UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999.
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 333-29005-01
PANDA GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2697755
(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 PART 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 31, 2000, the registrant had 1,000 shares of Common Stock, $.01 par
value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
PART I
PAGE
Item 1. Business .......................................................... 3
Item 2. Properties ........................................................ 24
Item 3. Legal Proceedings ................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders ............... 26
PART II
Item 5. Market for the Registrant's Equity and Related Stockholder Matters 26
Item 6. Selected Financial Data ........................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 28
Item 7a. Quantitative and Qualitative Disclosures About Market Risk ....... 28
Item 8. Financial Statements and Supplementary Data ....................... 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ........................................ 34
PART III
Item 10. Directors and Executive Officers of the Registrant ............... 34
Item 11. Executive Compensation ........................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management ... 37
Item 13. Certain Relationships and Related Transactions ................... 37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . 37
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (as well as previous filings by the
Company with the Securities and Exchange Commission) 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 (as
well as previous filings by the Company with the Securities and Exchange
Commission), 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
Company'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.
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ITEM 1. BUSINESS.
GENERAL
Panda Global Holdings, Inc. (the "Company") is a wholly-owned subsidiary
of Panda Energy International, Inc., a Delaware corporation ("PEII"), and was
organized in Delaware on March 7, 1997. The Company was organized for the
purposes of (i) investing in and holding direct and indirect interests in
entities engaged in the development, construction, ownership, operation and
management of electric generating facilities, sources of fuel, pipelines and
other infrastructure projects, (ii) the marketing of electric power, thermal
energy and fuel, and (iii) the financing of any of the above, including the
entering into of indentures, contracts and other agreements in connection with
the purposes described in clauses (i) and (ii) above.
The Company wholly owns one operating energy generation facility and
leases pursuant to a capital lease another operating energy generation facility
located in the United States and owns interests in two energy generation
facilities under construction in the People's Republic of China and the Kingdom
of Nepal, as described below in more detail.
The principal executive office of the Company is located at 4100 Spring
Valley Road, Suite 1001, Dallas, Texas 75244. The telephone number at such
office is (972) 980-7159.
The Company operates in only one industry segment: electric power
generation. Financial information regarding the Company's industry segment, its
domestic operations, and 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 subsidiaries are primarily 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 subsidiaries 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. There is a trend away from regulated and/or
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, including the United States.
The Company and its subsidiaries are continuously engaged in the
evaluation of opportunities for the development and acquisition of additional
electric power generation facilities. For example, the Company and its
subsidiaries continue to evaluate the development of various merchant plant
facilities in the United States. Such facilities, if fully 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.
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, the ability to obtain financing and required
governmental approvals, siting and construction risk, market risk in the case of
projects which do not have long term power sales agreements, as well as possible
termination of any applicable power sales agreement as a result of the failure
to meet certain construction milestones or for other reasons set forth in any
such agreement. No assurance can be given that any projects being evaluated or
developed by the Company or any of its subsidiaries 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.
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PLANTS IN OPERATION
The Panda-Rosemary Facility
GENERAL. The Panda-Rosemary Facility (herein so called) is a
combined-cycle cogeneration facility located in Roanoke Rapids, North Carolina,
with a total electric generating capacity of approximately 180 megawatts. The
Panda-Rosemary Facility is owned by the Panda-Rosemary Partnership (herein so
called), an indirect wholly-owned subsidiary of the Company. A cogeneration
facility produces electric energy and forms of useful thermal energy (such as
heat or steam) used for industrial, commercial, heating or cooling purposes
through the sequential use of one or more energy inputs. The Panda-Rosemary
Facility uses natural gas as its primary fuel input to produce electric energy
for sale to Virginia Power Company ("Virginia Power"), and to produce useful
thermal energy in the form of steam and chilled water for sale to The Bibb
Company ("Bibb") pursuant to the Rosemary Steam Agreement (herein so called). On
February 18, 1997, Bibb announced that it would sell the textile facility that
is the user of such steam and chilled water to Westpoint Stevens, Inc.
("Westpoint"). The closing of the sale was reported in the news media on
February 21, 1997. The Rosemary Steam Agreement cannot be assigned without the
Panda-Rosemary Partnership's consent, which has not been given as of the date
hereof and Bibb, Westpoint and a subsidiary of the company are currently
litigating the issues involved. While there has been no resolution to this
matter as of the date hereof, the Panda-Rosemary Partnership has continued to
sell steam and chilled water pursuant to the Rosemary Steam Agreement. See Item
3. "Legal Proceedings - Bibb/Westpoint Stevens Proceedings" below.
The Panda-Rosemary Facility is certified as a Qualifying Facility ("QF")
under the Public Utility Regulatory Policies Act of 1978 ("PURPA") and thus is
exempt from rate regulation as an electric utility under federal and state law,
provided that it continues to meet the applicable requirements of PURPA.
The Panda-Rosemary Facility was designed and constructed by Hawker
Siddeley Power Engineering and began commercial operations in December 1990. The
Panda-Rosemary Facility is designed to be operated in a combined-cycle mode. It
uses natural gas or fuel oil to power two General Electric combustion turbine
generators, a GE Frame 6 and a GE Frame 7, each fitted with a heat recovery
steam generator ("HRSG"). The HRSGs use the reject heat from the combustion
turbines that might otherwise dissipate to produce steam which drives a steam
turbine generator. The combustion and steam turbines generate electric energy
for sale to Virginia Power. When the Panda-Rosemary Facility is being
dispatched, some of the steam produced by the HRSGs is sold pursuant to the
Rosemary Steam Agreement and some is used in two absorption chillers to supply
chilled water. The combustion turbines use natural gas as their primary fuel and
can use No. 2 fuel oil as an alternate fuel in the event gas supplies or
transportation are curtailed. When the facility is not being dispatched, two
auxiliary boilers are available to be used to produce steam for direct use and
to produce chilled water for use by the purchaser under the Rosemary Steam
Agreement. The design of the Panda-Rosemary Facility permits flexible operation,
including the production of both electricity and a sufficient amount of thermal
energy to meet QF requirements, using either one or both of the combustion
turbine generators.
SALE OF CAPACITY AND ELECTRICITY. The Panda-Rosemary Partnership sells
electric capacity and energy to Virginia Power pursuant to a Power Purchase and
Operating Agreement (the "Rosemary Power Purchase Agreement"). The Rosemary
Power Purchase Agreement has an initial term ending December 26, 2015, and may
be extended for periods of up to five years if the parties so agree.
Virginia Power has the right to dispatch the Panda-Rosemary Facility (that
is, require the Panda-Rosemary Facility to deliver electricity) on a daily basis
within certain guidelines and design limits (which specify load levels, start-up
and shutdown times and minimum run times consistent with prudent utility
practice).
The Rosemary Power Purchase Agreement provides for two types of payments:
a capacity payment and an energy payment. The capacity payment is a fixed charge
required to be paid regardless of whether the Panda-Rosemary Facility is
dispatched, subject to reductions under certain circumstances as described
below. Energy payments are calculated based on the actual electrical output
transmitted to Virginia Power and are designed
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to compensate the Panda-Rosemary Partnership for its cost of fuel and its
variable operations and maintenance expense.
Monthly capacity payments throughout the term of the Rosemary Power
Purchase Agreement are calculated by multiplying the Panda-Rosemary Facility's
"Dependable Capacity" by the following rates: $10.821 per kilowatt per month
through December 2005; and $8.321 per kilowatt per month thereafter through
December 2015. The Panda-Rosemary Facility's Dependable Capacity, which is the
maximum level for which capacity payments must be made under the Rosemary Power
Purchase Agreement, is currently 165 megawatts for the summer period and 198
megawatts for the winter period. Dependable Capacity is determined by
semi-annual tests which may be requested by Virginia Power. Capacity payments
may be reduced in certain circumstances.
The Panda-Rosemary Partnership is required to maintain the Panda-Rosemary
Facility as a QF. Virginia Power may terminate the Rosemary Power Purchase
Agreement within one year after the loss of QF certification if the
Panda-Rosemary Partnership has not obtained all necessary governmental and
regulatory approvals for the Rosemary Power Purchase Agreement to remain in
effect and for electricity to continue to be sold to Virginia Power.
Steam and Chilled Water Sales. The Panda-Rosemary Partnership sells steam
and chilled water for use in a textile manufacturing facility, located adjacent
to the Panda-Rosemary Facility, pursuant the Rosemary Steam Agreement. The
Rosemary Steam Agreement has an initial term that expires on December 26, 2015.
Upon expiration of the initial term, the purchaser has the option to (i)
negotiate a 10-year extension of the Rosemary Steam Agreement, (ii) purchase the
Panda-Rosemary Facility with Virginia Power's consent or (iii) terminate the
Rosemary Steam Agreement. Under the terms of the Rosemary Steam Agreement, the
purchaser is obligated to pay $1.00 per 1,000 pounds of steam for the first
45,000 pounds of steam delivered in an hour and $2.50 per 1,000 pounds of steam
for any additional quantities of steam delivered in an hour. Under the Rosemary
Steam Agreement, the purchaser is obligated to pay the following fixed prices
for chilled water: $0.035/ton/hour through December 27, 2000; $0.04/ton/hour
thereafter through December 27, 2005; $0.045/ton/hour thereafter through
December 27, 2010; and $0.05/ton/hour thereafter through December 26, 2015. See
Item 3. "Legal Proceedings - Bibb/Westpoint Stevens Proceedings" below.
SITE LEASE. The 4.83 acre site on which the Panda-Rosemary Facility is
located is leased to the Panda-Rosemary Partnership pursuant to a Real Property
Lease and Easement Agreement (the "Rosemary Site Lease") in exchange for a
nominal yearly rental payment. The initial term of the Rosemary Site Lease
expires on December 31, 2015 and is automatically extended on the same terms and
conditions for 10 years if the Rosemary Steam Agreement is extended for an
additional 10-year period. At the Panda-Rosemary Partnership's option, the
initial term of the Rosemary Site Lease may also be extended on the same terms
and conditions for a 10-year term if the Panda-Rosemary Partnership gives the
lessor two years' notice prior to December 31, 2015 and for an additional
10-year term if the Panda-Rosemary Partnership gives the lessor two years'
notice prior to December 31, 2025, regardless of whether the Rosemary Steam
Agreement is extended or terminated.
GAS SUPPLY AND FUEL MANAGEMENT. The Panda-Rosemary Partnership purchases
certain quantities of natural gas on a firm basis from Natural Gas Clearinghouse
("NGC") pursuant to a Gas Purchase Contract (the "Rosemary Gas Supply
Agreement"). The Rosemary Gas Supply Agreement is effective through November 30,
2005, and thereafter from month-to-month until terminated by either NGC or the
Panda-Rosemary Partnership. NGC has agreed to deliver natural gas on a firm
basis to the Panda-Rosemary Partnership, at pipeline points near the Gulf of
Mexico or (at the Panda-Rosemary Partnership's request and using the
Panda-Rosemary Partnership's firm transportation arrangements) to the
Panda-Rosemary Pipeline (as defined below), up to the total contract quantity
under the Firm Gas Transportation Agreements (as defined below), which is
currently the thermal equivalent of 3,075 Mcf (one "Mcf" constitutes one
thousand cubic feet of natural gas) of natural gas per day. The firm natural gas
supplied under the Rosemary Gas Supply Agreement enables the Panda-Rosemary
Partnership to have adequate natural gas supplies available to meet its estimate
of the requirements for steam and chilled water under the Rosemary Steam
Agreement.
The price paid by the Panda-Rosemary Partnership for natural gas delivered
by NGC is generally equal to an indexed price (based upon monthly market-price
indices determined by reference to the receipt points where NGC delivers gas to
the Panda-Rosemary Partnership) plus $0.04 per MMBtu (one "MMBtu" constitutes
one million
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British thermal units). If natural gas is required in daily volumes that are
greater than those included in monthly estimates delivered to NGC, the price for
the excess volume required is equal to NGC's actual cost incurred in acquiring
such excess plus $0.04 per MMBtu. If the Panda-Rosemary Partnership fails to
purchase the amount included in monthly estimates delivered to NGC, and such
failure is not excused by force majeure, the Panda-Rosemary Partnership must pay
NGC, as liquidated damages for such failure, $0.14 for each MMBtu of natural gas
not purchased below the monthly estimates.
GAS TRANSPORTATION. The Panda-Rosemary Partnership receives firm
transportation service that provides for delivery to the Panda-Rosemary Pipeline
(as defined below) of up to the thermal equivalent of 3,075 Mcf of natural gas
per day. The rates and most of the significant terms and conditions of service
under these firm gas transportation agreements, are set forth in the respective
pipeline's effective Federal Energy Regulatory Commission ("FERC") gas tariff.
These rates, terms and conditions are subject to review, approval and
modification by FERC.
PANDA-ROSEMARY PIPELINE. The Panda-Rosemary Partnership owns, and North
Carolina Natural Gas Corporation ("NCNG") operates and maintains for the
Panda-Rosemary Partnership, the Panda-Rosemary Pipeline (herein so called),
which runs for 10.26 miles through portions of Halifax and Northampton Counties,
North Carolina. The Panda-Rosemary Pipeline is located under, over and upon
properties owned, in certain instances, by private landowners and, in other
instances, by the State of North Carolina or the City of Roanoke Rapids,
pursuant to easement agreements or encroachment agreements. The Panda-Rosemary
Pipeline terminates on a 1.26-acre parcel in Pleasant Hill Township, Northampton
County, North Carolina, which is owned by the Panda-Rosemary Partnership. The
meter stations and certain appurtenant facilities interconnecting the
Panda-Rosemary Pipeline and certain interstate pipeline facilities are located
on this parcel.
The Panda-Rosemary Partnership has entered into a Pipeline Operating
Agreement with NCNG (the "Pipeline Operating Agreement"), pursuant to which NCNG
has agreed to operate the Panda-Rosemary Pipeline and provide certain natural
gas balancing services for the Panda-Rosemary Partnership's gas supplies. The
term of the Pipeline Operating Agreement continues until December 27, 2005, and
may be extended for two additional periods of five years each upon the agreement
of the parties.
FUEL OIL. The Panda-Rosemary Facility was constructed with the capability
to operate on No. 2 fuel oil and is designed to change fuel sources from natural
gas to fuel oil and back without interrupting the generation of electricity. The
Panda-Rosemary Facility currently has on-site storage for approximately two
million gallons of fuel oil, a supply sufficient to operate the Panda-Rosemary
Facility at full load for approximately 168 hours. The Panda-Rosemary
Partnership purchases fuel oil on a spot-market basis. Since the fuel oil
suppliers either own their own trucks or have contracts with local trucking
firms for regional truck delivery and the purchase price includes delivery to
the Panda-Rosemary Facility, the Panda-Rosemary Partnership does not
independently arrange trucking service from the terminals to the Panda-Rosemary
Facility.
OPERATIONS AND MAINTENANCE. The Panda-Rosemary Partnership purchases
operations and maintenance services for the Panda-Rosemary Facility from Panda
Global Services, Inc., an affiliate of the Company, pursuant to an Operation and
Maintenance Agreement (the "Rosemary O&M Agreement") which expires on December
31, 2003. Under the Rosemary O&M Agreement, Panda Global Services, Inc. is paid
a fixed monthly fee of approximately $141,000 per month for 2000, with annual
adjustments based on changes in the consumer price index for subsequent years.
In addition, the agreement includes bonus and penalty provisions based on
maintenance of dependable capacity levels, availability of the Panda-Rosemary
Facility for dispatch and the achievement of certain safety and training goals
established by the Panda-Rosemary Partnership.
THE PANDA-BRANDYWINE FACILITY
GENERAL. The Panda-Brandywine Facility (herein so called) is a combined-cycle
cogeneration facility located in Brandywine, Maryland (near Washington, D.C.),
with a total electric generating capacity of 230 megawatts. The Panda-Brandywine
Facility is leased by the Panda-Brandywine Partnership (herein so called), an
indirect wholly-owned subsidiary of the Company, pursuant to a capital lease.
The Panda-Brandywine Facility uses natural gas as its primary fuel input and No.
2 fuel oil as an alternative fuel in the event that gas supplies or
transportation are curtailed. The Panda-Brandywine Facility was constructed by
Raytheon Engineers and
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Constructors, Inc. ("Raytheon") pursuant to an agreement between the
Panda-Brandywine Partnership and Raytheon (the "Brandywine EPC Agreement"). See
Note 10 of Consolidated Financial Statements.
Pursuant to a power purchase agreement (the "Brandywine Power Purchase
Agreement"), the Panda-Brandywine Partnership sells the capacity of, and energy
produced by, the Panda-Brandywine Facility to Potomac Electric Power Company
("PEPCO"), a utility that serves the District of Columbia and parts of Maryland.
Pursuant to a separate agreement with PEPCO, the Panda-Brandywine Partnership
also is able to sell certain amounts of capacity and energy at market prices to
third party purchasers.
The Panda-Brandywine Facility is leased by the Panda-Brandywine
Partnership pursuant to the Brandywine Facility Lease (herein so called). The
Brandywine Facility Lease was entered into in connection with a sale-leaseback
transaction with General Electric Capital Corporation and other financing
parties. The initial term of the Brandywine Facility Lease will expire on
October 31, 2016. At the end of the initial lease term, so long as the
Panda-Brandywine Partnership is not in default under the Brandywine Facility
Lease, the Panda-Brandywine Partnership may renew the Brandywine Facility Lease
for up to two consecutive five-year terms. Alternatively, the Panda-Brandywine
Partnership may purchase the Panda-Brandywine Facility at fair sales market
value at the end of the initial lease term or any renewal term. If the
Panda-Brandywine Partnership does not renew the Brandywine Facility Lease or
purchase the Panda-Brandywine Facility, it must surrender possession of the
Panda-Brandywine Facility at the end of the term of the Brandywine Facility
Lease.
The Panda-Brandywine Facility is certified as a QF under PURPA and thus is
exempt from rate regulation as an electric utility under federal and state law,
provided that it continues to meet the applicable requirements of PURPA. The
Panda-Brandywine Partnership has been informed by PEPCO that PEPCO is pursuing a
strategy of selling all of its generating assets, which the Panda-Brandywine
Partnership believes could include the Brandywine Power Purchase Agreement. The
Company currently cannot determine the effect, if any, of such a transfer of the
Brandywine Power Purchase Agreement on the Company.
SALE OF CAPACITY, ELECTRICITY AND STEAM. The Panda-Brandywine Partnership
sells electric capacity and energy to PEPCO pursuant to the Brandywine Power
Purchase Agreement. The Brandywine Power Purchase Agreement has an initial term
that expires in October 2021, and may be extended by agreement of the parties.
The Brandywine Power Purchase Agreement provides for two payments: a
capacity payment and an energy payment. The capacity payment is a fixed charge
to be paid regardless of whether the Panda-Brandywine Facility is dispatched,
subject to reduction in certain circumstances. Monthly capacity payments
throughout the term of the Brandywine Power Purchase Agreement are based on the
Panda-Brandywine Facility's dependable capacity, the capacity rate and other
factors. The capacity rate is a fixed schedule of payments for each of the 25
years of the initial term of the Brandywine Power Purchase Agreement, ranging
from $15.13 per kilowatt hour through October 2000 to $20.32 per kilowatt hour
in 2012, subject to various adjustments.
The energy payment is determined in accordance with a series of formulas
that reflect specified heat rates, hours of synchronization and operation and a
combination of fixed and market prices for natural gas. The Brandywine Power
Purchase Agreement provides that the energy price will be increased to
compensate the Panda-Brandywine Partnership for its variable costs of fuel oil
if the gas supply is interrupted. In such event, the Brandywine Power Purchase
Agreement specifies a base cost of oil, which is escalated at the annual rate of
change according to an oil index described therein.
Electric energy produced by the Panda-Brandywine Facility is delivered to
PEPCO via a seven-mile long electric transmission line, owned by PEPCO, that
connects the Panda-Brandywine Facility and the transmission facilities of PEPCO.
In late 1997, PEPCO agreed to release certain amounts of capacity to the
Panda-Brandywine Partnership for resale of energy to other parties, and to grant
the Panda-Brandywine Partnership the right to sell additional energy, subject to
the availability of the Brandywine Facility.
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The Panda-Brandywine Partnership sells steam to the Brandywine Water
Company pursuant to a Steam Sales Agreement (the "Brandywine Steam Agreement").
Brandywine Water Company, which is an indirect wholly owned subsidiary of the
Company, uses the steam to generate distilled water which is sold locally. This
production and sale of thermal energy allows the Panda-Brandywine Facility to
achieve QF status. The Brandywine Steam Agreement continues until October 31,
2021 and may be extended by agreement of the parties for additional terms of
five years each.
GAS SUPPLY AND FUEL MANAGEMENT. The Panda-Brandywine Partnership purchases
both firm and interruptible natural gas supply from Cogen Development Company
("CDC") pursuant to a Gas Sales Agreement between the Panda-Brandywine
Partnership and CDC (the "Brandywine Gas Agreement"). MCN Corporation, the
parent corporation of CDC, has unconditionally guaranteed the payment and
performance obligations of CDC under the Brandywine Gas Agreement. The
Brandywine Gas Agreement continues until October 31, 2011, and thereafter is
automatically renewed for an additional two-year term unless terminated by
either party upon nine months' written notice.
CDC is obligated to sell and deliver to the Panda-Brandywine Partnership,
at receipt points along the pipeline system of Columbia Gas, up to 24,240 MMBtu
of natural gas per day on a firm basis and up to 24,240 MMBtu of gas per day on
an interruptible basis. Gas delivered by CDC within the firm basis limit falls
within one of three categories. The price for the natural gas delivered by CDC
varies depending upon the category of the natural gas delivered.
GAS TRANSPORTATION. The Panda-Brandywine Partnership purchases firm
natural gas transportation service from Columbia Gas Transmission Corporation
("Columbia Gas") pursuant to an Amended and Restated FTS Service Agreement (the
"Columbia Gas FT Agreement"). Service under the Columbia Gas FT Agreement
continues until October 31, 2021, and year-to-year thereafter unless terminated
by either party upon six months' notice.
Pursuant to the Columbia Gas FT Agreement, Columbia Gas is obligated to
provide the Panda-Brandywine Partnership with up to 24,240 Dekatherms ("Dth")
per day of firm natural gas transportation service from a receipt point near
Monclova, Ohio to an interconnection between the facilities of Columbia Gas and
Cove Point LNG Limited Partnership ("Cove Point") in Loudoun County, Virginia.
Columbia Gas provides the firm transportation service pursuant to the terms of
the Columbia Gas FT Agreement rate schedule and the general terms and conditions
of Columbia Gas's effective FERC natural gas tariff.
The Panda-Brandywine Partnership purchases from Cove Point firm natural
gas transportation service to transport natural gas delivered by Columbia Gas to
the facilities of Cove Point pursuant to a FTS Service Agreement (the "Cove
Point FT Agreement"). The Cove Point FT Agreement continues until October 31,
2021.
Pursuant to the Cove Point FT Agreement, Cove Point is obligated to
provide the Panda-Brandywine Partnership with up to 24,000 Dth per day of firm
natural gas transportation service from an interconnection between the
facilities of Cove Point and Columbia Gas in Loudoun, Virginia to an
interconnection between the facilities of Cove Point and Washington Gas Light
Company ("WGL") in Charles County, Maryland. Cove Point provides the firm
transportation service pursuant to the Cove Point FT Agreement, and the general
terms and conditions of its effective FERC natural gas tariff.
The Panda-Brandywine Partnership purchases from WGL natural gas
transportation, natural gas sales and natural gas balancing services pursuant to
a Gas Transportation and Supply Agreement (the "WGL Agreement"). The WGL
Agreement continues until October 31, 2021, and thereafter will continue
year-to-year unless terminated by either party upon six months' written notice.
Pursuant to the WGL FT Agreement, WGL is obligated to provide the
Panda-Brandywine Partnership with firm transportation service, up to the
quantity of natural gas nominated for such service on a given day, from an
interconnection between the facilities of Cove Point and WGL in Charles County,
Maryland to the interconnection between the WGL facilities and the
Panda-Brandywine Facility, provided that WGL only must use its best efforts to
deliver transportation natural gas to the Panda-Brandywine Facility when the
pressure on the Cove Point pipeline is less than 500 psig. During the months of
January, February and December of any calendar year,
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WGL may, under certain circumstances, request that the Panda-Brandywine
Partnership release to WGL for its system use a quantity of natural gas
purchased by the Panda-Brandywine Partnership under the Brandywine Gas Agreement
and transported to the WGL system.
FUEL OIL. The Panda-Brandywine Facility was constructed with the
capability to operate on No. 2 fuel oil and has the ability to change fuel
sources from natural gas to fuel oil and back without interrupting the
generation of electricity. The Panda-Brandywine Facility has on-site storage for
approximately two million gallons of fuel oil, a supply sufficient to operate
the Panda-Brandywine Facility at full load for approximately six days.
The Panda-Brandywine Partnership has also entered into an agreement (the
"Hardesty Transportation Agreement") with Hardesty & Son, Inc. ("Hardesty")
pursuant to which the Panda-Brandywine Partnership has rights to firm
transportation of a minimum of 20 truckloads of fuel oil per day during the
months of December through February and ten truckloads of fuel oil per day
during the months of March through November. Hardesty will use its best efforts
to provide additional transportation upon the request of the Panda-Brandywine
Partnership. If Hardesty is unable to provide such additional transportation
when requested, the Panda-Brandywine Partnership may use other means of
delivery. The Hardesty Transportation Agreement continues until October 1, 2000
and will automatically be renewed for successive one-year terms unless
terminated by either party.
WATER. The Panda-Brandywine Partnership has entered into a 25-year Treated
Effluent Water Purchase Agreement ("Water Supply Agreement") with the County
Commissioners of Charles County, Maryland to purchase up to 2.7 million gallons
per day of treated effluent from a local sewage treatment plant. Treated
effluent is a byproduct of the sewage treatment process and is used as the
primary cooling water source for the Panda-Brandywine Facility's cooling towers.
The treated effluent is transported from the sewage treatment plant to the
Panda-Brandywine Facility by a buried transmission pipeline that has the
capacity to supply up to 3.0 million gallons per day.
OPERATIONS AND MAINTENANCE. The Panda-Brandywine Partnership retains
operations and maintenance services from Panda Global Services, Inc., an
affiliate of the Company, pursuant to an Operation and Maintenance Agreement
(the "Brandywine O&M Agreement"). Pursuant to the Brandywine O & M Agreement,
Panda Brandywine, L.P. will be paid a fee of approximately $152,000 per month
during 2000, with annual adjustments based on changes in the consumer price
index for subsequent years. The Brandywine O&M Agreement is effective until
November 1, 2005, and may be extended thereafter by agreement of the parties.
PLANTS UNDER CONSTRUCTION
THE LUANNAN FACILITY
GENERAL. The Luannan Facility (herein so called), approximately 83% of
which is indirectly owned by the Company, is located in Luannan County, Tangshan
Municipality, Hebei Province, People's Republic of China. The Luannan Facility
will be comprised of two steam/electric generating units, each nominally rated
at 50 megawatts but with nameplate capability of up to 60 megawatts 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. Both units of the Luannan Facility have
passed performance testing, although the Luannan Facility has not yet been
declared ready for commercial operations (primarily due to the lack of a tariff
under the applicable power purchase agreement, as more fully described below,
and to further unit performance adjustments to be made by the Luannan EPC
Contractor). The site of the Luannan Facility is leased for a term of 23 years
(until 2020) pursuant to several Transfer Contracts for the Right to Use
State-Owned Land with the local Chinese partners, who acquired granted land use
rights from an agency of the PRC.
SALES OF POWER. The Luannan Facility will sell power to North China Power
Group Company pursuant to the Luannan Power Purchase Agreement (herein so
called). The North China Power Group Company functions as the commercial arm of
the North China Power Administration. The North China Power Group Company, which
reports directly to the State Power Corporation ("SP"), operates the North China
Power Grid. The
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service area of North China Power Group Company 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 Company also includes Hebei Province, Shanxi Province
and western Inner Mongolia. The North China Power Group Company owns most of the
major power plants within its service area. As a commercial entity, the North
China Power Group Company manages and owns most of the power assets in its
territory including generation and distribution facilities. The geographical
extent of its service area makes North China Power Group Company one of the
largest power operating entities in the PRC.
The Luannan Power Purchase Agreement has an initial term of 20 years from
the date of commercial operation of the Luannan Facility. The electricity price
is to be 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 to be 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 to be paid in Renminbi (the currency of the
PRC) and is required to be paid every 30 days by the North China Power Group
Company.
In May 1999 the owners of the Luannan Facility filed an application with
the Tangshan Municipal Price Bureau for determination of the initial tariff
under the pricing formula contained in the Pricing Document for the Luannan
Power Purchase Agreement. The owners are continuing discussions with the
Tangshan Municipal Price Bureau and other Chinese governmental agencies
concerning the tariff application and the related approval process. The tariff
application is still in process and the owners of the Luannan Facility have not
yet received an approved tariff from the governmental authorities. There can be
no assurance that the requested tariff will be approved, and the approved tariff
may be significantly lower than the amount requested. If the approved tariff
varies from the requested amount, the Company's consolidated financial position,
results of operations and cash flows could be materially adversely affected. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SALES OF STEAM. Upon reaching commercial operations, the Company
currently believes that the Luannan Facility will sell approximately 350,000
tons per year of steam for process and the equivalent of approximately 360,000
gigajoules per year of steam for heating to certain Luannan County enterprises
and local industries. Upon reaching commercial operations, the Company currently
believes that the Luannan Facility will be the single largest centralized heat
supplier in Luannan County.
ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT. Harbin Power
Engineering Company Limited (the "Luannan EPC Contractor") is the engineering,
procurement and construction contractor for the Luannan Facility.
OPERATIONS AND MAINTENANCE. The joint venture owners currently intend to
perform operation and maintenance services at the Luannan Facility. A five year
agreement with Jinzhan Power, a local Chinese utility company ("Jinzhan"), has
been entered into whereby Jinzhan has agreed to provide staff personnel to
perform operations and maintenance services under the direction of the joint
venture manager.
COAL SUPPLY. The Company currently believes that the Luannan Facility,
upon reaching commercial operations, 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 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.
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THE NEPAL FACILITY
GENERAL. The Nepal Facility (herein so called) is located on the upper
Bhote Koshi River in Nepal, approximately 110 kilometers from Kathmandu, Nepal.
The Nepal Facility is currently under construction. It will be comprised of a 36
megawatt 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. 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 prior to completion of the Nepal
Facility. The Company and an investment partner indirectly own 75% of the Nepal
Facility. Cash flow attributable to the Company's and its investment partner's
aggregate interest in the Nepal Facility will be allocated 85% to such partner
and 15% to the Company's wholly-owned subsidiary until such partner achieves a
20% internal rate of return, and 90% to the Company's subsidiary and 10% to such
partner thereafter.
The Nepalese Government has replaced various taxes with a broad "Value
Added Tax" ("VAT") and has applied the VAT to the Nepal Project with regard to
certain capital items. The Nepal Project participants believe that such
application of the VAT constitutes a "Change in Law" under the force majeure
provisions in the applicable power purchase agreement and accordingly have
delivered a notice to Nepal Electric Authority seeking appropriate price relief
to recover any VAT imposed on the Nepal Project.
During August, 1998, a major flood occurred in the upper Bhote Koshi River
basin and as a result, the Nepal Facility is currently expected to reach
commercial operation in approximately September 2000, which constitutes a delay
of eight months from the initial projected date of commercial operation,
although this delay may be reduced through implementation of a mitigation
program. The Nepal Project has insurance coverage for a substantial portion of
the loss, including business interruption coverage. The Nepal Project has
provided notice to the Nepalese Government and the Nepal Electricity Authority
that it intends to seek appropriate schedule and cost relief afforded it
pursuant to the applicable force majeure provisions under the applicable power
purchase agreement, in addition to any insurance proceeds received. In this
regard, because the NEA has indicated that it does not agree that the force
majeure provisions in the power purchase agreement support the schedule and cost
relief, a notice of arbitration has been delivered to the NEA to address the
issue.
The Company does not currently believe that the delay in commercial
operation of the Nepal Facility or the VAT imposed on certain capital items of
the Nepal Facility will cause a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. However, in the event that commercial operations
at the Nepal Facility are commenced after December 31, 2000, the applicable
power purchase agreement could be terminated and there could be a material
adverse effect on the business, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole.
SALES OF POWER. Upon reaching commercial operations, and subject to the
discussion above concerning force majeure, the Nepal Facility will sell power to
the NEA pursuant to the Nepal Power Purchase Agreement (herein so called). The
Nepal Power Purchase Agreement will terminate 25 years from the date of
commercial operation of the Nepal Facility. Upon the termination of the Nepal
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.
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ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT. China Gezhouba
Construction Group Corporation for Water Resources and Hydropower ("China
Gezhouba") is the engineering, procurement and construction contractor for the
Nepal Facility. China Gezhouba has engaged Harbin Electric Machinery Works
("Harbin"), based in Harbin China, to supply the turbine generators for the
Nepal Facility.
OPERATIONS AND MAINTENANCE. Harza Engineering Company International, L.P.
("Harza") will provide operations and maintenance services for the Nepal
Facility pursuant to a contract with an initial term of five years from
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 kilometers,
mostly in the PRC. The mean annual flow at the proposed site was 66.4 cubic
meters per second between 1965 and 1992. The Nepal Facility is 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 subsidiaries compete with other independent
power producers, including non-regulated 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 the United States, over the past decade, developing electric generating
power plants has become a progressively more difficult, expensive and
competitive process. Increased competition also has lowered profit margins of
successful projects in the United States and abroad. In addition, due to the
downturn in certain foreign markets, especially Asia, there has been an
increasing number of entrants into the domestic market.
REGULATORY MATTERS
REGULATION OF THE ELECTRIC POWER INDUSTRY IN THE UNITED STATES
Projects of the Company located in the United States are subject to
complex and stringent energy, environmental and other governmental laws and
regulations at the federal, state and local levels in connection with the
development, ownership and operation of its electricity generation facilities.
Federal laws and regulations govern transactions by electric and gas utility
companies, the types of fuel that may be utilized by an electric generating
facility, the type of energy that may be produced by such a facility and the
ownership of the facility. State utility regulatory commissions must approve the
rates and terms and conditions under which public utilities sell electric power
at retail and, under certain circumstances, purchase electric power from
independent producers. Under certain circumstances where specific exemptions are
otherwise unavailable, state utility regulatory commissions may have broad
jurisdiction over non-utility electric power generation facilities. Energy
producing projects located in the United States also are subject to federal,
state and local laws and administrative regulations governing the emissions and
other substances produced, discharged or disposed of by a facility and the
geographical location, zoning, land use and operation of a facility. Applicable
federal environmental laws typically have state and local enforcement and
implementation provisions. These environmental laws and regulations generally
require that a variety of permits and other approvals be obtained before the
commencement of construction or operation of an energy-producing facility and
that the facility then operate in compliance with those permits and approvals.
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FEDERAL AND STATE ENERGY REGULATION
PURPA. PURPA and the regulations promulgated thereunder provide certain
rate and regulatory incentives to an electric generating facility that is a
qualifying cogeneration or small power production facility (a "QF" or
"Qualifying Facility"). A cogeneration facility is a QF if it (i) sequentially
produces both electricity and useful thermal energy that is used for industrial,
commercial, heating or cooling purposes, (ii) meets certain energy efficiency
and operating standards when oil or natural gas is used as a fuel source and
(iii) is not more than 50%-owned by an electric utility, electric utility
holding company or an entity or person owned by either or any combination
thereof. The Panda-Rosemary Facility and the Panda-Brandywine Facility are
cogeneration QFs.
Under PURPA and the regulations promulgated thereunder, QFs receive two
primary benefits. First, most types of QFs are exempt from most provisions of
the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), and from
most provisions of the Federal Power Act, as amended (the "FPA"), while all QFs
are exempt from certain state laws relating to organizational, rate and
financial regulation. Second, regulations promulgated by the FERC under PURPA
require that (i) electric utilities purchase electricity generated by QFs,
construction of which commenced on or after November 9, 1978, at a price based
on the purchasing utility's full "avoided costs" and (ii) the utilities sell
supplementary, back-up, maintenance and interruptible power to the QFs on a just
and reasonable and non-discriminatory basis. PURPA and the regulations
promulgated thereunder define "avoided costs" as the "incremental costs to an
electric utility of electric energy or capacity or both which, but for the
purchase from the qualifying facility or qualifying facilities, such utility
would generate itself or purchase from another source." Utilities may also
purchase power from QFs at prices other than "avoided costs" pursuant to
negotiations as provided by FERC regulations.
Any merchant plant, if developed and constructed by the Company in the
United States, probably would not qualify as a QF, but nonetheless probably
would be exempt from most provisions of PUHCA by virtue of being an "exempt
wholesale generator" "or "EWG" (described below).
The FERC's regulations also provide that if energy or capacity is provided
pursuant to a legally enforceable obligation over a specified term, avoided
costs may be determined, at the option of the QF, either at the time the energy
or capacity is delivered or as calculated at the time the obligation is
incurred. The FERC's regulations further provide that, in the case of rates
based on estimates of avoided costs over the term of a contract, the rates do
not violate the FERC's rates if the rates for such purchases differ from avoided
costs at the time of delivery.
In certain instances, payments based upon avoided costs estimated at the
time a contract is entered into have proven to be greater than a utility's
avoided costs at the time of delivery. Many utilities have attempted to minimize
the disparity by implementing strategies designed to reduce avoided cost
payments under such contracts to levels that the utilities believe will be more
competitive in a short-term marginal cost electric energy market. Such
strategies include attempts to renegotiate or buy out power purchase contracts
with QFs. Some utilities have sought rigorously to enforce the terms of such
contracts and to exercise their contractual termination rights if the contracts
are not strictly observed. In addition, some utilities have engaged in
litigation and regulatory action against QFs to achieve these ends.
The FERC has refused to disturb QF contract rates on two operating
projects where estimates of a utility's avoided costs, calculated at the time
the contracts were signed, were higher than the actual avoided costs at the time
of delivery and the contract rates were not challenged at the time the contracts
were signed and were not the subject of an ongoing challenge to the state's
avoided cost determination. New York State Electric & Gas Corporation, 71 FERC
61,027, reconsideration denied, 72 FERC 61,067 (1995). This decision is
currently the subject of a complaint filed in the United States District Court
for the Northern District of New York.
Relying in part on the FERC's regulations, a federal court of appeals has
held that once a state commission has approved (by final and nonappealable
order) a QF contract rate as being consistent with avoided costs, just,
reasonable and prudently incurred, any action or order by the state commission
to reconsider its approval or deny the pass-through of the QF's charges to the
utility's retail customers under purported state authority is preempted by PURPA
and the Federal Power Act. FREEHOLD COGENERATION ASSOCS., L.P. V. BOARD OF
REGULATORY
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COMM'RS OF NEW JERSEY, 44 F.3D 1178 (3RD CIR.), CERT. DENIED SUB
NOM., JERSEY CENTRAL POWER & LIGHT CO. V. FREEHOLD COGENERATION ASSOCS., L.P.,
116 S. CT. 68 (1995).
In Independent Energy Producers Assoc. v. California Public Utilities
Comm'n, 36 F.3d 848 (9th Cir. 1994), the U.S. Court of Appeals for the Ninth
Circuit held that states are not preempted by PURPA from instituting a program
that requires QFs to submit operating data, to purchasing utilities for
monitoring compliance with QF status requirements, as long as the monitoring
requirements do not impose an undue burden on the QFs. However, the same court
determined that states and utilities are preempted by federal law from taking
action on their determination that a QF is no longer in compliance with QF
status requirements, other than requesting that the FERC revoke the facility's
QF status, either by filing a request for revocation or by filing a petition for
a declaratory order that the facility is no longer a QF.
On June 13, 1997, the State Corporation Commission of the Commonwealth of
Virginia ("SSC") granted Virginia Power's request and issued an order
authorizing such a monitoring program. The order states that the monitoring
program would apply to all QFs that have entered into power purchase agreements
with Virginia Power. Under the program, QFs must submit to Virginia Power by
July 1 of each year certain operational data from the previous year and indicate
significant changes from previous years. Virginia Power must report to the SSC
by October 1 of each year the results of Virginia Power's QF compliance
evaluation. Virginia Power may seek a declaration from the FERC that a QF does
not qualify under the FERC rules.
The North Carolina Utilities Commission ("NCUC") has disallowed the
pass-through to Virginia Power's North Carolina retail rates of a portion of
capacity payments Virginia Power had been making to several non-utility
generation plants. The capacity payment rates for the plants had been determined
by an arbitrator and approved by the SCC. The NCUC found that bids from a 1988
solicitation (the "1988 Virginia Power Solicitation") were available at the time
the contract was approved and should have been used, instead of arbitration, to
determine Virginia Power's avoided costs. The NCUC ruled that rates in excess of
the rates derived from bids received in the 1988 Virginia Power Solicitation
were therefore disallowed in Virginia Power's North Carolina retail rates. The
North Carolina Supreme Court upheld the NCUC's decision, saying that the NCUC
had simply disallowed rates above avoided costs. North Carolina Utilities Comm'n
v. North Carolina Power, 338 N.C 412, 450 S.E.2d 896 (1994). The United States
Supreme Court declined to review that decision.
While the Rosemary Power Purchase Agreement with Virginia Power was not
specifically approved by the SCC, the SCC did approve the 1988 Virginia Power
Solicitation that resulted in the Rosemary Power Purchase Agreement. Although
the NCUC used the 1988 Virginia Power Solicitation to determine the avoided
costs in the North Carolina decision discussed above, there can be no assurance
that it would not disallow the pass-through of the Rosemary Power Purchase
Agreement rates, which arose from the 1988 Virginia Power Solicitation. If the
NCUC were to disallow such pass-through, and if the courts were to allow the
decision to stand, the Company believes that any such disallowance would affect
only that portion of Virginia Power's rates allocated to its North Carolina
retail customers. The Brandywine Power Purchase Agreement has been approved by
both the Maryland and District of Columbia Public Service Commissions.
The Company endeavors to develop its U.S. QF projects, monitor compliance
by such U.S. QF projects with applicable regulations and choose its customers in
a manner which minimizes the risks of losing QF status. Certain factors
necessary to maintain QF status are, however, subject to the risk of events
outside the Company's control. For example, loss of a thermal energy customer or
failure of a thermal energy customer to take required amounts of thermal energy
from a cogeneration facility that is a QF could cause the facility to fail to
satisfy the criteria required for QF status regarding the level of useful
thermal energy output. Upon the occurrence of such an event, the Company would
seek to replace the thermal energy customer or find another use for the thermal
energy that meets PURPA's requirements, but no assurance can be given that this
would be possible.
If one of the U.S. projects which is a QF and in which the Company has an
interest should lose its status as a QF, such project would no longer be
entitled to the exemptions from PUHCA and the FPA. This could subject the U.S.
project to rate regulation as a public utility under the FPA and state law and
could result in the Company or certain of its affiliates inadvertently becoming
a public utility holding company by owning more than 10% of the voting
securities of, or controlling, a facility that would no longer be exempt from
PUHCA. This could cause all of the Company's remaining U.S. projects which are
QFs to lose their QF status, because QFs may not be
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controlled, or more than 50%-owned, by public utility holding companies. Loss of
QF status could also trigger defaults under covenants to maintain QF status in
the Company's U.S. project power purchase agreements, steam sales agreements and
financing agreements and result in termination, penalties or acceleration of
indebtedness under such agreements, plus interest. A facility may lose its QF
status on a retroactive or a prospective basis.
If a U.S. project which is a QF were to lose its QF status (because, for
example, it lost its steam customer), the Company and its affiliates could
attempt to avoid holding company status (and thereby protect the QF status of
its other QF projects) on a prospective basis by restructuring its interests in
such U.S. project. For instance, the Company could change its voting interest in
the entity owning the nonqualifying project to nonvoting or limited partnership
interests and sell the voting interest to an individual or company which could
tolerate the lack of exemption from PUHCA, or by otherwise restructuring
ownership of the project so as not to become a holding company. These actions,
however, would require approval of the Securities and Exchange Commission (the
"SEC") or a no-action letter from the SEC, and would result in a loss of control
over the nonqualifying project, could result in a reduced financial interest
therein and might result in a modification of the operation and maintenance
agreement relating to such project. A reduced financial interest could result in
a gain or loss on the sale of the interest in such project, the removal of the
affiliate through which the ownership interest is held from the consolidated
income tax group or the consolidated financial statements of the Company and its
affiliates, or a change in the results of operations of the Company and its
affiliates. Loss of QF status on a retroactive basis could lead to, among other
things, fines and penalties being levied against the Company and its affiliates,
and its subsidiaries and claims by utilities for refund of payments previously
made, with interest.
Under the Energy Policy Act of 1992 ("Energy Policy Act"), a company
engaged exclusively in the business of owning and/or operating a facility used
for the generation of electric energy exclusively for sale at wholesale may be
exempted from PUHCA as an "exempt wholesale generator" or "EWG." An exempt
wholesale generator may not make retail sales of electricity in the U.S. If a
project can be qualified as an EWG under Section 32 of PUHCA it will be exempt
from PUHCA even if it does not qualify as a QF. Therefore, if a QF in the
Company's project portfolio were to lose its QF status, the Company could apply
to have the project qualified as an EWG. However, assuming this changed status
would be permissible under the terms of the applicable power purchase agreement,
rate approval from FERC would be required. In addition, the project would be
required to cease selling electricity to any retail customers (such as the
thermal energy customer) and could become subject to state regulation of sales
of thermal energy.
If EWG status is lost and cannot be regained, this could result in the
Company or certain of its affiliates inadvertently becoming a public utility
holding company by owning more than 10% of the voting securities of, or
controlling, a facility that would no longer be exempt from PUHCA. As noted
above, this could cause all of the Company's remaining U.S. projects which are
QFs to lose their QF status, because QFs may not be controlled, or more than
50%-owned, by public utility holding companies. Loss of exemption from PUHCA
could also trigger defaults under covenants to maintain exemptions from PUHCA.
PUHCA. PUHCA provides that any corporation, partnership or other entity or
organized group that owns, controls or holds power to vote 10% or more of the
outstanding voting securities of a "public utility company" or a company that is
a "holding company" of a public utility company is subject to regulation under
PUHCA, unless an exemption is established or an SEC order declaring it not to be
a holding company is granted. Registered holding companies under PUHCA are
required to limit their utility operations to a single integrated utility system
and to divest any other operations not functionally related to the operation of
the utility system. In addition, a public utility company that is a subsidiary
of a registered holding company under PUHCA is subject to financial and
organizational regulation, including approval by the SEC of certain of its
financing transactions.
As discussed above, most types of QFs and all EWGs are exempt from most of
the provisions of PUHCA. A foreign utility company is also exempt from most of
the provisions of PUHCA if certain notice and other requirements are satisfied.
FPA. Under the FPA, the FERC has exclusive rate-making jurisdiction over
wholesale sales of electricity and transmission in interstate commerce. These
rates may be determined on either a cost-of-service basis or a market-based
approach. If a QF in the Company's project portfolio were to lose its QF status,
the rates set forth
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in the applicable power purchase agreement would have to be filed with the FERC
and would be subject to initial and potentially subsequent reviews by the FERC
under the FPA, which could result in reductions to the rates.
INDUSTRY RESTRUCTURING PROPOSALS. The United States Congress is currently
considering legislation to repeal PURPA entirely, or at least to repeal the
obligation of utilities to purchase from QFs. There is strong Congressional
support for grandfathering contracts of existing QFs if such legislation is
passed, and also support for requiring utilities to conduct competitive bidding
for new electric generation if the PURPA purchase obligation is eliminated.
Congress is also considering legislation to repeal PUHCA. Such repeal would
remove restrictions from the Company, but would also remove restrictions from
its competitors.
The FERC and many state utility commissions are either studying or have
adopted proposals to restructure the electric utility industry in the United
States to permit utility customers to choose their utility supplier in a
competitive electric energy market. The FERC has issued a final rule requiring
utilities to offer wholesale customers and suppliers open access on their
transmission lines, on a basis comparable to the utilities' own use of the
lines. Although the rule (Order No. 888) is currently the subject of a petition
for review in the Unites States Court of Appeals for the D.C. Circuit, all
"public utilities" have already filed "open access" tariffs. The utilities
contend that they should recover from departing customers their fixed costs that
will be "stranded" if their wholesale customers choose new electric power
suppliers. These stranded costs include the capacity costs utilities are
required to pay under many QF contracts, which the utilities view as excessive
when compared with current market prices for capacity. Many utilities are
therefore seeking ways to lower these contract prices or terminate the contracts
altogether, out of fear that their shareholders will have to bear all or part of
such "stranded" costs. Some utilities have engaged in litigation against QFs to
achieve these ends. The FERC's rule allows full recovery of "legitimate and
verifiable" prudently incurred stranded costs at the wholesale level. However,
the FERC has jurisdiction over only a small percentage of electric rates, and
there is likely to be litigation over whether wholesale stranded costs are
"legitimate and verifiable."
In addition to restructuring proposals being considered by regulatory
agencies, a number of bills have been introduced in the U.S. Congress to promote
electric utility restructuring and deregulation of electric rates. These bills
differ as to how and to what extent a utility's "stranded" or "transition" costs
would be recoverable if current captive customers left the utility's system. The
existence of this legislation may increase the desire of utilities to
renegotiate, buy out or attempt to terminate existing power purchase agreements
containing prices that the utilities believe will not be competitive in a
short-term marginal cost electric energy market. In addition, if electric energy
prices are deregulated, electric energy producers will have to sell electric
energy at competitive market prices. In Virginia, a new law which took effect on
July 1, 1999, provides for the recovery of "just and reasonable net stranded
costs" (see discussion of stranded costs, above), which include "electric
service contracts." Such recovery may be made only through either capped rates,
established for a transition period, or through wire charges for the use of
transmission lines to reach another supplier. Wire charges will be the sum of
the difference between the utility's capped unbundled rates and projected market
prices for generation, and any transition costs found to be just and reasonable
by the SCC. All deferred wire charges must be paid in full by July 1, 2007.
STATE REGULATIONS. State public utility commissions ("PUCs") have broad
authority to regulate both the rates charged by and financial activities of
electric utilities, and to promulgate regulations implementing PURPA. Since a
power purchase agreement will become a part of a utility's cost structure (and
therefore generally is reflected in its retail rates), power purchase agreements
from independent power producers are potentially subject to the regulatory
purview of PUCs, particularly the process by which the utility has entered into
the power purchase agreements. If a PUC has approved the process by which a
utility secures its power supply, a PUC generally will be inclined to allow a
utility to "pass through" the expenses associated with an independent power
contract to the utility's retail customers. Moreover, a federal court of appeals
has held in one instance that a PUC may not disallow the full reimbursement to a
utility for the purchase of electricity from a QF once the PUC has approved the
rates as consistent with the requirements of PURPA. See Freehold Cogeneration
Assocs., L.P. v. Board of Regulatory Comm'rs of New Jersey, 44 F.3d 1178 (3rd
Cir.), cert. denied sub nom., Jersey Central Power and Light Co. v. Freehold
Cogeneration Assocs., L.P., 116 S. Ct. 68 (1995). In addition, retail sales of
electricity or thermal energy by an independent power producer may be subject to
PUC regulation, depending on state law.
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Independent power producers that are not QFs under PURPA are considered to
be public utilities in many states and are subject to broad regulation by PUCs
ranging from the requirement that certificates of public convenience and
necessity be obtained to regulation of organizational, accounting, financial and
other corporate matters. However, sales of electricity at wholesale in
interstate commerce (as are currently contemplated by the Company regarding EWG
merchant plants which it might develop in the U.S.), except in the region
regulated by the Electric Reliability Council of Texas ("ERCOT") where FERC
lacks jurisdiction, are subject to the exclusive regulatory jurisdiction of the
FERC. In addition, states may assert jurisdiction over the siting and
construction of such facilities, and over the issuance of securities and the
sale or other transfer of assets by such EWG facilities.
State PUCs also have jurisdiction over the transportation and retail sale
of natural gas by local distribution companies. Each state's regulatory laws are
somewhat different; however, all generally require a local distribution company
to obtain approval from the PUC to provide services and construct facilities.
The rates of local distribution companies are usually subject to continuing
oversight by the PUC.
In the case of the Panda-Rosemary Facility, the Panda-Rosemary Partnership
is subject to a number of conditions imposed by the North Carolina Utilities
Commission ("NCUC") pursuant to a Certificate of Public Convenience and
Necessity ("CPCN"), including that the Panda-Rosemary Facility and the Rosemary
Pipeline both be owned by the Panda-Rosemary Partnership, that the
Panda-Rosemary Partnership not transport gas for or sell or deliver gas to any
other entity, that all electricity generated at the Panda-Rosemary Facility be
sold to an electric utility and that all thermal energy produced at the
Panda-Rosemary Facility be sold only to the textile mill to which steam and
chilled water from the Panda-Rosemary Facility are currently delivered. On
February 18, 1997, The Bibb Company ("Bibb") announced that it would sell the
textile mill to Westpoint Stevens, Inc. ("Westpoint"). The closing of the sale
was reported in the news media on February 21, 1997. If, in fact, Bibb is no
longer the owner of the textile mill, the Panda-Rosemary Partnership is
obligated to notify the NCUC and Virginia Power and the NCUC could order such
further proceedings as it deemed appropriate, which proceedings could result in
revocation of the CPCN or the imposition of other conditions. See Item 3. "Legal
Proceedings - Bibb/Westpoint Stevens Proceedings" below.
NATURAL GAS REGULATION. The Company has an indirect 100% interest in and
operates two natural gas-fired cogeneration projects in the United States, one
of which is owned and one of which is under a long term lease financing
arrangement. The cost of natural gas (other than debt costs) is ordinarily the
largest expense of a gas-fired power project and is critical to the project's
economics. The risks associated with using natural gas can include the need to
arrange transportation of the gas across great distances, including obtaining
removal, export and import authority if the gas is transported from Canada, the
possibility of interruption of the natural gas supply or transportation
(depending on the quality of the natural gas reserves purchased or dedicated to
the project, the financial and operating strength of the gas supplier and
whether firm or non-firm transportation is purchased), and obligations to take a
minimum quantity of gas or pay for it (take-or-pay obligations).
Pursuant to the Natural Gas Act, FERC has regulatory jurisdiction over the
transportation, storage, and sale for resale of natural gas in interstate
commerce. FERC's statutory authority requires FERC to approve the construction
and abandonment of facilities used to transport and store gas in interstate
commerce and to regulate the transportation and storage services provided
through these facilities. FERC's rules and regulations require regulated
"natural-gas companies" to provide equal and non-discriminatory transportation
and storage services to third parties requesting this service, to the extent
capacity is available to provide the service. Terms and conditions of service,
including rates, for these interstate services are approved by FERC. FERC's
current policy regarding rates is to require the regulated natural-gas companies
to charge no more than a maximum, cost-based rate approved by FERC for its
various services. However, FERC will allow the natural-gas companies to
negotiate, on a non-discriminatory basis, special rates with their customers.
Under current FERC policy, any transportation or storage customer receiving
service pursuant to a contract exceeding one year in duration and requiring the
customer to pay the maximum, cost-based rate for the service can maintain rights
to the capacity subscribed under the contract at the end of the contract term by
agreeing to pay the highest rate (up to the maximum, cost-based rate) and
longest term (up to five years) bid by a third party for the customer's
capacity. FERC no longer exercises regulatory oversight regarding sales of
natural gas for resale in interstate commerce.
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In a rulemaking issued on February 9, 2000 (Order No. 637), FERC
implemented changes to its ratemaking policies. Among other things, FERC will
(i) allow natural-gas companies to design rates that vary depending on the term
of the transportation or storage service contract executed by the natural-gas
company and its customers and, for short-term (i.e., less than one year) firm
and interruptible transportation and storage services, that vary by season, and
(ii) allow customers that hold firm transportation or storage capacity and that
"release" (or assign) this capacity to a third party for less than one year to
charge a rate that exceeds the maximum, cost-based rate that the customer pays
to the pipeline for the released service.
ENVIRONMENTAL REGULATIONS. The development, construction and operation of
power projects in the United States is subject to extensive federal, state and
local laws and regulations adopted for the protection of the environment and to
regulate land use. The laws and regulations applicable to the Company and its
subsidiaries primarily involve the discharge of emissions into the water and air
and the use of water, but can also include wetlands preservation, endangered
species, waste disposal and noise regulations. These laws and regulations in
many cases require a lengthy and complex process of obtaining licenses, permits
and approvals from federal, state and local agencies.
Noncompliance with environmental laws and regulations can result in the
imposition of civil or criminal fines or penalties. In some instances,
environmental laws also may impose clean-up or other remedial obligations in the
event of a release of pollutants or contaminants into the environment. The
following federal laws are among the more significant environmental laws that
may apply to the Company and its domestic subsidiaries. In most cases, analogous
state laws also exist that may impose similar, and in some cases more stringent,
requirements on the Company and its subsidiaries.
CLEAN AIR ACT. The Federal Clean Air Act, as amended (the "Clean Air
Act"), provides for the regulation, largely through state implementation of
federal requirements, of ambient air quality and emissions of air pollutants
from certain facilities and operations. As originally enacted, the Clean Air Act
set guidelines for emissions standards for major pollutants (e.g., sulfur
dioxide and nitrogen oxide) from new sources. The 1990 Clean Air Act Amendments
tightened regulations on emissions from existing sources, particularly
previously exempted older power plants.
CLEAN WATER ACT. The Federal Clean Water Act, as amended (the "Clean Water
Act"), also provides for the regulation, largely through state implementation of
federal requirements, of the quality of surface waters and imposes limitations
on discharges to those waters from point sources, including certain facilities
and operations. The water quality standards established under the Clean Water
Act are used as the basis for developing specific pollutant discharge
limitations from point sources. The discharge limitations are incorporated into
permits called National Pollutant Discharge Elimination System ("NPDES")
permits. The Clean Water Act also imposes requirements with respect to the
discharge of stormwater runoff from industrial sites. Those requirements are
implemented through state stormwater discharge permits. The Clean Water Act also
restricts discharges of fill materials to wetlands.
RESOURCE CONSERVATION AND RECOVERY ACT. The Resource Conservation and
Recovery Act of 1976 ("RCRA") regulates the generation, treatment, storage,
handling, transportation and disposal of solid and hazardous waste.
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT. The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA" or "Superfund"), requires the remediation of sites from
which there has been a release or threatened release of hazardous substances and
authorizes the United States Environmental Protection Agency to take any
necessary response action at Superfund sites, including ordering potentially
responsible parties liable for the release to take or pay for such actions.
Potentially Responsible Parties are broadly defined under CERCLA to include past
and present owners and operators of such sites, as well as generators, arrangers
and transporters of wastes sent to a site.
REGULATION OF THE ELECTRIC POWER INDUSTRY IN THE PRC.
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GENERAL. The PRC's electric power industry is regulated primarily by the
State Economic and Trade Commission ("SETC") in conjunction with the State
Development and Planning Commission ("SDPC") and other governmental agencies.
The SETC, as the successor to the governmental and administrative functions
formerly exercised by the Ministry of Electric Power (the "MOEP"), began
performing such functions following the dissolution of the MOEP in March 1998.
Pursuant to resolutions of the Ninth National People's Congress introduced in
March 1998, the governmental functions of the MOEP were officially transferred
to the SETC and MOEP was dissolved. National grid management, ownership of
state-funded electric generating assets and development planning
responsibilities will remain with the State Power Corporation (the "SP"). The
reorganization of the power industry in the PRC is still in process and will be
accomplished over a period of time.
Foreign investments in electric power projects in the PRC are regulated by
the Ministry of Foreign Trade and Economic Cooperation of the PRC ("MOFTEC"),
the SDPC (in the case of investments in new projects) or the SETC (in the case
of investments in existing projects), the State Administration of Foreign
Exchange ("SAFE"), the State Administration of Industry and Commerce of the PRC
(the "SAIC") and certain other agencies. With respect to foreign-invested
projects where the total amount invested is below certain thresholds expressed
in US Dollars, certain regulatory and approval authority of the Central
Government (herein so called) agencies are delegated to local, provincial, or
city governmental agencies performing similar functions, although regulations
promulgated by the MOEP in late 1997 and early 1998 (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 SDPC are bound by
or, if not, will follow these regulations.
STATE ECONOMIC AND TRADE COMMISSION. As the governmental department
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. The SETC
has also assumed the government functions in respect of hydro-powered
electricity construction previously held by the Ministry of Water Resources. In
addition to formulating electric power industry planning in collaboration with
the SDPC 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) formulates industrial
regulations, rules and policies for the electric power industry (except power
price, which is regulated by SDPC). The SETC shares certain of its
administrative responsibilities with the China Nuclear Industry Corporation with
respect to nuclear-powered electricity generating facilities.
STATE POWER CORPORATION. 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 is also responsible for the operation of the inter-regional 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 the 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 of the PRC power industry, the key
policy of which is separation of regulatory functions from enterprise
management, it is expected that provincial power bureaus will eventually be
dissolved and their regulatory function will be handed over to comprehensive
economic administrative departments of provincial governments, while provincial
power companies will be restructured to be independent legal entities
responsible for their own profit and loss. This restructuring is already under
way in Northeast China, and it is expected that it will eventually be
implemented nationwide.
STATE ADMINISTRATION OF FOREIGN EXCHANGE. The SAFE is principally
responsible for the 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 monitoring the interbank foreign exchange system.
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REGIONAL, PROVINCIAL AND LOCAL POWER COMPANIES. The SETC directly oversees
the five interprovincial power groups (the "Regional Power Groups"), eight
independent provincial and two special administrative region power companies
("Provincial Power Companies") in the PRC, all of which are subsidiaries of the
SP. Each Regional Power Group (i) manages its regional power grids, (ii)
dispatches the power plants connected to such grids either directly or
indirectly through lower level power companies, and (iii) supervises the power
companies 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 SP and the key
personnel of the Provincial Power Companies are appointed by the provincial
governments in consultation with the SP.
A similar structure exists for the Provincial Power Companies under the
Regional Power Groups and the Provincial Power Companies directly owned and
managed by the SP. Each Provincial Power Company manages its provincial power
grid and dispatches the power plants connected to such grid to meet local
demand. The Provincial Power Companies 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 companies
(together with the Regional Power Groups and the Provincial Power Companies, the
"Power Companies") which perform, under the administration of the Power Company
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 law delineates the approval process for on-grid
tariffs and makes a distinction between the approvals required for
regional/provincial 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 losses. Although these are the
objectives of reform for China's power industry, it takes time and effort to
implement them. To this end, the Power Law authorizes the State Council to
establish implementation regulations and rules for these purposes.
RATE SETTING MECHANISMS. There are no regulations or governmental decrees
that regulate tariff formulas. The Power Law, however, does provide general
principles for determining tariffs paid by electric power grids to electricity
producers. Electricity prices, according to the Power Law, shall be determined
in accordance with the principles of uniform policy, unified pricing and
regulation at different levels, and the formulation of electricity prices shall
be based on the principles of reasonably compensating for costs incurred,
reasonably determining profits, legally computing taxes and equitably dividing
the cost in order to promote power construction. The Power Law also authorizes
the State Council to work out concrete rules for those power generating
enterprises that need to formulate a different on-grid power price due to
special circumstances. Rates for electricity produced by power plants that the
SP directly or indirectly owns and 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, tariffs are
negotiated between the power plant, the operator of the grid (i.e., currently a
certain Regional Power Group) and the relevant provincial pricing bureau, and,
except in the case of power to be dispatched to an independent grid or to be
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consumed within the same province of the power generation, the proposed tariff
is then submitted to the pricing department at the SDPC for final approval.
In the case of power plants owned and managed directly or indirectly by
the SP, customers purchase electricity from the Power Companies at each level of
the administration of the PRC at rates determined by the Central Government,
which vary according to the category and location of the user. The rates set by
the Central Government have traditionally been maintained at a low level,
requiring the subsidization of the electric power industry by the Central
Government. One of the stated goals of the 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 Group Company 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 Companies.
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 and the commercial operation of the first group of generation
units, 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 Regional Power
Groups (for interprovincial regional grids), 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
Regional Power Groups or Power Companies. Prior to November 1993, 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"). Under the Dispatch
Regulations, Dispatch Centers were established at five levels: the National
Dispatch Center, the Dispatch Centers of the Regional Power Groups, the Dispatch
Centers of the Provincial Power Companies, the Dispatch Centers of the Power
Companies of cities under provinces and the Dispatch Centers of the county Power
Companies. 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 Company 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 applicable State Plan, (ii) agreements entered into between a
Dispatch Center and each power plant subject to its dispatch, (iii)
interconnection agreements between Power Companies 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
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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 killowatts, 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 kilometers; 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 a 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 REGULATION
GENERAL. The Company and its subsidiaries have ownership interests in
power plants under construction in the PRC 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
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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 exercised 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.
EMPLOYEES
At December 31, 1999, the Company and its subsidiaries had no employees.
Robert W. Carter is Chairman of the Board, Chief Executive Officer and one
of two directors of the Company. Janice Carter is Executive Vice President,
Secretary and Treasurer of the Company, and is married to Robert W. Carter. Todd
Carter is Senior Vice President - Corporate Finance of the Company, and is the
son of Robert W. and Janice 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.
YEAR 2000
The Company and its subsidiaries have experienced no material year 2000
failures or problems. The Company is, however, continuing to monitor its systems
for any problems that may occur, especially in the initial months of the year
2000.
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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 and certain of its subsidiaries are claimants or defendants in
various legal proceedings which have arisen in the ordinary course of business.
HEARD PROCEEDINGS
Panda Energy Corporation, a Texas corporation and a subsidiary of the
Company ("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 of these opportunities. PEC's legal claims include causes of
action for misappropriation, conspiracy, fraud, breach of contract and breach of
fiduciary duty 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's claims against
Morgan Stanley, however, and Morgan Stanley's counterclaims have all been
dismissed from the action pursuant to a confidential settlement that the parties
entered into in February 2000.
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 certain
misrepresentations and that they incurred damages in the amount of approximately
$5.0 million as a result of these misrepresentations. In both the counterclaim
and the third-party claim, the Heard Defendants further alleged 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'
claim is without merit.
On March 15, 1996, all of the defendants filed motions for summary
judgment, and by letter dated April 30, 1996, the court advised all counsel that
it intended to grant the defendants' motions for summary judgment. This order
was entered on June 19, 1996. The Heard Defendants and Morgan Stanley then
dismissed their counterclaims against PEC in May 1996 to permit the summary
judgment to become a final, appealable order, and PEC promptly appealed from
that summary judgment. On October 22, 1998, the Court of Appeals Fifth District
Court of Texas ruled in favor of PEC and reversed the trial court's summary
judgment and remanded the case back to the trial court. The Heard Defendants
appealed this ruling to the Texas Supreme Court. On February 25, 1999, the Texas
Supreme Court denied such appeal.
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The Company has settled this matter with certain of the defendants,
including all issues relating to Morgan Stanley & Co., Inc., and further
discovery is ongoing with the remaining defendants, including, but not limited
to, Allstate Insurance Company and certain of the former employees. Discovery
remains ongoing in the case, which is now set for jury trial in Dallas in
January 2001. The Allstate defendants asserted a counterclaim against PEC on
March 27, 2000, in which these defendants seek a declaratory judgment that they
are not liable to PEC for a default judgment that PEC previously obtained
against one of the former defendants.
The Company and PEC do not believe that the counterclaims or third-party
claims have any merit, nor does the Company 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 the Company and its
subsidiaries, taken as a whole.
BIBB/WESTPOINT STEVENS PROCEEDINGS
In April 1998, Panda-Rosemary Corporation, the general partner of the
Panda-Rosemary Partnership and a wholly-owned subsidiary of the Company, filed
suit in federal court charging the Bibb Company ("Bibb") and Westpoint Stevens,
Inc. ("Westpoint") with violating a contractual agreement in the sale of a
textile mill in 1997 and in the operation of the mill since that time. The
Rosemary facility supplies steam and chilled water to the textile mill under a
contract originally signed with Bibb. Westpoint acquired the textile mill from
Bibb in 1997. The suit asked the court to determine and clarify the rights of
the parties to the contract. The federal court dismissed this action in June
1998 and Westpoint and Bibb filed a separate suit in state court in Halifax
County, North Carolina shortly thereafter, claiming, among other things, breach
of contract in regard to the delivery of steam. On October 27, 1998, an
affiliate of Panda-Rosemary Corporation filed suit in state court in Dallas
County, Texas against Westpoint and Bibb seeking various damages regarding the
contract. The case has since been transferred to Special Business Court in
Winston-Salem, North Carolina, by agreement of the parties. Thereafter, all
parties filed motions for partial summary judgment, and on December 16, 1999,
the Court issued an Order and Opinion wherein the Court granted in part and
denied in part each party's cross motion. Both parties have appealed the Court's
Order, and the trial court has stayed all proceedings pending the appeal.
Panda-Rosemary Corporation and its affiliates intend to vigorously pursue their
claims against Bibb and Westpoint in these court actions. Panda-Rosemary
Corporation continues to provide steam and chilled water to the mill.
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, a wholly-owned
subsidiary of the Company ("PGE"), 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.
A trial on this matter was held in August 1999 and on September 13, 1999,
PGE filed a motion for judgment on the jury's verdict, contending that NDR take
nothing and that PGE be awarded its attorney's fees. NDR also filed a motion for
judgment, which included claims for increased ownership in the Luannan Facility,
additional cash compensation and that PGE be required to buy out its interest at
appraised value. The judge in the trial court recently ruled that PGE has no
liability to NDR and that NDR reimburse PGE for its attorneys' fees. Various
post-trial motions have been filed and PGE understands that NDR may appeal the
judge's rulings.
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.
25
<PAGE>
PROCEEDINGS RELATED TO TRUST INDENTURE
The Company understands that on or about February 18, 2000, a letter (the
"CSFB Letter") was sent to Bankers Trust Company in its capacity as trustee
("Trustee") under a Trust Indenture, dated as of April 22, 1997, between the
Company and the Trustee (the "Company Indenture"), by or on behalf of Credit
Suisse First Boston (Hong Kong) Limited ("CSFB"), as the holder of not less than
25% of the outstanding 12 1/2% Senior Secured Notes due 2004 (the "Senior
Secured Notes") issued by Panda Global Energy Company ("PGE"), a wholly owned
subsidiary of the Company, pursuant to a separate Trust Indenture, dated as of
April 22, 1997, between PGE and the Trustee (the "PGE Indenture"). The Company
understands that the CSFB Letter alleges certain covenant defaults (not related
to payment obligations) under the PGE Indenture and/or the Company Indenture
relating to the sale of certain assets by the Company and whether fair market
value was received in exchange for such assets. The Company is the guarantor of
the Senior Secured Notes and the terms of the Company Indenture and the PGE
Indenture are, in material respects, parallel.
The Company and PGE have brought legal actions against CSFB and others, in
both United States federal district court and state court in Dallas, Texas. The
action brought by PGE in state court was removed to federal court and
consolidated with the action brought by the Company. PGE has filed a motion to
remand the removed case back to state court. The motion has not yet been ruled
upon. In the actions, PGE and the Company seek injunctive relief precluding an
acceleration of the Senior Secured Notes on the basis of the alleged defaults,
declaratory relief to the effect that no event of default exists under the
Company and/or PGE Indentures and also seek damages for conspiracy, tortious
interference with contractual relationships and/or business and trade
disparagement. CSFB has moved to have venue transferred to federal district
court in New York. That motion has not yet been ruled upon. As of April 7, 2000,
these legal actions remain pending.
If a result adverse to the Company occurs in this proceeding, there could
be a material adverse effect on the business, financial condition or results of
operations of the Company 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, 1999.
PART II
Item 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established market for the Company's Common Stock, $.01 par value,
all of which is owned by PEII. The Company has not paid cash dividends on shares
of its capital stock since its inception, and currently does not believe that it
will pay any such dividends in the foreseeable future. The indenture governing
the Company's Guarantee of the 12 1/2% Senior Secured Notes due 2004 of Panda
Global Energy Company imposes certain restrictions on the Company's ability to
declare or pay cash dividends to PEII and make certain distributions on its
capital stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
Item 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
(in thousands, except ratios)
Presented below are selected consolidated financial data for the Company
as of and for each of the years in the five-year period ended December 31, 1999,
which have been derived from the Company's financial statements. The selected
financial data should be read in conjunction with the information contained
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company, including the notes thereto, included elsewhere herein.
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<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Electric capacity and energy sales: ...... $ 29,859 $ 32,274 $ 65,005 $ 78,252 $ 92,392
Steam and chilled water sales ............ 473 502 624 695 559
Interest income .......................... 895 1,518 8,050 7,698 5,940
Other income-gain on sale of project ..... -- -- -- -- 86,698
--------- --------- --------- --------- ---------
Total revenue ...................... 31,227 34,294 73,679 86,645 185,589
EXPENSES:
Plant operating expenses ................. $ 9,348 $ 12,050 $ 26,245 $ 25,583 $ 29,029
Development and administrative expenses .. 2,550 5,187 11,580 16,909 18,848
Interest expense ......................... 11,716 19,414 55,329 57,199 50,997
Depreciation ............................. 4,210 5,532 11,575 12,201 12,287
Amortization-- Debt issuance costs ....... 554 494 1,418 1,656 1,646
Amortization-- Partnership formation costs 533 533 -- -- --
--------- --------- --------- --------- ---------
Total expenses ..................... 28,911 43,210 106,147 113,548 112,807
Income (loss) before taxes and minority
interest .............................. 2,316 (8,916) (32,468) (26,903) 72,782
Minority interest ........................ (5,048) (2,405) -- -- --
Deferred tax benefit ..................... -- -- -- 25,000 (38,000)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary items . (2,732) (11,321) (32,468) (1,903) 34,782
Extraordinary loss, net(1) ............... -- (21,336) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) .................. $ (2,732) $ (32,657) $ (32,468) $ (1,903) $ 34,782
========= ========= ========= ========= =========
OTHER DATA:
Ratio of earnings to fixed charges(2) .... (2) (2) (2) (2) 1.89
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and other current assets ............ $ 11,339 $ 36,626 $ 112,067 $ 91,175 $ 74,639
Power plant and equipment (net) .......... 220,145 268,725 293,008 391,867 383,427
Reserves and escrow deposits,
and other assets ...................... 15,471 40,119 86,807 58,100 64,438
--------- --------- --------- --------- ---------
Total assets ....................... $ 246,955 $ 345,470 $ 491,882 $ 541,142 $ 522,504
--------- --------- --------- --------- ---------
Current liabilities ...................... $ 18,457 $ 19,667 $ 25,994 $ 64,783 $ 29,336
Deferred revenue ......................... -- -- 13,140 12,670 23,280
Long-term debt (including capital lease
obligation), less current portion ..... 234,608 427,319 580,947 590,819 584,753
Minority interest ........................ 36,836 -- 5,741 5,741 5,741
Shareholder's deficit .................... (42,946) (101,516) (133,940) (132,871) (120,606)
--------- --------- --------- --------- ---------
Total liabilities and
shareholder's deficit ........... $ 246,955 $ 345,470 $ 491,882 $ 541,142 $ 522,504
========= ========= ========= ========= =========
</TABLE>
Notes (in thousands):
(1) In 1996, there was an extraordinary loss from early extinguishment of debt
$21,336.
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<PAGE>
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income (loss) before minority interest, taxes and extraordinary items
plus fixed charges exclusive of capitalized interest. Fixed charges consist of
interest expense, capitalized interest and amortization of debt issuance costs.
Earnings were insufficient to cover fixed charges in 1995 by $3,477, in 1996 by
$19,971, in 1997 by $34,525 and in 1998 by $34,247. In 1995, 1996, 1997, 1998
and 1999 fixed charges included capitalized interest of $5,793, $11,055, $2,057,
$7,344 and $13,641, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED)
GENERAL
The Company has interests in two completed electric power generation
facilities in the United States: a 100% equity ownership interest in the
Rosemary Facility, which began commercial operations in December 1990, and a
100% leasehold interest (through a capital lease arrangement) in the Brandywine
Facility, which began commercial operations in October 1996. Prior to July 31,
1996, the Company owned a 10% equity interest in the Rosemary Facility. The
Company also owns an approximately 83% indirect interest in the Luannan Facility
currently under construction in China, financing for which was completed in
April 1997. Additionally, the Company owns an indirect equity interest in the
Nepal Facility currently under construction in Nepal, financing for which was
completed in December 1997. The Company also has other projects under
development. As discussed in Note 5 to the consolidated financial statements,
the Company entered into a partnership concerning the Paris project in February
1999 and retained a 1% limited partnership interest in the project.
RESULTS OF OPERATIONS
The Company's current revenues from electric power generation are
primarily derived from long-term contracts which include both a fixed capacity
payment and a variable energy payment. The capacity payments, which are based
upon the specified power generating capacity of a project, are designed to cover
fixed costs and to provide an acceptable return on equity. The energy payments,
which are based on actual electricity output, are designed to cover variable
costs including fuel costs and variable operating expenses incurred in
connection with electricity output. Accordingly, the impact of price
fluctuations on the results of operations is generally not material. The extent
to which a facility is dispatched (i.e., required to deliver electricity), and
therefore the actual electricity output for a given period, are subject to the
discretion of the power purchaser, with certain limitations. The capacity
payments are currently the predominant source of revenue for the Company at the
project entity level. See "Liquidity and Capital Resources."
1999 COMPARED TO 1998
The Company recorded net income of $34,782 in 1999 on revenues of $185,589
compared to a net loss of $1,903 on revenues of $86,645 in 1998. The increase in
revenues in the 1999 period was primarily caused by a gain of $86.7 million on
the sale of a 99% interest in the Paris project, as discussed in Note 5 to the
consolidated financial statements, and by increased operating revenues at the
Brandywine facility.
Capacity revenues for the Rosemary Facility were $23,547 and $25,382 for
1999 and 1998, respectively. The lower capacity revenues in 1999 resulted from a
scheduled decrease in capacity payments under the power purchase agreement.
Energy revenues for the Rosemary Facility for 1999 and 1998 were $3,768 and
$3,234, respectively. The increase in energy revenues for the Rosemary Facility
is attributable to higher dispatch levels at that facility compared to 1998.
Capacity revenues from Potomac Electric Power Company ("PEPCO") for the
Brandywine Facility for 1999 and 1998 were $43,703 and $31,884, respectively.
The increase in capacity revenues for 1999 compared to 1998 results from a
scheduled increase in capacity payments under the power purchase agreement.
Additionally, as discussed in Note 5 to the consolidated financial statements,
the Company and PEPCO reached an agreement in October 1997 (which was finalized
in July 1998) under which PEPCO paid approximately $3.8 million to the Company
for the retroactive effect of higher capacity payments for the first nine months
of 1997. The retroactive capacity
28
<PAGE>
payment, which was received in July 1998, is included in capacity revenues in
1998. Energy revenues from PEPCO for the Brandywine Facility for 1999 and 1998
were $16,072 and $12,068, respectively. The increase in energy revenues for the
Brandywine Facility is attributable to higher dispatch levels at that facility
compared to 1998. In addition to capacity and energy revenues from PEPCO, the
Company earned revenues of $5,248 in 1999 and $5,576 in 1998 from excess
capacity and energy sales on a merchant basis from the Brandywine Facility as
allowed under the PEPCO agreement. Also, in 1999 and 1998, the Company had
energy revenues of $54 and $108, respectively, from the sale of natural gas and
fuel oil to other purchasers.
Plant operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes, increased to $29,029 (31% of
electricity revenues) in 1999 from $25,583 (33% of electricity revenues) in
1998. The increase in 1999 was attributable to higher dispatch levels at the
Rosemary and Brandywine facilities.
Project development and administrative expenses were $18,848 (20% of
electricity revenues) and $16,909 (22% of electricity revenues) for 1999 and
1998, respectively. The increase from 1998 was primarily attributable to a
contract termination payment of $2.2 million in 1999 related to the Luannan
Facility.
Interest expense decreased to $50,997 (55% of electricity revenues) in
1999 from $57,199 (73% of electricity revenues) in 1998 primarily as a result of
an increase in the capitalized portion of the interest cost on the Senior
Secured Notes as the Luannan Facility approaches completion.
Depreciation and amortization of debt issue costs amounted to $13,933 (15%
of electricity revenues) in 1999 and $13,857 (18% of electricity revenues) in
1998. The increase in 1999 was primarily attributable to capital improvements at
the Rosemary and Brandywine Facilities.
As previously disclosed, the Company filed the initial tariff application
for the Luannan Facility with the Chinese government in the second quarter of
1999. The Company is continuing discussions with the Chinese government
concerning the tariff application and the related approval process. The tariff
application is still in process and the Company has not yet received an approved
tariff from the government. There can be no assurance that the Company will
receive the requested tariff, and the approved tariff may be significantly lower
than the amount requested. If the approved tariff varies from the requested
amount, the Company's consolidated financial position, results of operations and
cash flows could be materially affected.
The provision for income taxes, which relates to the Company's domestic
operations and was primarily attributable to the gain on the sale of the Paris
project, amounted to $38,000 in 1999. Losses incurred in the Company's offshore
operations are not deductible from the Company's domestic taxable income. In
1998, the Company recognized a deferred tax benefit of $25,000. The benefit,
which resulted from a reduction in the valuation allowance against deferred tax
assets, was recognized in 1998 because the subsequent sale of the Paris project
in 1999 validated the likely future realization of a portion of the deferred tax
assets.
As a result of the various factors discussed above, the Company recorded
net income of $34,782 and a net loss of $1,903 for 1999 and 1998, respectively.
1998 COMPARED TO 1997
The Company recorded a net loss of $1,903 in 1998 on revenues of $86,645
compared to a net loss of $32,468 on revenues of $73,679 in 1997. The increase
in revenues in the 1998 period was primarily caused by increased operating
revenues at the Rosemary and Brandywine facilities.
Capacity revenues for the Rosemary Facility were $25,382 and $25,361 for
1998 and 1997, respectively. Energy revenues for the Rosemary Facility for 1998
and 1997 were $3,234 and $2,355, respectively. The increase in energy revenues
for the Rosemary Facility is attributable to higher dispatch levels at that
facility compared to 1997. Capacity revenues from Potomac Electric Power Company
("PEPCO") for the Brandywine Facility for 1998 and 1997 were $31,884 and
$21,612, respectively. Capacity revenues for the Brandywine Facility for 1997
were lower than originally anticipated due to a disagreement with PEPCO over the
calculation of the capacity payments. As discussed in Note 5 to the consolidated
financial statements, the Company and PEPCO reached an agreement in October 1997
(which was finalized in July 1998) under which PEPCO paid approximately $3.8
million to the Company for the
29
<PAGE>
retroactive effect of higher capacity payments for the first nine months of
1997. The retroactive capacity payment, which was received in July 1998, is
included in capacity revenues in 1998. In October 1997, PEPCO commenced
increased capacity payments to the Company under the terms of the agreement.
Additionally, capacity revenues for 1998 are higher compared to 1997 as a result
of excess capacity sales allowed under the PEPCO agreement and higher capacity
ratings. Energy revenues from PEPCO for the Brandywine Facility for 1998 and
1997 were $12,068 and $11,905, respectively. The increase in energy revenues for
the Brandywine Facility is attributable to higher dispatch levels at that
facility compared to 1997. In addition to capacity and energy revenues from
PEPCO, the Company earned revenues of $5,576 in 1998 from excess capacity and
energy sales on a merchant basis from the Brandywine Facility as allowed under
the PEPCO agreement. Also, in 1998 and 1997, the Company had energy revenues of
$108 and $3,771, respectively, from the sale of natural gas and fuel oil to
other purchasers.
Plant operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes, decreased to $25,583 (30% of
revenues) in 1998 from $26,245 (36% of revenues) in 1997. The higher level of
1997 expenses was primarily due to additional fuel costs related to low-margin
sales of natural gas and fuel oil to other purchasers.
Project development and administrative expenses were $16,909 (20% of
revenues) and $11,580 (16% of revenues) for 1998 and 1997, respectively. The
increase in 1998 was primarily attributable to legal expenses related to the
PEPCO agreement, the write-off of deposits and development costs of $3.7 million
related to the Kathleen project, and higher administrative costs required to
support the Company's expanding operations.
Interest expense increased to $57,199 (66% of revenues) in 1998 from
$55,329 (75% of revenues) in 1997 primarily as a result of the increase in
outstanding indebtedness from the issuance of $145.0 million discounted
principal amount of Senior Secured Notes in April 1997 for the Luannan Facility.
Depreciation and amortization of debt issue costs amounted to $13,857 (16%
of revenues) in 1998 and $12,993 (18% of revenues) in 1997. The increase in 1998
was attributable to capital improvements at the Rosemary and Brandywine
Facilities and amortization of debt issue costs for the Senior Secured Notes
issued in April 1997.
In 1998, the Company recognized a deferred tax benefit of $25,000. The
benefit, which resulted from a reduction in the valuation allowance against
deferred tax assets, was recognized because the subsequent sale of the Paris
project validated the likely future realization of a portion of the deferred tax
assets.
As a result of the various factors discussed above, the Company recorded
net losses of $1,903 and $32,468 for 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In 1999, the Company obtained cash from the sale of a 99% interest in the
Paris project as discussed above. The Company utilized this cash to fund project
development and administrative activities, including reimbursement to its parent
of costs previously incurred on behalf of the Company, and for income taxes. In
1999, 1998 and 1997, the Company also obtained cash from operations of the
Rosemary Facility and the Brandywine Facility. The Company utilized this cash to
fund operations at the Rosemary and Brandywine facilities, to service the
respective debt and capital lease obligations of the project entities for these
facilities, and also to service the debt of Panda Funding Corporation
("PFC")(see Note 8 to Consolidated Financial Statements). The Company
experienced losses during the years ended December 31, 1997 and 1998, and has a
shareholder's deficit of $120.6 million at December 31, 1999.
THE ROSEMARY FACILITY, BRANDYWINE FACILITY AND NEPAL FACILITY
The Company's project entities for the Rosemary Facility, Brandywine
Facility and Nepal Facility will be required to make payments for their
respective operating expenses and debt service and capital lease obligations, as
the case may be. The project entities' ability to make such payments will depend
upon the financial performance of the Rosemary Facility, the Brandywine Facility
and the Nepal Facility, respectively. The project entities for the Rosemary
Facility and the Brandywine Facility are dependent on capacity payments under
their respective power purchase agreements to meet their fixed obligations,
including payment of project-level debt service. Such capacity
30
<PAGE>
payments can be adversely affected by a major equipment failure, resulting in a
facility being unavailable for dispatch for an extended period of time. Such
capacity payments can also be subject to reduction pursuant to regulatory
disallowance and, under contractual provisions, as a result of events outside
the Company's control. In 2006, the capacity payments for the Rosemary Facility
are scheduled to decrease by approximately $5.4 million ($23.1%) based on the
facility's current capacity rating. Also, each of the electric energy purchasers
under the power purchase agreements for the Rosemary Facility and the Brandywine
Facility has a contractual right to schedule the facility for dispatch largely
at the purchaser's discretion. Thus, revenues from such energy payments may vary
depending on the hours these facilities are dispatched by such purchasers.
In regard to the Nepal Facility, as stated above, in the event that
commercial operations are not commenced by December 31, 2000, and no force
majeure extension is obtained pursuant to the applicable power purchase
agreement (which issue currently is in the arbitration process), then under the
provisions of the power purchase agreement, such agreement may be terminated by
the NEA. Although the Company currently believes that commercial operations will
commence in September 2000, there can be no assurance that this will occur nor
that the power purchase agreement will not be terminated in this regard. See
"Item 1. - Business - Plants Under Construction - The Nepal Facility."
Payments on the indebtedness of PFC will need to be funded almost
exclusively with distributions from the project entities for the Rosemary
Facility and the Brandywine Facility (after payment of project-level
indebtedness related to such facilities). The amount of these distributions, if
any, will be determined by the financial performance of the Rosemary Facility
and the Brandywine Facility, and will be subject to a number of limitations on
distributions contained in project-level debt agreements. There can be no
assurance that there will be any excess funds available from such distributions
to assist in the Company's obligations with respect to the Senior Secured Notes
(discussed below) during the foreseeable future.
SENIOR SECURED NOTES
The Company currently believes that it may not be able to meet its
interest and principal obligations (totaling $11.35 million) on the Senior
Secured Notes due in October 2000, as well as subsequent obligations on the
Senior Secured Notes.
The Senior Secured Notes were issued by PGE (and guaranteed by the Company) to
finance the development and construction of the Luannan Facility (see Note 8 to
Consolidated Financial Statements for a discussion of the Senior Secured Notes).
The Company filed its initial tariff application for the Luannan Facility with
the Chinese government in May 1999. The Company is continuing discussions with
the Chinese government concerning its tariff application and the related
approval process. The tariff application is still in process and the Company has
not yet received an approved tariff from the Chinese government. The Luannan
Facility has passed performance testing, although it has not yet been declared
ready for commercial operations (primarily due to the lack of a tariff under the
applicable power purchase agreement, and to further unit performance adjustments
to be made by the Luannan EPC Contractor). There can be no assurance that the
requested tariff will be approved, and the approved tariff may be significantly
lower than the amount requested. If the approved tariff varies from the
requested amount, the Company's consolidated financial position, results of
operations and cash flows could be materially adversely affected. See "Item 1.
Business - Plants Under Construction - The Luannan Facility."
The Company understands that on or about February 18, 2000, a letter (the
"CSFB Letter") was sent to Bankers Trust Company in its capacity as trustee
("Trustee") under a Trust Indenture, dated as of April 22, 1997, between the
Company and the Trustee ("Company Indenture"), by or on behalf of Credit Suisse
First Boston (Hong Kong) Limited ("CSFB"), as the holder of not less than 25% of
the outstanding 12 1/2% Senior Secured Notes issued by PGE pursuant to a
separate Trust Indenture, dated as of April 22, 1997, between PGE and the
Trustee (the "PGE Indenture"). The Company understands that the CSFB Letter
alleges certain covenant defaults (not related to payment obligations) under the
PGE Indenture and/or the Company Indenture relating to the sale of certain
assets by the Company and whether fair market value was received in exchange for
such assets. The Company is the guarantor under the Senior Secured Notes and the
terms of the Company Indenture and the PGE Indenture are, in material respects,
parallel.
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The Company and PGE have brought legal actions against CSFB and others, in
both United States federal district court and state court in Dallas, Texas. The
action brought by PGE in state court was removed to federal court and
consolidated with the action brought by the Company. PGE has filed a motion to
remand the removed case back to state court. The motion has not yet been ruled
upon. In the actions, PGE and the Company seek injunctive relief precluding an
acceleration of the Senior Secured Notes on the basis of the alleged defaults
and declaratory relief to the effect that no event of default exists under the
Company and/or PGE Indentures and also seek damages for conspiracy, tortious
interference with contractual relationships and/or business and trade
disparagement. CSFB has moved to have venue transferred to federal district
court in New York. That motion has not yet been ruled upon. As of April 7, 2000,
these legal actions remain pending. If a result adverse to the Company occurs in
this proceeding, there could be a material adverse effect on the Company's
consolidated financial condition, results of operations and cash flows. See Item
3. "Legal Proceedings - Proceedings Related to Trust Indenture."
GOING CONCERN ISSUES
The matters discussed above raise substantial doubt about the Company's
ability to continue as a going concern. In this regard, the Company has retained
financial and legal advisors to review the financial and legal alternatives
available to the Company, including without limitation a possible debt
restructuring of the Senior Secured Notes, the raising of additional equity or
debt financing for the Company.
To continue its development activities (including but not limited to the
Company's purchase commitments totaling approximately $325 million for
equipment), the Company will require external financing. Its financial and legal
advisors currently are pursuing several debt and equity financing alternatives
in this regard as well. The Company's restricted cash balances are available
only for specific uses as stated in the relevant indentures (including but not
limited to the indentures related to the Senior Secured Notes), such as the
payment of debt obligations, project development, construction and maintenance,
and are not available for general corporate purposes.
There can be no assurance that the possible debt restructuring or
financings referred to above will be successfully completed. In such instance,
there could be a material adverse effect on the business, financial position,
results of operations and cash flows of the Company and its subsidiaries taken
as a whole which, among other things, could cause the Company to seek protection
under applicable federal bankruptcy laws.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", is effective for fiscal years
beginning after June 15, 2000. This standard requires that all derivative
financial instruments be recognized as either assets or liabilities on the
balance sheet at their fair values and that accounting for the changes in the
fair values is dependent upon the intended use of the derivatives and their
resulting designations. The new standard will supercede or amend existing
standards that deal with hedge accounting and derivatives. The Company has not
yet determined the effect adopting this standard will have on its financial
statements.
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.
MARKET RISK DISCLOSURES
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The Company has limited exposure to financial market risks. The Company
attempts, whenever possible, to hedge certain aspects of its projects against
the effects of fluctuations in inflation, interest rates, foreign currency
exchange rates and energy prices. Because of the complexity of hedging
strategies and the nature of the Company's operations, its results, although
significantly hedged, will likely be somewhat affected, and in certain cases may
be materially affected, by fluctuations in these variables and such fluctuations
may result in material improvement of deterioration of operating results.
The Company has generally structured the energy payments under its power
generation sales contracts to adjust with similar price indices as do its
contracts with the fuel suppliers for the corresponding power plants. The
Company currently consists primarily of businesses with long-term contracts.
While the contract-based portfolio is expected to be an effective hedge against
future energy and electricity market price risks, a significant portion of the
Company's currently expected future revenues is anticipated to be derived from
businesses without significant long-term revenue contracts. Increasing reliance
on non-contract businesses in the Company's portfolio may subject the Company to
potentially increasing electricity market price volatility.
The Company has also used a hedging strategy in an attempt to insulate
each plant's financial performance, where appropriate, against the risk of
fluctuations in interest rates. Because the capacity payments at the Company's
facilities are essentially fixed, the Company has attempted to hedge against
interest rate fluctuations by arranging fixed rate financing. The Company's
borrowings currently consist entirely of fixed rate obligations. There are no
interest rate swaps or other hedging facilities related to these borrowings. The
Company has no derivative financial instruments in place as of December 31,
1999. The Company estimates that the fair value of its long-term debt securities
would decrease in the aggregate by approximately 5% if interest rate levels
increased by 10%. See Notes 7, 8 and 12 of the consolidated financial statements
for additional information regarding the Company's borrowings.
The Company has certain exposure to changes in the foreign currency
exchange rate for the Chinese renminbi. This exposure is limited during the
construction phase of the Luannan Facility because the related debt and most
construction expenditures are denominated in U.S. dollars. After the project
commences commercial operations, the exposure will increase because the
project's operating revenues and expenses will be primarily denominated in the
renminbi. However, certain components of the power price calculation may be
adjusted to reflect local and U.S. inflation and foreign exchange rate
fluctuations in order to mitigate the Luannan Facility's exposure to inflation
and currency risks, and the operation and maintenance contract for the facility
is denominated in dollars. Management currently believes that potential losses
due to fluctuations in the Chinese currency will not have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.
The Company has an investment, in a joint venture in Nepal which has debt
at both fixed and variable interest rates. The joint venture has interest rate
derivative agreements, consisting of interest rate swaps, which serve as hedges
against a portion of the variable interest rate exposure. Most of the debt is
denominated in U.S. dollars; however, a portion of the debt is denominated in
the German mark. The joint venture has no hedging facilities relating to the
mark-denominated debt. After commercial operations commence, the joint venture's
foreign currency risk exposure will increase because a significant portion of
the project's operating expenses will be primarily denominated in the Nepalese
rupee. The project's operating revenues under the power purchase agreement are
denominated in U.S. dollars. The Company uses the equity method of accounting
for the joint venture. Management currently believes that potential losses to
the joint venture due to fluctuations in interest rates and foreign currency
exchange rates will not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 problem. The Year 2000
problem arises from the way dates are recorded and computed in most
applications, operating systems, hardware and embedded chips. If the problem had
not been corrected, systems that use a date in its prescribed function could
have failed or produced erroneous results before, on and after the year 2000.
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All Year 2000 remediation efforts for the Company's businesses were
completed on time and within budget estimates without any material adverse
effect on operations. The costs incurred by the Company in connection with the
Year 2000 compliance project were not material.
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 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 Certificate of Incorporation of the Company provides 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) file a bankruptcy petition, make an assignment
for the benefit of creditors, apply for the appointment of a custodian, receiver
or trustee for it or its property, consent to the filing of such proceeding or
admit in writing to its inability to pay its debts generally as they become due;
(ii) commence the dissolution, liquidation, consolidation, merger or sale of all
or substantially all of its assets; (iii) amend the Certificate of Incorporation
to broaden the purposes of the Company and in other respects; (iv) authorize the
Company to engage in any activity other than those set forth in the Certificate
of Incorporation; or (v) authorize any subsidiary with an Independent Director
to take any action set forth in (i) through (iv). The Certificate of
Incorporation of the Company provides 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
March1999, Brian G. Trueblood was re-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 COMPANY
---- --- -------------------------
Robert W. Carter 61 Director, Chairman of the Board
and Chief Executive Officer
Darol S. Lindloff 61 President
Janice Carter 58 Executive Vice President,
Secretary and Treasurer
Ralph T. Killian 53 Executive Vice President
Todd W. Carter 32 Senior Vice President, Corporate
Finance
Ted C. Hollon 49 Senior Vice President, Project
Development and Construction
L. Stephen Rizzieri 44 Senior Vice President and General
Counsel
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Bryan Urban 35 Senior Vice President -- Project
Finance
Jerry Thurmond 48 Senior Vice President and Controller
Garry Hubbard 44 Senior Vice President -- Power
Ventures
Brian G. Trueblood 38 Independent Director
ROBERT W. CARTER has been the Chairman of the Board and Chief Executive
Officer of the Company since its formation and of PEII, an affiliate of the
Company, since January 1995. Mr. Carter has held similar chief executive
positions with PEC, a subsidiary of the Company, and PEC's 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 and
the father of Todd Carter.
DAROL S. LINDLOFF has been the President of the Company since its
formation and 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 PEII 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 and the
Treasurer of the Company since its formation, has been the Executive Vice
President, Secretary, Treasurer and a Director of 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 and the mother
of Todd Carter.
RALPH T. KILLIAN has served as Executive Vice President of the Company and
PEII since March 1998 and served as Senior Vice President of the Company from
its inception until March 1998 and of PEII from May 1994 until March 1998. Mr.
Killian has overall responsibility for asset management which includes
operations & maintenance, fuel, procurement and management, and power marketing
for facilities. 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 Florida with a Bachelor of Science degree in chemical
engineering.
TODD W. CARTER has served as Senior Vice President - Corporate Finance of
the Company since March 1999, and previously served as Senior Vice President,
International Business Development since October 1998. Prior to such date, Mr.
Carter served in various capacities in the project development, finance and
acquisition departments of PEII during the last eight years. Mr. Carter
graduated from the University of Texas in 1990 with a Bachelor of Business
Administration degree. Mr. Carter also serves as an officer of several
significant subsidiaries of PEII.
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TED C. HOLLON has served as Senior Vice President, Project Development and
Construction of the Company and PEII since March 1999, and previously served as
Senior Vice President, Project Development of the Company and PEII since August
1997. Prior to such date, he served as Vice President of Construction for the
Company from its inception until August 1997 and for PEII from March 1995 until
August 1997. 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 been Senior Vice President and General Counsel of
the Company and of PEII since March 1998. He was Vice President and General
Counsel of the Company from its inception until March 1998 and of PEII from
February 1997 until March 1998. Prior thereto, he served as Deputy General
Counsel to PEII from April 1996 until February 1997. 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.
BRYAN J. URBAN has been Senior Vice President, Project Finance of the
Company and PEII since March 1999. He was Vice President, Finance of the Company
from its inception until March 1999 and of PEII from July, 1996 until March
1999. Prior thereto, he served as Vice President and Controller of PEII from
January 1994 until July, 1996. Mr. Urban has worked in various capacities in the
finance department at PEII since 1992. Prior to joining PEII, he spent five
years in the Audit and Financial Consulting Division at Arthur Andersen and
Company. Mr. Urban is a Certified Public Accountant and earned a Bachelor of
Science degree from Indiana University.
JERRY D. THURMOND has been Senior Vice President and Controller of the
Company and PEII since March 1999. He was Vice President and Controller of the
Company and PEII from March 1998 to March 1999. Prior thereto, Mr. Thurmond
served as Vice President of Business Development and Finance for various
companies owned and operated by Nelson Bunker Hunt. From 1991 to 1996, Mr.
Thurmond served in various capacities with companies owned by the Garvey family,
including as Vice President and General Manager of Garvey Industries. From 1980
to 1991, Mr. Thurmond served as Vice President in charge of Finance,
Acquisitions and Exploration for Burnett Oil, Inc. Mr. Thurmond began his career
at Arthur Andersen and Company in Dallas, Texas. He is a Certified Public
Accountant and earned a Bachelor of Business Administration degree from the
University of Texas at Arlington.
GARRY N. HUBBARD has been Senior Vice President, Power Ventures of the
Company and PEII since March 1999. Prior thereto, from 1994 to 1999, he served
as President of Global Operations Management, Inc., a worldwide consulting
company. Mr. Hubbard was director in charge of business development for North
American Energy Services Corporation from 1989 to 1994. Previously, Mr. Hubbard
worked in the energy industry with direct experience in the development,
construction and operations of power generating facilities both internationally
and within the United States. He graduated from Southampton University, England
in 1978 with a Bachelor of Science degree in Mechanical Engineering.
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.
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
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Item 10, Directors and Executive Officers of the Company, for their services to
the Company. Mr. Trueblood is currently paid $1,000 annually by the Company for
serving as the Independent Director of the Company.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PEII owned beneficially, at March 25, 2000, one hundred percent (100%) of
the issued and outstanding shares of the Company's common stock, $.01 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.
In March 1999, the Company sold its Guadalupe, Texas project (which was in
the initial stage of development) to a subsidiary of PEII for $8.0 million,
which was the fair market value of the project as determined by an independent
engineering firm. Each of the officers and directors of the Company (except
Brian Trueblood), which is a wholly owned subsidiary of PEII, is also an officer
and/or director, as the case may be, of PEII. In addition, it is noted that
under certain agreements PEII has incurred administrative expenses and other
third party costs on behalf of the Company in order to assist the Company in its
business affairs. In this regard, the Company has reimbursed PEII for such
expenses solely at cost and with no profit margin, as funds have been able
available to do so. These reimbursements, while not transactions which
materially benefit PEII or its officers or directors, are reflected in Footnote
3 to Consolidated Financial Statements.
PEII has entered into certain relationships with various project
subsidiaries of the Company in regard to operations and maintenance of some of
the power generation facilities owned by such project subsidiaries. These
relationships, while not transactions which materially benefit PEII or its
officers or directors, are reflected in Footnote 11 to Consolidated Financial
Statements.
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 Certificate of Incorporation of Panda Global Holdings, Inc. (2)
3.02 Bylaws of Panda Global Holdings, Inc. (2)
4.01 Trust Indenture, dated April 22, 1997, between Panda Global Energy
Company and Bankers Trust Company as Trustee, (2)
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4.02 First Supplemental Indenture between Panda Global Energy Company and
Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
4.03 Registration Rights Agreement among Panda Global Energy Company,
Panda Global Holdings, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, dated April 22, 1997. (2)
4.04 Form of 12-1/2% Senior Secured Notes due 2004 of Panda Global Energy
Company. (2)
4.05 Form of 12-1/2% Registered Senior Secured Note due 2004 of Panda
Global Energy Company. (2)
4.06 Trust Indenture, dated April 22, 1997, between Panda Global
Holdings, Inc. and Bankers Trust Company, as Trustee. (2)
4.07 First Supplemental Indenture, dated April 22, 1997, between Panda
Global Holdings, Inc. and Bankers Trust Company, as Trustee. (2)
4.08 Trust Indenture dated July 31, 1996, among Panda Funding
Corporation, Panda Interfunding Corporation and Bankers Trust
Company, as Trustee. (1)
4.09 First Supplemental Indenture to Trust Indenture, dated July 31,
1996, among Panda Funding Corporation, Panda Interfunding
Corporation and Bankers Trust Company, as Trustee. (1)
4.10 Second Supplemental Indenture to Trust Indenture, dated January 6,
1997, among Panda Funding Corporation, Panda Interfunding
Corporation and Bankers Trust Company, as Trustee. (1)
4.11 Form of 11-5/8% Pooled Project Bonds, Series A due 2012 of Panda
Funding Corporation. (1)
4.12 Form of 11-5/8% Pooled Project Bonds, Series A-1 due 2012 of Panda
Funding Corporation. (1)
4.13 Registration Rights Agreement, dated July 31, 1996, among Panda
Funding Corporation, Panda Interfunding Corporation and Jefferies &
Company Inc. (1)
4.14 Collateral Agency Agreement, dated July 31, 1996, among Panda
Interfunding Corporation, Panda Funding Corporation and Bankers
Trust Company, as Trustee and Collateral Agent. (1)
4.15 Subrogation and Contribution Agreement, dated July 31, 1996, among
Panda Interfunding Corporation, Panda Funding Corporation and Panda
Interholding Corporation and each PIC U.S. Entity that is a
signatory thereto. (1)
4.16 Guaranty Agreement (PIC U.S. Entity Subsidiaries), dated July 31,
1996 by Panda Interholding Corporation in favor of Bankers Trust
Company, as Collateral Agent for the benefit of the Secured Parties.
(1)
10.01 PIC Loan Agreement, dated July 31, 1996, between Panda Funding
Corporation, as Lender, and Panda Interfunding Corporation, as
Borrower. (1)
10.02 Loan Agreement, dated July 31, 1996, between Panda Interfunding
Corporation, as Lender, and Panda Cayman Interfunding Company, as
Borrower. (1)
10.03 Promissory Note issued by Panda Interfunding Corporation on July 31,
1996 to Panda Funding Corporation in the original principal amount
of $105,525,000, endorsed to Bankers Trust Company, as Collateral
Agent. (1)
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10.04 Security Agreement, dated July 31, 1996, between Panda Interfunding
Corporation and Bankers Trust Company, as Collateral Agent. (1)
10.05 Security Agreement, dated July 31, 1996, between Panda Funding
Corporation and Bankers Trust Company, as Collateral Agent. (1)
10.06 Security Agreement, dated July 31, 1996, between Panda Cayman
Interfunding Company, as Debtor, and Panda Interfunding Corporation,
as Secured Party. (1)
10.07 Stock Pledge Agreement (Panda Interfunding Corporation Stock), dated
July 31, 1996, between Panda Energy Corporation and Bankers Trust
Company, as Collateral Agent. (1)
10.08 Stock Pledge Agreement (Panda Funding Corporation and PIC Entity
Stock), dated July 31, 1996, between Panda Interfunding Corporation
and Bankers Trust Company, as Collateral Agent. (1)
10.09 Trust Indenture, dated July 31, 1996, among Panda-Rosemary Funding
Corporation, Panda-Rosemary, L.P. and Fleet National Bank, as
Trustee. (1)
10.10 First Supplemental Indenture to Trust Indenture, dated July 31,
1996, among Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P.
and Fleet National Bank, as Trustee. (1)
10.10.1 Second Supplemental Indenture to Trust Indenture, dated January 15,
1997, among Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P.
and Fleet National Bank, as Trustee. (1)
10.11 Form of 8-5/8% First Mortgage Bonds due 2016 of Panda-Rosemary
Funding Corporation. (1)
10.12 Deposit and Disbursement Agreement, dated July 31, 1996, among
Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P., Fleet
National Bank, as Collateral Agent, and Fleet National Bank, as
Depositary Agent. (1)
10.13 Collateral Agency and Intercreditor Agreement, dated July 31, 1996,
among Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P., The
L/C Issuer, The Trustee Under The Trust Indenture, The Depositary
Agent, The Collateral Agent and The Other Secured Parties, all as
named therein. (1)
10.14 Deed of Trust and Security Agreement, dated July 31, 1996, by
Panda-Rosemary, L.P., Grantor, Ross J. Smyth, Trustee, and Fleet
National Bank, as Collateral Agent, the Beneficiary. (1)
10.15 Security Agreement, dated July 31, 1996, by Panda-Rosemary, L.P. to
Fleet National Bank, as Collateral Agent. (1)
10.16 Security Agreement, dated July 31, 1996, by Panda-Rosemary Funding
Corporation to Fleet National Bank, as Collateral Agent. (1)
10.17 General Partner Pledge and Security Agreement, dated July 31, 1996,
by Panda-Rosemary Corporation to Fleet National Bank, as Collateral
Agent. (1)
10.18 Limited Partner Pledge and Security Agreement, dated July 31, 1996,
by PRC II Corporation to Fleet National Bank, as Collateral Agent.
(1)
10.19 Stock Pledge and Security Agreement, dated July 31, 1996, by Panda
Interholding Corporation to Fleet National Bank, as Collateral
Agent. (1)
10.20 Stock Pledge and Security Agreement, dated July 31, 1996, by
Panda-Rosemary, L.P. to Fleet National Bank, as Collateral Agent.
(1)
39
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10.21 Partnership Guaranty, dated July 31, 1996, by Panda-Rosemary, L.P.
in favor of Fleet National Bank, as Trustee. (1)
10.22 Reimbursement Agreement, dated July 31, 1996, between
Panda-Rosemary, L.P., Panda-Rosemary Funding Corporation and
Bayerische Vereinsbank AG, New York Branch. (1)
10.23 Irrevocable Direct Pay Letter of Credit issued by Bayerische
Vereinsbank AG. (1)
10.24 Construction Loan Agreement and Lease Commitment, dated March 30,
1996, between Panda-Brandywine, L.P. and General Electric Capital
Corporation. (1)
10.24.1 Participation Agreement, dated December 18, 1996, among
Panda-Brandywine, L.P., Panda-Brandywine Corporation, General
Electric Capital Corporation, Fleet National Bank, First Security
Bank, National Association, and Credit Suisse. (1)
10.24.2 Letter of Credit Reimbursement Agreement, dated December 18, 1996,
among Panda-Brandywine, L.P., Panda-Brandywine Corporation and
General Electric Capital Corporation. (1)
10.24.3 Equity Loan Facility Letter Agreement, dated December 18, 1996,
among Panda-Brandywine Corporation, Panda Energy Corporation and
General Electric Capital Corporation. (1)
10.24.4 Operations and Maintenance Agreement, dated June 17, 1999, between
Panda-Brandywine, L.P. and Panda Global Services, Inc. (11)
10.25 Bill of Sale and Severance Agreement, dated December 30, 1996,
between Panda-Brandywine, L.P., as Seller, and Fleet National Bank,
Owner Trustee, as Buyer. (1)
10.26 Facility Lease, dated December 18, 1996, between Fleet National
Bank, as Owner Trustee, and Panda-Brandywine, L.P. (1)
10.27 Steam Lease, dated as of December 18, 1996, between
Panda-Brandywine, L.P. and Brandywine Water Company. (1)
10.28 Amended and Restated Security Deposit Agreement, dated December 18,
1996, among Panda-Brandywine, L.P., Panda-Brandywine Corporation,
General Electric Capital Corporation, Fleet National Bank, Credit
Suisse and First Security Bank, National Association. (1)
10.28.1 First Amendment to Amended and Restated Security Deposit Agreement,
dated February 21, 1997, among Panda-Brandywine, L.P., General
Electric Capital Corporation, Fleet National Bank, Credit Suisse and
First Security Bank, National Association. (1)
10.29 Amended and Restated Deed of Trust and Security Agreement, dated
December 18, 1996, by Panda-Brandywine, L.P. to Chicago Title
Insurance Company, Trustee for the benefit of Fleet National Bank,
as Security Agent, Beneficiary. (1)
10.30 Amended and Restated Steam Lessee Security Agreement, dated December
18, 1996, by Brandywine Water Company in favor of Fleet National
Bank, as Security Agent. (1)
10.31 Amended and Restated Security Agreement, dated December 18, 1996, by
Panda-Brandywine, L.P. in favor of Fleet National Bank, as Security
Agent. (1)
10.32 Amended and Restated Trust Agreement, dated December 18, 1996,
between General Electric Capital Corporation, as Owner Participant,
and Fleet National Bank, as Owner Trustee. (1)
10.33 Amended and Restated General Partner Pledge Agreement, dated
December 18, 1996, by Panda-Brandywine Corporation to Fleet National
Bank, as Security Agent. (1)
40
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10.34 Amended and Restated Limited Partner Pledge Agreement, dated
December 18, 1996, by Panda Energy Corporation to Fleet National
Bank, as Security Agent. (1)
10.35 Amended and Restated Stock Pledge Agreement, dated December 18,
1996, by Panda Interholding Corporation to Fleet National Bank, as
Security Agent. (1)
10.36 Assumption Agreement and Release, dated July 31, 1996, by Panda
Interholding Corporation in favor of General Electric Capital
Corporation and Fleet National Bank. (1)
10.37 Power Purchase and Operating Agreement, dated January 24, 1989,
between Panda Energy Corporation and Virginia Electric and Power
Company. (1)
10.38 Amendment No. 1 to Power Purchase and Operating Agreement, dated
October 24, 1989, between Panda Energy Corporation and Virginia
Electric and Power Company. (1)
10.39 Amendment No. 2 to Power Purchase and Operating Agreement, dated
July 30, 1993, between Panda-Rosemary, L.P. and Virginia Electric
and Power Company. (1)
10.40 Fuel Supply Management Agreement, dated October 10, 1990, between
Panda-Rosemary Corporation and Natural Gas Clearinghouse. (1)
10.41 Amendment No. 1 to Fuel Supply Management Agreement, dated March 5,
1991, between Panda-Rosemary Corporation and Natural Gas
Clearinghouse. (1)
10.42 Gas Purchase Contract, dated April 12, 1990, between Panda-Rosemary
Corporation and Natural Gas Clearinghouse. (1)
10.43 Amendment of Gas Purchase Contract between Panda-Rosemary
Corporation and Natural Gas Clearinghouse. (1)
10.44 Pipeline Operating Agreement, dated February 14, 1990, between Panda
Energy Corporation, Panda-Rosemary Corporation and North Carolina
Natural Gas Corporation. (1)
10.45 Amendment No. 1 to Pipeline Operating Agreement, dated May 7, 1990,
between Panda Energy Corporation, Panda-Rosemary Corporation and
North Carolina Natural Gas Corporation. (1)
10.46 Assignment Agreement, dated June 15, 1990, between Panda Energy
Corporation and Panda-Rosemary Corporation. (1)
10.46.1 Operations and Maintenance Agreement, dated January 1, 1997, between
Panda Brandywine, L.P. and Panda Global Services, Inc.
10.47 Amendment No. 2 to Pipeline Operating Agreement, dated November 19,
1991, among Panda Energy Corporation, Panda-Rosemary Corporation and
North Carolina Natural Gas Corporation. (1)
10.48 Real Property Lease and Easement Agreement, dated June 9, 1989,
between The Bibb Company and Panda-Rosemary Corporation. (1)
10.49 First Amendment to Real Property Lease and Easement Agreement, dated
October 1, 1989, between The Bibb Company and Panda-Rosemary
Corporation. (1)
10.50 Second Amendment to Real Property Lease and Easement Agreement,
dated January 31, 1990, between The Bibb Company and Panda-Rosemary
Corporation. (1)
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10.51 Leasehold and Real Property Assignment and Assumption Agreement,
dated January 6, 1992, between Panda-Rosemary Corporation and
Panda-Rosemary, L.P. (1)
10.52 Third Amendment to Real Property Lease and Easement Agreement, dated
March 15, 1996, between The Bibb Company and Panda-Rosemary, L.P.
(1)
10.53 Cogeneration Energy Supply Agreement, dated January 12, 1989,
between Panda Energy Corporation and The Bibb Company. (1)
10.54 First Amendment to Cogeneration Energy Supply Agreement, dated
October 1, 1989, between Panda Energy Corporation, Panda-Rosemary
Corporation and The Bibb Company. (1)
10.55 Service Agreement, dated July 26, 1996, between Transcontinental Gas
Pipe Line Corporation and Panda-Rosemary, L.P. (1)
10.55.1 Form of Amendment to Service Agreement, effective January 1, 1997,
between Transcontinental Gas Pipe Line Corporation and
Panda-Rosemary, L.P. (1)
10.56 Service Agreement Applicable to Transportation of Natural Gas Under
Rate Schedule FT, dated August 20, 1996, between CNG Transmission
Corporation and Panda-Rosemary, L.P. (1)
10.57 Gas Transportation Agreement, dated August 1, 1996, between Texas
Gas Transmission Corporation and Panda-Rosemary, L.P. (1)
10.58 Assignment and Assumption Agreement, dated May 15, 1989, between
Panda Energy Corporation and Panda-Rosemary Corporation. (1)
10.59 Bill of Sale and Assignment and Assumption Agreement, dated January
6, 1992, between Panda-Rosemary Corporation and Panda-Rosemary, L.P.
(1)
10.60 Assignment and Assumption Agreement, dated January 6, 1992, between
Panda Energy Corporation and Panda-Rosemary Corporation. (1)
10.61 Power Purchase Agreement, dated August 9, 1991, between
Panda-Brandywine, L.P. and Potomac Electric Power Company. (1)
10.62 First Amendment to Power Purchase Agreement, dated September 16,
1994, between Panda-Brandywine, L.P. and Potomac Electric Power
Company. (1)
10.62.1 Present Assignment of Power Purchase Agreement, dated December 18,
1996, by Panda-Brandywine, L.P. to Fleet National Bank, as Owner
Trustee, for the benefit of General Electric Capital Corporation, as
Owner Participant. (1)
10.62.2 Amended and Restated Consent and Agreement, dated December 30, 1996,
among Potomac Electric Power Company, Panda-Brandywine, L.P., Fleet
National Bank, as Security Agent and Owner Trustee, General Electric
Capital Corporation, as the issuer of the Letters of Credit, the
Interest Hedging Counterparty and Owner Participant, First Security
Bank, National Association, as Indenture Trustee, and Credit Suisse,
as Administrative Agent. (1)
10.63 Amended and Restated Turnkey Cogeneration Facility Agreement, dated
March 30, 1995, between Panda-Brandywine, L.P. and Raytheon
Engineers & Constructors, Inc. (1)
10.64 Raytheon Parent Guaranty, dated May 18, 1994, between Raytheon
Company and Panda-Brandywine, L.P. (1)
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10.65 Steam Sales Agreement, dated March 30, 1995, between
Panda-Brandywine, L.P. and Brandywine Water Company. (1)
10.66 Gas Sales Agreement, dated March 30, 1995, between Cogen Development
Company and Panda-Brandywine, L.P. (1)
10.67 Precedent Agreement, dated February 25, 1994, between Columbia Gas
Transmission Corporation and Panda-Brandywine, L.P. (1)
10.68 Amending Agreement, dated March 24, 1995, between Columbia Gas
Transmission Corporation and Panda-Brandywine, L.P. (1)
10.69 Amended and Restated FTS Service Agreement, dated March 23, 1995,
between Columbia Gas Transmission Corporation and Panda-Brandywine,
L.P. (1)
10.70 FTS Service Agreement, dated of as March 30, 1995, between Cove
Point LNG Limited Partnership and Panda-Brandywine, L.P. (1)
10.71 Gas Transportation and Supply Agreement, dated November 10, 1994,
between Panda-Brandywine, L.P. and Washington Gas Light Company. (1)
10.72 Amended and Restated Site Lease, dated December 18, 1996, between
Panda-Brandywine, L.P. and Fleet National Bank, as Owner Trustee.
(1)
10.73 Amended and Restated Site Sublease, dated December 18, 1996, between
Fleet National Bank, Owner Trustee, as Sublessor, and
Panda-Brandywine, L.P., as Sublessee. (1)
10.74 Purchase Agreement, dated July 26, 1996, between Panda Funding
Corporation and Jefferies & Company, Inc. (1)
10.75 Additional Projects Contract, dated July 31, 1996, among Panda
Energy International, Inc., Panda Energy Corporation, and Panda
Interfunding Corporation. (1)
10.76 Non-Petition Agreement, dated July 31, 1996, among Panda
Interfunding Corporation, Panda Interholding Corporation,
Panda-Rosemary Corporation, PRC II Corporation, Panda-Rosemary
Funding Corporation and Panda-Rosemary, L.P. (1)
10.77 Non-Petition Agreement, dated July 31, 1996, among Panda Funding
Corporation, Panda Interholding Corporation, Panda Interfunding
Corporation and Panda (Cayman) Interfunding Company. (1)
10.78 Joint Venture Contract for Tangshan Panda Heat and Power Co., Ltd.,
dated September 4, 1994, between Luannan County Heat & Power Plant
and Pan-Western Energy Corp., LLC, as amended July 19, 1996 and
November 18, 1996, respectively. (2)
10.79 Joint Venture Contract for Tangshan Pan-Western Heat and Power Co.,
Ltd., dated September 3, 1994, between Tangshan Luanhua Co. (Group)
and Pan-Western Energy Corp., LLC, as amended July 19, 1996 and
November 18, 1996, respectively. (2)
10.80 Joint Venture Contract for Tangshan Cayman Heat and Power Co., Ltd.,
dated May 11, 1996, between Luannan County Heat & Power Plant and
Pan-Western Energy Corp., LLC, as amended July 19, 1996 and November
18, 1996, respectively. (2)
10.81 Joint Venture Contract for Tangshan Pan-Sino Heat Co., Ltd., dated
May 28, 1996, between Luannan County Heat Company and Pan-Western
Energy Corp., LLC, as amended July 19, 1996 and November 18, 1996,
respectively. (2)
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10.82 Coal Supply Agreement between Tangshan Panda Heat and Power Co.,
Ltd. and Kailuan Coal Mining Administration, dated February 3, 1996.
(2)
10.83 General Interconnection Agreement between North China Power Group
Company, Tangshan Panda Heat and Power Co., Ltd. and Tangshan
Pan-Western Heat and Power Co., Ltd., dated September 22, 1995. (2)
10.84 Electric Energy Purchase and Sales Agreement between North China
Power Group Company, Tangshan Panda Heat and Power Co., Ltd. and
Tangshan Pan-Western Heat and Power Co., Ltd., dated September 22,
1995. (2)
10.85 Supplemental Agreement for General Interconnection and Electric
Energy Purchase and Sales Agreement Between North China Power Group
Company, Tangshan Panda Heat and Power Co., Ltd. and Tangshan
Pan-Western Heat and Power Co., Ltd. dated February 10, 1996. (2)
10.86 Construction Agreement between North China Power Group Company,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated February 10, 1996. (2)
10.87 Loan Agreement between North China Power Group Company, Tangshan
Panda Heat and Power Co., Ltd. and Tangshan Pan-Western Heat and
Power Co., Ltd., dated February 10, 1996, as amended June 18, 1996.
(2)
10.88 Agency Contract for Entrusted Loan between China Information Trust
and Investment Corporation, Tangshan Panda Heat and Power Co., Ltd.
and Tangshan Pan-Western Heat and Power Co. Ltd., dated June 18,
1996, as amended July 17, 1996. (2) (4)
10.89 Transfer of Loan Agreement among Tangshan Panda Heat and Power Co.,
Ltd., Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan
Pan-Sino Heat Co., Ltd. (2)
10.90 Engineering, Procurement and Construction Contract among Tangshan
Panda Heat and Power Co., Ltd., Tangshan Pan-Western Heat and Power
Co., Ltd. and Harbin Power Engineering Company Limited, dated April
24, 1996, as amended July 4, 1996, September 14, 1996 and December
17, 1996, respectively. (2) (4)
10.91 Engineering and Design Contract among Hebei Electric Power Survey
and Design Institute, Tangshan Panda Heat and Power Company, Ltd.
and Tangshan Pan-Western Heat and Power Company, Ltd., dated
December 21, 1995, as amended June 21, 1996. (2)
10.92 Guaranty by China Harbin Power Equipment Group Company, dated July
16, 1996. (2)
10.93 Performance Guarantee by The Export-Import Bank of China, dated
January 3, 1997. (2)
10.94 Amended and Restated Operation and Maintenance Agreement between
Tangshan Heat and Power Co., Ltd., Tangshan Pan-Western Heat and
Power Co., Ltd., Tangshan Cayman Heat and Power Co., Ltd., Tangshan
Pan-Sino Heat Co., Ltd. and Duke/Fluor Daniel International
Services, dated March 6, 1997. (2) (4)
10.94.01 Second Amended and Restated On-Shore Operation and Maintenance
Agreement, Commercial Operations Phase, By and Between Tangshan
Panda 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, January 1, 1998. (6)
10.94.02 Second Amended and Restated On-Shore Operation and Maintenance
Agreement, Construction Phase, By and Between Tangshan Panda Heat
and Power Co., LTD, Tangshan Pan-Western Heat and Power Co., LTD,
Tangshan Cayman Heat
44
<PAGE>
and Power Co., LTD, Tangshan Pan-Sino Heat Co., LTD and Duke/Fluor
Daniel International Services, January 1, 1998. (6)
10.94.03 Offshore Services Agreement, Commercial Operation Phase, By and
Between Tangshan Panda 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, January 1, 1998. (6)
10.94.04 Offshore Services Agreement, Construction Phase, By and Between
Tangshan Panda 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, January 1, 1998. (6)
10.94.05 Full Settlement and Release Agreement by and between Tangshan Panda
Heat and Power, Ltd., Tangshan Pan-Western Heat and Power Co., Ltd.,
Tangshan Cayman Heat and Power, Ltd., Tangshan Pan-Sino Heat Co.
Ltd., Duke/Fluor Daniel International and Duke/Fluor Daniel
International Services, dated June 30, 1999. (9)
10.94.06 Personnel Services Agreement between Tangshan Panda Heat and Power,
Ltd., Tangshan Pan-Western Heat and Power Co., Ltd., Tangshan Cayman
Heat and Power, Ltd., Tangshan Pan-Sino Heat Co. Ltd. and Jinzhou
Power Plant, dated September 11, 1999. (11)
10.95 Construction Agreement of Heat and Steam Network between Tangshan
Pan-Sino Heat Co., Ltd. and Tangshan Heat and Engineering Company,
dated June 20, 1996. (2)
10.96 Amended and Restated Shareholder Loan Agreement between Pan-Western
Energy Corporation, LLC and Tangshan Panda Heat and Power Co., Ltd.,
April 1, 1997 (2) (4)
10.97 Amended and Restated Shareholder Loan Agreement between Pan-Western
Energy Corporation, LLC and Tangshan Pan-Western Heat and Power Co.,
Ltd., April 1, 1997 (2) (4)
10.98 Amended and Restated Shareholder Loan Agreement between Pan-Western
Energy Corporation, LLC and Tangshan Cayman Heat and Power Co.,
Ltd., April 1, 1997 (2) (4)
10.99 Amended and Restated Shareholder Loan Agreement between Pan-Western
Energy Corporation, LLC and Tangshan Pan-Sino Heat and Power Co.,
Ltd., April 1, 1997 (2) (4)
10.100 Water, Heat, Steam and Hot Water Supply and Usage Agreement between
Tangshan Cayman Heat and Power Company, Ltd., and Tangshan Panda
Heat and Power Company, Ltd., dated October 3, 1996. (2) (4)
10.101 Water, Heat, Steam and Hot Water Supply and Usage Agreement between
Tangshan Cayman Heat and Power Company, Ltd. and Tangshan
Pan-Western Heat and Power Company, Ltd., dated October 3, 1996. (2)
(4)
10.102 Steam for Process and Heating Water Sales Agreement between Tangshan
Cayman Heat and Power Company, Ltd., and Tangshan Pan-Sino Heat
Company, Ltd., dated October 16, 1996. (2)
10.103 Articles of Association of Tangshan Panda Heat and Power Co., Ltd.
between Luannan County Heat & Power Plant and Pan-Western Energy
Corp., LLC dated September 4, 1994. (2)
10.104 Articles of Association for Tangshan Pan-Western Heat and Power Co.,
Ltd., between Tangshan Luanhua Co. (Group) and Pan-Western Energy
Corp., LLC, dated September 3, 1994. (2)
10.105 Articles of Association for Tangshan Cayman Heat and Power Co.,
Ltd., between Luannan County Heat & Power Plant and Pan-Western
Energy Corp., LLC, dated May 11, 1996. (2)
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10.106 Articles of Association for Tangshan Pan-Sino Heat Co., Ltd.,
between Luannan County Heat Company and Pan-Western Energy Corp.,
LLC, dated May 28, 1996. (2)
10.107 Application Regarding Power Price among Tangshan Panda Heat and
Power Co., Ltd., Tangshan Pan-Western Heat and Power Co., Ltd., and
Tangshan Municipal Price Bureau dated October 17, 1995, as amended
October 18, 1995 and May 8, 1996, respectively. (2) (4)
10.108 Administrative Services Agreement between Panda Energy
International, Inc. and Panda Global Holdings, Inc., dated April 22,
1997. (2)
10.109 Development Services Agreement between Panda Energy International,
Inc. and Panda Global Holdings, Inc., dated April 22, 1997. (2)
10.110 Form of Purchase Agreement among Donaldson, Lufkin & Jenrette
Securities Corporation, Panda Global Energy Company, Panda Global
Holdings, Inc. and Panda Energy International, Inc., dated April 11,
1997. (2)
10.111 Form of Issuer Loan Agreement between Panda Global Energy Company
and Pan-Western Energy Corporation, LLC, dated April 22, 1997. (2)
10.112 Form of Issuer Note of Pan-Western Energy Corporation, LLC, dated
April 22, 1997. (2)
10.113 Registered Capital Contribution and Agency Agreement among Tangshan
Panda Heat and Power Company, Ltd., Tangshan Pan-Western Heat and
Power Company, Ltd., Tangshan Cayman Heat and Power Company, Ltd.,
Tangshan Pan-Sino Heat Company, Ltd., Luannan County Heat and Power
Plant, Tangshan Luanhua (Group) Co., Luannan County Heat Company and
Pan-Western Energy Corporation, LLC, dated March 26, 1997. (2)
10.114 Form of Account Agreement among Panda Interfunding Corporation,
Panda Energy Corporation and Panda Global Holdings, Inc., dated
April 22, 1997. (2)
10.115 Form of Pledge Agreement between Panda Global Energy Company and
Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.116 Form of Pledge Agreement between Pan-Sino Energy Development
Company, LLC and Bankers Trust Company, as Trustee, dated April 22,
1997. (2)
10.117 Form of Pledge Agreement between Pan-Western Energy Corporation, LLC
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.118 Form of Pledge Agreement between Panda Global Holdings, Inc. and
Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.119 Form of Cash Collateral Agreement between Panda Global Energy
Company and Bankers Trust Company, as Trustee, dated April 22, 1997.
(2)
10.120 Form of Cash Collateral Agreement between Pan-Western Energy
Corporation, LLC and Bankers Trust Company, as Trustee, dated April
22, 1997. (2)
10.121 Form of Cash Collateral Agreement between Pan-Sino Energy
Development Company, LLC and Bankers Trust Company, as Trustee,
dated April 22, 1997. (2)
10.122 Form of Pledge Agreement between Panda Energy International, Inc.
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
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10.123 Form of Cash Collateral between Panda Global Holdings, Inc. and
Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.124 Form of Cash Collateral Agreement between Panda Energy Corporation
and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
10.125 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Cayman Heat and
Power Co., Ltd., dated September 24, 1996. (2)
10.126 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.127 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Sino Heat
Co., Ltd., dated September 24, 1996. (2)
10.128 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Pan-Sino
Heat Co., Ltd., dated September 24, 1996. (2)
10.129 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Panda
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.130 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Western Heat and Power Co., Ltd. and Tangshan Cayman
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.131 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Panda Heat and
Power Co., Ltd., dated September 24, 1996. (2)
10.132 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Pan-Sino Heat
Co. Ltd., dated September 24, 1996. (2)
10.133 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Cayman Heat and Power Co., Ltd. and Tangshan Pan-Western
Heat and Power Co., Ltd., dated September 24, 1996. (2)
10.134 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Cayman Heat and Power
Co., Ltd., dated September 24, 1996. (2)
10.135 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Pan-Western Heat and
Power Co., Ltd., dated September 24, 1996. (2)
10.136 Form of Guarantee between Pan-Western Energy Corporation, LLC,
Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Panda Heat and Power
Co., Ltd., dated September 24, 1996. (2)
10.137 Operation and Maintenance Agreement between Bhote Koshi Power
Company Private Limited and Harza Engineering Company International
L.P. dated April 24, 1997. (2)
10.138 Amended and Restated Contract for the Engineering, Procurement and
Construction of the Upper Bhote Koshi Hydroelectric project between
China Gezhouba Construction Group Corporation and Bhote Koshi Power
Company Private Limited dated December 19, 1996 ("EPC Contract").
(2)
10.138.01 Change Order No. 001 to EPC Contract, dated February 1, 1997. (3)
10.138.02 Change Order No. 002 to EPC Contract, dated April 26, 1997. (3)
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10.138.03 Change Order No. 003 to EPC Contract, dated September 4, 1997. (3)
10.138.04 Change Order No. 004 to EPC Contract, dated September 5, 1997. (3)
10.138.05 Change Order No. 005 to EPC Contract, dated November 12, 1997. (3)
10.138.06 Change Order No. 006 to EPC Contract, dated April 21, 1998. (6)
10.138.07 Change Order No. 007 to EPC Contract, dated September 30, 1998. (9)
10.138.08 Change Order No. 008 to EPC Contract, dated July 19, 1998. (9)
10.138.09 Change Order No. 009 to EPC Contract, dated December 27, 1999. (11)
10.138.10 Change Order No. 010 to EPC Contract, dated March 2, 2000. (11)
10.139 Project Agreement between His Majesty's Government of Nepal and
Bhote Koshi Power Company Private Limited dated July 21, 1996. (2)
10.140 Power Purchase Agreement between His Majesty's Government of Nepal
and Bhote Koshi Power Company Private Limited dated July 21, 1996.
(2)
10.141 Services Agreement between Panda of Nepal and Harza Engineering
Company International L.P. (for services provided outside of Nepal)
dated July 11, 1997. (2)
10.142 Services Agreement between Panda of Nepal and Harza Engineering
Company International L.P. (for services provided in Nepal) dated
July 11, 1997. (2)
10.143 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. (3)
10.143.01 Investment Agreement, Special Conditions between Bhote Koshi Power
Company Private Limited and DEG-Deutsche Investitions-und
Entwicklungsgesellschaft mbH dated December 18, 1997. (3)
10.143.02 Investment Agreement, Special Conditions between Bhote Koshi Power
Company Private Limited and International Finance Corporation dated
December 18, 1997. (3)
10.143.03 Investment Agreement, Definitions (Schedule A) dated December 18,
1997. (3)
10.143.04 Adjustment to Loan Agreement between Bhote Koshi Power Company
Private Limited and DEG, dated September 8, 1999. (10)
10.144 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. (3)
10.145 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. (3)
10.146 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. (3)
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10.147 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. (3)
10.148 Equity Subscription Agreement between Bhote Koshi Power Company
Private Limited, Himal International Power Corporation Ltd., and
Wilmington Trust Company dated December 18, 1997. (3)
10.149 Equity Subscription Agreement between Bhote Koshi Power Company
Private Limited, Panda of Nepal and Wilmington Trust Company dated
December 18, 1997. (3)
10.150 Equity Subscription Agreement between Bhote Koshi Power Company
Private Limited, RDC of Nepal and Wilmington Trust Company dated
December 18, 1997. (3)
10.151 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. (3)
10.152 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. (3).
10.152.01 Guarantee Agreement of MCN Investment Corporation, dated December
18, 1997. (3)
10.152.02 Guarantee Agreement of Panda Energy International, Inc., dated
December 18, 1997. (3)
10.153 Master Agreement between Bhote Koshi Power Company Private Limited
and International Finance Corporation, dated December 12, 1997. (3)
10.153.01 Schedule and Annexes to Master Agreement between Bhote Koshi Power
Company Private Limited and International Finance Corporation, dated
December 12, 1997. (3)
10.154 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. (3)
10.155 Risk Management Facility Agreement between Bhote Koshi Power Company
Private Limited and International Finance Corporation dated December
18, 1997. (3)
10.156 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. (3)
10.157 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. (3)
10.158 Mortgage Deed between Bhote Koshi Power Company Private Limited,
DEG-Deutsche Investitions-und Entwicklungsgesellschaft mbH and
International Finance Corporation dated December 19, 1997. (3)
49
<PAGE>
10.159 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. (3)
10.160 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. (3)
10.161 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. (3)
10.162 Share Pledge Agreement between RDC of Nepal, Wilmington Trust
Company, as Trustee, and Bhote Koshi Power Company Private Limited
dated December 18, 1997. (3)
10.163 Share Pledge Agreement between Panda Bhote Koshi, Wilmington Trust
Company, as Trustee, and Panda of Nepal, dated December 18, 1997.
(3)
10.164 Share Pledge Agreement between Panda of Nepal, Wilmington Trust
Company, as Trustee, and Bhote Koshi Power Company Private Limited,
dated December 18, 1997. (3)
10.165 Performance Guarantee by Industrial and Commercial Bank of China
dated December 10, 1997. (3)
10.166 Equity Letter of Credit by The Northern Trust Company for the
account of RDC of Nepal, dated December 16, 1997. (3)
10.167 Equity Letter of Credit by The First National Bank of Chicago for
the account of Panda of Nepal, dated December 17, 1997. (3)
10.168 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. (3)
10.169 Articles of Association of Bhote Koshi Power Company Private
Limited, dated August 22, 1997. (3)
10.170 Memorandum of Association of Bhote Koshi Power Company Private
Limited, dated August 22, 1997. (3)
10.171 Engineering Services Agreement between Bhote Koshi Power Company
Private Limited and Harza Engineering Company International L.P.,
dated December 1, 1997. (3)
10.172 Consent and Amendment Agreement, dated July 17, 1998 by and between
Panda-Brandywine, L.P., General Electric Capital Corporation, and
the other parties set forth therein. (7)
10.173 Letter Agreement, orginally dated October 24, 1997, by and between
Panda-Brandywine, L.P. Potomac Electric Power Company. (7)(4)
10.174 Letter of Intent, dated July 2, 1998, by and between GE Power
Systems and Sales and Panda Paris Power, LLC. (7)
10.175 Turnkey, Engineering, Procurement and Construction Agreement by and
between Panda Paris Power, L.P. and Duke/Fluor Daniel, dated as of
October 3, 1998. (8)(4)
50
<PAGE>
10.176 Purchase Order by and between GE Power Systems and Sales and Panda
Paris Power, L.P., dated October 16, 1998. (8)
10.177 Partnership Interest Purchase Agreement, dated February 17, 1999, by
and between FPL Energy Paris GP, LLC, FPL Energy Paris LP, LLC,
Panda Paris I, LLC and Panda Paris II, LLC. (5)
10.178 Letter of Intent between Panda Development Corporation and GE Power
Systems and Sales, dated March 4, 1999. (9)
10.179 Letter of Intent between Pan-Turbo Co., LLC and GE Power Systems and
Sales, dated March 18, 1999. (9)
10.180 Interconnection Disopatch Agreement between North China Power Group
Corporation and Tangshan Panda Heat and Power Co., Ltd. and Tangshan
Pan-Western Heat and Power Co., Ltd., dated September 2, 1999. (10)
12.00 Computation of Ratio of Earnings to Fixed Charges. (11)
21.00 Subsidiaries of Company. (11)
24.00 Powers of Attorney, included on signature page hereof (11)
27.00 Financial Data Schedule (11)
- ---------------
(1) Previously filed as an exhibit to the Registration Statement on Form S-1
(Registration No. 333-19445) of Panda Funding Corporation, Panda
Interfunding Corporation and Panda Interholding Corporation (affiliates of
the Company), and incorporated herein by reference.
(2) 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.
(3) Previously filed as an exhibit to the Company's Form 10-K for the year
ended December 31, 1997.
(4) Confidential treatment of certain information identified in these exhibits
has been applied for or granted by the Securities and Exchange Commission.
(5) Previously filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission February 18, 1999.
(6) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended March 31, 1998.
(7) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1998.
(8) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended September 30, 1998.
(9) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1999.
(10) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended September 30, 1999.
(11) Filed herewith.
(b) REPORTS ON FORM 8-K. None
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(D) OF THE ACT BY REGISTRANT 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 Company during the Company's last fiscal year.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Panda Global Holdings, Inc. and Subsidiaries Consolidated Financial
Statements:
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999...... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999................................ F-5
Consolidated Statements of Shareholder's Deficit for the years
ended December 31, 1997, 1998 and 1999.......................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999................................ F-7
Notes to Consolidated Financial Statements for the years ended
December 31, 1997, 1998 and 1999................................ F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Panda Energy International, Inc.:
We have audited the accompanying consolidated balance sheets of Panda Global
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 1998 and
1999, and the related consolidated statements of operations, shareholder's
deficit and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Panda Global Holdings, Inc. and
subsidiaries at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements for the year ended December 31, 1999 have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 14 to the consolidated financial statements, the Company's
losses during 1997 and 1998, accumulation of shareholder's deficit and its
difficulty in generating sufficient cash flow to meet its interest and principal
obligations under certain agreements, raise substantial doubt about its ability
to continue as a going concern. Management's plans concerning these matters are
also described in Note 14. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 7, 2000
F-2
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
ASSETS
1998 1999
------------- -------------
Current assets:
Cash and cash equivalents ............... $ 2,056,317 $ 1,393,486
Restricted cash - current ............... 52,668,167 54,138,294
Accounts receivable ..................... 9,582,815 9,551,539
Fuel oil, spare parts and supplies ...... 6,324,191 6,263,271
Deferred taxes .......................... 18,609,000 --
Other current assets .................... 1,934,610 3,292,187
------------- -------------
Total current assets .................. 91,175,100 74,638,777
Plant and equipment:
Electric generating facilities .......... 301,411,796 301,670,924
Furniture and fixtures .................. 542,989 1,232,590
Less: accumulated depreciation .......... (50,314,383) (62,601,105)
Construction in progress ................ 81,475,023 108,493,449
Development costs and equipment deposits 58,751,189 34,631,215
------------- -------------
Total plant and equipment, net ........ 391,866,614 383,427,073
Investments in joint ventures ............. 793,880 1,044,542
Restricted cash - debt service reserves and
escrow deposits ......................... 39,022,048 53,146,295
Deferred taxes ............................ 6,391,000 --
Debt issuance costs, net of accumulated
amortization of $3,239,618 and
$4,885,812, respectively ................ 11,893,362 10,247,168
------------- -------------
$ 541,142,004 $ 522,503,855
------------- -------------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
LIABILITIES AND SHAREHOLDER'S DEFICIT
1998 1999
------------- -------------
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ...................... $ 9,106,941 $ 7,873,568
Interest and letter of credit fees ...... 9,770,768 9,415,662
Operating expenses and other ............ 6,980,241 3,018,900
Short-term debt ........................... 33,000,000 --
Current portion of long-term debt ......... 5,924,989 7,674,598
Current portion of capital lease obligation -- 1,352,826
------------- -------------
Total current liabilities ............. 64,782,939 29,335,554
Deferred revenue ............................ 12,669,811 23,280,218
Long term debt, less current portion ........ 344,740,630 338,195,989
Capital lease obligation .................... 246,078,324 246,557,267
Minority interest ........................... 5,741,166 5,741,166
Commitments and contingencies (Note 10)
Shareholder's deficit:
Common stock, $.01 par value; 1,000 shares
authorized, issued and outstanding ...... 10 10
Advances to parent ........................ (49,765,758) (72,283,157)
Accumulated deficit ....................... (83,105,118) (48,323,192)
------------- -------------
(132,870,866) (120,606,339)
------------- -------------
$ 541,142,004 $ 522,503,855
------------- -------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE:
Electric capacity and energy sales ....... $ 65,004,373 $ 78,252,477 $ 92,392,224
Steam and chilled water sales ............ 623,934 694,548 558,528
Interest income .......................... 8,050,356 7,698,177 5,939,834
Other income - gain on sale of project ... -- -- 86,698,331
------------- ------------- -------------
73,678,663 86,645,202 185,588,917
------------- ------------- -------------
EXPENSES:
Plant operating expenses ................. 26,245,012 25,583,482 29,029,332
Project development and administrative ... 11,579,911 16,908,950 18,847,814
Interest expense and letter of credit fees 55,329,157 57,199,458 50,996,929
Depreciation ............................. 11,574,519 12,200,326 12,286,722
Amortization of debt issuance costs ...... 1,418,353 1,656,250 1,646,194
------------- ------------- -------------
106,146,952 113,548,466 112,806,991
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES .......... (32,468,289) (26,903,264) 72,781,926
Income taxes:
Current ................................ -- -- (13,000,000)
Deferred ............................... -- 25,000,000 (25,000,000)
------------- ------------- -------------
Total income tax benefit (expense) .. -- 25,000,000 (38,000,000)
------------- ------------- -------------
NET INCOME (LOSS) .......................... $ (32,468,289) $ (1,903,264) $ 34,781,926
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------------ ADVANCES ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT (TO) FROM PARENT DEFICIT DEFICIT
------------- ------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 ...... 1,000 10 (52,782,940) (48,733,565) (101,516,495)
Advances (to) from parent, net -- -- 44,559 -- 44,559
Net loss ..................... -- -- -- (32,468,289) (32,468,289)
------------- ------------- ------------- ------------- -------------
BALANCE, December 31, 1997 .... 1,000 10 (52,738,381) (81,201,854) (133,940,225)
Advances (to) from parent, net -- -- 2,972,623 -- 2,972,623
Net loss ..................... -- -- -- (1,903,264) (1,903,264)
------------- ------------- ------------- ------------- -------------
BALANCE, December 31, 1998 ..... 1,000 10 (49,765,758) (83,105,118) (132,870,866)
Advances (to) from parent, net -- -- (22,517,399) -- (22,517,399)
Net income ................... -- -- -- 34,781,926 34,781,926
------------- ------------- ------------- ------------- -------------
BALANCE, December 31, 1999 ..... 1,000 $ 10 $ (72,283,157) $ (48,323,192) $(120,606,339)
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............................ $ (32,468,289) $ (1,903,264) $ 34,781,926
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of development project ...... -- -- (86,698,331)
Deferred tax (benefit) expense ........... -- (25,000,000) 25,000,000
Depreciation ............................. 11,574,519 12,200,326 12,286,722
Amortization of debt issuance costs ...... 1,418,353 1,656,250 1,646,194
Amortization of loan discount and deferred
interest on capital lease obligation ... 22,250,146 23,851,078 24,746,248
Write-off of project development costs ... -- 2,941,040 --
Deferred revenue ......................... -- (470,576) (889,593)
Equity in (income) loss of joint venture . -- 42,774 (96,419)
Changes in assets and liabilities:
Accounts receivable ........................ (384,152) 204,022 31,276
Fuel oil, spare parts and supplies ......... 1,649,228 (59,642) 60,920
Other current assets ....................... (92,972) (1,676,733) (1,357,577)
Accounts payable and accrued expenses ...... 1,287,815 2,173,839 (4,316,447)
------------- ------------- -------------
Net cash provided (used) by operating
activities ............................. 5,234,648 13,959,114 5,194,919
------------- ------------- -------------
INVESTING ACTIVITIES:
Restricted cash - current .................... (75,018,161) 40,159,915 (1,470,127)
Additions to property, plant and equipment ... (30,918,077) (105,679,687) (77,039,525)
Investment in joint venture .................. (836,654) -- --
Sale of development projects ................. -- -- 168,503,059
Restricted cash - debt service reserves and
escrow deposits ............................ (39,882,161) 33,408,479 (14,124,247)
------------- ------------- -------------
Net cash provided (used) by investing
activities ............................. (146,655,053) (32,111,293) 75,869,160
------------- ------------- -------------
FINANCING ACTIVITIES:
Contributions from minority interest owners .. 5,741,166 -- --
Advances (to) from parent .................... 44,559 2,972,623 (22,517,399)
Deferred revenue ............................. 13,140,387 -- 1,500,000
Proceeds from short-term debt ................ -- 33,000,000 15,534,633
Repayment of short-term debt ................. -- -- (48,534,633)
Proceeds from long-term debt ................. 145,025,088 -- --
Repayment of long-term debt .................. (5,717,621) (5,816,974) (5,926,268)
Repayment of capital lease obligation ........ (7,831,527) (12,866,442) (21,783,243)
Debt issuance costs .......................... (7,387,444) (10,000) --
------------- ------------- -------------
Net cash provided (used) by financing
activities ............................. 143,014,608 17,279,207 (81,726,910)
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 1,594,203 (872,972) (662,831)
Cash and cash equivalents, beginning of period . 1,335,086 2,929,289 2,056,317
------------- ------------- -------------
Cash and cash equivalents, end of period ....... $ 2,929,289 $ 2,056,317 $ 1,393,486
------------- ------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .... $ 29,678,921 $ 33,275,260 $ 26,605,787
NONCASH OPERATING, INVESTING AND
FINANCING ACTIVITIES:
Investment in joint venture .................. $ -- $ -- $ 154,243
Accrued construction costs ................... 5,600,000 9,106,941 7,873,568
Interest expense on capital lease obligation . 21,621,411 22,853,229 23,615,012
Adjustment of capital lease .................. -- 4,813,009 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Global Holdings, Inc. ("Panda Global", or collectively with its
subsidiaries the "Company"), a wholly owned subsidiary of Panda Energy
International, Inc. ("PEII"), was formed in March 1997 to hold the ownership
interests in certain independent power projects which were formerly owned by
other wholly owned subsidiaries of PEII. The ownership interests were
transferred to the Company at PEII's historical cost. Because the transfers
occurred between entities under common control, the transactions have been
accounted for in a manner similar to a pooling of interests. The Company
operates primarily through three direct wholly owned subsidiaries: Panda Energy
Corporation ("PEC")( a Texas corporation) which indirectly holds the Company's
ownership and leasehold interests in two domestic projects currently in
operation; Panda Global Energy Company ("PGE")(a Cayman Islands company), which
indirectly holds the Company's ownership interests in two international projects
currently under construction; and Panda Merchant Power Holding, LLC ("Merchant
Holding")(a Delaware limited liability company), which indirectly holds the
Company's ownership interests in any domestic projects which might be developed.
PEC, through its wholly owned subsidiary Panda Interfunding Corporation
("PIC") and PIC's wholly owned subsidiary Panda Interholding Corporation
("Interholding"), holds the Company's ownership interest in the Rosemary project
and leasehold interest in the Brandywine project. The entities holding such
interests include the following: Panda Rosemary Corporation ("PRC"), the general
partner in Panda-Rosemary, L.P. ("Panda-Rosemary"); PRC II Corporation ("PRC
II"), the limited partner in Panda-Rosemary; Panda Brandywine Corporation, the
general partner in Panda-Brandywine, L.P. ("Panda-Brandywine"); and Panda Energy
Corporation (a Delaware corporation), the limited partner in Panda-Brandywine.
The Company, through its general and limited partnership interests, owns 100% of
Panda-Brandywine and Panda-Rosemary. The Rosemary and Brandywine projects are
located in the United States. Other direct or indirect wholly owned subsidiaries
of PIC include Panda Funding Corporation ("PFC"), Panda-Rosemary Funding
Corporation ("PRFC") and Panda Cayman Interfunding Corporation ("PIC Cayman"),
which have been formed to facilitate the financing of the development and
acquisition of independent power projects.
Additionally, PEC holds the Company's 100% ownership interest in the Kathleen
project through its wholly owned subsidiaries.
PGE (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 ("Luannan
Project"). 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.
Merchant Holding (which collectively with its subsidiaries is a development
stage enterprise having no operating revenues), through wholly owned
subsidiaries, has been established to hold the Company's ownership interests in
any domestic projects which might be developed.
Additionally, the Company conducts other development activities through
various subsidiaries.
See Note 14 regarding going concern considerations of the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
CASH -- Included in cash and cash equivalents are highly liquid investments
with original maturities of three months or less.
F-8
<PAGE>
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.
FUEL OIL, SPARE PARTS AND SUPPLIES -- These items include fuel oil stored
on-site and various spare parts and supplies necessary for plant maintenance.
The items are valued at cost using the weighted average method, and are
expensed, as plant operating expenses, when used.
PLANT AND EQUIPMENT -- Electric generating facility assets are recorded at
cost and depreciated using the straight-line method over the estimated useful
lives of the assets, generally twenty-five years. Depreciation of office
furniture, equipment, and leasehold improvements is provided using the
straight-line method over the estimated useful lives of the assets, generally
three to five years. Costs, including interest on funds borrowed to finance the
construction of facilities, related to projects under construction are
capitalized as construction in progress. Construction in progress balances are
transferred to electric generating facilities when the assets are ready for
their intended use. Capitalized interest was $2,057,000, $7,344,000 and
$13,641,000 during 1997, 1998 and 1999, respectively. Maintenance and repair
costs, including major overhaul projects, are charged to expense as incurred.
DEVELOPMENT COSTS -- The Company capitalizes the costs of developing new
projects after achieving certain project-related milestones which indicate that
completion of the project is probable. Such costs include direct incremental
amounts incurred for professional services (primarily legal, engineering and
consulting services), permits, options and deposits on land and equipment
purchase commitments, capitalized interest and other related costs. The
continued capitalization is subject to on-going risks related to successful
completion, including legal, political, siting, financing, construction,
permitting and contract compliance. Development costs are transferred to
construction in progress when financing has been obtained and construction
activity has commenced, or are expensed at the time the Company determines that
a particular project will no longer be developed.
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.
START-UP COSTS -- In 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities", which requires the costs of
start-up activities and organization costs to be expensed as incurred. Such
adoption had no material impact on its financial position or results of
operations.
DEFERRED REVENUE -- Revenue from the sale of rights to future interest income
from certain of the Company's restricted cash accounts (debt service reserves
and escrow deposits) is deferred and recognized as interest revenue over the
lives of the related debt obligations.
ENVIRONMENTAL MATTERS -- The operations of the Company are subject to
federal, state and local laws and regulations relating to protection of the
environment. Although the Company believes that its operations are in compliance
with applicable environmental regulation, risks of additional costs and
liabilities are inherent in cogeneration operations, and there can be no
assurance that significant costs and liabilities will not be incurred by the
Company. Management is not aware of any contingent liabilities that currently
exist with respect to environmental matters.
Environmental expenditures are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded if environmental assessments and/or remedial efforts
become probable, and the costs reasonably estimable.
REVENUE RECOGNITION -- Revenue generated from the sale of electric capacity
and energy from the Rosemary project is recognized based on the amount billed
under the power purchase agreements. The revenue generated from the sale of
electric capacity and energy from the Brandywine project is recognized based on
the lesser of the amount billable under the power purchase agreement or an
amount determined by the annual kilowatts made available multiplied by the
estimated average revenue per kilowatt over the term of the power purchase
agreement. Revenue from the sale of steam and chilled water is recognized based
on the output delivered at rates specified under contract terms.
INCOME TAXES -- The Company records income taxes according to Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109)
which requires deferred tax liabilities or assets to be recognized for the
anticipated future tax effects of temporary differences that arise as a result
of the differences in the carrying amounts and the tax bases of assets and
liabilities. SFAS 109 also requires a valuation allowance for deferred tax
assets in certain circumstances.
F-9
<PAGE>
The Company is included in the consolidated federal income tax return of
PEII. PEII's policy is to allocate income tax expense or benefits to the Company
as if it filed a separate tax return.
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain accounting,
legal, insurance, and consulting services for the Company. These general and
administrative costs are generally allocated to the Company using the percentage
of time PEII personnel spent performing these services. The expenses allocated
were $5,975,000, $7,200,000 and $9,300,000 in 1997, 1998 and 1999, 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.
ASSET IMPAIRMENT -- In accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (SFAS 121), the Company evaluates the
impairment of long-lived assets if circumstances indicate that the carrying
value of those assets may not be recoverable.
INTEREST COST -- Total interest cost incurred, including capitalized
interest, was $57,386,157, $64,543,458 and $64,637,929 in 1997, 1998 and 1999,
respectively.
CHANGE IN ACCOUNTING STANDARDS -- Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities", is
effective for fiscal years beginning after June 15, 2000. This standard requires
that all derivative financial instruments be recognized as either assets or
liabilities on the balance sheet at their fair values and that accounting for
the changes in the fair values is dependent upon the intended use of the
derivatives and their resulting designations. The new standard will supercede or
amend existing standards that deal with hedge accounting and derivatives. The
Company has not yet determined the effect adopting this standard will have on
its financial statements.
CONSOLIDATION -- The consolidated financial statements include the accounts
of all subsidiaries in which the Company has a controlling financial interest.
All material intercompany accounts and transactions are eliminated in
consolidation. For the years ended December 31, 1997, 1998 and 1999, the
consolidated financial statements include all subsidiaries with the exception of
a project in Nepal (see Note 6). The Company uses the equity method of
accounting for the Nepal project.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1997 and
1998 financial statements to conform to the 1999 presentation.
3. ADVANCES TO PARENT
Advances to parent represent cash advances to or from the parent, including
costs incurred by the parent on the Company's behalf or transferred to the
Company, allocations of administrative and certain other expenses (such as
income taxes) from the parent, and the excess of liabilities assumed over the
assets contributed on projects owned by the parent and contributed in connection
with the formation of the Company.
The advances to parent for the years ended December 31, 1997, 1998 and 1999
consist of the following:
Balance, January 1, 1997 .......................... $ 52,782,940
Cash advanced to parent, net ...................... 5,930,441
Administrative expenses allocated from parent ..... (5,975,000)
------------
Balance, December 31, 1997 ........................ 52,738,381
Cash advanced to parent, net ...................... 4,227,377
Administrative expenses allocated from parent ..... (7,200,000)
------------
Balance, December 31, 1998 ........................ 49,765,758
Cash advanced to parent, net ...................... 44,817,399
Income taxes allocated from parent ................ (13,000,000)
Administrative expenses allocated from parent ..... (9,300,000)
------------
Balance, December 31, 1999 ........................ $ 72,283,157
------------
F-10
<PAGE>
The average balance of advances to parent was $52,760,000, $51,252,000 and
$61,024,000 during 1997, 1998 and 1999, respectively.
4. FUEL OIL, SPARE PARTS AND SUPPLIES
Fuel oil, spare parts and supplies are comprised of the following amounts:
1998 1999
---------- ----------
Fuel oil ..................... $3,095,299 $3,003,158
Spare parts and supplies ..... 3,228,892 3,260,113
---------- ----------
Total .............. $6,324,191 $6,263,271
---------- ----------
5. POWER PROJECTS
ROSEMARY PROJECT -- Effective May 5, 1989, PEII formed a wholly-owned
subsidiary, now a wholly-owned subsidiary of the Company, to develop, construct,
and operate the 180 megawatt gas-fired Rosemary cogeneration facility in Roanoke
Rapids, North Carolina ("Rosemary Project"). Construction on the Rosemary
Project began in September 1989, and commercial operation of the facility began
on December 27, 1990.
The Rosemary Project produces both electricity and useful thermal energy in
the form of steam. Electric capacity and energy sales are based on the terms of
the power purchase agreement between Panda-Rosemary and Virginia Electric Power
Company ("VEPCO") dated January 24, 1989, as amended. The agreement requires
Panda-Rosemary to provide VEPCO with all the available capacity of the Rosemary
Project on an as-needed basis with VEPCO obligated to pay for the power
delivered and dependable capacity of the facility at a rate per kilowatt which
decreases in certain periods as defined by the agreement. The term of the
agreement is 25 years and expires December 2015. A financial institution has
provided a letter of credit for approximately $5 million guaranteeing
Panda-Rosemary's performance under the power purchase agreement. Steam and
chilled water are sold to a third party under a separate agreement which also
has a term of 25 years and expires December 2015. The Rosemary Project is
managed by PRC, the general partner, and is operated by a subsidiary of PEII.
The Company incurred management fees related to the Rosemary Project of
$1,675,142, $1,709,368 and $1,756,056 to the affiliated management company for
the years ended December 31, 1997, 1998 and 1999, respectively.
BRANDYWINE PROJECT -- On August 9, 1991, Panda-Brandywine entered into a
power purchase agreement ("PPA") with Potomac Electric Power Company ("PEPCO")
to build a 230 megawatt gas-fired facility in Brandywine, Maryland ("Brandywine
Project"). The Brandywine Project, constructed by Raytheon Engineers and
Constructors, Inc. ("Raytheon") under a fixed fee, turnkey contract, was
substantially completed and commenced commercial operations in October, 1996.
In late 1997, Panda-Brandywine and PEPCO reached an agreement, which was
finalized in July 1998, for modification of the PPA. Under the agreement, the
amount of capacity payments will be increased (as compared with the capacity
payments originally anticipated) during the early years, and will be reduced
during the later years, of the Brandywine Power Purchase Agreement. In July
1998, PEPCO paid to Panda-Brandywine an additional capacity payment of
approximately $3.8 million, which represents the difference between the
originally scheduled capacity payments and the capacity payments due under the
agreement for the first nine months of 1997. In October 1997, PEPCO commenced
increased capacity payments to the Company under the terms of the agreement.
Additionally, PEPCO agreed to release certain amounts of capacity to
Panda-Brandywine for resale of energy to other parties, and to grant
Panda-Brandywine the right to sell additional energy to other parties subject to
the availability of the facility. The agreement with PEPCO required the consent
of the financing parties, including General Electric Capital Corporation
("GECC"), under the capital lease financing arrangements for the facility. In
this regard, in July 1998 Panda-Brandywine also executed an agreement with GECC
which, among other things, provides for the revision of the lease payment
schedule to GECC in order to match the revised capacity payment schedule with
PEPCO. See Note 8.
Effective November 1, 1999, the Brandywine Project is operated by a
subsidiary of PEII. The Company incurred management fees related to the
Brandywine Project of $297,000 to the affiliated management company for the two
months ended December 31, 1999. An unaffiliated third party managed the
Brandywine Project through October 31, 1999.
F-11
<PAGE>
A construction loan commitment in the amount of $215 million was provided by
GECC in April, 1995. On December 30, 1996 the loan converted to a capital lease
with GECC in the amount of $217.5 million with a twenty year term and two five
year renewal options (see Note 8). GECC has committed to provide letters of
credit up to a maximum of approximately $7.0 million (under certain
circumstances) guaranteeing Panda-Brandywine's performance under the power
purchase agreement.
KATHLEEN PROJECT -- In 1991, through a wholly-owned subsidiary, the Company
entered into a 30-year power purchase agreement with Florida Power Corporation
("Florida Power") to build a 75 megawatt gas-fired facility near Lakeland,
Florida ("Kathleen Project"). The Company and Florida Power were engaged in
litigation for several years over issues relating to the term of the power
purchase agreement and whether the Kathleen Project, as designed, complied with
the terms of the power purchase agreement and the regulations of the Florida
Public Service Commission ("Florida PSC"). In 1998, after the Florida Supreme
Court and the U.S. Supreme Court declined to review certain adverse rulings of
the Florida PSC relating to the Kathleen Project, the Company discontinued
development of the Kathleen Project. Accordingly, the development costs of $2.9
million and certain related deposits of $0.8 million were expensed in 1998.
LUANNAN PROJECT -- In 1994, PEII entered into a preliminary letter of intent
with a subsidiary of the North China Power Group Company ("NCPGC") for the
purchase and sale of electric energy from two 50 megawatt coal-fired
cogeneration plants to be located in Luannan County, Tangshan Municipality,
Hebei Province, China. On September 22, 1995, Tangshan Panda and Tangshan
Pan-Western 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 1997 (see
Note 8). The Luannan Project is being constructed pursuant to a fixed-price,
turnkey contract with Harbin Power Engineering Company Limited ("Luannan EPC
Contractor"), subject to escalation under certain circumstances. The functional
currency for the Luannan Project is the U.S. dollar. The Company has incurred
costs for the Luannan Project of $81.5 million and $108.5 million as of December
31, 1998 and 1999, respectively, which are included in plant and equipment under
construction in progress in the accompanying balance sheet.
In May 1999, the Company filed an application with the Chinese government for
determination of the initial tariff under the Luannan Power Purchase Agreement.
The Company is continuing discussions with the Chinese government concerning the
tariff application and the related approval process. The tariff application is
still in process and the Company has not yet received an approved tariff from
the government. The Luannan Facility has passed performance testing, although it
has not yet been declared ready for commercial operations (primarily due to the
lack of a tariff under the power purchase agreement, and to further performance
adjustments to be made by the Luannan EPC Contractor). There can be no assurance
that the Company will receive the requested tariff, and the approved tariff may
be significantly lower than the amount requested. If the approved tariff varies
from the requested amount, the Company's consolidated financial position,
results of operations and cash flows could be materially adversely affected.
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.
TEXAS PROJECTS - At December 31, 1998, the Company was developing two
"merchant plant" projects in Texas. The projects will sell electric energy to
power purchasers and power marketers in the Electric Reliability Council of
Texas ("ERCOT") on the basis of negotiated prices. Because the projects will be
merchant plants, it is expected that the power purchasers will change from time
to time over the lives of the projects.
The first Texas project was a 1,000 megawatt ("MW") natural gas-fired
electric generating facility located near the city of Paris, Lamar County, Texas
(the "Paris Project"). Preliminary engineering work and equipment purchases for
the project began in July 1998. The Company had incurred costs on the Paris
Project of $51.3 million as of December 31, 1998. Such costs are included in the
accompanying balance sheet in plant and equipment under development costs. The
Company incurred certain short-term debt in connection with equipment purchases
for the project (see Note 7). In February 1999, the Company sold the Paris
Project to a third party for a price of approximately $160.5 million. The
Company retained a 1% limited partnership interest in the project. Of the sale
price, $10 million is being held in escrow pending the resolution of certain
contingencies regarding the completion of the project. After the project
commences commercial operations, any funds remaining in escrow will be
distributed to the Company. In connection with the sale, the Company repaid the
borrowings and accrued interest under the Bridge Financing Agreement of
approximately $48.5 million (see Note 7). The Company realized a gain of
approximately $86.7 million on the sale. Gain recognition will be deferred on
the $10 million held in escrow pending final disposition of the escrowed funds.
F-12
<PAGE>
The second Texas project was a proposed 1,000 MW natural gas-fired electric
generating facility to be located in Guadalupe County, Texas (the "Guadalupe
Project"). Preliminary engineering work and equipment purchases for the Project
began in July 1998. The Company had incurred costs on the Guadalupe Project of
$7.4 million as of December 31, 1998. Such costs are included in the
accompanying balance sheets in plant and equipment under development costs. In
March 1999, the Company sold the Guadalupe Project (which was in the initial
stage of development) to PEII for $8.0 million, which was the fair market value
of the project as determined by an independent engineering firm. The proceeds in
excess of the Company's capitalized costs of approximately $7.6 million on the
project have been included in advances to parent in the accompanying financial
statements.
OTHER DOMESTIC PROJECTS - At December 31, 1999, the Company has two domestic
merchant plant projects under development, one in Pennsylvania and the other in
Florida.
The Pennsylvania project is a 1,000 MW natural gas-fired electric generating
facility to be located near Upper Hanover Township, Pennsylvania (the "Perkiomen
Project"). Preliminary engineering work and other development activities for the
project began in early 1999. The Company has incurred costs on the Perkiomen
Project of approximately $789,000 as of December 31, 1999. Such costs are
included in the accompanying balance sheet in plant and equipment under
development costs.
The Florida project is a 1,000 MW natural gas-fired electric generating
facility to be located in St. Lucie County, Florida (the "Midway Project").
Preliminary engineering work and other development activities for the project
began in early 1999. The Company has incurred costs on the Midway Project of
approximately $249,000 as of December 31, 1999. Such costs are included in the
accompanying balance sheet in plant and equipment under development costs.
EQUIPMENT DEPOSITS -- The Company has paid deposits of $31.7 million on
equipment orders at December 31, 1999. A portion of such deposits is
nonrefundable.
NEPAL PROJECT -- The Company has an equity investment in a hydroelectric
power project in Nepal. See Note 6.
6. 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, a unit of the World Bank 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. The functional currency of the Nepal
Project is the U.S. dollar. A 25-year power purchase agreement with the Nepal
Electricity Authority ("NEA") 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 late 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, 1998
and 1999, approximately $28.9 million and $39.0 million, respectively, 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 generally accepted accounting principles and which therefore
are not reflected in BKPC's balance sheet. At December 31, 1998 and 1999,
approximately $9.2 million and $13.9 million, respectively, 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.
F-13
<PAGE>
The Company and an outside investor ("Investor") jointly own a 75% interest
in BKPC and other investors, including one of the lenders, 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 then 90% to the
Company and 10% to the Investor thereafter.
During August 1998, a flood occurred in the upper Bhote Koshi River basin and
as a result, the Nepal Project is currently expected to commence commercial
operations in approximately September 2000, which constitutes a delay of eight
months from the initial projected date of commercial operation, although this
delay may be reduced through implementation of a mitigation program. The total
cost of property damage was approximately $800,000. BKPC has insurance coverage
for a substantial portion of the loss, including business interruption coverage,
subject to a $100,000 deductible on property damage and a 60-day uncovered
period on business interruption coverage. In January 1999, BKPC received
insurance proceeds of $1.7 million, consisting of approximately $700,000 for
property damage and an advance of $1 million for an acceleration program to
mitigate the delay caused by the flood. BKPC has provided notice to the Nepalese
Government and the NEA that it intends to seek appropriate schedule and cost
relief afforded it pursuant to the applicable force majeure provisions under the
applicable power purchase agreement, in addition to any insurance proceeds
received. In this regard, because the NEA has indicated that it does not agree
that the force majeure provisions in the power purchase agreement support the
schedule and cost relief, a notice of arbitration has been delivered to the NEA
to address the issue.
The Nepalese Government has recently replaced various taxes with a broad
"Value Added Tax" ("VAT") and has applied the VAT to the Nepal Project. BKPC
management believes that application of the VAT amounts to a "Change in Law"
under the force majeure provisions in the applicable power purchase agreement
and, accordingly, has delivered notice to the NEA that it intends to seek
appropriate price relief to recover any VAT imposed on the Nepal Project.
The Company does not currently believe that the delay in commercial operation
of the Nepal Facility or the VAT imposed on certain capital items of the Nepal
Facility will cause a material adverse effect on the consolidated financial
position or results of operations of the Company. However, in the event that
commercial operations at the Nepal Facility are commenced after December 31,
2000, the applicable power purchase agreement could be terminated and there
could be a material adverse effect on the Company's consolidated financial
position or results of operations.
The Nepal 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.
BKPC is a development stage enterprise. All development and construction
costs incurred to date have been capitalized.
Summarized financial information for BKPC at December 31, 1998 and 1999 and
for the years then ended is as follows:
1998 1999
----------- -----------
Balance Sheet:
Cash ....................................... $ 224,954 $ 196,984
Restricted cash - current .................. 2,675,625 5,786,638
Insurance proceeds receivable .............. 1,719,272 --
Construction in progress and
other noncurrent assets ................ 39,073,422 57,905,323
----------- -----------
Total assets ............................... $43,693,273 $63,888,946
----------- -----------
Current liabilities ........................ $ 5,898,601 $10,495,202
Long-term debt ............................. 28,929,809 39,034,483
Stockholders' equity ....................... 8,864,863 14,359,261
----------- -----------
Total liabilities and equity ............... $43,693,273 $63,888,946
----------- -----------
F-14
<PAGE>
Statement of operations:
Flood damage deductible ................... $(100,000) $ --
Foreign exchange gain (loss) .............. (280,213) 857,054
--------- ---------
Net income (loss) ......................... $(380,213) $ 857,054
--------- ---------
7. SHORT-TERM DEBT
In December 1998, the Company entered into a Bridge Financing Agreement
("BFA") with a lender to borrow an aggregate principal amount of approximately
$47.9 million at an annual interest rate of 10% for the purpose of making
payments required under certain agreements for the Paris Project (see Note 5).
In December 1998, the Company borrowed $33 million under the BFA. Borrowings
under the BFA were collateralized by the assets of the Paris Project and by the
general and limited partnership interests therein. During January and February
1999, the Company borrowed the remaining available principal amount of
approximately $14.9 million. In February 1999, the total principal amount and
accrued interest thereon was repaid in connection with the sale of the Paris
Project.
8. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Long-term debt and capital lease obligation of the Company as of December 31,
1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
First Mortgage Bonds for Rosemary Project .......................... $ 98,704,744 $ 93,404,555
Series A Bonds ..................................................... 105,309,201 104,683,122
Senior Secured Notes ............................................... 146,651,674 147,782,910
------------- -------------
Total long-term debt ............................................ 350,665,619 345,870,587
Less current portion ......................................... (5,924,989) (7,674,598)
------------- -------------
$ 344,740,630 $ 338,195,989
Capital lease obligation for Brandywine Project - current portion .. $ -- $ 1,352,826
Capital lease obligation for Brandywine Project - noncurrent portion 246,078,324 246,557,267
------------- -------------
Total Capital lease obligation for Brandywine Project ........... $ 246,078,324 $ 247,910,093
------------- -------------
</TABLE>
FIRST MORTGAGE BONDS -- In July 1996, Panda-Rosemary Funding Corporation
("PRFC"), a wholly-owned subsidiary of Panda-Rosemary, issued $111,400,000 of
first mortgage bonds ("Rosemary Bonds"). The Rosemary Bonds bear interest at a
fixed rate of 8-5/8% payable quarterly commencing November 15, 1996. Scheduled
principal payments are required quarterly commencing November 15, 1996, and will
continue through maturity on February 15, 2016. The Rosemary Bonds are subject
to mandatory redemption prior to maturity under certain conditions. The Rosemary
Bonds are unconditionally guaranteed by Panda-Rosemary but are non-recourse to
the Company, and are secured by substantially all of the assets of
Panda-Rosemary as well as all of the outstanding capital stock of PRC, PRC II
and PRFC. The indenture contains certain covenants, including limitations on
distributions, additional debt and certain other transactions.
While amounts are outstanding under the Rosemary Bonds, all revenues of
Panda-Rosemary are remitted to a collateral agent. Funds held by the collateral
agent are included in the accompanying consolidated balance sheets as restricted
cash-current. On a monthly basis, the collateral agent remits to Panda-Rosemary
remaining funds available after payment of all expenditures relating to the
Rosemary project, including debt service, provided that Panda-Rosemary is in
compliance with the
F-15
<PAGE>
debt covenants. Additionally, the collateral agent withholds funds to meet
future debt service, maintenance and pollution control requirements, as required
under the indenture. These amounts are included in the accompanying consolidated
balance sheets as restricted cash-current and restricted cash-debt service
reserves and escrow deposits.
SERIES A BONDS -- In July 1996, Panda Funding Corporation ("PFC"), a
wholly-owned subsidiary of the Company, issued $105,525,000 of pooled project
bonds ("Series A Bonds"). The Series A Bonds bear interest at a fixed rate of
11-5/8% payable semiannually commencing February 20, 1997. Scheduled principal
payments are required semiannually, with certain exceptions, commencing August
20, 1999 and will continue through maturity on August 20, 2012. The Series A
Bonds are subject to mandatory redemption prior to maturity under certain
conditions. The Series A Bonds are fully and unconditionally guaranteed by PIC
and are guaranteed on a limited basis by Interholding up to a maximum amount
specified by the guarantee agreement which approximates $25.1 million at
December 31, 1999. Additionally, the Series A Bonds are secured by (i) all of
the capital stock of PFC, PIC and Interholding, (ii) 60% of the capital stock of
PIC Cayman, (iii) PIC's interest in distributions from Interholding, and (iv)
certain other collateral. The Series A Bonds are effectively subordinated to the
obligations of PIC's subsidiaries under project-level financing arrangements.
The indenture contains certain covenants, including limitations on
distributions, additional debt and certain other transactions.
While amounts are outstanding under the Series A Bonds, all distributions to
PIC from Interholding and certain proceeds received from PIC Cayman are remitted
to a collateral agent. On a monthly basis, the collateral agent remits to PIC
remaining funds available after satisfaction of PIC's debt service obligations
(including amounts withheld, if necessary, to meet future debt service and
reserve fund requirements as required by the indenture) provided that PIC is in
compliance with the debt covenants.
SENIOR SECURED NOTES FOR LUANNAN PROJECT -- In April 1997, PGE 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 PGE, 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 PGE 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 Company understands that on or about February 18, 2000, a letter (the
"CSFB Letter") was sent to Bankers Trust Company in its capacity as trustee
("Trustee") under a Trust Indenture, dated as of April 22, 1997, between Panda
Global and the Trustee ("Company Indenture"), by or on behalf of Credit Suisse
First Boston (Hong Kong) Limited ("CSFB"), as the holder of not less than 25% of
the outstanding 12 1/2% Senior Secured Notes issued bY PGE pursuant to a
separate Trust Indenture, dated as of April 22, 1997, between PGE and the
Trustee (the "PGE Indenture"). The Company understands that the CSFB Letter
alleges certain covenant defaults (not related to payment obligations) under the
PGE Indenture and/or the Company Indenture relating to the sale of certain
assets by the Company and whether fair market value was received in exchange for
such assets. Panda Global is the guarantor under the Senior Secured Notes and
the terms of the Company Indenture and the PGE Indenture are, in material
respects, parallel.
Panda Global and PGE have brought legal actions against CSFB and others, in
both United States federal district court and state court in Dallas, Texas. The
action brought by PGE in state court was removed to federal court and
consolidated with the action brought by the Company. PGE has filed a motion to
remand the removed case back to state court. The motion has not yet been ruled
upon. In the actions, PGE and Panda Global seek injunctive relief precluding an
acceleration of the Senior Secured Notes on the basis of the alleged defaults
and declaratory relief to the effect that no event of default exists under the
Company and/or PGE Indentures and also seek damages for conspiracy, tortious
interference with contractual relationships and/or business and trade
disparagement. CSFB has moved to have venue transferred to federal district
court in New York. That motion has not yet been ruled upon. As of April 7, 2000,
these legal actions remain pending. If a result adverse to the Company occurs in
this proceeding, there could be a material adverse effect on the Company's
consolidated financial condition, results of operations and cash flows.
CONSTRUCTION LOAN AND CAPITAL LEASE -- On April 10, 1995, Panda-Brandywine
closed the initial funding of a $215 million construction loan commitment with
GECC. The construction loan bore an interest rate of the Eurodollar rate plus
2.5%.
F-16
<PAGE>
The Brandywine Project commenced commercial operations on October 31, 1996.
The construction loan was converted to long-term non-recourse financing of
$217.5 million in the form of a capital lease on December 30, 1996. To effect
the lease financing, title to the Brandywine Project was transferred to a third
party trustee and leased back to Panda-Brandywine. The Brandywine facility lease
is a net lease with an initial term of 20 years and two five-year renewal
options. At December 31, 1999, the property covered by the Brandywine facility
lease had a gross book value of approximately $207.5 million and accumulated
depreciation of approximately $25.9 million. In connection with the revision of
the PPA in 1998, the payment schedule of the capital lease was revised in order
to match the revised capacity payment schedule from PEPCO under the PPA (see
Note 5). The modification of lease terms resulted in an increase to the capital
lease asset (electric generating facilities) and the related capital lease
obligation in the amount of $4.8 million. The minimum lease payments through
1999 are less than the interest expense on the capital lease obligation,
resulting in increases in the principal amount of the capital lease obligation.
Amortization of the principal amount of the capital lease obligation begins in
2000. The documents governing the lease financing contain various affirmative
and negative covenants, including limitations on the ability of Panda-Brandywine
to make distributions to its partners.
The future minimum lease commitments under the capital lease for the
Brandywine Project are as follows:
2000 .................................................... $ 24,887,466
2001 .................................................... 28,642,520
2002 .................................................... 30,057,397
2003 .................................................... 30,215,606
2004 .................................................... 30,245,907
Thereafter .............................................. 361,993,341
-------------
Total minimum lease payments ............................ 506,042,237
Amounts representing interest ........................... (258,132,144)
-------------
Present value of net minimum payments ................... $ 247,910,093
=============
LONG-TERM DEBT MATURITIES -- The principal maturities of long-term
obligations, excluding the capital lease relating to the Brandywine Project, for
each of the five years succeeding December 31, 1999 and thereafter are as
follows:
2000 .............................................. $ 7,674,598
2001 .............................................. 11,629,603
2002 .............................................. 18,081,509
2003 .............................................. 22,107,717
2004 .............................................. 145,080,967
Thereafter ........................................ 148,713,283
-------------
Total ............................................. 353,287,677
Less discount ..................................... (7,417,090)
-------------
$ 345,870,587
=============
9. INCOME TAXES
A provision for income taxes for 1997 was not recorded since operating losses
were incurred for that year. The Company recognized a deferred tax benefit of
$25,000,000 for 1998 and a tax provision of $38,000,000 for 1999 as discussed
below.
The tax provision for 1999 relates to the Company's domestic operations and
was primarily attributable to the gain on the sale of the Paris project (see
Note 5). Losses incurred in the Company's offshore operations are not deductible
from the Company's domestic taxable income. The 1998 deferred tax benefit, which
resulted from a reduction in the valuation allowance against deferred tax
assets, was recognized because the subsequent sale of the Paris project in 1999
validated the likely future realization of a portion of the deferred tax assets.
As a result of the gain on the sale of the Paris project, the Company's
domestic net operating loss carryforwards of approximately $53 million at
December 31, 1998 were utilized in 1999. Accordingly, at December 31, 1999, the
Company has no remaining domestic net operating loss carryforwards. The
Company's foreign subsidiaries have approximately $31 million of net operating
loss carryforwards at December 31, 1999, which are considered to be permanently
invested outside the United States and are not currently available to offset
U.S. taxable income.
F-17
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1998 and 1999
were as follows:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Deferred tax assets:
Capital lease obligation ...................... $ 86,127,000 $ 86,769,000
Domestic net operating loss carry forward ..... 18,609,000 --
Foreign net operating loss carry forward ...... 5,281,000 8,608,000
------------- -------------
110,017,000 95,377,000
------------- -------------
Deferred tax liabilities:
Plant and equipment ........................... 60,402,000 60,481,000
Other ......................................... 14,373,000 12,880,000
------------- -------------
74,775,000 73,361,000
------------- -------------
Net deferred tax assets .......................... 35,242,000 22,016,000
Valuation allowance .............................. (10,242,000) (22,016,000)
------------- -------------
Net deferred tax asset ........................... $ 25,000,000 $ --
============= =============
</TABLE>
SFAS No. 109 requires that a valuation allowance be recorded against tax
assets which are not likely to be realized. Prior to their utilization in 1999,
the Company's carryforwards would have expired at specific future dates and
utilization of certain carryforwards would have been limited to specific amounts
each year. However, due to the uncertain nature of their ultimate realization
based upon past performance and expiration dates, prior to 1998 the Company had
established a full valuation allowance against these carryforward benefits. The
Company's policy is to recognize the benefits only when it is determined that it
is more likely than not that such benefits will be realized. Realization is
entirely dependent upon future earnings in specific tax jurisdictions. In 1998,
the Company reduced the valuation allowance, recognizing a deferred tax benefit,
because the $86.7 million gain on the subsequent sale of the Paris Project (see
Note 5) validated the likely future realization of a portion of the domestic
deferred tax assets. In 1999, the domestic loss carryforwards were utilized. At
December 31, 1999, the valuation allowance was increased to fully offset the
remaining net deferred tax assets. While the need for this valuation allowance
is subject to periodic review, if the allowance is reduced, the tax benefits
will be recorded in future operations as a reduction of the Company's income tax
expense or as an income tax benefit.
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income or losses as a result of the following differences:
1997 1998 1999
------------ ------------ ------------
Income tax at statutory
U.S. tax rate ............... $(11,364,000) $ (9,416,000) $ 25,474,000
State income taxes and other .... -- -- 752,000
Change in valuation allowance ... 11,364,000 (15,584,000) 11,774,000
------------ ------------ ------------
Provision (benefit)
for income taxes ............. $ -- $(25,000,000) $ 38,000,000
============ ============ ============
10. COMMITMENTS AND CONTINGENCIES
The Rosemary and Brandywine projects operate as qualifying facilities, and
the related power contracts are subject to the rules and regulations under the
Public Utilities Regulatory Policies Act of 1978 ("PURPA"). In order to promote
open competition in the industry, proposed legislation in the U.S. Congress has
called for either a repeal of PURPA or a complete restructuring of the
regulations governing the electric industry including PURPA. These federal
initiatives are generally not yet effective, but many states are implementing or
considering regulatory initiatives designed to increase competition in the
domestic power generation industry. In most cases, any initiatives discussed
have indicated that power sales agreements of existing qualifying facilities
would be honored. The Company cannot predict the final form or timing of the
proposed restructuring on a
F-18
<PAGE>
federal or individual state level or the impact, if any, that such restructuring
would have on the Company's existing business or results of operations. The
Company cannot currently determine whether any such restructuring would have a
material effect on
its power sales agreements and, accordingly, cannot predict whether its
financial position, results of operations or cash flows would be materially
affected.
The Company has been informed by PEPCO that PEPCO is pursuing a strategy of
selling all of its generating assets, which the Company believes could include
the Brandywine Power Purchase Agreement. The Company currently cannot determine
the effect on the Company, if any, of such a transfer of the Brandywine Power
Purchase Agreement.
As discussed in Note 5, Raytheon constructed the Brandywine Project pursuant
to a fixed-price, turnkey engineering, procurement and construction contract
(the "Brandywine EPC Agreement") with Panda-Brandywine. Raytheon completed the
construction and start-up of the Brandywine Project and has met the requirements
for commercial operations and substantial completion under the Brandywine EPC
Agreement. The date on which commercial operations were achieved and the
entitlement of Raytheon to certain early completion bonuses under the Brandywine
EPC Agreement have been the subject of a dispute between Panda-Brandywine and
Raytheon. Panda-Brandywine and Raytheon have reached an agreement under which
payment of the disputed amount will not be required, subject to payment of
Panda-Brandywine's undisputed obligation to Raytheon of approximately $3 million
in accordance with the terms of the agreement. As of December 31, 1999,
Panda-Brandywine had paid all amounts due under the agreement.
In April 1998, the Company filed suit in federal court charging the Bibb
Company ("Bibb") and Westpoint Stevens, Inc. ("Westpoint") with violating a
contractual agreement in the sale of a textile mill in 1997 and in the operation
of the mill since that time. The Rosemary Facility supplies steam and chilled
water to the textile mill under a contract originally signed with Bibb.
Westpoint acquired the textile mill from Bibb in 1997. The suit asked the court
to determine and clarify the rights of the parties to the contract. The federal
court dismissed this action in June 1998. Shortly thereafter, Bibb and Westpoint
filed a separate suit in state court in Halifax County, North Carolina claiming,
among other things, breach of contract in regard to delivery of steam. In
October 1998, the Company filed suit against Bibb and Westpoint in state court
in Dallas County, Texas regarding the contract. The case has since been removed
to Special Business Court in Winston-Salem, North Carolina, by agreement of the
parties. The Company intends to vigorously pursue its claims against Bibb and
Westpoint in these court actions. The Company continues to provide steam and
chilled water to the mill pursuant to the contract. The Company believes that
the resolution of this contractual dispute will not have a material adverse
effect upon the financial position, results of operations or cash flows of the
Company.
As of December 31, 1999, the Company has entered into purchase commitments
totaling approximately $325 million for equipment. The Company is pursuing
external financing with respect to funding these commitments.
The Company has entered into various long-term contracts for the purchase and
transportation of fuel subject to termination only in certain limited
circumstances. These contracts have remaining terms of 10 to 25 years. The
Company's minimum purchase commitment under these contracts is 2.3 million
British thermal units of gas annually from October 31, 1996 through October 31,
2011. In the aggregate, such commitments are not at prices in excess of the
current market.
PEII is also involved in other legal and administrative proceedings in the
ordinary course of business, which are not disclosed in these consolidated
financial statements. Management believes that the amount of ultimate liability
allocable to the Company with respect to these matters will not have a material
impact on the financial position, results of operations or cash flows of the
Company.
11. 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 $1,666,623, $994,810 and
$985,584 for the years ended December 31, 1997, 1998 and 1999, respectively.
The Rosemary and Brandywine projects are operated by an affiliated management
company which is a subsidiary of PEII (see Note 5). Additionally, in 1998, the
Luannan Project, the Nepal Project and the Brandywine Project paid management
fees to PEII of $1,632,800, $300,000 and $180,000, respectively. In 1999, the
Luannan Project, the Nepal Project and the Brandywine Project paid management
fees to PEII of $653,000, $380,000, and $180,000, respectively. Also, in 1999
the Luannan Project paid management fees of approximately $314,000 to the
project's minority interest owners.
F-19
<PAGE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's assets and liabilities have been
determined using available market information. The estimates are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on their estimated fair value amounts.
The fair value of current financial assets, current financial liabilities, and
debt service reserves and escrow deposits, are estimated to be equal to their
reported carrying amounts. The Company's debt securities have limited trading.
The fair value of these securities at December 31, 1998 and 1999 is estimated
based on a third party quotation.
The estimated fair values of the Company's debt securities as of December 31,
1998 and 1999 are as follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
------------------ ------------------
<S> <C> <C>
1998: Long-term debt, including current portion .... $ 350,665,619 $ 260,400,000
1999: Long-term debt, including current portion .... 345,870,587 291,200,000
</TABLE>
The Company is also a party to letters of credit. Historically, no claims
have been made against these financial instruments and management does not
expect any material losses to result from these off-balance-sheet instruments
because performance is not expected to be required. Therefore, management is of
the opinion that the fair value of these instruments is zero.
13. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company's electric capacity and energy sales are derived primarily from
two power sales contracts with two domestic customers. The failure of these
customers to fulfill their contractual obligations could have a substantial
negative impact on the Company's revenue. However, the Company does not
anticipate non-performance by the customers under these contracts. The portion
of electric capacity and energy sales attributable to the two power sales
contracts were as follows:
1997 1998 1999
---- ---- ----
VEPCO (Panda-Rosemary) ........................... 43% 37% 30%
PEPCO (Panda-Brandywine) ......................... 52% 56% 65%
The Company operates in a single industry, the independent power industry.
All of the Company's operating revenues are derived from domestic operations.
The Company's long-lived assets are located in the United States, except for the
Luannan Project in China (see Note 5) and the Nepal Project in Nepal (see Note
6).
14. GOING CONCERN CONSIDERATIONS
The Company experienced losses during the years ended December 31, 1997 and
1998 and has a shareholder's deficit of $120.6 million at December 31, 1999.
Management currently believes that the Company may not be able to meet the
interest and principal obligations totalling $11.35 million due in October 2000
on the Senior Secured Notes, as well as subsequent payment obligations with
respect to such notes. As discussed in Note 8, in April 1997, PGE issued $155.2
million original principal amount of Senior Secured Notes to finance the
development and construction of the Luannan Project.
As discussed in Note 5, the Company filed its initial tariff application with
the Chinese government in May, 1999. The Company is continuing discussions with
the Chinese government concerning its tariff application and the related
approval process. The tariff application is still in process and the Company has
not yet received an approved tariff from the government. The Luannan Facility
has passed performance testing, although it has not yet been declared ready for
commercial operations (primarily due to the lack of a tariff under the power
purchase agreement, and to further performance adjustments to be made by the
Luannan EPC Contractor). There can be no assurance that the Company will receive
the requested tariff, or that the approved tariff will not be significantly
lower than the amount requested. If the approved tariff varies from the
requested amount, the Company's consolidated financial position, results or
operations and cash flows may be materially adversely affected.
F-20
<PAGE>
The Company understands that on or about February 18, 2000, a letter (the
"CSFB Letter") was sent to Bankers Trust Company in its capacity as trustee
("Trustee") under a Trust Indenture, dated as of April 22, 1997, between Panda
Global and the Trustee ("Company Indenture"), by or on behalf of Credit Suisse
First Boston (Hong Kong) Limited ("CSFB"), as the holder of not less than 25% of
the outstanding 12 1/2% Senior Secured Notes issued by PGE pursuant to a
separate Trust Indenture, dated as of April 22, 1997, between PGE and the
Trustee (the "PGE Indenture"). The Company understands that the CSFB Letter
alleges certain covenant defaults (not related to payment obligations) under the
PGE Indenture and/or the Company Indenture relating to the sale of certain
assets by the Company and whether fair market value was received in exchange for
such assets. Panda Global is the guarantor under the Senior Secured Notes and
the terms of the Company Indenture and the PGE Indenture are, in material
respects, parallel.
Panda Global and PGE have brought legal actions against CSFB and others, in
both United States federal district court and state court in Dallas, Texas. The
action brought by PGE in state court was removed to federal court and
consolidated with the action brought by the Company. PGE has filed a motion to
remand the removed case back to state court. The motion has not yet been ruled
upon. In the actions, PGE and Panda Global seek injunctive relief precluding an
acceleration of the Senior Secured Notes on the basis of the alleged defaults
and declaratory relief to the effect that no event of default exists under the
Company and/or PGE Indentures and also seek damages for conspiracy, tortious
interference with contractual relationships and/or business and trade
disparagement. CSFB has moved to have venue transferred to federal district
court in New York. That motion has not yet been ruled upon. As of April 7, 2000,
these legal actions remain pending. If a result adverse to the Company occurs in
this proceeding, there could be a material adverse effect on the Company's
consolidated financial condition, results of operations and cash flows.
These matters raise substantial doubt about the Company's ability to continue
as a going concern. In this regard, the Company has retained financial and legal
advisors to review the financial and legal alternatives available to the
Company, including without limitation a possible debt restructuring of the
Senior Secured Notes, the raising of additional equity or debt financing for the
Company and its affiliates.
To continue its development activities (including but not limited to the
Company's purchase commitments totaling approximately $325 million for
equipment), the Company will require external financing. Its financial and legal
advisors currently are pursuing several debt and equity financing alternatives
in this regard as well. The Company's restricted cash balances are available
only for specific uses as stated in the relevant indentures (including but not
limited to the indentures related to the Senior Secured Notes), such as the
payment of debt obligations, project development, construction and maintenance,
and are not available for general corporate purposes.
There can be no assurance that the possible debt restructuring or financings
referred to above will be successfully completed. In such instance, there could
be a material adverse effect on the consolidated financial position, results of
operations and cash flows of the Company which, among other things, could cause
the Company to seek protection under applicable federal bankruptcy laws.
The accompanying consolidated financial statements do not include adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
F-21
<PAGE>
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 HOLDINGS, INC.
Date: April 12, 2000 By: /s/
Robert W. Carter,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PEOPLE BY THESE PRESENTS, that each of the undersigned officers
and directors of Panda Global Holdings, Inc. (the "Company") hereby constitutes
and appoints Robert W. Carter or Janice Carter or any of them (with full power
to each of them to act along), 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, 1999, 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/ Chairman of the Board, April 12, 2000
Robert W. Carter Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Executive Vice President, April 12, 2000
Janice Carter Secretary and Treasurer
(Principal Financial
and Accounting Officer)
EXHIBIT 10.24.4
OPERATION AND MAINTENANCE AGREEMENT
BETWEEN
PANDA-BRANDYWINE, L.P.
AND
PANDA GLOBAL SERVICES, INC.
17 May 1999
<PAGE>
OPERATION AND MAINTENANCE AGREEMENT
BETWEEN
PANDA-BRANDYWINE, L.P.
AND
PANDA GLOBAL SERVICES, INC.
RECITALS
THIS AGREEMENT is made and entered into on the 17th day of June, 1999, by
and between Panda-Brandywine, L.P. ("Owner"), a Delaware limited partnership and
Panda Global Services, Inc. ("Operator"), a Delaware Corporation.
WHEREAS, Owner and Potomac Electric Power Company entered into a Power
Purchase Agreement dated as of August 9, 1991, as amended on September 16, 1994
and, pursuant to which Owner operates a natural gas and oil fired 230 net
megawatt cogeneration facility and a distilled water facility relating thereto
(collectively the "Facility") in Brandywine, Maryland and pursuant to which
Owner will sell and certain persons including but not limited to utilities,
factories, and power marketers (customers) will purchase electrical energy
produced by the Facility; and
WHEREAS, Owner and the Brandywine Water Company ("Brandywine Water"), a
Delaware Corporation, entered into a Steam Sales Agreement (the "Steam Sales
Agreement") attached hereto as Exhibit A pursuant to which Owner will sell and
Brandywine Water will purchase steam produced by the Facility; and
WHEREAS, Owner desires to have Operator provide operation and maintenance
services at the Facility and Operator desires to provide such services;
NOW, THEREFORE, in consideration of the foregoing and of the premises
hereinafter contained, Owner and Operator agree as follows:
1
<PAGE>
SECTION I
DEFINITIONS
Whenever the following terms appear in this Agreement, they shall have the
following meanings:
"Actual Commercial Operation Date" shall have the meaning given such
term in the Power Agreement.
"Affiliate" shall mean, with respect to any corporation, a corporation
which controls, is controlled by, or is under common control with, such
corporation or successor thereto.
"Agreement" shall mean this Operation and Maintenance Agreement made
and entered into on the date set forth above by and between Panda-Brandywine,
L.P. and Panda Global Services, Inc.
"Annual Budget" shall mean the budget of all costs and expenses
anticipated to be incurred by Operator to meet its obligations under this
Agreement during any calendar year, or part thereof.
"Approved Budget" shall mean the annual budget prepared and submitted
by Operator pursuant to Section 2.17 (n) hereof, which has been approved by
Owner.
"Authorization To Proceed" shall mean Owner's written notice to
Operator to commence the work required by this Agreement.
"Claims" shall have the meaning given such term in Section 9.02 (a)
hereof
"Commencement Date" shall mean the calendar date upon which Operator
is to commence the work required by this Agreement as specified in the
Authorization to Proceed. The expected date for the Commencement Date is
November 1, 1999.
"Commercial Operation" shall mean the commencement of regular
deliveries of electricity to the customers pursuant to the Power Agreements,
which occurs as of the Actual Commercial Operation Date.
"Commercial Operation Date" shall mean the date of Commercial
Operation, which occurred on October 31, 1996.
"Construction Agreement" shall mean the Amended and Restated Turnkey
Construction Agreement between Owner and Turnkey Contractor relating to the
design, construction, testing and starting up of the Facility as the same may be
amended, supplemented or modified from time to time.
2
<PAGE>
"Consumables" shall be the meaning set forth in Section 2.07 hereof.
"Delivery Facilities" shall mean the lines and pipes used to deliver
gas and water to the facility.
"Dependable Capacity" shall mean the capacity of the Facility
determined by testing pursuant to Section 8.2 of the Power Agreement.
"Equivalent Availability Factor" shall have the meaning set forth in
the Power Agreement.
"Equivalent Forced Outage Rate" shall have the meaning set forth in
the Power Agreement.
"Facility" shall mean the natural gas and oil fired 230 net megawatt
cogeneration facility and the distilled water facility built by Owner near
Brandywine, Maryland to supply electrical energy to the Utility, factories, and
power marketers (customers) and thermal energy to Brandywine Water and all
equipment contained therein and parts thereof. It shall include, without
limitation, Delivery Facilities, the fuel oil storage tank, all fuel oil
delivery lines from the fuel oil storage tank to the balance of the Facility,
the portion of the natural gas pipeline located on the Site, interconnection
facilities to interconnect with the Utility (to the extent located on Owner's
side of the interconnection point that is on the high side of Owner's step-up
transformers) and other equipment and systems described in the Construction
Agreement.
"Indemnitee" shall have the meaning set forth in Section 9.02 hereof.
"Steam Sales Agreement" shall mean the Steam Sales Agreement between
Owner and Brandywine Water as the same may be amended, supplemented or modified
from time to time.
"Lender" and "Lenders" shall mean the financing entities, security
holders, investors, equity providers and others providing financing or financing
to or on behalf of Panda, for the development, construction, ownership,
operation, and maintenance of the Facility or any portion thereof, or any
trustee or agent acting on behalf of any of the foregoing.
"Maintenance Reserve" shall mean the fund established to cover major
maintenance expenditures such as combustion turbine overhauls and other
equipment major maintenance overhauls.
"Operator" shall mean Panda Global Services Inc., a Delaware
Corporation.
"Owner" shall mean Panda-Brandywine, L.P., a Delaware Limited
Partnership.
3
<PAGE>
"Plant General Manager" shall mean Operator's on-site employee
responsible for the operation and maintenance of the Facility.
"Project Funding" shall mean the date upon which the initial loan was
made by the Lender to Owner.
"Power Agreement" shall mean the Power Purchase Agreement between
Owner and Utility dated as of August 9, 1991, and as amended on September 16,
1994 and as supplemented, amended or modified from time to time during the term
of this Agreement, which is on file at the Facility at 16400 Mattawoman Drive,
Brandywine, Maryland and Panda's Corporate offices located at 4100 Spring Valley
Rd. Suite 1001, Dallas, Texas.
"Prudent Utility Practices" shall mean those practices generally
followed by the United States electric utility industry with respect to the
operation and maintenance of electric generating, transmission and distribution
facilities (including, but not limited to, the operating and safety practices
generally followed by the electric utility industry).
"Qualifying Facility" or "QF" shall mean a cogeneration facility
meeting the requirements for a qualifying cogeneration facility set forth in the
Public Utility Regulatory Policies Act of 1978, Public Law No. 95-617 as amended
from time to time and in the regulations with respect thereto, including Title
18 of the Code of Federal Regulations Part 292 as the same may be amended from
time to time.
"Reimbursable Costs" or "Reimbursable Cost" shall mean all reasonable
and actual direct costs properly incurred pursuant to Sections 2.04 through
2.08, and 2.13 of this Agreement.
"Site" shall mean that real property upon which the Facility is
located.
"Summer Period" shall mean the months of June, July, and August.
"Termination Payment" shall be a lump-sum payment as defined in
Section 8.01 hereof.
"Turnkey Contractor" shall mean Raytheon Engineers and Constructors,
Inc. a Delaware Corporation.
"Utility" shall mean Potomac Electric Power Company, a District of
Columbia and Virginia corporation, or any successor thereto.
"Winter Period" shall mean the months of December, January and
February.
4
<PAGE>
SECTION II
SERVICES TO BE PERFORMED BY OPERATOR
Operator will provide all operation and maintenance services necessary for
the efficient, sound and effective operation of the Facility so as to enable the
Facility to respond to the thermal requirements and operation and maintenance
requirements of Brandywine Water, as set forth in the Steam Sales Agreement,
attached as Exhibit A hereto, and to satisfy the requirements set forth in the
Power Agreement, attached as Exhibit F, and to maintain the Facility in good
mechanical and operating repair and condition all in accordance with Prudent
Utility Practices in a manner consistent with that of a prudent non-utility
owner maintaining its own facility for its own account. Without limiting the
generality of the foregoing, Operator shall do the following:
2.01 Personnel. Operator shall hire, train and provide, in a manner
consistent with that of a prudent non-utility owner maintaining,
competent qualified personnel to operate and maintain the Facility
including, without limitation, the following:
(a) A General Manager, Plant Manager, Operations Manager, Maintenance
Manager, and Plant Engineer assigned to the Facility full time,
to manage on-site operations and maintenance which individuals
shall be approved in writing by Owner and shall not be replaced
without the written approval of the Owner.
(b) Additional full time on-site personnel as needed.
(c) Additional engineering support, maintenance, and management
personnel not located full time at the Facility, as needed to
perform the requirements of this Agreement.
Without limiting the generality of the foregoing, Operator will (i) staff the
Facility with two or more qualified operators (in the control room or
electronically connected thereto when elsewhere on the Facility site) during all
hours when the Facility is in operation or when the generator is electrically
connected to the Utility's system; (ii) provide those full time on-site
personnel required to operate the Facility in accordance with Prudent Utility
Practices, including without limitation, those positions identified in Exhibit B
hereto; and (iii) provide the home office support identified in Exhibit C
hereto. Operator shall submit the qualifications of full-time on-site personnel
hired for review and approval by Owner as requested in writing.
2.02 Staffing. After receiving Authorization to Proceed, Operator shall hire the
personnel identified in Exhibit B.
2.03 Operation and Maintenance. Operator shall operate and maintain the
Facility, seven days a week, twenty-four hours per day, in accordance with
Prudent Utility Practices, manufacturers' recommendations as applicable, and as
required by the Power Agreements, loan,
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single investor or leveraged lease documents relating to the Facility and this
Agreement. The Operator will operate the Facility in a manner calculated to
maximize the useful life of the equipment, to avoid excessive fuel consumption,
to minimize downtime for repairs, to avoid forced outages, and to maintain (to
the extent controllable by Operator) the Facility's QF status, in a manner
consistent with that of a prudent non-utility owner. Operator shall consult with
Owner in order to clarify its obligations in the event that any conflict exists
in these obligations under this Agreement. Operator shall be solely responsible
for the operation and maintenance of the Facility hereunder but will follow the
directions of Owner with respect to financi al or economic matters as long as
compliance with such directions will not be likely to materially and adversely
affect the operation and maintenance of the Facility as required hereunder.
2.04 Tools.
(a) Operator shall review the tool list developed by the Turnkey
Contractor and the previous O&M Contractor and identify and
prepare a list of recommended tools required to adequately
perform the requirements of this Agreement. Said list will be
submitted to Owner and shall be modified or supplemented
throughout the term of this Agreement by agreement of the parties
as necessary to permit the timely acquisition thereof.
(b) The initial supply of tools identified on the list described in
paragraph (a) shall be subject to the written approval of the
Owner and will be purchased by Operator to Owner's account as
provided in Section 4 of this Agreement or as a Reimbursable
Cost. Operator shall promptly notify Owner in writing of tools
that were not approved that could impact its obligations and
duties hereunder.
(c) Operator shall be responsible for annually, or as otherwise
reasonably requested by Owner in writing, preparing and
presenting to Owner an accurate reconciliation of the Facility's
tool inventory.
(d) Operator shall be responsible for the use, management, control,
care, and custody of Facility tools.
(e) Operator shall repair or replace as required, as a Reimbursable
Cost or to the account of Owner, as provided in Section 4, tools
that deteriorate due to normal use.
(f) Operator shall replace, to the account of Operator, tools that
are broken due to misuse, stolen or lost while in Operator's
care.
(g) Operator shall periodically, and no less frequently than
annually, review Facility tools, and make recommendations to
Owner for additional tools that would improve Facility
operations.
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2.05 Spare Parts.
(a) Operator shall review the spare parts list developed by the
Turnkey Contractor and previous O&M Contractor, and shall
identify and prepare a list of recommended spare parts required
to adequately perform the requirements of this Agreement. Said
list will be submitted to Owner and shall be modified or
supplemented throughout the term of this Agreement by agreement
of the parties as necessary to permit the timely acquisition
thereof. Spare parts will be determined with reference to
generally accepted practices in the industry and with reference
to manufacturer's recommendations.
(b) The supply of spare parts identified on the list described in
paragraph (a) shall be subject to the written approval of the
Owner and will be purchased by Operator for Owner's account as
provided in Section 4 of this Agreement or as a Reimbursable
Cost.
(c) Operator shall, subsequent to submitting the initial list of
spare parts described in paragraph (a) be responsible for
purchasing, for Owner's account as provided in Section 4 hereof
or as a Reimbursable Cost, replacements for said listed spare
parts as necessary.
(d) Operator shall be responsible for the use, care, custody,
management and control of said spare parts.
(e) Operator shall be responsible for annually on or about January
15, or as otherwise reasonably requested by Owner in writing,
performing and presenting to Owner an accurate reconciliation of
the Facility's spare parts inventory.
(f) Operator shall be responsible for establishing proper and
effective on-Site warehousing and inventory controls for such
spare parts.
(g) Operator shall purchase additional parts subject to Owner's
written approval or replacement parts to maintain inventory at
levels to support Facility requirements, as a Reimbursable Cost
or to the account of Owner as provided for in Section 4.
2.06 Equipment.
(a) Operator shall identify and prepare a list of recommended
equipment required to adequately perform the requirements of this
Agreement. Said list will be submitted to Owner or supplemented
throughout the term of this
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Agreement by agreement of the parties as necessary to permit the
timely acquisition thereof.
(b) The equipment identified on the list of such equipment described
in paragraph (a) shall be subject to the written approval by
Owner and shall be purchased by Operator for Owner's account as
provided in Section 4 or as a Reimbursable Cost. Operator shall
promptly notify Owner in writing of equipment that was not
approved that could impact Operator's obligations and duties
hereunder.
(c) Operator shall periodically review the equipment required to
perform under this Agreement and make recommendations to Owner of
modifications or additions to Facility equipment throughout the
term of this Agreement that would improve or enhance Facility
operations.
(d) Operator shall be responsible for the use, management, care,
custody, operation and maintenance of said equipment. Operator
shall repair or replace, as a Reimbursable Cost or to the account
of Owner as provided for in Section 4, this equipment.
(e) Operator shall, when approved in advance by Owner in writing,
purchase and install additional equipment as a Reimbursable Cost
or to the account of Owner as provided for in Section 4.
2.07 Consumables and Other Materials.
(a) Operator shall identify those consumable, expendable, and other
materials and supplies ("Consumables") necessary to perform the
requirements of this Agreement. Said Consumables will be
identified to Owner throughout the term of this Agreement as
necessary to permit the timely acquisition thereof.
(b) Operator shall use, manage, care for, control and maintain
Consumables as required to support the needs of the Facility, and
purchase Consumables, as Reimbursable Costs or to Owner's account
as provided in Section 4, throughout the term of this Agreement.
2.08 Purchased Parts, Labor and Services. Operator shall identify and purchase
as Reimbursable Costs or for the account of Owner as provided for in Section 4,
parts other than spare parts and purchased labor and services throughout the
term of this Agreement as necessary to perform the requirements of this
Agreement, including but not limited to the labor and services identified in
Exhibit D hereto. This will include purchases for the services of factory
personnel, or personnel trained and qualified to provide equivalent services, to
perform manufacturer's recommended service procedures when deemed necessary.
Without limitation, Operator shall purchase as a Reimbursable Cost third-party
contracts to clean up and remove hazardous waste
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and solid waste, except such waste arising out of the negligence or fault of
Operator. Any maintenance or repair that can reasonably be performed by regular
full time on-site personnel, provided pursuant to Section 2.01 above and Exhibit
D, will be performed by them, without additional compensation.
2.09 Maintenance and Repairs. Operator shall comply with procedures developed
pursuant to Section 2.10 below and otherwise provide all maintenance and repair
services necessary to keep the Facility in good working order in a manner
consistent with that of a prudent non-utility owner, to correct by appropriate
measures any damage to or malfunction of the Facility, and provide all necessary
information to and cooperate with Owner so that Owner may enforce or make
warranty claims with respect to any repair or malfunction. Any parts utilized in
performing operation and maintenance services shall be new or refurbished
according to manufacturer's recommendations. Operator shall assign to Owner the
manufacturer's warranty on all parts Operator has purchased.
2.10 Operating, Maintenance and Safety Plans and Procedures. Using the
operations and maintenance manuals supplied to Owner by the Turnkey Contractor
pursuant to the Construction Agreement, those supplied by the previous O&M
Contractor, and as supplemented by Operator's standard procedures developed for
like facilities, Operator shall develop (and furnish copies to Owner for review
and approval in writing) necessary operating, maintenance and safety plans and
procedures including, without limitation, the following (each of which shall
satisfy the requirements set forth in the Power Agreement):
(a) Startup, operating, dispatching and shutdown procedures for
Facility equipment and systems including appropriate periodic
checks of and/or for water quality and treatment requirements,
fluid or gaseous leaks, improper temperatures, excessive noise
and vibrations, proper pressures and liquid levels, and other
pertinent operating information indicative of equipment
condition.
(b) Periodic maintenance plans identifying schedules and procedures
for equipment lubrication, packing and seal checks, filter checks
and services, and electrical and control system checks.
(c) A Ten Year Plan, other Plans and procedures for long-term
maintenance and overhaul of Facility equipment.
(d) Plans and procedures for as-needed repairs and overhauls.
(e) Plans and procedures for emergency service and repairs as needed,
twenty-four (24) hours a day, each day of the year. Such
procedures will provide for expedited service and repairs; for
the availability of Operator's management personnel, in
connection with such services, on a twenty-four (24) hours a day,
each day of the year basis; for notification of and expediting
the availability of factory or service personnel when necessary
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repairs are beyond the capabilities of on-site personnel, and for
the immediate notification of Owner of any emergency event or
condition, of anticipated corrective actions to be taken and of
anticipated service and repair times and consequences.
(f) Procedures for identifying, acquiring and maintaining required
spare parts to ensure that the Facility has an adequate inventory
of spare parts, in accordance with Section 2.05 of this
Agreement.
(g) Procedures for notice to and approval by Owner of any alterations
to the Facility, so that no alterations to the Facility will be
made without the written consent of Owner.
Operator will, without limitation, provide in such plans and procedures for
visual, mechanical or instrumental inspection as necessary in order to provide
early detection of required adjustments, repairs or replacements so that
required adjustments, repairs or replacements can be scheduled with minimum
interference to Facility operations insofar as possible. Such procedures will be
consistent with applicable manufacturer's recommendations, will provide for the
services of factory representatives and/or outside consultants where appropriate
and will provide for orderly shutdowns and minimum interference with operations.
Such procedures will be reviewed as required and in no event less frequently
than annually with a copy of the review provided to Owner. No alterations to the
Facility shall, in any event, be made without the prior written approval of
Owner.
2.11 Records. Operator shall keep and maintain maintenance and operation records
for the Facility and for the equipment therein. Such records shall satisfy the
requirements set forth in the Power Agreement and Lenders requirements under
loan, single investor or leveraged lease documents relating to the Facility and
shall include, without limitation: the logging of daily exception reports; daily
Operator's logs; a record of all maintenance and repairs performed; copies of
all plans and procedures developed pursuant to Section 2.10 above or otherwise;
emissions and compliance reports; equipment and instrument calibration records;
fuel consumption records; steam production; water consumption, consumption and
delivery records; and electricity production, consumption and delivery records
and QF status calculation records. All records shall be made available to the
Owner.
2.12 Reports. Operator shall prepare and furnish a monthly operations report
within fifteen (15) business days following the close of each calendar month,
including the following:
(a) A review of operations for the prior month (fuel consumption;
electricity and steam production, consumption and deliveries and
QF status records, etc.).
(b) Identification of significant exceptions to the normal status of
equipment.
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(c) Identification of all major repairs or alterations made to
equipment during the prior month.
(d) Identification and explanation of significant performance
deviations from the prior month or from anticipated performance.
(e) Identification of maintenance and shutdowns planned for the
succeeding twelve (12) months.
(f) Such other matters as may be reasonably requested by Owner in
writing.
Operator shall also provide all notices required in connection with the
operation and maintenance of the Facility by applicable permits, laws and
regulations and the Power Agreement and loan, single investor or leveraged lease
documents relating to the Facility within the times required. Owner shall be
responsible, pursuant to Section 3.08 (c), for providing those documents which
identify all required notices relating to the operation and maintenance of
equipment contained in the Facility that are required by this paragraph.
2.13 Governmental, Regulatory, Utility And Safety Requirements. Operator shall
operate and maintain the Facility in compliance with all-applicable laws,
permits, approvals, ordinances, rules, regulations and orders of Federal, State
and local governmental authorities. Operator shall also comply with all safety
and other rules and regulations reasonably established by Owner with respect to
the Facility and with all safety and other rules and regulations established by
Utility with respect to interconnection delivery facilities and with respect to
property owned by or leased from the Utility. In the event that such
requirements change during the term of the Agreement, and such changes require
additional costs of Operator, these additional costs shall be mutually
determined by Owner and Operator and reimbursed to Operator by Owner as
Reimbursable Costs. In the event such changes require alteration to the
Facility, Owner shall be responsible for the costs of such alterations.
2.14 Liens And Encumbrances. Operator shall keep all real property and all
personal property and equipment associated with or part of the Facility free and
clear of all liens and encumbrances caused by an action or failure to act by
Operator or any of its consultants, suppliers or subcontractors in the
performance of its obligations under this Agreement, including, without
limitation, failure by Operator to pay, when due, any bill or charge for labor
or services performed or materials or equipment furnished for use in connection
with this Agreement. Nothing herein contained shall require Operator to pay any
claims for labor, materials or services which Operator, in good faith disputes
and which Operator, at its own expense, is currently and diligently contesting;
PROVIDED, HOWEVER, that Operator shall, not later than ten (10) days after
notice of the filing of any claim of lien that is disputed or contested by
Operator, post a surety bond sufficient to release said claim of lien.
2.15 Metering. Operator shall verify the accuracy of meters and devices used to
measure the delivery of thermal energy as required, but in no event less
frequently than quarterly and shall verify the accuracy of meters and devices
used to measure the delivery of electricity, natural gas,
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steam and water as required, but in no event less frequently than annually. Such
verification is to be performed in a manner consistent with the requirements of
the Power Agreements.
2.16 Waste. Operator shall not allow any hazardous or solid waste to accumulate
on the Site in contravention of any applicable law, regulation or governmental
permit or license, the Power Agreement, or any loan or leveraged lease documents
relating to the Facility.
2.17 Scope of Work. Operator shall perform those services described in this
Agreement. Such services shall be performed and supplied in connection with, but
not limited to, the following:
(a) Operations & Maintenance of the Facility, including without
limitation, the following:
(i) The development of training programs and development of
Facility procedures.
(ii) The hiring and training of qualified Operator personnel.
(b) Testing of the Facility required by this Agreement and Power
Agreements.
(c) Startup of the Facility in connection with each dispatch from the
Utility or for the Customers.
(d) Management and provision of all activities required for Facility
support and operation, under the direction of Owner, including
but not limited to: community interface, fuel scheduling, and
management of other contracts and services necessary to support
the Facility.
(e) Operation of the Facility.
(f) Management of all operation and maintenance requirements of the
Facility.
(g) Maintenance of the Facility.
(h) Furnishing electrical energy to the Customers, together with the
maintenance schedules and other records required by the
Customers.
(i) Providing home office support activities for the Facility
including but not limited to those of Exhibit C.
(j) Assist Owner in maintaining and renewing the necessary permits
and licenses of Section 3.04.
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(k) Submit a desired schedule of Scheduled Outages as defined in the
Power Agreement (including the duration of each outage) to Owner
at least four (4) weeks before Owner is required to supply same
to Customers.
(l) Cooperate with Customers and Owner in scheduling and performing
all scheduled maintenance outages, routine maintenance and major
overhaul outages in accordance with Owner's obligations of the
Power Agreements or as set forth in loan or leveraged leased
documents relating to the Facility.
(m) Preparation and submission to Owner, for Owner's approval, of an
Annual Budget for the Facility, at least ninety (90) days before
the beginning of each calendar year. Such budget shall be
consistent with the requirements of this Agreement and meet the
requirements of the Power Agreements or any loan, single investor
or leveraged lease documents relating to the Facility.
(n) Provide sufficient training to operating and maintenance
personnel to assure that their capabilities and qualifications
are maintained.
(o) Cooperate with Customers, Utility, and Owner in scheduling and
performing all Dependable Capacity Testing for the Summer and
Winter Periods and other testing required.
SECTION III
SERVICES TO BE PERFORMED BY OWNER
Owner shall be responsible for the following:
3.01 Office Space, Equipment, And Administrative Services. Owner shall provide
office and administrative space, administrative services and equipment for
Operator at the Facility.
3.02 Tools, Spare Parts, Equipment And Consumables. Owner will:
(a) Provide written approval or give timely objections to the lists
of tools, spare parts, equipment, and Consumables identified by
Operator pursuant to Sections 2.04, 2.05, 2.06, and 2.07
hereinabove.
(b) Pay for approved supplies of tools, spare parts, equipment,
Consumables, and purchased parts, labor and services and
Reimbursable Costs required by Operator to perform its
responsibilities as defined in Section II of this Agreement, as
provided for in Section 4.01 and 4.02.
3.03 Utilities. Owner will provide and pay for all utilities.
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3.04 Permits And Licenses. Owner has obtained and will maintain all necessary
permits and licenses, except those that are issued in the name of Operator.
3.05 Staffing Schedules. Owner will provide written approval or give timely
objections for its obligation to give staffing schedule approval required in
Section 2.02.
3.06 Manuals. Consistent with the needs of Operator for such material to perform
its obligations under this Agreement, Owner shall deliver, or cause to be
delivered to Operator, copies of operating and maintenance manuals for all
equipment purchased since COD or installed in the Facility and any and all
additional documents received from Turnkey Contractor under the Construction
Agreement including, but not limited to, as-built drawings of the Facility,
record books, vendor manuals and operations and maintenance manuals.
3.07 Payments. Owner shall make payments to Operator in accordance with Articles
IV, V, and VI of this Agreement.
3.08 Other. Owner will:
(a) Provide and pay for all natural gas, fuel oil, chemicals required
throughout the term of this Agreement.
(b) Pay all property or other taxes related to the Facility or its
activities but not income or employment related taxes of the
Operator or its employees.
(c) Provide all necessary documents that Operator needs to perform
its obligations relating to the operation and maintenance of
equipment contained in the Facility under this Agreement. Owner
and Operator shall consult with each other to determine the
obligations under such documents for which the Operator is
responsible.
3.09 Owner shall, at all times, conform to all laws, ordinances, rules and
regulations applicable to it.
SECTION IV
COMPENSATION
4.01 Operator shall be compensated by Owner as follows:
(a) A fixed price of $140,000 per month, as adjusted by the
provisions of Section V, for all services to be provided by
Operator pursuant to this Agreement except as otherwise provided
for in this Agreement. Said
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monthly payment shall be adjusted annually commencing on the
first day of each year subsequent to January 1, 2000, by the
change in index values of the (i) immediately preceding month of
December and (ii) the prior month of December, as specified in
the Consumer Price Index for All Urban Consumers, U.S. City
Average, Table 1, in the row titled "Services" under the column
heading "Unadjusted percent change to..." as published in the CPI
Detailed Report for the immediately preceding December; plus
(b) All Reimbursable Costs properly incurred pursuant to this
Agreement.
4.02 Operator Procurement to Owner's Account. Operator may procure those items
and services which are considered Reimbursable Costs and are included in the
Approved Budget by issuing purchase orders to be paid directly by Owner on
Owner's purchasing and requisition forms. Operator shall supply a confirming
copy of the purchase order to Owner. For purchase orders in excess of $10,000 or
for any items not in the Approved Budget, Operator is required to receive
written authorization from Owner prior to issuing purchase orders to be paid
directly by Owner on Owner's purchasing and requisition forms.
SECTION V
CONTRACT PRICE ADJUSTMENT
5.01 Equivalent Availability Factor Contract Price Adjustment. Operator's fixed
fee described in Section 4.01(a) of this Agreement shall be adjusted each month
as follows based on the Facility's monthly Equivalent Availability Factor (EAF):
(a) If the EAF is greater than or equal to 92%, Operator's fixed fee
described in Section 4.01(a) shall be increased by:
(EAF-.92)*$100,000
(b) If the EAF is greater than 88% but less than or equal to 92%,
Operator's fixed fee described in Section 4.01(a) shall not be
adjusted.
(c) If the EAF is less than 88%, Operator's fixed fee described in
Section 4.01(a) shall be decreased by:
(.88-EAF) * $50,000
Under no circumstances shall the monthly increase or decrease in the
Operator's fixed fee pursuant to the paragraphs (a) or (c) above
exceed $6,000 per month.
The Equivalent Availability Factor calculation is defined in Exhibit N
of the Power Agreement and for reference in Exhibit E attached.
5.02 Capacity Performance Contract Price Adjustment. Operator's fees under this
Agreement shall be adjusted each month based on the Dependable
Capacity test conducted for Winter and Summer Period as follows:
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(a) If the plant's Dependable Capacity, as determined by the Utility,
is set at the lesser of 230 MW or the Dependable Capacity set at
the Commercial Operation Date for the applicable Summer or Winter
Period without a Dependable Capacity test being performed the
Operator's fixed fee described in Section 4.01(a) will be
increased by $2,000 per month for the applicable Summer Period or
Winter Period and the following three months as a contract price
adjustment.
(b) If the plant's Dependable Capacity, as determined by the Utility
during the Dependable Capacity test for the applicable Summer
Period or Winter Period, is equal to or above the lesser of 230
MW or the Dependable Capacity set by the Utility at the
Commercial Operation Date, then the Operator's fixed fee in
Section 4.01(a), will be increased by $2,000 per month for the
applicable Summer or Winter Period and the following three months
as a contract adjustment.
(c) If the plant's Dependable Capacity, as determined by the Utility
during the Dependable Capacity test for the applicable Summer
Period or Winter Period, is lower than the lesser 230MW or the
Dependable Capacity set by the Utility at the Commercial
Operation Date, then the Operator's fixed fee in Section 4.01
(a), will be decreased by $2,000 per month for the applicable
Summer or Winter Period as a contract adjustment.
5.03 Safety Performance Contract Price Adjustment. Operator's fees under this
agreement will be adjusted quarterly in the months of March, June,
September, and December (maximum of four-(4) payments of $1,000 each)
based on the Plant safety as follows:
(a) For employee on-the-job performance resulting in no lost time
during the quarter, Operator's fee of Section 4 will be increased
during the appropriate month described above will be increased by
$1,000 as a contract price adjustment. This adjustment in some
mutually agreed to manner will be distributed to the crew members
(approximately $50 per employee) on a quarterly basis in the form
of a Safety incentive.
(b) For employee on-the-job performance resulting in any lost time
during the quarter, the Operator's fees of Section 4 will be
decreased during the appropriate month described above by $1,000
as a contract price adjustment.
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SECTION VI
PAYMENT
6.01 Payment of Monthly Compensation. The payment required by Sections 4.01 and
4.02 above will be made on a calendar month basis. Operator shall submit its
invoices on or before the fifteenth (15th) day of the month following the month
during which services were provided or Reimbursable Costs were incurred. Owner
shall pay the amount due to Operator on or before the thirtieth (30th) day
following the date the invoice is received by Owner. Operator shall submit its
billing together with copies of supporting invoices, vouchers, receipts, and
such other evidence of payment as Owner shall require.
6.02 Payment Of Termination Payment. Owner shall pay the amount due pursuant to
Section 8.01 to Operator on or before the thirtieth (30th) day following the
date the invoice for such amount is received by Owner.
6.03 Payment Disputes. In the event of a dispute or question regarding any
invoice submitted by Operator, (i) all amounts not disputed or in question shall
be promptly paid as and when required by Section 6.01 above, (ii) an explanation
of the dispute shall be promptly transmitted by Owner to Operator, (iii) Owner
and Operator shall immediately seek to resolve the dispute or question, and (iv)
payment shall be made within ten (10) days of any remaining amount due when the
dispute is resolved.
SECTION VII
TERM
7.01 Term. This Agreement shall become effective as of the date of execution of
this Agreement, and shall continue in effect thereafter until the ninth
anniversary of the Actual Commercial Operation Date unless otherwise terminated
as provided in this Agreement.
7.02 Extension of Term. Any extension of the term of this Agreement will be
effected by written agreement between the parties. All of the terms and
conditions of this Agreement which are not modified or changed in any such
written agreement shall remain in full force and effect throughout any such
extended term.
7.03 Authorization to Proceed. Obligations of Owner and Operator shall commence
on the Commencement Date.
7.04 Actual Commercial Operation Date. Commercial Operation Date occurred on
October 31, 1996.
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SECTION VIII
TERMINATION
8.01 Termination By Owner Without Cause. Owner shall have the right to terminate
this Agreement upon any termination of the Power Agreement. Upon termination
pursuant to this Section VIII, Owner shall pay Operator:
(a) all outstanding costs pursuant to Section 4.02 hereof,
(b) reasonable costs that may be incurred by Operator in support of
the termination of this Agreement, and
(c) reasonable severance costs resulting from the termination of
employment of Operator's employees.
Lender shall have the right to terminate this Agreement for convenience should
it declare an event of default under any financing documents and Owner shall
have the right to terminate this Agreement for convenience should the Facility
be sold to a third party who intends to operate the Facility. In the event Owner
effectuates such a termination of convenience after the Actual Commercial
Operation Date, Owner shall pay Operator, in addition to the costs identified in
(a), (b) and (c) above, the Termination Payment pursuant to the following
schedule:
(d) If the Agreement is terminated prior to or within 12 months
following Authorization to Proceed, $7,500 per month for each
month otherwise remaining in the term of the Agreement.
(e) If the Agreement is terminated after 12 months but prior to 24
months following the Authorization to Proceed, $6,000 per month
for each month otherwise remaining in the term of the Agreement.
(f) If the Agreement is terminated after 24 months but prior to 36
months following the Authorization to Proceed, $5,000 per month
for each month otherwise remaining in the term of the Agreement.
Neither party may otherwise terminate this Agreement except as otherwise
provided in this Section VIII.
8.02 Termination By Owner for Cause. Owner or Lender may terminate this
Agreement upon written notice to Operator as provided for in Section 8.05 upon
the occurrence of any of the following:
(a) Operator's failure to provide adequate qualified personnel to
perform its obligations under the Agreement.
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(b) Failure of the Operator to perform in any material respect any
service or obligation to be performed by it hereunder or if any
representation or warranty shall prove to be incorrect in any
material respect.
(c) The appointment of a receiver, liquidator or trustee for Operator
by a court of competent jurisdiction or an adjudication of
bankruptcy or insolvency by any such court or the filing by
Operator of a petition seeking an adjudication of bankruptcy or
insolvency.
(d) Failure of the Operator to maintain an Equivalent Availability
Factor as defined in the Power Agreement of at least 80% or
Equivalent Forced Outage Rate less than 10% on an annual basis to
the extent such failure was due to causes within Operator's
control. Following Owner's directions pursuant to Section 2.03
shall not be construed as an occurrence of failure under this
paragraph.
(e) Continuance of a Force Majeure by Operator for more time than
that allowed in Section 13.01.
(f) Failure of Owner and Operator to reach agreement by renegotiation
provided by Section XIV.
(g) Failure of the Facility to produce adequate thermal or electrical
energy to enable Owner to meets its obligations to its customers
to the extent such failure was within Operator's control.
(h) Failure to maintain the Facility's QF status due to negligent
acts or omissions of Operator.
8.03 Termination By Operator For Cause. Operator may terminate this Agreement
upon written notice to Owner as provided for in Section 8.05 upon the occurrence
of any of the following:
(a) Failure to pay undisputed amounts due to Operator under this
Agreement in accordance with Section VI.
(b) Failure of Owner to approve, and pay for tools, parts, equipment,
or Consumables required by Operator to perform its obligations
under this Agreement.
(c) Failure of Owner to perform in any material respect any service
or obligation to be supplied or performed by it or if any
representation or warranty shall prove to be incorrect in any
material respect.
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(d) Failure of Owner and Operator to reach agreement by renegotiation
provided by Section XIV.
(e) Continuance of a Force Majeure by Owner for more time than that
allowed in Section 13.01.
8.04 Termination Under Section 8.01. In the event Owner gives a written
termination notice pursuant to the provision of Section 8.01, this Agreement
shall terminate as of the date specified in such notice which shall be no
earlier than fifteen (15) days after the date the notice is given.
8.05 Termination Under Section 8.02 and 8.03. In the event a written termination
notice is given pursuant to Sections 8.02(a), 8.02(b), 8.03(b) or 8.03(c), such
notice shall set forth the circumstances providing the basis for such notice and
the Party which receives such notice shall have thirty (30) days to remedy such
condition. In the event such circumstance is not corrected by the Party
receiving such notice, or the Party receiving such notice has not taken
substantive action acceptable to the other Party in its sole discretion to
correct the circumstances by the end of such thirty (30) day period, this
Agreement shall terminate.
8.06 Termination Procedure. Operator shall, in the event of termination, take
all reasonable steps necessary to assure an orderly transfer of operation and
maintenance responsibility to Owner or to Owner's designee including, without
limitation, the delivery of all of the following to Owner or to any such
designee:
(a) All operation, maintenance or other records, manuals and
procedures associated with the Facility.
(b) All tools, Consumables, spare parts and equipment associated with
the Facility.
(c) At the option of Owner or such designee, assignments to Owner or
such designee, in form reasonably satisfactory to Owner or such
designee, of any agreements between Operator and third parties
relating to the performance of the obligations of Operator under
this Agreement.
8.07 Owner Cure of Operator's Default. In the event of a default by Operator in
its obligations hereunder, Owner may after the applicable cure period (but shall
not be required to) cure such default and may charge Operator any additional
incremental costs incurred by Owner to cure such default. The exercise by Owner
of this right shall not waive any other rights of Owner hereunder or at law.
8.08 Rights and Remedies in Law or Equity. In the case of a material breach by
either Party of its representations, warranties or obligations hereunder, in
addition to, or in lieu of, the right to terminate this Agreement pursuant to
Section 8.02 and 8.03 hereof, each Party shall have all other rights and
remedies provided for in law or equity.
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SECTION IX
INSURANCE AND INDEMNIFICATION
9.01 Insurance. Without limiting any of the obligations or liabilities of the
Operator, Operator shall at all times throughout the term of this Agreement and
any renewal thereof, carry and maintain, or cause to be maintained, at its own
expense, insurance with at least the minimum insurance coverage set forth below
and such other additional insurance as may reasonably be required from time to
time by the Owner. All insurance carried and maintained pursuant to this
Agreement shall be with insurers, and shall be in such form as shall be
satisfactory to the Lender.
(a) Operator shall carry and maintain or cause to be maintained
commercial or comprehensive general liability insurance written
on an occurrence basis and with a combined single limit of not
less than $ 1,000,000 each accident and in the annual aggregate.
Such insurance shall include premises/operations, explosions,
collapse and underground hazards, broad form contractual,
products/completed operations, independent contractors, broad
form property damage and bodily injury coverages.
(b) Operator shall carry and maintain or cause to be maintained
worker's compensation insurance written in accordance with
statutory limits and employers' liability coverage in an amount
not less than $1,000,000 per occurrence in the annual aggregate.
The employers' liability coverage shall not contain occupational
disease exclusion. Such policy or policies shall contain an all
states endorsement or stop gap endorsement.
(c) Operator shall carry and maintain or cause to be maintained
comprehensive automobile liability insurance covering all owned,
non-owned and hired vehicles. Such coverage shall be written in
an amount not less than $1,000,000 per occurrence in the annual
aggregate.
(d) Operator shall carry and maintain or cause to be maintained
excess (or umbrella) liability insurance written on an occurrence
basis and providing coverage for a limit of not less than
$14,000,000 per occurrence annual aggregate in excess of the
insurance as required in item (a), item (b) with respect to
employers' liability only and item (c) herein.
(e) Operators' subcontractors, if any, shall carry and maintain or
cause to be maintained commercial or comprehensive general
liability insurance as described in item (a) above and workers'
compensation and employers' liability insurance as described in
item (b) above and comprehensive automobile liability insurance
as described in item (c) above.
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(f) All deductibles or self-insured retentions shall be the sole
responsibility of the Operator.
(g) Any insurance carried and maintained in accordance with this
Agreement shall be endorsed to provide that:
(i) the interest of the Owner and Lender shall not be
invalidated by any action or inaction of the Operator or any
other person and all policies shall insure the Owner and
Lender regardless of any breach or violation by the Operator
or any other Person of any warranties, declarations, or
conditions in such policies;
(ii) the insurer thereunder waives all rights of subrogation
against the Owner, Lender, and Utility, any right of setoff
and counterclaim and any other right to deduction due to
outstanding premium, whether by attachment or otherwise;
(iii) Such insurance shall be primary without right of
contribution of any other insurance carried by or on behalf
of the Owner and Lender with respect to their interests as
such in the Facility;
(iv) Inasmuch as such policies are written to cover more than one
insured, all terms, conditions, insuring agreements and
endorsements (other than the limits of liability) shall
operate in the same manner as if there were a separate
policy covering each insured;
(v) If such insurance is canceled for any reason whatsoever,
including nonpayment of premium, or any substantial change
is made in the coverage that affects the interests of the
Owner, Lender, and Customers, such cancellation or change
shall not be effective as to the Owner and Lender until
sixty (60) days after receipt by the Owner and Lender of
written notice sent by registered mail from such insurer of
such cancellation or change; provided, however, that such
sixty (60) day period shall be reduced to ten (10) days in
the case where cancellation results from the nonpayment of
premiums; and
(h) On or before the execution of this Agreement and annually
thereafter, Operator shall arrange for furnishing Owner and
Lender with approved certification of all required insurance.
Such certification shall be executed by each insurer or by an
authorized representative of each insurer. Such certification or
notice, as the case may be, shall identify insurers, the type of
insurance, the insurance limits and the policy term and shall
specifically list
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the special endorsements in (g) above. Operator will furnish
Owner and Lender with copies of all insurance policies, binders,
and cover notes or other evidence of such insurance relating to
the Facility in the event of a claim.
(i) Concurrently with the furnishing of the certification referred to
in item (h) above, Operator will furnish Owner and Lender with a
report of each insurer or insurance broker stating that all
premiums then due from the Operator have been paid and that in
the opinion of such insurer or insurance broker, the insurance
then carried and maintained with respect to the Facility is in
accordance with the terms of this Agreement. Furthermore,
Operator will cause an insurer or insurance broker to advise
Owner and Lender promptly in writing of any default in the
payment of any premiums or any other act or omission on the part
of the Operator or any other person of which such broker has
actual knowledge which might invalidate or render unenforceable,
in whole or in part, any insurance provided hereunder. Owner
and/or Lender may, at their sole option, obtain such insurance if
not obtained by the Operator and, in such event, Operator shall
reimburse Owner and/or Lender upon demand for the cost thereof.
(j) The Owner shall maintain or cause to be maintained All Risk
Property and Boiler and Machinery insurance, covering physical
loss or damage to the cogeneration facility, including, but not
limited to, fire and extended coverage, collapse, flood,
earthquake, and comprehensive boiler & machinery including
electrical and mechanical breakdown. Such coverage shall be
written on a replacement cost basis, however sublimits of not
less than $75,000,000 are acceptable for loss or damage due to
flood or earthquake.
(k) The Owner, its insurer, and the Operator agree to waive all
rights of subrogation against each other for damages caused by
fire and or other perils to the extent covered by the all risk
property and boiler & machinery insurance identified in (j)
above.
9.02 Indemnification.
(a) Operator agrees to defend and indemnify the Owner and Lenders and
their respective directors, officers and employees (collectively
"Indemnitee") against, and to hold them harmless from any and all
claims, suits, liabilities and legal expenses (collectively
"Claims") resulting from or in connection with Operator's
performance, negligent performance, or non-performance of its
obligations hereunder except where such Claims were caused by the
sole negligence or willful misconduct of an Indemnitee, provided
that Operator shall be promptly notified in writing of such claim
or suit brought
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against such Indemnitee and shall be permitted to participate in
the defense thereof.
(b) Owner agrees to defend and indemnify Operator and its directors,
officers and employees (collectively "Operator Indemnitee")
against, and to hold them harmless from any and all Claims,
resulting from or in connection with Owner's performance,
negligent performance, or non-performance of its obligations
hereunder, except where, such claims were caused by the sole
negligence or willful misconduct of the Operator Indemnitee,
provided that the same notification to, and opportunity to
participate, specified in Section 9.02(a) above is afforded to
Owner.
9.03 Additional Insured. Lender shall be named as an additional insured under
the foregoing policies of insurance.
9.04 Damage Limitation. Neither Operator nor Owner shall have liability to the
other party hereunder for indirect, incidental or consequential damages,
including, without limitation, loss of revenues.
SECTION X
PERMITS AND LICENSES
10.01 Owner Permits and Licenses. Owner shall be responsible for obtaining and
maintaining all permits and licenses, required to be in the name of Owner,
necessary for the operation and maintenance of the Facility. Operator shall
cooperate with Owner in obtaining and maintaining such permits and licenses and
in preparing reports required thereunder.
10.02 Operator Permits and Licenses. Operator shall be responsible for obtaining
and maintaining all permits and licenses required to be in the name of Operator.
SECTION XI
INDEPENDENT CONTRACTOR
At all times, Operator shall perform the requirements of this Agreement as an
independent contractor to the Owner. Operator shall have full responsibility for
the control and direction of its employees, servants and agents. Operator shall
be fully and solely responsible for the payment of such employees, servants and
agents and for the payment of all obligations incurred by Operator in performing
the requirements of this Agreement. This Agreement is not intended to and shall
not create a partnership of any kind or type. Except for as provided in Section
4.02, Operator shall not be an agent for and may not bind Owner. Owner shall not
be an agent for and may not bind Operator.
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SECTION XII
COORDINATION AND ACCESS
12.01 Access. Owner shall provide Operator and its employees, agents, and
sub-contractors with full and free access to the Facility at all times to
perform its obligations under this Agreement. Operator shall furnish Owner with
a list of employees engaged in operation and maintenance of the Facility and
shall inform Owner in writing of all changes thereto. Operator, its employees,
agents and subcontractors shall comply with all safety and other requirements
established by Owner in connection with such access.
12.02 Coordination; Required Level of Performance. Operator's personnel will
interface with Owner's Representative and with appropriate representatives of
Utility. Operator shall accept daily instructions from the Utility and Owner as
to projected requirements, subject to the design limits of the Facility. In the
event of any interruption of the operation of the Facility or in the event
Operator is unable to operate the Facility so as to meet the requirements of
Utility, and Owner, Operator shall immediately notify Owner of the circumstance
and shall exert its best efforts to restore the Facility to its required
operating level.
12.03 Intellectual Property Owner acknowledges that in the course of Operator
performing its obligations under the Agreement, Operator may provide to Owner
access to certain copyright material and other proprietary intellectual property
which is either owned or licensed by Operator (collectively the "Operator
Intellectual Property"). Owner agrees that it shall not obtain any ownership or
other rights in or with respect to the Operator Intellectual Property except as
expressly agreed by Operator, provided, however, that Operator hereby grants to
Owner and its assigns an irrevocable royalty-free license to use any such
Operator Intellectual Property for purposes of operating and maintaining the
Facility. Owner will, if requested by Operator, execute such license and other
documentation as Operator may reasonably request in order to protect Operator's
rights with respect to the Operator Intellectual Property.
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SECTION XIII
FORCE MAJEURE
13.01 Force Majeure. Neither Party shall be responsible or liable for or
subjected to a termination of this Agreement for or deemed in breach of this
Agreement as a result of any deficiency in the performance of its obligations
hereunder to the extent that such deficiency is due to circumstances beyond its
reasonable control including, without limitation, deficiencies attributable to
acts of God; unusually severe weather conditions; any labor difficulty not
involving employees of any parties hereto, any labor difficulty involving
employees of parties hereto to the extent such employees are members of a labor
union and such labor difficulty is in violation of a labor contract or in
violation of applicable laws; any labor difficulty involving employees of
parties hereto, not caused by the act or the failure to act on the part of the
relevant party hereto, to the extent such employees are in the process of
becoming members of a labor union; war; inability to obtain fuel for the
Facility; riots; requirements, actions or failures to act on the part of
governmental authorities preventing performance; changes in law, inability
despite due diligence to obtain required licenses; accident; fire; damage to or
breakdown of necessary facilities; or transportation delays or accidents (such
causes hereinafter called "Force Majeure"); provided that:
(a) The non-performing party shall give the other party prompt
written notice after the discovery of the Force Majeure
describing the particulars of the occurrence; and
(b) The suspension of performance is of no greater scope and of no
longer duration than is required by the Force Majeure but under
no circumstances shall the Force Majeure exceed one hundred and
eighty (180) days; however, if such Force Majeure is declared by
Operator and results in either (i) the inability of the Facility
to furnish Dependable Capacity to the Customers, or (ii) the
inability of the Facility to maintain its QF status, in each
case, then the Force Majeure shall not exceed thirty (30) days;
and
(c) The party with a deficiency in its performance uses its best
efforts to remedy such deficiency and
(d) When the non-performing party is able to resume performance of
its obligations under this Agreement that party shall give the
other party written notice to that effect; and
(e) The Force Majeure shall not excuse failure to apply money
obligations nor shall it excuse any deficiency in performance to
the extent caused by any negligent or intentional act, error, or
omission, or failure to comply with any law, rule, regulation,
order or ordinance.
13.02 Extension of Agreement by Force Majeure. Except as otherwise provided, in
no event will any condition of Force Majeure extend this Agreement beyond its
stated Term.
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SECTION XIV
RENEGOTIATION
14.01 Operator's Monthly Fee. In the event that Owner's actions make
substantive, material and adverse changes to the configuration or operational
ability of the Facility which have the demonstrable effect of increasing
Operator's direct on-site labor, overhead, payroll and other related costs,
Operator may request a retrospective and/or prospective renegotiation of the
monthly fees in Section 4.01. Operator's request must be in writing and must be
accompanied by all necessary supporting documentation. The Owner and Operator
will negotiate in good faith to resolve any such request.
14.02 Resolution. Owner and Operator will attempt to resolve said request by
negotiation or they may resort to Arbitration. In the event of Arbitration, the
issue presented to the arbitrator shall be the amount, if any, by which
Operator's direct on-site labor, overhead and payroll-related costs, determined
in accordance with generally accepted accounting principles (excluding those
paid on a cost reimbursement basis as provided in Section 4.02 above) have
increased.
SECTION XV
OPERATOR AND OWNER REPRESENTATIONS AND WARRANTIES
15.01 Representations and Warranties of Operator. Operator represents and
warrants, as of the date hereof, as follows:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and is duly qualified to do
business in and is in good standing in the State of Maryland;
(b) it has taken all necessary action to authorize the execution,
delivery and performance of its obligations under this Agreement,
which action has not been superseded or modified, and this
Agreement constitutes the legal, valid and binding obligation of
Operator, enforceable in accordance with its terms;
(c) the execution, delivery and performance of this Agreement do not
violate (i) its articles of incorporation or by-laws or any
resolution of its Board of Directors or other committees charged
with the governance of its affairs, (ii) any contract to which it
or, to the best of its knowledge, any of its Affiliates is a
party or (iii) any law, rule, regulation, order, writ, judgment,
injunction, decree or determination affecting Operator or any of
its properties;
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(d) it has not filed any petition for relief under the bankruptcy
laws of the United States of America, has not made nor is making
an assignment for the benefit of creditors, initiated nor been
the subject of any proceeding seeking to have a receiver or
trustee appointed to liquidate or manage its affairs, and none of
its properties is subject to the jurisdiction of any bankruptcy
court of the United States of America or any receivership
proceeding;
(e) no litigation is pending or, to its knowledge, threatened which
seeks to restrain it from performing its obligations hereunder or
the adverse outcome of which would materially affect its business
or its ability to perform its obligations hereunder;
(f) no authorization or approval or other action by, and notice to or
filing with, any government agency or regulatory body is required
for the due execution, delivery and performance by Operator of
this Agreement which have not been obtained;
(g) it or one of its Affiliates is experienced in the operation,
maintenance and repair of electrical generating facilities, has
complied with the provisions of all applicable laws, including,
without limitation, environmental laws, respecting the operation
of such facilities and has not been and is not currently subject
to any judgment or settlement of any claim imposing significant
liability on it for noncompliance with law or mismanagement in
its operation of any electric power generating facility;
(h) it is familiar with the terms of the customer sales agreements
that affect or relate to the operation of the Facility.
15.02 Representations and Warranties of Owner. Owner represents warrants, as of
the date hereof, as follows:
(a) it is a partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware.
(b) it has taken all necessary action to authorize the execution,
delivery and performance of its obligations under this Agreement,
which action has not been superseded or modified, and this
Agreement represents the valid and binding obligation of Owner,
enforceable in accordance with its terms;
(c) the execution, delivery and performance of this Agreement do not
violate (i) its articles of incorporation or by-laws or any
resolution of its Board of Directors or other committees charged
with the governance of its affairs, (ii) any contract to which it
is a party or (iii) any law, rule, regulation, order,
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writ, judgment, injunction, decree or determination affecting
Owner or any of its properties;
(d) it has not filed any petition for relief under the bankruptcy
laws of the United States of America, has not made nor is making
an assignment for the benefit of creditors, has not initiated nor
been the subject of any proceeding seeking to have a receiver or
trustee appointed to liquidate or manage its affairs, and none of
its properties is subject to the jurisdiction of any bankruptcy
court of the United States of America or any receivership
proceeding; and
(e) no litigation is pending or, to its knowledge, threatened which
seeks to restrain the performance of its obligations hereunder or
the adverse outcome of which could materially affect its business
or its ability to perform its obligations hereunder; and
(f) no authorization or approval or other action by, and notice to or
filing with, any government agency or regulatory body is required
for the due execution, delivery and performance by Operator of
this Agreement which have not been obtained.
SECTION XVI
NOTICES
All notices, approvals, consents, requests and other communications
hereunder shall be in writing and shall be deemed to have been given when
delivered to the other Party by registered, certified, or express mail, return
receipt requested, postage prepaid, or by telecopy, addressed as follows:
If to Operator:
Panda Global Services, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
ATTN: Vice President of Operations
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If to Owner:
Panda-Brandywine, L.P.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
ATTN: President
Either Party may change or augment their above address by written notice
given as provided herein.
SECTION XVII
APPLICABLE LAW
This Agreement shall be deemed to have been made in Dallas, Texas and to be
performed in the state of Maryland. It shall be construed in accordance with the
laws of the state of Maryland.
SECTION XVIII
NON-WAIVER
The failure of Owner or of Operator to enforce any of the terms and
conditions or to exercise any right or privilege under this Agreement shall not
be construed as waiving any such term or condition or right or privilege and the
same shall continue and remain in force and effect as if no such failure to
enforce or exercise has occurred. No waiver shall be valid unless so stated in
writing.
SECTION XIX
TITLE
Title to all tools, equipment, supplies and parts purchased by Operator for
which Operator is directly reimbursed and of all reports, record logs and
documentation prepared by Operator pursuant to this Agreement shall pass
directly upon payment by Owner. Said tools, equipment, supplies and parts shall
be and become the property of Owner free of all liens and encumbrances except as
provided for in Section 2.14.
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SECTION XX
ASSIGNMENT
20.01 Assignment. Neither Operator nor Owner shall assign this Agreement or any
portion hereof, or any of the rights or obligations hereunder, whether by
operation of law or otherwise, without the prior written consent of the other
Party. This Agreement and any such assignment shall inure to the benefit of, and
be binding upon, the successors and permitted assigns of the Parties.
20.02 Owner shall be entitled to assign this Agreement and its rights herein
without the consent of Operator to any of Owner's Affiliates that has a direct
or indirect interest in the Plant. In addition, Operator hereby consents to the
granting of a security interest in and an assignment by Owner of the Customer's
rights and obligations under this Agreement and its rights herein to the Lenders
and their successors, assigns and designees in connection with any financing or
refinancing related to the development, construction, operation and maintenance
of the Plant. In furtherance of the foregoing, Operator acknowledges that the
Lenders may under certain circumstances assume the interests and rights of Owner
under this Agreement.
20.03 Operator acknowledges that the Lenders may under certain circumstances
foreclose upon and sell, or cause Owner to sell or lease the Plant and cause any
new lessee or purchaser of the Plant to assume all of the interests, rights and
obligations of Owner arising under this Agreement. In such event, Operator
agrees to the assignment by Owner and the Lenders of this Agreement and its
rights herein to such purchaser or lessee and shall release Owner and the
Lenders from all obligations hereunder upon any such assignment.
SECTION XXI
LENDERS
21.01 Lenders. Operator acknowledges that Owner has borrowed certain funds from
the Lenders for the construction of the Plant and that, as a condition to making
loans to Owner, the Lenders may from time to time require certain documents from
Operator and its Subcontractors and Vendors. In connection therewith, Operator
agrees to furnish to the Lenders, and to use its best efforts to cause its
Subcontractors and Vendors to furnish to the Lenders, such written information,
certificates, copies of invoices and receipts, lien waivers (upon payment),
affidavits and other like documents as the Lenders may reasonably request.
Operator shall negotiate in good faith amendments to this Agreement reasonably
requested by the Lenders. In addition, Operator shall promptly execute any
additional documentation, as may be mutually agreed upon in form and substance,
that is reasonably requested by the Lenders.
21.02 Operator shall promptly execute any additional documentation as may be
mutually agreed on form and substance, and which is reasonably requested by the
Lenders, including, but not limited to, documents evidencing Operator's consent
to assignment of this Agreement as a security to the Lenders or otherwise upon
the occurrence of events specified in such documents and any reasonable
modifications to this Agreement.
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21.03 Operator hereby subordinates any Liens to which it may be entitled under
Applicable Law or under the provisions of this Agreement to any Lien granted in
favor of the Lenders, whether such Lien in favor of Lenders is created, attached
or perfected prior to or after the Lien in favor of Operator. In addition,
Operator shall submit proof satisfactory to Owner that it has included in each
subcontract entered into by it with a substantial subcontractor a requirement
that any Lien to which such substantial subcontractor may be entitled to
thereunder or by Applicable Law shall be subordinate and inferior to any Lien
granted in favor of the Lenders, whether such Lien in favor of Lenders is
created, attached or perfected prior to or after the Lien in favor of such
substantial subcontractor.
21.04 In the event of Owner's default under this Agreement, the Lenders shall
have the right to cure Owner's default and, in such event, Operator's duties and
obligations under this Agreement shall be unaffected. In that regard, the
Lenders shall have (i) sixty (60) days from the date notice of default is
delivered to the Lenders to cure such default if such default is the failure to
pay amounts to Operator which are due and payable under the Contract or (ii)
such other period to cure such default if the breach or default cannot be cured
by the payment of money to Operator so long as the Lenders or their designee
shall have commenced to cure the default and thereafter diligently pursue such
cure to completion and continue to perform any monetary obligations under the
contract and all other obligations under the contract are performed by Owner or
the Lenders. If possession of the Project is necessary to cure such breach or
default, and the Lenders declare Owner in default and commence foreclosure
proceeding s, the Lenders will be allowed a reasonable period to complete such
proceedings. If the Lenders are prohibited by any court order or proceedings
from curing the default or from commencing or prosecuting foreclosure
proceedings, the foregoing time periods shall be extended by the period of such
prohibition. Operator further agrees to perform its obligations hereunder for
the benefit of the Lenders in the event of Owner's default under this Agreement
or under the Financing Documents, provided that the Lenders (or its assignee)
shall have cured all defaults of Owner's obligations hereunder and shall have
paid all amounts then due, including costs to cure. In such event, the Lenders
(or its assignee) shall have the rights and obligations of Owner under this
Agreement, provided the Lenders shall have no personal liability to Operator for
the performance of such obligations, and the sole recourse of Operator in
seeking the enforcement of such obligations shall be to such parties' interest
in the Project.
Owner and Operator agree that the Lenders are intended to be a third
party beneficiary of this Agreement. In that regard, Owner and Operator will
not, without the prior written consent of the Lenders, amend or modify this
Agreement in any respect.
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SECTION XXII
MISCELLANEOUS
22.01 Amendments. All amendments to this Agreement must be written and must be
signed by both parties hereto.
22.02 Invalidity. If any provision of this Agreement shall be found to be
invalid by any court of competent jurisdiction, such finding shall not
invalidate any other provision hereof.
22.03 Successors & Assigns. This Agreement shall inure to the benefit of and
shall be binding upon the parties hereto and upon their respective successors
and assigns.
22.04 Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties as to the subject matter of this Agreement and
merges and supersedes all prior agreements, commitments, representations, and
discussion between the Parties pertaining to the subject matter of this
Agreement.
22.05 Third Party Beneficiaries. Excluding rights of the Lenders to the
Facility, this Agreement is not intended to create any third party beneficiary
or rights.
22.06 Counterparts. This Agreement may be executed in more than one counterpart,
each of which shall be deemed to be an original but all of which taken together
shall be deemed a single instrument.
Executed on the first day above written.
PANDA-BRANDYWINE, L.P.
By: Panda Brandywine Corporation, General Partner
By: _______________________________________
Name: /s/ Darol Lindloff
Title: President
PANDA GLOBAL SERVICES, INC.
By: ______________________________________
Name: /s/ Don Thorpe
Title: Vice President - Plant Operations
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EXHIBIT B
Operator's Name Site Personnel
Operator will provide the site management, supervisory, and hourly personnel
required for the ongoing operations and maintenance requirements of the Facility
as identified on the attached organization chart. Descriptions of the positions
identified on the chart are provided in the following paragraphs.
Position Descriptions
I. General Manager
The General Manager is responsible for all aspects of asset and
business management of the Facility and administers the obligations of
the Owner under this agreement.
1. Manages the Facility Annual Budget.
2. Manages the Facility O& M Contract, PPA, Fuel Contracts, and
Thermal Contract from a business perspective.
3. Manage the Facilities Finances
4. Manage Administration Functions - hiring, supervising, training,
and compensation of personnel.
5. Perform as the Facility Point of Contact
6. Support Panda Corporate Projects as assigned
II. Plant Manager
The Plant Manager shall have full local responsibility for the ongoing
operations and maintenance requirements of the Facility as defined by this
Agreement. Specific duties shall include:
1. Coordination of all O&M activities with Utility management and
dispatch personnel.
2. On-site administration of the applicable agreements between Owner and
the Utility, and Customers.
3. Development and administration of contracts with service providers.
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4. Manage Operations and Maintenance
5. Scheduling operating personnel.
6. Providing immediate response to operational problems.
7. Identifying plant improvement projects.
8. Performing other activities necessary for the operation at the
Facility.
9. The Plant Manager shall have at least ten (10) years of industry or
related experience in the management, operation and maintenance of
thermal electrical generating facilities, including gas-fired thermal
electric generating facilities.
III. Maintenance Manager
The Maintenance Supervisor shall be responsible for scheduled and
unscheduled maintenance of the Facility. Specific duties shall include:
1. Scheduling maintenance personnel.
2. Planning and directing maintenance activities.
3. Training and developing maintenance personnel.
4. Executing maintenance instructions as defined by Plant Manager.
5. Providing immediate maintenance support for operational problems.
6. Identifying plant improvement projects.
7. Developing and administering a maintenance management system.
8. Developing and administering plant safety programs.
9. Developing and administrating plant QA programs.
10. Performing other activities required for Facility maintenance.
IV. Shift Supervisor and Auxiliary Operator:
These individuals are responsible for normal physical operations of the
Facility. Specific duties shall include:
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1. Starting up and shutting down plant equipment; operating all systems
on an ongoing basis.
2. Taking periodic readings; identifying and responding to deviations.
3. Diagnosing and responding to operational upsets.
Shift Supervisor and Auxiliary Operator selection shall be based on:
1. Previous industry or military experience in related fields.
2. Education and training.
3. Oral and written communication skills.
VI. Instrumentation and Control Technician
Specific duties shall include:
1. Operating and maintaining the instrumentation repair and test shop.
2. Troubleshooting and correcting system problems on a 24-hour per day
basis.
3. Assisting in normal power plant operations as needed, particularly
during start up and shutdown sequences.
4. Working with I&C specialist (supervisory, home office, vendor reps,
etc.) to resolve equipment or system problems.
VII. Electrical Technician
Specific duties shall include:
1. Maintaining plant electrical equipment.
2. Assisting in plant start up/shutdowns as required.
3. Troubleshooting and correcting electrical problems.
3
<PAGE>
VIII. Mechanical Technician
Specific duties shall include:
1. Assisting in daily operations as required.
2. Assisting in plant start up/shutdowns as required.
3. Executing planned maintenance program.
4. Responding to plant upsets and making repairs as required.
5. Working with outside service providers when required (e.g. on jobs
beyond in-house capabilities).
The I&C Technician, Electrical Technician, and Mechanical Technician
selection shall be based on:
1. Previous industry or military experience in related fields.
2. Education and training.
3. Oral and written communication skills.
All site personnel shall be provided with additional Facility-specific formal
training during the construction and start-up phases of the project. Such
training requirements shall be identified during the construction phase of the
project and compared with the training to be provided by the Turnkey Contractor.
Any training requirements beyond that provided by the Turnkey Contractor shall
be identified to Owner and, upon approval, arranged for and provided for by
Operator. Associated costs will be billed directly to Owner or passed through to
Owner as a Reimbursable Cost.
In the event that it becomes necessary to replace or add personnel, training and
orientation shall be identified, developed and provided by Operator on an
individual basis.
This level of manning is based on the expectation that: (1) the Facility will be
operated as a combined-cycle generating facility, (2) that it will require less
than three hundred (365) starts per year, and (3) that it is designed in such a
manner that it can be started with a crew of five (5) or less, and
operated/shutdown as a combined-cycle facility with a crew of four (4) or less.
4
<PAGE>
EXHIBIT C
HOME OFFICE SUPPORT
The following services shall be provided by the home office and all associated
costs are included in the operation and maintenance base fee:
Overall job management
Annual Operations audit and report
Engineering review of plant performance and efficiency
Maintenance planning assistance programs
Inventory tracking control programs
Contract administration and interpretation assistance
Troubleshooting support
Site safety and hazardous materials programs
Capital project engineering support (conceptualization, analysis, and
recommendation)
Problem analysis and resolution
Warranty administration assistance
Clerical and administrative
Payroll
Accounts payable
General accounting
Travel and living expenses of home office personnel
In the event that support services beyond the scope or intent of those
identified above are required; Operator shall identify the expanded scope and
associated costs required. Said expanded scope shall be provided upon receipt of
written authorization to proceed from the Owner's Representative.
1
<PAGE>
EXHIBIT D
Purchased Parts, Purchased Labor and Services
Operator will provide purchased parts, other than spare parts, purchased labor
and services throughout the term of the Agreement as necessary to perform the
requirements of the Agreement. Any maintenance or repair that can reasonably be
performed by the regular full-time on-site personnel provided pursuant to
Section 2.01 of the Agreement will be perfomred by them without additional
compensation.
The following are examples of services which would not be performed by regular
full-time on-site personnel.
1. General Purchase Order Labor (used to supplement site labor force on a
project basis)
2. Water System Analysis & consultants
3. Fuel Analysis
4. Emissions Testing (one test per source per year)
5. Gas Turbine Maintenance, Inspection and Repairs
6. Steam Turbine Maintenance, Inspections and Repairs
7. Boiler Maintenance, Inspection and Repairs (HRSG)
8. Control System Service
9. Switchgear Service and Repairs
10. Motor, Compressor and Pump Service and Repairs
11. Emissions Control Service
12. Meter Certification and Calibration
1
EXHIBIT 10.94.06
PERSONNEL SERVICES AGREEMENT
This Agreement ("Agreement") is entered into and made effective as of
September 11, 1998, by and between Tangshan Panda 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. (all Chinese joint venture companies
registered in Tangshan City, Hebei Province and hereinafter collectively
referred to as "Owner"), and Jinzhou Power Plant (a Chinese power plant
registered in Jinzhou City, Liaoning Province and hereinafter referred to as
"Contractor").
WHEREAS, Owner has entered into an agreement with Duke/Fluor Daniel
International Services (hereinafter referred to as "Operator") to provide
operations and maintenance services for the Panda Luannan Heat and Power Plant
("Facility") located in Luannan County, Hebei Province; and
WHEREAS, Owner and Operator desire to have Contractor provide personnel
services ("Personnel") to the Facility and Contractor desires to provide such
services from Contractor's Jinzhou Power Plant.
NOW, THEREFORE, in consideration of the foregoing and of the premises
hereinafter contained, Owner and Contractor agree as follows:
ARTICLE 1 - Personnel and Services
1.01 Contractor shall provide Personnel with the Chinese power plant position
titles and experience levels and in the estimated quantities identified in
Exhibit A to work in the Facility under the direction and control of Operator
throughout the term of this Agreement. Within five (5) working days after
execution of this Agreement, subject to Owner approval Operator will provide
Contractor with the required quantities of Personnel to be initially provided
and reserves the right to increase or decrease this number at any time providing
due consideration is given to Contractor.
1.02 Personnel shall each be required to sign a Confidentiality Agreement upon
reporting to work in the Facility and shall abide by the terms stated herein.
1.03 Personnel shall each be required to comply with all Site Rules and Safety
Regulations established in writing by Operator and in accordance with prudent
power plant practices and applicable published Chinese regulations. Personnel
shall report to work suitably dressed for their work assignment with the
exception of special protective clothing and special safety equipment that may
be additionally required and which will be provided by Owner.
1.04 Personnel are responsible for the cost and method of transportation between
their local place of residence and the Facility on their scheduled workdays.
Operator will assist to establish initial workable arrangements.
1.05 Contractor shall remove any Personnel who are not qualified, capable, or
willing to carry out their duties, as determined by Operator, and shall use due
diligence to provide satisfactory replacements. There shall be no Personnel
substitutions with prior Operator approval.
1.06 Within two (2) weeks after execution of this Agreement, Contractor shall
submit a detailed staffing and mobilization schedule to Operator, for Personnel
identified in Exhibit A, which supports the training, startup, testing and
<PAGE>
commissioning schedule of the Facility's EPC Contractor and which meets with
Owner approval. Operator reserves the right to make changes to the staffing and
mobilization schedule in accordance with changes in the Facility construction
schedule.
1.07 Contractor shall furnish Personnel to participate in the training, startup,
testing and commissioning activities of the Facility under the administration of
Operator and the direction, and supervision of the Facility EPC Contractor.
1.08 Upon the completion of Facility construction activities, Personnel shall
participate in the operation and maintenance of the Facility, which is intended
to be a continuous operation, in accordance with prudent power plant practices
as required by Operator.
1.09 Contractor shall submit resumes of proposed Personnel to Operator and,
within two (2) weeks of execution of this Agreement, arrange for all Personnel
interviews necessary to fill the required quantities of the positions identified
in Exhibit A to the Operator's satisfaction. The interviews shall be private
with an interpreter provided by Contractor, shall be conducted on the
Contractor's premises, and shall be at no cost to the Owner for any Contractor
expenses incurred.
1.10 Personnel shall complete timesheets and other reports as directed by
Operator.
1.11 Operator shall schedule and coordinate Personnel with the work of others at
the Facility per the requirements of this Agreement, and shall take all steps
necessary to assure that the work of others and the work of Personnel do not
create any interferences.
1.12 Contractor shall offer spare parts and equipment support to Personnel
during Facility operating emergencies on a best effort basis upon request by
Operator. Critical new or rebuilt spare parts and equipment that can be used in
the Facility, can be made available for the limited time dictated by Contractor,
and are desired for use by Operator will be replaced or returned in a condition
no less than received. Owner shall ensure that Contractor is made whole on all
costs governing the transaction and Owner shall pay Contractor an additional 10%
of the total repair or replacement costs as a profit.
1.13 Contractor shall offer additional temporary qualified maintenance and
operating personnel during Facility maintenance or repair outages on a best
effort basis upon request by Operator. These supplementary temporary support
personnel shall be invoiced per the all-inclusive hourly billing rates
identified in Exhibit A. Operator understands that the number of people
requested and the length of time they are needed must be considered by
Contractor prior to any agreement to supply such temporary personnel.
ARTICLE 2 - Compensation
2.01 As compensation for the performance of services, Owner shall pay Contractor
for all Personnel hours worked at the appropriate straight time or overtime
hourly rates specified for each position identified in Exhibit A and based on
Operator approved timesheets.
2.02 Full compensation to Contractor for full and complete performance by
Personnel assigned under the terms of this Agreement shall be determined in
<PAGE>
accordance with the hourly billing rates for time worked as provided in Exhibit
A. These rates are inclusive of all costs including appropriate work apparel
including boots, vacation, home leaves, statutory holidays, travel, sick pay,
other leave with pay, social insurance, individual income taxes, other taxes and
insurances measured by payroll, established Personnel benefits such as pension,
health and life insurances, bonus programs, Contractor overhead and profit and
any cost of government regulations.
2.03 The rates specified in Exhibit A shall not be changed due to changes
(increases/decreases) in the quantity of Personnel supplied.
2.04 The rates specified in Exhibit A shall not be increased by Contractor
unless Contractor can adequately demonstrate to the satisfaction of Operator and
Owner the necessity for any such proposed increase. This demonstration must be
based on accepted government indexes used to set or guide individual
compensation increases, increased taxes or fees or any new taxes or fees imposed
by government authorities. Owner shall not unreasonably reject any rate increase
proposals that are sufficiently justified. Owner approved rate increases shall
only occur on the first and second anniversary date of the execution of this
Agreement.
2.05 Owner shall provide dormitory housing at the Facility for a flat cost to
Contractor of 150RMB per person per month which includes basic room furnishings
such as beds, bedding, tables, chairs, electricity and lighting, includes basic
maid service for bedding, and which is based on three (3) people per room.
Public area restroom, eating and shower facilities shall also be provided.
2.06 Owner shall provide one (1) free hot meal in the Facility cafeteria during
each scheduled workday, and shall provide additional meal service for a nominal
extra cost.
2.07 Owner and Operator shall assist in arranging suitable temporary housing,
meal service and related transportation as necessary during the Facility
construction period at no cost to the Owner.
2.08 Contractor shall define and provide any Personnel home leave and holiday
requirements to Operator only for planning and scheduling purposes. Personnel
holiday and leave time shall be included in the Exhibit A hourly billing rates
for time worked and shall not be invoiced to the Owner.
2.09 Contractor shall be responsible for all Personnel transportation from the
point of hire to the Facility, the cost of which shall be included in the
Exhibit A hourly billing rates.
ARTICLE 3 - Invoicing and Payment
3.01 Contractor shall submit invoices to Owner on a monthly basis, in a form
satisfactory to Owner, and with sufficient documentation and detail for Operator
to easily verify the invoiced amount. Invoices shall be paid by Owner within
thirty (30) days of receipt. All invoices and payments shall be in Chinese RMB.
ARTICLE 4 - Insurance and Indemnity
4.01 During the term of this Agreement, Contractor shall effect and maintain
Workers' Compensation insurance (or other similar or equivalent social
insurance) written in accordance with the governing insurance laws of the
<PAGE>
People's Republic of China. The cost of this insurance shall be included in the
Exhibit A hourly billing rates.
4.02 During the term of this Agreement, Contractor shall effect and maintain
General Liability and Employer's Liability insurance in amounts sufficient to
protect itself from Personnel claims for damages because of bodily injury
including sickness, disease, or death of Personnel assigned to the Facility; to
protect itself from third party liability claims for damages because of personal
injury, including death to any person, or destruction of tangible property; and
to protect itself from claims arising out of the performance of services under
this Agreement caused by errors, omissions, or negligent acts for which
Contractor or its Personnel are legally liable. The cost of this insurance shall
be included in the Exhibit A hourly billing rates.
4.03 Contractor shall furnish Owner with evidence of the required Workers'
Compensation, General Liability and Employer's Liability insurance coverage in
the form of insurance certificates which shall represent that the policies may
not be cancelled or changed without thirty (30) days prior written notice to
Owner. All policies shall name Owner, Operator and any Facility Lenders as
additional insured; shall waive all rights of subrogation against Owner,
Operator and any Facility Lenders; and shall be primary without right of
contribution of any other insurance carried by or on behalf of Owner, Operator
and any Facility Lenders.
4.04 Contractor is solely responsible for the cost and coverage of all other
Personnel insurance required by applicable Chinese regulations.
4.05 Contractor shall provide Operator a copy of all reports or claims made to
government agencies or insurance companies relating to any Personnel jobsite
injuries.
4.06 Contractor shall indemnify, defend, and hold harmless the Owner and
Operator from and against any and all claims, suites, actions, judgments,
demands, losses, costs, expenses, damages and liability caused by, resulting
from, or arising out of the negligent acts, errors, or omissions of Contractor,
its officers, employees, Personnel, agents, or representatives in the
performance of services under this Agreement. Contractor shall not be liable for
any indirect or consequential damages, including, but not limited to, loss of
estimated profits, loss of use, loss of revenue, cost of capital, loss of good
will, or similar damages arising out of its performance of services hereunder.
ARTICLE 5 - Term and Termination
5.01 Services specified in this Agreement shall commence at such time as
Personnel report for work at the Facility or other assignment location
designated by Operator and the term of this Agreement shall be three (3) years
from the effective date first written above.
5.02 This Agreement may be terminated by Owner upon the thirty (30) days written
notice to Contractor or by Contractor for good cause upon ninety (90) days
written notice to Owner.
5.03 The term of this Agreement may be extended under essentially the same terms
and conditions upon mutual agreement between Owner and Contractor with
consideration given to Operator. Exhibit A shall be renegotiated and agreed upon
by Owner and Contractor prior to the expiration of this Agreement.
<PAGE>
ARTICLE 6 - Governing Law
6.01 This Agreement will be governed by the laws of the People's Republic of
China and all Contractor services provided shall be in compliance with all
applicable laws, permits, approvals, ordinances, rules, regulations and orders
that pertain.
6.02 Contractor shall furnish Owner a copy of any licenses, permissions, or
other documentation deemed necessary to properly carry out this Agreement in the
Province here the agreed upon services shall be performed.
6.03 Contractor shall get approvals from the Provincial Labor Bureau and shall
register with the Luannan County Labor Bureau as required to provide Personnel
under the terms of this Agreement, and at no cost to the Owner.
ARTICLE 7 - Dispute Resolution
7.01 Any dispute arising out of or relating to an interpretation or the
implementation of this Agreement shall be resolved through friendly
consultations if at all possible.
7.02 If a dispute can not be resolved through friendly consultations within
sixty (60) days after the data on which one party has served written notice to
the other party for the commencement of consultations, then either party may
refer the dispute to arbitration.
7.03 Arbitration shall be conducted in Beijing, China in accordance with the
Rules of the China International Economics and Trade Arbitration Commission, and
the arbitrators may refer to both the English and Chinese texts of this
Agreement, all proceedings shall be conducted in English, and there shall be
three (3) arbitrators. Owner and Contractors shall each select one (1)
arbitrator. The third arbitrator shall be appointed by the Chairman of the
Arbitration Commission.
7.04 Any arbitration award shall be final and binding and Owner and Contractor
agree to be bound hereby and to act accordingly. The costs of arbitrators shall
be borne by the losing party, unless otherwise determined by the arbitration
award.
7.05 If any dispute occurs and when any dispute is under arbitration, except for
the matters under dispute, Owner and Contractor shall continue to exercise their
remaining respective rights and fulfill their remaining respective obligations
under this Agreement.
ARTICLE 8 - Taxes
8.01 Contractor shall accept exclusive liability for and pay all assessments,
taxes, excises, impositions, licenses, duties and fees (including interest or
penalties if any) levied, assessed, or imposed upon or on account of the
execution o the work under this Agreement. The Owner has no obligation to pay
any taxes associated with the monthly invoice payments under this Agreement.
ARTICLE 9 - Language
<PAGE>
9.01 The English language version of this Agreement shall be the authentic
version and shall prevail in case of conflict with any translation. Chinese
translations of this Agreement will be used for reference only.
ARTICLE 10 - Entire Agreement
10.01 Owner and Contractor agree to look solely to each other with respect to
the performance of this Agreement and the Personnel to be provided hereunder.
This Agreement and each and every provision hereof is for the exclusive benefit
of Owner, Contractor and Operator, and not for the benefit of any other third
parties.
10.02 This Agreement, including Exhibit A, sets forth the full and complete
understanding of Owner and Contractor as of the date first written above and
supercedes any and all agreements and representations made or dated prior
thereto. Terms and conditions contained in other documents issued by Contractor
shall be of no force or effect and shall not be deemed to supplement, delete,
modify or interpret any of the provisions of this Agreement.
10.03 This Agreement shall be executed by duly authorized Owner and Contractor
representatives. Modifications or amendments to this Agreement must be in
writing and also executed by duly authorized Owner and Contractor
representatives.
10.04 All Contractor and Operator communications necessary to properly conduct
business under this Agreement shall be directed to Contractor's Project Manager
and Operator's Plant Manager respectively. All Contractor and Owner formal
notices necessary per the requirements specified in this Agreement shall be
issued to the corresponding representative whose name appears below as executing
this Agreement unless otherwise specified by either party in writing.
IN WITNESS WHEREOF, Owner and Contractor hereto have executed this
Agreement as of the date first written above.
Tangshan Panda Heat and Power Co., Ltd. Jinzhou Power Plant
By: __________________________ By: __________________
/s/ /s/
Title: General Manager Title: Deputy President
Tangshan Pan-Western Heat and Power Co., Ltd.
By: __________________________
/s/
Title: General Manager
Tangshan Cayman Heat and Power Co., Ltd.
By: __________________________
/s/
Title: General Manager
Tangshan Pan-Sino Heat Co., Ltd.
By: ___________________________
<PAGE>
/s/
Title: General Manager
EXHIBIT A
11-Sep-98
<TABLE>
<CAPTION>
POSITION TITLE - POSITION LEVEL ESTIMATED QUANTITY CONTRACT HOURLY BILLING RATES
RANGE
OVERTIME STRAIGHT TIME OVERTIME DOUBLE TIME TRIPLE TIME
PROPOSAL BY BASE UNIT OVERTIME OVERTIME
DESCRIPTION CONTRACTOR RATE @1.5 @2 @3
- -------------------------------- ----------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Admin-Sec - Middle ............. 1 18.54 19.90 26.54 39.81
Admin-Clerical - Middle ........ 18.54 19.90 26.54 39.81
Plan-Salary Mgt - Senior ....... 23.62 29.15 38.86 58.29
Plan-Senior Mat'l/
Equip. Mgt - Senior ........ 1 23.62 29.15 38.86 58.29
Plan-Mat'l/Equp Mgt - Middle ... 2 20.67 25.29 33.72 50.58
Plan-Proc. Agent - Senior ...... 23.62 29.15 38.88 58.29
O&M Mgt. Sfty Sup - Senior ..... 1 26.57 33.00 44.00 66.00
Finance-Accountant - Middle .... 23.62 29.15 38.88 58.29
Fuel Mgt.-Lab Tech - Middle .... 1 22.44 27.60 36.80 55.20
Op. Engineer in Charge - Senior 4 28.35 35.31 47.08 70.62
Op. Shift Chief Op - Senior .... 4 28.35 35.31 47.08 70.62
Op. Deputy Shift Chief - Senior 4 28.57 33.00 44.00 66.00
Op. Chief Stoker - Senior ...... 8 24.80 30.89 40.92 61.38
Op. Steam Turb. Man - Senior ... 8 24.80 30.89 40.92 61.38
<PAGE>
Op. Ele. Chief - Chief ......... 8 24.80 30.89 40.92 61.38
Op. Grid Ctrl Chief - Chief .... 4 24.80 30.89 40.92 61.38
Op. Deputy Chief Stoker - Senior 12 23.67 29.21 38.94 58.41
Op. Deputy ST Man - Senior ..... 12 23.67 29.21 38.94 58.41
Chf Op Wtr Trtmnt - Chief ...... 4 22.44 27.60 36.80 55.20
Op. Lab Chief - Chief .......... 4 22.44 27.60 36.80 55.20
Chief Op Water Source - Chief .. 4 19.49 23.74 31.66 47.49
Op Water Source - Middle ....... 2 19.49 23.74 31.66 47.49
Operator Ash Handl - Middle .... 8 19.49 23.74 31.66 47.49
Operator Heat Supply - Middle .. 4 19.49 23.74 31.66 47.49
Operator Wtr Trtmnt - Middle ... 4 19.49 23.74 31.66 47.49
Maint. Engineer in Chg - Senior 5 26.57 33.00 44.00 66.00
Maint. Steam Turb - Senior ..... 4 23.62 29.15 38.88 58.29
Maint Boiler - Senior .......... 4 23.62 29.15 38.88 58.29
Maint. Electrical - Senior ..... 5 23.62 29.15 38.88 58.29
Maint. I & C Chief - Chief ..... 2 23.62 29.15 38.88 58.29
Maint. Water Trtmnt - Middle ... 2 23.62 29.15 38.88 58.29
Maint. Welder - Middle ......... 2 23.62 29.15 38.88 58.29
Maint. Crane Operator - Senior . 2 23.62 29.15 38.88 58.29
Maint. Coal Handler - Senior ... 2 20.67 28.29 37.72 56.58
Maint. Boiler - Middle ......... 22.44 27.60 36.80 55.20
Maint. I & C - Senior .......... 6 22.44 27.60 36.80 55.20
Coal Handl. Engr in Chg - Senior 1 23.62 29.15 38.66 58.29
Coal Handl Op Blt/Cshr - Senior 1 20.67 28.29 37.72 56.58
Coal Hndl Coal Unidng - Senior . 1 20.67 28.29 37.72 56.58
Coal Handl. Bulldozer - Senior . 1 20.67 28.29 37.72 56.58
Total Estimated ........ 135 106
</TABLE>
EXHIBIT 10.138.09
CHANGE ORDER
TO THE
AMENDED AND RESTATED CONTRACT
FOR THE
ENGINEERING, PROCUREMENT AND CONSTRUCTION
OF THE
UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
CHANGE ORDER NO. 009
RECITALS:
Whereas, in accordance with Article 6, the Contractor and Owner mutually agree
to amend certain terms in the Amended and Restated Contract for the Engineering,
Procurement and Construction of the Upper Bhote Koshi Hydroelectric Project,
dated December 19, 1996 including Change Orders 1, 2, 3, 4, 5, 6, 7 and 8 (the
"Contract"), the parties mutually agree to amend the Milestone Payment Schedule,
by this Change Order No. 009.
Whereas, there has been a request from the Contractor to amend the Milestone
Payment Schedule.
Now, therefore, the Parties agree to the following:
A. SPECIAL CONSIDERATIONS
1. The Parties acknowledge that Bonus for Early Delivery and Schedule
Liquidated Damages shall remain in full force.
2. This Change Order No. 009 shall constitute the entire agreement between
Owner and Contractor relating to the subject matter hereof and shall operate
as an amendment to the Contract. This Change Order shall supercede, as
appropriate, previous change orders. All other terms and conditions of the
Contract are hereby ratified and confirmed and shall remain in full force
and effect.
B. SCHEDULE ADJUSTMENT
There shall be no schedule adjustment to the Amended and Restated EPC
Contract as a result of this Change Order No. 009.
<PAGE>
C. MILESTONE PAYMENT SCHEDULE ADJUSTMENT
The Parties agreed to amend and restate the Milestone Payment Schedule
attached as Exhibit E-2 to the Contract as previously amended in Change Order
No. 003, Exhibit 3.2, Change Order No. 005, Exhibit 5.2, Change Order No.
007, Exhibit 7.2. Attached as Exhibit 9.1 entitled Milestone Payment Schedule
to this Change Order No. 009.
D. COST ADJUSTMENT
There shall be no cost adjustment to the Amended and Restated EPC Contract as
a result of the Change Order No. 009.
This Change Order shall constitute a full and final settlement on all the issues
addressed herein.
Agreed this 22nd day of December, 1999 by and between:
OWNER: CONTRACTOR
Bhote Koshi Power Company China Gezhouba Construction Group
Private Limited Corporation for Water Resources
and Hydropower
By: /s/ TED C. HOLLON By: /s/ WANT HEMING
Ted C. Hollon Wang Heming
Senior Vice President Project Manager
Page 2
<PAGE>
MILESTONE PAYMENT SCHEDULE Each milestone shall be deemed complete when each
EXHIBIT 9.1 activity describing each milestone listed below
is complete to the satisfaction of the Owner and
in accordance with the Scope of Work.
<TABLE>
<CAPTION>
MILESTONE NO. MILESTONE DESCRIPTION PERCENT OF AMOUNT IN
CONTRACT PORTION US$
------------- --------------------- ---------------- ---------
<S> <C> <C> <C>
1 Mobilization payment upon receipt of Notice to Proceed 10.00% 4,634,000
2 Health, Safety and Environmental Plan submitted and
approved by Owner; Owner's temporary office and
residence complete, mobilization complete and in
compliance with Health, Safety and Environmental Plan
and environmental laws. 0.39% 180,726
3 Project engineering design and desanding basin physical
model and testing complete;Project design report,
including design drawings, and report on desanding
basin physical model testing delivered to Owner. 1.67% 773,878
4 River crossing No. 1 complete. 0.15% 69,510
5 River crossing No. 2 complete. 0.91% 421,694
6 Construction roads for access along the left bank at
the headworks, adit A, adit B, penstock and surge shaft
complete. 1.99% 922,166
7 Construction roads for switchyard and powerhouse
construction area complete. 0.78% 361,452
8 Left bank high slope protection above elevation 1435 m.
complete; Cutoff wall under spillway section complete. 1.40% 648,760
9 Diversion tunnel and diversion channel complete (not
including the roof of box culvert and gate slot). 2.44% 1,130,696
10 Upper and lower cofferdams complete; Cutoff wall under
right bank slope section complete. 2.50% 1,158,500
11 Desanding basin intake and riverside wall foundation
excavation and spillway weir body foundation excavation
completed; Spillway weir body and desanding basin
riverside wall foundation concrete (1m) placement
completed; Stage 1 cofferdam removed. 3.12% 1,445,808
12 Gravity dam block 1 through 3 foundation excavation
complete and foundation concrete (2m) placement. 1.56% 722,904
13 By-pass conduit and desanding basin intake trench
concrete placed to EL.1420m;Riverside wall body
concrete block A and B placed to EL.1417m,block C
placed to EL.1415m; Spillway weir body concrete placed
to El.1420m; Flood protection for construction of
spillway and desanding basin completed. 7.50% 3,475,500
14 Cut-off wall under right abutment slope section
completed (excluding Aniko high way section and connect
section) 0.77% 356,818
<PAGE>
15-A HEADRACE TUNNEL INTAKE EXCAVATION COMPLETED; DESANDING
BASIN INTAKE,BY-PASS CONDUIT INTAKE CONCRETE PLACED TO
EL.1430M; AND RIVERSIDE WALL (EXCEPT END WALL) CONCRETE
PLACED TO EL.1425M;SPILLWAY PIERS CONCRETE PLACED TO
EL.1433M. 3.50% 1,621,900
15-B Desanding basin intake,by-pass conduit intake and
riverside wall (except end wall) concrete placed to
El.1435m;Spillway piers concrete placed to EL.1435m. 1.50% 695,100
16 Headworks gates installation and cut-off wall
(including Aniko high way section and connect section)
completed;Rubble masonry for protection and backfill
completed;Desanding basin concrete complete. 2.33% 1,079,722
17-A GRAVITY DAM BODY CONCRETE PLACED TO EL.1434M. 2.30% 1,065,820
17-B GRAVITY DAM BODY CONCRETE PLACED TO EL.1435M;SPILLWAY
WEIR SURFACE CONCRETE COMPLETE. 0.50% 231,700
18 Adit A and B excavation and rock support complete,
headrace tunnel excavation and support from surge shaft
to downstream outlet complete. 0.68% 315,112
19 600m headrace tunnel excavation completed. 1.76% 815,584
20 Milestone 19 plus 700m headrace tunnel excavation
completed. 2.03% 940,702
21 Milestone 20 plus 700m headrace tunnel excavation
completed. 2.03% 940,702
22 Milestone 21 plus 700m headrace tunnel excavation
completed. 2.03% 940,702
23 Headrace tunnel excavation completed. 2.03% 940,702
24 750m of headrace tunnel rock support and lining (side
wall and arch where necessary) complete. 1.72% 797,048
25 Milestone 24 plus 1000m headrace tunnel rock support
and lining (side wall and arch where necessary)
complete. 2.30% 1,065,820
26 Headrace tunnel rock support and lining complete. 3.62% 1,677,508
27 Grouting and drain holes complete in headrace
tunnel,and adit A and adit B plugged complete. 0.78% 361,452
28-A SURGE SHAFT AND VENT TUNNEL EXCAVATION COMPLETE. 0.30% 139,020
28-B SURGE SHAFT AND VENT TUNNEL EXCAVATION, ROCK SUPPORT
AND CONCRETE COMPLETE. 0.27% 125,118
29 Orders placed for Major Equipment (not including the
additional transformer); Order placed for steel and
hardware for penstock and spillway gates. 3.61% 1,672,874
<PAGE>
30 Penstock steel and hardware delivered to the site; and
Contractor penstock construction operation ready to
proceed. 1.88% 871,192
31 Penstock tunnel section, including steel liner,
concrete encasement and grouting, complete. 0.31% 143,654
32-A EXPOSED SECTION OF PENSTOCK COMPLETE, INCLUDING
PROVISIONS FOR DRAINAGE, RESTORATION OF PUBLIC ROADWAY. 1.20% 556,080
32-B COMPLETION OF PENSTOCK AND TUNNEL LEAKAGE TEST. 0.37% 171,458
33 Powerhouse cofferdam in place and tailrace excavation
complete. 0.91% 421,694
34 Powerhouse excavation complete for drainage sump
construction. 0.88% 407,792
35 Powerhouse foundation concrete (below El.1279m)
complete; 0.85% 393,890
36-A POWERHOUSE STAGE1 CONCRETE PLACED TO EL.1292M;YARD
BACKFILLED TO EL.1287M. 1.00% 463,400
36-B POWERHOUSE COFFERDAM REMOVAL; POWERHOUSE BACK
SLOPE(EXCLUDING SWITCHYARD) PROTECTION COMPLETE;
TAILRACE CONCRETE PLACEMENT AND TAILRACE STOPLOG GATE
INSTALLATION COMPLETE. 0.50% 231,700
37 Powerhouse stage 1 concrete placed to EL.1300m;Stage 2
concrete of erection bay placed to El.1292m. 0.72% 333,648
38 Owners office and residence (operators village)
complete. 2.50% 1,158,500
39 Maintenance facility building complete and accepted by
Owner. 1.22% 565,348
40 Transmission towers delivered to the Facility Site 0.83% 384,622
41 Survey and subsurface testing of all tower locations,
foundations for each tower complete. 1.00% 463,400
42 All towers erected and hardware and conductors
installed, inspected and tested, complete. 0.99% 458,766
43 Delivery of First Unit and auxiliary equipment to the
Facility Site 6.89% 3,192,826
44 Delivery of Second Unit to the Facility Site 2.04% 945,336
45 Powerhouse stage 2 concrete, roof structure, inner
brick work complete; Powerhouse bridge crane and draft
tube gate hoisting equipment installation complete. 1.64% 759,976
46 Achievement of First Unit Delivery Date, in accordance
with the requirements of the Contract. 0.91% 421,694
<PAGE>
47 Installation of all electrical and mechanical auxiliary
and miscellaneous equipment and systems,including all
switchyard equipment, complete. 2.15% 996,310
48 Achievement of Second Unit Delivery Date, in accordance
with the requirements of the Contract. 0.91% 421,694
49 Final Acceptance in accordance with requirements of the
Contract. 1.83% 848,022
TOTALS 100.00% 46,340,000
</TABLE>
EXHIBIT 10.138.10
CHANGE ORDER
TO THE
AMENDED AND RESTATED CONTRACT
FOR THE
ENGINEERING, PROCUREMENT AND CONSTRUCTION
OF THE
UPPER BHOTE KOSHI HYDROELECTRIC PROJECT
CHANGE ORDER NO. 010
RECITALS:
All capitalized terms set forth herein and not otherwise defined herein shall
have the meaning ascribed to them under the below defined Contract.
Whereas, in accordance with Article 6 of the below defined Contract, the
Contractor and Owner have previously amended certain terms in the Amended and
Restated Contract for the Engineering, Procurement and Construction of the Upper
Bhote Koshi Hydroelectric Project, dated December 19, 1996, via Change Orders 1,
2, 3, 4, 5, 6, 7 and 8, and as proposed in Change Order 9 (collectively the
"Contract"), including, but not limited to, the Milestone Critical Dates, the
Construction Schedule, and the Milestone Payment Schedule, and now desire to
further agree to this Change Order No. 10; and
Whereas, the Contractor acknowledges that it could utilize planning and
coordination skills and technical assistance offered by the Owner to improve its
coordination of construction activities and its productivity; and
Whereas; it is to the benefit of the Parties that the Work be completed at the
earliest possible date and in accordance with the Contract.
Now therefore, the Parties agree to the following:
A. SPECIAL CONSIDERATIONS
1. The Parties agree that the Owner may bring to the Facility Site and employ
certain individuals skilled in construction hereinafter called
"Construction Staff", to provide guidance, recommendations, technical
assistance, and training to the daily construction activities of the
Contractor.
2. The Contractor acknowledges its willingness to cooperate with Owner,
Owner's Engineer and Construction Staff and to give serious consideration
to the guidance, recommendations, technical assistance, and training
provided by the Construction Staff and shall make every effort to consider
and, if in agreement therewith, comply with, the guidance,
recommendations, technical assistance, and training provided by the
Construction Staff in such a manner and on an immediate basis for the
betterment of the project. If Contractor disagrees with the guidance,
1
<PAGE>
recommendations, and assistance provided by the Construction Staff, then
Contractor must fully state its reasons for its disagreements at that
particular time, and further, Contractor must negotiate in good faith
toward a resolution of the disagreement.
3. The Contractor shall cooperate in planning and organizational meetings
with the Owner, Owner's Engineer, and Construction Staff on a daily basis
to fully utilize the expertise provided by the Construction Staff.
4. This Change Order No. 10 shall not alter the responsibilities and
obligations of the Contractor or Owner under the Contract, and the
Contractor shall retain full responsibility for the Work and its related
construction of the Upper Bhote Koshi Hydroelectric Project in accordance
with the Contract as amended, including, but not limited to, all
warranties and guarantees.
5. The Owner shall bear all costs associated with the employment of the
Construction Staff, who will serve at the sole discretion of the Owner,
and which Contractor acknowledges that Owner has no obligation under the
Contract to provide.
B. SCHEDULE ADJUSTMENT
NONE
C. COST ADJUSTMENT
NONE
Agreed this 2nd day of March 2000 by and between:
OWNER: CONTRACTOR:
Bhote Koshi Power Company China Gezhouba Construction Group
Private Limited Corporation for Water Resources
and Hydropower
By: /s/ TED C. HOLLON By: /s/ SUN YU CAI
Ted C. Hollon Sun Yu Cai
Senior Vice President President
2
EXHIBIT 12.00
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) before minority interest,
income taxes and extraordinary items $ 2,316 $ (8,916) $(32,468) $(26,903) $ 72,782
Interest expense ....................... 11,716 19,414 55,329 57,199 50,997
Amortization of debt issue costs ....... 554 494 1,418 1,656 1,646
Capitalized interest ................... 5,793 11,055 2,057 7,344 13,641
-------- -------- -------- -------- --------
Total fixed charges ................. 18,063 30,963 58,804 66,199 66,284
Earnings before fixed charges .......... 14,586 10,992 24,279 31,952 125,425
Ratio of earnings to fixed charges ..... 0.81 0.36 0.41 0.48 1.89
Deficiency in coverage of fixed charges $ (3,477) $(19,971) $(34,525) $(34,247) $ -
</TABLE>
EXHIBIT 21.00
SUBSIDIARIES OF PANDA GLOBAL HOLDINGS, INC.
Name of Entity: Jurisdiction of Organization:
Panda Energy Corporation Texas
Lakeland Water Company Delaware
Panda-Kathleen Corporation Delaware
Panda/Live Oak Corporation Delaware
Panda-Kathleen, L.P. Delaware
Panda Interfunding Corporation Delaware
Panda Interholding Corporation Delaware
Panda Funding Corporation Delaware
Panda-Rosemary Corporation Delaware
PRC II Corporation Delaware
Panda-Rosemary, L.P. Delaware
Panda-Rosemary Funding Co. Delaware
Rosemary Water Company Delaware
Pan-Turbo Co., LLC Delaware
Panda-Brandywine Corporation Delaware
Panda Energy Corporation Delaware
Panda Power Corporation Delaware
Brandywine Water Company Delaware
Panda-Brandywine, L.P. Delaware
Panda Cayman Interfunding Corporation Cayman Islands
Pan-Sino Energy Development Company, L.L.C Cayman Islands
Pan-Western Energy Corporation, L.L.C. Cayman Islands
Panda Global Energy Company 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
<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-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 54,724,484 55,531,780
<SECURITIES> 0 0
<RECEIVABLES> 9,582,815 9,551,539
<ALLOWANCES> 0 0
<INVENTORY> 6,324,191 6,263,271
<CURRENT-ASSETS> 91,175,100 74,638,777
<PP&E> 442,180,977 446,028,178
<DEPRECIATION> (50,314,383) (62,601,105)
<TOTAL-ASSETS> 541,142,004 522,503,855
<CURRENT-LIABILITIES> 64,782,939 29,335,554
<BONDS> 344,740,630 338,195,989
0 0
0 0
<COMMON> 10 10
<OTHER-SE> (132,870,876) (120,606,349)
<TOTAL-LIABILITY-AND-EQUITY> 541,142,004 522,503,855
<SALES> 78,947,025 92,950,752
<TOTAL-REVENUES> 86,645,202 185,588,917
<CGS> 25,583,482 29,029,332
<TOTAL-COSTS> 42,492,432 47,877,146
<OTHER-EXPENSES> 13,856,576 13,932,916
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 57,199,458 50,996,929
<INCOME-PRETAX> (26,903,264) 72,781,926
<INCOME-TAX> (25,000,000) 38,000,000
<INCOME-CONTINUING> (1,903,264) 34,781,926
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,903,264) 34,781,926
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
