SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from to .
Commission file number 333-29005
PANDA GLOBAL ENERGY COMPANY
(Exact name of registrant as specified in its charter)
Cayman Islands Not Applicable
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification Number)
4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244
(Address of principal executive offices, including zip code)
(972) 980-7159
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Park III of this
Form 10-K or any amendment to this Form 10-K [x].
Aggregate market value of voting stock held by non-affiliates of the
registrant is not reflected herein because all voting stock of the
registrant is owned by an affiliate thereof.
As of March 25, 1998, the Registrant had 2 shares of Common Stock,
$1.00 par value, issued and outstanding.
Documents Incorporated by Reference
None
TABLE OF CONTENTS
PART I
Page
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data F-1
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial
Owners and Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. 17
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes "forward-looking
statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements other than statements of historical fact
included in this Annual Report on Form 10-K, including, without
limitation, statements regarding financial position, projects
under evaluation or development, construction or other budgets
and plans and objectives for future operations, are forward-
looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are
reasonable, it 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 Company's
expectations ("Cautionary Statements") include the impact of
geopolitical occurrences world-wide; the results of financing
efforts; risks under contracts and swap agreements; changes in
laws and regulations; unforeseen engineering and mechanical or
technological difficulties; and other risks described in the
registrant's filings from time to time with the Securities and
Exchange Commission. All subsequent written and oral forward-
looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
Item 1. Business.
General
Panda Global Energy Company (the "Company") is a wholly-
owned subsidiary of Panda Global Holdings, Inc., a Delaware
corporation ("Holdings") (which in turn is a wholly-owned
subsidiary of Panda Energy International, Inc., a Texas
corporation (PEII")), and was organized in the Cayman Islands on
March 10, 1997. The Company has been organized for the purposes
of working with Holdings, PEII and their affiliates in (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.
On April 22, 1997, the Company completed a $155,200,000
offering of its 12 1/2% Senior Secured Notes due 2004 and is using
the net proceeds therefrom (approximately $141,000,000) to
finance the construction of its electric power plant facility in
Luannan County, China. In late December 1997, certain
subsidiaries of the Company completed an approximately $98
million financing for the construction of its electric power
plant facility in Nepal.
The principal executive offices of 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 Company operates in only one industry segment: electric
power generation. Financial information regarding the Company's
industry segment and regarding the Company's capitalized costs
for the construction of plants which will constitute foreign
operations upon completion, is set forth in the financial
statements hereto.
Strategy
The Company and its affiliates primarily are engaged in the
domestic and international development, acquisition,
construction, ownership and operation of electric power
generation facilities.
The principal business strategy of the Company and its
affiliates is to use their experience in evaluating, developing,
constructing, financing and managing electric power generation
facilities to provide low-cost electricity and electric
generating capacity. In addition, the Company believes that the
global trend of electricity market restructuring has created new
business opportunities for businesses like the Company. There is
a trend away from government-owned electricity systems toward
deregulated, competitive market structures, in both domestic and
international markets. Many countries have rewritten their laws
and regulations to allow foreign investment and private ownership
of electricity generation, transmission or distribution systems.
Some countries have been or are in the process of "privatizing"
their electricity systems by selling all or part of such systems
to private investors. As a result, the Company believes that
there is demand for both new and more efficiently operated
electric generating capacity in many regions around the world.
The Company and its affiliates therefore are continuously
engaged in the evaluation of opportunities for the development
and acquisition of additional domestic and international electric
power generation facilities. For example, the Company and its
affiliates currently are evaluating the development of various
merchant plant facilities in the United States. Such facilities,
if developed and constructed, could take advantage of cost
effective construction and new technology, as well as an ability
to sell power into markets with growing demand and aging supplies
of energy. Also, the People's Republic of China (the "PRC"),
Nepal, Brazil and Central America are current international
strategic target markets for the Company and its affiliates.
Substantial risks exist to the successful completion of any
domestic or international projects under development or being
considered for acquisition, including, as the case may be, those
relating to political risk, exchange rate risk, currency
inconvertibility, financing, governmental approvals, siting,
construction and permitting, as well as possible termination of
any applicable power sales agreement as a result of the failure
to meet certain construction milestones. No assurance can be
given that any projects being evaluated or developed by the
Company or any of its affiliates will be completed. Further, no
assurance can be given that any projects developed by PEII or
other affiliates of the Company would be contributed to the
Company's portfolio of projects, depending on the application of
various agreements among PEII and certain of its affiliates.
The major changes currently taking place in the independent
power producer industry are necessitating changes in the
financing capabilities of companies such as PEII (and its
affiliates), particularly in respect to the financing of larger
size projects and merchant plants. In this regard, PEII is
looking to reduce its costs of funds, find new sources of equity
capital and increase its financing flexibility. Accordingly,
PEII has commenced a strategic initiative whereby it is seeking
potential strategic partners to help address these issues.
Donaldson, Lufkin & Jenrette Securities Corporation has been
engaged by PEII to assist PEII in this search for strategic
partners. However, there can be no assurance that any transaction
with strategic partners will ever take place, or, in the event
any such transaction does take place, as to the nature or
structure thereof.
Plants Under Construction
The Luannan Facility
General. The Luannan Facility (herein so called),
approximately 83% of which is owned by the Company and its
affiliates, is located in Luannan County, Tangshan Municipality,
Hebei Province, People's Republic of China. It achieved
financial closing in April 1997 and is currently under
construction (currently expected to reach commercial operation in
August 1999) and will be comprised of two steam/electric
generating units, each nominally rated at 50 megawatts but with
nameplate capability of up to 60 megawatt 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.
Electric power generated by the Luannan Facility will be
interconnected to the local electricity grid network at 110
kilovolts. 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. The site of the Luannan Facility is leased from the PRC
pursuant to a land use rights agreement with an agency of the
PRC.
Sales of Power. The Luannan Facility will sell power to
North China Power Company pursuant to the Luannan Power Purchase
Agreement (herein so called). The North China Power Company
functions as the commercial arm of the North China Power Group.
The North China Power Group, which reports directly to the MOEP,
operates the North China Power Grid. The service area of North
China Power Group encompasses four regions, including the
Beijing/Tianjin/Tangshan area. Beijing and Tianjin are among the
largest and most economically developed cities in the PRC. The
service area of North China Power Group also includes Hebei
Province, Shanxi Province and western Inner Mongolia. The North
China Power Group owns most of the major power plants within its
service area and is reported to have had a total installed
capacity of 25,140 megawatts in 1995 and to have generated power
of 126.7 billion kilowat hours in 1995. As both a government and
a commercial entity, the North China Power Group 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 Group one of the
largest power operating entities in the PRC.
The Luannan Power Purchase Agreement is a 20-year agreement.
The electricity price is established through a formula provided
in the applicable Pricing Document (herein so called) 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 is comprised of fixed and
variable components that may be adjusted, subject to the approval
of the Tangshan Municipal Price Bureau 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
(the currency of the PRC) and is required to be paid every 30
days by the North China Power Company.
Sales of Steam. The Company currently believes that the
Luannan Facility will sell approximately 349,680 tons per year of
steam for process and the equivalent of approximately 362,518
gigajoules per year of steam for heating to certain Luannan
County enterprises and local industries. The Company currently
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 are being 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 Contractor is a wholly-owned subsidiary of
Harbin Power Equipment Company. Harbin Power Equipment Company,
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 Equipment
Company 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 Equipment Company's products
have been exported to Pakistan, the Philippines, Canada and other
countries.
Operations and Maintenance. Pursuant to the Luannan
Operations & Maintenance Contract (the "Luannan O&M Contract"),
operations and maintenance services for the Luannan Facility will
be provided by Duke/Fluor Daniel International Services
("Duke/Fluor"). The Luannan O&M Contract provides for a recovery
of costs by Duke/Fluor plus incentive payments based upon the
performance of the Luannan Facility. Duke/Fluor 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. Duke/Fluor 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 Luannan
O&M Contractor's managers.
Coal Supply. The Company currently 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 and is located 30 kilometers from the Luannan
Facility. Kailuan Coal, a state-owned coal mining company, has
approximately 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 approximately
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.
The remaining coal requirements for the Luannan Facility will be
supplied by other mines in the region
The Nepal Facility
General. The Nepal Facility (herein so called) is located
on the upper Bhote Koshi River in Nepal. It achieved financial
closing during December 1997 and is currently under construction
(currently expected to reach commercial operation in April 2000).
It will be comprised of a 36 megawatt hydroelectric facility on
the upper Bhote Koshi River. The Nepal Facility will be a run-of-
the-river power plant; thus it will not have a large dam and
reservoir, but rather, a small diversion structure, and will
produce electricity in accordance with the river flow. It will
be located approximately 110 kilometers from Kathmandu, Nepal.
The switchyard and a separate 48 kilometer transmission line that
will transmit the power generated by the Nepal Facility to a sub-
station in Bhaktapur, Nepal will be built by the Nepal
Electricity Authority (the "NEA"), the state owned utility. Cash
flow attributable to the approximately 75% interest in the Nepal
Facility of the Company (including its affiliates) and its
investment partner will be allocated 85% to such partner and 15%
to the Company (including its affiliates) until such partner
achieves a 20% internal rate of return, and 90% to the Company
(including its affiliates) and 10% to such partner thereafter.
Sales of Power. The Nepal Facility will sell power to the
NEA pursuant to the Nepal Power Purchase Agreement (herein so
called), which is a 25-year agreement. At the end of the 25-year
term of the NEA Power Purchase Agreement, 50% of the ownership of
the Nepal Facility will be transferred to the NEA for a nominal
sum. Payment under the Nepal Power Purchase Agreement will equal
the product of a tariff rate of U.S. $0.060 per kilowatt hour in
1995 prices escalated by 3% per annum for the first 15 years, and
indexed thereafter to the U.S. Consumer Price Index rate and the
total monthly electrical output delivered by the Nepal Facility
subject to monthly deemed generation levels.
The NEA will have the ability to dispatch the Nepal Facility
at its discretion. However should the NEA dispatch the Nepal
Facility below the monthly deemed generation level, the NEA will
remain obligated to pay for the deemed generation. During the
dry months of the year (mid-November to mid-May), the NEA has the
option to purchase all electric power produced by the Nepal
Facility even if it exceeds the deemed generation level. The NEA
will not be required to purchase electrical output above the
deemed generation levels during the wet months of the year (mid-
November to mid-May). Payments under the Nepal Power Purchase
Agreement will be denominated in U.S. dollars and paid in
Nepalese rupees.
Engineering, Procurement and Construction Contract. The
engineering, procurement and construction contract for the Nepal
Facility is with China Gezhouba Construction Group Corporation
for Water Resources and Hydropower ("China Gezhouba"). China
Gezhouba is one of the largest construction firms in the PRC,
with extensive experience in the construction of hydropower
plants. In addition, China Gezhouba has engaged Harbin Electric
Machinery Works ("Harbin"), based in Harbin China, to supply the
turbine generators for the Nepal Facility. Harbin has supplied
hydro units to a large number of hydroelectric plants in several
countries in Asia, Europe, the Middle East and the United States.
Operations and Maintenance. Pursuant to the applicable
operations and maintenance agreement, Harza Engineering Company
International, L.P. ("Harza") will provide operations and
maintenance services for the Nepal Facility. The term of this
agreement is for five years of commercial operation, renewable
for additional five year periods. Harza has extensive experience
in the planning, design, construction, and operation of power
plants throughout the world.
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 the PRC. The mean annual flow at the
proposed site was 66.4 cubic meters per second m3/s between 1965
and 1992. The Nepal Facility will be located in the
Sindhupalchok zone of central Nepal, close to the PRC-Nepal
border. The Bhote Koshi River rises to an elevation of 5,800
meters at Tang Pu, Tibet, PRC 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. The land at the site for the
Nepal Facility is owned by the project company formed by the
Company and its partners, and is subject to a mortgage lien as
part of the financing for the Nepal Facility.
Competition
The business of developing electric generating power plants
is intensely competitive. The Company and its affiliates compete
both domestically and internationally with other independent
power producers, including affiliates of utilities.
Development of new power generation projects in foreign
markets is difficult and expensive, and many competitors in these
foreign markets have significantly larger capital resources and
greater local market expertise than the Company. In addition, due
to increased competition in the United States, there has been an
increasing number of entrants into these foreign markets.
In the United States, over the past decade, developing
electric generating power plants has become a progressively more
difficult, expensive and competitive process. In recent years,
more of such transactions have been awarded through competitive
bidding. Increased competition also has lowered profit margins
of successful projects in the United States.
Regulatory Matters
Regulation of the Electric Power Industry in the PRC
General. The PRC's electric power industry is regulated
primarily by the State Economic and Trade Commission ("SETC") as
successor to the Ministry of Electric Power ("MOEP") in
conjunction with the State Planning Commission ("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 State Administration of Foreign
Exchange ("SAFE"), the State Administration of Industry and
Commerce of the PRC (the "SAIC") and certain other agencies.
Certain functions formerly exercised by the MOEP have been
transferred to the State Power Corporation of China ("SP") which
was formally approved in January 1997. Pursuant to resolutions
of the Ninth National People's Congress introduced in March 1998,
the governmental functions of the MOEP have been officially
transferred to the SETC and MOEP has been dissolved. National
grid management, ownership of state-funded electric generating
assets and development planning responsibilities will remain with
the SP. The reorganization will be accomplished over a period of
time. The regulatory and approval authorities of the Central
Government 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), although recent
regulations promulgated by the MOEP (before its replacement by
SETC) would base approval authority on a power project's unit
size. However, it is unclear whether the provincial planning
commissions and the SPC are bound by or, if not, will follow
these regulations.
State Economic and Trade Commission. As the ministry
responsible for the electric power industry, the SETC has assumed
responsibility previously exercised by the MOEP and 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
SETC (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 SETC 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 SP 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.
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 (a body of the central government of the
PRC). The SP serves as the PRC's principal investor in and/or
operator of wholly or partially state-owned facilities in the
PRC. It also is responsible for the operation of the
interregional transmission facilities and the development of a
national power grid. After the establishment of the SP, the MOEP
continued (and the SETC now continues) to exercise the regulatory
function over Chinese electricity industry, but the MOEP's
enterprise management function and its function to operate state
assets were turned over to the SP. As part of the reform,
provincial power bureaus have transferred their regulatory
functions to other departments of the local government and have
become subsidiaries of the SP.
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 foreign investment enterprises
("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.
Regional, Provincial and Local Power Bureaus. The SETC
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 the PRC. 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 SETC and the key
personnel of the Provincial Power Bureaus are appointed by the
provincial governments in consultation with the SETC.
A similar structure exists for the Provincial Power Bureaus
under the Regional Power Groups and the Provincial Power Bureaus
directly managed by the SP. 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.
PRC Electric Power Law. Given the importance of the
continued rapid expansion of the PRC's power industry, the
National People's Congress 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 constructions. The law delineates
the approval process for on-grid tariffs and makes a distinction
between the approvals required for regional/provincial grids but
not such approval is specifically required for independent grids.
The Power Law reiterates the position of the Central Government
of the PRC 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 loses.
Rate Setting Mechanisms. Rates for electricity produced by
power plants that the SP 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 SP, customers
purchase electricity from the Power Bureaus of each level of the
administration of the PRC at rates determined by the Central
Government of the PRC, 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 Power Law (as
described above) is to reform power pricing to be consistent with
the development of the market economy. Trial implementation has
commenced 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.
Transmission and Dispatch. The main system for the
dispatch, transmission and distribution of electric power in the
PRC 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 PRC'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. The PRC 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 the PRC 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 the PRC 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.
Regulation of Electric Power Industry in Nepal
General. 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 His
Majesty's Government of Nepal ("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.
The Ministry of Water Resources has the authority to issue
licenses for plant construction, water rights and to provide
financial guarantees. All hydroelectric projects with a capacity
of greater than 1,000 kilowatts require a license. Within the
Ministry, the Hydroelectricity Development Unit of the
Electricity Development Center (the "EDC") promotes the private
sector's participation in the industry, approves projects with a
capacity of more than 1,000 kilowatts, and provides necessary
assistance to the private sector in the startup and operation of
projects. The EDC also may arrange for economic incentives to
private participants, including tax concessions and assistance in
importing goods, obtaining land and obtaining necessary
government authorizations.
Transmission System. The transmission system in Nepal
consists of 33 kilovolt, 66 kilovolt and 132 kilovolt
transmission lines. The 132 kilovolt, single-circuited 1,178-
mile Integrated Nepal Electric Power System is Nepal's most
extensive transmission mechanism and is connected to India.
Nepal also has a 33 kilovolt, single-circuit system that measures
1,216 kilometers; a 66 kilovolt, single-circuit system of 179 km;
a 66 kilovolt double-circuit system of 153 kilometers; and a 132
kilovolt, double-circuit system of 27 kilometers. Under the
applicable project agreements, the NEA has the responsibility of
building another 48 kilometer transmission line connecting the
Nepal Facility to an NEA substation.
Foreign Exchange. The Ministry of Finance has primary
responsibility for the regulation of foreign exchange in Nepal.
Nepal increased its foreign exchange reserves from approximately
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.
Foreign Environmental Regulations
General. The Company has ownership interests in power
plants under construction in China and Nepal. Each of these
countries and the localities therein have separate laws and
regulations governing the siting, permitting, ownership and power
sales from the Company's plants. These laws and regulations are
often quite different than those in effect in the United States.
Based on current trends, the Company expects that
environmental and land use regulations affecting its plants under
construction outside the U.S. will likely become more stringent
over time. This appears to be due in part to a greater
participation by local citizenry in the monitoring and
enforcement of environmental laws, better enforcement of
applicable environmental laws by the regulatory agencies, and the
adoption of more sophisticated environmental requirements. If
foreign environmental and land use regulations were to change in
the future, the Company may be required to make significant
capital or other expenditures in order to comply. There can be
no assurance that the Company would be able to recover all or any
increased costs from its customers or that its business,
financial condition or results of operations would not be
materially and adversely affected by future changes in foreign
environmental and land use regulations.
PRC Environmental Regulations. The Luannan Facility is
subject to various PRC environmental laws and regulations which
are administered by both Central Government of the PRC and local
government environmental protection bureaus. Approval or review
by the relevant environmental protection bureaus is required at
each of the project proposal, feasibility study, design and
commissioning stages of a project. Filing of an environmental
impact statement or, in some cases, an environmental impact
assessment outline is required before the planning commission for
the same level of government can issue its approval. The filing
must demonstrate that the project conforms to applicable
environmental standards. Approvals and permits generally have
been issued for projects utilizing modern pollution control
technology. Pollution sources are also required to report their
pollution discharges in terms of types and amounts of pollutants
discharged into the water and air, and to secure discharge
permits for their wastewater discharges, airborne emissions and
solid waste shipments to ensure compliance with relevant
emissions standards.
The PRC's environmental laws and regulations establish
standards for the discharge of emissions into the air and water.
The rules set forth schedules of base-level discharge fees for
various polluting substances and specify that, if such levels are
exceeded, the polluting entity will be required to pay an excess
discharge fee to the local government. The local environmental
rules do not make it a violation to exceed these limits, but
rather set forth a set of graduated scale of fees that are
required for each incremental unit of excess discharge. Up to a
certain level, as the discharge levels increase, the fee per unit
also increases. Above a certain limit, local governments may
issue orders to cease or reduce such discharge levels which, if
not complied with, will after three years from the date of the
order, result in an annual increase of 5% in the pollution fees
assessed. Where pollution is causing environmental damage, the
local governments also have the authority to issue orders
requiring the polluting entities to cure the problem within a
certain period of time.
MOEP previously established technical standards for
environmental monitoring and exercises certain disciplinary
functions with regard to environmental compliance in connection
with the construction and operation of power plants.
Environmental protection equipment is required to be designed,
installed and commissioned in tandem with the design,
construction and commissioning of the generator or plant. Before
commencing operations, each plant or generator must be tested and
qualified with regard to emissions levels and abatement
equipment.
Nepal Environmental Regulations The Nepal Facility is
subject to certain environmental laws and regulations which are
administered by HMGN. For example, the Environmental Impact
Assessment Guidelines for the Forestry Sector, 1995, applies to
the Company's construction efforts in Nepal. Among other things,
an independent environmental impact assessment was required
pursuant thereto, as well as other ongoing compliance actions.
In addition, the Nepal Facility is subject to the Water Resources
Act, which establishes certain pollution tolerance limits for
water resources as well as quality standards for various uses of
water resources. As part of the financing of the Nepal Facility,
the Company is required to comply with World Bank environmental
standards.
Regulation of the Electric Power Industry in the United States
If the Company develops and operates any projects in the
United States, such projects will be 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, other
electricity generating facilities, 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.
Employees
At December 31, 1997, the Company and its subsidiaries had
no employees.
Robert W. Carter is Chairman of the Board, Chief Executive
Officer and also a director of the Company. Janice Carter is
Executive Vice President, Secretary and Treasurer of the Company,
and is married to Robert W. Carter. Otherwise, no family
relationships exist among the directors and executive officers of
the Company.
All executive officers of the Company are elected annually
by the Board of Directors of the Company to serve in such
capacities until their successors are duly elected and qualified.
Item 2. Properties.
The information regarding the properties of the Company is
set forth under Item 1. Business above and in the Notes to
Consolidated Financial Statements included in Part II hereof.
The Company's principal office, located at 4100 Spring Valley,
Suite 1001, Dallas, Texas 75244, is leased by PEII, which lease
expires May 2001.
Item 3. Legal Proceedings.
The Company is not a party to any legal proceedings, other
than various matters which all constitute ordinary legal matters
incidental to its business. However, affiliates of the Company
are claimants or defendants in various legal proceedings which
have arisen in the ordinary course of business. The Company
believes such claims and legal actions, individually or in the
aggregate, will not have a material adverse effect on the
business or financial condition or results of operations of the
Company and its subsidiaries taken as a whole.
NNW, Inc. Proceeding
On July 12, 1996, Panda Energy Corporation, a subsidiary of
the Company ("PEC"), filed an action against NNW, Inc. ("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 sought a
declaratory judgment that the NNW's cash flow participation
rights in PEC's credit agreement with NNW remain at 0.433% after
the restructuring of the Panda-Rosemary Partnership interest
pursuant to the terms of such credit agreement with NNW. The
parties settled this dispute in December 1997 pursuant to a
settlement agreement and mutual release of claims, the terms of
which are maintained as confidential pursuant to the provisions
of such agreement. PEC does not believe that the terms of this
settlement agreement and mutual release of claims will have a
material adverse effect on the business, financial condition or
results of operations of PEC and its subsidiaries, taken as a
whole, or the Company and its subsidiaries, taken as a whole.
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 Company has 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, financial condition or results of operations of PEC
and its subsidiaries, taken as a whole, or the Company and its
subsidiaries, taken as a whole.
Brandywine Proceeding
On June 26, 1996, certain plaintiffs commenced a proceeding
against the Panda-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
Panda-Brandywine Partnership, Flippo Construction ("Flippo") (and
its subcontractors) and the Panda-Brandywine Partnership left
their easement and inadvertently trespassed on to plaintiffs'
property. While on plaintiffs' property, Flippo (and its
subcontractors) and the Panda-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 Panda-Brandywine Partnership intends to vigorously
contest this proceeding. The Company does not believe that the
outcome of this proceeding will have any material adverse effect
on the business, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole, or the Panda-
Brandywine Partnership. In the opinion of the Panda-Brandywine
Partnership and the Company, the contract between the Panda-
Brandywine Partnership and Flippo requires Flippo to hold the
Panda-Brandywine Partnership harmless for any activities relating
to the plaintiffs' property.
Florida Power Proceedings
In January 1995, Florida Power Corporation, a Florida
corporation ("Florida Power"), commenced a proceeding before the
Florida Public Service Commission ("Florida PSC") against the
Kathleen Partnership, an affiliate of the Company, 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 a power purchase agreement between
Panda-Kathleen, L.P., an affiliate of the Company (the "Kathleen
Partnership") and Florida Power, 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 and the
Florida Supreme Court upheld the decision. The Kathleen
Partnership filed a Writ of Certiorari with the Supreme Court of
the United States regarding this matter in February, 1998.
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. The Company does not believe
that an adverse result in this case would have a material adverse
effect on the business, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
National Development and Research Corporation Proceeding
On October 14, 1997, Panda Global Energy Company, an
affiliate of the Company (", commenced a proceeding in the
District Court of Dallas County, 101st Judicial District
captioned Panda Global Energy Company v. National Development and
Research Corporation and Robert E. Tang, Case No. 97-9315-E.
PGE's petition sought a declaratory judgment for the termination
of various agreements between PGE and National Development and
Research Corporation ("NDR") regarding the development of power
projects in the PRC. On December 9, 1997 NDR filed a counter-
claim against PGE and Robert W. Carter asserting that, among
other things, such agreements are still in effect and that NDR is
entitled to certain payments thereunder. This proceeding
currently is in the discovery stage. The Company does not
believe that an adverse result in this proceeding would have a
material adverse effect on the business, financial condition or
results of operations of the Company and its subsidiaries, taken
as a whole, or PGE and its subsidiaries, taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders
during the fourth quarter of the Company's fiscal year ended
December 31, 1997.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters.
There is no established market for the Company's Common
Stock, $1.00 par value, all of which is owned by Holdings. The
Company has not paid cash dividends on shares of its capital
stock since its inception. The indenture governing the Company's
12 1/2% Registered Senior Secured Notes due 2004 imposes certain
restrictions on the Company's ability to declare or pay cash
dividends to Holdings and make certain distributions on its
capital stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
(in thousands, except ratios)
The following table sets forth selected consolidated
financial data of the Company as of December 31, 1994, 1995, 1996
and 1997, and for the period from inception (July 20, 1994)
through December 31, 1994, and the years ended December 31, 1995,
1996 and 1997. The information presented below has been derived
from financial statements. Because the Company has been and
continues to be in the development stage since formation, it has
no operating revenues. Because the Issuer had no fixed charges
prior to 1997, presentation of the ratio of earnings to fixed
charges for earlier periods is not applicable. In 1997, earnings
were insufficient to cover fixed charges by $12,822. The data
should be read in conjunction with the Company's financial
statements, including the notes thereto. Dollar amounts are
presented in thousands.
<TABLE>
<CAPTION>
Period From
Inception
through Year Ended December 31,
December 31,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Statement of
Operations Data
Interest Income.. $ - $ - $ - $ 5,521
General and
administrative
expenses. 203 444 1,654 3,497
Interest and letter
of credit fees. - - - 12,072
Amortization of debt
issuance costs - - - 717
----- ----- ------- --------
Total expenses 203 444 1,654 16,286
----- ----- ------- --------
Net loss before (444) (1,654) (10,765)
minority interest (203)
Minority interest
----- ----- ------- --------
Net loss...... $(203) $(444) $(1,654) $(10,765)
===== ===== ======= ========
December 31,
1994 1995 1996 1997
Balance Sheet Data
Cash and other
current assets $101 $ 6 $ 506 $ 75,013
Power plant and
equipment (net) 428 1,059 3,292 36,131
Reserves and escrow
deposits, and other
assets - - - 47,481
----- ------ ------- --------
Total assets $529 $1,065 $ 3,798 $158,625
===== ====== ======= ========
Current liabilities $ -- $ -- $ -- $ 9,778
Long-term debt -- -- -- 145,654
Minority interest -- -- - 5,741
Shareholder's equity
(deficit) 529 1,065 3,798 (2,547)
----- ------ ------- --------
Total liabilities and
shareholder's equity
(deficit) $529 $1,065 $ 3,798 $158,625
===== ====== ======= ========
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company is a development stage enterprise having no
operating revenues. Prior to April 1997, when financing for the
Luannan Project was completed by the issuance of $145.0 million
discounted principal amount of Senior Secured Notes, the
Company's results of operations included no revenues and included
only general and administrative expenses allocated from its
ultimate parent (Panda Energy International, Inc.) for certain
accounting, legal, insurance and consulting services. Such
expenses increased from 1995 to 1996, and from 1996 to 1997,
primarily due to the increased administrative assistance required
to support the Luannan Project and the Nepal Project as their
development (and construction, with respect to the Luannan
Project) continues. After the issuance of the Senior Secured
Notes in April 1997, the Company has also incurred interest
expense and amortization of debt issuance costs and has earned
interest income on the construction and debt service reserve
funds that are maintained under the debt agreement.
The Company has historically depended on advances from its
parent to fund its development costs and its general and
administrative expenses. With the successful completion of
financing for the Luannan Project (which occurred in April 1997)
and for the Nepal Project (which occurred in December 1997),
management anticipates that advances from the parent will no
longer be required to fund development and construction
activities for those projects.
Impact of Inflation
Inflationary increases in 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
purchase agreements, although competition may limit the Company's
ability to fully recover all such increases. The Company
attempts, where possible, to obtain provisions in its power
purchase agreements whereby certain revenue components, such as
energy payments, may be adjusted with inflationary increases. The
Company currently believes that inflation will not have a
material adverse effect on the Company's financial position,
results of operations or cash flows in the foreseeable future.
Year 2000 Matters
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that
have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar
normal business activities.
In 1998, the Company initiated a review of existing
accounting software to determine the impact of the Year 2000
Issue. Although such review is still in process, management
estimates that the Year 2000 Issue will not pose significant
operational problems for its computer systems. All costs
associated with this conversion, which are not anticipated to be
material, are being expensed as incurred.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data filed
herewith begin on page F-1 hereof.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The number of members of the Board of Directors of 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
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 and the Company. All
executive officers of the Company are elected annually by the
Board of Directors of the company to serve in such capacities
until their respective successors are duly elected and qualified.
The Articles of Association of the Company provide that 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 Company or the
Board of Directors of the Company to (i) make an assignment for
the benefit of creditors, apply for the appointment of a
custodian, receiver or trustee for it or its property, or admit
in writing to its inability to pay its debts generally as they
become due; (ii) engage in any business activity other than as
set forth in the Memorandum of Association of the Company; (iii)
present an application for the winding up of any subsidiary of
the Company, or (iv) authorize the Company to vote, in the
Company's capacity as shareholder in any subsidiary which has a
similar independent director, to amend such subsidiary's Articles
of Incorporation to broaden the business purpose of such
subsidiary or to take any action similar to that described in
(i), (ii) or (iii) above regarding such subsidiary. The Articles
of Association 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 affiliates of the Company. In March 1998, Brian G.
Trueblood was elected as the Independent Director of the Company.
The following table sets forth the names and ages of the
directors and the executive officers of the Company and their
positions with the Company. Since the formation of the Company,
each executive officer of the Company has held the same office(s)
with the Company that he or she has held with each other
corporation that is currently affiliated with 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 43 Executive Vice President, Finance
Ralph T. Killian 51 Executive Vice President and
Operations Manager
Steven W. Crain 47 Senior Vice President, Business
Development
Ted C. Hollon 47 Senior Vice President, Project
Development
L. Stephen Rizzieri 42 Senior 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 PEII since January 1995. Mr. Carter
has held similar chief executive positions with PEC, also an
affiliate of the Company, 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. Mr. Carter is
married to Janice Carter.
Darol S. Lindloff was appointed President of PEII in
February 1997. Prior thereto, he served as Senior Vice President,
project Development of PEII from January 1996. He served as Vice
President of PEI 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 PEII 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 PEII since February 1997. Prior thereto, he served as
Senior Vice President and General Counsel of PEII since August
1996, as Vice President and General Counsel of PEII 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.
Ralph T. Killian served as Senior Vice President of PEII
since May 1994, and has been Executive Vice President and
Operations Manager since March 1998. Mr. Killian has overall
responsibility for asset management which includes operations &
maintenance, fuel, procurement and management, and power
marketing for facilities. Mr. Killian also leads a group
responsible for development of PEII's merchant plants in the
United States. Between November 1989 and April 1994, Mr. Killian
served as Vice President of Natural Resources for PEC. From 1988
to 1989, he was Senior Vice President of Texas Eastern
Corporation (an energy company). From 1969 to 1988, he held
various natural gas marketing and engineering management
positions with Amoco Corporation (an energy company) including
Regional Natural Gas Marketing Manager for Amoco Production
Company's Denver region. Mr. Killian graduated from the
University of
Steven W. Crain has served as Senior Vice President,
Business Development of PEII since February 1997. Mr. Crain
joined Panda in 1996, originally serving as Director of Business
Development for the Asian sub-continent. Prior to joining Panda,
Mr. Crain served for over 18 years in various capacities for
Eagleton Engineering Company, an engineering and construction
management firm specializing in oil and gas processing and
transportation. Mr. Crain served as a Vice President for
Business Development and member of the Board of Directors from
1987 and 1995. He also served as the resident Managing Director
of the Eagleton Saudi Arabia office for six years. From 1974 to
1977, Mr. Crain served as a Design Engineer for Stearns-Roger
(now Raytheon) where he was involved in the design of coal-
burning power plants. Mr. Crain earned a Bachelor of Science
Degree in Electrical Engineering from Rice University, and is a
registered professional engineer.
Ted C. Hollon has served as Senior Vice President, Project
Development of PEII since August 1997. Prior to his current
position, he served as Vice President of Construction for PEII
since March 1995. Mr. Hollon served as project manager for the
Company's 230 megawatt Panda-Brandywine Facility from March 1993
until March 1995. Mr. Hollon previously held various positions
with several prominent international engineering and construction
companies such as Brown & Root International and CSR Serrine.
Mr. Hollon has over 25 years of international construction
experience. He earned a Bachelor of Science degree from Texas
A&M University.
L. Stephen Rizzieri has served as Vice President and General
Counsel of PEII since February 1997 and has been Senior Vice
President and General Counsel since March 1998. Prior thereto, he
served as Deputy General Counsel since April 1996. From 1993
until he joined PEII, 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
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 PEII.
Item 11. Executive 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
Company. Mr. Trueblood is currently paid $1,000 annually by the
Company for serving as an Independent Director thereof.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Panda Global Holdings, Inc. owned beneficially, at March 25,
1998, one hundred percent (100%) of the issued and outstanding
shares of the Company's common stock, $1.00 par value, which is
the only security entitled to vote for the election of the
Company's directors. No director or officer of the Company owns
any shares of any class of the Company's equity securities.
Item 13. Certain Relationships and Related Transactions
Since the date of incorporation of the Company, there have
been no transactions, and there currently are not any proposed
transactions, or series of similar transactions, to which the
Company (or any of it's 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, has a material interest.
Additionally, there are no business relationships that currently
exist or have existed since the date of incorporation of the
Company, involving the Company, on the one hand, and any director
of the Company (or an affiliate thereof), on the other hand. No
director or executive officer of the Company has been indebted to
the Company, since the date of incorporation of the Company.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as a part of this
Annual Report on Form 10-K:
1. Consolidated Financial Statements.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
2. Consolidated Financial Statement Schedules.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
Schedules other than those listed on the accompanying Index
to Financial Statements and Financial Statement Schedules are
omitted for the reason that they are either not required, not
applicable or the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits.
Exhibit
Number Exhibit Description
3.01 Memorandum of Association of Panda Global Energy
Company. (1)
3.02 Articles of Association of Panda Global Energy Company.
(1)
4.01 Trust Indenture, dated April 22, 1997, between Panda
Global Energy Company and Bankers Trust Company as
Trustee. (1)
4.02 First Supplemental Indenture between Panda Global
Energy Company and Bankers Trust Company, as Trustee,
dated April 22, 1997. (1)
4.03 Registration Rights Agreement among Panda Global Energy
Company, Panda Global Holdings, Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation, dated April
22, 1997. (1)
4.04 Form of 12-1/2% Senior Secured Notes due 2004 of Panda
Global Energy Company. (1)
4.05 Form of 12-1/2% Registered Senior Secured Note due 2004
of Panda Global Energy Company. (1)
4.06 Trust Indenture, dated April 22, 1997, between Panda
Global Holdings, Inc. and Bankers Trust Company, as
Trustee. (1)
4.07 First Supplemental Indenture, dated April 22, 1997,
between Panda Global Holdings, Inc. and Bankers Trust
Company, as Trustee. (1)
10.01 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. (1)
10.02 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. (1)
10.03 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. (1)
10.04 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. (1)
10.05 Coal Supply Agreement between Tangshan Panda Heat and
Power Co., Ltd. and Kailuan Coal Mining Administration,
dated February 3, 1996. (1)
10.06 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. (1)
10.07 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. (1)
10.08 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. (1)
10.09 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. (1)
10.10 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. (1)
10.11 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. (1) (3)
10.12 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.
(1)
10.13 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. (1) (3)
10.14 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. (1)
10.15 Guaranty by China Harbin Power Equipment Group Company,
dated July 16, 1996. (1)
10.16 Performance Guarantee by The Export-Import Bank of
China, dated January 3, 1997. (1)
10.17 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. (1) (3)
10.18 Construction Agreement of Heat and Steam Network
between Tangshan Pan-Sino Heat Co., Ltd. and Tangshan
Heat and Engineering Company, dated June 20, 1996. (1)
10.19 Amended and Restated Shareholder Loan Agreement between
Pan-Western Energy Corporation, LLC and Tangshan Panda
Heat and Power Co., Ltd., April 1, 1997 (1) (3)
10.20 Amended and Restated Shareholder Loan Agreement between
Pan-Western Energy Corporation, LLC and Tangshan Pan-
Western Heat and Power Co., Ltd., April 1, 1997 (1) (3)
10.21 Amended and Restated Shareholder Loan Agreement between
Pan-Western Energy Corporation, LLC and Tangshan Cayman
Heat and Power Co., Ltd., April 1, 1997 (1) (3)
10.22 Amended and Restated Shareholder Loan Agreement between
Pan-Western Energy Corporation, LLC and Tangshan Pan-
Sino Heat and Power Co., Ltd., April 1, 1997 (1) (3)
10.23 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. (1) (3)
10.24 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. (1) (3)
10.25 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. (1)
10.26 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. (1)
10.27 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. (1)
10.28 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. (1)
10.29 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. (1)
10.30 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. (1) (3)
10.31 Administrative Services Agreement between Panda Energy
International, Inc. and Panda Global Holdings, Inc.,
dated April 22, 1997. (1)
10.32 Development Services Agreement between Panda Energy
International, Inc. and Panda Global Holdings, Inc.,
dated April 22, 1997. (1)
10.33 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. (1)
10.34 Form of Issuer Loan Agreement between Panda Global
Energy Company and Pan-Western Energy Corporation, LLC,
dated April 22, 1997. (1)
10.35 Form of Issuer Note of Pan-Western Energy Corporation,
LLC, dated April 22, 1997. (1)
10.36 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. (1)
10.37 Form of Account Agreement among Panda Interfunding
Corporation, Panda Energy Corporation and Panda Global
Holdings, Inc., dated April 22, 1997. (1)
10.38 Form of Pledge Agreement between Panda Global Energy
Company and Bankers Trust Company, as Trustee, dated
April 22, 1997. (1)
10.39 Form of Pledge Agreement between Pan-Sino Energy
Development Company, LLC and Bankers Trust Company, as
Trustee, dated April 22, 1997. (1)
10.40 Form of Pledge Agreement between Pan-Western Energy
Corporation, LLC and Bankers Trust Company, as Trustee,
dated April 22, 1997. (1)
10.41 Form of Pledge Agreement between Panda Global Holdings,
Inc. and Bankers Trust Company, as Trustee, dated April
22, 1997. (1)
10.42 Form of Cash Collateral Agreement between Panda Global
Energy Company and Bankers Trust Company, as Trustee,
dated April 22, 1997. (1)
10.43 Form of Cash Collateral Agreement between Pan-Western
Energy Corporation, LLC and Bankers Trust Company, as
Trustee, dated April 22, 1997. (1)
10.44 Form of Cash Collateral Agreement between Pan-Sino
Energy Development Company, LLC and Bankers Trust
Company, as Trustee, dated April 22, 1997. (1)
10.45 Form of Pledge Agreement between Panda Energy
International, Inc. and Bankers Trust Company, as
Trustee, dated April 22, 1997. (1)
10.46 Form of Cash Collateral Agreement between Panda Global
Holdings, Inc. and Bankers Trust Company, as Trustee,
dated April 22, 1997. (1)
10.47 Form of Cash Collateral Agreement between Panda Energy
Corporation and Bankers Trust Company, as Trustee,
dated April 22, 1997. (1)
10.48 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. (1)
10.49 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. (1)
10.50 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. (1)
10.51 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. (1)
10.52 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. (1)
10.53 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. (1)
10.54 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. (1)
10.55 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. (1)
10.56 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. (1)
10.57 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. (1)
10.58 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. (1)
10.59 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. (1)
10.60 Operation and Maintenance Agreement between Bhote Koshi
Power Company Private Limited and Harza Engineering
Company International L.P. dated April 24, 1997. (1)
10.61 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 ("EPC
Contract"). (1)
10.61.01 Change Order No. 001 to EPC Contract, dated February 1,
1997. (4)
10.61.02 Change Order No. 002 to EPC Contract, dated April 26,
1997. (4)
10.61.03 Change Order No. 003 to EPC Contract, dated September
4, 1997. (4)
10.61.04 Change Order No. 004 to EPC Contract, dated September
5, 1997. (4)
10.61.05 Change Order No. 005 to EPC Contract, dated November
12, 1997. (4)
10.62 Project Agreement between His Majesty's Government of
Nepal and Bhote Koshi Power Company Private Limited
dated July 21, 1996. (1)
10.63 Power Purchase Agreement between His Majesty's
Government of Nepal and Bhote Koshi Power Company
Private Limited dated July 21, 1996. (1)
10.64 Services Agreement between Panda of Nepal and Harza
Engineering Company International L.P. (for services
provided outside of Nepal) dated July 11, 1997. (1)
10.65 Services Agreement between Panda of Nepal and Harza
Engineering Company International L.P. (for services
provided in Nepal) dated July 11, 1997. (1)
10.66 Investment Agreement, General Conditions between Bhote
Koshi Power Company Private Limited, International
Finance Corporation and DEG-Deutsche Investitions-und
Entwicklungsgesellschaft mbH dated December 18, 1997.
(4)
10.67 Investment Agreement, Special Conditions between Bhote
Koshi Power Company Private Limited and DEG-Deutsche
Investitions-und Entwicklungsgesellschaft mbH dated
December 18, 1997. (4)
10.68 Investment Agreement, Special Conditions between Bhote
Koshi Power Company Private Limited and International
Finance Corporation dated December 18, 1997. (4)
10.69 Investment Agreement, Definitions (Schedule A) dated
December 18, 1997. (4)
10.70 Participation Agreement in respect of B Loan to Bhote
Koshi Power Company Private Limited between Dresdner
Bank AG, New York and Grand Cayman Branches and
International Finance Corporation dated December 18,
1997. (4)
10.71 Participation Agreement in respect of B Loan to Bhote
Koshi Power Company Private Limited between Bayerische
Vereinsbank AG and International Finance Corporation
dated December 18, 1997. (4)
10.72 Participation Agreement in respect of B Loan to Bhote
Koshi Power Company Private Limited between Nederlandse
Financierings-Maatschappij Voor Ontwikkelingslanden
N.V. and International Finance Corporation dated
December 18, 1997. (4)
10.73 Share Retention and Project Funds Agreement between
Bhote Koshi Power Company Private Limited, Panda Energy
International, Inc., Panda Bhote Koshi, Panda of Nepal,
Harza Engineering Company International, a Limited
Liability Company, Harza Engineering Company
International, L.P., Resource Development Consultants,
a Limited Liability Company, RDC of Nepal, Soaltee
Enterprises Private Ltd., Soaltee Hotel Ltd., Surya
Enterprises Private Ltd., Himal International Power
Corporation Pvt. Ltd., International Finance
Corporation, and DEG-Deutsche Investitions-und
Entwicklungsgesellschaft mbH dated December 18, 1997.
(4)
10.74 Equity Subscription Agreement between Bhote Koshi Power
Company Private Limited, Himal International Power
Corporation Ltd., and Wilmington Trust Company dated
December 18, 1997. (4)
10.75 Equity Subscription Agreement between Bhote Koshi Power
Company Private Limited, Panda of Nepal and Wilmington
Trust Company dated December 18, 1997. (4)
10.76 Equity Subscription Agreement between Bhote Koshi Power
Company Private Limited, RDC of Nepal and Wilmington
Trust Company dated December 18, 1997. (4)
10.77 Shareholder's Agreement between Bhote Koshi Power
Company Private Limited, Himal International Power
Corporation Pvt. Ltd., Panda of Nepal, RDC of Nepal,
and International Finance Corporation dated December
18, 1997. (4)
10.78 Shareholder's Agreement between Panda Bhote Koshi, a
Cayman Islands exempted company, Panda of Nepal, a
Cayman Islands exempted company and Panda Global Energy
Company and MCNIC Nepal Limited, as the Shareholders of
Panda Bhote Koshi, dated December 18, 1997. (4)
10.78.01 Guarantee Agreement of MCN Investment Corporation,
dated December 18, 1997. (4)
10.78.02 Guarantee Agreement of Panda Energy International,
Inc., dated December 18, 1997. (4)
10.79 Master Agreement between Bhote Koshi Power Company
Private Limited and International Finance Corporation
dated December 12, 1997. (4)
10.80 Schedule and Annexes to Master Agreement between Bhote
Koshi Power Company Private Limited and International
Finance Corporation dated December 12, 1997. (4)
10.81 HMGN Letter Approval of Financing Documents addressed
to International Finance Corporation, DEG-Deutsche
Investitions-und Entwicklungsgesellschaft mbH and
Wilmington Trust Company dated December 8, 1997. (4)
10.82 Risk Management Facility Agreement between Bhote Koshi
Power Company Private Limited and International Finance
Corporation dated December 18, 1997. (4)
10.83 Trust and Retention Agreement between Bhote Koshi Power
Company Private Limited, International Finance
Corporation, DEG-Deutsche Investitions-und
Entwicklungsgesellschaft mbH and Wilmington Trust
Company dated December 18, 1997. (4)
10.84 Nepal Agency and Retention Agreement between Bhote
Koshi Power Company Private Limited, International
Finance Corporation, DEG-Deutsche Investitions-und
Entwicklungsgesellschaft mbH, Wilmington Trust Company,
as Trustee, and Nepal Grindlays Bank Limited dated
December 18, 1997. (4)
10.85 Mortgage Deed between Bhote Koshi Power Company Private
Limited, DEG-Deutsche Investitions-und
Entwicklungsgesellschaft mbH, and International Finance
Corporation dated December 19, 1997. (4)
10.86 Security Agreement and Assignment between Bhote Koshi
Power Company Private Limited, International Finance
Corporation, DEG-Deutsche Investitions-und
Entwicklungsgesellschaft mbH and Wilmington Trust
Company, as Trustee, dated December 18, 1997. (4)
10.87 Security Agreement and Assignment between Panda of
Nepal, International Finance Corporation, DEG-Deutsche
Investitions-und Entwicklungsgesellschaft mbH and
Wilmington Trust Company, as Trustee, dated December
18, 1997. (4)
10.88 Share Pledge Agreement between Himal International
Power Corporation Pvt. Ltd., Wilmington Trust Company,
as Trustee, and Bhote Koshi Power Company Private
Limited, dated December 18, 1997. (4)
10.89 Share Pledge Agreement between RDC of Nepal, Wilmington
Trust Company, as Trustee, and Bhote Koshi Power
Company Private Limited, dated December 18, 1997. (4)
10.90 Share Pledge Agreement between Panda Bhote Koshi,
Wilmington Trust Company, as Trustee, and Panda of
Nepal, dated December 18, 1997. (4)
10.91 Share Pledge Agreement between Panda of Nepal,
Wilmington Trust Company, as Trustee, and Bhote Koshi
Power Company Private Limited, dated December 18, 1997.
(4)
10.92 Performance Guarantee by Industrial and Commercial Bank
of China, dated December 10, 1997. (4)
10.93 Equity Letter of Credit by The Northern Trust Company
for the account of RDC of Nepal, dated December 16,
1997. (4)
10.94 Equity Letter of Credit by The First National Bank of
Chicago for the account of Panda of Nepal, dated
December 17, 1997. (4)
10.95 Bhote Koshi Power Company Private Limited Amended and
Restated Joint Venture Agreement between Himal
International Power Corporation Ltd., Panda of Nepal,
RDC of Nepal and International Finance Corporation,
dated December 12, 1997. (4)
10.96 Articles of Association of Bhote Koshi Power Company
Private Limited, dated August 22, 1997. (4)
10.97 Memorandum of Association of Bhote Koshi Power Company
Private Limited, dated August 22, 1997. (4)
10.98 Engineering Services Agreement between Bhote Koshi
Power Company Private Limited and Harza Engineering
Company International L.P., dated December 1, 1997. (4)
12.00 Computation of Ratio of Earnings to Fixed Charges. (2)
21.00 Subsidiaries of Registrant. (2)
24.00 Powers of Attorney, included on signature page hereof.(2)
27.00 Financial Data Schedule. (2)
(1) Previously filed as an exhibit to the Registration
Statement on Form S-1 (Registration No. 333-29005) of Panda
Global Holdings, Inc. and Panda Global Energy Company, and
incorporated herein by reference.
(2) Filed herewith.
(3) Confidential treatment of certain information identified in
these exhibits has been granted by the Securities and Exchange
Commission.
(4) Filed as an exhibit to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 of Panda Global Holdings,
Inc., and incorporated herein by reference.
(b) Reports on Form 8-K. None.
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which Have
Not Registered Securities Pursuant to Section 12 of the Act.
No annual report or proxy statement or other proxy
soliciting material was sent to security holders of the
registrant during the registrant's last fiscal year.
F-2
INDEX TO FINANCIAL STATEMENTS
Panda Global Energy Company and Subsidiaries Consolidated
Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1996
and 1997 F-3
Consolidated Statements of Operations for the years
ended December 31, 1995, 1996 and 1997 and for the
period from inception (July 20, 1994) through
December 31, 1997 F-5
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1995, 1996 and 1997 and for
the period from inception (July 20, 1994) through
December 31, 1997 F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 and for the
period from inception (July 20, 1994) through
December 31, 1997 F-7
Notes to Consolidated Financial Statements for the
years ended December 31, 1995, 1996 and 1997 and for
the period from inception (July 20, 1994) through
December 31, 1997 F-8
INDEPENDENT AUDITORS' 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") as
of December 31, 1996 and 1997, and the related consolidated
statements of operations, shareholder's equity and cash flows for
each of the three years in the period ended December 31, 1997 and
for the period from inception (July 20, 1994) through December
31, 1997. 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, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1997 and for the period from
inception (July 20, 1994) through December 31, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 23, 1998
PANDA GLOBAL ENERGY COMPANY
AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 506,289 $ 6,289
Restricted cash - current ............................... -- 73,428,615
Accrued interest receivable ............................. -- 1,577,995
---------- ------------
Total current assets .................................. 506,289 75,012,899
Plant and equipment:
Construction in progress ................................ -- 36,131,069
Development costs ....................................... 3,292,492 --
---------- ------------
Total plant and equipment ............................. 3,292,492 36,131,069
Investment in joint venture ............................... -- 836,654
Restricted cash - debt service reserves and escrow deposits -- 40,044,928
Debt issuance costs, net of accumulated
amortization of $717,074 as of December 31, 1997 ........ -- 6,599,749
---------- ------------
Total assets .............................................. $3,798,781 $158,625,299
========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PANDA GLOBAL ENERGY COMPANY
AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
LIABILITIES AND SHAREHOLDER'S EQUITY
1996 1997
----------- -------------
Current liabilities:
Accrued interest ............................. $ -- $ 4,177,507
Accrued construction costs ................... -- 5,600,000
----------- -------------
Total current liabilities .................. -- 9,777,507
Long-term debt ................................. -- 145,653,823
Minority interest .............................. -- 5,741,166
Commitments and contingencies (Note 7)
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 10,518,930
Deficit accumulated during the development stage (2,301,000) (13,066,129)
----------- -------------
Total shareholder's equity .................. 3,798,781 (2,547,197)
----------- -------------
Total liabilities and shareholder's equity ..... $ 3,798,781 $ 158,625,299
=========== =============
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PANDA GLOBAL ENERGY COMPANY
AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND INCEPTION (JULY 20, 1994) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
Inception
Through
December 31
1995 1996 1997 1997
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Interest income .......................... $ -- $ -- $ 5,520,528 $ 5,520,528
EXPENSES:
Project development and administrative ... 444,000 1,654,000 3,496,563 5,797,563
Interest expense and letter of credit fees -- -- 12,072,020 12,072,020
Amortization of debt issuance costs ...... -- -- 717,074 717,074
--------- ----------- ------------ ------------
Total expenses ......................... 444,000 1,654,000 16,285,657 18,586,657
--------- ----------- ------------ ------------
NET LOSS ................................... $(444,000) $(1,654,000) $(10,765,129) $(13,066,129)
========= =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PANDA GLOBAL ENERGY COMPANY
AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND INCEPTION (JULY 20, 1994) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated Total
During the Shareholder's
Number Common Advances Development Equity
of Shares Stock from Parent Stage (Deficit)
----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock, July 20, 1994 2 $ 2 $ -- $ -- $ 2
Advances from parent, net ............. -- 732,773 -- 732,773
Net loss .............................. -- -- -- (203,000) (203,000)
----------- ---------- ------------ ------------ ------------
Balance, January 1, 1995 .............. 2 $ 2 $ 732,773 $ (203,000) $ 529,775
Advances from parent, net ............. -- 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, net ............. -- 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
Advances from parent, net ............. -- -- 4,419,151 -- 4,419,151
Net loss .............................. -- -- -- (10,765,129) (10,765,129)
----------- ---------- ------------ ------------ ------------
Balance, December 31, 1997 ............ 2 $ 2 $ 10,518,930 $(13,066,129) $ (2,547,197)
=========== ========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PANDA GLOBAL ENERGY COMPANY
AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND INCEPTION (JULY 20, 1994) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
Inception
Through
December 31
1995 1996 1997 1997
--------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .......................................... $(444,000) $ (1,654,000) $ (10,765,129) $ (13,066,129)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Amortization of debt issuance costs ............. -- -- 717,074 717,074
Amortization of debt discount ................... -- -- 628,735 628,735
Changes in assets and liabilities:
Accrued interest receivable ..................... -- -- (1,577,995) (1,577,995)
Accrued interest payable ........................ -- -- 4,177,507 4,177,507
--------- ------------ ------------- -------------
Net cash provided (used) by operating activities (444,000) (1,654,000) (6,819,808) (9,120,808)
--------- ------------ ------------- -------------
INVESTING ACTIVITIES:
Restricted cash - current ......................... -- -- (73,428,615) (73,428,615)
Additions to plant and equipment .................. (630,288) (2,233,718) (27,238,577) (30,531,069)
Investment in joint venture ....................... -- -- (836,654) (836,654)
Restricted cash - debt service reserves
and escrow deposits ............................ -- -- (40,044,928) (40,044,928)
--------- ------------ ------------- -------------
Cash used by investing activities ................. (630,288) (2,233,718) (141,548,774) (144,841,266)
--------- ------------ ------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term debt ...................... -- -- 145,025,088 145,025,088
Contributions from minority interest owners ....... -- -- 5,741,166 5,741,166
Capital contribution from parent .................. -- -- -- 2
Advances from parent .............................. 979,288 4,387,718 4,419,151 10,518,930
Debt issuance costs ............................... -- -- (7,316,823) (7,316,823)
--------- ------------ ------------- -------------
Cash provided by financing activities ............. 979,288 4,387,718 147,868,582 153,968,363
--------- ------------ ------------- -------------
Increase (decrease) in cash and cash equivalents .... (95,000) 500,000 (500,000) 6,289
Cash and cash equivalents, beginning of period ...... 101,289 6,289 506,289 --
--------- ------------ ------------- -------------
Cash and cash equivalents, end of period ............ $ 6,289 $ 506,289 $ 6,289 $ 6,289
========= ============ ============= =============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs ........................ $ -- $ -- $ 5,600,000 $ 5,600,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1996 and 1997
and the Period from Inception (July 20, 1994)
Through December 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Global Energy Company ("Global Cayman", or
collectively with its subsidiaries the "Company") (a Cayman
Islands company) is a wholly owned subsidiary of Panda Global
Holdings, Inc. ("Panda Global"), which in turn is a wholly owned
subsidiary of Panda Energy International, Inc. ("PEII"). PEII is
engaged in the development, acquisition, ownership and operation
of independent power generation facilities and other energy-
related projects worldwide. Global Cayman was formed in March
1997 to hold PEII's indirect ownership interests in certain
independent power projects located outside the United States.
The ownership interests were transferred to Global Cayman 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.
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 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, Global Cayman
indirectly holds an equity investment 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, 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. Any differences from those estimates are recorded in
the period in which they are identified.
Development stage enterprise -- The Company is in the
development stage and has no operating revenues. Financing for
construction of the Luannan Project was obtained in April 1997
(see Note 3). Financing for the Nepal Project was obtained in
December 1997 (see Note 4).
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. 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.
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.
Capitalized interest was $2,057,000 in 1997. No interest was
capitalized prior to 1997. Such costs will be depreciated using
the straight-line method over the term of the power purchase
agreement (20 years for the Luannan Project - see Note 3).
Depreciation will begin when the completed facility is ready for
its intended use.
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.
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 $444,000,
$1,654,000 and $3,495,000 in 1995, 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.
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. At December 31, 1997, the
Company had approximately $10 million of net operating loss
carryforwards that are considered to be permanently invested
outside the United States and are not currently available to
offset U.S. taxable income. The Company had approximately $3
million of deferred tax assets which consist primarily of net
operating losses and are offset by a valuation allowance.
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.
Financing for the project was completed in April 1997as discussed
below. The Luannan Project is being constructed pursuant to a
fixed-price, turnkey contract with Harbin Power Engineering
Company Limited. The Company has incurred costs for the Luannan
Project of $3.3 million and $36.1 million as of December 31, 1996
and 1997, respectively, which are included in plant and equipment
under development costs (1996) and under construction in progress
(1997) in the accompanying balance sheet. The costs were
reclassified from development costs to construction in progress
due to the completion of financing and the commencement of
construction activity for the project in 1997.
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.
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.
Nepal Project -- The Company has an equity investment in a
hydroelectric power project in Nepal. See Note 4.
4. INVESTMENT IN JOINT VENTURE
The Company has an investment in a joint venture (Bhote
Koshi Power Company, Pvt. Ltd., referred to as "BKPC" ) 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 investment is
accounted for under the equity method. The Company's ownership
interest was transferred from a subsidiary of PEII to the Company
at historical cost in June 1997. A 25-year power purchase
agreement with the Nepal Electricity Authority was signed in July
1996. The Nepal Project is being constructed pursuant to a fixed-
price, turnkey contract with China Gezhouba Construction Group
Corporation. Commercial operations are scheduled to commence in
2000.
On December 29, 1997 financial closing occurred with respect
to the Nepal Project. BKPC received commitments for (i) up to
approximately $68.8 million in nonrecourse debt financing from a
group of international lenders and (ii) up to approximately $29.5
million in equity from the Company and a group of third-party
investors which includes one of the lenders. At December 31,
1997, approximately $17.9 million of the debt commitments had
been funded and were outstanding. The interest rates on the loans
are a combination of fixed and variable rates, generally at the
annual rate of 325 to 350 basis points above the London Interbank
Offered Rate. Semiannual interest and principal payments on the
loans commence in March 1998 and March 2001, respectively. Final
maturity of the loans occurs at dates ranging from 2008 through
2011. Commitment fees of 1% to 2% are payable on undisbursed
portions of the loan commitments.
The equity commitments of up to approximately $29.5 million
referred to above include approximately $3.1 million in project
development and administrative expenses previously incurred by
PEII and the investors which cannot be capitalized under GAAP and
which therefore are not reflected in BKPC's balance sheet. At
December 31, 1997, approximately $5.1 million of the equity
commitment (in addition to the $3.1 million of project
development and administrative expenses referred to above) had
been contributed. The Company had contributed $10.8 million in
capitalized development costs (in addition to $1.2 million in
project development and administrative expenses) and received
cash reimbursement from BKPC at financial closing for $10.0
million of those costs. The Company has satisfied its equity
commitment of $2 million as of December 31, 1997. In addition
to the basic equity commitment, the Company and the investors are
required to contribute up to $10 million on a pro-rata basis in
the event of cost overruns.
The Company and an outside investor ("Investor") jointly own
a 75% interest in BKPC and other investors own the remaining 25%.
Based on the agreement with the Investor, cash flow attributable
to the Company's and the Investor's combined 75% ownership
interest will be allocated 85% to the Investor and 15% to the
Company until the Investor achieves a 20% internal rate of return
on its investment (the "Flip Date"), and 90% to the Company and
10% to the Investor thereafter.
BKPC is a development stage enterprise. All development and
construction costs incurred to date have been capitalized.
Summarized balance sheet information for BKPC at December 31,
1997 is as follows:
<TABLE>
<S> <C>
Cash $ 146,000
Restricted cash - current 5,637,608
Construction in progress 18,332,944
Debt issue costs 1,967,758
Total assets $ 26,084,310
Current liabilities $ 3,126,827
Long-term debt 17,851,667
Stockholders' equity 5,105,816
Total liabilities and equity $ 26,084,310
</TABLE>
5. 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.
6. 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
$513,000 in 1997. No insurance was purchased through this agency
prior to 1997.
7. COMMITMENTS AND CONTINGENCIES
PEII 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 allocable to the Company with respect to these matters
will not have a material affect on the financial position,
results of operations or cash flows of the Company.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF
CREDIT RISK
The estimated fair values of the Company's financial
instruments as of December 31, 1997 are as follows:
<TABLE>
Carrying Value Fair Value
<S> <C> <C>
Long-term debt, including current
portion $145,653,823 $144,336,000
</TABLE>
The Senior Secured Notes have limited trading. The fair
value of these bonds is estimated based on a third party
quotation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PANDA GLOBAL ENERGY
COMPANY
Date: March 27, 1998 By: /s/ Robert W. Carter
Robert W. Carter,
Chairman of the
Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
officers and directors of Panda Global Energy Company (the
"Company") hereby constitutes and appoints Robert W. Carter or
Janice Carter or each of them (with full power to each of them to
act alone), his or her true and lawful attorney-in-fact and
agent, with full power of substitution, for him or her and on his
or her behalf and in his or her name, place and stead, in any and
all capacities, to sign, execute, and file any and all documents
relating to the Company's Form 10-K for the year ending December
31, 1997, including any and all amendments and supplements
hereto, with any regulatory authority, granting said attorneys,
and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to
all intents and purposes as he himself or she herself might or
could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or either of them, or
their or his or her substitute or substitutes, may lawfully do or
cause to be done.
Pursuant to the requirements of Securities Exchange Act of 1934,
this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Robert W. Carter Chairman of the Board, March 27, 1998
Robert W. Carter Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Janice Carter Executive Vice President, March 27, 1998
Janice Carter Secretary and Treasurer
(Principal Financial
and Accounting Officer)
EXHIBIT NO. 12.00
PANDA GLOBAL ENERGY COMPANY AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997
<S> <C>
Net loss $ (10,765)
Interest expense 12,072
Amortization of debt issue costs 717
Capitalized interest 2,057
-------
Total fixed charges 14,846
Earnings before fixed charges 12,024
Ratio of earnings to fixed charges 0.14
Deficiency in coverage of
fixed charges $(12,822)
</TABLE>
NOTE -- the ratio of earnings to fixed charges is not
applicable prior to 1997 because there were no fixed
charges in those years.
EXHIBIT 21.00
SUBSIDIARIES OF PANDA GLOBAL ENERGY CO.
Name of Entity: Jurisdiction of Organization
Pan-Sino Energy Development Company, L.L.C. Cayman Islands
Pan-Western Energy Corporation, L.L.C. Cayman Islands
Panda Bhote Koshi 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
27.01 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from SEC Form 10-K and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 506,289 73,434,904
<SECURITIES> 0 0
<RECEIVABLES> 0 1,577,995
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 506,289 75,012,899
<PP&E> 3,292,492 36,131,069
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 3,798,781 158,625,299
<CURRENT-LIABILITIES> 0 9,777,507
<BONDS> 0 145,653,823
0 0
0 0
<COMMON> 2 2
<OTHER-SE> (3,798,779) (2,547,199)
<TOTAL-LIABILITY-AND-EQUITY> 3,798,781 158,625,299
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 1,654,000 3,496,563
<OTHER-EXPENSES> 0 717,074
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 12,072,020
<INCOME-PRETAX> (1,654,000) (10,765,129)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,654,000) (10,765,129)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,654,000) (10,765,129)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
