E-51
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
ANNUAL REPORT TO STOCKHOLDERS
and
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
Commission file number 1-13264
TRIGEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3378939
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
One Water Street 10601-1009
White Plains, New York (Zip Code)
(Address of principal executive offices)
(914) 286-6600
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, Par Value $.01 Per Share New York Stock Exchange
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.
The aggregate market value of voting stock held by non-affiliates of the
registrant was $64,479,106 based upon the closing sale price quoted by the New
York Stock Exchange on March 22, 1999. There were 12,321,295 shares of the
registrant's Common Stock outstanding on March 22, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Information called for in Part III of this Form 10-K is incorporated by
reference from the registrant's definitive proxy statement to be filed in
connection with its 1999 annual meeting of shareholders which will be held on
May 19, 1999.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Disclosure Regarding Forward-Looking Statements
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Company 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 19
Index to Financial Statements and Financial Statement Schedules F-1
<PAGE>
PART I
Disclosure Regarding Forward-Looking Statements
This Annual Report includes historical information as well as statements
regarding our future expectations. The statements regarding the future
(referred to as "forward-looking statements") include among other things
statements about energy markets in 1999; cost reduction targets; return on
capital goals; development, production and acceptance of new products and
process technologies; ongoing and planned capacity additions and expansions and
joint ventures. Important factors that could cause actual results to differ
materially from those discussed in such forward-looking statements include:
supply/demand for our products, competitive pricing pressures, weather patterns,
changes in industry laws and regulations, competitive technology, failure to
achieve our cost reduction targets or complete construction projects on schedule
and Year 2000 computer related difficulties. We believe in good faith that the
forward-looking statements in this Annual Report have a reasonable basis,
including without limitation, management's examination of historical operating
trends, data contained in our records and other data available from third
parties, but such forward looking statements are not guarantees of future
performance and actual results may differ materially from any results expressed
or implied by such forward looking statements.
Item 1. Business
General
Trigen Energy Corporation was incorporated under the laws of Delaware on
November 21, 1986. In this Annual Report, the pronouns "we" and "our" refer to
Trigen Energy Corporation together with its wholly owned subsidiaries and the
Trigen-Cinergy joint venture subsidiaries ( See "Joint Ventures" below). We
seek to produce and deliver the maximum economic value of energy and minimum
pollution from each unit of fuel burned. Our approach is to use fuel to produce
electricity or mechanical power, and in the same process also produce thermal
energy (heating or cooling). In some locations our facilities are connected to
pipeline networks which distribute our thermal energy to multiple buildings, in
others our facilities are located adjacent to industrial plants and dedicated to
the needs of those plants.
We operate 14 district energy systems serving urban customers and eleven
single customer industrial sites, with two more industrial sites under
construction. Our major customers include industrial plants, electric
utilities, commercial and office buildings, government buildings, colleges and
universities, hospitals, residential complexes, hotels, sports arenas and
convention centers. Our two largest customers are Long Island Power Authority
and Coors' Brewing Company (See Note 2 to Consolidated Financial Statements,
Revenue and Cost Recognition). A significant portion of our revenues and
operating profit from sales of thermal energy for non-industrial users is
subject to seasonal fluctuations (See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations).
Our choice of fuels, technology, blend of heat, cooling, and power
produced, and distribution media are determined by local prices for fuel, prices
for conventionally generated energy products and the convertibility of existing
plant and equipment to more efficient cogeneration or trigeneration.
Cogeneration is the combined production of electricity and useful thermal energy
(heating or cooling) by the sequential use of energy from one unit of fuel.
Trigeneration is the combined production of electricity, heating and cooling
from one unit of fuel. We develop, own, and operate facilities that produce and
deliver thermal energy to commercial, governmental, and industrial customers in
the form of steam, hot water, and/or chilled water. Our plants use various
technologies - gas turbines, diesel engines, boilers and chillers - and various
fuels, including natural gas, coal, oil, wood waste, municipal solid waste, and
industrial by-products or scrap.
To complement our basic business and enhance our ability to add energy
value, we have a separate technical product division that develops and produces
products that conserve energy or extract more value from steam or help users
manage energy more efficiently. At present, this division offers steam pipeline
insulation products which may be installed without removing pipe from the
ground. This division also produces back-pressure steam turbine generator sets
and power units. Our back pressure turbines take the place of steam pressure
reducing valves and extract mechanical energy from the steam pressure reduction
process. We also provide total energy management services to building owners
and operators by providing operational services and management expertise with
respect to energy production, procurement and usage.
The new combined heat and power plants we install emit up to 95% less
nitrous oxides than the conventional electric generation they replace, and
because of greater energy efficiency, emit less than half as much carbon
dioxide, which is implicated in global warming. When we burn bio-mass fuels in
our plants we eliminate the need to dispose of this waste in a landfill and we
produce no more carbon dioxide than if these wastes were allowed to decay in a
landfill.
Revenue Growth/Acquisitions
Our revenues have increased from approximately $1 million in 1987 (our
first full year of operation) to $ 242.4 million in 1998 through acquisitions
and internal growth. This Annual Report includes Consolidated Statements of
Operations, which report our revenues and operating income for the last three
fiscal years. Total assets at the end of 1998, 1997 and 1996 were $618,156,000,
$525,969,000 and $494,436,000, respectively.
We report the amount and percentage of our total revenue from thermal
energy sales and electric energy sales for the last three years in item 7 of
this annual report ("Management's Discussion and Analysis of Financial Condition
and Results of Operations"). Our revenue from sales outside the United States
for the last three years was not material. We have not held a material amount
of assets outside the United States over the last three years.
In 1995, we formed a limited partnership with a subsidiary of Tucson
Electric Power Company which purchased the energy systems of Coors' Brewing
Company and Coors Energy Company in Golden, Colorado. In September of 1998, we
purchased an additional 48% interest in that limited partnership from the
subsidiary of Tucson Electric. We now own 99% of that limited partnership.
In January 1998, we acquired Power Sources, Inc., Which has been renamed
Trigen-BioPower, inc. Trigen-BioPower operates seven biomass-to-energy plants,
producing steam for seven industrial customers from roughly 600,000 tons per
year of renewable bio-mass fuels including wood residues, rice hulls, cotton
waste and paper mill sludge. Since December of 1998, Trigen-BioPower commenced
construction of two additional plants and agreed to operate energy facilities
for another industrial customer.
Joint Venture
We have an active joint venture with Cinergy corp. To build, own and
operate cogeneration and trigeneration facilities in the United States, Canada,
the United Kingdom and Ireland. We own 51% of most of the Trigen-Cinergy
investments and 49% of others.
During 1998, Trigen-Cinergy expanded its cooling operations in Cincinnati,
OH. Trigen-Cinergy and the Orlando utilities commission agreed to build and
operate a district cooling system in Orlando, FL. Trigen-Cinergy also took over
operation of cogeneration and other energy facilities for individual industrial
customers at Tuscola, IL, Boca Raton, FL, and Baltimore, MD.
We entered the Trigen-Cinergy joint venture, to add the expertise of
Cinergy, which burns over 11 million tons of coal per year, to enable us to
offer a complete package of energy commodity and energy production services, to
reach more customers, and to increase our participation in the evolving
deregulated electricity market.
Business Strategy
We are a thermal sciences company. We seek ways to reduce fossil fuel
usage with cost effective efficiency. Our mission is to provide heating,
cooling and electricity with half the fossil fuel and half the pollution of
conventional generation. We use our expertise in thermodynamic engineering and
proprietary trigeneration processes to convert fuel to various forms of thermal
energy and electricity and achieve up to 90% overall energy efficiency compared
to the 33% average efficiency of the U.S. electric utility industry in 1997.
We believe industrial and institutional energy users will increasingly turn
to specialist energy companies, and will contract out all of their energy and
other utility needs in a process called outsourcing. We offer industrial
customers outsourcing options ranging from operating their systems to investing
our capital to provide new on site energy services and facilities. We specialize
in adding electric power generation sized to provide for the basic thermal
requirements of the customer with normally wasted exhaust heat. We believe that
our expertise in developing and running cogeneration projects and projects which
use biomass fuels will be very attractive to these industrial customers.
We see opportunities to expand our existing urban and industrial systems to
serve additional customers and the expanded needs of existing customers. We
will evaluate the acquisition of existing urban district energy or industrial
systems and the development of new systems to provide district energy or
independent power wherever our expertise provides a competitive advantage.
Our strengths for the future include:
Stable Customer Base. Our long-term contracts (i.e., contracts with terms
of five years to 27 years) provide pro forma consolidated revenues of over $230
million per year for the five-year period 1999 through 2004 and approximately
$4.2 billion cumulatively for the period 1999 through 2025 (before inflation and
changes in consumption from 1998 levels). The remaining customers with
short-term contracts do not operate boiler rooms and chillers, and in most cases
do not even have such equipment, and customer attrition has been low.
Technical Innovation and Plant Optimization. We have special expertise in
the design and operation of energy systems which we use to optimize the
efficiency of energy assets. Among other things, we have installed
computerized, automated control systems, which place real-time production cost
information in the hands of the plant operator, back-pressure turbines, and
thermal storage tanks that allow us to produce energy during off peak usage
periods for use during peak periods.
Growing Industrial Customer Base. During 1998 and in the first quarter of
1999, we increased the number of industrial customers we serve from on site
facilities from two to twelve. Last year, we acquired a new subsidiary, Trigen
BioPower, which produces steam for seven industrial customers from renewable
biomass fuels. Trigen-BioPower has new plants under construction in Georgia and
in Alabama for two other new industrial customers. Trigen-BioPower also
recently agreed to operate energy facilities for another new industrial
customer. In 1998, Trigen-Cinergy also started new projects in Boca Raton, FL
(operation of cooling facilities for 1.9 million square feet office complex), in
Tuscola, IL (operation and expansion of energy facilities at a large chemical
plant) and in Baltimore, MD. (operation and expansion of energy facilities at a
large chemical plant).
Service Rate Structures Align Our Interests with Our Customers. Our
thermal service rate structures seek recovery of all fixed costs and a profit
from fixed charges per month, which are adjusted with inflation, and then add a
usage charge that is very close to our variable fuel and water cost. This lets
us help customers to use less energy without reducing our gross margins and
aligns our interests with customers. This feature has led to reductions of
customer energy use per unit of product, or per square foot of building of as
much as 20% in three years. Our price structures typically enable us to pass
through to our customers fuel and most other commodity prices associated with
providing energy services. For that reason, changes in such prices (which
constitute approximately 40% of our costs) have little impact on our operating
income.
Protecting the Environment. By extracting and delivering the maximum value
of energy from fuel, and by employing pollution control technology, we emit
substantially less pollution than would result from conventional generation of
the same heat, electricity, and cooling. The principal reasons for lower
emissions are the fuel efficiency of cogeneration and trigeneration, the use of
biomass fuels (which minimizes the release of fossil fuel carbon dioxide into
the atmosphere), employment of refrigerants other than CFC's wherever possible,
thermal, chemical, and catalytic destruction of exhaust contaminants and
continuous emission monitoring. Our modern combustion equipment produces as
little as 5% of the nitrous oxide associated with conventional generation.
Entrepreneurial Mission Driven Management. Our senior management has
extensive experience in developing and operating plants and processes that
increase the value extracted from each unit of energy. These activities include
the development and operation of district energy systems and cogeneration
technologies. Senior management as a group holds approximately 16.1% percent of
our common stock.
Overview of Our Products and Services
The plants we owned at the end of 1998 have the capacity to produce 5,021
MW of end use energy, of which approximately 85% is steam or hot water, 8% is
electricity and 7% is chilled water. These products are distributed to customers
through 154 miles (248 kilometers) of pipeline. Separate pipelines are used for
steam, hot water and chilled water.
In every case where we produce electricity with diesel or gas turbines, we
recover the exhaust heat to produce additional electricity, steam or hot water
and/or chilled water. Because demand for steam and hot water has daily and
yearly cycles, we cannot always use all the waste heat generated by our plants
to produce steam and hot water for immediate use. Trigeneration plants enable
us to recover and use waste heat to produce chilled water when heat demands are
low. We also store chilled water produced off-peak for sale during the peak
usage hours.
By generating two or three energy products from a single fuel source,
cogeneration and trigeneration increase the value of useful energy output.
Average US electric-only generation converts 33% of fuel energy to high value
electricity, but exhausts 67% of the fuel energy as waste heat. Conventional
heat-only production converts 60% to 85% of the fuel energy to a much lower
value energy form - typically steam, hot water, or hot air - and fails to
extract the high value electric energy. Our approach is to combine the
generation of heat and power to maximize the value of energy produced from each
unit of fuel and minimize the resultant pollution.
The Company balances the costs of producing and delivering these various
energy products, including the cost of capital, labor, line losses, and fuel
with the market value of the products to each user. The resulting plants seek
to generate profits after debt service by extracting more delivered value than
conventional single product generation.
Reliability of service is a key. Most of our facilities have sufficient
heating capacity to generate peak loads with their largest production unit out
of service, and have the ability to use two or more different fuels.
Steam and Hot Water. We produce steam and/or hot water at substantially
all of our systems. Our customers use our steam and/or hot water for space
heating and hot water, for various industrial process uses, for cooling (by
powering on-site steam-driven chillers or absorption chillers), and for
humidification and sterilization.
Currently, the States of Maryland, Missouri, New Jersey and Pennsylvania
regulate our district steam energy business. Maryland and Pennsylvania require
us to seek State regulatory approval of our prices for steam service in those
states. Missouri requires us to seek State regulatory approval of our prices
for steam service from our Kansas City facilities. New Jersey does not require
us to seek State regulatory approval of our prices for steam service. Our other
businesses are not subject to State utility price regulation. Both Maryland and
New Jersey are in the process of deregulating district energy in 1999.
Electricity. We produce electricity at fourteen of our plants. The
electricity produced is either sold to the local utility company or used by our
customers or us. Our electric generating plants, which sell their power to the
local utility, are located in Kansas City, MO, London, Ontario (Canada), Nassau
County, NY, Philadelphia and Trenton, NJ. The plants in Nassau County, NY,
Philadelphia, PA, Trenton and Kansas City are qualified for an exemption from
regulation under the Public Utility Regulatory Policies Act of 1978.
Chilled Water. At twelve of our facilities, we produce chilled water,
which we provide to customers to cool commercial building space and for process
chilling.
Other Energy Services. We provide other utility services to our customers
such as compressed air and water treatment. We also provide operating
supervision, management and maintenance of facilities as well as advice and
assistance regarding initial design, construction and start-up, with respect to
energy use as well as energy audits.
Fuel and Raw Materials
We are a significant purchaser of gas, coal, oil and biomass fuels, as well
as chillers, boilers, generators and other equipment used for heating, cooling
and electric generation. Most of our gas, coal, oil and biomass fuel
requirements, as well as most of our other supplies, are purchased from local
suppliers. We believe that we have adequate sources of fuel, supplies and
equipment.
Competition
Provision of District Heating, Electricity and Cooling
The sale of electricity at wholesale over the interstate electric power
grid is highly competitive. Where permitted by State law, the sale of electric
power to individual end-users is also highly competitive. Some States continue
to ban retail sales of electric power by non-utility companies as a means to
protect the local electric utility monopoly. Other States permit non-utility
generators to sell their electric power to only one user on the same site as
their power plant. The provision of heating, and cooling services through a
multiple user distribution system is highly competitive with on-site generation
of the heat and cooling. There are currently very few competing operators of
multiple-user district energy systems. Our principal thermal energy competition
is from potential customers who own and operate their own boiler and chilled
water plants. These customers are often provided financial incentives to
install and retain their own plants by the suppliers of raw energy (such as
local oil, natural gas and electricity companies) and by equipment suppliers
that sell products and services to users who self-generate thermal energy. In
several locations, local utilities are competing directly with us through
unregulated subsidiaries offering steam and/or cooling.
We believe that competition in the district energy business turns on the
customers' evaluation of expected cost savings and reliability of service. We
compete to attract and retain customers, and also compete for contracts and
other awards to develop new facilities and systems. A significant additional
factor is the high capital cost involved in constructing a district energy
system. While this factor provides a competitive advantage once we are
operating a completed system, high initial capital costs typically require us to
have a significant number of customers, preferably under long-term contracts,
prior to undertaking construction of a new cooling or heating system. We will
pursue opportunities to expand our district energy systems and services wherever
our expertise provides a competitive advantage.
New On Site Industrial Projects
We compete directly with a large number of well-capitalized developers for
new industrial projects. Competition is based on technical skills, financing
ability and market reputation, among other factors.
During 1998, we focused greater efforts on industrial customers. Our
successes included the acquisition of Trigen-BioPower and the activities of
Trigen-Cinergy, which added several on-site industrial customers to our
business. We intend to continue these efforts in the future and will
selectively pursue electricity and sales to the grid where that electricity is a
by-product of efficient heat and cooling production.
Internationally, the Company is prepared to pursue selected opportunities
in Canada, Mexico and Central America or other countries where our customers
have facilities that favor a power project with high efficiency, reliability and
waste heat recovery.
Technology
Our research and development efforts have focused on improving the value of
energy products we extract and deliver. Principal focus has been on finding
ways to more efficiently convert fuel to energy and on improved generating,
monitoring, automation and storage technologies. These efforts have resulted in
the trigeneration machine, innovations in chilled water storage and control
systems, innovative applications of standard modular equipment, and various
incremental operational improvements. Expenditures for customer-sponsored or
Company-sponsored research and development are not separately reflected in our
financial statements, and the Company believes that if such expenditures were so
allocated, the amounts would not be material. We have been granted patents for
the trigeneration machine, our freeze suppression chemical for stratified cold
water storage and a fuel blending system for emissions control. None of these
patents are believed to be material.
Year 2000 Computer Issues
We discuss our Year 2000 computer processing compliance status in Item 7 of
this Annual Report ("Management's Discussion and Analysis of Financial Condition
and Results of Operations").
Environmental
Our operations are subject to extensive federal, state, provincial and
local environmental laws and regulations that govern, among other matters,
emissions into the air, the discharge of effluents, the use of water, fuel tank
management and the storage, handling and disposal of toxic waste material. We
invest substantial funds to modify facilities to comply with applicable
environmental laws and plan additional capital expenditures for these purposes
in the future. We spent approximately $3.9 million and $4.4 million in 1998 and
1997, respectively, to comply with these requirements, and we estimate that our
expenditures for environmental compliance in 1999 through 2001 will be
approximately $12.4 million in the aggregate. These expenditures include
improvements at certain facilities for air emission control equipment as
required by the United States Clean Air Act, wastewater discharge control
equipment, asbestos control and replacement of CFC refrigerants. Additional
amounts to be spent for environmental control facilities in future years will
depend on new laws and regulations and other changes in environmental concerns
and legal requirements, as well as on new projects.
In 1998, the United States Environmental Protection Agency promulgated a
final rule requiring the eastern 22 States and the District of Columbia to
submit State implementation plans that address the regional transport of ground-
level ozone (smog) through reductions in nitrogen oxides (NOx). The States must
submit the NOx reduction plans to U.S. EPA by September 30, 1999. The NOx
reductions for affected facilities must be achieved by 2003. We anticipate that
electrical utilities and large fossil-fired boilers will be required by the
States to reduce NOx emissions. Some of our facilities will be affected by the
new requirements. The facilities that will be subject to the NOx reduction
requirements will be determined once the States finalize their regulations. The
costs associated in complying with the new requirements cannot be determined at
this time.
Employees
As of December 31, 1998, we had approximately 745 employees. 108 of our
employees were covered by union agreements.
<PAGE>
Item 2. Properties
We operate 41 energy plants at 27 different locations. We own all or a
portion of the interests in our facilities, lease some facilities and manage
others. Footnote 12 to Consolidated Financial Statements of the Company
(included later in this Annual Report) describes how our assets are pledged as
security under our financing agreements.
We operate district energy systems in Boston, MA, Baltimore, MD,
Charlottetown, Prince Edward Island (Canada), Kansas City, MO, London, Ontario
(Canada), Nassau County, NY, Oklahoma City, OK, Philadelphia, PA, St. Louis, MO
and Trenton, NJ (subject to a 20% minority interest). In Philadelphia, PA, we
have a one third interest in the Grays Ferry Cogeneration Facility. We operate
power systems on the site of our industrial customers in Alabama (under
construction), Colorado (subject to a 1% minority interest), Georgia (under
construction), Illinois (one of which is subject to a 50% minority interest),
Mississippi, North Carolina, South Carolina, and Tennessee.
Our Trigen Cinergy Solutions joint venture operates a district energy
system in Cincinnati, OH. Trigen Cinergy operates and/or is developing
industrial power systems on the site of its industrial customers in Florida,
Illinois and Maryland.
The Company leases approximately 22,000 square feet in White Plains, New
York, which houses our executive offices, financial, engineering, marketing,
legal and data processing staffs. The term of the lease extends through
March 31, 2005 and the annual rent due thereunder is approximately $420,000. We
believe that these facilities are adequate to meet our needs for the foreseeable
future, and that suitable replacement space is readily available.
Item 3. Legal Proceedings
Oklahoma Litigation
In September 1996, our subsidiary, Trigen-Oklahoma City Energy Corporation
("Trigen-Oklahoma City"), commenced an antitrust action in Federal District
Court in Oklahoma City seeking injunctions and over $30 million in damages from
the local utility, Oklahoma Gas and Electric Company ("OG&E"), based on many
years of alleged anti-competitive actions against Trigen-Oklahoma City Energy
Corporation by OG&E. These actions culminated in criminal indictments being
brought against two OG&E officials for allegedly bribing Oklahoma elected
officials to breach a Trigen-Oklahoma City Energy Corporation contract. Trigen-
Oklahoma City's antitrust action matter went to trial in 1998 and on December
21, 1998, the jury returned a verdict in favor of Trigen. On January 19, 1999,
the Court entered a judgement in favor of Trigen in the amount of $27.8 million.
Under the anti-trust laws, we are permitted to seek an award of treble damages
and legal fees and that issue is under consideration by the Court. We expect
OG&E to appeal this judgement.
Kinetic Energy Litigation
On May 2, 1997, following a jury trial in a suit by Kinetic Energy
Development Corporation against the Company in the Circuit Court of Jackson
County, Missouri, in connection with our acquisition of the Kansas City steam
system, a judgment was entered against the Company in the amount of $4,271,000.
Kinetic claimed for compensation alleged to be owed to it by Trigen in
connection with that acquisition. On August 6, 1997, the Court set aside the
jury verdict and granted judgment for the Company. Kinetic Energy Development
Corporation appealed that order and on December 8, 1998, the Missouri Court of
Appeals set aside the lower court decision and ordered a new trial. On December
22, 1998, we filed a motion for rehearing with the Missouri Court of Appeals
and/or a review by the Missouri Supreme Court. The Court of Appeals granted our
motion for rehearing. If the Court of Appeals upholds its decision, we plan to
seek a review of that decision by the Missouri Supreme Court. If our efforts to
reinstate the judgment in our favor fail, the case will return to the Circuit
Court and a new trial will be scheduled.
Grays Ferry Litigation
On April 9, 1998, Grays Ferry Cogeneration Partnership, Trigen-Schuylkill
Cogeneration, Inc., Cogen America Schuylkill Inc. (formerly NRGG Schuylkill
Cogeneration Inc.) and Trigen-Philadelphia Energy Corporation commenced an
action against PECO Energy Company ("PECO") and Adwin (Schuylkill) Cogeneration,
Inc. in the Pennsylvania Court of Common Pleas of Philadelphia County (the
"Court"). Grays Ferry Cogeneration Partnership (the "Partnership") is the owner
of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania.
At December 31, 1998, the Company had an investment of $17.1 million in the
Partnership, representing a one third interest in the Partnership through our
wholly owned subsidiary, Trigen-Schuylkill Cogeneration, Inc. Cogen America
Schuylkill Inc. and Adwin (Schuylkill) Cogeneration, Inc. own the other two-
thirds interests in the Partnership. Adwin (Schuylkill) Cogeneration, Inc. is an
indirect wholly owned subsidiary of PECO. In addition, at December 31, 1998,
the Company had a receivable of $3.2 million due from the Partnership. Included
in the Company's revenues for the year ended December 31, 1998 was the Company's
share of Partnership earnings of $5.1 million and fees earned from the
Partnership of $2.8 million.
The Partnership commenced this action in reaction to the wrongful
termination by PECO on March 3, 1998, of the electric power purchase agreement
between the Partnership and PECO (the "Power Purchase Agreement"). The
Partnership is seeking a declaratory judgement to require PECO to comply with
the electric power purchase agreement and for damages to be proven at trial in
an amount in excess of $200 million.
On May 6, 1998, the Court issued a preliminary injunction against PECO
which requires PECO to pay the Partnership for its electric energy and capacity
at the rates set forth in the Power Purchase Agreement and otherwise to
specifically perform in accordance with the Power Purchase Agreement. The
preliminary injunction will remain in effect until the Court renders its
decision after the final hearing of this matter. On July 7, 1998, PECO withdrew
its appeal of the preliminary injunction. On March 10, 1999, the Court granted
partial summary judgement to the Partnership before trial and held that PECO
breached the Power Purchase Agreement. The Partnerships' other claims against
PECO and its request for damages are scheduled to go to trial on March 29, 1999.
The Chase Manhattan Bank has issued notices of default to the Partnership
under the terms of the Credit Agreement, dated as of March 1, 1996, between the
Partnership, The Chase Manhattan Bank, as agent, and certain other commercial
banks (collectively the "Banks"). Only the Partnership assets and the partners'
ownership interests in the Partnership secure the Partnership's debt under the
Credit Agreement of $109.3 million. The Banks have not accelerated the debt
owing under the Credit Agreement nor charged default interest charges against
the Partnership, although the Banks have reserved the rights to do so.
Therefore, the Partnership recorded default interest of $1.8 million through
December 31, 1998. The Banks have required to date, and may require in the
future, the Partnership to apply available cash held by Partnership (net of
operating expenses, other than certain payments to affiliates, and expenses
required to complete construction) toward repayment of the principal amount of
the loans outstanding. On September 4, 1998, the Banks filed their own
complaint against PECO with the Court. Among other things, the Banks are
seeking a declaration that PECO's termination of the Power Purchase Agreement
was wrongful.
We believe that PECO's termination of the Power Purchase Agreement was
wrongful, and we intend to aggressively pursue the remedies available to us. In
the event we are not successful and PECO's actions are upheld, PECO would be
required under federal law to continue to purchase power from the Grays Ferry
Cogeneration Facility at PECO's avoided cost. This would generate significantly
lower earnings per share for the Company than the contracted power purchase
price. While it is possible that our investment in the Partnership and the
receivable from the Partnership could become impaired, at this time we do not
believe that is likely.
Nassau Litigation
On May 29, 1998, the County of Nassau, New York commenced an action against
Trigen Energy Corporation and Trigen-Nassau Energy Corporation in New York State
Supreme Court. Trigen-Nassau provides energy services to Nassau County under
various agreements. Nassau County alleges that Trigen-Nassau breached those
agreements by, among other means, charging the County for certain real estate
taxes that the County contends are Trigen-Nassau's responsibility. On October
8, 1998, the Court dismissed the claims against Trigen Energy Corporation. On
November 9, 1998, Trigen-Nassau filed counterclaims against Nassau County,
seeking $1.6 million in damages. Trigen-Nassau alleges that Nassau County
breached the parties' agreements by, among other things, failing to operate and
maintain certain facilities and equipment. On January 21, 1999, the County
requested that the Court dismiss Trigen-Nassau's counterclaims. That motion and
the County's other claims against Trigen-Nassau are pending. The County is
seeking approximately $10 million in damages. We believe we have good defenses
to the County's claims, although we cannot predict the outcome of this matter.
ESI Litigation
In 1996 ESI, Inc. commenced an action against, among others, Coastal Power
Company, Latin American Energy Development, Inc. and La Casa Castro S.A. de N.V.
in the United States District Court for the Southern District of New York. On
September 17, 1998, ESI, Inc. amended its complaint naming Trigen as an
additional defendant. This action arises out of the development by Trigen,
Latin American Energy, La Casa Castro and others, of an independent power
project in El Salvador between 1993 and 1994. Trigen transferred its interest
in the project to Tenneco Gas International in May 1994. In July 1994, Tenneco
transferred its interest in the project to Coastal Power Company, which
currently owns and operates the project. ESI claimed that ESI was entitled to a
2.5% interest in the project and that Coastal had wrongfully withheld or denied
ESI's interest. ESI further claimed that Trigen had failed to disclose ESI's
interest to Tenneco and so was responsible, in whole or in part, for ESI's
failure to receive a 2.5% interest in the project from Coastal.
On October 8, 1998, Latin American Energy asserted cross-claims against
Trigen, Coastal and Tenneco claiming that it too had been denied its carried
interest in the Project. On October 28, 1998, La Casa Castro asserted cross-
claims against Trigen and on November 6, 1998, Coastal asserted cross-claims
against Trigen for indemnification, each alleged that Trigen failed to disclose
ESI's claimed interest to Tenneco and that Trigen was responsible for any
damages that each may be required to pay to ESI and Latin American.
On December 15, 1998, Trigen filed an amended answer denying liability for
these claims and cross claimed against Latin American Energy, Tenneco, Coastal
and La Casa Castro, asserting that these parties were responsible for any
damages owed to ESI and Latin American. On December 23, 1998, ESI and Latin
American dismissed without prejudice their claims against Trigen.
Coastal and La Casa Castro are continuing to assert their claims against
Trigen for any damages they may be required to pay to ESI or Latin American. At
this time, we are not able to estimate the amount of damages that ESI and Latin
American are seeking. However, we believe it could involve a material amount.
Trigen believes it has good defenses to Coastal's claims and La Casa Castro's
claims, although we cannot predict the outcome of this matter.
Other Litigation
We are subject from time to time to various other claims that arise in the
normal course of business, and we believe that the outcome of these matters
(either individually or in the aggregate) will not have a material adverse
effect on our business results of operation or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol TGN. As of March 22, 1999 there were approximately 1,682 shareholders
of record.
The following table sets forth the high and low sales prices for the
Company's Common Stock for the periods indicated:
High Low
1998
First Quarter 19 15/16 14 13/16
Second Quarter 15 1/8 12 1/8
Third Quarter 13 15/16 9 3/4
Fourth Quarter 15 5/16 11 5/16
1997
First Quarter 29 1/4 24 1/8
Second Quarter 25 1/4 23 5/8
Third Quarter 25 3/16 19 3/4
Fourth Quarter 24 1/4 19 1/2
During 1998 and 1997, the Company declared quarterly dividends in an
aggregate annual amount equal to $0.14 per share of Common Stock. See Note 2 to
the Condensed Financial Statements of Trigen Energy Corporation (Parent Company)
for a statement on amounts available for payment of dividends.
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Annual Report:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues $242,394 $240,651 $243,634 $198,710 $185,627
Operating income 31,823 28,743 43,138 37,038 29,718
Interest expense 23,742 18,976 18,840 19,890 16,657
Earnings before extra-
ordinary item 6,557 5,025 14,051 10,564 8,561
Extraordinary loss (a) (299) - (1,943) - -
Net earnings 6,258 5,025 12,108 10,564 8,561
Basic earnings per common share
Before extraordinary item .55 .42 1.21 .93 .89
Extraordinary loss (.03) - (.17) - -
-------- -------- -------- -------- --------
Net earnings .52 .42 1.04 .93 .89
-------- -------- -------- -------- --------
Diluted earnings per common share
Before extraordinary item .55 .41 1.20 .93 .89
Extraordinary loss (.03) - (.17) - -
-------- -------- -------- ------- --------
Net earnings .52 .41 1.03 .93 .89
-------- -------- -------- -------- --------
Dividends per common share .14 .14 .14 .14 .07
-------- -------- -------- -------- --------
Balance Sheet Data (at year end):
Working capital (deficit) (9,543) (2,095) (5,400) 282 9,801
Property, plant and
equipment, net 442,755 388,448 371,584 341,188 311,418
Total assets 618,156 525,969 494,436 454,906 424,330
Long-term debt 343,685 256,361 226,487 223,371 220,725
Stockholders' equity 147,928 145,482 140,670 118,830 109,354
Other Operating Data:
EBITDA $58,493 $45,164 $51,153 $50,260 $42,963
Operating margin 13.1% 11.9% 17.7% 18.6% 16.0%
Ratio of earnings to fixed
charges (b) 1. 1.2 1.4 2.1 1.8 1.8
Depreciation expense $19,780 $16,021 $7,595 $11,429 $10,948
Capital expenditures $42,910 $39,415 $47,641 $18,454 $22,920
Number of employees (at
year end) 745 674 651 632 560
- -----------------
</TABLE>
(a) The extraordinary losses in 1998 and 1996 result from the extinguishment of
debt. See note 4 to the consolidated financial statements.
(b) Earnings used in computing the ratio of earnings to fixed charges consist
of earnings before extraordinary item plus income taxes, fixed charges
(excluding capitalized interest) and income distributions of non-consolidated
partnerships on a cash basis. Fixed charges consist of interest expense,
capitalized interest and a portion of rental expense representative of the
interest factor.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements of the Company, including the notes thereto,
appearing elsewhere in this Annual Report.
The following table shows revenues and units of megawatt hours sold for the
three years ended December 31, 1998:
1998 1997 1996
---------------- ------------- --------------
Revenue Revenue Revenue
------------- -------------- --------------
Amount % Units Amount % Units Amount % Units
------ - ----- ------ - ----- ------ - -----
(Dollars in millions, Units in thousands of megawatt hours)
Thermal energy $182.4 75 5,940 $179.5 75 5,008 $187.7 77 5,400
Electric energy 42.7 18 785 49.0 20 950 44.7 18 860
Fees and other
revenues 17.3 7 - 12.2 5 - 11.2 5 -
Total $242.4 100 6,725 $240.7 100 5,958 $243.6 100 6,260
The following table shows the components of the Statement of Operations as
a percent of total revenues for the three years ended December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Total revenues 100.0% 100.0% 100.0%
Fuel and consumables (39.6) (47.4) (48.6)
Production and operating costs (22.2) (19.6) (18.0)
Depreciation ( 8.2) ( 6.7) ( 3.1)
General and administrative (16.9) (14.4) (12.6)
----- ----- -----
Operating income 13.1 11.9 17.7
Interest expense ( 9.8) ( 7.9) ( 7.7)
Other income, net 2.3 1.0 .7
Minority interest in earnings of
subsidiaries (1.0) (1.5) (1.1)
------ ------ ------
Earnings before income taxes and
extraordinary item 4.6% 3.5% 9.6%
====== ====== =======
</TABLE>
The Company's preferred rate structures for thermal energy include fixed
and variable components. These rate structures are intended to cause revenues to
match the Company's costs of providing capacity, including projected debt
service and return on equity, thermal losses in the distribution network, taxes,
labor and scheduled maintenance and repair. The capacity component, which is
independent of usage in the period, generally includes cost escalation
provisions. These rate structures also contain a charge, which varies with usage
during the period, and which is intended to cover directly variable costs, so as
to pass through to customers the Company's cost of fuel.
A significant portion of the Company's revenues and operating profit are
subject to seasonal fluctuation due to peak heating demand in the winter and
peak cooling demand in the summer. This seasonal fluctuation is accentuated in
those acquired steam systems where the Company's preferred rate structures are
not employed. The Company's strategy of converting old contracts to the
Company's preferred rate structures, adding cooling, electricity, energy
services and industrial process loads has reduced the concentration of revenues
in cold months during 1998 and is expected to continue in the future.
Results of Operations
Year ended December 31, 1998 compared with year ended December 31, 1997
Overview
For the year ended December 31, 1998, net earnings were $6.3 million
compared with $5.0 million in 1997, and diluted earnings per common share were
$.52 compared with $.41 per common share last year. Included in net earnings
for 1998 was an extraordinary loss of $.3 million, or $.03 per common share,
from the early extinguishment of debt. Revenues of $242.4 million were higher
than the $240.7 million in 1997. Operating income was $31.8 million and the
operating margin was 13.1% in 1998 compared with operating income of $28.7
million and an operating margin of 11.9% in 1997. Offsetting the continuing
mild weather and unfavorable results from our Canadian operations were positive
contributions from the Trigen-BioPower acquisition and the Grays Ferry
Cogeneration Partnership. Both were major contributors to the higher levels of
revenues and profits in 1998.
Revenues
Revenues of $242.4 million in 1998 increased $1.7 million from $240.7
million in 1997. Thermal energy revenue increased $2.9 million to $182.4
million. Units of thermal energy sold increased 19% over 1997 primarily
reflecting the contribution of Trigen-BioPower, which was acquired in January
1998. Partially offsetting this increase were lower thermal energy sales in
Philadelphia, Boston and Baltimore due to the effect of milder weather patterns.
Electric energy revenues decreased $6.3 million to $42.7 million in 1998.
The Nassau plant was taken off-line by the local utility, as permitted under
their contract for a longer period of time in 1998 than in 1997. In addition,
in 1998, this facility was taken off-line for twenty-two days for a scheduled
five year major overhaul. The Grays Ferry Cogeneration Partnership, of which the
Company is a 33% partner, commenced operations in January 1998 and produced
$60.3 million in electrical revenues for the year. Grays Ferry replaced the
Company's electric generation in Philadelphia and thus lowered reported revenues
from electricity versus the prior year by approximately $3.2 million. The
Company's 33% share of Grays Ferry electric revenues are $20.1 million and the
resulting profits are reflected in equity earnings of non-consolidated
subsidiaries.
Equity earnings/(losses) of non-consolidated subsidiaries in 1998 exceeded
1997 by $5.9 million, primarily reflecting the Company's share of earnings from
the Grays Ferry Cogeneration Partnership.
Fees earned and other revenues declined slightly in 1998, reflecting the
absence of revenues associated with the sale of a natural gas pipeline in 1997.
This was essentially offset by the inclusion of fees from the Grays Ferry
Cogeneration Partnership in 1998.
Operating Expenses
Fuel and consumables were $96.0 million in 1998, an $18.2 million decrease
from 1997, in spite of a significant increase of 19% in thermal energy units
sold. This decrease reflects the lower level of energy sales due to warm
weather at systems primarily located in the Northeast and lower fuel prices at
the Company's fossil fuel plants. The Company's rates typically enable it to
pass changes in its fuel and most commodity costs to the customer. As a result,
such changes have little impact on operating income. Fuel and consumables'
costs decreased from 47.4% of revenues in 1997 to 39.6% in 1998 largely due to
the addition of seven biomass fueled plants with relatively low fuel prices.
Production and operating costs are those costs incurred to operate the
plants, other than fuel and consumables, and include labor and supervisory
personnel, repair and maintenance costs, and plant operating costs. In 1998,
production and operating costs totaled $53.8 million, a 14.3% increase over
1997. This increase is primarily due to the inclusion of production and
operating costs associated with Trigen-BioPower, which was acquired in January
- -+1998.
Depreciation expense was $19.8 million in 1998, compared with $16.0 million
in 1997. The increase is primarily attributable to the addition of Trigen-
BioPower depreciation expense in 1998.
General and administrative expenses increased $6.4 million to $41.0
million, an 18.4% increase over 1997. Contributing to the increase was the
inclusion of 1998 Trigen-BioPower general and administrative expenses and a $2.0
million increase in insurance and employee-related costs, and the costs of
pursuing the Oklahoma City antitrust lawsuit against OG&E. All of the 1998
costs of the lawsuit were expensed in 1998, and a gain, if any, will not be
recognized until a final judgement is affirmed on appeal or a final settlement
is consummated.
Other income/(expense)
Interest expense increased $4.8 million to $23.7 million in 1998 primarily
due to financing the Trigen-BioPower acquisition and the purchase of an
additional 48% interest in the Trigen-Nations Energy Company Limited
Partnership.
Other income, net was $5.6 million in 1998, an increase of $3.1 million
over 1997. The increase primarily results from gains during 1998 of $2.1
million from the sale of nitrogen oxide emission allowances and $1.7 million
from an insurance settlement.
Income Taxes
The Company's effective tax rate is determined primarily by the federal
statutory rate of 35% and state and local income taxes. The effective tax rate
was 41.1% in 1998 and 41.0% in 1997.
Year ended December 31, 1997 compared with year ended December 31, 1996.
Overview
For the year ended December 31, 1997, net earnings were $5.0 million
compared with $12.1 million in 1996 and diluted earnings per common share were
$.41 compared with $1.03 per common share in 1996. Included in net earnings for
1996 was an extraordinary loss of $1.9 million, or $.17 per common share, from
the extinguishment of debt. Revenues of $240.7 million were lower than the
$243.6 million in 1996. Operating income was $28.7 million and the operating
margin was 11.9% in 1997 compared with operating income of $43.1 million and an
operating margin of 17.7% in 1996. Excluding a condemnation award of $6.4
million and a fee received on completion of a project financing of $1.9 million,
operating income was $34.8 million and the operating margin was 14.3% in 1996.
The unusually mild winter weather, especially compared with the severe winter of
1996, was a major factor for the lower levels of revenues and profits in 1997.
Revenues
Revenues of $240.7 million were lower than the $243.6 million in 1996.
Thermal energy revenue declined $8.2 million or 4% in 1997 to $179.5 million.
Units of thermal energy sold were down 7% as energy systems in Baltimore, Boston
and Philadelphia were particularly affected by the milder weather. Contributing
to the decline in thermal energy sales were lower fuel prices, which are passed
on to customers.
Electric energy sales were $49.0 million in 1997, an increase of $4.3
million or 10%. This improvement was due to increased volume. Units of electric
energy sold increased by 90,000 megawatt hours or 10%. In 1997, the
trigeneration plant in Nassau County, NY, was operational for approximately 800
additional hours. This facility in 1996 was taken off line by the local utility
and for an unplanned outage.
Fees earned and other revenue increased 8% in 1997 due to the expansion of
the Trigen-Ewing Power operation, which was acquired in the first quarter of
1996, and to the sale of a natural gas pipeline. This increase was offset in
part by costs incurred in connection with the establishment and marketing of new
joint ventures with electric utilities to develop combined heat and power
projects.
Operating Expenses
Fuels and consumables were $114.2 million in 1997 compared with $118.3
million last year. This $4.1 million decrease was due to the lower level of
thermal energy revenues and to lower fuel prices. Offsetting in part the decline
in fuels and consumables were increased running hours in 1997 for the Nassau
plant. The Company's rates typically enable it to pass changes in its fuel and
most commodity costs to the customer. As a result such changes have little
impact on operating income. Fuel and consumables' costs decreased from 48.6% of
revenues in 1996 to 47.4% in 1997.
Production and operating costs are those costs incurred to operate the
plants, other than fuel and consumables, and include labor and supervisory
personnel, repair and maintenance costs, and plant operating costs. Production
and operating costs increased 7% to $47.1 million compared with $44.0 million in
1996 and as a percent of revenues increased to 19.6% from 18.0%. The higher
costs resulted from expansion of Trigen-Ewing Power, a pipeline rupture in St.
Louis and higher pension expense. In addition, production and operating costs
for 1996 were reduced by a $1.0 million arbitration award. Offsetting the 1997
increase in part was lower repair and maintenance costs.
Depreciation expense was $16.0 million compared with $7.6 million in 1996.
Included in 1996 depreciation expense was a $6.4 million gain resulting from a
condemnation award. Excluding this gain, 1997 depreciation expense was higher by
$2.0 million due to the high level of capital expenditures in 1997 and 1996.
General and administrative expenses increased $4.0 million or 13% in 1997,
mainly due to higher legal fees of $1.7 million and severance and reorganization
expenses of $.7 million. Also contributing to the increase were higher costs
incurred in connection with the Company's acquisition program. As a percent of
revenues, general and administrative expenses were 14.4% in 1997 and 12.6% in
1996.
Other income/(expense)
Interest expense was $19.0 million in 1997 compared with $18.8 million in
1996. The reduction due to repaying high interest rate debt was more than offset
by the higher level of debt in 1997.
Other income, net was $.8 million higher in 1997 due mainly to a $.6
million gain on the sale of marketable securities.
Income taxes
The Company's effective tax rate is determined primarily by the federal
statutory rate of 35%, and state and local income taxes. The effective tax rate
was 41.0% in 1997 and 39.7% in 1996.
Liquidity and Financial Position
The Company ended 1998 with total debt of $375.1 million compared with
$285.1 million at year-end 1997. Stockholders' equity increased to $147.9
million in 1998 from $145.5 million in 1997. Working capital was a negative
$9.5 million compared with a negative $2.1 million at year-end 1997. At
December 31, 1998 and 1997, cash and cash equivalents were $14.7 million and
$13.7 million, respectively, of which $13.3 million and $9.7 million,
respectively, was restricted as to use. See Note 6 of the Notes to Consolidated
Financial Statements for information on the restrictions.
The Company's principal sources of funds are proceeds from new borrowings
and cash from operations. In 1998, $36.4 million was generated from operating
activities compared with $23.3 million in 1997 and $27.6 million in 1996. The
improvement was primarily due to cash generated by Trigen-BioPower. During
1998, the Company acquired Trigen-BioPower for $44.1 million, purchased an
additional 48% interest in Trigen-Nations Energy Company Limited Partnership for
$21.3 million, invested $42.9 million in capital expenditures, $6.4 million in
partnership investments, paid dividends of $1.7 million to shareholders, $2.4
million to minority interests and purchased 129,989 shares of common stock for
the treasury at a cost of $1.8 million. These expenditures were financed by
cash generated from operating activities and by $85.7 million of net new
borrowings.
Total debt was $375.1 million at December 31, 1998, compared with $285.1
million at the end of 1997. The $90.0 million increase in debt reflects new net
borrowings of $85.7 million and the inclusion of $4.3 million of Trigen-
BioPower debt assumed in the acquisition. On April 4, 1997, the Company entered
into a $160.0 million revolving credit agreement with several banks. This
facility is for an initial period of three years and may be extended by a total
of two one-year periods. Borrowings under the facility bear interest, at the
Company's option, at an annual rate equal to the base rate or the LIBOR rate
plus 3/4%. The base rate is the higher of the prime lending rate or the Federal
Reserve reported Federal funds rate plus 1/2%. On June 10, 1997, the Company
amended the $160.0 million revolving credit agreement by reducing the facility
to $125.0 million and entered into a new $35.0 million revolving credit facility
with the same group of banks. The new facility is for an initial 364-day period
and may be extended annually at the option of the banks. The terms and
conditions of both facilities are the same. On September 23, 1998, the $125.0
million three year facility was increased by $35.75 million and the initial
period was increased by one year. The base rate is the higher of the prime-
lending rate or the Federal Reserve reported Federal funds rate. On December
30, 1998, the Company borrowed from an affiliate, Cofreth American Corporation,
$50.0 million for acquisitions and project development. The $50.0 million was
initially used to partially pay down the Corporate facility. The $50.0 million
borrowing is subordinate and junior in right of payment to all other debt. The
subordinated debt may be redeemed in whole or in part at the option of Cofreth
American Corporation with the proceeds of an equity sale by the Company. The
debt matures on December 31, 2010, and the interest rate is 7.38%.
At December 31, 1998, the Company had $67.8 million of borrowings available
under its credit facilities for working capital and general corporate purposes.
The Company's loan agreements contain various restrictions and conditions, with
which the Company is in compliance. Certain loan agreements restrict payments by
subsidiaries to the Company, unless the payments are for specified purposes or
the subsidiary meets certain covenants. Management believes that cash generated
from operations, borrowings available under its credit facilities and access to
capital markets provide adequate resources to meet ongoing operating needs and
future capital expenditures related to the existing business and development of
new projects. See Note 12 of the Notes to Consolidated Financial Statements for
information on long-term debt.
During 1998, stockholders' equity increased $2.4 million to $147.9 million.
This increase reflects $6.3 million of net earnings, $1.2 million from the
issuance of common stock and $.7 million of amortization of unearned
compensation related to restricted shares, partially offset by $1.7 million of
dividend payments to shareholders, a $2.3 million cumulative translation
adjustment and the purchase of 129,989 shares of common stock for the treasury
at a cost of $1.8 million.
Capital Expenditures
Capital expenditures were $42.9 million in 1998 compared with $39.4 million
in 1997 and $47.6 million in 1996, as the Company continues to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand production and improve facilities. Capital expenditures during 1998
included construction of a district chilled water system in downtown Kansas City
and a major overhaul of the gas and steam turbines at the Nassau plant.
Environmental Expenditures
The Company's facilities are subject to governmental requirements with
respect to the discharge of materials and otherwise relating to protection of
the environment. The Company spent approximately $3.9 million and $4.4 million
in 1998 and 1997, respectively, to comply with these requirements and estimates
that its expenditures for environmental compliance in 1999 through 2001 will be
approximately $12.4 million in the aggregate. These expenditures include
improvements at certain facilities for air emission control equipment as
required by the United States Clean Air Act (the "Clean Air Act"), wastewater
discharge control equipment, asbestos control and replacement of CFC
refrigerants.
Acquisitions
On January 22, 1998, the Company acquired all of the capital stock of Power
Sources, Inc. (renamed Trigen-BioPower, Inc.) a biomass-to-energy power plant
developer and operator, for a cash price of $44.1 million. On September 23,
1998, the Company purchased an additional 48% interest in Trigen-Nations Energy
Company Limited Partnership from Nations Energy Corporation for $21.3 million.
The acquisitions were funded from the Company's existing credit facilities. See
Note 5 of the Notes to Consolidated Financial Statements for information on the
acquisition.
Impact of New Accounting Standards
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organizational costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company will adopt SOP 98-5 effective January 1, 1999. The effect of the
adoption will be an after-tax charge of $5.3 million which will be reported as a
cumulative effect of a change in accounting principle in the first quarter 1999
Consolidated Statements of Operations.
Based on preliminary analyses, the Company does not expect that the future
adoption of Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," will have a material effect on
the Company's results of operations or financial condition.
Year 2000 Date Conversion
An issue affecting the Company and others is the inability of many computer
systems and applications to process the year 2000 ("Y2K") and beyond. To
address this problem, the Company has developed a plan that divides direction
for Y2K preparedness into four responsibility areas. These areas are Plant
Production, Plant Non-Production, Desktop Systems and Corporate Systems.
Plant Production includes primary plant systems that produce steam,
chilling and hot water, electricity and other forms of energy. A plan to
upgrade all non-compliant software and hardware has been underway since 1996.
We plan to test our Plant Production systems for Y2K compatibility in the Spring
of 1999. If any Plant and Production systems fail these tests, we plan to take
additional steps to make those systems Y2K compatible as soon as possible. We
anticipate that all primary plant systems will be compliant by the third quarter
of 1999. If we are not successful in these efforts, we may experience
operational difficulties in serving our customers at some locations.
Plant Non-Production includes Y2K issues related to telecommunications
hardware, climate control systems, security systems, elevators, parking
controls, and related systems. Generally, these systems achieve 100% compliance
with minor hardware upgrades or chip replacements from original parts
manufacturers. At this time, we believe that all of our material Plant Non-
Production systems are Y2K compliant.
The Company anticipates all Desktop systems to be compliant by September
1999 and Corporate Systems, which includes financial and billing systems, to be
compliant by December 1999. At this time, we believe our accounting system is
Y2K compliant. The Company is in the process of upgrading its billing and other
systems to achieve compliance. If we are not successful in these efforts, we
believe that it would not impact our ability to serve our customers, although we
may experience administrative difficulties.
The Company estimates the total external cost to achieve Y2K compliance to
be $1 million for the years 1997 through 1999. The Company believes it is
staffed sufficiently to address all Y2K issues.
The Company purchases raw material from key vendors to produce energy.
These vendors include major natural gas, electricity, and water utilities, fuel
oil and chemical distributors and coal producers. The Company will continue to
survey its key vendors to determine their Y2K compliance. At this time, the
Company does not expect any material disruption in services from vendors due to
Y2K issues. The Company is, however, dependent in part, upon the ability of its
vendors to be Y2K compliant.
The Company's Y2K efforts are ongoing and its overall plan, as well as
consideration of contingency plans, will continue to evolve as new information
becomes available. At this time, the Company does not expect any major
interruption of its business activities due to Y2K issues. However, the Company
is unable to estimate the ultimate effect Y2K risks will have on its operating
results.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company does not engage in the trading of market risk sensitive
instruments in the normal course of business. The Company's short and long-term
debt is subject to fixed and variable interest rates including rates primarily
based on LIBOR. An analysis of debt is found in Notes 11 and 12 to Consolidated
Financial Statements, Short-Term Debt and Long-Term Debt, included in this
Annual Report. Based upon the debt balances at December 31, 1998, a change in
the LIBOR rate of .25% would have a corresponding change in interest expense of
approximately $605,000 per year when three-month LIBOR is under 6.0% ranging to
approximately $539,000 per year when three-month LIBOR is over 7.5%. Three-month
LIBOR at December 31, 1998 was 5.08%.
The Company uses financial instruments to limit the financial risk of
increases in interest rates on its floating rate debt. The differential to be
paid or received under financial instruments is accrued and recognized in
interest expense as interest rates change. As of December 31, 1998, the Company
had outstanding interest rate swap, cap and collar agreements related to $43.5
million of debt outstanding, with an average fixed interest rate of 5.8% and an
average remaining life of 6 years. The cost to terminate the swap, cap and
collar would be approximately $183,000 at December 31, 1998. We do not expect
these financial instruments to have a material effect on our earnings or cash
flows or on the fair value of these instruments.
Item 8. Financial Statements and Supplementary Data
The financial statements and financial statement schedules that are filed
as part of this Annual Report begin on page F-1 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The principal accountant for the Company for the fiscal years ending
December 31, 1994, December 31, 1995, December 31, 1996 and December 31, 1997
was KPMG Peat Marwick LLP ("KPMG"). In 1998, we made a decision to change our
principal accountant for our fiscal year ending December 31, 1998, for the
reason set forth below. In 1998, the Audit Committee and the Board of Directors
of the Company approved this determination.
KPMG is also in the business of providing consulting services to clients
with respect to issues related to the energy business. In 1997, a dispute arose
between the Company and the consulting services division of KPMG with respect to
the conduct of consulting services provided to a third party. That dispute was
not resolved to the satisfaction of the Company. The change in principal
accountant was not due to any matter regarding KPMG's accounting services.
KPMG's report on the financial statements of the Company for 1996 and 1997 did
not contain an adverse opinion or a disclaimer of opinion, nor was it qualified
or modified as to uncertainty, audit scope or accounting principles. Neither
were there, during the 1996 and 1997 fiscal years or the period since December
31, 1997, any disagreement with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of KPMG, would have caused it
to make reference to the subject matter of the disagreement in connection with
its report.
In 1998, the Board of Directors selected Arthur Andersen LLP as our new
principal accountant. This selection will be presented to the shareholders of
the Company for ratification at our annual meeting of shareholders, which will
take place on May 19, 1999.
PART III
Item 10. Directors and Executive Officers of the Company
Information concerning directors and executive officers of Trigen is hereby
incorporated by reference from Trigen's definitive proxy statement which will be
filed with the Commission within 120 days after the close of the fiscal year.
Trigen's definitive proxy statement will be accompanied by this Annual Report
when mailed to Shareholders.
Item 11. Executive Compensation
Information concerning executive compensation is hereby incorporated by
reference from Trigen's definitive proxy statement which will be filed with the
Commission within 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference from Trigen's definitive proxy
statement which will be filed with the Commission within 120 days after the
close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
hereby incorporated by reference from Trigen's definitive proxy statement which
will be filed with the Commission within 120 days after the close of the fiscal
year.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) The Financial Statements and Financial Statement Schedules
listed under "Index to Financial Statements and Financial Statement Schedules"
on page F-1 hereof are filed as part of this Annual Report.
(a) (3) The Exhibits listed under "Index of Exhibits" on pages E-1 to E-3
hereof are filed as part of this Annual Report.
(b) The following reports on Form 8-K were made during the period ended
December 31, 1998:
Item 2. Acquisition of Assets and Item 7. Financial Statements and
Exhibits, January 27, 1998
Item 4. Change in Registrant's Certifying Accountant and Item 5. Other
Events, March 16, 1998
Item 4. Change in Registrant's Certifying Accountant, Amendment No. 1,
March 19, 1998
Item 2. Acquisition of Assets and Item 7. Financial Statements and
Exhibits, March 20, 1998
Item 4. Change in Registrant's Certifying Accountants, Amendment No. 2,
March 31, 1998
Item 4. Change in Registrant's Certifying Accountant, Amendment No. 3,
April 7, 1998
Item 4. Change in Registrant's Certifying Accountants, May 13, 1998
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
Registrant's Financial Statements
Independent Auditors' Report F-2 , F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-8
Registrant's Financial Statement Schedules
I Condensed Financial Information of the Registrant as
of December 31, 1998 and 1997 and for the Years
Ended December 31, 1998, 1997 and 1996 S-1
II Valuation and Qualifying Accounts for the Years Ended
December 31, 1998, 1997 and 1996 S-5
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Trigen Energy Corporation:
We have audited the accompanying consolidated balance sheet of Trigen
Energy Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statement of operations, cash flows and stockholders' equity for
the year then ended. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trigen
Energy Corporation and subsidiaries as of December 31, 1998, and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as whole. The schedules listed in the accompanying
index are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. These schedules, as of December 31, 1998 and for the year then
ended, have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state, in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 8, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Trigen Energy Corporation:
We have audited the accompanying consolidated balance sheet of Trigen
Energy Corporation and subsidiaries as of December 31, 1997, and the related
consolidated statement of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 1997. In connection
with our audits of the consolidated financial statements, we also have audited
the information in the financial statement schedules as listed in the
accompanying index as of December 31, 1997 and for each of the years in the two-
year period ended December 31, 1997. These consolidated financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trigen
Energy Corporation and subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, as
of and for the periods described above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
February 3, 1998
Stamford, Connecticut
<PAGE>
<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997
(In thousands, except share data)
1998 1997
---- --
--
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,074 $ 8,967
Accounts receivable
Trade (less allowance for doubtful accounts of
$1,187 in 1998 and $1,074 in 1997) 35,236 34,866
Other 5,686 10,815
-------- ------
Total accounts receivable 40,922 45,681
Inventories 7,074 7,054
Prepaid expenses and other current assets 8,016 7,985
-------- ------
Total current assets 66,086 69,687
Restricted cash and cash equivalents 4,623 4,726
Property, plant and equipment, net 442,755 388,448
Investment in non-consolidated partnerships 30,319 19,560
Intangible assets, net 49,968 21,454
Deferred costs and other assets, net 24,405 22,094
-------- ------
Total assets $618,156 $525,969
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 15,000 $14,200
Current portion of long-term debt 16,398 14,499
Accounts payable 4,756 10,053
Accrued income taxes 5,728 3,933
Accrued fuel 14,121 11,545
Accrued expenses and other current liabilities 19,626 17,552
-------- ------
Total current liabilities 75,629 71,782
Long-term debt 343,685 256,361
Other liabilities 4,254 4,786
Deferred income taxes 39,422 31,237
-------- ------
Total liabilities 462,990 364,166
Minority interests in subsidiaries 7,238 16,321
Stockholders' equity:
Preferred stock-$.01 par value, authorized
and unissued 15,000,000 shares - -
Common stock-$.01 par value, authorized 60,000,000
shares, issued and outstanding 12,417,934
shares in 1998 and 12,070,162 shares in 1997 124 121
Additional paid-in capital 120,595 114,157
Retained earnings 36,417 31,881
Unearned compensation - restricted stock (4,967) -
Cumulative translation adjustment (2,002) 296
Treasury stock, at cost, 145,842 shares in 1998
and 45,500 shares in 1997 (2,239) (973)
--------- -------
Total stockholders' equity 147,928 145,482
--------- -------
Total liabilities and stockholders' equity $618,156 $525,969
--------- --------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per share data)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues
Thermal energy $182,432 $179,527 $187,740
Electric energy 42,667 48,997 44,663
Equity in earnings/(losses) of non-
consolidated partnerships 4,475 (1,401) 322
Fees earned and other revenues 12,820 13,528 10,909
-------- -------- --------
Total revenues 242,394 240,651 243,634
Operating expenses
Fuel and consumables 95,957 114,168 118,304
Production and operating costs 53,840 47,086 43,959
Depreciation 19,780 16,021 7,595
General and administrative 40,994 34,633 30,638
-------- -------- --------
Total operating expenses 210,571 211,908 200,496
-------- --------- --------
Operating income 31,823 28,743 43,138
Other income (expense)
Interest expense (23,742) (18,976) (18,840)
Other income, net 5,570 2,448 1,603
-------- --------- --------
Earnings before minority interests, income
taxes and extraordinary item 13,651 12,215 25,901
Minority interests in earnings of subsidiaries.. (2,519) (3,699) (2,598)
-------- --------- --------
Earnings before income taxes and extraordinary item 11,132 8,516 23,303
Income taxes 4,575 3,491 9,252
-------- --------- --------
Earnings before extraordinary item 6,557 5,025 14,051
Extraordinary loss from extinguishment of debt,
net of income tax benefit (299) - (1,943)
-------- --------- --------
Net earnings $ 6,258 $ 5,025 $ 12,108
-------- --------- --------
Basic earnings per common share
Before extraordinary item $ .55 $ .42 $ 1.21
Extraordinary loss (.03) - (.17)
-------- -------- --------
Net earnings $ .52 $ .42 $ 1.04
-------- --------- --------
Diluted earnings per common share
Before extraordinary item $ .55 $ .41 $ 1.20
Extraordinary loss (.03) - (.17)
-------- --------- ---------
Net earnings $ .52 $ .41 $ 1.03
-------- --------- --------
Average common shares outstanding 12,007 12,011 11,612
-------- --------- --------
Average common and common equivalent shares
outstanding 12,009 12,130 11,694
-------- --------- --------
Dividends per common share $ .14 $ .14 $ .14
-------- --------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Cash flows from operating activities
Net earnings $6,258 $5,025 $12,108
Reconciliation of net earnings to cash
provided by operating activities
Extraordinary item 299 - 1,943
Depreciation and amortization 25,224 19,504 10,333
Deferred income taxes 1,824 863 4,871
Provision for doubtful accounts 317 331 664
Gain on sale of marketable securities - ( 612) -
Minority interests in subsidiaries 2,519 3,699 2,598
Changes in assets and liabilities, net of
effects of acquisitions
Accounts receivable 4,447 ( 7,097) (984)
Inventories and other current assets 1,451 (422) (1,613)
Accounts payable and other current liabilities ( 1,285) 1,866 1,848
Noncurrent assets and liabilities ( 4,659) 173 (4,149)
-------- -------- --------
Net cash provided by operating activities 36,395 23,330 27,619
-------- -------- --------
Cash flows from investing activities
Acquisition of energy facilities (67,901) - -
Capital expenditures (42,910) (39,415) (47,641)
Purchase of a fuel management agreement and
related inventory - ( 8,871) -
Proceeds on sale of property, plant and equipment 737 3,000 -
Investment in non-consolidated partnerships (6,417) (12,294) (1,911)
Purchase of marketable securities - ( 4,139) -
Sale of marketable securities - 4,751 -
Proceeds of condemnation award, net - - 6,821
-------- -------- --------
Net cash used in investing activities (116,491) (56,968) (42,731)
--------- -------- --------
Cash flows from financing activities
Short-term debt, net 800 ( 4,300) 4,335
Proceeds from long-term debt 122,510 77,253 42,384
Payments of long-term debt (37,576) (46,379) (28,934)
Sale of interest rate caps - - 1,003
Dividends paid ( 1,722) ( 1,682) ( 1,640)
Issuance of common stock, net ( 562) 1,309 5,949
Distribution to minority interests 2,350) (4,146) (2,884)
-------- -------- --------
Net cash provided by financing activities 81,100 22,055 20,213
-------- -------- --------
Cash and cash equivalents
Increase/(decrease) 1,004 (11,583) 5,101
At beginning of period 13,693 25,276 20,175
-------- -------- --------
At end of period $14,697 $13,693 $25,276
-------- -------- --------
Current $10,074 $ 8,967 $14,598
Noncurrent 4,623 4,726 10,678
-------- -------- --------
At end of period $14,697 $13,693 $25,276
-------- -------- --------
Supplemental disclosure of cash flow information
Non-cash investing activity
Acquisition of subsidiary - - $ 1,037
------- ------- --------
Non-cash financing activity
Issuance of common stock for acquisition of
subsidiary - - $ 1,037
------- ------- --------
Issuance of common stock for extinguishment
of long-term debt - - $ 4,250
------- ------- --------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands, except share data)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Balance, December 31, 1995 11,416,418 $114 $100,788 $18,070
Issuance of common stock 594,179 6 12,048 -
Repurchase of common stock - - - -
Dividends - - - (1,640)
Comprehensive income:
Net earnings - - - 12,108
Cumulative translation adj. - - - -
Total comprehensive income - - - -
---------- ----- ------- -----
- ---
Balance, December 31, 1996 12,010,597 120 112,836 28,538
Issuance of common stock 59,565 1 1,321 -
Repurchase of common stock - - - -
Dividends - - - ( 1,682)
Comprehensive income:
Net earnings - - - 5,025
Cumulative translation adj. - - -
- -Total comprehensive income - - - -
---------- ------ -------- ------
Balance, December 31, 1997 12,070,162 121 114,157 31,881
Issuance of common stock 347,772 3 6,409 -
Repurchase of common stock - - - -
Dividends - - 29 ( 1,722)
Amortization of unearned
compensation - - - -
Comprehensive income:
Net earnings - - - 6,258
Cumulative translation adj. - - - -
Total comprehensive income - - - -
---------- ---- -------- -----
- --
Balance, December 31, 1998 12,417,934 $124 $120,595 $36,417
========== ==== ======== =======
Unearned
Compensation Cumulative
-Restricted Translation Treasury Stock
Stock Adjustment Shares Amount Total
------------ ---------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ - $ - 7,268 $(142) $118,830
Issuance of common stock - - - - 12,054
Repurchase of common stock - - 38,872 (818) (818)
Dividends - - - - (1,640)
Comprehensive income:
Net earnings - - - -
Cumulative translation adj. - 136 - - -
Total comprehensive income - - - - 12,244
----------- ----------- ----- -------------
Balance, December 31, 1996 - 136 46,140 (960) 140,670
Issuance of common stock - - (30,640) 637 1,959
Repurchase of common stock - - 30,000 (650) (650)
Dividends - - - - (1,682)
Comprehensive income:
Net earnings - - - - -
Cumulative translation adj. - 160 - - -
Total comprehensive income - - - - 5,185
------- ------- ------ ----- -----
Balance, December 31, 1997 - 296 45,500 (973) 145,482
Issuance of common stock (5,707) - (29,647) 476 1,181
Repurchase of common stock - - 129,989 (1,742)(1,742)
Dividends (29) - - - (1,722)
Amortization of unearned
compensation 769 - - - 769
Comprehensive income:
Net earnings - - - -
Cumulative translation adj. - (2,298) - -
Total comprehensive income - - - - 3,960
-------- --------- --------- ------- -----
- ---
Balance, December 31, 1998 $(4,967) $(2,002) 145,842 $(2,239) $147,928
======= ======= ======= ======== =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Trigen Energy Corporation (the "Parent Company", and together with its
subsidiaries, the "Company") develops, owns and operates commercial and
industrial energy systems in the United States and Canada. The Company uses its
expertise in thermal engineering and proprietary cogeneration processes to
convert fuel to various forms of thermal energy and electricity. The Company
combines heat and power generation, producing electricity as a by-product, for
use in its facilities and for sale to customers. At December 31, 1998, the
Company operated 41 plants at 27 locations.
Suez Lyonnaise Des Eaux, a French corporation, through its energy services
affiliate Elyo, a French corporation, owns 52.8% of the Company's common stock.
Elyo and the Company have entered into a licensing agreement to provide
technical assistance to the Company to construct, operate and maintain community
energy systems within North America, as well as the right to use patents and
licenses of Elyo in connection with the generation and distribution of
electricity, chilled water and waste incineration.
The Company has established joint ventures with electric utilities to
develop and operate combined heat and power plants. The Company's equity share
in the operating results of these joint ventures is reported in equity in
earnings/(losses) of non-consolidated partnerships in the Consolidated
Statements of Operations.
A significant portion of the Company's revenues and operating profit are
subject to seasonal fluctuation due to peak heating demand in the winter and
peak cooling demand in the summer.
2. Summary of Accounting Policies
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
Based on preliminary analyses, the Company does not expect the future adoption
of SFAS No. 133 will have a material effect on results of operations and
financial condition.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organizational costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company will adopt SOP 98-5 effective January 1, 1999. The effect of the
adoption will be an after-tax charge of $5.3 million which will be reported as a
cumulative effect of a change in accounting principle in the first quarter 1999
Consolidated Statements of Operations.
In January 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." The statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements.
In December 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
which requires dual presentation of basic and diluted earnings per common share
in the Consolidated Statements of Operations and a reconciliation of earnings
and shares between the basic and diluted computations.
Long term assets are reviewed for impairment following the provisions of
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of."
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent
Company and all wholly-and majority-owned subsidiaries. Intercompany accounts
and transactions are eliminated.
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1998 presentation.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue for energy sold includes both fixed charges and amounts based on
energy delivered. Contract rates are either directly negotiated with the
customer or approved by the applicable regulatory authority. Sales not billed by
month-end are accrued based upon estimated usage. Fees earned are recognized as
services are performed.
There are two customers whose revenues were more than 10% of total Company
revenues. Revenues for one customer were 12%, 13% and 12% of total Company
revenues in 1998, 1997 and 1996, respectively. The other customer accounted for
11%, 13% and 12% of total revenues in 1998, 1997 and 1996, respectively. These
two customers accounted for 21% of the total trade receivable balance at
December 31, 1998.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and temporary investments
in high-grade instruments with original maturities at date of purchase of three
months or less.
Fuel Expense and Deferred Fuel
Certain of the Company's subsidiaries, either as a result of regulation or
contractual agreements with their customers, are allowed to recover all or
substantially all of their fuel costs, which is the Company's largest expense.
Certain of these subsidiaries estimate the future cost of fuel in current
contract rates. Differences between the estimated fuel costs and actual fuel
costs are deferred and subsequently charged to or rebated to the customer
through future rate adjustments.
Inventories
Inventories are comprised principally of fuel, operating supplies and spare
parts. Fuel inventories are stated at cost determined on a first-in, first-out
basis and materials and supplies and spare parts are stated at average cost. The
portion of spare parts inventories not expected to be used within one year is
classified as non-current.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
computed by the straight-line method over the estimated useful lives commencing
when assets, or major components thereof, are placed in service. Renewals or
betterments are capitalized, while maintenance and repair costs are expensed.
Deferred Cost and Other Assets
Included in deferred costs and other assets are capitalized costs
associated with debt financing, development projects and other non-current
assets. Financing costs are capitalized and amortized over the debt term using
methods that approximate the interest method. Costs incurred in developing
energy generation facilities after the execution of binding contracts are
accumulated by project and included in the acquisition cost or as construction
in process for that project.
Intangible Assets
Included in intangible assets are costs in excess of the net assets of
acquired companies, non-compete agreements with former majority owners of
acquired companies, a fuel management contract and organization costs. The costs
in excess of the net assets of acquired companies is being amortized over
periods not exceeding 32 years. The non-compete and fuel management agreements
are being amortized over the terms of the agreements, 15 and 19 years,
respectively. The Company continuously assesses the recoverability of these
intangible assets by evaluating whether the amortization of the intangible
assets over the remaining lives can be recovered through expected future
results. Expected future results are based on projected undiscounted operating
results before the effects of intangible amortization. The amount of impairment,
if any, is measured based on projected discounted future results, using a
discount rate reflecting the Company's average cost of funds.
Foreign Currency Translation
Income and expenses of Canadian subsidiaries are translated to U. S.
dollars at rates in effect during the year, and assets and liabilities at year-
end rates. Translation adjustments are included in stockholders' equity in the
Consolidated Balance Sheet. Foreign currency transaction gains and losses are
included in net earnings.
Financial Instruments
The Company uses financial instruments to limit the financial risk of
increases in interest rates on its floating rate debt. The differential to be
paid or received under financial instruments is accrued and recognized in
interest expense as interest rates change.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes following the provisions of Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Environmental Expenditures
Expenditures that relate to an existing condition, which do not contribute
to current or future revenue generation and expenditures incurred for
environmental compliance with respect to pollution prevention and ongoing
monitoring programs, are expensed as incurred. Expenditures that increase the
value of the property are capitalized.
Earnings Per Common Share
Following is a reconciliation of basic earnings per common share to diluted
earnings per common share for the two years ended December 31, 1998 (in
thousands, except per share data).
1998 1997
---- ----
Basic Diluted Basic Diluted
----- ------- ----- -------
Earnings before extraordinary item $6,557 $6,557 $5,025 $5,025
------ ------ ------ ------
Average equivalent shares
Common shares outstanding 12,007 12,007 12,011 12,011
Stock options - 2 - 119
-------- -------- -------- -------
Average equivalent shares 12,007 12,009 12,011 12,130
Earnings per common share $ .55 $ .55 $ .42 $ .41
====== ====== ====== ======
Certain stock options are not considered in the above computations due to
the fact that they would be anti-dilutive.
3. Supplementary Income Information
Included in other income, net for the year ended December 31, 1998, were
pre-tax gains of $2,102,000 from the sale of nitrogen oxide emission allowances
and $1,678,000 from an insurance settlement.
4. Extraordinary Item
The Company incurred extraordinary charges of $299,000, net of a tax
benefit of $161,000,in 1998 and $1,943,000, net of a $1,046,000 tax benefit, in
1996 in connection with the early retirement of debt.
5. Acquisitions
On January 22, 1998, the Company acquired all of the capital stock of Power
Sources, Inc. (renamed Trigen-BioPower, Inc.), a biomass-to-energy power plant
developer and operator, for a total cash investment of $44,100,000, funded from
the Company's existing credit facility. Trigen-BioPower had revenues of
$18,967,000 and net earnings of $2,441,000 for the twelve-month period ended
December 31, 1997. Results for Trigen-BioPower are included with those of the
Company since the date of acquisition.
The acquisition was accounted for under the purchase method of accounting.
The purchase price has been allocated to the assets acquired and liabilities
assumed based on fair market value at the date of acquisition. The excess of
the purchase price over the net assets was $10,398,000 and is being amortized
over a period of 30 years. The fair value of the assets acquired and
liabilities assumed is as follows (in thousands):
Current assets $ 3,325
Property, plant equipment 32,265
Intangibles 11,687
Costs in excess of net assets acquired 10,398
Current liabilities ( 2,147)
Long-term debt ( 4,290)
Other liabilities ( 7,138)
--------
Total purchase price $44,100
=======
The following unaudited pro forma summary presents the consolidated results
of operations for the year ended December 31, 1998 and the year ended December
31, 1997 as if the acquisition had occurred at the beginning of the years
presented (in thousands, except per share data):
1998 1997
---- ----
Revenues $243,531 $259,618
Earnings before extraordinary item 6,627 5,325
Diluted earnings per common share -
Before extraordinary item $ .55 $ .44
The pro forma results included certain adjustments for depreciation expense
as a result of a step up in the basis of property, plant and equipment and an
increase in the remaining useful lives, amortization expense as a result of
goodwill and other intangible assets and interest expense on borrowings to
finance the acquisition. The pro forma results do not purport to be indicative
of the results of operations which actually would have resulted had the
acquisition been made at the beginning of the years presented, or of results
which may occur in the future.
On September 23, 1998, the Company purchased for $21,250,000 an additional
48% interest in the Trigen-Nations Energy Company Limited Partnership from
Nations Energy Corporation. This limited partnership owns the energy production
assets in service to Coors Brewing Company in Golden, Colorado. The excess of
purchase price over the net assets purchased was $9,547,000 and is being
amortized over a period not exceeding 32 years. This purchase increases the
Company's investment in Trigen-Nations Energy Company from 51% to 99%.
6. Restricted Funds
Under the terms of the Company's debt agreements, a portion of the cash of the
operating subsidiaries is restricted in use, first to paying the operating costs
of the respective subsidiary, then its debt service obligations, in the priority
stipulated in the respective debt agreements. Restricted funds at December 31,
1998 and 1997 were (in thousands):
1998 1997
---- ----
Current Non-Current Current Non-Current
------- ----------- ------- -----------
Restricted $ 8,699 $4,623 $5,006 $ 4,726
Unrestricted 1,375 - 3,961 -
-------- ---------- ------- -------
Cash and cash equivalents $ 10,074 $4,623 $8,967 $ 4,726
======= ======= ====== =======
Under the terms of the debt agreements, payments from subsidiaries to
affiliated companies, including the Parent Company, are permitted, provided no
default exists or would be created by the payment and either (a) the payment is
to reimburse the Parent Company for management costs as permitted by the
respective debt agreement or (b) the subsidiary meets financial tests, which may
include debt coverage, working capital or equity tests, as specified in the
respective agreement.
7. Inventories
Inventories at December 31, 1998 and 1997 were (in thousands):
1998 1997
------ ------
Fuel $2,200 $2,055
Operating supplies and spare parts 4,874 4,999
------- ------
Total $7,074 $7,054
====== ======
At December 31, 1998, the Company had purchase commitments for fuel at
prices discounted from the spot market and at fixed prices. The aggregate
commitment under these contracts is estimated to be $14.0 million based on
current spot prices. These contracts expire at varying dates from August 1999
through September 2000.
The Company has fuel cost pass-through clauses in its rates with customers
for all of these commitments.
8. Property, Plant and Equipment
Property, plant and equipment at December 31, 1998 and 1997 was (in
thousands):
Estimated Useful
Lives (Years) 1998 1997
---- ----
Land - $ 10,418 $ 10,418
Plant, machinery and equipment 15-35 454,854 392,643
Buildings 40 41,556 34,607
Furniture, fixtures and leasehold
improvements 3-5 9,225 7,611
Construction in process - 22,147 20,421
--------- ---------
538,200 465,700
Less: Accumulated depreciation (95,445) (77,252)
--------- --------
$442,755 $388,448
========= ========
Substantially all of the Company's assets are pledged as collateral under
the Company's debt agreements (Note 12).
9. Intangible Assets
Intangible assets at December 31, 1998 and 1997 were (in thousands):
1998 1997
---- ----
Costs in excess of net assets acquired $25,545 $ 5,599
Non-compete agreements 21,667 10,000
Fuel management agreement 8,500 8,500
Organization costs 3,333 3,496
------- --------
59,045 27,595
Less: Accumulated amortization (9,077) (6,141)
------- --------
$49,968 $21,454
======= ========
Amortization expense for the years ended December 31, 1998, 1997 and 1996
was $2,936,000, $1,651,000, and $1,415,000, respectively.
10. Deferred Costs and Other Assets
Deferred costs and other assets at December 31, 1998 and 1997 were (in
thousands):
1998 1997
------- -------
Deferred financing costs $17,890 $18,066
Less: Accumulated amortization (9,434) (7,928)
------- -------
8,456 10,138
Project development costs 6,443 1,855
Non-current receivables 4,619 3,480
Non-current inventories 2,162 2,038
Other 2,725 4,583
------- -------
$24,405 $22,094
======= =======
Amortization expense for the years ended December 31, 1998, 1997 and 1996
was $1,605,000, $1,830,000 and $1,323,000, respectively.
11. Short-term Debt
United Thermal Corporation, a wholly-owned subsidiary of the Parent
Company, together with its affiliated companies ("UTC") have a $15 million
revolving credit facility available (the "UTC Revolver") through June 30, 1999,
and, upon approval of the lender, for additional one year periods thereafter.
The UTC Revolver is secured pro rata with the UTC Term Loan (Note 12). UTC is
required to have 60 consecutive days each year with no outstanding borrowings
under the UTC Revolver. UTC has several interest rate options under the UTC
Revolver including LIBOR. The balances outstanding under this facility at
December 31, 1998 and 1997 were $15 million and $14.2 million, respectively, and
the average rates on these borrowings were 6.5% in 1998 and 6.6% in 1997. The
effective rate at December 31, 1998 was 6.3%.
12. Long-term Debt
Long-term debt outstanding at December 31, 1998 and 1997 was (in
thousands):
1998 1997
---- ----
1997 credit facility (a) $128,000 $74,500
UTC term loan (b) 50,441 58,441
Nassau term loan (c) 41,664 44,939
Nassau bonds (c) 14,350 14,350
Trenton bonds (d) 34,625 35,995
Oklahoma term loan (e) 16,311 17,579
Oklahoma bonds (e) 4,920 4,920
Trigen Energy Canada term loan (f) 18,272 20,136
Trigen-BioPower credit facility (g) 1,500 -
Subordinated debt (h) 50,000 -
-------- -------
360,083 270,860
Less: Current portion included above (16,398) (14,499)
-------- -------
$343,685 $256,361
========= ========
(a) On April 4, 1997, the Company entered into a $160.0 million revolving
credit agreement with several banks. This facility was used to repay
indebtedness outstanding under a $62.5 million credit facility entered into in
1995. The $160.0 million facility is for an initial period of three years and
may be extended by a total of two one-year periods. Borrowings under the
facility bear interest, at the Company's option, at an annual rate equal to the
base rate or the LIBOR rate plus 3/4%. The base rate is the higher of the prime
lending rate or the Federal Reserve reported Federal funds rate plus 1/2%.On
June 10, 1997, the Company amended the $160.0 million credit agreement by reduc-
ing the facility to $125.0 million and entered into a $35.0 million revolving
credit facility with the same group of banks. The new facility is for an initial
364-day period and may be extended annually at the option of the banks. The
terms and conditions of both facilities are the same. On September 23, 1998,
the $125.0 million three year facility was increased by $35.75 million and the
initial period was increased by one year. The base rate is the higher of the
prime lending rate or the Federal Reserve reported Federal funds rate. The
average effective rate on the facility was 6.2% in 1998 and the rate at December
31, 1998 was 6.3%.
(b) The UTC term loan and the UTC Revolver (Note 11) (together the "UTC Debt")
are secured by all the assets and revenues of UTC. The Parent Company has
guaranteed the UTC Debt in an amount which is limited, except for liabilities of
UTC arising from environmental matters, to the lesser of $31.7 million and one-
third of the UTC Debt commitments.
Interest on the UTC term loan is at variable rates based on LIBOR. The average
effective rate was 7.8% in 1998, 7.3% in 1997 and 7.6% in 1996. The rate at
December 31, 1998 was 7.2%. UTC has purchased interest rate protection
agreements (Note 13). Principal repayments commenced in June 1994, with final
maturity in September 2004.
(c) Interest on the Nassau term loan is at variable rates based on LIBOR. The
average effective rate was 6.8% in 1998, 6.7% in 1997 and 6.8% in 1996. At
December 31, 1998, the effective rate was 6.5%. Principal repayments commenced
in June 1992, with final maturity in December 2003.
The Nassau bonds were issued by the Town of Hempstead Industrial Development
Authority. In February 1998, the Nassau bonds were refinanced as variable rate
demand tax-exempt industrial development bonds. A bank has issued a letter of
credit in favor of the bondholders in the event of default. Interest is
variable, and the average effective rate was 3.78% in 1998.
The Nassau term loan and the Nassau bonds are without recourse to the Parent
Company. All the assets and revenues of Trigen-Nassau Energy Corporation
("Trigen-Nassau"), a wholly owned subsidiary of the Parent Company are pledged
to secure the term loan and bonds. Upon certain events, Trigen-Nassau will be
required to enter into interest rate protection agreements the effect of which
is to fix the rate on 50% of the aggregate outstanding principal amounts of the
term loan and bonds for a minimum of five years.
(d) The Trenton bonds were issued by the New Jersey Economic Development
Authority, and are payable solely from revenues and other funds pledged by
Trigen-Trenton Energy Company, L.P. a majority-owned subsidiary of the Parent
Company. The bonds require annual sinking fund payments that began December 1993
with final maturity in December 2010. The interest rates were fixed to maturity
at 6.1%-6.2% on $34.6 million of the bonds (the tax-exempt portion).
(e) Interest on the Oklahoma term loan is at variable rates based on LIBOR. The
average effective rate was 7.0% in 1998, 7.1% in 1997 and 6.9% in 1996. The
rate at December 31, 1998, was 6.5%. Principal repayments commenced in December
1994, with final maturity in September 2007.
The Oklahoma bonds were issued by the Oklahoma City Industrial and Cultural
Facilities Trust. Interest is 6.75% per year. Principal payments are due from
2008 through 2017. A bank has issued a letter of credit in favor of the
bondholders in the event of default.
The Oklahoma term loan and the Oklahoma bonds are without recourse to the Parent
Company. All the assets of Trigen-Oklahoma Energy Corporation ("Trigen-
Oklahoma"), a wholly owned subsidiary of the Parent Company, are pledged to
secure the term loan and bonds. Upon certain events, Trigen-Oklahoma will be
required to enter into interest rate protection agreements the effect of which
is to fix the rate on 75% of the aggregate outstanding principal amounts of the
term loan and bonds for an average life of seven years.
(f) Interest on the term loan for Trigen Energy Canada Inc., a wholly owned
subsidiary of the Parent Company, ("Trigen-Canada") was at variable rates during
1998 based on Canadian bankers' acceptances. The average effective rate was
5.39% in 1998, 4.6% in 1997 and 4.7% in 1996. At December 31, 1997, Trigen-
Canada entered into an interest rate swap agreement fixing the rate on the
outstanding principal amount (Note 13). The rate at December 31, 1998 was 5.3%.
The term loan is secured by the assets of Trigen-Canada, with limited recourse
to the Parent Company in the event of any shortfall in debt service payments by
Trigen-Canada.
(g) The Trigen-BioPower ("BioPower") secured revolving credit facility is
without recourse to the Parent Company. All the assets of BioPower, a wholly
owned subsidiary of the Parent Company are pledged to secure the loan. The
facility requires BioPower to meet certain financial tests and contains
restrictions.
(h) On December 30, 1998, the Company borrowed from an affiliate, Cofreth
American Corporation, $50.0 million for acquisitions and project development.
The $50.0 million was initially used to partially pay down the Corporate
facility. The $50.0 million is subordinate and junior in right of payment to
all other debt. The subordinated debt may be redeemed in whole or in part at
the option of Cofreth American Corporation with the net proceeds of an equity
sale by the Company. The debt matures on December 31, 2010 and the interest
rate is 7.38%.
The Company's debt agreements limit or restrict cash payments, the payment of
dividends, capital expenditures, incurrence of new debt and transactions with
affiliates. At December 31, 1998, the Company was in compliance with all
covenants contained in its debt agreements (See Note 21 for default information
related to Grays Ferry Cogeneration Partnership).
Maturities of long-term debt for the next five years are as follows (in
thousands):
1999 $16,399
2000 17,307
2001 18,449
2002 20,002
2003 165,706
Based upon the debt balances at December 31, 1998, a change in the LIBOR rate of
.25% would have a corresponding change in interest expense of approximately
$605,000 per year when three-month LIBOR is under 6.0% ranging to approximately
$539,000 per year when three-month LIBOR is over 7.5%. Three-month LIBOR at
December 31, 1998 was 5.08%.
Cash paid for interest was $21.0 million, $17.3 million and $17.5 million
in 1998, 1997 and 1996, respectively.
13. Financial Instruments
The estimated fair value of long term debt approximates carrying value at
December 31, 1998. The fair value of receivables, payables and short-term debt
approximates carrying value at December 31, 1998 due to the short-term maturity
of these instruments.
As of December 31, 1998, the Company had outstanding interest rate swap,
cap and collar agreements related to $43.5 million of debt outstanding, with an
average fixed interest rate of 5.8% and an average remaining life of 6 years.
The fair value of the swap, cap and collar agreements was a payable of $183,000.
In addition to the letters of credit issued with respect to the Nassau and
Oklahoma bonds (Note 12), the Company had outstanding a contingent liability for
letters of credit of $5.8 million at December 31, 1998.
14. Leases
The Company has entered into various leasing arrangements for office space,
land and equipment. These arrangements are accounted for as operating leases.
Future minimum rental payments under operating leases with remaining non-
cancelable terms in excess of one year at December 31, 1998 are (in thousands):
1999 $ 3,232
2000 3,319
2001 2,905
2002 2,533
2003 2,425
Thereafter 18,059
Total minimum payments $32,473
Excluded from the above future minimum rental payments are two operating
leases, one for a term of 25 years and the other for 99 years. The 25-year lease
is for land, facilities and equipment and the 99-year lease is for land. The
current annual rental payments for these leases are $912,000 and the total
remaining commitments at December 31, 1998 are estimated to be $28.4 million.
Rental expense was $4,201,000 in 1998, $3,653,000 in 1997 and $2,932,000 in
1996.
15. Stock Options
The Company's stock incentive plan provides for the granting of stock
options, stock appreciation rights, performance shares, restricted stock and
other stock awards to officers and key employees and stock options to non-
employee directors. In 1997, shareholders approved an increase in the number of
shares of common stock that may be issued under the stock incentive plan to
2,000,000 shares.
Stock options outstanding under the stock incentive plan were granted at a
price equal to 100% of the market price on the date of grant. Stock options
granted to non-employee directors are exercisable six months from the date of
grant, and are exercisable until the earlier of the tenth anniversary of the
date of grant, or the first anniversary of leaving the Board of Directors. Stock
options granted to employees vest at the rate of 20% per year, starting on the
first anniversary of the grant date and are exercisable over a period of ten
years from the date of grant, with the exception of grants of stock options in
1995 for 18,800 shares, which vested immediately.
During 1998, the Company reviewed the stock option program and approved an
option exchange program covering 291,100 outstanding stock options which were
granted under the 1997 stock-based compensation program with stock exercise
prices greater than $14.00 per share. This exchange program provided that all
eligible management had the right to exchange existing options with strike
prices greater than $14.00 for new options with a strike price of $14.00.
Information relating to stock options granted during 1998, 1997 and 1996 is
summarized as follows:
Number of Average
Shares Exercise Price
--------- --------------
Outstanding December 31, 1995 567,300 $16.54
Granted 67,200 20.05
Exercised (38,500) 16.05
Canceled (31,940) 16.95
---------
Balance December 31, 1996 564,060 17.05
Granted 371,500 21.37
Exercised (24,740) 17.08
Canceled (43,290) 18.34
--------
Balance December 31, 1997 867,530 18.83
Granted 38,100 13.84
Exercised (730) 15.75
Canceled (95,990) 19.05
--------
Balance December 31, 1998 808,910 18.57
-------
The following summarizes information about stock options outstanding at December
31, 1998.
Outstanding Exercisable
---------------- ------------
Range of Average Average Average
Exercise Prices Options Life (a) Exercise Price Options Exercise Price
- --------------- ------- ------- -------------- ------- --------------
$11.88 - $19.75 735,210 8.1 $16.40 370,788 $15.79
20.00 - 24.00 54,200 7.4 21.55 39,380 21.46
24.25 - 27.75 19,500 8.4 25.43 7,400 26.11
------- --- ------ ------- -----
Total 808,910 8.0 $18.89 417,568 $16.50
------- --- ------ ------- ------
_________
(a) Average contractual life remaining in years.
The Company applies APB 25 in accounting for its stock option plan.
Accordingly, compensation expense would be recorded on the date of grant only if
the current market price of the Company's common stock exceeded the exercise
price. Had compensation expense for the stock option plan been determined based
on the fair value at the grant dates for awards under the plan consistent with
FAS No. 123, net earnings would have decreased by $557,102 ($.05 per common
share) and $341,000 ($.03 per common share) in 1998 and 1997, respectively.
The fair value of each option was estimated on the date of grant using the
Black Scholes option-pricing model with the following assumptions: risk free
interest rates of 5.3% and 6.2% for 1998 and 1997, respectively; annual dividend
yields of 1.22% and .7% for 1998 and 1997, respectively; expected option life of
8 years for 1998 and 8.4 years for 1997; and volatility of 37% and 31% for 1998
and 1997, respectively. The weighted average fair value of an option granted
during 1998 and 1997 was $6.33 and $10.15 per share, respectively.
In connection with the employee stock purchase plan, the Company allocated
200,000 shares of common stock for purchases pursuant to such plan. Stock
purchased in 1998, 1997 and 1996 pursuant to the employee stock purchase plan
was 46,050, 32,028 and 28,325 shares, respectively. The acquisition price of the
stock is 85% of the lower of the closing market price on the first and last day
of the six-month purchase period.
Restricted Stock
The Company launched a long-term restricted stock-based compensation
program in 1997. The program's primary objective is to focus management on
increasing shareholder value. The program has two components: (a) stock
ownership goals; and (b) a restricted share award. The restricted shares, which
have a life cycle of eight years, will remain restricted until the Company
announces accumulated basic Earnings per Share over four consecutive fiscal
quarters of $2.08. This earnings target represents a doubling of the Company's
1996 Earnings per Share figure. In addition to the earnings target, the shares
are also restricted from vesting unless the participant achieves his/her
prescribed stock ownership levels. Each participant has been provided with a
stock ownership target. The stock ownership targets are stated as a percentage
of the participant's restricted share award and the percentages are progressive
based on the increase in role and responsibility.
During 1998, the Company granted 330,575 restricted shares to certain
employees. Deferred compensation based on the market price of the stock on the
date of the grants totaling $6,333,000 was recorded in 1998. 34,800 restricted
shares were canceled in 1998 due to employees leaving the Company, resulting in
a reduction in unearned compensation of $692,000. The Company is amortizing
this unearned compensation into earnings over a vesting period of eight years.
16. Retirement Plans
The Company sponsors a 401(k) Plan which allows participants to make
contributions pursuant to Section 401(k) of the Internal Revenue Code. The
Company matches employee contributions in varying percentages according to a
schedule up to an annual maximum Company contribution of approximately $1,290
per employee. Employees vest immediately in both employee and Company
contributions. Company contributions to the 401(k) Plan were $1,003,000
(including the cost of 21,576 shares of Company common stock), $1,099,000
(including the cost of 23,902 shares of Company common stock), and $1,375,000
(including the cost of 27,460 shares of Company common stock) in 1998, 1997 and
1996, respectively. Effective January 1, 1995, the 401(k) Plan was open to all
Company employees excluding certain employees covered by other retirement plans.
Benefits payable under a defined benefit plan were frozen as of December
31, 1994 pending vesting and distribution to participants. Benefits under the
plan are based primarily on salary during the term of employment and length of
service. Pension expense was $39,000, $316,000 and $122,000 in 1998, 1997 and
1996, respectively. The Company's net obligation under the plan at December 31,
1998 was not significant.
17. Income Taxes
The provision for income taxes was (in thousands):
1998 1997
---- ----
Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- -----
State/Local $1,147 $ 106 $1,253 $ 738 $ 45 $ 783
U.S. Federal
& foreign 1,604 1,718 3,322 1,890 818 2,708
------ ------ ------ ------ ----- ------
Total $2,751 $1,824 $4,575 $2,628 $863 $3,491
====== ====== ====== ====== ==== ======
1996
----
Current Deferred Total
------- -------- -----
State/Local $1,081 $ 492 $1,573
U.S. Federal
& foreign 3,300 4,379 7,679
------ ------ ------
Total $4,381 $4,871 $9,252
====== ====== ======
The tax effects of temporary differences that give rise to deferred tax
liabilities and assets at December 31, 1998 and 1997 are (in thousands):
1998 1997
---- ----
Deferred income tax liabilities
Property, plant and equipment $45,019 $35,193
------- -------
Deferred income tax assets
AMT credit carryforwards 4,779 3,744
Tax loss carryforwards 1,202 874
Environmental costs 832 832
Revenue and receivable allowances 23 1,502
Other, net 2,626 1,830
------- -------
Gross deferred income tax assets 9,462 8,782
Valuation allowances (443) (409)
------- -------
Net deferred income tax assets 9,019 8,373
------- -------
Net deferred income tax liability $36,000 $26,820
======= =======
Net current deferred income tax assets of $3,422,000 and $4,417,000 at
December 31, 1998 and 1997, respectively are included in prepaid expenses and
other current assets, net in the Consolidated Balance Sheet.
At December 31, 1998, a loss carryforward of $975,000 was available through
2009 to offset U.S. taxable income. In addition, at December 31, 1998, a loss
carryforward of $2,857,000 was available to offset Canadian taxable income
expiring $139,000 in 1999, $366,000 in 2000, $128,000 in 2001, $618,000 in 2003,
$857,000 in 2004 and $749,000 in 2005. At December 31, 1998, an alternative
minimum tax credit carryforward of $4,779,000 was available to offset future
U.S. regular income taxes, if any, over an indefinite period. Valuation
allowances were primarily for tax loss carryforwards in state, local and
Canadian jurisdictions that may expire before being used. Management believes
that it is more than likely that the Company will generate taxable income
sufficient to realize the loss carryforwards prior to their expiration. This
belief is based upon projected taxable income and available tax planning
strategies.
A reconciliation of tax at the U.S. statutory rate to income taxes follows:
1998 1997 1996
---- ---- ----
Tax at U.S. statutory rate 35.0% 35.0% 35.0%
State/local income taxes, net of
Federal benefit 7.6 6.2 5.7
Taxes related to foreign operations (1.1) (1.3) (.1)
(Increase)/decrease in valuation
allowances .3 1.6 (3.6)
Other items, net (.7) (.5) 2.7
----- ----- -----
Income taxes 41.1% 41.0% 39.7%
===== ===== =====
The Company made income tax payments of $2,164,000, $2,213,000 and
$2,267,000 in 1998, 1997 and 1996, respectively.
Taxes on receipts or capital, imposed by some jurisdictions in lieu of
taxes on income are included in general and administrative expenses. These taxes
were $666,000, $799,000 and $810,000 in 1998, 1997 and 1996, respectively.
18. Equity Investment in Grays Ferry Cogeneration Partnership
As of December 31, 1998, the Company has an investment of $17.1 million in
the Grays Ferry Cogeneration Partnership (the Partnership"), representing a one-
third interest in the Partnership through the Company's wholly owned subsidiary
Trigen-Schuylkill Cogeneration, which is accounted for under the equity method.
Cogen America Schuylkill Inc. and Adwin Cogeneration Inc. own the other two-
thirds interests in the Partnership. The Company derives a significant portion
of its income from the Partnership. Included in the Company's revenues for the
year ended December 31, 1998 was the Company's share of the Partnership earnings
of $5.1 million and fees earned from the Partnership of $2.8 million. The
summarized financial information presented below as of December 31, 1998
represents an aggregation of 100% of the Partnership (in thousands).
1998
----
Condensed Income Statement Information:
Revenues $78,126
Gross profit 31,450
Net income 15,295
Condensed Balance Sheet Information:
Current assets 33,393
Non-current assets 150,771
Current liabilities 133,427
Partners capital 50,737
<PAGE>
<TABLE>
<CAPTION>
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
For the Quarter(a)
-------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- --------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1998
Revenues $74,912 $50,794 $50,839 $65,849
Operating income 15,806 2,272 3,201 10,544
Earnings (losses) before extra-
ordinary item 5,448 (13) (1,888) 3,010
Extraordinary loss (b) (299) - - -
Net earnings (losses) 5,149 (13) (1,888) 3,010
Basic earnings per common share
Before extraordinary item .45 - (.15) .25
Extraordinary loss (.03) - - -
-------- -------- --------- --------
Net earnings (losses) .42 - (.15) .25
-------- -------- --------- --------
Diluted earnings per common share
Before extraordinary item .45 - (.15) .25
Extraordinary loss (.03) - - -
-------- -------- --------- --------
Net earnings (losses) .42 - (.15) .25
-------- -------- --------- --------
1997
Revenues $83,521 $48,107 $43,024 $65,999
Operating income 16,803 2,056 (505) 10,389
Net earnings (losses) 7,087 (1,736) 3,796) 3,470
Basic earnings per common share .59 (.14) (.32) .29
Diluted earnings per common share .58 (.14) (.31) .28
------- -------- -------- --------
1996
Revenues $86,219 $48,685 $41,646 $67,084
Operating income 21,941 4,715 2,651 13,831
Earnings (losses) before extra-
ordinary item 10,076 (240) (1,210) 5,425
Extraordinary loss (b) - - (1,943) -
------- -------- -------- --------
Net earnings (losses) 10,076 (240) (3,153) 5,425
Basic earnings per common share
Before extraordinary item .88 (.02) (.10) .45
Extraordinary loss - - (.17) -
------- -------- -------- --------
Net earnings (losses) .88 (.02) (.27) .45
------- -------- -------- --------
Diluted earnings per common share
Before extraordinary item .87 (.02) (.10) .45
Extraordinary loss - - (.17) -
------- -------- -------- --------
Net earnings (losses) .87 (.02) (.27) .45
------- -------- -------- --------
</TABLE>
________
(a) As of January 1, 1998, the Company changed its accounting policy for
interim reporting for certain operating costs from an average costing method to
an actual costing method. The Company believes that use of an actual costing
methodology better reflects the results of its operations and conforms internal
and external reporting of such results. This change effects interim quarterly
reporting only and has no effect on an annual basis for the years ended December
31, 1998 and 1997 or on any prior years. The amounts presented above have been
restated to reflect this change in accounting policy.
(b) Represents extraordinary losses of $299,000, net of a $161,000 tax benefit,
incurred in 1998 and $1,943,000, net of a $1,046,000 tax benefit, incurred in
1996 in connection with the early retirement of debt.
20. Contingencies
The Company is subject from time to time to legal proceedings and other
claims that arise in the normal course of business, and the Company believes,
except as set forth in Note 21, that the outcome of these matters will not have
a material adverse effect on the results of operations or financial condition of
the Company.
21. Legal Proceedings
Oklahoma Litigation
In September 1996, our subsidiary, Trigen-Oklahoma City Energy Corporation
("Trigen-Oklahoma City"), commenced an antitrust action in Federal District
Court in Oklahoma City seeking injunctions and over $30 million in damages from
the local utility, Oklahoma Gas and Electric Company ("OG&E"), based on many
years of alleged anti-competitive actions against Trigen-Oklahoma City Energy
Corporation by OG&E. These actions culminated in criminal indictments being
brought against two OG&E officials for allegedly bribing Oklahoma elected
officials to breach a Trigen-Oklahoma City Energy Corporation contract. Trigen-
Oklahoma City's antitrust action matter went to trial in 1998 and on December
21, 1998, the jury returned a verdict in favor of Trigen. On January 19, 1999,
the Court entered a judgement in favor of Trigen in the amount of $27.8 million.
Under the anti-trust laws, we are permitted to seek an award of treble damages
and legal fees and that issue is under consideration by the Court. We expect
OG&E to appeal this judgement.
Kinetic Energy Litigation
On May 2, 1997, following a jury trial in a suit by Kinetic Energy Development
Corporation against the Company in the Circuit Court of Jackson County,
Missouri, in connection with our acquisition of the Kansas City steam system, a
judgment was entered against the Company in the amount of $4,271,000. Kinetic
claimed for compensation alleged to be owed to it by Trigen in connection with
that acquisition. On August 6, 1997, the Court set aside the jury verdict and
granted judgment for the Company. Kinetic Energy Development Corporation
appealed that order and on December 8, 1998, the Missouri Court of Appeals set
aside the lower court decision and ordered a new trial. On December 22, 1998,
we filed a motion for rehearing with the Missouri Court of Appeals and/or a
review by the Missouri Supreme Court. The Court of Appeals granted our motion
for rehearing. If the Court of Appeals upholds its decision, we plan to seek a
review of that decision by the Missouri Supreme Court. If our efforts to
reinstate the judgment in our favor fail, the case will return to the Circuit
Court and a new trial will be scheduled.
Grays Ferry Litigation
On April 9, 1998, Grays Ferry Cogeneration Partnership, Trigen-Schuylkill
Cogeneration, Inc., Cogen America Schuylkill Inc. (formerly NRGG Schuylkill
Cogeneration Inc.) and Trigen-Philadelphia Energy Corporation commenced an
action against PECO Energy Company ("PECO") and Adwin (Schuylkill) Cogeneration,
Inc. in the Pennsylvania Court of Common Pleas of Philadelphia County (the
"Court"). Grays Ferry Cogeneration Partnership (the "Partnership") is the owner
of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania.
At December 31, 1998, the Company had an investment of $17.1 million in the
Partnership, representing a one third interest in the Partnership through our
wholly owned subsidiary, Trigen-Schuylkill Cogeneration, Inc. Cogen America
Schuylkill Inc. and Adwin (Schuylkill) Cogeneration, Inc. own the other two-
thirds interests in the Partnership. Adwin (Schuylkill) Cogeneration, Inc. is an
indirect wholly owned subsidiary of PECO. In addition, at December 31, 1998,
the Company had a receivable of $3.2 million due from the Partnership. Included
in the Company's revenues for the year ended December 31, 1998 was the Company's
share of Partnership earnings of $5.1 million and fees earned from the
Partnership of $2.8 million.
The Partnership commenced this action in reaction to the wrongful
termination by PECO on March 3, 1998, of the electric power purchase agreement
between the Partnership and PECO (the "Power Purchase Agreement"). The
Partnership is seeking a declaratory judgement to require PECO to comply with
the electric power purchase agreement and for damages to be proven at trial in
an amount in excess of $200 million.
On May 6, 1998, the Court issued a preliminary injunction against PECO
which requires PECO to pay the Partnership for its electric energy and capacity
at the rates set forth in the Power Purchase Agreement and otherwise to
specifically perform in accordance with the Power Purchase Agreement. The
preliminary injunction will remain in effect until the Court renders its
decision after the final hearing of this matter. On July 7, 1998, PECO withdrew
its appeal of the preliminary injunction. On March 10, 1999, the Court granted
partial summary judgement to the Partnership before trial and held that PECO
breached the Power Purchase Agreement. The Partnerships' other claims against
PECO and its request for damages are scheduled to go to trial on March 29, 1999.
The Chase Manhattan Bank has issued notices of default to the Partnership
under the terms of the Credit Agreement, dated as of March 1, 1996, between the
Partnership, The Chase Manhattan Bank, as agent, and certain other commercial
banks (collectively the "Banks"). Only the Partnership assets and the partners'
ownership interests in the Partnership secure the Partnership's debt under the
Credit Agreement of $109.3 million. The Banks have not accelerated the debt
owing under the Credit Agreement nor charged default interest charges against
the Partnership, although the Banks have reserved the rights to do so.
Therefore, the Partnership recorded default interest of $1.8 million through
December 31, 1998. The Banks have required to date, and may require in the
future, the Partnership to apply available cash held by Partnership (net of
operating expenses, other than certain payments to affiliates, and expenses
required to complete construction) toward repayment of the principal amount of
the loans outstanding. On September 4, 1998, the Banks filed their own
complaint against PECO with the Court. Among other things, the Banks are
seeking a declaration that PECO's termination of the Power Purchase Agreement
was wrongful.
We believe that PECO's termination of the Power Purchase Agreement was
wrongful, and we intend to aggressively pursue the remedies available to us. In
the event we are not successful and PECO's actions are upheld, PECO would be
required under federal law to continue to purchase power from the Grays Ferry
Cogeneration Facility at PECO's avoided cost. This would generate significantly
lower earnings per share for the Company than the contracted power purchase
price. While it is possible that our investment in the Partnership and the
receivable from the Partnership could become impaired, at this time we do not
believe that is likely.
Nassau Litigation
On May 29, 1998, the County of Nassau, New York commenced an action against
Trigen Energy Corporation and Trigen-Nassau Energy Corporation in New York State
Supreme Court. Trigen-Nassau provides energy services to Nassau County under
various agreements. Nassau County alleges that Trigen-Nassau breached those
agreements by, among other means, charging the County for certain real estate
taxes that the County contends are Trigen-Nassau's responsibility. On October
8, 1998, the Court dismissed the claims against Trigen Energy Corporation. On
November 9, 1998, Trigen-Nassau filed counterclaims against Nassau County,
seeking $1.6 million in damages. Trigen-Nassau alleges that Nassau County
breached the parties' agreements by, among other things, failing to operate and
maintain certain facilities and equipment. On January 21, 1999, the County
requested that the Court dismiss Trigen-Nassau's counterclaims. That motion and
the County's other claims against Trigen-Nassau are pending. The County is
seeking approximately $10 million in damages. We believe we have good defenses
to the County's claims, although we cannot predict the outcome of this matter.
ESI Litigation
In 1996 ESI, Inc. commenced an action against, among others, Coastal Power
Company, Latin American Energy Development, Inc. and La Casa Castro S.A. de N.V.
in the United States District Court for the Southern District of New York. On
September 17, 1998, ESI, Inc. amended its complaint naming Trigen as an
additional defendant. This action arises out of the development by Trigen,
Latin American Energy, La Casa Castro and others, of an independent power
project in El Salvador between 1993 and 1994. Trigen transferred its interest
in the project to Tenneco Gas International in May 1994. In July 1994, Tenneco
transferred its interest in the project to Coastal Power Company, which
currently owns and operates the project. ESI claimed that ESI was entitled to a
2.5% interest in the project and that Coastal had wrongfully withheld or denied
ESI's interest. ESI further claimed that Trigen had failed to disclose ESI's
interest to Tenneco and so was responsible, in whole or in part, for ESI's
failure to receive a 2.5% interest in the project from Coastal.
On October 8, 1998, Latin American Energy asserted cross-claims against
Trigen, Coastal and Tenneco claiming that it too had been denied its carried
interest in the Project. On October 28, 1998, La Casa Castro asserted cross-
claims against Trigen and on November 6, 1998, Coastal asserted cross-claims
against Trigen for indemnification, each alleged that Trigen failed to disclose
ESI's claimed interest to Tenneco and claimed that Trigen was responsible for
any damages that Coastal may be required to pay to ESI and Latin American.
On December 15, 1998, Trigen filed an amended answer denying liability for
these claims and cross claimed against Latin American Energy, Tenneco, Coastal
and La Casa Castro, asserting that these parties were responsible for any
damages owed to ESI and Latin American. On December 23, 1998, ESI and Latin
American dismissed without prejudice their claims against Trigen.
Coastal and La Casa Castro are continuing to assert their claims against
Trigen for any damages they may be required to pay to ESI or Latin American. At
this time, we are not able to estimate the amount of damages that ESI and Latin
American are seeking. However, we believe it could involve a material amount.
Trigen believes it has good defenses to Coastal's claims and La Casa Castro's
claims, although we cannot predict the outcome of this matter.
Other Litigation
We are subject from time to time to various other claims that arise in the
normal course of business, and we believe that the outcome of these matters
(either individually or in the aggregate) will not have a material adverse
effect on our business results of operation or financial condition.
<PAGE>
<TABLE>
<CAPTION>
Schedule I
TRIGEN ENERGY CORPORATION (Parent Company)
CONDENSED BALANCE SHEETS
December 31, 1998 and 1997
(In thousands)
<S> <C> <C>
1998 1997
---- ----
Assets
Cash and cash equivalents $ 541 $ 402
Other current assets 2,798 4,402
Property, plant and equipment, net 12,148 10,438
Deferred costs and other assets, net 4,333 3,496
Investments in and amounts due from
subsidiaries, net 314,448 205,008
-------- --------
Total assets $334,268 $223,746
======== ========
Liabilities and Stockholders' Equity
Short-term debt $ - $ -
Long-term debt 178,000 74,500
Other liabilities 8,340 3,764
Total liabilities 186,340 78,264
Stockholders' equity:
Preferred stock - -
Common stock 124 121
Additional paid-in capital 120,595 114,157
Retained earnings 36,417 31,881
Unearned compensation - restricted stock (4,967) -
Cumulative translation adjustment (2,002) 296
Treasury stock, at cost (2,239) (973)
--------- ---------
Total stockholders' equity 147,928 145,482
-------- --------
Total liabilities and stockholders' equity $334,268 $223,746
======== ========
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule I-(Continued)
TRIGEN ENERGY CORPORATION (Parent Company)
CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Revenues
Management fees and costs
recovered from subsidiaries $11,806 $12,472 $11,156
Interest income from subsidiaries 7,048 2,276 2,015
------- ------- -------
Total revenues 18,854 14,748 13,171
Costs and expenses
General and administrative 19,248 15,555 14,262
Interest expense 9,081 3,247 1,689
Other (income) expense, net 90 (1,034) (436)
------ ------- --------
Total costs and expenses 28,419 17,768 15,515
------ ------ -------
Loss before income tax benefit,
equity in earnings of sub-
sidiaries and extraordinary
item (9,565) (3,020) (2,344)
Income tax benefit 3,452 1,057 820
Equity in earnings of subsidiaries, net 12,670 6,988 15,575
------ ------ -------
Earnings before extraordinary item 6,557 5,025 14,051
Extraordinary loss from extinguishment
of subsidiaries' debt, net of
subsidiaries' income tax benefits (299) - ( 1,943)
------- ------ --------
Net earnings $6,258 $5,025 $12,108
====== ====== =======
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule I-(Continued)
TRIGEN ENERGY CORPORATION (Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Increase (decrease) in cash and
cash equivalents
Cash flows from operating activities
Net earnings $ 6,258 $ 5,025 $12,108
Reconciliation of net earnings to cash
provided by operating activities:
Equity in earnings of subsidiaries (12,670) (6,988) (15,575)
Dividends received from subsidiaries - - -
Extraordinary item 299 - 1,943
Other, net 1,806 (2,029) (3,209)
------- --------- --------
Net cash used in operating activities (4,307) (3,992) (4,733)
-------- --------- --------
Cash flows from investing activities
Capital expenditures (441) (992) (10,800)
Purchase of a fuel management agreement
and related inventory - (8,871) -
Acquisition of energy facilities (65,350) - -
Investments in and advances to sub-
sidiaries, net (24,562) (19,429) (7,272)
Investment in non-consolidated
partnerships (6,417) (12,294) (1,911)
-------- --------- --------
Net cash used in investing activities (96,770) (41,586) (19,983)
-------- --------- ---------
Cash flows from financing activities
Short-term debt, net - (5,000) 5,000
Proceeds of long-term debt 107,000 45,500 17,250
Payments of long-term debt ( 3,500) - -
Dividends paid ( 1,722) ( 1,682) ( 1,640)
Issuance of common stock, net (562) 1,309 5,949
-------- -------- --------
Net cash provided by financing
Activities 101,216 40,127 26,559
------- -------- --------
Cash and cash equivalents
Increase/(decrease) 139 (5,451) 1,843
At beginning of year 402 5,853
4,010
------- -------- --------
At end of year $ 541 $ 402 $ 5,853
------- -------- --------
Supplemental disclosure of cash
flow information
Non-cash investing activity
Acquisition of subsidiary - - $ 1,037
------- -------- --------
Non-cash financing activity
Issuance of common stock for acquisi-
tion of subsidiary - - $ 1,037
-------- -------- --------
Issuance of common stock for
extinguishment of long-term debt - - $ 4,250
========= ========= =========
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
Schedule I-(Continued)
TRIGEN ENERGY CORPORATION (Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(1) Trigen Energy Corporation (Parent Company) Financial Statements
The accompanying condensed financial information has been prepared in
accordance with Regulation S-X of the Securities Act of 1933 and does not
include all information and notes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles since the user of these statements is assumed to
read them in conjunction with Trigen Energy Corporation's consolidated financial
statements and the notes thereto for the year ended December 31, 1998 included
elsewhere in this document.
(2) Transactions with Subsidiaries
The Parent Company derives cash from management fees and costs recovered
from its subsidiaries, distributions by its subsidiaries and, at times,
repayment to the Parent Company from proceeds of long-term financing obtained by
the subsidiaries for funds previously advanced to subsidiaries for construction
in advance of obtaining permanent financing. Certain subsidiaries have
restrictive debt agreements which generally permit distributions to the Parent
Company only when certain ratios and other financial covenants are satisfied.
Cash available to the Parent Company without restrictions as to use, including
amounts distributable by subsidiaries was $1.4 million at December 31, 1998, and
$4.0 million at December 31, 1997.
(3) Debt
On April 4, 1997, the Parent Company entered into a $160.0 million
revolving credit agreement with several banks. This facility was used to repay
indebtedness outstanding under a $62.5 million credit facility entered into in
1995. The $160.0 million facility is for an initial period of three years and
may be extended by a total of two one-year periods. Borrowings under the
facility bear interest, at the Parent Company's option, at an annual rate equal
to the base rate or the LIBOR rate plus 3/4%. The base rate is the higher of the
prime lending rate or the Federal Reserve reported Federal funds rate plus 1/2%.
On June 10, 1997, the Parent Company amended the $160.0 million credit agreement
by reducing the facility to $125.0 million and entered into a new $35.0 million
revolving credit facility with the same group of banks. The new facility is for
an initial 364-day period and may be extended annually at the option of the
banks. The terms and conditions of both facilities are the same. On September
23, 1998, the $125.0 million three year facility was increased by $35.75 million
and the initial period was increased by one year. The base rate is the higher
of the prime lending rate or the Federal Reserve reported Federal funds rate.
The average effective rate on the facility was 6.2% in 1998 and the rate at
December 31, 1998 was 6.3%.
The Parent Company has issued certain guarantees relating to the debt of
UTC. The Parent Company has guaranteed the UTC debt in an amount which is
limited, except for liabilities of UTC arising from environmental matters, to
the lesser of $31.7 million and one-third of the UTC debt commitments.
On December 30, 1998, the Company borrowed from an affiliate, Cofreth
American Corporation, $50.0 million for acquisitions and project development.
The $50.0 million was initially used to partially pay down the Corporate
facility. The $50.0 million is subordinate and junior in right of payment to
all other debt. The subordinated debt may be redeemed in whole or in part at
the option of Cofreth American Corporation with the net proceeds of an equity
sale by the Company. The debt matures on December 31, 2010 and the interest
rate is 7.38%.
(4) Income Taxes
The Parent Company and its domestic subsidiaries file a consolidated U.S.
Federal income tax return. The Parent Company's state income taxes are filed on
a separate return basis. A valuation allowance for state tax loss carryforwards
has been provided because there are carryforwards which may expire before being
used.
<PAGE>
<TABLE>
<CAPTION>
Schedule II
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<S> <C> <C> <C> <C>
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
- ----------- ----------- --------- --------- ----
- --
Year ended December 31, 1996:
Allowance for doubtful accounts $ 697 664 (233) $1,128
Year ended December 31, 1997:
Allowance for doubtful accounts $1,128 331 (385) $1,074
Year ended December 31, 1998:
Allowance for doubtful accounts $1,074 317 (204) $1,187
</TABLE>
<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 on March 30, 1999.
Trigen Energy Corporation
By: /s/ Thomas R. Casten
Thomas R. Casten
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 1999.
Signature Title
--------- -----
/s/ THOMAS R. CASTEN Director, President and Chief Executive
- ------------------------ Officer (Principal Executive Officer)
Thomas R. Casten
/s/ MARTIN S. STONE Vice President-Finance,
- ------------------------ Chief Financial Officer
Martin S. Stone
/s/ DANIEL J. SAMELA Controller (Principal Accounting Officer)
- ------------------------
Daniel J. Samela
/s/ RICHARD E. KESSEL Director, Executive Vice President,
- ------------------------- Chief Operating Officer
Richard E. Kessel
/s/ GEORGE F. KEANE Director and Chairman of the Board
- ------------------------
George F. Keane
/s/ PHILLIPE BRONGNIART Director
- ------------------------
Philippe Brongniart
/s/ DOMINIQUE MANGIN D'OUINCE Director
- -------------------------
Dominique Mangin d'Ouince
/s/ PATRICK DESNOS Director
- --------------------------
Patrick Desnos
/s/ MICHEL BLEITRACH Director
- --------------------------
Michel Bleitrach
/s/ PATRICK BUFFET Director
- --------------------------
Patrick Buffet
/s/ CHARLES E. BAYLESS Director
- --------------------------
Charles E. Bayless
TRIGEN ENERGY CORPORATION
INDEX OF EXHIBITS
Exhibit Description
2.1** Stock Purchase Agreement, dated December 9, 1997, between Canal
Industries, Inc. and ChemFirst Inc. as Sellers, and Trigen Energy
Corporation, as Buyer (Form 8-K Current Report dated January 27,
1998.)
3.1** Restated Certificate of Incorporation of Trigen (Registration
Statement No. 33-80410).
3.2** Restated and Amended By-Laws of Trigen (Registration Statement No.
33-80410).
4.1** Credit Agreement, dated as of December 2, 1993, among Trigen
Acquisition Inc., Trigen, the Lenders named therein, and Toronto
Dominion (Texas), Inc., as Agent (Registration Statement No. 33-
80410).
4.2** Loan Agreement, dated as of June 1, 1993, between Trigen-Trenton
District Energy Company, L.P. and the New Jersey Economic Development
Authority (District Heating and Cooling Revenue Bonds) (Registration
Statement No. 33-80410).
4.3 Trigen Energy Corporation hereby undertakes to furnish a copy of any
instrument with respect to long term debt not otherwise filed herewith
to the Securities and Exchange Commission upon request.
4.4** See Exhibits 3.1 and 3.2 (Registration Statement No. 33-80410).
4.5** Revolving Credit Facility, Dated as of April 4, 1997 between the
Company, Banks Listed on the Signature Page and Societe Generale as
Issuing Bank and Agent. (Form 10-Q Quarterly Report for the quarterly
period ended June 30, 1997).
4.6** Amendment No.1, Dated as of June 10, 1997, to the Revolving Credit
Facility Dated as of April 4, 1997. (Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1997).
4.7** Revolving Credit Facility, Dated as of June 10, 1997 between the
Company, Banks Listed on the Signature Page and Societe Generale as
Issuing Bank and Agent. (Form 10-Q Quarterly Report for the quarterly
period ended June 30, 1997).
4.8** Amended and Restated Credit and Acceptance Agreement dated as of
December 20, 1996 among Trigen Energy Canada Inc., Certain Commercial
Lending Institutions as the Lenders, Societe Generale, New York
Branch, as the Administrative Agent for the Lenders and Societe
Generale (Canada) as the Collateral Agent for the Lenders. (Form 10-K
Annual Report for 1996).
4.9* Amendment No. 1 dated as of June 10, 1997 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the banks listed on the signature pages thereof.
4.10* Amendment No. 1 dated as of September 22, 1998 to the 364-Day
Revolving Credit Facility dated as of June 10, 1997 among Trigen
Energy Corporation, Societe Generale and the banks listed on the
signature pages thereof.
4.11* Amendment No. 2 dated as of November 6, 1997 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the Banks listed on the signature pages thereof.
4.12* Amendment No. 3 dated as of September 22, 1998 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the Banks listed on the signature pages thereof.
4.13* Unsecured Subordinated Redeemable Term Note for $50,000,000 dated as
of December 30, 1998 between Trigen Energy Corporation and Cofreth
American Corporation.
9.1** Stockholders' Agreement, dated August 10, 1994 by and among Trigen,
Thomas R. Casten, Michael Weiser, Eugene E. Murphy, Richard E. Kessel,
John J. Ludwig, Cofreth American Corporation and Compagnie Parisienne
de Chauffage Urbain, S.A. (Registration Statement No. 33-80410).
9.2** Stockholder's Agreement dated as of January 17, 1996 by and between
Thomas Ewing and Trigen Energy Corporation.
10.1** Reimbursement and Credit Agreement, dated as of September 1, 1992,
among Trigen-Oklahoma District Energy Corporation, the Banks named
therein, and Societe Generale, Southwest Agency, as Agent and
Collateral Agent (Registration Statement No. 33-80410).
10.2** Loan Agreement, dated as of September 1, 1992, between Oklahoma City
Industrial and Cultural Facilities Trust, as Lender and Trigen-
Oklahoma District Energy Corporation, as Borrower (District Heating
and Cooling Revenue Bonds, Series 1992) (Registration Statement No.
33-80410).
10.3** Lease Agreement, dated as of August 1, 1990, between Town of Hempstead
Industrial Development Agency and Nassau District Energy Corporation
(Industrial Development Revenue Bonds) (Registration Statement No. 33-
80410).
10.4** Letter Agreement, dated February 24, 1994, between Trigen and Credit
Commerciale de France, New York Branch, (Registration Statement No.
33-80410).
10.5** Standby Letter of Credit Agreement, dated November 16, 1993, between
Trigen and Societe Generale, New York Branch (Registration Statement
No. 33-80410).
10.6** Application and Agreement for Irrevocable Standby Letter of Credit,
dated December 14, 1992, between Societe Generale, New York Branch,
and Trigen-Chicago District Energy Corporation (Registration Statement
No. 33-80410).
10.7** Noncompetition Agreement, dated December 3, 1993, among Catalyst
Energy Corporation, Great Lakes Power Limited, Century Power
Corporation, Trigen Acquisition, Inc. and Trigen (Registration
Statement No. 33-80410).
10.8** Site Lease Agreement, dated as of December 16, 1992, between
Metropolitan Pier and Exposition Authority and Trigen-Peoples District
Energy Company (Registration Statement No. 33-80410).
10.9** Lease Agreement, dated as of November 30, 1993, between Housing
Authority of Baltimore City and Baltimore Thermal Energy Corporation
(Registration Statement No. 33-80410).
10.10** Spring Gardens Land Lease, dated February 28, 1985, between Baltimore
Gas and Electric Company and Baltimore Steam Company (Registration
Statement No. 33-80410).
10.11** Lease Agreement, dated as of June 26, 1991, between King Real Estate
Corporation, Trustee of King Terminal Trust and Boston Thermal Energy
Corporation, as amended by the First Amendment to Lease, dated July 5,
1991, and by the Second Amendment to Lease, dated June 23, 1992.
(Registration Statement No. 33-80410).
10.12** Lease Agreement, dated as of April 1, 1991, between Aetna Life
Insurance Company and Boston Thermal Energy Corporation (Registration
Statement No. 33-80410).
10.13** Lease Agreement, dated March 29, 1990, between Kansas City Power &
Light Company and Trigen-Kansas City District Energy Corporation
(Registration Statement No. 33-80410).
10.14** Indenture, dated September 14, 1993, between George Chioros Holdings
Ltd., as Lessor, and Trigen- London District Energy Corporation, as
Lessee (Registration Statement No. 33-80410).
10.15** Standard Lease, dated as of August 7, 1990, between the United States
Postal Service and Trigen- Oklahoma District Energy Corporation
(Registration Statement No. 33-80410).
10.16** Schuylkill Station Lease Agreement, dated January 30, 1987, between
Philadelphia Electric Company and Philadelphia Thermal Corporation
(Registration Statement No. 33-80410).
10.17** Amended and Restated Site Lease, dated September 17, 1993, between
Philadelphia Thermal Energy Corporation and Grays Ferry Cogeneration
Partnership (Registration Statement No. 33-80410).
10.18** Lease Agreement, dated as of March 5, 1975, between the City of St.
Louis and Union Electric Company (Registration Statement No. 33-
80410).
10.19** Ground Lease, dated as of December 1, 1982, between the City of
Trenton and Trenton District Energy Company (Registration Statement
No. 33-80410).
10.20** Thermal Energy Agreement, dated July 22, 1981, between Mercer Medical
Center and Trenton District Energy Company, as amended September 1981,
as amended August 22, 1984, and as further amended May 27, 1986
(Registration Statement No. 33-80410).
10.21** See Exhibits 4.1, 4.2 and 4.3 (Registration Statement No. 33-80410).
10.22** Trigen Energy Corporation 1994 Director Stock Plan (Registration
Statement No. 33-80410).
10.23** Trigen Energy Corporation 1994 Stock Incentive Plan (Registration
Statement No. 33-80410).
10.24** Intercompany Services and License Agreement, dated August 10, 1994,
between Ufiner-Cofreth, S.A. and Trigen (Registration Statement No.
33-80410).
10.25** Form of Employment Agreement, dated as of August 12, 1994 between
Trigen and Thomas R. Casten (Form 10-K Annual Report for 1994).
10.26** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Richard E. Kessel (Form 10-K Annual Report for 1994).
10.27** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Eugene E. Murphy (Form 10-K Annual Report for 1994).
10.28** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Michael Weiser (Form 10-K Annual Report for 1994).
10.29** Acquisition Agreement dated March 1, 1996 among Adwin (Schuylkill)
Cogeneration, Inc., O'Brien (Schuylkill) Cogeneration, Inc. and
Trigen-Schuylkill Cogeneration, Inc.
10.30** Amended and Restated Partnership Agreement dated March 1, 1996 among
Adwin (Schuylkill) Cogeneration, Inc., O'Brien (Schuylkill)
Cogeneration, Inc. and Trigen-Schuylkill Cogeneration, Inc.
10.32* Form of Employment Agreement, dated as of March 1, 1995, between
Trigen and James F. Lowry.
10.33** Form of Incentive Stock Option Agreement between Trigen and Thomas R.
Casten, Richard E. Kessel, Eugene E. Murphy, Steven G. Smith and
Richard S. Strong (Form 10-Q Quarterly report for the period ended
September 30, 1998).
10.34** Form of Incentive Stock Option Agreement between Trigen and Martin S.
Stone (Form 10-Q Quarterly report for the period ended September 30,
1998).
11* Computation of Earnings Per Share.
12.1* Computation of Ratio of Earnings to Fixed Charges.
18* Letter re change in accounting principles.
21* Subsidiaries of Trigen Energy Corporation.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of KPMG.
23.3* Consent of Deloitte & Touche LLP.
27* Financial Data Schedule (for electronic filing only)
99* Grays Ferry Cogeneration Partnership financial statements for the
years ended December 31, 1998 and 1997.
* Filed herewith.
** Incorporated by reference to the corresponding exhibit to the indicated
prior filing.
EXHIBIT 4.9
Amendment No. 1 dated as of June 10, 1997 to the
Revolving Credit Facility dated as of April 4 1997
---------------------------------------------------
Reference is made to that certain One Hundred and Sixty Million Dollars
($160,000,000) Revolving Credit Facility, dated as of April 4, 1997 (the
"Revolving Credit Facility"), among Trigen Energy Corporation (the "Borrower"),
the Societe Generale (the "Issuing Bank and Agent") and the Banks listed on the
signature pages thereof. Capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to them in the Revolving Credit
Facility.
The undersigned agree as follows:
1. The first sentence of Article 1, Section 1.01 of the Revolving Credit
Facility is hereby amended to read as follows:
"The Revolving Credit Facility available to the Borrower pursuant to this
Agreement is One Hundred Twenty Five Million Dollars ($125,000,000)."
2. Article 6, Section 6.01 is hereby amended to add a new
subsection (j), which reads as follows:
"Any event of default under Section 6.01(a) of the 364-Day
Revolving Credit Facility".
3. Article 10, Section 10.01 is hereby amended to add
the following definition:
"364-DaY Revolving Credit Facility" means the Thirty-Five Million Dollar
($35,000,000) 364-day Revolving Credit Facility dated as of June 10, 1997, among
the Borrower, the Issuing Bank and Agent and the Banks listed on the signature
pages thereof, as the same may be amended, modified or restated from time to
time.
4. The definition of "Agreement Date" in Article 10, Section 10.1 is
restated in its entirety as follows:
"Agreement Date" means the date set forth on the first page of the Agreement,
which is the date the executed copies of the Agreement were deemed delivered by
all parties hereto and, accordingly, this Agreement became effective and the
Banks first became committed to make the Loans and other extensions of credit
contemplated by this Agreement.
5. Annex A to the Revolving Credit Facility is hereby amended and is
restated in its entirety by Annex A hereto.
6. Whenever and wherever in the Revolving Credit Facility the amount of the
Facility is expressed to be One Hundred Sixty Million Dollars ($160,000,000), it
shall henceforth be deemed to read as One Hundred Twenty Five Million Dollars
($125,000,000).
7. On the date hereof, the Borrower is executing and delivering Notes in
favor of the Banks which express the principal amount of the Facility as One
Hundred Twenty Five Million Dollars ($125,000,000). In exchange, the Issuing
Bank and Agent shall cancel and return any Notes which express the principal
amount of the Facility as being One Hundred Sixty Million Dollars
($160,000,000).
8. Except as expressly amended herein (which Amendment shall be effective
only in the specific instances and for the specific purposes
provided herein) whenever the term "Revolving Credit Facility" or the term
"Agreement" is used in the Agreement, and the other Loan Documents it shall be
deemed to refer and mean the Revolving Credit Facility, as amended by this
Amendment No. 1, and that the same may be subsequently amended or modified from
time to time.
9. This Amendment No. 1 may be executed in any number of counterparts, each
of which shall be deemed to be an original with the same effect as if the
signature thereto and hereto were upon the same instrument.
10. This Amendment No. 1 and the rights and obligations of the parties
hereunder shall be construed in accordance in with and governed by the laws of
the State of New York (without giving effect to its choice of law principles
other than Section 5-1401 of the General Obligations Law).
11. This Amendment No. 1 shall be effective on the date first above
written.
IN WITNESS WHEREOF the undersigned have executed this Amendment No. 1 this
10th day of June, 1997.
TRIGEN ENERGY CORPORATION,
Company
By /s/ Stephen T. Ward_
Title: Treasurer
Name: Stephen T. Ward
SOCIETE GENERALE, NEW YORK BRANCH,
Issuing Bank and Agent
By _/s/ Betty Burg
Title: Vice Pres. Intnat'l Banking
Name: Betty Burg
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE,
Bank
By /s/ Albert Calo /Eric Longuet
Title: Vice Pres. / Vice Pres.
Name: Albert Calo / Eric Longuet
UMB BANK, N.A.,
Bank
By /s/ David A. Proffitt
Title: _Senior Vice President
Name: _David A. Proffitt_
CREDIT LOCAL DE FRANCE,
Bank
By _/s/ Philippe Ducos /Mary Power
Title: Duputy Gen'l Mgr/Vice President
Name: _Philippe Ducos /Mary Power
MELON BANK, N.A.,
Bank
By __/s/ Arlene Pedovitch_
Title: _Vice President____
Name: __Arlene Pedovitch__
IN WITNESS WHEREOF the undersigned have executed this Amendment No. 1
this 10th day of June, 1997.
THE DAI-ICHI KANGYO BANK, LTD.,
Bank
By __/s/ Naoki Yamamori___
Title: VP & Department Head
Name: _Naoki Yamamori_____
BANQUE FRANCAISE DU COMMERCE EXTERIEUR, Bank
By:/s/ Pieter J. van Tulder / John Rigo
Title:_VP & Mgr Intn'l Group/A.V.Pres__
Name: _Pieter J. van Tulder/John Rigo
CREDIT COMMERCIAL DE FRANCE,
Bank
By _/s/ Jean-Paul Foity___
Title: __General Manager__
Name: __Jean-Paul Foity___
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- ----------
SOCIETE GENERALE, NEW YORK BRANCH $23,437,500 18.750%
Domestic Lending Office:
SOCIETE GENERALE, NEW YORK BRANCH
1221 Avenue of the Americas
New York, New York 10020
Eurodollar Lending Office:
SOCIETE GENERALE, NEW YORK BRANCH
1221 Avenue of the Americas
New York, New York 10020
Information Address:
SOCIETE GENERALE, NEW YORK BRANCH 1221 Avenue of the Americas
New York, New York 10020
Fax No.: (212) 278-7463 Telephone No.: (212) 278-6926
Attention: Betty Burg
Vice President, French Corporate Group
Notice:
Attention: Corporate Banking Officer
Fax No.: (212) 278-7463
Telephone No.: (212) 278-6931
Notice concerning Letters of Credit:
Attention: Specialized Letters of
Credit Services
Fax No.: (212) 278-7428
Telephone No.: (212) 278-6927
Wire Transfer Instructions:
Societe Generale-New York
ABA No. 026-004226
Account No. 01-72863
Reference: Trigen Energy Corporation
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ------------------------- ------------ -----------
COMPAGNIE FINANCIERE DE CIC $19,531,250 15.625%
ET DE L'UNION EUROPEENNE
Domestic Lending Office:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE
520 Madison Avenue
New York, New York 10022
Fax No.: 212-715-4535
Telephone No.: 212-715-4425
Attention: Albert M. Calo
Eurodollar Lending Office:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE
520 Madison Avenue
New York, New York 10022
Fax No.: 212-715-4535
Telephone No.: 212-715-4425
Attention: Albert M. Calo
Information Address:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE
520 Madison Avenue
New York, New York 10022
Fax No.: 212-715-4535
Telephone No.: 212-715-4425
Attention: Albert M. Calo
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- -------------
UMB BANK, N.A. $7,812,500 6.250%
Domestic Lending Office:
UMB BANK, N.A.
1010 Grand Boulevard
Kansas City, MO 60141
Fax No.: 816-860-7143
Telephone No.: 816-860-7935
Attention: David A. Proffitt
Eurodollar Lending Office:
UMB BANK, N.A.
1010 Grand Boulevard
Kansas City, MO 60141
Fax No.: 816-860-7143 Tel No.: 816-860-7935
Attention: David A. Proffitt
Information Address:
UMB BANK, N.A.
1010 Grand Boulevard
Kansas City, MO 60141
Fax No.: 816-860-7143
Telephone No.: 816-860-7935
Attention: David A. Proffitt
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- ----------
CREDIT LOCAL DE FRANCE $18,750,000 15.000%
Domestic Lending Office:
CREDIT LOCAL DE FRANCE
450 Park Avenue
3rd Floor
New York, New York 10022
Fax No.: 212-753-7522
Telephone No.: 212-753-2613 // 212-753-2763
Attention: Ms. Aida Slabotzky
Eurodollar Lending Office:
CREDIT LOCAL DE FRANCE
450 Park Avenue
3rd Floor
New York, New York 10022
Fax No.: 212-753-7522
Telephone No.: 212-753-2613 // 212-753-2763
Attention: Ms. Aida Slabotzky
Information Address:
CREDIT LOCAL DE FRANCE
450 Park Avenue
3rd Floor
New York, New York 10022
Fax No.: 212-753-5522
Telephone No.: 212-753-2763 // 212-753-3546
Attention: Ms. Mary Power
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- --------------------- ---------- -----------
MELLON BANK, N.A. $10,156,250 8.125%
Domestic Lending Office:
MELLON BANK, N.A.
65 East 55th Street
New York, New York 10022
Fax No.: 412-236-2027
Telephone No.: 412-234-3699
Attention: Ms. Pinkey Holiday
Eurodollar Lending Office:
MELLON BANK BANK, N.A.
65 East 55th Street
New York, New York 10022
Fax No.: 412-236-2027
Telephone No.: 412-234-3699
Attention: Ms. Pinkey Holiday
Information Address:
MELLON BANK, N.A.
65 East 55th Street
New York, New York 10022
Fax No.: 212-702-5269 Telephone No.: 212-702-5258
Attention: Ms. Arlene Pedovitch
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- -------------------- ------------ ----------
THE DAI-ICHI KANGYO BANK, LTD. $7,812,500 6.250%
Domestic Lending Office:
THE DAI-ICHI KANGYO BANK, LTD.
One World Trade Center
48th Floor
New York, New York 10048
Fax No.: 212-488-8955
Telephone No.: 212-432-8436
Attention: Mr. Paul Colatrella
Eurodollar Lending Office:
THE DAI-ICHI KANGYO BANK, LTD.
One World Trade Center
48th Floor
New York, New York 10048
Fax No.: 212-488-8955
Telephone No.: 212-432-8436
Attention: Mr. Paul Colatrella
Information Address:
THE DAI-ICHI KANGYO BANK, LTD.
One World Trade Center
48th Floor
New York, New York 10048
Fax No.: 212-488-8955
Telephone No.: 212-432-8436
Attention: Mr. Paul Colatrella
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- --------------------- ----------- -----------
BANQUE FRANCAISE DU COMMERCE EXTERIEUR $18,750,000 15.000%
Domestic Lending Office:
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
645 Fifth Avenue
New York, New York 10022
Fax No.: 212-872-5045
Telephone No.: 212-872-5119
Attention: Mr. John Rigo
Eurodollar Lending Office:
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
645 Fifth Avenue
New York, New York 10022
Fax No.: 212-872-5045
Telephone No.: 212-872-5119
Attention: Mr. John Rigo
Information Address:
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
645 Fifth Avenue
New York, New York 10022
Fax No.: 212-872-5045
Telephone No.: 212-872-5119
Attention: Mr. John Rigo
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- -----------
CREDIT COMMERCIAL DE FRANCE $18,750,000 15.000%
Domestic Lending Office:
CREDIT COMMERCIAL DE FRANCE
590 Madison Avenue
25th Floor
New York, New York 10022
Fax No.: 212-832-7469
Telephone No.: 212-848-0554
Attention: Ms. Janine Ayoub
Eurodollar Lending Office:
CREDIT COMMERCIAL DE FRANCE
590 Madison Avenue
25th Floor
New York, New York 10022
Fax No.: 212-832-7469
Telephone No.: 212-848-0554
Attention: Ms. Janine Ayoub
Information Address:
CREDIT COMMERCIAL DE FRANCE
590 Madison Avenue
25th Floor
New York, New York 10022
Fax No.: 212-832-7469
Telephone No.: 212-848-0554
Attention: Ms. Janine Ayoub
EXHIBIT 4.10
Amendment No. 1 dated as of September 22, 1998 to the
364-Day Revolving Credit Facility dated as of June 10. 1997
Reference is made to that certain 364-Day Revolving Credit Facility,
dated as of June 10, 1997, (as amended the "364-Day Revolving Credit Facility")
among Trigen Energy Corporation the "Borrowers"), Societe Generale (the "Issuing
Bank and Agent") and the banks listed on the signature pages thereof.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to them in the 364-Day Revolving Credit Facility.
The undersigned agree as follows:
1. Article 1, Section 1.08 (c) is hereby amended to read as follows:
"(c) Utilization Fee. If on any day the sum of the outstanding aggregate
principal amount of:
(i) the Loans, Unreimbursed Letters of Credit Obligations and the
aggregate of all Letter of Credit Amounts, and
(ii) the Loans, Unreimbursed Letters of Credit Obligations, and the aggregate of
all Letters of Credit Amounts as defined under the Other Credit Facility,
exceeds $160,000,000, the Borrower shall pay to the Agent for the account of
each Bank, a Utilization Fee. The Utilization Fee shall be paid quarterly in
arrears on the last day of each calendar quarter and on the Repayment Date".
2. The definition of "Utilization Fee" in Article 10, Section 10.01 is
added in its entirety as follows:
"Utilization Fee" means the fee of 1.25% per annum of the aggregate daily amount
of the Loans, Letters of Credit Amounts and Unreimbursed Letter of Credit
Obligations as described in Section 1.08(e) of this Facility."
3. Except as expressly amended herein (which Amendment shall be effective
only in the specific instances and for the specific purposes provided herein)
whenever the term "Facility" is used in the Agreement or the term "364-Day
Revolving Credit Facility" is used in the Agreement and the other Loan Documents
it shall be deemed to refer to and mean the 364-Day Revolving Credit Facility,
as amended by this Amendment, and as the same may be subsequently amended or
modified find time to time.
4. This Amendment No. 1 may be executed in any number of counterparts, each
of which shall be deemed to be an original with the same effect as if the
signature thereto and hereto were upon the same instrument.
5. This Amendment No. 1 and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of New York (without giving effect to its choice of law principles over
than Section 5-1401 of the General Obligations Law).
6. This Amendment No. 1 shall be effective on the date first above
written.
IN WITNESS WHEREOF the undersigned have executed this Amendment No 1 as
of this 22nd day of September, 1998.
TR1GEN ENERGY CORPORATION,
Company
By: /s/ Stephen T. Ward
Name: Stephen T. Ward
Title: Treasurer
SOCIETE GENERALE, NEW YORK BRANCH,
Issuing Bank and Agent
By: /s/ Betty Burg
Name: __Betty Burg
Title: Director
COMPAGNIE FINANCIERE DE
CIC ET DE L'UNION EUROPEENNE, Bank
By: /s/ Albert Calo/E. Longuet
Name: Albert Calo/E. Longuet
Title: Vice Pres./Vice Pres.
UNITED MISSOURI BANK, N.A., Bank
By: /s/ David A. Proffitt
Name: David A. Proffitt
Title: Senior Vice President
CREDIT LOCAL DE FRANCE,
Bank
By: /s/ James R. Miller/Timothy Ononin
Name: James R. Miller/Timothy Ononin
Title: Gen'l Mgr./Asst. Vice President
MELLON BANK, N.A.,
Bank
By: /s/ Peyton R. Latimer
Name: Peyton R. Latimer
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK, LTD., Bank
By: _/s/ Andreas Panteli
Name: Andreas Panteli
Title: Senior Vice President
NATEXIS BANQUE,
Bank
By: /s/ Pieter J. van Tulder/John Rigo
Name: Pieter J. van Tulder/John Rigo
Title: VP & Mgr. / Asst. VP
CREDIT COMMERCIAL DE FRANCE,
Bank
By: _/s/ J.J. Salomon/Janine M. Ayoub
Name: _J.J. Salomon/Janine M. Ayoub
Title: _Senior VP/Asst. Treas.
EXHIBIT 4.11
Amendment No. 2 dated as of November 6, 1997 to the
Revolving Credit Facility dated as of April 4. 1997
Reference is made to that certain One Hundred and Sixty Million Dollars
($160,000,000) Revolving Credit Facility, dated as of April 4, 1997, and
amended as of June 24, 1997 (as amended the "Revolving Credit Facility"), among
Trigen Energy Corporation (the "Borrower"), Societe Generale (the "Issuing Bank
and Agent") and the Banks listed on the signature pages thereof. Capitalized
terms used herein but not otherwise defined herein shall have the meanings
ascribed to them in the Revolving Credit Facility.
The undersigned agree as follows:
1. The definition of "Eurodollar Rate" in Article 10, Section 10.1
is hereby amended to read in its entirety as follows:
"Eurodollar Rate" means, for any Interest Period, the rate that
appears on the Telerate Screen Page in the column headed "USD" for a period
equal to such Interest Period, at 11:00 a.m. (London time) two Eurodollar
Business Days before the first day of such Interest Period. If the Telerate
Screen Page becomes unavailable or if for any other reason determined by the
Agent in good faith (including, but not limited to, the failure of the Telerate
Screen Page to quote a rate for the applicable Interest Period), the Agent is
unable to determine the appropriate Eurodollar Rate by reference to the
Telerate Screen Page, then "Eurodollar Rate" shall mean, for such Interest
Period, the rate per annum determined by the Agent to be the rate per annum
determined by the Reference Bank to be the rate at which the Reference Bank
offered or would have offered to place with first-class banks in the London
interbank market deposits in Dollars in amounts comparable to the Eurodollar
Rate Loan of the Reference Bank to which such Interest Period applies, for a
period equal to such Interest Period, at 11:00 a.m. (London time) on the second
Eurodollar Business Day before the first day of such Interest Period.
2. The definition of "Interest Period" in Article 10, Section 10.1
is hereby amended to read in its entirety as follows:
"Interest Period" means a period commencing, in the case of the first
Interest Period applicable to a Eurodollar Rate Loan, on the date of the making
of, or conversion into, such Loan, and, in the case of each subsequent,
successive Interest Period applicable thereto, on the last day of the
immediately preceding Interest Period or on a day determined by the Company,
and ending, not more than 184 days thereafter, except that (a) any Interest
Period that would otherwise end on a day that is not a Eurodollar Business Day
shall be extended to the next succeeding Eurodollar Business Day unless such
Eurodollar Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Eurodollar Business Day, (b)
any Interest Period that is specified by the Company as a one-month, two month,
three month or six month Interest Period and that begins on the last Eurodollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month in which such Interest Period ends)
shall end on the last Eurodollar Business Day of a calendar month and (c) no
Interest Period shall be shorter than one month.
3. The definition of "Type" in Article 10, Section 10.1 is hereby
amended to add the following definition:
"Type" means, with respect to Loans, any of the following, each of
which shall be deemed to be a different "Type" of Loan:
Base Rate Loans, Eurodollar Rate Loans having different Interest Periods. Any
Eurodollar Rate Loan having an Interest Period that differs from the duration
specified for a Type of Eurodollar Rate Loan listed above solely as a result of
the operation of clauses (a) and (b) of the definition of "Interest Period"
shall be deemed to be a Loan of such above-listed Type notwithstanding such
difference in duration of Interest Periods.
4. This Amendment No. 2 may be executed in any number of
counterparts, each of which shall be deemed to be an original with the same
effect as if the signature thereto and hereto were upon the same instrument.
5. This Amendment No. 2 and the rights and obligations of the parties
hereunder shall be construed in accordance in with and governed by the laws of
the State of New York (without giving effect to its choice of law principles
other than Section 5-1401 of the General Obligations Law).
6. This Amendment No. 2 shall be effective when it has been executed and
delivered by the Borrower, the Issuing Bank and Agent, and each of the Banks.
IN WITNESS WHEREOF the undersigned have executed this Amendment No. 2 as
of this 6th day of November, 1997.
TRIGEN ENERGY CORPORATION,
Company
By: /s/ Stephen T. Ward
Title: Treasurer
Name: Stephen T. Ward
SOCIETE GENERALE, NEW YORK BRANCH,
Issuing Bank and Agent
By: /s/ Betty Burg
Title:Vice Pres.,French Corp. Group
Name: Betty Burg
COMPAGNIE FINANCIERS DE CIC ET DE
L'UNION EUROPEENNE,
Bank
By: /s/ Albert Calo /B.Bonwis
Title: Vice Pres./Vice Pres Name Albert Calo /B Bonwis
UMB BANK, N.A.,
Bank
By: /s/ David A. Proffitt
Title: Senior Vice President
Name: David A. Proffitt
CREDIT LOCAL DE FRANCE,
Bank
By: /s/ Philippe Ducos /Mary Power
Title: _Dep.Gen'l.Mgr./Vice Pres.
Name: Philippe Ducos /Mary Power
MELLON BANK, N.A.,
Bank
By: /s/ Caroline R. Walsh
Title: Assist. Vice President
Name: Caroline R. Walsh
THE DAI-ICHI KANGYO BANK, LTD., Bank
By: /s/Takeshi Kurita Title:
Vice President Name: Takeshi Kurita
NATEXIS BANQUE
Bank
By:/s/ Pieter J.vanTulder/J.Richard
Title: Vice Pres. & Mgr.
Name: Pieter J.van Tulder/J. Richard
CREDIT COMMERCIAL DE FRANCE,
Bank
By: /s/ F.van Moere/J.J.Jalohon
Title: A.V.Pres. /Sen.V.Pres
Name: F. van Moere/J.J. Jalohon
EXHIBIT 4.12
Amendment No. 3 dated as of September 22, 1998
to the Revolving Credit Facility dated as of April 4, 1997
Reference is made to that certain One Hundred and Sixty Million
Dollars ($160,000,000) Revolving Credit Facility, dated as of April 4, 1997,
amended as of June IO, 1997, and as of November 6, 1997 (as amended the
"Revolving Credit Facility"), among Trigen Energy Corporation (the "Borrower"),
Societe Generale (the "Issuing Bank and Agent") and the Banks listed on the
signature pages thereof. Capitalized terms used herein but not otherwise
defined herein shall have the meanings ascribed to them in the Revolving Credit
Facility.
The undersigned agree as follows,:
1. The first sentence of Article 1, Section 1.01 of the
Revolving Credit Facility is hereby amended to read as follows:
"The Revolving Credit Facility available to the Borrower pursuant to
this Agreement is One Hundred Sixty Million Seven Hundred Fifty Thousand
Dollars ($160,750,000)."
2. Annex A to the Revolving Credit Facility is hereby amended and is
restated in its entirety by Annex A hereto.
3. Article 1, Section 1.01(c) is hereby amended to read as follows:
"(c) Extension of Facility Period. The initial Facility Period shall
be four years, but may be extended by a total of two one-year extensions with
the prior written consent of the Banks, the Agent and the Issuing Bank.
Seventeen months before the end of a Facility Period, the Borrower may request
that the Banks extend the Facility Period by one year. Such a request shall be
in writing (and shall be irrevocable) and shall be delivered to Agent with such
other documentation as the Agent may request. Each Bank, the Agent and the
Issuing Bank each in its sole discretion may, but shall not be required to,
grant such a one-year extension to the Facility Period. The Agent will notify
the Borrower in writing fifteen mouths before the end of the Facility Period as
to whether the one-year extension will be granted and to advise the Borrower of
the new Termination Date and any other conditions to such extension, provided
that in the absence of such a notice by the Agent, the extension request will
be deemed denied."
4. Article 1, Section 1.08 (e) is hereby amended to read as follows:
"(e) Utilization Fee. If on any day the sum of the outstanding
aggregate principal amount of:
(i) the Loans, Unreimbursed Letters of Credit Obligations and the
aggregate of all of Credit Amounts, and
(ii) the Loans, Unreimbursed Letters of Credit Obligations, and the aggregate
of all Letter of Credit Amounts as definer under the 364-Day Revolving Credit
Facility, exceeds $160,000,000, the Borrower shall pay to the Agent for the
account of each Bank, a Utilization Fee. The Utilization Fee shall be paid
quarterly in arrears on the last day of each calendar quarter and on the
Repayment Date."
5. The definition of "Termination Date" in Article 10, Section 10.01
is restated in its entirety as follows:
"Termination Date" means: (a) the fourth anniversary of the Agreement
Date; or (b) if the Facility Period has been extended pursuant to Section 1.01
(c) either the fifth or sixth anniversary of the Agreement Date, as contained
in a notice from the Agent to the Borrower."
6. The definition of "Utilization Fee" in Article 1O, Section 10.01
is amended and restated in its entirety as follows:
"Utilization Fee" means the fee of .125% per annum of the
aggregate daily amount of the Loans, Letter of Credit Amounts and Unreimbursed
Letter of Credit Obligations as described in Section 1.08 (e)."
7. Whenever and wherever in the Revolving Credit Facility the amount
of the Facility is expressed to be One Hundred Twenty Five Million Dollars
($125,000,000), it shall henceforth be deemed to read as One Hundred Sixty
Million Seven Hundred Fifty Thousand Dollars ($160,750,000).
8. On the date hereof, the Borrower is executing and delivering Notes
in favor of the Banks which express the principal amount of the Facility as One
Hundred Sixty Million Seven Hundred Fifty Thousand Dollars ($160,750,000). In
exchange, the issuing Bank and Agent shall cancel and return any Notes which
express the principal amount of the Facility as being One Hundred Twenty Five
Million Dollars (S125,000,000).
9. Except as expressly amended herein (which Amendment shall be
effective only in the specific instances and for the specific purposes provided
herein) whenever the term "Revolving Credit Facility" or the term "Agreement"
is used in the Agreement, and in the other Loan Documents or the term "Other
Credit Facility" is used in the 364-Day Revolving Credit Facility, it shall be
deemed to refer to and mean the Revolving Credit Facility, as amended by this
Amendment and Amendments Nos. 1 and 2, and that the same may be subsequently
amended or modified from time to time.
10. This Amendment No. 3 may be executed in any number of
counted, each of which shall be deemed to be an original with the same effect
as if the signature thereto and hereto were upon the same instrument.
11. This Amendment No. 3 and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the
laws of the State of New York (without giving effect to its choice of law
principles other than Section 5-1401 of the General Obligations Law).
12 This Amendment No. 3 shall be effective on the date first above
written.
IN WITNESS WHEREOF the undersigned have executed this Amendment No. 3
as of this 22nd day of September, 1998.
TRIGEN ENERGY CORPORATION,
Company
By: /s/ Stephen T. Ward
Name: Stephen T. Ward
Title: Treasurer
SOCIETE GENERALE, NEW YORK BRANCH Issuing Bank and Agent
By: /s/ Betty Burg
Name: Betty Burg
Title: Director
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, Bank
By: /s/ Albert Cola/G. Longuet Name: Albert Cola/G.
Longuet
Title:Vice President/Vice President
UNITED MISSOURI BANK, N.A., Bank
By: /s/ David A. Proffitt
Name: David A. Proffitt
Title: Senior Vice President
CREDIT LOCAL DE FRANCE,
Bank
By:/s/James R.Miller/Timothy Ononin Name:James R.
Miller/Timothy Ononin
Title:Gen'l Mgr./Asst.VicePresident
MELLON BANK N.A,
Bank
By: /s/ Peyton R. Latimer
Name: Peyton R. Latimer
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK, LTD, Bank
By: /s/ Andreas Panteli
Name: Andreas Panteli
Title: Senior Vice President
NATEXIS BANQUE,
Bank
By:/s/Pieter J. vanTulder/John Rigo Name: Pieter J.
vanTulder/John Rigo
Title: Vice Pres. And Mgr./AVP
CREDIT COMMERCIAL DE FRANCE,
Bank
By: /s/ J.J.Salomon/Janine M. Ayoub Name:
J.J.Salomon/Janine M. Ayoub
Title: Senior VP/Asst. Treasurer
<PAGE>
ANNEX A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- -------------------- ----------- ----------
SOCIETY GENERALE, NEW YORK BRANCH $33,437,500 20.801%
Domestic Lending Office:
SOCIETE GENERALE, NEW YORK BRANCH
1221 Avenue of the Americas
New York, New York 10020
Eurodollar Lending Office:
SOCIETE GENERALE, NEW YORK BRANCH
1221 Avenue of the Americas
New York, New York 10020
Information Address:
SOCIETE GENERALE, NEW YORK BRANCH
1221 Avenue of the Americas
New York, New York 10020
Fax No.: (212) 278-7463 Tel No.: (212) 278-6926
Attention: Betty Burg
Director, European Corporate Group
Notice:
Attention: Mary Fawzi
Corporate Banking Officer
Fax No.: (212) 278-7463
Tel No.: (212) 278-6931
Notice concerning Letters of Credit:
Attention: Specialized Letters of Credit Services
Fax No.: (212) 278-7428
Tel No.: (212) 278-6921 Annex A
Wire Transfer Instructions:
Societe Generale-New York
ABA No. 026~004226
Account No. 09031308
Reference: Trigen Energy Corporation
<PAGE>
Annex A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- -----------
COMPAGNIE FINANCIERE DE CIC $27,781,250 17.282%
ET DE L'UNION EUROPEENNE
Domestic Lending Office:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE
520 Madison Avenue
New York, New York 10022
Fax No.: 212-715-4535
Tel No.: 212-715-4425
Attention: Albert M. Calo
Eurodollar Lending Office:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE
520 Madison Avenue
New York, New York 10022
Fax No.: 212-715-4535
Tel No.: 212-715-4425
Attention: Albert M. Calo
Information Address:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE
520 Madison Avenue
New York, New York 10022
Fax No.: 212-715-4535
Tel No.: 212-715-4425
Attention: Albert M. Calo
<PAGE>
Annex A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- ----------
UNITED MISSOURI BANK, N.A. $7,812,500 4.860%
Domestic Lending Office:
UNITED MISSOURI BANK, N.A.
1010 Grand Boulevard
Kansas City, MO 60141
Fax No.: 816-860-7143
Tel No.: 816-860-7935
Attention: David A. Proffitt
Eurodollar Lending Office:
UNITED MISSOURI BANK, N.A.
1010 Grand Boulevard
Kansas City, MO 60141
Fax 240: 816-860-7143
Tel No.: 816-860-7935
Attention: David A. Proffitt
Information Address:
UNITED MISSOURI BANK, N.A.
1010 Grand Boulevard
Kansas City, MO 00141
Fax No.: 816-860-7143
Tel No.: 816-860-7935
Attention: David A. Proffitt
<PAGE>
Annex A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- ---------
CREDIT LOCAL DE FRANCE $18,750,000 11.664%
Domestic Lending Office:
CREDIT LOCAL DE FRANCE
450 Park Avenue
3rd Floor
New York, New York 10022
Fax No.: 212-753-7522
Tel No.: 212-753-2613 // 212-753-2763
Attention: Ms. Aida Slabotzky
Eurodollar Lending Office:
CREDIT LOCAL DE FRANCE
450 Park Avenue
3rd Floor
New York, New York 10022
Fax No.: 212-753-7522
Tel No.: 212-753-2613 // 212-7S3-2763
Attention: Ms. Aida Slabotzky
Information Address:
CREDIT LOCAL DE FRANCE
450 Park Avenue
3rd Floor
New York, New York 10022
Fax No.: 212-753-5522
Tel No.: 212-753-2763 // 212-753-3546
Attention: Ms. Mary Popover
<PAGE>
Annex A
Banks, Lending Offices Percentage
And Notice Addresses Commitments Interest
- ---------------------- ----------- ----------
MELLON BANK, N.A. $10,156,250 6.318%
Domestic Lending Once:
MELLON BANK, N.A.
65 East 55th Street
New York, New York 10022
Fax No.: 412-236-2027
Tel No.: 412-234-3699
Attention: Ms. Pinkey Holiday
Eurodo11ar Deciding Office:
MELLON BANK, N.A.
65 East 55th Street
New York, New York 10022
Fax No.: 412-236-2027
Tel No.: 412-234-3699
Attention: Ms. Pinkey Holiday
Information Address:
MELLON BANIC, N.A.
65 East 55th Strew
New York, New York 10022
Fax No.: 212-702-5269
Tel No.: 212-702-5258
Attention: Ms. Arlene Pedovitch
<PAGE>
Annex A
Banks, Lendlug Offices Percentage
and Notice Addresses Commitments interest
- ---------------------- ----------- -----------
THE DAI-ICHI KANGYO BANK, LTD. $7,812,500 4.860%
Domestic Lending Office:
THE DAI-ICHI KANGYO BANK, LTD.
One World Trade Center
48th Floor
New York, New York 10048
Fax No.: 212-488-8955
Tel No.: 21Z-432-8436
Attention: Mr. Paul Colatrella
Eurodollar Lending Office
THE DAI-ICHI KANGYO BANK, BANK
One World Trade Center
48th Floor
New York, New York 10048
Fax No.: 212-488-8955
Tel No.: 212-432-8436
Attention: Mr. Paul Colatrella
Information Address:
THE DAI-ICHI KANGYO BANK, LTD.
One World Trade Center
48th Floor
New York, New York 10048
Fax No.: 212-488-8955
Tel No.: 212-432-8436
Attention: Mr. Paul Colatrella
<PAGE>
Annex A
Banks, Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- ----------
NATEXIS BANQUE $24,750,000 15.397%
Domestic Lending Office:
NATEXIS BANQUE
645 Fifth Avenue
New York, New York 10022
Fax No.: 212-872-5045
Tel No,.: 212-872-5119
Attention: Mr. John Rigo
Eurodollar Lending Office:
NATEXIS BANQUE:
645 Fifth Avenue
New York, lvew York 10022
Fax No.: 212-872-5045
Tel NO.: 212-872-5119
Attention: Mr. John Rigo
Information Address:
NATEXIS BANQUE
645 Fifth Avenue
New York, New York 10022
Fax No.: 212-872-5045
Tel No.: 212-872-5119
Attention: Mr. John Rigo
<PAGE>
Annex A Banks,
Lending Offices Percentage
and Notice Addresses Commitments Interest
- ---------------------- ----------- ----------
CREDIT COMMERCIAL DE FRANCE $30,250,000 18.818%
Domestic Lending Office:
CREDIT COMMERCIAL DE FRANCE
590 Madison Avenue
25th Floor
New York, New York 10022
Fax No.: 212-832-7469
Tel No.: 212-848-0554
Attention: Ms. Janine Ayoub
Eurodollar Lending Office:
CREDIT COMMERCIAL DE FRANCE
590 Madison Avenue
25th Floor
New York, New York 10022
Fax No.: 212-832-7469
Tel No.: 212-848-0554
Attention: Ms. Janine Ayoub
Information Address:
CREDIT COMMERCIAL DE FRANCE
590 Madison Avenue
25th Floor
New York, New York 10022
Fax No.: 212-832-7469
Tel No.: 212-848-0554
Attention: Ms. Janine Ayoub
EXHIBIT 11
<TABLE>
<CAPTION>
Trigen Energy Corporation and Subsidiaries
Computation of Earnings Per Share
(In thousands, except per share data)
Year ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Basic earnings per common share
- --------------------------------
Earnings before extraordinary item $6,557 $5,025 $14,051 $10,564 $8,561
Average equivalent shares
Common shares outstanding 12,007 12,011 11,612 11,390 9,619
Basic earnings per common share $0.55 $0.42 $1.21 $0.93 $ 0.89
Diluted earnings per common share
- ----------------------------------
Earnings before extraordinary item $6,557 $5,025 $14,051 $10,564 $8,561
Average equivalent shares
Common shares outstanding 12,007 12,011 11,612 11,390 9,619
Stock option 2 119 82 -- --
------ ------ ------- ----- -----
Average equivalent shares 12,009 12,130 11,694 11,390 9,619
------ ------- ------- ------ -----
Diluted earnings per common share $0.55 $0.41 $1.20 $0.93 $0.89
------- ------- ------- ------ -----
</TABLE>
EXHIBIT 12.1
<TABLE>
<CAPTION>
Trigen Energy Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(in thousands)
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Earnings before extra-
Ordinary item $6,557 $5,025 $14,051 $10,564 $8,561
Add (deduct):
Income taxes 4,575 3,491 9,252 7,324 5,949
Fixed charges 24,268 20,508 20,145 20,883 17,774
Interest capitalization ( 524) ( 374) ( 328) ( 300) ( 250)
(Income)/losses of less
than 50% owned companies (4,475) 266 ( 322) ( 316) ( 224)
------- ------- ------- ------- -----
Earnings before extraordi-
Nary item, as adjusted $30,401 $28,916 $42,798 $38,155 $31,810
Fixed Charges
Interest expense $23,742 $18,840 $18,840 $19,890 $16,657
Interest capitalized 524 374 328 300 250
Portion of rents representa-
tive of interest factor(1) 1,400 1,158 977 693 867
------ ------- ------- ------- ------
Total fixed charges $25,666 $20,508 $20,145 $20,883 $17,774
------- ------- ------- ------- ------
Ratio of earnings to
Fixed charges 1.2 1.4 2.1 1.8 1.8
------- ------- ------- ------- -------
Note:
(1) Estimated to be 1/3 of total rent expense.
</TABLE>
EXHIBIT 21
12/31/98 Trigen Energy Corporation And Subsidiaries
U.S. Corporations Incorporated
Baltimore Thermal Development Corporation Maryland
Catalyst Steam Corporation Delaware
Philadelphia United Power Corporation Delaware
Philadelphia Thermal Development Corporation Pennsylvania
Philadelphia Steam Development Corporation Pennsylvania
Philadelphia Thermal Services Corporation Pennsylvania
St. Louis Thermal Development Corporation Missouri
Trenton Energy Corporation Delaware
Tulsa Cold Storage, Inc. Delaware
Trigen-Alabama Energy Corporation Delaware
Trigen-Baltimore Energy Corporation Maryland
Trigen-BioPwer, Inc. North Carolina
Trigen-Boston Energy Corporation Delaware
Trigen Building Services Corporations Delaware
Trigen-Chicago Energy Corporation Delaware
Trigen-College Park Energy Corporation Maryland
Trigen-Colorado Energy Corporation Delaware
Trigen Development Corporation Delaware
Trigen Energia, Inc. Delaware
Trigen Energy Corporation Delaware
Trigen-Ewing Power, Inc. Delaware
The Trigen Foundation Delaware
Trigen Fuels Corporation Delaware
Trigen-Glen Cove Energy Corporation Delaware
Trigen-Golden Energy Corporation Delaware
Trigen Insulation Corporation Delaware
Trigen-Kansas City Energy Corporation Delaware
Trigen Lindbergh Corporation Delaware
Trigen-Mid-Atlantic Development Corporation Delaware
Trigen M/I Corporation Delaware
Trigen-Missouri Energy Corporation Delaware
Trigen-Nassau Energy Corporation Delaware
Trigen National Capital, Inc. Delaware
Trigen-New England Energy Corporation Delaware
Trigen-New Jersey Development Corporation Delaware
Trigen-Oklahoma Energy Corporation Delaware
Trigen-Oklahoma City Energy Corporation Delaware
Trigen-Philadelphia Energy Corporation Pennsylvania
Trigen Power Resources, Inc. Delaware
Trigen-Schuylkill Cogeneration, Inc. Pennsylvania
Trigen Services Corporation Delaware
Trigen Services Of Baltimore, Inc. Delaware
Trigen Services Of Florida, Inc. Delaware
Trigen Services Of Illinois, Inc. Delaware
Trigen Services Of Missouri, Inc. Delaware
Trigen Services Of Ohio, Inc. Delaware
Trigen Services Of St. Paul, Inc. Delaware
Trigen Solutions, Inc. Delaware
Trigen-St. Louis Energy Corporation Missouri
Trigen-Tulsa Energy Corporation Delaware
United Thermal Corporation Delaware
United Thermal Development Corporation Delaware
United Thermal Services Corporation Delaware
Canadian Corporations
- ---------------------
3003252 Nova Scotia Limited Nova Scotia
Trigen Energy Canada Inc. Canada
Partnerships
- ------------
Baltimore Steam Company Maryland
Gray's Ferry Cogeneration Partnership
Ohio Valley Coke & Energy LLC Delaware
Thermal Science Technologies LLC Delaware
Trigen-Barford Company LLC Delaware
Trigen-Cinergy Solutions LLC Delaware
Trigen-Cinergy Solutions of Baltimore LLC Delaware
Trigen-Cinergy Solutions Of Boca Raton, LLC Delaware
Trigen-Cinergy Solutions Of Cincinnati LLC Ohio
Trigen-Cinergy Solutions of College Park LLC Delaware
Trigen-Cinergy Solutions Of Illinois L.L.C. Delaware
Trigen-Cinergy Solutions Of Orlando LLC Delaware
Trigen-Cinergy Solutions Of St. Paul LLC Delaware
Trigen-Cinergy Solutions Of Tuscola, LLC Delaware
Trigen-HQ Energy Services LLC Delaware
Trigen-Nations Energy Company, LLLP Colorado
Trigen-Peoples District Energy Company LLP Illinois
Trigen-Trenton Energy Company, L.P. Delaware
Canadian Partnerships
- ---------------------
NSP Trigen Incorporated Nova Scotia
EXHIBIT 4.13
UNSECURED SUBORDINATED REDEEMABLE TERM NOTE
-------------------------------------------
THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATE TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR DEBT (AS HEREINAFTER DEFINED) PURSUANT TO THE
TERMS HEREOF AND TO THE EXTENT PROVIDED HEREIN.
THIS NOTE WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THIS NOTE MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
THE HOLDER HEREOF AGREES FOR THE BENEFIT OF TRIGEN ENERGY CORPORATION (THE
"BORROWER") THAT (A) THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (I) TO A PERSON OR ENTITY WHO THE BORROWER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A PROMULGATED UNDER THE
SECURITIES ACT OF 1933), IN A TRANSACTION MEETING THE REQUIREMENTS OF SUCH RULE
144A, (II) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING
OF RULE 501(a)(1), 501(a)(2), 501(a)(3) OR 501(a)(7) OF REGULATION D
PROMULGATED UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IF AVAILABLE, (III) PURSUANT
TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, PROVIDED BY RULE
144 PROMULGATED THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND IN EACH OF CASES (I)
THROUGH (IV) ABOVE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE
STATES AND OTHER JURISDICTIONS OF THE UNITED STATES, AND (B) THE HOLDER HEREOF
SHALL, AND EACH SUBSEQUENT HOLDER HEREOF IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THIS NOTE OF THE RESALE RESTRICTIONS REFERRED TO IN CLAUSE (A) ABOVE.
REDEMPTION OF THIS NOTE IS SUBJECT TO THE REQUIREMENTS SET FORTH
HEREIN.
<PAGE>
UNSECURED SUBORDINATED REDEEMABLE TERM NOTE
$50,000,000.00 As of December 30, 1998
White Plains, New York
FOR VALUE RECEIVED and intending to be legally bound, the undersigned,
Trigen Energy Corporation, a Delaware corporation (the "Borrower"), having
offices at One Water Street, White Plains, New York 10601, hereby
unconditionally and irrevocably promises to pay to the order of Cofreth
American Corporation, a New York corporation (the "Lender"), at the
Lender's offices located at One Water Street, White Plains, New York 10601 or
at such other location as the Lender may designate to the Borrower from time to
time (the "Payment Office"), the principal sum of FIFTY MILLION DOLLARS
($50,000,000.00) (the "Loan Amount"), with interest as set forth below, in
lawful money of the United States of America, in immediately available
funds, without defense or counterclaim of any kind whatsoever, upon the
following terms and conditions:
1. Interest. Interest on the Loan Amount from time to time
outstanding shall accrue for the period commencing from (and including) the date
of this Note to December 31, 2010 (the "Final Payment Date"), at the per annum
rate (the "Base Rate") of 7.38%. All interest under this Note shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed.
2. Principal and Interest Payments. The Loan Amount shall be
due and payable on the Final Payment Date. The Lender shall make payments of
interest on the Loan Amount accrued in accordance with Section 1 hereof, in
consecutive quarterly installments (each, an "Interest Payment"), payable on
the last day of each applicable calendar quarter (each, an
"Interest Payment Date", together with the Final Payment Date, each, a
"Payment Date"), commencing March 31, 1999 (each such quarterly period, an
"Interest Period"). Notwithstanding any other provision of this Note,
Interest Payments (or portions thereof) that are not made by the
Borrower on or prior to the applicable Interest Payment Dates up to an amount
(based upon the percentage of the Interest Payment not made) equivalent to
eight Interest Payments shall be added to the Loan Amount for all purposes
hereof as of the applicable Interest Payment Dates. No such non-payment of
such Interest Payments (or portions thereof) at such times shall be deemed a
default (or, with the passage of time, an Event of Default (as defined in
Section 6 hereof)) hereunder. No such unpaid amount of such Interest
Payments shall be deemed a past due amount hereunder as of the applicable
Interest Payment Dates.
3. Late Payments. If any portion of the Loan Amount or, except as
set forth in Section 2 hereof, any Interest Payment is not paid on the
applicable Payment Date hereunder, interest on the past due Loan Amount or the
past due Interest Payment ("Default Interest") shall accrue from (and
including) the applicable Payment Date at the per annum rate (the "Default
Rate") equal to the sum of: (x) the Base Rate, plus (y) two percent (2%).
Default Interest shall from time to time be payable on demand, in arrears.
Notwithstanding any demand for payment, acceleration and/or the entry of
judgment for such sums, Default Interest shall continue to accrue at the
Default Rate on past due portions of the Loan Amount and past due portions of
Interest Payments. Subject to the right of the Lender to accelerate the
maturity of this Note in accordance with Section 6 hereof, notwithstanding any
other provision hereof, interest on the unpaid (but not past due) portion
of the Loan Amount from time to time outstanding shall accrue, and be payable
by the Borrower on the Final Payment Date, at the Base Rate.
4. Default Payments. After the occurrence and during the continuance
of an Event of Default (as defined in Section 6 hereof), the Loan Amount,
together with the interest accrued thereon in accordance with Section 1 hereof
(collectively, the "Default Amount"), shall bear interest from (and including)
the date of default at the Default Rate, which interest shall from time
to time be payable on demand, in arrears. Notwithstanding any demand for
payment, acceleration and/or the entry of judgment for such sums, interest
shall continue to accrue on the unpaid Default Amount at the Default Rate.
Any payments made by the Borrower following any default under this Note
shall be applied first to Default Interest due and owing, then to the costs
and expenses incurred by the Lender under Section 10 hereof, then to the
Interest Payments due and owing and lastly to the Loan Amount then outstanding.
5. Prepayments; Business Day. All prepayments of the Loan Amount shall
be made together with payment of all interest accrued on the amount prepaid,
but without premium or penalty. Whenever any payment hereunder shall be
stated to be due, or whenever the last day of any Interest Period would
otherwise occur, on a day that is not a Business Day (as hereinafter defined),
such payment shall be made, and the last day of such Interest Period shall
occur, on the next succeeding Business Day, and such extension of time shall
in such case be included in the computation of payment of interest. For
purposes of this Note, "Business Day" means a day of the year on which banks
in New York City are not authorized or required by law (including executive
order) to close and on which the New York Stock Exchange is not closed.
6. Event of Default. In the event (each, an "Event of Default") of: (a)
(i) a change in control of the Borrower (where "control" means
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise)) (provided that a change of control shall not include any
transfer of securities of the Borrower to any majority-owned affiliate of the
ultimate parent entity of the Lender), (ii) the failure of the Borrower to pay
any past due portion of the Loan Amount or any past due portion of any Interest
Payment to the Lender after the receipt by the Borrower of notice from the
Lender of such late payment, (iii) the failure of the Borrower to pay any
other indebtedness of the Borrower to the Lender when due after the receipt
by the Borrower of notice from the Lender of such late payment, (iv) any
bond, debenture, note or other evidence of indebtedness issued or
guaranteed by the Borrower in the aggregate amount of $5 million or more
shall have been declared to be due and payable immediately and such
acceleration shall not have been rescinded or annulled; (v) the
commencement of any proceeding under any bankruptcy or insolvency laws (but
only, in the case of an involuntary proceeding, if the proceeding has not
been dismissed or stayed within 60 days of its commencement) against the
Borrower or by the Borrower with respect to itself, (vi) the appointment of
a receiver, trustee or liquidator of any part of the property of the
Borrower, (vii) a general assignment for the benefit of creditors of the
Borrower or (viii) the Borrower being unable, or admitting in writing its
inability, to pay its debts as they mature; and (b) the Borrower shall not
cure such default within 18 months of such occurrence (provided that, if no
Senior Debt is outstanding, or if all Senior Debt is repaid during the
foregoing cure period, such cure period shall be 30 days, or 30 days from the
date all such Senior Debt is repaid, as the case may be),
THEN the Borrower shall be in default hereunder and an Event of Default
shall have occurred, and thereupon, subject to the limitations contained in
Section 8 of this Note, the entire balance outstanding hereunder shall be
immediately due and payable. Subject to such limitations, the Lender shall
thereupon have the option at any time and from time to time to exercise any or
all of its rights and remedies set forth herein or otherwise available at law
or in equity.
7. Redemption of Note. (a) Subject to and upon compliance with the
provisions of this Section 7, this Note may be redeemed in whole or in part at
the option of the Lender on or after any Redemption Date with the net proceeds
of any Equity Sale ("Equity Proceeds"). For purposes of this Note,
"Redemption Date" means the effective date of any Equity Sale (as hereinafter
defined) following the date hereof by the Borrower, and "Equity Sale" means any
distribution of Common Stock, par value $.01 per share, of the Borrower,
whether pursuant to an offering registered under the U.S. Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder,
or pursuant to any offering exempt from such registration; provided that
"Equity Sale" shall not include the issuance or sale of any shares of Common
Stock to any employees or directors of the Borrowers pursuant to any employee
benefit plans, stock option plans or similar arrangements.
(b) The Borrower shall, not less than 20 days prior to any
anticipated Redemption Date, notify the Lender in writing of such
Redemption Date (the "Redemption Notice").
(c) The Lender shall notify the Borrower not less than 3 Business Days
prior to the Redemption Date set forth in the Redemption Notice of the exercise
of the Lender's option to cause the Borrower to redeem this Note, in whole or
in part. Such notice of the Lender shall set forth the amounts due, owing and
outstanding under this Note (collectively, the "Outstanding Amounts") that are
to be redeemed or otherwise paid by the Borrower on the Redemption Date. In
the event that not all the Outstanding Amounts are to be redeemed or paid,
the Outstanding Amounts shall be retired in the following order of priority:
first, Default Interest due and owing, if any, then to the costs and expenses
incurred by the Lender under Section 10 hereof, if any, then to the Interest
Payments due and owing and lastly to the Loan Amount then
outstanding. The Borrower shall satisfy its
redemption obligation hereunder on the Redemption Date at the Payment
Office, but solely out of Equity Proceeds; in no event shall any funds of the
Borrower other than Equity Proceeds be applied to the redemption in whole or
in part of this Note.
(d) In the event all the Outstanding Amounts are to be redeemed, the Lender
shall surrender this Note, duly endorsed or assigned to the Borrower or in blank
at the Borrower's address first set forth above.
(e) Absent manifest error, the books and records of the Lender with
respect to this Note and the Outstanding Amounts shall be binding upon the
Borrower and the Lender with respect to the level of the Outstanding
Amounts at all times prior to, on and following the Redemption Date.
(f) In addition to the Redemption Notice, the Borrower shall cause to be
contemporaneously provided to the Lender all notices with respect to each
Equity Sale at the time that such notices are provided to the public generally.
8. Subordination. (a) Generally. The Subordinated Debt shall
be and hereby is expressly made subordinate and junior in right of payment to
all Senior Debt to the extent and in the manner provided in these
subordination provisions. These subordination provisions are made for the
benefit of the holders of Senior Debt, and such holders are hereby made
obligees hereunder with the same effect as if their names were written as such
in these subordination provisions and any such holder or all of them may
proceed to enforce such provisions. The Lender waives any and all notice
of the creation or accrual of any such Senior Debt and notice of proof of
reliance upon these subordination provisions by any holder of any Senior Debt.
These subordination provisions shall be binding upon the Lender and any
successors and assigns of the Subordinated Debt and any interest therein, and
the Senior Debt shall conclusively be deemed to have been created,
contracted or incurred in reliance upon these subordination provisions and all
dealings between the Borrower and the holders of any such Senior Debt so
arising shall be deemed to have been consummated in reliance upon these
subordination provisions.
(b) Certain Definitions. As used in this Section 8, the
following terms have the meanings set forth below:
"Financial Debt" of the Borrower means (i) any and all
obligations of the Borrower under or in respect of the Loan
Agreements, (ii) any indebtedness of the Borrower evidenced by bonds,
debentures, notes or similar instruments, and (iii) any obligation of the
Borrower in respect of guaranties issued by the Borrower or letters of
credit issued for the account of the Borrower to assure or secure payment of
indebtedness for borrowed money of others.
"Indefeasibly Paid" means, with respect to the making of any
payment on or in respect of any Senior Debt, a payment of such Senior Debt in
full which is not subject to avoidance under Section 547 of the
United States Bankruptcy Code or any other law or equitable principle.
"Loan Agreements" means the Revolving Credit Facility, dated as of
April 4, 1997, and the 364-Day Revolving Credit Facility, dated as of June 10,
1997, each among the Borrower, the banks and other lenders from time to time
parties thereto and Societe Generale, as Issuing Bank and as Agent, in each
case as amended through the date of this Note and as the same may be further
amended, modified or supplemented from time to time hereafter.
"Proceeding" means any (i) insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Borrower, its property or its creditors as such,
(ii) proceeding for any liquidation, dissolution or other winding-up of the
Borrower, voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings, (iii) assignment for the
benefit of creditors of the Borrower or (iv) other marshalling of the assets of
the Borrower.
"Senior Debt" means the principal of, premium, if any and interest
on, and any and all other amounts payable to the holders thereof in
connection with, (i) any Financial Debt of the Borrower that is not by its
terms, made subordinated to all other senior unsecured indebtedness of the
Borrower and (ii) any other indebtedness of the Borrower that by its express
terms is stated to be Senior Debt of the Borrower for purposes of this
Note, including without limitation, in each case referred to in clause (i) or
clause (ii), any interest accruing thereon at the legal rate after the
commencement of any Proceeding and any additional interest that would have
accrued thereon but for the commencement of such Proceeding.
"Senior Event of Default" means, with respect to any Senior Debt
outstanding in an aggregate principal amount of $500,000 or more, an "event of
default" or similar event, howsoever defined, the occurrence of which permits
the holder or holders of such Senior Debt, or a trustee for such holders, to
accelerate such Senior Debt or to demand that such Senior Debt be immediately
paid in full.
"Lender" means the payee of this Note and any assignee or other holder
from time to time of Subordinated Debt.
"Subordinated Debt" means the principal indebtedness evidenced by this
Note, together with all interest hereon and all other amounts payable
by the Borrower under or in respect of this Note pursuant to the terms hereof.
(c) Subordination of Subordinated Debt Principal. Except for
Redemption in whole or in part of this Note with the proceeds of one or more
Equity Sales as provided in Section 7, above, no direct or indirect payment,
purchase or redemption (in cash, property or securities or by set off or
otherwise) shall be made or agreed to be made on account of any principal
portion of the Subordinated Debt, or as a sinking fund for any Subordinated
Debt, or in respect of any redemption, retirement, purchase or other acquisition
of any of the principal portion of the Subordinated Debt, unless and until all
amounts then outstanding under the Senior Debt shall have been Indefeasibly
Paid.
(d) Subordination of Subordinated Debt Payments. Without limiting the
provisions of Section 8(c):
(i) Upon receipt by the Lender of a notice from the Company or any holder
of Senior Debt that there exists a Senior Event of Default in respect of such
Senior Debt, no direct or indirect payment, purchase or redemption (in cash,
property or securities or by set-off or otherwise) shall be made or agreed to
be made on account of any Subordinated Debt, or as a sinking fund for any
Subordinated Debt, or in respect of any redemption, retirement, purchase or
other acquisition of any of the Subordinated Debt, in respect of all or any
portion of the Subordinated Debt unless and until the Lender shall have
received written notice from such holder of Senior Debt, or the agent or
trustee of such holder, that such Senior Event of Default has been cured or
waived.
(ii) The holders of the Senior Debt shall be entitled pro rata in
accordance with the principal amounts of Senior Debt then held by them and
subject to the priorities, if any, then existing among such holders to
vote all claims of or in respect of the Subordinated Debt in any Proceeding.
Notwithstanding the foregoing, in the event that the holders of the Senior
Debt shall allow the Lender to retain the right to vote and otherwise act in
any Proceeding (including, without limitation, the right to vote to accept or
reject any plan of partial or complete liquidation, reorganization,
arrangement, composition or extension), the Lender shall not vote with respect
to any such plan or take any other action in any way so as to contest (A) the
validity of any liens or security interests granted to, or for the benefit of,
the holders of any Senior Debt, (B) the relative rights and duties of the
holders of the Senior Debt, or (C) the enforceability of the Senior Debt or
these subordination provisions.
(iii) In connection with any Proceeding, the Lender
irrevocably authorizes the holders of the Senior Debt, or any of them, to
demand, sue for, collect and receive all payments and distributions,
to give acquittance therefor and to take such other actions as such
holders of the Senior Debt may deem necessary or advisable for the
enforcement of these subordination provisions. Such payments and distributions
shall then be distributed among holders of Senior Debt pro rata in accordance
with such holders' allowable claims in such Proceeding. The Lender further
agrees duly and promptly to take such action as may be requested at any time or
from time to time by the holders of the Senior Debt, to file appropriate proofs
of claim in respect of the Subordinated Debt, and to execute and deliver such
powers of attorney, assignments or proofs of claim or other
instruments as may be requested by the holders of the Senior Debt, all as may
be necessary or advisable to enable such holders of the Senior Debt to enforce
any and all claims upon or in respect of the Subordinated Debt and to
receive any and all payments or distributions.
(e) Turnover of Improper Payments. If any payment or distribution of any
character or any security, whether in cash, securities or other property
shall be received by the Lender in contravention of any of the terms hereof,
such payment or distribution or security shall be received in trust for the
benefit of the holders of the Senior Debt at the time outstanding in
accordance with the priorities then existing among such holders, and shall
be paid over or delivered and transferred, with any necessary endorsement, to
the Borrower for application to the payment of all Senior Debt remaining
unpaid, to the extent necessary to pay all such Senior Debt in full.
(f) No Prejudice or Impairment. (i) The rights under these
subordination provisions of the holders of any Senior Debt as against the
Lender shall remain in full force and effect without regard to, and shall not
be impaired or affected by:
(A) any act or failure to act on the part of the Borrower; or
(B) any extension or indulgence in respect of any payment or
prepayment of any Senior Debt or any part thereof or in respect of any
other amount payable to any holder of any Senior Debt; or
(C) any amendment, modification or waiver of, or addition or
supplement to, or deletion from, or compromise, release, consent or other
action in respect of, any of the terms of any Senior Debt; or
(D) any exercise or non-exercise by the holder of any Senior
Debt of any right, power, privilege or remedy under or in respect of such
Senior Debt or these subordination provisions, or any waiver of any such right,
power, privilege or remedy or of any default in respect of such Senior Debt or
these subordination provisions, or any receipt by the holder of any Senior
Debt or any security, or any failure by such holder to perfect a security
interest in, or any release by such holder of, any security for the payment of
such Senior Debt, or
(E) any merger or consolidation of the Borrower or any of its
subsidiaries into or with any other person, or any sale, lease or transfer
of any or all of the assets of the Borrower or any of its subsidiaries to any
other person; or
(F) absence of any notice to, or knowledge by, any holder of the
Subordinated Debt of the existence or occurrence of any of the matters or
events set forth in the foregoing subdivisions (A) through (E); or
(G) any other circumstances.
(ii) The Lender unconditionally waives: (A) notice of any of the matters
referred to in Section 8(f)(i), (B) to the extent permitted by law, all notices
which may be required, whether by statute, rule of law
or otherwise, to preserve intact any rights of any holder of any Senior Debt
against the Borrower, including, without limitation, any demand, presentment
and protest, proof of notice of nonpayment under any Senior Debt, (C) any
right to the enforcement, assertion or exercise by any holder of any Senior
Debt of any right, power, privilege or remedy conferred in such Senior
Debt, or otherwise, (D) any requirement of diligence on the part of any holder
of any of the Senior Debt, (E) any requirement on the part of any holder of
any Senior Debt to mitigate damages resulting from any default under such
Senior Debt, and (F) any notice of any sale, transfer or other
disposition of any Senior Debt by any holder thereof.
(iii) The obligations of the Lender under these subordination
provisions shall continue to be effective, or be reinstated, as the case may
be, if at any time any payment in respect of any Senior Debt, or any other
payment to any holder of any Senior Debt in its capacity as such, is rescinded
or must otherwise be restored or returned by the holder of such Senior Debt
upon the occurrence of any Proceeding, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or any substantial part of its property, or
otherwise, all as though such payment had not been made.
(g) Subrogation. The Lender shall not have any subrogation or other
rights as the holder of a Senior Debt, and the Lender hereby waives all such
rights of subrogation and all rights of reimbursement or indemnity whatsoever
and all rights of recourse to any security for any Senior Debt, until such
time as all the Senior Debt shall be Indefeasibly Paid and all of the
obligations of the Borrower under or in respect of the Senior Debt shall have
been duly performed. From and after the time at which all Senior Debt have
been Indefeasibly Paid, the Lender shall be subrogated to all rights of any
holders of Senior Debt to receive any further payments or distributions
applicable to the Senior Debt until the Subordinated Debt shall have been
Indefeasibly Paid, and for the purposes of such subrogation, no payment or
distribution received by the holders of Senior Debt of cash, securities or
other property to which the Lender would have been entitled except for these
subordination provisions shall, as between the Borrower and its creditors
other than the holders of Senior Debt, on the one hand, and the Lender, on
the other, be deemed to be a payment or distribution by the Borrower to or on
account of the Senior Debt.
(h) Limitation on Actions. The Lender, by its acceptance of this
Note, agrees and undertakes that, upon the occurrence of an Event of
Default under this Note, unless and until the principal portion of all
Senior Debt shall have been accelerated:
(i) The Lender shall not (A) accelerate all or any portion of
the Subordinated Debt, (B) take any action to foreclose or realize upon any
collateral securing the Subordinated Debt or otherwise enforce this Note,
(C) take, obtain or hold (or permit anyone acting on its behalf to take,
obtain or hold) any assets of the Borrower, whether as a result of any
administrative, legal or equitable action, or (D) otherwise commence, prosecute
or participate in any administrative, legal or equitable action against
the Borrower relating to the Subordinated Debt, provided, however, that
anything in these subordination provisions contained to the contrary
notwithstanding.
(X) The Lender, may, but not more than one year prior to the expiration
of any applicable limitation period provided by any applicable statute of
limitation, (1) accelerate all or any portion of the Subordinated Debt
and/or (2) commence and prosecute to judgment any action necessary to
enforce such Subordinated Debt against the Borrower, but the Lender shall not
take any action to enforce or collect any judgment so obtained or to enforce
any lien of the Subordinated Debt unless expressly permitted by these
subordination provisions, and
(Y) in the event that any Proceeding is commenced by or against
the Borrower, the Lender may appear as a party in such action or proceeding
and assert and perfect his rights with respect to such Subordinated Debt
provided that, in so acting, the Lender shall recognize the rights of the
holders of Senior Debt under these subordination provisions, including,
without limitation, the right to vote the claim represented by such
Subordinated Debt to the extent necessary to enforce these subordination
provisions.
(ii) If the Lender, in violation of the provisions herein set forth,
shall commence, prosecute or participate in any suit, action, case or
proceeding against the Borrower, the Borrower may interpose as a defense or
plea the provisions set forth herein, and any holder of any Senior Debt may
intervene and interpose such defense or plea in its own name or in the name of
the Borrower, and shall, in any event, be entitled to restrain the enforcement
of the payment provisions of this Note in its own name or in the name
of the Borrower, as the case may be, in the same suit, action, case or
proceeding or in any independent suit, action, case or proceeding..
(i) Accrual of Interest; Addition of Interest to Principal. Nothing
contained in this Section 8 shall be deemed to limit or impair the accrual of
interest on this Note or the addition of accrued and unpaid interest on this
Note to the principal of this Note, in each case to the maximum extent permitted
hereunder or under applicable law.
9 Waiver. The Borrower hereby waives diligence, presentment,
protest, demand for payment and notice (including, without limitation, any and
all notices of default arising under Section 6 hereof) of any kind
whatsoever.
10 Costs and Expenses. The Borrower hereby agrees to pay or
reimburse the Lender for all reasonable costs, expenses or losses incurred by
the Lender in connection with the collection or enforcement of the
provisions hereof or of its rights in connection with this Note (whether or not
any formal action or proceeding is commenced), including, but not limited
to, the reasonable legal or collection fees and disbursements incurred by
the Lender.
11 No Waiver. No course of dealing between the Borrower and the
Lender or any failure, delay or omission on the part of the Lender in
exercising any right hereunder shall operate or be construed as a waiver of such
right or any other right hereunder at any other time or times. The waiver by
the Lender of a breach or default of any provision of this Note shall not
operate or be construed as a waiver of any subsequent breach or default thereof
or any other breach or default hereunder at any other time or times.
12 Governing Law. This Note shall be governed by and construed
under the laws of the State of New York and, in any litigation in
connection with this Note, the Borrower hereby consents to and confers
personal jurisdiction on the courts of the State of New York and on the
Federal courts therein and expressly waives any objection as to venue in any
of such courts.
13 Successors and Assigns. This Note shall be binding upon the
Borrower and its successors and inure to the benefit of the Lender and its
successors and assigns.
14 Notices. All notices and other communications provided for
hereunder shall be in writing and mailed or delivered to the Borrower or the
Lender, as applicable, at its address set forth above or, as to each such
party, at such other address as shall be designated by such party in a written
notice to the other party. All such notices and communications shall when
mailed be effective when deposited in the mails and when delivered be
effective upon delivery.
15 Severability. The provisions of this Note are severable and the
invalidity or unenforceability of any provision shall not alter or impair the
remaining provisions of this Note.
16 Headings. Section headings in this Note are included herein for
convenience of reference only and shall not constitute a part of this Note for
any other purpose.
TRIGEN ENERGY CORPORATION
By: /s/ Stephen T. Ward
--------------------------
Name: Stephen T. Ward
Title: Treasurer
ATTEST:
_______________________________
(Corporate Seal)
EXHIBIT 18
ARTHUR
ANDERSEN
February 8, 1999
Arthur Andersen LLP
Champion Plaza 400
Atlantic Street
Trigen Energy Corporation PO Box 120021
One Water Street Stamford CT 06912-0021
White Plains, New York 10601 Writer's Direct Dial
[203] 353 3400
RE: Form 10-K Report for the year ended December 31,1998
Dear Sirs:
This letter is written to meet the requirements of Regulation S-K
calling for a letter from a registrant's independent accountants
whenever there has been a change in accounting principle or
practice.
As of January 1,1999, the Trigen Energy Corporation (the "Company")
changed from the average costing method of accounting for certain
operating costs to the actual costing method. According to the
management of the Company, this change was made to better reflect
the results of its operations and conforms to internal and external
reporting of such results.
A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among
acceptable alternative principles has not been established by the
accounting profession. Thus, we cannot make an objective
determination of whether the change in accounting described in the
preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial
reporting, in this particular case on a subjective basis, and our
opinion stated below is based on our determination made in this
manner.
We are of the opinion that the Company's change in method of
accounting is to an acceptable alternative method of accounting,
which, based upon the reasons stated for the change and our
discussions with you, is also preferable under the circumstances in
this particular case. In arriving at this opinion, we have relied
on the business judgment and business planning of your management.
Very truly yours,
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
JB
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated February 8,
1998 included in the Company's previously filed Registration Statements No.
333-4198 on Form S-3; and No. 33-92468 and No. 333-36151 and No. 33-83736 on
Form S-8 and Post-Effective Amendment No. 1 to Form S-8 of Trigen Energy
Corporation and subsidiaries as of December 31, 1998.
/S/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
March 29, 1999
Stamford, Connecticut
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Trigen Energy Corporation
We consent to incorporation by reference in the registration statements No.
333-4198 on Form S-3, No. 33-92468 and No. 333-36151 on Form S-8, and No. 33-
83736 on Form S-8 and Post-Effective Amendment No. 1 to Form S-8 of Trigen
Energy Corporation and subsidiaries of our report dated February 3, 1998,
relating to the consolidated balance sheets of Trigen Energy Corporation and
subsidiaries as of December 31, 1997, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years in
the two-year period ended December 31, 1997, and the related schedules, as of
and for the periods described therein, which report appears in the December
31, 1998 Annual Report on Form 10-K of Trigen Energy Corporation.
KPMG Peat Marwick LLLP
March 26, 1998
Stamford, Connecticut
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the previously
filed Registration Statements on (i) Form S-3 (File No. 333-4198) and (ii)
Form S-8 (No. 33-92468, 333-36151, 33-83736 and Post Effective Amendment No.
1 to Form S-8 of Trigen Energy Corporation of our report, dated January 26,
1999 (except for Note 9, as to which the date is March 10, 1999), on the
financial statements for the years ended December 31, 1998 and 1997 of Grays
Ferry Cogeneration Partnership appearing in this Form 10-K.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K for the fiscal year ended December 31, 1998 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,074
<SECURITIES> 0
<RECEIVABLES> 42,109
<ALLOWANCES> 1,187
<INVENTORY> 7,074
<CURRENT-ASSETS> 8,016
<PP&E> 538,200
<DEPRECIATION> (95,445)
<TOTAL-ASSETS> 618,156
<CURRENT-LIABILITIES> 75,629
<BONDS> 343,685
0
0
<COMMON> 124
<OTHER-SE> 147,804
<TOTAL-LIABILITY-AND-EQUITY> 618,156
<SALES> 242,394
<TOTAL-REVENUES> 242,394
<CGS> 169,577
<TOTAL-COSTS> 210,571
<OTHER-EXPENSES> 2,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,172
<INCOME-PRETAX> 11,132
<INCOME-TAX> 4,575
<INCOME-CONTINUING> 6,557
<DISCONTINUED> 0
<EXTRAORDINARY> (299)
<CHANGES> 0
<NET-INCOME> 6,258
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
EXHIBIT 99
Grays Ferry Cogeneration Partnership
Financial Statements for the Years Ended December 31, 1998 and 1997 and
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Partners of Grays Ferry Cogeneration Partnership:
We have audited the accompanying balance sheets of Grays Ferry Cogeneration
Partnership (the "Partnership"), as of December 31, 1998 and 1997, and the
related statements of changes in partners' capital, and cash flows for the
years then ended, and the related statement of income for the period from
January 9, 1998 (date of commercial operation) to December 31, 1998. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1998 and
1997, and its cash flows for the years then ended, and the results of its
operations for the period from January 9, 1998 (date of commercial operation)
to December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, PECO Energy has taken action to terminate its power
purchase agreements with the Partnership. As a consequence, the Project Lender
has determined that the Partnership is in default. These actions raise
substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans concerning these matters are also discussed in Note
2. The financial statements do not include any adjustment that might result
from the outcome of these uncertainties, other than the classification of the
Project debt as current.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 26, 1999 (except Note 9, as to which the date is March 10, 1999)
<PAGE>
GRAYS FERRY COGENERATION PARTNERSHIP
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<S> <C> <C>
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $18,628,423 $6,441,729
Accounts receivable - related parties 10,678,770 2,630,093
Accounts receivable - other 1,805,350
Inventory 2,163,444 1,020,469
Prepaid expenses 116,976
----------- ---------
Total current assets 33,392,963 10,092,291
PROPERTY, PLANT AND EQUIPMENTS:
Construction work-in-progress 144,328,197
Plant in service 151,297,117
----------- ---------Total
Property, plant & equipment 151,297,117 144,328,197
Accumulated depreciation (7,402,171)
----------- ---------
Property, plant and equipment - net 143,894,946 144,328,197
OTHER ASSETS (Net of accumulated
amortization of $426,949 in 1998) 6,875,906 6,544,595
----------- ---------
TOTAL ASSETS $184,163,815 $160,965,083
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Construction loan (Notes 2 and 6) $94,324,049 $113,000,000
Subordinated debt (Note 6) 15,000,000
Accounts payable and accrued
liabilities - related parties 3,503,417 558,759
Accounts payable and accrued
liabilites - other 15,017,152 6,381,865
Retainage payable 5,581,729 5,581,729
------------ ---------
Total liabilities 133,426,347 125,522,353
PARTNERS' CAPITAL 50,737,468 35,442,730
----------- ----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL $184,163,815 160,965,083
============ ===========
See notes to financial statements.
</TABLE>
<PAGE>
GRAYS FERRY COGENERATION PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENT OF INCOME
PERIOD FROM JANUARY 9, 1998 (Date of Commercial Operation)
TO DECEMBER 31, 1998
<S> <C>
REVENUES FROM RELATED PARTIES:
Electric energy sales $50,776,226
Steam sales 14,741,775
Capacity fees:
Electric 9,531,900
Steam 3,075,988
----------
Total revenues 78,125,889
------------
OPERATING EXPENSES:
Fuel and consumables:
Related party 2,531,844
Other 32,394,334
Operation and maintenance:
Related parties 1,527,916
Other 2,819,680
General and administrative:
Related parties 2,772,641
Other 2,373,432
Depreciation 7,402,171
-----------
Total operating expenses 51,822,018
-----------
INCOME FROM OPERATIONS 26,303,871
------------
OTHER INCOME (EXPENSE):
Interest income 665,765
Interest expense (11,674,898)
------------
Total other expense (11,009,133)
-------------
NET INCOME $ 15,294,738
============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GRAYS FERRY COGENERATION PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1998 AND 1997
Adwin CogenAmerica Trigen Total
(Schuylkill) Schuylkill (Schuylkill) Partners'
Cogeneration, Inc. Cogeneration, Capital
Ind. Inc.
------------ ------------------ ------ --------
<S> <C> <C> <C> <C>
BALANCE,
JAN. 1, 1996 $ 2,784,214 $2,658,516 $5,442,730
Capital Con-
tributions 10,000,000 10,000,000 10,000,000 30,000,000
---------- ---------- ----------- ---------
BALANCE,
DEC. 31,1997 12,784,214 12,658,516 10,000,000 35,442,730
Net income for
period 5,098,246 5,098,246 5,098,246 15,294,738
---------- ---------- - ---------- ---------
BALANCE,
DEC. 31, 1998 $17,882,460 $17,756,762 $15,098,246 $50,737,468
========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
GRAYS FERRY COGENERATION PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C>
1998 1997
OPERATING ACTIVITIES:
Net income $15,294,738
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 7,402,171
Amortization of other asset 426,949
Changes in assets and liabilities
which provided (used) cash:
Accounts receivable - related parties (8,048,677)
Accounts receivable - other (1,805,350)
Prepaid assets (116,976)
Inventories (1,142,975)
Accounts payable and accrued expenses
- related parties 3,503,417
Accounts payable and accrued expenses
- other 15,017,152
Other assets (758,260)
----------
Net cash provided by operating activities 29,772,189
-----------
INVESTING ACTIVITIES:
Construction expenditures (6,968,920) $(74,253,351)
Decrease in other construction related
expenses (2,439,849)
Decrease in construction related
accruals - related parties (558,759)
Decrease in construction related accruals
- other (6,381,865) (4,812,728)
----------- -----------
Net cash used in investing activities (13,909,544) (81,505,928)
------------ ----------
FINANCING ACTIVITIES:
Proceeds from borrowings under
construction loan agreement and
subordinated debt 15,000,000 57,900,000
Repayment of construction loan agreement(18,675,951)
Partners' capital contributions 30,000,000
Net cash (used in) provided by
financing activities (3,675,951) 87,900,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,186,694 6,394,072
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,441,729 47,657
----------- --------
----
CASH AND CASH EQUIVALENTS, END OF PERIOD 18,628,423 $ 6,441,729
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for interest,
net of amounts capitalized in 1997 $ 7,770,075 $ -
=========== ============
See notes to financial statements.
</TABLE>
<PAGE>
Grays Ferry Cogeneration Partnership
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. ORGANIZATION OF PARTNERSHIP
Grays Ferry Cogeneration Partnership, (the "Partnership") was
organized on October 29, 1991 as a Pennsylvania general partnership for the
sole purpose of developing, owning, constructing and operating a 150 megawatt
gas and oil fired qualifying cogeneration facility (the "Project") at the
Schuylkill Station of the TrigenPhiladelphia Energy Corporation ("TPEC") in
Philadelphia, Pennsylvania. For the period from October 29, 1991 (date of
inception) through January 8, 1998, the Partnership was considered a
development stage entity as its sole activity was construction of the Facility.
Pursuant to 20-year electricity and 25-year steam purchase agreements between
the Partnership and its two customers, sales of electricity and steam began in
January 9, 1998, the date of Commercial Operation.
The Partnership's date of Commercial Operation of January 9, 1998 was chosen
because it was the date its customers started paying it for electricity and
steam sold to them under its 20-year electricity purchase agreements and its 25-
year steam purchase agreements. The Partnership believes the date should have
been December 30, 1997 and is litigating this issue as part of the litigation
described in Note 2.
The Partnership's original general partners are Adwin Equipment Company, a
wholly owned subsidiary of Eastern Pennsylvania Development Company, which is a
wholly owned subsidiary of PECO Energy Company ("PECO") and O'Brien
(Schuylkill) Cogeneration, Inc., ("O'Brien"), a wholly owned subsidiary of
O'Brien Environmental Energy, Inc. Subsequent to the original Partnership
formation, Adwin (Schuylkill) Cogeneration, Inc. ("Adwin"), a wholly owned
subsidiary of Adwin Equipment Company, was assigned all rights,
responsibilities, and obligations of the Partnership previously held by Adwin
Equipment Company.
Trigen (Schuylkill) Cogeneration, Inc. ("Trigen"), a wholly owned subsidiary of
Trigen Energy Corporation and an affiliate of TPEC, Philadelphia Thermal
Development Corporation, ("PTDC"), and Philadelphia United Power Corporation,
("PUPCO"), joined the Partnership as an equal partner as of March 1, 1996.
In a reorganization plan, approximately 40% of the capital stock of O'Brien
Environmental Energy, Inc. was acquired by NRG Energy, Inc., and the Company
was renamed NRG Generating (U.S.) Inc. As a result of this reorganization,
O'Brien became known as NRGG (Schuylkill) Cogeneration, Inc. ("NRGG"). During
1998, NRGG was renamed CogenAmerica Schuylkill, Inc. ("Cogen").
The three general partners are equal partners, with net operating profits and
losses and distributions to be allocated equally to the partners, subject to
the terms and provisions as stated in the Amended and Restated Partnership
Agreement.
2. CONTINUATION OF BUSINESS
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed below, PECO has
taken action to terminate its power purchase
<PAGE>
agreements with the Partnership. As a consequence, the Project Lender has
determined that the Partnership is in default. These actions raise substantial
doubt about the Partnership's ability to continue as a going concern. The
financial statements do not include any adjustment that might result from the
outcome of these uncertainties, other than the classification of the Project
debt as current.
Engineering, Procurement and Construction Contract - Although the Partnership
began Commercial Operation on January 9, 1998, the Partnership has not yet
accepted care, custody or control of the Project from Westinghouse Electric
Corporation (the "Contractor") due to the Partnership's concerns over design
and construction issues. This issue is in arbitration.
PECO - In March 1998, the Partnership received notice from PECO that PECO
believes its power purchase agreements with the Partnership are no longer
effective. PECO has refused to pay the rates set forth in the agreements based
on its allegations that the Pennsylvania Public Utilities Commission (the
"PPUC") has denied cost recovery of the power purchase agreements in retail
electric rates.
On March 9, 1998, the Partnership, along with Trigen, NRGG and TPEC
(collectively "Plaintiffs") filed suit against PECO, Adwin and the PPUC
(collectively "Defendants") in United States District Court for the District of
Pennsylvania. The suit sought to enjoin PECO from terminating the power
purchase agreements and to compel PECO to pay the rates set forth in the
agreements. In addition, the Plaintiffs sought actual damages, punitive
damages, attorneys' fees and costs. On March 19, 1998, the federal district
court dismissed the lawsuit for lack of subject matter jurisdiction.
On April 9, 1998, the Plaintiffs filed suit against the Defendants in the Court
of Common Pleas (the "Court") for Philadelphia County in the State of
Pennsylvania. Preliminary injunctive relief against PECO in the form of
specific performance of the electric sale agreements, including payments
according to the contract terms, was granted by the Court on May 6, 1998. A
$50,000 bond required by the Court was posted by the Plaintiffs on May 7, 1998.
On May 8, 1998, PECO sought a stay of the May 6 Order which was denied on May
20, 1998. Also on May 20, 1998, the Court issued a separate order adjudging
PECO to be in civil contempt of the May 6 Order. A coercive sanction of
$50,000 per day, or portion thereof, for nonpayment of all sums owing by PECO
in accordance to the contract terms was included in the May 20, 1998 Order. An
emergency application of stay by PECO of the May 6 Order was denied on May 22,
1998. As a result, PECO complied with the May 6 Order on May 22, 1998.
Construction Loan Default - On March 17, 1998 the Partnership received a notice
of default from the Project Lender stating that PECO's determination that the
power purchase agreements are no longer in effect constitutes a Material
Adverse Effect as defined under the credit agreement. In addition, the
Subordinate Credit Commitment (the "Subordinate Debt") contains cross-default
provisions; accordingly upon notice of default from the Project Lender, the
Partnership was in default on its Subordinate Debt. As of the date of this
report, the default has not been waived; accordingly, the Partnership's long-
term debt has been reclassified as current in the Partnership's balance sheet
(see Note 6). The Project Lender has also restricted the Partnership's ability
to make distributions to related parties for certain transactions, along with
distributions to the Partners of Partnership earnings. In addition, the
interest rate charged under the credit agreement increased to prime plus 2.00%,
and the interest on the Subordinate Debt increased to prime plus 3.5% (9.75%
and 11.25%, respectively, at December 31, 1998), the penalty interest rates.
Management intends to vigorously pursue enforcement of the power purchase
agreements, which if successful, should result in a cure of the construction
loan and Subordinate Debt default.
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Capitalized Project Costs - Construction of the Project was
originally scheduled to be completed on or about December 8, 1997 (see Notes 1
and 5), at an estimated cost of $158,000,000. $128,000,000 was provided from
the proceeds of the credit agreements (see Note 6), and $30,000,000 was
provided from partners' capital contributions (see Note 7). The remainder has
been financed through accounts and retainage payable. Capitalized Project costs
include costs incurred in the development and construction of the gas and oil
fired 150-megawatt cogeneration facility. The majority of these costs
represent expenditures made under the Engineering, Procurement, and
Construction contract between the Partnership and the Contractor. Other costs
represent expenditures for legal, consulting, engineering and financing
activities relating to the Project. All costs related to the design and
construction of the Project up to the date of Commercial Operation on January
9, 1998, have been capitalized as construction work-in-progress when incurred
and now are classified as plant in service, except deferred financing fees
which are included in other assets. Substantially all of the property, plant
and equipment is being depreciated over 20 years, the life of the Project's
electric and contingent capacity sales agreements (see Note 4).
(b) Revenue Recognition - The Partnership's primary source of revenues is from
the sale of steam to TPEC and the sale of electricity generated by the Project
to PECO. Pursuant to the Steam Sales Agreement, TPEC is obligated to purchase
all of its steam requirements from the Project as defined in the agreement.
Under the provisions of the Power Purchase Agreements, PECO has agreed to
purchase, or accept delivery of, the net electric output from the Project, up
to the lesser of 150 megawatts or the amount of electric output for which the
Federal Energy Regulatory Commission ("FERC") has certified the Project.
(c) Segment Reporting - The Partnership currently operates the Project, which
produces two forms of salable energy from one generation process. Revenues from
each of the two forms are disclosed on the statement of income.
(d) Inventory - Inventory, which is recorded on the first-in, first-out basis,
consists of the following at December 31:
1998 1997
Fuel $1,532,987 $1,020,469
Spare Parts 630,457
---------- ---------
$2,163,444 $1,020,469
========== ==========
(e) Fair Value of Financial Instruments - The amounts reported in the balance
sheets for accounts receivable, accounts payable and debt approximate fair
value.
(f) Accounting for Income Taxes - The Partnership is not a taxpaying entity
for income tax purposes. Taxable income or loss from the Partnership is
reportable by the Partners on their respective income tax returns.
Accordingly, there is no recognition of income taxes in the financial
statements.
(g) Interest Rate Hedging - The Partnership entered into interest rate swap
agreements in order to hedge against future increases in interest rates. For
swap contracts that effectively hedge interest
<PAGE>
rate exposures, the net cash amounts paid or received on the contract are
accrued and recognized as an adjustment to interest
expense over the period of the contract.
(h) Use of Estimates - The preparation of the Partnership's financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates and the amounts of expenses
during the reporting periods. Actual results could differ from those
estimates.
(i) Reclassifications - Certain amounts in the 1997 financial statements have
been reclassified to conform to current year presentation.
(j) Cash and Cash Equivalents - The Partnership classifies all investments
with terms to maturity of less than three months upon purchase as cash and cash
equivalents. Cash and cash equivalents at December 31, 1998 consist primarily
of a money market investment account, which is carried at market, which
approximates cost.
(k) Deferred Financing Costs - Deferred financing costs of $6,544,596 are
amortized over the life of the credit agreements and are included in other
assets.
(l) Real Estate Taxes - The Partnership has accrued real estate taxes as
required in the Facility Lease (see Note 4). The Partnership has made its best
estimate of its anticipated real estate taxes, but has not yet been billed by
its local taxing authority. However, management does not believe that actual
taxes due will be materially different than the amounts currently accrued.
4. RELATED PARTY AGREEMENTS AND TRANSACTIONS
Facility Lease - The Project is located at 2600 Christian Street, Philadelphia,
Pennsylvania, on the site of TPEC's Schuylkill Station and PECO's Schuylkill
Station, which is owned by PECO. The Partnership has leased a portion of the
land which TPEC has leased from PECO. The lease agreement with TPEC commenced
on the date construction began, March 8, 1996, and will terminate 25 years from
the date of Commercial Operation. The Partnership is obligated to pay TPEC $1
per year as rent. The Partnership is required to pay any increase in taxes,
assessments and fees assessed against the site or the Facility during the lease
term.
Dock Facility Service Agreement - The Partnership has an agreement with PTDC
and TPEC, an affiliate of PTDC, for fuel oil transportation and storage
services. The Partnership pays operating fees based on the number of barrels
received at, or delivered to, the dock as well as a storage fee for barrels
stored for use by the Project. These fees are adjusted annually based on the
Consumer Price Index ("CPI"). During 1998 and 1997, the Partnership incurred
costs associated with these services of $199,640 and $100,923, respectively, of
which $12,862 and $100,923 is included in accounts payable at December 31, 1998
and 1997, respectively. The entrance to the Schuylkill Station of TPEC, which
is also the entrance to the Project, was upgraded in 1997. The Partnership had
previously agreed to reimburse TPEC for its share of the cost which amounted to
$250,000.
Operations and Maintenance Agreement - PUPCO, a Delaware corporation, an
affiliate of TPEC, manages and performs all operation and maintenance of the
Project subsequent to the Commercial Operation date in accordance with a 25-
year agreement. Prior to Commercial Operation, PUPCO was reimbursed for certain
costs incurred during mobilization and received a monthly fee of
$25,000 limited to $150,000 in total monthly fees. After Commercial Operation
begins, the Partnership is required to pay PUPCO an annual operating fee of
$600,000 as detailed in the agreement. A portion of the operating fee,
$400,000, is adjusted annually based on
<PAGE>
changes in the CPI. As an additional fee, PUPCO will receive 30% of all
payments received by the Partnership pursuant to the Contingent Capacity
Purchase Addendum (Phase 1). The Partnership was billed by PUPCO annual
operating fees of $600,000 and a capacity fee of $757,416, and reimbursable
expenses of $1,647,658 for 1998, of which $1,497,003 was included in accounts
payable at December 31, 1998. Included in those billings were $29,192 and
$32,851 of fees and reimbursable expenses, respectively, which were capitalized
as construction cost.
Steam Sale Agreement - The Partnership has a 25-year agreement with TPEC in
which the Partnership sells all of the steam produced by the plant to TPEC.
The price for low- and high-pressure steam is determined based on a function of
weighted average fuel price, CPI and the City of Philadelphia Tariff Water and
Sewer Rates. The agreement requires TPEC to pay for a minimum of 3.3 Mlbs on
an annual basis upon Commercial Operation. During 1998 and 1997, $18,113,962
and $851,182, respectively, was billed by the Partnership to TPEC for steam
produced and capacity charges. Of the amounts billed in 1998 and 1997, $296,199
and $851,182, respectively, were capitalized as a reduction of construction
costs as such sales occurred as a result of plant testing. Accounts receivable
as of December 31, 1998 and 1997 include $3,985,346 and $851,182, respectively,
due from TPEC for these billings.
Electric and Contingent Capacity Sales Agreements - The Partnership has two 20
year electric sale agreements with PECO, commencing at the Commercial Operation
date, whereby the Partnership supplies PECO with electric output at costs
defined by the agreements. The terms of agreements require PECO to purchase or
accept delivery of the net electric output from the power plant of the lesser
of 150 megawatts or the amount of electric output for which the FERC has
certified the power plant. The two parties also entered into a 20-year
Contingent Capacity Purchase Addendum which requires PECO to purchase electric
capacity from the Partnership. The addendum term commenced on the date of
Commercial Operation. During 1998 and 1997, $61,932,981 and $1,778,911,
respectively, was billed by the Partnership to PECO for electricity produced
and capacity charges. Of the amounts billed in 1998 and 1997, $1,624,855 and
$1,778,911, respectively, were applied as a reduction of construction costs as
such sales occurred as a result of plant testing. Accounts receivable as of
December 31, 1998 and 1997 include $6,693,424 and $1,778,911, respectively, due
from PECO for these billings. As a result of the Project, PECO was required to
construct an interconnection between its facility and the Partnership's
facility. The costs associated with the interconnection, $2,355,426, were
reimbursed to PECO by the Partnership during 1997. Other amounts paid to PECO
during 1997 for reimbursement of expenses were $6,000 for the Partnership's
portion of a joint thermal modeling study.
Steam Venture Agreement - On September 17, 1993, TPEC, PUPCO and the
Partnership entered into an Amended and Restated Steam Venture Agreement for
the purpose of the Partnership designing, constructing, starting-up, and
testing and owning a cogeneration facility, with the assistance of the other
two participants. The agreement required the Partnership to pay PUPCO
quarterly fees of $150,000 up to Commercial Operation. Amounts billed in 1997
were capitalized as construction costs; however, $252,635 was in accounts
payable at December 31, 1997. After Commercial Operation commenced, PUPCO
receives annual fees of $1,200,000 payable in monthly installments. Two-thirds
of the annual fee is subject to an escalation of 3% per annum. During 1998 the
Partnership was billed $1,200,000 by PUPCO under this agreement, of which
$25,806 was capitalized as construction cost. Accounts payable at December 31,
1998, include $1,200,000 related to these billings. In addition, during 1997,
the Partnership incurred PUPCO mobilization fees of $150,000.
Fuel Management Agreement - During 1998, the Partnership had an agreement with
Exelon Corporation, a subsidiary of PECO, for fuel management services. Under
the terms of the agreement, the Partnership was to pay Exelon a fee based on
the amount of natural gas and liquid fuels delivered to the Project. During
1998, the
<PAGE>
Partnership incurred costs associated with these services of $176,480, of which
$4,474 was capitalized as construction costs and $176,480 was included in
accounts payable at December 31, 1998.
Construction Management - NRGG received fees and reimbursed expenses for
management services provided to the Project and for acting as the Partnership's
representative to administer all third-party contracts during the construction
phase. The arrangement commenced on March 8, 1996 and ceased upon Commercial
Operation. During 1998, NRGG billed the Partnership fees and reimbursed
expenses of $56,250 and $214,795, respectively, all of which was capitalized as
construction cost. Accounts payable at December 31, 1997 included $205,201 of
such fees and expenses.
Management Services and Other - In accordance with the Partnership agreement,
the Partnership is required to pay it's Managing Partner $150,000 per year for
providing management services to the Partnership. NRGG acted as Managing
Partner through November 15, 1998 and billed the Partnership fees and
reimbursable expenses of $131,250 and $36,719, respectively of which $118,750
was included in accounts payable at December 31, 1998. Of these fees, $3,387
was capitalized as construction cost. Effective November 15, 1998, Trigen
became the Managing Partner and billed the Partnership fees of $18,750 for the
year ended December 31, 1998, all of which was included in accounts payable as
of December 31, 1998. In addition, the Partnership purchases demineralized
water from Trigen. For the year ended December 31, 1998, the Partnership
purchased $2,206,869 of demineralized water from Trigen of which $46,671 was
capitalized as a construction cost prior to commercial operation and $498,322
was included in accounts payable as of December 31, 1998.
5. OTHER SIGNIFICANT CONTRACTS
Gas Supply Agreement - The Partnership has a Gas Sales Agreement with Aquila
Energy Marketing Corporation ("Aquila"), a Delaware corporation, providing for
the purchase of natural gas to meet the power plant's requirements. The
purchase of gas as stated in the agreement is divided into two tiers based on
quantity purchased. The price of the first tier, for daily purchases up to
32,000 million British Thermal units (MMBtu) is based on the gas spot market
plus a premium. The second tier, for daily purchases above the initial 32,000
MMBtu, is also based on the gas spot market plus a premium. The premium on
second tier gas purchases is subject to annual negotiations effective for years
beginning January 1, 1999 and after. In addition, beginning in 2001 the price
of both tiers is indexed based on the electricity rate received by the Project.
The agreement also has a pricing provision for winter quantity gas delivered to
certain redelivery points as defined in the agreement. The initial term of the
Gas Sales Agreement is 192 months from the initial delivery and may be extended
for one-year renewal periods unless terminated by either party. During 1998,
the Partnership purchased $14,691,090 of gas under this agreement.
Gas Transportation Arrangements - The Partnership and the Philadelphia
Authority for Industrial Development ("PAID") entered into a Service Agreement
dated January 28, 1996, whereby PAID agreed to deliver non-interruptible local
gas service to the Project for up to 50,000 Dekatherms ("Dth") per day from the
date of Commercial Operation via an established agreement with Philadelphia Gas
Works ("PGW"). The agreement between the Partnership and PAID is for a period
of 25 years and may be extended at the mutual agreement of the two parties.
The Partnership is committed to purchase transportation services for a minimum
annual quantity based in part, on steam sales to Trigen. In addition, TPEC
permanently released capacity of 15,000 Dth to the Partnership beginning
November 1, 1997. TPEC retained first refusal privileges on this released
capacity in the event that the Partnership does not require the additional
capacity. During 1998, the Partnership purchased $3,187,640 of transportation
services under these agreements.
<PAGE>
Engineering, Procurement and Construction Contract - The Partnership has a
$116,300,000 engineering, procurement and construction contract (the "EPC")
with the Contractor. The contract guaranteed that the Project would be
provisionally completed by December 8, 1997, the projected date of Commercial
Operation. Provisions of the contract included rebates to the Partnership of
$70,000 a day should the Contractor fail to complete the Project on schedule as
well as bonus payments to the Contractor should the Project be completed prior
to schedule. The contract was not completed on time. As such, a rebate in the
amount of $1,722,000 has been recorded in accounts receivable at December 31,
1998. The Partnership believes this accrual is based on a conservative
estimate. Currently, the Partnership and the Contractor are in arbitration over
the completion of the EPC contract (see Note 2). Provisional acceptance of the
Project has not yet occurred.
Combustion Turbine Parts Supply and Repair and Scheduled Outage Services
Agreement - The Partnership entered into a combustion turbine parts supply and
repair and scheduled outage services agreement with Westinghouse Electric
Corporation as of August 29, 1997. The agreement requires the Partnership to
purchase from the Contractor parts and miscellaneous hardware for the gas
turbine comprising a portion of the Project, repair of parts for the gas
turbine comprising a portion of the Project, and scheduled outage services and
technical field assistance for unscheduled outages as defined in the agreement.
6. CREDIT AGREEMENTS
On March 1, 1996 the Partnership entered into a $125,000,000 Credit Agreement
(the "Agreement") to provide construction and term loan financing for the
purpose of financing a major portion of the Project facility. The Agreement
provides the Partnership with $113,000,000 of construction loan commitments
(the "Construction Loan") which are convertible to term loan commitments (the
"Term Loan") after completion of certain criteria as stated in the Agreement,
$7,000,000 in letter of credit commitments (the "LOC Commitment"), and
$5,000,000 in working capital loan commitments (the "WC Loan"). Upon
completion of the Project, the Construction Loan is due and payable or may be
converted to a 15-year Term Loan, payable in quarterly installments through the
year 2013. The Term Loan is available only to repay the Construction Loan.
Substantially all of the Partnership's assets have been pledged as collateral
under the Agreement.
The Partnership had $94,324,049 outstanding under the Construction Loan at
December 31, 1998. The Partnership has pledged $5,000,000 under its LOC
Commitment for outstanding letters of credit as of December 31, 1998.
Interest on balances outstanding under the Construction Loan and the WC Loan
prior to conversion of Construction Loan to Term Loan, is based on either the
base rate, as defined in the Agreement, or LIBOR plus 1.1% as elected by the
Partnership at the time of borrowing, and was 6.66% at December 31, 1998.
Interest on balances outstanding under the Term Loan and the WC Loan,
subsequent to conversion of Construction Loan to Term Loan, is based on the
rates as noted during the Construction Loan period and is subject to an
increase in the percentage as defined in the Agreement. Interest on letters of
credit outstanding under the LOC Commitment is currently 1.1%, and is subject
to periodic increases during the term of the Agreement. The LOC Commitment also
is subject to a fee of 0.125%, due quarterly.
The Agreement provides for commitment fees of 0.375% on the unused Construction
Loan, WC Loan and LOC Commitment.
To protect the Project Lender from the uncertainty of interest rate changes
during the term of the loan, the Partnership entered into an agreement (the
"Swap Agreement") with Chase Manhattan Bank
<PAGE>
(the "Counterparty"), a participating bank in the Loan Agreement on March 1,
1996. Under the Swap Agreement, the Partnership agreed to swap interest
payments with the Counterparty. Effective December 8, 1997, the Partnership is
obligated to make fixed interest payments at a rate of 7.18% from effective
date of December 8, 1997 through termination date of December 8, 2012 on a
balance of $56,500,000 at December 8, 1997 and decreasing in accordance with
the Swap Agreement. The Counterparty is obligated to make variable interest
payments based on a three-month LIBOR, which was 5.2% at December 31, 1998, on
the same balance.
The Partnership also has a Subordinate Credit Commitment with the Project's
Contractor. The Contractor agreed to lend the Partnership $15,000,000 to
provide additional funding for the construction of the Project. The funds are
available after the Construction Loan commitments described above have been
exhausted and the Partners have made their equity contribution of $30,000,000
to be used for the continuation of the Project's construction. The term of the
Subordinate Debt is nine years and interest on the Subordinate Debt will be
calculated using the prime rate for the first four years and prime rate plus
1.5% for the remaining years. During 1998, the Partnership borrowed the full
$15,000,000 available under the Subordinate Debt.
During 1998, the Partnership received a notice of default from the Project
Lender. Such default resulted in a cross-default on the Partnership's
Subordinate Debt. See Note 2.
7. CAPITAL CONTRIBUTIONS
During 1997, the Construction Loan (see Note 6) was fully utilized. Each of the
Partners made an equity contribution of $10,000,000. The last contributions
were made December 29, 1997.
8. NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), Reporting
on the Costs of Start-Up Activities. This statement, which requires that costs
related to start-up activities generally be expensed as incurred, is effective
for fiscal years beginning after December 25, 1998. At this time, the
Partnership has not determined the impact the adoption of this standard will
have on the Partnership's financial statements.
In July 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, ("SFAS No. 133") Accounting for
Derivative Instruments and Hedging Activities. This statement, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities, is effective for fiscal years beginning after June 15,
1999. At this time, the Partnership has not determined the impact the adoption
of this standard will have on the Partnership's financial statements.
<PAGE>
9. SUBSEQUENT EVENTS
On February 28, 1999, the 20 year agreement with Exelon for fuel management
services was terminated by mutual consent among the parties.
On March 10, 1999, the Court of Common Pleas granted the Partnership's motion
for partial summary judgement effectively deciding the issue of liability on
the contract claim against PECO and in favor of the Partnership in the matter
discussed in Note 2. The trial will now be limited to the amount of damages
PECO must pay the Partnership and the counts of fraud, conversion, breach of
the implied covenant of good faith and fair dealing and breach of fiduciary
duties. The trial is scheduled to begin March 29, 1999.
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