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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
Commission File Number: 33-74254
COGENTRIX ENERGY, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1853081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NORTH CAROLINA 28273-8110
(Address of principal executive offices) (Zip code)
(704) 525-3800
(Registrant's telephone number, including area code)
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 period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
On May 15, 1997, there were 282,000 shares of common stock, no par value, issued
and outstanding.
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COGENTRIX ENERGY, INC.
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PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements:
Consolidated Balance Sheets at March 31, 1997 (Unaudited)
and June 30, 1996 3
Consolidated Statements of Operations for the Three Months and Nine
Months Ended March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1997 and 1996 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
</TABLE>
2
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND JUNE 30, 1996
(dollars in thousands)
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MARCH JUNE
31, 1997 30, 1996
======== ========
(Unaudited) (Audited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 92,467 $ 33,351
Restricted cash 26,506 42,203
Accounts receivable 59,921 57,331
Inventories 18,086 19,086
Other current assets 1,790 2,883
-------- --------
Total current assets 198,770 154,854
PROPERTY, PLANT AND EQUIPMENT,
Net of accumulated depreciation: $181,778 and $156,215, respectively 523,922 604,491
LAND AND IMPROVEMENTS 2,424 2,424
DEFERRED FINANCING, START-UP AND ORGANIZATION COSTS,
Net of accumulated amortization: $21,743 and $19,653, respectively 23,399 25,105
RESTRICTED INVESTMENTS 20,000 63,695
NATURAL GAS RESERVES 3,002 3,611
INVESTMENTS IN AFFILIATES 77,727 56,028
OTHER ASSETS 16,050 11,433
-------- --------
$865,294 $921,641
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 60,962 $ 48,416
Accounts payable 30,278 21,453
Accrued interest payable 1,312 4,063
Accrued dividends payable 0 4,759
Other accrued liabilities 9,688 13,209
-------- --------
Total current liabilities 102,240 91,900
LONG-TERM DEBT 645,649 670,900
DEFERRED INCOME TAXES 25,267 46,971
MINORITY INTEREST IN JOINT VENTURE 13,721 22,044
OTHER LONG-TERM LIABILITIES 19,401 6,816
-------- --------
806,278 838,631
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 130
Accumulated earnings 58,886 82,880
-------- --------
59,016 83,010
-------- --------
$865,294 $921,641
======== ========
</TABLE>
The accompanying notes to consolidated condensed financial statements are
an integral part of these balance sheets.
3
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(dollars in thousands, except for earnings per common share)
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THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
========================= =========================
1997 1996 1997 1996
========= ========= ========= =========
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Electric $ 76,897 $ 91,064 $ 239,806 $ 269,751
Steam 7,177 8,515 20,461 20,515
Other 2,897 8,954 7,505 20,827
--------- --------- --------- ---------
86,971 108,533 267,772 311,093
--------- --------- --------- ---------
OPERATING EXPENSES:
Fuel expense 28,111 44,732 99,461 129,649
Operations and maintenance 16,465 19,078 53,463 56,404
General, administrative and development expenses 7,283 6,201 23,300 20,956
Depreciation and amortization 10,568 9,418 29,270 28,415
Loss on impairment and cost of removal of cogeneration facilities 0 0 65,628 0
--------- --------- --------- ---------
62,427 79,429 271,122 235,424
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 24,544 29,104 (3,350) 75,669
OTHER INCOME (EXPENSE):
Interest expense (13,383) (15,179) (41,527) (44,727)
Investment and other income, net 2,790 1,169 7,276 5,434
Gain on sale of investment in Bolivian Power, net (106) 0 3,137 0
Equity in net income (loss) of affiliates, net 174 2,252 (474) 2,343
--------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST IN
INCOME OF JOINT VENTURE, INCOME TAXES
AND EXTRAORDINARY LOSS 14,019 17,346 (34,938) 38,719
MINORITY INTEREST IN INCOME OF JOINT VENTURE (1,143) (3,466) (2,757) (4,208)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 12,876 13,880 (37,695) 34,511
BENEFIT (PROVISION) FOR INCOME TAXES (4,491) (5,719) 14,404 (14,058)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 8,385 8,161 (23,291) 20,453
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, net of income tax benefit of $470 0 0 (703) 0
--------- --------- --------- ---------
NET INCOME (LOSS) $ 8,385 $ 8,161 ($ 23,994) $ 20,453
========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE $ 29.73 $ 28.94 ($ 85.09) $ 72.53
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 282,000 282,000 282,000 282,000
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated condensed financial statements are
an integral part of these statements.
4
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(dollars in thousands)
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NINE MONTHS ENDED
MARCH 31,
==========================
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($23,994) $ 20,453
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 29,270 28,415
Loss on impairment and cost of removal of cogeneration facilities 65,628 0
Deferred income taxes (21,704) 8,418
Extraordinary loss on early extinguishment of debt 1,173 0
Gain on sale of investment in Bolivian Power (3,137) 0
Minority interest in income of joint venture, net of dividends (8,323) 2,865
Equity in net income of affiliates, net of dividends 7,613 (1,870)
Loss on sale of securities, net 0 890
Increase in accounts receivable (2,590) (32)
Decrease in inventories 1,609 3,046
Increase in accounts payable 8,825 4,283
Increase (decrease) in accrued liabilities (6,272) 711
Decrease (increase) in other 238 (345)
-------- --------
Net cash flows provided by operating activities 48,336 66,834
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (2,481) (969)
Decrease (increase) in marketable securities 43,695 (12,461)
Investments in affiliates (51,572) (6,281)
Proceeds from sale of investment in Bolivian Power, net 25,398 0
Decrease (increase) in restricted cash 15,697 (246)
-------- --------
Net cash flows provided by (used in) investing activities 30,737 (19,957)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 70,661 358
Repayments of debt (83,147) (37,773)
Increase in deferred financing costs (2,712) 0
Common stock dividends paid (4,759) (4,235)
-------- --------
Net cash flows used in financing activities (19,957) (41,650)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 59,116 5,227
CASH AND CASH EQUIVALENTS, beginning of period 33,351 34,073
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 92,467 $ 39,300
======== ========
</TABLE>
The accompanying notes to consolidated condensed financial statements are
an integral part of these statements.
5
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include
the accounts of Cogentrix Energy, Inc., its subsidiary companies and a 50% owned
joint venture in which the Company has effective control through majority
representation on the board of directors of the managing general partner.
Investments in other affiliates in which the Company has a 20% to 50% interest
and/or the ability to exercise significant influence over operating and
financial policies are accounted for on the equity method. All material
intercompany transactions and balances among Cogentrix Energy, Inc., its
subsidiary companies and its consolidated joint venture have been eliminated in
the accompanying consolidated condensed financial statements.
Information presented as of March 31, 1997 and for the three months and
nine months ended March 31, 1997 and 1996 is unaudited. In the opinion of
management, however, such information reflects all adjustments, which consist of
normal recurring adjustments necessary to present fairly the financial position
of the Company as of March 31, 1997, the results of operations for the three
months and nine months ended March 31, 1997 and 1996, and cash flows for the
nine months ended March 31, 1997 and 1996. The results of operations for these
interim periods are not necessarily indicative of results which may be expected
for any other interim period or for the fiscal year as a whole.
The accompanying unaudited consolidated condensed financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although management believes that the disclosures made are adequate
to make the information presented not misleading. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Company's most recent Annual Report on Form 10-K, which was filed with the
Securities and Exchange Commission on October 11, 1996.
2. JAMES RIVER REFINANCING
In July 1996, James River Cogeneration Company ("James River"), a joint
venture owned 50% by the Company, which owns a cogeneration facility in
Hopewell, Virginia (the "Hopewell facility"), renegotiated the Hopewell
facility's project financing arrangements. The amended agreements resulted in a
$13 million increase in the amount of James River's outstanding debt and
extended the final maturity date of the loan by 21 months. The amended project
debt accrues interest at an annual rate equal to the applicable LIBOR as chosen
by the Company, plus .875% per annum through July 1999 and 1.125% thereafter.
Principal is payable quarterly with interest payable the earlier of the maturity
of the applicable LIBOR term or quarterly through June 2002. James River
transferred substantially all of the additional funds borrowed (net of
transaction costs) to its partners. The distribution received by Cogentrix
Energy, Inc. related to the refinancing was approximately $6.1 million.
3. AMENDMENTS TO POWER SALES AGREEMENTS AND PROJECT DEBT AGREEMENTS
Effective in September 1996, the Company amended the power sales
agreements on its Lumberton, Elizabethtown, Kenansville, Roxboro and Southport
facilities. These amendments provide the purchasing utility additional rights
related to the dispatch of the facilities and eliminate the purchase options
which the utility held related to the Roxboro and Southport facilities. In
connection with the amendment of these power sales agreements, the Company
refinanced the existing project debt on the Lumberton, Elizabethtown and
Kenansville facilities, as well as the project debt on the Roxboro and Southport
facilities.
6
<PAGE> 7
The project debt on the Elizabethtown, Lumberton and Kenansville
facilities, which consisted of a senior loan with a syndicate of banks and a
subordinated credit facility with a financial institution, was refinanced with
the proceeds of a $39 million senior credit facility and a $5.5 million capital
contribution by Cogentrix Energy, Inc. The senior credit facility accrues
interest at an annual rate equal to the applicable LIBOR rate, as chosen by the
Company, plus .875% through September 1997 and 1% thereafter. Principal is
payable quarterly with interest payable at the earlier of the maturity of the
applicable LIBOR term or quarterly through September 2000. The senior credit
facility also provides for a $3.3 million letter of credit to secure the
project's obligations to pay debt service. An extraordinary loss of $1.2 million
related to the write-off of unamortized deferred financing costs from the
original senior loan and subordinated credit facility is shown net of an income
tax benefit of $470,000 in the accompanying consolidated statements of
operations for the nine months ended March 31, 1997.
The project debt for the Roxboro and Southport facilities consisted of
a note payable to banks, which was refinanced with the proceeds of a senior
credit facility. This senior credit facility accrues interest at an annual rate
equal to the applicable LIBOR rate, as chosen by the Company, plus .875% through
September 1997, 1% through September 2001 and 1.125% thereafter. Principal is
payable quarterly with interest payable at the earlier of the maturity of the
applicable LIBOR term or quarterly through June 2002. The senior credit facility
also provides for a $6.5 million letter of credit to secure the project's
obligations to pay debt service. The revised credit facility for the Roxboro and
Southport Facilities increased outstanding borrowings $18.4 million, the
proceeds of which (net of transaction costs of $1.3 million and accrued interest
payments of $400,000) were paid as a distribution to Cogentrix Energy, Inc. In
connection with the refinancing, Cogentrix Energy, Inc. has entered into an
agreement for the benefit of the project lenders to fund cash deficits the
subsidiary that operates the Roxboro and Southport facilities could experience
as a result of incurring certain costs, subject to a cap of $11.3 million.
4. LOSS ON IMPAIRMENT AND COST OF REMOVAL OF COGENERATION FACILITIES
During the second quarter of fiscal 1997, the Company undertook an
analysis of the post-contract operating environment for all of its operating
facilities in light of the dramatic market changes that are taking place in the
power generation industry. The analysis included assumptions regarding future
levels of operations, operating costs and market prices for equivalent
generation available from other sources. As a part of this analysis, in
accordance with the Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company assessed whether any impairment of the Company's
facilities had occurred. This assessment included comparing the projected future
cash flows to be provided by these assets to the net book value of such assets.
Based on this assessment, the Company determined that an impairment loss had
occurred on the Elizabethtown, Lumberton, Kenansville and Ringgold facilities.
This loss on impairment of cogeneration facilities of $57.3 million, which was
recorded in the second quarter of fiscal 1997, represents the excess of the net
book value of these cogeneration facilities over their current fair value,
determined by discounting to present value projected future cash flows to be
provided by such assets. The Company believes that its projections of future
cash flows are based upon reasonable assumptions about the future performance of
these assets. Because of the risks and uncertainties associated with any
projections, there can be no assurances, however, that actual events will be
consistent with the assumptions made, and future cash flows may be greater or
less than those projected. The analysis also resulted in the recognition of an
$8.3 million liability related to the Company's estimated cost of removal
obligations under the land leases for the Elizabethtown, Lumberton and
Kenansville facilities. The total impairment loss and cost of removal of $65.6
million has been reflected in the accompanying statement of operations for the
nine months ended March 31, 1997. Also in connection with the overall assessment
of the post-contract operating environment for its cogeneration facilities, the
Company concluded that, effective January 1, 1997, the Lumberton, Elizabethtown,
Kenansville, Roxboro and Southport facilities would be depreciated over the
remaining term of these facilities' power sales agreements.
7
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5. SALE OF INVESTMENT IN BOLIVIAN POWER
In December 1996, the Company sold its investment in Bolivian Power
Company Limited ("Bolivian Power") pursuant to a cash tender offer made for all
of the outstanding common stock of Bolivian Power at a price of $43 per share.
The Company received proceeds from the sale of $25.4 million, net of transaction
costs, which included payments made to certain unaffiliated individuals who
performed development activities for Bolivian Power. The resulting book gain of
$3.1 million is reflected in the accompanying statement of operations for the
nine months ended March 31, 1997.
6. PENDING CLAIMS AND LITIGATION
The Company is a party to certain matters which have resulted in
litigation and arbitration proceedings. Management believes that the resolution
of these matters will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
8
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
The information called for by this item is hereby incorporated herein
by reference to pages 3 through 8 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to discussing and analyzing the Company's recent historical
financial results and condition, the following "Management's Discussion and
Analysis of Financial Condition and Results of Operations" includes statements
concerning certain trends and other forward-looking information affecting or
relating to the Company which are intended to qualify for the protections
afforded "Forward-Looking Statements" under the Private Securities Litigation
Reform Act of 1995, Public Law 104-67. The forward-looking statements made
herein are inherently subject to risks and uncertainties which could cause the
Company's actual results to differ materially from the forward-looking
statements.
GENERAL
Cogentrix Energy, Inc. and subsidiary companies (collectively, the
"Company") are primarily engaged in the development, ownership and operation of
independent power generating facilities (individually, a "facility" or
collectively, the "facilities"). The Company's consolidated revenues are derived
and costs are incurred primarily from the generation and sale of electricity
and, to a lesser extent, from the production and sale of thermal energy
(primarily steam) and other commodities related to its cogeneration operations.
Other revenues and costs arise from fees earned and costs incurred in connection
with the development of power generating facilities, ash transport, ash
by-products, and environmental consulting services.
As of March 31, 1997, Cogentrix Energy, Inc. owned, through its
subsidiaries, eleven operating facilities in the United States with an aggregate
installed capacity of approximately 1,150 megawatts ("MW"). Two of the eleven
facilities are owned 50% by the Company and 50% by other independent power
producers.
Effective in September 1996, the Company amended the power sales
agreements with Carolina Power & Light Company ("CP&L") on the Elizabethtown,
Lumberton, Kenansville, Roxboro and Southport facilities. Under the amended
terms, the power sales agreements are dispatchable contracts which provide the
utility the ability to suspend or reduce purchases of energy from the facilities
if CP&L determines it can operate its system for a designated period more
economically. The amended power sales agreements are structured so that the
Company will continue to receive capacity payments during any period of economic
dispatch. Capacity payments cover project debt service, fixed operating costs
and constitute a substantial portion of the profit component of the power sales
agreements. Energy payments, which will be reduced or eliminated as a result of
economic dispatch, primarily cover variable operating and maintenance costs as
well as coal and rail transportation costs. The impact of the amendments to
these power sales agreements will be a significant reduction in the Company's
electric revenues, which will be offset by reduced fuel costs and operations and
maintenance expense at these facilities in future years. In addition to
providing CP&L additional dispatch rights, the amendments eliminate the purchase
options for the Roxboro and Southport facilities, which CP&L had given notice
they were going to exercise.
Unusual weather conditions, unanticipated levels of demand for steam by
a facility's steam host and the needs of each facility to perform routine or
unanticipated facility maintenance involving planned or forced turbine outages
may have an effect on interim financial results. In addition, power sales
agreements at seven of the Company's facilities permit the utility customer to
significantly dispatch the related plant (i.e., direct the plant to deliver a
reduced amount of electrical output). However, even when dispatched, such
facilities' capacity payments, which are structured to cover fixed operating
costs and debt service and constitute a substantial portion of the profits of
these facilities, are not reduced.
The activities of the Company are subject to stringent environmental
regulations by federal, state, local and (for future non-U.S. projects) foreign
governmental authorities. The Clean Air Act Amendments of 1990 require states to
impose permit fees on certain emissions, and Congress may consider proposals to
restrict or tax certain
9
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emissions, which proposals, if adopted, could impose additional costs on the
operation of the Company's facilities. There can be no assurance that the
Company's business and financial condition would not be materially and adversely
affected by the cost of compliance with future changes in domestic or foreign
environmental laws and regulations or additional requirements for reduction or
control of emissions imposed by regulatory authorities in connection with
renewals of required permits. The Company maintains a comprehensive program to
monitor its project subsidiaries' compliance with all applicable environmental
laws, regulations, permits and licenses.
All of the Company's operating facilities are wholly-owned by the
Company except for the Hopewell and Birchwood cogeneration facilities, in which
the Company has a 50% ownership interest. The Company's consolidated condensed
financial statements include the accounts of the Hopewell facility as the
Company has effective control of the facility through majority representation on
the board of directors of the managing general partner. The "minority interest
in income of joint venture" on the Company's consolidated statements of
operations for the three months and nine months ended March 31, 1997 and 1996
reflects the Company's joint venture partner's interest in the net income of the
Hopewell facility. The Company accounts for its investment in the Birchwood
facility using the equity method.
RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1997 AND
1996
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THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
--------------------------------------- -----------------------------------------
1997 1996 1997 1996
----------------- --------------- ------------------- -----------------
(dollars in thousands, unaudited)
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Total operating revenues $86,971 100% $108,533 100% $267,772 100% $311,093 100%
Operating costs 44,576 51 63,810 58 152,924 57 186,053 60
General, administrative and
development 7,283 9 6,201 6 23,300 9 20,956 7
Depreciation and amortization 10,568 12 9,418 9 29,270 11 28,415 9
Loss on impairment and cost
of removal of cogeneration
facilities 0 0 0 0 65,628 24 0 0
------- --- -------- --- ------- --- -------- --
Operating income (loss) $24,544 28% $ 29,104 27% $(3,350) (1)% $ 75,669 24%
======= === ======== === ======= === ======== ==
</TABLE>
Total operating revenues decreased 19.9% to $87 million for the third
quarter of fiscal 1997 as compared to the third quarter of fiscal 1996. This
decrease was primarily attributable to the significant decreases in electric
revenues resulting from the amendment of the Company's power sales agreements
with CP&L on the Elizabethtown, Lumberton, Kenansville, Roxboro and Southport
facilities. The decrease in operating revenue is also attributable to the $7.5
million payment received in the third quarter of fiscal 1996 from the utility
purchasing the electrical output of the Hopewell facility in connection with
such utility's buy-down of the Hopewell facility's rated capacity from 100
megawatts to 88.5 megawatts. To a lesser extent, the decrease in operating
revenues is also due to a $1.4 million decrease in steam revenues at the
Hopewell and Southport facilities resulting from a decrease in demand for steam
by these facilities' steam hosts and a $1.3 million decrease in electric revenue
at the Richmond facility resulting from a decrease in megawatt hours sold to the
purchasing utility. These decreases in operating revenues were partially offset
by a $1.8 million increase in electric revenues at the Hopewell facility due to
an increase in megawatt hours provided to the purchasing utility in the third
quarter of fiscal year 1997.
The Company's operating revenues decreased 13.9% to $267.8 million for
the first nine months of fiscal 1997 as compared to the first nine months of
fiscal year 1996. This decrease was primarily attributable to the significant
decreases in electric revenues associated with the amendment of the Company's
power sales agreements with CP&L on the Elizabethtown, Lumberton, Kenansville,
Roxboro and Southport facilities. The decrease is also attributable to the
payment received in the first quarter of fiscal year 1996 upon the execution of
a joint development agreement with China Light & Power Company Limited ("CLP")
related to the development of the Company's India project, the $5 million fee
earned by the Company in the second quarter of fiscal 1996 related to the
pre-construction development phase of an electric generation facility for Public
Utility District No. 1 of Clark County, Washington ("Clark"), and the $7.5
million capacity buy-down payment received in the third quarter of fiscal 1996
from the utility purchasing the electrical output of the Hopewell facility.
These decreases in operating revenues for the first nine months of fiscal 1997
were partially offset by an increase in electric revenues associated
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with an increase in on-peak megawatt hours sold at the Portsmouth and Hopewell
facilities, as well as escalation/inflation adjustment provisions in certain
power sales agreements.
Operating costs decreased 30.1% to $44.6 million for the third quarter
of fiscal 1997 as compared to the third quarter of fiscal 1996. This decrease
resulted primarily from the significant decrease in operating expenses at the
Elizabethtown, Lumberton, Kenansville, Roxboro and Southport facilities
associated with the amendment of their power sales agreements with CP&L. The
decrease in operating costs in the third quarter of fiscal 1997 also related to
decreases in maintenance costs at the Rocky Mount, Hopewell and Richmond
facilities, at which facilities the Company performed routine maintenance during
the third quarter of fiscal 1996.
Operating costs decreased 17.8% to $152.9 million for the first nine
months of fiscal 1997 as compared to the first nine months of fiscal 1996. This
decrease resulted primarily from the significant decrease in operating expenses
at the Elizabethtown, Lumberton, Kenansville, Roxboro and Southport facilities
associated with the amendment of their power sales agreements with CP&L, as well
as a decrease in fuel expense at the Richmond and Rocky Mount facilities
associated with a decrease in megawatt hours sold. The decrease in operating
expense is also due to reductions in maintenance costs at the Hopewell,
Portsmouth, and Southport facilities, at which facilities the Company performed
routine maintenance during the first nine months of fiscal 1996. These decreases
were partially offset by an increase in maintenance costs at the Richmond
facility associated with routine maintenance performed during the first nine
months of fiscal year 1997 and an increase in operating costs incurred by ReUse
Technology, Inc., a wholly-owned subsidiary of the Company, related to third
party agreements during the first nine months of fiscal 1997.
General, administrative and development expenses increased 17.4% to
$7.3 million for the third quarter of fiscal 1997 and 11.2% to $23.3 million for
the nine months ended March 31, 1997 as compared to the corresponding periods of
fiscal 1996. These increases relate primarily to an increase in performance
bonuses, as well as a general increase in payroll expense during the first nine
months of fiscal 1997. These increases were partially offset during the first
six months of fiscal 1997 by a reduction in development expenses incurred on a
project the Company is developing in Idaho.
During the second quarter of fiscal 1997, the Company undertook an
analysis of the post-contract operating environment for all of its operating
facilities in light of the dramatic market changes that are taking place in the
power generation industry. The analysis included assumptions regarding future
levels of operations, operating costs and market prices for equivalent
generation available from other sources. As a part of this analysis, in
accordance with the Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company assessed whether any impairment of the Company's
facilities had occurred. This assessment included comparing the projected future
cash flows to be provided by these assets to the net book value of such assets.
Based on this assessment, the Company determined that an impairment loss had
occurred on the Elizabethtown, Lumberton, Kenansville and Ringgold facilities.
This loss on impairment of cogeneration facilities of $57.3 million, which was
recorded in the second quarter of fiscal 1997, represents the excess of the net
book value of these cogeneration facilities over their current fair value,
determined by discounting to present value, projected future cash flows to be
provided by such assets. The Company believes that its projections of future
cash flows are based upon reasonable assumptions about the future performance of
these assets. Because of the risks and uncertainties associated with any
projections, there can be no assurances, however, that actual events will be
consistent with the assumptions made, and future cash flows may be greater or
less than those projected. The analysis also resulted in the recognition of an
$8.3 million liability related to the Company's estimated cost of removal
obligations under the land leases for the Elizabethtown, Lumberton and
Kenansville facilities. The total impairment loss and cost of removal of $65.6
million has been reflected in the accompanying statement of operations for the
nine months ended March 31, 1997. Also in connection with the overall assessment
of the post-contract operating environment for its cogeneration facilities, the
Company concluded that, effective January 1, 1997, the Lumberton, Elizabethtown,
Kenansville, Roxboro and Southport facilities would be depreciated over the
remaining term of these facilities' power sales agreements.
The Company's long-term debt averaged $710 million with a weighted
average interest rate of 7.8% for the nine months ended March 31, 1997 as
compared with an average of $743 million with a weighted average interest rate
of 7.94% for the nine months ended March 31, 1996. The decrease in weighted
average debt outstanding, which relates to the scheduled maturities of the
Company's project finance debt, was partially offset by
11
<PAGE> 12
an increase in project debt outstanding at the Hopewell facility and Roxboro and
Southport facilities related to refinancings completed during the first quarter
of fiscal 1997.
Investment income increased 138.7 % to $2.8 million for the third
quarter of fiscal 1997 and 33.9% to $7.3 million for the first nine months of
fiscal 1997 as compared to the corresponding periods of fiscal 1996. These
increases in investment income are related to larger cash and investment
balances maintained by the Company during fiscal 1997 as compared to fiscal
1996, as well as the recognition of a net loss on the sale of marketable
securities of approximately $900,000 during the first nine months of fiscal
1996.
In December 1996, the Company sold its investment in Bolivian Power
Company Limited ("Bolivian Power") to NRG Generating Holdings (No. 9) B.V., a
wholly owned subsidiary of NRG Energy, Inc. ("Holdings"), pursuant to a cash
tender offer which Holdings made for all of the outstanding common stock of
Bolivian Power at a price of $43 per share. The Company recognized a $3.1
million gain on the sale of its investment in Bolivian Power, net of transaction
costs, which included payments made to certain unaffiliated individuals who
performed development activities for Bolivian Power.
The decrease in equity in net income of affiliates from $2.3 million in
the third quarter of fiscal 1996 to $0.2 million in the third quarter of fiscal
1997 is primarily attributable to the Company selling its investment in Bolivian
Power in December 1996. The Company recognized approximately $2.6 million in
equity in net income of affiliates in the third quarter of fiscal 1996 related
to Bolivian Power, which included the Company's share of a one-time gain
recognized by Bolivian Power on the sale of its distribution assets. This
decrease in equity in net income of affiliates was partially offset by earnings
generated by the Company's investment in a greenhouse facility in Texas, which
commenced commercial operations in late calendar 1996, and a reduction in
development costs associated with the termination in December 1996 of funding
for a partnership pursuing development opportunities in Latin America.
The equity in net loss of affiliates for the first nine months of
fiscal 1997 was $0.5 million as compared to equity in net income of affiliates
of $2.3 million for the first nine months of fiscal 1996. This decrease was
largely influenced by the same factors discussed above: the sale of the
Company's investment in Bolivian Power, partially offset by the Texas greenhouse
commencing commercial operations in late calendar 1996 and the termination in
December 1996 of funding for the partnership pursuing development opportunities
in Latin America.
The decrease in minority interest in income of joint venture for the
three months and nine months ended March 31, 1997 as compared to the same
periods of fiscal 1996 related to the decrease in net income of the Hopewell
facility. The decrease in net income of the Hopewell facility resulted primarily
from the $7.5 million capacity buy-down payment received in the third quarter of
fiscal 1996 from the utility purchasing the electrical output of the Hopewell
facility. This decrease was partially offset by a reduction in maintenance costs
incurred at the Hopewell facility in fiscal 1997 as compared to fiscal 1996.
The benefit for income taxes for the first nine months of fiscal 1997
represents an effective rate of 38.2% of loss before benefit for income taxes as
compared to an effective rate of 40.7% of income before income taxes for the
first nine months of fiscal 1996. The decrease in the effective rate in fiscal
1997 relates to the reduced recognition of current year losses for state income
tax purposes.
The extraordinary loss on early extinguishment of debt in the first
nine months of fiscal 1997 relates to the write-off of the deferred financing
costs on the Elizabethtown, Lumberton and Kenansville facilities' original
project debt, which was refinanced in September 1996.
LIQUIDITY AND CAPITAL RESOURCES
The principal components of operating cash flow for the nine months
ended March 31, 1997 were generated by a net loss of $24 million, increases due
to adjustments for depreciation and amortization of $29.2 million, loss on
impairment and cost of removal of cogeneration facilities of $65.6 million,
extraordinary loss on early extinguishment of debt of $1.2 million,
distributions from and equity in net loss of unconsolidated affiliates of $7.6
million and a net $1.8 million source of cash reflecting changes in other
working capital assets and liabilities, which were partially offset by deferred
taxes of $21.7 million, gain on the sale of the investment in Bolivian Power
12
<PAGE> 13
of $3.1 million and minority interest in income of joint venture, net of
dividends, of $8.3 million. Cash flow provided by operating activities of $48.3
million, net of proceeds from the sale of the investment in Bolivian Power of
$25.4 million, proceeds from project finance borrowings of $70.7 million, and
$0.3 million of cash escrows and restricted marketable securities released were
primarily used to purchase equipment of $2.5 million, to make investments in
affiliates of $51.6 million, to repay project finance borrowings of $83.1
million, to pay deferred financing costs of $2.7 million and to pay common stock
dividends of $4.8 million.
Historically, the Company has financed the capital costs of each of its
facilities under financing arrangements that, with certain exceptions, are
substantially non-recourse to Cogentrix Energy, Inc. and its other project
subsidiaries. Based upon the Company's current level of operations, the Company
believes that its project subsidiaries will generate sufficient revenue to pay
all required debt service on the project financing debt and to allow them to pay
management fees and dividends to Cogentrix Energy, Inc. periodically in
sufficient amounts to allow the Company to pay all existing debt service, fund a
significant portion of its development activities and meet its other
obligations. If, as a result of unanticipated events, the Company's ability to
generate cash from operating activities is significantly impaired, the Company
could be required to curtail its development activities to meet its debt service
obligations.
In December 1994, the Company acquired a 50% interest in Birchwood
Power Partners, L.P. ("Birchwood Power"), a partnership formed to own a 220
megawatt coal-fired cogeneration facility (the "Birchwood facility") in King
George County, Virginia, from two indirect wholly-owned subsidiaries of The
Southern Company. The Birchwood facility, which commenced commercial operations
in November 1996, sells electricity to Virginia Electric and Power Company and
provides thermal energy to a 36-acre greenhouse under long-term contracts. The
purchase price of the 50% interest in Birchwood Power was approximately $29.5
million and was funded with a portion of the net proceeds of the sale of $100
million of the Company's Senior Notes due 2004 (the "Senior Notes"). In
addition, pursuant to the equity funding obligation under Birchwood Power's
project financing arrangements, the Company also provided an equity contribution
to Birchwood Power of approximately $43.7 million in March 1997.
In December 1994, the Company executed an engineering, procurement and
construction agreement (the "Construction Agreement") with Clark. Under this
Construction Agreement, the Company is currently engineering, procuring
equipment for and constructing a 248 megawatt combined-cycle, gas-fired electric
generation facility (the "Clark facility"). In October 1995, the Company
delivered to Clark a $20 million letter of credit, provided by a bank, which is
collateralized by a pledge of marketable securities. This letter of credit will
support the Company's contingent obligations under certain performance
guarantees and late construction completion payments under the Construction
Agreement. The Company is also obligated to pay 50% of costs and expenses, if
any, incurred in constructing the facility in excess of the contract amount.
Pursuant to the Construction Agreement, the contract amount of $117 million may
be adjusted as a result of a force majeure event, scope change, certain delays
in schedule or change in law. The Company will earn a construction fee of $5
million upon completion of the Clark facility. The Company will also share in
50% of the amount, if any, equal to the excess of the contract amount over the
costs and expenses in constructing the Clark facility. Cogentrix of Vancouver,
Inc. ("CVC"), an indirect wholly-owned subsidiary of Cogentrix Energy, Inc.,
performed the development and preliminary engineering of the Clark facility and
received a development fee of $5 million in October 1995. The Company
anticipates that construction on the Clark facility will be completed in late
calendar 1997. Upon commencing commercial operations, CVC will operate and
maintain the Clark facility pursuant to a two-year operations and maintenance
agreement.
In July 1995, the Company executed a joint development agreement with a
subsidiary of CLP (the "Joint Venture") which provides for the Company and CLP
to co-develop a 1,000 megawatt coal-fired facility in India and to share equally
in the direct development expenses related to the project. Additionally, the
Company is currently seeking other international partners for the purpose of
making equity investments in the project. The Company currently anticipates
requiring funds, in addition to amounts payable by CLP to the Company at
financial closing of the project, in an amount ranging from $50 to $80 million
for the purpose of making its equity investment in the India project. The
Company expects to fund this equity commitment from corporate cash balances.
In July 1996, the Company renegotiated the project financing
arrangements for its Hopewell facility, in which it owns a 50% interest. The
amended agreements resulted in a $13 million increase in the amount of
outstanding indebtedness of James River and extended the final maturity date of
the loan by 21 months. James River transferred substantially all of the
additional funds borrowed (net of transaction costs) to its partners. The
distribution received by Cogentrix Energy, Inc. related to the refinancing was
approximately $6.1 million.
13
<PAGE> 14
In September 1996, the Company renegotiated the project financing
arrangements for its Roxboro and Southport facilities. The amended agreements
resulted in an approximate $18.4 million increase in the amount of indebtedness
outstanding and extended the final maturity date of the loan by 7 months. The
Company's project subsidiary operating the Roxboro and Southport facilities
transferred substantially all of the additional funds borrowed (net of
transaction costs) to Cogentrix Energy, Inc., which utilized $5.5 million to
make a capital contribution to the project subsidiary operating the
Elizabethtown, Lumberton and Kenansville facilities in connection with the
refinancing of its project debt in September 1996. The remainder of the proceeds
were distributed to Cogentrix Energy, Inc.
In December 1996, the Company sold its investment in Bolivian Power
pursuant to a cash tender offer received for all of the outstanding common stock
of Bolivian Power at a price of $43 per share. The Company received proceeds of
$25.4 million from the sale of its investment in Bolivian Power, net of
transaction costs, which included payments made to certain unaffiliated
individuals who performed development activities for Bolivian Power. See
"Results of Operations" for the financial reporting impact of the sale of the
investment in Bolivian Power.
Any projects the Company develops in the future, and those independent
power projects it may seek to acquire, are likely to require substantial capital
investment. The Company's ability to arrange financing on a substantially
non-recourse basis and the cost of such capital are dependent on numerous
factors. In order to access capital on a substantially non-recourse basis in the
future, the Company may have to make larger equity investments in, or provide
more financial support for, its project subsidiaries.
The ability of the Company's project subsidiaries to declare and pay
dividends and management fees periodically to Cogentrix Energy, Inc. is subject
to certain limitations in their respective project credit documents. Such
limitations generally require that: (i) project debt service payments be
current, (ii) project debt service coverage ratios be met, (iii) all project
debt service and other reserve accounts be funded at required levels, and (iv)
there be no default or event of default under the relevant project credit
documents. There are also additional limitations that are adapted to the
particular characteristics of each project subsidiary.
In September 1996, the Company paid a $4.8 million dividend for the
fiscal year ended June 30, 1996 to the common shareholders of the Company. The
Board of Directors has adopted a policy, which is subject to change at any time,
of maintaining a dividend payout ratio of no more than 20% of the Company's net
income for the immediately preceding fiscal year. Under the terms of the
Indenture for the Senior Notes, the Company's ability to pay dividends and make
other distributions to its shareholders is restricted.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
Energy prices are influenced by changes in supply and demand, as well
as economic conditions, and generally tend to fluctuate significantly. Through
various hedging mechanisms, the Company has attempted to mitigate the impact of
such changes on the results of operations of most of its projects. The basic
hedging mechanism against increased fuel and transportation costs is to provide
contractually for matching increases in the energy payments the Company's
project subsidiaries receive from the utility purchasing the electricity
generated by the facility.
Under the power sales agreements for two of the Company's facilities,
energy payments are indexed, subject to certain caps, to reflect the purchasing
utility's solid fuel cost of producing electricity. The Company's other power
sales agreements provide periodic, scheduled increases in energy prices that are
designed to match periodic, scheduled increases in fuel and transportation costs
that are included in the fuel supply and transportation contracts for the
facilities.
Changes in interest rates could have a significant impact on the
Company. Interest rate changes affect the cost of capital needed to construct
projects, as well as interest expense of existing project financing debt. As
with fuel price escalation risk, the Company has substantially hedged against
the risk of fluctuations in interest rates by arranging either fixed-rate
financing or variable-rate financing with interest rate swaps, collars or caps.
As of March 31, 1997, approximately 87.3% of the Company's project financing
debt was hedged, of which 17.6% was hedged with interest rate caps which were
above the prevailing market rate at March 31, 1997 and therefore subject to
interest rate volatility.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Under the recently amended terms of the power sales agreements for the
Elizabethtown, Lumberton, Kenansville, Roxboro and Southport facilities, the
purchasing utility, CP&L, has exercised its right of economic dispatch resulting
in significantly reduced fuel requirements at each of these facilities. Coal is
supplied to the Elizabethtown, Lumberton and Kenansville facilities
(collectively, the "ELK facilities") by James River Coal Sales, Inc. ("James
River Coal") and its affiliate, Bell County Coal Corporation. The coal sales
agreement for the ELK facilities provides that the Company's subsidiary
operating the ELK facilities will purchase, and James River Coal will provide,
all of such subsidiary's coal requirements through the end of the contract term.
In November 1996, James River Coal and its affiliate instituted an action
against Cogentrix Eastern Carolina Corporation ("CECC"), an indirect
wholly-owned subsidiary of Cogentrix Energy, Inc., claiming breach of contract
and fraud in the inducement based on the reduction in fuel requirements at the
ELK facilities as a consequence of the recent amendments to the power sales
agreements. James River Coal and its affiliate seek specific performance and, in
the alternative, an unspecified amount of damages. The lawsuit is pending in the
United States District Court for the Eastern District of Kentucky. The coal
sales agreement for the ELK facilities contains an arbitration provision
requiring disputes to be submitted to arbitration in North Carolina, which CECC
intends to seek to enforce with respect to these claims. Motions to dismiss the
Kentucky suit have been filed, briefed and are pending oral argument before the
court on August 1, 1997.
In October 1996, Coastal Sales, Inc. ("Coastal"), the coal supplier to
the Southport facility under a similar requirements contract, initiated an
arbitration proceeding against Cogentrix of North Carolina, Inc., an indirect
wholly-owned subsidiary of Cogentrix Energy, Inc., through the American
Arbitration Association in Charlotte, North Carolina. The notice of arbitration
alleges breach of contract based on the reduction in fuel requirements at the
Southport facility as a consequence of the recent amendment to the power sales
agreement. Coastal is seeking an unspecified amount of damages. The arbitration
panel has been selected and the proceedings are scheduled for July 8 - 11, 1997.
Management believes that in some instances there is no basis for these
claims, and, as to the others, there are meritorious defenses. The Company
intends to defend the lawsuit and arbitration proceeding vigorously. In the
opinion of management, the ultimate outcome of the litigation, or any
arbitration proceeding relating to these claims, will not have a material
adverse effect on the Company's consolidated results of operations or financial
position.
ITEM 5. OTHER INFORMATION
The Company recently made changes in the ranks of its most senior
management to better position the Company for the current and anticipated
challenges in the rapidly changing electric power supply industry. Frank J.
Benner, President and Chief Operating Officer, and Bruce C. McMillen, Chief
Financial Officer, voluntarily resigned to facilitate the orderly transition to
a senior management team with skills and experience better suited to meet these
challenges.
Mark F. Miller has been elected President and Chief Operating Officer,
as well as a member of the Board of Directors, and will succeed Mr. Benner in
the overall management of the Company's operations. Mr. Miller joins the
Company from Northrop Grumman Corporation where he held the position of Vice
President Business Management, Electronics & Systems Integration Division in
Bethpage, New York. Mr. Miller joined Northrop in 1982 and held positions in
both the law and material departments before his promotion to Vice President
Business Management in 1994. Mr. Miller holds a Masters Degree in Management
from Massachusetts Institute of Technology where he was an Alfred P. Sloan
Fellow, a Juris Doctor Degree from the Law School of University of Puget Sound,
where he was an Editor of the Law Review, and received a Bachelor of Arts
Degree in Biology from Willamette University. He is an active member of the
Washington State Bar Association as well as the National Contract Management
Association.
James R. Pagano, formerly the Company's Group Senior Vice President of
Project Finance, has been promoted to the position of Group Senior Vice
President and Chief Financial Officer and succeeds to the duties and
responsibilities of Bruce C. McMillen. Mr. Pagano has been with the Company
since 1992 and has been responsible for securing financing for all the
Company's development projects as well as negotiating the refinancing of the
long-term debt on existing projects.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<C> <S>
10.1 Agreement of Limited Partnership, dated as of March 10, 1997,
of Pocono Village Farms, L.P. by and among Cogentrix of
Pocono, Inc., Cogentrix Greenhouse Investments, Inc., Village
Farms of Delaware, L.L.C. and Village Farms, L.L.C.
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and is not filed.
</TABLE>
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter covered
by this report.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements 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.
COGENTRIX ENERGY, INC.
(Registrant)
May 15, 1997 /s/ James R. Pagano
-------------------------------------
James R. Pagano
Group Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
May 15, 1997 /s/ Thomas F. Schwartz
-------------------------------------
Thomas F. Schwartz
Vice President - Finance
Treasurer
(Principal Accounting Officer)
17
<PAGE> 1
POCONO VILLAGE FARMS, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of March 10, 1997
THE LIMITED PARTNERSHIP INTERESTS REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND HAVE BEEN OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENT OF THE ACT AND SUCH LAWS. THE
LIMITED PARTNERSHIP INTERESTS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY BE TRANSFERRED ONLY IN A MANNER WHICH IS IN COMPLIANCE WITH
THE PROVISIONS OF THIS AGREEMENT, AND MAY ONLY BE TRANSFERRED IN A TRANSACTION
THAT IS REGISTERED UNDER THE ACT OR EXEMPT FROM SUCH REGISTRATION.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS ................................................... 1
1.1 Certain Defined Terms ............................. 1
1.2 Other Definitional Provisions ..................... 11
ARTICLE II
GENERAL PROVISIONS ............................................ 12
2.1 Formation of Partnership .......................... 12
2.2 Name of the Partnership ........................... 12
2.3 Business of the Partnership ....................... 12
2.4 Registered Office of the Partnership .............. 12
2.5 Liability of the Partners Generally ............... 12
2.6 Office of the Partnership ......................... 13
2.7 Duration of the Partnership ....................... 13
ARTICLE III
CAPITAL CONTRIBUTIONS ......................................... 13
3.1 Capital Contributions ............................. 13
3.2 Additional Capital Contribution ................... 13
3.3 Conditions ........................................ 14
3.4 Interest .......................................... 16
3.5 Withdrawals of Capital ............................ 16
3.6 Additional Capital Contributions .................. 16
ARTICLE IV
ALLOCATION OF PROFITS AND LOSSES .............................. 16
4.1 Profits and Losses ................................ 16
4.2 Capital Account Balances .......................... 17
4.3 Minimum Gain Chargeback ........................... 17
4.4 Nonrecourse Deductions ............................ 18
4.5 Partner Nonrecourse Deductions .................... 18
4.6 Qualified Income Offset ........................... 19
4.7 Curative Allocations .............................. 19
4.8 Tax Allocations ................................... 19
4.9 Property Subject to 704(b) and 704(c) ............. 19
4.10 Limitations ....................................... 19
ARTICLE V
DISTRIBUTIONS ................................................. 19
5.1 Distribution of Net Distributable Cash ............ 19
5.2 Default Allocations for Cogentrix ................. 20
5.3 Default Allocations for VF ........................ 21
ARTICLE VI
MANAGEMENT .................................................... 22
6.1 Management of the Partnership ..................... 22
6.2 Fundamental Matters ............................... 23
6.3 Officers of the Partnership ....................... 26
6.4 No Compensation; Reimbursement .................... 26
6.5 Insurance ......................................... 27
6.6 Cooperation on Tax Matters ........................ 27
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VII
BOOKS, RECORDS AND BANK ACCOUNTS .............................. 27
7.1 Books and Records ................................. 27
7.2 Accounting Basis and Fiscal Year .................. 28
7.3 Reports ........................................... 28
7.4 Bank Accounts ..................................... 29
7.5 Tax Returns ....................................... 29
7.6 Tax Elections ..................................... 29
7.7 Tax Matters Partner ............................... 29
7.8 Withholdings ...................................... 29
ARTICLE VIII
TRANSFER OF INTERESTS ......................................... 30
8.1 Transfer of a Partner's Interest .................. 30
ARTICLE IX
ADDITIONAL PARTNERS; WITHDRAWAL OF PARTNERS ................... 31
9.1 Additional Partners ............................... 31
9.2 Withdrawal of Partners ............................ 31
ARTICLE X
DISSOLUTION AND LIQUIDATION ................................... 33
10.1 Events of Dissolution ............................. 33
10.2 Distributions Upon Liquidation .................... 33
ARTICLE XI
DISPUTE RESOLUTION ............................................ 35
11.1 Arbitration ....................................... 35
11.2 Buy/Sell Option ................................... 36
ARTICLE XII
MISCELLANEOUS ................................................. 37
12.1 Distributions and Notices ......................... 37
12.2 Disclosure Obligations ............................ 37
12.3 Successors and Assigns ............................ 38
12.4 Amendments ........................................ 38
12.5 Partition ......................................... 38
12.6 No Waiver ......................................... 38
12.7 Entire Agreement .................................. 38
12.8 Captions .......................................... 39
12.9 Counterparts ...................................... 39
12.10 Applicable Law .................................... 39
12.11 Severability ...................................... 39
</TABLE>
LIST OF SCHEDULES
-----------------
Schedule 5.1(a) Greenhouse Assets to be Sold
Schedule 6.3 Initial Officers of the Partnership
- ii -
<PAGE> 4
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership dated as of March 10, 1997 of POCONO
VILLAGE FARMS, L.P. (the "Partnership") is by and among COGENTRIX OF POCONO,
INC., a Delaware corporation ("Cogentrix GP" and a "General Partner"),
COGENTRIX GREENHOUSE INVESTMENTS, INC., a Delaware corporation formerly known
as Cogentrix of Fort Davis II, Inc. ("Cogentrix LP" and a "Limited Partner"),
VILLAGE FARMS OF DELAWARE, L.L.C., a Delaware limited liability company ("VF
Delaware" and a "General Partner"), and VILLAGE FARMS, L.L.C., a Delaware
limited liability company ("VF" and a "Limited Partner").
Cogentrix GP, Cogentrix LP, VF Delaware and VF desire to organize a
partnership for the purpose of acquiring and operating an existing tomato
greenhouse located in Mount Carmel, Pennsylvania, and currently owned by Mt.
Carmel Greenhouses, LLC.
Accordingly, in consideration of the covenants and agreements contained
herein and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, and intending to be legally bound, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the following terms
have the following meanings (such definitions to be equally applicable to both
singular and plural forms of the terms defined):
"Abandonment" has the meaning set forth in subsection 6.2(e).
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant fiscal year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such Partner is
obligated to restore pursuant to any provision of this Agreement or is
deemed to be obligated to restore pursuant to the penultimate sentence of
Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) debit to such Capital Account the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section
<PAGE> 5
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adverse Consequence" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, Taxes, liens, losses, expenses and
fees, including, but not limited to, court costs, arbitral costs, costs of
investigation, and attorneys' fees.
"Affiliate" of any designated Person, means each Person which, directly or
indirectly, controls or is controlled by or is under common control with such
designated Person and, without limiting the generality of the foregoing, shall
include (a) any Person which beneficially owns or holds ten percent (10%) or
more of any class of voting securities of such designated Person or ten percent
(10%) or more of the equity interest in such designated Person and (b) any
Person of which such designated Person beneficially owns and holds ten percent
(10%) or more of any class of voting securities or in which such designated
Person beneficially owns or holds ten percent (10%) or more of the equity
interest. For the purposes of this definition, the terms "controls",
"controlled by" and "under common control with," as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
Notwithstanding the foregoing, neither Cogentrix GP or Cogentrix LP, on the
one hand, nor VF Delaware or VF, on the other hand, shall be deemed to be
Affiliates of one another.
"Agreement" means this Agreement of Limited Partnership, as amended,
supplemented or otherwise modified and in effect from time to time.
"Agro Power" means Agro Power Development Inc., a New York corporation
with offices at 10 Alvin Court, East Brunswick, New Jersey 08816.
"Appraisal Procedure" means a procedure whereby two independent
appraisers, one chosen by each General Partner, shall agree upon the
determinations then the subject of appraisal. Each General Partner shall
deliver a written notice to the other appointing its appraiser within 15 days
after receipt from the other of a written notice appointing its appraiser.
Each appraiser then shall prepare a written appraisal with respect to the
determinations which then are the subject of appraisal. If within 30 days
after appointment of the two appraisers they are unable to agree upon the
amount in question, a third independent appraiser shall be chosen within
10 days thereafter by the mutual consent of such first two appraisers or, if
such first two appraisers fail to agree upon the appointment of a third
appraiser, such appointment shall be made by the American Arbitration
Association, or any organization successor thereto,
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from a panel of arbitrators having experience in the business of operating a
hydroponic hot house and marketing the product produced therein and a
familiarity with equipment used or operated in such business. The decision of
the third appraiser so appointed and chosen shall be given within 30 days after
the selection of such third appraiser. If three appraisers shall be appointed
and the determination of one appraiser is disparate from the median by more
than twice the amount by which the other determination is disparate from the
median, then the determination of such appraiser shall be excluded, the
remaining two determinations shall be averaged and such average shall be
binding and conclusive on the General Partners; otherwise the average of all
three determinations shall be binding and conclusive on the General Partners.
(For example, if the two appraisers appointed by the General Partners determine
a value of $100 and $200, and the third appraiser determines a value of $150,
then the involved value shall be conclusively determined to be $150 ($100 +
$200 + $150 divided by 3). As a further example, consider the first example
but the third appraiser places a value of $190. In this case, the $100
valuation shall be disregarded and the value shall be conclusively determined
to be $195 ($190 + $200 divided by 2). The $100 valuation is disregarded
because the median of the three appraisers was $190 and the difference between
$100 and $190 is $90, which is more than twice the difference between $200 and
$190 which is $10, which multiplied by two is $20.) If a General Partner shall
appoint an appraiser and the other Person shall fail to appoint an appraiser in
the manner specified herein, the determination of the appraiser so appointed
shall be binding and conclusive on the General Partners. The expenses of the
appraisal procedure shall be borne solely by the Partnership.
"Business Day" means a day other than a Saturday, a Sunday or any other
day on which commercial banks in Pennsylvania, North Carolina or New Jersey are
authorized or required by law or executive order to be closed.
"Buy-Out Offer" has the meaning set forth in Section 11.2.
"Buy-Out Offeree" has the meaning set forth in Section 11.2.
"Buy-Out Offeror" has the meaning set forth in Section 11.2.
"Capital Account" means, with respect to any Partner, the capital account
maintained for such Partner in the Partnership Books in accordance with the
following provisions:
(a) To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of
Profits and any other items in the nature of income or gain which are
allocated under this Agreement.
(b) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of
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any property (other than money) (net of any liabilities assumed by such
Partner or to which the property is subject) distributed to such Partner
pursuant to any provision of this Agreement, and such Partner's
distributive share of Losses and any other items in the nature of
deductions or losses which are allocated under this Agreement.
(c) In the event all or a portion of an interest in the Partnership
is transferred in accordance with the terms of this Agreement in a
transaction that does not result in a termination of the Partnership
under Code Section 708(b)(1)(B), the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the
transferred interest.
(d) In determining the amount of any liability for purposes of
clause (a) and clause (b) hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and the
Regulations.
(e) If a Partner owns more than one Partnership Interest, one
Capital Account shall be maintained for the Partnership Interests of the
Partner.
(f) Each Partner's Capital Account shall in all other respects be
maintained in accordance with the provisions of Regulations Section
1.704-1(b).
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of capital accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations.
"Capital Contribution" means, with respect to any Partner, the amount
of money and the initial Gross Asset Value of any property (other than money)
(net of any liabilities assumed by the Partnership or to which the property is
subject) contributed to the Partnership with respect to any Partnership
Interest held by such Partner pursuant to the terms of this Agreement.
"Capital Lease" means any lease of property, real or personal, which in
accordance with GAAP, would be required to be capitalized on a balance sheet of
the lessee.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Cogentrix GP Designee" has the meaning set forth in Section 6.1(a).
"Cogentrix GP" means Cogentrix of Pocono, Inc., a Delaware corporation.
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"Cogentrix LP" means Cogentrix Greenhouse Investments, Inc., a Delaware
corporation.
"Commonly Controlled Entity" means, with respect to any Person, an entity,
whether or not incorporated, which is under common control with such Person
within the meaning of Section 414(b) or (c) of the Code.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
6 Del.C. Section Section 17-101, et seq., as it may be amended from time to
time and any successor to such Act.
"Depreciation" means, for each fiscal year or other period, an amount
equal to the deprecation, amortization, or other cost recovery deduction
allocable with respect to an asset for such period, except that if the Gross
Asset Value of an asset differs from its adjusted basis for Federal tax
purposes at the beginning of such period, Depreciation shall be an amount which
bears the same ratio to such beginning Gross Asset Value as the Federal income
tax depreciation, amortization or other cost recovery deduction for such period
bears to such beginning adjusted tax basis; provided that if the Federal income
tax depreciation, amortization, or other cost recovery deduction for such
period is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the
Management Committee.
"Equity Funding Date" means the day on which all of the conditions to the
initial drawdown under the Loan Agreement (other than the contributions to the
capital of the Partnership to be made by the Partners under Section 3.2) have
been met and all of the conditions to the closing of the purchase of the
Project under the Purchase Agreement have been met.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means, with respect to any Person, any corporation or
trade or business which is a member of the same controlled group of
corporations (within the meaning of Section
414(b) of the Code) as such Person or is under common control (within the
meaning of Section 414(c) of the Code) with such Person.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States.
"General Partner" means each of Cogentrix GP and VF Delaware and any
Person admitted to the Partnership as an additional General Partner in
accordance with the provisions of this Agreement, until such time as such
Person ceases to be a general partner of the Partnership as provided herein or
in the Delaware Act.
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"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for Federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by agreement of the Partners;
(b) The Gross Asset Value of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as
determined by agreement of the Partners, and in the event the Partners
fail to so agree, as determined by the Appraisal Procedure, as of the
following times: (i) The acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (ii) the distribution by the Partnership to
a Partner of more than a de minimis amount of property as consideration
for an interest in the Partnership if the Management Committee reasonably
determines that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership; and
(iii) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g);
(c) the Gross Asset Value of any Partnership asset distributed to
any Partner shall be the gross fair market value of such asset on the
date of distribution as determined by agreement of the Partners and, in
the event the Partners fail to so agree, as determined by the Appraisal
Procedure;
(d) the Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only
to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m);
provided, however, that Gross Asset Values shall be adjusted to the
extent the Partners agree (and in the event the Partners fail to so
agree, as determined by the Appraisal Procedure) that an adjustment
pursuant to clause (ii) of this definition is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment pursuant to clause (iv) of this definition. If the Gross
Asset Value of an asset has been determined or adjusted pursuant to
clauses (i) and (ii) of this definition or clause (iv) of this
definition, such Gross Asset Value
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shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset; and
(e) the Gross Asset Value of any asset owned indirectly by the
Partnership through a subsidiary partnership shall be determined pursuant
to the terms of the partnership agreement for such subsidiary partnership.
"Indebtedness" means, with respect to any Person, (a) indebtedness of such
Person for borrowed money or for the deferred purchase price of property or of
services (other than obligations under agreements for the purchase of goods and
services in the normal course of business which are not more than 30 days past
due; (b) obligations of such Person under Capital Leases; (c) obligations of
such Person pursuant to interest hedging transactions; (d) obligations of such
Person in respect of letters of credit; (e) obligations of such Person under
direct and indirect guarantees in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise assure a creditor
against loss in respect of, indebtedness or obligations of others of the kinds
referred to in clause (a), (b,), (c) or (d) above (other than endorsements of
negotiable instruments in the ordinary course of business); and (f) any
obligations of such Person or a Commonly Controlled Entity to a Multi-Employer
Plan. For purposes of clarity, "Indebtedness" includes the obligations of the
Partnership to repay amounts borrowed under, and to pay other amounts owing
under, the Loan Agreement.
"Lien" means any mortgage, deed of trust, security interest, pledge,
hypothecation, encumbrance or lien (statutory or other) of any kind or nature
whatsoever (including, without limitation, any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any such
agreement, and the filing of any statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
"Limited Partner" means each of Cogentrix LP and VF and any Person who
becomes a limited partner of the Partnership in accordance with the terms of
this Agreement and is shown as such on the books and records of the
Partnership.
"Loan Agreement" refers to that certain Loan Agreement dated as of March
10, 1997 by and between the Partnership, as the borrower, and First Pioneer
Farm Credit, ACA, as lender, documenting a loan in the principal amount of
$2,200,000 and the construction loan agreement, the promissory note, the
security agreement, the mortgage and all agreements, documents and instruments
executed or delivered in connection therewith and the transactions contemplated
thereby.
"Losses" has the meaning given to it in the definition of "Profits."
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<PAGE> 11
"Managing General Partner" shall initially mean VF Delaware and thereafter
its successors in such capacity as provided in Section 6.1(e) hereof.
"Management and Marketing Agreement" means the Management, Operation,
Maintenance, Marketing and Sales Agreement dated the same date as this
Agreement by and between the Partnership and VF, as it may be amended,
supplemented or otherwise modified and in effect from time to time, pursuant to
which VF will provide management, operation and maintenance services to the
Partnership and will market and sell tomatoes produced by the Partnership at
the Project.
"Management Committee" means the Management Committee of the Partnership
referred to in Section 6.1.
"Multi-Employer Plan" means, with respect to any Person, a Multi-Employer
Plan as defined in Section 3(37) of ERISA to which contributions have been made
by such Person or any ERISA Affiliate and which is covered by Title IV of
ERISA.
"Net Distributable Cash" means for any period, an amount equal to all
cash received by the Partnership during such period, including, but not limited
to, cash from operations, reductions in reserves, casualty proceeds, rebates
and other extraordinary items, less (a) principal, interest and other payments
made under or pursuant to the Loan Agreement or other borrowing, (b) all cash
expenditures of and payments made by the Partnership, and (c) any reserves
established by the Management Committee of the Partnership, and subject to the
limitations on distributions, if any, imposed pursuant to the terms of the Loan
Agreement.
"Nonrecourse Deductions" shall have the meaning set forth in Regulations
Sections 1.704-2(b) and (c). The amount of Nonrecourse Deductions for a
Partnership fiscal year equals the excess, if any, of the net increase, if any,
in the amount of Partnership minimum gain during the fiscal year over the
aggregate amount of any distributions during that fiscal year of proceeds of a
nonrecourse liability that are allocable to an increase in Partnership minimum
gain, determined according to the provisions of Regulations Section 1.704-2(c).
"Operating Budget" means the business plan and budget required to be
provided to the Partnership pursuant to the Management and Marketing Agreement.
"Partner" means any of the General Partners or the Limited Partners.
"Partner Nonrecourse Deductions" shall have the meaning specified in
Regulations Section 1.704-2(i)(2).
"Partnership" means Pocono Village Farms, L.P., the limited partnership
formed pursuant to this Agreement and the filing of
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the Certificate of Limited Partnership with the Delaware Secretary of State.
"Partnership Books" means the books and records maintained by the
Partnership and reviewed within sixty (60) days of each fiscal year end by the
Management Committee, in which records and information relating to the
ownership of the Partnership, the constituency of the Management Committee and
actions taken by the Management Committee or the Partners is maintained,
including but not limited to, a register of the Partners, each Partner's
Capital Account, each Partner's Percentage Interest, actions taken by the
Management Committee and the Partners, and this Agreement and any amendments
hereto.
"Partnership Interest" means, with respect to any Partner, the interest
of such Partner in the Partnership, whether general or limited, at any
particular time, including the rights and obligations of such Partner as
provided in this Agreement and the Delaware Act.
"Partnership Percentage" means, with respect to any Partner, at any time,
the percentage specified as such Partner's "Partnership Percentage" at the time
such Partner was admitted to the Partnership, as adjusted in accordance with
the terms of this Agreement. The initial Partnership Percentages are as
follows:
Cogentrix GP 1%
Cogentrix LP 49%
VF Delaware 1%
VF 49%
"Permitted Liens" means Liens in favor of any Person other than the
Partners or any of their respective Affiliates, that (a) arise in the ordinary
course of business of the Partnership (including, without limitation,
landlord's materialmen's, mechanic's, worker's, repairmen's and employee's
Liens and similar Liens which arise in connection with any tax, assessment,
governmental charge or levy) and (b) do not secure Indebtedness.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Profits" and "Losses" mean, for any period, an amount equal to the
Partnership's taxable income or loss for such period, determined in accordance
with Code Section 703(a) (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code Section 703(a)(1)
shall be included in taxable income or loss), with the following adjustments:
(a) Income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Profits or
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<PAGE> 13
Losses pursuant to this definition shall be added to such taxable income
or loss;
(b) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition shall be subtracted from such taxable income or loss;
(c) gain and loss with respect to the disposition of any Partnership
asset (both directly owned assets and assets owned indirectly through a
subsidiary partnership) shall be computed with respect to the Gross Asset
Value rather than adjusted tax basis of such asset;
(d) in lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing taxable income or
loss, there shall be taken into account Depreciation for such fiscal year
or other period; and
(e) in the event of an adjustment in the Gross Asset Value of any
Partnership asset pursuant to clause (b) of the definition of "Gross
Asset Value" herein, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes
of computing Profits and Losses.
"Project" means the greenhouse commonly known as Mt. Carmel Greenhouse
located on approximately 60 acres of real property in Mt. Carmel, Pennsylvania
and consisting of six greenhouses covering approximately 30 acres, to be
acquired by the Partnership under the Purchase Agreement and thereafter
operated by the Partnership.
"Purchase Agreement" means that certain Contract of Sale dated March 5,
1997 by and between Mt. Carmel Greenhouses, LLC, as seller, and the
Partnership, as the Buyer, and all agreements, documents and instruments
executed or delivered in connection therewith and the transactions contemplated
thereby.
"Regulations" means the temporary, proposed and final regulations under
the Code and any successor provisions thereto.
"Requirement of Law" means, as to any Person, (a) the certificate of
incorporation and by-laws or partnership agreement or other organizational or
governing documents of such Person, and (b) any law, treaty, rule or regulation
or determination of an arbitrator or a court or other Governmental Authority,
in each case applicable to or binding upon such Person or any of its properties
or to which such Person or any of its properties is subject and the violation
of which, or which determination, could reasonably be expected to (i) have a
material adverse effect on the business, operations, properties, condition
(financial or
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otherwise) or prospects of such Person or (ii) materially
adversely affect the ability of such Person to perform its obligations under
the Loan Agreement, the Purchase Agreement or the Management and Marketing
Agreement or any other material agreement to which it is a party.
"Special Disposition Cash Distribution" shall have the meaning given to
such term in Section 5.1 hereof.
"Subsidiary" means with respect to any Person, an Affiliate that is
controlled (directly or indirectly through one or more intermediaries) by that
Person.
"Taxes" means any and all income or gross receipt taxes, franchise taxes,
levies, imposts, duties, assessments, fees, charges and withholdings of any
nature whatsoever, whether or not presently in existence, imposed by any
Governmental Authority.
"VF" means Village Farms, L.L.C., a Delaware limited liability company,
99% of which is owned by Agro Power and 1% of which is owned by VF Delaware.
"VF Delaware" means Village Farms of Delaware, L.L.C., a Delaware limited
liability company, 99% of which is owned by Agro Power and 1% of which is owned
by VF.
"Withdraw" or "Withdrawal", with respect to any Partner, means a Partner
ceasing to be a partner of the Partnership for any reason, whether voluntary or
involuntary, and "Withdrawn", with respect to a Partner, means a Partner who
has ceased to be a partner of the Partnership.
"Withdrawal Date" means the date of the Withdrawal from the Partnership of
a Withdrawn Partner.
1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto, unless otherwise defined therein.
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto, accounting terms not defined in Section 1.1,
and accounting terms partly defined in Section 1.1 to the extent not
defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement, and
section, schedule and exhibit references are to this Agreement unless
otherwise specified.
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ARTICLE II
GENERAL PROVISIONS
2.1 Formation of Partnership. The Partners hereby form and establish a
limited partnership under the terms and provisions of this Agreement and the
provisions of the Delaware Act, and the rights and liabilities of the Partners
shall be as provided inthis Agreement and in the Delaware Act. Concurrently
with the execution of the Agreement by VF Delaware, VF, Cogentrix GP and
Cogentrix LP, VF Delaware and Cogentrix GP have executed and filed with the
Office of Secretary of State of the State of Delaware a Certificate of Limited
Partnership in accordance with Section 17-201 of the Delaware Act, in form and
substance satisfactory to both VF Delaware and Cogentrix GP.
2.2 Name of the Partnership. The name of the Partnership shall be Pocono
Village Farms, L.P., or such other name as the Partners from time to time may
designate.
2.3 Business of the Partnership. The business of the Partnership is to
acquire and operate the Project. In furtherance of its business, the
Partnership shall have and may exercise all the powers now or hereafter
conferred by the laws of the State of Delaware on partnerships formed under the
laws of that state, and shall do any and all things necessary or desirable for
the accomplishment of the above purposes. The Partnership shall engage in no
other business except as permitted by the Management Committee in accordance
with Section 6.2 below. Notwithstanding anything contained in this Agreement
to the contrary, the transactions contemplated by the Loan Agreement and the
Purchase Agreement are hereby authorized and approved and each of the officers
of the Partnership is authorized to take any and all action, including the
execution and delivery of documents and agreements, necessary or appropriate in
connection therewith.
2.4 Registered Office of the Partnership. The Partnership shall maintain
a registered office at, and the name and address of the Partnership's
registered agent in Delaware is, The Corporation Trust Company, 1209 Orange
Street, New Castle County, Wilmington, Delaware 19801.
2.5 Liability of the Partners Generally.
(a) Except as otherwise provided in the Delaware Act, each General
Partner shall have the liabilities of a partner in a partnership without
limited partners to Persons other than the Partnership and the Limited
Partners.
(b) Except as otherwise provided in this Agreement or the Delaware
Act, no Limited Partner (or former Limited Partner) shall be obligated to
make any contribution of capital to the Partnership or have any liability
for the debts and obligations of the Partnership.
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2.6 Office of the Partnership. The Partnership shall maintain an
office and principal place of business in Mt. Carmel, Pennsylvania. The
Partnership shall qualify to do business as a foreign limited partnership in
the State of Pennsylvania. Pursuant to the Management and Marketing
Agreement, the books of account and other records with respect to the
operations of the Partnership shall be maintained at 10 Alvin Court, East
Brunswick, New Jersey 08816. The Partnership shall not have or maintain any
office or other place of business outside of Mt. Carmel, Pennsylvania.
2.7 Duration of the Partnership. The Partnership shall commence on the
date of this Agreement, and shall continue until its termination in accordance
with the provisions of Article X.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Capital Contributions.
(a) VF Delaware shall contribute to the Partnership on execution of
this Agreement by all of the Partners $20 by wire transfer of immediately
available funds to an account designated in writing by the Partnership.
(b) VF shall contribute to the Partnership on execution of this
Agreement by all of the Partners $980 by wire transfer of immediately
available funds to an account designated in writing by the Partnership.
(c) Cogentrix GP shall contribute to the Partnership on execution of
this Agreement by all of the Partners $20 by wire transfer of immediately
available funds to an account designated in writing by the Partnership.
(d) Cogentrix LP shall contribute to the Partnership on execution of
this Agreement by all of the Partners $980 by wire transfer of
immediately available funds to an account designated in writing by the
Partnership.
3.2 Additional Capital Contribution. Upon the satisfaction of or waiver
of the conditions set forth in Section 3.3 hereof, on the Equity Funding Date:
(a) Cogentrix GP shall contribute to the Partnership $5,500;
(b) Cogentrix LP shall contribute to the Partnership $269,500;
(c) VF Delaware shall contributed $5,500 to the Partnership; and
(d) VF shall contribute $269,500 to the Partnership.
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<PAGE> 17
Each such contribution shall be made by wire transfer of immediately available
funds to an account designated in writing by the Partnership.
3.3 Conditions. The obligation of Cogentrix GP and Cogentrix LP to make
the contributions described in Section 3.2 are subject to the satisfaction of
each of the following conditions precedent (except those conditions, if any,
that may be specifically waived in writing by Cogentrix GP or Cogentrix LP, as
appropriate):
(a) The Loan Agreement, the Purchase Agreement and the Management
and Marketing Agreement shall have been executed by all parties thereto.
An original executed copy of the Loan Agreement, the Purchase Agreement
and the Management and Marketing Agreement and all documents and
agreements executed or delivered in connection therewith shall have been
delivered to Cogentrix GP and a copy thereof delivered to Cogentrix LP as
soon as available.
(b) All conditions to the closing of the Loan Agreement and the
Purchase Agreement shall have occurred or been satisfied (other than
evidence that the capital contributions described in Section 3.2 have
been made) and all governmental consents, approvals, permits and licenses
and other agreements, instruments and other deliveries which are required
to be made by any party under the Loan Agreement or the Purchase
Agreement at or prior to the initial funding or closing of the
transactions contemplated by such agreement shall have been delivered or
received. A copy of all such deliveries required to be made by any party
under the Loan Agreement or the Purchase Agreement and other evidence of
the closing of the Purchase Agreement and the Loan Agreement shall be
provided to Cogentrix GP and Cogentrix LP.
(c) The following representations or warranties shall be true and
correct in all respects, and are hereby made to Cogentrix GP and
Cogentrix LP by VF Delaware and VF as an inducement to their making
capital contributions to the Partnership:
(i) Each of VF and VF Delaware (A) is a limited liability
company duly organized, validly existing and in good standing under
the laws of the State of Delaware, the ownership of which is 99% by
Agro Power and 1% by VF (in the case of VF Delaware) or 1% by VF
Delaware (in the case of VF), (B) has full power and authority and
the legal right to incur the obligations provided for in this
Agreement, and (C) has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the
Management and Marketing Agreement.
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<PAGE> 18
(ii) Neither the execution, delivery or performance by VF
Delaware or VF of this Agreement or the Management and Marketing
Agreement, nor compliance by it with the terms and provisions
hereof or thereof, requires the consent or authorization of any
other party (except such as have been duly obtained), or conflicts
or will conflict with or result in a breach or violation of its
charter documents or by-laws or any of the terms, conditions or
provisions of any Requirement of Law applicable to it or its assets
or business.
(iii) It is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(iv) The representations and warranties, if any, of VF
Delaware or VF or any of their respective Affiliates in or pursuant
to the Management and Marketing Agreement are true and correct as
of the date hereof and are hereby deemed to be made to Cogentrix GP
and Cogentrix LP, mutatis mutandis, as if fully set forth herein.
(d) The following representations or warranties shall be true and
correct in all respects, and are hereby made to VF Delaware and VF by
Cogentrix GP and Cogentrix LP as an inducement to their making capital
contributions to the Partnership:
(i) Each of Cogentrix GP and Cogentrix LP (A) is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware, (B) has full power and authority and
the legal right to incur the obligations provided for in this
Agreement, and (C) has taken all necessary action to authorize the
execution, delivery and performance of this Agreement.
(ii) Neither the execution, delivery or performance by
Cogentrix GP and Cogentrix LP of this Agreement, nor compliance by
it with the terms and provisions hereof, requires the consent or
authorization of any other party (except such as have been duly
obtained), or conflicts or will conflict with or result in a breach
or violation of its charter documents or by-laws or any of the
terms, conditions or provisions of any Requirement of Law
applicable to it or its assets or business.
(iii) It is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
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3.4 Interest. No interest shall accrue on any contribution to the
capital of the Partnership.
3.5 Withdrawals of Capital. No Partner shall have the right to withdraw
or to be repaid or returned any capital contributed by it, except as otherwise
provided herein.
3.6 Additional Capital Contributions. Unless otherwise unanimously
agreed by the Management Committee, no Partner shall be required to make any
contribution to the capital of the Partnership other than its capital
contributions set forth in this Article III. If the Management Committee has
agreed that an additional cash contribution to the capital of the Partnership
is to be made but a Partner does not make such contribution as and when
required, then any other Partner may (but shall not be required to), at its
election, either make all or a portion of the cash contribution to the capital
of the Partnership or loan all or a portion of the amount of such
non-contributing Partner's portion of such agreed-upon cash capital
contribution to the Partnership. In the event the Partner elects to make an
additional cash contribution, the Partners' Partnership Percentages shall be
adjusted so that they shall be proportionate to the Partners' total Capital
Contributions. In the event the Partner elects to make a loan, then such loan
shall be on customary terms and conditions, shall be evidenced by a customary
promissory note, and shall provide that (a) the loan shall be repaid in full
together with interest thereon prior to any distribution of cash by the
Partnership to any of the Partners, (b) it shall bear interest at the same rate
of interest as the interest rate then in effect under the Loan Agreement plus
1% per annum and (c) shall comply in all respects with the Loan Agreement.
ARTICLE IV
ALLOCATION OF PROFITS AND LOSSES
4.1 Profits and Losses.
(a) After giving effect to the special allocations set forth in
Sections 4.3, 4.4, 4.5, 4.6, 4.7 and 4.10 hereof, the Partners shall
share Profits and Losses as follows:
(i) Profits shall be allocated among the Partners as follows:
(A) Profits shall first be allocated to the Partners to
offset any prior allocations of Loss made to the Partners
under Section 4.1(a)(ii)(B) hereof which have not previously
been offset.
(B) Thereafter, Profits shall be allocated to the
Partners to offset any prior allocations of Loss made to the
Partners under Section
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4.1(a)(ii)(A) which have not previously been offset.
(C) Thereafter, Profits shall be allocated to VF
Delaware and VF in an amount equal to the cash distributions
pursuant to Section 5.1 theretofore received by VF Delaware
and VF in excess of the cash distributions pursuant to
Section 5.1 theretofore received by Cogentrix GP and
Cogentrix LP, respectively.
(D) Thereafter, Profits shall be allocated among the
Partners in proportion to their Partnership Percentages.
(ii) Losses shall be allocated among the Partners as follows:
(A) Losses shall first be allocated to the Partners in
accordance with their positive Capital Accounts.
(B) Thereafter, Losses shall be allocated to the
Partners in the proportion of their Partnership Percentages.
For Federal income tax purposes, each item of income, gain, loss,
deduction or credit entering into the computation of the Partnership's
taxable income shall be allocated in the same proportion.
(b) The Profits and Losses of the Partnership shall be unanimously
determined by the Management Committee and shall be allocated as
described in Section 4.1(a) (i) at the end of each fiscal quarter, (ii)
upon the transfer of the Partnership Interest of any Partner pursuant to
Article VIII, (iii) upon the Withdrawal of any Partner pursuant to
Article IX, (iv) upon the admission of any Partner to the Partnership
pursuant to Article IX and (vi) at such other times that the Management
Committee may determine.
4.2 Capital Account Balances. Each Partner's Capital Account shall be
maintained in accordance with the principles of applicable Treasury Regulations
promulgated under Section 704(b) of the Code and as otherwise provided in the
definition of "Capital Accounts" and in this Article IV.
4.3 Minimum Gain Chargeback.
(a) Notwithstanding any other provision in this Agreement, if there
is a net decrease in Partnership minimum gain (determined in accordance
with the principles of Regulations Sections 1.704-2(b)(2) and 1.704-2(d))
during any Partnership taxable year, the Partners who would otherwise
have an Adjusted Capital Account Deficit at the
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end of such year shall be specially allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in an
amount and manner sufficient to eliminate as quickly as possible such
Adjusted Capital Account Deficit. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(g). This
subsection 4.3(a) is intended to comply with the minimum gain chargeback
requirements in such Regulation Sections and shall be interpreted
consistently therewith.
(b) Notwithstanding any other provision in this Agreement, if there
is a net decrease in Partnership minimum gain attributable to a partner
nonrecourse debt of the Partnership (within the meaning of Regulations
Sections 1.704-2(b)) during any Partnership fiscal year, each Person who
has a share of the Partnership minimum gain attributable to such
nonrecourse debt of the Partnership, determined in accordance with
Regulation Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to the greater of (i) the portion of such
Person's share of the net decrease in minimum gain of the Partnership
attributable to such nonrecourse debt of the Partnership, determined in
accordance with Regulations Section 1.704-2(i)(b), that is allocable to
the disposition of property of the Partnership subject to such
nonrecourse debt of the Partnership, determined in accordance with
Regulations Section 1.704-2(i)(4), or (ii) if such Person would otherwise
have an Adjusted Capital Account Deficit at the end of such year, an
amount sufficient to eliminate such Adjusted Capital Account Deficit.
Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(i)(4). This
subsection 4.3(b) is intended to comply with the minimum gain chargeback
requirement in such Regulations Section and shall be interpreted
consistently therewith. Solely for purposes of this subsection 4.3(b),
each Person's Adjusted Capital Account Deficit shall be determined prior
to any other allocations pursuant to this Article IV with respect to such
fiscal year, other than allocations pursuant to subsection 4.3(a) hereof.
4.4 Nonrecourse Deductions. Nonrecourse Deductions for any taxable year
shall be specifically allocated among the Partners in proportion to their
Percentage Interests.
4.5 Partner Nonrecourse Deductions. Nonrecourse Deductions attributable
to otherwise nonrecourse debt with respect to which a Partner or a related
person of a Partner described in Regulations Section 1.752-2(c) is the creditor
or otherwise bears the "economic risk of loss" as defined in Regulations
Section 1.752-2(b) shall be allocated to such Partner.
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4.6 Qualified Income Offset. Notwithstanding anything in this Agreement
to the contrary, in the event any Partner unexpectedly receives any
adjustments, allocations or distributions described in paragraphs
(b)(2)(ii)(d)(4), (5) or (6) of Regulations Section 1.704-1, there shall be
specially allocated to such Partner such items of Partnership income and gain,
at such times and in such amounts as will eliminate as quickly as possible that
portion of its Adjusted Capital Account Deficit caused or increased by such
adjustments, allocations or distributions.
4.7 Curative Allocations. The allocations set forth in Sections 4.3,
4.4, 4.5, 4.6 and 4.10 hereof are intended to comply with certain requirements
of Regulations Section, 1.704-1(b). Notwithstanding any other provisions of
this Article IV (other than Sections 4.3, 4.4, 4.5, 4.6 and 4.10), allocations
that have taken place pursuant to Sections 4.3, 4.4, 4.5, 4.6 and 4.10 shall be
taken into account in allocating other items of income, gain, loss, deduction
and credit so that, to the extent possible, the net amount of such other
allocations and the Sections 4.3, 4.4, 4.5, 4.6, and 4.10 allocations to each
Partner shall equal the net amount that would have been allocated to each
Partner if the Sections 4.3, 4.4, 4.5, 4.6, and 4.10 allocations had not
occurred.
4.8 Tax Allocations. Except as provided in Sections 4.7 and 4.9 hereof,
for income tax purposes each item of income, gain, loss and deduction shall be
allocated in the same manner as the corresponding book item is allocated for
Capital Account purposes.
4.9 Property Subject to 704(b) and 704(c). In the case of any
Partnership asset (directly or indirectly owned) the Gross Asset Value of which
differs from its adjusted tax basis, income, gain, loss and deduction with
respect to such asset shall, solely for tax purposes, be allocated in
accordance with the principles of Code Sections 704(b) and 704(c) to take
account of such difference.
4.10 Limitations. Notwithstanding anything to the contrary in this
Article IV, no allocation under this Article IV shall be made to a Limited
Partner that would cause such Limited Partner to have, or that would increase,
an Adjusted Capital Account Deficit. Any amount not allocated as a result of
this limitation shall be reallocated to the General Partners pro rata in
accordance with their relative Partnership Interests.
ARTICLE V
DISTRIBUTIONS
5.1 Distribution of Net Distributable Cash. Subject to Sections 5.2 and
5.3 hereof, Net Distributable Cash for each fiscal quarter shall be distributed
to the Partners within thirty (30) days after the end of such quarter as
follows:
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(a) First, from the date hereof and until December 31, 2000 except
as provided in the proviso hereto, as follows:
Cogentrix GP 1%
Cogentrix LP 14%
VF Delaware 1%
VF 84%
provided, however, that in the event the Partnership sells or otherwise
disposes of the assets described on Schedule 5.1(a) attached hereto, any
cash proceeds from such sale or disposition, net of costs incurred by the
Partnership in connection with such sale or other disposition (including,
but not limited to, transportation, taxes, dismantling, commissions and
counsel fees) shall be allocated and distributed as follows (each cash
distribution from such net cash proceeds is referred to herein as a
"Special Disposition Cash Distribution"): The first $3,500,000 of such
net cash proceeds shall be allocated and distributed to VF and all net
cash proceeds in excess of $3,500,000 shall be allocated and distributed
to the Partners in accordance with the Partners' Partnership Percentages.
(b) Thereafter, 49% to Cogentrix LP, 1% to Cogentrix GP, 49% to VF
and 1% to VF Delaware.
5.2 Default Allocations for Cogentrix. In the event VF Delaware or VF
defaults or breaches any of its obligations under this Agreement or the
Management and Marketing Agreement, and such default or breach has not been
remedied within any applicable cure period, or any representation or warranty
made by VF Delaware, VF or any of their respective Affiliates under this
Agreement or any such other agreement or document proves to have been untrue
when made and (a) as a result thereof the Partnership, Cogentrix GP and
Cogentrix LP (or any of them) incurs or suffers an Adverse Consequence and (b)
Cogentrix GP or Cogentrix LP gives written notice of such Adverse Consequence
to the Partnership and, if the amount thereof is unknown, its good faith
estimate of the amount of such Adverse Consequence, then the Partnership shall
thereafter refrain from making any distributions to VF Delaware and VF (or
either of them) under this Agreement (any such distribution that would have
been made but for this Section 5.2 is hereinafter referred to as a "Blocked
Distribution") and shall take the following steps:
(i) The Partnership shall distribute to Cogentrix GP or Cogentrix LP
from such Blocked Distributions an aggregate amount equal to 100% of any
such Adverse Consequence suffered or actually incurred by Cogentrix GP
and Cogentrix LP or either of them (or, if the amount thereof is not
known, 100% of Cogentrix GP's or Cogentrix LP's written good faith
estimate thereof). Any such distribution made by the Partnership under
this subsection 5.2(i) shall satisfy pro tanto the obligation of the
Partnership to make distributions to VF Delaware and VF (or either of
them) with
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respect to the Blocked Distributions. For the purposes of
this Agreement, any Adverse Consequence suffered or incurred by the
Partnership shall be deemed to have been suffered or incurred, on a
dollar-for-dollar basis, 1% by Cogentrix GP and 49% by Cogentrix LP.
(ii) Upon distribution to Cogentrix GP and Cogentrix LP of 100% of
the aggregate amount of any such Adverse Consequence (or their good faith
estimate thereof) from Blocked Distributions, the Partnership may
thereafter make distributions to VF Delaware and VF under Section 5.1,
unless and until it receives a subsequent notification from Cogentrix LP
or Cogentrix GP under this Section 5.2.
5.3 Default Allocations for VF. In the event Cogentrix GP or Cogentrix
LP defaults or breaches any of its obligations under this Agreement and such
default or breach has not been remedied within any applicable cure period, or
any representation or warranty made by Cogentrix GP or Cogentrix LP under this
Agreement proves to have been untrue when made and (a) as a result thereof the
Partnership, VF Delaware and VF (or any of them) incurs or suffers an Adverse
Consequence and (b) VF Delaware or VF gives written notice of such Adverse
Consequence to the Partnership and, if the amount thereof is unknown, its good
faith estimate of the amount of such Adverse Consequence, then the Partnership
shall thereafter refrain from making any distributions to Cogentrix GP and
Cogentrix LP (or either of them) under this Agreement (any such distribution
that would have been made but for this Section 5.3 is hereinafter referred to
as a "Blocked Distribution") and shall take the following steps:
(i) The Partnership shall distribute to VF Delaware or VF from such
Blocked Distributions an aggregate amount equal to 100% of any such
Adverse Consequence suffered or actually incurred by VF Delaware and VF
or either of them (or, if the amount thereof is not known, 100% of VF
Delaware's or VF's written good faith estimate thereof). Any such
distribution made by the Partnership under this subsection 5.3(i) shall
satisfy pro tanto the obligation of the Partnership to make distributions
to Cogentrix GP or Cogentrix LP (or either of them) with respect to the
Blocked Distributions. For the purposes of this Agreement, any Adverse
Consequence suffered or incurred by the Partnership shall be deemed to
have been suffered or incurred, on a dollar-for-dollar basis, 1% by VF
Delaware and 49% by VF.
(ii) Upon distribution to VF Delaware and VF of 100% of the
aggregate amount of any such Adverse Consequence (or their good faith
estimate thereof) from Blocked Distributions, the Partnership may
thereafter make distributions to Cogentrix GP and Cogentrix LP under
Section 5.1, unless and until it receives a subsequent notification from
VF Delaware or VF under this Section 5.3.
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ARTICLE VI
MANAGEMENT
6.1 Management of the Partnership.
(a) The overall management and control of the business affairs of
the Partnership shall be vested in the Management Committee, subject to
the limitations contained in Section 6.2 or elsewhere in this Agreement.
The Management Committee shall consist of four members, two designated by
Cogentrix GP (each a "Cogentrix GP Designee") and two designated by VF
Delaware (each a "VF Delaware Designee"), and a quorum of the Management
Committee shall require at least three members of the Management
Committee. No action at any meeting may be taken by the Management
Committee unless a quorum is present (acting in person or by proxy). The
Management Committee shall meet not less frequently than quarterly.
Members of the Management Committee may participate in a meeting of the
Management Committee by means of conference telephone. No action may be
taken by the Management Committee with respect to any of the matters
described in Section 6.2 hereof unless such action is in the form of a
writing signed by all members of the Management Committee. Unless
otherwise agreed, all meetings of the Management Committee shall take
place at Cogentrix's offices in Charlotte, North Carolina, Agro Power's
offices in East Brunswick, New Jersey or such other place as the
Management Committee may unanimously agree.
(b) Except as set forth in Section 6.2, any action by the Management
Committee shall require the approval of a majority of the members of the
Management Committee.
(c) Any General Partner may, at any time, replace any of its
respective Designees to the Management Committee with a new Designee and,
upon such change, or upon the death or resignation of any Designee, a
successor shall be designated in writing by the party that appointed the
Designee being replaced.
(d) Any General Partner or member of the Management Committee may,
at any time, request a meeting of the Management Committee by sending
written notice specifying in reasonable detail the purpose(s) of such
meeting to all other Partners and to the members of the Management
Committee at least ten (10) days in advance of the proposed date for the
meeting, which notice may be waived by all members of the Management
Committee and all Partners. Any member of the Management Committee may
propose that an action be submitted to the Management Committee for
approval, and there shall be no requirement of notice of the
issues to be addressed at any meeting of the Management Committee.
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(e) Subject to the provisions of this Section 6.1 and Section 6.2,
the day-to-day management of the business affairs of the Partnership shall be
conducted by the Managing General Partner. The Managing General Partner may be
replaced at any time with any other General Partner by any two members of the
Management Committee.
6.2 Fundamental Matters. The following matters shall require the prior
unanimous authorization and approval of the Management Committee:
(a) Any transaction in which the Partnership (i) acquires, purchases
or leases any asset or right for consideration having a fair market value
in excess of $25,000, (ii) consolidates or merges with or into any other
Person, (iii) sells, assigns, leases or otherwise transfers any asset or
right having a fair market value in excess of $25,000, or (iv) assumes
any liability or obligation in connection with Section 6.2(a)(i) above in
excess of $25,000.
(b) The approval, execution and delivery of any contract, lease or
agreement following the Effective Date; provided, that no such approval
shall be required for (i) any contracts and permit applications in
existence prior to the Effective Date, or (ii) any other contract, lease
or agreement which is expressly non-recourse to the Partners so long as
the amounts to be paid by the Partnership thereunder, together with all
other amounts to be paid by the Partnership pursuant to contracts, leases
or agreements that have not been unanimously approved or ratified by the
Management Committee, does not exceed $50,000 in the aggregate excluding
contracts, leases or agreements for supplies used in the ordinary course
of business and contemplated in the Operating Budget.
(c) The approval, execution or delivery of any amendments to,
modification or termination of, enforcement of rights under, or any
consents or waivers in connection with any contract, lease or agreement,
other than contracts entered into without prior unanimous approval of the
Management Committee pursuant to subsection 6.2(a) or clause (ii) of
subsection 6.2(b) above.
(d) The sale or issuance by the Partnership of any interest, or of
any option, warrant or similar right to acquire any interest, of any kind
in the Partnership.
(e) Any decision to (i) terminate all or any substantial part of the
Project (an "Abandonment") or (ii) engage in any activity not
contemplated by this Agreement.
(f) The incurrence or assumption of any Indebtedness by the
Partnership, except for (i) Indebtedness which, when the principal amount
thereof is aggregated with the
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principal amount of Indebtedness previously incurred pursuant to this
subsection 6.2(f) which remains outstanding, does not exceed $25,000 and
(ii) the Indebtedness represented by the Loan Agreement.
(g) The granting of any Lien (other than Permitted Liens) on the
assets or rights of the Partnership.
(h) The repayment (other than (i) repayments in accordance with
scheduled maturity and (ii) paydowns on the Loan Agreement), voluntary
prepayment or redemption of, or any refinancing or other modification of
the terms of, any Indebtedness.
(i) The adoption and modification of any Operating Budget.
(j) The approval of any expenditure or investment not previously
authorized in any Operating Budget; provided, however, that no such
approval shall be required for any expenditure or investment so long as
the amount expended by the Partnership, together with the amounts of all
other expenditures by the Partnership during any fiscal year that have
not been approved or ratified by the Management Committee, does not
exceed $25,000 in the aggregate.
(k) The initiation of any legal proceedings or arbitration on behalf
of the Partnership, or the settlement of any claim by or against the
Partnership with respect to claims in excess of $25,000 or which include
requests for an injunction, specific performance or other equitable
relief.
(l) The selection, removal, or determination of authority and
responsibility of the officers of the Partnership, general or special
counsel for the Partnership, accountants and auditors for the Partnership
and the Project and the approval of any change in the accounting or tax
policy of the Partnership or the Project.
(m) To the extent not specified in this Agreement, (i) any
distribution of income or any assets or rights of the Partnership or (ii)
the redemption, purchase or other acquisition of any interest in the
Partnership.
(n) Except as contemplated in Article X of this Agreement,
liquidating or dissolving, or proposing to liquidate or dissolve, or
effecting, or proposing to effect, a recapitalization in any form of
transaction, of the Partnership.
(o) (i) Commencing any case, proceeding or other action (A) under
any existing or future law or any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or
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seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for All or any substantial part of its assets;
(ii) making, or proposing to make, a general assignment for the benefit
of its creditors; (iii) admitting or proposing to admit in writing its
inability to pay its debts as they become due; (iv) filing or proposing
to file any plan of reorganization pursuant to 11 U.S.C. Section Section
101 et seq.; (v) taking, or proposing to take, any action in furtherance
of, or indicating its consent to, approval of or acquiescence in, any of
the acts set forth in clause (i) or (ii) above.
(p) Establishing any operating or capital reserves other than those
required by the Loan Agreement.
(q) Establishing committees of the Management Committee and
delegating voting authority to such committees.
(r) The approval, execution or delivery of any amendments to,
modification or termination of, or any waivers of any rights under, or
the grant of any consents under or in connection with the Loan Agreement,
the Purchase Agreement, or the Management and Marketing Agreement.
(s) The approval or taking of any action that would be an event of
default or that would give rise to a right of termination under the
Purchase Agreement, the Loan Agreement or the Management and Marketing
Agreement.
(t) The approval or taking with any action that would give rise to
an event of default under the Loan Agreement or that would give rise to a
right of acceleration or termination under the Loan Agreement.
(u) The reimbursement by the Partnership of any General Partner
under Section 6.4(b) hereof of any amount in excess of $5,000 during any
fiscal quarter.
(v) Any change in or termination of any insurance policies
maintained by the Partnership.
(w) Any agreement to undertake any action that would require the
approval of the Management Committee under this Section 6.2.
(x) Any act in contravention of this Agreement or the Act.
(y) Any act which would make it impossible to carry on the ordinary
business of the Partnership.
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(z) Possession of Partnership property by any Partner, or the
assignment, transfer or pledge of rights of the Partnership in specific
Partnership property for other than a Partnership purpose or other than
for the benefit of the Partnership, or any commingling the funds of the
Partnership with the funds of any other person.
(aa) Any action which would cause the Partnership to be treated as
other than a partnership for Federal income tax purposes.
(bb) Any confession of a judgment against the Partnership or any
Partner.
(cc) The grant of any power of attorney or appointment of any agent
or attorney (other than customs brokers).
(dd) The grant of signature authority to any Person with respect to
any of the Partnership's bank or investment accounts.
(ee) Any sale or other disposition of any assets or rights of the
Partnership to any Partner or to any Affiliate of any Partner which in
any calendar year together with all other such sales or dispositions that
have not been approved under this Section 6.2 exceeds $25,000 in the
aggregate.
6.3 Officers of the Partnership. The Partnership may have such officers
as may be designated by the Management Committee from time to time. Such
officers shall (a) serve at the pleasure of the Management Committee, (b)
subject to Section 6.2 and to the instructions and directions of the Management
Committee, have such powers as are usually exercised by comparable designated
officers of a Delaware corporation and (c) have the power to bind the
Partnership through the exercise of such powers to the extent consistent with
the terms hereof. The initial officers of the Partnership shall be those
persons listed on Schedule 6.3 attached hereto and incorporated herein by
reference. Following the execution hereof, officers shall be appointed or
removed only by action of the Management Committee in accordance with the
provisions of Section 6.1.
6.4 No Compensation; Reimbursement.
(a) Except as expressly provided herein, the General Partners,
members of the Management Committee and officers shall receive no
compensation for performing their duties as General Partners, members of
the Management Committee or officers under this Agreement; provided,
however, that this provision shall not affect any Partners' right to
receive its share of distributions as set forth in Article V hereof.
(b) Subject to the limitation, if any, imposed by the Loan Agreement
and subject to subsection 6.2(u), each General Partner shall be entitled
to receive, out of any
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Partnership funds available therefor, reimbursement of all amounts
expended by such General Partner in payment of properly incurred and
documented Partnership obligations paid by such General Partner out of
its own funds so long as such expenditures are made in accordance with
the Operating Budget.
6.5 Insurance. The Partnership shall (a) maintain, with insurers or
underwriters of good repute, in the name of the Partnership, such insurance
relating to the operations of the Partnership as is customary for comparable
businesses to that of the Partnership to maintain, against such risks and
pursuant to such terms (including deductible limits or self-insured retentions)
as are customary for such businesses, and (b) pay all premiums and other sums
payable in order to maintain such insurance. For purposes of clarity, it is
hereby agreed that the Partnership shall maintain the insurance required by the
Loan Agreement and all insurance policies shall name Cogentrix GP and VF
Delaware as an additional insured and provided that they may not be cancelled
or terminated except with 30 days' prior written notice to Cogentrix GP and VF
Delaware.
6.6 Cooperation on Tax Matters. The Partnership shall cooperate fully as
and to the extent reasonably requested by Cogentrix GP or VF Delaware in
connection with the preparation and filing of any Tax return, statement, report
or form, and any audit, litigation or other proceeding with respect to Taxes
relating to or arising out of the Project. Such cooperation shall include the
retention and, upon request by either Cogentrix GP or VF Delaware, the
provision of records and information that are reasonably relevant to any such
audit, litigation or other proceeding. The Partnership agrees to (a) retain
all books and records with respect to Tax matters pertinent to the Project and
(b) give Cogentrix GP and VF Delaware reasonable written notice prior to
destroying or discarding any such books and records. The Partnership shall
retain any records requested by either Cogentrix GP or VF Delaware to be
retained.
ARTICLE VII
BOOKS, RECORDS AND BANK ACCOUNTS
7.1 Books and Records. In addition to the Partnership Books, the
Partnership shall also keep such books of account and other records with
respect to the operations of the Partnership as will sufficiently explain the
transactions and financial position of the Partnership and enable financial
statements to be prepared in accordance with GAAP and shall cause such books
and other records to be kept in such manner as will enable them to be properly
audited. The Partnership Books and such other books and records shall be
maintained at the principal places of business of the Partnership and all
Partners and their duly authorized representatives shall at all times have
access to and the right to review and copy such books and records.
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7.2 Accounting Basis and Fiscal Year. The books of the Partnership (a)
shall be kept on an accrual basis in accordance with GAAP, (b) shall reflect
all Partnership transactions, (c) shall be appropriate and adequate for the
Partnership's business and for the carrying out of all provisions of this
Agreement, and (d) shall be closed and balanced as of the end of each fiscal
year, as soon as practicable after the end of such fiscal year. The fiscal
year of the Partnership shall be January 1 through December 31 of each year or
such other fiscal year that may be selected with the unanimous approval of the
Management Committee.
7.3 Reports.
(a) Unless otherwise required by the Management Committee, the
Partnership shall cause to be delivered to each Partner, within 120 days
after the end of each fiscal year, an annual report containing the
following:
(i) A balance sheet as of the end of the Partnership's fiscal
year and statements of income, Partners' equity and cash flows for
the year then ended, each of which shall be audited and reported on
by Arthur Andersen & Co. or such other independent certified public
accountants, which shall be a nationally recognized accounting
firm, as may be selected by the Management Committee;
(ii) a general description of the activities of the
Partnership during such year; and
(iii) a report of any material transaction between the
Partnership and any Partner or any of its Affiliates, including
fees and compensation and reimbursements paid by the Partnership
and the products supplied and services performed by such Partner or
any such Affiliate for such fees or compensation and the expenses
so reimbursed; provided, however, that no report shall be required
for any products supplied and services performed if such products
and services are provided pursuant to the terms of a Project
Document, the Management and Marketing Agreement, an agreement
approved by the Management Committee or set out in any Operating
Budget and the compensation therefor is in accordance with the
terms of such agreement.
(b) Within 45 days after the end of each quarter of each fiscal
year, the Partnership shall cause to be delivered to each Partner a
quarterly report containing a balance sheet as of the end of such quarter
and a statement of income for such quarter, each of which may be
unaudited but which shall be certified by the chief financial officer of
the Partnership as fairly presenting the financial position of the
Partnership at the end of such quarter and results of operations of the
Partnership for such quarter and as having been prepared in accordance
with the
- 28 -
<PAGE> 32
accounting methods followed by the Partnership for Federal
income tax purposes and otherwise in accordance with GAAP applied on a
basis substantially consistent with that of the Partnership's audited
financial statements (subject to normal year end adjustments).
(c) Within 120 days of the end of each fiscal year, the Partnership
will cause to be delivered to each Partner all information necessary for
the preparation of such Partner's Federal income tax returns, including a
statement showing such Partner's share of income, gains, losses,
deductions and credits for such year for Federal income tax purposes and
the amount of any distributions made to or for the account of such
Partner pursuant to this Agreement.
7.4 Bank Accounts. The Partnership shall maintain one or more accounts
in one or more banks located in Fort Davis, Texas and such other locations as
may be approved by the Management Committee, each of which shall be a member
the Federal Deposit Insurance Corporation. In addition, the Partnership shall
establish such other accounts and deposit amounts as required by the Loan
Agreement. All such amounts shall be and remain the property of the
Partnership, and shall be received, held and disbursed by the Partnership for
the purposes specified in this Agreement. There shall not be deposited in any
of said accounts any funds other than funds belonging to the Partnership, and
no other funds shall in any way be commingled with such Partnership funds.
7.5 Tax Returns. The Management Committee shall cause income tax
returns for the Partnership to be prepared and timely filed with the
appropriate authorities.
7.6 Tax Elections. The Management Committee shall, from time to time,
make such tax elections as it deems necessary or advisable to carry out the
business of the Partnership or the purposes of this Agreement.
7.7 Tax Matters Partner. Cogentrix GP shall be the Partnership's "tax
matters partner" for purposes of the Code and with respect to all other
Federal, state and local Taxes. The approval of the tax matters partner shall
be required before the Partnership or any Partner (with respect to Partnership
matters) files any document with any Governmental Authority including, but not
limited to, returns, amendments, requests for refunds, appeals, or waivers or
extensions of statutes of limitations. The tax matters partner shall take such
actions as the Management Committee may lawfully require in connection with the
Partnership's Federal, state and local Tax matters.
7.8 Withholdings. Except and only to the extent required by applicable
law and except as permitted hereunder, the Partnership will not deduct or
withhold any amount in respect of any tax from any payment or distribution by
the Partnership to
- 29 -
<PAGE> 33
any Partner unless the Partnership has first received written authorization
from such Partner so to withhold or to deduct.
ARTICLE VIII
TRANSFER OF INTERESTS
8.1 Transfer of a Partner's Interest.
(a) No Partner may sell, transfer, participate, assign or otherwise
dispose of (whether voluntarily or by operation of law) (collectively,
"transfer") all or any part of its Partnership Interest without the prior
written consent of the non-transferring General Partner(s).
(b) The non-transferring General Partner(s) may condition its
(their) consent to any transfer on compliance by the Partner desiring to
transfer its Partnership Interest with all or any of the following:
(i) The transferring Partner must give written notice to the
General Partners identifying in reasonable detail the proposed
transferee(s) and the terms and conditions of the proposed transfer
and the non-transferring General Partner(s) shall have a period of
twenty (20) Business Days from the date of such notice either to
consent in writing to the proposed transferee(s), or to give
written notice that it does not consent to such transferee(s);
(ii) within ten (10) Business Days after the non-transferring
General Partner(s) gives written notice that it does not consent to
a proposed transferee, it shall provide to the transferring Partner
a written explanation of the reasons therefor;
(iii) such transfer does not release the transferring Partner
from its obligations hereunder;
(iv) the transferee shall not have the right to be separately
represented on the Management Committee unless the transferring
Partner is a General Partner that previously had the right to
appoint Designee's to the Management Committee and the transfer
involves all of such General Partner's Partnership Interest;
(v) the non-transferring General Partner(s) shall notify each
other Partner in writing of its decision to consent to the transfer
within five (5) Business Days of its grant of such consent (which
notice shall include a copy of the notice sent to the
non-transferring General Partner(s) by the transferring Partner)
and, prior to any such transfer, each Partner (which term, for
purposes of clarity, includes for purposes of this subsection (v)
the non-transferring
- 30 -
<PAGE> 34
General Partner and excludes the transferring Partner) shall have
the right for thirty (30) Business Days following such notice to
purchase the Partnership Interest being sold by the transferring
Partner pursuant to this Article VIII on the same terms and
conditions as were set forth in such notice. In the event that
none of the nontransferring Partners exercises its right to
purchase such Partnership Interest being sold, then the
transferring Partner shall have forty-five (45) days thereafter to
complete the sale in accordance with the terms of the notice, after
which time the transferring Partner must again comply with the
procedures set forth in this Article VIII. In the event more than
one Partner exercises its right to purchase such Partnership
Interest proposed to be transferred, then such exercising Partners
shall exercise such right on a pro-rata basis based on their
respective Partnership Percentages (without considering the
Partnership Percentage of the transferring Partner or the Partners
(if any) not electing to exercise such right); or
(vi) such transferee shall not have the right to sell,
transfer, participate, assign or otherwise dispose of all or a
portion of such party's Partnership Interest except in accordance
with the terms of this Section 8.1; and
(vii) the transferee shall execute documents
satisfactory to the Management Committee sufficient to make
the transferee a party to and be bound by the terms of this
Agreement and the transferee shall expressly assume all
obligations of the transferring Partner hereunder.
ARTICLE IX
ADDITIONAL PARTNERS; WITHDRAWAL OF PARTNERS
9.1 Additional Partners. Persons other than the undersigned may from
time to time be admitted to the Partnership as General Partners or Limited
Partners only with the unanimous consent of the Management Committee and only
on such terms and conditions as may be prescribed by the Management Committee.
9.2 Withdrawal of Partners.
(a) No Partner may withdraw from the Partnership except as provided
in this Section 9.2.
(b) A Partner shall immediately cease to be a Partner and shall be
deemed to have Withdrawn from the Partnership, in the event:
- 31 -
<PAGE> 35
(i) Such Partner shall commence a voluntary case or other
proceedings seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take
any corporate action to authorize any of the foregoing; or
(ii) an involuntary case or other proceeding shall be
commenced against such Partner seeking liquidation, reorganization
or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period
of sixty (60) days, or an order for relief shall be entered against
such Partner under the federal bankruptcy laws as now or hereafter
in effect; or
(iii) such Partner defaults in its obligation to make a
capital contribution pursuant to Sections 3.1 and 3.2 (and such
default is not cured within two (2) days of written notice of such
default from a General Partner); or
(iv) it is required to Withdraw as a Partner pursuant to the
Delaware Act.
Such Partner's Withdrawal Date shall be the day such Withdrawal occurs.
(c) Any Partner may Withdraw voluntarily from the Partnership on not
less than thirty (30) days' prior written notice by such Partner to the
other Partners either (i) in the event that such Withdrawal is after
April 30, 1997 and conditions to the initial draw under the Loan
Agreement and the closing of the transactions contemplated under the
Purchase Agreement have not been satisfied or (ii) with the prior
unanimous consent of the Management Committee. Such Partner's Withdrawal
Date shall be the date on which a written notice of Withdrawal is made.
(d) Upon the Withdrawal of any Partner pursuant to subsections
9.2(b) or (c), such Partner's Capital Account
- 32 -
<PAGE> 36
and Partnership Percentage shall be allocated, as of the Withdrawal Date,
among the other Partners in proportion to their respective Partnership
Percentages on such Withdrawal Date (it being understood that such
allocation shall not result in a Limited Partner becoming a General
Partner). After its Withdrawal Date, a Withdrawn Partner shall not have
any rights with respect to the profits, capital or affairs of the
Partnership (including, but not limited to, any rights of representation
on the Management Committee or any committee thereof or any rights on
liquidation of the Partnership pursuant to Article X).
(e) On the Withdrawal Date for any Partner that Withdraws pursuant
to Section 9.2(b) or Section 9.2(c)(ii), such Partner shall pay to the
Partnership in cash any negative balance in such Partner's capital
account. If the sum of such Partner's capital account has a positive
balance on the Withdrawal Date, the Partnership shall pay such amount to
such Partner upon its withdrawal.
ARTICLE X
DISSOLUTION AND LIQUIDATION
10.1 Events of Dissolution.
(a) The Partnership shall be dissolved upon:
(i) an Abandonment pursuant to subsection 6.2(e);
(ii) the unanimous consent of the General Partners; or
(iii) at the election of Cogentrix GP, if Agro Power
ceases, at any time, to control (as defined in the definition
of "Affiliate") VF Delaware or VF.
(b) Dissolution of the Partnership shall be effective on the day on
which the event occurs giving rise to the dissolution, but the
Partnership shall not terminate until the assets and rights of the
Partnership shall have been distributed as provided herein.
Notwithstanding the dissolution of the Partnership, prior to the
termination of the Partnership, as aforesaid, the business of the
Partnership and the affairs of the Partners, as such, shall continue to
be governed by this Agreement. Upon dissolution, the Management
Committee shall liquidate the assets of the Partnership and apply and
distribute the proceeds thereof as contemplated by this Agreement.
10.2 Distributions Upon Liquidation.
(a) After payment of liabilities owing to creditors (but excluding
any liabilities payable with respect to the
- 33 -
<PAGE> 37
Management and MarketingAgreement other than amounts then due and owing),
the Management Committee or the liquidator, if any, shall set up such
reserves as it deems reasonably necessary for any contingent or
unforeseen liabilities or obligations of the Partnership (other than
liability and obligation owing with respect to the Management and
Marketing Agreement). Said reserves may be paid over by the Management
Committee or the liquidator to a bank, to be held in escrow for the
purpose of paying any such contingent or unforeseen liabilities or
obligations and, at the expiration of such period as the Management
Committee or the liquidator may deem advisable, such reserves shall be
distributed to the Partners or their assigns in the manner set forth in
subsection (b) below.
(b) If any General Partner has a negative Capital Account at the
time of dissolution of the Partnership, such General Partner shall be
required to restore to the Partnership the amount of the negative balance
in its Capital Account. If any Limited Partner has a negative Capital
Account balance at the time of dissolution of the Partnership, such
Limited Partner shall have no obligation to restore to the Partnership
the amount of the negative balance in its Capital Account.
(c) After paying the liabilities and providing for the reserves
referred to in subsection 10.2(a) and the payment of any restoration
amounts under subsection 10.2(b), the Management Committee or the
liquidator shall, by the end of the Partnership's taxable year in which
the Partnership dissolves (or, if later, within 90 days after the date of
such termination), cause the net assets of the Partnership to be
distributed in accordance with Article V hereof, provided, however, that
no distribution shall be made pursuant to this sentence that creates or
increases a Capital Account deficit for any Partner which exceeds such
Partner's obligation to restore such deficit (under subsection 10.2(b)
above), determined as follows:
Distributions shall be first determined provisionally without
regard to Capital Accounts, and the allocation provisions of
Article IV hereof shall also be applied provisionally. If as a
result of such provisional calculations and allocations, any
Partner would thereby have a Capital Account deficit which exceeds
its obligation to restore such deficit under subsection 10.2(b)
above, the actual distributions pursuant to this subsection (c)
shall be equal to such provisional distribution less the amount of
such excess and actual allocations shall be made in accordance with
Article IV taking into account such actual distributions.
- 34 -
<PAGE> 38
Any remaining net assets shall be allocated among the Partners
in accordance with their positive Capital Accounts.
If such distributions are insufficient to return to any
Partner the full amount of its capital contributions, it shall have
no recourse against any other Partner. Each Partner shall receive
its share of the net assets in cash or in kind, and the proportion
of such share that is received in cash shall be the same for each
Partner. In the event that any part of such net assets consists of
notes or accounts receivable or other non-cash assets, the
Management Committee or the liquidator shall take whatever steps it
deems appropriate to convert such assets into cash or into any
other form which would facilitate the distribution thereof. If any
assets of the Partnership are to be distributed in kind, such
assets shall be distributed on the basis of their fair market
value, as determined by the Management Committee or the liquidator,
if any, acting in its sole discretion.
ARTICLE XI
DISPUTE RESOLUTION
11.1 Arbitration.
(a) In the event a dispute arises between or among any Partners
relating to the terms of this Agreement and any Partner gives written
notice of such dispute to the Management Committee, then each of the
Partners involved in such dispute shall refer the dispute to its senior
management. The senior management of each Partner involved in such
dispute shall meet and confer regarding the resolution of the dispute.
In the event a resolution of such dispute is not reached within 30 days
of the written notice, then any of the Partners involved in such dispute
may submit the dispute to arbitration in accordance with Section 11.1(b).
(b) Arbitration of disputes pursuant to this Section 14.1(b) shall
be held in Charlotte, North Carolina under the commercial arbitration
rules of the American Arbitration Association, and shall be heard by
three arbitrators selected in accordance with such rules. Each
arbitrator shall have at least five years experience in the United States
in a profession or professions related to the subject matter involved in
the dispute and shall not be a past or present officer, director or
employee of, or have any interest in or material relationship with, any
Partner or any Affiliate of any Partner. Any arbitral award shall be
final and binding and may be entered by any Partner in any state or
Federal court having jurisdiction thereof. Costs of arbitration
(including reasonable attorney's fees and
- 35 -
<PAGE> 39
costs) shall be paid either equally by the parties to the arbitration or
in accordance with the decision of the arbitrators.
11.2 Buy/Sell Option.
(a) In the event that the Management Committee is unable to reach a
unanimous decision with respect to any matter set forth in Section 6.2,
either of the General Partners (such Partner herein referred to as a
"Buy-Out Offeror") shall have the right to make a written offer to buy (a
"Buy-Out Offer") all (but not less than all) of the Partnership Interests
of the other General Partner and its Affiliates. The Buy-Out Offer shall
be at a price determined in accordance with the Appraisal Procedure (the
"Aggregate Purchase Price") which shall be payment for all of the assets,
liabilities and business of the Partnership, and the amount to be paid to
any selling Partner under this Section 11.2 shall be equal to the amount
such selling Partner would receive if all the assets, liabilities and
business of the Partnership were sold at the Aggregate Purchase Price on
the date the Buy-Out Offer was made and the Partnership were then
immediately dissolved in accordance with Section 10.2. The General
Partners hereby agree to use their best efforts to cause the Appraisal
Procedure to be completed within ninety (90) days after it has been
initiated. The General Partner receiving a Buy-Out Offer (a "Buy-Out
Offeree") shall, within 30 days of the determination of the Aggregate
Purchase Price in accordance with the Appraisal Procedure, either (a)
accept the Buy-Out Offer on behalf of itself and its Affiliates who own
Partnership Interests or (b) agree to purchase all (but not less than
all) of the Partnership Interests of the Buy-Out Offeror and its
Affiliates upon the foregoing terms and using the same Aggregate Purchase
Price as was determined in accordance with the Appraisal Procedure to
determine the amount owing to each selling Partner. The failure of any
Partner receiving a Buy-Out Offer to respond to such Buy-Out Offer within
such 30-day deadline of its receipt thereof, either agreeing to accept
such Buy-Out Offer on behalf of itself and its Affiliates or by agreeing
to purchase all (but not less than all) of the Partnership Interest of
the Buy-Out Offeror and its Affiliates on the foregoing terms, shall
constitute (without any further action by the Buy-Out Offeror, the
receiving General Partner or any other Partner) an irrevocable acceptance
of such Buy-Out Offer by the receiving General Partner binding on and
enforceable against such General Partner and its Affiliates.
(b) Any purchase of Partnership Interests required pursuant to
subsection 11.2(a) shall be made through the redemption of such
Partnership Interests by the Partnership; provided, however, that if such
redemption is prohibited by the Loan Agreement, such purchase shall be
made directly by the purchasing General Partner. The closing date for
any
- 36 -
<PAGE> 40
such purchase shall be on the date set by the purchasing General
Partner which may be at any time within 180 days of the acceptance of a
Buy-Out Offer or agreement to purchase, as the case may be. In the event
the purchasing General Partner does not close the purchase within such
180-day period, then the purchasing General Partner's right to purchase
Partnership Interests under Section 11.2(a) shall at the close of
business on such 180th day terminate and the other General Partner shall
thereafter have the right to purchase the Partnership Interests of the
purchasing General Partner and its Affiliates at a price determined by
using the same Aggregate Purchase Price and such other General Partner
shall have 180 days immediately following the expiration of the initial
180 day period in which to close such purchase. The price to be paid to
each selling Partner shall be paid by the purchasing General Partner in
immediately available funds at the closing.
ARTICLE XII
MISCELLANEOUS
12.1 Distributions and Notices. Distributions hereunder shall be sent,
and notices required or permitted hereunder shall be in writing and shall be
sent, to the address set forth for each Partner in signature pages hereof, or
at such other address as may be supplied by written notice given in conformity
with the terms of this Section 12.1. Notices to the Management Committee shall
be sent care of all Partners who have a right to designate members of the
Management Committee. Any notice required or permitted under this Agreement
shall be in writing and shall be deemed to have been duly given and/or
delivered (a) when personally delivered, (b) when sent by telefax and receipt
is acknowledged via telephone or otherwise as confirmation of such receipt but
only if the sender obtains a printed confirmation of the receipt by the
recipient of the entire document, (c) the second day following the day on which
the same has been delivered prepaid to a reputable overnight courier service
providing proof of receipt but only if sent for next business day delivery or
(d) five (5) days after the deposit in the United States mails, registered or
certified, return receipt requested and postage prepaid, in each case addressed
to the party to whom such notice is to be given at the address set forth on the
signature pages hereof), or at the most recent address(es) specified by written
notice given to the other party in the same manner provided in this section;
provided, however, that notice of an address change shall not be effective
until actually received. Distributions shall be deemed given only upon the
receipt thereof by a Partner.
12.2 Disclosure Obligations. The Partnership hereby covenants and agrees
for the benefit of Cogentrix GP and VF Delaware that it shall (a) notify
Cogentrix GP and VF Delaware of any material fact necessary in order to make
any of the representations, warranties or other statements made by it in the
Loan Agreement, the Purchase Agreement or the Management and
- 37 -
<PAGE> 41
Marketing Agreement, or any other written statement provided to Cogentrix
GP or VF Delaware not misleading and (b) disclose in writing to Cogentrix
GP and VF Delaware any fact which materially adversely affects, or which could
reasonably be expected in the future to materially adversely affect Cogentrix
GP, VF Delaware or the Project, in each case under clause (a) or (b) above
promptly upon receiving knowledge of any such fact.
12.3 Successors and Assigns. Subject to the restrictions on transfer set
forth herein, this Agreement, and, each and every provision hereof, shall be
binding upon and shall inure to the benefit of the Partners, their respective
successors, successors-in-title, heirs and assigns, and each and every
successor-in-interest to any Partner, whether such successor acquires such
interest by way of gift, purchase, foreclosure or by any other method, shall
hold such interest subject to all of the terms and provisions of this Agreement.
12.4 Amendments. This Agreement may not be released, discharged, amended
or modified in any manner except by an instrument in writing signed by a duly
authorized officer of each party hereto.
12.5 Partition. The Partners hereby agree that no Partner, nor any
successor-in-interest to any Partner, shall have the right while this Agreement
remains in effect to have the property of the Partnership partitioned, or to
file a complaint or institute any proceeding at law or in equity to have the
property of the Partnership partitioned, and each Partner, on behalf of itself,
its successors, representatives, heirs and assigns, hereby waives any such
right. It is the intention of the Partners that during the term of this
Agreement, the rights of the Partners and their successors-in-interest, as
among themselves, shall be governed by the terms of this Agreement, and that
the right of any Partner or successor-in-interest to assign, transfer, sell or
otherwise dispose of its interest in the Partnership shall be subject to the
limitations and restrictions of this Agreement.
12.6 No Waiver. No waiver of any right under this Agreement shall be
deemed effective unless contained in a writing signed by the party charged with
such waiver. The failure of any Partner to insist upon strict performance of a
covenant hereunder or of any obligation hereunder, irrespective of the length
of time for which such failure continues, shall not be a waiver of such
Partner's right subsequently to demand strict compliance. No consent or waiver
to or of any branch or default in the performance of any obligation hereunder,
shall constitute a consent or waiver to or of any other breach or default in
the performance of the same or any other obligation hereunder.
12.7 Entire Agreement. This Agreement constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof and
supersedes any and all prior and contemporaneous written or verbal agreements,
understandings,
- 38 -
<PAGE> 42
promises and representations made by either party to the other
concerning the subject matter hereof and the terms applicable hereto.
12.8 Captions. Titles or captions of articles, sections and subsections
contained in this Agreement are inserted only as a matter of convenience and
for reference, and in no way are intended to define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
12.9 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall for all purposes constitute one
Agreement, binding upon the Partners notwithstanding that all Partners may not
have signed the same counterpart.
12.10 Applicable Law. This Agreement shall be deemed to have been
entered into and shall be construed and enforced in accordance with the laws of
the State of Delaware as applied to contracts made and to be performed entirely
within Delaware.
12.11 Severability. If any provision of this Agreement is or becomes or
is deemed invalid, illegal or unenforceable in any jurisdiction, (a) such
provision shall be construed or deemed amended to conform to applicable laws
so as to be valid and enforceable, or, if it cannot be so construed or deemed
amended without materially altering the intention of the parties hereto, it
shall be stricken, (b) the validity, legality and enforceability of such
provision will not in any way be affected or impaired thereby in any other
jurisdiction and (c) the remainder of this Agreement shall remain in full force
and effect.
[This space intentionally left blank.]
- 39 -
<PAGE> 43
IN WITNESS WHEREOF, the Partners have executed this Agreement as of the
date first above mentioned.
COGENTRIX OF POCONO, INC.,
as General Partner
By /s/ Thomas F. Schwartz
-------------------------------
Printed Name: Thomas F. Schwartz
Title: Vice President - Finance
and Treasurer
Address for Notices:
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attention: General Counsel
Address for Distributions:
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attention: Treasurer
VILLAGE FARMS OF DELAWARE, L.L.C.,
as General Partner
By: Agro Power Development, Inc.,
Managing Member
By /s/ J. Kevin Cobb
-------------------------------
Printed Name: J. Kevin Cobb
Title: Vice President
Address for Notices:
10 Alvin Court
East Brunswick, New Jersey 08816
Attention: Chief Financial Officer
Address for Distributions:
10 Alvin Court
East Brunswick, New Jersey 08816
Attention: Chief Financial Officer
- 40 -
<PAGE> 44
COGENTRIX GREENHOUSE INVESTMENTS,
INC., as Limited Partner
By /s/ Thomas F. Schwartz
--------------------------------
Printed Name: Thomas F. Schwartz
Title: Vice President - Finance
and Treasurer
Address for Notices:
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attention: General Counsel
Address for Distributions:
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attention: Treasurer
VILLAGE FARMS, L.L.C.
By: Agro Power Development, Inc.,
Managing Member
By /s/ J. Kevin Cobb
--------------------------------
Printed Name: J. Kevin Cobb
Title: Vice President
Address for Notices:
10 Alvin Court
East Brunswick, New Jersey 08816
Attention: Chief Financial Officer
Address for Distributions:
10 Alvin Court
East Brunswick, New Jersey 08816
Attention: Chief Financial Officer
- 41 -
<PAGE> 45
Schedule 5.1(a)
Greenhouse Assets to be Sold
----------------------------
The buildings shown as 2, 3, 4 and 5 on the attached Annex 1
<PAGE> 46
Schedule 6.3
Initial Officers of the Partnership
-----------------------------------
Name Title
- ---- -----
Michael A. DeGiglio President
Thomas F. Schwartz Vice President
J. Kevin Cobb Vice President
Lawrence J. Howard Treasurer
Dennis W. Alexander Secretary
Lori T. Hladik Assistant Secretary
Eilene M. Beck Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COGENTRIX
ENERGY, INC.'S CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 118,973
<SECURITIES> 0
<RECEIVABLES> 59,921
<ALLOWANCES> 0
<INVENTORY> 18,086
<CURRENT-ASSETS> 198,770
<PP&E> 708,124
<DEPRECIATION> 181,778
<TOTAL-ASSETS> 865,294
<CURRENT-LIABILITIES> 102,240
<BONDS> 645,649
0
0
<COMMON> 130
<OTHER-SE> 58,886
<TOTAL-LIABILITY-AND-EQUITY> 865,294
<SALES> 267,772
<TOTAL-REVENUES> 277,711
<CGS> 205,494
<TOTAL-COSTS> 205,494
<OTHER-EXPENSES> 68,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,527
<INCOME-PRETAX> (37,695)
<INCOME-TAX> (14,404)
<INCOME-CONTINUING> (23,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 703
<CHANGES> 0
<NET-INCOME> (23,994)
<EPS-PRIMARY> (85.09)
<EPS-DILUTED> (85.09)
</TABLE>
