESSETH
WHEREAS, Owner wishes to construct, own, and operate a
hydroelectric facility with two generating units, an electrical
transmission line and the related work as described in the Scope of Work,
having the Guaranteed Output (as defined below) of 20,500 kW per Unit. The
Facility (as defined below) is located on the Bhote Koshi River in the
Sindhupalchok District of Nepal and is for the purpose of supplying
electric power to the Nepal Electricity Authority (the "Utility");
WHEREAS, Owner desires Contractor to perform, and Contractor has
the ability and is willing to perform design, engineering, equipment and
material procurement, project management, construction, surveying, start-up
and testing services and operations and maintenance training to make the
Facility complete in accordance with the Scope of Work and fully
operational on a firm fixed price, turnkey basis, on the terms and
conditions set forth herein; and
WHEREAS, Owner and Contractor entered into the Contract for the
Engineering Procurement and Construction of the Upper Bhote Koshi
Hydroelectric Project dated as of October 8, 1996, and have agreed to amend
and restate such agreement.
NOW THEREFORE, the Parties, intending to be legally bound hereby,
agree as follows:
ARTICLE 1
DEFINITIONS
The following terms shall have the meanings specified in this
Article 1 when capitalized and used in this Contract. The meanings
specified are applicable to both the singular and plural.
"Acceptable PG Issuer" shall mean the bank or financial
institution acceptable to Owner and Financing Parties which shall issue the
Performance Guarantee for Contractor upon execution of this Contract.
"Applicable Laws" means any law, legislation, statute, rule,
order, treaty, regulation, court decision or published practice or any
interpretation thereof enacted, issued or promulgated by any Governmental
Authority applicable to this Contract, the Facility, Owner, Contractor, any
Subcontractor or Vendor, the Work and the execution thereof, including
without limitation, any Environmental Law or any of the foregoing relating
to or affecting any tax reserve or repatriation requirement of any kind or
relating to expropriation or compulsory acquisition.
"Applicable Permissions" means all permissions, permits,
certifications, authorizations, approvals and licenses for the Facility,
both obtained and applied for, including any variances or waivers in effect
from time to time necessary or desirable to perform the Work including the
Project License. The contents of any application for the above-referenced
items shall be the "permission" for all purposes under this Contract until
the permission is obtained for the above-referenced items.
"As-Built Drawings" shall mean any Contractor or any
Subcontractor or Vendor engineering drawing, illustration, diagram or
schedule, as revised to reflect the actual construction of civil and
architectural items and the final installation of any individual Equipment
or system or the Facility, corrected to account for changes during
construction, and that depict the Facility as actually built.
"Availability" with respect to a Unit, shall mean a number,
expressed as a percentage, which is equal to the number of hours that a
Unit or the Facility is not shut down due to Unit or Facility maintenance
outage or forced outage and is otherwise able to generate, divided by the
number of hours in the period, multiplied by one hundred (100).
"Change" or "Changes" shall mean a written request issued by
Owner to alter, add to, or deduct from or otherwise change the Scope of
Work of this Contract as described in Section 6.1, or a similar written
request issued by Contractor to Owner hereunder due solely to a Change in
Law, Force Majeure Event or breach by Owner of its obligations hereunder
where such Force Majeure Event or breach by Owner, as the case may be, has
a material adverse effect on the Contract Price, Construction Schedule or
warranty obligations or other obligations of Contractor hereunder.
"Change in Law" shall mean, with respect to Nepal, any new or
amendment, modification, deletion, addition or change in or to any
Applicable Law or Applicable Permission or in any interpretation or
application thereof that occurs and takes effect after the Effective Date
that Contractor can demonstrate to the satisfaction and sole discretion of
Owner will materially and adversely affect Contractor's performance, the
Scope of Work, the Construction Schedule or the Contract Price.
"Change Order" shall mean a written order to Contractor pursuant
to Article 6.1 hereof, signed by Contractor and approved by Owner and
Financing Parties (to the extent required by Financing Parties) authorizing
a Change .
"Company" shall mean Bhote Koshi Power Company Private Limited,
also referred to as Owner.
"Construction Schedule" shall mean the schedule for the
performance of the Work attached hereto as Exhibit A and incorporated
herein (as revised from time to time pursuant to Article 5.2 hereof).
"Contract" shall mean this Engineering, Procurement and
Construction Contract (including all Exhibits attached hereto), as it may
be amended and supplemented, as agreed upon by the Parties.
"Contract Price" shall mean the turnkey firm fixed price in
Dollars for Contractor, at its own expense, to complete the Work in
accordance with the Construction Schedule set forth in this Contract.
"Contractor Taxes" shall mean all income, service and withholding
taxes imposed upon Contractor, any Subcontractor or any Vendor or their
respective employees or representatives, any tax, fee, duty, or any charge
which is similar in nature to a tax imposed by any taxing authority located
outside Nepal upon the sale, purchase or use of materials, supplies,
Contractor's Equipment, Equipment, services or labor provided under this
Contract and any other taxes not described under the definition of Owner
Taxes as may be necessary under Applicable Laws.
"Contractor's Equipment" means all mechanical devices,
appliances, tools and things of whatsoever nature, other than Temporary
Works, required for the execution and completion of the Work and the
remedying of any defects therein, but does not include materials, equipment
or other things intended to form or forming part of the Work or the
Facility.
"Critical Date(s)" shall mean the date(s) by which Contractor is
to achieve each milestone as set forth in Article 5.2.3 hereof.
"Day" shall mean a calendar day and shall include Saturdays,
Sundays and holidays.
"Design Documents" shall mean all specifications, calculations,
plans, Detailed Design, Drawings, and other documents which determine,
establish, define or otherwise describe the scope, quantity, and
relationship of the components of the Facility (as updated to reflect all
changes) produced by Contractor, or any Subcontractor or Vendor.
"Detailed Design" shall mean all engineering and analyses
required for the preparation of the Drawings based on final, detailed
calculations and vendor information, as performed or provided by
Contractor.
"Dollars" or "$" shall mean an amount in currency of the United
States of America.
"Drawings" shall mean all technical and design drawings,
specification, shop drawings, diagrams, illustrations, schedules and
performance charts, calculations, samples, patterns, models, operation and
maintenance manuals and technical information of a like nature required to
be submitted by Contractor, or any Subcontractor or Vendor, from time to
time under this Contract in connection with the engineering services to be
performed by Contractor, or any Subcontractor or Vendor, in accordance with
this Contract, including without limitation, data in the form of electronic
media. The Contractor shall revise such Drawings from time to time, as
required to reflect any changes or actual installation of Equipment and the
final installation of any individual Equipment or system or the Facility as
a whole corrected to provide As-Built Drawings.
"Dry Season" shall mean the period from November 15 through May
15 inclusive.
"Effective Date" shall mean the date on which this Contract shall
have been fully executed by Contractor and Owner.
"Environmental Laws" means applicable World Bank policies and
guidelines, as in effect from time to time, relating to the environment,
indigenous peoples, involuntary resettlement and occupational health and
safety, the Environmental Mitigation, Management and Monitoring Plan, any
and all Applicable Laws and Applicable Permissions relating to the
environment or to noise, emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes into the environment, including without
limitation, those relating to vehicular noise and emission standards,
ambient equipment noise standards, prescribed hours of operation with
respect to noise (nuisance), or discharges into ambient air, surface water,
groundwater or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"Environmental Mitigation, Management and Monitoring Plan" means
the environmental plan for the Upper Bhote Koshi Hydroelectric Project
dated November 1996, submitted by the Owner to HMGN and approved by HMGN as
an attachment to the Project License issued December 1996.
"Equipment" shall mean all of the materials, machinery,
apparatus, structures, tools, supplies, spares, First and Second Unit and
other goods provided by Contractor and each Subcontractor and Vendor to
complete the Work but shall not include Contractor's Equipment.
"Exhibit" shall mean an exhibit to this Contract attached hereto
and incorporated herein.
"Expert" shall mean the Person mutually selected by the Parties,
pursuant to Article 17.3.2, who has knowledge and experience and/or
education in the matter to be resolved and is recognized to resolve any
matters in dispute pursuant to Article 17.3
"Facility" shall mean the land, structures including without
limitation the dam, spillway, desanding basin, tunnel and surge shaft,
penstock, powerhouse and necessary infrastructure, Equipment, all
electrical internal services, onsite and offsite buildings and structures
and infrastructure, pipelines, electrical transmission lines and
interconnection facilities, communications systems and disposal facilities
as more fully described in the Scope of Work and all other such means or
processes necessary to the economic and efficient operation of the
Facility.
"Facility Contracts" means any material contract which Owner
deems relevant to the Scope of Work related to the development,
construction, start up, testing, operation or maintenance of the Facility
which shall have been furnished to Contractor for information purposes (in
whole or in part), as such contracts shall be amended, supplemented or
modified from time to time.
"Facility Procedures Manual" means the document developed by
Contractor, in English, and approved by Owner that describes the
administrative procedures to be used for Contractor and Owner interface
during the performance of this Contract, as revised from time to time with
the prior written approval of Owner and Contractor.
"Facility Site" means all areas on which the Temporary Works and
the Facility are to be constructed, all other areas made available to
Contractor for the execution of the Work, and the roads, tracks and
footpaths whether private or public between the various parts of the Work,
all as more particularly described in Exhibit C.
"Final Acceptance" shall mean that all of the following have
occurred: (i) the requirements for Second Unit Delivery have been
satisfied; (ii) for each Unit, a thirty (30) Day Reliability Test has been
successfully completed; (iii) Contractor shall have delivered to Owner all
operation and maintenance manuals and As-Built Drawings on completion of
the Work, and the same shall have been reviewed and approved by Owner in
accordance with Article 3.16; (iv) the Punch List has been satisfactorily
completed and agreed to by Owner; (v) all spare parts required under this
Contract have been delivered by the Contractor to the Facility Site in
accordance with Article 3.18; (vi) all of Contractor's cleanup and related
obligations have been completed; (vii) any and all Liens in favor of any
suppliers, Vendors, Subcontractors or any other Person making such claim
through Contractor shall have been released in form satisfactory to Owner
and certain other administrative obligations have been satisfied; (viii)
the Facility has been accepted by Owner in accordance with the requirements
of this Contract; (ix) Contractor shall have paid all due and outstanding
Schedule Liquidated Damages and Performance Liquidated Damages, for
purposes of this clause "due" shall mean when the damages are assessed; (x)
all other covenants and conditions of this Contract shall have been
performed or complied with including, without limitation, the establishment
of all security for enforcement of Contractor's obligations required
pursuant to this Contract; and (xi) Contractor has submitted to Owner and
Owner has accepted the Warranty Performance Guarantee.
"Final Acceptance Certificate" shall mean a duly completed and
executed certificate, substantially in the form of Exhibit D attached
hereto.
"Final Acceptance Date" shall mean the date on which Final
Acceptance actually occurs but in no event shall be later than April 30,
2000.
"Financial Closing" shall mean the execution and delivery of all
agreements and financial instruments necessary for Owner to obtain
funding for the costs of the Facility, the satisfaction of all conditions
precedent to the initial funding by the Financing Parties and the
availability of funds thereunder to Owner without the occurrence of any
further condition.
"Financing Documents" means the debt and equity agreements and
documents (including, without limitation, any security documentation) for
the financing of the development engineering, design, procurement,
construction, ownership, operation and maintenance, commissioning and
working capital of the Facility or any portion thereof.
"Financing Parties" means the export credit agencies, and
multilateral institutions or any other Person or entity providing debt and
equity financing or refinancing to or on behalf of Owner for the
development, engineering, design, procurement, construction, ownership,
operation and maintenance, commissioning and working capital of the
Facility or any portion thereof, or their authorized representatives.
"First Unit" shall mean the first Unit to be scheduled for
completion by Contractor.
"First Unit Delivery" shall mean that with respect to the Unit
available first in time to produce electric power, except for items or Work
that would not affect the safe performance or operation of the Unit or the
Facility, that all of the following have occurred: (i) the Unit has been
installed with the required connections and controls to produce electrical
power; (ii) all other Equipment has been installed, checked for alignment,
lubrication, and rotation; (iii) all remaining mechanical and electrical
systems have been checked out and are ready for operation without voiding
or impairing any warranties; (iv) all electrical continuity and ground
fault tests and all mechanical tests and calibrations have been completed;
(v) all instrumentation has been loop checked and calibrated; (vi) the Unit
can be operated in a safe and proper manner in accordance with Applicable
Laws and Applicable Permissions; (vii) applicable Performance Tests have
been conducted and the results demonstrate that the Unit is capable of
generating an electrical output equal to or greater than the Minimum Output
as set forth in Article 10.5.1 and the systems have been released and
accepted for start-up in accordance with procedures to be agreed upon
between Contractor and Owner and can be operated safely and without risk of
injury, damage or loss to Person or property; (viii) applicable Performance
Tests have been conducted and the results demonstrate that the desanding
basin trapping efficiency is greater than or equal to the Minimum Desanding
Basin Trapping Efficiency as set forth in Article 10.5.2; (ix) all
buildings, structures and enclosures necessary for operations of the
Facility are enclosed and weather tight; (x) applicable Performance Tests
have been conducted and the results demonstrate that the conductor
resistance for the transmission line to the Utility Interconnection
Facilities is less than or equal to the Maximum Conductor Resistance as set
forth in Article 10.5.4 and the transmission line and interconnect with
Utility Interconnect Facilities have been completed, tested and
commissioned; (xi) all other covenants and conditions of this Contract
shall have been performed or complied with including, without limitation,
the establishment of all security for enforcement of Contractor's
obligations required pursuant to this Contract; (xii) Contractor shall have
paid all due and outstanding Schedule Liquidated Damages, for purposes of
this clause "due" shall mean when the damages are assessed; and (xiii) all
Performance Tests necessary to determine achievement of the Guaranteed
Performance Levels for such Unit shall have been conducted and if the
results demonstrate that such Unit fails to meet the Guaranteed Performance
Levels, Contractor shall have paid all due and outstanding Performance
Liquidated Damages, for purposes of this clause "due" shall mean when the
damages are assessed.
"Flood" shall mean flows in excess of 125 cubic meters per second
as measured at the headworks during the Dry Season; and, flows in excess of
550 cubic meters per second as measured at the headworks during the Wet
Season.
"Force Majeure Event(s)" shall have the meaning described in
Article 6.2.1.
"Governmental Authority" means HMGN or any national, federal,
state, provincial, regional, district, municipal or local government,
regulatory department, body, political subdivision, commission,
instrumentality, agency, ministry, court, judicial or administrative body,
taxing authority or other authority (including for countries other than
Nepal) having jurisdiction over Owner, Contractor, any Subcontractor,
Vendor, the Work and the execution thereof, or the Facility.
"Guaranteed Output" means an electrical output not less than
20,500 kW per Unit as measured by the permanent meter (accurately
functioning) installed at the high voltage side of the main power
transformer of the Facility, with both Units operating simultaneously at
full gate at the rated net head, after deduction of Parasitic Load.
"Guaranteed Performance Levels" shall mean the Guaranteed Output
and Equipment efficiencies described in Article 13.1 hereof.
"Guaranteed Unit Delivery Date" shall mean with respect to the
First Unit, October 15, 1999; and with respect to the Second Unit,
December 15, 1999.
"Hazardous Materials" shall mean any substance deemed as toxic,
contaminated or hazardous under any Applicable Law or Applicable
Permission.
"HMGN" shall mean His Majesty's Government of Nepal.
"Health Safety and Environmental Plan" shall mean a Health,
Safety, and Environmental Plan for all Work to be performed at the
Facility Site as referred to in Article 3.33.
"IEC" means the International Electrotechnical Commission
standard publication.
"Independent Engineer" means the engineering company or its
representative which is retained and employed by the Financing Parties.
"Lien" shall mean a lien, security interest, mortgage,
hypothecation, encumbrance or restriction on title or property interest.
"Maintenance Procedures" means those procedures required to be
instituted in accordance with Prudent Utility Practices or with Equipment
manufacturers' recommendations in order that the Equipment functions as
intended hereunder.
"Major Equipment" shall mean the following equipment: powerhouse
inlet valves; turbines, generators, and governors; powerhouse crane; and
transformers.
"Maximum Conductor Resistance" shall have the meaning set forth
in Article 10.5.4 of this Contract.
"Milestone Payment" shall mean an installment of the Contract
Price to be paid in accordance with Article 7.
"Milestone Achievement Certificate" shall mean that certificate,
substantially in the form of Exhibit E-1 attached hereto, which is
submitted by Contractor to Owner prior to the making of a Milestone Payment
by Owner.
"Milestone Payment Schedule" shall mean the schedule set forth in
Exhibit E-2 attached hereto, containing the payments to be made by Owner to
Contractor. The Milestone Payment Schedule may be adjusted from time to
time in accordance with this Contract.
"Minimum Performance Levels" has the meanings specified in
Article 10.5 of this Contract.
"Notice to Proceed" shall mean a Notice from Owner to Contractor
directing Contractor to commence the performance of the Work.
"O&M Personnel" shall mean those operating and maintenance
personnel employed or contracted for by Owner who shall be experienced in
operating and maintaining facilities similar to the Facility.
"Operator" shall mean Owner or other entity which operates and
maintains the Facility.
"Owner" shall mean Bhote Koshi Power Company Private Limited, a
private limited liability company formed pursuant to the laws of Nepal,
also referred to as the Company.
"Owner Taxes" shall mean all real property and personal property
taxes, VAT, sales or use taxes, import and excise duties, municipal taxes,
octroi, tolls, excise taxes and contributions imposed by any taxing
authority located within Nepal upon the sale, ownership, purchase or use of
materials, supplies, Contractor's Equipment, Equipment, services or labor
provided under this Contract and as may otherwise be required under
Applicable Laws, but excluding Contractor Taxes.
"Owner's Engineer" shall mean Harza Engineering Company
International L.P. who has been contracted by Owner to perform certain
oversight services in connection with its monitoring of (and not in place
of) services performed by Contractor.
"Parasitic Load" means the designed internal electrical loads
necessary for the full and normal operation of the Facility.
"Performance Guarantee" shall mean an unconditional, irrevocable,
demand credit issued in Dollars by an Acceptable PG Issuer, substantially
in the form and substance acceptable to Owner attached hereto as Exhibit G.
"Performance Liquidated Damages" shall mean the amounts payable
by Contractor in accordance with Article 13.
"Performance Testing Guidelines" means the criteria for
developing Performance Testing Procedures described in Exhibit F herein.
"Performance Testing Procedures" means the Performance Testing
Procedures to be provided by the Contractor in accordance with Article 10.4
of this Contract.
"Performance Tests" shall mean all tests, as set forth in
Exhibit F and the Scope of Work, and performed in accordance with the
Performance Testing Procedures and the Performance Test Guidelines,
required to determine the performance levels of the Facility and specific
elements of the Facility, including, but not limited to, headworks,
desanding basin, Units, turbines, generators, main power transformers and
transmission line, and as otherwise required pursuant to Article 10.
"Performance Tests Report" shall mean Contractor's written report
describing the results of the Performance Tests.
"Person" means any individual, corporation, partnership, limited
liability company, consortium, trust, unincorporated organization, or other
entity or government (or any agency, instrumentality or political
subdivision thereof).
"Power Purchase Agreement" shall mean, that certain agreement
dated as of July 21, 1996, entitled "Power Purchase Agreement between Nepal
Electricity Authority and Bhote Koshi Power Company Private Limited,
concerning the Upper Bhote Koshi Hydroelectric Project", between the
Utility and Owner, and any amendment thereto.
"Project Licenses" means applicable licenses and approvals for
the Facility including without limitation those licenses and approvals set
forth in Exhibit K hereto.
"Prudent Utility Practices" shall mean those practices, methods,
techniques and standards, as in effect from time to time that are generally
accepted for use, internationally, in the electric utility industry and
commonly used in prudent electric utility engineering and operations to
design, engineer, procure, construct, install, test, operate and maintain
equipment lawfully, safely, efficiently and economically and that generally
conforms to the manufacturers' operation and maintenance guidelines and
Applicable Laws.
"Punch List" means the list prepared (and periodically revised)
by Owner and reviewed by Contractor setting forth parts of the Work which
remain to be performed in order to ensure that the Work fully complies with
this Contract. The term "Punch List" does not, however, include remaining
parts of the Work which are necessary for the safe and reliable use of the
Work in accordance with all Applicable Laws, Applicable Permissions and
Facility Contracts.
"Qualified Insurer" means an insurance company or companies
licensed to provide insurance in Nepal reasonably acceptable to Owner (and
Financing Parties) to provide insurance coverage under this Contract.
"Reference Rate" shall mean the rate of interest equal to twelve
percent (12%) per annum.
"Reliability Test(s)" means the test(s), as set forth in
Exhibit F, and conducted after the Unit Delivery Date for each Unit, but
prior to Final Acceptance, to confirm the reliability of all elements of
the Facility under normal operating conditions for a continuous period of
time.
"Requests for Payment" shall mean the written requests from
Contractor to Owner for payment, which requests shall be in substantially
the form of Exhibit B attached hereto.
"Retainage" shall mean the amount which is equal to ten percent
(10%) withheld by the Owner from each payment according to Article 7.2.
"Rules of Arbitration" shall mean the Rules of Arbitration of the
UNCITRAL, as construed and in effect as of the Effective Date.
"Schedule Liquidated Damages" shall mean the amounts payable by
Contractor in accordance with Article 12.
"Scheduled Synchronization Date(s)" shall mean with respect to
each Unit, the date identified by Contractor in a Notice received by Owner
at least one hundred forty (140) Days prior to such date as being the date
on which Contractor will attempt to cause such Unit (or both Units if so
elected by Contractor) to be electrically synchronized and connected to the
Utility system; provided, however, that such date shall be no earlier than
June 1, 1999, unless otherwise agreed by the Parties.
"Scope of Work" shall mean the aggregate of all Work required to
complete the Facility in a fully functional manner, including, but not
limited to, the Scope of Work described in Exhibit I and as otherwise
expressly set forth in this Contract.
"Second Unit" shall mean the second Unit to be scheduled for
completion by Contractor.
"Second Unit Delivery" means that all of the following have
occurred: (i) the requirements for First Unit Delivery have been
satisfied; (ii) the Second Unit has been installed with the required
connections and controls to produce electrical power; (iii) all Equipment
has been installed, checked for alignment, lubrication, and rotation;
(iv) all mechanical and electrical systems have been checked out and are
ready for operation without voiding or impairing any warranties; (v) all
electrical continuity and ground fault tests and all mechanical tests and
calibrations have been completed; (vi) all instrumentation has been loop
checked and calibrated; (vii) the Second Unit can be operated in a safe and
proper manner in accordance with Applicable Laws and Applicable
Permissions; (viii) applicable Performance Tests have been conducted and
the results demonstrate that both Units are capable of producing electrical
output that is greater than or equal to the Minimum Output as set forth in
Articles 10.5.1, and the systems have been released and accepted for start-
up in accordance with procedures to be agreed upon between Contractor and
Owner and can be operated safely and without risk of injury, damage or loss
to Person or property; (ix) the Facility is available for normal and
continuous operation and is complete with only Punch List items mutually
agreed to by the Owner and the Contractor remaining to be accomplished in
accordance with this Contract and all Applicable Laws and Applicable
Permissions; (x) applicable Performance Tests have been conducted and the
results demonstrate that the headworks seepage is less than or equal to the
Allowable Headworks Seepage Loss as set forth in Article 10.5.3; (xi) all
Performance Tests necessary to determine achievement of the Guaranteed
Performance Levels for the Facility have been conducted and the results
demonstrate that the Facility has met or exceeded the Minimum Performance
Levels as set forth in Article 10.5, provided the Minimum Output and the
Guaranteed Output of the Second Unit shall be measured during the
simultaneous full gate operation of both Units in accordance with
Article 10.4; (xii) Contractor has provided Owner with copies of all
Applicable Permissions; (xiii) the training of all O&M Personnel has been
completed; (xiv) all spare parts required under this Contract have been
delivered by the Contractor to the Facility Site in accordance with
Article 3.18; (xv) Contractor and Owner have agreed upon the Punch List to
be finished or corrected and a schedule to complete such items; (xvi) the
Contractor shall have paid all due and outstanding Schedule Liquidated
Damages and Performance Liquidated Damages for purposes of this clause
"due" shall mean when the damages are assessed; and (xvii) all other
covenants and conditions of this Contract shall have been performed or
complied with including, without limitation, the establishment of all
security for enforcement of Contractor's obligations required pursuant to
this Contract. Notwithstanding anything to the contrary contained herein,
Second Unit Delivery shall not occur if the Performance Tests determine
that the Facility is not capable of delivering the Minimum Output, as
defined in Article 10.5.1.
"Subcontractor" shall mean any contractor or constructor,
supplier or material man who performs construction services on the Facility
Site for Contractor or any Subcontractor thereto.
"Substantial Subcontractor" means a Subcontractor whose contract
or contracts (in the aggregate) with Contractor call for a payment or
payments by Contractor totaling at least two hundred thousand dollars
($200,000), or the equivalent of such amount in another currency.
"Substantial Vendor" means a Vendor whose contract or purchase
orders (in the aggregate) with Contractor call for a payment by Contractor
of at least two hundred thousand dollars ($200,000) or the equivalent of
such amount in another currency.
"Synchronization Date(s)" shall mean, with respect to each Unit,
the actual date on which such Unit is electrically synchronized and
connected to the Utility system.
"Temporary Works" means all temporary works of every kind (other
than Contractor's Equipment) required during the execution and completion
of the Work and the remedying of any defects therein in accordance with
this Contract.
"UNCITRAL" means United Nations Commission on International Trade
Law.
"Unit" means a turbine, generator and the necessary accessories
required to operate such unit as part of the Facility for the generation of
electrical energy, as more fully described in the Scope of Work.
"Unit Delivery Date" shall mean the actual date on which the
First Unit Delivery or Second Unit Delivery occurs.
"Utility" shall mean the Nepal Electricity Authority, an entity
constituted under the Nepal Electricity Authority Act 2041.
"Utility Interconnection Facilities" shall mean all structures,
material and equipment to be designed and constructed by or for the Utility
to enable the Utility to receive and wheel (distribute) electrical power
generated by the Facility.
"VAT" shall mean any Value Added Tax (or similar or successor
tax).
"Vendor" shall mean any supplier, manufacturer or vendor of
Equipment, materials or services to Contractor or any Subcontractor
thereof.
"Warranty Performance Guarantee" means an unconditional
irrevocable, demand credit issued in Dollars by a financial institution
acceptable to Owner and in a form and substance acceptable to Owner as
referred to in Article 7.2.5.
"Wet Season" shall mean the period from May 16 through November
14 inclusive.
"Work(s)" shall mean all obligations, duties and responsibilities
to be performed by Contractor and its Subcontractors under this Contract
including, but not limited to, the furnishing of all Equipment,
Contractor's Equipment, Temporary Works, machinery, tools, labor,
supervision, supplies, materials, services and the provision of all design,
engineering, procurement, support, construction, start-up, performance
testing and other services pursuant to this Contract, including the Scope
of Work.
ARTICLE 2
RELATIONSHIP OF OWNER, CONTRACTOR,
SUBCONTRACTORS AND VENDORS
2.1 Status of Contractor. Contractor shall be an independent
contractor with respect to any and all Work to be performed under this
Contract.
2.2 Subcontractors and Vendors. Contractor shall have the right
to have any of the Work accomplished by a Subcontractor or a Vendor.
Contractor shall be solely responsible for supervising and paying any such
Person (and shall also be solely responsible for all actions, work, and
liabilities of any such Subcontractor or Vendor) and Contractor shall
ensure that such Work or Equipment, materials, and supplies provided
thereby have been or will be received, inspected and otherwise furnished in
accordance with this Contract. Owner shall not have any obligation or
liability to any Subcontractor or Vendor. Nothing in any such subcontracts
and purchase orders shall in any way diminish or relieve Contractor from
any duties and obligations under this Contract; and all such subcontracts
and purchase orders must provide that the rights thereunder are assignable
to Owner and Financing Parties at any time. No Subcontractor or Vendor is
intended to be or shall be deemed a third-party beneficiary of this
Contract. Contractor shall provide to the Owner and the Financing Parties a
description of the Work to be performed by each proposed Substantial
Contractor and Substantial Vendor and the Owner and Financing Parties shall
have the right to consent to the selection of the Substantial Vendors and
Substantial Subcontractors.
ARTICLE 3
CONTRACTOR'S RESPONSIBILITIES
3.1 Facility Design and Construction. Contractor shall furnish,
on a turnkey, firm fixed price, basis, all Equipment, civil works, products
and services required to perform the Work and turn over to Owner the
Facility in a manner which shall: (a) enable the Facility to meet the
Performance Tests as required by this Contract; (b) achieve the Unit
Delivery Date for each Unit not later than the Guaranteed Unit Delivery
Date of that Unit; and (c) be in conformance with the requirements of this
Contract, the Scope of Work, all Applicable Permissions and Applicable Laws
and all Facility Contracts.
3.2 The Subcontractors and Vendors. Except as described in
Article 2.2, Contractor shall be solely responsible for the engagement and
management of the Subcontractors and Vendors in the performance of the
Work.
3.3 Labor. Contractor shall be responsible for all labor
necessary to comply with the provisions of this Contract and for all costs
incurred in complying with this Article 3.3. Contractor shall also be
responsible for all costs, including but not limited to medical treatment,
transport and accommodation, which are incurred by any member of its labor
force, whether by direct contract or subcontract, as a result of injuries
or illness arising from employment in the execution of the Work.
3.3.1 Employment of Staff and Labor. Contractor shall,
unless otherwise provided in this Contract, make its own arrangements for
the engagement of all staff and labor pursuant to the Labor Act 2049, and
the Labor Regulations 2050 and all other Applicable Laws. Contractor
acknowledges and agrees that it shall comply with, and shall require that
its Subcontractors and Vendors comply with the Labor Act of Nepal,
including, without limitation, with respect to the requirement establishing
a forty-eight (48) hour work week with one Day of rest. Neither the
Contractor nor its Subcontractors and Vendors shall use forced labor. The
Contractor shall not be responsible for the actions of a government.
Contractor is encouraged, to the extent practicable and reasonable, to
employ staff and labor from sources within Nepal, and in particular from
within the area adjacent to the Facility Site. Contractor shall give
priority to employment of suitable persons to those persons whose land has
been purchased for the Facility and their immediate family members. In the
case of such persons who are not so employed, Contractor shall prepare a
written report and deliver that report to Owner and shall state the
reason(s) therefor in such report. Contractor shall pay wage rates,
observe hours of labor, and provide conditions, amenities and facilities
not less favorable than those required by the appropriate wage-fixing
authority and generally received by other employees under similar
circumstances in the Sindhupalchok District of Nepal. Contractor shall not
employ in connection with the Work any person under the age of 16 or any
age limit required by the Applicable Laws. Contractor shall keep records
indicating the number of workers, their skill level, gender and period of
employment with Contractor. The Contractor shall not, and shall require
that its Vendors and Subcontractors shall not, take actions to prevent its,
or their employees from lawfully exercising their right of free association
and their right to organize and bargain collectively. The Contractor shall
permit, and shall require its Vendors and Subcontractors to permit, its and
their employees adequately to remove themselves from hazardous or
life-threatening work environments without endangering their continued
employment. The Contractor shall also observe, and require its Vendors and
Subcontractors to observe, acceptable conditions of work with respect to
minimum wages, hours of work and occupational health and safety.
3.3.2 Housing for Labor. Contractor shall provide and
maintain such accommodation and amenities as necessary for all its staff
and labor, employed for the purpose or in connection with this Contract,
including all fencing, water supply (both for drinking and other purposes),
electricity supply, sanitation, cook houses, fire prevention and fire-
fighting equipment, furniture, refuse disposal systems and other
requirements in connection with such accommodation or amenities. The
Contractor shall locate housing above the known high water level.
3.3.3 Epidemics. In the event of any outbreak of illness of
an epidemic nature, Contractor shall comply with and carry out such
regulations, orders and requirements as may be made by relevant
Governmental Authorities or the local medical or sanitary authorities, for
the purpose of dealing with and overcoming the same.
3.3.4 Supply of Services. Contractor, having regard to
local conditions, shall provide on the Facility Site: (a) an adequate
supply of drinking and other water of the highest standards available
locally for the use of its staff and labor, its Vendors' and
Subcontractors' staff and other labor and the staff and other labor of
Owner and other contractors, and (b) all sewage, electricity and other
utility services necessary for completing the Facility for use of its staff
and labor, its Vendors' and Subcontractors' staff and other labor and the
staff and other labor of Owner, its vendors and other contractors; (c)
Facility Site offices as required under Article 3.25; and (d) fully
equipped and furnished western style living accommodations for the sole and
exclusive use of Owner and its designees, including among other things
western style toilet, shower, laundry and kitchen facilities with hot and
cold running potable water and including individual and separate
accommodations for at least six (6) employees. The cost of all such
services are included in the Contract Price. Contractor shall submit plans
and Design Documents for such living accommodations to Owner for its prior
written approval. Contractor shall be responsible for all utilities and
maintenance and cleaning of these living accommodations.
3.3.5 Alcohol and Drugs. Contractor shall not possess,
consume, import, sell, give, barter or otherwise dispose of any alcoholic
beverages or drugs (excluding drugs for proper medical purposes and then
only in accordance with Applicable Laws or Applicable Permissions) at the
Facility Site, or allow or suffer any such possession, consumption,
importation, sale, gift, barter or disposal by its Subcontractors, agents,
staff or labor and shall at all times assure that the Facility Site is kept
free of all such substances.
3.3.6 Arms and Ammunition. Contractor shall not possess,
give, barter or otherwise dispose of, to any person or persons, any arms or
ammunition of any kind, or permit or suffer the same as aforesaid and shall
at all times assure that the Facility Site is kept free thereof.
3.3.7 Festivals and Religious Customs. Contractor shall in
all dealings with its staff and labor have due regard to all recognized
festivals, days of rest, and religious or other customs. Contractor shall
take such necessary measures to ensure that no damage is sustained by
religious shrines, buildings and trees with religious significance located
near the Work.
3.3.8 Disorderly Conduct. Contractor shall be responsible
for the conduct and deeds of its employees concerning the Facility and the
consequences thereof. Contractor shall at all times take all reasonable
precautions to prevent any unlawful, riotous or disorderly conduct
(including, without limitation, the trapping and harassment of wildlife,
the possession of traps and the starting of unauthorized fires,
unauthorized damage to trees, illegal fishing and land cultivation) by or
among its staff and labor and for the preservation of peace and protection
of persons and property in the neighborhood of the Work against the same.
Contractor shall not interfere with any members of any authorized police
force, who shall have legal access at all times to any part of the Work in
the execution of their duties.
3.3.9 Reports of Labor and Contractor's Equipment.
Contractor shall immediately upon the mobilization and demobilization of
Contractor's Equipment or labor and otherwise, if reasonably requested by
Owner, deliver to Owner further reports in detail, in such form and at such
intervals as Owner may reasonably request, showing the staff and the
numbers of the several classes of labor from time to time employed by
Contractor on the Facility Site and such information requesting
Contractor's Equipment as Owner may request.
3.3.10 Reporting of Accidents. Contractor shall report in
writing to Owner (and, to the extent required by Applicable Laws or
Applicable Permissions, the appropriate Governmental Authority) details of
any accident that is on or about the Facility Site as soon as possible
after its occurrence, but in any event not later than twenty-four (24)
hours after such accident occurs. In the case of any fatality or serious
accident, Contractor shall, in addition, notify Owner (and, to the extent
required by Applicable Laws or Applicable Permissions, the appropriate
Governmental Authority) immediately by the quickest available means.
3.3.11 Contractor's Employment.
(a) Contractor shall provide on the Facility Site in
connection with the execution and completion of the Work and the remedying
of any defects therein:
(i) the persons listed on Exhibit J hereto as key
personnel at the Facility Site and may replace such personnel from
time to time as Contractor determines is necessary with prior Notice
to and acceptance by Owner of any such replacement;
(ii) only such technical assistants as are skilled
and experienced in their respective callings and such foremen and
leading hands as are competent to give proper superintendence of the
Work;
(iii) such skilled, semi-skilled and unskilled
labor as is necessary for the proper and timely fulfilling of
Contractor's obligations under this Contract.
(b) Without limiting the generality of the foregoing,
Contractor shall immediately identify and remove from its employment at the
Facility Site any person (whether in the charge of Contractor or any
Subcontractor) who is found to be in the possession of, under the
influence, or who is a user of any dangerous or controlled drug, alcohol or
other such substance or any other person who does or whose actions may
create any unsafe condition or other situation that may cause damage or
harm to any person or property.
(c) Owner shall have the right to require Contractor to
remove forthwith from the Work any person provided by Contractor who, in
the opinion of Owner and after Notice in writing describing the basis for
dissatisfaction and Contractor's failure to remedy the matter, misconducts
himself, or is incompetent or negligent in the proper performance of his
duties, or whose presence on the Facility Site is otherwise considered by
Owner to be undesirable, and such person shall not be again allowed upon
the Work without the consent of Owner. Any person so removed from the Work
shall be replaced as soon as possible.
(d) Contractor shall not recruit his staff and labor from
any persons in the service of Owner or Owner's representatives.
3.3.12 Language Ability of Superintending Staff. A
reasonable number of Contractor's superintending staff shall have the
ability to speak and write English or Contractor shall have available on
the Facility Site at all times a sufficient number of competent
interpreters to ensure the proper transmission of instructions and
information.
3.3.13 Repatriation of Labor. Contractor shall be
responsible for the return to the place where they were recruited or to
their domicile of all such Persons as Contractor employed or recruited for
the purposes of or in connection with this Contract and shall maintain such
Persons as are to be so returned in a suitable manner until they shall have
left the Facility Site or, in the case of Persons who are not nationals of
and have been recruited outside of Nepal, shall have left Nepal.
3.3.14 Work Visas and Permits. Contractor shall be
responsible for obtaining and maintaining necessary work visas and permits
and other approvals required under Applicable Laws.
3.4 Control of the Work. Subject to the provisions of this
Contract, Contractor shall be solely responsible for all construction and
engineering means, construction surveying methods, techniques, sequences,
procedures, and safety and security programs in connection with the
performance of the Work.
3.5 Payment of Costs. Contractor shall pay for all engineering,
labor, construction utilities, supervision, inspection, other costs and
Equipment as may be necessary to complete the performance of the Work.
3.6 Clean-Up. Contractor shall at all times during the Work
keep the Facility Site reasonably free from waste and rubbish relating to
its Work and shall perform all clean-up work at the Facility Site
reasonably requested by Owner. As soon as practicable after the earlier of
(i) the Final Acceptance Date and (ii) an earlier termination of this
Contract by Owner in accordance with the provisions of Article 15 hereof,
Contractor shall remove all of its Contractor Equipment, materials and
Temporary Works from the Facility Site (other than Equipment and materials
incorporated in the Facility or necessary or useful to the operation or
maintenance of the Facility), and shall complete removal and disposal of
all waste and rubbish from and around the Facility Site. Contractor is
responsible to pay all costs associated with damage to property, crops and
livestock caused by the Contractor, Vendors or Subcontractors during the
construction of the Facility. If Contractor fails to comply with the
requirements of this Article 3.6, Owner may have such work completed at
Contractor's expense.
3.7 Health and Safety. Contractor shall be responsible for the
safety of all persons and property in connection with the Work. Contractor
shall initiate and maintain reasonable safety precautions and programs as
set forth in Article 3.33 which shall comply with Applicable Laws, and
Applicable Permissions, to prevent injury to persons or damage to property
on, about, or adjacent to the Facility Site. Due precautions shall be
taken by Contractor (i) to provide for the safety of its staff and labor,
its Vendors' and Subcontractors' staff and labor and the staff and labor of
Owner and its vendors and other contractors at the Facility Site and (ii)
to provide that suitable arrangements are made for the prevention of
epidemics and for all necessary welfare and hygiene requirements. Such
precautions shall include, but not be limited to, the following:
(a) Contractor shall adhere to the Health Safety and
Environmental Plan submitted and reviewed by Owner in accordance with
Article 3.33;
(b) Contractor shall maintain health and safety records which
shall be available for inspection by Owner at any time;
(c) in collaboration with and subject to the requirements of the
local health authorities, Contractor shall ensure that medical staff,
first aid equipment and stores, sick bay and suitable ambulance
service are available at the camps and housing and on the Facility
Site at all times throughout the term of this Contract;
(d) Contractor shall have on its staff at the Facility Site an
experienced Nepali employee to deal with questions regarding the
safety and protection against accidents of all staff and labor. This
officer shall be qualified for this work and shall have the authority
to issue instructions and shall take protective measures to prevent
accidents;
(e) Contractor shall make provisions for evacuating serious
accident cases to Kathmandu by the quickest possible means; and
(f) Contractor shall be responsible, to the extent required by
local regulations, for making any arrangements with respect to the
burial or cremation of all of Contractor's employees who die while
engaged upon the Work. Contractor shall make all reasonable and
necessary arrangements for the transport to any place as required for
burial/cremation of any of its expatriate employees or members of
their families who may die in Nepal.
3.8 Access. Contractor shall provide access to the Facility
Site and the Work to the Owner, Utility, the Financing Parties and the
Independent Engineer and their respective representatives and employees.
3.9 Emergencies. In the event of any emergency that endangers
or could endanger life or property, Contractor shall take such action as
may be reasonable and necessary to prevent, avoid or mitigate injury,
damage, or loss and shall, as soon as possible, report any such incidents,
including Contractor's response thereto, to Owner.
3.10 Obtaining and Maintaining Applicable Permissions and
Approvals. Contractor shall timely obtain and maintain all Applicable
Permissions necessary for it to perform the Work unless such a permission
is the responsibility of Owner to obtain. Contractor shall deliver to Owner
and Financing Parties true and complete copies of such Applicable
Permissions upon receipt thereof and keep Owner fully apprised of
Applicable Permissions for which Contractor is responsible under this
Contract. Prior to Financial Closing, Contractor shall identify in writing
all necessary Applicable Permissions for construction or otherwise required
for it to perform the Work. All Applicable Permissions shall be issued in
the name of Owner unless otherwise required by Applicable Law or such
Applicable Permissions. Owner and Contractor agree to assist and cooperate
with the other in obtaining Applicable Permissions necessary for the
performance of the Work. Owner shall coordinate with Governmental
Authorities on all matters relating to any Applicable Permissions necessary
for the import, installation and use of suitable radio communication
systems to connect with either the national telecommunications system or
directly with any international system, including satellite communication
equipment and "walkie-talkies", during the execution of the Work.
3.11 Laws and Regulations. Contractor shall conform with all
Applicable Laws and Applicable Permissions that affect or govern
Contractor's performance of Work under this Contract.
3.12 Status Reports. Contractor shall prepare and submit to
Owner, the Independent Engineer and their authorized representatives within
ten (10) Days after the end of each calendar month, written progress
reports, in a form reasonably acceptable to Owner, which reports shall
include a description of the status of material and Equipment deliveries
and scheduled deliveries, the Subcontractors' activities, engineering and
construction progress. Photographs shall also be included documenting the
construction progress. Each photograph shall show the date, Contractor's
name and description of the view taken, on the back of each photograph.
3.13 Tax Accounting. During the term of this Contract and
continuing for one (1) year after the Final Acceptance Date Contractor
shall promptly provide to Owner all accounting records with appropriate and
reasonable information necessary in connection with Owner's preparation of
tax returns or claims for tax exemptions.
3.14 Contractor Taxes. Contractor shall be solely responsible
for administering and paying for all Contractor Taxes. Contractor shall
promptly provide Owner with reports or other evidence reasonably acceptable
to Owner showing the payment of such Contractor Taxes. Owner shall
promptly provide information and assistance reasonably requested by
Contractor to file tax returns or forms, applications for exemption and to
contest in good faith any such tax. Contractor shall, at Contractor's sole
expense, pay, discharge and cause to be released upon written demand from
Owner any Lien caused by Contractor's failure to pay Contractor Taxes with
respect to the Work.
3.15 Contractor's Representative. Contractor shall appoint one
individual, with the prior written consent of Owner, who shall be
authorized to act on behalf of Contractor and with whom Owner may consult
at all reasonable times, and whose instruction, request and decisions in
writing will be binding upon Contractor. Contractor shall not remove such
representative without Owner's prior written consent.
3.16 As-Built Drawings and Operation and Maintenance Manuals.
Contractor shall deliver to Owner the number of complete sets of operations
and maintenance manuals in English and of the As-Built Drawings and Design
Documents, as reasonably requested by Owner or otherwise prescribed in the
Scope of Work, all on or before Final Acceptance Date. Contractor shall
also promptly provide such operating and maintenance information for each
major piece of Equipment and system of the Facility as is reasonably
requested by Owner's Operator for training, start-up and testing purposes,
but in any event no later than thirty (30) Days after such request.
3.17 Ownership of Drawings, Information, and Other Materials.
All Drawings, shop drawings, Design Documents, reports, calculations and
other information of any kind furnished to Contractor, or prepared by it,
its Subcontractors, its Vendors, or others in connection with the
performance of the Work, except financial, accounting and payroll records,
are the property of Owner and are furnished to, or held by, Contractor for
its use in performing the Work. Contractor shall take all reasonable steps
to protect and enforce Owner's ownership of all such information including
the filing and attainment of all copyright, licenses, or other trade
protection available, to be secured in the name of Owner. All such
information shall be returned or delivered to Owner periodically with
progression of construction and a final complete set of all thereof
concurrently with issuance of the Final Acceptance Certificate or
immediately upon termination of Contractor's services under this Contract,
whichever occurs first. Contractor and any of its Subcontractors or
Vendors, as applicable, may, retain one (1) set of all such documents for
their records subject to the confidentiality provisions of this Contract.
Contractor shall maintain at the Facility Site one copy of all
Design Documents, (including detailed Drawings), Change Orders and other
modifications in good order and marked to record all changes made during
performance of the Work.
3.18 Spare Parts and Equipment Tools.
3.18.1 Contractor shall be responsible for obtaining and for
the cost of all spare parts and Equipment tools required for start-up and
testing of the Facility. No later than June 1, 1997, the Contractor shall,
and shall cause its Equipment vendors to, submit to the Owner a list of
recommended spare parts including prices, inclusive of spare parts and
prices listed in Exhibit L, to be used by Owner for the operation of the
Facility. Such prices shall remain valid for any spare parts ordered prior
to the Unit Delivery Date of the Second Unit. No later than July 1, 1997,
Owner may select and order spare parts, to be used by the Owner for the
operation of the Facility, to be furnished by Contractor at the Owner's
expense. Contractor shall deliver such spare parts to the Facility Site on
a schedule agreed to between the Owner and Contractor, provided that such
spare parts shall be delivered prior to the Unit Delivery Date of the
Second Unit.
3.18.2 Notwithstanding 3.18.1 above, Owner may, at its sole
option, elect to order and purchase additional spare parts, at the prices
quoted in the recommended spare parts list set forth in Article 3.18.1,
from the Contractor prior to the Unit Delivery Date of the Second Unit.
Such spare parts shall be delivered to the Facility Site on a schedule
agreed to between the Owner and the Contractor. Such order and subsequent
delivery shall not in any way impact the Final Acceptance Date.
3.18.3 Contractor may use Owner's operational spare parts in
stock in connection with its start-up and testing of the Facility; provided
that such spare parts used by Contractor shall be promptly replaced at
Contractor's expense. Contractor's spare parts not used by Contractor
during start-up and testing shall become the property of Owner at Second
Unit Delivery. Owner may use Contractor's spare parts to operate the First
Unit or the Second Unit in the event the Owner exercises its right to
operate the First Unit or the Second Unit pursuant to Article 8.2.
3.19 Contractor's Environmental Obligations. Contractor shall,
and shall cause its Subcontractors and Vendors to, (i) comply with all
Applicable Laws (including Environmental Laws) regarding Hazardous
Materials; (ii) comply with the requirements of any Financing Parties with
respect to Hazardous Materials; and (iii) comply with the requirements set
forth in Article 3.32 and Article 3.33.
3.19.1 Contractor shall conduct its activities under this
Contract, and shall cause each of its Subcontractors and Vendors to conduct
its activities, in a manner designed to prevent pollution of the
environment or any other prohibited release of any Hazardous Materials by
Contractor and its Subcontractors and Vendors.
3.19.2 Contractor shall not cause or allow the release or
disposal of Hazardous Materials at the Facility Site, bring Hazardous
Materials to the Facility Site, or transport Hazardous Materials from the
Facility Site, except in accordance with the Scope of Work, the Health,
Safety and Environmental Plan described in Article 3.33, Applicable Laws
and Applicable Permissions regarding Hazardous Materials. Contractor shall
cause all Hazardous Materials generated by Contractor or any of its
Subcontractors or Vendors at the Facility Site, if any, (i) to be
transported only in accordance with Applicable Laws and Applicable
Permissions and (ii) to be treated and disposed of only in compliance with
Applicable Laws and Applicable Permissions.
3.19.3 If Contractor or any of its Subcontractors or Vendors
releases any Hazardous Material on, at, or from the Facility Site, or
becomes aware of any third person who releases Hazardous Material on, at,
or from the Facility Site during the Work, Contractor shall immediately
notify Owner in writing. If Contractor's Work involves the area where such
release occurred, Contractor shall immediately stop any Work affecting the
area. Contractor shall, at its sole expense, diligently proceed to take
all necessary or desirable remedial action to clean up fully the
contamination caused by any such release by the Contractor or any of its
Subcontractors or Vendors.
3.19.4 If Contractor discovers any Hazardous Material stored,
released or disposed of at the Facility Site, prior to the date of
mobilization, by a person or entity other than Contractor, its
Subcontractors and Vendors, Contractor shall immediately notify Owner in
writing. If Contractor's Work involves the area where such a discovery was
made, Contractor shall immediately stop Work in the affected area to the
extent such Work would exacerbate the contamination and Owner shall
determine a reasonable course of action. Contractor shall not, and shall
prevent its Subcontractors and Vendors from, knowingly or negligently
taking any action that may exacerbate any such contamination. Contractor
shall cooperate with and assist Owner in making the Facility Site available
for taking necessary remedial steps to clean up any such contamination at
Owner's request and Contractor's expense. The Contractor shall recommence
the Work as soon as practical.
3.20 Training of Owner's Personnel. During the construction of
the Facility, and at least one hundred twenty (120) Days prior to start-up
and testing of the Facility in accordance with the terms hereof, Contractor
shall provide a training program in operation and maintenance of the
Facility for Owner's personnel located at the Facility and the O&M
Personnel. The training program provided by Contractor shall (i) include
classroom and field training; (ii) include all manuals, Drawings, and other
educational materials necessary or desirable for the adequate training of
the O&M Personnel; and (iii) establish quality controls to ensure that O&M
Personnel are at all times suitably trained and capable of operating and
maintaining the Facility during start-up and testing and after each Unit
Delivery Date.
Owner is responsible for providing qualified non-supervisory O&M
Personnel who will normally staff the Facility for use by Contractor during
the testing and start-up phases of operation of the Facility. Contractor
will cooperate with Owner and the supervisory O&M Personnel in all
respects, including reasonable scheduling of Operator's non-supervisory
staffing requirements for the Facility. Contractor will direct and have
complete responsibility for the activities performed by non-supervisory O&M
Personnel for start-up and testing activities. Contractor shall not use O&M
Personnel for construction activities.
3.21 Claims and Liens for Labor and Materials. Contractor shall,
at Contractor's sole expense, pay and discharge and cause to be released on
a written demand from Owner, any Lien in respect to the Facility, this
Contract, the Facility Site, or the Equipment created by, through or under
Contractor or any Subcontractor or Vendor.
3.22 Electrical. Contractor shall cooperate with Owner and the
constructor of the Utility Interconnection Facilities, including providing
information and access to the Facility Site to enable such constructor to
complete construction of such facilities as required by Utility. The
Contractor shall be responsible for the connection to the Utility
Interconnect Facilities.
3.23 Construction Power Requirements. Contractor is responsible
for the cost, supply and availability of electric power and transmission
requirements of the Temporary Works and Facility during construction, start-
up and testing of the Facility.
3.24 Insurance. Contractor shall provide the insurance required
by Article 9 hereof.
3.25 Temporary Office Quarters. Contractor shall provide Owner,
Owner's representatives and Financing Parties with reasonably adequate
office space, including furniture and western style toilets and fixtures,
and hot and cold running potable water at the same time as Contractor
creates its site office on the Facility Site. Contractor shall submit
plans and Design Documents for such office space to Owner for its prior
written approval. Contractor shall be responsible for all utilities and
maintenance and cleaning of these Facility Site offices. Contractor shall
provide daily lunches and twice daily beverage service for Owner's onsite
representatives and O&M Personnel.
3.26 Performance Guarantee. Upon execution of this Contract,
Contractor shall provide Owner with a Performance Guarantee, issued in the
form required by Owner and from a financial institution acceptable to Owner
and Financing Parties as provided in Exhibit G, in their sole discretion
("Acceptable PG Issuer"), in an amount equal to the product of the Contract
Price (to be adjusted if the Contract Price changes) multiplied by 0.25
(the "Performance Guarantee"). During the term of this Contract, Owner
shall have the unconditional right to draw upon such Performance Guarantee
for damages, compensation or otherwise under Articles 11, 12 and 13, or for
the completion of Punch Lists if Contractor has failed to complete such
Punch Lists or for any other proper purpose specified in the draft
certificate to the Performance Guarantee.
3.27 Cooperation with Other Contractors. Contractor shall afford
all reasonable opportunities for carrying out their work to any other
contractors employed by Owner and their workmen, the workmen of Owner, HMGN
and Utility, and the workmen of any duly constituted authorities who may be
employed in the execution on or near the Facility Site of any work not
included in this Contract or of any contract which Owner may enter into in
connection with or ancillary to the Work. Reasonable opportunity, for the
purposes of this Article, does not include such cooperation with other
contractors that would impede the progress of Contractor's completion of
the Work. In the event that other contractors or other workmen of HMGN or
Utility do not provide reasonable opportunity for the Contractor to perform
the Work, Owner shall assist Contractor to mitigate any potential schedule
delays.
3.28 Materials, Equipment, Transportation and Storage. Unless
otherwise provided under this Contract, Contractor shall procure and
transport to the Facility Site all domestic and foreign materials,
Contractor's Equipment and Equipment in an expeditious and orderly manner.
3.28.1 Contractor shall, at its own risk and expense,
transport all the materials and Equipment to the Facility Site required for
it to perform the Work by the mode of transport which Contractor judges
most suitable under all circumstances.
3.28.2 Prior to Financial Closing, Contractor shall provide
Owner with a list of all foreign Equipment, materials and Contractor's
Equipment expected to be imported to Nepal and any additional information
or assistance requested by Owner to claim an exemption or reduction in
applicable duties, tariffs, tolls or other taxes. Contractor shall
promptly notify Owner of any changes to the information described above and
assist Owner in making any modified or new exemption claims. Upon dispatch
of each shipment of foreign Equipment materials and Contractor's Equipment,
Contractor shall notify Owner in writing of the description of foreign
Equipment, materials and Contractor's Equipment, the point and means of
dispatch and the estimated time and point of arrival in Nepal, if
applicable, and at the Facility Site. Contractor shall furnish Owner with
relevant shipping documents to be agreed upon between the Parties.
3.28.3 Contractor shall be responsible for obtaining, if
necessary, approvals from the competent authorities for transportation of
the foreign Equipment, materials and Contractor's Equipment to the Facility
Site. Owner shall use reasonable efforts in a timely and expeditious
manner to assist Contractor and Contractor shall indemnify and hold
harmless Owner from and against any claim for damage to roads, bridges or
any other damages caused by the transportation of materials to the Facility
Site. This indemnity shall survive any termination of this Contract.
3.28.4 Contractor shall, at its own expense, handle all
foreign Equipment materials and Contractor's Equipment at the point(s) of
import, and any formalities for customs clearance, provided that if
Applicable Laws or Applicable Permissions require any application or act to
be made by or on behalf of Owner, Contractor shall prepare and submit to
Owner, for its approval, each such application.
3.29 Facility Site Conditions.
3.29.1 Contractor shall have the sole responsibility for
Facility Site conditions and of satisfying itself concerning the nature and
location of Work and the general and local conditions, and particularly,
but without limitation, with respect to the following: those affecting
transportation, disposal, handling and storage of materials; availability
and quality of labor; availability and condition of roads; climatic
conditions and seasons; river hydrology and the river as a whole
(including, without limitation, the occurrence and effect of any flood);
topography, ground surface, and seismic conditions; nature and quantity of
surface and subsurface materials to be encountered; Temporary Works,
Contractor's Equipment, Equipment and facilities needed preliminary to and
during performance of this Contract; and all other matters which can in any
way affect performance of this Contract, or the cost associated with such
performance.
Owner shall make available to Contractor prior to execution
of this Contract such data on hydrological and subsurface conditions as
have been obtained by or on behalf of Owner from investigations undertaken
relevant to the Work but Contractor shall be responsible for its own
interpretation thereof. Contractor shall be deemed to have inspected and
examined the Facility Site and its surroundings (including in particular
the environmental conditions of the Facility Site) and information
available in connection therewith, as well as all available drawings and
designs relating to the Facility, and to have satisfied itself, before
executing this Contract, as to: (a) the completeness of Scope of Work set
forth in Exhibit I, (b) the form and nature of the Facility Site, including
the subsurface conditions, (c) the hydrological and climatic conditions at
the Facility Site, (d) the extent and nature of work and materials
necessary for the execution and completion of the Work and the remedying of
any defects therein, and (e) the means of access to the Facility Site and
the accommodations the Contractor may require, and, in general, shall be
deemed to have obtained all necessary information as to risks,
contingencies and all other circumstances that may influence or affect this
Contract.
All available data on hydrological and subsurface conditions
that have been provided by Owner to Contractor are for information only,
and Owner does not warrant or guarantee the accuracy or adequacy of the
data. Contractor agrees that it shall bear all costs and expenses, and
shall be solely responsible for the costs and expenses of all delays in
completing the Facility arising from the events and conditions described in
paragraphs (a) through (e) of this Article 3.29.1. The failure of
Contractor to acquaint itself with the aforementioned applicable conditions
will not relieve it from the responsibility for properly estimating either
the difficulties, the time required, or the costs of timely and
successfully performing the Contract. Contractor shall be solely
responsible for all hydrological and subsurface conditions and for any
change thereto or unforeseen conditions thereof, either known or unknown.
In addition, if any work, equipment, supplies, materials, services or any
other item necessary to complete the Facility in accordance with the Design
Documents is not included in this Contract, Contractor shall bear all costs
and expenses and shall be solely responsible for the costs and expenses of
all delays, including without limitation, payment for Schedule Liquidated
Damages in completing the Facility that may result from the performance,
procurement or supply of such work, Equipment, supplies, materials,
services or other items, and Contractor shall either perform, procure or
supply such work, Equipment, supplies, materials, services or other item
itself or, upon demand of Owner, advance the funds necessary for another
contractor to do the same.
3.29.2 Contractor shall be solely responsible for
interpretation of data or information set forth in any technical reports or
information provided by Owner. Contractor shall be deemed to have conducted
its own research and collected its own data and have solely relied upon
Contractor's verification of the data and research provided by Owner.
3.29.3 Contractor shall provide, and shall ensure that each
Subcontractor provides, proper and ample protection from damage or loss to
the Facility, the Facility Site, materials, Equipment, and tools (whether
on or off the Facility Site) during its performance of the Work. In the
event that any such items are damaged or destroyed prior to Final
Acceptance Date, Contractor shall, at no expense to Owner, rebuild,
restore, or replace the Facility, or such Equipment or items, subject to
the approval of the Owner and Financing Parties (if necessary), without any
basis for a Change under this Contract. Where ingress and egress to and
from the Facility Site requires the traverse of public or private lands,
Contractor shall limit the movement of its crews and equipment and of all
Subcontractors so as to cause as little damage as possible to crops or
other property and shall use its best efforts to avoid marring such lands.
All fences and walls or other such structures which must be opened or moved
during construction of the Facility shall be replaced by Contractor, and
proper precautions shall be taken by Contractor to prevent the escape or
injury to all livestock or other inhabitants. Contractor shall not be
reimbursed for costs associated with loss of or damage to crops, livestock
or other property, whether on or off the Facility Site or rights-of-way
thereto, caused by or arising in connection with Contractor's performance
hereunder.
3.29.4 Interference with Traffic and Adjoining Properties.
All operations necessary for the execution and completion of the Work and
the remedying of any defects therein shall be carried on so as not to
interfere unnecessarily or improperly with: (a) the convenience of the
public, (b) the access to and use and occupation of public or private
roads, bridges, or footpaths to properties whether in the possession of
Owner or of any other person, or (c) traditional farming, grazing or
fishing practices.
Contractor shall ascertain the location of all bridges,
walking trails, watercourses, irrigation channels, sewers, drains, water
pipes, electricity and telecommunication cables and other services and
structures which may be encountered during the execution of the Work. As
soon as any such service or structure is encountered on, over, under, in or
through the Facility Site during the performance of this Contract,
Contractor shall make a record of the location and a description of such
service or structure and shall provide a copy thereof to Owner as soon as
practicable. Contractor shall temporarily support or divert and
subsequently reinstate all such services and structures, as necessary.
Contractor shall do all things necessary or expedient to
protect any and all parallel converging and intersecting electric lines and
poles, telephone lines and poles, highways, waterways, railroads, sewer
lines, natural gas pipelines, drainage ditches, culverts and any and all
property of others from damage as a result of its performance of the Work.
In the event that any such property is damaged or destroyed in the course
of the performance of the Work Contractor shall, at its own expense,
rebuild, restore or replace such damaged or destroyed property, without any
basis for a Change under this Contract.
3.30 Royalties and License Fees. Contractor shall pay all
required royalties and license fees and shall procure, as required, the
appropriate proprietary rights, licenses, agreements and permissions for
Equipment, materials, methods, processes and systems incorporated into the
Facility. In performing the Work, Contractor shall not incorporate into
the Facility any Equipment, materials, methods, processes or systems which
involve the use of any confidential information, intellectual property or
proprietary rights, which Owner does not have the right to use or which may
result in claims or suits against Owner or Contractor arising out of claims
of infringement of any domestic or foreign patent rights, copyrights or
other proprietary rights or applications for any such rights, or use of
confidential information.
3.31 Further Assurances. Contractor shall execute and deliver
all further instruments and documents, and take all further action,
including but not limited to execution and delivery of all documents
reasonably required by any Financing Parties, or assisting Owner in filing
a Notice of completion with the appropriate Governmental Authorities, that
may be necessary or that Owner may reasonably request in order to enable
Contractor to complete performance of the Work or to effectuate the
purposes or intent of this Contract.
3.32 Compliance with Statutes, Regulations, and Environmental
Laws.
3.32.1 The Contractor shall conform in all respects,
including by the giving of all Notices and the paying of all fees, with:
(a) any Applicable Law (including all applicable Environmental Laws from
time to time in effect during the term of this Contract), Applicable
Permissions or any regulation or by-law of any local or other duly
constituted authority, (b) the rules and regulations of all public bodies
and companies whose property or rights are affected or may be affected in
any way by the Work, and Contractor shall keep the Owner indemnified
against all penalties and liability of every kind for any breach or
violation of any such Applicable Laws or Applicable Permissions and (c)
otherwise protect the environment on and off the Facility Site and to avoid
damage or nuisance to persons, or to property of the public or others
resulting from pollution, noise or other causes arising as a consequence of
methods of construction or operation. Except as expressly provided
elsewhere in this Contract, Owner or its representatives shall be
responsible for communicating with Governmental Authorities in connection
with the execution of the Work.
3.32.2 Religious and Archaeological Resources.
(a) Should any archaeological sites, places, monuments or
areas be identified by Contractor during the performance of this Contract
which might be affected by such performance, such sites shall be left
untouched and protected by fencing. Any type of archaeological site or
site of religious or cultural significance shall be brought to the
attention of Owner as soon as practicable, and Owner shall issue further
instructions on protection and preservation measures.
(b) All fossils, coins, articles of value or antiquity and
structures and other remains or things of geological or archaeological
interest discovered on the Facility Site shall, as between Owner and
Contractor, be deemed to be the absolute property of Owner. Contractor
shall take reasonable precautions to prevent its workmen or any other
Persons from removing or damaging any such article or thing and shall,
immediately upon discovery thereof and before removal, acquaint Owner with
such discovery and carry out Owner's instructions for dealing with the
same.
3.32.3 Wildlife.
(a) Owner shall have the power to disallow any working
practice or activity of Contractor or to direct that such practice or
activity be modified if Owner is advised by the relevant Governmental
Authorities in accordance with Applicable Laws or Applicable Permissions,
and, in particular, HMGN's Department of National Parks and Wildlife
Conservation, that the practice or activity in issue will be harmful to
wildlife or wildlife habitat.
(b) The purchasing of any wildlife products shall be
banned, and Contractor shall ensure that any and all violators (limited to
the work force of Contractor associated with the Facility) are dealt with
in accordance with Applicable Laws or Applicable Permissions.
(c) Contractor shall educate staff and laborers regarding
the status of endangered or otherwise protected species identified by Owner
and post appropriate Notices. Harassment or damage of any kind of these
species will be considered disorderly conduct and may be grounds for
dismissal.
3.32.4 Nonrenewable Resources.
(a) Contractor shall ensure that all cooking, water heating
and space heating in camp is carried out using fuels other than wood,
provided that wood may be used where Contractor can satisfy Owner in
advance that the quantity required (i) is surplus to the requirements of
the local community, (ii) is easily renewed on a sustainable basis in
accordance with a sustainable management plan approved by HMGN and (iii)
will not cause price inflation in the areas of, or adjacent to, the
Facility Site. Any wood so used must be harvested legally and, where the
harvesting is in excess of the permits obtained by Owner, Contractor shall
provide Owner with copies of the relevant HMGN Ministry of Forests and Soil
Conservation permits.
(b) In the case of timber and bamboo not cut from the area
occupied by the Facility or grown in Contractor's nurseries, such materials
shall only be obtained from sources outside the Facility Site, except with
the approval of Owner where it can be demonstrated that the quantity
required (i) is surplus to the requirements of the local community, (ii) is
easily renewed on a sustainable basis in accordance with a management plan
approved by HMGN and (iii) will not cause price inflation in the areas of,
or adjacent to, the Facility Site. Contractor shall satisfy Owner that
purchased timber has been felled legally and, where the harvesting is in
excess of the permits obtained by Owner, shall provide Owner with copies of
the relevant HMGN Ministry of Forest and Soil Conservation permits.
(c) When firewood and timber is obtained from outside the
area encompassing the Facility, Contractor shall supply Owner with
documents certifying its origins and legal harvesting.
3.32.5 Fire Prevention. Contractor shall control the usage
of fires for any purpose in the vicinity of the Work and shall agree upon
the appropriateness of any such fires with Owner. Any areas of vegetation
damaged by fire which are considered by Owner to have been initiated by
Contractor's staff or labor shall be replanted and otherwise restored by
Contractor, at Contractor's expense. Contractor shall take all precautions
necessary to minimize the risk of fire at the Facility Site by: (i)
instruction of staff and labor in fire prevention control; and (ii) the
provision of appropriate fire-fighting equipment as approved by Owner.
3.32.6 Explosives.
(a) Contractor shall at all times maintain full liaison
with all Governmental Authorities and public or private bodies which are
(or are likely to be) concerned with or affected by any blasting operations
which might be performed by Contractor. Prior to performing any blasting
operations, Contractor shall inform such persons well in advance and obtain
any permits required by any of them to conduct such activity.
(b) Contractor shall be responsible for providing up-to-
date "beginning-to-end" documentation of all explosives which are brought
to the Facility Site at any time. Contractor shall be responsible for
disposal of unused explosives from the Facility Site consistent with
Applicable Law. Contractor shall provide copies of such documentation to
the Owner at Final Acceptance and shall maintain such records from the
Notice to Proceed until the expiration of two (2) years following the Final
Acceptance Date.
(c) Contractor shall schedule all blasting activities which
are to occur outdoors during daylight hours. Contractor may perform
blasting in underground excavations at any time. Contractor shall remove
all unused explosives from the Facility Site upon completion of the Work.
(d) Contractor shall ensure that any soil deposited from
blasting where a misfire has occurred is placed in an area which is not
accessible to the public. Remaining drill holes shall be thoroughly
flushed out with water prior to recommencement of drilling operations.
3.32.7 Avoidance of Damage to Roads and Bridges. Contractor
shall use every reasonable means to prevent any of the roads or bridges
connecting with or on the routes to the Facility Site from being damaged or
injured by any traffic of Contractor or any of its Subcontractors or
Vendors and, in particular, shall select routes, choose and use vehicles,
and restrict and distribute loads so that any such extraordinary traffic as
will inevitably arise from the moving of materials, Contractor's Equipment,
Equipment or Temporary Works from and to the Facility Site shall be
limited, as far as reasonably possible, and so that no unnecessary damage
or injury may be occasioned to such roads and bridges. Contractor is also
responsible for repairing all roads and bridges damaged during construction
by Contractor other than ordinary wear and tear that result from normal
traffic and shall indemnify and hold harmless Owner and HMGN for any such
damage.
3.32.8 Transport of Contractor's Equipment, Equipment or
Temporary Works. Contractor shall be responsible for and shall pay the cost
of strengthening any bridges or altering or improving any bridge or road
connecting with or on the routes to the Facility Site to facilitate the
movement of materials, Contractor's Equipment, Equipment or Temporary
Works.
3.32.9 Transport of Materials. If, any damage occurs to any
road or bridge connecting with or on the routes to the Facility Site
arising from the transport of materials, Contractor's Equipment, Equipment
or Temporary Works Contractor shall notify Owner as soon as Contractor
becomes aware of such damage or as soon as he receives any claim from the
authority entitled to make such claim. Owner shall not be liable for any
costs, charges or expenses in respect or in relation to any such claim. If
Owner shall be obligated to pay any sums in respect of any such claim, then
the amount shall be recoverable from Contractor by Owner and may be
deducted by Owner from any monies due or to become due to Contractor and
Owner shall notify Contractor accordingly. If Owner shall negotiate the
settlement of any such claim, Owner shall notify Contractor thereof and
consult with Contractor before such settlement is agreed.
3.32.10 Waterborne Traffic. Where the nature of the Work is
such as to require the use by Contractor of waterborne transport, the
foregoing provisions of this Article 3.32.10 shall be construed as though
"road" included a lock, dock, sea wall or other structure related to a
waterway and "vehicle" included craft, and shall have effect accordingly.
3.32.11 Temporary Roads. The temporary roads, tracks and
bridges required to bring Contractor's heavy construction and power
equipment to the Facility Site and otherwise necessary for the execution of
the Work shall be planned and designed by Contractor and subject to prior
approval of HMGN. In determining the layout, engineering standards,
materials, construction and maintenance practices for such temporary roads,
tracks and bridges, Contractor shall comply with current best practices in
Nepal on these matters and shall avoid areas of environmental sensitivity
and shall be subject to Applicable Laws and Applicable Permissions.
Environmental clearances which are required where environmental surveys
have not been completed shall be the responsibility of Contractor.
Contractor shall maintain the Facility Site roads throughout the
construction period and restore the land prior to Final Acceptance.
Maintenance shall include revegetation and slope stabilization consistent
with the requirements of Exhibit C. Such restoration shall include the
dismantling and disposal by Contractor of all such temporary roads, tracks
and bridges in accordance with the Electricity Act 2049 of Nepal and with
the environmental conditions provided in the Project License or other
Applicable Laws or Applicable Permissions.
3.32.12 Quarry and Dumping Areas. Contractor shall be
responsible for furnishing fill material or disposal of spoil. Only
assigned or approved quarries and borrow areas shall be exploited by
Contractor. Material deposit, spoil and dumping areas shall be subject to
prior approval by Owner. Contractor shall, upon the reasonable request of
Owner, share certain of these areas with, or, with respect to areas built
on or adjacent to filled dump Facility Sites, make available to, other
contractors.
3.32.13 Fuel Storage. The locations and methods for storing
fuel or the like at the Facility Site shall be agreed upon between
Contractor and Owner. The location, facilities, safety measures and
environmental and pollution control in connection with such storage shall
comply with all Applicable Laws and Applicable Permissions.
3.32.14 Conflicts. In the event of objections being made by
the current occupiers or users of land to be used for the Facility, or any
other community-related issues which affect the conduct of the Facility and
its relationship to the community, being raised, Contractor shall
immediately report the circumstances to Owner.
3.33 Health, Safety and Environmental Plan.
3.33.1 Contractor shall prepare a Health, Safety and
Environmental Plan no later than sixty (60) Days following the Notice to
Proceed for all construction work to be performed at the Facility Site.
The Health, Safety and Environmental Plan shall include (a) health, first
aid and certain levels of emergency procedures, (b) a waste management plan
in accordance with Article 3.33.2, (c) an industrial hazards plan in
accordance with Article 3.33.2, (d) an environmental protection and
management plan, including, without limitation, a sediment and erosion
control plan, (e) a revegetation plan and (f) the description, location and
drawings of construction facilities and temporary camps. The Health,
Safety and Environmental Plan shall be consistent with all Applicable Laws
and Applicable Permissions and shall be submitted to Owner for review and
comments. Contractor shall either promptly make changes to the Health,
Safety and Environmental Plan suggested by Owner or negotiate and resolve
in good faith with Owner such changes.
3.33.2 Waste Treatment and Disposal and Industrial Hazards.
(a) Contractor shall prepare a waste management plan for
incorporation into the Health, Safety and Environmental Plan, which shall
(i) detail the controlled usage and treatment of all toxic materials and
wastes, sanitary waste and solid waste used or produced at the Facility
Site or in relation to the Work and (ii) outline a management structure for
carrying out the specific provisions of such plan.
(b) Toxic Waste and Industrial Hazards: Contractor shall
abide by all safety standards related to the handling of toxic materials
and wastes. Contractor shall also ensure that storage and/or disposal of
toxic materials or wastes does not occur near groundwater or surface water.
All waste oil and grease resulting from construction activities shall be
collected and disposed of in a pre-agreed upon location, in a manner that
prevents contamination to soil, ground water, and surface water, and
incinerated if possible. Vehicle maintenance shall be conducted in safe
areas away from watercourses and oil or fluid runoff shall be collected in
grease traps. Toxic waste storage containers shall be well-labeled in
English and Nepali. Treatment and disposal of toxic wastes shall be
conducted on the Facility Site in a previously approved area, unless and
until HMGN develops alternative sites or guidelines. If no such guidelines
are established, the location of toxic materials shall be recorded, and
Contractor shall notify the relevant Governmental Authorities of their
location. No toxic materials such as petrochemicals shall be allowed in
the latrines.
(c) Sanitary Waste: Contractor shall construct gravity
drainage systems that discharge into septic tanks. Where latrines are
used, they shall be located in areas isolated from surface water and
ground water. Special attention shall be given to protecting water
supplies. Contractor shall plug and fill all latrine pits, sumps and
trenches when these are no longer required. The latrine areas shall be
kept clean.
(d) Solid Waste: Contractor shall select and operate a
solid waste disposal site. The site shall avoid environmentally sensitive
areas or areas that could potentially pollute water supplies. Runoff of
the site shall be curtailed. Untreated or uncontained toxic materials
shall be handled according to the guidelines established by the relevant
Governmental Authorities. At the discretion of Owner, the site may become
a permanent waste facility for the permanent structures or may be required
to be reclaimed and revegetated to quasi-original condition.
3.33.3 Reports to be Submitted.
(a) Contractor shall, within thirty (30) Days from the
Notice to Proceed, submit to Owner for its approval a program, in such form
and detail as Owner shall reasonably prescribe, for the execution of the
Work. Contractor shall, whenever reasonably requested by Owner, also
provide in writing for its information a general description of the
arrangements and methods which Contractor proposes to adopt for the
execution of the Work. In addition to the initial program and pursuant to
Article 3.12, detailed monthly programs and progress reports shall be
submitted to Owner within ten (10) Days after the end of each month. Such
monthly programs and progress reports shall detail all foreseeable Work to
be carried out by Contractor in that month and reports of Work carried out
in the previous month.
(b) Contractor shall provide to Owner concise monthly and
annual environmental reports and any other reports required by Owner,
Utility, Financing Parties, Applicable Laws or Applicable Permissions.
Such reports shall be prepared in accordance with the requirements of Owner
(and the other persons requiring such reports) and shall address compliance
with all environmental and monitoring requirements set forth in this
Contract. Such reports shall also outline any environmental problems and
recommend solutions thereto. All such reports will focus on problem areas
and measures taken to correct problems. The annual reports shall include
more extensive environmental data.
(c) Contractor shall report immediately, but in no event
later than within twenty-four (24) hours to Owner the discovery of any work-
related fish kill, toxic spill or take of a threatened or endangered
species. Illegal harvest of fish, wildlife or forest resources shall be
reported in the monthly reports referred to in Article 3.34.3.
(d) Contractor shall furnish a Facility Procedures Manual
within thirty (30) Days after Notice to Proceed for review and approval by
Owner.
(e) No later than (30) Days from the Notice to Proceed, the
Contractor may submit to Owner any alternative designs that are
substantially in conformance with the Scope of Work. Such alternative
designs must improve the performance or reliability of the Facility and may
reduce the Contractor's cost of constructing the Facility. Subject to
review by the Owner and Owner's Engineer, the Owner, at its sole option,
may either within thirty (30) Days of receipt of any proposed alternative
design, (i) give Contractor written notification of rejection of the
proposed alternative design, or (ii) initiate the procedures to issue a
Change Order pursuant to Article 6.1 allowing the Contractor to adopt the
alternative design, provided that adoption of any such design will not
relieve the Contractor of its obligations and responsibility to furnish a
Facility that is completed in accordance with the Scope of Work, and in no
case shall the adoption of such alternative design adversely affect the
schedule for First Unit Delivery, Second Unit Delivery and Final Acceptance
or result in an increase in the Contract Price. Any cost savings realized
as a result of the adoption of such alternative designs shall be shared
between the Contractor and the Owner in a proportion equal to thirty-seven
and one half of one percent (37.5%) to Owner and sixty-two and one half of
one percent (62.5%) to Contractor.
3.33.4 Flood Warning System. The Contractor shall assist
Owner, at no additional cost to Owner, in obtaining permissions, permits,
and visas from appropriate government agencies of the People's Republic of
China, for Owner's investigation, surveying and testing of glacier lakes in
the People's Republic of China that may affect the design, construction and
operation of the Facility. The Contractor shall assist Owner in obtaining
permits, bilateral government treaties and access to the glacier lakes from
appropriate government agencies in the People's Republic of China for its
design and installation of the warning system. The design and construction
of the warning system is not in the Scope of Work as of the Effective Date.
3.33.5 Contractor Not Relieved of Duties or Responsibilities.
Neither (a) the submission to and approval by Owner of programs and progress
reports and the provision of general descriptions pursuant to Article
3.33.3(a), nor (b) the provision of environmental reports pursuant to
Article 3.33.3(b) shall relieve Contractor of any of its duties or
responsibilities under this Contract.
ARTICLE 4
OWNER'S RESPONSIBILITIES
4.1 Payment. Owner shall timely pay all sums required to be
paid by Owner to Contractor pursuant to the terms of this Contract. Upon
Owner's issuance of Notice to Proceed, Contractor shall be entitled to
submit a Milestone Achievement Certificate pursuant to Article 7 for the
mobilization payment in an amount equal to ten percent (10%) of the
Contract Price as identified in Exhibit E-2.
4.2 Access to Facility Site. So long as Contractor is not in
default under this Contract, Owner shall provide Contractor with free and
clear access to the Facility Site until the Final Acceptance Date;
provided, however, and subject to the rights of Owner on account of a
default by Contractor under this Contract, that Owner shall grant
Contractor reasonable access to recover Contractor's Equipment used to
complete the Work and to perform warranty services as described in Article
11. Owner shall cause the removal of occupiers or users of the land prior
to Contractor accessing the Facility Site. Owner shall be responsible for
resolving disputes with the previous land owners or users regarding the
purchase of the land for the Facility Site.
4.3 Land for Temporary Works. Owner shall provide areas of land
necessary to complete the Work, including those areas of work activities,
for offices, accommodation and messing facilities, areas for temporary
access roads, for the extension to the right-of-way and for some other
Temporary Works, but in any event Owner shall not be required to obtain any
land not presently set forth in the description of the Facility Site.
Contractor shall be responsible for developing access for the transmission
line construction and Owner shall assist Contractor in developing such
access for the transmission line construction.
4.4 Owner's Representative. Owner shall appoint one individual
who shall be authorized to act on behalf of Owner either to approve, reject
or otherwise facilitate the orderly execution of the Work, and with whom
Contractor may consult at all reasonable times, and whose instructions,
requests, and decisions in writing will be binding upon Owner as to all
matters pertaining to this Contract and the performance of the Parties
under this Contract. Owner may substitute a different Owner's
representative upon prior Notice to Contractor.
4.5 Insurance. Owner shall provide and maintain the insurances
described in Article 9.1 of this Contract
4.6 Owner Taxes. Owner shall be solely responsible for,
administering and paying all Owner Taxes. Owner shall promptly provide
Contractor with reports or other evidence reasonably acceptable to
Contractor showing the payment of such Owner Taxes. Owner shall promptly
provide information and assistance reasonably requested by Contractor to
file tax returns or forms, applications for exemption and contest in good
faith any such tax.
4.7 Project Licenses. Owner shall obtain the Project Licenses
necessary for the Facility prior to the Notice to Proceed.
4.8 Other Applicable Licenses and Permissions. Pursuant to
Article 3.10, Owner agrees to assist Contractor in obtaining Contractor's
Applicable Permissions necessary for the performance of the Work, but in no
event does this Article 4.8 relieve Contractor of its obligations to obtain
all Applicable Permissions.
ARTICLE 5
CONSTRUCTION SCHEDULE AND AVAILABLE FUNDS
5.1 Commencement of Work. Contractor shall commence performance
of the Work under this Contract within thirty (30) Days of receiving the
Notice to Proceed and diligently proceed with such Work to completion in
accordance with the terms of this Contract. Owner shall provide Notice to
Proceed on or before February 1, 1997, otherwise, Contractor shall be
entitled to request a Change pursuant to Article 6.1, or as the Parties may
otherwise mutually agree. Subsequent to the Effective Date and prior to
Notice to Proceed, Contractor agrees to provide all Work necessary, in
Contractor's judgment, to assure that the Final Acceptance Date is met
according to the Construction Schedule attached hereto as Exhibit A. All
Work performed by Contractor prior to Notice to Proceed shall be performed
at Contractor's sole risk and expense unless the Parties otherwise agree.
5.2 Construction Schedule.
5.2.1 Contractor shall perform the Work in compliance with
the Construction Schedule (attached hereto as Exhibit A and as may be
subsequently amended in accordance with the terms of this Contract),
including completing the Work required by the Critical Dates, Guaranteed
Unit Delivery Dates and required Final Acceptance Date. Contractor shall
provide the reports required in Article 3, and provide any further
information as Owner, the Financing Parties or the Independent Engineer may
reasonably request to verify actual progress and forecast future progress.
Contractor shall promptly notify Owner, Financing Parties and the
Independent Engineer in writing of any occurrence that Contractor has
reason to believe will adversely affect the Construction Schedule or other
required dates. Contractor will specify in said Notice the corrective
action planned by Contractor to recover schedule.
5.2.2 Without limiting the obligations of Contractor under
Section 5.1 or 5.2.1 Contractor shall, commencing within twenty (20) Days
after the Notice to Proceed, unless otherwise required by Owner, submit to
Owner and the Independent Engineer for its review, any revisions to the
Construction Schedule that provide for the orderly, practicable and
expeditious completion of the Work in accordance with the requirements of
this Contract. Within twenty (20) Days of Owner's and the Independent
Engineer's receipt of such a proposed revised Construction Schedule, unless
otherwise specified, Owner will either approve such Construction Schedule
or return it to Contractor for revision. If not approved by Owner, Owner
shall submit reasons for objection and Contractor will submit a revised
Construction Schedule for review. The Construction Schedule shall be
presented in such reasonable detail as Owner and the Independent Engineer
may require and shall address all elements of the Work. If at any time
during the Work, Contractor's actual progress appears to Owner or the
Independent Engineer to be inadequate to meet the requirements of this
Contract, Owner may notify Contractor of such imminent or actual
noncompliance. Contractor will thereupon submit a recovery plan for
approval and take such steps as may be necessary to improve its progress.
Such Notice will not relieve Contractor from its obligation to achieve the
quality of Work and rate of progress required hereby.
5.2.3 Upon the failure of Contractor to achieve any of the
milestones set forth below by the date set forth opposite thereof (each a
"Critical Date"), Owner may notify Contractor in writing to show cause why
Contractor should not be held in default under Article 15 hereof for
failure to achieve any one of the milestones by the date set forth. Within
three (3) Days of receipt of such Notice to show cause, Contractor shall
deliver to Owner Contractor's plan of recovery which shall reasonably
demonstrate what steps Contractor shall take to achieve such milestone
within fifteen (15) Days of the date of receipt by Contractor of Owner's
Notice to show cause. If, however, the Work necessary to achieve such
milestone cannot, with all best efforts by Contractor, be achieved within
such fifteen (15) Day period, Contractor's plan of recovery shall
reasonably demonstrate what special steps Contractor plans to take to
assure the earliest possible achievement of such milestone and recovery of
schedule (not to exceed ninety (90) Days). Upon approval by Owner of
Contractor's plan of recovery, Contractor shall commence the special steps
agreed upon immediately and shall pursue such steps to completion. In the
event Owner and Contractor are unable to agree on the special steps to be
taken in the recovery plan, Owner, in its sole discretion, may terminate
Contractor's employment and this Contract pursuant to Article 15.1.2(b) and
may assert such remedies as are set forth in Article 15.1. In no event
will the Contractor's failure to complete one or more milestones by the
Critical Date for such milestone impact any other Critical Date.
Notwithstanding anything in this Article 5, Contractor's failure to achieve
the Unit Delivery Date of the First Unit or the Unit Delivery Date of the
Second Unit by the Critical Date for such milestone shall not relieve
Contractor of its obligation to pay Schedule Liquidated Damages in
accordance with Article 12.3.
Milestones Critical Dates
Start Mobilization 3/1/97
Health, Safety and Environmental Plan Complete 60 days after
Notice to Proceed
Owner's Office and Residence Complete 5/31/97
Right Bank Stabilization 6/25/97
All Major Equipment Ordered 7/1/97
Headworks Foundation Cutoff Wall 50% Complete 10/15/97
Powerhouse Excavation Complete 12/31/97
Draft Tubes Delivered to the Site 3/1/98
Surge Shaft Complete 3/1/98
Headrace Tunnel Excavation 50% Complete 5/31/98
Stage 1 Headworks Concrete Complete 7/1/98
Powerhouse Roof Complete 3/1/99
All Transmission Towers Erected 4/1/99
All Major Equipment On Site 6/1/99
Headrace Tunnel Complete 6/1/99
Operators Village Complete 6/1/99
Transmission Line Complete 6/30/99
Penstock Complete 7/1/99
Stage 2 Headworks Concrete Complete 7/1/99
Unit Delivery Date of First Unit 10/15/99
Unit Delivery Date of Second Unit 12/15/99
5.3 Available Funds. Owner represents and covenants that, as of
the date of the Financial Closing, there will be sufficient funds
allocated to Owner from the Financing Parties to pay the Contract Price and
to complete construction of the Facility in accordance with the
Construction Schedule and that Contractor will be promptly notified by
Owner of any material change in the availability of sufficient funds and
Owner's ability to make such full and timely payments. Owner shall not
issue Notice to Proceed until Financial Closing, unless the Parties
otherwise agree.
ARTICLE 6
CHANGE ORDERS
6.1 Request for Change Orders. Owner, (or in the case of
Contractor solely due to the occurrence of a Force Majeure Event,
identification of any archaeological or religious sites, as set forth in
Article 3.32.2 or breach by Owner of its obligations hereunder), where the
Contract Price, Construction Schedule or warranty obligations or any other
obligations of Contractor hereunder are materially adversely affected may
submit a written request to the other Party to alter, add to or deduct
from, or otherwise change the Scope of Work or this Contract, without
invalidating this Contract. If such Change would have the effect of
increasing or decreasing the Contract Price, accelerating or postponing any
Guaranteed Unit Delivery Date, any Critical Date, or the required Final
Acceptance Date hereunder, modifying Contractor's warranty obligations
under this Contract, or requiring modification of Contractor warranties in
Article 11 hereof (or any other provision hereunder) equitable adjustment
may be made to the Contract Price, such dates, or warranty or other
provisions, as the case may be. In addition, Contractor shall provide
Owner with Notice, as soon as possible but in no event more than four (4)
Days after any knowledge of Contractor of any Force Majeure Event or Owner
breach that Contractor believes will involve a variance in the cost of the
Work, the Contract Price, the Construction Schedule or any other provision
in this Contract, which Notice shall include a request for a Change Order
setting forth the proposed changes; provided, however, that in the event
Contractor has not completed its evaluation of the impact of such Force
Majeure Event or breach at the time of such Notice, Contractor shall
reserve the right to claim a Change or Changes in such Notice and shall
provide a request for a Change or Changes setting forth the proposed
changes within seven (7) Days after such Notice. All such Changes in the
Scope of Work shall be authorized only by Change Order and shall be
performed under all applicable conditions of this Contract. The Work, the
Contract Price, the Critical Dates, Guaranteed Unit Delivery Dates, the
date of Performance Tests, and the Final Acceptance Date may be changed by
Change Order only. All Change Orders must be reviewed and approved by
Owner, and to the extent required by the Project Licenses, HMGN, prior to
effectiveness of each Change Order.
6.1.1 Owner may at any time, by Notice to Contractor,
request a Change to require among other things, Contractor's compliance
with any Change in Law (as described in Article 6.3) or other Force Majeure
Event (as described in Article 6.2). Contractor shall make a written
response to any requested Change within ten (10) Days after receiving it
or, if it fails to do so, shall be deemed to have accepted the proposed
Change unconditionally and without additional consideration or schedule
change or any other modification, in which event such Change shall be
deemed to become part of this Contract. If Contractor believes that giving
effect to such Change will increase or decrease its cost of performing the
Work, shorten or lengthen the time needed for completion of the Work, or
require modification of its warranties in Article 11 or require a
modification of any other provisions of this Contract, its response to the
Change request shall set forth the Change or Changes that Contractor deems
necessary and its justification for such Changes together with any
necessary alterations or amendments to this Contract. If Contractor does
not provide a written response to Owner specifying the effect of such
Changes as to cost, time and warranty or other obligations of Work within
ten (10) Days of Owner's Notice under this Article 6.1.1, then Contractor
waives any claims or offsets against Owner as a result of the Change Order,
provided, however, that notwithstanding the foregoing, if such Changes as
to cost, time, warranty or other obligations of the Work cannot be
determined within the ten (10) Day period, and Contractor submits Notice
within such ten (10) Day period that the Changes will have an effect on
costs, time or warranty obligations and provides the expected date (which
shall be as soon as reasonably practicable) for cost, time or warranty
effect response, Contractor shall not be deemed to have waived such claims
or offsets. If Owner accepts the Change(s) (together with any necessary
alterations or amendments to this Contract) proposed by Contractor, or if
the Parties agree upon a modification of such proposed Change(s), the
Parties shall then sign a Change Order setting forth the agreed upon Change
in the Work and agreed upon amendments to this Contract, and such Change
Order shall operate as an amendment to this Contract. If there occurs a
Change of Law or other Force Majeure Event that has a material impact on
the Work, each Party shall bargain reasonably and in good-faith for the
execution of a mutually acceptable Change Order.
6.1.2 Contractor, due solely to a Force Majeure Event,
breach by Owner, or identification of any archaeological or religious site,
as set forth in Article 3.32.2 that materially affects cost, schedule or
other obligations of Contractor under this Contract may, by Notice (given
within the time limits required by this Contract) to Owner, propose Changes
in the Work and if such proposed Changes are agreed to by Owner, they shall
be set forth in a Change Order signed by the Parties. If Contractor
believes that such Change Order will increase or decrease its cost of
performing the Work, delay or accelerate the time needed for completion of
the Work, or require modification of its warranties in Article 11 hereof or
require a modification of any other provisions of this Contract, it shall
set forth its justification for such Changes and the effect of such
Changes. If Contractor does not provide a Notice to Owner specifying the
effect of such Changes as to cost, time and warranty obligations of Work
within seven (7) Days of proposing a Change Order under this Article 6.1.2,
then Contractor waives any claims or offsets against Owner as a result of
the Change Order.
6.1.3 Any Contractor response to a Change Order proposed by
Owner under Article 6.1.1 requiring a change to the Contract Price and any
Contractor proposed Change Order under Article 6.1.2 requiring a change to
the Contract Price shall be accompanied by a proposed all-inclusive final
lump sum cost to Owner. In the event that the Parties are unable to reach
a mutually acceptable agreement on an all-inclusive final lump sum cost to
Owner, Contractor shall perform the Change Order and shall be paid an
amount equal to Contractor's actual and reasonable cost plus twelve percent
(12%) of such cost to the extent acceptable to Owner, as consideration for
the Change Order.
6.1.4 A Change Order initiated by either Party may have the
effect of either increasing or decreasing the Contract Price. Any Contract
Price increase or decrease resulting from a Change Order taking effect
under this Article 6.1.4 shall become an addition or deletion to the
Milestone Payment or payments to which it properly belongs. In the event
that Owner and Contractor are unable to reach agreement on Change Orders
under this Contract as proposed by either Owner or Contractor, at the
direction of the Owner, Owner's proposed Changes shall become effective,
Contractor shall continue to perform the Work in accordance with Owner's
Changes, and the Parties will resolve such Changes in accordance with
Article 17 of this Contract. In the event that Owner does not approve of
any Change Order request by Contractor, the Work proposed by such Change
Order shall not be undertaken and any dispute relating thereto shall be
resolved pursuant to Article 17.
6.2 Force Majeure Event.
6.2.1 Force Majeure Event shall mean any event or
circumstance or combination of events or circumstance that materially and
adversely affects either Party in the performance of its obligations in
accordance with the terms of this Contract, but only if and to the extent
that such events and circumstances are not within the reasonable control of
the affected Party. Without limitation to the generality of the foregoing,
Force Majeure Event shall include the following events and circumstances:
(a) lightning, drought, fire, earthquake, volcanic
eruption, landslide, Flood, storm, cyclone, typhoon, or tornado;
(b) chemical contamination or naturally occurring explosion;
(c) epidemic, quarantine or plague;
(d) air crash, shipwreck or train wrecks;
(e) delays of transportation resulting from accidents or
closure of transportation routes;
(f) acts of war (whether declared or undeclared), invasion,
armed conflict or acts of foreign enemy, blockade, embargo (including
without limitation, unavailability or shortage of fuel or materials),
revolution, riot, insurrection, civil commotion, acts of terrorism or
sabotage in Nepal;
(g) any Change in Laws;
(h) expropriation, requisition, confiscation or
nationalization in Nepal; or
(i) any event or circumstance of a nature analogous to any
of the foregoing.
A Force Majeure Event does not include delay of Subcontractors or
Vendors and any such delay caused by Subcontractors or Vendors will not
excuse the Contractor from timely performance in accordance with the
Contract.
6.2.2 Notification Obligations.
(a) The Party claiming a Force Majeure Event shall give
Notice to the other Party describing such Force Majeure Event as soon as
reasonably practicable, but not later than four (4) Days after the date on
which such Party knew or should reasonably have known of the commencement
of the Force Majeure Event. Such Notice shall include (i) the date of
commencement of the Force Majeure Event, (ii) the estimated duration and
(iii) the expected probable impact on performance of such Party's
obligations, to the extent known as of the date of the Notice.
Notwithstanding the above, if the Force Majeure Event results in a
breakdown of communications rendering it not reasonably practicable to give
Notice within the applicable time limit specified herein, then the Party
claiming a Force Majeure Event shall give such Notice as soon as reasonably
practicable after the reinstatement of communications, but not later than
four (4) Days after such reinstatement.
(b) The Party claiming a Force Majeure Event shall give
Notice to the other Party of (i) the cessation of the relevant Force
Majeure Event or (ii) the cessation of the effects of such Force Majeure
Event on the enjoyment by such Party of its rights or the performance by it
of its obligations under this Contract as soon as practicable after
becoming aware of either of sub-Articles (i) and (ii) above; but in any
event no later than four (4) Days after such event occurs.
6.2.3 Duty to Mitigate. The Parties shall use their best
efforts to mitigate and minimize any delays or costs caused by the effects
of any Force Majeure Event and to cooperate to develop and implement a plan
of remedial and reasonable alternative measures to remove the Force Majeure
Event.
6.2.4 Excused Performance. Pursuant to and consistent with
Article 6, the events described in Article 6.2.1 shall constitute Force
Majeure Events, and to the extent provided in this Article 6.2.4, the
affected Party shall not be liable for any failures or delays in complying
with its performance obligations pursuant to this Contract. To the extent
that such failure or delay has been caused, or contributed to, by one or
more Force Majeure Events, the period allowed for the performance by such
Party of its obligations hereunder and the Guaranteed Unit Delivery Dates,
and required Final Acceptance Date shall be extended on the condition
that:
(a) the non-performing Party gives the other Party Notice
describing the particulars of the Force Majeure Event in accordance with
Article 6.2.2 and continue to furnish regular reports with respect thereto
during the continuation of the Force Majeure Event;
(b) the suspension of performance and extension of such
dates is of no greater scope and of no longer duration than is reasonably
required by the Force Majeure Event;
(c) when the non-performing Party is able to resume
performance of its obligations under this Contract, it shall give the other
Party Notice to that effect as required by Article 6.2.2; and
(d) the non-performing Party uses its reasonable efforts to
remedy its inability to perform;
(e) in no event shall a Force Majeure Event excuse the
obligations of a Party that are required to be completely performed prior
to the occurrence of a Force Majeure Event.
6.3 Change in Law. If, after the Effective Date, any Change in
Law occurs, then such Change in Law may be treated as a Change Order if
such Change in Law meets the requirements in Article 6.1.1 hereof. If the
Parties are unable to agree on the result of the Change in Law, then the
dispute shall be resolved in accordance with Article 17 hereof, but
Contractor shall continue its Work, taking into account such Change in Law,
until such dispute is resolved.
6.4 Disputes. If a dispute arises between Owner and Contractor
that would impede the progress of Work in an amount equal to or less than
fifty thousand ($50,000) Dollars, including any effect to the Construction
Schedule by reason of a Force Majeure Event, such dispute shall be resolved
by a decision of the Owner's Engineer. If the Parties agree to the decision
of the Owner's Engineer, such decision shall be binding on the Parties,
otherwise, the Parties may appeal such decision pursuant to Article 17. The
Work shall continue to be performed as directed by the Owner's Engineer
during any appeal of a decision of the Owner's Engineer under Article 17.
ARTICLE 7
CONTRACT PRICE; PAYMENTS TO CONTRACTOR
7.1 Contract Price. Contractor shall, at its own expense,
perform the Work, all on a turnkey firm fixed price basis equal to $
46,340,000.00 (the "Contract Price") inclusive of the physical hydraulic
model, in accordance with the Contractor's Critical Date Schedule set forth
in Article 5.2.3, the Scope of Work and other requirements of Contractor
set forth in this Contract, all as may be modified or amended by Change
Order, under Article 6.
7.2 Payment for Work. In any month whereby the Contractor
achieves any milestone, Contractor may submit to Owner, on or about the
first (1st) Day of the month following the achievement of such
milestone(s), but in no event later than the seventh (7th) Day thereof, a
Request for Payment for approval for those milestones achieved.
7.2.1 Subject to the provisions of this Article 7, the
Contract Price shall be payable in accordance with the Milestone Payment
Schedule, and after the Contractor's project manager has delivered to
Owner's representative a Milestone Achievement Certificate.
7.2.2 Within thirty (30) Days (except in the case of the
Request for Payment for mobilization, as set forth in Article 4.1 which
shall be within fifteen (15) Days of such Request for Payment), after its
receipt of a Request for Payment on or before the 7th Day of the month for
all milestones certified in the month represented by the Request for
Payment, Owner shall pay to Contractor the amount that remains after the
deduction from the Milestone Payment requested of (i) any portion thereof
that Owner disputes as not being due and owing, (ii) any overpayment made
by Owner for any previous period, (iii) any past-due Contract Price
adjustment amount due Owner hereunder plus interest thereon at the
Reference Rate from the due date thereof, (iv) Contractor Tax and (v)
Retainage, provided that Contractor has delivered any Lien waivers
requested by Owner in accordance with Article 7.5.2. The payment made by
Owner shall be accompanied by a Notice to Contractor specifying the amount
of each deduction and setting forth the reason(s) why the deduction is
justified. Failure or forbearance on the part of Owner in withholding any
amounts due under a Milestone Payment shall not be construed as accepting
or acquiescing to any disputed claims. If any such amount deducted from
the requested amount is subsequently determined, by agreement of the
Parties or by arbitration pursuant to Article 17, to have been
unjustifiably so deducted, Contractor shall be entitled to payment of such
amount, plus interest thereon, at the Reference Rate from the date that
such amount should have been paid until the date of such payment, in a
Request for Payment submitted by Contractor to Owner after the
determination or, if final payment thereunder has been previously made,
then in a written demand. Pending the resolution of any disputed Milestone
Payment, Contractor shall continue performance of the Work.
7.2.3 The making of any Milestone Payment by Owner shall not
constitute an admission by Owner that the Work covered by such payment (or
any Work previously performed) is satisfactory or timely performed, and
Owner shall have the same right to challenge the satisfactoriness and
timeliness of such Work as if Owner had not made such payment. If, after
any such payment has been made, it is subsequently determined by agreement
of the Parties or by arbitration pursuant to Article 17 that Contractor was
not entitled to all or a portion of any such payment, Contractor shall
refund all or a portion of such payment to Owner with interest thereon at
the Reference Rate from the date that Contractor received such payment to
the date of refund.
7.2.4 Notwithstanding any other provision to the contrary
contained herein, Owner shall have no obligation to make payments due to
Contractor at any time when Contractor is in material breach of this
Contract, including, without limitation, at any time that Contractor fails
to comply with any Environmental Laws or other Applicable Laws or
Applicable Permissions. Owner shall release payments withheld pursuant to
this Article 7.2.4 at such time that Contractor cures all material
breaches.
7.2.5 Owner shall have the unconditional right to draw upon
Retainage and the Performance Guarantee for (i) damages, (ii) compensation,
(iii) the completion of Punch Lists or warranty repairs if Contractor has
failed to complete such Punch Lists or warranty repairs, (iv) assessment of
liquidated damages or penalties, or (v) any other reason set forth in this
Contract. Within ten (10) Days prior to the Final Acceptance Date, the
Contractor shall submit a Warranty Performance Guarantee in an amount equal
to five percent (5%) of the Contract Price. Within thirty (30) Days of the
Final Acceptance Date, the Owner shall return all remaining Retainage and
Performance Guarantee described in Article 3.26. The Warranty Performance
Guarantee shall be valid for a period of two (2) years and thirty (30) Days
after the Final Acceptance Date, except as may be extended under Article
11.1.1. Owner shall have the unconditional right to draw on the Warranty
Performance Guarantee for any repairs or replacements necessary to operate
the Facility at the performance levels achieved at the Second Unit
Delivery.
7.3 Financing of Facility
7.3.1 This Contract shall be the document referred to in the
Financing Documents as the agreement between the Owner and Contractor for
the Work.
7.3.2 The Financing Documents will require that so long as
Owner is not in default under the Financing Documents and Contractor is not
in default under this Contract, and provided that all other conditions
precedent in the Financing Documents have been satisfied, the Financing
Parties shall, under the terms of the Financing Documents, disburse funds
for the purpose of Owner making the payments called for by this Contract,
except for those payments that are disputed in accordance with this
Contract.
7.3.3 Contractor shall promptly execute any additional
documentation as may be mutually agreed upon in form and substance,
reasonably requested by Financing Parties, including, but not limited to,
the EPC Contractor's and Financing Parties' Acknowledgement and Consent,
evidencing Contractor's consent to assignment of this Contract as security
to Financing Parties or otherwise upon the occurrence of events specified
in such documents and any reasonable modifications to this Contract.
7.4 Contractor's Payment Account. Each payment made
pursuant to this Article shall be paid directly to Contractor. Such
payment shall be wire-transferred to an account or accounts designated in
writing by Contractor in accordance with Article 7.2.
7.5 Financing Parties' Requirements and Lien Waivers
7.5.1 Contractor acknowledges that Owner will borrow certain
funds from Financing Parties for the construction of the Facility and that,
as a condition to making loans to Owner, Financing Parties may from time to
time require amendments to this Contract and certain documents from
Contractor and its Subcontractors and Vendors. In that connection,
Contractor agrees to furnish to Financing Parties such written information,
certificates, copies of invoices and such receipts, Lien waivers (upon
payment), affidavits and other like documents as Financing Parties may
reasonably request. Contractor shall negotiate in good faith, amendments
to this Contract reasonably requested by Financing Parties. Upon Financing
Parties and Owner memorializing their legal rights and obligations to each
other in the final Financing Documents, Contractor shall, on Financing
Parties' request, state in writing as a condition precedent to financing,
whether or not it is satisfied with Owner's performance to that date.
7.5.2 As a condition precedent to the making of any payment
under this Contract, Owner may require that Contractor and each of its
Substantial Subcontractors and Substantial Vendors supply Owner with a
Waiver of Lien Certificate, substantially in the form as Exhibit H attached
hereto, stating that all previous amounts due to Contractor and its
Subcontractors and Vendors have been paid. Contractor shall obtain similar
certificates simultaneously with the payment to a Substantial Subcontractor
or Substantial Vendor and submit the same upon request of Financing
Parties.
7.5.3 Contractor hereby subordinates any Liens or security
interests to which it may be entitled by law or under the provisions of
this Contract to any Lien or security interest granted in favor of
Financing Parties. In addition, Contractor shall submit proof satisfactory
to Owner that it has included in each subcontract entered into by it with a
Substantial Subcontractor or Substantial Vendor a requirement that any Lien
or security interest to which such Substantial Subcontractor or Substantial
Vendor may be entitled thereunder or by law shall be subordinate and
inferior to any Lien and security interest granted in favor of Financing
Parties.
7.5.4 In the event of Owner's default under this Contract,
Financing Parties shall have the right within not more than two hundred and
seventy (270) Days following Owner's failure to cure any such default
(including any cure period provided therefor) to cure Owner's default and,
in such event, Contractor's duties and obligations under this Contract
shall be unaffected. Contractor further agrees to perform its obligations
under this Contract for the benefit of Financing Parties in the event of
Owner's default under this Contract or under the Financing Documents,
provided that Financing Parties (or their assignee) shall have cured all
defaults of Owner's obligations under this Contract which Financing Parties
are reasonably capable of curing and shall have paid all amounts then due
and required to be paid by the Financing Parties as set out in a direct
agreement, the Acknowledgement and Consent, between the Financing Parties
and Contractor, including costs to cure.
ARTICLE 8
TITLE, CARE, CUSTODY, CONTROL AND RISK OF LOSS
8.1 Clear Title. Contractor warrants and guarantees that legal
title to and the ownership of the Work including, without limitation, all
intellectual property (i.e. patents, licenses, methods, processes, trade
secrets, know how, etc.), Design Documents, As-Built Drawings,
specifications, operation and maintenance manuals and spare parts required
by Owner in connection with the construction and operation and maintenance
of the Facility shall pass to Owner, free and clear of any and all Liens at
the Unit Delivery Date of each Unit. Unless and to the extent otherwise
elected by Owner in its sole discretion following payment therefor, all
materials, supplies and Equipment furnished by Contractor for incorporation
into the Facility shall become the property of Owner at Unit Delivery Date
of each Unit.
8.2 Care, Custody and Control. Owner, at its option and sole
discretion, shall be granted full control of all Equipment necessary to
operate First Unit and Second Unit as of the Date of Owner's payment for
such Equipment or such later date as such documents are delivered in
accordance with the requirements of thiseach Unit as of the date of Owner's
payment for the Equipment necessary to operate such Unit, whether or not
such Equipment has been accepted as provided in Article 10, title Contract
(but not later than the Unit Delivery Date of each Unit), except for those
Liens that may be created by the actions of Owner.has passed to Owner as
provided in Article 8.1 (except for those Liens that may be created by
actions of Owner) or risk of loss has passed to Owner as provided in
Article 8.3, provided however, Owner will be deemed to have paid for such
Equipment notwithstanding any deductions made by Owner pursuant to Article
7. Notwithstanding the foregoing, Contractor acknowledges that Owner
intends to exercise the right to operate the Facility commencing on the
First Unit Delivery to satisfy Owner's obligations under Section 2.1 of the
Power Purchase Agreement and agrees that all revenue received from
operation of the Facility will accrue for the benefit of Owner.
8.3 Risk of Loss. From initial mobilization by Contractor under
this Contract to the Final Acceptance Date, Contractor shall assume the
risk of loss for the Facility including: (a) any Equipment whether on the
Facility Site or in storage offsite, (b) all other Work completed at the
Facility Site, and (c) all Work in progress. All Equipment in storage but
not yet incorporated into the Facility shall be stored in secured areas.
Contractor shall bear the responsibility of preserving, safeguarding, and
maintaining such Equipment and any such other completed Work (including
spare parts provided by Owner). If any loss, damage, theft or destruction
occurs at the Facility Site prior to the Final Acceptance Date for which
Contractor so assumed the risk of loss, Contractor shall, at its cost,
promptly repair or replace the property subject thereto. Following the
transfer of care, custody and control from the Contractor to the Owner
pursuant to Article 8.2 and the Owner receives clear title as stated above
in Article 8.1, risk of loss for the Facility shall pass to Owner
(excluding Temporary Works, Contractor's Equipment and other items to be
removed by Contractor, which shall remain the responsibility of
Contractor).
ARTICLE 9
INSURANCE
9.1 Owner's Insurances. Without limiting Contractor's
obligations, responsibilities and liabilities under this Contract, Owner
shall procure and maintain at Owner's expense for the benefit of and in the
joint names of Owner, Contractor and its Subcontractors and such other
persons as Owner may elect, the following insurances:
9.1.1 Insurance of Works. "Contractors All Risks" insurance
for the full current replacement value of the Works covering loss of or
damage to the Works, (including the supplied Equipment after Contractor has
taken delivery of the same but excluding Contractor's Equipment) from
whatsoever cause arising (including, without limitation, strikes, riots,
civil commotion, terrorist act and volcanic eruption, earthquake) and
faulty design coverage and in such manner that Owner and Contractor are
covered for the period up to the issue of the Final Acceptance Certificate
and are also covered during any defects liability period for loss or damage
arising from a cause occurring prior to the issue of the Final Acceptance
Certificate or occasioned by Contractor in complying with his obligations
under Article 3 hereof.
9.1.2 Third Party Insurance. Third Party insurance covering
the legal liability of the parties for accidental death or injury to
persons or accidental loss of or damage to property arising out of the
execution of the Works on the Site or in connection with the Contract.
Such insurance shall remain in force from the date of the signature of the
Contract or Notice to Proceed until issue of Owner's Final Acceptance
Certificate and be for an indemnity of no less than $30,000,000 in respect
of any one occurrence.
9.1.3 Marine Cargo Insurance. Marine Cargo insurance on the
basis of Institute Cargo Clauses (A) including war, strike, riots and civil
commotion and terrorist act covering loss of or damage to all materials and
equipment for the Works while in transit and shipment from outside Nepal
until delivery to Facility Site and while in storage anywhere in the world
prior to shipment. The sum insured under such Marine Cargo insurance shall
be for not less than the full replacement value of the Facility shipped
including freight and insurance. For the purposes of this Article
transit/shipment shall be deemed to include any form of transportation
including sea, air and land.
9.2 Contractor's Insurances. Without limiting Contractor's
obligations, responsibilities and liabilities under Article 3 hereof
Contractor shall effect and maintain at its own expense for the benefit of
and in the joint names of Owner, Contractor and Subcontractor and such
other persons as Owner may elect, the following insurances:
9.2.1 Contractor's Equipment. Insurance against all loss or
damage from whatsoever cause arising in respect of Contractor's Equipment
brought into or destined for the Facility Site for use in the execution of
the Works to the full replacement value of such equipment.
9.2.2 Insurance Against Accidents to Laborers. Contractor
shall insure its liability as defined in this Contract during the whole
time that any persons are employed by it onsite in connection with the
Works.
9.2.3 Motor Insurances. Contractor shall at all material
times keep in force the following additional insurance in as far as they
may be applicable. Policies of motor insurance in respect of all
mechanically propelled vehicles used on public highways or in any
circumstances such as to be liable for compulsory motor insurance in
accordance with the Laws of Nepal.
9.2.4 Contractor's Other Insurance. In addition to the
insurances referred to above, Contractor shall maintain policies of
insurance to the satisfaction of and in the format approved by Owner to be
maintained for such periods as Owner may require, to indemnify Contractor
against loss or damage to the Facility and to the Works in the course of
manufacturing offsite.
All insurance referred hereto as regarding exposures in Nepal
shall be endorsed to the effect that Owner and the Financing Parties shall
be included as named insured thereon and fully indemnify them in respect of
claims that may be made against them arising out of the Works.
9.3 Other Specific Terms.
9.3.1 Indemnity to Owner. All insurances referred to in
this Article as being kept in force by Contractor shall be endorsed to the
effect that Owner and such other persons as Owner may specify in writing
shall be included as named insured thereon and shall fully indemnify
Contractor in respect of claims that may be made against Contractor arising
out of the execution of the Works or in connection with the Contract.
Each insurance policy shall provide, either in its printed
text or by endorsement, that it shall be primary with respect to the
interest of Owner and Contractor and that any other insurance maintained by
Owner and/or Contractor is in excess of, and not contributory to, the
insurance provided in this Article 9 in all instances regardless of any
like insurance coverage that Owner, Financing Parties and Contractor may
own. Companies or persons providing insurance under this Contract shall be
authorized to issue insurance in Nepal.
All policies of Contractor shall include a waiver of any
rights of subrogation of the insurers against Owner, Financing Parties or
the Utility.
9.3.2 Subcontractor's Insurance. Before permitting any of
its Subcontractors to perform any work at the Facility Site, Contractor
shall obtain a certificate of insurance from each such Subcontractor
evidencing that such Subcontractor has obtained the insurance required of
Subcontractors as reasonably required by Contractor and in the case of
Substantial Subcontractors, as reasonably approved by Owner.
All policies of Subcontractors shall include a waiver of any
right of subrogation of the insurers thereunder against Owner, Financing
Parties, the Utility and Contractor, and any right of the insurers to set-
off or counterclaim, offset or any other deduction, whether by attachment
or otherwise, in respect of any liability or any such Person insured under
this policy.
9.3.3 Inspection of Contractor's Insurance Policies. In
respect of all insurances stated in this Article to be provided by
Contractor, Contractor shall from time to time when so required by Owner
produce the policy and the receipts for the premiums or other satisfactory
evidence of insurance coverage.
9.3.4 Remedy on Failure to Insure. If Contractor shall fail
to effect and keep in force the insurances referred to in this Article,
Owner may effect and keep in force any such insurance and pay such premium
or premiums as may be necessary for that purpose and recover from
Contractor whether by way of deduction or otherwise the cost of effecting
such insurance or insurances.
9.3.5 Insurance Claims Procedure. Contractor and Owner
shall both comply in all respects with the claims procedure to be agreed
between Owner and the insurers.
9.3.6 Management of Insurance Policies. Except as directed
by Owner, Contractor shall be responsible for managing and administering
all insurance policies required to be effected under this Article 9
including the filing of all claims and the taking of all necessary and
proper steps to collect any proceeds on behalf of the relevant insured
party. Contractor shall at all times keep Owner informed of the filing and
progress of any claim. If Contractor shall fail to perform these
responsibilities, Owner may take such action as it thinks fit in the
circumstances. Where Contractor collects proceeds on behalf of other
parties, it shall ensure that these are paid directly from the insurers to
the relevant party and, in the event that it receives any such proceeds, it
shall, unless otherwise directed by Owner, pay them to such party forthwith
and in the meantime hold the same on trust for the recipient.
9.4 Contractor's Obligations. The insurances referred to in sub-
Articles 9.1.1, 9.1.2 and 9.1.3 shall be effected with insurers of Owner's
choosing and Owner shall provide Contractor with a copy of the terms and
conditions hereof. Contractor shall cooperate with Owner in effecting
these insurances and shall provide all information, drawings and other
information that it may reasonably require. Contractor shall with all due
diligence comply with the conditions of the policies and all reasonable
requirements of the insurers in connection with the settlement of claims,
the recovery of losses and the prevention of accidents and shall bear at
its own cost the consequences of any failure to do so. Contractor shall
bear the cost of all excesses, exclusions or limitations applying under
the said policies (in so far as Contractor is liable for the relevant loss
or damage under the provisions of this Contract) whether in respect of
claims made against Contractor and/or Owner or against any party with whom
Owner may be associated in connection with the Works.
9.5 No Liability Limit. Nothing in this Article 9 shall be
deemed to limit Contractor's liability under this Contract to the insurance
coverages required by this Article 9.
ARTICLE 10
SYNCHRONIZATION, PERFORMANCE TESTS
AND FINAL ACCEPTANCE
10.1 Notice. Contractor shall provide Owner, Financing Parties
and the Independent Engineer with at least forty-five (45) Days advance
Notice of the initial testing of the Facility that involves delivering
energy to the Utility. Contractor shall deliver another Notice within ten
(10) Days prior to the actual commencement of Performance Tests.
Contractor shall provide Owner, Utility, Financing Parties and the
Independent Engineer with at least forty-five (45) Days advance Notice
prior to the start of the Performance Tests and the commencement of any
other test performed by or on behalf of Contractor pursuant to this
Contract. Owner, Utility, Financing Parties and the Independent Engineer
shall have the option to witness any such tests. Contractor shall promptly
notify each of the parties described above of any change in the schedule of
Performance Tests and may not conduct any test unless Owner, Utility,
Financing Parties and the Independent Engineer receive at least ten (10)
Days advance Notice of the actual date of commencement of such test.
Contractor shall provide Owner, Financing Parties and the Independent
Engineer at least one hundred forty (140) Days prior Notice of the
Scheduled Synchronization Date for each Unit. Such Notice shall include a
start-up and test schedule for the Facility and copies of all
manufacturers' specifications, schedules of protection schemes, and
protection relay settings. Contractor shall promptly give Owner, Financing
Parties and the Independent Engineer Notice of any expected change in the
Synchronization Date for any Unit or other information contained in the one
hundred forty (140) Day Notice described above (or any modifications
thereto). All test procedures and initial start-up procedures conducted by
Contractor shall be in accordance with the Scope of Work, this Contract,
Performance Testing Procedures, Performance Testing Guidelines, applicable
manufacturers' instructions and warranty requirements, Applicable Laws and
Applicable Permissions, Prudent Utility Practices and any and all
applicable rules and procedures described herein nd as otherwise agreed to
by Owner, Financing Parties and Contractor.
10.2 Performance Tests. All Performance Tests shall be performed
on the Facility in accordance with the requirements set forth in the Scope
of Work, Performance Testing Guidelines, Performance Testing Procedures and
this Contract and without limiting the scope thereof, shall generally be
designed to determine, among other things, whether the Facility meets the
Guaranteed Performance Levels in Article 13 and Minimum Performance Levels
as defined below in Article 10.5. Contractor agrees that it shall complete
all Performance Tests on the Facility before Unit Delivery Date of the
Second Unit shall occur.
10.3 Owner's, Utility's and Financing Parties' Right To Be
Present During Tests. Owner, Utility, Financing Parties and the
Independent Engineer and their respective authorized representatives shall
have the right to inspect the Work and to be present during all testing
conducted pursuant to Article 10 of this Contract. Contractor shall
provide the Notices of all tests to be conducted as required under this
Contract (including Article 10.1) to Owner, Utility and Financing Parties.
Contractor shall arrange, at Owner's cost, for Owner's representatives and
Independent Engineer to witness the factory tests of the major components
of the Units at the manufacturer's facility.
10.4 Performance Testing Procedures. The Contractor will be
required to provide to the Owner, Financing Parties and the Independent
Engineer ninety (90) days prior to any Performance Test, for review and
acceptance by Owner, a detailed Performance Testing Procedure, conforming
to the requirements specified in the Scope of Work and the Performance
Testing Guidelines in Exhibit F, which will include but not be limited to:
(a) description of the test procedures; (b) list of all data to be
collected; (c) instrumentation and location for taking all data points; (d)
correction procedures to account for low water conditions; (e) procedures
to complete tests under low water conditions, (f) instrument and test
accuracies; and (g) sample calculations. The Performance Tests shall be
performed in accordance with the Performance Testing Procedures. In the
case of the Performance Testing Procedures for the Second Unit, the
following special conditions apply:
10.4.1 The Contractor shall consult with the Owner to
establish operating procedures for the coordinated operation of both Units
and use of available stream flow during testing; provided that such
procedures will insure that Owner has a preferential right to use stream
flow availability to operate the First Unite after the First Unit Delivery,
if the operation of the First Unit is required to meet the requirements of
the Power Purchase Agreement. Such procedures will be developed as part of
the Performance Testing Procedures for the Facility and the operating
procedures to be developed by the Owner and NEA in accordance with the
Power Purchase Agreement.
10.4.2 The Performance Tests shall include simultaneous full
gate operation of both Units to demonstrate the ability of the Units,
during such simultaneous full gate operation, to meet Minimum Output as
specified in Article 10.5.1 or Guaranteed Output as specified in
Article 13.1.2. The electrical output demonstrated during such
simultaneous fullgate operation shall be used to determine the Minimum
Output and Guarantee Output for the Second Unit.
10.4.3 The duration of the simultaneous operation portion of
the test shall be established as set forth in the Performance Testing
Procedures contemplated in Article 10.4 and shall be based on stream flow
availability and the extent to which water storage above the headworks, in
the desanding basin, and in the tunnel, can be used for generation, without
influencing the validity of such Performance Test; provided that the test
is made and the measurements are taken under conditions that permit an
accurate determination of the actual electrical output at the rated net
head.
10.5 Minimum Performance Levels. The Minimum Performance Levels
for the Facility are as follows:
10.5.1 "Minimum Output" means an electrical output not less
than 18,750 kW per Unit as measured by the permanent meter (accurately
functioning) installed at the high voltage side of the main power
transformer of the Facility, with both Units operating simultaneously at
full gate at the rated net head in accordance with Article 10.4.3, after
deduction of Parasitic Load;
10.5.2 "Minimum Desanding Basin Trapping Efficiency" means a
removal of eighty-five percent (85%) of the particles not passing through a
0.3 mm sieve and above, and ninety-nine percent (99%) of the particles not
passing through a 0.5 mm sieve, with the design accumulation of sediment in
the desanding basin as measured at the outlet of the desanding basin;
10.5.3 "Allowable Headworks Seepage Loss" means a seepage of
two hundred (200) liters per second through the dam, spillway, and
desanding basin structures and foundation, exclusive of gate seal leakage,
when the headwater level is at El 1434, and the river flow is less than the
full gate discharge of both Units operating simultaneously; and
10.5.4 "Maximum Conductor Resistance" means a transmission
line conductor resistance of 0.1227 ohms per kilometer at fifty (50)
degrees centigrade.
10.5.5 all other technical specifications and requirements as
set forth in this Contract.
10.6 Failure to Meet Minimum Performance Levels.
10.6.1 For any failed or incomplete Performance Test as
demonstrated by the inability to achieve the Minimum Performance Level, as
set forth in Article 10.5, Contractor shall correct the defect in the
Works, at the Contractor's expense, and the failed or incomplete
Performance Test shall be repeated. Such correction of defects and
retesting may be performed prior to the earlier of April 30, 2000 or
(a) with respect to the Minimum Desanding Basin Trapping
Efficiency, First Unit Delivery; or
(b) with respect to the Allowable Headworks Seepage Loss,
Second Unit Delivery; or
(c) with respect to the Maximum Conductor Resistance, First
Unit Delivery; or
(d) with respect to either Unit, the Unit Delivery Date for
each Unit, provided, however, that if any Minimum Performance Levels are
not achieved, or if the Works otherwise fail to conform to the technical
specifications and requirements, as set forth in this Contract, by
April 30, 2000, such failure shall constitute a default of the Contractor
pursuant to Article 15; and provided further after the Guaranteed Unit
Delivery Date for either Unit the Contractor shall pay Schedule Liquidated
Damages as specified in Articles 12.3.
10.6.2 In the event there is insufficient water flow to
complete any Performance Test as stated in Article 10.4, Contractor shall
remain at Facility and complete such Performance Tests at such time as
water flow is sufficient to complete such Performance Test. The Contractor
shall not be entitled to achieve Second Unit Delivery until both Units have
been operated simultaneously at full gate as part of a Performance Test for
the Second Unit as described in Article 10.4.3.
10.7 Failure to Meet Guaranteed Performance Levels.
10.7.1 If at or after the Guaranteed Unit Delivery Date for
either Unit, the results of the Performance Tests conducted for either Unit
demonstrate that such Unit meets or exceeds all Minimum Performance Levels,
as required for First Unit Delivery or Second Unit Delivery, but fails to
meet the Guaranteed Performance Levels, the Contractor, at the Contractor's
expense, shall pay Schedule Liquidated Damages as specified in Article 12.3
and:
(a) correct the defect in the Works at the Contractor's
expense as set forth in Article 10.6 above and repeat the Performance Test,
or
(b) pay the Performance Liquidated Damages as specified in
Article 13.1.2.
10.8 Notice of Unit Delivery Dates. Once Contractor has
completed the Performance Tests for a given Unit and has performed all of
the requirements in accordance with Article 10.2 hereof, provided the
Minimum Performance Levels are met or exceeded and the Unit is capable of
being operated safely in accordance with this Contract, Contractor may
submit to Owner and to the Independent Engineer a Notice so stating and
specifying the date (which may not be more than thirty (30) Days prior to
the date of such Notice) that in the Contractor's opinion Unit Delivery
Date for the applicable Unit was achieved. The Performance Test Report
shall be made a part of, and be submitted with, such Notice.
10.9 Owner's Acceptance of Unit Delivery Date. Within fifteen
(15) Days following receipt by Owner of such Notice of Unit Delivery Date
with respect to any Unit, Owner shall notify Contractor in writing whether
Owner and the Independent Engineer have concluded that Contractor has
fulfilled the requirements of this Contract sufficient to successfully
achieve such Unit Delivery Date. If Owner and Independent Engineer
determine that Contractor has not fulfilled the requirements for Unit
Delivery Date of such Unit, Owner shall so notify Contractor, specifying in
reasonable detail the manner in which the requirements for the Unit
Delivery Date have not been met. Contractor shall promptly act to correct
such deficiencies so as to achieve Unit Delivery Date by the Guaranteed
Unit Delivery Date. If Contractor fails to achieve such Unit Delivery Date
of either Unit by the Guaranteed Unit Delivery Date, Contractor shall pay
Schedule Liquidated Damages. Following any such remedial action,
Contractor may deliver to Owner a new Unit Delivery Date Notice conforming
to the requirements of this Article 10.9, and the provisions of this
Article 10.9 shall apply with respect to such new Unit Delivery Date Notice
in the same manner as they applied with respect to the original Unit
Delivery Date Notice. The foregoing procedure shall be repeated as often
as necessary, as long as Contractor is accruing, and paying when due,
Schedule Liquidated Damages, until the earlier of: (i) Owner and
Independent Engineer no longer reject Contractor's Unit Delivery Date
Notice and provide their own Notice to Contractor that the Unit Delivery
Date has occurred, and (ii) April 30, 2000.
10.10 Notice of Final Acceptance. Once Contractor has
completed all of the requirements for Final Acceptance, Contractor shall
submit a proposed Final Acceptance Certificate to Owner. A team consisting
of representatives of Owner, Financing Parties, Independent Engineer and
Contractor shall as soon as practicable make a final inspection of the
Facility and determine whether the Facility meets all requirements of this
Contract. Within fifteen (15) Days following such final inspection, Owner,
with the consent of Financing Parties and Independent Engineer, shall
notify Contractor in writing whether Contractor has fulfilled the
requirements of this Contract to reach Final Acceptance. If Owner and
Independent Engineer determine in good faith that, notwithstanding
Contractor's delivery of the Final Acceptance Certificate, the Contractor
has not fulfilled the requirements for Final Acceptance for the Facility,
then Owner shall deliver its Notice to such effect to Contractor describing
in reasonable detail the deficiencies noted and corrective action
recommended. Contractor shall promptly act to correct any such
deficiencies. The procedure set forth in this Article 10.10 shall be
repeated as necessary until Owner accepts the Final Acceptance Certificate
and provides its own Notice to Contractor that the Final Acceptance Date
has occurred, provided however, if Contractor has not completed the
requirements for Final Acceptance by April 30, 2000, Owner may, upon Notice
to Contractor, complete any remaining items on the Punch List and charge
all expenses incurred by Owner to complete such Punch List items.
ARTICLE 11
WARRANTIES AND GUARANTEES
11.1 Materials and Workmanship.
11.1.1 Contractor warrants to Owner that all Equipment and
other items furnished under this Contract by Contractor, either directly or
indirectly, shall be new and of good quality, and together with the
Facility, shall be free from defects and deficiencies in design,
engineering, materials, construction and workmanship and shall conform to
the terms of this Contract, including without limitation, the design set
forth in the Scope of Work, Performance Test Guidelines and the Guaranteed
Performance Levels. With respect to the guarantee of the performance
levels, in the event the Performance Tests demonstrate that the Unit fails
to meet the Guaranteed Performance Levels as set forth in Article 13.1.2,
but Contractor declares a Unit Delivery Date for such Unit that meets or
exceeds the Minimum Performance Levels as required for First Unit Delivery
or Second Unit Delivery, as the case may be, and pays Performance
Liquidated Damages in accordance with Article 13, Contractor warrants such
performance levels, but in any event not less than the Minimum Performance
Levels. Contractor agrees, as soon as reasonably possible after receipt of
Notice from Owner specifying any defects or deficiencies with respect to
the Equipment and Facility, to promptly correct or cause to be corrected,
any Work performed under this Contract that, at any time for a period of
two (2) years after the Final Acceptance Date, proves to be improper or
defective with regard to the Scope of Work in design, material or
workmanship; provided, however, that if any item of Equipment (or part
thereof) or other specific item of the Work is repaired or replaced during
the applicable warranty period, the warranty on such specific item (but not
the Equipment, if any, of which such item is a part) shall extend for an
additional one year from the completion of such repair or replacement if
longer than the time period described above. Contractor shall bear all
costs and expenses associated with correcting any warranted Work,
including, without limitation, necessary disassembly, transportation,
reassembly and retesting, as well as reworking, repair or replacement of
such Work, and disassembly and reassembly of adjacent Work when necessary
to give access to improper, defective or non-conforming Work, together with
all reasonable attorneys' fees, engineering fees, and other costs and
expenses incurred by Owner in enforcing the provisions of this Article 11.
In addition, Contractor shall cause the Vendor of any
turbine which is included in a Unit to provide a pitting and erosion
guarantee in accordance with IEC 609, as may be modified in the Scope of
Work. The pitting and erosion guarantee shall be valid for a period of
16,000 operating hours from the Final Acceptance Date, (but not to exceed
four (4) years from the Final Acceptance Date) provided that each turbine
is operated in accordance with the limits of the pitting and erosion
guarantee contained in the Scope of Work. Contractor accepts all
responsibility for all design parameters utilized in the engineering and
design hereunder.
11.1.2 If a particular item is repaired, replaced or renewed
one time and becomes defective again during the applicable warranty period,
then Contractor agrees that unless Contractor can demonstrate to Owner's
and to Independent Engineer's reasonable satisfaction that there is not an
unreasonable risk of the reoccurrence of such problem, Contractor will
undertake a technical analysis of the problem and clear the "root cause" to
Owner's and Independent Engineer's reasonable satisfaction.
11.2 Engineering and Design. Contractor warrants and guarantees
that it shall perform or have performed all of the construction surveying,
engineering and design services as of the Final Acceptance Date with
respect to the Facility in accordance with the requirements of this
Contract, Design Documents and Drawings, plans and specifications for the
Facility (including the As-Built Drawings provided under Article 3.17
hereof), and that, when complete, the Equipment and Facility will be free
of all defects and deficiencies and will be operational in compliance with
this Contract, Prudent Utility Practices, the Power Purchase Agreement, the
Scope of Work, Applicable Permissions and all Applicable Laws in effect as
of the Final Acceptance Date. Contractor warrants that, as of the Final
Acceptance Date, no design or other service provided under this Contract
shall infringe on any patent, copyright or constitute a misappropriation of
any trade secret. Except to the extent any Force Majeure Event or Owner
breach results in a change in the Scope of Work or this Contract and is
payable by Owner pursuant to Article 15.3, Contractor shall at its own
expense promptly correct any errors and omissions and resulting
deficiencies in the Facility as soon as reasonably possible after receipt
of Notice from Owner specifying such deficiencies.
11.3 Vendors and Subcontractors. Except as otherwise provided
herein, Contractor shall, for the protection of Contractor and Owner,
obtain from the Vendors and Subcontractors such guarantees and warranties
with respect to Work performed and Equipment used and installed under this
Contract as are reasonably obtainable, which guarantees and warranties
shall equal or exceed those named in Article 11.1 or Article 11.2 above and
shall be made available and assignable to Owner to the full extent of the
terms thereof. Contractor shall notify Owner of the availability of
additional warranty or extended guarantee protection and of the cost
thereof, and Owner shall have the right to require Contractor to secure
such additional warranty or guarantee protection pursuant to a Change Order
issued in accordance with the provisions of Article 6 above. Upon the
earlier of the Final Acceptance Date or termination of this Contract,
Contractor shall deliver to Owner copies of all relevant contracts
providing for the guarantees and warranties.
11.4 Assignment of Warranties. Contractor shall provide Owner
with, and hereby assigns to Owner effective at the expiration of the
warranty provided by Contractor (or at such earlier date as Owner may
request), all warranties and/or guarantees relating to the Work or the
Equipment that Contractor receives from any and all of the Vendors and
Subcontractors.
11.5 Limitations. The express warranties and guarantees
contained herein shall be subject to the following terms and conditions:
11.5.1 The term "defective" or "deficient" shall not be
construed to include damage caused exclusively by Owner's misuse,
negligence or failure to follow Prudent Utility Practice in the operation
and maintenance of the Facility.
11.5.2 Repair, adjustment, modifications or replacement
provided for herein and reimbursement to Owner for costs, charges and
expense incurred (but not revenue lost) due to the occurrence of a warranty
claim event and, when applicable, the supply of corrected technical
information and recommendations shall constitute fulfillment of all
warranty liabilities of Contractor to Owner under this Article 11 for the
Facility.
11.5.3 In the event, unless mutually agreed to the contrary,
Owner observes a defective occurrence in relation to any Equipment, which
Owner believes is covered by the warranty set forth in this Article 11,
Owner shall promptly, and within the warranty period set forth herein,
notify Contractor of the occurrence believed to be defective in order that
Contractor or its representative may have an opportunity to observe, as
provided above, test and examine the Equipment or part of such Equipment
believed to be defective. Contractor or its representative shall cause the
repair, allotment, modification or replacement which Contractor or its
representative believe is required; provided, however, upon receiving such
Notice, if Contractor and Owner mutually agree to the amount of the total
costs of such necessary repair, adjustment, modification or replacement,
including Owner's costs, charges and expenses attributed thereto as
identified above, Contractor may, on Owner's request, immediately consent
to Owner making such repairs, adjustments, modification or replacement at
Contractor's expense.
11.5.4 In the event of any emergency and, in the reasonable
judgment of Owner, the delay that would result from giving formal Notice to
Contractor would cause serious loss or damage which could be prevented or
mitigated by immediate action, any action including correction of defects
and deficiencies may be done by Owner or a third party chosen by Owner,
without giving prior Notice to Contractor, and the cost of correction shall
be confirmed and be paid by Contractor in the case of a defect or
deficiency. In the event such action is taken by Owner, Contractor shall be
promptly notified, and shall assist whenever and wherever possible in
making the necessary correction. If the Parties determine that the defect
is caused by Owner's negligence, Owner shall pay Contractor's actual travel
costs associated with the inspection.
11.5.5 In the event that it is necessary (in order to fulfill
Contractor's warranty obligations under Article 11 or otherwise) to
dismantle piping, ducts, machinery, Equipment or other Work furnished or
performed by Contractor in order to obtain access to the Work, to correct a
defect or deficiency, the cost of all such dismantling and reassembly shall
be borne by Contractor.
11.6 Remedies of Owner for Breach of Warranties. If Contractor
fails to diligently commence, continue or complete the making good of such
materials or workmanship in a manner fulfilling its obligations under
Articles 11.1, 11.2, 11.3, 11.4 and 11.5 hereof within a reasonable period
of time after written request of Owner to perform such obligations, then
Owner may correct such defective workmanship in accordance with this
Contract, and Contractor shall be liable (either by direct charge or set-
off) for all reasonable costs, charges, and expenses incurred by Owner in
connection with such repair or replacement and shall within fifteen (15)
Days after request therefor pay to Owner an amount equal to such costs,
charges, and expenses, upon receipt of invoices certified by Owner, and
each Day thereafter as such amounts accrue from the due date, interest
shall accrue thereon at two percent (2%) per annum above the Reference
Rate, until paid. It is further expressly understood that the warranties
contained herein shall not limit or waive Contractor's other obligations
under this Contract.
11.7 Quality of Materials and Workmanship. The Contractor,
Subcontractors and Vendors shall be required to have in place an approved
Quality Control and Assistance Program. The program and all documentation
provided to the Owner should be made available for review by the Owner's
inspectors. Contractor shall provide such assistance, labor, electricity,
fuels, stores, apparatus and instruments as are normally required for
examining, measuring and testing any materials and shall supply samples of
materials, before incorporation in the Work, for such testing for required
compliance herewith.
11.8 Cost of Samples. All samples shall be supplied by
Contractor at its own cost if the supply thereof is clearly intended by or
provided for in this Contract.
11.9 Cost of Tests. The cost of making any test of the Facility
and Equipment and workmanship shall be borne by Contractor.
11.10 Inspection of Operations. Owner, and any Person
authorized by Owner, shall at all reasonable times have access to the
Facility Site and to all workshops and places where Equipment or material
is being manufactured, fabricated or prepared for the Work, and Contractor
shall afford every facility for and every assistance in obtaining the right
to such access. Owner shall pay its own expenses related to these visits.
Contractor understands that the Financing Parties, Independent Engineer and
Utility shall have the right, from time to time, to have access to the
Facility Site to inspect and observe the materials, subject to not less
than twenty-four (24) hours advance Notice to Contractor and Owner.
Contractor shall maintain at the Facility Site a complete set of drawings
and technical specifications, which shall be made available to the
representatives of Utility and Financing Parties upon request by Owner.
11.11 Inspection and Testing. Owner or its designees shall
be entitled, during manufacture, fabrication or preparation, to inspect and
test the Equipment or materials, systems and subsystems to be supplied
under this Contract. If the materials are being manufactured, fabricated
or prepared or systems or subsystems are assembled in workshops or places
other than those of Contractor, Contractor shall obtain permission from its
Subcontractors and Vendors for the Owner, Financing Parties, Independent
Engineer and Utility (as specified in Article 11.10) and their designees to
carry out such inspection and testing in those workshops or places. Such
inspection or testing shall not release Contractor from any obligation
under this Contract. Owner shall bear its own costs of any additional
inspections and tests performed at the request of Owner which exceed the
requirements of the Scope of Work or the Contract.
11.12 Dates for Inspection and Testing. Contractor shall
agree with Owner on the time and place for the inspection or testing of any
Equipment or materials as provided in the Performance Testing Guidelines in
Exhibit F and the Scope of Work. Except as set forth in Article 11.10,
Owner and the Independent Engineer shall give Contractor not less than
seventy-two (72) hours Notice of its intention to carry out the inspection
or to attend the test. If Owner and the Independent Engineer, or their
respective duly authorized representative, does not attend on the date
agreed, the tests shall be rescheduled for seventy-two (72) hours from the
originally scheduled time and a Notice thereof with a request to attend the
rescheduled tests shall be sent to Owner and the Independent Engineer. If
Owner and the Independent Engineer, or their respective duly authorized
representative, does not attend the rescheduled tests, Contractor may
proceed with the tests, which shall be deemed to have been made in the
presence of Owner and the Independent Engineer. Notwithstanding that any
such delay may have an adverse effect upon Contractor, Contractor shall not
be entitled to any increase in the Contract Price or time for completion in
respect of such delay. Contractor shall forthwith forward to Owner and the
Independent Engineer duly certified copies of the test readings. If Owner
and the Independent Engineer have not attended the tests, Owner or the
Independent Engineer, as the case may be, shall accept the said readings as
accurate (except in cases of fraud or intentional falsification of test
readings).
11.13 Rejection. If, at the time and place agreed in
accordance with Article 11.12, the Equipment or materials are not ready for
inspection or testing or if the inspection or testing referred to in
Article 11.11 demonstrates that the materials are defective or otherwise
not in accordance with this Contract, Owner may reject the materials and
shall notify Contractor thereof immediately. The Notice shall state
Owner's objections with reasons. Contractor shall then promptly make good
the defect or ensure that rejected materials comply with this Contract. If
Owner so requests, the tests of rejected materials shall be made or
repeated under the same terms and conditions. All costs incurred by Owner
by the repetition of the tests shall be recoverable from Contractor by
Owner and may be deducted from any moneys due or to become due to
Contractor.
11.14 Independent Inspection. Owner may delegate inspection
and testing of materials to an independent inspector. Notice of such
appointment shall be given by Owner, as the case may be, to Contractor.
11.15 Examination of Work Before Covering Up. No part of the
Work shall be covered up or put out of view without the approval of Owner,
and the Contractor shall afford full opportunity for Owner to examine and
measure any such part of the Work which is about to be covered up or put
out of view and to examine foundations before any part of the Work is
placed thereon. Contractor shall give Notice to Owner whenever any such
part of the Work or the foundations is or are, respectively, ready or about
to be ready for examination and Owner shall, without unreasonable delay,
unless he considers it unnecessary and advises Contractor accordingly,
attend for the purpose of examining and measuring such part of the Work or
of examining such foundations.
11.16 Uncovering and Making Openings. If Contractor has
failed to provide Notice to Owner and failed to allow Owner the opportunity
to examine and measure the Work pursuant to Article 11.15, Contractor shall
uncover any part of the Work or make openings in or through the same as
Owner may instruct and Contractor shall reinstate and make good such part.
All costs associated with uncovering any part of the Work or making
openings in or through the same, and with restoration of the Work, shall be
borne by Contractor.
11.17 Removal of Improper Work or Materials. Owner shall
have authority to issue instructions from time to time at the sole expense
of the Contractor for: (a) the removal from the Facility Site, within such
time or times as may be specified in the instruction, of any Equipment or
materials which are not in accordance with this Contract, (b) the
substitution of proper and suitable Equipment or materials, and (c) the
removal and proper re-execution, notwithstanding any previous test thereof
or interim payment therefore, of any Work which, in respect of: (i)
Equipment, materials or workmanship or (ii) design by Contractor or for
which it is responsible, is not in accordance with this Contract.
11.18 Default of Contractor in Compliance. In case of
default on the part of Contractor in carrying out any instruction given
under this Contract within the time specified therein or, if none, within a
reasonable time, Owner shall be entitled to employ and pay other persons to
carry out the same and all costs incidental thereto shall be recoverable
from Contractor by Owner, and may be deducted by Owner from any moneys due
or to become due to Contractor.
11.19 Right to Operate Unsatisfactory Equipment. Owner shall
have the right to operate all Equipment, subject to Article 11.5.1, as soon
as and as long as it is in operating condition, whether or not such
Equipment has been accepted. Such operation by Owner shall not lessen or
impair any express or implied warranties of Contractor concerning such
Equipment. All repairs or alterations required to be made by Contractor
shall be made at such times as directed by Owner and in such a manner as
will cause the minimum interruption in the use of the Equipment by Owner.
Operation of Equipment pursuant to this Article 11.19 shall not relieve
Contractor of its responsibility to furnish all Equipment in complete
accordance with this Contract.
ARTICLE 12
COMPLETION GUARANTEE
12.1 Guarantee of Timely Completion. Contractor warrants and
guarantees that (1) the First Unit Delivery shall occur on or before the
Guaranteed Unit Delivery Date of the First Unit, or October 15, 1999, and
(2) the Second Unit Delivery shall occur on or before the Guaranteed Unit
Delivery Date of the Second Unit, or December 15, 1999, but in no event
shall such date be before September 1, 1999.
12.2 Bonus for Early Unit Delivery.
12.2.1 Bonus for Early Delivery of First Unit. In the event
that the Unit Delivery Date of the First Unit occurs prior to October 15,
1999, but not earlier than September 1, 1999, Owner shall pay Contractor a
bonus equal to Three Thousand, Five Hundred Dollars ($3,500) per Day for
each Day that the Delivery Date of the First Unit occurs prior October 15,
1999, which bonus shall increase to Five Thousand Dollars ($5,000) per Day
for each Day that the Delivery Date of the First Unit occurs prior to
September 30, 1999. No bonus shall be paid for any Day prior to September
1, 1999 and this provision shall not be modified by any Force Majeure
Event.
12.2.2 Bonus for Early Delivery of Second Unit. In the event
that the Unit Delivery Date of the Second Unit occurs prior to December 15,
1999, but not earlier than September 1, 1999, Owner shall pay Contractor a
bonus equal to Ten Thousand Dollars ($10,000) per Day for each Day that the
Delivery Date of the Second Unit occurs prior December 15, 1999, which
bonus shall increase to Twelve Thousand, Five hundred Dollars ($12,500) per
Day for each Day that the Delivery Date of the Second Unit occurs prior to
November 15, 1999. No bonus shall be paid for any Day prior to September 1,
1999 and this provision shall not be modified by any Force Majeure Event.
12.3 Delay in Unit Delivery Date. If the Unit Delivery Date of
the first Unit and second Unit are not achieved on each respective
Guaranteed Unit Delivery Date, in addition to the liability imposed
pursuant to Article 18, Contractor shall be obligated to pay liquidated
damages equal to the following amounts:
12.3.1 If the Unit Delivery Date of the First Unit does not
occur on or before the Guaranteed Unit Delivery Date of the First Unit,
Contractor shall pay to Owner Twenty Thousand Dollars ($20,000) for each
Day that the Unit Delivery Date of the First Unit is delayed beyond the
Guaranteed Unit Delivery Date of the First Unit, up to and including
November 14, 1999, and shall pay to Owner Twenty-Five Thousand Dollars
($25,000) for each Day that the Unit Delivery Date of the First Unit is
delayed from November 15, 1999 up to and including December 15, 1999.
12.3.2 If the Unit Delivery Date of the Second Unit does not
occur on or before the Guaranteed Unit Delivery Date of the Second Unit, or
December 15, 1999, Contractor shall pay to Owner Forty Thousand Dollars
($40,000) for each Day that the Unit Delivery Date of the Second Unit is
delayed beyond the Guaranteed Unit Delivery Date of the Second Unit, up to
and including February 28, 2000. For any such delay after February 28,
2000, Contractor shall pay to Owner Forty-Five Thousand Dollars ($45,000)
for each Day that the Unit Delivery Date of the Second Unit is delayed
beyond February 28, 2000 up to and including the termination date of this
Contract pursuant to the last paragraph of this Article 12, or until the
maximum limit on Schedule Liquidated Damages is reached, whichever occurs
first.
12.3.3 The maximum limit on Schedule Liquidated Damages shall
be equal to twenty-five percent (25%) of the Contract Price, as may be
adjusted by Change Orders.
12.3.4 In the event that the Unit Delivery Date for the
Second Unit does not occur on or before April 30, 2000, although Contractor
has paid Schedule Liquidated Damages or Performance Liquidated Damages, in
addition to the liability of Contractor due to indemnification and third
party claims set forth in Article 16 and 18.2 and Schedule Liquidated
Damages, Owner may terminate Contractor's employment and this Contract
pursuant to Article 15.1.2(b) and upon such termination, Contractor shall
pay an amount up to thirty-five percent (35%) of the total Contract Price,
and Owner may, at its sole option, draw on the Performance Guarantee and
withhold the retainage and may assert such remedies as are set forth in
Article 15.1.
ARTICLE 13
LIQUIDATED DAMAGES FOR FAILURE
TO ACHIEVE GUARANTEED PERFORMANCE LEVELS
13.1 Guarantee. Contractor warrants and guarantees that the
Facility shall meet or exceed the Guaranteed Performance Levels.
13.1.1 Contractor's compliance with the guarantees set forth
in Article 13.1 or the degree of its failure to comply with any such
guarantee, shall be determined on the basis of the Performance Tests in
Article 10 and the results of such tests, as confirmed by the Owner's
Engineer and Independent Engineer, shall be conclusive for such purpose.
13.1.2 If the results of the applicable Performance Tests
establish that the turbines, generators or transformers, have failed to
achieve the Guaranteed Performance Levels as specified, then the results of
such tests will be a basis for Performance Liquidated Damages. The
Performance Liquidated Damages per Unit for failure to meet the Guaranteed
Performance Levels will be computed as follows:
(a) Six Thousand Dollars ($6,000) for each kW by which the
full gate unit power output at rated net head with both Units operating
simultaneously is less than the Guaranteed Output, but is greater than or
equal to a Minimum Output per Unit;
(b) One Hundred Forty Thousand Dollars ($140,000) for each
one-tenth of one percent (0.1%) that the turbine efficiency as tested for
the installed turbines is less than the guaranteed turbine efficiency of
ninety-two and one-half of one percent (92.5%) while operating at the full
gate output under the rated net head as described in the Scope of Work;
(c) One Hundred Forty Thousand Dollars ($140,000) for each
one-tenth of one percent (0.1%) that the generator efficiency as tested for
the installed generators is less than the guaranteed generator efficiency
of ninety-seven and twenty-five one hundredths of one percent (97.25%) at
rated kVA, rated power factor, rated speed, and rated voltage as described
in the Scope of Work;
(d) One Hundred Forty Thousand Dollars ($140,000) for each
one-tenth of one percent (0.1%) that the main power transformer efficiency
as tested for the installed main power transformers is less than the
guaranteed main power transformer efficiency of ninety-nine and three-
tenths of one percent (99.3%) at rated kVA, rated voltage, rated frequency
and unity power factor inclusive of auxiliary loads as described in the
Scope of Work; and
The maximum limit on Performance Liquidated Damages shall be
equal to thirty-five percent (35%) of the Contract Price (less any amounts
paid as Schedule Liquidated Damages under Article 12) as adjusted by Change
Orders.
13.2 Achievement of Minimum Performance Levels. If, for either
Unit, such Unit has completed applicable Performance Tests and the results
demonstrate that thePerformance Level, Unit fails to meet the Guaranteed
Performance Levels as set forth in Article 13, but all requirements for
First Unit Delivery or Second Unit Delivery have been met, Contractor shall
be able to declare Unit Delivery Date for sucha Unit by electing to pay
Performance Liquidated Damages in accordance with this Article 13. The
Parties have agreed that Owner's actual damages, in the event of a failure
to achieve the Guaranteed Performance Levels, would be extremely difficult
or impractical to determine.
13.2.1 Prolonged Delay. If the Unit Delivery Dates for both
Units shall not have occurred by April 30, 2000 and, although Contractor
shall have paid Performance Liquidated Damages and Schedule Liquidated
Damages, in addition to the liability of Contractor due to indemnification
and third party claims set forth in Article 16 and 18.2, Owner may
terminate Contractor's employment and this Contract pursuant to Article
15.1.2(b) and upon such termination, Contractor shall pay an amount up to
thirty-five percent (35%) of the total Contract Price and Owner may, at its
sole option, draw on the Performance Guarantee and withhold the retainage
and may assert such remedies as are set forth in Article 15.1.
13.3 Payment of Bonuses and Liquidated Damages. Contractor shall
pay any liquidated damages pursuant to Article 12 and this Article 13, and
Owner shall pay any bonuses for an early Unit Delivery Date for the First
Unit and Second Unit under Article 12.2, within fifteen (15) Days after the
date on which such bonuses or damages are earned or assessed, respectively,
together with interest thereon at the Reference Rate plus two percent (2%)
from the due date until paid, provided that Owner and Contractor may agree
to aggregate and permit payment of outstanding liquidated damages and
bonuses until the last business day of every second week. Owner in its
sole discretion may, but is not obligated to, elect to collect Schedule
Liquidated Damages or Performance Liquidated Damages or any other amounts
due under this Contract by drawing on the Performance Guarantee. In the
event Owner elects to draw on the Performance Guarantee to collect Schedule
Liquidated Damages or Performance Liquidated Damages, Contractor shall
immediately upon each such drawdown take any and all actions necessary or
appropriate to increase the Performance Guarantee by the amount received by
Owner upon such drawdown and shall deliver to Owner all documents
evidencing such increase. Thereafter, Contractor shall maintain the
Performance Guarantee in an amount equal to the product of the Contract
Price (as adjusted if the Contract Price changes) multiplied by 0.25.
13.4 Schedule Liquidated Damages and Performance Liquidated
Damages. Contractor's obligation to pay Schedule Liquidated Damages and
Performance Liquidated Damages when and as provided in Article 12 and this
Article 13, respectively, and any other amounts due under this Contract is
an absolute and unconditional obligation and shall not be released,
discharged, diminished, or in any way affected by (i) any default by Owner
in the performance or observance of any of its obligations hereunder, or
(ii) the assignment by Owner of this Contract to the Financing Parties or
any other Person, (iii) any other circumstances, happening, condition or
event. Contractor shall pay such liquidated damages without deduction, set-
off, reduction or counterclaim.
13.5 Adjustment of Performance Liquidated Damages. In accordance
with Article 10.4.2, the Performance Test for the Second Unit shall include
simultaneous full gate operation of both Units to demonstrate the ability
of both Units to meet or exceed Minimum Output as specified in Article
10.5.1 or the Guaranteed Output as specified in Article 13.1.2. The
Parties agree that the results of the test will be used to compute an
adjustment of the Performance Liquidated Damages for failure to meet
Guaranteed Output assessed as a condition of First Unit Delivery and to
determine whether Owner may require Contractor to correct defects in the
First Unit to permit such Unit to satisfy Minimum Output.
13.5.1 If (x) the electrical output of the First Unit as
measured during the Performance Test for the First Unit, and adjusted as
necessary to the anticipated conditions corresponding to simultaneous full
gate operation of two Units at the rated net head after deduction of
Parasitic Load, is less than (y) the electrical output of the First Unit,
as measured during the simultaneous full gate operation of both Units
required as part of the Performance Test for the Second Unit, and adjusted
as necessary to the conditions corresponding to rated net head after
deduction of Parasitic Load, then:
(a) If both (x) and (y) are greater than or equal to the
Guaranteed Output, then no adjustment of Performance Liquidated Damages
assessed as a condition of First Unit Delivery are applicable; or
(b) If (x) is greater than or equal to the Minimum Output
and less than Guaranteed Output, and (y) is greater than or equal to
Guaranteed Output, the Contractor is entitled to a refund of Performance
Liquidated Damages assessed as a condition of First Unit Delivery in an
amount equivalent to Six Thousand Dollars ($6,000) for each kW by which the
Guaranteed Output exceeds (x), but in no event shall the amount refunded to
the Contractor exceed the amount paid by the Contractor and received by
Owner for such Performance Liquidated Damages; or
(c) If both (x) and (y) are greater than or equal to
Minimum Output and less than Guaranteed Output, then the Contractor is
entitled to a refund of Performance Liquidated Damages assessed as a
condition of First Unit Delivery in an amount equivalent to Six Thousand
Dollars ($6,000) for each kW by which (y) exceeds (x), but in no event
shall the amount refunded to the Contractor exceed the amount paid by the
Contractor and received by Owner for such Performance Liquidated Damages.
13.5.2 If (x) the electrical output of the First Unit as
measured during the Performance Test for the First Unit, and adjusted as
necessary to the anticipated conditions corresponding to simultaneous full
gate operation of two Units at the rated net head after deduction of
Parasitic Load, is greater than (y) the electrical output of the First
Unit, as measured during the simultaneous full gate operation of both Units
required as part of the Performance Test for the Second Unit, and adjusted
as necessary to the conditions corresponding to rated net head after
deduction of Parasitic Load, then:
(a) If both (x) and (y) are greater than or equal to the
Guaranteed Output, then no adjustment of Performance Liquidated Damages
assessed as a condition of First Unit Delivery are applicable; or
(b) If (y) is greater than or equal to the Minimum Output
and less than Guaranteed Output, and (x) is greater than or equal to
Guaranteed Output, the Contractor shall pay Performance Liquidated Damages
(in addition to any other Performance Liquidated Damages that may have been
paid) in an amount equivalent to Six Thousand Dollars ($6,000) for each kW
by which (y) is less than the Guaranteed Output; or
(c) If both (x) and (y) are greater than or equal to
Minimum Output and less than Guaranteed Output, the Contractor shall pay
Performance Liquidated Damages (in addition to any other Performance
Liquidated Damages that may have been paid) in an amount equivalent to Six
Thousand Dollars ($6,000) for each kW by which (x) exceeds (y); or
(d) If (y) is less than the Minimum Output, the Owner may
in its sole discretion, require the Contractor to correct the defect in the
Works, and repeat the Performance Test for the Second Unit, and pay
Schedule Liquidated Damages as set forth in Article 12 until the date upon
which the defects in the First Unit are corrected to the satisfaction of
the Owner and Performance Tests, including the simultaneous full gate
operation of both Units, are performed and the results demonstrate that the
First Unit has achieved the Minimum Output for such Unit. The failure of
the Contractor to satisfy the conditions in the immediately preceding
sentence by April 30, 2000 shall constitute a default under this Contract
and shall entitle Owner to terminate Contractor's employment and this
Contract pursuant to Article 15.1.2(b) and assert such remedies as are set
forth in Article 15.1.5. The delivery of the Second Unit shall not occur
until the Performance Test for the Second Unit demonstrates that both Units
can meet or exceed Minimum Output.
ARTICLE 14
CONTRACTOR'S REPRESENTATIONS AND WARRANTIES
14.1 Representations and Warranties. Contractor represents and
warrants that:
14.1.1 Corporate Standing and Authorization. Contractor is a
corporation duly organized, validly existing, and in good standing under
the laws of the People's Republic of China and shall be duly authorized and
qualified to conduct business in Nepal not later than seven (7) Days prior
to Financial Closing; and the execution, delivery, and performance of this
Contract have been duly authorized by all requisite corporate action and
will not violate any provision of any governmental rule, regulation, or
ordinance, its charter or by-laws, or any indenture, contract, agreement,
or instrument to which it is a party or by which it or its property may be
bound or effected and this Contract is intended to and shall be enforceable
in accordance with its terms.
14.1.2 No Violation of Law. Contractor is not in violation
of any Applicable Law or Applicable Permission which violations,
individually or in the aggregate, would affect its performance of its
obligations under this Contract.
14.1.3 Licenses. Contractor is or shall be the holder of all
HMGN and local and other governmental consents, licenses, permissions, and
other authorizations and Applicable Permissions required to operate and
conduct its business now and as contemplated by this Contract as of the
date of Notice to Proceed.
14.1.4 Litigation. Contractor is not a party to any legal,
administrative, arbitration, investigatorial (to the best of its
knowledge), or other proceeding or controversy pending, or to the best of
its knowledge, threatened, that could adversely affect its ability to
perform under this Contract.
14.1.5 Qualifications. Contractor has (a) examined this
Contract, together with all Exhibits attached hereto, thoroughly and become
familiar with all their respective terms and provisions; (b) by itself and
through its Subcontractors and Vendors, the full experience and proper
qualifications to perform the Work and to construct the Facility in
accordance with the Scope of Work therefore; (c) visited and examined the
Facility Site and is fully familiar with such Facility Site and based on
such visit and examination has no reason to believe that Contractor will be
unable to complete the Work in accordance with this Contract; and (d) to
the best of its knowledge, reviewed all other documents and information
necessary and available to Contractor in order to ascertain the nature,
location, and scope of the Work, the character and accessibility of the
Facility Site, the existence of obstacles to construction, the availability
of facilities and utilities, the location and character of existing or
adjacent work or structures.
14.1.6 Access Rights. Access rights granted to Contractor to
the Facility Site are adequate for the performance of the Work and
operation of the Facility.
14.2 Standards of Conduct. Contractor represents and warrants
that neither Contractor nor any of its directors, employees or agents has
made or offered, or caused to be made or offered, any payment, loan or gift
of money or anything of value directly or indirectly to (i) any official or
employee of any government, or any agency or instrumentality thereof; (ii)
any political party or official thereof or any candidate for political
office; or (iii) any other person, under circumstances in which the
Contractor, its directors, employees or agents know, or have reason to
know, that all or any portion of such money or thing of value will be
offered or given, directly or indirectly, to any person named in items (i)
and (ii) above to influence a decision or to gain any advantage for the
Contractor or their respective directors, employees or agents in connection
with any transaction relating to this Agreement which could result in a
violation of the Foreign Corrupt Practices of Act of 1977, as amended, or
any other law, regulation, order, decree, or directive having the force of
law and relating to bribery, kick-backs, or similar business practices.
The Contractor shall not, and shall cause its directors,
employees and agents to not, make or offer, or cause to be made or offered,
any payment, loan or gift of money or anything of value directly or
indirectly to (i) any official or employee of any government, or any agency
or instrumentality thereof; (ii) any political party or official thereof or
any candidate for political office; or (iii) any other person, under
circumstances in which the Contractor, its directors, employees or agents
know, or have reason to know, that all or any portion of such money or
thing of value will be offered or given, directly or indirectly, to any
person named in items (i) and (ii) above to influence a decision or to gain
any advantage for the Contractor or their respective directors, employees
or agents in connection with any transaction relating to this Agreement
which could result in a violation of the Foreign Corrupt Practices Act of
1977, as amended, or any other law, regulation, order, decree, or directive
having the force of law and relating to bribery, kick-backs, or similar
business practices.
14.3 Sovereign Immunity.
14.3.1 Contractor hereby represents and warrants to Owner and
the Financing Parties as follows:
(a) the execution, delivery and performance by Contractor
of this Contract constitutes private and commercial acts rather than public
or governmental acts; and
(b) in the event that any proceedings are brought against
Contractor or any of its properties or assets in any jurisdiction in
connection with this Contract or in connection with any of the transactions
contemplated hereby, neither Contractor nor any of its properties or assets
would be entitled to immunity from such proceedings; and
(c) neither Contractor nor any of its properties or assets
now has or in the future would have any claim of immunity from any in any
jurisdiction in connection with any such proceedings.
14.3.2 Contractor hereby irrevocably and unconditionally
waives any right it has or in the future would have to claim immunity from
any proceedings brought against it or any of its properties or assets.
14.3.3 Contractor hereby irrevocably and unconditionally
consents generally in respect of the enforcement of any judgment against it
in any court, arbitration or other legal proceeding in any jurisdiction to
the giving of any relief or the issue of any process in connection with
such proceedings, including, without limitation, the attachment prior to
entry of judgment, the attachment in aid of execution of judgment and the
execution of judgment against or in respect of any of its properties or
assets.
ARTICLE 15
DEFAULT AND TERMINATION
15.1 Default by Contractor.
15.1.1 Termination for Contractor's Inability to Perform. If
(a) Contractor consents to the appointment of or taking possession by, a
receiver, a trustee, custodian, or liquidator of itself or of a substantial
part of its property, or fails or admits in writing its inability to pay
its debts generally as they become due, or makes a general assignment for
the benefit of creditors; (b) Contractor files a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking reorganization in a
proceeding under any applicable bankruptcy or insolvency laws (as now or
hereafter in effect) or an answer admitting the material allegations of a
petition filed against it in any such proceeding, or seeks relief by
voluntary petition, answer or consent, under the provisions of any now
existing or future bankruptcy, insolvency or other similar law providing
for the liquidation, reorganization, or winding up of corporations, or
providing for an agreement, composition, extension, or adjustment with its
creditors; (c) a substantial part of Contractor's property is subject to
the appointment of a receiver, trustee, liquidator, or custodian by court
order and such order shall remain in effect for more than thirty (30) Days;
or Contractor is adjudged bankrupt or insolvent, has any property
sequestered by court order and such order shall remain in effect for more
than thirty (30) Days, or has filed against it a petition under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, or liquidation law of any jurisdiction, whether now or
hereafter in effect, and such petition shall not be dismissed within thirty
(30) Days of such filing; then Owner may request assurances satisfactory to
Owner of Contractor's future performance in accordance with the terms and
conditions of this Contract, including strict compliance with the
Construction Schedule. If Contractor fails to provide such assurances
within ten (10) Days of a request therefor, Owner may without prejudice to
any other of its rights or remedies under this Contract, terminate
Contractor's employment and this Contract.
15.1.2 Termination for Contractor's Failure to Perform.
(a) Except as provided in Article 15.1.2 (b), Iin the event
Contractor fails to perform any of its obligations, covenants or agreements
or breaches any representation or warranty, and except for a failure to
achieve the Unit Delivery Date for the Second Unit on or before April 30,
2000 which shall not permit Contractor to cure, theand Contractor fails to
correct such breach within fifteen (15) Days after Notice of such condition
from Owner, or if not capable of being corrected within such fifteen (15)
Day period, to commence to correct such condition within such fifteen (15)
Days after receipt of Notice of such conditionbreach from Owner and to
thereafter diligently prosecute such corrective action to completion (in a
time period not to exceed ninety (90) Days) in a manner satisfactory to
Owner in its sole discretion, Owner may, without prejudice to any other
right or remedy under this Contract, terminate Contractor's employment and
this Contract.
(b) In the event Contractor (i) fails to achieve the Unit
Delivery Date for the Second Unit on or before April 30, 2000, (ii) fails
to achieve a milestone in the time period permitted under Contractor's
recovery plan approved by the Owner in accordance with Article 5.2.3, or
(iii) the Contractor does not provide special steps to be taken in the
recovery plan provided pursuant to Article 5.2.3, acceptable to Owner,
Owner may, without providing Contractor with a period to cure, and without
prejudice to any other right or remedy under this Contract, terminate
Contractor's employment and this Contract.
15.1.3 Owner's Rights. In the event that Owner elects to
terminate Contractor's employment pursuant to Article 15.1.1 or 15.1.2
hereof, Contractor shall provide Owner with the right to continue to use
any and all patented and/or proprietary information Owner deems necessary
to complete the Facility, including, but not limited to, the Detailed
Design. Furthermore, Owner shall have the right to take possession of, and
use without compensation, all of Contractor's Equipment located at the
Facility Site on the date of such termination for the purpose of completing
the Work and may employ any other person, firm or corporation to finish the
Work by whatever method that Owner may deem expedient. Owner may make such
expenditures as in Owner's sole judgment will best accomplish the timely
completion of the Facility under the provisions of Article 7 or otherwise.
Contractor shall not be entitled to receive any further payments under this
Contract except for payments for Work performed prior to such termination,
but such payment shall only be made after completion of the Facility and to
the extent that the cost to complete does not exceed the Contract Price.
However, Contractor shall nonetheless continue to be bound by such
provisions of this Contract that survive such date.
15.1.4 General Obligations. If Owner elects to terminate
Contractor's employment pursuant to Article 15.1.1 or 15.1.2 hereof,
Contractor shall, at Owner's request and at Contractor's expense, perform
the following services relative to the Work so affected: (a) assist Owner
in preparing an inventory of all Equipment in use or in storage at the
Facility Site; (b) assign to Owner or its nominee all subcontracts and
warranties and other contractual agreements as may be designated by Owner,
which assignment shall occur automatically upon Notice from Owner to
Contractor; provided, however, that Contractor shall execute such documents
as may be reasonably requested by Owner to evidence such assignment; and
(c) remove from the Facility Site all such Contractor's Equipment and
rubbish and Hazardous Materials as Owner may request.
15.1.5 Termination Payment Obligations. (a) If Owner
terminates Contractor's employment pursuant to Article 15.1.1 or 15.1.2
hereof (i) Owner shall invoice Contractor monthly for all amounts due under
the Financing Documents for the immediately preceding month until the Final
Acceptance Date (as if Contractor were still employed under this Contract)
and for all expenses reasonably incurred by Owner to engage a substitute
contractor to complete the Work, including, without limitation, additional
overhead and legal and other professional expenses; and (ii) upon
engagement of a substitute contractor, the Owner shall calculate the amount
by which (aa) the cost to complete the Work (based on the contract price
offered by the substitute contractor) plus the amounts paid by the Owner to
the Contractor pursuant to this Contract, exceeds (bb) the Contract Price,
as adjusted pursuant to Change Orders (the "Deficiency Amount") and, upon
completion of such calculations, invoice Contractor for such Deficiency
Amount.
(b) Contractor shall be liable for, and shall pay to
Owner, the amounts included in the invoices delivered to Contractor
pursuant to subsection (a) of this Article 15.1.5 within ten (10) Days
following receipt of such invoices. Contractor shall pay interest at the
Reference Rate plus two percent (2%) on any such amount which is not paid
within ten (10) Days following such demand, until such amount is paid in
full.
(c) In the event that Contractor has paid the
Deficiency Amount and (i) such Deficiency Amount is less than (ii) (A) the
actual costs to complete the Work (together with amounts paid by Owner to
Contractor pursuant to this Contract) minus (B) the Contract Price, as
adjusted pursuant to Change Orders, then the Contractor shall, within ten
(10) days after receipt of an invoice from Owner delivered after the Final
Acceptance Date (as if Contractor were still employed under this Contract),
pay to Owner the difference between (ii) and (i).
(d) In the event that Contractor has paid the
Deficiency Amount and (i) such Deficiency Amount is more than (ii) (A) the
actual costs to complete the Work (together with amounts paid by Owner to
the Contractor pursuant to this Contract) minus (B) the Contract Price, as
adjusted pursuant to Change Orders, then Owner shall, within ten (10) days
after the Final Acceptance Date (as if Contractor were still employed under
this Contract), pay to Contractor the difference between (i) and (ii).
15.1.6 Indemnification. If any event or condition or act or
omission specified in this Article occurs, Contractor agrees to indemnify
and hold Owner and the Financing Parties harmless from any and all claims,
obligations and liabilities, including judgments, expenses, costs, fines,
and/or penalties of whatever nature arising from or related to any such
event or condition, except to the extent resulting from Owner's negligence
or willful misconduct.
15.2 Suspension or Termination for Convenience.
15.2.1 Suspension for Owner's Convenience. Owner may, by
Notice to Contractor, suspend at any time the performance of all or any
portion of Work. Upon receipt of such Notice, Contractor shall, unless the
Notice requires otherwise: (a) immediately discontinue the Work on the date
and to the extent specified in the Notice; (b) place no further orders or
subcontracts for material, services or facilities with respect to suspended
Work other than to the extent required in the Notice; (c) promptly make
every reasonable effort, with the concurrence of Owner to obtain suspension
with terms satisfactory to Owner of all orders, subcontracts, and rental
agreements to the extent they relate to performance of suspended Work; (d)
continue to protect and maintain the Work performed, including those
portions on which Work has been suspended; and (e) take any other
reasonable steps to minimize costs associated with such suspension. As
full compensation for any suspension under this Article 15.2, Contractor
will be reimbursed by Owner for the following costs, reasonably incurred,
without duplication of any item, to the extent that such costs directly
result from such suspension of the Work and to the extent that they do not
reflect reimbursement for Contractor's, Vendors' or Subcontractors'
anticipated profit from other Work: (a) a standby charge, sufficient to
compensate Contractor for keeping, to the extent required in the suspension
Notice, its organization and Contractor's Equipment committed to the Work
on a standby basis; (b) all reasonable costs associated with demobilization
and remobilization of Contractor's facility, forces, and Contractor's
Equipment; and (c) an equitable amount to reimburse Contractor for the cost
of receiving, maintaining and protecting that portion of Work upon which
performance has been suspended. Upon delivery of Notice by Owner to
Contractor to resume suspended Work, Contractor shall immediately resume
performance under this Contract to the extent required in the Notice. If
Contractor intends to assert a claim for equitable adjustment under this
clause, it must, within twenty (20) Days after receipt of Notice to resume
Work, submit to Owner a written statement setting forth the schedule impact
and monetary extent of such claim in sufficient detail to permit thorough
analysis and adjustment pursuant to Article 6. Contractor shall permit
access by Owner to pertinent records for purposes of documenting such
claims. In the event that Owner suspends the performance of any portion of
the Work pursuant to Article 15.2.1 hereof, the Guaranteed Unit Delivery
Dates and Critical Dates shall be extended for the number of Days' delay
caused by the suspension. No adjustment shall be made for any suspension
to the extent that performance would have been suspended, delayed or
interrupted by Contractor for noncompliance with the requirements of this
Contract. Suspension of the Work under this Contract may be accomplished
only by the Notice described in this Article 15.2.
15.2.2 Termination for Owner's Convenience. Owner may
terminate this Contract at any time for its convenience. This Contract may
be terminated under this Article 15.2.2 by giving Contractor Notice of
termination. Upon receiving any such Notice of termination, Contractor
shall stop performing the Work and shall cancel as quickly as possible all
orders placed by it with Subcontractors and Vendors and shall use all
reasonable efforts to minimize cancellation charges. Contractor shall be
entitled to receive a termination payment (the "Termination Payment") equal
to the sum of (i) that portion of the Contract Price that is applicable to
Work completed up to the date of termination that has not previously been
paid to Contractor, (ii) the costs reasonably incurred by Contractor in
withdrawing its equipment and personnel from the Facility Site and in
otherwise demobilizing, and (iii) the costs reasonably incurred by
Contractor in terminating contracts with Subcontractors, Vendors and
suppliers pertaining to the Work (excluding fees of any affiliates of
Contractor). Representatives of Owner and Contractor shall determine the
Contract Price amount referred to in clause (i) above in accordance with
the Milestone Payment Schedule in Exhibit E, and Contractor shall document
the costs claimed under clauses (ii) and (iii) above to Owner's
satisfaction and shall supply Owner copies of the Subcontractor, Vendor and
supplier invoices covering amounts claimed under clause (iii) above.
Contractor shall submit an invoice to Owner for the Termination Payment
with the supporting information and documents referred to above, and Owner
shall pay such invoice within thirty (30) Days after its receipt of same
unless it disputes certain elements thereof, in which event only the
undisputed portion of the Termination Payment need be made within such
thirty (30) Day period and the dispute over the remainder of the claimed
Termination Payment may be submitted to arbitration pursuant to Article 17.
15.3 Termination by Contractor.
15.3.1 Upon Notice to Owner, Contractor may terminate this
Contract if Financial Closing has not occurred by April 30, 1997.
15.3.2 If Owner fails to make a timely payment of amounts due
to Contractor under this Contract, which failure continues for a period of
ninety (90) Days after Notice of such non-payment, Contractor may terminate
this Contract, provided, however, that the failure to make such payment is
not during a period in which the payment is being disputed in good faith.
Notwithstanding the Financing Parties' rights of assignment under this
Contract, if it is determined through the Arbitration procedures set forth
in Article 17 that Contractor is entitled to recover the amounts not timely
paid, which is the cause for Contractor's termination under this Article
15.3.2, Owner shall be liable to pay such amount as determined according to
the procedures set forth in this Contract.
15.3.3 If after one hundred and fifty (150) Days of Owner's
Notice to Contractor to suspend performance of the Work pursuant to Article
15.2.1 above, Owner has not given Contractor a Notice to resume the Work,
Contractor may give Notice to Owner of its intent to terminate this
Contract. The Contract shall terminate on the thirtieth (30) Day after
Contractor's Notice, unless the Parties mutually agree otherwise. If
Contractor terminates this Contract under the Article 15.3.3, Contractor
shall pay its costs of termination, including, but not limited to,
demobilization costs.
15.4 Termination Due To Owner's Force Majeure Event. If a Force
Majeure Event has occurred, which effects the Owner as described in Article
6.2.1, and continues for a period of three hundred and sixty-five (365)
Days, then, notwithstanding that the Contractor may by reason thereof have
been granted an extension of required dates, either Party shall be entitled
to serve upon the other Party a thirty (30) Day prior Notice to terminate
this Contract. If at the expiry of the period of thirty (30) Days a Force
Majeure Event shall still continue, this Contract shall terminate. If this
Contract is terminated under this Article 15.4, the Contractor shall be
paid the value of the Work completed up to the date of termination in
accordance with Article 7. Each Party shall pay its own costs of
termination pursuant to this Article 15.4.
ARTICLE 16
INDEMNITIES
16.1 Contractor's Indemnification. Contractor agrees to defend
shall indemnify and hold harmless Owner, Owner's Engineer, the Utility,
Owner's contractors, and Financing Parties, their respective affiliates and
their respective employees, agents, partners, officers, and directors
("Owner Indemnitees"), from and against all damages, losses, liabilities,
fines, penalties and related costs and expenses (including court costs and
reasonable attorneys' fees) ("Losses") arising out of claims of third
parties which directly or indirectly arise out of or result from any
performance or failure to perform any obligation or comply with Applicable
Laws or Applicable Permissions that are the responsibility of Contractor
hereunder, any Lien, charge or security interest pursuant to Article 3.21,
any claims regarding intellectual property, any breach by Contractor of its
obligations hereunder, any negligent act or negligent omission or
intentional misconduct, during the performance of the Work or any curative
action under any warranty following performance of the Work, by 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.
Contractor's indemnity is for the exclusive benefit of the Owner
Indemnitees and in no event shall inure to the benefit of any other party.
16.1.1 Contractor shall indemnify and hold harmless Owner and
HMGN for any Losses arising out of damage to allexisting roads, bridges or
any other damage caused by the transportation of Contractor's Equipment,
Equipment, materials and supplies to the Facility Site pursuant to Article
3.28 and Articles 3.32.7, 3.32.8, and 3.32.9.
16.2 Owner's Indemnification. Owner hereby agrees toshall
indemnify, defend and hold harmless Contractor, its officers, directors,
agents, servants and employees ("Contractor Indemnitees") from any claims,
suits, damages, and costs directly resulting from any performance or
failure to perform by Owner of its obligations hereunder, any breach by
Owner of its obligations hereunder, the negligence or willful misconduct by
Owner which materially and adversely affects this Contract with the
understanding that Owner shall be entitled to control and direct the
defense of any such claim or litigation. Owner's indemnity is for the
exclusive benefit of the Contractor and in no event shall it inure to the
benefit of any other party.
16.3 Contractor Taxes. Contractor shall defend, indemnify and
hold harmless Owner Indemnitees from and against all Losses arising out of
claims by any governmental or taxing authority claiming taxes based on
income of Contractor or any of its Subcontractors or Vendors or any of
their respective agents or employees with respect to any payment for the
Work made to or earned by Contractor or any of its Subcontractors or any of
their respective agents or employees under this Contract or for any other
Contractor Taxes.
16.4 Owner Taxes. Owner shall defend, indemnify and hold
harmless Contractor from and against all claims by any governmental or
taxing authority claiming Owner Taxes.
16.5 Proprietary Rights.
16.5.1 Contractor shall defend, indemnify and hold harmless
Owner Indemnitees against all claims, damages, losses, liabilities, and
expenses (including court costs and reasonable attorneys' fees) arising
from Losses arising out of any claim or legal action by a third party for
unauthorized disclosure or use of any trade secrets, proprietary rights, or
intellectual property rights, or of patent, copyright or trademark
infringement arising from Contractor's performance (or that of its
Subcontractors or Vendors) under this Contract and/or asserted against an
Indemnitee that either (a) concerns any of the Work or Equipment or other
items provided by Contractor or any Subcontractor or Vendor under this
Contract; or (b) is based upon the performance of the Work by the
Contractor or any Subcontractor or Vendor, including the use of any tools,
implements or construction by Contractor or any Subcontractor or Vendor; or
(c) is based upon the design or construction of any item or Unit specified
by Contractor under this Contract or the operation of any such item or Unit
in accordance with directions provided by Contractor.
16.5.2 If Owner is prevented from completing the Facility or
any part thereof, or from the use, operation, or enjoyment of the Facility
or any part thereof as a result of such claim or legal action or any
litigation based on a claim for which Contractor is obligated to indemnify
as set forth above, Contractor shall promptlyarrange to have such
prevention removed., at the request of Owner, take all actions necessary to
remove such impediment.
16.5.3 Owner's acceptance of Contractor's Design Documents
and/or Contractor's selections of Equipment shall not be construed to
relieve Contractor of any obligation under this Article 16.
16.6 Notice of Claim.
16.6.1 Notice by Owner Indemnitee. An Owner Indemnitee
claiming indemnification under this Article 16An Indemnitee shall, within
fourteen (14) Days of the receipt of Notice of the commencement of any
legal action or of any claims against such Owner Indemnitee in respect of
which indemnification will be sought, under this Article 16, provide Notice
to notify Contractor in writing thereof. Failure of the Owner Indemnitee
to give such Notice will not reduce the liability of the other party
providing such indemnity ("Indemnitor") unless and to the extent Indemnitor
can demonstrate that it is precluded from defending such claim or
litigation as a result of the failure of theContractor.
16.6.2 Notice by Contractor Indemnitee. A Contractor
Indemnitee claiming indemnification under this Article 16 shall, within
fourteen (14) Days of the receipt of the Notice of the commencement of any
legal action or of any claims against such Contractor Indemnitee in respect
of which indemnification will be sought under this Article 16, provide
Notice to Owner in writing thereof. Failure of the Contractor Indemnitee
to give such Notice to indemnitorwill reduce the liability of the Owner to
the extent Owner can demonstrate that it is prejudiced in its right to
defend such claim or litigation as a result of the failure or delay of the
Contractor Indemnitee to give such Notice to Owner. In any case, the
failureso notify to provide such Notice shall not relieve Indemnitor
Owner from any liability that it may have to such Contractor Indemnitee
otherwise than under the indemnity agreements contained in this Article 16.
In case any such claim or legal action shall be made or brought against an
Indemnitee and such Indemnitee shall notify Owner who shall assume the
defense thereof, Owner shall have the right to assume the defense of any
legal action or claims against a Contractor Indemnitee in respect of which
indemnification will be sought under this Article 16, without any
reservation of rights and after Notice from Indemnitor to such Indemnitee
of an by such Contractor Indemnitee, by providing Notice to such Contractor
Indemnitee of Owner's election to assume the defense thereof. and approval
by the Indemnitee of such counsel, and Indemnitor. Such Contractor
Indemnitee shall have the right to approve Owner's selection of such
counsel which approval shall not be unreasonably withheld. After such
Notice, Owner will not be liable to such Contractor Indemnitee under this
Article 16 for any legal fees or expensessubsequently incurred by such
Contractor Indemnitee in connection with the defense thereof. . No
Indemnitee shall settle any indemnified claim over which Indemnitor
Contractor Indemnitee shall not settle any claim or legal action over such
Contractor Indemnitee in respect of which indemnification under this
Article 16 will be sought unless Owner has been afforded the opportunity to
assume the defense,without Indemnitor's reasonable approval. Indemnitor
Owner has elected not to assume such defense, and Owner has given its prior
written approval of such settlement. Owner shall control the settlement of
all claims over which it has assumed the defense; provided, however, that
Indemnitor Owner shall not conclude any settlementwhich shall not be
unreasonably withheld or destroyed without the prior approval of the
Indemnitee. The such Contractor Indemnitee which approval shall not be
unreasonably withheld. Contractor Indemnitee shall provide reasonable
assistance to Indemnitor, at Indemnitor'sOwner, at Owner's expense, in
connection with such legal action or claim. Notwithstanding anything to
the contrary in this Article 16, the Contractor Indemnitee shall have the
right, at its expense, to retain counsel to monitor and consult with
Indemnitor'sOwner's counsel in connection with any such legal action or
claim; provided, however, if counsel for IndemnitorOwner has an actual
conflict with the interests of the Contractor Indemnitee, the Contractor
Indemnitee may retain separate counsel at IndemnitorOwner's expense.
ARTICLE 17
SETTLEMENT OF DISPUTES
17.1 Amicable Settlement. Where Notice of intention to commence
arbitration has been given in accordance with Article 19.5, the Parties
shall attempt to settle such dispute amicably before the commencement of
arbitration. Provided that, unless the Parties otherwise agree,
arbitration may be commenced on or after the thirtieth (30th) Day after the
Day on which Notice of intention to commence arbitration of such dispute
was given, even if no attempt at amicable settlement thereof has been made.
17.2 Arbitration.
17.2.1 Except for disputes to be resolved in accordance with
Article 6.4 and Article 17.3, and Owner's injunctive relief in accordance
with Article 19.11, any dispute between the Owner and the Contractor
regarding this Contract in respect of which amicable settlement has not
been reached or which has not been resolved by Expert determination
pursuant to Article 17.3, shall be finally and exclusively settled by
arbitration irrespective of the magnitude thereof, the amount in dispute or
whether such dispute would otherwise be considered justifiable or ripe for
resolution by any court or arbitral tribunal. Subject to Article 6.4 which
obligates the Contractor to proceed with the Work as instructed by Owner's
Engineer pending resolution in accordance with Article 17.2, this Contract
and the rights and obligations of the Parties shall remain in full force
and effect pending the award in such arbitration proceeding, which award
shall determine whether and when termination of this Contract, if relevant,
shall become effective; provided, however, that nothing in this Article
17.2 shall affect Owner's rights to terminate this Contract for convenience
under Article 15.2.2.
17.2.2 Each arbitration shall be conducted in accordance with
the Rules of Arbitration as in effect on the Effective Date, except as such
Rules of Arbitration conflict with the provisions of this Article 17.2, in
which event the provisions of this Article 17.2 shall prevail. Each
arbitral tribunal shall consist of three arbitrators. Each Party shall
appoint one arbitrator for each arbitration, and the third arbitrator shall
be appointed by the Secretary General of the Permanent Court of Arbitration
at The Hague. In the event a Party fails to appoint an arbitrator, the
other Party may request that the Secretary General of the Permanent Court
of Arbitration at The Hague appoint such arbitrator. No arbitrator shall
be a present employee or agent of, or consultant or counsel to, either
Party to this Contract or any affiliate of either Party. Each arbitration
shall be conducted in Stockholm, Sweden and the Parties agree to exclude
any right to application to any court or tribunal of competent jurisdiction
in connection with any question of law, or otherwise arising in the course
of any arbitration. The language to be used and all written documents
provided in each arbitration shall be English.
17.2.3 Any decision or award of an arbitral tribunal
appointed pursuant to this Article 17 shall be final and binding upon the
Parties. The Parties waive to the extent permitted by law any rights to
appeal or any review of such award by any court or tribunal of competent
jurisdiction. The Parties agree that any arbitration award may be enforced
by any court having competent jurisdiction thereof. Notwithstanding the
generality of the immediately preceding sentence, each of the Parties
consents and submits unconditionally to the non-exclusive jurisdiction for
itself and in respect of any of its property to any court in the the State
of New York and Singapore. The Parties expressly submit to the
jurisdiction of any such court. All arbitration awards shall be payable in
Dollars. Interest at the Reference Rate plus two percent (2%) shall be due
and payable to the Party in receipt of an arbitration award from the date
the amount in dispute was first due until the date of payment.
17.2.4 No determination, approvals, certifications or
instructions given by Contractor under this Contract shall disqualify
Contractor from being called as a witness and giving evidence before the
arbitrator(s) on any matter whatsoever relevant to the dispute.
17.2.5 Arbitration may be commenced prior to or after
completion of the Work, provided that the obligations of Owner and
Contractor shall not be altered by reason of the arbitration being
conducted during the progress of the Work. Performance of this Contract
shall continue during the course of any references to, and conduct of, an
arbitration proceeding under this Article 17.
17.3 Expert Determination.
17.3.1 If at any time after the Parties have tried to resolve
a dispute pursuant to Article 6.4 or the Parties have mutually agreed to
rely on an Expert determination for any question, dispute or difference
that may arise between Owner and Contractor under this Contract, either
Party shall as soon as is reasonably practicable give to the other Notice
of such question, dispute or difference specifying its nature and the point
at issue, and such question, dispute or difference shall be referred to the
Expert for decision.
17.3.2 Each Party shall nominate an Expert for the relevant
dispute and the Parties shall mutually agree on one of the Experts. In the
event that the Parties fail to agree on the selection of the Expert, then
the nominated Experts shall select and agree upon a third party Expert to
resolve the dispute at issue, which selection shall be binding on the
Parties.
17.3.3 The Expert shall decide matters as an expert, and not
as an arbitrator, and arbitration procedures and law for the time being in
force shall not apply. The Expert will attempt resolve any dispute referred
to it as expeditiously as possible and in any event within fourteen (14)
Days. The Parties shall be bound by and comply with such decision and such
decision of the Expert may not be referred to arbitration under Article
17.2.
17.3.4 The Parties will afford to the Expert every assistance
in deciding any matters referred to him and will provide him with all
information he may reasonably request. The Expert shall be entitled to call
for such evidence and arguments from the Parties and any Person as he
shall, in his absolute discretion, see fit in the course of making his
determination. The Parties agree to use all reasonable endeavors to ensure
that the Expert makes his decision within fourteen (14) Days of his being
appointed. The Expert shall determine the apportionment of his fees and
expenses in so acting as between the Parties as he sees fit.
17.3.5 Performance of this Contract shall continue during the
course of any references to, and determinations by, the Expert.
ARTICLE 18
LIABILITY
18.1 Consequential Damages. Except for damages resulting from
the gross negligence or intentional misconduct of a Party, neither Party
shall be liable to the other Party or any of its Subcontractors, Vendors or
agents for consequential loss or damage, including but not limited to loss
of use or loss of revenue or profit, and each Party hereby releases the
other Party and its Subcontractors, Vendors and agents from any such
liability (except as described above). Liquidated damages provided in this
Contract have been agreed upon and fixed because of the difficulty of
ascertaining the exact amounts of damages that may be sustained by Owner
and shall be applicable and not affected by this Article 18.
18.2 Aggregate Liability of Contractor. Except for express
limits of liability herein and excluding indemnification obligations
hereunder for liabilities, expenses or damages resulting from claims of
third parties (where no limit of liability shall apply), the aggregate
limit of liability of Contractor under this Contract shall be one hundred
percent (100%) of the Contract Price.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 Entire Contract. This Contract contains the entire
understanding of the Parties with respect to the subject matter hereof and
reflects the prior agreements and commitments with respect thereto,
including, without limitation, the Contract for the Engineering,
Procurement and Construction between Owner and Contractor dated October 8,
1996. There are no other oral understandings, terms or conditions except
as expressly stated herein, and neither Party has relied upon any
representation, express or implied, not contained in this Contract.
19.2 Amendments. No change, amendment or modification of this
Contract shall be valid or binding upon the Parties hereto unless such
change, amendment, or modification shall be in writing and duly executed by
both Parties hereto, to the extent required, and consented to by Financing
Parties.
19.3 Joint Effort. Preparation of this Contract has been a joint
effort of the Parties, and the resulting document shall be construed as
fairly as practicable in accordance with its terms.
19.4 Captions. The captions contained in this Contract are for
convenience and reference only and in no way define, describe, extend or
limit or modify this Contract or the intent of any provision contained
herein.
19.5 Notice. Any notice, request, demand, offer, approval,
Change Order, consent or other written instrument (each a "Notice")
required or permitted to be given pursuant to this Contract shall be in
writing signed by the Party giving such Notice and shall be hand-delivered
or sent by overnight delivery with evidence of delivery, telex or by
telecopy, with electronic confirmation of receipt, to the other Party at
such address as set forth below.
19.5.1 If delivered to Owner:
Bhote Koshi Power Company Pvt. Ltd.
KHA 1-960
Kalimati, Tahachal
Kathmandu, Nepal
Telecopy: 977-1-270027
Telephone: 977-1-270027
with copies to:
Bhote Koshi Power Company Pvt. Ltd.
c/o Panda Energy International, Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas, USA 75244
Telecopy: (972) 980-6815
Telephone: (972) 980-7159
19.5.2 If delivered to Contractor:
China Gezhouba Construction Group Corporation
No. 10 Qinbo Road, Yichang
Hubei
People's Republic of China
Attn: Cao Junhua, Director of International
Engineering Department
Telecopy: 0717-644-7953 or 0717-675-2116
Telephone: 0717-675-2116
19.5.3 If delivered to Financing Parties, the address set
forth in the EPC Contractor's and Financing Parties' Acknowledgment and
Consent.
19.5.4 If delivered to Independent Engineer, the address set
forth in the EPC Contractor's and Financing Parties' Acknowledgment and
Consent.
Each Party shall have the right to change the place to which Notice
shall be sent or delivered by similar Notice sent in like manner to the
other Party. The effective date of Notice issued pursuant to this Contract
shall be as of the receipt of such Notice.
19.6 Severability. The invalidity of one or more phrases,
sentences, clauses or Articles contained in this Contract shall not affect
the validity of any remaining portion of the Contract.
19.7 Assignment by Owner and Contractor.
19.7.1 Except as provided in Article 19.7.2, the rights and
obligations of the Parties under this Contract may not be assigned or
delegated by either Party except upon the express written consent of the
other Party.
19.7.2 For the purpose of Owner securing financing to
construct and operate the Facility (i) Owner may, without the consent of
Contractor, assign or create security over Owner's rights, obligations and
interest under this Contract; and (ii) Contractor agrees to sign and seal
in good faith and on a fair and equitable basis an "Acknowledgement and
Consent" or similar documents with the Financing Parties prior to Financial
Closing.
19.7.3 This Contract shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and permitted
assigns.
19.8 No Waiver. Any failure of any Party to enforce any of the
provisions of this Contract or to require compliance with any of its terms
at any time during the pendency of this Contract shall in no way affect the
validity of this Contract, or any part hereof, and shall not be deemed a
waiver of the right of such Party thereafter to enforce any and each such
provision.
19.9 Applicable Law. The project to develop, construct, finance,
own and operate the Facility is expected to involve a large group of
international organizations and is expected to obtain financing from an
international consortium of lending institutions. In light of the
foregoing, and in order to obtain the benefits of a well settled and well
organized body of law for such Facility and the various agreements to be
entered into in connection therewith, the Parties agree that this Contract
shall be governed by and construed in accordance with, the laws of
Singapore (without regard to principles of conflict of laws that would
require the application of a law of another jurisdiction).
19.10 Exhibits. All Exhibits referenced in this Contract
shall be incorporated into this Contract by such reference and shall be
deemed to be an integral part of this Contract; provided, however, in the
event of any inconsistency, Articles 1 through 19 shall prevail over any
Exhibit, and in the event of any inconsistency among the Exhibits, the
Scope of Work shall prevail, but for the conditions in the Project License.
19.11 Confidential Information. Contractor agrees to hold in
confidence for a period of five (5) years from the date of first disclosure
or for such other period as the Parties may from time to time agree in
writing, and except as may be necessary to perform the services under this
Contract, any information supplied to Contractor by Owner and designated in
writing as confidential. Contractor further agrees to require its
Subcontractors, Vendors, and employees to enter into appropriate
nondisclosure agreements relative to such confidential information as may
be communicated to them by Contractor. The provisions of this Article
19.11 shall not apply to information within any one of the following
categories or any combination thereof: (a) information that was in the
public domain prior to Contractor's receipt thereof from Owner or that
subsequently becomes part of the public domain by publication or otherwise
except by Contractor's wrongful act; (b) information that Contractor can
show was lawfully in its possession prior to receipt thereof from Owner
through no breach of any confidentiality obligation; or (c) information
received by Contractor from a third party having no obligation of secrecy
with respect thereto. Contractor shall not publish information regarding
the Facility and shall not permit or accompany any third party not
connected with construction of the Facility onto the Facility Site without
the express written permission of Owner. Owner may seek and obtain
injunctive or equitable relief against Contractor for any breach of this
Article 19.11. Owner agrees to hold in confidence information that the
Parties mutually agree and designate in writing to be confidential.
19.12 Obligations. Nothing contained in this Contract shall
be construed as constituting a joint venture or partnership between
Contractor and Owner.
19.13 Time of the Essence. Time is of the essence in the
performance by each Party of its obligations under this Contract.
19.14 Language. The language of this Contract shall be the
English language and all documents, Notices and other communications shall
be in the English language. In the event of a dispute, the English version
of this Contract shall control.
19.15 Currency. This is a Dollar denominated Contract. All
payments hereunder shall be made in Dollars and no adjustments for the
Contract Price shall be made due to changes in any exchange rate. The
Contractor shall be solely responsible for paying its employees,
Subcontractors, Vendors and representatives and for obtaining Nepalese
Rupees or other currencies, as necessary to make such payments. The
unavailability of any currency to Contractor shall not be a Force Majeure
Event hereunder.
19.16 Survival. Articles 11, 12, 16, 17, 18 and 19 herein
above shall survive Final Acceptance and termination of this Contract and
each shall remain in full force and effect.
IN WITNESS WHEREOF, the Parties have hereto set their hands and
seals as of this 19th day of December, 1996.
OWNER: CONTRACTOR:
BHOTE KOSHI POWER COMPANY CHINA GEZHOUBA
PRIVATE LIMITED CONSTRUCTION GROUP
CORPORATION FOR WATER RESOURCES
AND HYDROPOWER
By: By:
Name: Ralph T. Killian Name: Zhang Chong Jiu
Title: Vice President Title: Chief Economist
CONTRACT FOR THE ENGINEERING, PROCUREMENT AND CONSTRUCTION
OF THE UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
List of Exhibits
Exhibit Description Page
A Construction Schedule A-1
B Form of Request for Payment B-1
C Facility Site Description C-1
D Form of Final Acceptance Certificate D-1
E-1 Form of Milestone Achievement E-1-1
Certificate
E-2 Milestone Payment Schedule E-2-1
F Performance Testing Guidelines F-1
G Form of Performance Guarantee G-1
H Form of Waiver of Liens Certificate H-1
I Scope of Work I-1
J Contractor's Key Personnel J-1
K Project Licenses K-1
L Optional Spare Parts L-1
EXHIBIT A
CONSTRUCTION SCHEDULE
[Bar Chart of Construction Schedule]
EXHIBIT B
FORM OF REQUEST FOR PAYMENT
REQUEST FOR PAYMENT
Address to Owner
Project: Engineering, Procurement and Construction Contract Date:
of the Upper Bhote Koshi Hydroelectric Project
Payment is requested for the achievement of the following milestone(s):
Milestone Description Percent of Contract Portion
(List milestones achieved since List percent for each milestone
last Request for Payment)
1. Percent Earned This Period ___________ %
2. Percent Earned in Prior Periods ___________ %
3. Total Earned to Date ___________ %
4. Contract Amount $ ___________
5. Total Earned Amount to Date $ ___________
6. Less 10% Retainage $(___________)
7. Less 5% the Contractor Tax $(___________)
8. Amount After Deductions $ ___________
9. Less Previous Requests for Payment $(___________)
(Net)
10. Amount due this Payment $ ___________
The undersigned certifies that the Work covered by this Request for Payment
was completed in accordance with this Contract and current payment shown
here is now due.
Contractor:
China Gezhouba Construction Group Corporation for Water Resources and
Hydropower
By:
Title:
Dated:
EXHIBIT C
FACILITY SITE DESCRIPTION
The Facility Site is defined in the accompanying contract. The purpose of
this Exhibit is to present a description of the land to be occupied by the
Facility. The following Drawings are attached to define the land to be
occupied by the headworks, tunnel and penstock, powerhouse, and operators
village portion of the Facility:
5646 L 600 Project Boundary Map - Headworks Area
5656 L 601 Project Boundary Map - Powerhouse Area
5646 L 602 Project Boundary Map - Khokundol Area
5646-L-601 Project Boundary Map - Headworks Area
5646-L-602 Project Boundary Map - Khokundol Area
5646-L-603 Project Boundary Map - Powerhouse Area
The following Drawings define the land to be occupied by the transmission
line, and are included in Exhibit I to the Contract.
5646-T-110 Transmission Line Plan and Profile Drawing
5646-T-111 Transmission Line Plan and Profile Drawing
5646-T-112 Transmission Line Plan and Profile Drawing
5646-T-113 Transmission Line Plan and Profile Drawing
5646-T-114 Transmission Line Plan and Profile Drawing
5646-T-115 Transmission Line Plan and Profile Drawing
5646-T-116 Transmission Line Plan and Profile Drawing
5646-T-117 Transmission Line Plan and Profile Drawing
5646-T-118 Transmission Line Plan and Profile Drawing
EXHIBIT D
FORM OF FINAL ACCEPTANCE CERTIFICATE
Reference is made to that certain Contract for the Engineering,
Procurement and Construction dated October, ____ 1996 (as the same may been
amended, hereinafter called the "Contract") entered by China Gezhouba
Construction Group Corporation for Water Resources and Hydropower
(hereinafter called the "Contractor") and Bhote Koshi Power Company Private
Limited (hereinafter called the "Owner"). All terms defined in the
Contract shall have the same meanings when used in this Final Acceptance
Certificate.
1. Contractor hereby certifies and represents that:
a. The Facility is complete, operable and capable of generating ____ kW
(net) of electrical power on a reliable and safe basis;
b. All Work has been performed and completed in accordance with the
requirements of the Contract; and
c. The Performance Tests have been conducted and documented in
accordance with the requirements set forth in the Contract.
2. The total amount(s) remaining to be paid to Contractor under the
Contract or otherwise with regard to Work, notwithstanding any amounts in
dispute between the Parties, is (are): [ ]
3. Upon receipt of the amount described in paragraph 2 above, Contractor
shall promptly pay all retention under the contracts with its
Subcontractors and Vendors and provide Owner with such releases of claims,
waivers of Liens and other documents as may be reasonably requested by
Owner to evidence such payment and the release and discharge of any and
all claims and Liens.
4. Except only those obligations of Owner which the Contract provides
shall survive Final Acceptance Date or termination of the Contract,
effective upon Contractor's receipt of the amount specified in paragraph 2
above, Contractor hereby unconditionally releases and discharges Owner and
its property from all claims, Liens and obligations of every nature
arising out of or in connection with the Contract or any Work performed,
costs incurred or items furnished in connection with the Contract.
5. Contractor shall defend, indemnify and hold harmless Owner from and
against all claims, liabilities, damages, costs and expenses (including,
but not limited to reasonable attorney's fees) in any manner directly or
indirectly arising out of or in connection with any claim or Lien arising
through Contractor.
6. Contractor's warranties, guarantees and indemnities arising under the
Contract or in connection with any Work, which provide that they shall
survive the Final Acceptance Date or termination of the Contract shall
survive the execution and delivery of this Final Acceptance Certificate as
provided in the Contract.
Contractor:
CHINA GEZHOUBA CONSTRUCTION CORPORATION
FOR WATER RESOURCES AND HYDROPOWER
By:
Title:
Dated:
EXHIBIT E-1
FORM OF MILESTONE ACHIEVEMENT CERTIFICATE
UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
MILESTONE ACHIEVEMENT CERTIFICATE
DATE _______________
To: Rhett Hurless, Project Manager
Bhote Koshi Power Company Private Limited (BKPC)
From: Site Project Manager
China Gezhouba Construction Group Corporation
for Water Resources and Hydropower (CGGC)
Subject: Contract for Engineering, Procurement and Construction
Upper Bhote Koshi Hydroelectric Project
Milestone Number ________________
This is to certify that the following milestone was completed on
____________________.
Milestone Number: _________________________
Milestone Description: ____________________
SIGNED: ________________________ DATE: _______________
CGGC SITE MANAGER
SIGNED: ________________________ DATE: _______________
BKPC SITE REPRESENTATIVE
SIGNED: ________________________ DATE: _______________
OWNER'S ENGINEER
EXHIBIT E-2
MILESTONE PAYMENT SCHEDULE
Each milestone shall be deemed complete when each activity describing each
milestone listed below is completed to the satisfaction of the Owner and in
accordance with the Scope of Work.
Percent
Milestone of
No. Milestone Description Contract
Portion
1 Mobilization payment upon receipt of Notice to
Proceed 10.00
2 Health, Safety and Environmental Plan submitted and
approved by Owner, Owner's office and residence 0.39
furnished and complete, and mobilization complete
and in complaince with Health, Safety and
Environmental Plan and environmental laws
3 Project engineering design and desanding basin 1.67
physical model and testing complete; project
design report, construction drawings, and report on
desanding basin physical model testing delivered to
Owner
4 River crossing No. 1 complete 0.15
5 River crossing No. 2 complete 0.91
6 Construction roads for access along the left bank 1.99
at the headworks, adit A, adit B, penstock and
surge shaft complete
7 Construction roads for switchyard and powerhouse 0.78
construction area complete
8 Left bank and right bank stabilization, headworks 4.22
foundation cutoff wall complete
9 Stage 1 headworks cofferdam, desanding basin, 3.13
bypass, headrace tunnel portal and spillway
excavation complete
10 Stage 1 headworks tower crane erected, desanding 5.04
basin, bypass, headrace tunnel portal and spillway
foundation concrete complete
11 Stage 1 headworks desanding basin, bypass, headrace 6.75
tunnel portal and spillway concrete, and grouted
riprap and backfilling complete
12 Stage 1 headworks desanding basin, bypass, headrace 2.87
tunnel portal and spillway gate installation
complete; tower crane and cofferdam removal
complete
13 Stage 2 headworks cofferdam complete 1.77
14 Stage 2 headworks foundation excavation, concrete 5.20
placement and grouted riprap placement complete
15 Stage 2 headworks tower crane and cofferdam removal 0.44
complete
16 Adit A and B excavation and rock support complete, 0.68
headrace tunnel excavation and support from surge
shaft to downstream outlet complete
17 Milestone 16, plus 825 m of headrace tunnel 2.47
excavation and rock support complete
18 Milestone 17, plus 825 m of headrace tunnel 2.47
excavation and rock support complete
19 Milestone 18, plus 825 m of headrace tunnel 2.47
excavation and rock support complete
20 Headrace tunnel excavation and rock support 2.47
complete
21 1100 m of headrace tunnel lining complete 2.52
22 Milestone 21 plus 1100 m of headrace tunnel lining 2.52
complete
23 Headrace tunnel lining complete 2.60
24 Grouting and drain holes complete in 1600 m of 0.39
headrace tunnel
25 Grouting and drainholes complete in headrace 0.39
tunnel, and adit A and B plugged and complete
26 Surge shaft and vent tunnel excavation, rock 0.57
support and concrete complete
27 Orders placed for penstock steel and hardware, 3.61
First Unit, Second Unit and all other permanent
equipment
28 Penstock steel and hardware delivered to the site; 1.88
and Contractor penstock construction operation
ready to proceed
29 Penstock tunnel section, including steel liner, 0.31
concrete encasement and grouting, complete
30 Exposed section of penstock complete, including 1.57
provisions for drainage, restoration of public
roadway, and completion of penstock and tunnel
leakage test.
31 Powerhouse cofferdam in place and tailrace 0.91
excavation complete
32 Tailrace concrete placement, gate installation, 0.78
backfill and cofferdam removal complete
33 Powerhouse foundation excavation complete 0.88
34 Placement of first stage concrete (maximum flood 1.13
protection level) and embedded parts complete
35 Powerhouse second stage concrete, superstructure, 1.11
roof and architectural work complete, backfilling
around powerhouse and slope protection complete
36 Operators village and maintenance facility building 1.86
foundations, concrete framing, exterior walls,
roof, all subfloors completed; water and
electrical services "roughed-in"; underground
utilities installed; perimeter security walls,
initial road grading and base course complete;
water and sewer equipment ordered and shipped
37 Operators village and maintenance facility complete 1.86
and accepted by Owner
38 Transmission towers delivered to the Facility Site 0.83
39 Survey and subsurface testing of all tower 1.00
locations, foundations for each tower complete
40 All towers erected and hardware and conductors 0.99
installed, inspected and tested, complete
41 Delivery of First Unit and auxiliary equipment to 6.89
the Facility Site
42 Delivery of Second Unit to the Facility Site 2.04
43 Powerhouse bridge crane and draft tube gate 1.69
hoisting equipment installed, complete
44 Achievement of First Unit Delivery Date, in 0.91
accordance with the requirements of the Contract
45 Installation of all electrical and mechanical 2.15
auxiliary and miscellaneous equipment and systems,
including all switchyard equipment, complete
46 Achievement of Second Unit Delivery Date, in 0.91
accordance with the requirements of the Contract
47 Final Acceptance in accordance with requirements of 1.83
the Contract
TOTAL 100.00
MILESTONE
PAYMENTS
EXHIBIT F
PERFORMANCE TESTING GUIDELINES
The Contractor shall perform various Performance Tests to demonstrate that
all aspects of the Facility are satisfactory. The Contractor shall develop
all Performance Testing Procedures. The Contractor shall submit the
Performance Testing Procedures to the Owner for approval prior to the
execution of a Performance Test. All Performance Tests shall be carried out
by the Contractor at its own expense.
These Performance Testing Guidelines are the general guidelines for
developing Performance Test Procedures. For factory and field tests, the
procedures outlined by internationally recognized standards institutes,
which are listed in the Specifications of the Scope of Work, shall form the
basis of Performance Testing Procedures. The Performance Testing Procedures
shall meet or exceed the criteria described in the Scope of Work, Exhibit
I.
Tests to be performed, and the guidelines for establishing Performance
Testing, are described below.
Desanding Basin Trapping Efficiency
A test of the desanding basin trapping efficiency shall be carried out to
demonstrate that the desanding basin meets the Minimum Desanding Basin
Trapping Efficiency criteria. The desanding basin trapping efficiency tests
shall be planned and performed during the Wet Season that occurs prior to
the Final Acceptance Date. At least three tests shall be performed during
the Wet Season. The tests shall be performed during the last week of July,
the second week of August and the last week of August.
The Contractor shall design and submit a program for approval by Owner that
causes a diversion of river water through the desanding basin at a rate
that is approximately equal to the combined discharge capacity of both
Units while operating at full gate.
On each testing Day, one set of three samples shall be taken at the
upstream end of the desanding basin and the second set of three samples
shall be taken just upstream from the headrace tunnel intake. At each
location, three samples each shall be taken near the right bank, in the
middle and near the left bank of the basin. The samples shall be taken
with a U.S. Geological Survey (USGS) depth-integrating D-74 sampler. The
procedures of sampling shall be as per USGS guidelines, or equivalent
guidelines proposed by the Contractor and as agreed to by the Owner.
All samples shall be analyzed for suspended sediment concentrations in
milligrams (mg) per liter and particle size distributions as percentage of
the total sediment.
Headworks Seepage and Leakage Loss
The design criteria for the maximum allowable seepage through the dam,
foundation and abutments is 200 liters per second. The design of the
headworks shall adopt conservative design procedures and assumptions so
that the constructed Facility shall meet this criteria.
The Contractor shall design and submit for approval by Owner an appropriate
program to test and establish the rate of seepage and leakage through the
dam, foundation and the headworks. The test shall be performed prior to
the Delivery Date of the Second Unit.
Seepage and leakage loss from the headworks shall be established by
monitoring the river inflow, the flow through the Units, the discharge from
the desanding basin or spillway to the Bhote Koshi River, minimum required
release through the headworks to the Bhote Koshi River, and any other loss,
such as gate and valve leakage or change in reservoir storage, as
applicable, over a period of two to four weeks during the Dry Season.
River inflow shall be measured at a suitable location upstream of the
headworks. Flow through the Units shall be measured by Unit flow metering
equipment supplied with the Units. The Contractor shall develop measuring
methods that are acceptable to the Owner.
The long-term (two to four week) difference between river inflow and flow
through the Units, adjusted for the discharge from the desanding basin or
spillway to the Bhote Koshi River, minimum required release through the
headworks to the Bhote Koshi River, and any other loss, such as gate and
valve leakage or change in reservoir storage, as applicable, and seepage
and leakage loss from the tunnel and penstock (see below), shall be the
seepage and leakage loss at the headworks.
The criteria for acceptance of the test will recognize the accuracy of
measurement procedures adopted in the Performance Test.
To obtain the most accurate assessment of the headworks seepage and leakage
loss, the Performance Testing Guidelines may be modified, as agreed upon by
the Owner to suit the conditions that are discovered during the design and
the construction of the Facility.
Seepage and Leakage Loss in Tunnel and Penstock
The Contractor shall design and submit to Owner for approval a program to
test and establish the rate of seepage and leakage from the tunnel and
penstock.
The seepage and leakage loss rate from the tunnel and penstock system shall
be calculated using data of measured water level change in the surge shaft
during the measurement interval. The time to make the measurements shall
be in an extended dry period as selected by the Owner. Prior to the
measurement, the tightness of the intake gate seal shall be evaluated and
accepted by the Owner. Both the gates of the headrace tunnel intake in the
desanding basin and the unit valves in the powerhouse shall be closed.
Over a 12-hour period, the distance of the water level below the air vent
at the top of the surge shaft shall be measured every 2 hours using a water
level indicator. The rate of seepage and leakage loss shall be calculated
as the change of water volume divided by the corresponding time interval,
adjusted for gate seal leakage.
Performance Tests to Establish Guaranteed Output and Efficiency Performance
Levels
Performance Tests shall be performed to demonstrate that the Guaranteed
Output, guaranteed turbine efficiency, guaranteed generator efficiency, and
guaranteed transformer efficiency are achieved. In addition, a Performance
Test shall be performed to demonstrate that the maximum allowable
transmission line resistance is not exceeded. These tests shall be designed
and performed by the Contractor at its expense, and made part of the tests
outlined in Sections 3.8, 3.10 and 6.3-10 and 7-3 of the Specifications in
the Scope of Work.
Reliability Test
Following delivery of either unit, the Owner and Contractor shall mutually
agree on the schedule and procedures to perform a "Reliability Test". The
purpose of the Reliability Test shall be to demonstrate that the major
equipment of the facility is durable and suitable for long-term operation.
The Reliability Test shall be performed on an individual unit basis, after
the Delivery Date of each respective Unit, thus there shall be a
Reliability Test for the First Unit and a Reliability Test for the Second
Unit. The duration of test for each Unit shall be thirty (30) Days. A
portion of the Reliability Test for the First Unit can be performed
simultaneously with the Reliability Test for the Second Unit, and such
simultaneous testing is preferred. The criterion for successful completion
of the test shall be an Availability of ninety eight (98) percent over the
thirty (30) day period for each Unit. From the commencement of the test
for a specific Unit, a running account shall be maintained of the number of
hours that the unit is not available for electricity production because of
a Unit or Facility related maintenance outage or forced outage. If at any
point during the test, the number of cumulative hours of maintenance
exceeds fourteen (14) hours and twenty four (24) minutes, then the
Reliability Test shall not be accepted by the Owner and the Reliability
Test shall be repeated until the Unit being tested achieves the ninety
eight (98) percent Availability.
EXHIBIT G
FORM OF
PERFORMANCE GUARANTEE
THIS GUARANTEE is given on the day of , 1996.
BY
INDUSTRIAL AND COMMERCIAL BANK OF CHINA, SINGAPORE BRANCH (the
"Guarantor") of 6 Raffles Quay HEX12-01, John Hancock Tower,
Singapore, 048580,
AT THE REQUEST OF
CHINA GEZHOUBA CONSTRUCTION GROUP CORPORATION FOR WATER RESOURCES &
HYDROPOWER (the "Contractor") of No. 10 Qinbo Road Yichang, Hubei,
China,
IN FAVOR OF
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED, of KHA 1-960, Kalimati,
Tachachal, Kathmandu, Nepal, (hereafter referred to as "Owner") or, in
the event of an assignment, its FINANCING PARTIES (the "Permitted
Assignees").
WHEREAS:
(a) By a Contract for the Engineering, Procurement and Construction of the
Project on the Bhote Koshi River in the Sindhupalchok District of
Nepal (the "EPC Contract") dated as of October __, 1996 between the
Owner and the Contractor, the Contractor shall provide an irrevocable,
unconditional bank guarantee with joint and several liability from a
financial institution acceptable to Owner in an amount equal to twenty-
five percent (25%) of the Contract Price (subject to increase or
decrease under Article 6 of the EPC Contract in the case of change
orders), and the Guarantor, upon request by the Contractor, agrees to
provide such Guarantee for the Contractor in favor of the Owner;
(b) It is a condition precedent to the Owner's obligation under the EPC
Contract to employ the Contractor or to continue such employment
anytime during the term of the EPC Contract that the Guarantor enters
into this Guarantee in favor of the Owner and its Permitted Assignee
of such twenty-five percent (25%) of the Contract Price (subject to
increase and decrease under Article 6 of the EPC Contract).
NOW THEREFORE, THIS GUARANTEE WITNESSETH AS FOLLOWS:
1. This Guarantee is issued at the request of the Contractor as per
Exhibit G (as revised and agreed upon between the Owner and the
Contractor) of the EPC Contract, and shall automatically become
effective at Financial Closing as defined in the EPC Contract, without
any further action or confirmation by the Guarantor or the Contractor.
This Guarantee shall be a continuing guarantee remaining in full force
and effect during the entire term of the EPC Contract and until thirty
(30) days after the Final Acceptance of the Facility as defined in the
EPC Contract at which time the Owner shall return this Performance
Guarantee to the Guarantor with instructions for cancellation.
2. This is an irrevocable and unconditional guarantee issued by the
Guarantor, whereby the Guarantor shall assume the liability of a
primary obligor, and not merely as guarantor under an ordinary
guarantee, and shall be jointly and severally liable with the
Contractor to the Owner for the twenty-five percent (25%) of the EPC
Contract Price, namely US $ 11,600,000.00 (the United States Dollars
eleven million six hundred thousand) (the "Guaranteed Amount").
Should there be any increase or decrease of the Contract Price
pursuant to Article 6 of the EPC Contract, the Guaranteed Amount shall
be adjusted accordingly upon written notice from the Owner to the
Guarantor.
3. Under this Guarantee, the Owner and its Permitted Assignees are hereby
granted with absolute and unconditional rights, to make multiple
drawings from time to time, in the event that the Contractor fails to
perform its obligations under the EPC Contract and such failure
triggers payment liability of liquidated damages by the Contractor for
damages, compensation, indemnities or otherwise under Articles 12, 13,
15, and 16 of the EPC Contract or for any other purpose related to the
Contractor's obligations thereunder, the Owner shall be entitled to
issue a written demand to the Guarantor for payment up to an aggregate
amount not to exceed the Guaranteed Amount. Such written demand shall
(i) state that the Contractor has failed to perform its obligations
under the EPC Contract and, (ii) bear the original hand-written
signatures of two (2) purportedly authorized officers of the Owner in
conformance with the specimen signatures of such officers [as per
Exhibit attached hereto] (which may be replaced or re-designated from
time-to-time by the Owner upon written notice to the Guarantor). The
Guarantor shall not require that such written demand be accompanied by
any documents from any third parties.
4. Under this Guarantee, the Guarantor is hereby committed to honor such
written demand from the Owner for payment immediately upon
presentation. Each payment by the Guarantor hereunder shall be made in
US Dollars and shall reduce the cumulative amount of the Guaranteed
Amount on a dollar-for-dollar basis. The Guarantor shall neither
require the Owner to exercise its recourse against the Contractor
first, nor require the Owner to exhaust its remedies against the
Contractor first, and shall not set such requirements as a
precondition of the Guarantor to effect its payment under this
Guarantee. In particular, the Guarantor shall not raise any
contractual defense by the Contractor under the EPC Contract, but
shall honor its obligations hereunder as an indebtedness independent
of the EPC Contract or any obligations of the Contractor thereunder.
5. This Guarantee is not assignable by either the Guarantor or the Owner,
except assignable to the Permitted Assignees upon delivery to the
Guarantor of a completed assignment certificate, signed by the
authorized signatories of the Owner and counter-signed by an
authorized signatory of the Permitted Assignees. This Guarantee shall
be binding on the Guarantor and its successors and shall inure to the
benefit of the Owner and its Permitted Assignee.
6. The obligations of the Guarantor hereunder shall not be discharged by
(i) any time, grace, indulgence, waiver or consent at any time given
to the Contractor, (ii) any amendment to any clause of the EPC
Contract, provided that any amendment to the EPC Contract which
involves the Guarantor's assuming greater obligation for the
Guaranteed Amount (with the exception of any increase of such amount
pursuant to Article 6 in the case of change orders) will require the
prior written consent of the Guarantor, (iii) any failure or delay in
the enforcement or release of any rights of or under the EPC Contract
limiting any other provisions of this Guarantee, the Guarantor
acknowledges and agrees that it will remain liable hereunder
notwithstanding that the Contractor may cease to exist or for any
other reason the Owner may no longer be able to deal with the
Contractor.
7. The Guarantor hereby represents and warrants to the Owner as follows:
(a) The Guarantor is a state-owned bank duly organized and
validly existing under the laws of Singapore and has full power,
authority and legal capacity to execute and deliver this
Guarantee and to assume and perform the obligations provided for
herein;
(b) The Guarantor has taken all appropriate and necessary legal
actions to authorize the execution, delivery and performance of
this Guarantee;
(c) This Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its
terms;
(d) The obligations of the Guarantor hereunder rank and will
rank at least pari passu in priority of payment and in all other
respects with all other unsecured indebtedness of the Guarantor.
(e) The Guarantor shall supply to the Owner and its Permitted
Assignee, upon request, copies of the annual financial statements
of the Guarantor.
8. This Bank Guarantee is a commercial act of the Guarantor in relation
to a commercial transaction and all obligations of the Guarantor
arising under this Guarantee are commercial in nature. The Guarantor
hereby irrevocably agrees not to raise any claim of immunity (if any)
from suit, attachment or execution in respect of any claims which may
be made against it at any time concerning its obligations under this
Bank Guarantee.
9. Any demand from the Owner to the Guarantor for payment must be in
written form, in the English language delivered to the Guarantor at
the following address (or any new address designated by the Guarantor
in writing duly notified to the Owner in future) in the following
manner.
(a) Method of delivery: (i) personally delivered, (ii)
transmitted by postage prepaid registered mail (airmail if
international), and (iii) transmitted by internationally
recognized courier service, or (iv) transmitted by telex or
facsimile (with postage prepaid mail confirmation).
(b) Address of the Guarantor:
6 Raffles Quay, HEX- 01
John Hancock Tower
Singapore 048580
Telephone No.: 0065-5382780
Fax No.: 0065-5381370
Attn.: Ms. Wu Xinyu
10. This Guarantee shall be governed by and construed in accordance with
Singapore Law.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guarantee
by its duly authorized officer the day and year first above-written.
INDUSTRIAL AND COMMERCIAL BANK OF CHINA
By:
Name:
Title:
EXHIBIT H
FORM FOR WAIVER OF LIENS CERTIFICATE
(Follows this page)
EXHIBIT H
FORM FOR WAIVER OF LIENS CERTIFICATE
WHEREAS, a Subcontract identified as No. ___________ was entered into the
day of _________, 1996, by ______________, a corporation organized and
existing under the laws of ________, hereinafter referred to as the
"CONTRACTOR" and _________________________________ hereinafter referred to
as the "SUBCONTRACTOR"(*); and ___________________________________________.
WHEREAS, the CONTRACTOR had, prior thereto, to wit, on the _______ day of
_____________, 1996, entered into a Contract with Bhote Koshi Power Company
Private Limited hereinafter referred as the "OWNER" for the construction of
__________________________________________________________________________.
WHEREAS, the parties, by such Subcontract have agreed that the
SUBCONTRACTOR would, for and in the stead of the CONTRACTOR, fulfill and
perform each part of said contract as in set forth in said Subcontract in
the amount of _________, and in Change Order numbered ___________ to said
Subcontract in the amount of __________________________________($________).
Now, THEREFORE, SUBCONTRACTOR, for and in consideration of a payment made
herewith in the sum of _______ DOLLARS ($____), does for itself, its
successors, heirs and assignees, here state, affirm and agree that, with
respect to all of such work performed to date and for which payment has
been made or is being made pursuant to this Partial Waiver and Release,
except as identified below in paragraph 3:
1. All labor employed thereon or in connection therewith and all payroll
taxes and charges (such as withholding taxes, social security taxes and
worker's compensation, disability and unemployment taxes and/or insurance
premiums) have been paid in full; and
2. All materials, tools, equipment, supplies and services furnished and
used upon or in connection with said work have been paid for in full, and
all sales, use, excise and similar taxes on or in connection with the same
have been fully paid; and
3. Upon receipt by the undersigned of a check from the CONTRACTOR in the
above amount, payable to the undersigned, and when the check has been paid,
this document shall become effective to release and forever discharge the
CONTRACTOR AND OWNER and their respective officers, directors, agents,
servants and employees, and all lands, including lands owned and leased,
improvement, chattels, and other real and personal property connections
with or a part of said project from any and all claims, demands, liens and
claims of lien whatsoever arising out of the performance of all work for
which payment has been made which it now has or hereafter might, or could
have except for the following:
(If there are no exceptions, write "None" in the following space):
Before any recipient of this document relies upon it, he should verify
evidence of a payment to SUBCONTRACTOR; and
4. Except as provided in paragraph 3 above, SUBCONTRACTOR warrants that
it has completed all work performed to date as required under the above-
identified Subcontract and all charges and amendments thereto, if any, and
that it has complied with all the terms and conditions of said Subcontract;
and
5. SUBCONTRACTOR will, at its sole cost and expense, forever defend and
hold harmless CONTRACTOR AND OWNER from any and all claims and demands and
will defend against and obtain the discharge of any and all liens and
claims of liens of others arising out of or in connection with said work,
including, without limitation, those claimed or asserted by any employee,
supplier or subcontractor of the SUBCONTRACTOR (or by any employee or
supplier of any subcontractor of the undersigned) or by any governmental
agency or an insurance carrier; and
6. In the event that any of the work performed by the SUBCONTRACTOR on
the said project (including the materials used incorporated therein and the
workmanship thereof) is the subject of any guarantee or warranty by the
undersigned, the giving of this Release and Waiver of Lien by the
undersigned shall not operate in any way to reduce or modify such guarantee
or warranty or to release the undersigned therefrom. SUBCONTRACTOR further
agrees that if it hereafter performs any labor or furnishes any material,
tools, equipment, supplies or services pursuant to such guarantee or
warranty, it will fully pay for the same, will pay any or all taxes and
charges in connection therewith and will release, discharge, defend and
hold harmless CONTRACTOR AND OWNER, and all the said lands, including lands
owned and leased, improvement, chattels, and other real and personal
property from any and all claims, demands, liens and claims of lien arising
in connection therewith all in like manner and to the same extent as is
herein provided with respect to labor, materials, etc., heretofore
furnished. This Partial Release and Waiver of Lien shall inure to the
benefit of CONTRACTOR AND OWNER and their respective successors and assigns
and shall be binding upon the undersigned SUBCONTRACTOR and its or their
successors, heirs and assigns.
7. The work covered by this Waiver of Lien includes all work for which
payment has been received.
Dated this ____ day of _______________, 199_ at ________________.
Subcontractor:
By:
Title:
Dated:
(*)NOTE: may substitute "Subcontractor" with "Vendor"
EXHIBIT I
SCOPE OF WORK
TABLE OF CONTENTS
DESIGN CRITERIA
Civil Design Criteria
I. Scope C-1
II. Project General Description C-1
III. Design Codes and Standards C-2
IV. Design Data C-2
V. Loads C-5
VI. Loading Conditions C-6
VII. Minimum Safety Factors and Allowable Stresses C-7
VIII. Design C-10
IX. Physical Hydraulic Model C-10
Geotechnical Design Criteria
I. Scope G-1
II. References G-1
III. Geologic Framework G-3
IV. Geotechnical Features G-5
V. Foundation Treatment G-8
VI. Material Parameters G-9
VII. Bearing Capacity G-9
VIII. Excavation Slopes G-9
IX. Fill Slopes G-10
X. Stability Analyses G-11
XI. Lateral Earth Pressures and Retaining Walls G-14
XII. Construction Materials G-14
XIII. Instrumentation G-14
Mechanical Design Criteria
I. Scope M-1
II. Turbines, Inlet Valves and Governing Systems M-1
III. Gates, Cranes and Hoists M-6
IV. Miscellaneous Mechanical Equipment and Systems M-32
Electrical Design Criteria
I. Scope E-1
II. General E-1
III. Generator E-1
IV. Accessory Electrical Equipment E-2
V. Protective Relaying E-8
VI. Switchyard E-9
VII. Main Power Transformers E-10
SPECIFICATIONS
SECTION 1 - GENERAL SPECIFICATIONS
PART 1.1 - GENERAL REQUIREMENTS
1.1-1 Scope of Work 1.1-1
1.1-2 Standards 1.1-2
1.1-3 Spare Parts 1.1-4
1.1-4 Cleanup 1.1-5
PART 1.2 - OPERATOR'S VILLAGE AND MAINTENANCE FACILITY
1.2-1 Scope 1.2-1
1.2-2 Submittals 1.2-1
1.2-3 Site Work 1.2-1
1.2-4 Architectural Work 1.2-1
1.2-5 Painting 1.2-2
1.2-6 Piping and Plumbing 1.2-3
1.2-7 Heating and Ventilation 1.2-3
1.2-8 Water Treatment Equipment 1.2-3
1.2-9 Sewage Treatment Equipment 1.2-3
1.2-10 General Electrical Work 1.2-4
SECTION 2 - SPECIFICATIONS FOR CIVIL WORKS
PART 2.1 - DIVERSION AND CARE OF WATER
2.1-1 Scope 2.1-1
2.1-2 Submittals 2.1-1
2.1-3 Diversion 2.1-1
2.1-4 Care of Water 2.1-2
PART 2.2 - CLEARING AND GRUBBING
2.2-1 Scope 2.2-1
2.2-2 Clearing 2.2-1
2.2-3 Grubbing 2.2-1
2.2-4 Disposal 2.2-1
PART 2.3 - EXCAVATION
2.3-1 Scope 2.3-1
2.3-2 Submittals 2.3-1
2.3-3 References 2.3-1
2.3-4 Lines, Grades, and Slopes 2.3-2
2.3-5 Procedures 2.3-2
2.3-6 Stabilization of Rock Slopes 2.3-3
2.3-7 Underground Excavation 2.3-5
2.3-8 Disposal 2.3-5
2.3-9 Foundation Preparation 2.3-5
2.3-10 Quality Assurance 2.3-6
PART 2.4 - DRILLING AND GROUTING
2.4-1 Scope 2.4-1
2.4-2 Submittals 2.3-1
2.4-3 References 2.4-2
2.4-4 Definitions 2.4-2
2.4-5 Design Data 2.4-3
2.4-6 Program 2.4-3
2.4-7 Materials 2.4-4
2.4-8 Equipment 2.4-6
2.4-9 Mixes 2.4-7
2.4-10 Drilling Operations 2.4-7
2.4-11 Sampling Operations 2.4-9
2.4-12 Permeability Tests in Cutoff 2.4-10
2.4-13 Grouting Operations in Rock 2.4-11
2.4-14 Contact Grouting 2.4-13
2.4-15 Rock Bolts and Anchor Bars 2.4-14
PART 2.5 - FILLS
2.5-1 Scope 2.5-1
2.5-2 Submittals 2.5-1
2.5-3 References 2.5-1
2.5-4 Materials 2.5-1
2.5-5 Construction Equipment 2.5-2
2.5-6 Placement Tolerance 2.5-3
2.5-7 Foundation Preparation 2.5-3
2.5-8 Placing 2.5-3
2.5-9 Moisture Control 2.5-5
2.5-10 Compaction 2.5-5
2.5-11 Grass Cover 2.5-6
PART 2.6 - INSTRUMENTATION
2.6-1 Scope 2.6-1
2.6-2 Submittals 2.6-1
2.6-3 References 2.6-1
2.6-4 Surface Settlement Monuments 2.6-1
2.6-5 Open Standpipe Piezometers 2.6-2
2.6-6 Protection and Maintenance 2.6-2
PART 2.7 - CONCRETE WORK
2.7-1 Scope 2.7-1
2.7-2 Submittals 2.7-1
2.7-3 Design 2.7-2
2.7-4 Composition 2.7-2
2.7-5 Cement and Pozzolan 2.7-2
2.7-6 Admixtures 2.7-3
2.7-7 Water 2.7-3
2.7-8 Aggregate Source 2.7-4
2.7-9 Fine and Coarse Aggregate 2.7-4
2.7-10 Sampling and Testing 2.7-5
2.7-11 Proportioning of Concrete 2.7-5
2.7-12 Concrete Placing Temperature 2.7-6
2.7-13 Placing 2.7-6
2.7-14 Construction Joint Treatment 2.7-7
2.7-15 Forms 2.7-7
2.7-16 Curing and Protection 2.7-7
2.7-17 Stains and Discolorations 2.7-8
2.7-18 Finishes and Finishing 2.7-8
2.7-19 Expansion, Contraction, Control, and Construction Joints 2.7-9
2.7-20 Steel Reinforcement 2.7-10
2.7-21 Embedded Items and Items Bearing on Concrete 2.7-11
PART 2.8 - STEEL LINERS AND PENSTOCKS
2.8-1 Scope 2.8-1
2.8-2 Submittals 2.8-1
2.8-3 Design 2.8-1
2.8-4 Materials 2.8-2
2.8-5 Tests of Materials 2.8-3
2.8-6 Fabrication 2.8-3
2.8-7 Painting 2.8-4
PART 2.9 - METALWORK
2.9-1 Scope 2.9-1
2.9-2 Submittals 2.9-2
2.9-3 Design 2.9-2
2.9-4 Materials 2.9-2
2.9-5 Guard Rail 2.9-3
2.9-6 Chain-Link Fence and Gates 2.9-3
2.9-7 Painting 2.9-3
2.9-8 Galvanizing 2.9-3
PART 2.10 - ARCHITECTURAL WORK
2.10-1 Scope 2.10-1
2.10-2 Submittals 2.10-1
2.10-3 Concrete Block Masonry 2.10-1
2.10-4 Acoustical Tile Ceiling 2.10-2
2.10-5 Doors and Frames 2.10-2
2.10-6 Finish Hardware 2.10-3
2.10-7 Windows 2.10-4
2.10-8 Caulking 2.10-4
2.10-9 Miscellaneous Items 2.10-5
PART 2.11 - PREFABRICATED BUILDINGS
2.11-1 Scope 2.11-1
2.11-2 Submittals 2.11-1
2.11-3 Design 2.11-1
2.11-4 Materials 2.11-1
2.11-5 Building Systems 2.11-1
2.11-6 Guarantee 2.11-2
PART 2.12 - PAINTING
2.12-1 Scope 2.12-1
2.12-2 Submittals 2.12-1
2.12-3 Standard Products 2.12-1
2.12-4 Cleaning and Preparation of Surfaces 2.12-1
2.12-5 Paint Application 2.12-1
2.12-6 Drying Time Prior to Immersion 2.12-2
2.12-7 Colors 2.12-2
2.12-8 Code Marking of Piping Systems 2.12-2
2.12-9 Shop and Field Painting 2.12-2
2.12-10 Painting Schedule 2.12-3
SECTION 3 - SPECIFICATIONS FOR HYDROELECTRIC GENERATING UNITS AND
APPURTENANCES
PART 3.1 - GENERAL REQUIREMENTS
3.1-1 Scope 3.1-1
3.1-2 Drawings Furnished by the Company 3.1-1
3.1-3 Submittal of Technical Documentation 3.1-1
3.1-4 Not Used 3.1-16
3.1-5 Design Responsibility 3.1-16
3.1-6 Not Used 3.1-17
3.1-7 Standards 3.1-17
3.1-8 Materials 3.1-18
3.1-9 Test of Materials 3.1-22
3.1-10 Safety Factors and Design Stresses 3.1-22
3.1-11 Tolerances 3.1-23
3.1-12 Workmanship 3.1-24
3.1-13 Welding 3.1-24
3.1-14 Fabrication 3.1-25
3.1-15 Nondestructive Testing 3.1-25
3.1-16 Steel Castings 3.1-27
3.1-17 Surface Finish of Equipment Parts and Welds 3.1-28
3.1-18 Hydraulic Packing 3.1-30
3.1-19 Auxiliary Equipment and Data 3.1-30
3.1-20 Nameplates 3.1-31
3.1-21 Electrical Features of Auxiliary Electrical Equipment 3.1-31
3.1-22 Piping 3.1-43
3.1-23 Foundation Materials 3.1-45
3.1-24 Handling Devices 3.1-46
3.1-25 Shop Painting 3.1-46
3.1-26 Lubricants and Hydraulic Fluid 3.1-49
3.1-27 Site Conditions 3.1-49
3.1-28 Station Service Compressed Air and Water Supply 3.1-50
3.1-29 Witnessing of Shop Assembly and Tests 3.1-51
3.1-30 Spare Parts 3.1-51
3.1-31 Right to Operate Unsatisfactory Equipment 3.1-51
3.1-32 Investigation of Excessive Vibration or Other Malfunctions 3.1-51
PART 3.2 - HYDRAULIC TURBINES
3.2-1 Scope 3.2-1
3.2-2 Type and Description 3.2-1
3.2-3 Operating Conditions 3.2-2
3.2-4 Capacity and Efficiency 3.2-3
3.2-5 Speed 3.2-4
3.2-6 Runner 3.2-4
3.2-7 Turbine Shaft 3.2-5
3.2-8 Combined Shaft Alignment 3.2-7
3.2-9 Guide Bearing and Oil Lubrication System 3.2-8
3.2-10 Turbine Shaft Seal 3.2-9
3.2-11 Stay Ring 3.2-10
3.2-12 Spiral Case 3.2-12
3.2-13 Head Cover 3.2-14
3.2-14 Bottom Ring 3.2-15
3.2-15 Discharge Ring 3.2-16
3.2-16 Air Admission System 3.2-17
3.2-17 Wearing Rings, Facing Plates, Gate Seals, and Inspection
Openings 3.2-18
3.2-18 Wicket Gates and Gate Mechanism 3.2-19
3.2-19 Gate Servomotors 3.2-22
3.2-20 Pit Liner, Walkways and Stairways, and Hoist 3.2-23
3.2-21 Draft Tube and Liner 3.2-25
3.2-22 Turbine Pit Drain 3.2-27
3.2-23 Turbine Flow Measurement System 3.2-27
3.2-24 Instruments, Control Equipment, Instrument Cubicle, and
Terminal Box 3.2-29
3.2-25 Special Tools and Maintenance Equipment 3.2-35
3.2-26 Shop Assembly and Tests 3.2-36
PART 3.3 - INLET VALVES
3.3-1 Scope 3.3-1
3.3-2 Service 3.3-1
3.3-3 Type and Description 3.3-1
3.3-4 Sectionalization of Valve Body and Disc 3.3-1
3.3-5 Design and Operating Conditions 3.3-2
3.3-6 Valve Body 3.3-2
3.3-7 Valve Disc and Trunnions 3.3-3
3.3-8 Disc and Trunnion Seals 3.3-4
3.3-9 Disc Trunnion Bearings 3.3-4
3.3-10 By-pass Valve and Piping 3.3-4
3.3-11 Body Extensions and Coupling 3.3-5
3.3-12 Air and Vacuum Release Valve 3.3-6
3.3-13 Operating Mechanism 3.3-6
3.3-14 Valve Control and Control Cubicle 3.3-7
3.3-15 Oil Pressure Supply System 3.3-9
3.3-16 Shop Assembly and Tests 3.3-11
PART 3.4 - GOVERNING SYSTEMS
3.4-1 Scope 3.4-1
3.4-2 Basic Parameters and Other Pertinent Data 3.4-1
3.4-3 Type and Description 3.4-2
3.4-4 Capacity and Timing 3.4-3
3.4-5 Performance Requirements 3.4-4
3.4-6 Operating Requirements 3.4-6
3.4-7 Digital Microprocessor 3.4-8
3.4-8 Speed Sensing System 3.4-10
3.4-9 Speed Switches 3.4-11
3.4-10 Restoring Connections 3.4-11
3.4-11 Controls and Instruments 3.4-12
3.4-12 Oil Pumps 3.4-16
3.4-13 Pressure Tank 3.4-17
3.4-14 Sump Tank 3.4-18
3.4-15 Governor and Inlet Valve Air Compressors and Accessories 3.4-19
3.4-16 Special Tools and Maintenance Equipment 3.4-20
3.4-17 Shop Assembly and Tests 3.4-20
PART 3.5 - GENERATORS
3.5-1 Scope 3.5-1
3.5-2 Type and Rating 3.5-1
3.5-3 Temperature Rise 3.5-3
3.5-4 Electrical Characteristics 3.5-4
3.5-5 Mechanical Characteristics 3.5-7
3.5-6 Structural Details 3.5-8
3.5-7 Housing 3.5-10
3.5-8 Stator 3.5-12
3.5-9 Rotor 3.5-15
3.5-10 Generator Main and Upper Shafts 3.5-18
3.5-11 Combined Shaft Alignment 3.5-19
3.5-12 Bearings 3.5-20
3.5-13 Cooling 3.5-22
3.5-14 Lubrication 3.5-23
3.5-15 High Pressure Oil System 3.5-24
3.5-16 Brakes and Jacks 3.5-25
3.5-17 Piping 3.5-28
3.5-18 Winding Terminations and Neutral Grounding Assembly 3.5-29
3.5-19 Temperature Detectors 3.5-33
3.5-20 Instrumentation 3.5-33
3.5-21 Current Transformers 3.5-36
3.5-22 Heaters 3.5-36
3.5-23 Provisions for Governor Accessories 3.5-37
3.5-24 Insulation Against Stray Current 3.5-37
3.5-25 Generator Terminal Box 3.5-37
3.5-26 Fire Extinguishing System 3.5-38
3.5-27 Special Tools and Maintenance Equipment 3.5-42
3.5-28 Shop Assembly and Tests 3.5-43
3.5-29 Installation 3.5-45
3.5-30 Field Tests 3.5-45
3.5-31 Generator Data 3.5-45
PART 3.6 - EXCITATION SYSTEMS
3.6-1 Scope 3.6-1
3.6-2 Type, Characteristics, and Standards 3.6-1
3.6-3 Operational Requirements 3.6-2
3.6-4 Excitation Power Transformer 3.6-6
3.6-5 Rectifier 3.6-7
3.6-6 Field Circuit Breaker 3.6-9
3.6-7 Transducers 3.6-10
3.6-8 Protective Devices 3.6-10
3.6-9 Annunciator 3.6-12
3.6-10 Instruments 3.6-13
3.6-11 Field Flashing 3.6-13
3.6-12 Voltage Regulator 3.6-13
3.6-13 Auxiliary Power Equipment 3.6-17
3.6-14 Excitation Cubicles 3.6-17
3.6-15 Bus 3.6-17
3.6-16 Special Tools and Maintenance Equipment 3.6-18
3.6-17 Shop Assembly and Tests 3.6-18
3.6-18 Installation 3.6-19
3.6-19 Field Tests 3.6-19
3.6-20 Excitation System Data 3.6-19
PART 3.7 - INSTALLATION OF HYDRAULIC TURBINES,
INLET VALVES, AND GOVERNING SYSTEMS
3.7-1 Scope 3.7-1
3.7-2 General 3.7-1
3.7-3 Installation of Hydraulic Turbines 3.7-3
3.7-4 Installation of Inlet Valves 3.7-3
3.7-5 Installation of Governing Systems 3.7-4
3.7-6 Hydrostatic Pressure Tests of Oil Piping 3.7-4
3.7-7 Pre-Start Tests 3.7-4
3.7-8 Initial No-load Run 3.7-6
3.7-9 Initial Load Run 3.7-6
PART 3.8 - FIELD TESTING OF HYDRAULIC TURBINES,
INLET VALVES, AND GOVERNING SYSTEMS
3.8-1 Scope 3.8-1
3.8-2 General 3.8-1
3.8-3 Spiral Case Embedment 3.8-2
3.8-4 Governor Tests 3.8-3
3.8-5 Piping Pressure Tests 3.8-3
3.8-6 Rotation Check of Combined Shafts 3.8-4
3.8-7 Operational Tests 3.8-4
3.8-8 Capacity and Index Tests 3.8-5
3.8-9 Turbine Efficiency Test 3.8-5
3.8-10 Turbine Runaway Speed Test 3.8-6
3.8-11 Test Data and Test Reports 3.8-6
3.8-12 Field Retesting 3.8-6
PART 3.9 - INSTALLATION OF GENERATORS
AND EXCITATION SYSTEMS
3.9-1 Scope 3.9-1
3.9-2 General 3.9-1
3.9-3 Special Installation Instructions 3.9-2
3.9-4 Preliminary Testing and Start-up 3.9-2
PART 3.10 - FIELD TESTING OF GENERATORS
AND EXCITATION SYSTEMS
3.10-1 Scope 3.10-1
3.10-2 General 3.10-1
3.10-3 Field Erection Tests 3.10-2
3.10-4 Generator and Excitation System Performance Tests 3.10-5
3.10-5 Generator Efficiency Test 3.10-8
3.10-6 Generator Runaway Speed Test 3.10-9
3.10-7 Test Data and Test Reports 3.10-9
3.10-8 Field Retesting 3.10-9
SECTION 4 - SPECIFICATIONS FOR GATE, CRANE, AND HOIST EQUIPMENT
PART 4.1 - GATE EQUIPMENT
4.1-1 Scope 4.1-1
4.1-2 General Requirements 4.1-2
4.1-3 Submittals 4.1-14
4.1-4 Design Data 4.1-15
4.1-5 References 4.1-20
4.1-6 Gate Equipment Features 4.1-22
4.1-7 Quality Control Requirements 4.1-39
4.1-8 Spare Parts 4.1-46
PART 4.2 - CRANE AND HOIST EQUIPMENT
4.2-1 Scope 4.2-1
4.2-2 General Requirements 4.2-1
4.2-3 Submittals 4.2-8
4.2-4 Design Data 4.2-8
4.2-5 Painting 4.2-15
4.2-6 References 4.2-15
4.2-7 Equipment Features 4.2-16
4.2-8 Quality Control Requirements 4.2-19
4.2-9 Spare Parts 4.2-27
SECTION 5 - SPECIFICATIONS FOR GENERAL MECHANICAL WORK AND EQUIPMENT
5-1 Scope 5-1
5-2 General Requirements 5-1
5-3 Submittals 5-2
5-4 Design Data 5-2
5-5 References 5-3
5-6 Piping, Pipe Fittings and Miscellaneous Piping Items 5-3
5-7 Unit Unwatering and Filling Systems 5-8
5-8 Station Drainage System 5-11
5-9 Cooling Water and Service Water Systems 5-14
5-10 Treated Water System 5-18
5-11 Sanitary Drainage and Sewage Treatment System 5-20
5-12 Water Level Monitoring and Sensing System 5-21
5-13 Station Service Compressed Air System 5-23
5-14 Lubricating Oil System 5-25
5-15 Oil Recovery Systems 5-26
5-16 Fire Protection Systems 5-28
5-17 Heating, Ventilating and Air Conditioning Systems 5-29
5-18 Emergency Generating Systems 5-37
5-19 Factory Finishes 5-41
5-20 Field Finishes 5-41
5-21 Quality Control Requirements 5-41
5-22 Spare Parts 5-43
SECTION 6 - SPECIFICATIONS FOR GENERAL ELECTRICAL WORK AND EQUIPMENT
PART 6.1 - GENERAL ELECTRICAL WORK
6.1-1 Scope 6.1-1
6.1-2 General Requirements 6.1-1
6.1-3 Submittals 6.1-1
6.1-4 References 6.1-2
6.1-5 Regulatory Requirements 6.1-2
6.1-6 Supply of Electrical Conduits and Boxes 6.1-3
6.1-7 Supply of Cable Trays and Supports 6.1-5
6.1-8 Supply of Wire and Cable 6.1-7
6.1-9 Supply of Terminations and Splicing Materials 6.1-13
6.1-10 Supply of Ductbanks, Handholes, and Manholes 6.1-13
6.1-11 Supply of Grounding System 6.1-14
6.1-12 Supply of Telephone/Paging Systems 6.1-16
6.1-13 Supply of 220-V ac and 125-V dc Switchboards 6.1-19
6.1-14 Supply of Power Distribution Panelboards 6.1-20
6.1-15 Supply of Motor Control Centers 6.1-22
6.1-16 Supply of Plant Security System 6.1-27
6.1-17 Quality Control Requirements 6.1-29
PART 6.2 - GENERAL REQUIREMENTS FOR ELECTRICAL EQUIPMENT
6.2-1 Scope 6.2-1
6.2-2 References 6.2-1
6.2-3 Submittals 6.2-1
6.2-4 Equipment and Wire Identification 6.2-2
6.2-5 Control Equipment Electrical Ratings 6.2-3
6.2-6 Accessory Electrical Equipment 6.2-3
6.2-7 Control Cubicles and Cabinets 6.2-8
6.2-8 Shop Painting 6.2-8
6.2-9 Quality Control Requirements 6.2-8
6.2-10 Spare Parts 6.2-9
6.1-11 Restrictions on Use of Polychlorinated Biphenyl 6.2-9
PART 6.3 - MAIN POWER TRANSFORMERS
6.3-1 Scope 6.3-1
6.3-2 General Requirements 6.3-1
6.3-3 Submittals 6.3-2
6.3-4 References 6.3-3
6.3-5 Core 6.3-3
6.3-6 Windings 6.3-3
6.3-7 Tap Changer 6.3-4
6.3-8 Terminals (Bushings) 6.3-4
6.3-9 Bushing Type Current Transformers 6.3-6
6.3-10 Case 6.3-6
6.3-11 Oil Preservation System 6.3-7
6.3-12 Oil Level Gauge and Thermometer 6.3-8
6.3-13 Temperature Detectors and Thermal Relays 6.3-9
6.3-14 Conduit, Wiring, and Terminal Cabinet 6.3-10
6.3-15 Skid Base 6.3-10
6.3-16 Cooling System 6.3-10
6.3-17 Oil 6.3-10
6.3-18 Nameplates 6.3-11
6.3-19 Maintenance Equipment 6.3-11
6.3-20 Quality Control Requirements 6.3-11
PART 6.4 - 15-KV NON-SEGREGATED PHASE BUS ASSEMBLIES
6.4-1 Scope 6.4-1
6.4-2 General Requirements 6.4-1
6.4-3 Submittals 6.4-1
6.4-4 References 6.4-1
6.4-5 Non-Segregated Phase Bus Assemblies 6.4-2
6.4-6 Quality Control Requirements 6.4-3
PART 6.5 - 11-KV SWITCHGEAR
6.5-1 Scope 6.5-1
6.5-2 General Requirements 6.5-1
6.5-3 Submittals 6.5-2
6.5-4 References 6.5-2
6.5-5 Buses 6.5-2
6.5-6 Circuit Breakers 6.5-3
6.5-7 Instrument Transformers 6.5-4
6.5-8 Surge Protection Equipment 6.5-5
6.5-9 Cable Terminators 6.5-5
6.5-10 Load Break Fused Disconnect Switch 6.5-5
6.5-11 Warning Signs 6.5-6
6.5-12 Control Switches 6.5-6
6.5-13 Detailed Equipment 6.5-6
6.5-14 Maintenance Equipment 6.5-9
6.5-15 Quality Control Requirements 6.5-9
PART 6.6 - STATION SERVICE SUBSTATION
6.6-1 Scope 6.6-1
6.6-2 General Requirements 6.6-1
6.6-3 Submittals 6.6-1
6.6-4 References 6.6-1
6.6-5 Breaker Data 6.6-2
6.6-6 Transformers 6.6-2
6.6-7 Transformer Connections 6.6-5
6.6-8 400-V Switchgear 6.6-6
6.6-9 Emergency Generator-Switchgear Cable Connections 6.6-12
6.6-10 Quality Control Requirements 6.6-12
PART 6.7 - PLANT CONTROL SWITCHBOARD
6.7-1 Scope 6.7-1
6.7-2 General Requirements 6.7-1
6.7-3 Submittals 6.7-1
6.7-4 References 6.7-1
6.7-5 Plant Control Switchboard (PCS) 6.7-2
6.7-6 Quality Control Requirements 6.7-40
PART 6.8 - BATTERY SETS, BATTERY CHARGERS, AND UNINTERRUPTIBLE POWER
SUPPLIES
6.8-1 Scope 6.8-1
6.8-2 General Requirements 6.8-1
6.8-3 Submittals 6.8-1
6.8-4 References 6.8-1
6.8-5 Battery Sets 6.8-2
6.8-6 Battery Chargers 6.8-4
6.8-7 Uninterruptible Power Supplies (UPSs) 6.8-6
6.8-8 Quality Control Requirements 6.8-11
PART 6.9 - LIGHTING SYSTEM
6.9-1 Scope 6.9-1
6.9-2 General Requirements 6.9-1
6.9-3 Submittals 6.9-1
6.9-4 Outlet Boxes 6.9-2
6.9-5 Receptacles and Switches 6.9-2
6.9-6 Fixtures 6.9-3
6.9-7 Ballasts 6.9-3
6.9-8 Lamps 6.9-3
6.9-9 Lighting Panelboards 6.9-3
6.9-10 Lighting Contactor Cabinets 6.9-3
6.9-11 Photocells 6.9-3
6.9-12 Quality Control Requirements 6.9-4
PART 6.10 - 132-KV SWITCHYARD EQUIPMENT
6.10-1 Scope 6.10-1
6.10-2 General Requirements 6.10-1
6.10-3 Submittals 6.10-2
6.10-4 References 6.10-2
6.10-5 SF6 Circuit Breakers 6.10-3
6.10-6 Isolation (Disconnecting) Switches 6.10-6
6.10-7 Coupling Capacitor Voltage Transformers 6.10-7
6.10-8 Line Trap and Line Tuners 6.10-9
6.10-9 Switchyard Steel Structures and Accessories 6.10-10
6.10-10 Switchyard Power Connections 6.10-11
6.10-11 Surge Arresters 6.10-12
6.10-12 Quality Control Requirements 6.10-13
PART 6.11 - 132-KV HIGH VOLTAGE CABLES AND TERMINATIONS
6.11-1 Scope 6.11-1
6.11-2 General Requirements 6.11-1
6.11-3 Submittals 6.11-1
6.11-4 References 6.11-2
6.11-5 Ratings 6.11-2
6.11-6 Equipment 6.11-2
6.11-7 Quality Control Requirements 6.11-3
PART 6.12 - SPILLWAY AND HEADWORKS GATE AREA ELECTRICAL EQUIPMENT
6.12-1 Scope 6.12-1
6.12-2 General Description 6.12-1
6.12-3 Submittals 6.12-1
6.12-4 References 6.12-1
6.12-5 Step Down Transformer/Fused Disconnect Switch 6.12-1
6.12-6 Power Distribution Panelboards 6.12-2
6.12-7 Automatic Transfer Switches (ATS) 6.12-2
6.12-8 Programmable Logic Controllers (PLCs) 6.12-2
6.12-9 Telephones/Paging 6.12-3
6.12-10 Quality Control Requirements 6.12-3
PART 6.13 - FIRE DETECTION SYSTEM
6.13-1 Scope 6.13-1
6.13-2 General Description 6.13-1
6.13-3 Submittals 6.13-1
6.13-4 References 6.13-1
6.13-5 Fire Alarm System 6.13-1
6.13-6 Quality Control Requirements 6.13-7
PART 6.14 - 11-KV OVERHEAD DISTRIBUTION LINES
6.14-1 Scope 6.14-1
6.14-2 General Requirements 6.14-1
6.14-3 Submittals 6.14-1
6.14-4 References 6.14-1
6.14-5 Materials 6.14-1
6.14-6 Quality Control Requirements 6.14-4
PART 6.15 - POWER LINE CARRIER EQUIPMENT
6.15-1 Scope 6.15-1
6.15-2 General Requirements 6.15-1
6.15-3 Submittals 6.15-1
6.15-4 Power Line Carrier Equipment 6.15-2
6.15-5 Quality Control Requirements 6.15-2
SECTION 7 - SPECIFICATIONS FOR 132-KV TRANSMISSION LINE
7-1 Scope 7-1
7-2 Submittals 7-1
7-3 Conductors 7-1
7-4 Shield Wire 7-3
7-5 Insulators, Hardware, and Accessories 7-4
7-6 Towers 7-9
7-7 Construction 7-21
7-8 Transmission Line Design 7-33
ATTACHMENT TO SPECIFICATIONS
Guaranteed Equipment Characteristics - Request for Proposal:
Appendix D, as revised September 03, 1996, pages D-1 through D-5 and
Performance Characteristics
Appendix E, as revised September 03, 1996, pages E-1 through E-6
Supplemental Information, dated July 12, 1996, pages GEC-1 through GEC-6"
CONCEPTUAL LAYOUT DRAWINGS
CIVIL
Drawing Number Drawing Title
5646-C-101 R1 Project Plan and Profile
5646-C-105 R1 Headworks and Desanding Basin, General Plan
5646-C-106 R1 Headworks and Desanding Basing, Plan
5646-C-107 Headworks and Desanding Basin, Sections
5646-C-121 R1 Headrace Tunnel, Plan and Profile
5646-C-131 Penstock Plan and Profile
5646-C-141 Surge Shaft
5646-C-151 Powerhouse General Plan
5646-C-152 R1 Powerhouse General Sections
5646-C-155 Powerhouse Floor Plans
5646-C-156 Powerhouse Transvers and Longitudinal Sections
MECHANICAL
Drawing Number Drawing Title
5646-M-300 Mechanical Symbols
5646-M-301 Mechanical Abbreviations
5646-M-302 Mechanical Standard Details, Sheet 1
5646-M-303 R1 Mechanical Standard Details, Sheet 2
5646-M-304 R1 Unit Unwatering and Filling System, Flow Diagram
5646-M-305 R1 Unit Cooling Water Systems Flow Diagram
5646-M-306 Service Water System, Flow Diagram
5646-M-307 R1 Treated Water System, Flow Diagram
5646-M-308 Sanitary Drainage System, Flow Diagram
5646-M-309 R1 Station Compressed Air System, Flow Diagram
5646-M-310 R1 Oil Recovery Systems, Flow Diagrams
5646-M-311 R1 Heating Ventilating, and Air Conditioning, Flow Diagram
5646-M-312 R1 Emergency Diesel Generating Systems, Flow Diagrams
ELECTRICAL
Drawing Number Drawing Title
5646-E-401 Standard Electrical Abbreviations, Symbols, and Device
Designations
5646-E-405 132 kV Substation Plan
5646-E-406 132 kV Substation Sections and Details
5646-E-416 R1 Lighting Details
5646-E-421 R1 Main One-Line Diagram
5646-E-422 Station Service One-Line Diagram
5646-E-426 Control Block Logic Diagram
5646-E-427 R1 Plant Control Switchboard, Front Elevation
5646-E-441 R1 Grounding Details
TRANSMISSION LINE
Drawing Number Drawing Title
5646-T-500 Location Map
5646-T-501 Insulator and Hardware Assemblies
5646-T-502 Tower Grounding
5646-T-503 Single Circuit Suspension Transmission
Tower, Clearance Diagram and Details
5646-T-504 Single Circuit Dead-End and Strain
Transmission Towers, Clearance Diagram and Details
5646-T-505 Transmission Tower Foundations
5646-T-506 Vibration Damper Details
5646-T-110 Transmission Line Plan and Profile Drawing
5646-T-111 Transmission Line Plan and Profile Drawing
5646-T-112 Transmission Line Plan and Profile Drawing
5646-T-113 Transmission Line Plan and Profile Drawing
5646-T-114 Transmission Line Plan and Profile Drawing
5646-T-115 Transmission Line Plan and Profile Drawing
5646-T-116 Transmission Line Plan and Profile Drawing
5646-T-117 Transmission Line Plan and Profile Drawing
5646-T-118 Transmission Line Plan and Profile Drawing
EXHIBIT J
CONTRACTOR'S KEY PERSONNEL
I. CGGC Home Office
1. Chief General of Upper Bhote Koshi Hydroelectric Project
Mr. Wang Guangjie
Fax: 0086-717-6447953/6271727 Tel.: 0086-717-6271688
6737908
9003198
2. General Coordinator of the Project
Mr. Cao Junhua
Fax: 0086-717-6752116/6447953 Tel.: 0086-717-6752136
(English Speaking) 9002845
II. Representative of CGGC Kathmandu Representative Office in Kathmandu
Mr. Zhang Wei
Fax: 00977-1-421114 Tel.: 00977-1-417136
(English Speaking)
III. Resident Organization of Upper Bhote Koshi Hydroelectric Project
1. Project Manager Mr. Xie Yi
2. Executive Manager Mr. Tan Guozhang
3. Representative of Harbin (Manufacturer) Mr. Guo Zhenhai
4. Representative of Mid-South Mr. Li Zhengming
Design & Research Institute
5. Technical Chief (English Speaking) Mr. Zhang Junfang
6. Accountant Chief (English Speaking) Mr. Sun Shiling
7. Vice Manager Mr. Jia Ancheng
(Civil Works, English Speaking)
The Facility Site Organization Chart and the Key Personnel Experience are
attached.(not attached- Pat Hartel has copy, but Panda does not have a copy
on disk)
EXHIBIT K
PROJECT LICENSES
APPLICATION FORM FOR FOREIGN INVESTMENT/TECHNOLOGY TRANSFER
To
Director General
Department of Industries
Tripureswore, Kathmandu
Nepal
Dear Sir
We are interested to set-up a Power Generation and Transmission Project
industry as per the Foreign Investment and Technology Act. We, therefore,
would like to present you with the following details for necessary approval.
1. OBJECTIVE
Description of Annual Value Market in %
Product/Services Capacity (NPR '000) Domestic Export
Hydro power generation 246 million 815,490 100
from Upper Bhote Koshi kWh
Hydro-electric Project
a. No. of working days/year: 300
b. No. of shifts/day: 3
c. No. of working hrs./shift: 8
d. by products (if any): No
2. LOCATION
a. Zone: Bagmati
b. District: Sindhu Palchowk
c. Town/Village: Jhirpu Village
d. Ward: 5
3. SMALL/MEDIUM/LARGE
4. LEGAL STATUS: Private Ltd/Public Ltd. - Public Ltd
5. TOTAL PROJECT COST (In NPR '000; $1.00 = NPR 55.24) 5,414,500 (estimated)
A. Fixed Asset Investment *5,326,100
a. Land 11,500
b. Building 37,400
c. Plant/Machinery 1,759,200
d. Furnitures & Fixtures 7,050
e. Vechicles 46,850
f. Office Equipment 4,250
g. Other Fixed Assets 1,829,850
h. Pre-operating Expenses 1,630,000
B. Initial Working Capital 88,400
* Fixed asset investment is an estimated cost. The cost breakdown as show
in item 5'A' is approximate and subject to change after project finalization.
6. SOURCES OF FINANCE (In NPR '000)
LOCAL FOREIGN (Equivelent To)
A. Owner's Equity NPR 162,435 NPR 1,461,915 (Foreign Source in $US)
B. Long Term Loan NPR 3,370,150 (Foreign Source in $US)
C. Short Term Loan
7. TYPES OF AGREEMENTS ENTERED
(Please tick mark where applicable)
a. Technical Assistance
b. Technical Knowhow/License
c. Trademark
d. Management
e. Marketing
f. Equity/Loan/Investment
g. Others (please specify) - Joint venture agreement with RDC of Nepal
a subsidiary of Resource Development Consultant, Wyoming, USA and
Panda of Nepal, a subsidiary of Panda Energy International, Texas
USA
8. ANNUAL PAYMENT TO FOREIGN PARTY
a. Royalties and Fees (during construction 101,200
b.1 Salaries for Foreign Personnel (during construction) 129,450
b.2 Avg. Annual Operating Cost of Foreing Personnel
(after construction) 28,700
b.3 Other Misc. Expenses for Foreign Personnel 2,800
c. Others please specify)
i. Annual Repayment of Loan (for 12 year period) 268,500
ii. Annual Interest of Loan (for 12 year period) 370,500
iii. Annual Dividend 321,500
TOTAL 1,266,650
The total payment to Foreign Party is NPR 1,266,650,000; $US 22,926,000
9. RAW MATERIALS
VALUE(NPR '000) SOURCE
ANNUAL (3 yr. const. Local Indian 3rd
DETAILS REQUIREMENT period) Country
1. Reinforcement steel 834 tonne 32,250 XX
2. Cement 5,000 tonne 44,200 XX
3. Timber 270 cubic meter 7,560 XX
4. Bricks 400,000 720 XX
5. Stone,aggreget,
sand 55,000 39,500 XX
Total annual requirement of convertible foreign exchange for raw materials -
NPR 76,450,000, $US 1,383,700.
10. MACHINERY AND EQUIPMENT
VALUE(NPR '000) SOURCE
NUMBER OF (3 yr. const. Local Indian 3rd
DETAILS UNITS period) Country
1. Civil structure equip-
ment (gates, valves,
penstocks, etc.) 17 601,300 XX
2. Electro mechanical
equip. (generators,
turbines, etc.) 8 711,350 XX
3. T/L and substantion
equip. (transformers,
circuit breakers, etc.) 19 196,300 XX
4. Spare Parts L.S. 2,800 XX
Total requirements of convertible foreign exchange for machinery and
equipment - NPR 1,511,750,000; $US27,362,000.
11. EMPLOYMENT (TOTAL)
TYPE LOCAL FOREIGN TOTAL
A. Managerial 1 1 2
B. Engineer/Technologist 20 10 30
C. Administrative 6 2 8
D. Labor
a. Highly Skilled 30 20 50
b. Skilled 30 20 50
c. Semi-Skilled 80 20 100
d. Unskilled 1,000 1,000
12. ANNUAL UTILITIES REQUIREMENT
A. Coal - X Mt.
B. Fuel Wood - One Mt.
C. Electricity - 3000 kW/k VA/HP
D. Furnace Oil -X KL
E. Diesel - 1800 KL
F. Water - 10000 KL/Cubic Meter
G. Others: 1 Transformer Oil - 5 KL
2 Kerosene (as substitute of fuel wood) - 50 KL
13. Estimated period between the date of issue of permission and the
commencement of operation - four and half years.
14. ENVIRONMENTAL ASPECTS
A. Land area requirement - 5.00 hectare
B. Proximity from residential area - Proximate to Jhirpu Village
C. Proximity from school, hospital, cultural, religious and natural
heritage - Proximate to Jhirpu School.
D. Public drainage available? - No.
E. Source of water - Bhote Koshi river and exisitn spring.
F. Chemical use in the process, if any - No.
G. Polltants, if any:
a. Wast water - No.
b. Solid waste - Huge quantity of much from excavation of tunnel,
power house, etc.
c. Air pollution - Air pollution by dust particles, nxious gases
during construction only.
H. Pollution control plan:
a. Is thee any provision for waste water treatment? - No
b. Are you aware of NS 229 regard the waste water effluent? - Yes
c. Methods of controlling solid waste - Proper dumpting and
compaction of muck and other waste.
d. Methods of controlling air pollution - Sprying water over the
construction site, during construction.
e. Methods of controlling noise pollution - Periodic checking of
machines/vehicles during construction.
Applicants
Local Foreign Foreign
Name of the company/person: RDC of Nepal Panda of Nepal
Himal International Power
Corporation Ltd. (HIPC)
Address:
Soaltee Hotel Ltd., Tahachal, c/o W.S. Walker & Co. c/o Maples & Calder
Kathmandu 1st Floor, Caledonian P.O.Box 309, Ugland
House, Mary Street, House, South Church
P.O.box 265 G, Street, Grand Cayman
George Town, Grand Cayman Island
Cayman, Cayman Island
Tel: 272550/55 Ext.6275 Tel: 1 312 831 3000 Tel: 1 214 980-7159
Fax: 977 1 272201 Fax: 1 312 831 3999 Fax: 1 214 980-6815
Contact person:
Prabhakar SBJ Rana Patrick G. Hartel Kim R. Knightstep
Chairman Authorized Authorized
Representative Representative
Signature:
Date:
Note
Documents attached with this application form:
a. Project Report - Executive Summary 3 copies
b. EIA/IEE report - Summary 2 copies
c. Agreement - 3 copies
d. Citizenship certificate of local party/or certificate of incorporation and
company profile if participant is a company.
e. Copy of passport of foreign party/or certificate of incorporation if
participant is a company.
f. Bio-data/company profile of the foreign party
g. Financial credibility of the foreign investor provided by a bank
h. Authority letter(s) from the companies concerned
PERMISSION LETTER FOR ELECTRICITY PRODUCTION
His Majesty's Government
Ministry of Industry
Department of Industries
(Permission Section)
Tripureswor,
Kathmandu, Nepal
Letter No. 052/53 U.V.I. Sha-56 2-12357
2-13838
2-15120
2-26112
Tripureshwor
Kathmandu, Nepal
Date: 2051/10/26
(9.2.1996)
SUBJECT: Permission Letter for Electricity Production
M/s Himal Internation Power Corporation Ltd.
Tahachal, Kathmandu.
In reference to above subject, in consideration to your application to seek
the permission for establishing Electricity Production Industry in Phulping
Katti V.D.C. of Sindhupalchowk District, this permission letter is hereby
issued as per the decision to issue the permission in case the following
conditions are compulsorily not implemented, this permission could be
canceled at any time.
Conditions:
1. Kind of Industry: Large
2. Classification of Industry Energy Generating
3. Fixed Capital: Rs. 4,680,000,000.00
4. Place of Industry: District Sindhupalchowk, Bagmati Zone
5. Aim of Industry and Annual
Production Capacity, on the
basis of 3 (three) shifts
producted Material/Quantity: Annual 36 MW (246 Million kWh)
Electricity generation.
6. Approved Shift Number 3 (Three)
7. Necessary Electric Power: 3000 kW
8. Necessary Raw Material: Nil
9. Within 35 days of receipt of this permission letter, the application for
registration of the industry shall be submitted as per the prevailing acts.
10. All workers and employees for the industry shall be Nepali citizens,
however for the posts of skilled workers and management personnel, if it
is required to produce skilled man power due to non-availability of Nepali
citizens, foreign citizens could be employed on such posts with the
permission of labor department for the period specified by that department
only.
11. It shall be necessary to receive the prior approval of this department,
for such subjects which are specified for approval in Foreign Investment
and Technology Transfer Act 2049.
12. It will be necessary to receive prior approval of this department for
rehabilitation, modernization, extension or diversification of the
industry.
13. The industry shall be implemented without harm to others and without
polluting the environment.
14. Except the industries relating to Tourism Welfare and such industries
which are established by His Majesty's Government or within the
Industrial Area established with the permission of HIs Majesty's
Goverment, other industries shall be established eight kilometers away
from the International boundary.
15. After issue of the permission every 3 month, progress report in
connection to establishment of the industry shall be submitted to
permission section of this department, until the operation of the
industry.
16. After operation of the industry, the monthly progress and production
description shall necessarily be submitted to the Record Section of this
department, until the operation of the industry.
17. The permission shall be canceled forfeiting the deposit amount of the
establishment of Industry is not started within six (6) monts and if
the industry is not operated within 48 monts as per the work plan
submitted by you. This department's permission for extension of
working period shall be necessary, in case the work could not be
performed as per the schedule due to any reason.
18. There shall be heavy punishment if the work is not performed as per the
issued permission and any misuse of foreign currency exchange or any other
facilities made available is found.
19. The national value added portion of the industry whichexports more than 50%
of its production shall be 10% and it shall be 15% for other industries.
20) Special Conditions:
A. This industry shall sign Project Agreement with HMG and Power Purchase
Agreement with Nepal Electricity Authority respectively even after the
company registration is done.
B. Loan Agreement shall be approved before obtaining the foreign loan.
C. For investment in capitalized goods, prior approval from Department
of Industries shall be obtained.
D. Regarding the service chargs, separate agreement shall be signed.
cc.:
M/s Ministry of Industry, Industry Promotion Division
M/s Department of Customs, Tripureshwor
M/s Excise Duty and Sales Tax office
M/s Labour Department, Putali Sadak
M/s Department of Industry, Registration Branch
M/s Department of Industry, Facility Branch
M/s Department of Industry, Record Branch
M/s Nepal Industrial Development Center, Durbar Marg.
M/s Economic Service Center, Balaju
M/s District Administration Office
M/s Company Registrar's Office, Tripureshwor
SURVEY LICENSE OF ELECTRICITY PRODUCTION
[HIS MAJESTY'S GOVERNMENT MINISTRY OF WATER RESOURCES]
License No: EDC/050/05/1GS001
Gentleman,
As per the application submitted by you on 23 February 1994 (2050/11/11)
to obtain a survey license of electricity production, this license with
the following particulars is hereby provided pursuant to sub-section (2)
of Section 4 of the Electricity Act, 2049 and Rule 8 of the Electricity
Regulation, 2050.
1. Full name and address of the person or corporate body willing to conduct
survey of electricity production:
Himal International Power Corp. Ltd.
Soaltee Hotel Ltd.,
Tahachal, Kathmandu, Nepal
2. Type of electricity to be surveyed its production - Hydroelectricity
3. Name of water resources to be surveyed for Hydroelectricity production:
Bhote Koshi River (upper portion)
4. Area of Survey
a) Zone: Bagmati
b) District: Sindhu Palchowk
c) Village Development Comittee/Municipality: Jhirpu Village Development
Committee.
d) Signifying mark of national grid system of topography:
East: 396,850 West: 394,250
North: 3,,091,900 South: 3,088,400
The range in the proximity of 106 to 110 km. of Kodari Highway from
Kathmandu in Jhirpu Tatopani area.
5. Nature of survey: To prepare cost estimate too by ascertaining the
conceptual design with additional field survey and study after reviewing
the feasibility study of 36000 Kw. capacity of the upper Bhote Koshi Hydro
electricity project concluded by Nepal Electricity Authority on July 1993.
6. Period of licence remaining valid: From 15 March 1994 to 15 March 1996.
(2050/12/2 to 2052/12/30 B.S.)
7. Other conditions and terms:
A. Survey shall be carried on pursuant to the Statement-1 attached herwith.
B. In case to submit application for the Licence of electricity production,
the subject matter relating to the environment should be studied as per
the National Environmental Impact Assessment Guidelines, 2050 of His
Majesty's Government of Nepal.
C. In case to establish the industry and including of foreign investment
for survey, the accomplishment of registration and obtaining of approval
should be carried out in accordance with the provision as stated in Rule
93 of the Electricity Regulation, 2050.
D. The approximate site map (Exhibit C-2 & Exhibit C-3) of the area to be
surveyed, is attached.
Signature of the Authority Issuing the
licence: sd. S.N. Upadhyaya
Date: 15/3/94 A.D. (2050/12/2 B.S.)
Name: Surya Nath Upadhyaya
Designation: Acting Secretary
Ministry of Water Resource.
LICENSE FOR SURVEY OF ELECTRICITY TRANSMISSION
[HIS MAJESTY'S GOVERNMENT MINISTRY OF WATER RESOURCES]
License No: EDC/050/05ETS001
Gentleman,
As per the application submitted by you on 23 February 1994 (2050/11/11)
to obtain a license for survey of electricity transmission, this license
with the following particulars is hereby provided pursuant to sub-section
(2) of Section 4 of the Electricity Act, 2049 and Rule 8 of the Electricity
Regulation, 2050.
1. Full name and address of the person or corporate body willing to conduct
survey of electricity transmission:
Himal International Power Corp. Ltd.
Soaltee Hotel Ltd.,
Tahachal, Kathmandu, Nepal
2. Particulars of the Project/place of electricity to be transmitted:
Upper Bhote Koshi Hydroelectric Project proposed at Jhirpu, Village
Development Committee of Sindhu Palchowk District of Bagmati Zone.
3. Particulars of the place from where the electricity is to be
transmitted:
To conduct survey for transmission of power from Bhote Koshi Hydro-
electricity Project Proposed at Jhirpu Village Development Committee
of Sindhu Palchowk District of Bagmati Zone by selecting any one
among the following three alternatives:
A. 66,000 Volts Transmission line from Jhirpu to Bhaktapur Via
Sunkoshi Hydroelectricity Project.
B. One 66,000 Volts transmission line from Jhirpu to Sunkoshi
Hydroelectricity Project and the 0ther 66,000 Volts Transmission
line from Jhirpu to Bhaktapur.
C. 132,000 volts transmission line directly from Jhirpu to Bhaktapur.
4. Area of Survey:
a) Zone: Bagmati
b) District: Sindhu Palchowk, Kavrepalanchowk and Bhaktapur.
c) Village Development Committee/Municipality: The concerning
Municipalities and Village Development Committees coming in
the route of the transmission line mentioned in Article 3.
5. Transmission voltage and quantity of electricity:
Voltage: 66,000 or 1,32,000 Volts
Quantity: 244 million Kwh (Capacity: 66,000 Kw for 66,000 volt
single circuit, 77,400 Kw for 66,000 volts double circuit
and 96,000 Kw for 1,32,000 volt single circuit line)
6. Nature of survey:
To review the feasibility study of 36000 Kw capacity of the Upper
Bhote Koshi Hydroelectricity Project concluded by Nepal Electricity
Authority on July 1993 and to prepare cost estimate too by ascertaining
the conceptual design with additional field survey and study having
been selected any one among the various alternatives mentioned in
Article 3.
7. Period of licence remaining valid: From 15 March 1994 to 15 March
1996. (2050/12/2 to 2052/12/30 B.S.)
8. Other conditions and terms:
A. Survey shall be carried on pursuant to the Statement - 1 herewith.
B. In case to submit application for the licence of electricity
transmission, the subject matters relating to the environment
should be studied as per the National Environmental Impact
Assessment Guidelines. 2050 of His Majesty's Government of Nepal.
C. In case to establish the industry and including of foreign
investment for survey, the accomplishment of registration and
obtaining of approval should be carried out in accordance with
the provision as stated in Rule 93 of Electricity Regulation, 2050.
D. The approximate site map (Exhibit C-1) of the area to be surveyed
is attached.
Signature of the Authority Issuing the
licence: sd. S.N. Upadhyaya
Date: 15/3/94 A.D. (2050/12/2 B.S.)
Name: Surya Nath Upadhyaya
Designation: Acting Secretary,
Ministry of Water Resource.
ASSIGNMENT OF GENERATION AND TRANSMISSION SURVEY LICENSES
[HIMAL INTERNATIONAL POWER CORPORATION LETTERHEAD]
20 February 1996
Mr. V.S. Shrestha
Ministry of Water Resources
Electricity Development Centre
Exhibition Road
Kathmandu
SUBJECT: UPPER BHOTE KOSHI HYDROELECTRIC PROJECT ASSIGNMENT OF GENERATION
AND TRANSMISSION SURVEY LICENSES
Dear Mr. Shrestha,
We hereby assign the generation and survey licenses issued on March 15, 1994
for the above project to the Harza/Himal Joint Venture established for the
development of the above Project.
Yours sincerely,
/s/Amar Raj Singh
Amar Raj Singh
Director
ANNEXURE - 1
(Annexure attached to the Joint Venture Agreement of Bhote Koshi Power Company
Private Limited dated 20 March, 1996).
By this Deed I/we __________________________ of whoe registered office is at
_______________________________________________________ intending to become the
holder of ( ) shares of Rs. ( ) each in the Capital of Bhote Koshi
Power Company Private Limited (the "Company" hereby agree(s), subject to my/our
becoming a holder of such shares, with the Company and each of it's shareholders
to observe and be bound by all the provisions of an Agreement made on 20 March,
1996 between (1) Himal International Power Corporation Private Limited,
(2) Panda of Nepal and (3) RDC of Nepal (as such Agreement has been amended
prior to the date hereof) (a copy of which Agreement (so amended) is attached
hereto and has been initialled by me/us for identification) in all respects as
if I/we was/were a party to such Agreement and were named therein as a
Shareholder or a party thereto.
IN WITNESS whereof, the Parties hereto have set their hands to these presents on
the day and date mentioned herein above earlier.
IN WITNESS WHEREOF, the Parties have caused their duly authorized
representatives to execute this Agreement on the 7th day of Chaidra, bs 2056
(20th day of March, 1996).
HIMAL INTERNATIONAL POWER PANDA OF NEPAL
CORP. LTD. a Cayman Island company and a
Subsidiary of Panda Energy
International, Inc., a Texas
(USA) corporation
_______________________________ ______________________________
Prabhakar SJB Rana Kim R. Knightstep
Chairman Authorized Representative
RDC OF NEPAL
a Cayman Island company and a
subsidiary of Resource Development
Consultants, a Wyoming (USA) limited
liability company
_________________________________
Patrick G. Hartel
Authorized Representative
ELECTRICITY PRODUCTION AND TRANSMISSION LICENSES
His Majesty's Government
ELECTRICITY DEVELOPMENT CENTRE
P.O. Box No. 2507
Exhibition Road
Kathmandu, Nepal
Letter No. V-5 Nirman Maha Shakha Telephone 2-21728
(110) 2-27535
Delivery No. 1314 2-27262
2-25554
2-16342
Fax: (997-1)227537
Date 2053/11/10
21/02/1997
SUBJECT: Electricity Production and Transmission Licenses
M/S Project Manager
Upper Bhote Koshi Hydroelectric Project
Bhote Koshi Power Company Pvt. Ltd.
Tahachal, Kathmandu
In reference to the above subject, as per your application dated
2053/7/18 (3-11-1996) requesting to obtain the Electricity Production and
Transmission Licenses according to Electricity act 2049 and Electricity
Rules 2050, I have pleasure to inform you that two sets of licenses issued
on 2053/8/13 (28-11-1996) are attached herewith.
Enclosure: (1) License No. V.V.K. 2053/54 V.U. -005 and Annex 1
(2) License No. V.V.K. 2053/54 V.PRA.004 and Annex 2
cc: (I) M/S Secretary, Ministry of Water Resources
(II)M/S Inspection/Monitoring Section EDC for Necessary Action
sd/___________________
Amitabha Rajauriya
Engineer
His Majesty's Government
Ministry of Water Resources
LICENSE FOR PRODUCTION OF ELECTRICITY
License No. - License No. V.V.K. 2053/54 V.U. -005
M/s Project Manager
Bhote Koshi Power Company Pvt. Ltd.
Tahachal, Kathmandu
Gentlemen,
As per your application submitted on B.S. 2053/7/18 (03-11-96) seeking a
license for production of electricity, this license has been hereby issued
with the following particulars and consitions.
1. Name and address of the person or corporate body to whom the license
is issued:
Bhote Koshi Power Company Pvt. Ltd.
Tahachal, Kathmandu, Nepal
2. Name of electricity generating plant: Upper Bhote Koshi Hydroelectric
Project
(Installed Capacity: 36,000 kW)
(Average Annual Production: 246 million kilowatt hour)
3. Means for production of electricity: Water Resources
4. If water resources are being used:
a. Name of the river: Bhote Koshi River
b. Area allowed for utilization of
water resources:
Zone - Bagmati
District - Sindhupalchowk
V.D.C./Municipality - Tatopani V.D.C. and Phulping Katti V.D.C.
East: - Tatopani V.D.C. Ward No. 9 and Phulping
Katti V.D.C. Ward No. 2
West: - Tatopani V.D.C. Ward No. 4, 5 and 7
North: - Tatopani V.D.C. Ward No. 4 and 9
c. Quantom of water resources being utilized: Maximum 32 cubic meter per
second (Design discharge)
5. Particulars of main structure with their location:
a. Head Works: The head works of the project will be situated on Bhote
Koshi River at about 450 meters down stream from the confluance of
Jhungkhola and Bhote Koshi River in Tatopani V.D.C. Ward No. 4 and
Phulping Katti V.D.C. Ward No. 2 of Sindhupalchowk District, Bagmati
Zone. Head works consists of the construction of concrete diversion
weir of size 15M x 60M with one spillway and two numbers of radial
gates. There will be a small head pond upstream of the weir. The water
from the head pond will be diverted into a desanding basin of the size
of 123m length, 25 meter width and 6.5 to 9 meter depth to be
constructed on the left bank of the Bhote Koshi River.
b. Head Race Tunnel: Water from the desanding basin will be diverted
toward the power plant through an underground horse shoe type 3.3
kilometer long, 4 meter high and 4 meters wide head race tunnel to be
constructed in Ward No. 1 and 2 of Phulping Katti V.D.C. The water
passing in the underground head race tunnel will be taken to the
power plant through a surge tank and penstock pipe.
c. Surge Shaft: A surge shaft of 8 meter diameter and 45 meter height
shall be constructed at the left bank of Bhote Koshi River in Ward
No. 1 of Phulping Katti V.D.C.
d. Penstock: A penstock pipe of 2.8 meter diameter and 430 meter length
will be constructed in Ward No. 1 of Phulping Katti V.D.C., which will
take the water coming through head race tunnel and surge shaft to the
power plant.
e. Power House: The power house of the project will be situated in
Phulping Katti V.D.C. Ward No. 1, at the left bank of Bhote Koshi River.
Two numbers of Fransis Turbines with capacity of 20,500 kW each and two
numbers of generators with capacity of 22,500 kW each will be installed
in the power house. The Design head of the project is 139 meters.
f. Tail Race Structure: The water emerging from the power house will be
discharged into the Bhote Koshi River through a tail race structure of
about 22 meter length, 13 meter width and 12.5 meter height, being
constructed in Ward No. 1 of Phulping Katti V.D.C.
g. Switch Yard: One 132 K.V. switch yard will be constructed near the power
house. Two numbers of 25,000 KVA, 11/132 kV, main transformers will be
installed in the switch year.
6. License Validity Period: B.S. 2053 Marg ________ to B.S. 2093 Kartiak end.
(__________ December 1996 to 15 November 2036)
7. Other Conditions:
a. Following documents attached in Exhibit 1, shall be the integral parts of
this license.
1. The Definition Report, June 1995 prepared by Himal International Power
Corporation Ltd. and Harza Engineering International, L.P.
2. Environmental Impact Assessment of Upper Bhote Koshi Hydroelectric
Project, August 1995 prepared by International Union of conservation
of Nature (JUCN) Nepal.
3. Environmental Mitigation, Management and Monitoring Plan, November
1996 prepared by Bhote Koshi Power Company Pvt. Ltd.
4. Project Agreement between His Majesty's Government (HMG) and Bhote
Koshi Power Company Pvt. Ltd. (BKPC) and the Power Purchase Agreement
between Nepal Electricity Authority (NEA) and Bhote Koshi Power
Company Pvt. Ltd. signed on Srawan 6, 2053 B.S. (including any
amendments in these Agreements)
b. Whatsoever is mentioned in article 6 above, if Bhote Koshi Power
Company Pvt. Ltd. is unable tomanage Financial Closing by 5 Magha
2054 (January 19, 1998) or if His Majesty's Government has granted
any extension on or before above date, on such extended date, this
license will be automatically cancelled
c. In case of decrease in Special Buyout Event period specified in the
Project Agreement, if His Majesty's Government wants to buy the
project according to Project Agreement, this license will be
automatically cancelled from such buyout date.
d. Bhote Koshi Power Company Pvt. Ltd. shall be responsible and fully
liable for whole liabilities relating to detail engineering desigtn,
safety and environmental issues.
e. Without affecting the generating capacity of the Project, if major
substantial changes in the design of main structures specified in the
Definition Report of the project and in Article 5 are needed or any
addition or deletion in main structures required, prior approval
shall be obtained. However, any minor changes in the design of
project without adverse effect on environment and other negative
effects around the Construction Site, could be possible with the
intimation to Electricity Development Center (EDC), Ministry of
Water Resources (MOWR).
f. The construction work of the project shall be started physically and
implemented smoothly within one year according to Article 1 of the
Electricity Rules 2050. Every six month's progress report of the
project shall be submitted to Electricity Development Center, until
the completion of project construction.
g. The provisions laid down in the Mitigation, Management and Monitoring
Plan Report, attached in Exhibit - 1 shall be followed and the acts
of environmental impacts mitigation, management and monitoring shall
necessarily be implemented. If additional mitigative measures are
required during project construction or operation and maintenance,
such measures too shall be implemented. If any amendment in
mitigation and monitoring plan be required, it could be possible
with the mutual consent of His Majesty's Government Ministry of Water
Resources or other concerned body and Bhote Koshi Power Company Pvt.
Ltd.
h. Bhote Koshi Power Company and Electricity Development Center shall
review and find solution for the recommendations listed in Article 9
of Environmental Impact Assessment Report with concerned bodies of
His Majesty's Government. Bhote Koshi Power Company shall follow and
act according to the National Environmental Impact Assessment
Guidelines, 2050 and also prevailing Nepalese Envirnomental Rules and
Regulations. If the prevailing Environmental Rules and Regulations
are not obeyed, Bhote Koshi Power Company shall be punished as per
such rules and regulations.
i. The items 9, 11, 15 and 20 of article 9 of Environmental Impact
Assessment Report being attached in exhibit - 1, shall be implemented
as per consent obtained between BKPC, EDC, Population and Environment
Ministry and IUCN on November 6, 1996.
j. Minimum water discharge of 0.5 m3/ sec shall be provided continuously
down stream of the weir site throught the license period of the
project.
k. In case the capacity of Hydroelectric project, specified in the
license needs upgradation or rehabilitation, BKPC shall submit
application according to Electricity Act 2049 and Electricity Rule
2050. If the project is not to be operated, such information shall
be provided to Electricty Development Center, Ministry of Water
Resources.
l. In case of any change in the ownership structure of Bhote Koshi Power
Company, such information shall be provided to Electricity
Development Center, Ministry of Water Resources.
m. Any amendment, addition or deletion in the conditions specified in
this license, if required shall be done with the mutual consent of
BKPC and MOWR, HMG.
License Issuing Authority
Signature:
Date:
Name: Dr. Dwarika Nath Dhungel
Designation: Secretary,
Ministry of Water Resources
His Majesty's Government
Ministry of Water Resources
LICENSE FOR TRANSMISSION OF ELECTRICITY
License No. - License No. V.V.K./053/54 V.pra.004
M/s Project Manager
Bhote Koshi Power Company Pvt. Ltd.
Tahachal, Kathmandu
Gentlemen,
As per your application submitted on B.S. 2053/7/18 (03-11-96) seeking a
license for production of electricity, this license has been hereby issued
with the following particulars and consitions.
1. Name and address of the person or corporate body to whom the license
is issued:
Bhote Koshi Power Company Pvt. Ltd.
Tahachal, Kathmandu, Nepal
2. Name of electricity transmission project: Upper Bhote Koshi Hydroelectric
(The particulars of the transmission line to be constructed under this
project are prescribed in Article -3 below)
3. Description of the point from where the electricity is to be transmitted.
Description Circuit Length
Transmission Line will start from the switch yeard to be
located near the power house of Upper Bhote Koshi Hydro-
electric Project being constructed at Jhirpu, Ward No. __
of Phulping Katti V.D.C., Sindhupalchowk District, Bagmati
Zone and it will pass through Chaku, Panchali, Besari,
Barhabise, Sunkoshi weir site and Lamosangu Bazar, being
terminated at NEA Switching Station near power plant of
Sun Koshi Hydel Project existing in Pangretar F.D.C.
Sindhupalchowk District. Single 25 km
The conductor to be used in above Transmission Line will be 185 square
millimeter size.
4. Votage and quantity of electricity transmission:
Voltage: 132,000 volt
Quantity: 50,000 kilo volt ampere
5. License Validity Period: B.S. 2053 Marg 13 to B.S. 2093 Kartiak end.
(28 November 1996 to mid November 2036)
6. Other Conditions:
a. Following documents attached in Exhibit 1, shall be the integral parts of
this license.
1. The Definition Report, June 1995 prepared by Himal International Power
Corporation Ltd. and Harza Engineering International, L.P.
2. 132 kv Transmission Line Study, Final Report prepared by Shah Consult
International Pvt. Ltd. in February 1996.
3. Project Agreement between His Majesty's Government (HMG) and Bhote
Koshi Power Company Pvt. Ltd. (BKPC) and the Power Purchase Agreement
between Nepal Electricity Authority (NEA) and Bhote Koshi Power
Company Pvt. Ltd. signed on Srawan 6, 2053 B.S. (including any
amendments in these Agreements)
b. Whatsoever is mentioned in article 6 above, if Bhote Koshi Power
Company Pvt. Ltd. is unable tomanage Financial Closing by 5 Magha
2054 (January 19, 1998) or if His Majesty's Government has granted
any extension on or before above date, on such extended date, this
license will be automatically cancelled
c. In case of decrease in Special Buyout Event period specified in the
Project Agreement, if His Majesty's Government wants to buy the
project according to Project Agreement, this license will be
automatically cancelled from such buyout date.
d. Bhote Koshi Power Company Pvt. Ltd. shall be responsible and fully
liable for whole liabilities relating to detail engineering desigtn,
safety and environmental issues.
e. Without affecting the Electricity Transmission capacity of the
Project, if major substantial changes in the design of main
structures specified in the Definition Report of the project and in
Article 5 are needed or any addition or deletion in main structures
required, prior approval shall be obtained. However, any minor
changes in the design of project without adverse effect on
environment and other negative effects around the Construction Site,
could be possible with the intimation to Electricity Development
Center (EDC).
f. The construction work of the Transmission Line shall be started
physically and implemented smoothly within one year according to
Article 1 of the Electricity Rules 2050. Every six month's progress
report of the project shall be submitted to Electricity Development
Center, until the completion of Transmission Line.
g. Before starting the construction work of Transmission Line, the
possible impacts to be imposed on the environment by the Transmission
Line shall be studied in detail according to National Environmental
Impact Assessment Guidelines 2050 and the prevailing Environment
Rules and Regulations. After the study the Environmental Impact
Assessment Report shall include detail environmental impacts
mitigation, management and monitoring plan to be implemented
throughout the construction and operation-maintenance period.
h. After the approval of Environment Impacts Mitigation Management and
Monitoring Plan to be prepared by Bhote Koshi Power Company Pvt. Ltd.
as stated in Article g) above, Bhote Koshi Power Company Pvt. Ltd.
shall follow the provisions laid down in such report and necessarily
implement the Environmental Impact Mitigation and Monitoring Plan's
provisions. If any additional negative measures implementation is
required during the course of project construction or operation and
maintenance, such measures shall be acted upon if amendment in
mitigation and monitoring plan be required, without limiting the
mitigative measures, it could be done with the mutual consent of
His Majesty's Government (MOWR) or other concerned body and Bhote
Koshi Power Company Pvt. Ltd.
i. National Environmental Impacts Assessment Guidelines 2050 and
prevailing environmental acts and regulations shall be followed
throughout the construction and operation-maintenance period of
transmission line to avoid the substantial negative impacts on
the environment. If the prevailing environmental rules and
regulations are not obeyed, the Bhote Koshi Power Company shall be
punished as per such rules and regulations.
j. In case the capacity of Transmission Line, specified in the license
needs upgradation or rehabilitation, BKPC shall submit application
according to Electricity Act 2049 and Electricity Rule 2050. If the
project is not to be operated, such information shall be provided to
Electricty Development Center, Ministry of Water Resources.
k. In case of any change in the ownership structure of Bhote Koshi
Power Company, such information shall be provided to Electricity
Development Center, Ministry of Water Resources.
l. Any amendment, addition or deletion in the conditions specified in
this license, if required shall be done with the mutual consent of
BKPC and MOWR, HMG.
License Issuing Authority
Signature:
Date: 2953/8/13 (28-11-96)
Name: Dr. Dwarika Nath Dhungel
Designation: Secretary,
Ministry of Water Resources
JOINT VENTURE APROVAL
[His Majesty's Government of Nepal
Ministry of Industry
Department of Industry]
Ref. No. - 95
M/s Himal International Power Corporation, Ltd.
P. O. Box 2800
Tahachal, Kathmandu
RE:- Bhote Koshi Power Co. Pvt. Ltd.
Dear Sirs,
We are glad to inform you that your joint venture agreement entered
into with Panda of Nepal and RDC of Nepal for the information of Bhote
Koshi Power Co. Pvt. Ltd. with an objective of hydro power generation at
Upper Bhote Koshi with a fixed assets of Rs. 5,326,100,000 - has been
approved.
You are kindly requested to incorporate following amendments in the
joint venture agreement as accepted by you through your letter dated
25th April 1996 and submit to this department at your earliest.
1. Section 5-pg 5
"Department of Industries" to be replaced by "Office of the Company
Registrar"
2. Section 6.5-pg 6
"Initial issued and subscribed share capital" to be replaced by
"Initial Subscribed Capital"
3. Section 6.7-pg 7
Add-Issue of share against assets in kind or services should be by
prior permission of HMG of Nepal and receipt of cash from panda and
RDC for share capital should be through proper banking channels.
4. Delete section 12.20 - pg 14.
5. Section 20.4 pg 18
Add "without responsibilities to His Majesty's Govt. of Nepal"
after....as a partnership for tax purposes in the United States
Thanking you. Yours Faithfully,
cc Foreign Investment Promotion L.B. Karamcharya
Section Ministry of Industry By Director
TREE PERMIT
His majesty's Government
Forest and Soil Conservation Ministry
District Forest Office
Sindhupalchowk District
Chautara
Date: 2054/02/13
27/06/1997
Letter Number 053/54
Delivery Number 1402
Subject: Money Deposit
M/s Upper Bhote Koshi Hydroelectric Project,
Sindhupalchowk District
In reference to the above subject for making available on 40 years lease
the land belonging to this office in Phulphingkatti and Tatopani V.D.C.'s
as per the agreement signed between the authorised representatives of the
project and HMG's Forest Department on 2053/11/16, the quantities of the
various types of soft wood (ikhar and Uttis) within the forest land
leased to the project is calculated as timber 884.65 cubic feet and the
fire wood 11.65 Chatta (piles). According to the rates received from "The
Timber Corporation of Nepal Limited" Hetauda and Butwal the amount of the
above timber and wood comes to be Rs. 2,26,996.25 and also including the
Sales Tax on the above amount at 15% Rs. 34,049.44, the total amount
comes to Rs. 2,61,045.69. Therefore you are requested to deposit above
amounts separately in the name of this office.
Sd/-
district Forest Officer
Date 2054/03/13
INCOME TAX REGISTRATION CERTIFICATE
HIS MAJESTY'S GOVERNMENT
MINISTRY OF FINANCE
TAX DEPARTMENT
Area No. 4 Tax Office, Kuleshwor
Kathmandu
INCOME TAX REGISTRATION CERTIFICATE
Registration No.: 78/6575
(2053/54)
Registration Date: 2053/11/19 (March 2, 1997)
This certificate is hereby issued after registering the following
Industry/Business/Occupation as per clause 5'ka' of Income Tax Act
2031 (Including Amendments).
1. Name of Person/Firm/Company: China Gezhouba Construction Group
Corporation
2. Address: Kathmandu Metropolis, Ward No. 14, Kuleshwor
3. Kind of Main Business (Name): Construction Work
4. Name and Designation of Main Personnel Proprietor Partner or Promoter:
Xie Yi (P.3157314)
5. Main Place of Business: Kathmandu, Metropolis Ward No. 14, Kuleshwor
6. Address of Proprietor/Partner/Promoter (Main Person): Yichang City, Hubei
Province China, Presently: Kathmandu, Ward No. 14, Kuleshwor, Branch
Office Nil
______________________ ________________________
Signature of Tax Payee Signature of Tax Officer
Date: 2053/11/19
(2.3.1997)
Note: I) This certificate shall be clearly visible in the office/shop.
II) This certificate shall be renewed from the month of Srawan to
end of Ashwina (mid July to mid October) every year.
INCOME TAX REGISTRATION CERTIFICATE
HIS MAJESTY'S GOVERNMENT
MINISTRY OF FINANCE
TAX DEPARTMENT
Area No. 4 Tax Office, Kuleshwor
Kathmandu
INCOME TAX REGISTRATION CERTIFICATE
Registration No.: 78/6253 File No.
(053/054) ( )
Registration Date: 2053/5/26
This certificate has been issued to the following Industry/Business/
Occupationunder the Income Tax Act (Amended) 2031 under the Article 5 ka.
1. Name of Person/Firm/Company: Bhote Koshi Power Company Pvt. Ltd.
2. Address: Tahachal, Kathmandu
3. Type (Name) of Main Business: Development, construction and operation of
Hydro Power Project and to generate,
distribute and sell electricity.
4. Owner, Partner or Directors (Main Person's Name), Surname, Designation:
including Mr. Prabhakar SJB Rana, Mr. Robert W. Carter, Mrs. Janice Carter
5. Main address of Business: Tahachal, Kathmandu
6. Address of Owner, Partner, Directors (Main Person's) Address: Tahachal,
Kathmandu (including Panda of Nepal, RDC of Nepal.
Branch Office Address: No.
______________________ ________________________
Signature of Tax Payee Signature of Tax Officer
(Agent) ( )
Note: This certificate has to be kept in the shop or office where everyone
can see it. This certificate has to be renewed every year between
Shrawn to Ashwin end (July 16 to October 15).
EXPLOSIVES PERMIT
[in progress]
EXHIBIT L
OPTIONAL SPARE PARTS
Owner, at its sole option shall be entitled to purchase any of the spare
parts listed below, in any quantity, prior to the Delivery Date of the
Second Unit, and the prices quoted below shall remain fixed from the
Effective Date of this Contract until (one year after the Delivery Date of
the Second Unit) or the date the Owner exercises its option prior to Unit
Delivery Date of the Second Unit. These spare parts are for the Owner's
use in normal operation of the Facility and are in addition to those spare
parts to be provided by the Contractor for start-up and testing of the
Facility. The purchase of these optional spare parts shall not be
included in the Contract Price.
Spare Part Description Unit
Price
(U.S. $)
1. For Hydraulic Turbines
2. One runner, completely finished 57,623
3. One wicket gate, completed finished 2,406
4. One gate lever and links completely finished, with
bushings and all elements for internal connections and
connection to wicket gate stems and to the operating ring 14,406
5. One shaft sleeve (if used), completely finished and
provided with all accessories for attaching to the
turbine shaft 2,881
6. One set of water filter elements for the turbine shaft
seal 2,881
7. One set of switch assemblies for shear pin failure
detection 1,441
8. One set of shear pins for the wicket gate operating
mechanism 720
9. One set of completely finished shoes for the guide
bearing 8,644
10. One set of wearing elements for the turbine shaft seal 1,153
11. One set of seals for the wicket gate stems to be
installed in the head cover and in the bottom ring 144
12. One complete set of self-lubricating guide and thrust
bearings for a wicket gate and one complete set of
self-lubricating bearings for the wicket gate operating
mechanism 1,153
13. One set of limit switches, pressure switches, and flow
transmitters of each type used 3,601
14. One set of wicket gate packings 288
15. One set of all water passage access mandoor packings 144
16. One set of all packings and seals required for the
turbine not specified above 288
17. One set of turbine wearing rings
18. One set of runner coupling bolts 3,746
19. One set of turbine shaft coupling bolts 4,322
20. One set of wicket gate servomotor piston rings 2,593
21. One set of guide bearings for servomotor piston rods and
bearings connecting the servomotor piston rod to the
operating ring 1,153
22. One set of vacuum break valves 1,153
23. One set of printed circuit cards of each type used
24. One set of indicating instruments of each type used 2,593
25. One water velocity sensor for the turbine flow
measurement system 2,881
26. One set of each type of fuse used 403
27. One water-in-oil detector 865
28. One set of each different type of vibration detector
required for the turbine 4,898
29. One resistance temperature detector (RTD) 144
30. One oil level indicator 476
31. One complete set of wicket gate servomotor seals 288
32. For Inlet Valves
33. One set of all packings for the inlet butterfly valve, by- 1,153
pass valve, and control valve
34. One set of valve disc and trunnion seals, seal rings, 6,483
seal retainers, and seat rings
35. One 4-way control valve 1,729
36. One set of each control motor used 3,601
37. One oil pressure system pump with motor 7,780
38. One set of contacts with operating coils for each motor
controller used 1,153
39. One set of fuses of each size and type used 288
40. One set of indicating lamps of each size and type used 144
41. For Governing Systems
42. One set of pilot control assemblies of each size and type 2,161
including valves, plungers, bushings, and transducers
43. One electro-hydraulic transducer 3,601
44. One set of relay-valve plungers and bushings of each 1,153
size used
45. One set of all packings and gaskets 288
46. One set of all plug-in type electronic components and 8,644
printed circuit cards
47. One set of all lamps, fuses, and other similar items 576
48. One set of proximity switches for the speed sensing 6,339
system
49. One set of all filter elements 576
50. One set of I/O racks of each type used 2,161
51. One digital microprocessor, completely software 1,441
programmed for this plant
52. One dc-dc power supply 720
53. One set of analog indicating meters of each type used 432
54. One gate position transducer 288
55. For Radial Gates
56. One set of gate seals 1,124
57. One lot* of seal washers (50 washers) 72
58. One lot* of seal bolts and nuts (50 bolts and nuts) 86
59. One lot of different size of studs and bolts and nuts 173
used on the gate other than the seal bolts (5 studs
and bolts and nuts of each size)
60. For Wheel Gates (including wheeled stoplog)
61. 7.5 m length of side and top seals (side and top seals 216
shall be identical)
62. 6 m length of bottom seal (bottom seals shall be 43
identical for all wheel gates)
63. One molded corner between side and top seals plus one 372
each of any other seal profiles used on the wheel gates
64. One lot of different size of studs and bolts and nuts 231
used on the wheel gates (5 studs and bolts and nuts of
each size), other than the seal bolts
65. One wheel assembly excluding axle, but including bearings 259
and seals and gaskets (wheel assemblies of the bypass
conduit wheel gate, headrace tunnel wheel gate, and wheeled
stoplog shall be identical)
66. One set of all seals and gaskets for one wheel assembly 86
67. For Slide Gates and Stoplogs (except wheeled stoplog)
68. 6 m length of side and top seals (side and top seals 173
shall be identical to each other and for all slide gates and
stoplogs)
69. 6 m length of bottom seal (bottom seals shall be 43
identical for all slide gates and stoplogs)
70. One molded seal corner between side and top seals plus 372
one each of any other seal profiles used on the slide gates
and stoplogs
71. One lot of different size of studs and bolts and nuts 86
used on the wheel gates (5 studs and bolts and nuts of each
size), other than the seal bolts
72. For Hydraulic Operators (for all gates)
73. One piston rod scraper for hydraulic cylinder 259
74. One set of all O-rings and gaskets 58
75. One of each type and size hydraulic valve used on the 692
hydraulic power units (HPU's)
76. One set of filter and strainer cartridges for HPU 1326
(similar filters and strainers shall be used for both HPU's)
77. One set of flexible hoses 1081
78. One set of each type and size of pressure switch 138
79. One set of pressure gages 26
80. One set of solenoid coils 43
81. One set of relays for electrical controls 843
82. One set of indicating lights for electric controls 43
83. One set of control switches of each type 1513
If electronic programmable controller is used
instead of conventional relay type of
controls for the hydraulic system the
following additional spare parts shall be
applicable:
84. One power supply (dc) for programmable controller 3241
85. One processor for programmable controller 2881
86. One set input/output cards for programmable controller 504
87. For Powerhouse Crane, Draft Tube Gate
Monorail Hoist, and Mobile Crane
88. One set of brake linings for each brake supplies 720
89. One set of brake shoes with linings for each brake supplied 1507
90. One set of motor starter and auxiliary contractors of
each type and rating supplied 3458
91. One set of fuses of each type 461
92. One set of fuse blocks of each type
93. One set of indicating lights 865
94. One set of control switches of each type 3025
95. One set of control relays of each 4322
96. One set of terminal blocks of each 1153
97. One set of disconnecting switches/circuit breakers 2161
of each type
98. One complete adjustable speed drive for each motor 12965
(hoist, trolley and bridge)
99. One motor of each type 2017
100. One tire and wheel assembly for mobile crane 6050
101. One of each type and size of air, oil, and fuel filter 865
for mobile crane
102. For Generators
103. One set of thrust bearing wearing, parts, including shoes 17287
pads, pivots, removable runner, keys, high pressure oil
lines, and fittings
104. One set of bearing shoes for the upper guide bearings 11525
105. One set of bearing shoes for the lower guide bearing 11525
106. One oil cooler unit for the upper guide bearing oil 5762
reservoir, including gaskets (if applicable)
107. One oil cooler unit for the thrust bearing oil reservoir, 5762
including gaskets
108. One air cooler, including gaskets 8644
109. One lot (10% of the total number) of each different type 34574
of stator coil required for one generator including wedges,
slot liners, and insulating and binding tapes required for
installation
110. One pair of pole keys 2305
111. One pair of rotor rim compound keys 720
112. One set of generator field coils 25930
113. One lot (10% of the total number) of connections and 8644
interpole links of damper windings required for one
generator, including the interpole links
114. One set of collector rings, brush holders and springs 5762
(or equal constant pressure devices), and hardware,
including insulation
115. One set of collector ring main brushes 865
116. One set of brake shoe wearing surfaces, including gaskets 2305
gaskets and restoring elements
117. One CO2 cylinder 432
118. One set of each type of fuse used 288
119. One set of each different type of insulating plate, shoe 2161
etc. required for the bearings in one generator
120. One set of each different type of vibration detector 5762
121. One water-in-oil detector 865
122. One set of collector ring pilot brushes 288
123. One set of indicating instruments of each type 865
124. One set of level switches, pressure switches, and flow 8644
transmitters of each type
125. For Excitation Systems
126. One voltage regulator
127. One set of voltage setting adjusters
128. One complete set of field current setting adjusters
129. One set of each type of auxiliary power transformer used 8644
in the system
130. One dc generator field circuit breaker 8644
131. One power thyristor removable module, including thyristors, 1153
fuses, indicating lamps, firing circuits, and voltage
protective elements
132. One set of power thyristors and diodes of each type 2881
and rating used
133. One set of thyristor fuses of each type and rated used 144
134. One set of protective relays of each type 2593
135. One "Crowbar" circuit 576
136. One set of I/O cards of each type used 2161
137. One set of thyristors firing control circuits. Elements 2881
normally mounted on plug-in cards shall be supplied on
such cards
138. One set of each type of auxiliary relay used 2161
139. One set of control fuses of each type used 144
140. One set of indicating lamps of each type used 144
141. One cooling fan, including fan motor and controls 288
142. For Main Power Transformer
143. One high-voltage bushing complete with gaskets 2593
144. One set of low-voltage bushings of each type complete 2881
with gaskets
145. One set of gaskets as required for covers, cases, manholes 1297
and handholes
146. One surge arrester 2881
147. One oil-to-air heat exchanger 3601
148. One set of contacts and coils for each type of contractor 720
and relay used
149. For SF6 Switchyard Breakers
150. One standard industrial type SF6 cylinder with 1412
approximately 50 kg of gas for refilling the interrupter
151. One 125 V dc shunt trip assembly, and set of relays and 1405
control switches
152. One interrupter/driver assembly 648
153. One motor for the motor operating mechanism 389
154. One set of gaskets for a complete three phase circuit 101
breaker
155. One set of pressure switches timers and pressure guages of 418
each different type used
156. For 11-kV Switchgear
157. One multi ratio current transformer 360
2000:5A and 600:5A
158. One potential transformer, 11,000-120V 288
159. One set of main contacts for 3-pole, draw-out-type circuit 1008
breaker
160. One set of primary disconnecting devices for one 3-pole 620
breaker
161. One set of secondary disconnecting devices for one 3-pole 620
breaker
162. One set of fuses of each type used 144
163. One set of lamps of each type used 72
164. One set of control relays of each type and rating for 576
draw-out-type breaker
165. One set of trip coils of each type used 360
166. One closing solenoid coil or motor 259
167. One set of auxiliary switches of each type used 173
168. One set of main blades 116
169. One arc chute 29
170. One operating handle mechanism for disconnecting switch 576
171. One set of current limiting fuses of each type used 231
_______________________________
* Same size of washers and bolts and nuts shall be used for top, bottom,
and side seals for all gates (including radial gates, wheel gates, slide
gates and stoplogs)
END OF EXHIBITS
EXHIBIT 10.139
PROJECT AGREEMENT
between
HIS MAJESTY'S GOVERNMENT OF NEPAL
and
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
concerning
THE UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
Dated 6 Shrawan 2053 (21 July 1996)
SECTION PAGE NUMBER
PREAMBLE 1
DEFINITIONS 1
SECTION 1. INTRODUCTION 9
1.1 Purpose of this Agreement 9
1.2 Project Description 9
SECTION 2. CONDITION PRECEDENT 10
SECTION 3. OBLIGATIONS OF HMGN 10
3.1 Project License for the Project 10
3.2 Land, Structures, Buildings, Utilities, Water
and Roads 10
3.2.1 Land, Structures, Buildings and Utilities 10
3.2.2 Land and Water Owned by HMGN 11
3.2.3 Use of Existing Roads 11
3.2.4 Construction of Roads 12
3.3 Taxes and Fees 12
3.3.1 Income Tax 12
3.3.2 Tax Exemption for Bonds 12
3.3.3 Local Taxes 13
3.3.4 Loan Registration Fees 13
3.4 Foreign Exchange 13
3.4.1 Foreign Exchange and Repatriation 13
3.4.2 Foreign Shareholders as Beneficiaries 14
3.5 "One Window" System 15
3.5.1 Local Permits 15
3.5.2 Communications 15
3.5.3 Diesel Fuel 15
3.5.4 Explosives 15
3.5.5 Security 16
3.5.6 Import of Equipment, Etc 16
3.5.7 Temporary Import of Equipment 16
3.5.8 Visas, Etc 17
3.6 BKPC Transmission Line 17
3.7 Sales and Export Rights 17
3.8 Electricity Tariff Fixation Commission 17
3.9 GLOF Early Warning System 17
3.10 Further Assurances 17
SECTION 4. OBLIGATIONS OF BKPC, 18
4.1 Ownership and Operation 18
4.2 Environmental Compliance... 18
4.3 Royalty 18
4.4 Local Labor and Resources 18
4.5 Technology Transfer and Training 19
4.6 Insurance 19
4.7 Quality and Maintenance 19
4.8 Reporting 20
4.9 Development of Project 20
4.10 Transfer of Project License and Project 20
SECTION 5. GUARANTEE 20
SECTION 6. BUYOUT BY HMGN IN THE EVENT OF SPECIAL
BUYOUT EVENTS 21
6.1 Buyout Mechanism 21
6.2 Buyout Purchase Price 21
6.3 MIGA Insurance 23
6.4 Payment Mechanism; Transfer of Title 23
SECTION 7. REPRESENTATIONS AND WARRANTIES 24
SECTION 8. INFORMATION 25
SECTION 9. VALIDITY AND TERMINATION 26
SECTION 10. GOVERNING LAW 26
SECTION 11. RESOLUTION OF DISPUTES 26
11.1 Dispute Resolution by Mutual Agreement 26
11.2 Arbitration 27
SECTION 12. NOTIFICATION 28
SECTION 13. ASSIGNMENT, ADDITIONAL FOREIGN SHAREHOLDERS 28
13.1 Assignment 28
13.2 Additional Foreign Shareholders 29
SECTION 14. GOOD FAITH 29
SECTION 15. AMENDMENTS 29
SECTION 16. IMMUNITY 29
SECTION 17. FINANCING DOCUMENTS 30
SECTION 18. REFINANCING 30
SECTION 19. PERFORMANCE ASSURANCE 30
19.1 Performance Assurance Obligations 30
19.2 Termination of Agreement and Forfeiture of
Performance Assurance 30
19.3 Return of Performance Assurance 31
19.4 Delays Caused by Breach 31
SECTION 20. SCHEDULES 31
Schedule 1 - Power Purchase Agreement
Schedule 2 - BKPC Memorandum of Association
Schedule 3 - BKPC Articles of Association
PREAMBLE
WHEREAS, HIS MAJESTY'S GOVERNMENT OF NEPAL desires to
promote electric power generation in Nepal through the
participation of the private investors In the hydropower industry
and to expedite the construction of new generation facilities in
order to develop the hydropower potential of the country;
WHEREAS, HIMAL INTERNATIONAL POWER CORPORATION LTD., Nepal,
a company registered under the Company Act, 2021, RDC OF NEPAL, a
Cayman Islands corporation and subsidiary of HARZA ENGINEERING
COMPANY INTERNATIONAL L.P., a Delaware (U.S.A.) limited
partnership, and PANDA OF NEPAL, a Cayman Islands corporation and
subsidiary of PANDA ENERGY INTERNATIONAL, INC., a Texas (U.S.A.)
corporation, have established BHOTE ROSA POWER COMPANY PRIVATE
LIMITED, Nepal' a private limited liability company registered
under the Company Act, 2021, with the objective to build, operate
and own hydroelectric power generation projects in Nepal;
WHEREAS, the Bhote Koshi River in Sindhupalchok District of
Nepal offers a suitable site for the development of a
hydroelectric power project known as the Upper Bhote Koshi
Hydroelectric Project with an installed generating capacity of
approximately 36,000 kilowatts;
NOW, THEREFORE, HIS MAJESTY'S GOVERNMENT OF NEPAL and BHOTE
KOSHI POWER COMPANY PRIVATE LIMITED, and for purposes of Sections
3.4, 13 Ad 16 of this Agreement (as defined below) each FOREIGN
SHAREHOLDER referred to on the signature page, have entered into
this Agreement, as of this sixth day of Shrawan 2052 (twenty
first day of July 1996).
DEFINITIONS
Unless the subject or context otherwise requires in this
Agreement, the following definitions and abbreviations shall have
the following meanings:
"Agreement" shall mean this Project Agreement between as
amended, modified and supplemented from time
to time In accordance with the terms hereof.
"BKPC" shall mean Bhote Koshi Power Company Private
Limited a private limited liability company
duly incorporated and registered under the
Company Act, 202l, having its registered
office in Kathmandu, Nepal.
"Business Day" shall mean any Day on which the offices of
HMGN are not authorized or required to close
in Kathmandu, Nepal.
"Change-in-Law" shall mean any of the following events
occurring after 14 Baishakh 2052 (27 April
1995) as a result of, or in connection with,
any action or inaction by any Governmental
Authority:
(i) a change in or repeal of an existing
Law;
(ii) an enactment or making of a new Law;
(iii) a cancellation or nonrenewal or a
change in the conditions applicable to any
Governmental Approval granted to NEA or BKPC
or otherwise relating to the Project;
(iv) a change in the manner in which a Law
is applied or in the interpretation or
application thereof, or
(v) any change in any Law, or any other
alteration of the application of any Law to
BKPC or the Shareholders, including, without
limitation, royalties, Tax rates,
depreciation schedules or other Laws that
affect any of the financial assumptions set
forth in BKPC's base case financial model set
forth in Schedule 2 to the Power Purchase
Agreement.
"Commercial
Operation Date" shall mean the date specified in a
certificate delivered by the Independent
Engineer stating that both Units have
satisfied and successfully demonstrated
performance in accordance with the
requirements of Schedule 8 to the Power
Purchase Agreement, or the date on which the
Project is deemed to be commissioned pursuant
to Section 5.5 of the Power Purchase
Agreement, as certified by the Independent
Engineer, which date is scheduled as of the
date hereof as 17 Poush 2056 (1 January
2000).
"Construction
Contracts" shall mean, collectively, the contracts to be
entered into by BKPC for the design,
engineering, construction and procurement of
the Project with its contractors.
"Date of Financial
Closing" shall mean the date of signing of the
Financing Documents.
"Day" shall mean the twenty-four (24) hour period
beginning at 00:00 hours Nepalese Standard
Time.
"Delivery Point" shall mean the point, at the 132 kilovolt
gantry of the new substation to be
constructed by NEA near the existing Sun
Koshi power state, at which electric energy
from the Project is delivered to the NEA
Inter-connection Facilities.
"Dollars" or "$" shall mean the currency of the United States
of America.
"EDC" shall mean the Electricity Development
Centre, an administrative agency under MOWR.
"Electrical
Output" shall mean for any period, after the first
Unit Delivery Date, the electric energy
delivered by the Project at the Delivery
Point, as metered in accordance with Schedule
7 to the Power Purchase Agreement, and
expressed in kilowatt-hour.
"Energy Factor" shall mean an amount equal to six one-
hundredths (0.06) of a Dollar as of 17 Poush
2051 (1 January 1995), as escalated in
accordance with Schedule 4 to the Power
Purchase Agreement.
"Financing
Documents" shall mean the shareholder's agreements,
joint venture agreements, loan agreements,
notes, indentures, security agreements and
other documents relating to the construction
financing and permanent financing (including
refinancing) of the Project or any part
thereof.
"Financing
Parties" shall mean the lenders, export credit
agencies, multilateral institutions, equity
providers and others providing financing or
refinancing to or on behalf of BKPC for the
development, ownership, operation and
maintenance of the Project or any portion
thereof.
"Foreign Exchange" shall mean Dollars or, in the case of
nonavailability of Dollars, any other
denomination of currency acceptable to BKPC
and available to HMGN.
"Foreign Lenders" shall mean, collectively non-Nepalese Lenders
and their respective foreign successors and
assignees.
"Foreign
Shareholders" shall mean, collectively, non-Nepalese
Shareholders, including RDC of Nepal, a
Cayman Islands corporation and subsidiary of
Harza Engineering Company International L.P.,
a Delaware (U.S.A.) limited partnership, and
Panda of Nepal, a Cayman Islands corporation
and subsidiary of Panda Energy International,
Inc., a Texas (U.S.A.) corporation, of BKPC
and their respective foreign successors and
assignees.
"Governmental
Approval" shall mean any authorization, permit,
clearance, license, consent, exemption or
approval from or required by any Governmental
Authority for the development, financing,
ownership, construction, operation and
maintenance of the Project.
"Governmental
Authority" shall mean any HMGN Authority, any Local
Authority, any Judicial Authority or any
other Nepalese authority having jurisdiction
over NEA, BKPC, the Project or the NEA
System.
"HMGN" shall mean His Majesty's Government of Nepal,
inclusive of all ministries and agencies duly
constituted by HMGN.
"HMGN Authority" shall mean any national or regional authority
or regulatory department, body, commission,
instrumentality, agency, ministry or
administrative body or taxing authority
thereof, in any case, having jurisdiction
over NEA, BKPC, the Project or the NEA
System.
"Independent
Engineer" shall mean the independent consulting
engineer of international repute acceptable
to NEA, BKPC, the Shareholders and the other
Financing Parties for purposes defined by the
terms of reference acceptable to NEA, BKPC,
the Shareholders and the other Financing
Parties, including monitoring and certifying
the commissioning and testing of the Project
and such other purposes as specified in
Section 6.6(c) of the Power Purchase
Agreement.
"Judicial
Authority" shall mean any court, tribunal or other
judicial authority, in any case, having
jurisdiction over NEA, BKPC, the Project or
the NEA System.
"Law" shall mean any law, legislation, statute,
rule, order, treaty, regulations, court
decision or published practice or any
interpretation thereof enacted, issued or
promulgated by any Governmental Authority and
applicable to the Project, BKPC, the
Shareholders or the other Financing Parties
or relating to, without limitation, the rate
of return on investment to BKPC or its
Shareholders or the cost of financing,
constructing, operating, maintaining or
owning the Project, including any of the
foregoing relating to or affecting any Tax,
reserve or repatriation requirement of any
kind or relating to expropriation or
compulsory acquisition.
"Lenders" shall mean International Finance Corporation
and/or any other lenders, export credit
agencies, multilateral institutions and
others providing debt financing or
refinancing to or on behalf of BKPC for the
development, ownership, operation and
maintenance of the Project or any portion
thereof, or any trustee or agent acting on
behalf of any of the foregoing.
"Loan Signing Date" shall mean the date of signing of the initial
loan agreements for either the construction
financing or the initial permanent debt
financing of the Project, whichever is the
earlier to occur.
"Local Authority" shall mean any local or municipal authority
or regulatory department, body, political
subdivision, commission, instrumentality,
agency or administrative body or taxing
authority thereof, in any case, having
jurisdiction over NEA, BKPC, the Project or
the NEA System.
"Maturity Date" shall mean the date on which all amounts
owning by BKPC to any Lender that provides
construction financing or initial permanent
financing (excluding any refinancing of such
permanent financing) have been repaid in full
and all commitments to advance loans by such
Lender have been terminated.
'MOWR" shall mean HMGN's Ministry of Water
Resources.
"NEA" shall mean Nepal Electricity Authority,
constituted under the Nepal Electricity
Authority Act, 2041, having its registered
office at Durbar Marg, Kathmandu, Nepal, and
its successors and assignees.
"NEA
Interconnection
Facilities" shall mean all the facilities, described in
Schedule 9 to the Power Purchase Agreement,
to be installed by or for NEA to enable NEA
to receive and wheel Electrical Output from
the Project in accordance with this Agreement
(which may include, without limitation,
transmission lines and associated equipment,
relay and switching equipment and protective
devices and safety equipment, plus the
metering system described in Schedule 7 to
the Power Purchase Agreement), all of which
shall be reasonably designed according to
Prudent Utility Practices.
"NEA System" shall mean the power network controlled or
used by NEA for the purpose of generating,
transmitting and distributing electricity to
NEA's customers, including, without
limitation, the NEA Interconnection
Facilities.
"Performance
Assurance" shall mean one or more irrevocable and
unconditional bonds, guarantees or letters of
credit, in a form and substance acceptable to
HMGN, issued by a Nepalese or foreign bank,
insurer or other appropriate company
acceptable to HMGN and drawable on first
demand by HMGN in accordance with Section 19
hereof.
"Power Purchase" shall mean the Power Purchase Agreement dated
as of the date hereof between BKPC and NEA
concerning sale of electrical energy from the
Project, in the form attached to this
Agreement as Schedule 1, as amended, modified
and supplemented from time to time.
"Project" shall mean the Upper Bhote Koshi
hydroelectric project located in the
Sindhupalchok District of Nepal, as more
particularly described in Schedule 1 to the
Power Purchase Agreement.
"Project License" shall mean collectively the power generation
and transmission licenses to be issued by
HMGN for the construction, operation and
transfer of the Project as set forth under
the Electricity Act, 2049 and the Electricity
Rules, 2050, as more particularly described
in Section 3 hereof, as the same may be
amended from time to time.
"Prudent Utility" shall mean the practices, methods, techniques
and standards, Practices" changed from time
to time, that are generally accepted as
internationally for use in electric utility
industries taking into account conditions of
Nepal, and commonly used in prudent electric
utility engineering and operations to design,
engineer, construct, text, operate and
maintain equipment of a type and size similar
to the Project or the NEA Interconnection
Facilities lawfully, safely and efficiently
and that generally conform to the
manufacturers' operation and maintenance
guidelines.
"Required
Commercial" shall mean 17 Poush 2056 (1 January 2000), as
such date may Operation Date" be extended by
the occurrence of a Force Majeure Event (as
set forth in the Power Purchase Agreement).
"Rupees or Rs" shall mean the currency of the Kingdom of
Nepal.
"Shareholders" shall mean, collectively, the shareholders of
BKPC and their respective successors and
assignees.
"Special Buyout
Event" shall mean any of the following acts or
omissions of, or circumstances or occurrences
caused by HMGN affecting BKPC or any
contractor or supplier of BKPC that prevents
BKPC from performing its material obligations
under the Power Purchase Agreement, delays
completion of the Project beyond the Required
Commercial Operation Date, prevents BKPC from
performing its material obligations under the
Financing Documents or changes the ownership
of BKPC.
(a) any Change-in-Law; provided,
however, that a Change-in-Law shall not
be a Special Buyout Event under this
clause (a) if BKPC shall have been
compensated in accordance with Article
10 of the Power Purchase Agreement or
Section 5 hereof;
(b) expropriation, requisition,
confiscation or nationalization;
provided, however, that any
expropriation, requisition, confiscation
or nationalization of any contractor or
supplier of BKPC shall not be a Special
Buyout Event under this clause (b) if
such event occurs as a consequence of
such contractor's or such supplier's
intentional or grossly negligent failure
to comply with any law of Nepal of
general application of a kind which
governments normally enact in the public
interest for the purpose of protecting
national security;
(c) export or import restrictions,
including any requirement, act or
omission of HMGN that delays beyond a
commercially reasonable period of time
the acquisition or purchase, or the
transportation or delivery to the
Project, of spare parts or maintenance
items (it being agreed that the
inability to clear customs in Nepal in
less than fifteen (15) Business Days
after the submittal of all necessary and
required documentation shall be
considered a delay beyond a commercially
reasonable period of time for purposes
of this clause (c)); provided, however,
that no such restriction, requirement,
act or omission shall constitute a
Special Buyout Event under this clause
(c) if it is applied by HMGN under
Nepalese law as a consequence of the
negligent or intentional act, error or
omission of BKPC, or by BKPC's or such
contractor's or such supplier's
negligent failure to comply with any
material procedural or substantive law,
rule, regulation, order or ordinance or
by any material procedural or
substantive law, rule, regulation, order
or ordinance or by any material breach
or default by BKPC of this Agreement or
the Power Purchase Agreement;
(d) inability despite due diligence to
obtain, renew or maintain required
licenses or Governmental Approvals;
provided, however, that no such
inability shall constitute a Special
Buyout Event under this clause (d) if it
is caused by the negligent or
intentional act, error or omission of
BKPC or any contractor or supplier of
BKPC, or by BKPC's or such contractor's
or supplier's negligent failure to
comply with any material procedural or
substantive law, rule regulation, order
or ordinance or by any material breach
or default by BKPC of this Agreement or
the Power Purchase Agreement;
(d) to the extent not included in the
description of acts, omissions,
circumstances or occurrences set forth
in clauses (a) through (d), any other
requirement, act or omission to act on
the part of HMGN; provided, however,
that no such requirement, act or
omission shall constitute a Special
Buyout Event under this clause (e) if it
is applied by HMGN under Nepalese law
as a consequence of the negligent or
intentional act, error or omission of
BKPC or any contractor or supplier of
BKPC, or by BKPC's or such contractor's
or supplier's negligent failure to
comply with any material procedural
negligent failure to comply with any
material procedural or substantive law,
rule, regulation, order or ordinance or
by any material breach or default by
BKPC of this Agreement or the Power
Purchase Agreement;
(f) to the extent resulting from any of
the acts, omissions, circumstances or
occurrences described in clauses (a)
through (e), any unavailability or
interruption of the supply of services
and/or labor and materials necessary for
the construction, operation or
maintenance of the Project; and
(g) to the extent resulting from any of
the acts, omissions, circumstances or
occurrences described in clauses (a)
through (e), transportation delays or
accidents;
provided, further, that none of the events
described in clauses (a) through (g),
inclusive, of this definition shall
constitute a Special Buyout Event unless:
(i) such event is beyond the reasonable
control of BKPC or any contractor or
supplier of BKPC affected by such event;
and
(ii) BKPC gives HMGN written notice
describing the particulars of such
event.
"Taxes" shall mean any tax, charge, impost, tariff,
duty or fee of any kind charged, imposed or
levied, directly or indirectly, by any
Governmental Authority in Nepal applicable to
BKPC or the Project, including any such
corporate income tax, value added tax, sales
tax, stamp tax, import duty, withholding tax
(whether on dividends, interest payments,
fees, equipment rentals or otherwise), tax on
foreign currency loans or foreign exchange
transactions, excise tax, property tax,
registration fee or license, water tax or
environmental tax.
"Unit" shall mean any of the approximately 18,000
kilowatts (nominal net) turbine-generator
electricity generating units incorporated
into the Project.
"Unit Capacity" shall mean, as to any Unit for any period,
18,000 kilowatts or such other amount of net
electrical generating capacity of such Unit,
as demonstrated by the performance tests
conducted under Schedule 8 to the Power
Purchase Agreement for such Unit.
"Unit Delivery
Date" shall mean, for each Unit, the date declared
by BKPC to be the date on which such Unit is
available for commercial operation at the
Unit Capacity thereof, as such date is
specified in a written notice given at least
fifteen (15) Days in advance by BKPC to NEA;
provided, however, that the first Unit
Delivery Date shall not occur prior to 16
Bhadra 2056 (1 September 1999).
SECTION 1. INTRODUCTION
1.1 Purpose of this Agreement
The purpose of this Agreement is to define the relationship
between HMGN and BKPC concerning the guidelines, incentives and
guarantees affecting the construction and operation of the
Project.
1.2 Project Description
The Project is a "run of the river" hydroelectric power
generation plant designed for an installed generating capacity of
approximately 36,000 kilowatts and an annual average production
of approximately 246 million kilowatt-hours of electrical energy
including approximately 25 kilometers of 132 kilovolt
transmission line, as more particularly described in Schedule 1
to the Power Purchase Agreement. The Project is located in the
Sindhupalchok District of Nepal on the Bhote Koshi River, a
tributary to the Sun Koshi River, about 110 kilometers due
northeast of Kathmandu. BKPC agrees to finance the Project with
a combination of equity to be subscribed by the Shareholders and
debt to be provided by the Lenders.
SECTION 2. CONDITION PRECEDENT
The parties to this Agreement shall not be bound by the
provisions of this Agreement (except for HMGN's obligation to
issue the Project License under Section 3.1 hereof upon receipt
of a completed application from BKPC under, and in accordance
with, the Electricity Act, 2049, and the Electricity Rules, 2050)
until the date on which the Project License has been issued by
HMGN; provided, however, that BKPC shall apply for the Project
License within thirty (30) days of the date on which this
Agreement is signed by HMGN and BKPC.
SECTION 3. OBLIGATIONS OF HMGN
3.1 Project License for the Project
HMGN shall issue a Project License to BKPC for the
construction, operation and transfer of the Project in accordance
with the specific provisions and authorizations set forth under
the Electricity Act, 2049, and the Electricity Rules, 2050. The
Project License shall grant BKPC the exclusive rights to develop
the Project located at the Bhote Koshi River and, for forty (40)
years from the date of the Project License, to own and operate
the Project inclusive of all fixtures, fittings, machinery and
equipment located at the plant and the transmission line relating
thereto or used in connection with the generation of energy and
to sell the electricity generated by the Project. The Project
License shall give BKPC the right of the uninterrupted flow of
the water of the Bhote Koshi River to the Project. HMGN shall
not issue any other permits for use of the water in the catchment
area that will impair the flow in any way, as specified in the
Project License.
3.2 Land, Structures, Buildings, Utilities, Water and Roads
3.2.1 Land, Structures, Buildings and Utilities
If so requested, HMGN shall make available all necessary
land, structures, buildings and utilities owned by third parties
to BKPC for the construction of the Project in accordance with
Section 33 of the Electricity Act, 2049. If the land is already
owned by HMGN, the land shall be made available on lease pursuant
to prevailing laws, with either a reasonable annual rent or such
other rent as may be required by applicable law, for the period
of the Project License for land needed for permanent use or for
such shorter period as may be necessary for temporary use. HMGN
hereby consents to any grant by BKPC to any Lender of a security
interest in any or all of BKPC's right, title and interest in and
to any real property located within Nepal in connection with the
Project (including, but not limited to, BKPC's rights under any
lease with HMGN) and the exercise by such Lender of BKPC's rights
in respect thereof, provided that the rights thereby granted to
such Lender in connection with any lease with HMGN shall be no
more extensive than the rights of BKPC in connection therewith.
HMGN shall make available to BKPC forest land transferred as
community forest pursuant to the Forest Rules, 2051 and as agreed
and approved by the community group.
3.2.2 Land and Water Owned by HMGN
In respect of land and water owned by HMGN, HMGN shall
provide to BKPC, its employees, contractors, subcontractors and
advisors access to forest land, river beds, river banks and water
in order to build and to use all necessary structures and, during
the construction period, to open quarries, take out or deposit
stone, sand and earth thereon, free and clear of all other
persons' rights, and without adversely affecting the environment
and by paying revenues with respect to forest land to HMGN
pursuant to Forest Act, 2049 and Forest Rules, 2051. HMGN shall
provide such access for the construction of buildings and other
structures, roads, ropeways, rail lines and transmission lines,
the opening of tunnel adits and dumping of spoil from tunnels,
the laying of pipelines to take water from springs, and the
performance of any other activity necessary for the construction,
operation and maintenance of the Project and the generation of
energy from the Project.
HMGN shall assist BKPC in discussions with local bodies
regarding payment of royalties and compensation by BKPC to such
local bodies for all rights granted to BKPC under this Section
3.2.2. in order to obtain a reasonable overall arrangement,
taking into account the legitimate need for income for local
administration, while avoiding unnecessary complications in
connection with transport and construction activities.
BKPC agrees that HMGN shall deal exclusively with BKPC in
making arrangements for providing all rights granted under this
Section 3.2.2 to BKPC's employees, contractors, subcontractors
and advisors. BKPC shall assume liability for any damage or
injury to persons or property caused by BKPC's employees,
contractors, subcontractors and advisors in the exercise of the
rights granted under this Section 3.2.2 (excluding, however, any
indirect or consequential damages). In addition, BKPC, its
employees, contractors, subcontractors and advisors shall, in the
exercise of the rights provided under this Section 3.2.2, comply
with the environmental, occupational, health and safety
requirements detailed in the National Environmental Impact
Assessment Guidelines, 2050, and all other applicable
environmental laws and regulations.
3.2.3 Use of Existing Roads
HMGN shall allow BKPC, its employees, contractors,
subcontractors and advisors the use of existing roads for
necessary transport in connection with the construction and
operation of the Project, including the right to modify, improve
and strengthen roads and bridges, temporarily or permanently, as
may be necessary for transport of heavy equipment. However, this
use of roads shall not cause any cost to HMGN. BKPC shall repair
or cause to be repaired any damage to existing roads or bridges
caused by BKPC's used in such a manner as to ensure that any such
damaged roads or bridges are returned to substantially the same
condition they were in immediately prior to such damage. BKPC
shall use reasonable efforts to minimize the obstruction of
traffic during any modification, improvement or strengthening, or
any repair, contemplated by this Section 3.2.3.
3.2.4 Construction of Roads
HMGN shall allow BKPC, its employees contractors,
subcontractors and advisors to construct temporary and permanent
roads, tracks, bridges and ropeways as required to bring in heavy
construction and power equipment. Such facilities shall be
constructed, and such temporary facilities shall be dismantled
and disposed of, by BKPC in accordance with Section 24 of the
Electricity Act, 2049, the environmental conditions provided in
the Project License and all other applicable environmental laws
and regulations.
BKPC shall be required to obtain prior permission of HMGN
for construction of any such road or other construction works
inside the forest area. BKPC shall bear all of the cost of and
expenses required for removal of any tree and/or forest products
associated with such construction.
3.3 Taxes and Fees
3.3.1 Income Tax
In accordance with Section 12 of the Electricity Act, 2049,
BKPC shall be exempted from payment of income tax for a period of
fifteen (15) years, commencing at first Unit Delivery Date. After
such fifteen (15) year period BKPC's income tax shall be ten (10)
percentage points less than the corporate income tax HMGN imposes
on other Nepalese public limited companies pursuant to the
prevailing law, e.g., if the rate of corporate income tax in the
prevailing law is thirty percent (30%), BKPC shall be taxed at
twenty percent (20%).
If BKPC invests any capital in the Project in order to
diversify the Project, or to expand its established capacity by
twenty-five percent (25%) or more, or to modernize the
technology, or to develop a subsidiary industry, then fifty
percent (50%) of the amount so invested in the new additional
fixed asset may be deducted from taxable income. Such a deduction
may be taken at one time or may be spread over a three (3) year
period. BKPC shall notify HMGN of its intent to develop such
projects, providing a description of intended work the starting
date of the estimated completion date. Once the work has been
completed, BKPC shall notify HMGN as to the completion and the
final cost of the work. Nothing contained in this Section 3.3.1
shall be construed as approval for work that would otherwise go
governed by existing laws, rules and regulations of HMGN.
3.3.2 Tax Exemption for Bonds
Following conversion to public limited liability company,
BKPC may issue power bonds to the public in Nepal for financing
or refinancing all or any portion of the construction cost of the
Project. If BKPC issues such power bonds in accordance with
applicable Laws, HMGN shall grant an income tax exemption for
interest income from such power bonds to the holders of such
power bonds.
3.3.3 Local Taxes
HMGN shall assist BKPC in discussions with local bodies
regarding local taxes, octroi and tolls to be paid by BKPC for
goods brought in by BKPC for the Project in order to obtain a
reasonable overall arrangement, taking into account the
legitimate need for income for local administration, while
avoiding unnecessary complications in connection with transport
and construction activities.
3.3.4 Local Taxes
HMGN shall grant an exemption from any loan document
registration fees which might otherwise be imposed on or incurred
by BKPC in connection with the financing provided by the Foreign
Lenders (including registration fees imposed in connection with
any loan or mortgage documents for the Project). HMGN shall
permit BKPC to mortgage its assets or pledge its shares to the
Lenders for the purpose of financing or refinancing of the
Project.
3.4 Foreign Exchange
3.4.1 Foreign Exchange and Repatriation
HMGN hereby agrees to ensure the prompt availability of or
to promptly provide all necessary Foreign Exchange at prevailing
market rates of exchange, and to ensure full and unencumbered
repatriation rights, with respect to any and all amounts paid by
NEA, or paid in respect of NEA's obligations, under the Power
Purchase Agreement, as BKPC may request from time to time for
application to or in respect of.
(a) any loan payments and debt service to or for the
benefit of Foreign Lenders (including, without
limitation, all principal, interest, default interest,
fees, costs and expenses, and proceeds payable to the
Foreign Lenders by virtue of any guarantee or other
security or by way of enforcement of rights on assets
of any person);
(b) any dividends and other forms of return on equity
and return of equity to or for the benefit of Foreign
Shareholders (including, without limitation, proceeds
received upon sale of shares, dissolution or
liquidation); and
(c) any indemnity claims, damages, losses, costs,
expenses (including, without limitation, for spare
parts, services, insurance, supplies and other
operations and maintenance costs payable in Foreign
Exchange) or obligations of BKPC to fund reserve,
holding or trust accounts or any other amounts required
under the Financing Documents which are not denominated
in Rupees; provided, however, that BKPC shall retain
the amounts and HMGN shall not be required to make
Foreign Exchange available for such amounts to BKPC
under this Section 3.4.1 for the payment of:
(i) any local operations and maintenance
costs including spare parts, services, insurance
and supplies,
(ii) any taxes, octroi and tolls then
payable in accordance with Sections 3.3.1 and
3.3.3 hereof,
(iii) any customs, duties, taxes and fees
then payable in accordance with Sections 3.5.6,
3.5.7 and 3.5.8 hereof,
(iv) any royalties then payable in
accordance with Section 4.3 hereof and royalties
and compensation then payable in accordance with
Section 3.2.2 hereof,
(v) any payments then payable under any
lease by HMGN of land pursuant to Section 3.2.1
hereof,
(vi) any loan payments and debt service to
or for the benefit of Nepalese Lenders with
respect to Rupees loans (including, without
limitation, all principal, interest, default
interest, fees, costs and expenses and proceeds
payable to such Nepalese Lenders),
(vii) any dividends and other forms of
return on equity and return of equity to or for
the benefit of Nepalese Shareholders (including,
without limitation, proceeds received upon sale
of shares, dissolution or liquidation), and
(viii) any indemnity claims, damages, losses
or other liabilities or obligations of BKPC
denominated in Rupees.
If necessary HMGN and BKPC shall develop (and modify from
time to time, as necessary) procedures for implementing
BKPC's and the Foreign Shareholders' respective rights under
this Section 3.4.1. HMGN hereby approves the mechanism for
denominating payments under the Power Purchase Agreement in
Dollars and Rupees in the same proportion as the financing
arranged by BKPC for the Project in Dollars and Rupees. In
furtherance of the provisions of this Section 3.4.1, HMGN
hereby agrees to permit BKPC, in connection with the
financing of the Project, to maintain Foreign Exchange bank
accounts inside and outside Nepal and to remit Foreign
Exchange for deposit into such bank accounts. BKPC shall
make available to HMGN all documentation related to the
maintenance of such bank accounts.
3.4.2 Foreign Shareholders as Beneficiaries.
HMGN hereby agrees that the provisions of Section 3.4.1
hereof are intended to benefit the Foreign Shareholders and, in
that connection, HMGN further agrees that the provisions of
Section 3.4.1 hereof may be enforced directly by any Foreign
Shareholder in its individual capacity.
3.5 "One Window" System
BKPC shall in all matters concerning its involvement with
the Project and the administration of this Agreement report to
and receive assistance from EDC.
3.5.1 Local Permits
HMGN shall, if requested to do so, provide assistance to
BKPC in its discussions with local bodies regarding the obtaining
of any licenses, permits or approvals to be issued by such local
bodies with respect to the construction and operation of the
Project. This shall include, without limitation, all licenses,
permits and approvals necessary for cutting of trees, making
timber available locally from those trees cut, building of roads,
power lines, ropeways, tunnel adits and dumps for depositing
spoil from tunnels and construction of buildings, switching yards
and other facilities. HMGN shall cause such necessary licenses,
permits and approvals to be timely issued in accordance with the
progress plans for the Project.
3.5.2 Communications
HMGN shall in accordance with the prevailing laws and
regulations issue promptly necessary permits to BKPC to import,
install and use suitable radio communication systems, including
satellite communication equipment and "walkie-talkies," during
the construction phase as well as later during regular
operations, as required to maintain contact internally within the
Project, as well as externally to existing and future systems.
Any system connecting with either the national telecommunications
system or directly with any international system shall be subject
to approval/license from the Ministry of Communications/Nepal
Telecommunication Corporation, which EDC shall assist BKPC in
obtaining.
3.5.3 Diesel Fuel
In the event of shortage in the supply of diesel fuel during
construction of the Project, HMGN shall make best efforts for the
supply of diesel fuel during construction of the Project on a
priority basis.
3.5.4 Explosives
EDC shall assist BKPC in making the necessary arrangements
under the prevailing laws and regulations to obtain permission to
import, transport, store and use such explosives as are required
for the construction work and to prepare blasting slurry at site.
3.5.5 Security
Upon request from BKPC, HMGN shall make necessary
arrangements for security during the construction period as
specified in Section 31 of the Electricity Act, 2049.
3.5.6 Import of Equipment, Etc.
HMGN shall cause the relevant governmental authority to
issue al necessary import licenses for the Project in accordance
with the Electricity Act, 2049, and shall assess a customs duty
on the import of construction equipment (including automobiles
and office equipment required for the development and
construction of the Project), machinery, tools and spare parts,
and shall assess no import license fee or sales tax thereon, all
as provided in Section 12 (7) thereof, provided, however, that if
this Agreement is terminated pursuant to Section 19.2 hereof,
BKPC shall export such equipment (including automobiles and
office equipment required for the development and construction of
the Project), machinery, tools and spare parts within three (3)
months after the effective date of such termination. BKPC shall
pay all customs, duties and taxes, due under applicable law if
such equipment (including automobiles and office equipment
required for the development and construction of the Project),
machinery, tools and spare parts are not exported within such
three (3) month period. Equipment (including automobiles and
office equipment required for the development and construction of
the Project), machinery, tools, spare parts and materials
required for the Project may be imported in the name of the Upper
Bhote Koshi Hydroelectric Project, BKPC, c/o EDC, MOWR, HMGN.
BKPC shall submit a list of equipment (including automobiles and
office equipment required for the development and construction of
the Project), machinery, tools and spare parts required for the
Project, to EDC for approval. The automobiles and office
equipment imported under this Section 3.5.6 shall not be used for
any other purpose other than in connection with the Project.
BKPC shall pay all customs, duties and taxes due under applicable
law in case of selling off, auctioning or any other kind of
disposal of any such automobiles and office equipment.
3.5.7 Temporary Import of Equipment
Equipment and machinery temporarily required for the
construction of the Project may be imported without payment of
any customs duty, sales tax or import license fee, provided such
equipment and machinery is declared as temporarily imported at
the time of import and exported within (3) months after (a) the
Commercial Operation Date or (b) if this Agreement is terminated
in accordance with Section 19.2 hereof, the effective date of
such termination. BKPC shall pay all customs, duties and taxes,
due under applicable law if such equipment and machinery is not
exported within such three (3) month period. BKPC shall provide a
list of an estimate of such equipment and machinery to EDC at
least one (1) month in advance of import.
3.5.8 Visas, Etc.
HMGN shall cause appropriate visas and work permits to be
issued In accordance with the corresponding rules and regulations
in due time for expatriate personnel and their families whom BKPC
considers are needed in Nepal in connection with the Project.
BKPC shall furnish EDC with a list giving a description of and
approximate number of posts which are expected to be filled by
expatriate personnel.
3.6 BKPC Transmission Line
If HMGN, pursuant to Section 20 of the Electricity Act,
2049, specifies that a transmission line built and owned by BKPC
shall be a national transmission line, then HMGN or its duly
appointed authority shall enter into a separate agreement with
BKPC with respect to use of such transmission line on mutually
agreeable terms arid conditions at the time of such action,
provided that BKPC shall have priority use of such transmission
line.
3.7 Sales and Export Rights
HMGN hereby agrees that BKPC shall be entitled to sell to
persons other than NEA within Nepal any electricity not required
to be purchased by NEA under the Power Purchase Agreement in
accordance with the Electricity Act, 2049, the Electricity Rules,
2050, and the Power Purchase Agreement. In case BKPC desires to
export electricity outside of Nepal, such exports shall be made
in accordance with the Electricity Act, 2049, and the Electricity
Rules, 2050.
3.8 Electricity Tariff Fixation Commission
HMGN hereby agrees that the energy rates payable by NEA to
BKPC under the Power Purchase Agreement are not subject to the
approval of the Electricity Tariff Fixation Commission described
in the Electricity Act, 2049.
3.9 GLOF Early Warning System
BKPC agrees to conduct a study, at its cost, of the
potential effects to the Project of a glacier lake outburst flood
(a "GLOF"). Upon completion of any such study, if BKPC or its
Lenders determine that the installation of an early warning
system in respect of a GLOF is required, HMGN and BKPC shall meet
to discuss the manner in which such a system is to be
established, and the role and cost-sharing burdens to be
undertaken by each, and shall cooperate In the establishment of
such a system.
3.10 Further Assurances
In furtherance of its obligations hereunder, HMGN hereby
agrees that on or prior to the Date of Financial Closing if any
Lender so requests, HMGN shall provide to such Lender an opinion
of HMGN's legal counsel regarding the validity of this Agreement
and other documents required by the Lender in connection with an
assignment described In Section 13.1 hereof.
SECTION 4. OBLIGATIONS OF BKPC
4.1 Ownership and Operation
Subject to the terms and conditions of the Power Purchase
Agreement, the Project shall be built, owned, operated and
transferred by BKPC in accordance with the Project License. The
Memorandum of Association and the Articles of Association for
BKPC, as they exist as of the date of signing of this Agreement,
are attached to this Agreement as Schedule 2 and Schedule 3,
respectively. HMGN hereby acknowledges and agrees that each of
BKPC's Memorandum of Association and Articles of Association may
be amended or altered in accordance with prevailing laws from
time to time. However, any such amendments or alterations shall
not have any detrimental effect on the ability of BKPC to
perforce its obligations under this Agreement, the Power Purchase
Agreement or the Project License. BKPC shall furnish EDC with
copies of any amendments or alterations to BKPC's Memorandum of
Association and/or Articles of Association.
4.2 Environmental Compliance
BKPC agrees to take all feasible measures to ensure that the
Project is carried out with due regard to ecological,
environmental and social factors. BKPC shall comply with, and
promptly rectify, any noncompliance with the environmental,
occupational, health and safety requirements detailed In the
National Environmental Impact Assessment Guidelines, 2050, and
all other applicable environmental laws and regulations.
4.3 Royalty
BKPC shall pay royalty to HMGN as specified by the
Electricity Act, 2049, and the Electricity Rules, 2050. The
procedure for payment shall be as follows:
(a) Royalty to be paid against the installed capacity shall be
paid annually in advance, irrespective of energy generation.
The first such annual payment shall be paid within fifteen
(15) Days of the first Unit Delivery Date and shall
thereafter continue to be paid annually on the same date.
(b) Royalty to be paid on energy generated (less the quantity of
energy used for the operation of the Project) shall be paid
three (3) times a year, in arrears on 15th Kartik (end
October), 15th Falgun (end February) and 15th Ashad (end
June) each fiscal year.
4.4 Local Labor and Resources
BKPC agrees pursuant to the Labor Act, 2049, and the Labor
Regulations, 2050, (a) to utilize, as much as possible and to the
extent qualified, the available local skills and labor crafts and
resources for the construction of the Project, (b) later, for the
commercial operation and maintenance of the Project, to maximize
the use of local labor and resources to provide direct benefit to
the local population, and (c) to use best efforts to utilize, as
much as possible and to the extent qualified, the available local
consultants, professionals and contractors in connection with the
construction, operation and maintenance of the Project.
4.5 Technology Transfer and Training
During construction and operation of the Project, BKPC shall
effect the transfer of technology referred to in Sermon 4 of the
Hydropower Development Policy, 2049 by systematic training of
BKPC's local personnel and by introduction of modern management
methods in accordance with prudent utility practice in order that
BKPC may build their technical and managerial competence and
establish a system for total quality management in hydropower
design, construction and operation. BKPC shall employ Nepalese
citizens, men and women, when qualified and to the extent
possible, to carry out the transfer of technology through job-
related training of employees and shall require the same of their
contractors. HMGN hereby acknowledges that the performance by
BKPC of this Section 4.5 shall satisfy the requirements for the
transfer of technology applicable to licensees under Section 4 of
the Hydropower Development Policy, 2049.
4.6 Insurance
During the construction of the Project, BKPC shall maintain
appropriate levels of insurance as required for construction
projects of this nature, having due regard for local conditions
which may affect the cost and availability of such insurance. If
BKPC shall not have insured the Project pursuant to this Section
4.6, BKPC shall assume full liability for any failure to so
insure BKPC shall also require its contractors to provide proof
of required insurance. It shall be the sole responsibility of
BKPC to monitor and control the insurance program of the Project.
BKPC shall be responsible for insuring the completed Project
against such risks that could, in the opinion of BKPC, jeopardize
the continued financial viability of the Project. BKPC shall
provide HMGN with copies of all policies (or certificates of
policies) of insurance maintained under this Section 4.6, and
BKPC shall instruct its insurers to provide notice to HMGN of any
material adverse change in the coverage under such policies or
any cancellation of coverage.
4.7 Quality and Maintenance
BKPC shall ensure that the construction of the Project will
be completed using generally accepted international engineering
and construction practices. BKPC confirms that all equipment and
machinery installed as part of the Project shall be new. For so
long as the Project License remains in effect, BKPC agrees to
operate the Project in accordance with internationally accepted
hydropower electric utility practices, giving due regard to the
age and location of the Project, and at all times to maintain the
Project so as to ensure that the Project operates to such
standards.
4.8 Reporting
BKPC shall submit annual reports to HMGN concerning its
production and operation in accordance with the Electricity
Rules, 2050. During the construction period, BKPC shall file a
progress report to HMGN in accordance with the Electricity Rules,
2050.
4.9 Development of Project
BKPC agrees to complete the development of the Project in
accordance with the requirements of this Agreement and the Power
Purchase Agreement.
BKPC shall obtain all necessary approvals pursuant to the
Industrial Enterprises Act, 2049 and the Foreign Investment and
Technology Transfer Act, 2049 and comply with any requirements
thereof for the development of the Project.
4.10 Transfer of Project License and Project
At the end of the twenty-five (25) year term of the Power
Purchase Agreement, BKPC shall arrange for the transfer of the
Project License to the joint venture entity formed by BKPC and
NEA to own and operate the Project as agreed by BKPC and NEA in
the Power Purchase Agreement, in accordance with the Electricity
Act, 2049 and the Electricity Rules, 2050. At the end of the
forty (40) year validity period of the Project License, BKPC
shall cause such joint venture entity to transfer the Project
free of charge and in good running condition, to HMGN.
SECTION 5. GUARANTEE
HMGN hereby unconditionally and irrevocably guarantees that
NEA shall timely pay when due all amounts payable by NEA under
the Power Purchase Agreement, strictly in accordance with the
terms of the Power Purchase Agreement. BKPC agrees to provide
HMGN with a copy of each notice given by BKPC under the Power
Purchase Agreement of any nonpayment by NEA thereunder. BKPC may
claim under this Section 5 by making demand on HMGN after:
(a) NEA has failed to pay its obligations under the Power
Purchase Agreement;
(b) BKPC has given prompt notice to HMGN of such failure to
pay; and
(c) only for so long as NEA maintains a letter of credit or
other financial security as required by, and on the
terms of the Power Purchase Agreement, seventy-two (72)
hours have passed since BKPC has not received full
satisfaction of the unpaid amount by drawing under (in
accordance with its terms) such letter of credit or
other financial security maintained by NEA under the
Power Purchase Agreement.
For purposes of this Section 5, any failure NEA to make a
payment under the Power Purchase Agreement shall itself
constitute proof of NEA's failure to honor its payment obligation
under the Power Purchase Agreement to make such payment. Except
to the extent any such claim is paid by NEA In accordance with
the Power Purchase Agreement, HMGN shall make payment to BKPC for
any such claim made by BKPC in accordance with this Section 5
within thirty (30) Days of the date on which BKPC shall have made
such claim. HMGN agrees that it will not assert any defense
available to it under law as a guarantor or surety.
SECTION 6. BUYOUT BY HMGN IN THE EVENT OF SPECIAL BUYOUT EVENTS
6.l Buyout Mechanism
In the event that, prior to the Maturity Date, a Special
Buyout Event shall have occurred and be continuing, BKPC may, at
its option, delivery notice thereof to HMGN and HMGN shall have a
period of thirty (30) Days from the date of such notice to remedy
such Special Buyout Event. If HMGN has not remedied such Special
Buyout Event within such thirty (30) Day period and such Special
Buyout Event continues for a period of one hundred twenty (120)
Days from the end of such thirty Day period, BKPC shall promptly
deliver to HMGN a written notice (the "Purchase Notice")
requesting HMGN to purchase from BKPC all of BKPC's right, title
and interest in and to the Project in accordance with this
Section 6, whereupon HMGN shall so purchase the Project on or
prior to the date (the "Purchase Date") which is the earlier of
(a) the date on which NEA shall have failed to pay any amount
under Article 8 of the Power Purchase Agreement or any other
material amount, in either case, which then remains unpaid by NEA
(or HMGN pursuant to Section 5 hereof) or (b) two hundred forty-
five (245) Days from the date HMGN shall have received the
Purchase Notice. During the period from HMGN's receipt of notice
of a Special Buyout Event until the date of the Purchase Notice,
BKPC and HMGN shall meet and consult in good faith in an attempt
to determine what actions HMGN, BKPC or any contractor or
supplier of BKPC affected by such Special Buyout Event may take
to eliminate or remedy such Special Buyout Event, and HMGN, BKPC
or such contractor or supplier shall use reasonable efforts to
remedy or eliminate such Special Buyout Event in the manner
agreed; provided, that any failure to remedy or eliminate such
Special Buyout Event after BKPC or such contractor or supplier
shall have used reasonable efforts, or any refusal by HMGN to
meet and consult, shall not affect BKPC's right to exercise its
rights pursuant to this Section 6. HMGN shall not be obligated to
purchase the Project if the Special Buyout Event has been
remedied prior to the Purchase Date. BKPC may, with the prior
written consent of HMGN, revoke the Purchase Notice at any time
prior to the Purchase Date.
6.2 Buyout Purchase Price
The purchase price for the Project payable by HMGN pursuant
to this Section 6 (the "Purchase Price") shall be an amount equal
to:
(a) during the period prior to the Commercial Operate Date,
the sum of (i) the aggregate of all costs and expenses
incurred by BKPC, and all amounts payable by BKPC, in
developing, financing, constructing and commissioning
the Project prior to the Purchase Date, including,
without duplication, all amounts outstanding under the
Financing Documents (other than amounts which have been
disbursed but no applied to costs of the Project) as
set forth in financial statements audited by an
international accounting firm mutually acceptable to
BKPC and HMGN, plus (ii) any amounts payable by BKPC as
a result of early termination of the Construction
Contracts due to such Special Buyout Event, plus (iii)
ten percent (10%) of the sum of clauses (i) and (ii) of
this Section 6.2(a) (provided that, after the date of
the Purchase Notice, BKPC shall not obligate itself to
any additional costs and expenses without the prior
written approval of HMGN, which shall not be
unreasonably withheld); provided, however, that if the
Purchase Notice was delivered following the occurrence
of a Special Buyout Event specified in clause (a) or
(b) of the definition of "Special Buyout Event"
resulting from BKPC's intentional or grossly negligent
failure to comply with any law of Nepal of general
application of a kind which governments normally enact
in the public interest for the purpose of protecting
national security, then, in such case, the Purchase
Price shall be the sum of the aggregate of all amounts
owing by BKPC to the Lenders under the Financing
Documents, plus the aggregate amount of any equity
invested by any multilateral institution if any such
institution is a Shareholder as of the Purchase Date;
(b) thereafter, the sum of (i) the aggregate of all costs
and expenses incurred by BKPC, and all amounts payable
by BKPC, in developing, financing, constructing and
commissioning the Project as of the Commercial
Operation Date, including, without duplication, all
amounts outstanding under the Financing Documents
(other than amounts which have been disbursed but not
applied to costs of the Project) as set forth in
financial statements audited by an international
accounting firm mutually acceptable to BKPC and HMGN,
plus (ii) thirty percent (30%) of such amount. The
Purchase Price calculated pursuant to this Section
6.2(b) shall be increased or decreased each year (as
the case may be) in the same manner as the Energy
Factor is increased or decreased in accordance with
Schedule 4 to the Power Purchase Agreement; provided,
however, that if the Purchase Notice was delivered
following the occurrence of a Special Buyout Event
specified in clause (a) or (b) of the definition
"Special Buyout Event" resulting from BKPC's
intentional or grossly negligent failure to comply with
any law of Nepal of general application of a kind which
governments normally enact in the public interest for
the purpose of protecting national security, then, in
such case, the Purchase Price shall be the sum of the
aggregate of all amounts owing by BKPC to the Lenders
under the Financing Documents, plus the aggregate
amount of any equity invested by any multilateral
institution if any such institution is a Shareholder as
of the Purchase Date; and
(c) plus, in the case of either (a) or (b) above, a gross
up for the effect of Taxes on such purchase transaction
so that the amount received by BKPC after payment of
such Taxes shall equal the amount that would have been
received had no such Taxes been payable.
6.3 MIGA Insurance
BKPC shall use its best efforts to cause any Foreign
Shareholders that shall (at their option) have entered into a
contract of guarantee for their respective equity investments
with the Multilateral Investment Guarantee Agency ("MIGA") to
file a claim with MIGA with respect to any Special Buyout Event
(if it falls within the scope of MIGA's guarantee) within sixty
(60) Days following the occurrence of such Special Buyout Event
in accordance with the claims procedures set forth in MIGA's
General Conditions of Guarantee of Equity Investments and to
provide notice of such claim to HMGN (provided that any failure
to provide such notice shall not relieve HMGN from its
obligations under this Section 6). The Purchase Price shall be
reduced by any amounts received by any Foreign Shareholder from
MIGA pursuant to a contract of guarantee between such Foreign
Shareholder and MIGA; provided, however, that in no event shall
the Purchase Price be reduced hereunder to an amount less than
the sum of (i) the aggregate of all amounts owing by BKPC to the
Lenders under the Financing Documents plus (ii) the aggregate
amount of any equity invested by any multilateral institutions if
such institutions are Shareholders as of the Purchase Date. In
the event that any Foreign Shareholder receives any amount from
MIGA in relation to the Project after the date on which the
Purchase Price is fully and finally paid, such Foreign
Shareholder shall forthwith pay to HMGN an amount equal to all
such proceeds.
6.4 Payment Mechanism; Transfer of Title
(a) The Purchase Price shall be payable by HMGN in Dollars
in immediately available funds on the Purchase Date and
HMGN hereby agrees to ensure the prompt availability of
or to promptly provide all necessary Dollars, and to
ensure full and unencumbered repatriation rights, with
respect to the Purchase Price; provided, however, that
such portion of the Purchase Price that BKPC specifies
to HMGN as comprising (i) a return of equity, or return
on equity, to Shareholders that are not Foreign
Shareholders or (ii) repayment of principal or accrued
interest on loans denominated in Rupees and made to
BKPC by Lenders that are not Foreign Lenders shall be
paid, on the date that the Purchase Price is paid, in
Rupees rather than Dollars in an amount equal to the
Rupee equivalent of the Dollar amount of such portion,
calculated at the prevailing market rate of exchange on
such date, and such portion shall be paid by HMGN in
Rupees rather than Dollars.
(b) Upon payment of the Purchase Price by HMGN, BKPC shall
transfer to HMGN title to the Project and shall assign
and delegate to HMGN its rights and obligations under
the Power Purchase Agreement (other than its rights in
respect of the period prior to the date of such
assignment and its rights under any payment provisions
or indemnities in respect of such period or which have
accrued prior to the date of such assignment), free and
clear of all encumbrances created under the Financing
Documents, and thereafter BKPC and HMGN agree that all
leases between BKPC and HMGN that relate to the Project
shall be terminated, whereupon (i) BKPC shall be
released from all covenants and obligations hereunder
and (ii) HMGN shall be released from all covenants and
obligations hereunder, except for its obligations under
Sections 3.3, 3.4, 5 and 16 hereof and this Section 6,
all of which covenants and obligations shall remain in
full force and effect until such time as BKPC, the
Lenders and the Shareholders have been fully and
finally paid all amounts payable under the Power
Purchase Agreement and this Agreement. The parties
agree to execute such bills of sale and other transfer
documents as shall be necessary to give effect to
HMGN's purchase of the Project pursuant to this Section
6; provided, that all costs and expenses incurred by
either party in consummating the transactions
contemplated by this Section 6 shall be for the account
of HMGN.
SECTION 7. REPRESENTATIONS AND WARRANTIES
(a) HMGN hereby represents and warrants to BKPC that:
(i) HMGN has the power to execute, deliver and perform
fully all its obligations and liabilities under
this Agreement, the Project License and each
other consent, permit, approval, document and
instrument (each a "document" and collectively
the "documents") issued or executed by HMGN in
connection herewith, and the execution, delivery
and performance by it of this Agreement, the
Project License and such other documents have
been authorized by all necessary action;
(ii) the execution, delivery and performance by HMGN
of this Agreement, the Project License and the
other documents will not violate any order,
provision of any existing law or regulation or
order or decree of any court, governmental
authority, bureau, or agency or of any contract,
undertaking or agreement to which HMGN is a
party or binding on HMGN, and will not result in
the imposition or creation of any lien, charge
or encumbrance on any part thereof; and
(iii) each of this Agreement, the Project License and
other such documents has been duly issued or
executed and delivered on behalf of HMGN and
constitutes a valid obligation of HMGN, legally
binding upon it and enforceable in accordance
with its terms.
(b) BKPC hereby represents and warrants to HMGN that:
(i) BKPC has the power to perform fully its
obligations under the Project License and to
execute, deliver and perform fully all its
obligations and liabilities under this
Agreement, and each other consent, permit,
approval document and instrument (each a
"document" and collectively the "documents")
issued or executed by BKPC in connection
herewith, and the performance by it of its
obligations under the Project License and the
execution, delivery and performance by it of
this Agreement and such other documents have
been authorized by all necessary action;
(ii) the execution, delivery and performance by BKPC
of this Agreement, the Project License and the
other documents will not violate any order,
provision of any existing law or regulation or
order or decree of any court, governmental
authority, bureau or agency or of any contract,
undertaking or agreement to which BKPC is a
party or binding on BKPC, and will not result in
the imposition or creation of any lien, charge
or encumbrance on any part thereof;
(iii) each of this Agreement, and such other documents
has been duly issued or executed and delivered
on behalf of BKPC and constitutes a valid
obligation of BKPC, legally binding upon it and
enforceable in accordance with its terms;
(iv) the Project License will, upon issuance,
constitute a valid obligation of BKPC, legally
binding upon it and enforceable in accordance
with its terms; and
(v) its Shareholders, as of the date hereof, are
Himal International Power Corporation Ltd.,
Nepal, RDC of Nepal, a Cayman Islands
corporation and subsidiary of Harza Engineering
Company International L.P., a Delaware (U.S.A.)
limited partnership, and Panda of Nepal, a
Cayman Islands corporation and subsidiary of
Panda Energy International, Inc., a Texas
(U.S.A.) corporation.
(c) Each party hereto (the "First Party") hereby represents
to each other party hereto that no written information
supplied by or on behalf of the First Party to such
other party relating to the Project or to any of the
transactions contemplated by this Agreement contains
any untrue statement of a material fact or omits to
state a material fact necessary to make the statement
contained therein not misleading.
SECTION 8. INFORMATION
The parties shall at all times forthwith provide to each
other such information as each party has available and as is
necessary or useful to enable each party to perform its
obligations under this Agreement. Each of the parties may use or
disclose such information to a third party to the extent
necessary for the performance of, and control of, the financing,
construction and operation of the Project, subject to prior
consent from the other party or to the extent otherwise required
by law or order of a court.
SECTION 9. VALIDITY AND TERMINATION
(a) This Agreement shall come into force on the date hereof
and shall remain in full force and effect during the
forty (40) year validity period of the Project License,
except for:
(i) Section 5 hereof, which shall terminate and cease
to have any further force or effect on the date
that is the earlier to occur of: (A) twenty (20)
years from the Commercial Operation Date, if all
obligations of HMGN thereunder have been fully
discharged; and (B) termination of the Power
Purchase Agreement, if all obligations of NEA
thereunder have been fully discharged.
(ii) Section 6 hereof, which shall terminate and cease
to have any further force or effect on the date
that is the earlier to occur of: (A) twelve (12)
years from the Commercial Operation Date; (B) the
day after the Maturity Date, if, in either case,
all obligations of HMGN thereunder have been fully
discharged.
(b) If a Special Buyout Event shall have occurred and HMGN
shall have purchased the Project pursuant to Section 6
hereof, then this Agreement shall terminate and cease
to have any further force or effect on the date that
HMGN shall have fully and finally paid all amounts
payable hereunder by HMGN and NEA shall have fully and
finally performed all of its obligations under the
Power Purchase Agreements.
(c) If either party shall have failed to perform any of its
material obligations under this Agreement, then the
nondefaulting party may terminate this Agreement by
giving written notice of such breach and its intention
to terminate this Agreement to the defaulting party,
which termination shall be effective no earlier than
ninety (90) Days following the date of such notice
(unless the defaulting party shall have cured or
remedied such failure to perform prior to such ninety
(90 Day period, in which event this Agreement shall not
be terminated), whereupon the nondefaulting party shall
be excused and relieved of all obligations and
liabilities under this Agreement, except for payment of
amounts due before the effective date of such
termination.
SECTION 10. GOVERNING LAW
The governing law for this Agreement is the law of the
Kingdom of Nepal.
SECTION 11. RESOLUTION OF DISPUTES
11.1 Dispute Resolution by Mutual Agreement
Each of HMGN and BKPC shall designate in writing to the
other party a representative who shall be authorized to resolve
any dispute arising under this Agreement in an equitable manner
and, unless otherwise expressly provided herein, to exercise the
authority of the parties hereto to make decisions by mutual
agreement.
(a) If the designated representatives are unable to resolve
a dispute under this Agreement within thirty (30) Days
of the commencement of discussions, such dispute shall
be referred by each such representative to the
respective senior officer designated by BKPC and the
senior official designated by HMGN, as the case may be,
to be resolved within sixty (60) Days of the
commencement of discussions.
(b) The parties hereto agree to attempt to resolve all
disputes arising hereunder promptly, equitably and in a
good-faith manner.
(c) The parties further agree to provide each other with
reasonable access during normal business hours to any
and all records, information and data pertaining to any
such dispute other than any confidential communication
between any party and its legal advisor(s) or any such
records, information or data which any party has agreed
with any third party to keep confidential.
11.2 Arbitration
(a) In the event that any dispute is unable to be resoled
between the parties pursuant to Section 11.1 hereof,
then such dispute shall be settled exclusively and
finally by arbitration. It is specifically understood
and agreed that any dispute that cannot be resolved
between the parties, including any matter relating to
the interpretation of this Agreement, shall be
submitted to arbitration irrespective of the magnitude
thereof, the amount in dispute or whether such dispute
would otherwise be considered justiciable or ripe for
resolution by any court or arbitral tribunal. This
Agreement and the rights and obligations of the parties
shall remain in full force and effect pending the award
in such arbitration proceeding, which award shall
determine whether and when termination of this
Agreement, if relevant, shall become effective.
(b) Each arbitration shall be conducted in accordance with
the Rules of Arbitration of the United Nations
Commission on International Trade Law ('UNCITRAL") as
in effect on the date of signing of this Agreement
except as such Rules of arbitration conflict with the
provisions of this Section 11.2, in which event the
provisions of this Section 11.2 shall prevail.
(c) Each arbitral tribunal shall consist of three (3)
arbitrators. Each party shall appoint one arbitrator
for each arbitration, and the third arbitrator shall be
appointed by the court of arbitration of UNCITRAL. No
arbitrator shall be a present employee or agent of, or
consultant or counsel to, either party or any affiliate
of either party.
(d) Each arbitration shall e conducted in Kathmandu, Nepal,
and the parties agree to exclude any right of
application to any court or tribunal of competent
jurisdiction in connection with any question of law
arising in the course of any arbitration in connection
with this Agreement.
(e) The language to be used in each arbitration shall e
English, and all written documents to be provided in
each arbitration shall be in English.
(f) Any decision or award of an arbitral tribunal appointed
pursuant to this Section 11.2 shall be final and
binding upon the parties. Each of HMGN and BKPC
waives, to the extent permitted by law, any rights to
appeal or any review of such award by any court or
tribunal of competent jurisdiction. Each of HMGN and
BKPC agrees that a judgment upon any arbitration award
may be entered into by any court of competent
jurisdiction thereof.
(g) All arbitration awards shall be denominated in the
currency to which such dispute related, Dollars or
Rupees. Interest on the amount to be paid in accordance
with an arbitration award at a rate equal to ten
percent (10%) per annum shall be due and payable to the
prevailing party from the date on which the matter was
first submitted to arbitration up to and including the
date of payment.
SECTION 12. NOTIFICATION
Any notification to be made by one party to the other under
this Agreement shall be validly made when delivered in writing by
hand, by courier or by registered mail to the addresses of each
party set forth on the signature page hereof, or such other
address as either party shall notify to the other, with
acknowledgment of receipt. The notification will be considered
as effective at the date of acknowledgment of receipt.
SECTION 13. ASSIGNMENT; ADDITIONAL FOREIGN SHAREHOLDERS
13.1 Assignment
BKPC may, for the purposes of arranging or rearranging
financing for the Project assign or otherwise transfer all or any
portion of its rights and benefits, but not its obligations,
under this Agreement to any bank or other financial institution
(whether domestic or international) providing financing for the
Project. In addition, each Foreign Shareholder may, for the
purposes of arranging or rearranging financing for the Project,
assign or otherwise transfer all or any portion of its rights and
benefits, but not its obligations, under Section 3.4 hereof to
any foreign equity investor in the Project. Any such bank or
other financial institution or foreign equity investor shall
thereupon become vested with all the benefits in respect thereof
granted to BKPC herein or otherwise, provided that such
assignment shall not increase HMGN's financial obligations. BKPC
shall give written notice to HMGN of such assignment or
assignments and HMGN shall acknowledge the same in writing. HMGN
shall not assign this Agreement to any other person or entity.
13.2 Additional Foreign Shareholders
BKPC may, for the purposes of arranging or rearranging
financing for the Project, issue shares to, or otherwise receive
equity investments from, additional Foreign Shareholders
providing financing for the Project and HMGN agrees that in
connection therewith, any such additional Foreign Shareholders
shall, after obtaining any required approvals under Section 3(1)
of the Foreign Investment and Technology Transfer Act, 2049, be
entitle to become parties to this Agreement on the same basis as
the other Foreign Shareholders. BKPC shall give written notice
to HMGN of any additional Foreign Shareholders who wish to become
parties to this Agreement and HMGN shall acknowledge that same in
writing. EDC shall assist BKPC for such additional Foreign
Shareholders to become shareholders in BKPC.
SECTION 14. GOOD FAITH
(a) The parties undertake to act in good faith in relation
to the performance and implementation of this Agreement
and to take such other reasonable measures as may be
necessary for the realization of its objectives.
(b) The parties recognize that circumstances may arise
which the provisions of this Agreement may not have
foreseen in which event they undertake to consult each
other promptly and in good faith in an effort to reach
agreement as to what should be done.
(c) The parties consider the terms of this Agreement to be
fair at the date of this Agreement, but if during the
term of this Agreement either party believes that this
Agreement has become grossly unfair to that party, it
shall notify the others and the parties shall use
reasonable efforts to agree on such action as may be
necessary to remove the cause or causes of the
unfairness, but failure to agree shall not be submitted
to the dispute resolution procedures set forth in
Section 11 hereof.
SECTION 15. AMENDMENTS
No amendment or waiver of any provision of this Agreement,
and no consent to any departure by HMGN or BKPC herefrom, shall
in any event be effective unless the same shall be in writing and
signed by each of HMGN AND BKPC.
SECTION 16. IMMUNITY
HMGN acknowledges and agrees that the activities
contemplated by this Agreement are commercial in nature rather
than governmental or public and, therefore, acknowledges and
agrees that the right of immunity does not and will not arise
with respect to such activities or in any legal action or
proceeding arising out of or relating to this Agreement in
respect of itself and its properties.
SECTION 17. FINANCING DOCUMENTS
BKPC shall provide to HMGN copies of each Financing Document
signed by BKPC as soon as reasonably practicable following the
date of signature of such Financing Document.
SECTION 18. REFINANCING
The consent of HMGN shall be required prior to any
refinancing of all or a portion of the initial permanent debt
financing for the Project. In the event of such a refinancing,
BKPC agrees that the financial benefits that are obtained from
such refinancing, shall be shared equally with HMGN in return for
HMGN's consent to such refinancing. At the time of consent by
HMGN to such a refinancing, the manners and procedures for
payment of HMGN's share of such financial benefits shall be
developed and agreed to by both the parties hereto.
SECTION 19. PERFORMANCE ASSURANCE
19.1 Performance Assurance Obligations
Within thirty (30) days of the date on which this Agreement
is signed, BKPC shall provide Performance Assurance to HMGN
having an aggregate amount drawable by HMGN equal to three
million six hundred thousand (3,600,000) Rupees. Such Performance
Assurance, and any additional Performance Assurance provided
under Section 19.2(b) hereof, shall be drawable by HMGN only if
this Agreement shall have been terminated in accordance with
Section 19.2 hereof.
19.2 Termination of Agreement and Forfeiture of Performance
Assurance
If the Loan Signing Date fails to occur on or prior to the
date that is:
(a) twelve (12) months following the date hereof or
(b) if BKPC provides to HMGN additional Performance
Assurance, such that the aggregate amount drawable
under all Performance Assurance provided under Section
19.1 and this Section 19.2(b) is equal to seven million
two hundred thousand (7,200,000) Rupees, eighteen (18)
months following the date hereof,
then HMGN may, in its sole discretion, upon written notice to
BKPC, terminate this Agreement without further liability
(excluding forfeiture of the Performance Assurance) to either
party and HMGN shall have the unconditional right to draw upon
the Performance Assurance by delivering a written certification
to the issuer of the Performance Assurance.
19.3 Return of Performance Assurance
Within fourteen (14) days after BKPC provides evidence to
HMGN that the Loan Signing Date has occurred, HMGN shall return
the Performance Assurance to BKPC with instructions for
cancellation.
19.4 Delays Caused by Breach
BKPC may seek to recover any amount of Performance Assurance
forfeited under this Section 19, where such forfeiture occurred
primarily due to a breach by HMGN of its obligations hereunder or
primarily due to a breach by NEA of its obligations under the
Power Purchase Agreement.
SECTION 20. SCHEDULES
The following schedules shall be seen to be in conjunction
with and to form a part of this Agreement.
Schedule 1 Power Purchase Agreement
Schedule 2 BKPC Memorandum of Association
Schedule 3 BKPC Articles of Association
IT WITNESS WHEREOF, the parties hereto, acting through their
duly authorized representatives, have caused this Agreement to be
signed, in ten (10) copies in the English language, at Ministry
of Water Resources, Singha Durbar, Kathmandu, Nepal on the sixth
day of Shrawan 2053 (Twenty first day of July 1996).
Signed on behalf of Signed on behalf of
HIS MAJESTY'S GOVERNMENT BHOTE KOSHI POWER
OF NEPAL COMPANY PRIVATE LIMITED
By:_______________________ By: _____________________
(Vijaya S. Shrestha) (Robert W. Carter)
Director General Chief Executive Officer/
Electricity Development President
Centre Bhote Koshi Power Company
Ministry of Water Resources Private Limited
Exhibition Road, Kathmandu Tahachal, Kathmandu
Witnessed Witnessed
By:_______________________ By: _____________________
(Dr. Kishor B. Aryal) (Peter W. Bodde)
Deputy Director General The Charge d' Affaires of
Electricity Development Centre the United States of
Ministry of Water Resources America
Exhibition Road, Kathmandu US Embassy, Kathmandu
For the purposes of Sections 3.4, 13 and 16 hereof.
Signed on behalf of Signed on behalf of
RDC OF NEPAL PANDA OF NEPAL
By:_______________________ By: _____________________
(Frank M. Dickerson) (Robert W. Carter)
Director Chairman/President/CEO
RDC of Nepal 4100 Spring Valley
233 South Wacker Drive Suite 1001
Chicago, IL USA Dallas, Texas USA
Witnessed Witnessed
By:_______________________ By: _____________________
(Peter W. Bodde) (Peter W. Bodde)
The Charge d' Affaires of The Charge d' Affaires of
the United States of the United States of
America America
US Embassy, Kathmandu US Embassy, Kathmandu
SCHEDULE 1
POWER PURCHASE AGREEMENT
[See Stand-alone document filed as Exhibit 10.140
to this Registration Statement]
SCHEDULE 2
FIRST AMENDED
MEMORANDUM OF ASSOCIATION
OF THE
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
Kathmandu, Nepal
FIRST AMENDMENT TO THE
MEMORANDUM OF ASSOCIATION
OF THE BHOTE KOSHI POWER CO
MEMORANDUM OF ASSOCIATION
OF
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
Incorporated under the Company Act, 2021 (1964)
1. NAME OF THE COMPANY:
The name of the Company shall be Bhote Koshi Power Company
Private Limited.
2. REGISTERED OFFICE OF THE COMPANY:
The registered office of the Company will be located in
Tahachal Kathmandu District, Nepal. The registered office
may be changed with the approval of the concerned department
of His Majesty's Government of Nepal (HMGN). Branches and
other business offices, may be established at other
locations as required. However, under no circumstances may a
registered office, branch or other business office of the
Company be established in the United States.
3. DEFINITIONS:
In this Memorandum of Association unless repugnant to the
subject or context:
"AFFILIATE(S)" shall mean any person or entity that
directly or indirectly (through one or more
intermediaries) controls or is controlled by or under
common control with the Party specified. For purposes
of this definition, control of a person or entity means
the power, direct or indirect, to cause or determine
the direction of the management and policies of such
person or entity (whether by ownership of securities,
contract or otherwise).
"Foreign Parties" means Panda of Nepal and RDC of
Nepal.
"Nepali Party" means Himal International Power Corp.
Ltd., a Party to the Agreement.
"Agreement" means the Joint Venture Agreement dated 20
March 1996, between the Nepali Party and Foreign
Parties.
4. MAIN OBJECTIVES:
4.1 The main objectives of Bhote Koshi Power Company
Private Limited shall be as follows:
a. To develop, construct, own and operate the Upper
Bhote Koshi Hydroelectric Project.
b. To sell the generated power to NEA, HMGN or its
representatives, directly to consumers, both local
and foreign, and others.
c. To establish firms, companies or corporations with
or without collaboration with HMGN or others to
generate, distribute and sell power to provide
technical and managerial consultancy and to
undertake all related and ancillary activities for
the development, construction and operation of
power generation facilities.
d. To build transmission lines to transmit power from
the Upper Bhote Koshi Project to the Nepal
Electricity Authority (NEA) power grid or other
points of supply whether through the NEA system or
otherwise.
4.2 Activities to be carried out for fulfillment of the
above mentioned objectives:
a. To carry out the activities which are related to
the objectives or the functions of the Company as
provided in Section 4.1., and such other
activities which the Company deems necessary for
the fulfillment of its objectives, subject to the
prevailing laws of Nepal;
b. To purchase or acquire buildings and land on
mortgage, lease, exchange, contract or otherwise
for the purpose of the Company and to use and deal
with them in such manner as the Company deems fit;
c. To import, purchase and maintain goods, raw
materials, machines and equipment required by the
Company subject to the prevailing laws of Nepal;
d. To acquire, possess and use movable or immovable
properties for the purpose of the Company;
e. To borrow money to fulfill the need for the
required funding of the Company from national and
foreign banks and financial institutions and to
conclude necessary agreements for the same,
subject to the prevailing laws of Nepal;
f. To obtain consultancy services on any matter
relating to the business of the Company and to
conclude appropriate management or other
agreements with national or foreign institutions,
firms and companies;
g. To purchase, lease or otherwise obtain vehicles
required for the purpose of the Company and to use
them for the business of the Company;
h. To pay all expenses incurred for the incorporation
of the Company;
i. To bear all expenditures for advertisement
required for promotion of the Company;
j. Subject to the prevailing laws of Nepal, to
establish a public relations and business
promotion arm for furthering of the business of
the Company, to bear required expenses for the
same and to correspond and otherwise deal with
national and international organizations and
institutions in this regard;
k. To open bank accounts with national and with prior
approval in foreign banks and operate such
accounts with them;
l. To employ managers, staff and workers required for
the efficient and effective operation of the
Company, and subject to the prevailing laws to
determine their service conditions and facilities
(including salaries and allowances), to prescribe
their functions, rights and duties, and to suspend
or dismiss such employees;
m. To file or defend a suit on behalf or against the
Company, its officers and employees in matters
where the Company's interest is involved and to
compromise such suit or claim and to settle the
dues or claims made for or against the Company,
and to grant or obtain extension time for such
settlement;
n. To purchase and invest in shares and debentures of
any other company;
o. To arrange for appropriate study and training
programs within and outside Nepal for the career
development of employees, technicians and other
and as required for the Company's business; and
p. To perform all such other functions required for
the attainment of all or any of the objectives as
mentioned above, subject to the prevailing laws of
Nepal.
5. LIMITED LIABILITY:
This Company is a private limited company registered under
the Company Act, 2021. The liability of its shareholders is
limited and a shareholder shall not be liable to pay any due
or liability of the Company except as face value of the
share subscribed by him. The total number of its
shareholders shall not be more than 50 and its shares shall
not be sold or purchased publicly and its shares shall not
be transferred by way of sale, mortgage or otherwise to any
other persons except in accordance with the provisions of
the agreement.
6. SHARE CAPITAL:
6.1 The authorized share capital of the Company shall be
Rupees five billion four hundred fourteen million five
hundred thousand (Rs. 5,414,500,000) divided into one
class of 54,145,000 Shares of Rupees 100 each. The
initial issued share capital of the Company will be
Rupees 60,000,000 divided into 600,000 Shares of Rupees
100 each. The issued capital shall be subscribed by
Foreign Parties and Nepali Party or their respective
Affiliates in the Specified Proportions as outlined in
this Memorandum of Association.
6.2 The Foreign Parties and/or their Affiliates and the
Nepali Party and/or its Affiliates shall be the primary
promoters.
6.3 The issued or subscribed share capital of the Company
shall be held as follows:
Nepali Party 10%
Panda of Nepal 85%
RDC of Nepal 5%
6.4 The Company may, by passing a special resolution in
general meeting in accordance with the provisions of
the Agreement and by following the procedure
established under the Company Act 2021, increase or
decrease the share capital of the Company or issue
shares with preference or with special rights, change
or revoke such rights and issue shares having lower or
higher denomination.
We, the undersigned persons, whose name and address are
subscribed below, are subscribed below, are desirous of
being incorporated into private limited Company in pursuance
to this Articles of Association and we respectively agree to
take the number of shares in the capital of the company set
opposite our respective names.
SIGNATURE OF
NO. OF PROMOTER OR DULY
S. NAMES, ADDRESS OF SHARES AUTHORIZED
No. PROMOTER SUBSCRIBED REPRESENTATIVE WITNESS
1 HIMAL INTERNATIONAL POWER 18,000
CORP. LTD.
Post Box No. 3800
Tahachal, Kathmandu, Nepal /s/
Attn: Prabhakar SJB Rana Prabhaker SBJ Rana
Prabhakar SBJ
Rana
2 PANDA OF NEPAL 153,000
c/o Maples & Calder
P.O. Box 309, Ugland House /s/
South Church Street Kim R. Knightstep
Grand Cayman, Cayman Islands Kim R. Knightstep
British West Indies Authorized
Attn: Robert W. Carter Representative
3 RDC OF NEPAL 9,000
c/o W.S. Walker & Co.
1st Floor, Caledonian House
Mary Street, P.O. Box 265 G,
George Town, Grand Cayman /s/
Cayman Islands Patrick G. Hartel
British West Indies Patrick G. Hartel
Attn: Frank M. Dickerson Authorized
Representative
Dated 20 March, 1996
SCHEDULE 3
FIRST AMENDED
ARTICLES OF ASSOCIATION
OF THE
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
Kathmandu, Nepal
CONTENTS
ARTICLE 1 NAME OF THE COMPANY 1
ARTICLE 2 REGISTERED OFFICE OF THE COMPANY 1
ARTICLE 3 MAIN OBJECTIVES 1
ARTICLE 4 DEFINITIONS 1
ARTICLE 5 LIMITED LIABILITY 3
ARTICLE 6 SHARE CAPITAL 3
ARTICLE 7 SHARES 4
ARTICLE 8 SHARE CERTIFICATE 4
ARTICLE 9 TRANSFER OF SHARES 5
ARTICLE 10 PRE-EMPTIVE RIGHTS 6
ARTICLE 11 CHANGE OF SHARE CAPITAL 6
ARTICLE 12 LOANS 6
ARTICLE 13 GENERAL MEETINGS 6
13.1 PRELIMINARY GENERAL MEETING 6
13.2 ANNUAL GENERAL MEETING 7
13.3 EXTRAORDINARY MEETING 7
13.4 NOTICE 7
13.5 EX-AGENDA ITEMS 8
13.6 QUORUM FOR GENERAL MEETING 8
13.7 PROXY 9
13.8 ELECTION OF CHAIRMAN 9
13.9 RESOLUTIONS 9
ARTICLE 14 PROCEEDINGS AT GENERAL MEETINGS 9
ARTICLE 15 VOTE OF SHAREHOLDERS 10
ARTICLE 15 DECISIONS 10
ARTICLE 17 DIRECTORS 12
ARTICLE 18 MANAGING AGENT 13
ARTICLE 19 DIVIDEND AND RESERVE 13
ARTICLE 20 ACCOUNTS AND RECORDS 14
20.1 ACCOUNTS 14
20.2 PLACE OF KEEPING BOOKS 14
ARTICLE 21 TAX MATTERS 14
ARTICLE 22 STATUTORY AUDITOR 15
ARTICLE 23 BALANCE SHEET/ACCOUNT 15
ARTICLE 24 LIQUIDATION 15
ARTICLE 25 SIGNATURES 16
FIRST AMENDMENT TO THE
ARTICLES OF ASSOCIATION OF THE
BHOTE KOSHI POWER COMPANY
ARTICLES OF ASSOCIATION
OF
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
Incorporated under the Company Act 2021 (1964)
ARTICLE 1. NAME OF THE COMPANY
The name of the Company shall be Bhote Koshi Power Company
Private Limited.
ARTICLE 2. REGISTERED OFFICE OF THE COMPANY
The registered office of the Company will be located at
Tahachal Kathmandu District, Nepal. The registered office
may be changed with the approval of the Concerned Department
of His Majesty's Government of Nepal (HMGN). Branches and
other business offices etc. may be established as required.
However, under no circumstances may a registered office,
branch or other business office of the Company be
established in the United States.
ARTICLE 3. MAIN OBJECTIVES
The main objective of the Company shall be generation and
distribution of Hydroelectric Power. The detailed objectives
of the Company are stipulated in the Memorandum of
Association of the Company.
ARTICLE 4. DEFINITIONS
In these Articles of Association unless repugnant to the
subject or context
"ACT" Means the Company Act, 2021 (1964) as amended from
time to time;
"AFFILIATE(S)" shall mean any person or entity that directly
or indirectly (through one or more intermediaries) controls
or is controlled by or under common control with the Party
specified. For purposes of this definition, control of a
person or entity means the power, direct or indirect, to
cause or determine the direction of the management and
policies of such person or entity (whether by ownership of
securities, contract or otherwise).
"AGREEMENT" means the Joint Venture Agreement dated 20 March
1996 between Nepali Party and Foreign Parties.
"ARTICLES" means the Articles of Association of the Company
and amendments made hereto from time to time;
"BUSINESS DAY" shall mean any Day on which the offices of
HMGN are not authorized or required to close in Kathmandu,
Nepal.
"COMPANY" means Bhote Koshi Power Company Private Limited
incorporated under the Company Act, 2021 (1964);
"CONCERNED DEPARTMENT" means the Department of Industries,
office of the Company Registrar or any other department or
office designated by HMGN from time to time to regulate
companies in Nepal;
"DAY" shall mean the twenty-four hour period beginning
at 0:00 hours Nepalese Standard Time.
"DIRECTOR(S)" means the Director(s) appointed by the
Shareholders pursuant hereto and holding office from time to
time as Director(s);
"DIVIDEND" includes a dividend by way of bonus shares;
"DOCUMENT" means words represented in the form of type,
printing or handwriting;
"FINANCIAL YEAR" shall mean the period beginning 1 January
and ending 31 December for the purpose of United States and
other foreign tax laws;
"FISCAL YEAR" means the fiscal year pursuant to the laws of
Nepal applying to a Nepali Company to keep its financial
accounts and to file its tax returns;
"FOREIGN PARTIES," collectively, means RDC OF NEPAL, a
Cayman Islands corporation and subsidiary of Resource
Development Consultants, a limited liability company, of
Wyoming, United States of America, and PANDA OF NEPAL, a
subsidiary of Panda Energy International, Inc., a Texas
(United States of America) corporation, which are parties to
the Agreement and, each individually means "Foreign Party;"
"GOVERNMENTAL AUTHORITY" MEANS THE Investment Promotion
Board of HMGN and such relevant agency or department of HMGN
designated to regulate foreign investment in Nepal;
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
the United States;
"MEMORANDUM" means the Memorandum of Association of the
Company;
"NEPALI PARTY" means Himal International Power Corp. Ltd., a
party to the Agreement;
"OFFICE" means the registered office of the Company;
"POWER PURCHASE AGREEMENT" shall mean the Power Purchase
Agreement to be executed between the NEA and the Company
concerning the sale of electrical energy from the Project,
as amended from time to time;
"PROMOTER" means the Shareholders signing the application
for the registration of the Company, the Memorandum and the
Articles;
"PROXY" means the duly appointed representative of a
Shareholder to attend and vote in any General Meeting of the
Company;
"REGISTER" means the register of the Shareholders maintained
by the Company;
"SHARE(S)" means the Share(s) with a value of Rupees 100
each in the share capital of the Company from time to time;
"SHAREHOLDER" means a person whose name has been registered
in the Register of the Company as a Shareholder;
"SPECIAL RESOLUTION" means a resolution made in addition to
the regular agenda in an Annual General Meeting;
"SPECIFIED PROPORTION(S)" means, where the whole is 100%, in
relation to Nepali Party: 10% and in relation to Foreign
Parties: 85% to PANDA OF NEPAL and 5% to RDC OF NEPAL,
unless otherwise agreed to in writing between Nepali Party
and Foreign Parties or adjusted pursuant to these Articles;
Words in singular include the plural. Words signifying a
gender also signify any other gender. Persons include bodies
corporate and other association of persons. Interpretation
of the words other than words mentioned above shall be done
in accordance with the meaning as ascribed to them in this
Agreement.
ARTICLE 5. LIMITED LIABILITY
5.1 The Company is a private limited company registered
under the Company Act, 2021. The liability of its
Shareholders is limited and a Shareholder shall not be
liable to pay any liability of the Company except for
the face value of the Shares subscribed by him.
5.2 The total number of Shareholders shall not be more than
50 and Shares shall not be sold or purchased publicly
nor transferred by way of sales, mortgage or otherwise
to any other person except in accordance with the
provisions of these Articles.
5.3 The Company shall be an incorporated body having
perpetual succession and shall have its own seal for
all its business purposes.
ARTICLE 6. SHARE CAPITAL
6.1 The authorized share capital of the Company shall be
Rupees five billion four hundred fourteen million five
hundred thousand (Rs. 5,414,500,000) divided into one
class of 54,145,000 Shares of Rupees 100 each. The
initial issued share capital of the Company shall be
Rupees sixty million (Rs. 60,000,000) divided into
600,000 Shares of Rupees 100 each. The issued capital
shall be subscribed by Foreign Parties and Nepali
Party.
6.2 The shareholding ratio shall at all times be in the
Specified Proportions except that it may be changed by
the mutual written agreement of Nepali Party and
Foreign Parties subject to the Approval of the
Concerned Department.
6.3 Shares held by an Affiliate of the Nepali Party or an
Affiliate of the Foreign Parties shall be deemed to be
Shares held by that party for the purpose of
determining the Specified Proportions.
ARTICLE 7. SHARES
7.1 Unissued Shares of the Company shall remain under the
control of the Company. The Company will make an
allotment of Shares, record transfer of the Shares and
make calls on Shares subject to the provisions of the
Agreement or the provisions in these Articles where the
Agreement is silent.
7.2 The particulars of allotment of Shares and the making
of calls on the Shares shall be submitted to the
Concerned Department.
7.3 When making calls under Article 7.1 the Company shall
send a notice in writing to every Shareholder,
prescribing a time limit of 30 days and the place and
time for payment.
7.4 The subscriber shall remit the due amount of the Shares
to reach the Company on or before the prescribed date
of the call for the Shares issued to and subscribed by
it. In the event the due amount does not reach the
Company on the date prescribed by the call, the
subscriber may be required to forfeit the Shares and
the forfeited Shares may be sold by the Company,
butonly with the unanimous approval of the
Shareholders.
7.5 Shares shall be allotted subject to the provisions of
the Agreement.
7.6 The person in whole name the Shares are registered
shall be treated as the owner of such Shares. However,
if the Company receives an order from a competent court
of law or a Governmental Authority regarding the
ownership of any Share, the person or persons mentioned
as owner in such order shall be treated as the real
owner provided, however, that no person shall be
treated as the real owner of the Shares if he has not
complied with the requirements for transfers of Shares
in Article 9.
7.7 Each Shareholder shall abide by the Articles, the
Agreement and the Act, and it shall be each
Shareholder's duty to act in accordance with those
provisions.
ARTICLE 8. SHARE CERTIFICATE
8.1 Every Shareholder shall be given a certificate for the
Shares subscribed to by him. The Share certificate
shall mention the name of the Company, the serial
number, the number of Shares and the value thereof, and
shall be signed by one (1) Director from each Foreign
Party and Nepali Party. In case any Shareholder has
made only partial payments, the amount actually paid as
well as the balance to be paid shall be explicitly
mentioned on the front of the Share certificate.
8.2 The Company may issue a new Share certificate in lieu
of a certificate which is damaged or torn if the
relevant Shareholder submits an application to the
Company along with such damaged certificate may also be
issued if the Share certificate is lost and evidence to
that effect is submitted to the best satisfaction of
the Shareholders. The Company shall fix a fee payable
for issuing new certificates.
ARTICLE 9. TRANSFER OF SHARES
9.1 The right to Shares of the Company may only be
transferred in accordance with the provisions of these
Articles and the Agreement.
9.2 No Shareholder shall transfer its Shares to any person
who is not already a Shareholder without the prior
written consent of all other Shareholders, which
consent may be withheld in the sole and absolute
discretion of all other Shareholders.
9.3 For purposes of these Articles the term "transfer"
means, with respect to any Share of the Company or any
interest therein, the transfer, sale, assignment or
mortgage of the Share or any interest therein, the
creation or permission to subsist of any pledge, lien,
charge or other encumbrance with respect to the Share
or any interest therein, the grant of any option,
interest or other rights with respect to the Share or
any interest therein, or any other disposition of the
Share or any interest or rights in the Share or any
part thereof.
9.4 No transfer or purported transfer by a Shareholder of
any Share in violation of the restriction in Article
9.2 shall be effective to confer upon the purported
transferee rights (i) to receive dividends, (ii) to
receive a share of the net assets of the Company upon
its winding up, (iii) otherwise to participate in
distributions of the property or assets of the Company,
(iv) to receive notice of meetings of the Company, (v)
to attend meetings of the Company, (vi) to vote on any
matter, or (vii) to receive new Shares. Further, any
person who receives Shares in violation of the
restriction in Article 9.2 shall be obliged, within 30
days of receiving such Shares, to offer to transfer the
Shares to the remaining Shareholders of the Company in
the Specified Proportions, and the remaining
Shareholders shall be entitled to purchase the Shares
offered to them by the purported transferee at a price
agreed upon by the Parties.
9.5 Any person who receives Shares in a transfer which
complies with the requirements in these Articles and
the Agreement shall submit to the other parties of the
Agreement and to the office of the Company a written
deed of adherence in the form prescribed at Annexure 1
of the Agreement stating that the transferee agrees to
be governed by all of the terms and provisions of these
Articles, the Agreement and the obligations of the
Party from whom it purchased the Shares, along with a
copy of the deed to record the transfer of mortgage of
such Shares.
9.6 The notification of intention to transfer Shares, the
terms and conditions of a proposed transfer, and the
decision by the remaining Shareholder either to
purchase Shares or to consent to their transfer to a
person who is not a Shareholder shall be done in
writing.
9.7 Any Shares transferred under this Article shall be
subject to necessary government validation or approval
in Nepal, if required.
ARTICLE 10. PRE-EMPTIVE RIGHTS
10.1 The Shareholders hereto shall have preemptive rights in
proportion to the number of Shares as held by each of
them with respect to any new issuance of Shares of the
Company. However, upon the consent of all Shareholders,
the preemptive rights may be exercised in a ratio other
than the Shareholding ratio, particularly in the case
of a disinvestment by an existing Shareholder.
10.2 If any Shareholder does not wish to exercise its
preemptive rights in whole or in part, such Shareholder
shall notify the Shareholders of such intention within
7 days from the day of the offer of new Shares. In this
case, the other Shareholders shall have the preemptive
right to such unsubscribed new Shares.
10.3 New Shares to which none of the Shareholders hereto
have subscribed shall be preferentially allocated to
persons who have agreed to accept all of the terms and
conditions set by the Shareholders.
ARTICLE 11. CHANGE OF SHARE CAPITAL
The Company may increase or decrease its Share capital,
issue Shares with preference or with special rights, change
or revoke such rights, or issue Shares having lower or
higher denomination as per Company Act by passing a Special
Resolution at a General Meeting at which all the
Shareholders shall have voted in favor as required by these
Articles and the Agreement.
ARTICLE 12. LOANS
12.1 The General Meeting may instruct the Board of Directors
to issue loans for executing the Company's business or
any other purpose within the objectives of the Company,
from a bank or financial institution against the
security of Company's assets. The Directors are
permitted to implement only those loans specifically
approved by the Shareholders in a General Meeting.
12.2 The Company shall keep a register for recording the
amount of loans, the names and addresses of the
creditors and any other relevant details.
ARTICLE 13. GENERAL MEETINGS
13.1 PRELIMINARY GENERAL MEETING
Subject to the provisions of the Act, the Company shall
convene a Preliminary General Meeting within a period
of six months from the date of establishment of the
Company at a place, date and time as specified by the
Shareholders. At this meeting, a Preliminary Report
prepared and distributed among Shareholders as per the
Act shall be submitted for discussion.
13.2 ANNUAL GENERAL MEETING
a. The Annual General Meetings of the Company shall
discuss the Company's profit and loss account,
balance sheet and the report of the Board of
Directors and the auditors, fix the remuneration
of the auditors, declare dividends and perform all
other work of the General Meeting.
b. The first Annual General Meeting of the Company
shall be convened within one year from the date of
the Preliminary General Meeting and every other
Annual General Meeting shall be convened within a
period of six months from the date of the expiry
of the Fiscal year of the Company.
c. The Annual General Meetings of the Company shall
be held in Kathmandu, Nepal or such other place as
the Shareholders may decide except that under no
circumstances shall an Annual General Meeting be
held in the United States.
13.3 EXTRAORDINARY GENERAL MEETING
a. Both the Concerned Department and any Shareholder
or Shareholders holding at least 10% in the
aggregate of all issued and outstanding Shares may
submit an application to the registered office of
the Company for the convening of an Extraordinary
General Meeting whenever they deem necessary. The
power of the Board of Directors to call an
Extraordinary General Meeting shall be limited to
calling those Extraordinary General Meetings which
the Concerned Department and the Shareholders have
requested pursuant to this Article.
b. An Extraordinary General Meeting shall be held in
Kathmandu, Nepal or such other place as the
Shareholders may decide except that under no
circumstances shall an Extraordinary General
Meeting be held in the United States.
13.4 NOTICE
a. Every General Meeting of the Shareholders shall be
convened by issuing a notice specifying the pace,
date and agenda of the meeting in advance. In
accordance with the Act, the notice period for the
Preliminary General Meeting and the Annual General
Meetings shall be twenty-one (21) days and shall
be fifteen (15) days for all other General
Meetings or as otherwise required by the Act. The
days in the notice period may be reduced by
unanimous consent of the Shareholders. The notice
of the General Meetings shall be served according
to the Act and Articles to such persons who have
the right to receive it.
b. Any notice required or given as per these Articles
shall be in writing and may be given by registered
airmail, hand delivery or by telex, facsimile
transmission or cable at the address of the
Shareholders registered at the office of the
Company.
13.5 EX-AGENDA ITEMS
At a General Meeting, convened in accordance with the
Act, Shareholders may also make decisions on matters
not mentioned in the agenda which had been sent while
calling the meeting provided that two thirds of the
Shareholders attending the meeting vote in favor of
discussing such matters.
13.6 QUORUM FOR GENERAL MEETING
a. The proceedings of any General Meeting shall not
be conducted nor a resolution be passed unless 25%
of total Number of Shareholders representing 67%
of the total value of Shares of the Company are
present therein either in person or by proxy.
Provided that the presence of at least three
Shareholders shall be compulsory for holding a
General Meeting in that manner.
b. In case the meeting cannot be held for lack of
quorum, another meeting shall be convened with an
advance notice of at least 7 days. In case another
meeting is convened in this manner if two
Shareholders of the Company, who represent 51% of
the total value of Shares and who are entitled to
vote are present there in person, there shall be
no obstacle in holding the meeting. If within half
an hour of the time appointed, such meeting still
cannot be held due to inadequate quorum, the same
meeting shall stand adjourned to the same day in
the next week at the same time and place if at
such an adjourned meeting 15% of the total number
of Shareholders representing 51% of the total
value of Shares are present either in person or by
proxy shall constitute a quorum. Notwithstanding
anything contained herein before, the Company
shall have to recognize such resolutions as are
passed at such a meeting and act accordingly.
c. A special resolution shall not be passed unless
33% of the total number of Shareholders
representing 75% of the total value of Shares are
present either in person or by proxy.
d. The quorum for holding an Annual General Meeting
shall be as prescribed by these Articles. However,
it will be necessary for one representative of
each Shareholder to be present at such a meeting
for the quorum to be complete. If a meeting is
adjourned as a result of such representative not
being present, then notwithstanding the provisions
of this clause, the meeting shall be held at the
next appointed date even if such representative is
not present but provided the requirement of
quorum, as described in this Article 13.6, is met.
13.7 PROXY
Shareholders desirous of nominating a representative
shall have to submit a proxy letter in for form as
shown below.
PROXY FORM
In the capacity of a Shareholder of the Company, I/We
_____________________ resident(s) of ____________
hereby appoint Mr.(s). _______________________ to
attend and vote on my/our behalf in the General Meeting
to be held on ______________ and other meetings to be
held in course thereof.
Signature:
Date:
Name:
Address:
13.8 ELECTION OF CHAIRPERSON
The Shareholders present at a General Meeting shall
choose one Shareholder present to preside as
Chairperson of the meeting.
13.9 RESOLUTIONS
All matters to be discussed at the General Meeting
shall be presented in the form of resolutions. Except
as provided in Article 16, all other resolutions
presented at the meeting shall be deemed to have been
passed if a simple majority of Shareholders present at
the meeting, whether in person or by proxy, vote in its
favor, provided that in the case of a Special
Resolution, it shall be deemed to have been passed if
60% of Shareholders present at the meeting, whether in
person or by proxy, vote in its favor.
ARTICLE 14. PROCEEDINGS AT GENERAL MEETINGS
14.1 The Shareholders shall at all times regulate the
authorized business of the Company be exercising
control, supervision and direction in the manner deemed
appropriate by them and by delegating such powers, from
time to time, to the Board of Directors as the
Shareholders deem appropriate. The power of managing
the Company shall be vested in the Shareholders solely
in their capacity as Shareholders.
14.2 Without prejudice to the above-mentioned general
arrangements, the General Meeting shall have the
following powers and responsibilities:
a. To arrange for payment of all expenses incurred
for the establishment and registration of the
Company, and approve agreements concluded before
the Company is formally established.
b. To appoint and remove consultants, advisors,
technicians, assistants and other employees.
c. To manage and supervise all functions of the
Company and make all necessary arrangements for
smoothly running the business of the Company
including taking loans and advances.
d. To execute and sign contracts on behalf of the
Company.
e. To operate bank accounts and issue or endorse
bills of exchange, promissory notes, etc., on
behalf of the Company, and buy or sell Government
or other bonds, to accept, sign and deal in bills
of exchange, cheques, drafts and Government
securities.
f. to arrange for all documents relating to the
financial transactions of the Company to be duly
signed by a person designated by the Shareholders.
g. To exercise powers and fulfill the duties
prescribed by the Act, laws, the Agreement and the
Articles as prevailing from time to time.
ARTICLE 15. VOTE OF SHAREHOLDERS
15.1 Subject to Article 9 and to any other special rights or
restrictions as to voting attached to any Shares by or
in accordance with these Articles, every Shareholder
who is present either in person or through a duly
authorized representative shall have none vote for
every Share of which he is the holder; provided that no
Shares of one party shall confer any right to vote upon
a resolution for the removal from office of a Director
appointed by holders of Shares of the other Party.
15.2 Shareholders shall only be entitled to vote in
accordance with the number of Shares held if all calls
on subscription due on those Shares are paid.
ARTICLE 16. DECISIONS
The decisions listed below shall require (i) 95.1% vote of
all outstanding Shares of the Company prior to the
commercial operation date of the Project (such term
"Commercial Operation Date" shall have the meaning defined
in the Power Purchase Agreement) and (ii) a 90% vote of all
outstanding Shares of the Company after the Commercial
Operation Date.
16.1 Any change in the general nature of the business of the
Company or any subsidiary and any disposal of the
undertaking or assets of the Company or of any of its
subsidiaries or any substantial part thereof other than
in the ordinary course of business.
16.2 Approval of the remuneration of the President of the
Company, if one is appointed.
16.3 Any transaction, arrangement or agreement with or for
the benefit of any Director of the Company or his
relative or any company or firm in which he is a
partner, director or shareholder.
16.4 Acquisition or formation of any subsidiary company and
acquisition of the undertaking or the whole or part of
the assets of any other company or business which in
relation to the Company's business is substantial.
16.5 The conduct of any business by the Company other than
as contemplated under the Articles of Association,
bylaws, or other governing documents of the Company.
16.6 Incurrence of any indebtedness for borrowed money in
excess of Rs. 10,000,000 including, without limitation,
approval of all development, construction and permanent
financing arrangements for the Project.
16.7 Increase, other than by way of bonus issue, or
reduction, or other alteration whatsoever in the
authorized or issued Share capital of the Company or
any of its subsidiaries, or any variation of the rights
attached to any of the Shares for the time being in the
capital of the Company or any of its subsidiaries, or
the granting of any new options to subscribe for Shares
of its subsidiaries, or entering into any agreement for
the same.
16.8 Any issuance or sale of Shares, any voting securities
of the Company or any securities of the Company which
are exercisable or convertible into Shares or other
voting securities of the Company.
16.9 Any issuance of any securities of the Company having a
preference as to dividends or distributions whether
during the life of the Company or under dissolution,
liquidation or winding-up.
16.10 Any reorganization, consolidation, merger, or
other business combination of the Company or any
subsidiary with or into any other corporation which is
not the Company or a wholly-owned subsidiary of the
Company.
16.11 The sale, lease or exchange of all or substantially all
of the assets of the Company.
16.12 Any amendments or restatement of the Articles, the
Agreement or other governing document of the Company.
16.13 Any recapitalization of the Company.
16.14 Any transaction by the Company with any Party to
these Agreements or any Affiliate of any of them.
16.15 The mortgage or change of any part of the
Company's assets.
16.16 The acquisition or disposal by the Company of any
asset or the giving or receiving of any service
otherwise than at market value.
16.17 The admission of any new Shareholder to the
Company.
16.18 The entering into any purchase, finance, lease
hire purchase, other credit sale or deferred payment
terms contract or any contract of acquisition or use of
any assets of a capital nature having a value of
greater in total than Rs. 5,000,000 in any financial
year of the Company for which purpose the aggregate
payments to be made under any lease hire purchase or
other credit sale or deferred payment terms contract
will be deemed to be payable in the year in which the
contract is entered into.
16.19 The appointment and removal of selling agents.
16.20 The appointment and removal of auditors of the Company.
16.21 The making of any loans to directors or Shareholders of
the Company.
16.22 The payment or making of any interim or final dividend
or any other distribution in whatever amount the
Shareholders deem appropriate.
ARTICLE 17. DIRECTORS
17.1 The Shareholders of the Company may delegate such
administrative and related duties to the Directors as
they deem appropriate. The authority of the Directors
shall be limited to the performance of such duties as
authorized by the Shareholders and as may be necessary
to comply with the provisions of the Act. In no
instance shall the Directors have the authority to make
unauthorized business decisions on behalf of the
Company.
17.2 The Company shall have five (5) Directors, three (3) to
be appointed by PANDA OF NEPAL and one (1) each by RDC
OF NEPAL and Nepali Party.
17.3 The initial Directors shall consist of the nominees of
the subscribers to the Memorandum of Association.
17.4 Each Shareholder may:
a. appoint any person to serve as the Director(s)
whom it is entitled to appoint pursuant to Article
17.2; and
b. remove any Director appointed pursuant to Article
17.4 (a) from office with or without cause.
17.5 the remuneration of the Directors shall be such sum or
sums as may from time to time be determined by the
Shareholders in General Meeting.
17.6 The Directors may be paid such traveling, hotel and
other expenses as may properly be incurred by them in
the execution of their duties, including any such
expenses incurred in connection with their attendance
at General Meetings or in connection with the business
of the Company carried out in accordance with these
Articles.
17.7 Subject as herein otherwise provided or to the terms of
any lawful agreement, the office of a Director shall be
vacated:
a. if he is found lunatic or becomes of unsound mind;
b. if by notice in writing given to the Company he
resigns his office;
c. if he is removed from office under Article 17.4(b)
hereof; or
d. if he fails to meet any of the other
qualifications provided in the Act.
17.8 In the event a Director vacates his office under
Article 17.7, or if a Director is otherwise unable to
carry out his duties as described in these Articles,
the Shareholders shall within a reasonable period of
time appoint another person to serve as Director of the
Company as provided Section 17.4(a). A director shall
have no authority to appoint an alternate Director to
serve in his place.
17.9 Until such time as the Shareholders appoint a new
Director as described in Article 17.8, the Shareholders
shall exercise all the powers referred to in these
Articles as exercisable by the Director.
ARTICLE 18. MANAGING AGENT
Under no circumstances shall a managing agent be appointed
for the Company.
ARTICLE 19. DIVIDEND AND RESERVE
19.1 Subject to the Articles, the Shareholders shall in
Annual General Meetings declare and approve dividends.
19.2 While distributing dividends among the Shareholders,
the Company may deduct call amounts or any other
outstanding amounts to be paid in respect to Shares
without formal prior notice.
19.3 Dividends shall be paid only out of profit of the
Company. The Company may create a reserve fund or
depreciation fund out of the profit of the Company to
operate the Company's business smoothly and
efficiently, to meet contingency expenses, to repay
loans to raise funds for depreciation of the Company's
asset, to acquire buildings, machinery or other
property, to meet the cost of the development projects
and to meet other liabilities of the Company. Any
recommendation by the Board of Directors as to the
amount of profits which shall be maintained in the
reserve fund shall be subject to the approval of the
General Meeting.
19.4 The General Meeting may authorize interim dividends to
the Shareholders from time to time after taking into
consideration the financial conditions of the Company.
ARTICLE 20. ACCOUNTS AND RECORDS
20.1 ACCOUNTS
The Company shall maintain its accounts in both Nepali
and English. The accounts of the Company shall be
maintained in such a way that the actual and current
position of the Company is clearly depicted. The
accounts shall also contain detailed particulars of
each head of income and expenditure, sale or purchase
of goods and services and the assets and liabilities of
the Company. The Company shall also prepare other
accounts and reports as mentioned in the Agreement.
20.2 PLACE OF KEEPING BOOKS
The accounts and records of the Company shall be kept
at the Registered Office of the company and the records
may be available for inspection to the nominees of the
Shareholders during normal office hours.
ARTICLE 21. TAX MATTERS
21.0 The fiscal year of the Company shall be such period of
twelve (12) months as provided by Nepalese law.
21.2 Within 90 days after the end of each fiscal year, the
Company shall prepare and file, or cause to be prepared
and filed, any tax returns of the Company and shall
send to each person who was a Shareholder at any time
during such fiscal year copies of such information as
may be reasonably required for the applicable income
tax reporting purposes by such person. The Company
shall also prepare within the same time period such
other returns and information as any Shareholder may
reasonably request for the purposes of complying with
requirements imposed on the Company or the Shareholder
by U.S. or other foreign tax laws.
21.3 Without affecting in any way the characterization of
the Company as a private limited company in Nepal and
the applicability of the provisions of the Act, the
Shareholders intend that the Company be treated as a
partnership for tax purposes in the United States. Each
Shareholder whose earnings from the Company are
reported to the U.S. tax authorities will ensure that
the earnings are reported on a basis consistent with
this characterization. The Company and its Shareholders
will make an election to be treated as a partnership
for federal income purposes in the United States if
such an election becomes available. If requested by any
Shareholder, the Company will make an election to
adjust the basis of its assets so that such basis will
equal the basis which each Shareholder has in its
Shares in the Company. The purpose for this adjustment
is to ensure that any investors purchasing Shares in
the Company will not be subject to U.S. taxation on any
appreciation in the value of the Company's assets that
occurred before they purchased their Shares.
ARTICLE 22. STATUTORY AUDITOR
Subject to the provisions of the Agreement:
22.1 The appointment of the auditors and determination of
their remuneration shall be made by the General
Meeting.
22.2 The auditor shall audit the accounts of the Company at
least once in every Fiscal Year.
22.3 In case the office of duly appointed auditor falls
vacant for any reason, the General Meeting may appoint
another Auditor in such vacant post, and the
remuneration of the auditor so appointed shall be fixed
by the General Meeting.
ARTICLE 23. BALANCE SHEET/ACCOUNTANT
The Shareholders shall cause to be prepared a statement of
profit and loss account and balance sheet for every Fiscal
Year. The accounts for the Fiscal Year shall be prepared in
accordance with the Act and shall be certified by the
Auditors and signed by the Directors.
ARTICLE 24. LIQUIDATION
In case of the liquidation of the Company, the liability of
the Company shall be settled in accordance with Section 125
of the Act. If there is any residue after the payment of
expenditure incurred during the winding up of the Company
and any other loans and liabilities, it shall be distributed
to the Shareholders in proportion to their holdings in the
paid up share capital of the Company.
ARTICLE 25. SIGNATURES
We, the undersigned persons, whose name and address are
subscribed below, are subscribed below, are desirous of
being incorporated into private limited Company in pursuance
to this Articles of Association and we respectively agree to
take the number of shares in the capital of the company set
opposite our respective names.
SIGNATURE OF
NO. OF PROMOTER OR DULY
S. NAMES, ADDRESS OF SHARES AUTHORIZED
No. PROMOTER SUBSCRIBED REPRESENTATIVE WITNESS
1 HIMAL INTERNATIONAL POWER 18,000
CORP. LTD.
Post Box No. 3800 /s/
Tahachal, Kathmandu, Nepal Prabhakar SBJ Rana
Attn: Prabhakar SJB Rana Prabhakar SBJ Rana
2 PANDA OF NEPAL 153,000
c/o Maples & Calder /s/
P.O. Box 309, Ugland House Kim R. Knightstep
South Church Street Kim R. Knightstep
Grand Cayman, Cayman Islands Authorized
British West Indies Representative
Attn: Robert W. Carter
3 RDC OF NEPAL 9,000
c/o W.S. Walker & Co.
1st Floor, Caledonian House
Mary Street, P.O. Box 265 G, /s/
George Town, Grand Cayman Patrick G. Hartel
Cayman Islands Patrick G. Hartel
British West Indies Authorized
Attn: Frank M. Dickerson Representative
Dated 20 March, 1996
EXHIBIT 10.140
POWER PURCHASE AGREEMENT
between
NEPAL ELECTRICITY AUTHORITY
and
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
concerning
THE UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
Dated as of 6 Shrawan 2053 (21 July 1996)
CONTENTS
SECTION PAGE NUMBER
ARTICLE 1. DEFINITIONS AND INTERPRETATION 2
1.1 Defined Terms 2
1.2 Interpretation 10
ARTICLE 2. SALE AND PURCHASE OF ENERGY 11
2.1 Energy 11
2.2 Other Sales of Energy 11
2.3 Wheeling of Power 11
ARTICLE 3. CONDITIONS PRECEDENT 12
3.1 Effectiveness of BKPC's Obligations 12
3.2 Effectiveness of NEA's Obligations 12
3.3 Assistance From NEA 13
ARTICLE 4. TERM AND TERMINATION
4.1 Term of Agreement 14
4.2 BKPC Events of Default 14
4.3 NEA Events of Default 15
4.4 Notice of Default 15
4.5 Consequences of Suspension 16
4.6 Consequences of Termination 17
4.7 Continuing Obligation; Right to Discontinue Service 18
4.8 Cross Default 18
ARTICLE 5. PRE-OPERATION PERIOD 20
5.1 Permits, Licenses and Approvals 20
5.2 Documents 20
5.3 Construction 20
5.4 Operating Procedures 21
5.5 Completion of Interconnection Facilities 22
5.6 Delays 23
5.7 Unit Delivery Date Incentive and Penalty Provisions 23
5.8 NEA's Observation Visits 24
ARTICLE 6. CONTROL AND OPERATION OF THE PROJECT 25
6.1 Project Operation 25
6.2 Scheduled and Maintenance Outages 25
6.3 Dispatch 26
6.4 Emergency Plans 26
6.5 Delivery During Emergency 26
6.6 Coordinating-Committee Membership and Duties 27
6.7 Maintenance of Records 28
6.8 Availability Tests 28
6.9 Right to Work or Interfere in Emergency Conditions 29
6.10 Access to Project 29
ARTICLE 7. INTERCONNECTION FACILITIES 31
7.1 NEA Interconnection Facilities 31
7.2 Construction of NEA Interconnection Facilities 31
7.3 BKPC Interconnection Facilities 31
7.4 Protection Devices 31
7.5 Changes Affecting Protection/Communication Devices 32
7.6 Testing 32
ARTICLE 8. RATES AND CHARGES 33
8.1 Electrical Output 33
8.2 Deemed Generation 33
8.3 Limitation on Deemed Generation 33
8.4 Electrical Output Purchase Requirements 34
8.5 Royalties, Taxes, Etc. 34
ARTICLE 9. BILLING AND PAYMENT PROCEDURE 35
9.1 Delivery of Invoices 35
9.2 Time of Payment 35
9.3 Disputes 35
9.4 Letter of Credit 36
9.5 Currency of Payment and Dollar Equivalency 37
ARTICLE 10. CHANGES IN LAW 38
ARTICLE 11. FORCE MAJEURE 39
11.1 Definition of Force Majeure 39
11.2 Notification Obligations 40
11.3 Duty to Mitigate 40
11.4 Delay Caused by Force Majeure Event 40
ARTICLE 12. REPRESENTATIONS, WARRANTIES AND COVENANTS 42
12.1 NEA's Representations 42
12.2 BKPC's Representations 43
12.3 Compliance With Laws 43
ARTICLE 13. LIABILITIES AND INDEMNIFICATION 45
13.1 BKPC Indemnity 45
13.2 NEA Indemnity 45
13.3 Notice of Proceedings 45
13.4 Conduct of Proceedings 45
13.5 Representation 46
ARTICLE 14. INSURANCE 47
14.1 Insurance to be Maintained 47
14.2 Certificate of Insurance 47
14.3 Review and Revision 48
ARTICLE 15. GOVERNING LAW; RESOLUTION OF DISPUTES 49
15.1 Governing Law 49
15.2 Dispute Resolution by Mutual Agreement 49
15.3 Arbitration 49
ARTICLE 16. NOTICES 51
16.1 Notices 51
16.2 NEA's Authorized Representative 51
16.3 BKPC's Authorized Representative 52
ARTICLE 17. MISCELLANEOUS PROVISIONS 53
17.1 Assignments 53
17.2 Amendments 53
17.3 Waiver 54
17.4 Immunity 54
17.5 Headings 54
17.6 Benefit 54
17.7 Independent Contractors 54
17.8 Survival 55
17.9 Confidential Information 55
17.10 Entirety 55
17.11 Expenses and Further Assurances 55
17.12 Language 56
17.13 Counterparts 56
17.14 Severability 56
17.15 Transfer of Interest 56
17.16 Good Faith 57
SCHEDULES:
Schedule 1. PROJECT DESCRIPTION
Schedule 2. FINANCIAL ASSUMPTIONS
Schedule 3. PERMITS AND AUTHORIZATION
Schedule 4. ESCALATION
Schedule 5. TECHNICAL LIMITS
Schedule 6. CONSTRUCTION REPORTS
Schedule 7. METERING STANDARDS & TESTING
Schedule 8. COMMISSIONING AND TESTING
Schedule 9. TRANSMISSION FACILITIES
Schedule 10. BASE OF CALCULATION OF DEEMED GENERATION
POWER PURCHASE AGREEMENT
THIS POWER PURCHASE AGREEMENT made in Kathmandu, Nepal, as
of 6 Shrawan 2053 (21 July 1996)
BETWEEN
NEPAL ELECTRICITY AUTHORITY, constituted under the Nepal
Electricity Authority Act 2041, having its registered office at
Durbar Marg, Kathmandu, Nepal; and
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED, a private limited
liability company duly incorporated and registered under the
Company Act of Nepal, 2021, having its registered office in
Kathmandu, Nepal;
RECITALS
WHEREAS, BKPC (this and all other capitalized terms used
herein are defined, and shall be interpreted in the manner set
forth, in Article 1), on the date hereof, is entering into the
Project Agreement with His Majesty's Government of Nepal pursuant
to which HMGN agrees, on the terms and conditions contained
therein, to support BKPC's development of a hydroelectric
generation facility known as the Upper Bhote Koshi Hydroelectric
Project to be located on the generation facility known as the
Upper Bhote Koshi Hydroelectric Project to be located on the
Bhote Koshi River in the Sindhupalchok District of Nepal, and
consisting of two turbine generators with a combined nominal
rating of approximately 36 MW with related power evacuation
facilities and other associated facilities, as more specifically
described in Schedule 1 (the "Project");
WHEREAS, BKPC agrees to sell and deliver to NEA, and NEA
agrees to accept and purchase from BKPC, the electric energy
produced by the Project, such sale by BKPC and purchase by NEA to
be subject to, and pursuant to, the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of these premises and of
the mutual covenants and agreements hereinafter set forth, NEA
and BKPC agree to the following:
ARTICLE 1. DEFINITIONS AND INTERPRETATION
1.1 Defined Terms
Whenever the following terms appear in this Agreement,
whether in the singular or in the plural, or in the present or
the past tense, they shall have the respective meanings specified
below:
"Affiliate" shall mean any Person that directly or
indirectly (through one or more intermediaries) controls or is
controlled by or under common control with the Person specified.
For purposes of this definition, control of a Person means the
power, direct or indirect, to cause or determine the direction of
the management and policies of such Person (whether by ownership
of securities, contract or otherwise). Notwithstanding anything
in this definition to the contrary, any Person owning 10% or more
of the voting securities of another Person shall be deemed to
control such Person.
"Agreement" shall mean this Power Purchase Agreement,
including, without limitation, all schedules hereto, for the
purchase of electric energy, dated as of the date first above
written, as the same may be amended, supplemented or modified
from time to time in accordance with the terms and conditions
hereof.
"Alternative Energy Cost" shall mean an amount per kWh equal
to two-thirds (2/3) of the applicable Energy Factor during the
Dry Months and one-third (1/3) of the applicable Energy Factor
during the Wet Months.
"Applicable Interest Rate" means the lower of (a) one and
one-half percent (1.5%) per month and (b) the average monthly
interest rate charged by commercial banks in Nepal on working
capital loans to NEA.
"Available" shall mean that the Project is able to respond
to a Dispatch Instruction and to deliver electric energy at the
Delivery Point.
"Availability Test" shall have the meaning specified in
Section 6.8.
"Available Capacity" shall mean, at any time, the aggregate
Unit Capacity or such other amount of aggregate net generating
capacity of the Project as demonstrated by the then most recent
Availability Test.
"BKPC" shall mean Bhote Koshi Power Company Private Limited,
a private limited liability company incorporated and registered
under the Company Act of Nepal, 2021, having its registered
office in Kathmandu, Nepal.
"BKPC Event of Default" shall have the meaning specified in
Section 4.2.
"BKPC Interconnection Facilities" shall mean all the
facilities to be installed by BKPC to enable NEA to receive
electric energy from the Project at the Delivery Point, including
all metering equipment, transformers and associated equipment,
relay and switching equipment, protective devices and safety
equipment, communications/telemetering equipment and transmission
line, all as more particularly described in Schedule 1.
"BKPC Termination Notice" shall have the meaning specified
in Section 4.4(c)(i).
"Business Day" shall mean any Day on which the offices of
NEA are not authorized or required to close in Kathmandu, Nepal.
"Change-in-Law" shall mean any of the following events
occurring after 14 Baishakh 2052 (27 April 1995) as a result of,
or in connection with, any action or inaction by any Governmental
Authority:
(i) a change in or repeal of an existing Law;
(ii) an enactment or making f a new Law;
(iii) a cancellation or nonrenewal or a change in the
conditions applicable to any Governmental Approval
granted to NEA or BKPC or otherwise relating to the
Project;
(iv) a change in the manner in which a Law is applied or
in the interpretation or application thereof, or
(v) any change in any Law, or any other alteration of the
application of any Law to BKPC or its shareholders or
the other Financing Parties, including without
limitation, royalties, Tax rates, depreciation
schedules or other Laws which affect any of the
financial assumptions set forth in BKPC's base case
financial model set forth in Schedule 2.
"Commercial Operation Date" shall mean the date specified in
a certificate delivered by the Independent Engineer stating that
both Units have satisfied and successfully demonstrated
performance in accordance with the requirements of Schedule 8, or
the date on which the Project is deemed to be commissioned
pursuant to Section 5.5, as certified by the Independent
Engineer, which date is scheduled as of the date hereof as 17
Poush 2056 (1 January 2000).
"Construction Contracts" shall mean, collectively, the
contracts to be entered into by BKPC for the design, engineering,
construction and procurement of the Project with its contractors.
"Contract Month" shall mean each Nepalese calendar month
commencing with the first such month in which the first Unit
Delivery Date occurs.
"Contract Year" shall mean the period beginning on the
Commercial Operation Date and ending on the following Ashad (mid
July), and each succeeding twelve (12) Month period thereafter
beginning on 1 Srawan (mid July) and ending on the following
Ashad (mid July); provided that the last Contract Year shall
begin on 1 Srawan and end on the date that is twenty-five (25)
years from the Commercial Operation Date.
"Coordinating Committee" shall have the meaning specified in
Section 6.6.
"Date of Initial Funding" shall mean the date of initial
funding under each of the Financing Documents (including
construction financing and permanent financing).
"Day" shall mean the 24-hour period beginning at 00:00 hours
Nepalese standard time.
"Deemed Generation" shall be calculated, for each hour (or
portion thereof) during any reduction of or interruption to the
Project's generating output capacity, (a) either (i) if only one
Unit Delivery Date has occurred prior to such reduction or
interruption, the amount expressed in the kW specified for such
Contract Month in Column (A) of Schedule 10, or (ii) if both Unit
Delivery Dates have occurred prior to such reduction or
interruption, the amount expressed in kW specified for such
Contract Month in Column (B) of Schedule 10, less (b) any
Electrical Output during such reduction or interruption.
"Default Rate" shall mean the weighted average annual
default rate of interest specified in the Financing Documents.
"Delivery Point" shall mean the point, at the 132-kV gantry
of the new substation to be construction by NEA near the existing
Sun Koshi power station, at which electric energy from the
Project is delivered to the NEA Interconnection Facilities.
"Designated Account" shall mean a deposit account of BKPC,
maintained at a bank in Kathmandu, notice of which BKPC shall
give to NEA in writing prior to the first Unit Delivery Date.
"Dispatch Instruction" shall mean NEA's instructions to BKPC
from the Load Dispatch Centre in accordance with the Prudent
Utility Practices and this Agreement, and taking into account the
Technical Limits and then available water flow, to schedule and
control the generation of the Project in order to commence,
increase, decrease or cease the Electrical Output delivered to
the NEA System.
"Dollar Equivalency" shall have the meaning specified in
Section 9.6.
"Dollars" or "$" shall mean the currency of the United
States of America.
"Dry Months" shall mean each Nepalese calendar month from
the beginning of Marg (mid-November) to the end of Baishakh (mid
May), inclusive.
"Due Date" shall have the meaning specified in Section 9.1.
"Electrical Output" shall mean for any period, after the
first Unit Delivery Date, the electric energy delivered by the
Project at the Delivery Point, as metered in accordance with
Schedule 7, and expressed in kWh.
"Emergency" shall mean a condition or situation which in the
reasonable judgment of NEA materially and adversely affects or
will materially and adversely affect NEA's ability to meet its
obligations to maintain safe, adequate and continuous electric
service to NEA's customers or presents an imminent physical
threat of danger to life, health, plant or equipment relating to
the Project, or the NEA System.
"Energy Factor" shall mean an amount per kWh equal to six
one-hundredths (0.06) of a Dollar as of 17 Poush 2051 (1 January
1995), as escalated in accordance with Schedule 4.
"Financing Documents" shall mean the loan agreements, notes,
indentures, security agreements and other documents relating to
the construction and permanent financing (including, without
limitation, refinancing) of the Project or any part thereof,
copies of which shall be furnished to NEA.
"Financing Parties" shall mean the lenders, export credit
agencies, multilateral institutions, equity providers and others
providing financing or refinancing to or on behalf of BKPC, for
the development, ownership, operation and maintenance of the
Project or any portion thereof, or any trustee or agent acting on
behalf of any of the foregoing.
"Force Majeure Events" shall mean the events and
circumstances described in Article 11.
"Forced Outage" shall mean any inability of a Unit or Units
(following the Unit Delivery Date for such (Unit(s)) to delivery
any required Electrical Output that is not due to a Scheduled
Outage or Maintenance Outage.
"Governmental Approval" shall mean any authorization, permit
clearance, license, consent, exemption or approval from or
required by any Governmental Authority for the development,
financing, ownership, construction, operation and maintenance of
the Project.
"Governmental Authority" shall mean any HMGN Authority, an
Local Authority, any Judicial Authority or any other authority
having jurisdiction over either Party, the Project or the NEA
System.
"GWh" shall mean gigawatt-hour.
"HMGN" shall mean His Majesty's Government of Nepal,
inclusive of all ministries and agencies duly constituted by
HMGN.
"HMGN Authority" shall mean any national or regional
authority or regulatory department, body, commission,
instrumentality, agency, ministry or administrative body or
taxing authority thereof, in any case, having jurisdiction over
either Party, the Project or the NEA System.
"HMGN Guarantee" shall mean the guarantee by HMGN pursuant
to the Project Agreement of all of NEA's Obligations under this
Agreement.
"Incentive Amount" shall mean, as of any date of
determination, an amount equal to the product of (a) $4,000
(payable in Rupees) multiplied by (b) the lesser of one (1) and
the quotient of (i) the Available Capacity as of such date
divided by (ii) 36 MW.
"Independent Engineer" shall mean the independent consulting
engineer of international repute acceptable to NEA, BKPC, the
Shareholders and the other Financing Parties for purposes defined
by the terms of reference acceptable to NEA, BKPC, the
Shareholders and the other Financing Parties, including
monitoring and certifying the commissioning and testing of the
Project and such other purposes as specified in Section 6.6(c) of
the Power Purchase Agreement.
"Installed Capacity" shall mean 36 MW
"Invoice" shall have the meaning specified in Section 9.1.
"Invoice Notice" shall have the meaning specified in Section
9.3(a).
"Judicial Authority" shall mean any court, tribunal or other
judicial authority, in any case, having jurisdiction over either
Party, the Project or the NEA System.
"kW" shall mean Kilowatt.
"kWh" shall mean kilowatt-hour.
"Law" shall mean any law, legislation, statute, rule, order,
treaty, regulations, court decision or published practice or any
interpretation thereof enacted, issued or promulgated by any
Governmental Authority and applicable to NEA, the Project, the
Financing Parties or BKPC, or relating to, without limitation, the
rate of return on investment to BKPC or its Shareholders or the
cost of financing, constructing, operating, maintaining or owning
the Project, including any of the foregoing relating to or
affecting any Tax, reserve or repatriation requirement of any
kind or relating to expropriation or compulsory acquisition.
"Lenders" shall mean International Finance Corporation
and/or any other lenders, export credit agencies, multilateral
institutions and others providing debt financing or refinancing
to or on behalf of BKPC for the development, ownership, operation
and maintenance of the Project or any portion thereof, or any
trustee or agent acting on behalf of any of the foregoing.
"Load Dispatch Center" shall mean the Load Dispatch Center
of NEA located in Kathmandu or such other loan dispatch center as
NEA shall specify in writing to BKPC.
"Loan Signing Date" shall mean the date of signing of the
initial loan agreements for either the construction financing or
the initial permanent debt financing of the Project, whichever is
the earlier to occur.
"Local Authority" shall mean any local or municipal
authority or regulatory department, body, political subdivision,
commission, instrumentality, agency or administrative body or
taxing authority thereof, in any case, having jurisdiction over
NEA, BKPC, the Project or the NEA System.
"Maintenance Outage" shall mean an interruption or reduction
of the Project's generating capacity, other than a Scheduled
Outage or Forced Outage, that has been scheduled and allowed by
NEA in accordance with Section 6.2(g) for the purpose of
performing work on specific components, which work could be
temporarily postponed by at least two (2) Days but should not, in
the reasonable opinion of BKPC, be postponed until the next
Scheduled Outage.
"Maintenance Year" means each twelve (12) Month period
commencing at 24:00 hours, Nepalese standard time, on 1 Ashwin
(mid September) and ending on the last day of Bhadra (mid
September), in each year during the Term; provided, however, that
the first Maintenance Year shall be the period from the
Commercial Operation Date to the last day of the next succeeding
Bhadra.
"MOWR" shall mean Ministry of Water Resources of HMGN.
"Month" shall mean a calendar month according to the
Nepalese calendar beginning at 00:00 hours on the last Day of the
preceding Month and ending at 24:00 hours on the last Day of that
month.
"MVAR" shall mean megavars.
"MW" shall mean megawatt.
"MWh" shall mean megawatt-hour.
"NEA" shall mean Nepal Electricity Authority, constituted
under the Nepal Electricity Authority Act, 2041, as amended,
having its registered office at Durbar Marg, Kathmandu, Nepal, or
its successors and assignees.
"NEA Event of Default" shall have the meaning as specified
in Section 4.3.
"NEA Interconnection Facilities" shall mean all the
facilities, described in Schedule 9, to be installed by or for
NEA to enable NEA to receive and wheel Electrical Output from the
Project in accordance with this Agreement (which may include,
without limitation, transmission lines and associated equipment,
relay and switching equipment and protective devices and safety
equipment, plus the metering system described in Schedule 7), all
of which shall be reasonably designed according to Prudent
Utility Practices.
"NEA System" shall mean the power network controlled or used
by NEA for the purpose of generating, transmitting and
distributing electricity to NEA's customers, including, without
limitation, the NEA Interconnection Facilities.
"NEA Termination Notice" shall have the meaning specified in
Section 4.4(c)(ii).
"Operating Procedures" shall have the meaning specified in
Section 5.4(a).
"Parties" shall mean BKPC AND NEA.
"Penalty Amount" shall mean, as of any date of
determination, an amount equal to the product of (a)
$4,000(payable in Rupees) prior to 17 Baishakh 2056 (1 April
2000) or $8,000 (payable in Rupees) after 16 Baishakh 2056 (31
March 2000) multiplied by (b) the greater of zero (0) and the
quotient of (i) 36 MW minus the Available Capacity as of such
date divided by (ii) 36 MW.
"Person" shall mean any individual, corporation,
partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political
subdivision thereof).
"Project" shall have the same meaning assigned thereto in
the recitals to this Agreement.
"Project Agreement" means the Project Agreement, dated the
date hereof, between HMGN and BKPC.
"Project Contracts" shall mean each of the Project
Agreement, the Financing Documents, the Construction Contracts
and any other material contract to which BKPC is a party related
to the development, construction, operation or maintenance of the
Project, copies of which shall be furnished to NEA.
"Prudent Utility Practices " shall mean the practices,
methods, techniques and standards, practices changed from time
to time, that are generally accepted as internationally for use
in electric utility industries taking into account conditions of
Nepal, and commonly used in prudent electric utility engineering
and operations to design, engineer, construct, test, operate and
maintain equipment of a type and size similar to the Project or
the NEA Interconnection Facilities lawfully, safely and
efficiently and that generally conform to the manufacturers'
operation and maintenance guidelines.
"Reactive Power" shall mean the wattless component of the
product of voltage and current which the Project shall provide to
or absorb from the NEA System and which is measured in MVAR.
"Recapture Amount" shall have the meaning specified in
Section 5.5(b).
"Reduced Output" shall mean, for each Contract Month, a
reduction of or interruption to the Project's generating output
capacity that is not the result of any act of, or event or
condition caused by, NEA or attributable to an event or condition
on the NEA System including any Emergency, NEA declared Force
Majeure Event or other curtailment or reduction pursuant to
Section 6.5.
"Required Commercial Operation Date" shall mean 17 Poush
2056 (1 January 2000), as such date may be extended by the
occurrence of a Force Majeure Event.
"Rupees or Rs" shall mean the currency of the Kingdom of
Nepal.
"Schedule Commercial Operation Date" shall mean the date
advised by BKPC to NEA as the date on which the Project is
expected to achieve the Commercial Operation Date, as such date
may be revised from time to time based upon the construction
program for the Project, scheduled as of the date of this
Agreement to be 17 Poush 2056 (1 January 2000).
"Scheduled Outages" shall mean a planned interruption of the
electric generating capability of the Project, other than a
Maintenance Outage, that has been scheduled and allowed by NEA in
accordance with Section 6.2 for inspection, testing, preventive
maintenance, corrective maintenance, repairs, replacement or
improvement.
"Scheduled Synchronization Date(s)" shall mean with respect
to each Unit, the date identified by BKPC in a written notice
received by NEA at lease one hundred twenty (120) Days prior to
such date, as being the date on which BKPC will attempt to cause
such Unit (or both Units if so elected by BKPC) to be
electrically synchronized and connected to the NEA System;
provided, however, that such date shall be no earlier than 17
Jestha 2055 (1 June 1999), unless otherwise agreed by the
Parties.
"Site" shall mean the land, spaces, waterways, roads and any
rights acquired or to be acquired by BKPC for the purposes of the
Project on, through, above or below the ground on which or any
part of which the Project is to be build (including, without
limitation, any working areas required by BKPC, BKPC's
contractors, villages, townships and camps for the accommodation
of the employees of BKPC and its contractors; and all rights of
way and access from public highways where applicable).
"Special Buyout Event" shall have the meaning specified in
the Project Agreement.
"Special Force Majeure Event" shall have the meaning
specified in Section 11.1(b).
"Start-Up" shall mean any period during which all plant
systems are checked and the Project is synchronized to the NEA
System.
"Synchronization Date(s)" shall mean with respect to each
Unit, the date on which such Unit is electrically synchronized
and connected to the NEA System.
"Taxes" shall mean any tax, charge, impost, tariff, duty or
fee of any kind charged, imposed or levied, directly or
indirectly, by any Governmental Authority in Nepal applicable to
BKPC, BKPC's shareholders or the Project, including, without
limitation, any such corporate income tax, value added tax, sales
tax, stamp tax, import duty, withholding tax (whether on
dividends, interest payments, fees, equipment rentals or
otherwise), tax on foreign currency loans or foreign exchange
transactions, excise tax, property tax, registration fee or
license, water tax or environmental tax.
"Technical Limits" shall mean the technical limits of the
Project set forth on Schedule 5.
"Term" shall have the meaning specified in Section 4.1.
"Termination Date" shall have the meaning specified in
Section 4.6(a).
"Third-Party Purchasers" shall mean consumers outside the
NEA System.
"Unit" shall mean any of the approximately 18 MW (nominal
net) turbine-generator electricity generating units incorporated
into the Project.
"Unit Capacity" shall mean, as to any Unit for any period,
18 MW or such other amount of net electrical generating capacity
of such Unit, as demonstrated by the performance tests conducted
under Schedule 8 for such Unit.
"Unit Delivery Date" shall mean, for each Unit, the date
declared by BKPC to be the date on which such Unit is available
for commercial operation at the Unit Capacity thereof, as such
date is specified in a written notice given at least fifteen (15)
Days in advance by BKPC to NEA; provided, however, that the first
Unit Delivery Date shall not occur prior to 16 Bhadra 2056 (1
September 1999).
"Wet Months" shall mean any Contract Month that is not a Dry
Month.
1.2 Interpretation
Unless the context of this Agreement otherwise requires:
(i) the headings and paragraph numbering are for
convenience of reference only and shall be ignored in
construing this Agreement;
(ii) words of either gender include both gender;
(iii) words using the singular or plural number also
include the plural or singular number, respectively;
(iv) the terms "hereof", "herein" "hereto" and similar
words refer to this entire Agreement and not to any
particular Article, Section or Schedule or any other
subdivision of this Agreement;
(v) references to "Article," "Section" or Schedule" are
to this Agreement unless specified otherwise;
(vi) references to any statute, regulation, notification
or statutory provision shall be construed as a
reference to the same as it may have been, or may
from time to time be, amended, modified or re-enacted
and, unless otherwise specified, shall be construed
as references to Nepalese statutes, regulations,
notification or statutory provisions;
(vii) reference to "this Agreement" or any other agreement
or document shall be construed as a reference to such
agreement or document as amended, modified or
supplemented from time to time, and shall include a
reference to any document which amends, modified or
supplements its, or is entered into, made or given
pursuant to or in accordance with its terms;
(viii)in the event of a conflict between any Nepalese
calendar date and a Gregorian calendar date in
brackets following such Nepalese calendar date, the
Nepalese calendar date shall prevail; and
(ix) references to any person shall be construed as a
reference to such Person's successors or permitted
assigns.
This Agreement includes the following attached Schedules:
(a) Schedule 1 Project Description
(b) Schedule 2 Financial Assumptions
(c) Schedule 3 Permits and Authorizations
(d) Schedule 4 Escalation
(e) Schedule 5 Technical Limits
(f) Schedule 6 Construction Reports
(g) Schedule 7 Metering
(h) Schedule 8 Commissioning and Testing
(i) Schedule 9 Interconnection Facilities
(j) Schedule 10 Calculation of Deemed Generation
All such Schedules form an integral part of this Agreement,
and this Agreement shall be construed in light of such Schedules;
provided that, in the event of any inconsistency in the terms of
the main body of this Agreement and the terms of the Schedules,
the terms of the main body of this Agreement shall prevail.
ARTICLE 2. SALE AND PURCHASE OF ENERGY
2.1 Energy
Subject to and in accordance with the terms and conditions
of this Agreement, BKPC shall make available to NEA at the
Delivery Point, and NEA shall pay for in accordance with Article
8, all Electrical Output and, to the extent provided in Section
8.2 all Deemed Generation from and after the first Unit Delivery
Date.
2.2 Other Sales of Energy
If and for so long as BKPC shall have suspended the
provision of sales of Electrical Output in accordance with
Section 4.4(c)(i)(A), BKPC shall be entitled to sell and transmit
any portion of the Electrical Output to any Third-Party
Purchasers on terms and conditions as may be agreed by BKPC and
such Third-Party Purchasers.
2.3 Wheeling of Power
NEA shall (within the technical capability of the NEA
system) wheel any Electrical Output pursuant to Section 2.2. BKPC
shall pay to NEA a wheeling charge in an amount to be agreed
between BKPC and NEA.
ARTICLE 3. CONDITIONS PRECEDENT
3.1 Effectiveness of BKPC's Obligations
The obligations of BKPC under this Agreement shall become
effective on, and notwithstanding any other provision of this
Agreement BKPC shall have no obligations hereunder until, the
date specified in a notice from BKPC to NEA stating that the
following conditions precedent shall have been fulfilled to
BKPC's satisfaction or waived in writing by BKPC:
(a) BKPC shall have received valid, enforceable,
unencumbered and insurable title, or leasehold
interest, as the case may be, to the Site and such
other real property rights as may be required to
finance, construct, operate and maintain the Project;
(b) BKPC shall have received all governmental Approvals
listed in paragraph (a) of Schedule 3;
(c) BKPC shall have received confirmation from the
relevant Governmental Authorities (as required by the
Project Agreement) that all Governmental Approvals
listed in paragraph (b) of Schedule 3 will be issued
in due course, without material additional expense to
BKPC or delay in accordance with Laws of Nepal;
(d) BKPC and the Financing Parties shall have received an
opinion of Nepalese legal counsel to NEA, reasonably
satisfactory to BKPC, as to the enforceability of
this Agreement against NEA in accordance with its
terms and such other matters as BKPC may reasonably
request;
(e) the Loan Signing Date shall have occurred.
3.2 Effectiveness of NEA's Obligations
The obligations of NEA under this Agreement shall become
effective on the date specified in a notice from NEA to BKPC
stating that the following conditions precedent shall have been
fulfilled to NEA's satisfaction or waived in writing by NEA:
(a) NEA shall have received copies of the Memorandum of
Association and the Articles of Association of BKPC,
as certified by BKPC's company secretary, and a copy
of the Project License as per Electricity Act, 2049,
and Electricity Rules, 2050;
(b) NEA shall have received copies of resolutions adopted
by BKPC's board of Directors authorizing the
execution, delivery and performance by BKPC of this
Agreement, as certified by BKPC's company secretary;
and
(c) NEA's Board of Directors shall have approved NEA's
entering into and performing its obligations under
this Agreement.
3.3 Assistance From NEA
NEA shall at the request of BKPC afford all reasonable
assistance to BKPC in achieving the Date of Initial Funding,
including, without limitation, reasonably cooperating with the
Financing Parties in connection with any comments they may have
to this Agreement; provided that NEA shall not be liable for any
failure of the Date of Initial Funding to occur.
ARTICLE 4. TERM AND TERMINATION
4.1 Term of the Agreement
This Agreement shall become effective upon execution and
delivery by the Parties hereto and shall have a term from the
date hereof until the date that is twenty-five (25) years from
the Commercial Operation Date. The term of this Agreement may be
extended upon agreement by NEA and BKPC.
4.2 BKPC Events of Default
The occurrence and continuation of any of the following
events shall constitute an event of default (each a "BKPC Event
of Default"), unless any such BKPC Event of Default occurs as a
result of (i) a breach by NEA of its obligations under this
Agreement, (ii) a cross-default occurring under Section 4.8 or
(iii) the occurrence of a Force Majeure Event:
(a) the failure of the Loan Signing Date to occur on or
prior to the date that is eighteen (18) months after
the signing of this Agreement;
(b) the failure of BKPC to achieve the Commercial
Operation Date within twelve (12) months after the
Required Commercial Operation Date;
(c) after the commencement of construction of the
Project, the unexcused or willful abandonment by BKPC
of the construction of the Project for a period of
more than ninety (90) consecutive Days; provided that
BKPC shall not be deemed to have abandoned
construction of the Project if and for so long as NEA
is reasonably satisfied that BKPC is using reasonable
efforts to recommence such construction;
(d) the dissolution, pursuant to Law, of BKPC, except for
the purpose of merger, consolidation or
reorganization that does not affect the ability of
the resulting entity to perform its obligations
hereunder and provided that such resulting entity
expressly assumes such obligations;
(e) except as contemplated by Section 17.1(b), the
transfer of (i) all or a substantial portion of the
assets or undertakings of BKPC, except where such
transfer does not affect the ability of the
transferee to perform its obligations under this
Agreement and provided that such transferee expressly
assumes such obligations;
(f) the failure of BKPC to commence procurement and
construction activities with respect to the Project
within four (4) months of the Date of Initial Funding
for construction financing;
(g) any failure by BKPC to make any payment or payments
required to be made to NEA under this Agreement
within sixty (60) Days after the due date for such
payment;
(h) the failure of BKPC to respond to a Dispatch
Instruction and the failure of BKPC to remedy an
circumstance within its control to permit it to
respond to such Dispatch Instruction, which failure
continues unremedied for a period of thirty (30) Days
after written notice from NEA (provided, however,
that NEA shall be entitled to recover damages
specified in Section 4.7(a) after such failure
continues unremedied for a period of more than seven
(7) Days after written notice from NEA); provided,
however, that no such failure shall give rise to a
BKPC Event of Default if such failure arises out of
(x) any act or omission of NEA, (y) any event or
circumstance affecting NEA or the NEA System or (z)
during a Scheduled Outage, Maintenance Outage or
Forced Outage; or
(i) any failure by BKPC to perform any of its other
material obligations under this Agreement, which
failure continues unremedied for a period of ninety
(90) Days after written notice thereof has been
delivered by NEA to BKPC.
4.3 NEA Events of Default
The occurrence and continuation of any of the following
events or a cross-default described in Section 4.8 shall
constitute an event of default (each an "NEA Event of Default"),
unless any such NEA Event of Default occurs as a result of (i) a
breach by BKPC of its obligations under this Agreement or (ii)
the occurrence of a Force Majeure Event of Emergency:
(a) the dissolution, reorganization or change of
ownership of NEA except in cases where (i) all of
NEA's obligations under this Agreement are being assigned
pursuant to applicable law, or contractually assumed
through a novation or otherwise, by an entity that has
a legal capacity, financial ability and appropriate
commercial function to perform such obligations and
(ii) the Project Agreement and the HMGN Guarantee
remains in full force and effect without interruption;
(b) the transfer of either (i) the rights and/or
obligations of NEA hereunder or (ii) all or a
substantial portion of the assets or undertakings of
NEA except in cases where (A) all of NEA's
obligations under this Agreement are assigned
pursuant to applicable law, or contractually assumed
through a novation or otherwise, by an entity that
has the legal capacity, financial ability and
appropriate commercial function to perform such
obligations and (B) the Project Agreement and the
HMGN Guarantee remain in full force and effect
without interruption;
(c) any failure by NEA to make any payment or payments
required to be made to BKPC under this Agreement
within sixty (60) Days after the due date for such
payment; or
(d) any failure by NEA to perform any of its other
material obligations under this Agreement, which
failure continues unremedied for a period of ninety
(90) Days after written notice thereof has been
delivered by BKPC to NEA.
4.4 Notice of Default
(a) Upon the occurrence of a BKPC Event of Default or an
NEA Event of Default, as the case may be, NEA or
BKPC, as the case may be, shall deliver a notice to
the other (a "Notice of Default") which shall specify
in reasonable detail the BKPC Event of Default or NEA
Event of default, as the case may be, giving rise to
the Notice of Default.
(b) Following the giving of Notice of Default, the
Parties shall consult for a period of up to sixty
(60) Days (or such longer period as they may agree) as
to what steps shall be taken with a view to mitigate
the consequences of the relevant event having regard to
all circumstances.
(c) At the expiry of the sixty (60) Day period set forth
in the preceding sub-paragraph (b) and unless
the parties shall have otherwise agreed or the
Event of Default giving rise to the Notice of Default
shall have been remedied, the Party having given the
Notice of Default may:
(i) if such Party is BKPC, immediately (A) suspend
the provision of sales of Electrical Output to
NEA by notice to NEA without prejudice to BKPC's
right to terminate this Agreement or (B)
terminate this Agreement by delivering a notice
of termination of this Agreement (a "BKPC
Termination Notice") to NEA, whereupon Section
4.6(a) shall apply.
(ii) if such Party is NEA, terminate this Agreement by
deliverying a notice of termination of this
Agreement (a "NEA Termination Notice") to BKPC
whereupon Section 4.6(a) shall apply.
4.5 Consequences of Suspension
If this Agreement is suspended by BKPC pursuant to Section
4.4(c)(i), NEA shall transmit or cause to be transmitted as much
of the Electrical Output as BKPC may direct to any Third-Party
Purchaser selected by BKPC, subject to the technical capability
and payment of wheeling charges as applicable. BKPC shall be
entitled to enter into agreements having terms of as long as
twelve (12) months for sale of up to all the Electrical Output
with such Third-Party Purchasers and NEA's right to receive and
purchase Electrical Output hereunder shall be subject and
subordinate to such third-party agreements during such term. The
term of such agreements may extend Month to Month unless NEA (i)
cures all outstanding NEA Events of Default and (ii) pays to BKPC
the difference between what NEA would have owed to BKPC pursuant
to this Agreement and what BKPC received from Third-Party
Purchasers up to the time of the cure, plus associated
reasonable transaction costs (including, without limitation,
wheeling charges) incurred by BKPC in making the third-party
sales. BKPC agrees to enter into discussions with NEA with a view
towards entering into power sales agreements with such Third-
Party Purchasers as may be identified by NEA; provided that such
agreements are in BKPC's sole opinion commercially reasonable.
The purpose of third-party sales pursuant to this Section 4.5 is
to mitigate damages owed by NEA to BKPC and it is not intended
that BKPC will be entitled to receive any extra amounts from such
sales, after deducting such transaction costs and all damages
owed by NEA to BKPC, in excess of the amounts NEA would have paid
to BKPC hereunder if this agreement had not been suspended
pursuant to Section 4.4(c)(i).
4.6 Consequences of Termination
(a) In the event that NEA gives NEA Termination Notice to
BKPC, the following procedures and cure periods shall
be observed and shall have expired, respectively, prior
to this Agreement actually being terminated and of no
further effect (the date of such termination being the
"Termination Date"):
(i) BKPC may within one hundred eighty (180) Days
from the date it receives the NEA Termination
Notice attempt to either (A) cure the BKPC Event
of Default which gave rise to the NEA
Termination Notice (in which case the NEA
Termination Notice shall be deemed withdrawn) or
(B) subject to the prior consent of HMGN,
transfer, sell and/or assign the Project to NEA
or any Third Party Purchaser, in which case, if
such sale is effected (with the consent of NEA,
which consent will not be unreasonably
withheld), then such new owner of the Project
shall have a period of one hundred twenty (120)
Days from the date of transfer to such new owner
to cure the BKPC Event of Default. If such new
owner fails to cure the BKPC Event of Default
within such one hundred twenty (120) Day period,
the Termination Date shall occur;
(ii) notwithstanding any provision of this Agreement
to the contrary, during any period in which
amounts are owed to the Financing Parties under
the Financing Documents, NEA's rights to
terminate this Agreement shall be subject to the
terms of a direct agreement between the
Financing Parties and NEA setting forth the
Financing Parties' rights and remedies with
respect to this Agreement;
(iii) at all times during the continuance of a BKPC
Event of Default and during which BKPC maintains
actual possession and control over the Project,
BKPC shall use its reasonable efforts to operate
and maintain the Project as generally required
hereunder. Subject to the prior written consent
of the Financing Parties and HMGN, BKPC and NEA
shall agree to all NEA, or its designee, to
temporarily undertake operation and maintenance
of the Project at any time after the 180th Day
after BKPC receives the NEA Termination Notice
on such terms and conditions as BKPC and NEA may
agree; and
(iv) BKPC shall compensate NEA for any monetary
damages incurred by NEA as a direct result of a
BKPC Event of Default, which shall include (A)
reasonable attorneys fees and expenses in
connection with the termination and (B) if such
BKPC Event of Default occurs after the Unit
Delivery Date of any Unit(s), BKPC agrees to pay
liquidated damages for lost Electrical Output
equal to the product of the Alternative Energy
Cost (as applicable to Wet Months and Dry
Months) and the applicable Deemed Generation
amounts for such months.
(b) In the event that BKPC gives BKPC Termination Notice to
NEA, then NEA shall compensate BKPC or the Financing
Parties (in case of foreclosure) for any monetary
damages incurred by BKPC or the Financing Parties (in
case of foreclosure) as a direct result of an NEA Event
of Default less (A) any amounts BKPC shall have
received from sales of electric energy to Third-Party
Purchasers following a NEA Event of Default and pending
BKPC's exercising its remedies (net of any transaction
costs described in Section 4.5 hereof) and (B) in case
foreclosure shall have been exercised by the Financing
Parties, any amounts received by BKPC and the Financing
Parties from any other sources including, without
limitation, any sale of the Project through foreclosure
or otherwise.
4.7 Continuing Obligation: Right to Discontinue Service
(a) In the event of the occurrence of any BKPC Event of
Default referred to in Section 4.2 and until this
Agreement is terminated in accordance with the
provisions hereof, (i) neither Party shall be relieved
of any of its liabilities or obligations hereunder,
including, without limitation, NEA's obligation to take
or pay for Electrical Output and Deemed Generation and
(ii) NEA shall have the right to recover any monetary
damages it shall incur as a consequence of a BKPC Event
of Default (which shall include, if such BKPC Event of
Default arises under Section 4.2(h) or Section 4.2(i)
relating to the failure of BKPC to generate or deliver
electric energy to NEA, liquidated damages equal to the
product of the Alternative Energy Cost (as applicable
to Wet Months and Dry Months) and the applicable Deemed
Generation (net of Electrical Output actually delivered
to NEA) amounts for the time period involved). In seeking
to enforce any such right of recovery, NEA may avail
itself to the remedies provided under applicable Law as
may be necessary or appropriate to enforce any covenant,
agreement, or obligation to make any payment for which
provision is made in this Agreement; provided that NEA
shall have no right to terminate this Agreement except
as expressly set forth in this Agreement. Section
4.6(a)(iv), this Section 4.7(a) and Section 5.7(b) set
forth NEA's sole and exclusive remedies for damages
relating to the failure of BKPC to generate or deliver
electric energy to NEA.
(b) In the event of the occurrence of any NEA Event of
Default referred to in Section 4.3 and until this
Agreement is terminated in accordance with the
provisions hereof, (i) neither Party shall be relieved
of any of its liabilities or obligations hereunder,
including, without limitation, NEA's obligation to take
or pay for Electric Output and Deemed Generation and
(ii) BKPC shall have the right to recover any monetary
damages it shall incur as a consequence of an NEA Event
of Default. In seeking to enforce any such right of
recovery, BKPC may avail itself of the remedies
provided under applicable law as may be necessary or
appropriate to enforce any covenant, agreement or
obligation to make any payment for which provision is
made in this Agreement; provided that BKPC shall have
no right to terminate this Agreement except as
expressly set forth in this Agreement.
(c) Upon thirty (30) Days' written notice to NEA, BKPC may
(in addition to its suspension rights under Section
4.5) cease and discontinue on a temporary basis until
the relevant NEA Event of Default is cured delivering
all or such portion of Electrical Output specified by
BKPC in such notice. In the event of such
discontinuance on a temporary basis, NEA shall not be
relieved of its liability to take or pay for the
remaining Electrical Output and, to the extent provided
in Section 8.2, Deemed Generation during the period of
such temporary discontinuance and thereafter, and BKPC
shall have the right to recover from NEA any amounts
that so accrue.
4.8 Cross Default
If HMGN shall fail to perform any of its material
obligations under the Project Agreement or if the Project
Agreement or any material obligations of HMGN, including, without
limitation, the HMGN Guarantee, cease to remain in full force and
effect, or if HMGN repudiates such obligations in writing, such
action shall constitute an NEA Event of Default.
ARTICLE 5. PRE-OPERATION PERIOD
5.1 Permits, Licenses and Approvals
BKPC shall apply for and maintain in accordance with Laws
all Governmental Approvals that shall be necessary or advisable,
and NEA shall make reasonable efforts on a timely basis to
support and assist in BKPC's efforts to obtain and renew all
Governmental Approvals that shall be necessary or advisable.
5.2 Documents
The following document (six copies of each) shall be
submitted by BKPC to NEA no later than the date indicated next to
the corresponding item:
(a) a copy of BKPC's plan for the operations and
maintenance of the Project (as soon as reasonably
practicable but not to exceed 12 months after the
commercial Operation Date);
(b) a Start-Up and test schedule for the Project (not later
than 120 days prior to the Scheduled Synchronization
Date);
(c) copies of any manufacturers' specifications, schedules
of protection schemes and protective relay settings
(not later than 120 days prior to the Scheduled
Synchronization Date);
(d) copies of manufacturer's operation and maintenance
manuals (as soon as reasonably practicable but not to
exceed 12 months after the Commercial Operation Date);
and
(e) signed and sealed copies of as-built drawings for the
Project, including the civil and architectural works
(as soon as reasonably practicable but not to exceed 18
months after the Commercial Operation date).
5.3 Construction
(a) BKPC shall be responsible for design, construction,
commissioning and testing of the Project and the BKPC
Interconnection Facilities, and, in that connection
BKPC intends to achieve the Commercial Operation Date
by the Scheduled Commercial Operation Date.
(b) NEA shall make such arrangements or changes to the NEA
System or otherwise, including, without limitation,
completion of construction of the NEA Interconnection
Facilities, as shall be necessary to enable each Unit
to be synchronized on the Scheduled Synchronization
Date of such Unit.
(c) BKPC shall notify NEA of any anticipated material
delays in the construction, commissioning and/or
testing of any Unit of the Project or in achieving the
Synchronization Date of such Unit or Scheduled
Commercial Operation Date and shall report to NEA the
progress and status of the construction of the Project,
on a quarterly basis, during the period from the Date
of Initial Funding for construction financing to the
Commercial Operation Date.
(d) BKPC shall make its own arrangement for construction
power and permanent power, however, BKPC can draw up to
1 MW of power from the nearest NEA 11 kV grid point, at
NEA's commercial rate; provided, however, that NEA
shall not be liable to BKPC for any consequential
damages for any failure of NEA to provide such electric
energy.
(e) NEA shall cooperate to the extent possible to assist in
granting or causing to be granted to BKPC, for its
access and use by any of BKPC's contractors or other
representatives, all necessary easements, licenses,
rights-of-way and other similar property rights for the
purposes of engineering, designing, financing,
constructing, erecting, operating and maintaining the
Project in, on or through any property owned or
otherwise controlled by NEA, in the Project area, until
the termination of this Agreement. BKPC shall not be
required to pay any fee to or expense of NEA in
connection with granting such access, use or rights.
NEA shall grant to BKPC adequate and continuing rights
for the purposes set forth in this Section 5.3(e) to
enter such property during regular business hours
subject only to BKPC's giving prior notice to NEA.
Prior to the construction by BKPC of the Project, NEA,
with respect to property owned or controlled by NEA AND
AT BKPC's cost, shall execute such deeds, easements,
rights-of-way, licenses and other documents, each in
recordable form, as BKPC may reasonably require to
record any and all of the above rights. Insofar as it
shall be consistent with the Laws of Nepal, all deeds,
easements, right-of-way, licenses and other rights
hereunder shall survive termination or expiration of
this Agreement, provided, however, that any license or
analogous right granted under a lease held by NEA shall
terminate upon the expiration of such lease. Without
limiting the provisions of Section 13.1, BKPC shall
indemnify and hold harmless NEA and its officers,
directors, agents and employees from and against any
loss, cost, expense and liability (excluding any direct
or consequential damages) incurred by any such
indemnified party as a result of an exercise of BKPC's
right of access under this Section 5.3(e).
5.4 Operating Procedures
(a) BKPC shall provide to NEA, no later than ninety (90)
Days prior to the Scheduled Synchronization Date of the
first Unit a copy of a draft written operating
procedure to serve as the basis for the written
operating procedure to be mutually developed by BKPC
and NEA (the "Operating Procedure").
(b) BKPC and NEA shall mutually develop the Operating
Procedures no later than sixty (60) Days prior to the
Scheduled Synchronization Date of the first Unit. The
Operating Procedures shall be based on the designs of
the Project, the NEA Interconnection Facilities and the
draft procedures provided by BKPC pursuant to Section
5.4(a), shall be consistent with Prudent Utility
Practices, the Technical Limits and this Agreement, and
shall deal with all operations interfaces between NEA
and BKPC, including, but not limited to, the method of
day-to-day communication, annual, monthly and weekly
availability projections and declarations for the
Project, dispatching procedures (which shall include a
monthly and weekly dispatch schedule), declaration by
BKPC of Available Capacity, key personnel lists,
clearances and switching practices, outage scheduling,
capacity and energy reporting, operating log and
Reactive Power support and the creation of an operating
committee whose members will consist of an equal number
of senior representatives of NEA and BKPC and which
will be responsible for implementing and administering
the Operating Procedures.
(c) BKPC and NEA shall mutually develop an inter-tripping
schedule no later than thirty (30) Days prior to the
Scheduled Synchronization Date of the first Unit. Such
inter-tripping schedule shall be based on a proposed
schedule submitted to BKPC by NEA.
5.5 Completion of Interconnection Facilities
(a) NEA shall design, finance, own, construct, operate and
maintain, in accordance with Prudent Utility Practices,
and Schedule 9, the NEA Interconnection Facilities.
NEA shall complete the NEA Interconnection Facilities
on or prior to the Scheduled Synchronization Date of
the first Unit. In the event that for any reason, other
than the occurrence of any of the events specified in
Section 7.2, NEA has not completed the NEA
Interconnection Facilities by the Scheduled
Synchronization Date, or if NEA fails to accommodate
required testing (except where such testing would
create an Emergency or conditions detrimental to NEA's
System; or as a result of a Force Majeure Event) such
that the Unit Delivery Date for a Unit is delayed,
then, pending actual testing and upon certification by
the Independent Engineer that such Unit would have been
ready for commencement of such testing on such
scheduled date, (i) the Unit Delivery Date for such
Unit shall be deemed to have occurred on such scheduled
date, (ii) the then available Capacity will be deemed
to equal 18 MW for such Unit with effect from such
scheduled date and (iii) to the extent required by
Section 8.2, NEA will commence making payments in
respect of Deemed Generation for such Unit (as
determined form the date the Unit Delivery Date for
such Unit is deemed to occur as provided in this
Section 5.5 (a) on the basis of such then Available
Capacity), regardless of any inability of NEA to accept
deliveries of electric energy at the Delivery Point.
(b) Notwithstanding the Unit Delivery Date for a Unit being
deemed to occur pursuant to sub-section (a) above, such
Unit will be tested at such time as the Independent
Engineer certifies to BKPC that the NEA Interconnection
Facilities are complete or the other event that delayed
testing shall have ceased. If such Unit Delivery Date
shall have been deemed to occur pursuant to clause (a)
above and thereafter when tested pursuant to Schedule 8
the Project shall have demonstrated (as certified by
the Independent Engineer) that it is not capable of
delivering 18 MW, then BKPC shall repay to NEA, within
60 Days of such certification, an amount (the
"Recapture Amount") equal to:
(i) the difference between (y) the amount that NEA
paid to BKPC during the period from such deemed
Unit Delivery Date in respect of such Unit until
the date of such tests and (z) the amount BKPC
would have earned had the Available Capacity of
such Unit during such period been as demonstrated
by such tests plus
(ii) interest on the amount described in the preceding
clause (i), accruing during such period at a rate
which is equal to the Applicable Interest Rate.
(c) A Unit Delivery Date shall not be deemed to occur
pursuant to this Section 5.5 if the Independent
Engineer certifies that the delay beyond such Unit
Delivery nevertheless would have occurred regardless of
NEA's actions or inactions.
5.6 Delays
If an NEA Event of Default or a Force Majeure Event delays
any Synchronization Date or the commercial Operation Date, then
the Required Commercial Operation Date shall be extended for such
period as shall be necessary to permit completion of construction
and commissioning of the Project taking into account the delay in
the construction schedule arising out of such NEA Event of
Default or Force Majeure Event, and, in the case of an NEA Event
of Default, NEA shall compensate BKPC for any additional costs
incurred by BKPC as a result of such delay, taking into account,
as appropriate, the demobilization and remobilization of
personnel and the restoration of the Project, as the case may be,
to pre-delay condition; provided, however, that such dates shall
not be extended and BKPC shall not be entitled to compensation to
the extent that such delay would have nevertheless been
experienced had such NEA Event of Default or Force Majeure Event
not occurred. BKPC shall use all reasonable efforts to minimize
any damages resulting from any delay described above.
5.7 Unit Delivery Date Incentive and Penalty Provisions
(a) If one or both Unit Delivery Date(s) shall occur prior
to the Required Commercial Operation Date, then NEA
shall pay to BKPC an amount equal to the sum of the
Incentive Amounts calculated for each Day in the period
from the first Unit Delivery Date to 17 Poush 2056 (1
January 2000); provided, however, that no amount shall
be paid for any Day occurring prior to 17 Ashwin 2056
(1 October 1999).
(b) If the first and second Unit Delivery Dates shall fail
to occur on or prior to the Required Commercial
Operation Date and if such failure is not attributable,
in whole or in part to (i) the acts or omissions of NEA
or HMGN, or the failure of NEA OR HMGN to perform any
of its respective obligations under this Agreement or
the Project Agreement, (ii) any event, circumstance or
condition affecting NEA or the NEA System or (iii) the
occurrence of any Force Majeure Event, then BKPC shall
pay to NEA an amount equal to the sum of the Penalty
Amounts calculated for each Day in the period from the
Required Commercial Operation Date to the date on which
the Available Capacity shall equal or exceed 36 MW.
These penalties shall apply until 16 Poush 2057 (31
December 2000), at which time NEA has the right to
exercise the remedies set forth in Sections 4.2(b) and
4.4.
(c) Any payments under this Section 5.7 owing to NEA or to
BKPC shall be paid within sixty (60) Days following the
date that the Available Capacity shall first equal or
exceed 36 MW.
5.8 NEA's Observation Visits
Upon reasonable prior notice to BKPC and during regular
business hours, representatives of NEA shall have the right to
observe the progress of the construction of the Project, the
commissioning of the Project and the operation of the Project.
BKPC shall comply with all reasonable requests of NEA for, and
assist in arranging, any such observation visits to the Project.
All persons visiting the Project on behalf of NEA shall observe
all safety and other rules and regulations of BKPC and its
contractors and shall comply with the reasonable instructions and
directions of BKPC or its contractors.
ARTICLE 6. CONTROL AND OPERATION OF THE PROJECT
6.1 Project Operation
BKPC shall operate and maintain the Project in accordance
with the Operating Procedures and Prudent Utility Practices and
within the Technical Limits.
6.2 Scheduled and Maintenance Outages
(a) BKPC shall (i) at least sixty (60) Days prior to the
Commercial Operation Date submit its desired schedule
of Scheduled Outage periods to NEA for the first
Maintenance Year and (ii) by the following 1 Srawan
(mid July ) and each succeeding 1 Srawan (mid July) of
each Maintenance Year, submit to NEA in writing its
desired schedule of Scheduled Outage periods for the
following Maintenance Year.
(b) At least (30) Days prior to the Commercial Operation
Date and on or prior to the following 1 Ashwin (mid
September) and each succeeding 1 Ashwin (mid September)
of each Maintenance Year, NEA shall notify BKPC in
writing whether the requested schedule of Scheduled
Outages is acceptable. If NEA does not accept any one
or more of the requested Scheduled Outages, NEA shall
promptly advise BKPC of a time when NEA determines any
such unacceptable Scheduled Outage can be rescheduled.
Such rescheduled time shall be as close as reasonably
practicable to the requested time, shall comply with
the Technical Limits, shall be consistent with the
Technical Limits, shall be consistent with Prudent
Utility Practices and the manufacturers'
recommendations and shall be of equal duration as the
requested period. If NEA fails within the allowed
period to object to any proposed Scheduled Outage of
which it receives notice pursuant to Section 6.2(a) or
fails within such period to advise BKPC of a substitute
time, BKPC may adhere to its schedule of the Scheduled
Outage(s) for the times state in such notice.
(c) BKPC shall schedule Scheduled Outages only at times
determined as aforesaid; provided, however, that NEA
shall not require BKPC to schedule Scheduled Outages in
a manner or time which is outside the Technical Limits,
inconsistent with Prudent Utility Practices, during any
Wet Month or that otherwise, in the reasonable judgment
of BKPC, risks damage to the Project.
(d) Notwithstanding and fixing of a time for a Scheduled
Outage pursuant to Section 6.2(b), NEA may, upon
written notice provided to BKPC at lease thirty (30)
Days prior to the date which NEA proposes to reschedule
any Scheduled Outage, and upon NEA agreeing to pay the
increased costs and losses of revenue (subject to
reasonable verification of such costs and losses of
revenue by NEA) to BKPC resulting therefrom, require
BKPC to reschedule a Scheduled Outage; provided,
however, (i) that NEA shall not require that such
Scheduled Outage be rescheduled for a period of shorter
duration or in manner or time outside the Technical
Limits, inconsistent with Prudent Utility Practices,
during any Wet Month or that otherwise, in the
reasonable judgment of BKPC, risks damage to the
Project; (ii) that NEA shall not require that a single
Scheduled Outage period be split into two or more
periods without compensating BKPC for any additional
costs imposed thereby; and (iii) that NEA shall not
require that a Scheduled Outage be brought forward any
earlier than thirty (30) Days from the date of such
notice without the consent of BKPC, which may be
withheld only upon evidence that it would have an
adverse impact on the Project or BKPC's ability to
perform its obligations under the Project Contracts.
BKPC shall use reasonable endeavors to minimize such
increased costs.
(e) All scheduling and rescheduling pursuant to paragraphs
(b), (c) and (d) above, shall be done without
discriminating between the Project and all other plants
providing capacity and/or energy to NEA.
(f) NEA shall use its best efforts to coordinate its
maintenance program for the NEA System with the
approved Scheduled Outages so as to minimize any
disruption to the operation of the Project.
(g) When the need arises for a Maintenance Outage, BKPC
shall advise NEA of such need, of a description of work
required and of the commencement and estimated duration
of such work, and NEA shall allow BKPC to schedule such
Maintenance Outage within a period of time reasonable
under the circumstances, but in any event at such time
as would not cause the Project to exceed the Technical
Limits or to be operated in a manner which is
inconsistent with Prudent Utility Practices. BKPC may
advise NEA orally of the above matters, and NEA shall
respond orally within twenty-four (24) hours of such
notice. NEA and BKPC, as the case may be, shall confirm
its respective communications under this Section 6.2(g)
in writing within seven (7) Days. For the avoidance of
doubt, NEA shall have no liability for Deemed
Generation during any Maintenance Outage.
6.3 Dispatch
(a) Commencing with the first Unit Delivery Date, BKPC
shall keep the Load Dispatch Center informed as to the
Available Capacity from time to time in accordance with
the Operating Procedures.
(b) Commencing with the first Unit Delivery Date, NEA shall
have the right to direct BKPC's generating plant
operator to vary the output from the Project pursuant
to a Dispatch Instruction.
6.4 Emergency Plans
BKPC shall cooperate with NEA in establishing from time to
time emergency plans, including recovery form a local or
widespread electrical blackout, voltage and frequency reduction
in order to effect loan curtailment, and other similar plans
which may be necessary.
6.5 Delivery During Emergency
BKPC shall, during Emergency, supply such electric energy as
the Project is able to generate and NEA, is able to receive
consistent with Prudent Utility Practices and within the
Technical Limits. If any Scheduled Outage occurs or would occur
coincident with an Emergency, BKPC shall make all good-faith
efforts to reschedule such Scheduled Outage or, if such Scheduled
Outage has begun, to expedite the completion or temporary
curtailment thereof.
6.6 Coordinating Committee Membership and Duties
(a) The Parties shall establish a Coordinating Committee
comprising four (4) members. BKPC and NEA shall each
appoint two (2) members. The Coordinating Committee
shall be responsible for the coordination of
construction and operation of the NEA Interconnection
Facilities and the Project and their coordination with
the NEA System. Without limiting the generality of the
foregoing, the power and duties of such representatives
shall include:
(i) the coordination of the respective programs of
the Parties for the construction and
commissioning of any and all NEA Interconnection
Facilities, the Transmission Line and the
Project, and agreement, where necessary, on the
respective commissioning procedures;
(ii) the discussion of the steps to be taken on the
occurrence of any Force Majeure Event, or the
shutdown or reduction in capacity for any other
reason of the NEA Interconnection Facilities or
the Project;
(iii) the coordination of Scheduled Outage programs;
(iv) the coordination of forecasts or requirements
from the Project;
(v) consultation on the insurance program to be
undertaken by BKPC for the purpose of this
Agreement;
(vi) the development of Operating Procedures;
(vii) safety matters affecting all the Parties or the
contractors;
(viii)clarification of Emergency plans developed by
NEA for recovery from a local or widespread
electrical blackout;
(ix) review and revision of protection schemes and
devices; and
(x) any other mutually agreed matter affecting the
operation of the Project.
(b) The Coordinating Committee may agree upon procedures
for the holding of meeting, the recording of meetings
and the appointment of sub-committees. The
chairmanship of the Coordinating Committee shall rotate
each six (6) months between the Parties, and the
Parties agree that the first chairman shall be
nominated by NEA.
(c) In case of matters not resolved by consensus (unanimous
agreement of the Parties), the Coordinating Committee
or either Party may refer the matters referred to in
Section 6.6(a) to the chief executives of NEA and BKPC
for further consideration. At any time after the
Coordinating Committee fails to met consensus on any
matters referred to in Section 6.6(a), then either
Party may refer the matter for resolution by the
Independent Engineer and the Independent Engineer shall
resolve such matter (the "Independent Engineer's
Resolution) and the Party that referred such matters to
the Independent Engineer shall bear all fees, costs and
expenses of the Independent Engineer shall bear all
fees, costs and expenses of the Independent Engineer in
connection with such Independent Engineer's Resolution;
provided, however, that if either Party does not agree
with the Independent Engineer's Resolution, (i) such
Party may require that the subject matter of such
resolution be ultimately resolved by the Parties
pursuant to Section 15.2 (the "Final Resolution"), (ii)
pending Final Resolution, unless otherwise agreed by
the Parties, the Independent Engineer's Resolution
shall be followed by the Parties on a provisional basis
and (iii) upon issuance of or agreement on the Final
Resolution, the Final Resolution shall, if different,
apply from and after the date of such issuance or
agreement and the Independent Engineer's Resolution
shall no longer apply.
6.7 Maintenance of Records
Each Party shall keep complete and accurate records and all
other date required by each of them for the purposes of proper
administration of this Agreement. Among other records and data
required hereby or elsewhere in this Agreement, BKPC shall
maintain an accurate and up-to-date operating log at the Project
with records of.
(a) real and Reactive Power production for each clock hour
and 132-kV bus voltage at all times (for this purpose
BKPC shall install two strip chart recorders, one at
the Delivery Point and the other at the NEA
Interconnection Facilities, which shall make continuous
readings of (i) the electrical energy produced by the
Project (including the current, power, Reactive Power
parameters thereof) and (ii) the Electrical Output, and
such data shall be recorded on such magnetic media or
equivalent as determined by the operating committee);
(b) changes in operating status, scheduled Outages,
Maintenance Outages, Emergencies or Forced Outages; and
(c) any unusual conditions found during inspections.
All such records shall be maintained for a minimum of sixty
(60) months after the creation of such record or data; provided,
however, that the Parties shall not dispose of or destroy any
such records after such sixty (60) month period without thirty
(30) Days' prior written notice to the other Party. Either Party
shall have the right, upon reasonable prior notice to the other
Party, and at reasonable times, to examine the records and data
of the other Party relating to this Agreement or the operation
of the Project within the NEA System at any time during normal
office hours during the period such records and data are required
hereunder to be maintained.
6.8 Availability Tests
NEA or BKPC shall have the right at any time after the
Commercial Operation Date to conduct an availability test (an
"Availability Test"), so long as the water flow for the entire
period of such test equals the sum of the full gate discharge
capacity of the Unit(s) to be tested plus the required flow to be
maintained downstream of the headworks as mandated by HMGN, of
the Project's capability to generate electric energy from time to
time subject to the following:
(a) The Availability test shall be carried out within 24
hours of a Party's request therefor. The Party
requesting an Availability test shall provide the other
Party written notice of such request. Upon requesting
or receiving a notice of an Availability Test (as the
case may be), NEA shall issue an Availability Test
instruction to BKPC which shall be additionally
identified as an Availability Test. NEA may not
request an Availability Test (i) during a Scheduled
Outage, Maintenance Outage or Forced Outage or any time
when a Force Majeure Event shall have occurred and be
continuing and (ii) in any case more frequently than
once during any two (2) Month period; provided,
however, that if BKPC shall have failed to respond to a
Dispatch Instruction at a time when there is sufficient
water flow to do so and to maintain the required flow
to downstream of the headworks, NEA has the right to
conduct an Availability Test whenever NEA deems it
necessary until such condition is cured by BKPC.
(b) An Availability Test shall require BKPC to operate the
Project for a period of four (4) to eight (8) hours, as
specified by the Party requesting the Availability
Test, a maximum load.
(c) The results of an Availability Test shall be expressed
in MW and determined by dividing the electrical energy
metered at the Delivery Point during the Availability
Test by number of hours during the period of such
Availability test. The results of an Availability Test
will be used in determining the Available Capacity
until such time as the Project's response to a Dispatch
Instruction demonstrates the extent to which the
Project an generate at the aggregate Unit Capacity or a
subsequent Availability Test is conducted.
(d) Either Party may request a subsequent Availability Test
following any Availability Test requested by the other
Party.
6.9 Right to Work or Interfere in Emergency Conditions
(a) If BKPC or any of its employees or agents work on or
interfere with the NEA Interconnection Facilities
without the prior written consent of NEA, then BKPC
shall repair or remedy, or reimburse to NEA the cost
of repairing or remedying, the damage caused by such
work or interference. BKPC may work on or interfere with
NEA's Interconnection Facilities without prior written
consent of NEA only where such actions are taken to
prevent immediate injury, death or property damage. BKPC
shall promptly inform NEA of any such work or interference.
(b) If NEA or any of its employees or agents willfully work
on or interfere with the Project without the prior
written consent of BKPC, then NEA shall repair or
remedy, or reimburse to BKPC the cost of repairing or
remedying, the damage caused by such work or
interference. NEA may work on or interfere with the
Project without prior written consent of BKPC only
where such actions are taken to prevent immediate
injury, death or property damage. NEA shall promptly
inform BKPC of any such work or interference.
6.10 Access to Project
BKPC shall permit representatives of NEA to have access to
the Project, upon reasonable prior notice during normal business
hours and subject to BKPC safety rules and regulations, as may be
reasonably necessary for the operation and maintenance of the NEA
System. In exercising its right of access NEA shall use due care
to avoid or minimize damage to any property or person and shall
cause as little disturbance and inconvenience as possible to
BKPC, its officers, directors, agents and employees. Without
limiting the provisions of Section 13.2, NEA shall indemnify and
hold harmless BKPC and its officers, directors, agents and
employees from and against any loss, cost, expense and liability
(excluding any direct or consequential damages) incurred by any
such indemnified party as a result of an exercise of NEA's right
of access under this Section 6.10.
ARTICLE 7. INTERCONNECTION FACILITIES
7.1 NEA Interconnection Facilities
NEA shall be responsible for the design, construction,
installation (excluding the equipment referred to in Schedule 7),
commissioning, operation and maintenance of the NEA
Interconnection Facilities in accordance with the terms of this
Agreement and Prudent Utility Practices, and NEA shall own all of
the NEA Interconnection Facilities.
7.2 Construction of NEA Interconnection Facilities
NEA shall complete the construction of NEA Interconnection
Facilities prior to the Scheduled Synchronization Date of the
first Unit; provided, however, that such date shall be extended
in the event that BKPC notifies NEA of a delay in the Scheduled
Synchronization Date. Failure by NEA to complete the NEA
Interconnection Facilities by such date, as extended, shall not
be considering an NEA Event of Default if and for as long as such
failure is directly caused by any of the following:
(a) the failure by BKPC to provide NEA, on a timely basis,
with any technical data, available to BKPC and
reasonably requested by NEA, relating to the Project
and necessary for NEA to undertake the design,
construction, installation, commissioning, maintenance
and operation of the NEA Interconnection Facilities;
provided, however, that NEA shall have requested such
technical data in a timely manner;
(b) any other failure by BKPC to perform in accordance with
this Agreement that materially affects NEA's ability to
perform its obligations; or
(c) the occurrence of any BKPC declared Force Majeure
Event.
7.3 BKPC Interconnection Facilities
BKPC shall be responsible for designing, constructing,
installing and maintaining all BKPC Interconnection Facilities,
and BKPC shall own all of the BKPC Interconnection Facilities.
7.4 Protection Devices
Protection devices shall be approved by NEA (which devices
shall conform to NEA's system requirements) on or prior to the
Date of Initial Funding for construction financing. After the
Date of (Initial Funding for construction financing, subject to
giving BKPC reasonable notice, NEA may require BKPC to modify or
expand the requirements for protective devices; provided, that
the cost thereof are reasonable and customary as determined by
the Independent Engineer.
7.5 Changes Affecting Protection/Communication Devices
Each Party shall notify the other Party in advance of any
changes to either the Project or the NEA System that may affect
the proper coordination of protection/communication devices
between the two systems.
7.6 Testing
The Parties shall cooperate in testing the NEA
Interconnection Facilities prior to the Scheduled Synchronization
Date of the first Unit and at such other times thereafter as
either Party may reasonably require. All such testing shall be
carried out on a timely basis.
ARTICLE 8. RATES AND CHARGES
8.1 Electrical Output
NEA shall pay to BKPC each Contract Month an amount equal to
the product of:
(a) the aggregate Electrical Output during such Contract
Month, multiplied by
(b) the applicable Energy Factor.
8.2 Deemed Generation
If any reduction or interruption occurs in the delivery of
electric energy at the Delivery Point (at the maximum net
electrical output which the Project is capable of producing at
such time) during any Contract Month, then, in addition to the
amounts payable by NEA pursuant to Section 8.1, NEA shall pay to
BKPC for such Contract Month an amount equal to the product of:
(a) the aggregate Deemed Generation during such Contract
Month (in accordance with Schedule 10), multiplied by
(b) the applicable Energy Factor,
provided, however, that Deemed Generation shall not be earned
with respect to any such reduction or interruption:
(i) to the extent that the Project is not Available
during such reduction or interruption as a result
of:
(y) the occurrence of a Reduced Output or
(z) the occurrence of a Force Majeure Event which
is not a Special Force Majeure Event or
(ii) to the extent that such reduction or interruption
is caused by an outage of the NEA System resulting
in an inability of NEA to connect the Project to
the NEA System (but not exceeding thirty-six (36)
hours in any Contract Year with a maximum of
eighteen (18) hours during the Wet Months of each
Contract Year).
8.3 Limitation on Deemed Generation
During any Contract Year, NEA shall not be required to pay
for Deemed Generation (net of Electrical Output) that exceeds the
amounts specified in Schedule 10 for any Contract Month.
8.4 Electrical Output Purchase Requirements
Consistent with Section 6.3(b), NEA need not take delivery
of and pay for any Electrical Output that exceeds the Deemed
Generation amounts set forth in Schedule 10 during the Wet
Months. However, if NEA elects to take delivery of such excess
Electrical Output at any time, it shall pay for such excess
amount in accordance with Section 8.1.
8.5 Royalties, Taxes, Etc.
BKPC shall be responsible for paying for its royalties,
taxes, duties, fees, octroi, levies, etc. to be paid to
Governmental Authorities, as provided in the Electricity Act,
2049, and the Electricity Rules, 2050, and other applicable Laws.
ARTICLE 9. BILLING AND PAYMENT PROCEDURE
9.1 Delivery of Invoices
On or before the fifth Business Day of each Contract Month
commencing with the first full Contract Month to occur after the
first Unit Delivery Date, BKPC shall render to NEA a monthly
billing statement (each, an "Invoice") showing the amount payable
by NEA to BKPC under this Agreement. Each Invoice shall show its
due date as the date that is thirty (30) Days after the receipt
by NEA of such Invoice (as to each such amount, its "Due Date").
Each Invoice shall include detailed calculations of such amount
in accordance with this Agreement and the procedures determined
by the Coordinating Committee. Other charges or fees payable by
NEA hereunder, and reimbursement of which is not already included
in an Invoice, and for which NEA shall be liable to BKPC, shall
be billed separately and paid within thirty (30) Days of receipt
of such separate billing by NEA (as to each such amount, its "Due
Date").
9.2 Time of Payment
All amounts payable by NEA under this Agreement shall be
remitted to BKPC on or before the Due Date thereof unless the Due
Date is not a Business Day, in which case such payment shall be
remitted by the immediately succeeding Business Day. Such
remittance shall be made in immediately available funds to the
Designated Account. If any payment is not remitted and received
in full on the Due Date thereof, NEA shall pay to BKPC interest
on the amount of such payment at the Default Rate until such
payment is paid in full. A payment received by BKPC under the
letter of credit provided by NEA under Section 9.4 shall
constitute payment under this Section 9.2 in an amount equal to
the payment so received.
9.3 Disputes
(a) In the event of any dispute as to all or any portion of
any Invoice, the Party asserting such dispute shall
nevertheless (i) pay the undisputed amount of the
disputed charges when due, and (ii) give written notice
of the dispute as soon as reasonably possible after the
asserting Party discovers the grounds giving rise to
such dispute. At any time prior to ninety (90) Days
after the receipt of an Invoice, either Party may serve
notice (an "Invoice Notice") on the other Party that
the amount of any one or more Invoices delivered within
such ninety (90) Day period is in dispute. Such Invoice
Notice shall specify the Invoice(s) concerned, the
amount of the dispute and the basis therefor. If the
Party receiving the Invoice Notice agrees with the
contentions in the Invoice Notice, it shall, in the
case of BKPC, adjust the relevant Invoice (if NEA has
not yet paid) or refund the amount within ten (10) Days
(if NEA has paid), or, in the case of NEA, pay the
additional amount within ten (10) Days.
(b) If the Parties do not resolve a dispute arising under
sub-section (a) above within ten (10 Days of the
receipt of an Invoice Notice, either Party may initiate
the procedures set forth in Article 15. All amounts due
shall accrue interest as determined in accordance with
Section 15.3(g).
9.4 Letter of Credit
(a) NEA shall, at its own expense, cause to be issued and
maintained during the period from the first Unit
Delivery Date until the expiry date of this Agreement
on a continuous (revolving ) basis an irrevocable
letter of credit in favor of BKPC by a bank in
Kathmandu, Nepal acceptable to BKPC with a Rupee
denominated face amount in each Contract Year equal to:
(i) the product of (y) eighty million three hundred
fifty-two thousand (80,352,000) kWh multiplied
by (z) the Energy Factor applicable in such
Contract Year assuming Electrical Output at the
Available Capacity in effect as of the first Day
of such Contract Year, during the period in
which any amount is owning to the Financing
Parties (other than equity investors) under the
Financing Documents; and
(ii) thereafter, the product of (y) twenty-six
million seven hundred eighty-four thousand
(26,784,000) kWh multiplied by (z) the Energy
Factor applicable in such Contract Year assuming
Electrical Output at the Available Capacity in
effect as of the first Day of such Contract
Year.
The face amount of such letter of credit shall be adjusted
as necessary each Contract Month to take account of any change in
the Rupee to Dollar exchange rate from that in effect from the
previous Contract Month.
(b) Such letter of credit shall be in a form and substance
satisfactory to BKPC and the Financing Parties and
shall contain the following terms:
(i) such letter of credit shall require that the
issuer thereof pay to BKPC the full amount owing
to BKPC on the Due Date thereof or, if for any
reason such payment is not made, such letter of
credit shall be subject to drawing by BKPC in
the event NEA does not make any payment it is
obligated to make under this Agreement on the
due date thereof and on evidence only of BKPC's
certification as to such non-payment.
(ii) automatically upon any payment thereunder or
upon expiration thereof, such letter of credit
to be reinstated by an amount equal to such
payment or NEA shall cause such letter of credit
to be renewed (as the case may be);
(iii) such letter of credit shall have the longest
commercially available term;
(iv) the terms of such letter of credit shall allow
BKPC to draw up to the full amount then
available for drawing thereunder in the event
that NEA fails to cause such letter of credit to
be reinstated or renewed following any payment
under such letter of credit by an amount equal
to such drawing; and
(v) BKPC may transfer such letter of credit to or
for the benefit of the Financing Parties or
their assignees or designees or, with the prior
written consent of NEA, to BKPC's successors or
permitted assigns.
9.5 Currency of Payment and Dollar Equivalency
All payments to be made by NEA hereunder shall be
denominated in Dollars and Rupees in the same proportion as the
financing arranged by BKPC for the Project in Dollars and Rupees
but payable in Rupees. The Dollar proportion of each payment
shall be made in Rupees at the daily selling rate of exchange, as
published by the Nepal Rastra Bank, at the opening of business on
the Day such payment is made under this Agreement (such amount of
Rupees being herein referred to as the "Dollar Equivalency"
thereof). NEA acknowledges and agrees that its obligation to make
any payment hereunder shall be discharged only to the extent
that, on the Day such payment is made, the amount of Rupees paid
by NEA for the Dollar proportion of any payment shall be in an
amount at least equal to the Dollar Equivalency thereof. After
receipt of any payment hereunder, BKPC shall bear future exchange
risk.
ARTICLE 10. CHANGES IN LAW
If there is a Change-in-Law which increases or decreases the
costs or revenues or net income of BKPC in connection with the
financing, ownership, operation or maintenance of the Project
(including, without limitation, any costs in connection with
capital expenditures to modify the Project or other conditions
affecting the performance by BKPC of its obligations under this
Agreement or any restriction on the ability of BKPC or its
shareholders to remit funds outside of Nepal) or affects the
timing of the incurrence of such costs or the receipt of such
revenues or net incomes, then BKPC or NEA shall (a) determine the
amount of such increase or decrease in costs or revenues or net
income or the effect on the timing of the incurrence of such
costs or receipt of such revenues or net income, (b) submit to
the other party a certificate of an independent auditor,
acceptable to both NEA and BKPC, setting forth n reasonable
detail the basis of and the calculations for such amount or such
effect and (c) calculate equitable adjustments to the Energy
Factor, for the period or periods affected, to reflect such
increases or decreases in costs or revenues or such effect with
the intent that the financial position of BKPC and its
shareholders shall remain unaffected by such Change-in-Law.
Thereafter, the Energy Factor shall be adjusted to reflect such
increases or decreases in costs or revenues or such effect on the
timing of the incurrence of such costs or receipt of such
revenues or net income.
ARTICLE 11. FORCE MAJEURE
11.1 Definition of Force Majeure
In this Agreement, Force Majeure Event shall mean any event
or circumstance or combination of events or circumstances that
materially and adversely affects either Party in the performance
of its obligations in accordance with the terms of this
Agreement, but only if and to the extent that such events and
circumstances are not within the reasonable control of the
affected Party. Without limitation to the generality of the
foregoing, Force Majeure Events shall include the following
events and circumstances:
(a) non-political events, including, but not limited to:
(i) lightning, drought, fire, earthquake, volcanic
eruption, landslide, flood, storm, cyclone,
typhoon, tornado, or exceptionally heavy rain or
storms;
(ii) chemical contamination (other than resulting
from an act of war) or naturally occurring
explosion;
(iii) epidemic, quarantine or plague;
(iv) air crash, shipwreck or train wrecks;
(v) delays of transportation resulting from
accidents or closure of transportation routes;
and
(vi) strikes, work-to-rule actions, go-slows or
similar labor difficulties or any unavailability
of or interruption in the supply of services,
labor or materials necessary for the
construction, operation and maintenance of the
Project arising out of any of the foregoing
clauses of this Section 11.1(a) (excluding any
such events which are Site-specific and are
attributable only to BKPC).
(b) Special Buyout Events or other events which occur
inside or directly involve Nepal (collectively,
"Special Force Majeure Events"), including, but not
limited to:
(i) acts of war (whether declared or undeclared),
invasion, armed conflict or act of foreign
enemy, blockade, embargo (including, without
limitation, unavailability or shortage of fuel
or materials), revolution, riot, insurrection,
civil commotion, act of terrorism or sabotage;
(ii) strikes, work-to-rule actions, go-slows or
similar labor difficulties or any unavailability
of interruption in the supply of services, labor
or materials necessary for the construction,
operation and maintenance of the Project arising
out of any of the foregoing clauses of this
Section 11.1(b)(excluding any such events which
are Site-specific and are attributable only to
BKPC);
(iii) any Change in Law;
(iv) expropriation, requisition, confiscation or
nationalization; or
(v) any event or circumstance of a nature analogous
to any of the foregoing;
and
(c) Any of the foregoing affecting any party to any Project
Contract.
11.2 Notification Obligations
(a) The Party claiming a Force Majeure Event shall give
notice to the other Party describing such Force Majeure
Event as soon as reasonably practicable, but not later
than seven (7) Days after the date on which such party
knew or should reasonably have known of the
commencement of the Force Majeure Event.
Notwithstanding the above, if the Force Majeure Event
results in a breakdown of communications rendering it
not reasonably practicable to give notice within the
applicable time limit specified herein, then the Party
claiming a Force Majeure Event shall give such notice
as soon as reasonably practicable after the
reinstatement of communications, but not later than
seven (7) Days after such reinstatement.
(b) The Party claiming a Force Majeure Event shall give
notice to the other Party of (i) the cessation of the
relevant Force Majeure Event or (ii) the cessation of
the effects of such Force Majeure Event on the
enjoyment by such Party of its rights or the
performance by it of its obligations under this
Agreement as soon as practicable after becoming aware
of each of clauses (i) and (ii) above.
11.3 Duty to Mitigate
The Parties shall use their reasonable efforts to mitigate
the effects of any Force Majeure Event and to cooperate to
develop and implement a plan of remedial and reasonable
alternative measures to remove the Force Majeure Event; provided,
however, that no Party shall be required under this provision to
settle any strike or other labor dispute it considers to be
unfavorable to it; provided further that BKPC shall not be
required to expend any money in litigation of a Special Force
Majeure Event.
11.4 Delay Caused by Force Majeure Event
The events described in Section 11.1 shall constitute Force
Majeure Events, and to the extent provided in this Section 11.4
the affected Party shall not be liable for any failures or delays
in complying with its performance obligations under or pursuant
to this Agreement to the extent that such failure has been
caused, or contributed to, by one or more Force Majeure Events or
its or their effects or by any combination thereof, and the
period allowed for the performance by such Party of its
obligations hereunder and the Required Commercial Operation Date
and the Term shall be extended, on the condition that:
(a) the non-performing Party gives the other Party written
notice describing the particulars of the Force Majeure
Event in accordance with Section 11.2;
(b) the suspension of performance and extension of the Term
is of no greater scope and of no longer duration than
is required by the Force Majeure Event;
(c) the Term shall be extended by a Force Majeure Event
only to the extent that BKPC shall not have received
payments in respect of the full amount of the Deemed
Generation due under Section 8.2 (or proceeds of
business interruption or advance loss of profits
insurance in an amount equal to the full amount of
Deemed Generation due under Section 8.2) during the
period of such Force Majeure Event;
(d) the non-performing Party uses its reasonable efforts to
remedy its inability to perform;
(e) when the non-performing Party is able to resume
performance of its obligations under this Agreement, it
shall give the other Party written notice to that
effect;
(f) in no event shall a Force Majeure Event excuse the
obligations of a Party that are required to be
completely performed prior to the occurrence of a Force
Majeure Event; and
(g) the obligation of the Parties to pay moneys due
hereunder shall not be excused as a result of any Force
Majeure Event; provided, that Deemed Generation shall
not be payable with respect to a BKPC declared Force
Majeure Event but shall be payable with respect to an
NEA declared Force Majeure Event (unless excused under
Section 8.2(b)(ii)).
ARTICLE 12. REPRESENTATIONS, WARRANTIES AND CONVENANTS
12.1 NEA's Representations
NEA hereby represents and warrants to BKPC as of the date
hereof as follows:
(a) NEA is a statutory board constituted by HMGN under the
Laws of Nepal, and is duly incorporated, validly
existing and in good standing under the Laws of Nepal,
and NEA has all requisite power and authority to
execute and deliver, and to perform its obligations
under this Agreement.
(b) The execution, delivery and performance by NEA of this
Agreement has been duly authorized by all necessary
action, and do not and will not (i) require any consent
or approval of the NEA's governing authority, other
than those which have been obtained, (ii) violate any
provision of NEA's bylaws or other organic documents,
any indenture, contract or agreement to which it is a
party or by which it or its properties may be bound, or
any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in
effect having applicability to NEA, or (iii) result in
a breach of or constitute a default under NEA's bylaws,
other organic documents or other material indentures,
contracts or agreements, and NEA is not in default
under its bylaws or other statutory or organizational
documents or other material indentures, contracts or
agreements to which it is a party or by which it or its
property may be bound.
(c) No authorization or approval by any governmental or
other official agency is necessary for the due
execution, delivery and performance by NEA of this
Agreement as in effect on the date hereof.
(d) This Agreement is a legal, valid and binding obligation
of NEA, enforceable against NEA in accordance with its
terms.
(e) There is no pending or, to the knowledge of NEA,
threatened action or proceeding affecting NEA before
any court, governmental agency or arbitrator that could
reasonably be expected to affect materially and
adversely the financial condition or operations of NEA
or the ability of NEA to perform its obligations under,
or which purports to affect the legality, validity or
enforceability of, this Agreement.
(f) NEA has no reason to believe that the balance sheet of
NEA as at the end of its last fiscal year and the
related statement of income of NEA for such fiscal year
(which have been delivered to BKPC), certified by the
Auditor General of Nepal or the duly appointed
registered external auditor of NEA, (i) are not true
and fair and do not fairly present the financial
condition and results of operations of NEA as at the
date of said balance sheet and for the period then
ended and (ii) were not prepared in accordance with
generally accepted accounting principles in effect in
Nepal. Except as otherwise disclosed in writing to
BKPC, since the date of said balance sheet, there has
been no material adverse change in the financial
condition of NEA from that set forth in said balance
sheet no material adverse change in the financial
condition of NEA from that set forth in said balance
sheet.
12.2 BKPC's Representations
BKPC represent and warrants to NEA as of the date hereof as
follows:
(a) BKPC is a company duly incorporated, validly existing
and in good standing under the Laws of Nepal, and BKPC
has all requisite power and authority to conduct its
business, own its properties, and execute and deliver,
and perform its obligations under this Agreement.
(b) The execution, delivery and performance by BKPC of this
Agreement have been duly authorized by all necessary
corporate action, and do not and will not (i) (except
as disclosed in writing to NEA) require any consent or
approval of BKPC's Board of Directors or shareholders,
other than that which has been obtained, (ii) violate
any provision of BKPC's corporate bylaws or other
organic documents, any indenture, contract or agreement
to which it is a party or by which it or its properties
may be bound, or any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or
award presently in effect having applicability to BKPC,
or (iii) result in a breach of or constitute a default
under BKPC's corporate bylaws, other organic documents
or other material indentures, contracts or agreements,
and BKPC is not in default under its corporate bylaws
or other organic documents or other material
indentures, contracts or agreements to which it is a
party or by which it or its property may be bound.
(c) This Agreement is a legal, valid and binding obligation
of BKPC, enforceable against BKPC in accordance with
its terms.
(d) There is no pending or, to the knowledge of BKPC,
threatened action or proceeding affecting BKPC before
any court, governmental agency or arbitrator that could
reasonably be expected to affect materially and
adversely the financial condition or operations of BKPC
or the ability of BKPC to perform its obligations
under, or which purports to affect the legality,
validity or enforceability of, this Agreement.
(e) BKPC has no reason to believe that there has been any
material adverse change in the financial or business
condition of BKPC or its major shareholders since its
date of incorporation.
(f) Neither this Agreement, nor any other agreement,
document or instrument executed or delivered in
connection therewith must be notarized, filed,
recorded, registered or enrolled in any court, public
office or elsewhere in Nepal, nor must any stamp,
registration or similar tax or charge be paid in Nepal,
to ensure the legality, validity, enforceability or
admissibility in evidence of this Agreement, or any
other agreement, document or instrument executed or
delivered in connection therewith.
(g) This Agreement is in proper form for enforcement in the
courts of Nepal.
12.3 Compliance With Laws
Each Party shall at all times, comply with all material Laws
applicable to it, unless, in the event of any non-compliance, it
shall be diligently contesting any such Law in good faith and
such non-compliance has no material adverse effect on the ability
of such Party to perform its obligations under this Agreement
(including, without limitation, BKPC's obligations under Section
6.1). BKPC hereby accepts and shall comply with all Laws of
Nepal.
ARTICLE 13. LIABILITY AND IDEMNIFICATION
13.1 BKPC Indemnity
BKPC agrees to defend, indemnify and hold harmless NEA, its
officers, directors, agents, employees and Affiliates (and their
respective officers, directors, agents and employees) from and
against any and all claims, liabilities, actions, demands,
judgments, losses, costs, expenses (including, without
limitation, reasonable attorney's fees), suits and damages
arising by reason of bodily injury, death or damage to property
sustained by third parties that are caused by an act of
negligence or the willful misconduct of, or a breach of this
Agreement by BKPC, or by an officer, director, subcontractor,
agent or employee of BKPC, except to the extent such injury,
death or damage is attributable to the willful misconduct or
negligence of, or breach of this Agreement by NEA, or by an
officer, director, subcontractor, agent, employee or Affiliate of
NEA.
13.2 NEA Indemnity
NEA agrees to defend, indemnify and hold harmless BKPC, its
officers, directors, shareholders, agents employees and
Affiliates (and their respective officers, directors, agents and
employees) from and against any an all claims, liabilities,
actions, demands, judgments, losses, costs, expenses (including,
without limitation, reasonable attorneys' fees), suites and
damages arising by reason of bodily injury, death or damage to
property sustained by third parties that are caused by an act of
negligence or the willful misconduct of, or a breach of this
Agreement by, NEA, or by an officer, director, subcontractor,
agent or employee of NEA except to the extent such injury, death
or damage is attributable to the willful misconduct or negligence
of, or breach of this Agreement by, BKPC, or by an officer,
director, subcontractor, agent, employee of Affiliate of BKPC.
13.3 Notice of Proceedings
Each Party shall promptly notify the other Party of any
claim, action, suit or proceeding in respect of which it is
entitled to be indemnified under this Article 13. Such notice
shall be given as soon as reasonably practicable after the
relevant Party becomes aware of such claim, action, suit or
proceeding.
13.4 Conduct of Proceedings
Each Party shall have the right, but not the obligation, to
contest, defend and litigate any claim, action, suit or
proceeding by any third party alleged or asserted against it
arising out of any matter in respect of which it is entitled to
be indemnified hereunder, and the reasonable costs and expenses
thereof shall be subject to the said indemnity; the indemnifying
Party shall be entitled, at its option, to assume and control the
defense of such claim, action, suit or proceeding at its expense;
provided, that it gives prompt notice of its intention to do so
to the indemnified Party and reimburses that Party for the
reasonable costs and expenses previously incurred by it prior to
the assumption of such defense by the indemnifying Party.
Neither Party shall settle or compromise any claim, action, suit
or proceeding in respect of which it is entitled to be
indemnified by the other Party without the prior written consent
of that Party, which consent shall not be unreasonably withheld
or delayed.
13.5 Representation
The indemnified Party shall have the right to employ its own
counsel, and such counsel may participate in such claim, actin,
suite or proceeding, but the fees and expenses of such counsel
shall be at the expense of such indemnified Party, when and is
incurred, unless:
(i) the employment of counsel by such indemnified
Party has been authorized in writing by the
indemnifying Party.
(ii) the indemnified Party shall have reasonably
concluded that there may be a conflict of
interest between the indemnifying Party and the
indemnified Party in the conduct of the defense
of such action.
(iii) the indemnifying Party shall not in fact have
employed independent counsel reasonably
satisfactory to the indemnified Party to assume
the defense of such action and shall have been
so notified by the indemnified Party, or
(iv) the indemnified Party shall have reasonably
concluded and specifically notified the
indemnifying Party either that there may be
specific defense available to it which are
different from or additional to those available
to the indemnifying Party or that such claim,
action, suit or proceeding involves or could
have a material adverse effect upon it beyond
the scope of this Agreement.
If clause (i),(ii), (iii), or (iv) of this Section 13.5
shall be applicable, then counsel for the indemnified Party shall
have the right to direct the defense of such claim, action, suit
or proceeding on behalf of the indemnified Party and the
reasonable fees and expenses of such counsel shall be reimbursed
by the indemnifying Party.
ARTICLE 14. INSURANCE
14.1 Insurance to be Maintained
BKPC shall take out and maintain or procure, in accordance
with applicable Laws, the taking out and maintenance of the
following policies of insurance from and after the Date of
Initial Funding for construction financing and throughout the
Term of this Agreement.
(a) prior to the Commercial Operation Date:
(i) contractor's all risk (including marine) with
coverage limits no less than the full physical
replacement value:
(ii) comprehensive third party liability'
(iii) employees' compensation and other similar
insurance;
(iv) General Liability Insurance, which shall include
either Comprehensive General Liability or
Commercial General Liability Insurance coverage
for all operations by or on behalf of BKPC
(v) advance loss of profits cover; and
(vi) such other insurance coverage as may be required
by Law; and
(b) after the Commercial Operation Date:
(i) comprehensive structure, plant and equipment
(property damage) with coverage limits no less
than the full physical replacement value of the
Project;
(ii) comprehensive third party liability;
(iii) employees' compensation and other similar
insurance;
(iv) business disruption insurance; and
(v) such other insurance coverage as may be required
by Law.
14.2 Certificate of Insurance
No later than thirty (30) Days following the first Day of
each Contract Year, BKPC shall cause its insurers or agents to
provide NEA with certificates of insurance evidencing the
policies and endorsements listed above. Failure by BKPC to
obtain the insurance coverage or certificates of insurance
required by this Article 14 shall not relieve BKPC of the
insurance requirements set forth herein or in any way relieve or
limit BKPC's obligations and liabilities under any other
provision of this Agreement. BKPC shall not cancel, fail to
renew or change the terms of any of the insurance described in
Section 14.1 without the prior written consent of NEA. If BKPC
shall fail to procure or maintain any insurance required pursuant
to this Article 14, then NEA shall have the right, upon
delivering reasonable prior written notice to BKPC, to procure
such insurance in accordance with the requirements of this
Article 14 at full cost to BKPC, subject in all cases to the
prior rights of the Financing Parties under the Financing
Documents with respect to insurance maintained by BKPC.
14.3 Review and Revision
All amounts and insurance requirements where applicable for
the insurance coverages expressed by this Article 14 shall be
updated every three (3) years based on coverages which are
customary, in accordance with Prudent Utility Practices, for
private power generation projects similar in nature to the
Project, and that are available on commercially reasonable terms
for a private power generation project in Nepal, and based on the
then current market conditions.
ARTICLE 15 GOVERNING LAW; RESOLUTION OF DISPUTES
15.1 Governing Law
This Agreement shall be interpreted, construed and governed
by the laws of Nepal, without regard to the principles of
conflict of laws.
15.2 Dispute Resolution by Mutual Agreement
(a) Each of BKPC and NEA shall designate in writing to the
other Party a representative who shall be authorized to
resolve any dispute arising under this Agreement in an
equitable manner and, unless otherwise expressly
provided herein, to exercise the authority of the
Parties hereto to make decisions by mutual agreement.
(b) If the designated representatives are unable to resolve
a dispute under this Agreement within fifteen (15) Days
of the commencement of discussions, such dispute shall
be referred by such representatives to their respective
chief executives (or equivalent) for further
consideration. In the event that the chief executives
(or equivalent) are unable to reach agreement within
seven (7) Days or such longer periods as they may agree
then either Party may refer the matter for resolution
in accordance with Section 15.3.
(c) The Parties hereto agree to attempt to resolve all
disputes arising hereunder promptly, equitably and in a
good faith manner, the Parties further agree to provide
each other with reasonable access during normal
business hours to any and all non-privileged records,
information and data pertaining to any such dispute.
15.3 Arbitration
(a) Arbitration of Disputes
In the event that any dispute is unable to be resolved
between the Parties pursuant to Section 15.2, then such
dispute shall be settle exclusively and finally by
arbitration. It is specifically understood and agreed
that any dispute that cannot be resolved between the
Parties including, without limitation, any matter
relating to the interpretation of this Agreement, shall
be submitted to arbitration irrespective of the
magnitude thereof, the amount in dispute or whether
such dispute would otherwise be considered justifiable
or ripe for resolution by any court or arbitral
tribunal. This Agreement and the rights and
obligations of the Parties shall remain in full force
and effect pending the award in such arbitration
proceeding, which award shall determine whether and
when termination of this Agreement, if relevant, shall
become effective.
(b) Arbitration Rules
Each arbitration shall be conducted in accordance with
the Rules of Arbitration of the United Nations
Commission on International Trade Law ("UNICITRAL") as
in effect on the date hereof except as such Rules
conflict with the provisions of this Section 15.3, in
which event the provisions of this Section 15.3 shall
prevail.
(c) Number of Arbitrators and Appointment
The arbitration tribunal shall consist of three (3)
arbitrators. Each Party shall appoint one (1)
arbitrator. The arbitrators so appointed shall appoint
third arbitrator. If the arbitrators fail to appoint
the third arbitrator within sixty (60) Days after they
have accepted their appointment, the third arbitrator
shall be appointed by the Secretary General of the
Permanent Court of Arbitration at the Hague. No
arbitrator shall be a present employee or agent of, or
consultant or counsel to, either Party or any Affiliate
of either Party.
(d) Place of Arbitration
Each arbitration shall be conducted in Kathmandu,
Nepal.
(e) Language of Arbitration
The language to be sued in each arbitration shall be,
an all written documents provided in each arbitration
shall be provided in, English.
(f) Finality and Enforcement of Award
Any decision or award of an arbitral tribunal appointed
pursuant to this Section 15.3 shall be final and
binding upon the Parties. The Parties waive, to the
extent permitted by applicable Law, any rights to
appeal or any review of such award by any court or
tribunal of competent jurisdiction. The Parties agree
that any arbitration award may be entered into by any
court of competent jurisdiction thereof. The Parties
expressly submit to the jurisdiction of any such court.
(g) Judgment Currency
All arbitration awards shall be payable in Rupees in an
amount equal to the Dollar Equivalency of the amount of
the award, provided, however, that amounts due with
respect to any local Nepalese costs (excluding payments
for Electrical Output or Deemed Generation or amounts
that are required to be denominated in or adjusted to a
currency other than Rupees) shall be calculated and
payable in Rupees only. Interest at the Default Rate
shall be due and payable to the Party in receipt of an
arbitration award from the date the amount in dispute
was first due until the date of payment.
(h) Cost of Arbitration
Each Party shall bear the cost of arbitration
including, without limitation, the remuneration of the
arbitrator appointed by it. The administrative cost
and remuneration of the third arbitrator shall be
equally shared by the Parties.
ARTICLE 16 NOTICES
16.1 Notices
Any notice or communication required to be in writing
hereunder shall be given by courier or hand delivery, registered
or certified mail, postage prepaid or facsimile. Such notice or
communication shall be sent to the respective Parties at their
addresses listed below or at such other addresses as they may
from time to time be provided to one another in accordance with
this Section 16.1. Except as expressly provided herein, any
notice shall be deemed to have been given (i) if sent by courier
or hand delivery, upon delivery at the address of the relevant
Party and (ii) if sent by facsimile, when dispatched but only if
the sender's transmission report shows the entire facsimile to
have been received by the recipient and only if the transmission
was received in legible form and the original shall have been
delivered within fourteen (14) Days.
In the case of NEA to:
Durbar Marg
Kathmandu,
Nepal
Facsimile: 977-1-227-035
Telephone: 977-1-227-725
Attn: Managing Director
In the case of BKPC to:
Tahachal
Kathmandu,
Nepal
Facsimile: 977-1-227-201
Telephone: 977-1-227-555
Attn: Chairman and Chief Executive Officer
16.2 NEA's Authorized Representative
NEA's Managing Director (or such other Person as the
Managing Director shall notify BKPC in writing may act on his
behalf) shall represent NEA in all matters related to the
administration of this Agreement.
16.3 BKPC's Authorized Representative
BKPC's General Manager (or such other Person as the General
Manager shall notify NEA in writing may act on his behalf) shall
represent BKPC in all matters related to the administration of
this Agreement.
ARTICLE 17 MISCELLANEOUS PROVISIONS
17.1 Assignments
(a) Neither Party shall assign this Agreement or any
portion hereof without the prior written consent of the
other Party, such consent not be unreasonably withheld;
provided that any assignee shall expressly assume the
assignor's obligations hereunder.
(b) NEA shall consent to the assignment by BKPC of its
rights herein to the Financing Parties and their
successors and assigns in connection with any financing
or refinancing related to the construction, operation
and maintenance of the project and shall enter into a
direct agreement with the Financing Parties if
requested by BKPC to evidence such consent and the
other rights and remedies of the Financing Parties in
connection with this Agreement. In furtherance of the
foregoing, NEA acknowledges that the Financing
Documents may provide that upon an event of default by
BKPC under the Financing Documents, the Financing
Parties may under certain circumstances assume the
interests, rights and obligations of BKPC thereafter
arising under this Agreement. If any of the Financing
Parties assume this Agreement as provided hereinabove,
they shall not be personally liable for the performance
of such obligations hereunder except to the extent of
all of their right, title and interest in and to the
Project and any and all contracts (except the Financing
Documents) related thereto. Notwithstanding any such
assumption by the Financing Parties, BKPC shall not be
released and discharged from and shall remain liable
for any and all obligations to NEA arising or accruing
hereunder prior to such assumption, or after such
assumption for obligations which expressly survive the
termination or expiration of this Agreement. NEA
further acknowledges that the Financing Documents will
provide that upon an event of default by BKPC under the
Financing Documents, the Financing Parties, may, in
addition to the exercise of their rights as set forth
in this Section 17.1(b), cause BKPC to sell or lease
the Project and cause any new leasee or purchaser of
the Project to assume all of the interests, rights and
obligations of BKPC thereafter arising under this
Agreement.
(c) NEA hereby consents to any assignment of BKPC's rights
and obligations hereunder to HMGN following a purchase
of the Project by HMGN pursuant to Section 6 of the
Project Agreement, such assignment of rights to be made
to the extent provided therein, and hereby agrees that
upon any such assignment BKPC shall be released from
any further obligations or liabilities hereunder and
NEA shall look solely to HMGN in relation to such
obligations or liabilities.
17.2 Amendments
This Agreement, including, without limitation, the Schedules
hereto, may be amended only by agreement between the Parties in
writing.
17.3 Waiver
The failure of either Party to insist in any one or more
instance upon strict performance of any provisions of this
Agreement, or any delay in enforcing or any waiver with respect
to any default or any other matter hereunder, shall not be
construed as a waiver with respect to any subsequent performance,
default or matter.
17.4 Immunity
NEA hereby acknowledges and agrees that this Agreement and
the transactions contemplated hereby and any other documents,
agreements and instruments executed in connection herewith or
therewith constitute commercial activities of NEA, in respect of
which NEA is generally subject to set-off, suit, judgment and
execution and should not be entitled to any immunity whatsoever.
Therefore, to the extent that NEA may be or become entitled, in
any jurisdiction in which proceedings may at any time be
commenced with respect to this Agreement, to claim for itself or
its properties, assets or revenues any immunity from suit, court
or arbitral jurisdiction (including, without limitation, any
court of Nepal), attachment prior to judgment, attachment in aid
of execution of a judgment, execution of a judgment or from any
other legal process (whether through service or notice) or remedy
with respect to its obligations under this Agreement and to the
extent that in any such jurisdiction there may be attributed to
NEA any such immunity (whether or not claimed), NEA hereby
irrevocably agrees not to claim and hereby irrevocably waives
such immunity.
17.5 Headings
The headings contained in this Agreement are used solely for
convenience of reference and do not constitute a part of this
Agreement between the Parties, nor should they be used to aid in
any manner in the construction of this Agreement.
17.6 Benefit
This Agreement is intended solely for the benefit of the
Parties. Nothing in this Agreement shall be construed to create
any rights, duty, liability, or standard of care with reference
to any Person not a Party.
17.7 Independent Contractors
The Parties are independent contractors. This Agreement
shall not be interpreted or construed to create an association,
joint venture, or partnership between the Parties or to impose
any partnership obligation or liability upon either Party, except
as contemplated by Section 17.15 in respect of the period after
the expiration of the Term. Neither Party shall have any right,
power or authority to enter into any agreement or undertaking
for, or act on behalf of, or to act as or be an agent or
representative of, or to otherwise bind, the other Party.
17.8 Survival
Cancellation, expiration or earlier termination of this
Agreement shall not relieve the Parties of their obligations
under Article 13 and Section 17.9, which shall survive such
cancellation, expiration or termination.
17.9 Confidential Information
Subject to the provisions of this Section 17.9, each Party
shall not disclose to any third party the contents of this
Agreement, any information provided to such Party by the other
Party pursuant to this Agreement or relating to the negotiations
or performance of this Agreement or any aspect of the business or
operations of the other Party. Upon the request of the providing
Party and to the extent reasonably practicable to do so, the
receiving party shall return all written or electronic
information covered by these confidentiality provisions.
Notwithstanding the above, the Parties acknowledge and agree that
such information may be disclosed to the Financing Parties,
suppliers and potential suppliers of major equipment to the
Project and other third parties as may be necessary for NEA and
BKPC to perform their obligations under this Agreement and the
other Project Contracts. To the extent that such disclosures are
necessary, each Party shall endeavor in disclosing such
information to seek to preserve the confidentiality of such
disclosures. This Section 17.9 shall not prevent either Party
from disclosing any confidential information received from the
other Party if and to the extent (i) required to do so by law or
any court, governmental or regulatory authority; (ii)disclosed to
the professional advisors or auditors of such Party or its
Affiliates; (iii) disclosed to the existing or potential lenders,
shareholders, partners and equity investors of such Party or its
Affiliates; (iv) such information has come into the public domain
through no fault of such Party; or (v) the other Party has given
its prior written consent to such disclosure.
17.10 Entirety
This Agreement is intended by the Parties to be the final
expression of their agreement and is intended also as a complete
and exclusive statement of the terms of their agreement with
respect to the electric energy sold and purchased hereunder.
Other than the Project Agreement, all prior written or oral
understandings, offers or other communications of every kind
pertaining to the sale of electric energy hereunder to NEA by
BKPC are hereby abrogated and withdrawn.
17.11 Expenses and Further Assurances
Each Party shall pay its own costs and expenses in relation
to the negotiation, preparation, execution and carrying into
effect of this Agreement. Each Party shall, from time to time
on being requested to do so by, and at the cost and expense of,
the Other Party, do all such acts and/or execute and deliver all
such inst5ruments and assurances as are reasonably necessary for
carrying put or giving full effect to
the terms of this Agreement.
17.12 Language
All notices, demands, requests, statements, instruments,
certificates or other communications given, delivered or made by,
or on behalf of, either Party to the other under or in connection
with this Agreement shall be in English.
17.13 Counterparts
This Agreement may be executed in several counterparts, and
all such counterparts shall constitute one agreement binding on
both Parties and shall have the same force and effect as an
original instrument, notwithstanding that both Parties may not be
signatories to the same original or the same counterpart.
17.14 Severability
Any provision hereof which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and without
affecting the validity or enforceability of any provision in any
other jurisdiction.
17.15 Transfer of Interest
Upon the expiration of the Term, BKPC shall arrange for the
transfer to NEA of a fifty percent (50%) ownership interest, free
and clear of all liens and encumbrances created by the Financing
Documents, in the Project for a nominal consideration of one (1)
Rupee. Such ownership interest shall be structured as a joint
venture between BKPC and NEA, and the Parties shall negotiate in
good faith to agree on the terms and conditions of such joint
venture; provided, that:
(a) NEA and BKPC shall have the same rights with respect to
ownership of the Project, provided that BKPC alone
shall manage, operate and maintain the Project;
(b) in the event that either Party wishes to negotiate a
new agreement for the sale and purchase of the electric
energy generated by the Project, the Parties shall
negotiate such agreement in good faith on an arms'
length basis and NEA shall agree to pay prevailing
market rate for such electric energy;
(c) each Party shall bear its own costs in connection with
the negotiation, documentation and conclusion of such
transfer;
(d) if permitted to do so by MOWR, BKPC shall arrange for
the transfer of the Project License (as defined in the
Project Agreement) for the Project to the joint venture
entity formed by NEA and BKPC to own the Project; and
(e) the joint venture entity formed by BKPC and NEA to own
the Project shall arrange for the transfer of the
Project to HMGN free of charge upon the expiry of the
Project License.
17.16 Good Faith
(a) The Parties undertake to act in good faith in relation
to the performance and implementation of this Agreement
and to take such other reasonable measures as may be
necessary for the realization of its objectives.
(b) The Parties recognize that circumstances may arise
which the provisions of this Agreement not have
foreseen in which event they undertake to consult each
other promptly and in good faith in an effort to reach
agreement as to what should be done.
(c) The Parties consider the terms of this Agreement to be
fair at the date of this Agreement, but if during the
term of this Agreement either Party believes that this
Agreement has become grossly unfair to that party, it
will notify the other and the Parties will use
reasonable efforts to agree on such action as may be
necessary to remove the cause or causes of the
unfairness, but failure to agree shall not be submitted
to the dispute resolution procedures set forth in
Article 15.
IN WITNESS WHEREOF, the parties hereto, acting through
their duly authorized representatives, have caused this Agreement
signed in ten copies in the English language at Kathmandu, Nepal
as of 6 Shrawan 2053 (21 July 1996).
Signed on behalf of
NEPAL ELECTRICITY AUTHORITY
By
(K.C. Thakur, Managing Director
Witnessed
By
(R.B. Shrestha,
Deputy Managing Director)
Signed on behalf of
BHOTE KOSHI POWER COMPANY
PRIVATE LIMITED
By
(Robert W. Carter, Chief Executive
Officer/President)
Witnessed
By
(Peter W. Bodde, The Charge
d'Affairs, USA)
SCHEDULE 1
PROJECT DESCRIPTION
The Upper Bhote Koshi Hydroelectric Project is a conventional,
run-of-river hydroelectric development located on the Bhote Koshi
River near Jung Khola in the Sindhupalchok District about 110
kilometers from Kathmandu. The Project is intended to divert up
to 32 m3/sec of flow from the Bhote Koshi over a distance of
about 3.7 kilometers to the powerhouse located at Jhirpu,
utilizing the available head of 148 m for electricity production.
The proposed installed capacity is 36 MW in two units to produce
246 million kWh of energy per year on average.
The principal features of the Project include the headworks
facilities, the water conductors, a surface powerhouse, a
concrete tailrace structure, a switchyard, and an approximately
25-km-long transmission line to connect the Project to the NEA
electrical transmission grid.
1. Headworks
The headworks consists of a concrete dam which starts from the
right abutment connecting with a two-gated spillway which abuts
against the left abutment. All structures are founded on
alluvium which will be excavated to a suitable depth to firm
foundation. The headworks creates a normal pool level of E1.1434
and diverts water to a river intake. The river intake is
connected at about a right angle to and located immediately
upstream of the spillway. Water is diverted by means of the
river intake to the desanding basin located on the land side of
and parallel to the spillway. The river intake is a gated
structure provided with four separate openings: three openings
to admit water to the desanding basin, and a fourth opening to
admit water to the desanding by-pass conduit. Each opening is
controlled by a wheel gate operated by individual wire rope
hoists. After passing through the desanding basin, water is fed
into the headrace tunnel. Under normal operating conditions, the
water surface behind the headworks is maintained at E1.1434. All
water, less the minimum downstream release, is diverted to the
powerhouse. River flow in excess of the amount for power
generation is passed through one or both of the spillway gates.
2. Water Conductors
Water utilized for power production is withdrawn from the
desanding basin through the intake and transported through 3.7 km
of headrace tunnel and penstock to the powerhouse. The headrace
tunnel intake is located at the downstream end of the desanding
basin. The intake is reinforced concrete structure with a
bellmouth shaped opening to keep hydraulic losses to a minimum.
The top of the structure is at E1.1435.0.
The headrace tunnel is 3.3 km long and extends from the intake to
the surge shaft. The tunnel is 4 m wide by 4 m high with a
modified horseshoe shape, flat bottom and arched crown. The
tunnel lining, where needed, will use a combination of reinforced
shotcrete, lattice girders, and concrete. An underground
restricted orifice type surge shaft is provided at the end of the
headrace tunnel.
One steel penstock is provided from the surge shaft to the
powerhouse. The penstock bifurcates to serve the two turbines.
The penstock has an inside diameter of 2.8 m and total length of
430 m. A small portion of the penstock, about 60 m, will be
located underground from the surge shaft to the tunnel exit
portal and will consist of a concrete-encased, steel-lined tunnel
section in rock. The remaining portion of the penstock will be
buried in a shallow trench. The buried portion of the penstock
will be founded on a deep colluvial deposit. The penstock will
bifurcate just upstream of the powerhouse.
3. Powerhouse
The powerhouse is located on the left bank of the Bhote Koshi
River near the Jhirpu High School (to be relocated). The
powerhouse will be an enclosed structure with a lightly
reinforced mass concrete substructure, and gabled roof. The
powerhouse will be founded entirely on colluvium and alluvium.
The backslope for the powerhouse will be benched and cut to a
stable slope. The exposed surface of the excavation will be
covered with free draining gabions or stone wall. The powerhouse
contains the generating and miscellaneous electrical and
mechanical equipment in two generating unit bays, an erection
area, and an unloading area. The powerhouse will also contain
metering equipment.
4. Tailrace
The tailrace structure is a reinforced concrete structure
adjoining the powerhouse. The tailrace structure conveys water
from the unit draft tube discharge at the powerhouse to the river
channel. The structure will be designed to permit the future
connection of water conductors for downstream hydroelectric
projects. Stoplog slots are provided in the discharge channel to
control tailwater levels within the structure and to completely
close down the structure for maintenance periods and during
extreme flooding conditions.
5. Powerhouse Substation
The powerhouse substation will be located near and behind the
powerhouse. It will include two main power transformer, two 132-
kV circuit breakers, a takeoff structure, five disconnect
switches, surge arresters, a power-line carrier
transmitter/receiver, and all associated substation hardware.
6. Transmission Line and Metering Equipment
Approximately 25 km of new 132-kV, single-circuit transmission
line will be constructed between the Project and a new NEA
substation near the existing Sun Koshi Hydroelectric Project.
This transmission line will be owned by BKPC.
The revenue metering equipment will be located at the receiving
end of the transmission line and will consist of main and check
meters which will be used to measure and record the amount of
Electrical Output delivered to NEA at the 132-Kv voltage level.
Measurements will include voltage (V), current (A), power (kW and
kVA), phase angle (0), frequency (Hz), reactive power (kVArh) and
energy (kWh).
7. Estimated Electrical Output
The estimated average monthly and annual Electrical Output is
tabulated below:
Energy Generation
Month (million kWh)
January 16.6
February 13.0
March 13.7
April 15.3
May 21.4
June 23.7
July 25.0
August 24.9
September 24.2
October 24.9
November 23.2
December 20.2
Total 246.0
8. Deviations
The above description outlines BKPC's intended plan for
development. Notwithstanding the above project description, BKPC
reserves the right to make minor changes which does not
compromise the civil and equipment features, without the approval
of NEA, so long as the Technical Design Specifications, as
defined in Schedule 8, are observed.
PROJECT DATA
PROJECT LOCATION
Diversion headworks is on the Bhote Koshi near Jung Khola in
Sindhupalchok District, about 110 km from Kathmandu; the
powerhouse is located at Jhirpu.
GENERAL INFORMATION
Project Type Run-of-river
Plant Generating Capacity 36 MW
Number of Generating Units 2
Average Annual Energy 246 GWh
STREAMFLOW
Drainage Area 2,132 km2
Average Annual Flow 66.4 m3/s
Project Design Floods (excluding glacial
lake outburst flood or GLOF):
100-Year 695 m3/s
10,000-Year 1,030 m3/s
PMF 1,750 m3/s
Largest Known Historical GLOF: 3,300 m3/s
HEADWORDS
Consists of a low concrete dam and gated spillway, river intake,
and desanding basin.
Head Pond
Formed by low concrete dam and spillway.
Normal Operating Pool Level E1.1434
Design Flood Level E1.1435
Dam
Crest Level E1.1435
Crest Length 60 m
Height above Riverbed (approx.) 15 m
Spillway
Type of Gates Radial
Gate Size 2 @ 10 m wide x 9 m high
Gate Sill Invert E1.1425
Discharge Capacity at
Normal Operating Pool 890 m3/s
River Intake
River intake is a vertical wall constructed of reinforced
concrete with 4 openings. Each opening is provided with a
service gate and inclined trashrack. Three intake openings pass
water to the desanding basin. The fourth opening passes water to
a 3 m wide by 3 m high bypass conduit, allowing operation of one
unit during flushing and cleaning of the desanding basin.
Desanding Basin
Rectangular single chamber basin constructed of reinforced
concrete, equipped with end and side flushing gates. The basin
will be about 25 m wide, 120 m long, and 10 m deep.
HEADRACE TUNNEL AND PENSTOCK
Hydraulic facilities to supply water to the turbines from the
desanding basin include an intake, headrace tunnel, penstock and
surge shaft.
Headrace Tunnel Intake
Horizontal intake constructed of reinforced concrete with single
bellmouth shaped opening protected by an inclined trashrack.
Headrace Tunnel
Size (mod. horseshoe) 4 m wide x 4 m high
Length 3,301 m
Lining Varies: shotcrete, concrete
Design Discharge 32 m3/s
Surge Shaft
Type Restricted orifice
Diameter 8 m
Height 43 m
Penstock
The penstock consists of two sections: an embedded portion from
the surge shaft to a portal, and a buried section from the portal
to the bifurcation at the powerstation.
Diameter 2.8 m
Length (embedded) 60 m
Length (buried) 370 m
POWERHOUSE AND TAILRACE
Powerhouse
Type Surface
Dimensions 12.6 m wide x 28.5 m long
Tailrace Structure
Enclosed reinforced concrete structure
Normal Tailwater in Structure E1.1286.0
Tailwater Level in River:
Low Flow E1.1283
100-Year Flood (695 m3/s) E1.1287.0
10,000-Year Flood (1,030 m3/s) E1.1287.8
POWERHOUSE EQUIPMENT
Turbines
Number 2
Type Francis
Unit Output (at best efficiency) 18.75 MW
Rated Net Head 139 m
Unit Discharge (approx. at best efficiency) 15 m3/s
Speed 428.6 rpm
Generators
Type Enclosed air cooled vertical shaft
Rated Output per Unit 25 MVA
Power Factor/Temperature Rise 90%/75 degrees
Frequency 50 Hertz
Voltage 11 kV
Transformers
Two three-phase, oil/air cooled 25 MVA, 50 Hertz
Valves, Gates and Cranes
Turbine Inlet Valve:
Type Butterfly
Size 2 @ 1.8 m diameter
Draft Tube Gate:
Operating Mechanism Monorail hoist
Size 1 @ 4.3 m wide x 2.2 m high
Powerhouse Crane:
Type Bridge crane
Span 11.5 m
Capacity (Main/Auxiliary) 60/20 tons
SCHEDULE 2
FINANCIAL ASSUMPTIONS
A. Project Dates
1. Construction period Three years
2. Commercial Operation Date Jan 2000
B. Energy Deliveries
1. Average energy delivered to receiving
substation near Sun Koshi (GWh/yr) 246
C. Tax and Royalties Assumptions
1. Income tax holiday (years from
first Unit Delivery date)(Electricity
Act. 2049) 15
2. Corporate income tax rate before tax
holiday (Electricity Act, 2049) 0%
3. Corporate income tax rate after tax
holiday (with 10% deduction)(Electricity
Act, 2049) 25%
4. Withholding tax on distributions to
shareholders and loan payments (Foreign
Investment and Technology Transfer Act,
2049; Industrial Enterprises Act, 2049) 0%
5. Sales taxes/import duties on foreign
products (including all machinery, tools,
equipment and vehicles)(Electricity Act, 2049)
Import duties 1%
Sales taxes 0%
6. Contract tax on local installation and
civil works 5%
7. Asset life (years) 25
8. Amortization life (years) 25
9. Percentage retained by NEA (25 years
after commercial operation date) 50%
10. Depression schedule straight line
11. Royalties (Electricity Act, 2049)
First 15 years, percent of energy
revenue 2
First 15 years, Nepalese Rupees per
installed KW 100
After 15 years, percent of energy revenue 10
After 15 years, Nepalese Rupees per
installed kW 1000
12. Other taxes duties, etc. are based on actual rates in effect
on 14 Baishakh 2052 (27 April 1995)
SCHEDULE 3
PERMITS AND AUTHORIZATIONS
The following Governmental Approvals are required under
applicable Laws:
(a) prior to date of initial funding under the Financing
Documents:
(i) the Project Agreement;
(ii) the Project License, as required pursuant to the Electricity
Act, 2049, and the Electricity Rules, 2050;
(iii) permits for foreigners to invest in a Nepalese company
and to borrow from Foreign Lenders;
(iv) a permit to open and maintain bank accounts in foreign
currency inside and outside Nepal;
(v) an exemption from loan registration fees (including mortgage
fees);
(vi) a permit to mortgage assets or pledge shares to foreign
lenders;
(vii) all approvals as per the Electricity Act, 2049, and the
Electricity Rules, 2050, and other relevant Laws applicable to
this type of project; and
(b) as and when required for the then-current phase of
construction of the Project:
(i) a permit to fell trees and the additional necessary permits
with respect to timber excavation;
(ii) permits to import, transport and store explosives
(iii) permits to use roads for heavy loads;
(iv) an approval for import, installation and use of
communications systems at the Site;
(v) work permits and appropriate visas to employ foreigners;
SCHEDULE 4
ESCALATION
1. Certain Definitions
As used in this Schedule 4, the following terms shall have the
respective meanings specified below:
"Adjustment Date" or "AD" shall mean the first 1 January
following the fifteenth anniversary of the first Unit Delivery
Date or any and each 1 January thereafter during the Term.
"Applicable Escalation Percentage" shall, subject to Section
2(b) of this Schedule 4, mean 3% per annum.
"Baseline Energy Factor" shall mean $0.06, as of 1 January
1995.
"Base CPI" shall mean the CPI for 1 January 1995.
"CPI" shall mean the Consumer Price Index for all Urban
Consumers, U.S. City Average, as published in the CPI detailed
Report by the U.S. Bureau of Labor Standards.
"CPIAD" shall mean CPI for the 1 January preceding the
Adjustment Date.
"CPI Ratio" shall mean the ratio of the CPIAD to the Base
CPI.
"Energy Factor" or "EF" shall mean an amount per kWh equal
to six one-hundredths (0.06) of a Dollar as of 1 January 1995, as
escalated in accordance with this Schedule 4.
"Energy Factor Ratio" or "EF Ratio" shall mean the ratio of
the Energy Factor, for the 1 January preceding the Adjustment
date to the Baseline Energy Factor.
2. Escalation
(a) Commencing with January 1, 1996 and on each January 1
thereafter, the Energy Factor shall be increased by an amount
equal to the Applicable Escalation Percentage then in effect.
(b) The Applicable Escalation Percentage, for each Adjustment
Date, shall be:
(a) 6% per annum if the ratio of the CPI Ratio to the EF Ratio
is greater than 1.05;
(ii) 0% per annum if the ratio of the CPI Ratio to the EF Ratio
is less than 0.95; or
(iii) 3% per annum if neither clause 2(b)(i) nor clause
2(b)(ii) of this Section 4 applies.
(c) BKPC shall provide to NEA a copy of the published CPI
Detailed Report for the relevant period applicable to any
adjustment to the Energy Factor pursuant to this Schedule 4 and
such other information as NEA may reasonably request to verify
the escalations set forth in this Schedule 4.
3. Dispute Resolution
Any disputes in connection with any change to the Energy Factor
shall, subject to Section 9.3(a) of this Agreement, be submitted
to the dispute resolution procedure set forth in Article 15 of
this Agreement.
SCHEDULE 5
TECHNICAL LIMITS
1. Turbine
Full gate output at rated net head
of 139 m: 20.8 MW (expected)
Best gate output at rated net head of
139 m: 18.75 MW required
Nominal Minimum output at rated net head
of 139 m: 13.13 MW (expected)
Stable operation with single unit
operating at partial gate setting
passing about 9 m3/s: 10 MW (expected)
Rated speed: 428.6 rpm
2. Generator
Voltage: 11kV
Frequency: 50 Hz
Power Factor: 0.9 PF
Rating at 75 degrees C Winding
Temperature Rise: 25 MVA
Overload Capacity: None
3. Main Power Transformer
Voltage: 11/132 kV
Frequency: 50 Hz
Rating: 25 MVA OA
Vector Arrangement: LV - Delta
HV - Grounded Wye
4. Segregated Phase Bus
Voltage: 11 kV
Current Rating: 2000A, 3 phase
5. Generator Circuit Breaker
Voltage: 11 kV
Continuous Rated Current: 2000A
Rate Interrupting Time on 50 Hz Basis: 5 Hz
Type: Vacuum
6. Maintenance Schedule
To be arranged per equipment manufacturer's recommendations,
but should not exceed 2 weeks per unit. Maintenance will be
scheduled during periods when river flow is expected to be
insufficient to operate two units.
7. Deviations
The above description outlines BKPC's intended plan for
development. Notwithstanding the above project description,
BKPC reserves the right to make minor changes which does not
compromise the civil and equipment features, without the
approval of NEA, so long as the Technical Design
Specifications, as defined in Schedule 8, are observed.
SCHEDULE 6
CONSTRUCTION REPORTS
1. BKPC will provide NEA with a construction program and on the
first day of each quarter period following commencement of
construction of the Project and continuing until the Commercial
Operation Date, BKPC shall provide NEA with quarterly
construction reports on the status of the construction of the
project.
2. At a minimum, the quarterly construction report shall
contain the following:
- Executive Summary
- Status of Permits and Approvals
- Discussion on any major problems which could affect the
Construction Schedule
- Pre-commissioning activities, start-up and performance
testing
3. NEA shall provide BKPC with a construction program, and on
the first day of each quarter period following commencement of
construction of the NEA Interconnection Facilities and continuing
until completion thereof, NEA shall provide BKPC with quarterly
construction reports on the status of construction of the NEA
Interconnection Facilities.
4. At a minimum, the quarterly construction report shall
contain the following:
- Executive Summary
- Status of Permits and Approvals
- Discussion on any major problems which could affect the
Construction Schedule
- Pre-commissioning activities, start-up and performance
testing
SCHEDULE 7
METERING STANDARDS & TESTING
1. Main Meters required for the Facility shall be owned and
operated by BKPC, and shall be maintained in accordance with
Prudent Utility Practices. Check Meters for the Facility shall
be owned and operated by NEA. Such equipment shall include
capability for hourly and monthly readings. BKPC shall provide
such metering results to NEA in accordance with Prudent Utility
Practices. The NEA may also install Check Meters for each Main
Meter installed by BKPC, at the Delivery Point, and shall
maintain such Check Meters in accordance with Prudent Utility
Practices.
2. The monthly meter readings (both Main Meter and Check
Meters) shall be taken jointly by the parties concerned on the
first day of the following month at 12 noon.
3. All the Main Meters and Check Meters (export and import0
installed at the Delivery Point shall be of 0.1% accuracy class.
They shall be jointly inspected and sealed on behalf of the
parties concerned and shall not be interfered with by either
party except in the presence of the other party or its accredited
representatives.
4. All the Main Meters and Check Meters shall be test checked
for accuracy every year. Each such meter shall be deemed to be
working satisfactorily if the errors are within specifications
for such Meter of 0.1% accuracy class. The consumption
registered by the Main Meters alone will hold good for the
purpose of billing as long as the error in the Main Meter is
within the permissible limits.
5. If during the annual test checks, any of the Main Meters is
found to be within the permissible limit of error and the
corresponding check meter is beyond the permissible limits, then
billing will be as per the Main Meter as usual. The check meter
shall, however, be calibrated immediately.
6. If during the annual test checks, any of the Main Meters is
found to be beyond permissible limits of error, but the
corresponding Check Meter is found to be within permissible
limits of error, then the billing for the month up to the date
and time of the calibration of the Main Meter shall be as per the
Check Meter. There will be no revision in the bills for the
preceding months. The Main Meter shall be calibrated immediately
and billing for the period thereafter until the next monthly
meter reading shall be as per the calibrated main meter.
7. If during the annual test checks, both the Main Meter and
the corresponding Check Meters are found to be beyond the
permissible limits of error, both sets of meters shall be
immediately calibrated and the correction applied to the
consumption registered by the Main Meter to arrive at the correct
consumption of energy for the billing purposes for the period of
the month up to the time of calibration of the Main Meter.
Billing for the period thereafter until the next monthly meter
reading shall be as per the calibrated Main Meter.
SCHEDULE 8
COMMISSIONING AND TESTING
1. Certain Definitions
As used in this Schedule 8, the following term(s) shall have the
respective meanings specified below:
"Technical Design Specification" shall mean the turbine-
generator performance specifications agreed upon by BKPC, NEA and
equipment manufacturer at the time of turbine-generator
procurement.
2. Unit Commissioning
Each Unit shall be commissioned by BKPC in accordance with
Prudent Utility Practices, the Technical Design Specifications
and other requirements set forth in this Agreement. BKPC shall
provide NEA with at least one hundred and twenty (120) days'
prior written notice of the Schedule Synchronization Date. BKPC
shall direct the operation of each unit after its Synchronization
Date in such a manner to maximize the electrical energy output of
each unit in a manner consistent with Prudent Utility Practices,
the Performance Tests as set forth in Paragraph 3 of Schedule 8,
the Technical Design Specifications, other requirements set forth
in this Agreement and all Applicable Laws.
3. Performance Test
(a) Once each unit is sufficiently complete so that the unit and
all Project systems associated with it are capable of safe
operation in accordance with Applicable Laws, Prudent Utility
Practice and the Technical Design Specifications, BKPC shall
perform a performance test (the "Performance Test"). The
Performance Test is to be conducted in accordance with accepted
test guidelines in the Technical Design Specifications. BKPC
shall give at least seven (7) days prior written notice to NEA of
the date on which the Performance Test will commence.
(b) The Performance Test shall be conducted on each unit to
establish the following:
(i) Rated Output Capacity of each Unit
(ii) Confirmation of unit characteristics in accordance with
Schedule 5. The Performance Test shall include the operation of
each unit for a suitable period, including the operating of each
Unit's associated Project system concurrently with each other
Project system (which may be required for operation of such Unit
alone) for this period. The performance test shall define all
generator, turbine and auxiliary system parameters to include
machine operating temperatures, machine characteristics, load
rejection tests, equipment vibrations and possible other
parameters define in the Technical Design Specifications. BKPC
and NEA shall designate and make available qualified and
authorized representatives to observe the test and to monitor the
taking of measurements to determine the level of achievement.
NEA or BKPC may declare the performance test a failure only if
any of the electrical output characteristics do not meet the
requirements of the Technical Design Specifications. BKPC shall
then be allowed to repeat the test until such electrical
characteristics are in compliance.
4. Disposition of Output
NEA shall not be required to pay for electric energy delivered by
any Unit at all times during startup, preliminary testing or the
Performance Test, or other operations of each Unit or Project
systems in furtherance of the Performance Test, or other test
required under the construction contracts, NEA shall be required
to pay for Electrical Output from any Unit after the Unit
Delivery Date of such Unit.
5. Factory Tests
BKPC, at its own cost, agrees to invite two representatives of
NEA to witness the factory tests of the Units at the
manufacturer's facility.
SCHEDULE 9
[Drawing of Interconnection Facilities (conceptual)]
<TABLE>
<CAPTION
SCHEDULE 10
BASIS OF CALCULATION OF DEEMED GENERATION
(metering at receiving end of transmission line)
(A) Maximum (B) Maximum
Deemed Deemed Deemed Deemed
Generation Generation Generation Generation
kWh per hour MWh per month kWh per MWh per month
Contract Month (One Unit (One Unit hour** (Two Units
Days Delivered)1 Delivered) (Two Units Delivered)
<S> <C> <C> <C> <C> <C>
Delivered)1
Srawan 31 Available Smaller of 36,000 26,784
(mid-July - mid- Capacity not (a) Available
August) to exceed Capacity in
18,000 MW* 744, or
(b) 13,392
Bhadra 31 Available Smaller of 36,000 26,784
(mid-August - Capacity not (a) Available
mid-September) to exceed Capacity in
18,000 MW* 744, or
(b) 13,392
Ashwin 31 Available Smaller of 35,000 26,709
(mid-September Capacity not (a) Available
- - mid-October) to exceed Capacity in
18,000 MW* 744, or
(b) 13,392
Kartik 30 Available Smaller of 35,200 25,344
(mid-October - Capacity not (a) Available
mid-November) to exceed Capacity in
18,000 MW* 720, or
(b) 12,960
Marg 29 Available Available 31,700 22,063
(mid-November - Capacity Capacity in
mid-December) MW* 696
Poush 30 Available Available 26,400 19,008
(mid-December - Capacity Capacity in
mid-January) MW* 720
Magh 29 Available Available 22,300 15,520
(mid-January - Capacity Capacity in
mid-February) MW* 696
Phalgun 30 Available Available 20,300 14,616
(mid-February - Capacity Capacity in
mid-March) MW* 720
Chaitra 30 Available Available 21,300 15,336
(mid-March - Capacity Capacity in
mid-April) MW* 720
Baishakh 31 Available Available 26,900 20,014
(mid-April - Capacity Capacity in
mid-May) MW* 744
Jestha 31 Available Smaller of 33,100 24,626
(mid-May - mid- Capacity not (a) Available
June) to exceed Capacity in
18,000 MW* 744, or
(b) 13,392
Ashad 32 Available Smaller of 35,700 27,418
(mid-June - mid- Capacity not (a) Available
July) to exceed Capacity in
18,000 MW* 768, or
(b) 13,824
Sub-Total 365 264,222
(excluding
outages)
Forced, 18,222
Scheduled and
Maintenance
Outages
Net Total 246,000
</TABLE>
1 The total amount of Deemed Generation (net of Electrical
Output) shall not exceed the amount in column A or B, multiplied
by the number of hours in the applicable month
** As provided in Section 8.2 of this Agreement, if any
reduction or interruption occurs in the delivery of electric
energy at the Delivery Point (at the maximum net electric output
which the Project is capable of producing at such time) during
any Contract Month, then, in addition to the amounts payable by
NEA pursuant to Section 8.1, NEA shall pay to BKPC for such
Contract Month an amount equal to the product of:
(a) the aggregate Deemed Generation during such Contract Month
(in accordance with Schedule 10), multiplied by
(b) the Energy Factor applicable for such Contract Month;
provided, however, that Deemed Generation shall not be earned
with respect to any such reduction or interruption:
(i) to the extent that the Project is not available
during such reduction or interruption as a result of:
(y) the occurrence of a Reduced Output or
(z) the occurrence of a Force Majeure Event which is not a
Special Force Majeure Event or
(ii) to the extent that such reduction or interruption
is cause by an outstage of the NEA System resulting in
an inability of NEA to connect the Project to the NEA
System (but not exceeding thirty-six hours in any
Contract Year with a maximum of eighteen (18) hours
during the Wet Months of each Contract Year).
EXHIBIT 10.141
AMENDED AND RESTATED
SERVICES AGREEMENT
Between
BHOTE KOSHI POWER COMPANY PRIVATE LIMITED
and
HARZA ENGINEERING COMPANY INTERNATIONAL L.P.
for
BASIC DESIGN AND SERVICES DURING DEVELOPMENT AND CONSTRUCTION
RELATED PHASES OF BHOTE KOSHI HYDROELECTRIC PROJECT
(For services provided in Nepal)
This Agreement is entered into this ______________ day of
___________, 1997, by and between Bhote Koshi Power Company
Private Limited, hereinafter referred to as the Client, and Harza
Engineering Company International L.P., hereinafter referred to
as the Engineer.
INDEX TO SERVICES AGREEMENT
Article I Definitions
Article II Purpose
Article III General Terms and Conditions
Article IV Schedule
Article V Scope of Services and Additional Services
Article VI Not Used
Article VII Not Used
Article VIII Compensation to the Engineer
Article IX Nepalese Registration Fees, Duties, and Taxes
Article X Engineer's Employees
Article XI Ownership of Documents
Article XII Changes in the Scope of Services
Article XIII Subcontracts
Article XIV Assignment
Article XV Authorization to Purchase
Article XVI Force Majeure
Article XVII Arbitration
Article XVIII Official Language and Units of Weights and
Measure
Article XIX Termination and Suspensions
Article XX Law Governing Agreement
Article XXI Review and Modification of Agreement
Article XXII Notices
Article XXIII Entire Understanding of Agreement
Article XXIV Waiver of Contract Breach
Article XXV Severability of Invalid Provisions
Article XXVI Designation of Authorized Representatives
Article XXVII Indemnification
Article XXVIII Effective Date
Article XXIX Independent Contractor
Article XXX Representations and Warranties
Article XXXI Insurance
Attachment 1 Budget for Engineering Services
Attachment 2 Harza Engineering Company 1997 Billing Rates
Attachment 3 Scope of Engineering Services to be Provided by
Harza Engineering Company International L.P.
ARTICLE I - DEFINITIONS
Project: Upper Bhote Koshi Hydroelectric Project (also referred
to as the "Facility")
Client: Bhote Koshi Power Company Private Limited (in
connection with the financing of the Project, Client may assign
this Agreement to its lenders)
Engineer: Harza Engineering Company International L.P.
ARTICLE II - PURPOSE
The purpose of this Agreement is to set forth the terms and
conditions under which the Engineer shall provide technical
engineering consulting services related to the Project for the
Client. The services to be provided are described in Article V,
Scope of Services.
ARTICLE III - GENERAL TERMS AND CONDITIONS
A. Appointment of the Engineer
The Client hereby appoints the Engineer and the Engineer accepts
the appointment on the terms and conditions set forth
hereinafter.
B. Engineer's Responsibility
The Engineer will render engineering services in accordance with
generally accepted and currently recognized engineering
practices, procedures and principles. The Engineer makes no
other warranty, either express or implied, with respect to its
services.
Notwithstanding anything to the contrary which may be contained
in this Agreement or any other material incorporated herein by
reference, or in any agreement between Client and any other party
concerning the Project, the Engineer shall not have control or be
in charge of, and shall not be responsible for the means,
methods, techniques, sequences or procedures of construction, or
the safety, safety precautions or programs of the Client, the
construction contractor, other contractors or subcontractors
performing any of the work or services on the Project. Nor shall
the Engineer be responsible for the acts or omissions of Client,
or for the failure of Client, its architect, in-house engineer,
consultant, contractor or subcontractor to carry out their
respective responsibilities in accordance with the Project
documents, this Agreement, or any other agreement concerning the
Project. Any provision which purports to amend this provision
shall be without effect unless it contains a reference that the
content of this Article III.B is expressly amended for the
purposes described in such amendment and is signed by both
parties.
ARTICLE IV - SCHEDULE
A. Initiation of Services
The Engineer is bound to commence the services stipulated in this
Agreement immediately after the Agreement is signed by an
authorized representative of the Client and an authorized
representative of the Engineer.
B. Schedule of Services
1. The Engineer has planned its services to achieve essential
completion under each of the several phases of the services in
accordance with the following schedule:
Services under Authorization to Essential Completing
Article V Proceed of Services
Pre-Closing February 19, 1996 At Financial Closure
Services During February 1, 1997 Later of June 1, 2000
Construction or the 30 days after
Final Acceptance of
the Facility
2. The Engineer agrees to adhere to the time schedule with
respect to all portions of the services which are solely under
the direct control of the Engineer, and provided that autho
rization for each phase of the services is made in accordance
with the above schedule. The Client accepts responsibility for
facilitating the services of the Engineer and the progress of the
Project with respect to all portions of the services over which
the Client retains control.
3. If the Final Acceptance of the Facility is delayed beyond
June 1, 2000 for reasons beyond control of the Engineer, the
amounts specified in Attachment 1 in conjunction with Attachment
2 ("Contract Ceiling") shall be increased to include the
additional Services required by such delay.
C. Completion of Services
Except as provided in B above, the services to be provided under
this Agreement shall be considered completed on the later of
June 1, 2000 or 30 days after Final Acceptance of the Facility.
Completion by the Engineer and acceptance by the Client of all
outstanding reports and drawings under each Phase of this
Agreement shall be considered accepted if neither the Client nor
Client's lenders' independent engineer raises any objections
within ninety (90) days after certification by the Engineer of
completion of all outstanding reports and drawings.
D. Terms of Agreement
Except as provided in B above, unless terminated under Article
XIX, this Agreement shall terminate on the later of June 1, 2000
or 30 days after Final Acceptance of the Facility. A revised
termination date may be included by Amendment.
ARTICLE V - SCOPE OF SERVICES AND ADDITIONAL SERVICES
The Scope of Services is presented in Attachment 3 to this
Agreement.
The Engineer shall supply such additional services as requested
by the Client in connection with the Project and for which the
Engineer is qualified but which are not otherwise included in
this Agreement. Separate proposals shall be submitted by the
Engineer for furnishing these services. Compensation for such
additional services shall be negotiated by the parties and
included in this Agreement by Amendment.
ARTICLE VI - not used
ARTICLE VII - not used
ARTICLE VIII - COMPENSATION TO THE ENGINEER
A. Monthly Budget
Engineer shall provide a monthly budget to be approved by Client.
B. Compensation
The Engineer shall be reimbursed for Labor Costs and Direct
Costs, including subcontracts. In consideration of the
engineering services rendered by the Engineer under this Agree
ment, the Client shall reimburse the Engineer as follows:
1. Pre-Closing Services. Services performed between the date
of signing the Joint Development Agreement (JDA) and Financial
Closure, except for Services related to construction provided
after February 1, 1997, shall be identified as the Pre-Closing
services. Payment for Pre-Closing services is described under
Article VIII, Section G.
2. Services During Construction. Services related to
construction provided after February 1, 1997 and all services
performed between the Financial Closure and the termination of
this Agreement shall be identified as Services During
Construction. Payment for Services During Construction is
described under Article VIII, Section G.
The Engineer and the Client shall meet in person or by a
conference call monthly to discuss the progress and the budget
for the following month's services. The Engineer at the Client's
request agrees to delay any activities provided that the Client
shall be responsible for any increased cost resulting from the
delay and the schedule shall be adjusted for the effects of the
requested delay.
The billing for Labor Costs and Direct Costs are defined in
Article VIII, Sections C and D, below.
C. Billing for Labor Costs
Billing Rates shall be multiplied by the actual time spent by
personnel directly employed in services under the Agreement,
including officers, engineers, designers, supervisors, draftsmen,
other technical personnel, word processors, and other personnel
who perform services under the Agreement. Actual travel time, up
to eight hours per weekday, not exceeding three days in each
direction, shall be reimbursable. Reimbursement for Labor Costs
shall be paid in U.S. Dollars. For time spent traveling to and
from Nepal, and for time spent in Nepal, personnel will be paid
up to 48 hours per week.
Attachment 2 presents Billing Rates to be applied during the
execution of this Project. The Billing Rates shown are to be
applied during 1997. These billing rates shall be revised each
January 1. The maximum annual increase in Billing Rate for any
one classification shall be limited to 5 percent.
D. Direct Costs
Direct Costs shall be charged at cost and shall be directly
applicable to the Project. The Engineer shall be responsible for
employee's personal expenses not approved by the Client.
The Direct Costs shall include but not be limited to the
following:
1. Transportation costs of the Engineer's staff, including
officers when traveling on behalf of the Project. For journeys
to and from Nepal, travel shall be accomplished by business class
air tickets by the most direct route possible for each employee.
If the employee's assignment in Nepal is for a period of one year
or more, similar tickets to and from Nepal shall also be provided
for the employee's spouse and children who are below 18 years of
age at the time of assignment. For business journeys from Nepal,
business class air tickets shall be provided to the employee's
point of origin or any other destination selected by the employee
provided the cost of ticket for such other destination does not
exceed the cost of ticket to the point of employee's origin. Air
tickets shall also be provided for journeys for vacation to and
from the United States after one year of service in Nepal for the
employee and his family provided that the employee's assignment
is extended for a period of one year or more. Transportation
purchased in Nepal shall be billed under this Agreement.
2. Subsistence within Nepal, for Engineer's staff assigned on
a short-term or intermediate-term basis, shall be reimbursed for
occasional outside meals which shall not exceed $25 per day, if
housing is furnished by the Client. If staying in a hotel,
actual and reasonable hotel, subsistence and transportation
charges, where applicable, shall be reimbursed by the Client.
3. Housing and living allowances for long-term personnel as
described in Article VIII.E.2 hereafter.
4. Telephone charges.
5. Telegraph, cables and telex.
6. Postage.
7. Printing and reproduction.
8. Supplies (including office supplies) used directly on and
for the services and not paid directly by the Client.
9. Special Insurance approved by the Client.
10. Special Consultants and studies approved by the Client.
11. Computer time charges supplied by the Engineer.
12. Equipment tests.
13. Special purchases for and approved by the Client.
14. Legal expenses in Nepal.
15. All Nepal income taxes on the Engineer, its expatriate
personnel or its Nepalese Consultants which have been approved by
the Client (if not paid directly by the Client in accordance with
Article IX Taxation) including any tax which the Engineer may be
assessed upon the tax paid or reimbursed. Said taxes, if any,
are not provided for in this Agreement, and shall be billed in
addition to the Engineer's Budget for Engineering Services
16. Cost of sea, air and land freight (including duties, other
assessments, and taxes and incidental expenses on transportation
such as insurance (insurance on household effects is limited to
$10,000), clearing charges, demurrage, normal packing and crating
as normally required for sea, air and land transport when such
packing and crating charges are separately shown on freight
invoices) for shipments made in connection with the services of
the Agreement, including the shipment of household effects of
personnel assigned to service in Nepal. The shipment of household
effects from home to Nepal and return shall be in the following
maximum amounts:
Unaccompanied Air Freight Surface Freight
(Gross Weight) Gross Weights)
Single Status 200 pounds 1000 pounds
Man and Wife 300 pounds 4000 pounds
An additional allowance of 40 pounds air freight shall be allowed
for each child up to a maximum of 3 children. An additional air
freight shipment equal to 100 pounds for single status and 150
pounds for married status shall be allowed for each additional
assignment after the initial one-year assignment.
17. Cost of establishing and operating offices for Project
purposes only in Nepal if not directly paid by the Client.
18. Local transportation in Nepal necessary for the services if
not directly paid by the Client.
19. At Client's discretion, all salaries, allowances and
transportation and other authorized costs paid to trainees of the
Nepal Electricity Authority by the Engineer in discharging its
obligations for training of NEA personnel. This item shall be
billed as a Direct Cost, and is not to be counted within the
contract ceiling described in Article VIII Section B.
20. During the occurrence of any Force Majeure under Article
XVI, Force Majeure, which prevents the Engineer or the Engineer's
employee from performance of services in Nepal, the Engineer
shall continue to be reimbursed for all costs otherwise
reimbursable under this Agreement plus additional costs incurred
due to temporary relocation of the employees and/or their
dependents with the concurrence of the Client in accordance with
Article XVI, Force Majeure.
21. All taxes, licenses and fees including income tax payable to
His Majesty's Government of Nepal and local bodies in Nepal shall
be paid to the Engineer as a Direct Cost, and not included in the
Budget for Engineering Services.
22. Cost of special consultants authorized by the Client.
23. Subcontracts, including but not limited to:
- Subsurface
- Topography
- GLOF
- Transmission Line
E. Housing and Living in Nepal
If not provided by Client, housing and living allowances shall be
given for each expatriate employee in accordance with the
following payments:
1. Housing Allowance. If housing is not provided, the Client
shall pay the Engineer the actual rent paid by the expatriate
employee subject to a maximum amount of US$600 per month for a
single person inclusive of utilities. This allowance shall
commence on the date that the employee arrives in Nepal, and
shall continue until the employee leaves Nepal upon termination
of his assignment period. Times away from Nepal on vacation or
on temporary absence in connection with Client's work shall not
be deducted from housing allowance dues. Housing allowance may
be paid up to 12 months in advance at the risk of the Engineer,
as required by lease, providing the employee's remaining
assignment in Nepal is at least as long as the advance period.
Payment of the housing allowance relieves the Client of any
responsibility in securing houses or apartments for the
Engineer's personnel. Client reserves the right to provide
housing on a shared basis with other Client's and/or Engineer's
staff.
2. Living Allowance. For each member of the staff who is a
resident in Nepal, a living allowance shall be paid as follows,
subject to reasonable Client approval:
Single status up to $400 per month
Married couple up to $400 per month
In addition, an allowance of to be determined
shall be paid for each child living with his family in Nepal, up
to a maximum of three children per family.
3. Furnishing. The Client shall provide reasonable furnished
housing. Housing shall be up to Western standards, or as close
to as reasonably possible, as dictated by property markets and
availability in Nepal.
F. Cost of Services
Costs of Services are detailed in Attachment 1 to this Agreement.
G. Mode of Payment
The Engineer shall submit monthly invoices to the Client in U.S.
dollars, consistent with Article VIII B. Conversion of Nepalese
Rupees shall be at the prevailing rate at the time that the costs
are incurred. During the Pre-Closing phase, the Client shall
retain 10% of the Labor Cost portion of the billing. These
retained funds shall be reimbursed at Financial Closure, plus
7.5% annual interest. There shall be no funds retained for
Services performed after Financial Closure.
The Client shall pay the Engineer its costs and fees (less
retention, when applicable) within 30 days of the receipt of the
invoice.
1. Settlement of Disputed Amounts. In the case of disputed
amounts, the Client shall request clarification from the Engineer
of the queried part at the same time the Client transmits
acceptance for the approved part of the statement. Within 30
days of receipt of clarification, the Client shall state whether
or not the queried part is accepted or rejected in full or in
part. For all portions accepted, the Client shall immediately
transmit acceptance to the Engineer. For portions not accepted
by Client, Article XVII of this Agreement, Arbitration, shall
apply, if invoked by the Engineer.
2. Interest on Overdue Accounts. If for any reason payments
due the Engineer have not been paid within 30 days of delivery of
the invoice to the Client, interest on the overdue amount(s)
shall be applied at an annual rate one percent higher than the
prime rate charged by the Northern Trust Company, Chicago,
Illinois.
3. Data Submitted with Invoices. Each invoice shall be
prepared showing monthly advance in each phase of services in
both percentage completion and actual dollar amount.
H. Accounting and Audit
The Engineer shall keep complete and accurate records of
accounts, and authorized representatives of Client shall have
free access thereto, during normal business hours, for audit
purposes.
All payments made by the Client to the Engineer shall be subject
to audit at the expense of the Client by a mutually agreed firm
of auditors or such other auditors as the Client may consider
necessary, at least once in every 12 (twelve) months and within 6
(six) months of the date of termination of this Agreement, and
any amount agreed to be due to one party from the other, shall be
paid within 60 days after official submission of audit report.
ARTICLE IX - NEPALESE REGISTRATION FEES, DUTIES AND TAXES
In the event that the Engineer, its expatriate personnel, or its
non-Nepalese Consultants or subcontractors are subject to payment
of registration fees customs and duties, income taxes or other
taxes, all such fees, duties and taxes shall either be paid
directly by the Client or reimbursed to the Engineer. The
Engineer shall promptly inform the Client of any fees, duties, or
any tax on fees earned for the services in Nepal or tax on income
of expatriate staff in Nepal paid in the U.S. to enable the
Client to obtain tax reductions allowable under the laws of
Nepal. Existence of any such fees or levies has not been
determined and therefore is not provided for in Attachment 1,
Budget for Engineering Services.
ARTICLE X - ENGINEER'S EMPLOYEES
A. Client's Approval
The Engineer shall obtain the approval of Client for the long
term assignment in Nepal of each employee assigned to serve under
this Agreement. Such approval shall not be unreasonably withheld
by the Client.
B. Replacement
Upon the written request of the Client, the Engineer shall remove
or replace any of its long-term or short-term employees present
in Nepal. In the event of removal of any employee for cause, any
replacement shall be an individual with at least equivalent
professional qualifications and shall be subject to the same
approvals as the individual replaced.
C. Employee Conduct
All Engineer's and subcontractor employees and their authorized
dependents shall at all times while in Nepal conduct themselves
within the laws, respect the customs of Nepal and refrain from
any political activity. The Engineer shall solely be responsible
for conduct of its employees while in Nepal or traveling to
Nepal.
ARTICLE XI - OWNERSHIP OF DOCUMENTS
A. Documents Property of Client
Technical data, recommendations, notes, memoranda, drawings or
other graphic representation prepared by the Engineer pursuant to
or developed in connection with this Agreement shall become the
property of the Client. This provision shall not be interpreted
to limit the right of the Engineer or its personnel to make, keep
and use copies of personal and professional records, notes,
reports or other data. The Engineer shall have the right to
retain copies of all documents and drawings for its files. The
Engineer shall not publish any information obtained or developed
pursuant to the Agreement without giving 30 days' notice to the
Client of its intention to publish, together with the proposed
material.
B. Reuse of Documents
All documents, including drawings and specifications furnished by
the Engineer pursuant to this Agreement are intended for use on
this Project only. They should not be used by the Client or
others on extensions of the Project or any other project without
specific written verification or adaptation by the Engineer. Any
reuse without the Engineer's written verification or adaptation
shall be at the Client's sole risk, and Client shall indemnify
and hold harmless the Engineer from all claims damages, losses,
and expenses, including attorneys' fees and arising out of or
resulting from such unauthorized reuse.
Any computer disks provided by Engineer to Client may develop
errors because of hardware and software combinations differing
from those used by Engineer in preparing the disks, other failure
of Client's or third parties' hardware, or the limited life
expectancy and integrity of the disk and its contents for which
Engineer bears no responsibility. In case of discrepancies
between documents ("hard copy") prepared by Engineer and such
computer disks, the hard copy shall be the governing medium and
copy of record.
ARTICLE XII - CHANGES IN THE SCOPE OF SERVICES
A. Making Changes
The Client may at any time, by written order, make changes within
the scope and duration of the services required under this
Agreement. If any such change is made, an equitable adjustment
shall be made (1) in the Budget for Engineering Services
(Attachment 1) or the Schedule of Services (Article IV B), or
both, and (2) in such other provisions of the Agreement as may be
affected, and the Agreement shall be so modified in writing.
B. Revised Estimates
In the case of an increase or decrease in the Scope of Services
ordered by the Client, the Engineer shall within fifteen (15)
working days provide a cost estimate for the increase or decrease
in services and indicate the effect of this change in the overall
Scope of Services and the estimated completion date and its
effects on the Budget for Engineering Services (Attachment 1).
ARTICLE XIII - SUBCONTRACTS
The Engineer may subcontract with individuals or firms qualified
to perform specialized services necessary for the performance of
the services. All such subcontracts shall be approved in advance
in writing by the Client and such approval, if given, shall not
relieve the Engineer from any liability or obligation under this
Agreement. All subcontracts issued pursuant to this clause shall
be subject to all obligations hereunder and the Engineer agrees
to include all appropriate provision of this Agreement in all
subcontracts hereunder.
All subcontracts entered into by the Engineer in performance of
its services shall be billed at cost to the Client.
ARTICLE XIV - ASSIGNMENT
The Engineer may not assign its obligation to perform under this
Agreement except with the prior written consent of the Client and
its lenders. The Engineer's right to receive payment under this
Agreement may not be assigned without prior written consent of
the Client and its lenders.
The Client may not assign its obligations under this Agreement,
except as provided for in Article I - Definitions, or except with
prior written consent of the Engineer.
ARTICLE XV - AUTHORIZATION OF PURCHASE
The Engineer may purchase, subject to approval of Client, any
engineering, testing, surveying and other equipment, literature,
computer programs and vehicles required for performance of its
Services. In such case as the Client's decision is not conveyed
within 60 (sixty) days of requisition, the Engineer may incur
such expenses and the costs thereof shall be reimbursed to the
Engineer and the Client shall thereafter raise no objections on
expenses so incurred.
The Engineer shall maintain proper accounts and stock registers
of all capital goods and non-consumable items, supplies,
purchased or imported, under this Agreement, and return the same
to the Client, less reasonable wear and tear, on completion of
the services.
ARTICLE XVI - FORCE MAJEURE
In the event the Engineer is rendered unable, wholly or in part,
by Force Majeure, to perform its duties under this Agreement,
then the Engineer shall notify with full particulars of such
Force Majeure, in writing, facsimile or by telegram, to the
Client as soon as practicable after the occurrence of the case.
The duties of the Engineer, as it is affected by such Force
Majeure shall be suspended during the continuance of any
inability so caused and the effects of such cause shall, as far
as possible, be reduced, with all reasonable dispatch. The term
"Force Majeure" employed hereunder, shall mean events beyond the
control of the party, including but not limited to acts of God,
strikes, lockouts, or other industrial disturbances, tribal and
war-blockades, insurrections, riots and civil disturbances in
Nepal, the effects of which by the exercise of due diligence, the
Engineer is unable to overcome. Unless the services of the
Engineer are terminated pursuant to the provision of Article XIX,
Termination, thereof, then during the period the duties of the
Engineer are suspended, the Client shall continue to reimburse
the Engineer for the cost of services incurred hereunder, in the
same manner as if such duties had not been suspended, to the
extent otherwise reimbursable under this Agreement plus any
additional costs incurred due to temporary relocation of the
employees and/or their dependents. It is understood that the
Engineer shall use his best efforts to minimize his cost and
expenditures during any period of Force Majeure.
ARTICLE XVII - ARBITRATION
All disputes under this Agreement shall be resolved finally, and
without appeal to any courts, in accordance with the following
procedures.
Each Party shall appoint a representative who shall be
principally responsible for administering the Agreement on behalf
of such Party and representing the Party's interests in the event
of disputes under this Agreement. Any dispute or disagreement
between the Parties relating to or in connection with this
Agreement, which is not finally settled by a discussion between
the appointed representatives within thirty (30) days shall be
submitted to arbitration at the written request of any Party,
specifying the issue or issues in dispute and summarizing the
Party's claim with respect thereto.
A Party initiating arbitration proceedings may request that an
arbitration committee be established and such committee resolve
the dispute or disagreement. Such committee shall consist of one
representative appointed by each of the Parties and a chairman
acceptable to all of the Parties.
In the event that the Parties fail to form an arbitration
committee, or if the arbitration committee fails to resolve the
dispute within thirty (30) days, either Party may refer such
dispute, controversy or claim to arbitration for settlement in
accordance with the United Nations Commission on International
Trade Law (UNCITRAL) as then presently in force.
For purposes of application of the UNCITRAL Arbitration Rules to
this Agreement:
The appointing authority shall be the authority as designated by
UNCITRAL Arbitration Rules.
The number of arbitrators shall be three. No arbitrator shall be
an employee, agent, shareholder, former employee or agent of any
of the Parties.
The place of the arbitration shall be Washington, D.C.
The language to be used in the arbitral proceedings shall be
English.
The Parties hereby consent to the jurisdiction of the arbitration
panel. The arbitration panel shall be authorized to order
equitable relief, including specific performance or injunctive
relief. The arbitration award shall be final and binding and
enforceable in any court of competent jurisdiction.
Within thirty (30) days of the hearing, unless such time is
extended by mutual agreement, the arbitrators shall notify the
Parties in writing of their decision stating separately findings
of fact and conclusions of law. The arbitrators shall not have
the power to add to or amend this Agreement. The decision of the
arbitrators shall specify how the expenses of the arbitration
shall be allocated.
ARTICLE XVIII - OFFICIAL LANGUAGE AND UNITS OF WEIGHTS AND
MEASURE
The official language of this Agreement and of all documents
prepared by the Engineer under the terms of this Agreement shall
be the English language. The units of weights and measure in
which the design and contract documents shall be prepared shall
be metric units.
ARTICLE XIX - TERMINATION AND SUSPENSION
A. Termination by the Client
This Agreement may be terminated by either party upon 30 (thirty)
days' written notice in the event of a material default by the
other party in performing its obligations in accordance with the
terms hereof through no fault of the terminating party upon
mutual agreement. The Client may also terminate this Agreement
if BKPC withdraws from its development role in the Project
pursuant to Article II.2.02 of the JDA dated February 19, 1996
among Panda Energy International, Inc., Resource Development
Consultants, Harza Engineering Company International L.P., and
Himal International Power Corporation Ltd. or pursuant to Section
4.1 of the Joint Venture Agreement dated March 20, 1996 among
Panda of Nepal, RDC of Nepal and Himal International Power
Corporation Ltd. Costs at termination, including Labor Costs and
Direct Costs, incurred by the Engineer before the termination
date or in connection with such termination (e.g., demobilization
charges or contract cancellation fees) shall be reimbursed by
Client. In the event of such a termination, reasonable efforts
will be committed by the Engineer to minimize termination
charges. In the event of Force Majeure, as defined in Article
XVI, Force Majeure, the Client shall have the right to terminate
this Agreement as stated above, and such termination may be made
on 30 (thirty) days notice in writing.
Following the receipt of notice of termination the Engineer,
except if the notice may otherwise provide, shall,
1. Terminate performance of services in process under the
Agreement, on the date and to the extent specified in the notice
of termination.
2. Place no further orders and incur no further costs of goods
or services, except as necessary to complete performance of any
portion of the services under the Agreement not terminated by
said notice.
3. Terminate all outstanding orders, contracts and
subcontracts, to the extent that, they relate to the performance
of services, specified in the notice of termination.
4. Transfer title and deliver to the Client all completed or
partially completed plans, studies, reports, information or other
property (including contract rights) which, if the contract had
been completed, the Engineer would have been required to deliver
to the Client, subject to receipt of payment for all outstanding
invoices.
B. Suspension or Termination by Engineer for Default by the
Client
If the Client defaults or fails to pay the Engineer within 12
weeks from its due date, and provided the Engineer has promptly
informed the Client that such default has not been remedied after
four weeks following the date of notification, then the Engineer
shall be entitled to suspend or terminate performance of such
obligations under this Agreement, subject to lender cure rights,
as are affected by this default or non-payment, in which case the
Client shall be liable to reimburse the Engineer for the
reasonable expenses incurred as a result of such suspension or
termination.
C. Force Majeure
If for any reasons of Force Majeure, in accordance with and as
defined in Article XVI, Force Majeure, services of the Engineer
are suspended, the Client and Engineer may terminate the
Agreement one hundred eighty (180) days after having given notice
of the Force Majeure event. The Client shall pay to the Engineer
all the costs and fees owed to the Engineer up to the date of
termination.
Similarly, if for reasons of Force Majeure the performance of the
services by the Engineer shall be delayed, or extra disbursements
incurred in continuing the services, the Client shall pay to the
Engineer all reasonable costs previously approved by the Client
resulting from the delay, or extra disbursements, including, if
necessary, disbursements for round trip travel and subsistence
during temporary evacuation for personnel normally resident in
Nepal while performing their duties and for the dependents
normally residing with such personnel.
ARTICLE XX - LAW GOVERNING AGREEMENT
This Agreement shall, in all respects, be read and construed, and
shall operate as a contract, in conformity with the laws of New
York and its Courts shall have jurisdiction for adjudicating any
dispute arising hereunder.
ARTICLE XXI - REVIEW AND MODIFICATION OF AGREEMENT
The Terms of this Agreement shall be reviewed on the anniversary
of the effective date every year that it is in force. Additions,
deletions, and changes mutually agreeable to the parties thereto
shall be incorporated therein per written amendment. No
modification of this Agreement shall be made except by amendment
signed by the parties.
ARTICLE XXII - NOTICES
Any notice given by any of the parties hereto shall be sufficient
only if in writing and delivered in person, facsimile, telex or
through registered mail as follows:
TO: Bhote Koshi Power Company Private Limited
KHA 1-960
Kalimati, Tachachal
Kathmandu, Nepal
Attn: Project Manager
(T&F) 977 1 27 00 27
TO: Harza Engineering International L.P.
c/o Harza Engineering Company
Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606 USA
Attn: Patrick Hartel, Project Manager
(T) 312-831-3000
(F) 312-831-3999
or to such other address as either of these parties shall
designate by notice given as required herein. Notices hereunder
shall be effective when delivered.
ARTICLE XXIII - ENTIRE UNDERSTANDING OF AGREEMENT
This Agreement represents and incorporates the entire
understanding by the parties hereto, and each party acknowledges
that there are no warranties, representations, covenants or
understandings of any kind, matter or description whatsoever,
made by either party to the other except as expressly set forth
herein. The parties agree that any purchase orders, invoices,
confirmations, acknowledgments or other similar documents
executed or delivered with respect to the subject matter hereof
that conflict with the terms of this Agreement shall be null,
void, and without effect to the extent that they conflict with
the terms of this Agreement.
ARTICLE XXIV - WAIVER OF CONTRACT BREACH
The waiver of one party of any breach of this Agreement or the
failure of one party to enforce at any time, or for any period of
time, any of the provisions hereof, and shall be limited to the
particular instance, shall not operate of be deemed to waive any
future breaches of this Agreement; and shall not be construed to
be a waiver of any provision, except for the particular instance.
ARTICLE XXV - SEVERABILITY OF INVALID PROVISIONS
If any provisions of the Agreement shall be held to contravene or
be invalid under the laws of any particular state, country or
jurisdiction where used, such contravention shall not invalidate
the entire Agreement, but the Agreement shall be construed as if
not containing the particular provisions or provisions held to be
invalid in the particular state, country or jurisdiction and the
rights or obligations of the parties hereto shall be construed
and enforced accordingly.
ARTICLE XXVI - DESIGNATION OF AUTHORIZED REPRESENTATIVES
Each party shall designate one or more persons to act with
authority in its behalf in respect to appropriate aspects of the
Project. The persons designated shall review and respond
promptly to all communications received from the other party.
ARTICLE XXVII - INDEMNIFICATION
The Engineer shall indemnify and hold harmless the Client up to
the amount of the compensation paid by the Client to the Engineer
for its services rendered under this Agreement (excluding costs
and subcontract expenses) from the Client's loss or expense,
including reasonable attorneys' fees, for claims for personal
injury (including death) or property damage arising out of the
sole negligent act, error or omission of the Engineer.
The Client shall indemnify and hold harmless the Engineer up to
the amount of the compensation paid by the Client to the Engineer
for its services rendered under this Agreement (excluding costs
and subcontract expenses) from the Engineer's loss or expense,
including reasonable attorneys' fees, for claims for personal
injury (including death) or property damage arising out of the
sole negligent act, error or omission of the Client.
Subject to the Engineer's and the Client's limited obligation of
indemnification hereunder, in the event of joint or concurrent
negligence of the Engineer and the Client, each shall bear that
portion of the loss or expense that its share of the joint or
concurrent negligence bears to the total negligence (including
that of third parties) which caused the personal injury or
property damage.
In no event shall the Engineer or the Client be liable for
special, incidental or consequential damages, including, but not
limited to loss of profits, revenue, use of capital, claims of
customers, cost of purchased power or replacement power, or for
any other loss of any nature, whether based on contract, tort,
negligence, strict liability or otherwise, by reason of the
services rendered under this Agreement.
The trustees, directors, officers, employees, agents and
consultants of the respective parties are deemed to be included
in the term "Engineer" and "Client" for the purposes of this
section.
ARTICLE XXVIII - EFFECTIVE DATE
This Agreement shall become effective upon the signature of
both parties. Initiation of services and termination shall be in
accordance with the terms of Article IV.
ARTICLE XXIX - INDEPENDENT CONTRACTOR
At all times, Engineer shall serve as Client's professional
engineering consultant in those phases of the Project to which
this Agreement applies. Engineer shall have full responsibility
for the control and direction of its employees, contractors,
servants, and agents and shall be fully and solely responsible
for the payment of all obligations incurred by Engineer in
performing the requirements of this Agreement. Engineer shall
not be an agent for and may not bind Client. Client shall not be
an agent for and may not bind Engineer. The relationship is that
of a buyer and seller of professional services and it is
understood that this Agreement does not create a joint venture,
agency or partnership relationship.
ARTICLE XXX-REPRESENTATIONS AND WARRANTIES
Engineer represents and warrants, as of the date hereof, as
follows:
A. It is a limited partnership duly organized, validly existing
and in good standing under the laws of Delaware and shall (either
directly or through an affiliate) be qualified to do business in
Nepal;
B. It has taken all necessary action to authorize the
execution, delivery and performance of its obligations under this
Agreement, which action has not been superseded or modified, and
this Agreement constitutes the legal, valid and binding
obligation of Engineer, enforceable in accordance with its terms;
C. The execution, delivery and performance of this Agreement do
not violate (i) its partnership agreement or by-laws or any
resolution of its Board of Managers or other committees charged
with the governance of its affairs, (ii) any contract to which it
or, to the best of its knowledge, any of its Affiliates, is a
party or (iii) any law, rule, regulation, order writ, judgment,
injunction, decree or determination affecting Engineer or any of
its properties;
D. It has not filed any petition for relief under the
bankruptcy laws of the United States of America, or any other
sovereign nation, has not made nor is making an assignment for
the benefit of creditors, initiated nor been the subject of any
proceeding seeking to have a receiver or trustee appointed to
liquidate or manage its affairs and none of its properties is
subject to the jurisdiction of any bankruptcy court of the United
States of America or any receivership proceeding;
E. No litigation is pending or to its knowledge, threatened
which seeks to restrain it from performing its obligations
hereunder or the adverse outcome of which could materially affect
its business or its ability to perform its obligations hereunder;
F. To the best of Engineer's knowledge, no authorization of
other action by, and notice to or filing with, any government
agency or regulatory body is required for the due execution,
delivery and performance by Engineer of this Agreement which have
not been obtained. Engineer shall use reasonable efforts to
obtain any other material governmental approval in a timely
manner and to seek that such approvals shall not expire without
being renewed in a timely manner or shall not be revoked,
suspended, held invalid or limited in effect;
G. It or one of its Affiliates, through its management and
personnel, is experienced in the performance of engineering
services in accordance with generally accepted and currently
recognized engineering practices, has complied with the
provisions of all applicable laws, and has not been and is not
currently subject to any judgment or settlement of any claim
imposing liability on it for noncompliance with law or
mismanagement in rendered engineering services;
H. It is familiar with the terms of the Power Purchase
Agreement and EPC Contract which affect or relate to Engineer's
rendering service in connection with the monitoring of the design
and construction of the Facilities.
ARTICLE XXXI -INSURANCE
Before commencing Services under this Agreement, Engineer shall
procure and maintain insurance policies for the duration of the
Agreement of the kind and for the limits hereinafter provided in
this Article. Upon Client's request, Engineer shall submit
certificates of insurance certifying the issuance of the
pertinent insurance policy. The companies issuing the policies
and the form of the policies will be subject to the Client's
acceptance, but such acceptance shall not be unreasonably
withheld. The insurance coverages shall be as follows:
A. Commercial General Liability
This insurance shall include contractual liability and completed
operations coverage. Coverage shall be not less than:
$1,000,000 Per occurrence for Bodily Injury and
Property Damage combined;
$1,000,000 Aggregate.
B. Professional Liability
This insurance shall include coverage for errors, omission and
negligent acts, with a contractual liability provision, in the
minimum amount of $1,000,000 per claim, $10,000,000 aggregate.
C. Workers' Compensation
Workers' Compensation coverage shall be in accordance with
statutory requirements.
IN WITNESS WHEREOF, the parties have executed this Agreement.
HARZA ENGINEERING COMPANY BHOTE KOSHI POWER COMPANY
INTERNATIONAL L.P. PRIVATE LIMITED
By: By:
Harza Engineering (Title) Company
International L.P.
a limited liability
company
(the General Partner)
Witness: Witness:
Date: Date:
Attachment 1
- ---------------
BUDGET FOR ENGINEERING SERVICES
PRE-CLOSING
Project Coordination $150,000
Completion of Power Purchase Agreement
and Project Agreement 20,000
Permitting and Licensing 60,000
Subcontract for GLOF Investigation 60,000
Subsurface Investigation Subcontract 400,000
Hydraulic Model Subcontract 100,000
Preparation of EPC Documents 1,600,000
Subtotal $2,390,000
SERVICES DURING CONSTRUCTION
Project Coordination $450,000
Review of the Detailed Design of
the EPC Contractor 500,000
Review of Manufacturer's Shop Drawings 400,000
Construction Review 1,700,000
Subtotal $3,050,000
TOTAL $5,440,000
Attachment 2
- ----------------
HARZA ENGINEERING COMPANY 1997 BILLING RATES
(U.S. Dollars Per Hour)
Engineer Class VIII 189.00
Engineer Class VIIA 135.00
Engineer Class VII 111.30
Engineer Class VI 97.65
Engineer Class V 81.90
Engineer Class IV 71.40
Engineer Class III 63.00
Engineer Class II 54.60
Engineer Class I 49.35
Technician 5 86.10
Technician 4 65.10
Technician 3 56.70
Technician 2 58.80
Technician 1 53.55
Draftsman D 60.90
Draftsman C 42.00
Technical Assistant 49.35
Typing and Clerical 38.85
Attachment 3
- ----------------
UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
SCOPE OF ENGINEERING SERVICES TO BE PROVIDED BY
HARZA ENGINEERING COMPANY INTERNATIONAL L.P.
Harza shall serve as the Client's Engineer ("Engineer") and shall
prepare the basic design and documents required to obtain bids
for the construction of the Upper Bhote Koshi Hydroelectric
Project ("Project") by an EPC Contractor. The Engineer shall
assist the Client in the selection of qualified contractors to
consider for negotiating the EPC assignment, and in the final
selection of the Contractor including assistance in the award of
the contract. During Project construction, the Engineer shall
provide on-site engineering services including review of the EPC
submittals, monitoring and inspection of the works, and assis
tance during testing and commissioning for compliance with the
contract.
As a key member of the development team, the Engineer shall
advise the Client and provide the services under the overall
management and guidance of the Client.
The services to be provided by the Engineer are presented as "Pre-
Closing" and "Services During Construction".
PRE-CLOSING SERVICES
The engineering services to be provided by the Engineer during
the Pre-Closing phase shall include:
- - Completion of Power Purchase Agreement and Project Agreement
- - Relocation of settlement, identification of land requirements
- - Licensing and Permitting
- - GLOF Investigation
- - Subsurface Investigation
- - Preparation of Request for Proposal
- - Preparation of EPC Documents
- - Advisory role in the negotiation of EPC Contract
Power Purchase Agreement and Project Agreement
The Engineer shall provide continuing services as needed in the
negotiation of the Power Purchase Agreement and the Project
Agreement with the Nepal Electricity Authority (NEA) and the
Ministry of Water Resources, respectively.
Relocation of Settlements, Identification of Land Requirements
The Engineer shall provide technical services necessary to
accomplish the relocation of settlements affected by the project,
including land use planning and design criteria for new
structures. The Engineer shall also provide services necessary
to support Client's acquisition or leasing of all property,
easements and/or rights-of way required by the Project.
Permitting and Licensing
The Engineer shall provide technical input for the preparation of
the necessary permit and license applications related to the
Project development. The Engineer shall provide technical
guidance to the local environmental consultants that may be
engaged to assist in these activities.
GLOF Investigation
The Engineer shall perform this with the assistance of a
consultant who has experience in Nepal in this specialty area.
Subsurface Investigation
This shall include additional core drilling, laboratory testing
of materials, and construction of one or two adits. The Engineer
shall engage one or more local contractors to perform this work.
The Engineer shall also engage local engineering consultants to
assist in geologic logging and interpretation of the results.
Preparation of Request for Proposal
The Engineer shall prepare a Request for Proposal (RFP) to a
number of EPC Contractors and Equipment Suppliers. The request
shall include, but not limited to, the following:
- - Technical Scope of Project for EPC and financing options.
- - Project technical summary.
- - Existing drawings and reports, bill of quantities, and equipment list.
The Engineer shall issue to the EPC contractor, additional
documents prepared during the basic design, including drawings
and technical specifications to the selected contractor to obtain
a final, fixed turnkey price. Engineer shall assist the Client
in the technical evaluation of the EPC proposals, and contract
award and negotiations as required by the Client.
Preparation of Tender Documents
The services include preliminary design, preparation of drawings
of Project features, and technical procurement specifications
(performance type) for the electrical and mechanical equipment,
specifically:
- - Preparation of geotechnical exploration program and analysis of
the results of the exploration.
- - Basic design of Project features and supporting infrastructure.
- - Basic design of Transmission Line.
- - Selection and preliminary design of major electrical and
mechanical equipment, technical specifications (performance type)
for procurement and installation of the mechanical and electrical
equipment.
- - Preparation of construction schedule.
- - Preparation of Engineer's cost estimate.
- - Preparation of EPC bid documents including, general and special
conditions and bid forms.
- - Printing and distribution of documents.
SERVICES DURING CONSTRUCTION
The Engineer shall provide engineering services in connection
with monitoring the performance and activities of the EPC
Contractor in the design and construction of the Facility in
accordance with the design as presented in the EPC Contract
documents. The Engineer shall monitor the performance and
activities of the EPC Contractor in its compliance with
achievement of performance requirements presented in the EPC
Contract documents. The Engineer's services shall include:
Review of EPC Contractor submittals
Perform on-site quality assurance functions
Assist the Client in on-site contract administration matters
Witness factory testing
Monitor on-site testing and commissioning of Facility
Assist in review of progress reporting and requests for payments
Assist in final acceptance of the Facility
Engineer shall use qualified technical personnel with relevant
experience to provide the above services in accordance with
internationally recognized and accepted professional standards.
The Engineer will utilize home-office engineering staff, one on-
site resident engineer (who will have additional engineers as
support available to him on-site when necessary), and short-term
specialists at the home-office and on-site as necessary,
including specialists in civil, mechanical, electrical,
environmental, geology and geotechnical services, as well as
local subcontractors under the technical guidance of the
Engineer. The management team of Kevin Candee as Project
Director, Patrick Hartel as Project Manager and Denis Noel
Corcoran as Resident Engineer shall not be changed by Engineer
without the Client's consent.
Review of EPC Contractor Submittals. The Engineer shall review
the EPC Contractor's detailed designs of the features of the
Facility for compliance with the design intent as presented in
the EPC Contract documents.
In accordance with the EPC Contract documents (Article 3.33 (a)
and (c)), the EPC Contractor is expected to submit a work plan
and a Facilities Procedures Manual. One or both of these
documents will contain a schedule for "Submittals." The
requirements for Submittals are outlined in various places
throughout the "Specifications" section of Exhibit I in the EPC
Contract documents, and cover the following areas (with
appropriate reference to the Specification part number):
Part 1.2, Operator's Village and Maintenance Facility
Part 2.1, Diversion and Care of Water
Part 2.3, Excavation
Part 2.4, Drilling and Grouting
Part 2.5, Fills
Part 2.6, Instrumentation
Part 2.7, Concrete Work
Part 2.8, Steel Liners and Penstock
Part 2.9, Metalwork
Part 2.10, Architectural Work
Part 2.11, Prefabricated Buildings
Part 2.12, Painting
Part 3.1, Submittal of Technical Documentation (including
Turbines and Governors)
Part 3.5, Generator Data
Part 3.6, Excitation System Data
Part 4.1, Gate Equipment
Part 4.2, Crane and Hoist Equipment
Part 5, General Mechanical Work and Equipment
Part 6.1, General Electrical Work
Part 6.2, General Requirements for Electrical Equipment
Part 6.3, Main Power Transformers
Part 6.4, 15-kV Non-Segregated Phase Bus Assemblies
Part 6.5, 11-kV Switchgear
Part 6.6, Station Service Substation
Part 6.7, Plant Control Switchboard
Part 6.8, Battery Sets, Battery Chargers, and
Uninterruptible Power Supplies
Part 6.9, Lighting Systems
Part 6.10, 132-kV Switchyard Equipment
Part 6.11, 132-kV High Voltage Cables and Terminations
Part 6.12, Spillway and Headworks Gate Area Electrical
Equipment
Part 6.13, Fire Detection System
Part 6.14, 11-kV Overhead Distribution Lines
Part 6.15, Power Line Carrier Equipment
Section 7, 132-kV Transmission Line
The Engineer shall review the design of any on-site or off-site
warning systems or mitigation measures to be implemented for the
purpose of reducing possible damage resulting from a flood.
The Engineer shall record each Submittal and maintain a record of
the Submittal's review process, including status of review. The
Engineer shall conduct an orderly and timely review of the EPC
Contractor's Submittals for compliance with both the intent and
the specific terms and standards of the EPC Contract. If
warranted, Submittals may be rejected as not in compliance, and
such Submittals shall be returned to the EPC Contractor for
resubmittal as required.
Perform on-site quality assurance functions. The Engineer shall
monitor construction progress of the EPC Contractor to verify
compliance and determine conformance with the EPC Contract.
Activity reports shall be prepared at regular intervals. As
required, the Engineer's representatives shall attend and
document meetings. The Engineer shall identify and document the
correction of deviations and non-conforming work.
The Engineer shall furnish a Resident Engineer from the date that
the EPC Contractor mobilizes (after Notice to Proceed) through
the Final Acceptance Date (as defined in the EPC Contract). The
Resident Engineer shall reside in Nepal, and shall be stationed
primarily at the Facility site.
The Resident Engineer shall be assisted by specialists from the
Engineer's home office to monitor that the EPC Contractor's
performance is in accordance with the EPC Contract documents.
Such specialists shall perform services in the Engineer's home
office, or may be assigned to perform services at the Facility
site.
The Resident Engineer shall liaise with the EPC Contractor's
Project Manager and key personnel, and shall communicate with the
Client and the Engineer's home office engineering staff as
necessary to assist the Client in achieving the satisfactory
completion of the Facility.
The Engineer, through the Resident Engineer, shall provide
oversight of the EPC Contractor's Quality Control and Quality
Assurance programs. As such, the Resident Engineer, in
coordination with Engineer's staff shall review, at a level of
detail commensurate with the role of monitoring construction, the
following:
1. Engineering submittals as listed above, including design
drawings, design calculations, specifications for construction
and quality control
2. Equipment installation instructions
3. Material certifications
4. Rock cores, core logs, core box photographs, core drilling
records
5. Vertical cutoff plan, equipment, construction method and
sequence, and performance records
6. Test reports for fill gradation and density
7. Records of installation of geotechnical instruments and
instrument data recorded during construction
8. Mix designs and test reports for concrete and its individual
components
9. Penstock welding and erection procedures (including welder
qualifications)
10. Metalwork fabrication and erection procedures
11. Tunnel excavation, support and lining
12. Mechanical and electrical installation and erection
procedures, including turbine and generator installation
protocols (i.e., alignment, clearances), pressure test results,
weld test results.
Assist the Client in on-site contract administration matters.
The Engineer shall also provide reasonable assistance in
administration of the EPC Contract and assistance to the Client
in carrying out the Client's responsibilities, as listed below.
The Budget for Engineering Services contemplates and reflects
performance of services related to items 1-9. In the event that
the costs incurred to perform services related to items 10-13
exceed the Budget for Engineering Services, such services shall
be performed and the Engineer shall be entitled to an equitable
adjustment to the Budget for Engineer Services.
1. Review and monitoring of construction progress and
equipment procurement in comparison with the established
construction schedule. The Engineer shall advise the Client of
delays and the appropriate remedial action to be taken.
2. Review of designs and construction and equipment
installation progress, and their conformance with the
Specifications.
3. In the event that the EPC Contractor must develop schedule
recovery plans, assist Client in reviewing revisions to the
construction schedule and recovery plans, and assist Client in
reviewing and monitoring the implementation of schedule recovery
plans.
4. Assist Client in preparing and or reviewing change orders.
5. Assist Client in assessing and evaluating the effects of a
Force Majeure event.
6. Review of the following documents that are to be prepared
by the EPC Contractor: Health, Safety and Environmental Plan;
work plans (including the EPC Contractor's schedule of
submittals); monthly and annual environmental reports;
alternative designs (including schedule and cost impacts); and
Facilities Procedures Manual.
7. Assist Client in evaluating subcontractors and vendors.
8. Assist Client in reviewing reports related to EPC
Contractor's responsibilities with respect to mobilization and
demobilization of its equipment and workforce.
9. Assist Client in monitoring EPC Contractor's compliance
with applicable laws and regulations and environmental
obligations, including: EPC Contractor's requirements with
respect to clean-up and other requirements related to waste
collection and disposal; EPC Contractor's compliance with health
and safety requirements; instructions with respect to the
Contractor's discovery of religious or archaeological resources;
and design and layout of temporary roads, quarries and fuel
storage for compliance with environmental obligations.
10. Assist the Client in review of any on-site or off-site
warning systems or mitigation measures to be implemented for the
purpose of reducing possible flood damage resulting from a flood.
11. Act as an arbitrator in small disputes (involving amounts
less than $50,000) between the Client and the EPC Contractor.
12. Assist Client in arbitral proceedings.
13. Assist in the coordination and preparation of information
for Client's Lenders and Lender's independent engineers.
Witness factory testing. The Engineer shall witness, or cause to
witness, the final factory testing of the turbine, generator, and
transformer, or any other equipment as required in the
Specifications for compliance with the Specifications. The
Engineer shall also witness the factory test of the Unit Control
Switchboard. Local shop inspection agencies shall be designated
to perform all periodic inspections under Engineer's technical
guidance.
Monitor on-site testing and commissioning of the Facility. The
Engineer shall assist the Client in monitoring that all
specifications and the requirements of the EPC documents are met
as well as the provisions specified in the Power Purchase
Agreement and Project Agreement.
The Engineer shall provide support services during the
commencement and mobilization of the activities to be performed
by the operations and maintenance contractor. The Engineer shall
assist in the development of a list of spare parts to be procured
from the EPC Contractor or other sources. The Engineer shall
assist in the review of operation and maintenance training
program, manuals and other documents to be furnished by the EPC
Contractor.
The Engineer shall review all testing procedures developed by the
EPC Contractor for evaluating headworks seepage loss, tunnel
seepage loss, desanding basin trapping efficiency, generating
equipment performance and transmission line losses. Such tests
are to be carried out by the EPC Contractor, and such tests shall
be documented in the form of a test report prepared by the EPC
Contractor. The Engineer shall monitor all tests and shall
review test reports. In the event that a performance test cannot
be completed, or a test demonstrates unsatisfactory performance,
the Engineer shall assist the Client in responding with
appropriate action. The Engineer shall assign specialists
(i.e., mechanical/electrical engineer), as necessary, to be
resident at the facility site during testing.
The Engineer shall assist the Client in the determination of
acceptance of the first unit, acceptance of the second unit, and
final acceptance. The Engineer shall assist in the determination
of performance or schedule liquidated damages, if applicable.
Assist in review of progress reporting and requests for payments.
The Engineer shall review EPC Contractor's monthly progress
reports, milestone achievement certificates, and requests for
payments.
Assist in final acceptance of the Facility. The Engineer shall
assist the Client in monitoring that activities required by the
EPC Contractor for final acceptance of the facility are carried
out. The Engineer shall provide:
1. Assistance in observation that all tests, including the 30-
day reliability tests on both units, have been satisfactorily
completed.
2. Assistance in observation that all operation and maintenance
manuals and drawings have been completed and delivered to the
Client.
3. Assistance in observation that all items on the punch list
have been corrected.
4. Assistance in observation that the delivery of spare parts
to be furnished by the EPC Contractor has been completed.
5. Assistance in observation that EPC Contractor's clean up
responsibilities have been completed.
EXHIBIT 10.142
AMENDED AND RESTATED
SERVICES AGREEMENT
Between
PANDA OF NEPAL
and
HARZA ENGINEERING COMPANY INTERNATIONAL L.P.
for
BASIC DESIGN AND SERVICES DURING DEVELOPMENT AND CONSTRUCTION
RELATED PHASES OF BHOTE KOSHI HYDROELECTRIC PROJECT
(For services provided outside Nepal)
This Agreement is entered into this ______________ day of
___________, 1997, by and between Panda of Nepal, hereinafter
referred to as the Client, and Harza Engineering Company
International L.P., hereinafter referred to as the Engineer.
INDEX TO SERVICES AGREEMENT
Article I Definitions
Article II Purpose
Article III General Terms and Conditions
Article IV Schedule
Article V Scope of Services and Additional Services
Article VI Not Used
Article VII Not Used
Article VIII Compensation to the Engineer
Article IX Nepalese Registration Fees, Duties, and Taxes
Article X Engineer's Employees
Article XI Ownership of Documents
Article XII Changes in the Scope of Services
Article XIII Subcontracts
Article XIV Assignment
Article XV Authorization to Purchase
Article XVI Force Majeure
Article XVII Arbitration
Article XVIII Official Language and Units of Weights and
Measure
Article XIX Termination and Suspensions
Article XX Law Governing Agreement
Article XXI Review and Modification of Agreement
Article XXII Notices
Article XXIII Entire Understanding of Agreement
Article XXIV Waiver of Contract Breach
Article XXV Severability of Invalid Provisions
Article XXVI Designation of Authorized Representatives
Article XXVII Indemnification
Article XXVIII Effective Date
Article XXIX Independent Contractor
Article XXX Representations and Warranties
Article XXXI Insurance
Attachment 1 Budget for Engineering Services
Attachment 2 Harza Engineering Company 1997 Billing Rates
Attachment 3 Scope of Engineering Services to
be Provided by Harza Engineering Company
International L.P.
ARTICLE I - DEFINITIONS
Project: Upper Bhote Koshi Hydroelectric Project (also referred
to as the "Facility")
Client:Panda of Nepal (at the discretion of Panda, this
Agreement may be assigned to the Bhote Koshi Power
Company)
Engineer: Harza Engineering Company International L.P.
ARTICLE II - PURPOSE
The purpose of this Agreement is to set forth the terms and
conditions under which the Engineer shall provide technical
engineering consulting services related to the Project for the
Client. The services to be provided are described in Article V,
Scope of Services.
ARTICLE III - GENERAL TERMS AND CONDITIONS
A. Appointment of the Engineer
The Client hereby appoints the Engineer and the Engineer
accepts the appointment on the terms and conditions set forth
hereinafter.
B. Engineer's Responsibility
The Engineer will render engineering services in accordance
with generally accepted and currently recognized engineering
practices, procedures and principles. The Engineer makes no
other warranty, either express or implied, with respect to its
services.
Notwithstanding anything to the contrary which may be
contained in this Agreement or any other material incorporated
herein by reference, or in any agreement between Client and any
other party concerning the Project, the Engineer shall not have
control or be in charge of, and shall not be responsible for the
means, methods, techniques, sequences or procedures of
construction, or the safety, safety precautions or programs of
the Client, the construction contractor, other contractors or
subcontractors performing any of the work or services on the
Project. Nor shall the Engineer be responsible for the acts or
omissions of Client, or for the failure of Client, its architect,
in-house engineer, consultant, contractor or subcontractor to
carry out their respective responsibilities in accordance with
the Project documents, this Agreement, or any other agreement
concerning the Project. Any provision which purports to amend
this provision shall be without effect unless it contains a
reference that the content of this Article III.B is expressly
amended for the purposes described in such amendment and is
signed by both parties.
ARTICLE IV - SCHEDULE
A.Initiation of Services
The Engineer is bound to commence the services stipulated in
this Agreement immediately after the Agreement is signed by an
authorized representative of the Client and an authorized
representative of the Engineer.
B.Schedule of Services
1. The Engineer has planned its services to achieve essential
completion under each of the several phases of the services in
accordance with the following schedule:
Services under Authorization to Essential
Article V Proceed Completing
of Services
Pre-Closing February 19, 1996 At Financial
Closure
Services During February 1, 1997 Later of June 1,
Construction 2000
or 30 days after
Final Acceptance of
the Facility
2. The Engineer agrees to adhere to the time schedule with
respect to all portions of the services which are solely under
the direct control of the Engineer, and provided that
authorization for each phase of the services is made in
accordance with the above schedule. The Client accepts
responsibility for facilitating the services of the Engineer and
the progress of the Project with respect to all portions of the
services over which the Client retains control.
3. If the Final Acceptance of the Facility is delayed beyond
June 1, 2000 for reasons beyond control of the Engineer, the
amounts specified in Attachment 1 in conjunction with Attachment
2 ("Contract Ceiling") shall be increased to include the
additional Services required by such delay.
C. Completion of Services
Except as provided in B above, the services to be provided under
this Agreement shall be considered completed on the later of
June 1, 2000 or 30 days after Final Acceptance of the Facility.
Completion by the Engineer and acceptance by the Client of all
outstanding reports and drawings under each Phase of this
Agreement shall be considered accepted if neither the Client nor
Client's lenders' independent engineer raises any objections
within ninety (90) days after certification by the Engineer of
completion of all outstanding reports and drawings.
D. Terms of Agreement
Except as provided in B above, unless terminated under Article
XIX, this Agreement shall terminate on the later of June 1, 2000
or 30 days after Final Acceptance of the Facility. A revised
termination date may be included by Amendment.
ARTICLE V - SCOPE OF SERVICES AND ADDITIONAL SERVICES
The Scope of Services is presented in Attachment 3 to this
Agreement.
The Engineer shall supply such additional services as requested
by the Client in connection with the Project and for which the
Engineer is qualified but which are not otherwise included in
this Agreement. Separate proposals shall be submitted by the
Engineer for furnishing these services. Compensation for such
additional services shall be negotiated by the parties and
included in this Agreement by Amendment.
ARTICLE VI - not used
ARTICLE VII - not used
ARTICLE VIII - COMPENSATION TO THE ENGINEER
A. Monthly Budget
Engineer shall provide a monthly budget to be approved by Client.
B. Compensation
The Engineer shall be reimbursed for Labor Costs and Direct
Costs, including subcontracts. In consideration of the
engineering services rendered by the Engineer under this Agree
ment, the Client shall reimburse the Engineer as follows:
1. Pre-Closing Services. Services performed between the date
of signing the Joint Development Agreement (JDA) and Financial
Closure, except for Services related to construction provided
after February 1, 1997, shall be identified as the Pre-Closing
services. Payment for Pre-Closing services is described under
Article VIII, Section G.
2. Services During Construction. Services related to
construction provided after February 1, 1997 and all services
performed between the Financial Closure and the termination of
this Agreement shall be identified as Services During
Construction. Payment for Services During Construction is
described under Article VIII, Section G.
The aggregate amount to be paid for the services to be performed
under this Agreement, as well as the services to be performed in
Nepal (which are included in a separate agreement (the "In-Nepal
Agreement"), including Direct Costs, as stipulated in Section D
of this Article, shall not exceed the amounts specified in
Attachment 1, Budget for Engineering Services, in conjunction
with Attachment 2 (the "Contract Ceiling") unless prior approval
is obtained from the Client. All fees paid for services
performed under this Agreement and under the In-Nepal Agreement
shall be credited to the Contract Ceiling. The "Budget for
Engineering Services" attached to this Agreement and the "Budget
for Engineering Services" attached to the In-Nepal Agreement
shall be construed in the aggregate for the purpose of
determining whether such Budget amounts have been exceeded. Any
amount remaining in the Contract Ceiling, but not billed at the
completion of the Upper Bhote Koshi Hydroelectric Project shall
be split equally between the Engineer and the Client.
The Engineer and the Client shall meet in person or by a
conference call monthly to discuss the progress and the budget
for the following month's services. The Engineer at the Client's
request agrees to delay any activities provided that the Client
shall be responsible for any increased cost resulting from the
delay and the schedule shall be adjusted for the effects of the
requested delay.
The billing for Labor Costs and Direct Costs are defined in
Article VIII, Sections C and D, below.
C. Billing for Labor Costs
Billing Rates shall be multiplied by the actual time spent by
personnel directly employed in services under the Agreement,
including officers, engineers, designers, supervisors, draftsmen,
other technical personnel, word processors, and other personnel
who perform services under the Agreement. Actual travel time, up
to eight hours per weekday, not exceeding three days in each
direction, shall be reimbursable. Reimbursement for Labor Costs
shall be paid in U.S. Dollars. For time spent traveling to and
from Nepal, and for time spent in Nepal, personnel will be paid
up to 48 hours per week.
Attachment 2 presents Billing Rates to be applied during the
execution of this Project. The Billing Rates shown are to be
applied during 1997. These billing rates shall be revised each
January 1. The maximum annual increase in Billing Rate for any
one classification shall be limited to 5 percent.
D. Direct Costs
Direct Costs shall be charged at cost and shall be directly
applicable to the Project. The Engineer shall be responsible for
employee's personal expenses not approved by the Client.
The Direct Costs shall include but not be limited to the
following:
1. Transportation costs of the Engineer's staff, including
officers when traveling on behalf of the Project. For
journeys to and from Nepal, travel shall be accomplished by
business class air tickets by the most direct route possible
for each employee. If the employee's assignment in Nepal is
for a period of one year or more, similar tickets to and
from Nepal shall also be provided for the employee's spouse
and children who are below 18 years of age at the time of
assignment. For journeys from Nepal, business class air
tickets shall be provided to the employee's point of origin
or any other destination selected by the employee provided
the cost of ticket for such other destination does not
exceed the cost of ticket to the point of employee's origin.
Air tickets shall also be provided for journeys for vacation
to and from the United States after one year of service in
Nepal for the employee and his family provided that the
employee's assignment is extended for a period of one year
or more.
2. Subsistence outside of Nepal for Engineer's staff,
including officers and all others traveling and performing
services under this Agreement, shall be reimbursed for
actual and reasonable out-of-pocket expenses.
3. Deleted.
4. Telephone charges.
5. Telegraph, cables and telex.
6. Postage.
7. Printing and reproduction.
8. Supplies (including office supplies) used directly on and
for the services and not paid directly by the Client.
9. Special Insurance approved by the Client.
10. Special Consultants and studies approved by the Client.
11. Computer time charges supplied by the Engineer.
12. Deleted.
13. Special purchases for and approved by the Client.
14. Deleted.
15. Deleted.
16. Cost of sea, air and land freight (including duties, other
assessments, and taxes and incidental expenses on
transportation such as insurance (insurance on household
effects is limited to $10,000), clearing charges, demurrage,
normal packing and crating as normally required for sea, air
and land transport when such packing and crating charges are
separately shown on freight invoices) for shipments made in
connection with the services of the Agreement, including the
shipment of household effects of personnel assigned to
service in Nepal. The shipment of household effects from
home to Nepal and return shall be in the following maximum
amounts:
Unaccompanied Air Surface Freight
Freight (Gross Weights)
(Gross Weight)
Single Status 200 pounds 1000 pounds
Man and Wife 300 pounds 4000 pounds
An additional allowance of 40 pounds air freight shall be
allowed for each child up to a maximum of 3 children. An
additional air freight shipment equal to 100 pounds for
single status and 150 pounds for married status shall be
allowed for each additional assignment after the initial one-
year assignment.
17. Deleted.
18. Deleted.
19. At Client's discretion, all salaries, allowances and
transportation and other authorized costs paid to trainees
of the Nepal Electricity Authority by the Engineer in
discharging its obligations for training of NEA personnel.
This item shall be billed as a Direct Cost, and is not to be
counted within the contract ceiling described in Article
VIII Section B.
20. During the occurrence of any Force Majeure under Article
XVI, Force Majeure, which prevents the Engineer or the
Engineer's employee from performance of services in Nepal,
the Engineer shall continue to be reimbursed for all costs
otherwise reimbursable under this Agreement plus additional
costs incurred due to temporary relocation of the employees
and/or their dependents with the concurrence of the Client
in accordance with Article XVI, Force Majeure.
21. Deleted.
22. Cost of special consultants authorized by the Client.
23. Subcontracts, including but not limited to:
- Subsurface
- Topography
- GLOF
- Transmission Line
E. Deleted
F. Cost of Services
Costs of Services are detailed in Attachment 1 to this Agreement.
G. Mode of Payment
The Engineer shall submit monthly invoices to the Client in U.S.
dollars, consistent with Article VIII B. During the Pre-Closing
phase, the Client shall retain 10% of the Labor Cost portion of
the billing. These retained funds shall be reimbursed at
Financial Closure, plus 7.5% annual interest. There shall be no
funds retained for Services performed after Financial Closure.
The Client shall pay the Engineer its costs and fees (less
retention, when applicable) within 30 days of the receipt of the
invoice.
1. Settlement of Disputed Amounts. In the case of disputed
amounts, the Client shall request clarification from the Engineer
of the queried part at the same time the Client transmits
acceptance for the approved part of the statement. Within 30
days of receipt of clarification, the Client shall state whether
or not the queried part is accepted or rejected in full or in
part. For all portions accepted, the Client shall immediately
transmit acceptance to the Engineer. For portions not accepted
by Client, Article XVII of this Agreement, Arbitration, shall
apply, if invoked by the Engineer.
2. Interest on Overdue Accounts. If for any reason payments
due the Engineer have not been paid within 30 days of delivery of
the invoice to the Client, interest on the overdue amount(s)
shall be applied at an annual rate one percent higher than the
prime rate charged by the Northern Trust Company, Chicago,
Illinois.
3. Data Submitted with Invoices. Each invoice shall be
prepared showing monthly advance in each phase of services in
both percentage completion and actual dollar amount.
H. Accounting and Audit
The Engineer shall keep complete and accurate records of
accounts, and authorized representatives of Client shall have
free access thereto, during normal business hours, for audit
purposes.
All payments made by the Client to the Engineer shall be subject
to audit at the expense of the Client by a mutually agreed firm
of auditors or such other auditors as the Client may consider
necessary, at least once in every 12 (twelve) months and within 6
(six) months of the date of termination of this Agreement, and
any amount agreed to be due to one party from the other, shall be
paid within 60 days after official submission of audit report.
ARTICLE IX - NEPALESE REGISTRATION FEES, DUTIES AND TAXES
In the event that the Engineer, its expatriate personnel, or its
non-Nepalese Consultants or subcontractors are subject to payment
of registration fees customs and duties, income taxes or other
taxes, all such fees, duties and taxes shall either be paid
directly by the Client or reimbursed to the Engineer. The
Engineer shall promptly inform the Client of any fees, duties, or
any tax on fees earned for the services in Nepal or tax on income
of expatriate staff in Nepal paid in the U.S. to enable the
Client to obtain tax reductions allowable under the laws of
Nepal. Existence of any such fees or levies has not been
determined and therefore is not provided for in Attachment 1,
Budget for Engineering Services.
ARTICLE X - ENGINEER'S EMPLOYEES
A. Client's Approval
The Engineer shall obtain the approval of Client for the long
term assignment in Nepal of each employee assigned to serve under
this Agreement. Such approval shall not be unreasonably withheld
by the Client.
B. Replacement
Upon the written request of the Client, the Engineer shall remove
or replace any of its long-term or short-term employees present
in Nepal. In the event of removal of any employee for cause, any
replacement shall be an individual with at least equivalent
professional qualifications and shall be subject to the same
approvals as the individual replaced.
C. Deleted
ARTICLE XI - OWNERSHIP OF DOCUMENTS
A. Documents Property of Client
Technical data, recommendations, notes, memoranda, drawings or
other graphic representation prepared by the Engineer pursuant to
or developed in connection with this Agreement shall become the
property of the Client. This provision shall not be interpreted
to limit the right of the Engineer or its personnel to make, keep
and use copies of personal and professional records, notes,
reports or other data. The Engineer shall have the right to
retain copies of all documents and drawings for its files. The
Engineer shall not publish any information obtained or developed
pursuant to the Agreement without giving 30 days' notice to the
Client of its intention to publish, together with the proposed
material.
B. Reuse of Documents
All documents, including drawings and specifications furnished by
the Engineer pursuant to this Agreement are intended for use on
this Project only. They should not be used by the Client or
others on extensions of the Project or any other project without
specific written verification or adaptation by the Engineer. Any
reuse without the Engineer's written verification or adaptation
shall be at the Client's sole risk, and Client shall indemnify
and hold harmless the Engineer from all claims damages, losses,
and expenses, including attorneys' fees and arising out of or
resulting from such unauthorized reuse.
Any computer disks provided by Engineer to Client may develop
errors because of hardware and software combinations differing
from those used by Engineer in preparing the disks, other failure
of Client's or third parties' hardware, or the limited life
expectancy and integrity of the disk and its contents for which
Engineer bears no responsibility. In case of discrepancies
between documents ("hard copy") prepared by Engineer and such
computer disks, the hard copy shall be the governing medium and
copy of record.
ARTICLE XII - CHANGES IN THE SCOPE OF SERVICES
A. Making Changes
The Client may at any time, by written order, make changes within
the scope and duration of the services required under this
Agreement. If any such change is made, an equitable adjustment
shall be made (1) in the Budget for Engineering Services
(Attachment 1) or the Schedule of Services (Article IV B), or
both, and (2) in such other provisions of the Agreement as may be
affected, and the Agreement shall be so modified in writing.
B. Revised Estimates
In the case of an increase or decrease in the Scope of Services
ordered by the Client, the Engineer shall within fifteen (15)
working days provide a cost estimate for the increase or decrease
in services and indicate the effect of this change in the overall
Scope of Services and the estimated completion date and its
effects on the Budget for Engineering Services (Attachment 1).
ARTICLE XIII - SUBCONTRACTS
The Engineer may subcontract with individuals or firms
qualified to perform specialized services necessary for the
performance of the services. All such subcontracts shall be
approved in advance in writing by the Client and such approval,
if given, shall not relieve the Engineer from any liability or
obligation under this Agreement. All subcontracts issued
pursuant to this clause shall be subject to all obligations
hereunder and the Engineer agrees to include all appropriate
provision of this Agreement in all subcontracts hereunder.
All subcontracts entered into by the Engineer in performance
of its services shall be billed at cost to the Client.
ARTICLE XIV - ASSIGNMENT
The Engineer may not assign its obligation to perform under
this Agreement except with the prior written consent of the
Client and its lenders. The Engineer's right to receive payment
under this Agreement may not be assigned without prior written
consent of the Client and its lenders.
The Client may not assign its obligations under this
Agreement, except as provided for in Article I - Definitions, or
except with prior written consent of the Engineer.
ARTICLE XV - AUTHORIZATION OF PURCHASE
The Engineer may purchase, subject to approval of Client, any
engineering, testing, surveying and other equipment, literature,
computer programs and vehicles required for performance of its
Services. In such case as the Client's decision is not conveyed
within 60 (sixty) days of requisition, the Engineer may incur
such expenses and the costs thereof shall be reimbursed to the
Engineer and the Client shall thereafter raise no objections on
expenses so incurred.
The Engineer shall maintain proper accounts and stock
registers of all capital goods and non-consumable items,
supplies, purchased or imported, under this Agreement, and return
the same to the Client, less reasonable wear and tear, on
completion of the services.
ARTICLE XVI - FORCE MAJEURE
In the event the Engineer is rendered unable, wholly or in
part, by Force Majeure, to perform its duties under this
Agreement, then the Engineer shall notify with full particulars
of such Force Majeure, in writing, facsimile or by telegram, to
the Client as soon as practicable after the occurrence of the
case. The duties of the Engineer, as it is affected by such
Force Majeure shall be suspended during the continuance of any
inability so caused and the effects of such cause shall, as far
as possible, be reduced, with all reasonable dispatch. The term
"Force Majeure" employed hereunder, shall mean events beyond the
control of the party, including but not limited to acts of God,
strikes, lockouts, or other industrial disturbances, tribal and
war-blockades, insurrections, riots and civil disturbances in
Nepal, the effects of which by the exercise of due diligence, the
Engineer is unable to overcome. Unless the services of the
Engineer are terminated pursuant to the provision of Article XIX,
Termination, thereof, then during the period the duties of the
Engineer are suspended, the Client shall continue to reimburse
the Engineer for the cost of services incurred hereunder, in the
same manner as if such duties had not been suspended, to the
extent otherwise reimbursable under this Agreement plus any
additional costs incurred due to temporary relocation of the
employees and/or their dependents. It is understood that the
Engineer shall use his best efforts to minimize his cost and
expenditures during any period of Force Majeure.
ARTICLE XVII - ARBITRATION
All disputes under this Agreement shall be resolved finally,
and without appeal to any courts, in accordance with the
following procedures.
Each Party shall appoint a representative who shall be
principally responsible for administering the Agreement on behalf
of such Party and representing the Party's interests in the event
of disputes under this Agreement. Any dispute or disagreement
between the Parties relating to or in connection with this
Agreement, which is not finally settled by a discussion between
the appointed representatives within thirty (30) days shall be
submitted to arbitration at the written request of any Party,
specifying the issue or issues in dispute and summarizing the
Party's claim with respect thereto.
A Party initiating arbitration proceedings may request that an
arbitration committee be established and such committee resolve
the dispute or disagreement. Such committee shall consist of one
representative appointed by each of the Parties and a chairman
acceptable to all of the Parties.
In the event that the Parties fail to form an arbitration
committee, or if the arbitration committee fails to resolve the
dispute within thirty (30) days, either Party may refer such
dispute, controversy or claim to arbitration for settlement in
accordance with the United Nations Commission on International
Trade Law (UNCITRAL) as then presently in force.
For purposes of application of the UNCITRAL Arbitration Rules
to this Agreement:
The appointing authority shall be the authority as designated
by UNCITRAL Arbitration Rules.
The number of arbitrators shall be three. No arbitrator shall
be an employee, agent, shareholder, former employee or agent of
any of the Parties.
The place of the arbitration shall be Washington, D.C.
The language to be used in the arbitral proceedings shall be
English.
The Parties hereby consent to the jurisdiction of the arbitration
panel. The arbitration panel shall be authorized to order
equitable relief, including specific performance or injunctive
relief. The arbitration award shall be final and binding and
enforceable in any court of competent jurisdiction.
Within thirty (30) days of the hearing, unless such time is
extended by mutual agreement, the arbitrators shall notify the
Parties in writing of their decision stating separately findings
of fact and conclusions of law. The arbitrators shall not have
the power to add to or amend this Agreement. The decision of the
arbitrators shall specify how the expenses of the arbitration
shall be allocated.
ARTICLE XVIII - OFFICIAL LANGUAGE AND UNITS OF WEIGHTS AND
MEASURE
The official language of this Agreement and of all documents
prepared by the Engineer under the terms of this Agreement shall
be the English language. The units of weights and measure in
which the design and contract documents shall be prepared shall
be metric units.
ARTICLE XIX - TERMINATION AND SUSPENSION
A. Termination by the Client
This Agreement may be terminated by either party upon 30 (thirty)
days' written notice in the event of a material default by the
other party in performing its obligations in accordance with the
terms hereof through no fault of the terminating party upon
mutual agreement. The Client may also terminate this Agreement
if BKPC withdraws from its development role in the Project
pursuant to Article II.2.02 of the JDA dated February 19, 1996
among Panda Energy International, Inc., Resource Development
Consultants, Harza Engineering Company International L.P., and
Himal International Power Corporation Ltd. or pursuant to Section
4.1 of the Joint Venture Agreement dated March 20, 1996 among
Panda of Nepal, RDC of Nepal and Himal International Power
Corporation Ltd. Costs at termination, including Labor Costs and
Direct Costs, incurred by the Engineer before the termination
date or in connection with such termination (e.g., demobilization
charges or contract cancellation fees) shall be reimbursed by
Client. In the event of such a termination, reasonable efforts
will be committed by the Engineer to minimize termination
charges. In the event of Force Majeure, as defined in Article
XVI, Force Majeure, the Client shall have the right to terminate
this Agreement as stated above, and such termination may be made
on 30 (thirty) days notice in writing.
Following the receipt of notice of termination the Engineer,
except if the notice may otherwise provide, shall,
1. Terminate performance of services in process under the
Agreement, on the date and to the extent specified in the notice
of termination.
2. Place no further orders and incur no further costs of goods
or services, except as necessary to complete performance of any
portion of the services under the Agreement not terminated by
said notice.
3. Terminate all outstanding orders, contracts and
subcontracts, to the extent that, they relate to the performance
of services, specified in the notice of termination.
4. Transfer title and deliver to the Client all completed or
partially completed plans, studies, reports, information or other
property (including contract rights) which, if the contract had
been completed, the Engineer would have been required to deliver
to the Client, subject to receipt of payment for all outstanding
invoices.
B. Suspension or Termination by Engineer for Default by the
Client
If the Client defaults or fails to pay the Engineer within 12
weeks from its due date, and provided the Engineer has promptly
informed the Client that such default has not been remedied after
four weeks following the date of notification, then the Engineer
shall be entitled to suspend or terminate performance of such
obligations under this Agreement, subject to lender cure rights,
as are affected by this default or non-payment, in which case the
Client shall be liable to reimburse the Engineer for the
reasonable expenses incurred as a result of such suspension or
termination.
C. Force Majeure
If for any reasons of Force Majeure, in accordance with and as
defined in Article XVI, Force Majeure, services of the Engineer
are suspended, the Client and Engineer may terminate the
Agreement one hundred eighty (180) days after having given notice
of the Force Majeure event. The Client shall pay to the Engineer
all the costs and fees owed to the Engineer up to the date of
termination.
Similarly, if for reasons of Force Majeure the performance of the
services by the Engineer shall be delayed, or extra disbursements
incurred in continuing the services, the Client shall pay to the
Engineer all reasonable costs previously approved by the Client
resulting from the delay, or extra disbursements, including, if
necessary, disbursements for round trip travel and subsistence
during temporary evacuation for personnel normally resident in
Nepal while performing their duties and for the dependents
normally residing with such personnel.
ARTICLE XX - LAW GOVERNING AGREEMENT
This Agreement shall, in all respects, be read and construed, and
shall operate as a contract, in conformity with the laws of New
York and its Courts shall have jurisdiction for adjudicating any
dispute arising hereunder.
ARTICLE XXI - REVIEW AND MODIFICATION OF AGREEMENT
The Terms of this Agreement shall be reviewed on the anniversary
of the effective date every year that it is in force. Additions,
deletions, and changes mutually agreeable to the parties thereto
shall be incorporated therein per written amendment. No
modification of this Agreement shall be made except by amendment
signed by the parties.
ARTICLE XXII - NOTICES
Any notice given by any of the parties hereto shall be sufficient
only if in writing and delivered in person, facsimile, telex or
through registered mail as follows:
TO: Panda of Nepal
c/o Panda Energy International, Inc.
4100 Spring Valley Rd, Suite 1001
Dallas, TX 75244 USA
Attention: Mr. Ted Hollon
Vice President of Construction
(T) 214-980-7159
(F) 214-980-6815
TO: Harza Engineering International L.P.
c/o Harza Engineering Company
Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606 USA
Attention: Mr. Patrick G. Hartel
Project Manager
(T) 312-831-3000
(F) 312-831-3999
or to such other address as either of these parties shall
designate by notice given as required herein. Notices hereunder
shall be effective when delivered.
ARTICLE XXIII - ENTIRE UNDERSTANDING OF AGREEMENT
This Agreement represents and incorporates the entire
understanding by the parties hereto, and each party acknowledges
that there are no warranties, representations, covenants or
understandings of any kind, matter or description whatsoever,
made by either party to the other except as expressly set forth
herein. The parties agree that any purchase orders, invoices,
confirmations, acknowledgments or other similar documents
executed or delivered with respect to the subject matter hereof
that conflict with the terms of this Agreement shall be null,
void, and without effect to the extent that they conflict with
the terms of this Agreement.
ARTICLE XXIV - WAIVER OF CONTRACT BREACH
The waiver of one party of any breach of this Agreement or
the failure of one party to enforce at any time, or for any
period of time, any of the provisions hereof, and shall be
limited to the particular instance, shall not operate of be
deemed to waive any future breaches of this Agreement; and shall
not be construed to be a waiver of any provision, except for the
particular instance.
ARTICLE XXV - SEVERABILITY OF INVALID PROVISIONS
If any provisions of the Agreement shall be held to
contravene or be invalid under the laws of any particular state,
country or jurisdiction where used, such contravention shall not
invalidate the entire Agreement, but the Agreement shall be
construed as if not containing the particular provisions or
provisions held to be invalid in the particular state, country or
jurisdiction and the rights or obligations of the parties hereto
shall be construed and enforced accordingly.
ARTICLE XXVI - DESIGNATION OF AUTHORIZED REPRESENTATIVES
Each party shall designate one or more persons to act with
authority in its behalf in respect to appropriate aspects of the
Project. The persons designated shall review and respond
promptly to all communications received from the other party.
ARTICLE XXVII - INDEMNIFICATION
The Engineer shall indemnify and hold harmless the Client up
to the amount of the compensation paid by the Client to the
Engineer for its services rendered under this Agreement
(excluding costs and subcontract expenses) from the Client's loss
or expense, including reasonable attorneys' fees, for claims for
personal injury (including death) or property damage arising out
of the sole negligent act, error or omission of the Engineer.
The Client shall indemnify and hold harmless the Engineer up
to the amount of the compensation paid by the Client to the
Engineer for its services rendered under this Agreement
(excluding costs and subcontract expenses) from the Engineer's
loss or expense, including reasonable attorneys' fees, for claims
for personal injury (including death) or property damage arising
out of the sole negligent act, error or omission of the Client.
Subject to the Engineer's and the Client's limited
obligation of indemnification hereunder, in the event of joint or
concurrent negligence of the Engineer and the Client, each shall
bear that portion of the loss or expense that its share of the
joint or concurrent negligence bears to the total negligence
(including that of third parties) which caused the personal
injury or property damage.
In no event shall the Engineer or the Client be liable for
special, incidental or consequential damages, including, but not
limited to loss of profits, revenue, use of capital, claims of
customers, cost of purchased power or replacement power, or for
any other loss of any nature, whether based on contract, tort,
negligence, strict liability or otherwise, by reason of the
services rendered under this Agreement.
The trustees, directors, officers, employees, agents and
consultants of the respective parties are deemed to be included
in the term "Engineer" and "Client" for the purposes of this
section.
ARTICLE XXVIII - EFFECTIVE DATE
This Agreement shall become effective upon the signature of
both parties. Initiation of services and termination shall be in
accordance with the terms of Article IV.
ARTICLE XXIX - INDEPENDENT CONTRACTOR
At all times, Engineer shall serve as Client's professional
engineering consultant in those phases of the Project to which
this Agreement applies. Engineer shall have full responsibility
for the control and direction of its employees, contractors,
servants, and agents and shall be fully and solely responsible
for the payment of all obligations incurred by Engineer in
performing the requirements of this Agreement. Engineer shall
not be an agent for and may not bind Client. Client shall not be
an agent for and may not bind Engineer. The relationship is that
of a buyer and seller of professional services and it is
understood that this Agreement does not create a joint venture,
agency or partnership relationship.
ARTICLE XXX-REPRESENTATIONS AND WARRANTIES
Engineer represents and warrants, as of the date hereof, as
follows:
A.It is a limited partnership duly organized, validly existing
and in good standing under the laws of Delaware;
B.It has taken all necessary action to authorize the execution,
delivery and performance of its obligations under this
Agreement, which action has not been superseded or modified,
and this Agreement constitutes the legal, valid and binding
obligation of Engineer, enforceable in accordance with its
terms;
C.The execution, delivery and performance of this Agreement do
not violate (i) its partnership agreement or by-laws or any
resolution of its Board of Managers or other committees
charged with the governance of its affairs, (ii) any contract
to which it or, to the best of its knowledge, any of its
Affiliates, is a party or (iii) any law, rule, regulation,
order writ, judgment, injunction, decree or determination
affecting Engineer or any of its properties;
D.It has not filed any petition for relief under the bankruptcy
laws of the United States of America, or any other sovereign
nation, has not made nor is making an assignment for the
benefit of creditors, initiated nor been the subject of any
proceeding seeking to have a receiver or trustee appointed to
liquidate or manage its affairs and none of its properties is
subject to the jurisdiction of any bankruptcy court of the
United States of America or any receivership proceeding;
E.No litigation is pending or to its knowledge, threatened which
seeks to restrain it from performing its obligations hereunder
or the adverse outcome of which could materially affect its
business or its ability to perform its obligations hereunder;
F.To the best of Engineer's knowledge, no authorization of other
action by, and notice to or filing with, any government agency
or regulatory body is required for the due execution, delivery
and performance by Engineer of this Agreement which have not
been obtained. Engineer shall use reasonable efforts to
obtain any other material governmental approval in a timely
manner and to seek that such approvals shall not expire
without being renewed in a timely manner or shall not be
revoked, suspended, held invalid or limited in effect;
G.It or one of its Affiliates, through its management and
personnel, is experienced in the performance of engineering
services in accordance with generally accepted and currently
recognized engineering practices, has complied with the
provisions of all applicable laws, and has not been and is not
currently subject to any judgment or settlement of any claim
imposing liability on it for noncompliance with law or
mismanagement in rendered engineering services;
H.It is familiar with the terms of the Power Purchase Agreement
and EPC Contract which affect or relate to Engineer's
rendering service in connection with the monitoring of the
design and construction of the Facilities.
ARTICLE XXXI -INSURANCE
Before commencing Services under this Agreement, Engineer shall
procure and maintain insurance policies for the duration of the
Agreement of the kind and for the limits hereinafter provided in
this Article. Upon Client's request, Engineer shall submit
certificates of insurance certifying the issuance of the
pertinent insurance policy. The companies issuing the policies
and the form of the policies will be subject to the Client's
acceptance, but such acceptance shall not be unreasonably
withheld. The insurance coverages shall be as follows:
A. Commercial General Liability
This insurance shall include contractual liability and
completed operations coverage. Coverage shall be not
less than:
$1,000,000 Per occurrence for Bodily Injury and
Property Damage combined;
$1,000,000 Aggregate.
B.Professional Liability
This insurance shall include coverage for errors,
omission and negligent acts, with a contractual liability
provision, in the minimum amount of $1,000,000 per claim,
$10,000,000 aggregate.
C. Workers' Compensation
Workers' Compensation coverage shall be in accordance
with statutory requirements.
IN WITNESS WHEREOF, the parties have executed this Agreement.
HARZA ENGINEERING COMPANY PANDA OF NEPAL
INTERNATIONAL L.P.
By: By:
Harza Engineering Company (Title)
International L.P.
a limited liability
company
(the General Partner)
Witness: Witness:
Date: Date:
Attachment 1
BUDGET FOR ENGINEERING SERVICES
PRE-CLOSING
Project Coordination $150,000
Completion of Power Purchase Agreement
and Project Agreement 20,000
Permitting and Licensing 60,000
Subcontract for GLOF Investigation 60,000
Subsurface Investigation Subcontract 400,000
Hydraulic Model Subcontract 100,000
Preparation of EPC Documents 1,600,000
Subtotal $2,390,000
SERVICES DURING CONSTRUCTION
Project Coordination $450,000
Review of the Detailed Design of the
EPC Contractor 500,000
Review of Manufacturer's Shop Drawings 400,000
Construction Review 1,700,000
Subtotal $3,050,000
TOTAL $5,440,000
Attachment 2
HARZA ENGINEERING COMPANY 1997 BILLING RATES
(U.S. Dollars Per Hour)
Engineer Class VIII 189.00
Engineer Class VIIA 135.00
Engineer Class VII 111.30
Engineer Class VI 97.65
Engineer Class V 81.90
Engineer Class IV 71.40
Engineer Class III 63.00
Engineer Class II 54.60
Engineer Class I 49.35
Technician 5 86.10
Technician 4 65.10
Technician 3 56.70
Technician 2 58.80
Technician 1 53.55
Draftsman D 60.90
Draftsman C 42.00
Technical Assistant 49.35
Typing and Clerical 38.85
Attachment 3
UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
SCOPE OF ENGINEERING SERVICES TO BE PROVIDED BY
HARZA ENGINEERING COMPANY INTERNATIONAL L.P.
Harza shall serve as the Client's Engineer ("Engineer") and
shall prepare the basic design and documents required to obtain
bids for the construction of the Upper Bhote Koshi Hydroelectric
Project ("Project") by an EPC Contractor. The Engineer shall
assist the Client in the selection of qualified contractors to
consider for negotiating the EPC assignment, and in the final
selection of the Contractor including assistance in the award of
the contract. During Project construction, the Engineer shall
provide on-site engineering services including review of the EPC
submittals, monitoring and inspection of the works, and assis
tance during testing and commissioning for compliance with the
contract.
As a key member of the development team, the Engineer shall
advise the Client and provide the services under the overall
management and guidance of the Client.
The services to be provided by the Engineer are presented as
"Pre-Closing" and "Services During Construction".
PRE-CLOSING SERVICES
The engineering services to be provided by the Engineer during
the Pre-Closing phase shall include:
- - Completion of Power Purchase Agreement and Project Agreement
- - Relocation of settlement, identification of land requirements
- - Licensing and Permitting
- - GLOF Investigation
- - Subsurface Investigation
- - Preparation of Request for Proposal
- - Preparation of EPC Documents
- - Advisory role in the negotiation of EPC Contract
Power Purchase Agreement and Project Agreement
The Engineer shall provide continuing services as needed in the
negotiation of the Power Purchase Agreement and the Project
Agreement with the Nepal Electricity Authority (NEA) and the
Ministry of Water Resources, respectively.
Relocation of Settlements, Identification of Land Requirements
The Engineer shall provide technical services necessary to
accomplish the relocation of settlements affected by the project,
including land use planning and design criteria for new
structures. The Engineer shall also provide services necessary
to support Client's acquisition or leasing of all property,
easements and/or rights-of way required by the Project.
Permitting and Licensing
The Engineer shall provide technical input for the preparation of
the necessary permit and license applications related to the
Project development. The Engineer shall provide technical
guidance to the local environmental consultants that may be
engaged to assist in these activities.
GLOF Investigation
The Engineer shall perform this with the assistance of a
consultant who has experience in Nepal in this specialty area.
Subsurface Investigation
This shall include additional core drilling, laboratory testing
of materials, and construction of one or two adits. The Engineer
shall engage one or more local contractors to perform this work.
The Engineer shall also engage local engineering consultants to
assist in geologic logging and interpretation of the results.
Preparation of Request for Proposal
The Engineer shall prepare a Request for Proposal (RFP) to a
number of EPC Contractors and Equipment Suppliers. The request
shall include, but not limited to, the following:
- - Technical Scope of Project for EPC and financing options.
- - Project technical summary.
- - Existing drawings and reports, bill of quantities, and
equipment list.
The Engineer shall issue to the EPC contractor, additional
documents prepared during the basic design, including drawings
and technical specifications to the selected contractor to obtain
a final, fixed turnkey price. Engineer shall assist the Client
in the technical evaluation of the EPC proposals, and contract
award and negotiations as required by the Client.
Preparation of Tender Documents
The services include preliminary design, preparation of drawings
of Project features, and technical procurement specifications
(performance type) for the electrical and mechanical equipment,
specifically:
- - Preparation of geotechnical exploration program and analysis
of the results of the exploration.
- - Basic design of Project features and supporting
infrastructure.
- - Basic design of Transmission Line.
- - Selection and preliminary design of major electrical and
mechanical equipment, technical specifications (performance
type) for procurement and installation of the mechanical and
electrical equipment.
- - Preparation of construction schedule.
- - Preparation of Engineer's cost estimate.
- - Preparation of EPC bid documents including, general and
special conditions and bid forms.
- - Printing and distribution of documents.
SERVICES DURING CONSTRUCTION
The Engineer shall provide engineering services in connection
with monitoring the performance and activities of the EPC
Contractor in the design and construction of the Facility in
accordance with the design as presented in the EPC Contract
documents. The Engineer shall monitor the performance and
activities of the EPC Contractor in its compliance with
achievement of performance requirements presented in the EPC
Contract documents. The Engineer's services shall include:
Review of EPC Contractor submittals
Perform on-site quality assurance functions
Assist the Client in on-site contract administration matters
Witness factory testing
Monitor on-site testing and commissioning of Facility
Assist in review of progress reporting and requests for
payments
Assist in final acceptance of the Facility
Engineer shall use qualified technical personnel with relevant
experience to provide the above services in accordance with
internationally recognized and accepted professional standards.
The Engineer will utilize home-office engineering staff, one on-
site resident engineer (who will have additional engineers as
support available to him on-site when necessary), and short-term
specialists at the home-office and on-site as necessary,
including specialists in civil, mechanical, electrical,
environmental, geology and geotechnical services, as well as
local subcontractors under the technical guidance of the
Engineer. The management team of Kevin Candee as Project
Director, Patrick Hartel as Project Manager and Denis Noel
Corcoran as Resident Engineer shall not be changed by Engineer
without the Client's consent.
Review of EPC Contractor Submittals. The Engineer shall review
the EPC Contractor's detailed designs of the features of the
Facility for compliance with the design intent as presented in
the EPC Contract documents.
In accordance with the EPC Contract documents (Article 3.33 (a)
and (c)), the EPC Contractor is expected to submit a work plan
and a Facilities Procedures Manual. One or both of these
documents will contain a schedule for "Submittals." The
requirements for Submittals are outlined in various places
throughout the "Specifications" section of Exhibit I in the EPC
Contract documents, and cover the following areas (with
appropriate reference to the Specification part number):
Part 1.2, Operator's Village and Maintenance Facility
Part 2.1, Diversion and Care of Water
Part 2.3, Excavation
Part 2.4, Drilling and Grouting
Part 2.5, Fills
Part 2.6, Instrumentation
Part 2.7, Concrete Work
Part 2.8, Steel Liners and Penstock
Part 2.9, Metalwork
Part 2.10, Architectural Work
Part 2.11, Prefabricated Buildings
Part 2.12, Painting
Part 3.1, Submittal of Technical Documentation (including
Turbines and Governors)
Part 3.5, Generator Data
Part 3.6, Excitation System Data
Part 4.1, Gate Equipment
Part 4.2, Crane and Hoist Equipment
Part 5, General Mechanical Work and Equipment
Part 6.1, General Electrical Work
Part 6.2, General Requirements for Electrical Equipment
Part 6.3, Main Power Transformers
Part 6.4, 15-kV Non-Segregated Phase Bus Assemblies
Part 6.5, 11-kV Switchgear
Part 6.6, Station Service Substation
Part 6.7, Plant Control Switchboard
Part 6.8, Battery Sets, Battery Chargers, and
Uninterruptible Power Supplies
Part 6.9, Lighting Systems
Part 6.10, 132-kV Switchyard Equipment
Part 6.11, 132-kV High Voltage Cables and Terminations
Part 6.12, Spillway and Headworks Gate Area Electrical
Equipment
Part 6.13, Fire Detection System
Part 6.14, 11-kV Overhead Distribution Lines
Part 6.15, Power Line Carrier Equipment
Section 7, 132-kV Transmission Line
The Engineer shall review the design of any on-site or off-site
warning systems or mitigation measures to be implemented for the
purpose of reducing possible damage resulting from a flood.
The Engineer shall record each Submittal and maintain a record of
the Submittal's review process, including status of review. The
Engineer shall conduct an orderly and timely review of the EPC
Contractor's Submittals for compliance with both the intent and
the specific terms and standards of the EPC Contract. If
warranted, Submittals may be rejected as not in compliance, and
such Submittals shall be returned to the EPC Contractor for
resubmittal as required.
Perform on-site quality assurance functions. The Engineer shall
monitor construction progress of the EPC Contractor to verify
compliance and determine conformance with the EPC Contract.
Activity reports shall be prepared at regular intervals. As
required, the Engineer's representatives shall attend and
document meetings. The Engineer shall identify and document the
correction of deviations and non-conforming work.
The Engineer shall furnish a Resident Engineer from the date that
the EPC Contractor mobilizes (after Notice to Proceed) through
the Final Acceptance Date (as defined in the EPC Contract). The
Resident Engineer shall reside in Nepal, and shall be stationed
primarily at the Facility site.
The Resident Engineer shall be assisted by specialists from the
Engineer's home office to monitor that the EPC Contractor's
performance is in accordance with the EPC Contract documents.
Such specialists shall perform services in the Engineer's home
office, or may be assigned to perform services at the Facility
site.
The Resident Engineer shall liaise with the EPC Contractor's
Project Manager and key personnel, and shall communicate with the
Client and the Engineer's home office engineering staff as
necessary to assist the Client in achieving the satisfactory
completion of the Facility.
The Engineer, through the Resident Engineer, shall provide
oversight of the EPC Contractor's Quality Control and Quality
Assurance programs. As such, the Resident Engineer, in
coordination with Engineer's staff shall review, at a level of
detail commensurate with the role of monitoring construction, the
following:
1.Engineering submittals as listed above, including design
drawings, design calculations, specifications for construction
and quality control
2.Equipment installation instructions
3.Material certifications
4.Rock cores, core logs, core box photographs, core drilling
records
5.Vertical cutoff plan, equipment, construction method and
sequence, and performance records
6.Test reports for fill gradation and density
7.Records of installation of geotechnical instruments and
instrument data recorded during construction
8.Mix designs and test reports for concrete and its individual
components
9. Penstock welding and erection procedures (including welder
qualifications)
10. Metalwork fabrication and erection procedures
11. Tunnel excavation, support and lining
12. Mechanical and electrical installation and erection
procedures, including turbine and
generator installation protocols (i.e., alignment,
clearances), pressure test results, weld
test results.
Assist the Client in on-site contract administration matters.
The Engineer shall also provide reasonable assistance in
administration of the EPC Contract and assistance to the Client
in carrying out the Client's responsibilities, as listed below.
The Budget for Engineering Services contemplates and reflects
performance of services related to items 1-9. In the event that
the costs incurred to perform services related to items 10-13
exceed the Budget for Engineering Services, such services shall
be performed and the Engineer shall be entitled to an equitable
adjustment to the Budget for Engineer Services.
1. Review and monitoring of construction progress and
equipment procurement in comparison with the established
construction schedule. The Engineer shall advise the Client
of delays and the appropriate remedial action to be taken.
2. Review of designs and construction and equipment
installation progress, and their conformance with the
Specifications.
3. In the event that the EPC Contractor must develop schedule
recovery plans, assist Client in reviewing revisions to the
construction schedule and recovery plans, and assist Client
in reviewing and monitoring the implementation of schedule
recovery plans.
4. Assist Client in preparing and or reviewing change orders.
5. Assist Client in assessing and evaluating the effects of a
Force Majeure event.
6. Review of the following documents that are to be prepared
by the EPC Contractor: Health, Safety and Environmental
Plan; work plans (including the EPC Contractor's schedule of
submittals); monthly and annual environmental reports;
alternative designs (including schedule and cost impacts);
and Facilities Procedures Manual.
7. Assist Client in evaluating subcontractors and vendors.
8. Assist Client in reviewing reports related to EPC
Contractor's responsibilities with respect to mobilization
and demobilization of its equipment and workforce.
9. Assist Client in monitoring EPC Contractor's compliance
with applicable laws and regulations and environmental
obligations, including: EPC Contractor's requirements with
respect to clean-up and other requirements related to waste
collection and disposal; EPC Contractor's compliance with
health and safety requirements; instructions with respect to
the Contractor's discovery of religious or archaeological
resources; and design and layout of temporary roads,
quarries and fuel storage for compliance with environmental
obligations.
10. Assist the Client in review of any on-site or off-site
warning systems or mitigation measures to be implemented for
the purpose of reducing possible flood damage resulting from
a flood.
11. Act as an arbitrator in small disputes (involving amounts
less than $50,000) between the Client and the EPC
Contractor.
12. Assist Client in arbitral proceedings.
13. Assist in the coordination and preparation of information
for Client's Lenders and Lender's independent engineers.
Witness factory testing. The Engineer shall witness, or cause to
witness, the final factory testing of the turbine, generator, and
transformer, or any other equipment as required in the
Specifications for compliance with the Specifications. The
Engineer shall also witness the factory test of the Unit Control
Switchboard. Local shop inspection agencies shall be designated
to perform all periodic inspections under Engineer's technical
guidance.
Monitor on-site testing and commissioning of the Facility. The
Engineer shall assist the Client in monitoring that all
specifications and the requirements of the EPC documents are met
as well as the provisions specified in the Power Purchase
Agreement and Project Agreement.
The Engineer shall provide support services during the
commencement and mobilization of the activities to be performed
by the operations and maintenance contractor. The Engineer shall
assist in the development of a list of spare parts to be procured
from the EPC Contractor or other sources. The Engineer shall
assist in the review of operation and maintenance training
program, manuals and other documents to be furnished by the EPC
Contractor.
The Engineer shall review all testing procedures developed by the
EPC Contractor for evaluating headworks seepage loss, tunnel
seepage loss, desanding basin trapping efficiency, generating
equipment performance and transmission line losses. Such tests
are to be carried out by the EPC Contractor, and such tests shall
be documented in the form of a test report prepared by the EPC
Contractor. The Engineer shall monitor all tests and shall
review test reports. In the event that a performance test cannot
be completed, or a test demonstrates unsatisfactory performance,
the Engineer shall assist the Client in responding with
appropriate action. The Engineer shall assign specialists
(i.e., mechanical/electrical engineer), as necessary, to be
resident at the facility site during testing.
The Engineer shall assist the Client in the determination of
acceptance of the first unit, acceptance of the second unit, and
final acceptance. The Engineer shall assist in the determination
of performance or schedule liquidated damages, if applicable.
Assist in review of progress reporting and requests for payments.
The Engineer shall review EPC Contractor's monthly progress
reports, milestone achievement certificates, and requests for
payments.
Assist in final acceptance of the Facility. The Engineer shall
assist the Client in monitoring that activities required by the
EPC Contractor for final acceptance of the facility are carried
out. The Engineer shall provide:
1.Assistance in observation that all tests, including the 30-day
reliability tests on both units, have been satisfactorily
completed.
2.Assistance in observation that all operation and maintenance
manuals and drawings have been completed and delivered to the
Client.
3.Assistance in observation that all items on the punch list
have been corrected.
4.Assistance in observation that the delivery of spare parts to
be furnished by the EPC Contractor has been completed.
5.Assistance in observation that EPC Contractor's clean up
responsibilities have been completed.
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
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
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
September 5, 1997
[ICF Kaiser Letterhead]
September 5, 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
September 5, 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]
September 5, 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 September 5th, 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]
September 5, 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 September 5, 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]
September 5, 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 September 5, 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]
September 5, 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 September 5, 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.]
September 5, 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 September 5, 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]
September 5, 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 September 5, 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]
September 5, 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]
September 5, 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
OCTOBER 8, 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
October 8, 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 represents
that such Old Notes were acquired by such broker-dealer as a result of
market making activities or other trading activities, and therefore
agrees to 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 three 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 three 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 Note 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 Note 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 99.03.2
[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 8th day of September 1997.
By: /s/ Michael W. McComas
Name: Michael W. McComas
Title: Vice President
EXHIBIT 99.04.2
[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 8th day of September, 1997.
By: /s/ Benjamin Schlesinger
Name: Benjamin Schlesinger, Ph.D.
Title: President
EXHIBIT 99.05.2
[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 8th day of September, 1997
By: /s/ John R. Martin
Name: John R. Martin, P.E.
Title: President
EXHIBIT 99.06.2
[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 8th day of September 1997.
By: /s/ Daniel E. White
Name: Daniel E. White
Title: Senior Vice President
EXHIBIT 99.07.2
[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 8th day of September 1997.
By: /s/ Theodore R. Breton
Name: Theodore R. Breton
Title: Vice President
